2017 ANNUAL REPORT
A WORLD
OF SOLUTIONS
Net Sales
(in millions)
0
9
8
,
7
$
3
1
5
,
7
$
8
1
5
,
7
$
6
3
3
,
7
$
9
7
6
,
7
$
Income from
Operations (EBIT)1
(in millions)
6
6
4
$
5
4
4
$
4
7
3
$
2
3
3
$
1
2
3
$
Diluted EPS1
(in millions)
Free Cash Flow1
(in millions)
8
1
.
5
$
2
8
.
4
$
8
1
.
4
$
3
9
.
3
$
0
8
.
3
$
8
0
3
$
2
8
2
$
1
6
2
0 $
3
2
$
13
14
15
16
17
13
14
15
16
17
13
14
15
16
17
13
14
15
16
17
8
2
1
$
Financial Highlights
Year Ended December 31,
(Dollars in millions except for diluted EPS, financial leverage ratio, and percentages)
Net sales
Income from operations (EBIT) 1
Net income attributable to WESCO International, Inc. 1
Diluted EPS 1
Diluted share count
Free cash flow 1
Free cash flow as a % of net income 1
Total debt, including debt discount and debt issuance costs
Financial leverage ratio 2
Stockholders’ equity 1,3
ROIC 1
2013
2014
2015
2016
2017
$ 7,513
$ 7,890
$ 7,518
$ 7,336
$ 7,679
445
254
4.82
52.7
308
121%
1,662
3.2
1,765
9.9%
466
276
5.18
53.3
230
84%
1,586
3.0
1,928
10.0%
374
211
4.18
50.4
261
125%
1,665
3.8
1,774
7.8%
332
184
3.80
48.3
282
154%
1,403
3.5
2,046
7.5%
321
190
3.93
48.4
128
67%
1,363
3.5
2,224
6.9%
1 Non-GAAP financial measures are defined and reconciled on pages 90 and 91. 2013 excludes the impact of a litigation matter. 2016 excludes the loss related to the redemption of the
6.0% Convertible Senior Debentures due 2029. 2017 excludes the income tax expense related to the application of the Tax Cuts and Jobs Act of 2017.
2 Financial leverage is calculated by dividing total debt, excluding debt discount and debt issuance costs, by earnings before interest, taxes, depreciation and amortization (EBITDA),
excluding the impact of a litigation matter in 2013.
3 As described in Note 2 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2017, the Consolidated Balance Sheet at
December 31, 2016 was revised to correct certain financial statement line items, including stockholders’ equity.
Portfolio
8%
10%
12%
15%
15%
40%
PRODUCT CATEGORIES
General Supplies
Communications & Security
Wire, Cable & Conduit
Lighting & Sustainability
Electrical Distribution & Controls
Automation, Controls & Motors
5%5%
20%
75%
GEOGRAPHIES
United States
Canada
Rest of World
2017 Annual Report | A World of Solutions 1
A WORLD OF SOLUTIONS
WESCO is much more than a typical distributor – we’re an industry-leading
provider of supply chain solutions, bringing an extensive array of value-
added services and technical expertise to our customers every day.
These capabilities, enabled and amplified by the “extra-effort” culture of
our 9,100 employees, are a key differentiator and a competitive advantage.
For our customers, our services and expertise help them operate their
businesses, reduce their costs, and better plan and manage their projects.
For WESCO, they support the majority of our product sales and provide us
the opportunity to command higher margins than the industry average.
2 WESCO International, Inc.
To Our Shareholders,
Employees, and
Business Partners
OUR RESULTS
SUPPLY CHAIN SOLUTIONS COMPANY
Returning to sales growth was our top priority in 2017, and our
WESCO team delivered on this expectation. Growth was broad-
based, with all of our end markets and geographies posting
sales increases. Our momentum increased throughout the year,
culminating in double-digit organic sales growth in the fourth
quarter and a record-level backlog entering 2018. Executing our
One WESCO sales growth initiatives, investing in our growth
priorities, providing customer value through our differentiated
services offerings, and improving end markets fueled our top-line
results and enabled us to outperform our industry.
Our bottom line also returned to growth as we posted year-over-
year increases in net income and earnings per share, although our
operating profit was down. In 2018, we expect profitable growth
as the operating leverage increases in our business, a hallmark of
WESCO when performing in a growth mode.
WESCO is also recognized for our ability to generate strong free
cash flow across all phases of the economic cycle. We maintained
our working capital turnover ratios in 2017, but our free cash
flow generation was below our target and historical performance
due to the impact of double-digit sales growth increasing our
accounts receivable in the fourth quarter. Despite this, we returned
$100 million to shareholders via share repurchases, repaid
$40 million of debt, and ended the year with financial leverage
within our target band.
A World of Solutions has been the theme of our annual report for the
past three years, as we believe it fittingly describes our efforts and
successes in developing an increasingly efficient, capable, services-
focused supply chain solutions company. Highlights that have
enabled us to meet the needs of our customers and drive value for
our shareholders include:
Developing technical expertise in emerging growth areas with
great potential, including electrification, automation and controls,
alternative energy, and Internet of Things (IoT) applications.
Increasing our focus on solid state lighting growth, including
retrofitting the vast North American installed lighting base with
energy-efficient LED technology through organic investment and a
strategic acquisition in 2015.
Right-sizing the organization in 2015 and 2016 by eliminating
1,000 positions and exiting or consolidating 40 branches.
Expanding our non-residential construction presence and
capabilities with three regional acquisitions in 2015 and 2016 (Hill
Country, Needham Electric, and Atlanta Electrical Distributors).
Adding new supply chain solutions to our services portfolio, along
with additional technical sales specialists to help our customers
identify opportunities and specify solutions, thus strengthening
our customer value proposition.
Investing to expand our digital offerings to drive customer
adoption, retention, and value.
Continuing our One WESCO initiatives to increase the scope of
products and services we provide to our customers.
A World of Solutions also aptly describes the powerful combination
of WESCO’s product and service offerings, supplier relationships,
geographic footprint, and technical expertise that we have brought
together over the last two decades. Delivered with a strong culture
of customer service excellence, cost control and lean continuous
improvement, they result in customized supply chain solutions that
bring tremendous value to our customers.
This is WESCO’s competitive advantage. It enables us to attract and
retain loyal customers and differentiates us from both traditional
and online competitors. In the following pages, we provide a few
examples that demonstrate the range of our capabilities and the
outstanding results we deliver.
OUR BUSINESS
We are a leading electrical and industrial distributor in North
America, supplying over one million products to 70,000 customers,
including a majority of the Fortune 500 companies.
Our focus is on building scale and profitability through organic
growth and acquisitions, while continuing to expand the supply
chain solutions and service offerings we deliver to our customers.
We operate in highly fragmented markets, providing us with
opportunities to increase share and play a consolidator role.
Increased scale brings stronger customer and supplier relationships
and, consequently, greater profitability and the ability to invest for
future growth.
Across the value chain, our customers are driving consolidation
and outsourcing, while suppliers are looking for stronger channel
partners to generate demand for their products. This will result in
a smaller number of larger relationships on both ends of our value
chain, and WESCO is well positioned to benefit from this trend.
OUR VALUES AND OUR CULTURE
WESCO’s 9,100 employees are the key to our results and our
“extra-effort” culture. I am very proud of those who made personal
sacrifices and spent many long days serving our customers’ needs
before, during, and after Hurricanes Harvey, Irma, and Maria, as
well as the wildfires in the western United States. Once again, our
industry-leading service value proposition was clearly on display as
we provided 24-7 support to our customers and their operations.
We continue to invest in developing our workforce, with programs
such as mentoring, military veteran recruiting, and WESCO
University training. We are also increasing the use of best-in-class
processes and tools and are sharpening our focus on execution.
Social and environmental responsibility is another core WESCO
focus. In 2017, we published a comprehensive WESCO Sustainability
Report, detailing our initiatives to protect the environment,
promote diversity and inclusion, contribute to our communities, and
ensure good corporate governance. We also help our customers’
sustainability efforts to improve their operations in lighting, energy
2017 Annual Report | A World of Solutions 3
management, renewable energy, water and waste mitigation,
and green procurement. Consistent with our lean culture, we are
measuring our progress, seeking improvement opportunities, and
reporting on our performance.
OUR FUTURE
We enter 2018 with positive momentum and expect continued
end market growth and market outperformance. The sweeping
tax reform enacted by the U.S. in late 2017, coupled with ongoing
regulatory rationalization, is encouraging companies to increase
or accelerate their capital investments. In the U.S., the federal
government has initiated a review of required infrastructure
investments, and Canada’s 10-year public/private infrastructure
investment program is well underway. With roughly half of our
business driven by capital projects, increased customer capital
spending provides significant opportunities for future growth.
We remain focused on what we can control — our strategy, our
investments, our team, and our execution. Our competitive
differentiation includes an array of service offerings supporting
our product sales. Across the value chain, as the consolidation
and outsourcing trends continue, we are poised to benefit from
new and emerging growth opportunities in our industry, including
digitization, electrification, and IoT applications. We continue to
strengthen our team, appointing a new U.S. leader and senior level
managers to our sales and supply chain functions to help us deliver
continued growth while expanding margins. We expect these
actions will sustain our profitable growth in the years to come.
OUR COMMITMENTS
To our customers, thank you for your business. We are committed
to creating value in your operations to enable you to perform at the
highest level. We plan to exceed your expectations in 2018.
To our employees, thank you for your dedication, engagement,
and extraordinary effort in providing outstanding service to our
customers and delivering our competitive advantage.
To our suppliers, thank you for your support and ongoing
partnership. Together, we look forward to excelling in 2018.
To our shareholders, thank you for your continued investments and
confidence. We are committed to continually strengthening our
business and increasing shareholder value.
John Engel
Chairman, President, and Chief Executive Officer
4 WESCO International, Inc.
With over 50 distinct service offerings for customers of all
sizes and industries, our four categories of solutions include:
SUPPLY CHAIN
SOLUTIONS
CAPITAL PROJECT
SOLUTIONS
CUSTOMIZED
PRODUCT SOLUTIONS
TECHNICAL EXPERT
SOLUTIONS
Customized sourcing,
procurement, demand
and inventory
management,
warehousing, and
logistics solutions that
improve efficiencies,
remove waste, and
provide tangible
savings.
Project and material
management solutions
to increase labor
productivity, while
reducing project costs
and risks.
Assembly of electrical,
wiring, and other
components into kits,
sub-assemblies, and
products to simplify our
customers’ operations
and enable them to
focus on their core
capabilities.
Helping our customers
identify opportunities
and define, purchase,
and implement the
right solutions to make
their operations more
cost-effective, efficient,
and reliable.
Our focus on driving value for our customers and
our “extra effort” culture are the foundation of WESCO.
We are pleased to present a few examples of our work
in 2017 to bring our supply chain solutions and
customer-focused culture to life.
2017 Annual Report | A World of Solutions 5
WINNING CAPITAL PROJECTS
WITH TECHNOLOGY, SUPPLY CHAIN
CAPABILITIES, AND EXPERIENCE
A global customer familiar with WESCO’s capital project
capabilities didn’t hesitate to directly award part of its $300
million capital project to WESCO.
The customer sole-sourced the medium and low-voltage cable,
cable tray, lighting, distribution equipment, and consumables
portion of the project from WESCO, leveraging existing pricing
and terms and conditions. It also eliminated the cost and time
to bid our scope of work.
In doing this, the customer recognized the strength of WESCO’s
capital projects value proposition, including:
A dedicated project team with decades of capital projects
expertise and industry knowledge;
A network of approximately 500 branch locations, which
enables WESCO to serve multiple locations in numerous
states and countries with our extensive branch infrastructure;
Inventory located close to the construction site and delivered
just-in-time based on the construction schedule, increasing
craft productivity; and
Significantly reduced surplus at the end of the project.
WESCO’s portion of the project was coordinated and reported
using our proprietary material management software, which
was specifically designed for capital projects. Called RPM
(short for Remote Project Management), WESCO’s project
management system is web-based and provides real-time
information on project activity. “A large project can have
an end user, an engineering firm, a general contractor and
sub-contractors, with many employees who are all in different
geographies,” explained Les Kebler, Vice President and General
Manager, International. “RPM provides a single information
source for project activity.”
On this project, WESCO provided material take-offs and
technical support, helping the customer develop specifications,
consider various cost alternatives, and ensure that lead times
met project requirements. We used an existing WESCO branch
to provide local inventory support, including material staging
and kitting, for just-in-time delivery. We also staged on-site
trailers to make high-volume products readily available.
“ WESCO’s unique combination of
technology, supply chain capabilities,
and experience delivers proven
results that lower costs and mitigate
risks on large capital projects.”
Les Kebler, Vice President and General Manager,
International
6 WESCO International, Inc.
DELIVERING QUICK WINS
A single plant’s request for a lighting audit turned into millions
of dollars of additional projects for WESCO and significant
energy and maintenance savings for our customer.
In late 2016, a global customer turned to WESCO to help
identify lighting improvement and savings opportunities at
one of their U.S. plants. WESCO’s sales and technical experts
presented a proposal to convert the existing lamps and fixtures
to an LED solution, while also specifying the fixture type and
control system that best met the facility’s needs. This solution
minimized the number of light fixtures while improving lighting
coverage, visibility, and safety.
The customer also asked WESCO to manage the project. Using
a process developed by WESCO to move an opportunity from
concept to completion, we were able to ensure delivery of the
planned solution and help ensure that targeted savings were
achieved. WESCO worked with the customer to select the
installers and manage their work, while conducting weekly
project management meetings.
The project enabled the plant to reduce its energy usage,
maintenance labor, and material cost, generating an internal
rate of return of more than 30%. The new lighting also ensured
compliance with OSHA illumination-level standards for safe
workplaces.
“ Since this initial project, the customer
and WESCO have repeated this
winning formula to address many
more savings opportunities. In 2018,
we are working together to expand
our efforts beyond the lighting
category, driving more savings for
our customer and sales and profit
for WESCO.”
John Kostecka, WESCO Account Executive
2017 Annual Report | A World of Solutions 7
“ This tailored and comprehensive
solution has grown our business
substantially. It has given WESCO
access to other product lines to truly
drive a One WESCO solution for this
group of customers.”
Nelson Squires, Group Vice President and General Manager,
Canada and International
DIGITALLY CONNECTING
ALL OF CANADA
Canada has announced plans to more than double its existing
infrastructure spending, targeting a C$180 billion-plus
investment over the next 10 years in combined public and
private investment. Championed by Prime Minister Justin
Trudeau, work is underway on some of these infrastructure
initiatives.
These investments include reaching all of Canada (spanning
3.8 million square miles: second only to Russia in total land
mass) with fiber optic cable. WESCO Canada and its TVC
business have been focused on bringing solutions to the
telecom industry, which is charged with this ambitious build
out. While the telecom companies are successful businesses
with significant infrastructure, they sought out partners for
help in managing such a large task. This is where WESCO
stepped in.
No other distributor can match WESCO’s branch network and
capabilities across the country. Utilizing our point-of-use
software, we can bring an array of services — including vendor-
managed inventory, lean programs, project staging, tailored
delivery schedules, carrier selection, feed-the-job delivery
programs, and local and remote storage plans —
to the telecoms across Canada.
8 WESCO International, Inc.
DEALING WITH DISASTER:
THE HURRICANES OF 2017
The 2017 Atlantic hurricane season was one of the
most active and destructive ever recorded. Over
a four-week period in August and September,
hurricanes Harvey, Irma, and Maria pounded
southeastern Texas, Florida, Puerto Rico, and the
Caribbean, making lasting impacts.
Capitalizing on the deep expertise in our branch
network, we sent teams of experienced personnel
from 15 states as first responders to the impacted
communities. There, working with our Global
Supply Chain team and our local branches, they
provided a wide variety of needed products and
services for our customers and their employees.
WESCO’s customer service focus was on full
display before, during, and after the storms.
“Extra effort” is ingrained in our culture, helping
to drive sales and form lasting relationships.
HARVEY: RECORD-BREAKING RAINFALL
In nine days, Hurricane Harvey dropped up to 60 inches of rain
on parts of southeastern Texas. As with hurricanes Matthew
(2016) and Sandy (2012), WESCO was ready to serve. Our Utility
Group worked extensively with all of our utility customers
to prepare for the storm, and to restore power to millions
of Texas Gulf Coast area homes and businesses in Harvey’s
aftermath. As the storm approached, our new One WESCO
Dallas Distribution Center played a vital role in stockpiling and
coordinating the delivery of storm recovery supplies. It also
served as the hub for procuring perishable and non-perishable
food, home generators, and other supplies to meet the
immediate needs of our customers’ employees as well as our
own employees.
It didn’t take long for customers around the region to realize
they could rely on WESCO to help them recover from the
devastation. “Customers told us that no other distributor
could have done what WESCO did,” recalls Jim Cameron, Vice
President and General Manager, Utility. “They recognize that we
have a large array of resources and capabilities that we can draw
on at a moment’s notice. WESCO has many large customers
in the impacted area. Our teams were stretched and tested to
meet their needs, and came through with flying colors.”
IRMA: THREE CONSECUTIVE DAYS AT CATEGORY 5
Prior to making landfall in Florida on September 10,
Hurricane Irma was already making history in the Caribbean
as one of the largest, strongest, and most devastating
storms ever recorded. As our teams continued to focus
on the clean-up efforts in Texas, WESCO’s Utility Group
recognized that it would take an all-hands-on-deck
approach for its Florida utility customers to restore power to
millions of people when the storm was over.
WESCO immediately doubled the inventory of the most-
needed storm recovery items at our Orlando branch. The
inventory was increased again when our utility customers
realized they would most likely be dealing with complete
rebuilds in some areas, versus simpler restoration events.
“The path that Irma took was the worst-case scenario. More
than 4.4 million people were without power, and every utility
in the state of Florida was impacted,” said Russ Reynolds,
Florida Regional Manager for the WESCO Utility Group.
“Florida utilities made arrangements for an estimated
40,000 to 45,000 additional resources from other states to
help. This became the largest deployment of additional
resources in the history of the utility industry.”
“WESCO is viewed by our utility customers as first
responders with an obligation to serve,” said Reynolds.
“Our collective actions and performance supporting the
Irma restoration efforts have demonstrated that we live
up to our commitments. This was truly a One WESCO
accomplishment.”
2017 Annual Report | A World of Solutions 9
MARIA: THE WORST NATURAL DISASTER
IN PUERTO RICO’S HISTORY
On September 22, Hurricane Maria made a direct hit on
Puerto Rico. With the electrical grid destroyed and the
island without power, WESCO’s Integrated Supply Group
(WIS) got the call from a major customer seeking as many
generators as they could find. That’s a tall order, considering
the shortage of generators following hurricanes Harvey and
Irma. But WIS has built a reputation as the supplier that can
deliver just about anything a customer needs.
Our WIS team not only sourced 900 generators, but also
water, gas cans, batteries, flashlights, water filters, safety
glasses, and a myriad of medical supplies as well. In the
weeks that followed, WIS continued to deliver hard-to-find
items as requested, including ice machines, insect repellent,
table camping stoves, and many others.
“We have a level of networking and expertise that sets
WESCO apart from other integrated supply providers,”
explained Mike Trubia, Director, WIS. “Our team did what
we do best and stepped up to assist our customer. We’ll
continue to do so as long as the help is needed.”
WESCO’s Government Team has also been supporting post-
Maria recovery efforts. Over the course of a weekend, we
prepared and submitted a successful multi-million-dollar
bid package to help the U.S. Army rebuild the electrical grid.
We worked with the governmental agency responsible for
procuring materials for this effort due to the challenging
logistics of getting materials onto the island. Seamless
coordination between our Utility Project Management and
Government teams produced significant ongoing sales and
support during the entire rebuilding process.
10 WESCO International, Inc.
WESCO’S GLOBAL REACH
WESCO provides an in-country and regional support structure that meets customers’
needs for rapid deployment, scalability, global sourcing, multi-currency transactions,
and local inventory in the Americas, EMEA, and Asia-Pacific.
CANADA
U.S.A.
MEXICO
SCOTLAND
NETHERLANDS
POLAND
CZECH REPUBLIC
IRELAND
ENGLAND
SPAIN
ECUADOR
WESCO PRESENCE
PERU
SERVICE AREA
CHILE
ANGOLA
CHINA
UAE
THAILAND
SINGAPORE
Corporate Profile / WESCO International, Inc. (NYSE: WCC), a publicly traded Fortune 500 holding company headquartered
in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and
operating (MRO) and original equipment manufacturers (OEM) products, construction materials, and advanced supply
chain management and logistic services. 2017 annual sales were approximately $7.7 billion. The company employs
approximately 9,100 people, maintains relationships with over 26,000 suppliers, and serves approximately 70,000 active
customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies,
institutions, telecommunications providers, and utilities. WESCO operates 10 fully automated distribution centers and
approximately 500 branches in North America and international markets, providing a local presence for customers and a
global network to serve multi-location businesses and multi-national corporations.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 001-14989
WESCO International, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
225 West Station Square Drive
Suite 700
Pittsburgh, Pennsylvania
(Address of principal executive offices)
25-1723342
(I.R.S. Employer
Identification No.)
15219
(Zip Code)
(412) 454-2200
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class
Common Stock, par value $.01 per share
Name of 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 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 at least the past 90 days. 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 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such file). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or 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. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
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 Ex-change Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The registrant estimates that the aggregate market value of the voting shares held by non-affiliates of the registrant was approximately $2.7
billion as of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price on
the New York Stock Exchange for such stock.
As of February 20, 2018, 47,056,716 shares of Common Stock, par value $.01 per share, of the registrant were outstanding.
Part III of this Form 10-K incorporates by reference portions of the registrant’s Proxy Statement for its 2018 Annual Meeting of Stockholders.
DOCUMENTS INCORPORATED BY REFERENCE:
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
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
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Page
1
9
13
13
13
13
14
16
17
31
32
73
73
73
74
74
74
74
74
75
79
80
Item 1. Business.
PART I
In this Annual Report on Form 10-K, “WESCO” refers to WESCO International, Inc., and its subsidiaries and its predecessors
unless the context otherwise requires. References to “we,” “us,” “our” and the “Company” refer to WESCO and its subsidiaries.
The Company
WESCO International, Inc. (“WESCO International”), incorporated in 1993 and effectively formed in February 1994 upon
acquiring a distribution business from Westinghouse Electric Corporation, is a leading North American-based distributor of products
and provider of advanced supply chain management and logistics services used primarily in industrial, construction, utility, and
commercial, institutional and government (“CIG”) markets. We are a leading provider of electrical, industrial, and communications
maintenance, repair and operating ("MRO") and original equipment manufacturer ("OEM") products, construction materials, and
advanced supply chain management and logistics services. Our primary product categories include general supplies, wire, cable
and conduit, communications and security, electrical distribution and controls, lighting and sustainability, and automation, controls
and motors.
We serve approximately 70,000 active customers globally through approximately 500 branches primarily located in North
America, with operations in 15 additional countries and 10 distribution centers located in the United States and Canada. The
Company employs approximately 9,100 employees worldwide. We distribute over 1,000,000 products, grouped into six categories,
from more than 26,000 suppliers, utilizing a highly automated, proprietary electronic procurement and inventory replenishment
system.
In addition, we offer a comprehensive portfolio of value-added capabilities, which includes supply chain management, logistics
and transportation, procurement, warehousing and inventory management, as well as kitting, limited assembly of products and
system installation. Our value-added capabilities, extensive geographic reach, experienced workforce and broad product and supply
chain solutions have enabled us to grow our business and establish a leading position in North America.
Industry Overview
We operate in highly fragmented markets that include thousands of small regional and locally based, privately owned
competitors. According to one industry publication, in 2017, the latest year for which market data is available, the five largest full-
line electrical distributors in North America, including WESCO, accounted for approximately 33% of an estimated $100 billion-
plus of electrical sales in North America. Our global account, integrated supply and OEM programs provide customers with
regional, national, North American and global supply chain consolidation opportunities. The demand for these programs is driven
primarily by the desire of companies to reduce operating expenses by outsourcing operational and administrative functions
associated with the procurement, management and utilization of MRO supplies and OEM components. We believe that opportunities
exist for expansion of these programs. The total potential in the United States for purchases of MRO and OEM supplies and
services across all industrial distribution market segments and channels is estimated to be nearly $800 billion per a combination
of industry sources.
According to various industry sources, electrical distribution industry sales have grown low-single-digits on average over the
past three years, despite a low-single-digit decline in 2016. Growth in recent years has been driven by new products, technologies
and applications. It is estimated that approximately 75% of electrical products sold in the United States are delivered to the end
user through the distribution channel.
1
Markets and Customers
We have a large base of approximately 70,000 active customers across a diverse set of end markets. Our top ten customers
accounted for approximately 17% of our sales in 2017. No one customer accounted for more than 4% of our sales in 2017.
The following table outlines our sales breakdown by end market:
(percentages based on total sales)
Industrial
Construction
Utility
Commercial, Institutional and Government
Year Ended December 31,
2016
36%
34%
16%
14%
2015
39%
32%
15%
14%
2017
37%
33%
16%
14%
Industrial. Sales to industrial customers of MRO, OEM, and construction products and services accounted for approximately
37% of our sales in 2017, compared to 36% in 2016. Industrial sales product categories include a broad range of electrical equipment
and supplies as well as lubricants, pipe, valves, fittings, fasteners, cutting tools, power transmission, and safety products. In addition,
OEM customers require a reliable supply of assemblies and components to incorporate into their own products as well as value-
added services such as supplier consolidation, design and technical support, just-in-time supply and electronic commerce, and
supply chain management.
Construction. Sales of electrical and communications products to contractors accounted for approximately 33% of our sales
in 2017, compared to 34% in 2016. Customers include a wide array of contractors and engineering, procurement and construction
firms for industrial, infrastructure, commercial and data and broadband communications projects. Specific applications include
projects for refineries, railways, wastewater treatment facilities, data centers, security installations, offices, and modular and mobile
homes. In addition to a wide array of electrical products, we offer contractors communications products for projects related to IT/
network modernization, physical security upgrades, broadband deployments, network security, and disaster recovery.
Utility. Sales to utilities and utility contractors accounted for approximately 16% of our sales in 2017 and 2016. Customers
include large investor-owned utilities, rural electric cooperatives, municipal power authorities and contractors that serve these
customers. We provide our utility customers with products and services to support the construction and maintenance of their
generation, transmission and distribution systems along with an extensive range of products that meet their power plant MRO and
capital projects needs. Materials management and procurement outsourcing arrangements are also important in this market, as
cost pressures and deregulation have caused utility customers to seek improvements in the efficiency and effectiveness of their
supply chains.
Commercial, Institutional and Government. Sales to CIG customers accounted for approximately 14% of our sales in 2017
and 2016. Customers include schools, hospitals, property management firms, retailers and federal, state and local government
agencies of all types, including federal contractors.
Business Strategy
Our goal is to grow organically at a rate greater than that of our industry while making accretive acquisitions. Our organic
growth strategy focuses on enhancing our sales, technical expertise and customer service capabilities to acquire new customers
and increase our sales to current customers, broaden our product and service offerings and expand our geographic footprint. We
utilize LEAN continuous improvement initiatives on a company-wide basis to deliver operational excellence and improve
productivity. We also extend our LEAN initiatives to customers to improve the efficiency and effectiveness of their operations
and supply chains. In addition, we seek to develop a distinct competitive advantage through talent management and employee
development processes and programs.
We have identified certain growth engines that we believe provide substantial opportunities for above-market growth, and have
developed strategies to address each of these areas of opportunity. These growth engines are a combination of business models,
selected end markets and product categories, as discussed below.
Grow Our Global Account Customer Relationships and Base. Our typical global account customer is a large, multi-location
industrial or commercial company, a large utility, a major contractor, or a government or institutional customer. Our global account
program is designed to provide customers with supply chain management services and cost reductions by coordinating and
standardizing activity for MRO materials and OEM direct materials across their multiple locations, utilizing our broad geographic
footprint and our largely integrated information technology platform. Comprehensive account plans are developed and managed
at the local, national and international levels to prioritize activities, identify key performance measures, and track progress against
2
objectives. We involve our preferred suppliers early in the implementation process to contribute expertise and product knowledge
to accelerate program implementation and deliver cost savings and process improvements.
Through our growth initiatives, we plan to continue to expand the suite of products and services we offer to current customer
sites, while increasing our reach to serve additional customer locations. We plan on expanding our customer base by capitalizing
on our industry expertise and supply chain optimization capabilities.
Extend Our Position in Integrated Supply Programs. Our integrated supply programs focus on optimizing the supply chain
and replacing the traditional multi-vendor, resource-intensive procurement process with a single, outsourced, automated process.
Each integrated supply program employs our product and distribution expertise to reduce the number of suppliers, total procurement
costs, and administrative expenses, while meeting the customers’ service needs and improving their operating controls. We believe
that large customers will seek to utilize such services to consolidate and simplify their MRO and OEM supply chains.
We are expanding our position in North America as an integrated supply service provider by building upon established
relationships within our large customer base and premier supplier network, and extending our services to additional customers
and locations around the world. Our services are offered across all four of our end markets.
Expand Our Relationships with Construction Contractors. We support new construction, renovation and retrofit projects
across a wide variety of vertical markets, including manufacturing, healthcare, education, enterprise data communications,
telecommunications, energy and government infrastructure. We believe that significant cross selling opportunities exist for our
electrical and communications products and expertise, and we are utilizing our global account and integrated supply programs,
LEAN initiatives and project management expertise to capitalize on new non-residential construction opportunities.
Expand Products and Services for Utilities. Our investor-owned, public power and utility contractor customers continue to
focus on improving grid reliability and operating efficiency, while reducing costs. As a result, we anticipate opportunities from
distribution grid improvement and transmission expansion projects as well as the continued adoption of integrated supply programs.
Accordingly, we are focused on expanding our logistical and project services and supply chain management programs to increase
our scope of supply on the distribution grid, generation and other energy projects, including alternative energy projects.
Grow Industrial MRO and Safety Sales. Our sales of industrial MRO materials include a broad range of electrical and non-
electrical products used in the ongoing maintenance and repair of equipment used in production processes. These products are
also used for facility upkeep in manufacturing, commercial, institutional, and other operations. In addition, through acquisitions,
we have expanded our safety products, personal protection safety equipment, first aid supplies, and OSHA compliance categories
to complement the industrial MRO product lines.
Expand International Operations. We seek to capitalize on existing and emerging international market opportunities through
the expansion of our global product and service platforms. We follow large existing global customers into international markets,
extending our procurement outsourcing, integrated supply programs and supplier relationships. Once established, we also seek to
develop new business opportunities in these markets. We believe this strategy of working with well-developed customer and
supplier relationships significantly reduces risk and provides the opportunity to establish profitable business. Our priorities are
focused on global vertical markets including energy, mining and metals, manufacturing, and infrastructure, as well as key product
categories such as communications and security.
Grow Our Communications Products Position. Over the last several years, there has been a convergence of electrical and
data communications contractors. Our ability to provide both electrical and communications products and services as well as
automation, electromechanical, non-electrical MRO, physical security and utility products has presented cross selling opportunities
across WESCO. Communications products are in continual demand due to network upgrades, low voltage security investments,
data center upgrades and increasing broadband and telecommunications usage.
Grow Lighting System and Sustainability Sales. Lighting applications are undergoing significant innovation, driven by energy
efficiency and sustainability trends. We have expanded our sales team and marketing initiatives and increased our presence and
customer base with recent acquisitions. We expect to continue to add product and service offerings to provide lighting and energy-
saving solutions.
Pursue Strategic Acquisitions. Since 2010, we have made fourteen acquisitions that have helped us broaden and strengthen
our product and services portfolio, increase our customer base, and provide an important source of talent.
We believe that the highly fragmented nature of the electrical and industrial distribution industry will continue to provide
acquisition opportunities.
Drive Operational Excellence. LEAN continuous improvement is a set of company-wide strategic initiatives to increase
efficiency and effectiveness across the entire business enterprise, including sales, operations and administrative processes. The
basic principles behind LEAN are to systematically identify and implement improvements through simplification, elimination of
waste and reduction in errors. We apply LEAN in our distribution environment, and develop and deploy numerous initiatives
through the Kaizen approach targeting improvements in sales, margin, warehouse operations, transportation, purchasing, working
3
capital management and administrative processes. Our objective is to continue to implement LEAN initiatives across our business
enterprise and to extend LEAN services to our customers and suppliers.
Manage Our Talent. We seek to develop a distinct competitive advantage through talent management and employee engagement
and development. We believe our ability to attract, develop and retain diverse human capital is imperative to ongoing business
success. We improve workforce capability through various programs and processes that identify, recruit, develop and promote our
talent base. Significant enhancements in these programs have been made over the last several years, and we expect to continue to
refine and enhance these programs in the future.
Products and Services
Products
Our network of branches and distribution centers stock approximately 230,000 unique product stock keeping units and we
provide customers with access to more than 1,000,000 different products. Each branch tailors its inventory to meet the needs of
its local customers.
Representative product categories and associated product lines that we offer include:
• General Supplies. Wiring devices, fuses, terminals, connectors, boxes, enclosures, fittings, lugs, terminations, wrap,
splicing and marking equipment, tools and testers, safety, personal protection, sealants, cutting tools, adhesives,
consumables, fasteners, janitorial and other MRO supplies;
• Wire, Cable and Conduit. Wire, cable, raceway, metallic and non-metallic conduit;
• Communications and Security. Structured cabling systems, broadband products, low voltage specialty systems, specialty
wire and cable products, equipment racks and cabinets, access control, alarms, cameras, paging and voice solutions;
• Electrical Distribution and Controls. Circuit breakers, transformers, switchboards, panel boards, metering products
and busway products;
•
Lighting and Sustainability. Lamps, fixtures, ballasts and lighting control products, and
• Automation, Controls and Motors. Motor control devices, drives, surge and power protection, relays, timers,
pushbuttons, operator interfaces, switches, sensors, and interconnects.
The following table sets forth sales information by product category:
(percentages based on total sales)
General Supplies
Wire, Cable and Conduit
Communications and Security
Electrical Distribution and Controls
Lighting and Sustainability
Automation, Controls and Motors
Year Ended December 31,
2016
40%
14%
15%
11%
12%
8%
2015
40%
15%
15%
11%
10%
9%
2017
40%
15%
15%
10%
12%
8%
We purchase products from a diverse group of more than 26,000 suppliers. In 2017, our ten largest suppliers accounted for
approximately 33% of our purchases. Our largest supplier in 2017 was Eaton Corporation, accounting for approximately 11% of
our purchases. No other supplier accounted for more than 4% of our total purchases.
Our supplier relationships are important to us, providing access to a wide range of products, services, technical training, and
sales and marketing support. We have approximately 300 commercial agreements with more than 200 preferred suppliers and
purchase nearly 60% of our products pursuant to these arrangements. Consistent with industry practice, most of our agreements
with suppliers, including both distribution agreements and commercial agreements, are terminable by either party on 60 days
notice or less.
4
Services
As part of our overall offering, we provide customers a comprehensive portfolio of value-added solutions within a wide range
of service categories including construction, e-commerce, energy and sustainability, engineering services, production support,
safety and security, supply chain optimization, training, and working capital. These solutions are designed to address our customers'
business needs through:
• Technical advisory strategies, including product lifecycle management and migration planning;
•
Supply chain and inventory optimization programs, including just-in-time delivery and vendor managed inventory;
• Consultation on production and operational efficiencies from cross-functional, cost saving teams;
• Transactional process improvements utilizing a suite of e-commerce solutions;
• Operational safety and product training for customer's employees, and
• Dedicated on-site support personnel.
Competitive Strengths
As a leading electrical distributor in a highly fragmented North American market, we compete directly with global, national,
regional, and local distributors of electrical and other industrial supplies, along with buying groups formed by smaller distributors.
Competition is generally based on product line breadth, product availability, service capabilities and price. We believe that our
market leadership, broad product offering, value-added services, technical expertise, extensive distribution network and low-cost
operator status provide distinct competitive advantages.
Market Leadership. Our ability to manage complex global supply chains, and multi-site facility maintenance programs and
construction projects, which require special sourcing, technical advice, logistical support and locally based service, has enabled
us to establish a strong presence in the competitive and fragmented North American electrical distribution market.
Broad Product Offering and Value-added Services. We provide a wide range of products, services, and procurement solutions,
which draw on our product knowledge, supply and logistics expertise, system capabilities and supplier relationships to enable our
customers to maximize productivity, minimize waste, improve efficiencies, reduce costs and enhance safety. Our broad product
offering and stable source of supply enables us to consistently meet customers’ wide-ranging capital project, MRO and OEM
requirements.
Extensive Distribution Network. We operate approximately 500 geographically dispersed branch locations and ten distribution
centers (six in the United States and four in Canada). Our distribution centers add value for our customers, suppliers, and branches
through the combination of a broad and deep selection of inventory, online ordering and next-day shipment capabilities, and central
order handling and fulfillment. Our distribution center network reduces the lead time and cost of supply chain activities through
its automated replenishment and warehouse management system, and provides economies of scale in purchasing, inventory
management, administration and transportation. This extensive network, which would be difficult and expensive to replicate,
allows us to:
• Enhance local customer service, technical support and sales coverage;
• Tailor individual branch products and services to local customer needs, and
• Offer multi-site distribution capabilities to large customers and global accounts.
Low-Cost Operator. Our competitiveness has been enhanced by our consistent favorable operating cost position, which is
based on the use of LEAN, strategically-located distribution centers, and purchasing economies of scale. As a result of these and
other factors, we believe our operating costs as a percentage of sales has historically been one of the lowest in our industry. Our
selling, general and administrative expenses as a percentage of revenues for 2017 were 14.3%.
5
Geography
Our network of branches and distribution centers are located primarily in North America. We attribute revenues from external
customers to individual countries on the basis of the point of sale. The following table sets forth information about us by geographic
area:
Net Sales
Year Ended December 31,
Long-Lived Assets
December 31,
2017
2016
2015
2017
2016
2015
(In thousands)
United States
$ 5,775,988
75% $ 5,635,803
77% $ 5,665,962
75% $
95,851
$
123,465
$
157,570
Canada
Mexico
1,521,378
77,280
20%
1%
1,394,657
62,430
19%
1%
1,533,705
70,048
21%
1%
Subtotal North American
Operations
7,374,646
7,092,890
7,269,715
Other International
304,375
4%
243,127
3%
248,772
3%
56,591
262
152,704
3,741
60,372
227
63,088
332
184,064
220,990
4,583
5,369
Total
$ 7,679,021
$ 7,336,017
$ 7,518,487
$
156,445
$
188,647
$
226,359
United States. To serve our customers in the United States, we operate a network of approximately 340 branches supported
by six distribution centers located in Arkansas, Mississippi, Nevada, Pennsylvania, Texas and Wisconsin. Sales in the United States
represented approximately 75% of our total sales in 2017. According to an industry source, the U.S. electrical wholesale distribution
industry had estimated sales of nearly $100 billion in 2017.
Canada. To serve our Canadian customers, we operate a network of approximately 130 branches in nine provinces. Branch
operations are supported by four distribution centers located in Alberta, British Columbia, Ontario and Quebec. Sales in Canada
represented approximately 20% of our total sales in 2017. Total annual electrical industry sales in Canada were more than $13
billion in 2017, according to an industry source.
Mexico. We have seven branch locations in Mexico that provide various supply chain services to a broad range of end markets.
Our headquarters is near Mexico City. Sales in Mexico represented approximately 1% of our total sales in 2017.
Other International. We sell to global customers through export sales offices located in Calgary, Houston, Miami, Montreal
and Pittsburgh within North America and sales offices and branch operations in various international locations. Sales from other
international locations represented approximately 4% of our total sales in 2017. Our branches in Aberdeen, Scotland, Dublin,
Ireland and Manchester, England support sales efforts in Europe and the Middle East. We have branches in Singapore and Thailand
to support our sales in Asia and a branch near Shanghai to serve customers in China. Furthermore, we support sales in South
America through our branches in Chile, Ecuador and Peru, and we have operations in six additional countries. Many of our
international locations have been established to serve our growing list of customers with global operations.
Intellectual Property
We currently have trademarks, patents and service marks registered with the U.S. Patent and Trademark Office and Canadian
Intellectual Property Office. The trademarks and service marks registered in the U.S. include: “WESCO®”, our corporate logo
and the running man logo. The Company's "EECOL" trademark is registered in Canada. In addition, trademarks, patents, and
service mark applications have been filed in various foreign jurisdictions, including Argentina, Australia, Brazil, Chile, Colombia,
Costa Rica, Canada, Chile, China, the European Community, Egypt, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Mexico,
New Zealand, Norway, Panama, Peru, Philippines, Russia, Singapore, South Africa, Switzerland, Taiwan, Thailand, United Arab
Emirates, United Kingdom, Venezuela, and Vietnam.
Environmental Matters
Our facilities and operations are subject to federal, state and local laws and regulations relating to environmental protection
and human health and safety. Some of these laws and regulations may impose strict, joint and several liabilities on certain persons
for the cost of investigation or remediation of contaminated properties. These persons may include former, current or future owners
or operators of properties and persons who arranged for the disposal of hazardous substances. Our owned and leased real property
may give rise to such investigation, remediation and monitoring liabilities under environmental laws. In addition, anyone disposing
of certain products we distribute, such as ballasts, fluorescent lighting and batteries, must comply with environmental laws that
regulate certain materials in these products.
We believe that we are in compliance, in all material respects, with applicable environmental laws. As a result, we do not
anticipate making significant capital expenditures for environmental control matters either in the current year or in the near future.
6
Seasonality
Sales during the first quarter are affected by a reduced level of activity. Sales during the second, third and fourth quarters are
generally 6 - 8% higher than the first quarter. Sales typically increase beginning in March, with slight fluctuations per month
through October. During periods of economic expansion or contraction, our sales by quarter have varied significantly from this
seasonal pattern.
Website Access
Our Internet address is www.wesco.com. Information contained on our website is not part of, and should not be construed as
being incorporated by reference into, this Annual Report on Form 10-K. We make available free of charge under the “Investors”
heading on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), as well as our Proxy Statements, as soon as reasonably practicable after such documents are
electronically filed or furnished, as applicable, with the Securities and Exchange Commission (the “SEC”). You also may read
and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549-0213.
You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding
issuers like us who file electronically with the SEC.
In addition, our charters for our Executive Committee, Nominating and Governance Committee, Audit Committee and
Compensation Committee, as well as our Corporate Governance Guidelines, Code of Principles for Senior Executives,
Independence Policy, Global Anti-Corruption Policy, and Code of Business Ethics and Conduct for our Directors, officers and
employees, are all available on our website in the “Corporate Governance” link under the “Investors” heading.
Forward-Looking Information
This Annual Report on Form 10-K contains various “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve certain unknown risks and uncertainties, including, among others, those
contained in Item 1, “Business,” Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” When used in this Annual Report on Form 10-K, the words “anticipates,” “plans,” “believes,”
“estimates,” “intends,” “expects,” “projects,” “will” and similar expressions may identify forward-looking statements, although
not all forward-looking statements contain such words. Such statements, including, but not limited to, our statements regarding
business strategy, growth strategy, competitive strengths, productivity and profitability enhancement, competition, new product
and service introductions and liquidity and capital resources, are based on management’s beliefs, as well as on assumptions made
by and information currently available to management, and involve various risks and uncertainties, some of which are beyond our
control. Our actual results could differ materially from those expressed in any forward-looking statement made by us or on our
behalf. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will in fact prove
to be accurate. We have undertaken no obligation to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
7
Executive Officers
Our executive officers and their respective ages and positions as of February 21, 2018, are set forth below.
Name
John J. Engel
Diane E. Lazzaris
Robert Minicozzi
David S. Schulz
Kimberly G. Windrow
Age
56
51
56
52
60
Position
Chairman, President and Chief Executive Officer
Senior Vice President and General Counsel
Vice President and Chief Information Officer
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Human Resources Officer
Set forth below is biographical information for our executive officers listed above.
John J. Engel was elected as Chairman of the Board at the 2011 Annual Meeting and has served as President and Chief
Executive Officer since 2009. Previously, Mr. Engel served as our Senior Vice President and Chief Operating Officer from 2004
to 2009. Before joining WESCO in 2004, Mr. Engel served as Senior Vice President and General Manager of Gateway, Inc.,
Executive Vice President and Senior Vice President of Perkin Elmer, Inc., Vice President and General Manager of Allied Signal,
Inc., and various engineering, manufacturing and general management positions at General Electric Company.
Diane E. Lazzaris has served as our Senior Vice President and General Counsel since January 2014, and from 2010 to December
2013 she served as our Vice President, Legal Affairs. From 2008 to 2010, Ms. Lazzaris served as Senior Vice President - Legal,
General Counsel and Corporate Secretary of Dick’s Sporting Goods, Inc. From 1994 to 2008, she held various corporate counsel
positions at Alcoa Inc., including Group Counsel to a group of global businesses.
Robert Minicozzi has served as our Vice President and Chief Information Officer since January 2016. From April 2012 to
December 2015, Mr. Minicozzi served as Vice President and Global Divisional Chief Information Officer of Arrow Electronics,
Inc. and previously held various information systems leadership positions with Arrow Electronics, Inc.
David S. Schulz has served as our Senior Vice President and Chief Financial Officer since October 2016. From April 2016 to
October 2016, he served as Senior Vice President and Chief Operating Officer of Armstrong Flooring, Inc. From November 2013
to March 2016, he served as Senior Vice President and Chief Financial Officer of Armstrong World Industries, Inc., and as Vice
President, Finance of the Armstrong Building Products division from 2011 to November 2013. Prior to joining Armstrong World
Industries in 2011, he held various financial leadership roles with Procter & Gamble and The J.M. Smucker Company. Mr. Schulz
began his career as an officer in the United States Marine Corps.
Kimberly G. Windrow has served as our Senior Vice President and Chief Human Resources Officer since January 2014, and
from August 2010 to December 2013 she served as our Vice President, Human Resources. From 2004 until 2010, Ms. Windrow
served as Senior Vice President of Human Resources for The McGraw Hill Companies in the education segment. From 2001 until
2004, she served as Senior Vice President of Human Resources for The MONY Group, and from 1988 until 2000, she served in
various Human Resource positions at Willis, Inc.
8
Item 1A. Risk Factors.
The following factors, among others, could cause our actual results to differ materially from the forward-looking statements
we make. All forward-looking statements attributable to us or persons working on our behalf are expressly qualified by the following
factors. This information should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations, Item 7A, Quantitative and Qualitative Disclosures about Market Risks and the consolidated financial
statements and related notes included in this Form 10-K.
Operational Risk Factors
Adverse conditions in the global economy and disruptions of financial markets could negatively impact our results of
operations, cash flows or financial position.
Our results of operations are affected by the level of business activity of our customers, which in turn is affected by global
economic conditions and market factors impacting the industries and markets that they serve. Certain global economies and markets
continue to experience significant uncertainty and volatility, particularly commodity-driven end markets such as oil and gas and
metals and mining. Adverse economic conditions or lack of liquidity in these markets, particularly in North America, may adversely
affect our revenues and operating results. Economic and financial market conditions may also affect the availability of financing
for projects and for our customers' capital or other expenditures, which can result in project delays or cancellations and thus affect
demand for our products. There can be no assurance that any governmental responses to economic conditions or disruptions in
the financial markets ultimately will stabilize the markets or increase our customers' liquidity or the availability of credit to our
customers. Should one or more of our larger customers declare bankruptcy, it could adversely affect the collectability of our
accounts receivable, along with bad debt reserves and net income. In addition, our ability to access the capital markets may be
restricted at a time when we would like, or need, to do so. The economic, political and financial environment also may affect our
business and financial condition in ways that we currently cannot predict, and there can be no assurance that economic, political
and market conditions will not adversely affect our results of operations, cash flows or financial position in the future.
Certain events or conditions, including a failure or breach of our information security systems, could lead to interruptions
in our operations, which may materially adversely affect our business operations, financial condition, and results of
operations.
We operate a number of facilities and we coordinate company activities, including information technology systems and
administrative services and the like, through our headquarters operations. Our operations depend on our ability to maintain existing
systems and implement new technology, which includes allocating sufficient resources to periodically upgrade our information
technology systems, and to protect our equipment and the information stored in our databases against both manmade and natural
disasters, as well as power losses, computer and telecommunications failures, technological breakdowns, unauthorized intrusions,
cyber-attacks, and other events. Conversions to new information technology systems may result in cost overruns, delays or business
interruptions. If our information technology systems are disrupted, become obsolete or do not adequately support our strategic,
operational or compliance needs, it could result in a competitive disadvantage and adversely affect our business operations and
financial condition, including our ability to process orders, receive and ship products, maintain inventories, collect accounts
receivable and pay expenses, therefore impacting our results of operations.
Because we rely heavily on information technology both in serving our customers and in our enterprise infrastructure in order
to achieve our objectives, we may be vulnerable to damage or intrusion from a variety of cyber-attacks, including computer viruses,
worms or other malicious software programs that access our systems. Despite the precautions we take to mitigate the risks of such
events, an attack on our enterprise information technology system could result in theft or disclosure of our proprietary or confidential
information or a breach of confidential customer, supplier or employee information. Such events could have an adverse impact
on revenue and harm our reputation. Additionally, such an event could cause us to incur legal liabilities and costs, which could be
significant, in order to address and remediate the effects of an attack and related security concerns.
We also depend on accessible office facilities, distribution centers and information technology data centers for our operations
to function properly. An interruption of operations at any of our distribution centers could have a material adverse effect on the
operations of branches served by the affected distribution center. Such disaster related risks and effects are not predictable with
certainty and, although they typically can be mitigated, they cannot be eliminated. We seek to mitigate our exposures to disaster
events in a number of ways. For example, where feasible, we design the configuration of our facilities to reduce the consequences
of disasters. We also maintain insurance for our facilities against casualties, and we evaluate our risks and develop contingency
plans for dealing with them. Although we have reviewed and analyzed a broad range of risks applicable to our business, the ones
that actually affect us may not be those that we have concluded are most likely to occur. Furthermore, although our reviews have
led to more systematic contingency planning, our plans are in varying stages of development and execution, such that they may
not be adequate at the time of occurrence for the magnitude of any particular disaster event that we may encounter.
9
An increase in competition could decrease sales, profit margins, and earnings.
We operate in a highly competitive industry and compete directly with global, national, regional and local providers of like
products and services. Some of our existing competitors have, and new market entrants may have, greater resources than us.
Competition is generally based on product line breadth, product availability, service capabilities and price. Other sources of
competition are buying groups formed by smaller distributors to increase purchasing power and provide some cooperative marketing
capability, as well as e-commerce companies. There may be new market entrants with non-traditional business and customer
service models, resulting in increased competition and changing industry dynamics.
Existing or future competitors may seek to gain or retain market share by reducing prices, and we may be required to lower
our prices or may lose business, which could adversely affect our financial results. Also, to the extent that we do not meet changing
customer preferences or demands, or to the extent that one or more of our competitors becomes more successful with private label
products, on-line offerings or otherwise, our ability to attract and retain customers could be materially adversely affected. Existing
or future competitors also may seek to compete with us for acquisitions, which could have the effect of increasing the price and
reducing the number of suitable acquisitions. These factors, in addition to competitive pressures resulting from the fragmented
nature of our industry, could affect our sales, profit margins and earnings.
Expansion into new business activities, industries, product lines or geographic areas could subject the company to increased
costs and risks and may not achieve the intended results.
We have invested significantly in expanding our e-commerce capabilities and online customer experience. If our efforts to
expand our capabilities in this area are not successful, we may not realize the return on our investments as anticipated, or our
operating results could be adversely affected by slower than expected sales growth or additional costs. Furthermore, engaging in
or significantly expanding business activities in product sourcing, sales and services could subject the company to unexpected
costs and risks. Such activities could subject us to increased operating costs, product liability, regulatory requirements and
reputational risks. Our expansion into new and existing markets, including manufacturing related or regulated businesses, may
present competitive distribution and regulatory challenges that differ from current ones. We may be less familiar with the target
customers and may face different or additional risks, as well as increased or unexpected costs, compared to existing operations.
Growth into new markets may also bring us into direct competition with companies with whom we have little or no past experience
as competitors. To the extent we are reliant upon expansion into new geographic, industry and product markets for growth and do
not meet the new challenges posed by such expansion, our future sales growth could be negatively impacted, our operating costs
could increase, and our business operations and financial results could be negatively affected.
Loss of key suppliers, product cost fluctuations, lack of product availability, or inefficient supply chain operations could
decrease sales, profit margins, and earnings.
Most of our agreements with suppliers are terminable by either party on 60 days' notice or less. Our 10 largest suppliers in
2017 accounted for approximately 33% of our purchases for the period. Our largest supplier in 2017 was Eaton Corporation,
accounting for approximately 11% of our purchases. The loss of, or a substantial decrease in the availability of, products from any
of these suppliers, a supplier's change in sales strategy to rely less on distribution channels, the loss of key preferred supplier
agreements, or disruptions in a key supplier's operations could have a material adverse effect on our business. Supply interruptions
could arise from shortages of raw materials, effects of economic, political or financial market conditions on a supplier's operations,
labor disputes or weather conditions affecting products or shipments, transportation disruptions, information system disruptions
or other reasons beyond our control.
In addition, certain of our products, such as wire and conduit, are commodity price based products and may be subject to
significant price fluctuations which are beyond our control. While increases in the cost of energy or products could have adverse
effects, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which
could cause our gross profit margin to deteriorate. Fluctuations in energy or raw materials costs can also adversely affect our
customers. Declines in oil and gas prices can negatively impact our customers operating in those industries and, consequently, our
sales to those customers. Furthermore, we cannot be certain that particular products or product lines will be available to us, or
available in quantities sufficient to meet customer demand. Such limited product access could cause us to be at a competitive
disadvantage. The profitability of our business is also dependent upon the efficiency of our supply chain. An inefficient or ineffective
supply chain strategy or operations could increase operational costs, decrease sales, profit margins and earnings, which could
adversely affect our business.
We must attract, retain and motivate key employees, and the failure to do so may adversely affect our business.
Our success depends on hiring, retaining and motivating key employees, including executive, managerial, sales, technical,
marketing and support personnel. We may have difficulty locating and hiring qualified personnel. In addition, we may have
difficulty retaining such personnel once hired, and key people may leave and compete against us. The loss of key personnel or
10
our failure to attract and retain other qualified and experienced personnel could disrupt or adversely affect our business, its sales
and operating results. In addition, our operating results could be adversely affected by increased costs due to increased competition
for employees, higher employee turnover, which may also result in loss of significant customer business, or increased employee
benefit costs.
Acquisitions that we may undertake would involve a number of inherent risks, any of which could cause us not to
realize the benefits anticipated to result.
We have expanded our operations through organic growth and selected acquisitions of businesses and assets, and may seek to
do so in the future. Acquisitions involve various inherent risks, including: problems that could arise from the integration of the
acquired business; uncertainties in assessing the value, strengths, weaknesses, contingent and other liabilities and potential
profitability of acquisition candidates; the potential loss of key employees of an acquired business; the ability to achieve identified
operating and financial synergies anticipated to result from an acquisition or other transaction; unanticipated changes in business,
industry or general economic conditions that affect the assumptions underlying the acquisition or other transaction rationale; and
expansion into new countries or geographic markets where we may be less familiar with operating requirements, target customers
and regulatory compliance. Any one or more of these factors could increase our costs or cause us not to realize the benefits
anticipated to result from the acquisition of a business or assets.
While there are risks associated with acquisitions generally, including integration risks, there are additional risks more
specifically associated with owning and operating businesses internationally, including those arising from import and export
controls, foreign currency exchange rate changes, material developments in political, regulatory or economic conditions impacting
those operations and various environmental and climatic conditions in particular areas of the world.
Financial Risk Factors
Changes in tax laws or challenges to the Company's tax positions by taxing authorities could adversely impact the
Company's results of operations and financial condition.
We are subject to taxes in jurisdictions in which we do business, including but not limited to taxes imposed on our income,
receipts, stockholders' equity, property, sales, purchases and payroll. As a result, the tax expense we incur can be adversely affected
by changes in tax law. We frequently cannot anticipate these changes in tax law, which can cause unexpected volatility in our
results of operations. While not limited to the United States (U.S.) and Canada, changes in the tax law at the federal and state/
provincial levels in the United States and Canada can have a materially adverse effect on our results of operations.
Additionally, the tax laws to which the Company is subject are inherently complex and ambiguous. Therefore, we must interpret
the applicable laws and make subjective judgments about the expected outcome upon challenge by the applicable taxing authorities.
As a result, the impact on our results from operations of the application of enacted tax laws to our facts and circumstances is
frequently uncertain. If a tax authority successfully challenges our interpretation and application of the tax law to our facts and
circumstances, there can be no assurance that we can accurately predict the outcome and the taxes ultimately owed upon effective
settlement, which may differ from the tax expense recognized in our consolidated statements of income and comprehensive income
(loss) and accrued in our consolidated balance sheets. Additionally, if we cannot meet liquidity requirements in the United States,
we may have to repatriate funds from overseas, which would result in additional income taxes being incurred on the amount
repatriated.
Uncertainties in the interpretation and application of the Tax Cuts and Jobs Act of 2017 could materially affect our tax
obligations and effective tax rate.
The Tax Cuts and Jobs Act of 2017 ("TCJA") was enacted on December 22, 2017, and it significantly affected U.S. tax law
by, among other things, changing how the U.S. imposes income tax on multinational corporations. The TCJA requires complex
computations not previously provided in U.S. tax law, and the application of accounting guidance for such items is currently
uncertain in some respects. Further, compliance with the TCJA and the accounting for such provisions require accumulation of
information not previously required or regularly produced. The U.S. Department of Treasury has broad authority to issue regulations
and interpretative guidance that may significantly impact how the law is applied and thus impact our results of operations in the
period issued.
Also on December 22, 2017, the Securities and Exchange Commission ("SEC") issued guidance to address the accounting
implications of the TCJA in which a registrant does not have the necessary information available, prepared or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. We have recorded
provisional estimates in our financial statements with respect to certain income tax effects of the TCJA for which the accounting
is incomplete, but a reasonable estimate was able to be determined. We will continue to perform additional analysis on the
application of the TCJA, taking into account any additional regulatory guidance that is issued by the applicable taxing authorities,
which may result in adjustments to our previously reported provisional estimates. In accordance with the SEC's guidance, we
11
will recognize any adjustments to our previously reported provisional estimates in the relevant future periods, which could materially
affect our tax obligations and our effective tax rate.
Fluctuations in foreign currency have an effect on our results from operations.
The results of our foreign operations are reported in the local currency and then translated into U.S. dollars at the applicable
exchange rates for inclusion in our consolidated financial statements. The exchange rates between some of these currencies and
the U.S. dollar have fluctuated significantly in recent years, and may continue to do so in the future. We may incur losses related
to foreign currency fluctuations, and foreign exchange controls may prevent us from repatriating cash in countries outside the U.S.
In addition, because our financial statements are stated in U.S. dollars, such fluctuations may also affect the comparability of our
results between financial periods.
Our outstanding indebtedness requires debt service commitments that could adversely affect our ability to fulfill our
obligations and could limit our growth and impose restrictions on our business.
As of December 31, 2017, excluding debt discount and debt issuance costs, we had $1.36 billion of consolidated indebtedness.
We and our subsidiaries may undertake additional borrowings in the future, subject to certain limitations contained in the debt
instruments governing our indebtedness. Over the next three years, we will be required to repay or refinance approximately $512.8
million of our currently outstanding indebtedness.
Our debt service obligations impact our ability to operate and grow our business. Our payments of principal and interest on
our indebtedness reduce the amount of funds available to us to invest in operations, future business opportunities, acquisitions,
and other potentially beneficial activities. Our debt service obligations also increase our vulnerability to adverse economic, financial
market and industry conditions. Our ability to service and refinance our indebtedness, make scheduled payments on our operating
leases and fund capital expenditures, acquisitions or other business opportunities, will depend in large part on both our future
performance and the availability of additional financing in the future. There can be no assurance that our business will continue
to generate sufficient cash flows from operations in the future to service our debt, make necessary capital expenditures, or meet
other cash needs. If unable to do so, we may be required to refinance all or a portion of our existing debt, sell assets, or obtain
additional financing.
Our debt agreements contain restrictions that may limit our ability to operate our business.
Our credit facilities require us to maintain specific earnings to fixed expense ratios and to meet minimum net worth requirements
in certain circumstances. In addition, our credit facilities and our other debt agreements contain, and any of our future debt
agreements may contain, additional covenant restrictions that limit our ability to operate our business, or are dependent upon our
future financial performance.
As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain additional
financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise
be beneficial to us. See the liquidity section in "Item 7. Management's Discussion and Analysis" for further details.
There is a risk that the market value of our common stock may decline.
Stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies in our
industry have been volatile. For some issuers, the markets have exerted downward pressure on stock prices and credit capacity. It
is impossible to predict whether the price of our common stock will rise or fall. Trading prices of our common stock will be
influenced by our operating results and prospects and by economic, political, financial, and other factors.
Regulatory and Legal Risk Factor
We are subject to costs and risks associated with global laws and regulations affecting our business, as well as litigation
for product liability or other matters affecting our business.
The global legal and regulatory environment is complex and exposes us to compliance costs and risks, as well as litigation and
other legal proceedings, which could materially affect our operations and financial results. These laws and regulations may change,
sometimes significantly, as a result of political or economic events, and some changes are anticipated to occur in the coming year.
They include tax laws and regulations, import and export laws and regulations, labor and employment laws and regulations, product
safety, occupational safety and health laws and regulations, securities and exchange laws and regulations, data privacy laws and
regulations (and other laws applicable to publicly-traded companies such as the Foreign Corrupt Practices Act), and environmental
laws and regulations. Furthermore, as a government contractor selling to federal, state and local government entities, we are also
subject to a wide variety of additional laws and regulations. Proposed laws and regulations in these and other areas could affect
the cost of our business operations.
12
From time to time we are involved in legal proceedings, audits or investigations which may relate to, for example, product
liability, labor and employment (including wage and hour), tax, escheat, import and export compliance, government contracts,
worker health and safety, and general commercial and securities matters. While we believe the outcome of any pending matter is
unlikely to have a material adverse effect on our financial condition or liquidity, additional legal proceedings may arise in the
future and the outcome of these as well as other contingencies could require us to take actions, which could adversely affect our
operations or could require us to pay substantial amounts of money.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We have approximately 500 branches, of which approximately 340 are located in the United States, approximately 130 are
located in Canada, seven are located in Mexico and the remainder are in other countries located in Asia, Europe and South America.
Approximately 15% of our branches are owned facilities, and the remainder are leased.
The following table summarizes our distribution centers:
Location
Little Rock, AR
Byhalia, MS (1)
Sparks, NV
Warrendale, PA (1)
Dallas, TX
Madison, WI
Edmonton, AB
Burnaby, BC
Mississauga, ON
Montreal, QC
Square Feet
Leased/Owned
100,000
148,000
199,000
194,000
112,000
136,000
101,000
65,000
246,000
126,000
Leased
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
(1) Property pledged as collateral under our Term Loan Facility.
We also lease our 97,000 square-foot headquarters in Pittsburgh, Pennsylvania. We do not regard the real property associated
with any single branch location as material to our operations. We believe our facilities are in good operating condition and are
adequate for their respective uses.
Item 3. Legal Proceedings.
From time to time, a number of lawsuits and claims have been or may be asserted against us relating to the conduct of our
business, including routine litigation relating to commercial and employment matters. The outcome of any litigation cannot be
predicted with certainty, and some lawsuits may be determined adversely to us. However, management does not believe that the
ultimate outcome of any such pending matters is likely to have a material adverse effect on our financial condition or liquidity,
although the resolution in any fiscal period of one or more of these matters may have a material adverse effect on our results of
operations for that period.
Information relating to legal proceedings is included in Note 13, "Commitments and Contingencies," of the Notes to
Consolidated Financial Statements and is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
13
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market, Stockholder and Dividend Information. Our common stock is listed on the New York Stock Exchange under the
symbol “WCC.” As of February 20, 2018, there were 47,056,716 shares of common stock outstanding held by approximately 17
holders of record. We have not paid dividends on the common stock and do not currently plan to pay dividends. We do, however,
evaluate the possibility from time to time. It is currently expected that earnings will be reinvested to support growth initiatives,
acquisitions, debt reduction, and share repurchases. In addition, our Revolving Credit Facility, Term Loan Facility, 2021 Notes
and 2024 Notes limit our ability to pay dividends and repurchase our common stock. See Part II, Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
The following table sets forth the high and low sales prices per share of our common stock, as reported on the New York Stock
Exchange, for the periods indicated.
Quarter
2016
First
Second
Third
Fourth
2017
First
Second
Third
Fourth
Sales Prices
High
Low
$
$
55.92
62.66
63.90
73.40
$
76.15
$
70.95
60.50
69.35
34.00
50.64
49.67
51.45
64.25
53.60
48.95
57.25
Issuer Purchases of Equity Securities. On December 17, 2014, WESCO announced that its Board of Directors approved, on
December 11, 2014, the repurchase of up to $300 million of the Company's common stock through December 31, 2017. Under
this repurchase authorization, WESCO repurchased 4,247,113 shares of the Company's common stock for $250.0 million.
On December 13, 2017, WESCO announced that its Board of Directors approved, on December 7, 2017, the repurchase of up
to $300 million of the Company's common stock through December 31, 2020. As of December 31, 2017, no shares have been
repurchased under this repurchase authorization.
14
Company Performance. The following stock price performance graph illustrates the cumulative total return on an investment
in WESCO International, a 2017 Performance Peer Group, and the Russell 2000 Index. The graph covers the period from December
31, 2012 to December 31, 2017, and assumes that the value for each investment was $100 on December 31, 2012, and that all
dividends were reinvested.
2017 Performance Peer Group (1):
Anixter International, Inc.
Essendant, Inc.
MSC Industrial Direct Co., Inc.
Applied Industrial Technologies, Inc.
Fastenal Company
Rexel SA
Arrow Electronics, Inc.
Avnet, Inc.
Barnes Group
Eaton Corporation Plc
Genuine Parts Company
HD Supply Holdings, Inc.
Hubbell, Inc.
MRC Global, Inc.
Rockwell Automation, Inc.
Tech Data Corporation
W.W. Grainger, Inc.
1 Airgas, Inc. and Ingram Micro, Inc. were removed from the performance peer group in 2017 due to acquisition.
15
Item 6. Selected Financial Data.
Selected financial data and significant events related to the Company’s financial results for the last five fiscal years are listed
below. The financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto included
in Item 8, and with Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7.
Year Ended December 31,
(In millions, except per share data)
Income Statement Data:
Net sales
2017
2016
2015
2014
2013
$ 7,679.0
$ 7,336.0
$ 7,518.5
$ 7,889.6
$ 7,513.3
Cost of goods sold (excluding depreciation and amortization)
Selling, general and administrative expenses
6,194.4
1,099.6
5,887.8
1,049.3
6,024.8
1,055.0
6,278.6
1,076.8
Depreciation and amortization
Income from operations
Interest expense, net
Loss on debt extinguishment (1)
Other loss (2)
Income before income taxes
Provision for income taxes
Net income
Net loss (income) attributable to noncontrolling interests (3)
Net income attributable to WESCO International
Earnings per common share attributable to WESCO
International
Basic
Diluted
Weighted-average common shares outstanding
Basic
Diluted
Other Financial Data:
Capital expenditures
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Balance Sheet Data:
Total assets (4)
Total debt (including current and short-term debt) (5)
Stockholders’ equity (4)
64.0
321.0
68.5
—
—
252.5
89.3
163.2
0.3
66.9
332.0
76.6
123.9
—
131.5
30.4
101.1
0.5
65.0
373.7
69.8
—
—
303.9
95.5
208.4
2.3
68.0
466.2
82.1
—
—
384.1
108.7
275.4
0.5
$
163.5
$
101.6
$
210.7
$
275.9
$
$
$
3.42
3.38
$
$
2.30
2.10
$
$
4.85
4.18
$
$
6.21
5.18
$
$
47.8
48.4
44.1
48.3
43.4
50.4
44.4
53.3
5,967.9
996.8
67.6
481.0
85.6
13.2
2.3
379.9
103.4
276.5
(0.1)
276.4
6.26
5.25
44.1
52.7
$
21.5
$
18.0
$
21.7
$
20.5
$
27.8
149.1
(5.3)
(141.2)
300.2
(70.5)
(276.3)
283.1
(170.2)
(67.8)
251.2
(144.2)
(95.5)
315.1
(18.2)
(257.5)
$ 4,735.5
$ 4,431.8
$ 4,569.7
$ 4,754.4
$ 4,648.9
1,348.6
2,116.1
1,385.3
1,963.6
1,483.4
1,773.9
1,415.6
1,928.2
1,487.7
1,764.8
(1) Represents the loss recognized in 2016 related to the redemption of the then outstanding 6.0% Convertible Senior Debentures
due 2029 ("2029 Debentures") and the loss recognized in 2013 related to the $500 million prepayment made to the U.S. sub-
facility of the Term Loan Facility.
(2) Represents the loss on the sale of a foreign operation in 2013.
(3) Represents the portion of net loss (income) attributable to consolidated entities that are not owned by the Company.
(4) The Consolidated Balance Sheet at December 31, 2016 was revised from the previously issued financial statements. The
revision impacted the presentation of total assets and stockholders' equity. See Note 2 of the Notes to Consolidated Financial
Statements.
(5) Includes the discount related to the 6.0% Convertible Senior Debentures due 2029 and Term Loan Facility. For 2017, 2016
and 2015, also includes debt issuance costs. See Note 7 of the Notes to Consolidated Financial Statements.
16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto
included in Item 8 of this Annual Report on Form 10-K.
Company Overview
Our 2017 financial results reflect a return to growth, driven by improved business momentum in our end markets and
geographies. Sales increased $343.0 million, or 4.7%, over the prior year. Foreign exchange rates and acquisitions positively
impacted net sales by 0.4% and 0.2%, respectively, and were partially offset by a 0.4% impact from the number of work days,
resulting in organic sales growth of 4.5%. Cost of goods sold as a percentage of net sales was 80.7% and 80.3% in 2017 and 2016,
respectively. Operating income was $320.9 million for 2017, compared to $332.1 million for 2016. Operating income decreased
due to lower gross margin and the restoration of incentive and discretionary compensation. Net income attributable to WESCO
International of $163.5 million increased by 60.9% compared to 2016 net income of $101.6 million, which included a $123.9
million loss on debt redemption. Earnings per diluted share attributable to WESCO International was $3.38 in 2017, based on 48.4
million diluted shares, compared with earnings per diluted share of $2.10 in 2016, based on 48.3 million diluted shares. Excluding
the impact of the TCJA of $0.55, adjusted earnings per diluted share for 2017 was $3.93.
Our end markets consist of industrial firms, electrical and data communications contractors, utilities, and commercial
organizations, institutions and government entities. Our transaction types to these markets can be categorized as stock, direct ship
and special order. Stock orders are filled directly from existing inventory and represent approximately 52% of total sales.
Approximately 38% of our total sales are direct ship sales. Direct ship sales are typically custom-built products, large orders or
products that are too bulky to be easily handled and, as a result, are shipped directly to the customer from the supplier. Special
orders are for products that are not ordinarily stocked in inventory and are ordered based on a customer’s specific request. Special
orders represent the remaining 10% of total sales.
We have historically financed our working capital requirements, capital expenditures, acquisitions, share repurchases and new
branch openings through internally-generated cash flow, debt issuances, borrowings under our Revolving Credit Facility and
funding through our Receivables Facility.
Cash Flow
We generated $149.1 million in operating cash flow during 2017. Cash provided by operating activities included net income
of $163.1 million, adjustments to net income totaling $28.5 million, which were offset by changes in assets and liabilities of $42.5
million. Investing activities included capital expenditures of $21.5 million. Financing activities consisted of borrowings and
repayments of $834.4 million and $826.4 million, respectively, related to our Revolving Credit Facility, borrowings and repayments
of both $670.2 million, related to our Receivables Facility, repayments of $60.0 million applied to our Term Loan Facility as well
as borrowings and repayments on our various international lines of credit of $175.8 million and $164.0 million, respectively.
Financing activities also included the repurchase of $106.8 million of the Company's common stock, of which $100 million was
pursuant to the share repurchase plan announced on December 17, 2014.
Free cash flow for the years ended December 31, 2017 and 2016 was $127.6 million and $282.2 million, respectively.
The following table sets forth the components of free cash flow:
Twelve Months Ended
December 31,
2017
2016
Free Cash Flow:
(In millions)
Cash flow provided by operations
Less: Capital expenditures
Free cash flow
$
$
149.1
(21.5)
127.6
$
$
300.2
(18.0)
282.2
Note: The table above reconciles cash flow provided by operations to free cash flow. Free cash flow is a non-GAAP financial measure of
liquidity. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund investing
and financing activities.
17
Financing Availability
As of December 31, 2017, we had $562.9 million in total available borrowing capacity under our Revolving Credit Facility,
which was comprised of $365.3 million of availability under the U.S. sub-facility and $197.6 million of availability under the
Canadian sub-facility. Available borrowing capacity under our Receivables Facility was $170.0 million. The Receivables Facility
and Revolving Credit Facility both mature in September 2020.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to supplier programs, bad debts, inventories, insurance costs, goodwill, income
taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. If
actual market conditions are less favorable than those projected by management, additional adjustments to reserve items may be
required. We believe the following critical accounting policies affect our judgments and estimates used in the preparation of our
consolidated financial statements.
Revenue Recognition
Revenues are recognized for product sales when title, ownership and risk of loss pass to the customer or for services when the
service is rendered. In the case of stock sales and special orders, a sale occurs at the time of shipment from our distribution point,
as the terms of our sales are typically FOB shipping point. In cases where we process customer orders that ship directly from
suppliers, revenue is recognized once product is shipped and title has passed. In all cases, revenue is recognized once the sales
price to our customer is fixed or is determinable and we have reasonable assurance as to the collectability.
We provide integrated supply services to certain customers, which include some or all of the following: determine inventory
stocking levels; establish inventory reorder points; launch purchase orders; receive material; pack away material; and, pick material
for order fulfillment. We recognize revenue for these services in the period rendered based upon a previously negotiated fee
arrangement. We also sell inventory to these customers and recognize revenue at the time title and risk of loss transfers to the
customer.
Selling, General and Administrative Expenses
We include warehousing, purchasing, branch operations, information services, and marketing and selling expenses in this
category, as well as other types of general and administrative costs.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make
required payments. We have a systematic procedure using estimates based on historical data and reasonable assumptions of
collectability made at the local branch level and on a consolidated corporate basis to calculate the allowance for doubtful accounts.
Excess and Obsolete Inventory
We write down our inventories to lower of cost and net realizable value based on internal factors derived from historical analysis
of actual losses. On a retrospective basis, we identify items in excess of 36 months supply relative to demand or movement. We
then analyze the ultimate disposition of identified excess inventories as they are sold, returned to supplier, or scrapped. This
historical item-by-item analysis allows us to develop an estimate of the likelihood that an item identified as being in excess supply
ultimately becomes obsolete. We apply the estimate to inventories currently in excess of 36 months supply, and reduce the carrying
value of inventories by the derived amount. We revisit and test our assumptions on a periodic basis. Historically, we have not had
material changes to our assumptions, nor do we anticipate any material changes in the future.
18
Supplier Volume Rebates
We receive rebates from certain suppliers based on contractual arrangements with them. Since there is a lag between actual
purchases and the rebates received from suppliers, we estimate and accrue the approximate amount of rebates available at a specific
date. We record the amounts as other accounts receivable in the Consolidated Balance Sheets. The corresponding rebate income
is derived from the level of actual purchases made by us and is recorded as a reduction of cost of goods sold. Supplier volume
rebate rates have historically ranged between approximately 0.9% and 1.4% of sales depending on market conditions. In 2017,
the rebate rate was 1.3%.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter using information
available at the end of September, or more frequently if triggering events occur, indicating that their carrying value may not be
recoverable. We test for goodwill impairment on a reporting unit level and the evaluation involves comparing the fair value of
each reporting unit with its carrying value. The fair values of the reporting units are determined using a combination of a discounted
cash flow analysis and market multiples. Assumptions used for these fair value techniques are based on a combination of historical
results, current forecasts, market data and recent economic events. We evaluate the recoverability of indefinite-lived intangible
assets using the relief-from-royalty method based on projected financial information. At December 31, 2017 and 2016, respectively,
goodwill and indefinite-lived trademarks totaled $1.87 billion and $1.83 billion.
We performed our annual impairment testing of goodwill and indefinite-lived intangible assets during the fourth quarter. A
possible indicator of goodwill impairment is the relationship of a company’s market capitalization to its book value. As of
December 31, 2017, our market capitalization exceeded our book value and the fair values of our reporting units exceeded their
carrying values. Accordingly, there were no impairment losses identified as a result of our annual test.
The determination of fair value involves significant management judgment and we apply our best judgment when assessing
the reasonableness of financial projections. Fair values are sensitive to changes in underlying assumptions and factors. As a result,
there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived
intangible impairment tests will prove to be an accurate prediction of future results.
Intangible Assets
We account for certain economic benefits purchased as a result of our acquisitions, including customer relations, distribution
agreements, technology and trademarks, as intangible assets. Most trademarks have an indefinite life. We amortize all other
intangible assets over a useful life determined by the expected cash flows produced by such intangibles and their respective tax
benefits. Useful lives vary between 2 and 20 years, depending on the specific intangible asset.
Insurance Programs
We use commercial insurance for auto, workers’ compensation, casualty and health claims, and information technology as a
risk sharing strategy to reduce our exposure to catastrophic losses. Our strategy involves large deductible policies where we must
pay all costs up to the deductible amount. We estimate our reserve based on historical incident rates and costs.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred income taxes for
events that have future tax consequences. Under this method, deferred income taxes are recognized (using enacted tax laws and
rates) based on the future income tax effects of differences in the carrying amounts of assets and liabilities for financial reporting
and tax purposes. The effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period of
change.
We recognize deferred tax assets at amounts that are expected to be realized. To make such determination, management evaluates
all positive and negative evidence, including but not limited to, prior, current and future taxable income, tax planning strategies
and future reversals of existing temporary differences. A valuation allowance is recognized if it is “more-likely-than-not” that
some or all of a deferred tax asset will not be realized. We regularly assess the realizability of deferred tax assets.
We account for uncertainty in income taxes using a "more-likely-than-not" recognition threshold. Due to the subjectivity
inherent in the evaluation of uncertain tax positions, the tax benefit ultimately recognized may materially differ from the
estimate. We recognize interest and penalties related to uncertain tax benefits as part of interest expense and income tax expense,
respectively.
The TCJA imposes a one-time tax on the deemed repatriation of undistributed foreign earnings. Notwithstanding the effects
of applying such provisions of the TCJA, we continue to assert that the earnings of our foreign subsidiaries are indefinitely
reinvested. However, as a result of the TCJA, the Company is reevaluating its intent and ability to repatriate foreign cash based
upon the available liquidity and cash flow needs of its foreign subsidiaries and will disclose in future filings any change in its
intention to repatriate undistributed foreign earnings and any resulting income tax impacts. Until the Company completes this
19
reevaluation, it is not practicable to determine the amount of any unrecognized deferred income taxes on these undistributed foreign
earnings.
The provisions of the TCJA also introduce U.S. taxation on certain global intangible low-taxed income ("GILTI"). We have
elected to account for any GILTI tax that arises in future periods as a component of income tax expense.
Provisional amounts are recorded for certain income tax effects of the TCJA for which the accounting is incomplete, but a
reasonable estimate can be determined. Provisional amounts, or adjustments to provisional amounts, identified during the period
ending on or before one year from the TCJA's enactment date are recognized as an adjustment to income tax expense or benefit
from continuing operations in the period the amounts are determined.
Stock-Based Compensation
Our stock-based employee compensation plans are comprised of stock-settled stock appreciation rights, restricted stock units,
and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant, and
compensation cost is recognized, net of forfeitures, over the service period for awards expected to vest. The fair value of stock-
settled appreciation rights and performance-based awards with market conditions is determined using the Black-Scholes and Monte
Carlo simulation models, respectively. The fair value of restricted stock units with service conditions and performance-based
awards with performance conditions is determined by the grant-date closing price of our common stock. Expected volatilities are
based on historical volatility of our common stock. We estimate the expected life of stock-settled stock appreciation rights using
historical data pertaining to option exercises and employee terminations. The risk-free rate is based on the U.S. Treasury yields
in effect at the time of grant. The forfeiture assumption is based on our historical employee behavior, which we review on an
annual basis. No dividends are assumed for stock-based awards. For stock appreciation rights that are exercised and for restricted
stock units and performance-based award that vest, shares are issued out of our outstanding common stock.
Results of Operations
The following table sets forth the percentage relationship to net sales of certain items in our Consolidated Statements of
Income and Comprehensive Income (Loss) for the periods presented.
Net sales
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Interest expense
Loss on debt redemption
Income before income taxes
Provision for income taxes
Year Ended December 31,
2016
2015
2017
100.0%
100.0%
100.0%
80.7
14.3
0.8
4.2
0.9
—
3.3
1.2
80.3
14.3
0.9
4.5
1.0
1.7
1.8
0.4
80.1
14.0
0.9
5.0
0.9
—
4.1
1.3
Net income attributable to WESCO International
2.1%
1.4%
2.8%
2017 Compared to 2016
Net Sales. Net sales in 2017 increased 4.7% to $7.68 billion, compared with $7.34 billion in 2016. Foreign exchange rates and
acquisitions positively impacted net sales by 0.4% and 0.2%, respectively, and were partially offset by a 0.4% impact from the
number of workdays, resulting in organic sales growth of 4.5%.
The following table sets forth organic sales growth:
Organic Sales Growth:
Change in net sales
Less: Impact from acquisitions
Less: Impact from foreign exchange rates
Less: Impact from number of workdays
Organic sales growth
20
Twelve Months Ended
December 31,
2017
2016
4.7 %
0.2 %
0.4 %
(0.4)%
4.5 %
(2.4)%
3.1 %
(1.0)%
0.4 %
(4.9)%
Note: Organic sales growth is a non-GAAP financial measure of sales performance. Organic sales growth is calculated by deducting the
percentage impact from acquisitions in the first year of ownership, foreign exchange rates and number of workdays from the overall percentage
change in consolidated net sales.
Cost of Goods Sold. Cost of goods sold increased 5.2% in 2017 to $6.19 billion, compared with $5.89 billion in 2016. Cost of
goods sold as a percentage of net sales was 80.7% and 80.3% in 2017 and 2016, respectively. The increase in cost of goods sold
as a percentage of net sales was primarily due to geographic mix and competition.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses include costs associated with personnel, shipping
and handling, travel, advertising, facilities, utilities and bad debts. SG&A expenses increased by $50.5 million, or 4.8%, to $1.10
billion in 2017. As a percentage of net sales, SG&A expenses were consistent at 14.3% in 2017 and 2016. SG&A expenses increased
primarily as a result of higher variable compensation expense.
SG&A payroll expenses for 2017 of $774.4 million increased by $39.7 million compared to 2016. The increase in SG&A
payroll expenses was primarily due to an increase in commissions, incentive compensation, healthcare benefits, and temporary
labor costs.
The remaining SG&A expenses for 2017 of $325.3 million increased by $10.8 million compared to 2016. The increase in the
remaining SG&A expenses was primarily due to an increase in operating costs required to support higher sales volumes.
Depreciation and Amortization. Depreciation and amortization decreased $2.8 million to $64.0 million in 2017, compared with
$66.9 million in 2016.
Income from Operations. Income from operations decreased by $11.2 million to $320.9 million in 2017, compared to $332.1
million in 2016. Income from operations as a percentage of net sales was 4.2% and 4.5% in 2017 and 2016, respectively. Income
from operations as a percentage of net sales decreased primarily as a result of lower gross margin.
Net Interest Expense. Interest expense totaled $68.5 million in 2017, compared with $76.6 million in 2016, a decrease of 10.6%.
The decrease was primarily due to a reduction in higher-priced debt. Non-cash interest expense, which includes the amortization
of debt discounts and debt issuance costs, and interest related to uncertain tax positions, was $4.1 million and $7.8 million for
2017 and 2016, respectively.
The following table sets forth the components of interest expense:
(In millions)
Amortization of debt discounts
Amortization of debt issuance costs
Interest related to uncertain tax positions, net
Non-cash interest expense
Change in accrued interest
Cash interest expense
Total interest expense
Twelve Months Ended
December 31,
2017
2016
$
$
$
0.3
3.7
0.1
4.1
0.6
63.8
68.5
$
3.1
3.6
1.2
7.9
(5.6)
74.3
76.6
Income Taxes. Our effective tax rate was 35.4% in 2017 compared to 23.1% in 2016. Our effective tax rate was impacted by
the relative amounts of income earned in the U.S. and foreign jurisdictions, primarily Canada, the tax rates in these jurisdictions,
and changes in foreign currency exchange rates. Additionally, as a result of the enactment of the TCJA, we recorded provisional
discrete tax expense of $26.4 million, which increased the annual effective tax rate by 10.5%. Without the impact of the TCJA,
our 2017 effective tax rate would have been 24.9%.
We are still analyzing the prospective impact of the TCJA on our effective tax rate. However, we expect our prospective effective
tax rate to be primarily impacted by the reduction in the U.S. federal statutory income tax rate from 35% to 21% and the current
year taxation of GILTI, which is likely to be partially offset by the deduction for foreign-derived intangible income. We currently
do not expect a material impact from the TCJA's expansion on the limitation of deductions for excessive employee compensation.
Additionally, we do not expect the TCJA to limit our ability to deduct interest expense for U.S. federal income tax purposes.
However, the interest expense limitations of the TCJA could have an impact on our state effective income tax rate. Management
is still evaluating the impact of the TCJA on the indefinite reinvestment of our foreign subsidiares' earnings and profits and our
intercompany financing strategies.
21
Net Income. Net income increased by $62.0 million, or 61.3%, to $163.1 million in 2017, compared to $101.1 million in 2016.
The increase in net income was primarily due to the loss on debt redemption recognized in 2016 as a result of the early redemption
of the 2029 Debentures and an increase in net sales, partially offset by higher cost of sales, SG&A and income tax expenses.
Adjusted net income for the year ended December 31, 2017 and December 31, 2016 was $189.6 million and $183.8 million,
respectively.
Net Income Attributable to WESCO International. Net income and earnings per diluted share attributable to WESCO
International were $163.5 million and $3.38 per share, respectively, in 2017, compared with $101.6 million and $2.10 per share,
respectively, in 2016. Adjusted net income and adjusted earnings per diluted share attributable to WESCO International were
$189.9 million and $3.93 per share, and $184.3 million and $3.80 per share, for the years ended December 31, 2017 and December
31, 2016, respectively.
Net Loss attributable to Noncontrolling Interest. Net loss attributable to noncontrolling interest in 2017 and 2016 was $0.3
million and $0.5 million, respectively.
The following table sets forth the reconciliation of adjusted net income, adjusted income taxes, and adjusted earnings per
diluted share:
Twelve Months Ended
December 31,
2017
2016
Adjusted Income Before Income Taxes:
Income before income taxes
Loss on debt redemption
Adjusted income before income taxes
Adjusted Tax Provision:
Provision for income taxes
Income tax expense for TCJA (1)
Income tax benefit from loss on debt redemption (2)
Adjusted provision for income taxes
Adjusted Net Income Attributable to WESCO International:
Adjusted income before income taxes
Adjusted provision for income taxes
Adjusted net income
$
$
$
$
$
Net loss attributable to noncontrolling interests
Adjusted net income attributable to WESCO International, Inc.
$
$
$
$
252.5
—
252.5
89.3
(26.4)
—
62.9
$
252.5
$
62.9
189.6
(0.3)
189.9
$
Adjusted Earnings per Diluted Share:
Twelve Months Ended
December 31,
2017
2016
Earnings per diluted common share
Impact of TCJA (1)
Loss on debt redemption (3)
Tax effect of loss on debt redemption (3)
Adjusted earnings per diluted common share
$
$
$
3.38
0.55
—
—
3.93
$
131.5
123.9
255.4
30.4
—
41.2
71.6
255.4
71.6
183.8
(0.5)
184.3
2.10
—
2.54
(0.84)
3.80
(1) The application of the TCJA resulted in a provisional discrete income tax expense of $26.4 million, which is comprised of $82.8 million of
expense associated with the deemed repatriation of undistributed earnings of foreign subsidiares partially offset by a $56.4 million benefit
from the remeasurement of U.S. deferred income tax balances.
(2) Represents the third quarter of 2016 income tax benefit related to the loss on debt redemption.
(3) The loss on debt redemption and related income tax benefit are based on the third quarter of 2016 diluted shares of 48.7 million.
22
Note: Adjusted net income attributable to WESCO International, Inc. for the year ended December 31, 2017, does not include provisional
discrete income tax expense of $26.4 million associated with the application of the TCJA. For 2016, adjusted net income attributable to
WESCO International, Inc. is defined as income before income taxes plus the 2016 third quarter loss on debt redemption, less the provision
for income taxes excluding the third quarter benefit of such loss.
For the year ended December 31, 2017, adjusted earnings per diluted share is computed by dividing adjusted net income by the weighted-
average common shares outstanding and common share equivalents. For the year ended 2016, adjusted earnings per diluted share is computed
by adding the loss per diluted share on debt redemption and deducting the related income tax benefit per diluted share recognized in the third
quarter of 2016 divided by the weighted-average common shares outstanding and common share equivalents.
The Company believes that these non-GAAP financial measures provide an overall understanding of the Company's current financial
performance and a consistent measure for assessing the current and historical financial results.
2016 Compared to 2015
Net Sales. Net sales in 2016 decreased 2.4% to $7.34 billion, compared with $7.52 billion in 2015. Acquisitions and number
of workdays positively impacted net sales by 3.1% and 0.4%, respectively, and were partially offset by a 1.0% decrease in foreign
exchange rates, resulting in a 4.9% decrease in organic sales growth.
The following table sets forth organic sales growth:
Organic Sales Growth:
Change in net sales
Less: Impact from acquisitions
Less: Impact from foreign exchange rates
Less: Impact from number of workdays
Organic sales growth
Twelve Months Ended
December 31,
2016
2015
(2.4)%
3.1 %
(1.0)%
0.4 %
(4.9)%
(4.7)%
2.0 %
(3.4)%
— %
(3.3)%
Note: Organic sales growth is a non-GAAP financial measure of sales performance. Organic sales growth is calculated by deducting the
percentage impact from acquisitions in the first year of ownership, foreign exchange rates and number of workdays from the overall percentage
change in consolidated net sales.
Cost of Goods Sold. Cost of goods sold decreased 2.3% in 2016 to $5.89 billion, compared with $6.02 billion in 2015. Cost
of goods sold as a percentage of net sales was 80.3% and 80.1% in 2016 and 2015, respectively.
SG&A Expenses. SG&A expenses include costs associated with personnel, shipping and handling, travel, advertising, facilities,
utilities and bad debts. SG&A expenses decreased by $5.7 million, or 0.5%, to $1.05 billion in 2016. SG&A expenses decreased
as the cost impact of recent acquisitions was offset by savings from headcount reductions, branch closures and consolidations,
and ongoing discretionary spending cost controls. As a percentage of net sales, SG&A expenses increased to 14.3% in 2016,
compared to 14.0% in 2015, reflecting lower sales volume.
SG&A payroll expenses for 2016 of $734.8 million decreased by $1.1 million compared to 2015. The decrease in SG&A payroll
expenses was primarily due to a decrease in commissions, incentives and benefits.
The remaining SG&A expenses for 2016 of $314.5 million decreased by $4.6 million compared to 2015.
Depreciation and Amortization. Depreciation and amortization increased $1.9 million to $66.9 million in 2016, compared with
$65.0 million in 2015.
Income from Operations. Income from operations decreased by $41.7 million to $332.0 million in 2016, compared to $373.7
million in 2015. Income from operations as a percentage of net sales was 4.5% and 5.0% in 2016 and 2015, respectively. Income
from operations as a percentage of net sales decreased as the benefits resulting from cost management were offset by lower sales
and gross margin.
Net Interest Expense. Interest expense totaled $76.6 million in 2016, compared with $69.8 million in 2015, an increase of 9.7%.
Non-cash interest expense, which includes the amortization of debt discounts and debt issuance costs, and interest related to
uncertain tax positions, was $7.9 million and $3.5 million for 2016 and 2015, respectively. In the fourth quarter of 2015, the
resolution of transfer pricing matters associated with previously filed tax positions resulted in non-cash interest income of $9.4
million.
23
The following table sets forth the components of interest expense:
(In millions)
Amortization of debt discounts
Amortization of debt issuance costs
Interest related to uncertain tax positions, net
Non-cash interest expense
Change in accrued interest
Cash interest expense
Total interest expense
Twelve Months Ended
December 31,
2016
2015
$
$
3.1
3.6
1.2
7.9
(5.6)
74.3
$
76.6
$
6.1
6.1
(8.7)
3.5
—
66.3
69.8
Loss on Debt Redemption. Loss on debt redemption of $123.9 million was the result of a non-cash charge from the early
redemption of the 2029 Debentures in the third quarter of 2016.
Income Taxes. Our effective tax rate was 23.1% in 2016 compared to 31.4% in 2015. Our effective tax rate is affected by
recurring items, such as the relative amounts of income earned in the United States and foreign jurisdictions, primarily Canada,
the tax rates in these jurisdictions and changes in foreign currency exchange rates. The loss on debt redemption reduced income
before income taxes, which decreased the effective tax rate for 2016. In 2015, the resolution of the transfer pricing matter described
above resulted in incremental income tax expense, which increased the effective tax rate.
Net Income. Net income decreased by $107.3 million, or 51.5%, to $101.1 million in 2016, compared to $208.4 million in
2015. Adjusted net income for the year ended December 31, 2016 was $183.8 million.
Net Loss Attributable to Noncontrolling Interests. Net loss attributable to noncontrolling interests was $0.5 million in 2016,
compared to $2.3 million in 2015. The losses in 2016 and 2015 were primarily due to foreign exchange losses on cash balances.
Net Income Attributable to WESCO International. Net income and diluted earnings per share attributable to WESCO
International were $101.6 million and $2.10 per share, respectively, in 2016, compared with $210.7 million and $4.18 per share,
respectively, in 2015. Adjusted net income and diluted earnings per share attributable to WESCO International were $184.3 million
and $3.80 per share, respectively, for the year ended December 31, 2016.
24
Liquidity and Capital Resources
Total assets were $4.74 billion and $4.43 billion at December 31, 2017 and 2016, respectively. Total liabilities at December 31,
2017 and 2016 were $2.62 billion and $2.47 billion, respectively. Stockholders’ equity increased by 7.8% to $2.12 billion at
December 31, 2017, compared with $1.96 billion at December 31, 2016, primarily as a result of net income of $163.5 million and
foreign currency translation adjustments of $85.8 million, which were partially offset by the repurchase of company stock of $100.0
million, pursuant to the share repurchase plan announced on December 31, 2014.
The following table sets forth our outstanding indebtedness:
International lines of credit
Term Loan Facility, less debt discount of $0.5 and $0.8 in 2017 and 2016, respectively
Accounts Receivable Securitization Facility
Revolving Credit Facility
5.375% Senior Notes due 2021
5.375% Senior Notes due 2024
Capital leases
Total debt
Less unamortized debt issuance costs
Less short-term debt and current portion of long-term debt
Total long-term debt
As of December 31,
2017
2016
(In millions)
$
$
$
34.1
84.2
380.0
12.0
500.0
350.0
2.0
1,362.3
(13.7)
(35.3)
1,313.3
$
20.9
144.0
380.0
4.0
500.0
350.0
2.9
1,401.8
(16.5)
(22.1)
1,363.2
The required annual principal repayments for all indebtedness for the next five years and thereafter, as of December 31,
2017, is set forth in the following table:
(In millions)
2018
2019
2020
2021
2022
Thereafter
Total payments on debt
Debt discount
Total debt
$
$
35.3
85.3
392.2
500.0
—
350.0
1,362.8
(0.5)
1,362.3
Our liquidity needs generally arise from fluctuations in our working capital requirements, capital expenditures, acquisitions
and debt service obligations. As of December 31, 2017, we had $562.9 million in available borrowing capacity under our Revolving
Credit Facility and $170.0 million in available borrowing capacity under our Receivables Facility, which combined with available
cash of $60.9 million, provided liquidity of $793.8 million. Cash included in our determination of liquidity represents cash in
deposit and interest bearing investment accounts. We believe cash provided by operations and financing activities will be adequate
to cover our current operational and business needs.
We monitor the depository institutions that hold our cash and cash equivalents on a regular basis, and we believe that we have
placed our deposits with creditworthy financial institutions. We also communicate on a regular basis with our lenders regarding
our financial and working capital performance, liquidity position and financial leverage. Our financial leverage ratio was 3.5 as
of December 31, 2017 and 2016. In addition, we are in compliance with all covenants and restrictions contained in our debt
agreements as of December 31, 2017.
25
The following table sets forth the Company's financial leverage ratio as of December 31, 2017 and 2016:
(In millions, except ratios)
Net income
Provision for income taxes
Loss on debt redemption
Interest expense, net
Depreciation and amortization
Adjusted EBITDA
Short-term borrowings and current debt
Long-term debt
Debt discount and debt issuance costs (1)
Total debt
Financial leverage ratio based on total debt
Twelve months ended December 31,
2017
2016
163.1
$
89.3
—
68.5
64.0
384.9
$
101.1
30.4
123.9
76.6
66.9
398.9
December 31, 2017
December 31, 2016
35.3
$
1,313.3
14.2
1,362.8
$
3.5
22.1
1,363.1
17.3
1,402.5
3.5
$
$
$
$
(1) Long-term debt is presented in the Consolidated Balance Sheets net of debt discount and debt issuance costs.
Note: Financial leverage is a non-GAAP financial measure of debt usage. Financial leverage ratio is calculated by dividing total debt, including
debt discount and debt issuance costs, by adjusted EBITDA. Adjusted EBITDA is defined as the trailing twelve months earnings before
interest, taxes, depreciation and amortization, plus loss on debt redemption for 2016.
At December 31, 2017, we had cash and cash equivalents totaling $118.0 million, of which $78.5 million was held by foreign
subsidiaries. The cash held by our foreign subsidiaries could be subject to additional income taxes if repatriated. We continue to
believe that we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriation
of the cash held by these foreign subsidiaries. However, as a result of the tax on the deemed repatriation of our undistributed foreign
earnings and profits under the TCJA, we are reevaluating our intent and ability to repatriate foreign cash and will disclose in future
filings any change in our intention and the resulting income tax impacts.
Over the next several quarters, we plan to closely manage working capital, and it is expected that excess cash will be directed
primarily toward growth initiatives, acquisitions, debt reduction, and share repurchases. We remain focused on maintaining ample
liquidity and credit availability. We anticipate capital expenditures in 2018 to be higher compared to 2017 as we continue to invest
in our business. We believe our balance sheet and ability to generate ample cash flow provides us with a durable business model
and should allow us to fund expansion needs and growth initiatives.
We finance our operating and investing needs as follows:
International Lines of Credit
Certain foreign subsidiaries of WESCO have entered into uncommitted lines of credit, which serve as overdraft facilities, to
support local operations. The maximum borrowing limit varies by facility and ranges between $0.3 million and $21.0 million. The
applicable interest rate for borrowings under these lines of credit varies by country and is governed by the applicable loan agreement.
The international lines of credit are renewable on an annual basis and certain facilities are fully and unconditionally guaranteed
by WESCO Distribution. Accordingly, borrowings under these lines directly reduce availability under the Revolving Credit Facility.
The average interest rate for these facilities was 5.42% and 7.36% at December 31, 2017 and 2016, respectively.
Term Loan Facility
On December 12, 2012, WESCO Distribution, as U.S. borrower, WDCC Enterprises Inc. ("WDCC" and together with WESCO
Distribution, the “Borrowers”), as Canadian borrower, and WESCO International entered into a Term Loan Agreement (the “Term
Loan Agreement”) among WESCO Distribution, WDCC, the Company, the lenders party thereto and Credit Suisse AG Cayman
Islands Branch, as administrative agent and as collateral agent.
26
The Term Loan Agreement provided a seven-year term loan facility (the “Term Loan Facility”), which consisted of two separate
sub-facilities: (i) a Canadian sub-facility in an aggregate principal amount of CAD150 million, issued at a 2.0% discount, and (ii)
a U.S. sub-facility in an aggregate principal amount of $700 million, issued at a 1.0% discount. The proceeds of the Term Loan
Facility were used to finance the acquisition of EECOL, and to pay fees and expenses incurred in connection with the acquisition
and certain other transactions. Subject to the terms of the Term Loan Agreement, the Borrowers may request incremental term
loans from time to time in an aggregate principal amount not to exceed at any time $300 million, with an equivalent principal
amount in U.S. dollars being calculated for any incremental term loan denominated in Canadian dollars.
On November 19, 2013, the Borrowers and WESCO International entered into an amendment (the “Term Loan Amendment”)
to the Term Loan Agreement. The Term Loan Amendment, among other things, reduced the applicable margin on U.S. term loans
by 0.50% and the LIBOR floor applicable to the U.S. sub-facility from 1.00% to 0.75%. The modified pricing terms were effective
December 13, 2013.
On November 26, 2013, WESCO Distribution sold $500 million aggregate principal amount of 5.375% Senior Notes due 2021
(the “2021 Notes”), and used the net proceeds plus excess cash to prepay $500 million under the Company's U.S. sub-facility of
the Term Loan Facility (see discussion below under “5.375% Senior Notes due 2021” for additional information). The prepayment
satisfied all remaining quarterly repayment obligations under the U.S. sub-facility. As of December 31, 2017, the amount
outstanding under the U.S. sub-facility was $84.8 million. The Canadian sub-facility was fully repaid in 2015 using cash provided
by Canadian operations.
Borrowings under the Term Loan Facility bear interest at base rates plus applicable margins. At December 31, 2017, the interest
rate on borrowings under the U.S. sub-facility was 4.7%. To the extent not previously paid, the outstanding U.S. sub-facility will
become due and payable on December 12, 2019, with any unpaid incremental term loans becoming due and payable on the
respective maturity dates applicable to those incremental term loans. At any time or from time to time, the Borrowers may prepay
borrowings under the Term Loan Facility in whole or in part without premium or penalty. The Borrowers' obligations under the
Term Loan Facility are secured by substantially all of the assets of the Borrowers, the Company and certain of the Company's
other subsidiaries; provided that, with respect to borrowings under the U.S. sub-facility, the collateral does not include assets of
certain foreign subsidiaries or more than 65% of the issued and outstanding equity interests in certain foreign subsidiaries.
The Term Loan Facility contains customary affirmative and negative covenants for credit facilities of this type. The Term Loan
Facility also provides for customary events of default.
Accounts Receivable Securitization Facility
On November 8, 2017, WESCO Distribution amended its accounts receivable securitization facility (the "Receivables Facility")
pursuant to the terms and conditions of a Fifth Amendment to Fourth Amended and Restated Receivables Purchase Agreement,
by and among WESCO Receivables Corp. (“WESCO Receivables”), WESCO Distribution, the various purchasers from time to
time party thereto and PNC Bank, National Association, as Administrator (the "Amendment"). The Amendment extended the term
of the Receivables Facility to September 24, 2020 and added and amended certain other defined terms. Substantially all other
terms and conditions of the Receivables Facility remain unchanged.
The Receivables Facility has a purchase limit of $550 million with the opportunity to exercise an accordion feature that permits
increases in the purchase limit of up to $100 million. The interest rate spread and commitment fee of the Receivables Facility is
0.95% and 0.45%, respectively.
Under the Receivables Facility, WESCO sells, on a continuous basis, an undivided interest in all domestic accounts receivable
to WESCO Receivables, a wholly owned special purpose entity (the “SPE”). The SPE sells, without recourse, a senior undivided
interest in the receivables to financial institutions for cash while maintaining a subordinated undivided interest in the receivables,
in the form of overcollateralization. WESCO has agreed to continue servicing the sold receivables for the third-party conduits and
financial institutions at market rates; accordingly, no servicing asset or liability has been recorded.
As of December 31, 2017 and 2016, accounts receivable eligible for securitization totaled $751.2 million and $657.5
million, respectively. The Consolidated Balance Sheets as of December 31, 2017 and 2016 include $380.0 million, for both
periods ended, account receivable balances legally sold to third parties, as well as borrowings for equal amounts. At
December 31, 2017, the interest rate for this facility was approximately 1.9%.
Revolving Credit Facility
On September 24, 2015, WESCO International, WESCO Distribution and certain other subsidiaries of the Company entered
into a $600 million revolving credit facility (the “Revolving Credit Facility”), which contains a letter of credit sub-facility of up
to $125 million, pursuant to the terms and conditions of a Second Amended and Restated Credit Agreement (the "Credit
Agreement"). The Revolving Credit Facility contains an accordion feature allowing WESCO Distribution to request increases to
the borrowing commitments of up to $200 million in the aggregate, subject to customary conditions.
27
The Revolving Credit Facility matures in September 2020 and consists of two separate sub-facilities: (i) a Canadian sub-facility
with a borrowing limit of up to $400 million, which is collateralized by substantially all assets of WESCO Canada and the other
Canadian Borrowers, other than, among other things, real property, in each case, subject to customary exceptions and limitations,
and (ii) a U.S sub-facility with a borrowing limit of up to $600 million less the amount of outstanding borrowings under the
Canadian sub-facility. The U.S. sub-facility is collateralized by substantially all assets of WESCO Distribution and its subsidiaries
which are party to the Credit Agreement, other than, among other things, real property and accounts receivable sold or intended
to be sold pursuant to the Receivables Purchase Agreement. The applicable interest rate for borrowings under the Revolving Credit
Facility includes interest rate spreads based on available borrowing capacity that range between 1.25% and 1.75% for LIBOR-
based borrowings and 0.25% and 0.75% for prime rate-based borrowings. At December 31, 2017, the interest rate for this facility
was approximately 3.0%.
The Credit Agreement requires ongoing compliance with certain customary affirmative and negative covenants. The Credit
Agreement also contains customary events of default.
During 2017, WESCO borrowed $834.4 million under the Revolving Credit Facility and made repayments in the aggregate
amount of $826.4 million. During 2016, aggregate borrowings and repayments were $1,025.8 million and $1,096.8 million,
respectively. WESCO had $562.9 million available under the Revolving Credit facility at December 31, 2017, after giving effect
to $18.0 million of outstanding letters of credit, $19.5 million of surety bonds, and $7.1 million of other reserves, as compared to
$509.7 million available under the Revolving Credit facility at December 31, 2016, after giving effect to $20.1 million of outstanding
letters of credit, $16.2 million of surety bonds, and $6.4 million of other reserves.
5.375% Senior Notes due 2021
In November 2013, WESCO Distribution issued $500 million aggregate principal amount of 2021 Notes through a private
offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The 2021
Notes were issued at 100% of par and are governed by an indenture (the “2021 Indenture”) entered into on November 26, 2013
between WESCO International and U.S. Bank National Association, as trustee. The 2021 Notes are unsecured senior obligations
of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO International. The 2021 Notes bear interest
at a stated rate of 5.375%, payable semi-annually in arrears on June 15 and December 15 of each year. In addition, we incurred
costs related to the issuance of the 2021 Notes totaling $8.4 million, which are recorded as a reduction to the carrying value of the
debt and are being amortized over the life of the notes. The 2021 Notes mature on December 15, 2021. The net proceeds of the
2021 Notes were used to prepay a portion of the U.S. sub-facility of the term loans due 2019.
Under the terms of a registration rights agreement dated as of November 26, 2013 among WESCO Distribution, WESCO
International and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the representative of the initial purchasers of the 2021
Notes, WESCO Distribution and WESCO International agreed to register under the Securities Act notes having terms identical in
all material respects to the 2021 Notes (the “2021 Exchange Notes”) and to make an offer to exchange the 2021 Exchange Notes
for the 2021 Notes. WESCO Distribution launched the exchange offer on June 12, 2014 and the exchange offer expired on July
17, 2014.
At any time WESCO Distribution may redeem all or a part of the 2021 Notes. Between December 15, 2017 and December 14,
2018, WESCO Distribution may redeem all or a part of the 2021 Notes at a redemption price equal to 102.688% of the principal
amount. Between December 15, 2018 and December 14, 2019, WESCO Distribution may redeem all or a part of the 2021 Notes
at a redemption price equal to 101.344% of the principal amount. On and after December 15, 2019, WESCO Distribution may
redeem all or a part of the 2021 Notes at a redemption price equal to 100% of the principal amount.
The 2021 Indenture contains customary covenants and customary events of default. In addition, upon a change of control, the
holders of 2021 Notes have the right to require WESCO Distribution to repurchase all or any part of the 2021 Notes at a redemption
price equal to 101% of the principal amount, plus accrued and unpaid interest.
5.375% Senior Notes due 2024
In June 2016, WESCO Distribution issued $350 million aggregate principal amount of 5.375% Senior Notes due 2024 (the
"2024 Notes") through a private offering exempt from the registration requirements of the Securities Act. The 2024 Notes were
issued at 100% of par and are governed by an indenture (the “2024 Indenture”) entered into on June 15, 2016 among WESCO
Distribution, as issuer, WESCO International, as parent guarantor, and U.S. Bank National Association, as trustee. The 2024 Notes
are unsecured senior obligations of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO International.
The 2024 Notes bear interest at a rate of 5.375% per annum, payable semi-annually in arrears on June 15 and December 15 of
each year, commencing on December 15, 2016. We incurred costs totaling $6.0 million to issue the 2024 Notes, which are recorded
as a reduction to the carrying value of the debt and are being amortized over the life of the note. The notes mature on June 15,
2024. The Company used the net proceeds to redeem its 2029 Debentures on September 15, 2016.
28
Under the terms of a registration rights agreement dated as of June 15, 2016 among WESCO Distribution, as the issuer, WESCO
International, as parent guarantor, and Goldman, Sachs & Co., as representative of the initial purchasers of the 2024 Notes, WESCO
Distribution and WESCO International agreed to register under the Securities Act notes having terms identical in all material
respects to the 2024 Notes (the “2024 Exchange Notes”) and to make an offer to exchange the 2024 Exchange Notes for the 2024
Notes. WESCO Distribution launched the exchange offer on December 28, 2016 and the exchange offer expired on January 31,
2017.
At any time on or after June 15, 2019, WESCO Distribution may redeem all or a part of the 2024 Notes. Between June 15,
2019 and June 14, 2020, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 104.031%
of the principal amount. Between June 15, 2020 and June 14, 2021, WESCO Distribution may redeem all or a part of the 2024
Notes at a redemption price equal to 102.688% of the principal amount. Between June 15, 2021 and June 14, 2022, WESCO
Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 101.344% of the principal amount. On and
after June 15, 2022, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 100% of the
principal amount.
The 2024 Indenture contains customary covenants and events of default. Upon a change of control, the holders of the 2024
Notes have the right to require WESCO Distribution to repurchase all or any part of the 2024 Notes at a redemption price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest.
6.0% Convertible Senior Debentures due 2029
On August 27, 2009, WESCO International completed an exchange offer pursuant to which it issued $345 million in aggregate
principal amount of the 2029 Debentures. On September 15, 2016, the Company redeemed the 2029 Debentures. Holders of the
2029 Debentures received cash totaling $344.8 million, which was equal to the principal amount of the then-outstanding debentures,
in addition to accrued and unpaid interest. Holders who surrendered the 2029 Debentures for conversion received 18 shares of
WESCO stock for each $1,000 principal amount of 2029 Debentures converted. In total, 6,267,688 shares were issued on the
redemption date. The redemption resulted in a non-cash loss of $123.9 million, which included the write off of unamortized debt
issuance costs.
WESCO separately accounted for the liability and equity components of its 2029 Debentures in a manner that reflected its non-
convertible debt borrowing rate. WESCO utilized an interest rate of 13.875% to reflect the non-convertible debt borrowing rate
of its offering upon issuance, which was determined based on discussions with its financial institutions and a review of relevant
market data, and resulted in a $181.2 million discount to the 2029 Debenture balance and a net increase in additional capital of
$106.5 million. In addition, the financing costs incurred to issue the 2029 Debentures were allocated between the instrument's debt
and equity components. WESCO amortized the debt discount and financing costs over the life of the instrument. For the years
ended December 31, 2016 and 2015, non-cash interest expense for the amortization of the debt discount and debt issuance costs
was $3.1 million and $4.2 million, respectively.
Covenant Compliance
We were in compliance with all relevant covenants contained in our debt agreements as of December 31, 2017.
Cash Flow
An analysis of cash flows for 2017 and 2016 follows:
Operating Activities. Cash provided by operating activities for 2017 totaled $149.1 million, compared with $300.3 million of
cash generated in 2016. Cash provided by operating activities included net income of $163.1 million and adjustments to net income
totaling $28.5 million. Sources of cash in 2017 were generated from an increase in accounts payable of $102.9 million, as a result
of the increase in sales, an increase in noncurrent liabilities of $64.8 million, due to an accrued tax liability related to the taxation
of undistributed earnings of foreign subsidiares under the TCJA, an increase in accrued payroll and benefit costs of $24.7 million
related to incentive compensation and a decrease in prepaid expenses and other current assets of $11.3 million, as a result of
changes in other income taxes. Primary uses of cash in 2017 included a $119.0 million and a $113.0 million increase in inventory
and trade receivables, respectively, as a result of an increase in customer backlog as well as an increase in sales, and a $14.2 million
increase in other accounts receivable, primarily related to the increase in supplier volume rebate accruals.
Cash provided by operating activities for 2016 totaled $300.2 million, compared with $283.1 million of cash generated in 2015.
Cash provided by operating activities included net income of $101.1 million and adjustments to net income totaling $159.3 million,
which included a loss on the redemption of our convertible debt of $123.9 million. Sources of cash in 2016 were generated from
a decrease in trade receivables of $56.8 million, an increase in other current and noncurrent liabilities of $15.7 million, and a
decrease in prepaid expenses and other noncurrent assets of $13.2 million. Primary uses of cash in 2016 included a $40.6 million
decrease in accounts payable, a $1.9 million decrease in accrued payroll and benefit costs, and decreases in other accounts receivable
and inventories of $1.6 million. In 2015, primary sources of cash were net income of $208.4 million and adjustments to net income
29
totaling $121.2 million. Other sources of cash in 2015 were generated from decreases in other accounts receivable of $57.2 million,
trade receivables of $40.1 million and inventories of $2.4 million. Primary uses of cash in 2015 included a $66.8 million decrease
in other current and noncurrent liabilities, a $55.9 million decrease in accounts payable, a $15.0 million decrease in accrued payroll
and benefit costs, and an $8.5 million increase in prepaid expenses and other noncurrent assets.
Investing Activities. Net cash used in investing activities in 2017 was $5.3 million, compared with $70.5 million of net cash
used in 2016, which included a payment of $50.9 million primarily related to the acquisition of Atlanta Electrical Distributors,
LLC. Capital expenditures were $21.5 million and $18.0 million in 2017 and 2016, respectively. Proceeds from the sale of assets
were $6.8 million and $8.4 million in 2017 and 2016, respectively. Other investing activities in 2017 included $9.4 million of cash
inflows from the maturity of a foreign investment.
Net cash used in investing activities in 2016 was $70.5 million, compared with $170.2 million of net cash used in 2015. Capital
expenditures were $18.0 million and $21.7 million in 2016 and 2015, respectively. Proceeds from the sale of assets were $8.4
million and $3.0 million in 2016 and 2015, respectively. During 2016, the Company had $50.9 million of acquisition payments,
primarily related to Atlanta Electrical Distributors, LLC, compared to $151.6 million in 2015, primarily to acquire Hill Country
Electric Supply, LP and Needham Electric Supply Corporation. Other investing activities in 2016 were $10.0 million.
Financing Activities. Net cash used in financing activities in 2017 was $141.2 million, compared with $276.3 million in 2016.
During 2017, financing activities consisted of borrowings and repayments of $834.4 million and $826.4 million, respectively,
related to our Revolving Credit Facility, borrowings and repayments of $670.2 million, related to our Receivables Facility,
repayments of $60.0 million related to our Term Loan Facility, as well as borrowings and repayments of $175.8 million and $164.0
million, respectively, related to our international lines of credit. Financing activities in 2017 also included the repurchase of $106.8
million of the Company's common stock, of which $100.0 million was pursuant to the share repurchase plan announced on December
17, 2014.
Net cash used in financing activities in 2016 was $276.3 million, compared with $67.8 million in 2015. During 2016, financing
activities consisted of borrowings and repayments of $1.03 billion and $1.10 billion, respectively, related to our Revolving Credit
Facility, borrowings and repayments of $706.9 million and $851.9 million, respectively, related to our Receivables Facility, proceeds
from the issuance of the 2024 Notes of $350.0 million, a payment of $344.8 million to redeem the 2029 Debentures and repayments
of $30.0 million applied to our Term Loan Facility. Financing activities in 2016 also included borrowings and repayments on our
various international lines of credit of $111.5 million and $131.5 million, respectively.
Contractual Cash Obligations and Other Commercial Commitments
The following summarizes our contractual obligations, including interest, at December 31, 2017 and the effect such
obligations are expected to have on liquidity and cash flow in future periods.
2018
2019 to 2020
2021 to 2022
2023 - After
Total
(In millions)
Contractual cash obligations (including interest):
Debt, excluding debt discount and debt issuance
costs
Interest on indebtedness (1)
Non-cancelable operating leases
Taxes due on deemed repatriation of foreign
earnings (2)
Total contractual cash obligations
$
$
35.3
58.8
65.5
4.2
163.8
$
$
477.5
108.3
99.4
12.2
697.4
$
$
500.0
63.4
57.4
9.7
630.5
$
$
350.0
28.3
49.2
38.9
466.4
$
$
1,362.8
258.8
271.5
65.0
1,958.1
(1) Interest on the variable rate debt was calculated using the rates and balances outstanding at December 31, 2017.
(2) Included in the table above is a provisional estimate of the U.S. federal and state income taxes due under the deemed repatriation provisions
of the TCJA, net of available foreign tax credits, that will be paid over 8 years. Absent guidance from the states on whether or not they will
conform to the TCJA's repatriation provisions, management has assumed that the provisional state tax liability will be payable when the
relevant 2017 and 2018 tax returns are filed.
Purchase orders for inventory requirements and service contracts are not included in the table above. Generally, our purchase
orders and contracts contain clauses allowing for cancellation. We do not have significant agreements to purchase material or
goods that would specify minimum order quantities. Also, we do not consider liabilities for uncertain tax benefits to be contractual
obligations requiring disclosure due to the uncertainty surrounding the ultimate settlement and timing of these liabilities. As such,
we have not included liabilities for uncertain tax benefits of $4.8 million in the table above.
30
Inflation
The rate of inflation, as measured by changes in the producer price index, affects different commodities, the cost of products
purchased and ultimately the pricing of our different products and product classes to our customers. Our pricing related to inflation
did not have a measurable impact on our sales revenue for the year. Historically, price changes from suppliers have been consistent
with inflation and have not had a material impact on the results of our operations.
Seasonality
Sales during the first quarter are affected by a reduced level of activity. Sales during the second, third and fourth quarters are
generally 6 - 8% higher than the first quarter. Sales typically increase beginning in March, with slight fluctuations per month
through October. During periods of economic expansion or contraction, our sales by quarter have varied significantly from this
pattern.
Impact of Recently Issued Accounting Standards
See Note 2 of the Notes to Consolidated Financial Statements for information regarding the effect of new accounting
pronouncements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
Foreign Currency Risks
Approximately 25% of our sales in 2017 were made by our foreign subsidiaries located in North America, South America,
Europe, Africa, and Asia and are denominated in foreign currencies. We may establish additional foreign subsidiaries in the future.
Accordingly, we may derive a larger portion of our sales from international operations, and a portion of these sales may be
denominated in foreign currencies. As a result, our future operating results could become subject to fluctuations in foreign exchange
rates relative to the U.S. dollar. Furthermore, to the extent that we engage in international sales denominated in U.S. dollars, an
increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international
markets. We have monitored and will continue to monitor our exposure to currency fluctuations.
Interest Rate Risk
Fixed Rate Borrowings: Approximately 63% of our debt portfolio is comprised of fixed rate debt. At various times, we have
refinanced our debt to mitigate the impact of interest rate fluctuations. As the 2021 Notes and 2024 Notes were issued at fixed
rates, interest expense would not be impacted by interest rate fluctuations, although market value would be. For the 2021 Notes
and 2024 Notes, fair value approximated carrying value (see Note 7 to the Consolidated Financial Statements).
Floating Rate Borrowings: The Company's variable rate borrowings at December 31, 2017 were comprised of the amounts
outstanding under the Term Loan Facility, Receivables Facility, Revolving Credit Facility, and the international lines of credit.
The fair value of these debt instruments at December 31, 2017 approximated carrying value. We entered into the Term Loan
Facility on December 12, 2012 and the proceeds were primarily used to finance the acquisition of EECOL. Borrowings under the
U.S. sub-facility of the Term Loan Facility bear interest at 0.75% or, if greater, the applicable LIBOR (London Interbank Offered
Rate) or base rates plus applicable margins and therefore are subject to fluctuations in interest rates. We borrow under our Revolving
Credit Facility and Receivables Facility for general corporate purposes, including working capital requirements and capital
expenditures. Borrowings under our Revolving Credit Facility bear interest at the applicable LIBOR / CDOR (Canadian Dealer
Offered Rate) or base rates plus applicable margins, whereas borrowings under the Receivables Facility bear interest at the 30 day
LIBOR plus applicable margins. A 100 basis point increase or decrease in interest rates would not have a significant impact on
future earnings under our current capital structure.
Defined Benefit Pension Plan: The interest rate used to discount future estimated cash flows is determined using the Canadian
Institute of Actuaries ("CIA") methodology, which references yield curve information provided by Fiera Capital. The discount
rate used to determine the projected benefit obligations for the Canadian pensions was 3.5% at December 31, 2017. An increase
in the discount rate of one percent would decrease the projected benefit obligations by $22.0 million, and a decrease in the discount
rate of one percent would increase the projected benefit obligations by $29.7 million. The impact of a change in the discount rate
of one percent would be either a charge of $2.0 million or a credit of $1.4 million to earnings in the following year.
31
Item 8. Financial Statements and Supplementary Data.
The information required by this item is set forth in our Consolidated Financial Statements contained in this Annual Report
on Form 10-K. Specific financial statements can be found at the pages listed below:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Income and Comprehensive Income (Loss) for the years ended
December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
PAGE
33
35
36
37
38
39
32
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of WESCO International, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of WESCO International, Inc. and its subsidiaries as of December
31, 2017 and 2016, and the related consolidated statements of income and comprehensive income (loss), of stockholders’ equity
and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and schedule of
valuation and qualifying accounts for each of the three years in the period ended December 31, 2017 listed in the index appearing
under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's
internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 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
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated 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 the Company’s consolidated financial statements and on the Company's internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
33
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
Pittsburgh, Pennsylvania
February 21, 2018
We have served as the Company’s auditor since 1994.
34
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Current assets:
Assets
Cash and cash equivalents
Trade accounts receivable, net of allowance for doubtful accounts of $21,313 and $22,007
$
117,953
$
110,131
As of December 31,
2017
2016
(In thousands,
except share data)
in 2017 and 2016, respectively
Other accounts receivable
Inventories
Income taxes receivable (Note 2)
Prepaid expenses and other current assets (Note 2)
Total current assets
Property, buildings and equipment, net (Note 6)
Intangible assets, net (Note 3)
Goodwill (Notes 2 and 3)
Deferred income taxes (Note 9)
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued payroll and benefit costs (Note 11)
Short-term debt (Note 7)
Current portion of long-term debt (Note 7)
Bank overdrafts
Income taxes payable (Note 2)
Other current liabilities
Total current liabilities
Long-term debt, net of debt discount and debt issuance costs of $14,224 and $17,278
in 2017 and 2016, respectively (Note 7)
Deferred income taxes (Notes 2 and 9)
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ Equity:
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued or
outstanding (Note 8)
Common stock, $.01 par value; 210,000,000 shares authorized, 59,045,762 and 58,817,781
shares issued and 47,009,540 and 48,611,497 shares outstanding in 2017 and 2016,
respectively (Note 8)
Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized,
4,339,431 issued and no shares outstanding in 2017 and 2016, respectively
Additional capital
Retained earnings (Note 2)
Treasury stock, at cost; 16,375,653 and 14,545,715 shares in 2017 and 2016, respectively
Accumulated other comprehensive loss (Note 2)
Total WESCO International, Inc. stockholders' equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
1,170,080
101,229
956,148
23,250
40,189
2,408,849
156,445
367,104
1,771,877
24,203
6,990
4,735,468
799,520
72,686
34,075
1,224
37,644
9,712
86,108
1,040,969
1,313,261
136,858
128,237
2,619,325
1,034,402
85,019
821,441
5,725
46,360
2,103,078
157,607
393,362
1,730,950
15,803
31,041
4,431,841
684,721
49,250
20,920
1,218
29,384
9,881
78,425
873,799
$
$
1,363,135
168,245
63,031
2,468,210
$
—
591
—
588
43
999,156
2,079,697
(647,158)
(312,590)
2,119,739
(3,596)
2,116,143
4,735,468
$
43
986,020
1,914,757
(542,537)
(391,971)
1,966,900
(3,269)
1,963,631
4,431,841
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
35
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
Net sales
Cost of goods sold (excluding depreciation and amortization)
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Interest expense, net
Loss on debt redemption (Note 7)
Income before income taxes
Provision for income taxes (Note 9)
Net income
Less: Net loss attributable to noncontrolling interests
Net income attributable to WESCO International, Inc.
$
Other comprehensive income (loss):
Foreign currency translation adjustments
Post retirement benefit plan adjustments, net of tax (Note 11)
Comprehensive income (loss) attributable to WESCO International, Inc.
$
Earnings per share attributable to WESCO International, Inc. (Note 10)
Basic
Diluted
$
$
3.42
3.38
Year Ended December 31,
2017
2016
2015
(In thousands, except per share data)
$
7,679,021
$
7,336,017
$
7,518,487
6,194,366
1,099,748
5,887,814
1,049,286
6,024,826
1,054,951
64,017
320,890
68,450
—
252,440
89,307
163,133
(327)
163,460
85,762
(6,381)
242,841
66,858
332,059
76,575
123,933
131,551
30,431
101,120
(468)
101,588
38,275
(2,485)
137,378
2.30
2.10
$
$
$
$
64,968
373,742
69,832
—
303,910
95,537
208,373
(2,314)
210,687
(225,795)
4,532
(10,576)
4.85
4.18
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
36
(In thousands)
Balance, December 31, 2014
Exercise of stock-based awards, including
tax benefit of $1,403
Stock-based compensation expense
Conversion of 2029 Debentures, net of tax
Repurchase of common stock
Tax withholding related to vesting of
restricted stock units and retirement of
common stock
Noncontrolling interests
Net income attributable to WESCO
Translation adjustments
Benefit plan adjustments, net of tax effect
of $1,661
Balance, December 31, 2015
Exercise of stock-based awards, including
tax benefit of $67
Stock-based compensation expense
Conversion of 2029 Debentures, net of tax
Tax withholding related to vesting of
restricted stock units and retirement of
common stock
Noncontrolling interests
Net income attributable to WESCO
Translation adjustments
Benefit plan adjustments, net of tax effect
of $302
Balance, December 31, 2016
Exercise of stock-based awards
Stock-based compensation expense
Repurchase of common stock
Tax withholding related to vesting of
restricted stock units and retirement of
common stock
Noncontrolling interests
Net income attributable to WESCO
Translation adjustments
Benefit plan adjustments, net of tax effect
of $2,361
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Class B
Common Stock
Amount
584
$
Shares
58,400,736
Amount
43
$
Shares
4,339,431
Additional
Capital
$ 1,102,369
Retained
Earnings
(Deficit)
$ 1,602,139
Treasury Stock
Shares
Amount
$ (616,366)
Accumulated Other
Comprehensive
Income
(Loss)
Noncontrolling
Interests
(18,250,178) $
(487) $
(206,498)
2
—
230,206
427
1,344
12,899
(2)
3,013
(3,300)
(44,267)
(153,013)
(2,468,576)
—
(33,989)
(2,202)
(145)
210,687
(2,314)
$
586
58,597,380
$
43
4,339,431
$ 1,117,421
$ 1,812,681
$ (772,679)
(20,763,021) $
(2,801) $
2
—
—
230,464
7,295
(17,358)
(2,876)
12,493
(139,765)
(3,224)
(44,191)
233,366
6,261,497
(1,253)
488
101,588
(468)
$
588
3
58,817,781
243,361
$
43
4,339,431
$
986,020
(407)
14,809
38
$ 1,914,757
$ (542,537)
(4,583)
(14,545,715) $
(51,501)
(3,269) $
(100,038)
(1,778,537)
—
(15,380)
(1,304)
1,480
163,460
(327)
(225,795)
4,532
(427,761)
38,275
(2,485)
(391,971)
85,762
(6,381)
(312,590)
Balance, December 31, 2017
$
591
59,045,762
$
43
4,339,431
$
999,156
$ 2,079,697
$ (647,158)
(16,375,753) $
(3,596) $
The accompanying notes are an integral part of the consolidated financial statements.
37
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Amortization of debt discount and debt issuance costs
Loss on debt redemption (Note 7)
Gain on sale of property, buildings and equipment
Other operating activities
Deferred income taxes
Changes in assets and liabilities:
Trade receivables, net
Other accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued payroll and benefit costs
Other current and noncurrent liabilities
Net cash provided by operating activities
Investing Activities:
Capital expenditures
Acquisition payments, net of cash acquired
Proceeds from sale of assets
Other investing activities
Net cash used in investing activities
Financing Activities:
Proceeds from issuance of short-term debt
Repayments of short-term debt
Proceeds from issuance of long-term debt
Repayments of long-term debt
Debt issuance costs
Repurchase of common stock (Note 10)
Other financing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
Supplemental disclosures:
Cash paid for interest
Cash paid for taxes
Non-cash investing and financing activities:
2017
Year Ended December 31,
2016
(In thousands)
2015
$
163,133
$
101,120
$
208,373
64,017
14,809
3,984
—
(4,038)
79
(50,396)
(112,977)
(14,163)
(119,002)
11,334
102,870
24,679
64,793
149,122
(21,507)
—
6,766
9,446
(5,295)
66,858
12,493
6,684
123,933
(4,702)
(836)
(45,174)
56,767
(1,628)
(1,612)
13,207
(40,607)
(1,922)
15,654
300,235
(17,957)
(50,890)
8,361
(10,000)
(70,486)
175,819
(164,030)
1,504,636
(1,556,636)
(915)
(106,792)
6,722
(141,196)
5,191
7,822
110,131
117,953
63,795
65,117
$
$
111,458
(131,501)
2,082,738
(2,323,568)
(6,002)
(4,818)
(4,570)
(276,263)
(3,634)
(50,148)
160,279
110,131
74,391
76,293
$
$
$
$
64,968
12,899
12,195
—
(45)
(11,627)
42,850
40,102
57,242
2,410
(8,517)
(55,914)
(15,015)
(66,872)
283,049
(21,658)
(151,595)
3,023
—
(170,230)
102,033
(101,353)
1,528,578
(1,435,820)
(3,359)
(155,805)
(2,089)
(67,815)
(13,044)
31,960
128,319
160,279
66,342
74,213
Property, buildings and equipment acquired through capital leases
552
1,143
288
The accompanying notes are an integral part of the consolidated financial statements.
38
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
WESCO International, Inc. ("WESCO International") and its subsidiaries (collectively, “WESCO” or the "Company"),
headquartered in Pittsburgh, Pennsylvania, is a full-line distributor of electrical, industrial and communications maintenance,
repair and operating ("MRO") and original equipment manufacturer ("OEM") products, construction materials, and advanced
supply chain management and logistics services used primarily in the industrial, construction, utility and commercial, institutional
and government markets. WESCO serves approximately 70,000 active customers globally, through approximately 500 branches
and 10 distribution centers located primarily in the United States, Canada and Mexico, with operations in 15 additional countries.
2. ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of WESCO International and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Revision of Prior Period Financial Statements
In the third quarter of 2017, management determined that the Company's income taxes receivable and payable and other tax
account balances were overstated as of December 31, 2016 by a cumulative net amount of $46.4 million, which related to multiple
prior periods. The Company also identified a $10.2 million understatement related to deferred income taxes and goodwill. In
accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements, management concluded that these
misstatements are not material to the Company's previously issued annual and interim financial statements. Correcting the effected
financial statement line items in the year ended December 31, 2017 would have materially misstated the consolidated financial
statements presented herein. Accordingly, the Consolidated Balance Sheet at December 31, 2016 and the Consolidated Statements
of Stockholders' Equity for the years ended December 31, 2016 and 2015 have been revised in this Annual Report on Form 10-
K. There was an immaterial effect on the Consolidated Statements of Income and Comprehensive Income (Loss) for the years
ended December 31, 2016 and 2015, and no effect on the Consolidated Statements of Cash Flows for such periods.
The following table presents the effects on the financial statement line items that were revised:
Income taxes receivable
Prepaid expenses and other current assets
Total current assets
Goodwill
Total assets
Income taxes payable
Total current liabilities
Deferred income taxes
Total liabilities
Retained earnings (1)
Accumulated other comprehensive loss (1)
Total WESCO International, Inc. stockholders' equity
Total stockholders' equity
Total liabilities and stockholders' equity
December 31, 2016
As
Reported
Adjustment
(In thousands)
As
Revised
$
72,881
$
48,583
2,172,457
1,720,714
4,490,984
32,879
896,797
158,009
2,480,972
1,956,532
(387,365)
2,013,281
2,010,012
4,490,984
(67,156) $
(2,223)
(69,379)
10,236
(59,143)
(22,998)
(22,998)
10,236
(12,762)
(41,775)
(4,606)
(46,381)
(46,381)
(59,143)
5,725
46,360
2,103,078
1,730,950
4,431,841
9,881
873,799
168,245
2,468,210
1,914,757
(391,971)
1,966,900
1,963,631
4,431,841
(1) These financial statement line items have been revised as of December 31, 2015 and 2014 in the Consolidated Statements of Stockholders'
Equity for the years ended December 31, 2017, 2016 and 2015.
39
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Although these estimates are based on management’s best knowledge of current events and
actions WESCO may undertake in the future, actual results may ultimately differ from the estimates.
Revenue Recognition
Revenues are recognized for product sales when title, ownership and risk of loss pass to the customer or for services when the
service is rendered. In the case of stock sales and special orders, a sale occurs at the time of shipment from WESCO's distribution
point, as the terms of WESCO’s sales are typically FOB shipping point. In cases where WESCO processes customer orders that
ship directly from suppliers, revenue is recognized once the product is shipped and title has passed. In all cases, revenue is recognized
once the sales price to the customer is fixed or is determinable and WESCO has reasonable assurance as to the collectability.
WESCO provides integrated supply services to certain customers, which include some or all of the following: determine
inventory stocking levels; establish inventory reorder points; launch purchase orders; receive material; pack away material; and,
pick material for order fulfillment. WESCO recognizes revenue for these services in the period rendered based upon a previously
negotiated fee arrangement. WESCO also sells inventory to these customers and recognizes revenue at the time title and risk of
loss transfers to the customer. The amount of revenue recognized for integrated supply services totaled $26.2 million, $27.1 million,
and $35.1 million in 2017, 2016 and 2015, respectively.
Selling, General and Administrative Expenses
WESCO includes warehousing, purchasing, branch operations, information services, and marketing and selling expenses in
this category, as well as other types of general and administrative costs.
Supplier Volume Rebates
WESCO receives volume rebates from certain suppliers based on contractual arrangements with such suppliers. Volume rebates
are included within other accounts receivable in the Consolidated Balance Sheets, and represent the estimated amounts due to
WESCO under the rebate provisions of the various supplier contracts. The corresponding rebate income is derived from the level
of actual purchases made by WESCO and is recorded as a reduction to cost of goods sold. Receivables under the supplier rebate
program were $72.7 million at December 31, 2017 and $64.2 million at December 31, 2016. Supplier volume rebate rates have
historically ranged between approximately 0.9% and 1.4% of sales depending on market conditions. In 2017, the rebate rate was
1.3%.
Shipping and Handling Costs and Fees
WESCO records the costs and fees associated with transporting its products to customers as a component of selling, general
and administrative expenses. These costs totaled $61.8 million, $57.9 million and $59.4 million in 2017, 2016 and 2015, respectively.
Cash Equivalents
Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less when purchased.
Asset Securitization
WESCO maintains control of the receivables transferred pursuant to its accounts receivable securitization program (the
“Receivables Facility”); therefore, the transfers do not qualify for “sale” treatment. As a result, the transferred receivables remain
on the balance sheet, and WESCO recognizes the related secured borrowing. The expenses associated with the Receivables Facility
are reported as interest expense in the Consolidated Statements of Income and Comprehensive Income (Loss).
Allowance for Doubtful Accounts
WESCO maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make
required payments. WESCO has a systematic procedure using estimates based on historical data and reasonable assumptions of
collectability made at the local branch level and on a consolidated corporate basis to calculate the allowance for doubtful accounts.
If the financial condition of WESCO’s customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. The allowance for doubtful accounts was $21.3 million at December 31, 2017 and $22.0
million at December 31, 2016. The total amount recorded as selling, general and administrative expense related to bad debts was
$8.5 million, $5.9 million and $6.1 million for 2017, 2016 and 2015, respectively.
40
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Inventories
Inventories primarily consist of merchandise purchased for resale and are stated at the lower of cost and net realizable value.
Cost is determined principally under the average cost method. WESCO makes provisions for obsolete or slow-moving inventories
as necessary to reflect reductions in value. WESCO writes down its inventories to net realizable value based on internal factors
derived from historical analysis of actual losses. On a retrospective basis, WESCO identifies items in excess of 36 months supply
relative to demand or movement. WESCO then analyzes the ultimate disposition of identified excess inventories as they are sold,
returned to supplier, or scrapped. This historical item-by-item analysis allows WESCO to develop an estimate of the likelihood
that an item identified as being in excess supply ultimately becomes obsolete. WESCO applies the estimate to inventories currently
in excess of 36 months supply, and reduces the carrying value of its inventories by the derived amount. Reserves for excess and
obsolete inventories were $28.6 million and $27.3 million at December 31, 2017 and 2016, respectively. The total expense related
to excess and obsolete inventories, included in cost of goods sold, was $8.8 million, $7.3 million and $8.6 million for 2017, 2016
and 2015, respectively. WESCO absorbs into the cost of inventories certain overhead expenses such as purchasing, receiving and
storage and at December 31, 2017 and 2016, $70.7 million and $65.3 million, respectively, of these costs were included in ending
inventories.
Property, Buildings and Equipment
Property, buildings and equipment are recorded at cost. Depreciation expense is determined using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are amortized over either their respective lease terms or
their estimated lives, whichever is shorter. Estimated useful lives range from five to forty years for buildings and leasehold
improvements and three to ten years for furniture, fixtures and equipment.
Capitalized computer software costs are amortized using the straight-line method over the estimated useful life, typically three
to five years, and are reported at the lower of unamortized cost or net realizable value.
Expenditures for new facilities and improvements that extend the useful life of an asset are capitalized. Ordinary repairs and
maintenance are expensed as incurred. When property is retired or otherwise disposed of, the cost and the related accumulated
depreciation are removed from the accounts and any resulting gains or losses are recorded and reported as selling, general and
administrative expenses.
Of WESCO’s $156.4 million net book value of property, buildings and equipment as of December 31, 2017, $97.6 million
consists of land, buildings and leasehold improvements and are geographically dispersed among WESCO’s 500 branches and 10
distribution centers, mitigating the risk of impairment. WESCO assesses its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of any such assets may not be fully recoverable. Changes in
circumstances include technological advances, changes in the business model, capital structure, economic conditions or operating
performance. The evaluation is based upon, among other things, utilization, serviceability and assumptions about the estimated
future undiscounted cash flows that these assets are expected to generate. When the sum of the undiscounted cash flows is less
than the carrying value of the asset or asset group, an impairment loss is recognized to the extent that carrying value exceeds fair
value. Management applies its best judgment when performing these evaluations.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter using information
available at the end of September, or more frequently if triggering events occur, indicating that their carrying value may not be
recoverable. WESCO tests for goodwill impairment on a reporting unit level and the evaluation involves comparing the fair value
of each reporting unit to its carrying value. The fair values of the reporting units are determined using a combination of a discounted
cash flow analysis and market multiples. Assumptions used for these fair value techniques are based on a combination of historical
results, current forecasts, market data and recent economic events. WESCO evaluates the recoverability of indefinite-lived
intangible assets using the relief-from-royalty method based on projected financial information. At December 31, 2017 and 2016,
respectively, goodwill and indefinite-lived trademarks totaled $1.87 billion and $1.83 billion.
We performed our annual impairment testing of goodwill and indefinite-lived intangible assets during the fourth quarter. A
possible indicator of goodwill impairment is the relationship of a company’s market capitalization to its book value. As of
December 31, 2017, our market capitalization exceeded our book value and the fair values of our reporting units exceeded their
carrying values. Accordingly, there were no impairment losses identified as a result of our annual test.
The determination of fair value involves significant management judgment and management applies its best judgment when
assessing the reasonableness of financial projections. Fair values are sensitive to changes in underlying assumptions and factors.
As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-
lived intangible impairment tests will prove to be an accurate prediction of future results.
41
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Definite Lived Intangible Assets
Intangible assets are amortized over 2 to 20 years. A portion of intangible assets related to certain customer relationships are
amortized using an accelerated method whereas all other intangible assets subject to amortization use a straight-line method that
reflects the pattern in which the economic benefits of the respective assets are consumed or otherwise used. Intangible assets are
tested for impairment if events or circumstances occur indicating that the respective asset might be impaired.
Insurance Programs
WESCO uses commercial insurance for auto, workers’ compensation, casualty and health claims, and information technology
as a risk-reduction strategy to minimize catastrophic losses. The Company’s strategy involves large deductible policies where
WESCO must pay all costs up to the deductible amount. WESCO estimates the reserve for these programs based on historical
incident rates and costs. The assumptions included in developing this accrual include the period of time between the incurrence
and payment of a claim. The total liability related to the insurance programs was $13.9 million and $9.5 million at December 31,
2017 and 2016, respectively.
Income Taxes
WESCO accounts for income taxes under the asset and liability method, which requires the recognition of deferred income
taxes for events that have future tax consequences. Under this method, deferred income taxes are recognized (using enacted tax
laws and rates) based on the future income tax effects of differences in the carrying amounts of assets and liabilities for financial
reporting and tax purposes. The effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the
period of change.
WESCO recognizes deferred tax assets at amounts that are expected to be realized. To make such determination, management
evaluates all positive and negative evidence, including but not limited to, prior, current and future taxable income, tax planning
strategies and future reversals of existing temporary differences. A valuation allowance is recognized if it is “more-likely-than-
not” that some or all of a deferred tax asset will not be realized. WESCO regularly assesses the realizability of deferred tax assets.
WESCO accounts for uncertainty in income taxes using a "more-likely-than-not" recognition threshold. Due to the subjectivity
inherent in the evaluation of uncertain tax positions, the tax benefit ultimately recognized may materially differ from the
estimate. WESCO recognizes interest and penalties related to uncertain tax benefits as part of interest expense and income tax
expense, respectively.
The Tax Cuts and Jobs Act of 2017 (the “TCJA”) imposes a one-time tax on the deemed repatriation of undistributed foreign
earnings. Notwithstanding the effects of applying such provisions of the TCJA, WESCO continues to assert that the earnings of
its foreign subsidiaries are indefinitely reinvested. However, as a result of the TCJA, the Company is reevaluating its intent and
ability to repatriate foreign cash based upon the available liquidity and cash flow needs of its foreign subsidiaries and will disclose
in future filings any change in its intention to repatriate undistributed foreign earnings and any resulting income tax impacts. Until
the Company completes this reevaluation, it is not practicable to determine the amount of any unrecognized deferred income taxes
on these undistributed foreign earnings.
The provisions of the TCJA also introduce U.S. taxation on certain global intangible low-taxed income ("GILTI"). WESCO
has elected to account for any GILTI tax that arises in future periods as a component of income tax expense.
Provisional amounts are recorded for certain income tax effects of the TCJA for which the accounting is incomplete, but a
reasonable estimate can be determined. Provisional amounts, or adjustments to provisional amounts, identified during the period
ending on or before one year from the TCJA's enactment date are recognized as an adjustment to income tax expense or benefit
from continuing operations in the period the amounts are determined.
Debt Issuance Costs
WESCO capitalizes costs associated with the issuance of debt and such costs are amortized over the term of the respective
debt instrument on a straight-line basis. Debt issuance costs are presented in the Consolidated Balance Sheets as a direct reduction
from the carrying amount of the related debt liability. Upon prepayment of debt, the Company accelerates the recognition of an
appropriate amount of the costs as refinancing or extinguishment of debt. During the year ended December 31, 2017, the Company
capitalized debt issuance costs of $0.9 million. As of December 31, 2017 and 2016, unamortized debt issuance costs of $13.7
million and $16.5 million were recorded in the Consolidated Balance Sheets, respectively.
42
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Convertible Debentures
WESCO separately accounted for the liability and equity components of the 6.0% Convertible Senior Debentures due 2029
(the "2029 Debentures") in a manner that reflected its non-convertible debt borrowing rate. WESCO estimated its non-convertible
debt borrowing rate through a combination of discussions with its financial institutions and review of relevant market data. The
discounts to the convertible debt balances were amortized to interest expense, using the effective interest method, over the implicit
life of the debentures.
Foreign Currency
The local currency is the functional currency for the majority of WESCO’s operations outside the United States. Assets and
liabilities of these operations are translated to U.S. dollars at the exchange rate in effect at the end of each period. Income statement
accounts are translated at an exchange rate that approximates the average for the period. Translation adjustments arising from the
use of differing exchange rates from period to period are included as a component of other comprehensive income (loss) within
stockholders’ equity. Gains and losses from foreign currency transactions are included in net income for the period.
Defined Benefit Pension Plan
Liabilities and expenses for pension benefits are determined using actuarial methodologies and incorporate significant
assumptions, including the interest rate used to discount the future estimated cash flows, the expected long-term rate of return on
plan assets, and several assumptions relating to the employee workforce (salary increases, retirement age, and mortality).
The interest rate used to discount future estimated cash flows is determined using the Canadian Institute of Actuaries ("CIA")
methodology, which references yield curve information provided by Fiera Capital and matches expected benefit payments. The
expected long-term rate of return on plan assets is applied to the fair market-related value of plan assets. The discount rate used
to determine the projected benefit obligations for the Canadian pensions was 3.5% at December 31, 2017.
Stock-Based Compensation
WESCO's stock-based employee compensation plans are comprised of stock-settled stock appreciation rights, restricted stock
units, and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant,
and compensation cost is recognized, net of forfeitures, over the service period for awards expected to vest. The fair value of stock-
settled appreciation rights and performance-based awards with market conditions is determined using the Black-Scholes and Monte
Carlo simulation models, respectively. The fair value of restricted stock units with service conditions and performance-based
awards with performance conditions is determined by the grant-date closing price of WESCO's common stock. Expected volatilities
are based on historical volatility of WESCO's common stock. WESCO estimates the expected life of stock-settled stock appreciation
rights using historical data pertaining to option exercises and employee terminations. The risk-free rate is based on the U.S. Treasury
yields in effect at the time of grant. The forfeiture assumption is based on WESCO's historical employee behavior, which is reviewed
on an annual basis. No dividends are assumed for stock-based awards. For stock appreciation rights that are exercised and for
restricted stock units and performance-based award that vest, shares are issued out of WESCO's outstanding common stock.
Treasury Stock
Common stock purchased for treasury is recorded at cost. At the date of subsequent reissue, the treasury stock account is
reduced by the cost of such stock, with cost determined on a weighted-average basis.
Fair Value of Financial Instruments
The Company measures the fair value of financial assets and liabilities in accordance with Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 820, "Fair Value Measurements and Disclosures." ASC 820 establishes
a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements
involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
•
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at
the measurement date.
Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices
in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets
that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of assets or liabilities.
43
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
•
Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop
its own assumptions.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank
overdrafts, other accrued liabilities, and outstanding indebtedness. The reported carrying amounts of WESCO’s debt instruments
totaled $1.36 billion and $1.40 billion at December 31, 2017 and 2016, respectively, and approximated their fair values which
totaled $1.39 billion and $1.42 billion, respectively. The Company uses a market approach to fair value all of its debt instruments,
utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving
similar instruments. Therefore, all of the Company's debt instruments are classified as Level 2 within the valuation hierarchy. For
all of the Company's remaining financial instruments, carrying values are considered to approximate fair value.
Environmental Expenditures
WESCO has facilities and operations that distribute certain products that must comply with environmental regulations and
laws. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures relating to existing conditions
caused by past operations, and that do not contribute to future revenue, are expensed. Liabilities are recorded when remedial efforts
are probable and the costs can be reasonably estimated.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies
several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of
awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU affect all
entities that issue share-based payment awards to their employees. The Company adopted this ASU in the first quarter of 2017.
The amendment related to the recognition of excess tax benefits and deficiencies was applied prospectively and lowered the
Company's effective tax rate by approximately 1% for the year ended December 31, 2017. The amendment related to the presentation
of excess tax benefits on the statement of cash flows was also applied prospectively, and did not have a material impact on WESCO's
cash flows. The other amendments, which were adopted by the Company according to the respective transition requirements, had
no impact on the consolidated financial statements and notes thereto.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory. The purpose of ASU 2016-16 is to simplify the income tax accounting of an intra-entity transfer of an asset other than
inventory and to record its effect when the transfer occurs. The Company early adopted this ASU on a modified retrospective basis
in the first quarter of 2017. The adoption of this ASU did not have a material impact on WESCO's financial position and it had no
impact on its results of operations or cash flows.
Recently Issued Accounting Pronouncements
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of Effective Date. The
Company previously reported that in May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which
provides a framework for addressing revenue recognition issues and replaces almost all existing revenue recognition guidance in
current U.S. generally accepted accounting principles. The core principle of ASU 2014-09 is for companies to recognize revenue
for the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be
entitled in exchange for those goods or services. ASU 2014-09 will also result in enhanced disclosures about revenue, provide
guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element
arrangements. The amendments in ASU 2015-14 defer the effective date of the new revenue recognition guidance to annual
reporting periods beginning after December 15, 2017, including interim periods within that reporting period. During 2016, the
FASB issued four ASUs that address implementation issues and correct or improve certain aspects of the new revenue recognition
guidance, including ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10,
Identifying Performance Obligations and Licensing, ASU 2016-12, Narrow-Scope Improvements and Practical Expedients and
ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These ASUs do
not change the core principles in the revenue recognition standard outlined above. The Company developed a multiphase plan and
established a cross-functional team to evaluate and implement the new standard. Management completed the diagnostic and testing
phase of the project, which involved reviewing various customer contracts and comparing current accounting to the requirements
of the new standard. Currently management is evaluating the new disclosure requirements and identifying and implementing
appropriate changes to the Company's business processes and controls to support recognition and disclosure under the new standard.
The new standard will be adopted in the first quarter of 2018 using the modified retrospective method. Except for new disclosures
requirements, the adoption of this pronouncement is not expected to have a material impact on WESCO's consolidated financial
statements.
44
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
In February 2016, the FASB issued ASU 2016-02, Leases, a comprehensive new standard that amends various aspects of
existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability in the balance sheet
and disclosing key information about leasing arrangements. This guidance is effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new leasing standard requires
modified retrospective transition, which requires application of the new guidance at the beginning of the earliest comparative
period presented in the year of adoption. Management is currently evaluating the impact of this standard and right-of-use assets
and lease liabilities will be recorded in the Consolidated Balance Sheets upon adoption. An estimate of the impact of this standard
is not currently determinable.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, which introduces new guidance for the accounting for credit losses on certain financial instruments.
The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years and early adoption is permitted. The Company does not expect the adoption of this accounting standard
to have a material impact on its consolidated financial statements and notes thereto.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments (a consensus of the Emerging Issues Task Force). This ASU provides guidance on eight specific cash flow
issues where there is diversity in practice. The amendments in this ASU are effective for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Except
for potential reclassifications within the statement of cash flows, the Company does not expect the adoption of this accounting
standard to have a material impact on its consolidated financial statements and notes thereto.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which eliminates Step 2 from the goodwill impairment test. Under the amendments in this update, an entity should
perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair
value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity
should apply the amendments in this ASU on a prospective basis. This guidance is effective for fiscal years beginning after December
15, 2019, including interim periods within those fiscal years. The Company does not expect the adoption of this accounting standard
to have a material impact on its consolidated financial statements and notes thereto.
In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Presently, net benefit cost is reported as an employee
cost within operating income (or capitalized into assets when appropriate). This amendment requires the bifurcation of net benefit
cost. The service component will be presented with other employee compensation costs in operating income (or capitalized in
assets). The other components will be reported separately outside of operations, and will not be eligible for capitalization. This
guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early
adoption is permitted. The Company does not expect the adoption of this accounting standard to have a material impact on its
consolidated financial statements and notes thereto.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification
Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a
modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the
classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective
prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The
Company does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements
and notes thereto.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are
either not applicable or are not expected to be significant to WESCO’s financial position, results of operations or cash flows.
45
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table sets forth the changes in the carrying value of goodwill:
Beginning balance January 1
Foreign currency exchange rate changes
Adjustments to goodwill for acquisitions (1)
Prior period revision (Note 2)
Ending balance December 31
Year Ended December 31,
2017
2016
(In thousands)
$
1,730,950
$
1,681,662
40,927
—
—
21,434
17,618
10,236
$
1,771,877
$
1,730,950
(1) For the year ended December 31, 2016, adjustments relate to goodwill resulting from the preliminary allocation of the purchase price for
Atlanta Electrical Distributors, LLC to the respective assets acquired and liabilities assumed, partially offset by an adjustment to goodwill
related to deferred income taxes.
Intangible Assets
The components of intangible assets are as follows:
December 31, 2017
December 31, 2016
Life
Gross
Carrying
Amount (1)
Accumulated
Amortization (1)
Net
Carrying
Amount
Gross
Carrying
Amount (1)
(In thousands)
Accumulated
Amortization (1)
Net
Carrying
Amount
Intangible assets:
Trademarks
Trademarks
Non-compete agreements
Customer relationships
Distribution agreements
Patents
Indefinite
$ 100,249
$
— $ 100,249
$ 96,962
$
— $
4-15
2-7
2-20
10-19
10
25,118
196
377,270
39,515
48,310
$ 590,658
(5,516)
(102)
(161,711)
(22,200)
(34,025)
19,602
25,098
94
196
215,559
362,637
17,315
38,972
48,310
$ 572,175
(3,426)
(63)
(126,835)
(19,295)
(29,194)
14,285
$ (223,554) $ 367,104
19,116
$ (178,813) $ 393,362
96,962
21,672
133
235,802
19,677
(1) Excludes the original cost and accumulated amortization of fully-amortized intangible assets.
Amortization expense related to intangible assets totaled $37.8 million, $39.1 million and $36.9 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
The following table sets forth the estimated amortization expense for intangible assets for the next five years:
For the year ending December 31,
2018
2019
2020
2021
2022
(In thousands)
37,848
$
36,549
34,621
26,930
24,350
46
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
4. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT SUPPLIERS
WESCO distributes its products and services and extends credit to a large number of customers in the industrial, construction,
utility, and commercial, institutional and government markets. Based upon WESCO’s broad customer base, the Company has
concluded that it has no material credit risk as a result of customer concentration. WESCO's largest supplier is Eaton Corporation,
accounting for approximately 11% of its purchases in 2017, 2016 and 2015. Therefore, WESCO could potentially incur risk due
to supplier concentration.
5. ACQUISITIONS
The following table sets forth the consideration paid for acquisitions:
Year Ended December 31,
2016
2015
2017
Fair value of assets acquired
Fair value of liabilities assumed
Cash paid for acquisitions
Supplemental cash flow disclosure related to acquisitions:
Cash paid for acquisitions
Less: cash acquired
Cash paid for acquisitions, net of cash acquired
(In thousands)
— $
—
— $
— $
—
— $
76,980
25,058
51,922
51,922
(1,032)
50,890
$
$
$
$
192,099
39,836
152,263
152,263
(668)
151,595
$
$
$
$
Atlanta Electrical Distributors, LLC
On March 14, 2016, WESCO Distribution, Inc. ("WESCO Distribution") completed the acquisition of Atlanta Electrical
Distributors, LLC, an Atlanta-based electrical distributor focused on the construction and MRO markets from five locations in
Georgia with approximately $85 million in annual sales. WESCO Distribution funded the purchase price paid at closing with
borrowings under its revolving credit facility. The purchase price was allocated to the respective assets and liabilities based upon
their estimated fair values as of the acquisition date. In addition to the cash paid at closing, the purchase price included a contingent
payment that may be earned upon the achievement of certain financial performance targets over three consecutive one year periods.
The fair value of the contingent consideration was determined using a probability-weighted outcome analysis and Level 3 inputs
such as internal forecasts. This amount was initially accrued at the maximum potential payout under the terms of the purchase
agreement and was reduced in 2017 to reflect a payout that is aligned with current financial performance. The fair value of
intangibles was estimated by management and the allocation resulted in intangible assets of $21.8 million and goodwill of $30.0
million. The intangible assets include customer relationships of $15.8 million amortized over 13 and 14 years, a trademark of $6.0
million amortized over 13 years, and non-compete agreements of less than $0.1 million amortized over 5 years. No residual value
was estimated for the intangible assets being amortized. The majority of goodwill is deductible for tax purposes.
Hill Country Electric Supply, LP and Needham Electric Supply Corporation
On May 1, 2015, WESCO Distribution completed the acquisition of Hill Country Electric Supply, LP ("Hill Country"), an
electrical distributor focused on the commercial construction market from nine locations in Central and South Texas with
approximately $140 million in annual sales. WESCO Distribution funded the purchase price paid at closing with borrowings under
its prior revolving credit facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated
fair values as of the acquisition date. The fair value of intangibles was estimated by management and the allocation resulted in
intangible assets of $21.1 million and goodwill of $16.2 million. The majority of goodwill is deductible for tax purposes.
On October 30, 2015, WESCO Distribution completed the acquisition of Needham Electric Supply Corporation ("Needham"),
an electrical distributor focused on the commercial construction and lighting national account markets from 24 locations in
Massachusetts, New Hampshire and Vermont with approximately $115 million in annual sales. WESCO Distribution funded the
purchase price paid at closing with cash and borrowings under its revolving credit facility. The purchase price was allocated to the
respective assets and liabilities based upon their estimated fair values as of the acquisition date. The fair value of intangibles was
estimated by management and the allocation resulted in intangible assets of $31.0 million and goodwill of $35.7 million. The
majority of goodwill is deductible for tax purposes.
47
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
For the acquisitions of Hill Country and Needham that were made in 2015, the intangible assets include customer relationships
of $37.6 million amortized over 11 to 14 years, trademarks of $14.3 million amortized over 12 and 13 years, and other intangibles
of $0.2 million. No residual value is estimated for the intangible assets being amortized.
6. PROPERTY, BUILDINGS AND EQUIPMENT
The following table sets forth the components of property, buildings and equipment:
As of December 31,
2017
2016
(In thousands)
Buildings and leasehold improvements
$
117,894
$
Furniture, fixtures and equipment
Software costs
Accumulated depreciation and amortization
Land
Construction in progress
183,801
103,842
405,537
(278,455)
127,082
25,814
3,549
117,461
178,183
93,040
388,684
(259,126)
129,558
24,653
3,396
$
156,445
$
157,607
Depreciation expense was $16.3 million, $17.1 million and $17.8 million, and capitalized software amortization was $9.9
million, $10.6 million and $10.3 million, in 2017, 2016 and 2015, respectively. The unamortized software cost was $22.4 million
and $21.6 million as of December 31, 2017 and 2016, respectively. Furniture, fixtures and equipment include capitalized leases
of $10.6 million and $12.0 million and related accumulated amortization of $9.0 million and $8.9 million as of December 31, 2017
and 2016, respectively.
7. DEBT
The following table sets forth WESCO’s outstanding indebtedness:
As of
December 31,
2017
2016
(In thousands)
International lines of credit
$
34,075
$
Term Loan Facility, less debt discount of $513 and $770 in 2017 and 2016, respectively
Accounts Receivable Securitization Facility
Revolving Credit Facility
5.375% Senior Notes due 2021
5.375% Senior Notes due 2024
Capital leases
Total debt
Less unamortized debt issuance costs
Less short-term debt and current portion of long-term debt
Total long-term debt
International Lines of Credit
84,237
380,000
12,000
500,000
350,000
1,959
20,920
143,980
380,000
4,000
500,000
350,000
2,881
1,362,271
(13,711)
(35,299)
1,313,261
$
1,401,781
(16,508)
(22,138)
1,363,135
$
Certain foreign subsidiaries of WESCO have entered into uncommitted lines of credit, which serve as overdraft facilities, to
support local operations. The maximum borrowing limit varies by facility and ranges between $0.3 million and $21.0 million. The
applicable interest rate for borrowings under these lines of credit varies by country and is governed by the applicable loan agreement.
The international lines of credit are renewable on an annual basis and certain facilities are fully and unconditionally guaranteed
48
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
by WESCO Distribution. Accordingly, borrowings under these lines directly reduce availability under the Revolving Credit Facility.
The average interest rate for these facilities was 5.42% and 7.36% at December 31, 2017 and 2016, respectively.
Term Loan Facility
On December 12, 2012, WESCO Distribution, as U.S. borrower, WDCC Enterprises Inc. ("WDCC" and together with WESCO
Distribution, the “Borrowers”), as Canadian borrower, and WESCO International entered into a Term Loan Agreement (the “Term
Loan Agreement”) among WESCO Distribution, WDCC, the Company, the lenders party thereto and Credit Suisse AG Cayman
Islands Branch, as administrative agent and as collateral agent.
The Term Loan Agreement provided a seven-year term loan facility (the “Term Loan Facility”), which consisted of two separate
sub-facilities: (i) a Canadian sub-facility in an aggregate principal amount of CAD150 million, issued at a 2.0% discount, and (ii)
a U.S. sub-facility in an aggregate principal amount of $700 million, issued at a 1.0% discount. The proceeds of the Term Loan
Facility were used to finance the acquisition of EECOL, and to pay fees and expenses incurred in connection with the acquisition
and certain other transactions. Subject to the terms of the Term Loan Agreement, the Borrowers may request incremental term
loans from time to time in an aggregate principal amount not to exceed at any time $300 million, with an equivalent principal
amount in U.S. dollars being calculated for any incremental term loan denominated in Canadian dollars.
On November 19, 2013, the Borrowers and WESCO International entered into an amendment (the “Term Loan Amendment”)
to the Term Loan Agreement. The Term Loan Amendment, among other things, reduced the applicable margin on U.S. term loans
by 0.50% and the LIBOR floor applicable to the U.S. sub-facility from 1.00% to 0.75%. The modified pricing terms were effective
December 13, 2013.
On November 26, 2013, WESCO Distribution sold $500 million aggregate principal amount of 5.375% Senior Notes due 2021
(the “2021 Notes”), and used the net proceeds plus excess cash to prepay $500 million under the Company's U.S. sub-facility of
the Term Loan Facility (see discussion below under “5.375% Senior Notes due 2021” for additional information). The prepayment
satisfied all remaining quarterly repayment obligations under the U.S. sub-facility. As of December 31, 2017, the amount
outstanding under the U.S. sub-facility was $84.8 million. The Canadian sub-facility was fully repaid in 2015 using cash provided
by Canadian operations.
Borrowings under the Term Loan Facility bear interest at base rates plus applicable margins. At December 31, 2017, the interest
rate on borrowings under the U.S. sub-facility was 4.7%. To the extent not previously paid, the outstanding U.S. sub-facility will
become due and payable on December 12, 2019, with any unpaid incremental term loans becoming due and payable on the
respective maturity dates applicable to those incremental term loans. At any time or from time to time, the Borrowers may prepay
borrowings under the Term Loan Facility in whole or in part without premium or penalty. The Borrowers' obligations under the
Term Loan Facility are secured by substantially all of the assets of the Borrowers, the Company and certain of the Company's
other subsidiaries; provided that, with respect to borrowings under the U.S. sub-facility, the collateral does not include assets of
certain foreign subsidiaries or more than 65% of the issued and outstanding equity interests in certain foreign subsidiaries.
The Term Loan Facility contains customary affirmative and negative covenants for credit facilities of this type. The Term Loan
Facility also provides for customary events of default.
Accounts Receivable Securitization Facility
On November 8, 2017, WESCO Distribution amended its Receivables Facility pursuant to the terms and conditions of a Fifth
Amendment to Fourth Amended and Restated Receivables Purchase Agreement, by and among WESCO Receivables Corp.
(“WESCO Receivables”), WESCO Distribution, the various purchasers from time to time party thereto and PNC Bank, National
Association, as Administrator (the "Amendment"). The Amendment extended the term of the Receivables Facility to September
24, 2020 and added and amended certain other defined terms. Substantially all other terms and conditions of the Receivables
Facility were unchanged.
The Receivables Facility has a purchase limit of $550 million with the opportunity to exercise an accordion feature that permits
increases in the purchase limit of up to $100 million. The interest rate spread and commitment fee of the Receivables Facility is
0.95% and 0.45%, respectively.
Under the Receivables Facility, WESCO sells, on a continuous basis, an undivided interest in all domestic accounts receivable
to WESCO Receivables, a wholly owned special purpose entity (the “SPE”). The SPE sells, without recourse, a senior undivided
interest in the receivables to financial institutions for cash while maintaining a subordinated undivided interest in the receivables,
in the form of overcollateralization. WESCO has agreed to continue servicing the sold receivables for the third-party conduits and
financial institutions at market rates; accordingly, no servicing asset or liability has been recorded.
As of December 31, 2017 and 2016, accounts receivable eligible for securitization totaled $751.2 million and $657.5 million,
respectively. The Consolidated Balance Sheets as of December 31, 2017 and 2016 include $380.0 million of account receivable
49
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
balances legally sold to third parties in both years, as well as borrowings for equal amounts. At December 31, 2017, the interest
rate for this facility was approximately 1.9%.
Revolving Credit Facility
On September 24, 2015, WESCO International, WESCO Distribution and certain other subsidiaries of the Company entered
into a $600 million revolving credit facility (the “Revolving Credit Facility”), which contains a letter of credit sub-facility of up
to $125 million, pursuant to the terms and conditions of a Second Amended and Restated Credit Agreement (the "Credit
Agreement"). The Revolving Credit Facility contains an accordion feature allowing WESCO Distribution to request increases to
the borrowing commitments of up to $200 million in the aggregate, subject to customary conditions.
The Revolving Credit Facility matures in September 2020 and consists of two separate sub-facilities: (i) a Canadian sub-facility
with a borrowing limit of up to $400 million, which is collateralized by substantially all assets of WESCO Canada and the other
Canadian Borrowers, other than, among other things, real property, in each case, subject to customary exceptions and limitations,
and (ii) a U.S sub-facility with a borrowing limit of up to $600 million less the amount of outstanding borrowings under the
Canadian sub-facility. The U.S. sub-facility is collateralized by substantially all assets of WESCO Distribution and its domestic
subsidiaries which are party to the Credit Agreement, other than, among other things, real property and accounts receivable sold
or intended to be sold pursuant to the Receivables Purchase Agreement. The applicable interest rate for borrowings under the
Revolving Credit Facility includes interest rate spreads based on available borrowing capacity that range between 1.25% and
1.75% for LIBOR-based borrowings and 0.25% and 0.75% for prime rate-based borrowings. At December 31, 2017, the interest
rate for this facility was approximately 3.0%.
The Credit Agreement requires ongoing compliance with certain customary affirmative and negative covenants. The Credit
Agreement also contains customary events of default.
During 2017, WESCO borrowed $834.4 million under the Revolving Credit Facility and made repayments in the aggregate
amount of $826.4 million. During 2016, aggregate borrowings and repayments were $1,025.8 million and $1,096.8 million,
respectively. WESCO had $562.9 million available under the Revolving Credit facility at December 31, 2017, after giving effect
to $18.0 million of outstanding letters of credit, $19.5 million of surety bonds, and $7.1 million of other reserves, as compared to
$509.7 million available under the Revolving Credit facility at December 31, 2016, after giving effect to $20.1 million of outstanding
letters of credit, $16.2 million of surety bonds, and $6.4 million of other reserves.
5.375% Senior Notes due 2021
In November 2013, WESCO Distribution issued $500 million aggregate principal amount of 2021 Notes through a private
offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The 2021
Notes were issued at 100% of par and are governed by an indenture (the “2021 Indenture”) entered into on November 26, 2013
between WESCO International and U.S. Bank National Association, as trustee. The 2021 Notes are unsecured senior obligations
of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO International. The 2021 Notes bear interest
at a stated rate of 5.375%, payable semi-annually in arrears on June 15 and December 15 of each year. In addition, WESCO incurred
costs related to the issuance of the 2021 Notes totaling $8.4 million, which are recorded as a reduction to the carrying value of the
debt and are being amortized over the life of the notes. The 2021 Notes mature on December 15, 2021. The net proceeds of the
2021 Notes were used to prepay a portion of the U.S. sub-facility of the term loans due 2019.
Under the terms of a registration rights agreement dated as of November 26, 2013 among WESCO Distribution, WESCO
International and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the representative of the initial purchasers of the 2021
Notes, WESCO Distribution and WESCO International agreed to register under the Securities Act notes having terms identical in
all material respects to the 2021 Notes (the “2021 Exchange Notes”) and to make an offer to exchange the 2021 Exchange Notes
for the 2021 Notes. WESCO Distribution launched the exchange offer on June 12, 2014 and the exchange offer expired on July
17, 2014.
At any time WESCO Distribution may redeem all or a part of the 2021 Notes. Between December 15, 2017 and December 14,
2018, WESCO Distribution may redeem all or a part of the 2021 Notes at a redemption price equal to 102.688% of the principal
amount. Between December 15, 2018 and December 14, 2019, WESCO Distribution may redeem all or a part of the 2021 Notes
at a redemption price equal to 101.344% of the principal amount. On and after December 15, 2019, WESCO Distribution may
redeem all or a part of the 2021 Notes at a redemption price equal to 100% of the principal amount.
The 2021 Indenture contains customary covenants and customary events of default. In addition, upon a change of control, the
holders of 2021 Notes have the right to require WESCO Distribution to repurchase all or any part of the 2021 Notes at a redemption
price equal to 101% of the principal amount, plus accrued and unpaid interest.
50
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
5.375% Senior Notes due 2024
In June 2016, WESCO Distribution issued $350 million aggregate principal amount of 5.375% Senior Notes due 2024 (the
"2024 Notes") through a private offering exempt from the registration requirements of the Securities Act. The 2024 Notes were
issued at 100% of par and are governed by an indenture (the “2024 Indenture”) entered into on June 15, 2016 among WESCO
Distribution, as issuer, WESCO International, as parent guarantor, and U.S. Bank National Association, as trustee. The 2024 Notes
are unsecured senior obligations of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO International.
The 2024 Notes bear interest at a rate of 5.375% per annum, payable semi-annually in arrears on June 15 and December 15 of
each year, commencing on December 15, 2016. WESCO incurred costs totaling $6.0 million to issue the 2024 Notes, which are
recorded as a reduction to the carrying value of the debt and are being amortized over the life of the note. The notes mature on
June 15, 2024. The Company used the net proceeds to redeem its 2029 Debentures on September 15, 2016.
Under the terms of a registration rights agreement dated as of June 15, 2016 among WESCO Distribution, as the issuer, WESCO
International, as parent guarantor, and Goldman, Sachs & Co., as representative of the initial purchasers of the 2024 Notes, WESCO
Distribution and WESCO International agreed to register under the Securities Act notes having terms identical in all material
respects to the 2024 Notes (the “2024 Exchange Notes”) and to make an offer to exchange the 2024 Exchange Notes for the 2024
Notes. WESCO Distribution launched the exchange offer on December 28, 2016 and the exchange offer expired on January 31,
2017.
At any time on or after June 15, 2019, WESCO Distribution may redeem all or a part of the 2024 Notes. Between June 15,
2019 and June 14, 2020, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 104.031%
of the principal amount. Between June 15, 2020 and June 14, 2021, WESCO Distribution may redeem all or a part of the 2024
Notes at a redemption price equal to 102.688% of the principal amount. Between June 15, 2021 and June 14, 2022, WESCO
Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 101.344% of the principal amount. On and
after June 15, 2022, WESCO Distribution may redeem all or a part of the 2024 Notes at a redemption price equal to 100% of the
principal amount.
The 2024 Indenture contains customary covenants and events of default. Upon a change of control, the holders of the 2024
Notes have the right to require WESCO Distribution to repurchase all or any part of the 2024 Notes at a redemption price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest.
6.0% Convertible Senior Debentures due 2029
On August 27, 2009, WESCO International completed an exchange offer pursuant to which it issued $345 million in aggregate
principal amount of the 2029 Debentures. On September 15, 2016, the Company redeemed the 2029 Debentures. Holders of the
2029 Debentures received cash totaling $344.8 million, which was equal to the principal amount of the then-outstanding debentures,
in addition to accrued and unpaid interest. Holders who surrendered the 2029 Debentures for conversion received 18 shares of
WESCO stock for each $1,000 principal amount of 2029 Debentures converted. In total, 6,267,688 shares were issued on the
redemption date. The redemption resulted in a non-cash loss of $123.9 million, which included the write off of unamortized debt
issuance costs.
WESCO separately accounted for the liability and equity components of its 2029 Debentures in a manner that reflected its non-
convertible debt borrowing rate. WESCO utilized an interest rate of 13.875% to reflect the non-convertible debt borrowing rate
of its offering upon issuance, which was determined based on discussions with its financial institutions and a review of relevant
market data, and resulted in a $181.2 million discount to the 2029 Debenture balance and a net increase in additional capital of
$106.5 million. In addition, the financing costs incurred to issue the 2029 Debentures were allocated between the instrument's debt
and equity components. WESCO amortized the debt discount and financing costs over the life of the instrument. For the years
ended December 31, 2016 and 2015, non-cash interest expense for the amortization of the debt discount and debt issuance costs
was $3.1 million and $4.2 million, respectively.
Covenant Compliance
WESCO was in compliance with all relevant covenants contained in its debt agreements as of December 31, 2017.
51
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth the aggregate principal repayment requirements for all indebtedness for the next five years and
thereafter, as of December 31, 2017:
2018
2019
2020
2021
2022
Thereafter
Total payments on debt
Debt discount
Total debt
(In thousands)
$
$
35,299
85,246
392,239
500,000
—
350,000
1,362,784
(513)
1,362,271
WESCO’s credit agreements contain various restrictive covenants that, among other things, impose limitations on: (i) dividend
payments or certain other restricted payments or investments; (ii) the incurrence of additional indebtedness and guarantees;
(iii) creation of liens; (iv) mergers, consolidation or sales of substantially all of WESCO’s assets; (v) certain transactions among
affiliates; (vi) payments by certain subsidiaries to WESCO, and (vii) capital expenditures. In addition, the Revolving Credit Facility
and the Receivables Facility require WESCO to meet certain fixed charge coverage tests depending on availability or liquidity,
respectively.
8. CAPITAL STOCK
Preferred Stock
There are 20 million shares of preferred stock authorized at a par value of $0.01 per share; there are no shares issued or
outstanding. The Board of Directors has the authority, without further action by the stockholders, to issue all authorized preferred
shares in one or more series and to fix the number of shares, designations, voting powers, preferences, optional and other special
rights and the restrictions or qualifications thereof. The rights, preferences, privileges and powers of each series of preferred stock
may differ with respect to dividend rates, liquidation values, voting rights, conversion rights, redemption provisions and other
matters.
Common Stock
There are 210 million shares of common stock and 20 million shares of Class B common stock authorized at a par value of
$0.01 per share. The Class B common stock is identical to the common stock, except for voting and conversion rights. The holders
of Class B common stock have no voting rights. With certain exceptions, Class B common stock may be converted, at the option
of the holder, into the same number of shares of common stock.
The terms of the Revolving Credit Facility and the Term Loan Facility provide certain limits on declaring or paying dividends,
and repurchasing common stock. In addition, the indentures governing the 2021 Notes and 2024 Notes place limits on the Company's
ability to pay dividends and repurchase common stock. At December 31, 2017 and 2016, no dividends had been declared and,
therefore, no retained earnings were reserved for dividend payments.
9. INCOME TAXES
The Tax Cuts and Jobs Act of 2017 (the "TCJA”), enacted on December 22, 2017, provides a broad range of tax reform,
including changes to the U.S. corporate tax rate, business-related exclusions, deductions and credits, as well as international tax
provisions. Most notably, the TCJA permanently reduces the U.S. corporate income tax rate from 35% to 21%, effective January
1, 2018, and imposes a one-time tax on the deemed repatriation of undistributed foreign earnings (the "transition tax"). The TCJA
also introduces anti-base erosion provisions, including the global intangible low-taxed income ("GILTI") tax.
As a result of the reduction in the U.S. corporate income tax rate, the Company remeasured its U.S. deferred income tax balances
as of December 31, 2017 and recorded a provisional deferred income tax benefit of $56.4 million for the year ended December 31,
2017. The Company also recognized provisional current income tax expense for the transition tax under the TCJA of $82.8 million
for the year ended December 31, 2017. After the utilization of foreign tax credit carryforwards of $17.8 million, a provisional
liability of $65.0 million was accrued for the transition tax as of December 31, 2017 and is payable over a period of eight years.
52
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
As of December 31, 2017, the Company had not completed its accounting for certain income tax effects of the TCJA and the
provisional amounts described above could change materially in future periods. Although the Company made reasonable estimates
to determine the effect of the TCJA on its deferred income taxes, the Company must gather and analyze additional information to
complete the related accounting. Similarly, the Company's accounting for the income tax effects of the transition tax is incomplete
primarily due to the complexity of computing foreign earnings and measuring the portion of such earnings held in cash and cash
equivalents, which is subject to a higher tax rate. Further regulatory guidance is expected to be issued regarding the implementation
and interpretation of the TCJA provisions, which could affect the Company's analyses and ultimate conclusions. As described in
Note 2, future adjustments (if any) will be recognized as discrete income tax expense or benefit in the period the adjustments are
determined. The accounting for the income tax effects of the TCJA will be completed within the measurement period defined in
Note 2.
The following table sets forth the components of income before income taxes by jurisdiction:
United States
Foreign
Income before income taxes
Year Ended December 31,
2016
2015
2017
(In thousands)
$
$
180,957
71,483
252,440
$
$
80,881
50,670
131,551
$
$
288,881
15,029
303,910
The following table sets forth the components of the provision (benefit) for income taxes:
Current income taxes:
Federal (1)
State
Foreign
Total current income taxes
Deferred income taxes:
Federal
State
Foreign
Total deferred income taxes
Provision for income taxes
Year Ended December 31,
2016
2015
2017
(In thousands)
$
122,170
$
65,614
$
45,812
2,259
15,274
139,703
6,489
3,502
75,605
(48,060)
4,508
(6,844)
(50,396)
89,307
$
(42,835)
(2,938)
599
(45,174)
30,431
$
$
4,565
2,309
52,686
29,593
3,767
9,491
42,851
95,537
(1) Income tax (expense) benefit related to stock-based awards and other equity instruments recorded directly to additional paid in capital totaled
$(0.1) million and $1.6 million in 2016 and 2015, respectively. Due to the adoption of ASU 2016-09, as described in Note 2, there was no
income tax (expense) benefit recorded to additional paid in capital for stock-based awards in 2017.
53
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth the reconciliation between the federal statutory income tax rate and the effective tax rate:
Federal statutory rate
State income taxes, net of federal income tax benefit
Deemed repatriation of undistributed foreign earnings
Deferred income tax remeasurement
Tax effect of intercompany financing
Foreign tax rate differences
Valuation allowance against deferred tax assets
Nondeductible expenses
Adjustment related to uncertain tax positions
Other
Effective tax rate
Year Ended December 31,
2016
2015
2017
35.0%
35.0%
35.0%
1.4
32.8
(22.4)
(10.5)
(1.3)
0.4
(0.1)
—
0.1
1.0
—
—
(19.9)
(0.4)
1.1
1.6
3.7
1.0
2.2
—
—
(8.8)
(1.1)
—
1.2
2.7
0.2
35.4%
23.1%
31.4%
As of December 31, 2017, WESCO’s foreign subsidiaries had undistributed earnings of approximately $884.0 million, of which
$807.2 million was attributable to the Company's Canadian operations. As described above, WESCO recognized provisional
income tax expense of $82.8 million for the year ended December 31, 2017 resulting from the transition tax. Notwithstanding the
effects of applying such provisions of the TCJA, WESCO continues to assert that the earnings of its foreign subsidiaries are
indefinitely reinvested to fund growth in the foreign markets. However, as a result of the TCJA, the Company is reevaluating its
intent and ability to repatriate foreign cash based upon the available liquidity and cash flow needs of its foreign subsidiaries and
will disclose in future filings any change in its intention to repatriate undistributed foreign earnings and any resulting income tax
impacts. Until the Company completes this reevaluation, it is not practicable to determine the amount of any unrecognized deferred
income taxes on these undistributed foreign earnings.
The following table sets forth deferred tax assets and liabilities:
As of December 31,
2017
2016
(In thousands)
Assets
Liabilities
Assets
Liabilities
Accounts receivable
Inventories
Depreciation of property, buildings and equipment
Amortization of intangible assets (1)
Employee benefits
Stock-based compensation (2)
Advance payments
Foreign tax credits
Tax loss carryforwards
Other
Deferred income taxes before valuation allowance
Valuation allowance
Total deferred income taxes (1)
$
$
3,496
$
— $
3,484
$
—
—
—
14,835
16,341
8,456
—
19,128
11,850
74,106
(2,518)
71,588
3,181
13,283
159,107
—
—
—
—
—
8,672
184,243
—
$
184,243
$
—
—
—
18,577
23,844
22,056
15,698
18,440
7,175
109,274
(1,430)
107,844
—
4,001
11,487
237,015
—
—
—
—
—
7,783
260,286
—
$
260,286
(1) As described in Note 2, the Consolidated Balance Sheet at December 31, 2016 was revised to correct certain financial statement line items,
including deferred income taxes.
(2) The Company does not expect the realizability of the deferred tax asset related to stock-based compensation to be materially impacted by
the TCJA's expansion on the limitation of deductions for excessive employee compensation.
54
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
As of December 31, 2017 and 2016, WESCO had deferred tax assets of $10.4 million and $10.0 million, respectively, related
to Canadian net operating loss carryforwards. The Canadian net operating loss carryforwards expire beginning in 2029 through
2037. Additionally, WESCO had deferred tax assets of $7.0 million and $6.2 million as of December 31, 2017 and 2016, respectively,
related to non-Canadian foreign net operating loss carryforwards. These net operating loss carryforwards expire beginning in 2019,
while some may be carried forward indefinitely. As of December 31, 2017 and 2016, WESCO had deferred tax assets of $3.1
million and $3.2 million, respectively, related to state net operating loss carryforwards. These carryforwards expire beginning in
2022 through 2036. The Company has determined, based upon an evaluation of all available evidence, that it "more-likely-than-
not" will utilize all of its net operating loss carryforwards before expiration other than those incurred in a non-Canadian foreign
location. Accordingly, the Company recorded a full valuation allowance against the total deferred tax asset related to these non-
Canadian foreign net operating loss carryforwards of $2.5 million at December 31, 2017.
As of December 31, 2016, WESCO had deferred tax assets of $15.7 million related to foreign tax credit (“FTC”) carryforwards.
As described above, the Company fully utilized these FTC carryforwards against the liability recorded for the transition tax imposed
by the TCJA.
The Company is under examination by tax authorities in the U.S. and Canada and remains subject to examination until the
applicable statutes of limitation expire. The statutes of limitation for the material jurisdictions in which the Company files income
tax returns remain open as follows:
United States — Federal
United States — Material States
Canada
2004 and forward
2013 and forward
2004 and forward
The statutes of limitation with respect to the Company’s 2004 to 2007 U.S. federal income tax returns are open by waiver only
in connection with the implementation of the Mutual Agreement Procedure (“MAP”) concluded in the fourth quarter of 2015
between the Competent Authorities of the Internal Revenue Service (the "IRS") and the Canada Revenue Agency (the “CRA”)
and the request for MAP assistance filed with the IRS and CRA in 2017 with respect to certain other 2004 to 2007 transfer pricing
matters. The statutes of limitation with respect to the Company’s 2008 to 2011 U.S. federal income tax returns are open by waiver
only in connection with the implementation of the Advance Pricing Agreement (“APA”) concluded in the fourth quarter of 2015
between the IRS and CRA and certain other transfer pricing matters pending with the CRA. The statutes of limitation with respect
to the Company’s 2012 and 2013 U.S. federal income tax returns are open by waiver only in connection with the IRS examination
of the 2012 and 2013 years and the APA.
The following table sets forth the reconciliation of gross unrecognized tax benefits:
2017
As of December 31,
2016
(In thousands)
2015
Beginning balance January 1
$
6,181
$
5,436
$
20,033
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Lapse in statute of limitations
Foreign currency exchange rate changes
Ending balance December 31
—
—
(155)
(1,025)
(755)
102
—
3,298
(21)
(1,921)
(728)
117
$
4,348
$
6,181
$
46
402
(378)
(9,638)
(1,497)
(3,532)
5,436
The total amount of unrecognized tax benefits were $4.3 million, $6.2 million, and $5.4 million as of December 31, 2017, 2016
and 2015, respectively. The amount of unrecognized tax benefits that would affect the effective tax rate if recognized in the
consolidated financial statements was $1.7 million, $7.5 million, and $6.2 million, respectively.
It is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $3.0 million within the
next twelve months due to the settlement of uncertain tax positions related to IRS audits or the expiration of statutes of limitation.
Of this amount, approximately $0.3 million could impact the effective tax rate.
The Company classifies interest related to unrecognized tax benefits as interest income or expense. Interest expense on
unrecognized tax benefits was $0.1 million and $1.2 million for 2017 and 2016, respectively. In 2015, interest income of $8.7
million was recognized as a result of the conclusion of the MAP and APA proceedings for the 2004 to 2014 tax years. As of
55
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
December 31, 2017 and 2016, WESCO had an accrued liability of $1.8 million and $2.2 million, respectively, for interest expense
related to unrecognized tax benefits. The Company classifies penalties related to unrecognized tax benefits as part of income tax
expense. Penalties recorded in income tax expense were immaterial in 2017, 2016, and 2015.
10. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to WESCO International by the weighted-average
number of common shares outstanding during the periods. Diluted earnings per share is computed by dividing net income attributable
to WESCO International by the weighted-average common shares and common share equivalents outstanding during the periods.
The dilutive effect of common share equivalents is considered in the diluted earnings per share computation using the treasury
stock method, which includes consideration of equity awards and contingently convertible debt.
The following tables set forth the details of basic and diluted earnings per share:
Year Ended December 31,
2016
2015
2017
(In thousands, except per share data)
Net income attributable to WESCO International
$
163,460
$
101,588
$
210,687
Weighted-average common shares outstanding used in computing basic
earnings per share
Common shares issuable upon exercise of dilutive equity awards
Common shares issuable from contingently convertible debentures (see
below for basis of calculation)
Weighted-average common shares outstanding and common share
equivalents used in computing diluted earnings per share
Earnings per share attributable to WESCO International
Basic
Diluted
47,849
512
—
44,116
543
3,674
43,433
626
6,314
48,361
48,333
50,373
$
$
3.42
3.38
$
$
2.30
2.10
$
$
4.85
4.18
The computation of diluted earnings per share attributable to WESCO International excluded equity awards of approximately
1.3 million for the year ended December 31, 2017 and approximately 1.2 million for the years ended December 31, 2016 and 2015.
These shares were excluded because their effect would have been antidilutive.
Because of WESCO’s previous obligation to settle the par value of the 2029 Debentures in cash upon conversion, WESCO
was required to include shares underlying the 2029 Debentures in its diluted weighted-average shares outstanding when the average
stock price per share for the period exceeded the conversion price of the debentures. Only the number of shares that would have
been issuable under the treasury stock method of accounting for share dilution were included, which was based upon the amount
by which the average stock price exceeded the conversion price. The conversion price of the 2029 Debentures was $28.87 and the
maximum amount of share dilution was limited to 11,951,932 shares. Since the 2029 Debentures were redeemed on September 15,
2016, there was no dilution from contingently convertible debentures for the year ended December 31, 2017. For the years ended
December 31, 2016 and 2015, the effect of the 2029 Debentures on diluted earnings per share attributable to WESCO International
was a decrease of $0.17 and $0.60, respectively.
In December 2014, the Company's Board of Directors authorized the repurchase of up to $300 million of the Company's
common stock through December 31, 2017. As of December 31, 2016, WESCO had repurchased 2,468,576 shares of the
Company's common stock for $150.0 million under this repurchase authorization. During the year ended December 31, 2017, the
Company entered into accelerated stock repurchase agreements (the "ASR Transactions") with a certain financial institution to
repurchase additional shares of its common stock. In exchange for up-front cash payments totaling $100.0 million, the Company
received 1,778,537 shares. The total number of shares ultimately delivered under the ASR Transactions was determined by the
average of the volume-weighted-average prices of the Company's common stock for each exchange business day during the
respective settlement valuation periods. WESCO funded the repurchases with borrowings under its accounts receivable
securitization and revolving credit facilities. For purposes of computing earnings per share, share repurchases have been reflected
as a reduction to common shares outstanding on the respective delivery dates.
56
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
11. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
A majority of WESCO’s employees are covered by defined contribution retirement savings plans for their services rendered
subsequent to WESCO’s formation. WESCO also offers a deferred compensation plan for select individuals. For U.S. participants,
WESCO matches contributions made by employees at an amount equal to 50% of participants' total monthly contributions up to
a maximum of 6% of eligible compensation. For Canadian participants, WESCO makes contributions in amounts ranging from
3% to 5% of participants' eligible compensation based on years of continuous service. WESCO may also make, subject to the
Board of Directors' approval, a discretionary contribution to the defined contribution retirement savings plan covering U.S.
participants if certain predetermined profit levels are attained. A discretionary employer contribution charge of $10.0 million was
incurred in 2017. In 2016 and 2015, there were no charges for discretionary employer contributions. For the years ended
December 31, 2017, 2016 and 2015, WESCO incurred charges of $31.3 million, $18.5 million, and $18.1 million, respectively,
for all such plans. Contributions are made in cash to employee retirement savings plan accounts. The deferred compensation plan
is an unfunded plan. As of December 31, 2017 and 2016, the Company's obligation under the deferred compensation plan was
$24.3 million and $21.7 million, respectively. Employees have the option to transfer balances allocated to their accounts in the
defined contribution retirement savings plan and the deferred compensation plan into any of the available investment options.
Defined Benefit Plans
The Company sponsors a contributory defined benefit plan (the "Plan") covering substantially all Canadian employees of
EECOL. The Plan provides retirement benefits based on earnings and credited service, and participants contribute 2% of their
earnings to the Plan. Participants become 100% vested after two years of continuous service or, if earlier, at the participant's normal
retirement age.
The Company also sponsors a Supplemental Executive Retirement Plan (the "SERP"), which provides additional pension
benefits to certain executives of EECOL based on earnings, and credited service. Effective January 1, 2013, the SERP was closed
to new participants and existing participants became 100% vested. SERP participants continue to contribute 4% of their earnings
to the Plan.
57
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following tables present the changes in benefit obligations, plan assets and funded status for the pension plans and the
components of net periodic pension cost.
(In thousands)
Accumulated Benefit Obligation (ABO) at December 31
Change in Projected Benefit Obligation (PBO)
PBO at beginning of year
Service cost
Interest cost
Participant contributions
Actuarial loss, including assumption changes
Benefits paid
Foreign currency exchange rate changes
PBO at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Participant contributions
Employer contributions
Benefits paid
Foreign currency exchange rate changes
Fair value of plan assets at end of year
Funded Status
Amounts Recognized in the Consolidated Balance Sheets
Current liabilities
Noncurrent liabilities
Net amount recognized
Amounts Recognized in Accumulated Other Comprehensive Income (Loss)
Net actuarial loss (gain)
Total amount recognized, before tax effect
Year Ended December 31,
2017
2016
92,375
$
75,666
96,160
$
87,186
4,328
3,912
735
10,906
(3,005)
7,283
120,319
$
84,753
$
7,875
735
368
(3,005)
6,456
97,182
$
3,845
3,856
709
2,172
(4,404)
2,796
96,160
79,185
4,115
709
1,956
(4,404)
3,192
84,753
(23,137) $
(11,407)
(395) $
(22,742)
(23,137) $
(364)
(11,043)
(11,407)
2,508
2,508
$
$
(6,234)
(6,234)
$
$
$
$
$
$
$
$
$
$
58
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Year Ended December 31,
2016
2015
2017
Components of Net Periodic Pension Cost
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial gain
Net periodic pension cost
(In thousands)
$
4,328
$
3,845
$
4,537
3,912
(5,562)
(149)
2,529
$
3,856
(5,328)
(31)
2,342
$
4,012
(5,260)
(15)
3,274
$
Other Changes in Plan Assets and PBO Recognized in Accumulated
Other Comprehensive Income (Loss)
Net actuarial loss (gain)
Amortization of unrecognized net actuarial gain
Total amount recognized, before tax effect
Tax effect
Total amount recognized, after tax effect
Total recognized in net periodic pension cost and accumulated other
comprehensive income (loss)
$
$
$
8,593
$
2,756
$
149
8,742
(2,361)
6,381
$
31
2,787
(302)
2,485
$
(6,208)
15
(6,193)
1,661
(4,532)
8,910
$
4,827
$
(1,258)
The following weighted-average actuarial assumptions were used to determine benefit obligations at December 31:
Discount rate
Rate of compensation increase
2017
2016
Pension Plan
SERP
Pension Plan
SERP
3.5%
3.8%
3.5%
3.8%
3.9%
3.8%
3.9%
3.8%
The following weighted-average actuarial assumptions were used to determine net periodic pension costs at January 1:
Year Ended December 31,
2017
2016
2015
Pension
Plan
SERP
Pension
Plan
SERP
Pension
Plan
SERP
Discount rate
Expected long-term return on
assets
Rate of compensation increase
3.9%
6.4%
3.8%
3.9%
n/a
3.8%
4.2%
6.4%
4.0%
4.2%
n/a
4.0%
4.1%
6.4%
4.0%
4.1%
n/a
4.0%
The following benefit payments, which reflect expected future service, are expected to be paid:
Years ending December 31
(In thousands)
2018
2019
2020
2021
2022
2023 to 2027
The Company expects to contribute approximately $0.4 million to the SERP in 2018.
59
$
3,092
3,131
3,215
3,382
3,488
21,776
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The Plan's weighted asset allocations by asset category are as follows:
Asset Category
Pooled Funds:
Canadian equities
U.S. equities
Non-North American equities
Fixed income investments
Other
Total
December 31
2017
2016
11.5%
4.6%
20.8%
41.4%
21.7%
11.7%
4.6%
21.6%
43.4%
18.7%
100.0%
100.0%
The Plan's long-term overall objective is to maintain benefits at their current level without affecting the cost of maintaining
the Plan, assuming that the demographic make-up of the group of members remains the same.
The primary investment objective, in support of the overall objective, is to earn the highest rate of return possible for the Plan,
while keeping risk at acceptable levels. The long-term return objective of the Plan is to achieve a minimum annualized rate of
return in excess of the actuarial requirements. This translates into a required return of 3.0% above inflation, net of investment
management fees. The return objective is consistent with the overall investment risk level that the Plan assumes in order to meet
the pension obligations of the Plan. To achieve this long term investment objective, the Plan has adopted an asset mix that has a
combination of primarily equity and fixed income investments. Risk is controlled by investing in a well-diversified portfolio of
asset classes. A benchmark portfolio is established based on the expected returns for each asset class available. The investment of
the Plan's assets in accordance with the benchmark portfolio should enable the Plan to not only attain, but also exceed the minimum
overall objective.
The following table presents the target asset mix based on market value for each investment category within which the investment
managers must invest the Plan's assets. The asset mix is reviewed and rebalanced to target on an annual basis.
Asset Category
Canadian equities
Non-Canadian equities
Total equities
Fixed income investments
Other investments
Target %
12.5%
27.5%
40%
45%
15%
The Plan's assets are measured at fair value, which is defined as 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. Financial assets and liabilities
are classified in the fair value hierarchy based on the lowest level of any input that is significant to the measurement of fair value.
Investments for which fair value is measured using the net asset value (NAV) per share practical expedient are not classified in
the fair value hierarchy. The following describes the valuation methodologies used to measure the fair value of the Plan's assets.
Pooled Equity Investments. These investments consist of the Plan's share of segregated funds that primarily invest in equity
securities. The funds are valued at the net asset value of shares held in the underlying funds.
Pooled Fixed Income Investments. These investments consist of the Plan's share of a segregated fund that primarily invests
in Canadian issued bonds and debentures and is valued at the net asset value of shares held in the underlying funds.
Other Investments. These investments consist of cash and cash equivalents, a money market fund and diversified growth
funds. The diversified growth funds invest in a broad range of asset classes, including equities, bonds, infrastructure, property,
commodities and absolute return strategies. These investments are valued at the net asset value of shares held in the underlying
funds.
The fair value methods described above may not be indicative of net realizable value or reflective of future fair values.
Additionally, while the Company believes the valuation methods are appropriate and consistent with other market participants,
60
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a
different fair value measurement at the reporting date.
The following tables set forth the fair value of the Plan's assets by asset category:
(In thousands)
Pooled Funds:
Canadian equities
U.S. equities
Non-North American equities
Fixed income investments
Other
Total investments
(In thousands)
Pooled Funds:
Canadian equities
U.S. equities
Non-North American equities
Fixed income investments
Other
Total investments
Level 1
Level 2
December 31, 2017
Level 3
NAV (1)
Total
$
— $
— $
— $
11,211
$
—
—
—
3,996
—
—
—
—
—
—
—
—
4,436
20,207
40,193
17,139
$
3,996
$
— $
— $
93,186
$
11,211
4,436
20,207
40,193
21,135
97,182
Level 1
Level 2
December 31, 2016
Level 3
NAV (1)
Total
$
$
— $
— $
— $
9,916
$
—
—
—
235
235
—
—
—
—
—
—
—
—
3,881
18,296
36,677
15,748
$
— $
— $
84,518
$
9,916
3,881
18,296
36,677
15,983
84,753
(1) As described above, investments measured at fair value using the NAV per share practical expedient have not been classified in the fair value
hierarchy. The amounts presented in the tables are intended to reconcile the fair value hierarchy to the total fair value of plan assets.
12. STOCK-BASED COMPENSATION
WESCO sponsors four stock-based compensation plans. The 1999 Long-Term Incentive Plan, as amended and restated
(“LTIP”), was designed to be the successor plan to all prior plans. Any shares remaining reserved for future issuance under the
prior plans are available for issuance under the LTIP. The LTIP and predecessor plans are administered by the Compensation
Committee of the Board of Directors.
On May 31, 2017, the Company renewed and restated the LTIP, increasing the maximum number of shares of common stock
that may be issued under the plan by 1.7 million shares to 3.4 million. Under the LTIP, the total number of shares of common stock
authorized to be issued will be reduced by 1 share of common stock for every 1 share that is subject to a stock appreciation right
granted, and 1.83 shares of common stock for every 1 share that is subject to an award other than a stock appreciation right granted
on or after May 31, 2017. As of December 31, 2017, 3.6 million shares of common stock were reserved under the LTIP for future
equity award grants.
Except for the performance-based award, awards granted vest and become exercisable once criteria based on time is achieved.
Performance-based awards vest based on market or performance conditions. All awards vest immediately in the event of a change
in control. Each award terminates on the tenth anniversary of its grant date unless terminated sooner under certain conditions.
WESCO recognized $14.8 million, $12.5 million and $12.9 million of non-cash stock-based compensation expense, which is
included in selling, general and administrative expenses, for the years ended December 31, 2017, 2016 and 2015, respectively. As
of December 31, 2017, there was $18.7 million of total unrecognized compensation expense related to non-vested stock-based
compensation arrangements for all awards previously made of which approximately $11.3 million is expected to be recognized
in 2018, $6.6 million in 2019 and $0.8 million in 2020.
The total intrinsic value of awards exercised during the years ended December 31, 2017, 2016, and 2015 was $17.2 million,
$13.0 million, and $15.8 million, respectively. The gross deferred tax benefit associated with the exercise of stock-based awards
totaled $6.4 million, $4.9 million, and $5.7 million in 2017, 2016, and 2015, respectively.
61
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth a summary of stock-settled stock appreciation rights and related information for the years indicated:
2017
2016
2015
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(In
thousands)
Awards
Beginning of year
2,439,487
$
Granted
Exercised
Canceled
455,807
(495,181)
(161,506)
End of year
2,238,607
52.62
71.21
42.19
66.06
57.75
Exercisable at end
of year
1,331,580
$
56.96
6.2
4.6
$
$
28,791
Weighted-
Average
Exercise
Price
54.47
42.63
41.54
63.71
52.62
Awards
2,567,021
$
709,999
(526,818)
(310,715)
2,439,487
Weighted-
Average
Exercise
Price
50.91
69.54
35.80
73.59
54.47
Awards
2,480,745
$
394,182
(232,542)
(75,364)
2,567,021
18,801
1,549,350
$
53.35
2,034,263
$
49.36
WESCO granted the following stock-settled stock appreciation rights at the following weighted-average assumptions:
Stock-settled stock appreciation rights granted
Risk free interest rate
Expected life (in years)
Expected volatility
2017
455,807
1.9%
5
29%
2016
709,999
1.2%
5
32%
2015
394,182
1.6%
5
32%
The weighted-average fair value per stock-settled stock appreciation right granted was $20.52, $12.88 and $21.68 for the years
ended December 31, 2017, 2016 and 2015, respectively.
The following table sets forth a summary of time-based restricted stock units and related information for the years ended
December 31, 2017, 2016 and 2015:
2017
2016
2015
Weighted-
Average
Fair
Value
Awards
Unvested at beginning of year
257,096
$
Granted
Vested
Forfeited
100,993
(44,720)
(23,315)
Unvested at end of year
290,054
$
57.47
71.33
84.57
57.52
58.11
Weighted-
Average
Fair
Value
74.52
44.45
72.41
59.15
57.47
Awards
175,411
$
162,256
(60,015)
(20,556)
257,096
$
Weighted-
Average
Fair
Value
73.87
69.05
66.89
75.73
74.52
Awards
185,457
$
81,022
(76,387)
(14,681)
175,411
$
The weighted-average fair value per restricted stock unit granted was $71.33, $44.45 and $69.05 for the years ended
December 31, 2017, 2016 and 2015, respectively.
62
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The following table sets forth a summary of performance-based awards for the year ended December 31, 2017:
2017
2016
2015
Weighted-
Average
Fair
Value
Awards
Unvested at beginning of year
149,320
$
Granted
Vested
Forfeited
39,978
—
(40,790)
Unvested at end of year
148,508
$
60.36
76.63
—
76.77
60.23
Weighted-
Average
Fair
Value
76.48
47.00
—
71.25
60.36
Awards
114,520
$
91,768
—
(56,968)
149,320
$
Weighted-
Average
Fair
Value
80.21
67.81
72.25
80.14
76.48
Awards
130,004
$
59,661
(38,869)
(36,276)
114,520
$
The weighted-average fair value per performance-based award granted was $76.63, $47.00 and $67.81 for the years ended
December 31, 2017, 2016 and 2015, respectively.
The fair value of the performance shares based on total stockholder return granted during the year ended December 31, 2017,
2016 and 2015 were estimated using the following weighted-average assumptions:
Grant date share price
WESCO expected volatility
Peer group median volatility
Risk-free interest rate
Correlation
Year ended December 31,
2017
2016
2015
$
71.65
$
42.44
$
69.54
29%
24%
1.5%
114%
26%
24%
0.9%
122%
27%
23%
1.1%
96%
The unvested performance-based awards in the table above include 74,254 shares in which vesting of the ultimate number of
shares is dependent upon WESCO's total stockholder return in relation to the total stockholder return of a select group of peer
companies over a three-year period. The fair value of these awards is determined using a Monte Carlo simulation model. These
awards are accounted for as awards with market conditions; compensation cost is recognized over the service period, regardless
of whether the market conditions are achieved and the awards ultimately vest.
Vesting of the remaining 74,254 shares of performance-based awards in the table above is dependent upon the three-year average
growth rate of WESCO's net income. The fair value of these awards is based upon the grant-date closing price of WESCO's common
stock. These awards are accounted for as awards with performance conditions; compensation cost is recognized over the
performance period based upon WESCO's determination of whether it is probable that the performance targets will be achieved.
13. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under operating leases, primarily for real property that have noncancelable lease
terms in excess of one year as of December 31, 2017, are as follows:
Years ending December 31
2018
2019
2020
2021
2022
Thereafter
(In thousands)
$
65,510
55,378
44,036
33,498
23,904
49,150
Rental expense for the years ended December 31, 2017, 2016 and 2015 was $82.0 million, $76.7 million and $70.7 million,
respectively.
63
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
From time to time, a number of lawsuits and claims have been or may be asserted against us relating to the conduct of its
business, including routine litigation relating to commercial and employment matters. The outcome of any litigation cannot be
predicted with certainty, and some lawsuits may be determined adversely to WESCO. However, management does not believe
that the ultimate outcome of any such pending matters is likely to have a material adverse effect on WESCO's financial condition
or liquidity, although the resolution in any fiscal period of one or more of these matters may have a material adverse effect on
WESCO's results of operations for that period.
WESCO is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and
escheatment (the transfer of property to the state) of unclaimed or abandoned funds, and is subject to audit and examination for
compliance with these requirements. The State of Delaware conducted an audit concerning the identification, reporting and
escheatment of unclaimed or abandoned property, and in December 2017, WESCO reached agreement in principle with the State
of Delaware to resolve the audit. The settlement amount was not material to the Company’s financial condition or results of
operations.
In October 2014, WESCO was notified that the New York County District Attorney’s Office was conducting an investigation
involving minority and disadvantaged business contracting practices in the construction industry in New York City and that various
contractors, minority and disadvantaged business firms, and their material suppliers, including the Company, were part of this
investigation. The Company cooperated with the government investigation and, in November 2017, reached an agreement in
principle for a civil settlement to resolve the Company’s involvement in the investigation. The settlement amount was not material
to the Company’s financial condition or results of operations.
14. SEGMENTS AND RELATED INFORMATION
WESCO provides distribution of product and services through its four operating segments, which have been aggregated as
one reportable segment. WESCO has approximately 230,000 unique product stock keeping units and markets more than 1,000,000
products for customers. There were no material amounts of sales or transfers among geographic areas and no material amounts of
export sales.
WESCO attributes revenues from external customers to individual countries on the basis of the point of sale. The following
table sets forth information about WESCO by geographic area:
Net Sales
Year Ended December 31,
2016
2017
2015
2017
Long-Lived Assets
December 31,
2016
2015
(In thousands)
United States
$ 5,775,988
75% $ 5,635,803
77% $ 5,665,962
75% $
95,851
$
123,465
$
157,570
Canada
Mexico
1,521,378
77,280
20%
1%
1,394,657
62,430
19%
1%
1,533,705
70,048
21%
1%
Subtotal North American
Operations
7,374,646
7,092,890
7,269,715
Other International
304,375
4%
243,127
3%
248,772
3%
56,591
262
152,704
3,741
60,372
227
63,088
332
184,064
220,990
4,583
5,369
Total
$ 7,679,021
$ 7,336,017
$ 7,518,487
$
156,445
$
188,647
$
226,359
The following table sets forth sales information about WESCO’s sales by product category:
(percentages based on total sales)
General Supplies
Wire, Cable and Conduit
Communications and Security
Electrical Distribution and Controls
Lighting and Sustainability
Automation, Controls and Motors
Year Ended December 31,
2016
40%
14%
15%
11%
12%
8%
2015
40%
15%
15%
11%
10%
9%
2017
40%
15%
15%
10%
12%
8%
64
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
15. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
WESCO Distribution has outstanding $500 million in aggregate principal amount of 2021 Notes and $350 million in aggregate
principal amount of 2024 Notes. The 2021 Notes and 2024 Notes are unsecured senior obligations of WESCO Distribution and
are fully and unconditionally guaranteed on a senior unsecured basis by WESCO International.
Condensed consolidating financial information for WESCO International, WESCO Distribution and the non-guarantor
subsidiaries is presented in the following tables.
Cash and cash equivalents
Trade accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Intercompany receivables, net
Property, buildings and equipment, net
Intangible assets, net
Goodwill
Investments in affiliates
Other assets
Total assets
Accounts payable
Short-term debt
Other current liabilities
Total current liabilities
Intercompany payables, net
Long-term debt
Other noncurrent liabilities
Condensed Consolidating Balance Sheet
December 31, 2017
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
$
— $
50,602
$
67,351
$
— $
117,953
—
—
4,730
4,730
—
—
—
—
— 1,170,080
526,056
430,092
42,547
152,531
523,241
1,916,018
— 2,189,136
50,198
2,770
106,247
364,334
257,623
1,514,254
3,058,613
5,023,826
—
2,778
—
28,415
$ 3,063,343
$ 5,860,436
$ 6,118,404
— 1,170,080
—
956,148
(35,140)
(35,140)
(2,189,136)
—
2,408,849
156,445
164,668
—
—
367,104
— 1,771,877
(8,082,439)
—
31,193
$ (10,306,715) $ 4,735,468
—
$
— $
417,690
$
381,830
$
— $
799,520
—
—
—
—
80,039
497,729
939,784
1,249,352
—
3,820
934,033
120,709
34,075
162,475
578,380
—
379,228
140,566
—
(35,140)
(35,140)
(2,189,136)
34,075
207,374
1,040,969
—
— 1,313,261
265,095
—
(8,082,439)
—
2,119,739
(3,596)
$ (10,306,715) $ 4,735,468
Total WESCO International stockholders’ equity
2,119,739
3,058,613
Noncontrolling interests
—
—
Total liabilities and stockholders’ equity
$ 3,063,343
$ 5,860,436
5,023,826
(3,596)
$ 6,118,404
65
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Condensed Consolidating Balance Sheet
December 31, 2016
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
$
— $
41,552
$
68,579
$
Cash and cash equivalents
Trade accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Intercompany receivables, net
Property, buildings and equipment, net
Intangible assets, net
Goodwill
Investments in affiliates
Other assets
Total assets
Accounts payable
Short-term debt
Other current liabilities
Total current liabilities
Intercompany payables, net
Long-term debt
Other noncurrent liabilities
— 1,034,402
364,562
34,833
456,879
211,637
440,947
1,771,497
— 2,060,336
51,824
3,417
105,783
389,945
— $
110,131
— 1,034,402
—
(123,013)
(123,013)
(2,060,336)
—
—
821,441
137,104
2,103,078
—
157,607
393,362
—
—
13,647
13,647
—
—
—
—
257,623
1,473,327
— 1,730,950
3,538,476
—
4,028,502
23,846
$ 3,552,123
$ 4,806,159
$ 5,823,886
22,998
— (7,566,978)
—
—
46,844
$ (9,750,327) $ 4,431,841
$
— $
381,795
$
302,926
$
— $
684,721
—
—
—
1,572,486
—
12,737
—
120,299
502,094
487,850
983,449
55,898
20,920
170,872
494,718
—
(123,013)
(123,013)
— (2,060,336)
20,920
168,158
873,799
—
379,686
162,641
4,790,110
(3,269)
$ 5,823,886
— 1,363,135
231,276
—
(7,566,978)
—
1,966,900
(3,269)
$ (9,750,327) $ 4,431,841
Total WESCO International stockholders’ equity
1,966,900
2,776,868
Noncontrolling interests
—
—
Total liabilities and stockholders’ equity
$ 3,552,123
$ 4,806,159
66
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Condensed Consolidating Statement of Income and Comprehensive
Income
Year ended December 31, 2017
(In thousands)
Net sales
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
$
— $ 3,370,088
$ 4,441,655
Cost of goods sold (excluding depreciation and
— 2,714,511
3,612,577
Consolidating
and
Eliminating
Entries
Consolidated
$ (132,722) $ 7,679,021
6,194,366
(132,722)
amortization)
Selling, general and administrative expenses
Depreciation and amortization
Results of affiliates’ operations
Interest expense (income), net
Provision for income taxes
Net income
Less: Net loss attributable to noncontrolling interests
—
—
160,587
—
(2,546)
163,133
—
555,503
18,442
168,782
94,313
(4,486)
160,587
—
Net income attributable to WESCO International
$
163,133
$
160,587
$
544,245
45,575
—
(25,863)
96,339
168,782
(327)
169,109
— 1,099,748
—
(329,369)
—
—
(329,369)
—
$ (329,369) $
64,017
—
68,450
89,307
163,133
(327)
163,460
Other comprehensive income (loss):
Foreign currency translation adjustments
Post retirement benefit plan adjustments
Comprehensive income attributable to WESCO
International
85,762
(6,381)
85,762
(6,381)
85,762
(6,381)
(171,524)
12,762
85,762
(6,381)
$
242,514
$
239,968
$
248,490
$ (488,131) $
242,841
Condensed Consolidating Statement of Income and Comprehensive
Income
Year ended December 31, 2016
(In thousands)
Net sales
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
$
— $ 3,306,265
$ 4,134,508
Cost of goods sold (excluding depreciation and
— 2,651,409
3,341,161
Consolidating
and
Eliminating
Entries
Consolidated
$ (104,756) $ 7,336,017
5,887,814
(104,756)
amortization)
Selling, general and administrative expenses
Depreciation and amortization
Results of affiliates’ operations
Interest expense (income), net
Loss on debt redemption
Provision for income taxes
Net income
Less: Net loss attributable to noncontrolling interests
61
—
240,571
17,555
123,933
(2,098)
101,120
—
477,437
20,226
155,814
87,824
—
8,263
216,920
—
Net income attributable to WESCO International
$
101,120
$
216,920
$
571,788
46,632
—
(28,804)
—
24,266
179,465
(468)
179,933
— 1,049,286
—
(396,385)
—
—
—
(396,385)
—
$ (396,385) $
66,858
—
76,575
123,933
30,431
101,120
(468)
101,588
Other comprehensive income (loss):
Foreign currency translation adjustments
Post retirement benefit plan adjustments
Comprehensive income attributable to WESCO
International
38,275
(2,485)
38,275
(2,485)
38,275
(2,485)
(76,550)
4,970
38,275
(2,485)
$
136,910
$
252,710
$
215,723
$ (467,965) $
137,378
67
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Condensed Consolidating Statement of Income and Comprehensive
Income (Loss)
Year ended December 31, 2015
(In thousands)
Net sales
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
$
— $ 3,456,883
$ 4,177,383
Cost of goods sold (excluding depreciation and
— 2,784,413
3,356,192
Consolidating
and
Eliminating
Entries
Consolidated
$ (115,779) $ 7,518,487
6,024,826
(115,779)
amortization)
Selling, general and administrative expenses
Depreciation and amortization
Results of affiliates’ operations
Interest expense (income), net
Provision for income taxes
Net income
Less: Net loss attributable to noncontrolling interests
Net income attributable to WESCO International
Other comprehensive income (loss):
Foreign currency translation adjustments
Post retirement benefit plan adjustments
Comprehensive (loss) income attributable to
WESCO International
26
—
225,370
24,910
(7,939)
208,373
—
208,373
$
$
$
$
611,549
19,703
219,619
63,261
(6,929)
204,505
—
204,505
$
$
443,376
45,265
—
(18,339)
110,405
240,484
(2,314)
242,798
— 1,054,951
—
(444,989)
—
—
$ (444,989) $
—
64,968
—
69,832
95,537
208,373
(2,314)
$ (444,989) $
210,687
(225,795)
4,532
(225,795)
4,532
(225,795)
4,532
451,590
(9,064)
(225,795)
4,532
$
(12,890) $
(16,758) $
21,535
$
(2,463) $
(10,576)
68
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2017
Net cash (used in) provided by operating activities
Investing activities:
Capital expenditures
Proceeds from sale of assets
Dividends received from subsidiaries
Advances to subsidiaries and other
Net cash (used in) provided by investing activities
Financing activities:
Proceeds from issuance of debt
Repayments of debt
Equity activities
Dividends paid by subsidiaries
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of period
—
—
—
—
—
143,367
—
(106,792)
—
—
36,575
—
—
—
WESCO
International,
Inc.
(36,575) $
$
WESCO
Distribution,
Inc.
(In thousands)
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
101,826
$
83,871
$
— $
149,122
(13,215)
—
307,784
(383,686)
(89,117)
775,926
(785,392)
—
—
5,807
(3,659)
—
9,050
41,552
(8,292)
6,766
—
26,912
25,386
1,144,848
(952,740)
—
(307,784)
—
(115,676)
5,191
(1,228)
68,579
—
—
(307,784)
366,220
58,436
(383,686)
17,466
—
307,784
—
(58,436)
(21,507)
6,766
—
9,446
(5,295)
1,680,455
(1,720,666)
(106,792)
—
5,807
(141,196)
—
—
—
5,191
7,822
110,131
Cash and cash equivalents at the end of period
$
— $
50,602
$
67,351
$
— $
117,953
69
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2016
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
Net cash provided by (used in) operating activities
$
95,388
$ (243,476) $
448,323
$
— $
300,235
Investing activities:
Capital expenditures
Acquisition payments, net of cash acquired
Proceeds from sale of assets
Dividends received from subsidiaries
Advances to subsidiaries and other
Net cash used in investing activities
Financing activities:
Proceeds from issuance of debt
Repayments of debt
Equity activities
Dividends paid by subsidiaries
Other
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of period
—
—
—
—
—
—
(12,482)
(50,890)
—
82,912
(297,259)
(277,719)
252,246
(344,804)
(2,830)
—
—
(95,388)
1,566,864
(1,030,520)
—
—
(12,560)
523,784
—
—
—
—
2,589
38,963
(5,475)
—
8,361
—
(337,344)
(334,458)
672,345
(752,401)
—
(82,912)
—
(162,968)
(3,634)
(52,737)
121,316
—
—
—
(82,912)
624,603
541,691
(17,957)
(50,890)
8,361
—
(10,000)
(70,486)
(297,259)
(327,344)
—
82,912
—
(541,691)
2,194,196
(2,455,069)
(2,830)
—
(12,560)
(276,263)
—
—
—
(3,634)
(50,148)
160,279
Cash and cash equivalents at the end of period
$
— $
41,552
$
68,579
$
— $
110,131
70
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2015
(In thousands)
WESCO
International,
Inc.
WESCO
Distribution,
Inc.
Non-Guarantor
Subsidiaries
Consolidating
and
Eliminating
Entries
Consolidated
Net cash provided by operating activities
$
3,531
$
214,037
$
65,481
$
— $
283,049
Investing activities:
Capital expenditures
Acquisition payments, net of cash acquired
Proceeds from sale of assets
Dividends received from subsidiaries
Advances to subsidiaries and other
Net cash (used in) provided by investing activities
—
—
—
—
—
—
(15,266)
(151,595)
—
114,101
(197,345)
(250,105)
Financing activities:
Proceeds from issuance of debt
Repayments of debt
Equity activities
Dividends paid by subsidiaries
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of period
150,705
1,224,596
— (1,175,056)
—
(154,236)
—
—
(3,531)
—
—
—
—
(7,017)
42,523
—
6,455
32,508
(6,392)
—
3,023
—
17,461
14,092
452,655
(379,578)
—
(114,101)
—
(41,024)
(13,044)
25,505
95,811
—
—
—
(114,101)
179,884
65,783
(197,345)
17,461
—
114,101
—
(65,783)
(21,658)
(151,595)
3,023
—
—
(170,230)
1,630,611
(1,537,173)
(154,236)
—
(7,017)
(67,815)
—
—
—
(13,044)
31,960
128,319
Cash and cash equivalents at the end of period
$
— $
38,963
$
121,316
$
— $
160,279
Revisions
As described in Note 2, the Consolidated Balance Sheet at December 31, 2016 has been revised to correct certain financial statement line items.
71
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
16. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following table sets forth selected quarterly financial data for the years ended December 31, 2017 and 2016:
2017
Net Sales
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
1,772,591
$
1,909,624
$
2,000,159
$
1,996,647
Cost of goods sold (excluding depreciation and amortization)
1,422,573
1,543,510
1,614,814
1,613,469
Income from operations
Income before income taxes
Net income (1)
Net income attributable to WESCO International (1)
67,089
50,368
37,800
37,729
83,105
66,289
49,535
49,510
89,250
71,939
53,576
53,675
81,446
63,844
22,222
22,546
Basic earnings per share attributable to WESCO
International (1) (2)
0.77
1.03
Diluted earnings per share attributable to WESCO
International (1) (3)
0.76
1.02
1.13
1.12
0.48
0.47
2016
Net Sales
$
1,775,961
$
1,911,582
$
1,855,212
$
1,793,262
Cost of goods sold (excluding depreciation and amortization)
1,420,793
1,532,113
1,490,173
1,444,735
Income from operations
Income (loss) before income taxes
Net income (loss)
69,508
50,679
34,534
87,987
68,535
49,852
92,555
(52,170)
(31,021)
(31,611)
82,009
64,507
47,755
Net income (loss) attributable to WESCO International
36,053
Basic earnings (loss) per share attributable to WESCO
47,348
49,798
International (2) (4)
0.85
1.18
(0.73)
Diluted earnings (loss) per share attributable to WESCO
International (3) (4)
0.77
1.02
(0.73)
0.97
0.96
(1) As described in Note 9, net income and net income attributable to WESCO International include provisional discrete income tax expense of
$26.4 million resulting from the application of the TCJA, which affected basic and diluted earnings per share attributable to WESCO
International in the fourth quarter of 2017.
(2) Earnings per share (EPS) in each quarter is computed using the weighted-average number of shares outstanding during that quarter while
EPS for the full year is computed by using the weighted-average number of shares outstanding during the year. Thus, the sum of the four
quarters’ EPS may not equal the full-year EPS.
(3) Diluted EPS in each quarter is computed using the weighted-average number of shares outstanding and common share equivalents during
that quarter while Diluted EPS for the full year is computed by using the weighted-average number of shares outstanding and common share
equivalents during the year. Thus, the sum of the four quarters’ Diluted EPS may not equal the full-year Diluted EPS.
(4) On September 15, 2016, the Company completed the redemption of its 2029 Debentures. The redemption resulted in a non-cash charge
of $123.9 million and consequently a net loss attributable to WESCO International for the three months ended September 30, 2016.
Accordingly, dilutive shares were not included in the calculation of diluted loss per share for the three months ended September 30, 2016
because their effect was antidilutive. As described in Note 9, net income and net income attributable to WESCO International include
provisional discrete income tax expense of $26.4 million resulting from the application of the TCJA, which affected basic and diluted earnings
per share attributable to WESCO International in the fourth quarter of 2017.
72
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15
(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Based
on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and
procedures and internal control over financial reporting were effective as of the end of the period covered by this report.
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 Exchange Act Rules 13a-15(f) and 15d-15(f). 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. Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the updated framework in Internal Control — Integrated Framework (2013) (2013 Framework) issued
by the Committee of Sponsoring Organizations of the Treadway Commission on May 14, 2013. Based on our evaluation under
the 2013 Framework, our management concluded that our internal control over financial reporting was effective as of December 31,
2017.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
Changes in Internal Control Over Financial Reporting
During the last fiscal quarter of 2017, there were no changes in the Company’s internal control over financial reporting identified
in connection with management’s evaluation of the effectiveness of the Company’s internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
73
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information set forth under the captions “Board of Directors” and “Executive Officers” in our definitive Proxy Statement
for our 2018 Annual Meeting of Stockholders is incorporated herein by reference.
Codes of Business Ethics and Conduct
We have adopted a Code of Business Ethics and Conduct (“Code of Conduct”) that applies to our Directors, officers and
employees that is available on our website at www.wesco.com by selecting the “Investors” tab followed by the “Corporate
Governance” heading. Any amendment or waiver of the Code of Conduct for our officers or Directors will be disclosed promptly
at that location on our website.
We also have adopted a Senior Financial Executive Code of Principles for Senior Executives (“Senior Financial Executive
Code”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or
persons performing these functions. The Senior Financial Executive Code is also available at that same location on our website.
We intend to timely disclose any amendment or waiver of the Senior Financial Executive Code on our website and will retain such
information on our website as required by applicable SEC rules.
A copy of the Code of Conduct and/or Senior Financial Executive Code may also be obtained upon request by any stockholder,
without charge, by writing to us at WESCO International, Inc., 225 West Station Square Drive, Suite 700, Pittsburgh, Pennsylvania
15219, Attention: Corporate Secretary.
The information required by Item 10 that relates to our Directors and executive officers, including the Audit Committee and
its financial expert, required by this item, is incorporated by reference from the information appearing under the captions “Corporate
Governance,” “Board and Committee Meetings” and “Security Ownership” in our definitive Proxy Statement for our 2018 Annual
Meeting of Stockholders that is to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal
year on December 31, 2017.
Item 11. Executive Compensation.
The information set forth under the captions “Compensation Discussion and Analysis” and “Director Compensation” in our
definitive Proxy Statement for our 2018 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information set forth under the caption “Security Ownership” in our definitive Proxy Statement for our 2018 Annual
Meeting of Stockholders is incorporated herein by reference.
The following table provides information as of December 31, 2017 with respect to the shares of our common stock that may
be issued under our existing equity compensation plans:
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
2,677,169
—
2,677,169
$
$
48.29
—
48.29
3,595,989
—
3,595,989
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information set forth under the captions “Transactions with Related Persons” and “Corporate Governance” in our definitive
Proxy Statement for our 2018 Annual Meeting of Stockholders is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information set forth under the caption “Independent Registered Public Accounting Firm Fees and Services” in our
definitive Proxy Statement for our 2018 Annual Meeting of Stockholders is incorporated herein by reference.
74
PART IV
Item 15. Exhibits and Financial Statement Schedule.
The financial statements, financial statement schedule and exhibits listed below are filed as part of this annual report:
(a)
(1) Financial Statements
The list of financial statements required by this item is set forth in Item 8, “Financial Statements and Supplementary
Data,” and is incorporated herein by reference.
(2) Financial Statement Schedule
Schedule II — Valuation and Qualifying Accounts
(b)
Exhibits
Exhibit No.
3.1
Description of Exhibit
Restated Certificate of Incorporation of WESCO
International, Inc.
Prior Filing or Sequential Page Number
Incorporated by reference to Exhibit 3.1 to WESCO’s
Registration Statement on Form S-4 (No. 333-70404)
Certificate of Amendment of Certificate of
Incorporation to Restated Certificate of Incorporation
of WESCO International, Inc.
Incorporated by reference to Exhibit 3.1 to WESCO’s
Current Report on Form 8-K, dated May 29, 2014
Amended and Restated By-laws of WESCO
International, Inc., effective as of May 29, 2014
Incorporated by reference to Exhibit 3.2 to WESCO’s
Current Report on Form 8-K, dated May 29, 2014
Indenture, dated November 26, 2013, among WESCO
Distribution, Inc. and U.S. Bank National Association,
as trustee
Incorporated by reference to Exhibit 4.1 to WESCO’s
Current Report on Form 8-K, dated November 27,
2013
Form of 5.375% Unrestricted Note due 2021
Indenture, dated June 15, 2016, among WESCO
Distribution, Inc. and U.S. Bank National Association,
as trustee
4.4
Form of 5.375% Unrestricted Note due 2024
1999 Deferred Compensation Plan for Non-Employee
Directors, as amended and restated September 20, 2007
Form of Stock Appreciation Rights Agreement for
Employees
Form of Stock Appreciation Rights Agreement for
Non-Employee Directors
Incorporated by reference to Exhibit A-2 to Exhibit 4.1
to WESCO’s Current Report on Form 8-K, dated
November 27, 2013
Incorporated by reference to Exhibit 4.1 to WESCO’s
Current Report on Form 8-K, dated June 15, 2016
Incorporated by reference to Exhibit A-2 to Exhibit 4.1
to WESCO’s Current Report on Form 8-K, dated June
15, 2016
Incorporated by reference to Exhibit 10.5 to WESCO's
Annual Report on Form 10-K for the year ended
December 31, 2011
Incorporated by reference to Exhibit 10.7 to WESCO's
Annual Report on Form 10-K for the year ended
December 31, 2011
Incorporated by reference to Exhibit 10.3 to WESCO’s
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2010
Amended and Restated Employment Agreement, dated
as of September 1, 2009, between WESCO
International Inc. and John J. Engel
Incorporated by reference to Exhibit 10.2 to WESCO’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009
Term Sheet, dated January 15, 2010, memorializing
terms of employment of Diane Lazzaris by WESCO
International, Inc.
Incorporated by reference to Exhibit 10.28 to
WESCO’s Annual Report on Form 10-K for the year
ended December 31, 2009
75
3.2
3.3
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
Exhibit No.
10.6
Description of Exhibit
Term Sheet, dated June 18, 2010, memorializing terms
of employment of Kimberly Windrow by WESCO
International, Inc.
Prior Filing or Sequential Page Number
Incorporated by reference to Exhibit 10.1 to WESCO’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2010
10.7
10.8
10.9
Term Loan agreement, dated as of December 12, 2012
among WESCO Distribution, Inc., WDCC Enterprises
Inc., WESCO International, Inc., Credit Suisse AG,
Cayman Islands Branch, as Administrative Agent and
Collateral Agent and the other Lenders and Agents
party thereto
Incorporated by reference to Exhibit 10.1 to WESCO's
Current Report on Form 8-K, dated December 17,
2012
1999 Long-Term Incentive Plan, as restated effective
as of May 30, 2013
Incorporated by reference to Appendix A to the Proxy
Statement filed on Schedule 14A on April 16, 2013
First Amendment to Term Loan Agreement, dated as
of November 19, 2013 among WESCO Distribution,
Inc., WDCC Enterprises Inc., WESCO International,
Inc., Credit Suisse AG, Cayman Islands Branch, as
Administrative Agent and Collateral Agent and the
other Lenders and Agents party thereto
Incorporated by reference to Exhibit 10.31 to
WESCO's Annual Report on Form 10-K for the year
ended December 31, 2013
10.10
Form of Stock Appreciation Rights Agreement for
Employees
Incorporated by reference to Exhibit 10.33 to
WESCO's Annual Report on Form 10-K for the year
ended December 31, 2014
10.11
10.12
Second Amended and Restated Credit Agreement,
dated as of September 24, 2015 among WESCO
Distribution, Inc., the other U.S. Borrowers party
thereto, WESCO Distribution Canada LP, the other
Canadian Borrowers party thereto, WESCO
International, Inc., the Lenders party thereto,
JPMorgan Chase Bank, N.A., as Administrative Agent,
and JPMorgan Chase Bank, N.A., Toronto Branch, as
Canadian Administrative Agent
Fourth Amended and Restated Receivables Purchase
Agreement, dated as of September 24, 2015, by and
among WESCO Receivables Corp., WESCO
Distribution, Inc., the various Purchaser Groups from
time to time party thereto and PNC Bank, National
Association, as Administrator
Incorporated by reference to Exhibit 10.1 to WESCO’s
Current Report on Form 8-K, dated September 24,
2015
Incorporated by reference to Exhibit 10.2 to WESCO’s
Current Report on Form 8-K, dated September 24,
2015
10.13
Form of Non-Employee Director Restricted Stock Unit
Agreement
Incorporated by reference to Exhibit 10.1 to WESCO’s
Quarterly Report on Form 10-Q, for the quarter ended
March 31, 2016
10.14
10.15
10.16
10.17
Form of Notice of Performance Share Award Under
the WESCO International, Inc. 1999 Long-Term
Incentive Plan, as amended May 30, 2013
Incorporated by reference to Exhibit 10.23 to
WESCO's Annual Report on Form 10-K for the year
ended December 31, 2015
Form of Director and Officer Indemnification
Agreement, entered among WESCO International, Inc.
and certain of its executive officers and directors listed
on a schedule attached thereto
Incorporated by reference to Exhibit 10.24 to
WESCO's Annual Report on Form 10-K for the year
ended December 31, 2015
First Amendment to Fourth Amended and Restated
Receivables Purchase Agreement, dated as of
December 18, 2015
Incorporated by reference to Exhibit 10.1 to WESCO’s
Quarterly Report on Form 10-Q, for the quarter ended
June 30, 2016
Second Amendment to Fourth Amended and Restated
Receivables Purchase Agreement, dated as of April 19,
2016
Incorporated by reference to Exhibit 10.2 to WESCO’s
Quarterly Report on Form 10-Q, for the quarter ended
June 30, 2016
76
Exhibit No.
10.18
Description of Exhibit
Third Amendment to Fourth Amended and Restated
Receivables Purchase Agreement, dated as of May 10,
2016
Prior Filing or Sequential Page Number
Incorporated by reference to Exhibit 10.3 to WESCO’s
Quarterly Report on Form 10-Q, for the quarter ended
June 30, 2016
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
21.1
23.1
31.1
31.2
32.1
32.2
Fourth Amendment to Fourth Amended and Restated
Receivables Purchase Agreement, dated as of May 27,
2016
Incorporated by reference to Exhibit 10.4 to WESCO’s
Quarterly Report on Form 10-Q, for the quarter ended
June 30, 2016
Term Sheet, dated October 6, 2016, memorializing
terms of employment of David S. Schulz by WESCO
International, Inc.
Incorporated by reference to Exhibit 10.28 to
WESCO's annual report on Form 10-K, for the year
ended December 31, 2016
Fifth Amendment to Fourth Amended and Restated
Receivables Purchase Agreement, dated as of
November 8, 2017
Incorporated by reference to Exhibit 10.1 to WESCO's
Current Report on Form 8-K, dated November 8, 2017
Sixth Amendment to Fourth Amended and Restated
Receivables Agreement, dated as of December 29,
2017
Filed herewith
Form of Non-Employee Director Restricted Stock Unit
Agreement
Filed herewith
Form of Restricted Stock Unit Agreement for
Employees
Form of Stock Appreciation Rights Agreement for
Employees
Form of Notice of Performance Share Award Under
the WESCO International, Inc. 1999 Long-Term
Incentive Plan, as amended May 31, 2017
Filed herewith
Filed herewith
Filed herewith
1999 Long-Term Incentive Plan, as restated effective
as of May 31, 2017
Incorporated by reference to Appendix A to the Proxy
Statement filed on Schedule 14A on April 17, 2017
Term Sheet, dated December 4, 2015, memorializing
terms of employment of Robert Minicozzi by WESCO
International, Inc.
Filed herewith
Subsidiaries of WESCO International, Inc.
Consent of Independent Registered Public Accounting
Firm
Filed herewith
Filed herewith
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) promulgated under the Exchange Act
Filed herewith
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) promulgated under the Exchange Act
Filed herewith
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
101
Interactive Data File
Filed herewith
The registrant hereby agrees to furnish supplementally to the Commission, upon request, a copy of any omitted schedule to any
of the agreements contained herein.
Copies of exhibits may be retrieved electronically at the Securities and Exchange Commission’s home page at www.sec.gov.
Exhibits will also be furnished without charge by writing to David S. Schulz, Senior Vice President and Chief Financial Officer,
225 West Station Square Drive, Suite 700, Pittsburgh, Pennsylvania 15219. Requests may also be directed to (412) 454-2200.
77
Schedule II—Valuation and Qualifying Accounts
Allowance for doubtful accounts
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
Balance at
Beginning
of Period
Charged to
Expense
Charged to
Other
Accounts(1)
(In thousands)
Balance at
Deductions(2)
End of Period
$
22,007
22,587
21,084
8,466
5,888
6,099
—
21
1,305
(9,160) $
(6,489)
(5,901)
21,313
22,007
22,587
_________________________
(1) Represents allowance for doubtful accounts in connection with certain acquisitions and divestitures.
(2) Includes a reduction in the allowance for doubtful accounts due to write-off of accounts receivable.
78
Item 16. Form 10-K Summary.
Not applicable.
79
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.
SIGNATURES
WESCO INTERNATIONAL, INC.
By: /s/ JOHN J. ENGEL
Name: John J. Engel
Title: Chairman, President and Chief Executive Officer
Date: February 21, 2018
WESCO INTERNATIONAL, INC.
By: /s/ DAVID S. SCHULZ
Name: David S. Schulz
Title: Senior Vice President and Chief Financial Officer
Date: February 21, 2018
80
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/ JOHN J. ENGEL
John J. Engel
/s/ DAVID S. SCHULZ
David S. Schulz
Chairman, President and Chief Executive Officer
February 21, 2018
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer
February 21, 2018
(Principal Financial and Accounting Officer)
/s/ SANDRA BEACH LIN
Director
Sandra Beach Lin
/s/ MATTHEW J. ESPE
Matthew J. Espe
/s/ BOBBY J. GRIFFIN
Bobby J. Griffin
/s/ JOHN K. MORGAN
John K. Morgan
Director
Director
Director
/s/ STEVEN A. RAYMUND
Director
Steven A. Raymund
February 21, 2018
February 21, 2018
February 21, 2018
February 21, 2018
February 21, 2018
/s/ JAMES L. SINGLETON
Director
February 21, 2018
James L. Singleton
/s/ LYNN M. UTTER
Lynn M. Utter
Director
February 21, 2018
81
Exhibit 21.1
SUBSIDIARIES OF WESCO INTERNATIONAL, INC.
1502218 Alberta Ltd., an Alberta corporation
2077871 Alberta ULC, an Alberta unlimited liability company
Atlanta Electrical Distributors, LLC, a Delaware limited liability company
Calvert Wire & Cable Corporation, a Delaware corporation
Carlton-Bates Company, an Arkansas corporation
Carlton-Bates Company de Mexico S.A. de C.V., a Mexico variable capital company
Carlton-Bates Company of Texas GP, Inc., a Texas corporation
CBC LP Holdings, LLC, a Delaware limited liability company
CDW Holdco, LLC, a Delaware limited liability company
Communications Supply Corporation, a Connecticut corporation
Conney Investment Holdings, LLC, a Delaware limited liability company
Conney Safety Products, LLC, a Delaware limited liability company
Distribuidora Materiales Electricos E-Supply Limitada, a Chile limited liability company
EECOL Electric Bolivia Ltda., a Bolivia limited liability company
EECOL Electric Peru S.A.C., a Peru sociedad anonima cerrada
EECOL Electric ULC, an Alberta unlimited liability company
EECOL Industrial Electric Ecuador Limitada, an Ecuador limited liability company
EECOL Industrial Electric (SudAmerica) Limitada, a Chile limited liability company
EECOL Industrial Electric Limitada, a Chile limited liability company
EECOL Power S.A., a Chile closed stock corporation
EECOL Properties Corp., an Alberta corporation
Hazmasters, Inc., an Ontario corporation
Hi-Line Utility Supply Company, LLC, an Illinois limited liability company
Hill Country Electric Supply, L.P., a Texas limited partnership
Liberty Wire & Cable, Inc., a Delaware corporation
Needham Electric Supply, LLC, a Delaware limited liability company
Obras Y Servicios Sunpark S.A.C. (OS Sunpark), a Peru sociedad anonima cerrada
SASK Alta Holdings S.A., a Chile closely held stock corporation
Services Voice, Video and Data Distribution de Mexico, S. de R.L. de C.V., a Mexico limited liability company
Stone Eagle Electrical Supply GP Inc., an Alberta corporation
Stone Eagle Electrical Supply Limited Partnership, an Alberta limited partnership
TVC Communications, L.L.C., a Delaware limited liability company
TVC Espana Distribucion y Venta De Equipos, S.L., a Spain limited liability company
TVC International Holding, L.L.C., a Delaware limited liability company
TVC UK Holdings Limited, a United Kingdom limited company
Voice, Video and Data Distribution de Mexico, S. de R.L. de C.V., a Mexico limited liability company
WDC Holding Inc., a Delaware corporation
WDCC Enterprises Inc., an Alberta corporation
WDCH, LP, a Pennsylvania limited partnership
WDCH US LP, a Delaware limited partnership
WDI-Angola, LDA, an Angola company
WDINESCO B.V., a Netherlands private company with limited liability
WDINESCO C.V., a Netherlands limited partnership
WDINESCO II B.V., a Netherlands private company with limited liability
WDINESCO III B.V., a Netherlands private company with limited liability
WDINESCO II C.V., a Netherlands limited partnership
WDINESCO III C.V., a Netherlands limited partnership
WEAS Company, S. de R.L., a Mexico private limited company
WESCO (Suzhou) Trading Co., Ltd., a China limited liability company
WESCO Australia Pty Ltd, an Australian company
WESCO Canada I, LP, an Alberta limited partnership
WESCO Canada II, LP, an Alberta limited partnership
WESCO Canada GP Inc., an Ontario Corporation
WESCO Distribution Canada Co., a Nova Scotia unlimited liability company
WESCO Distribution Canada GP Inc., an Ontario Corporation
WESCO Distribution Canada LP, an Ontario limited partnership
WESCO Distribution de Mexico, S. de R.L., a Mexico private limited company
WESCO Distribution HK Limited, a Hong Kong limited private company
WESCO Distribution II ULC, a Nova Scotia unlimited liability company
WESCO Distribution III ULC, a Nova Scotia unlimited liability company
WESCO Distribution-International Limited, a United Kingdom limited company
WESCO Distribution Ireland Limited, an Ireland limited company
WESCO Distribution, Inc., a Delaware Corporation
WESCO Distribution NL B.V., a Netherlands private company with limited liability
WESCO Distribution Pte. Ltd., a Singapore limited private company
WESCO Enterprises, Inc., a Delaware corporation
WESCO Equity Corporation, a Delaware corporation
WESCO Holdings, LLC, a Delaware limited liability company
WESCO Integrated Supply, Inc., a Delaware corporation
WESCO Integrated Supply Polska Spolka z o.o., a Poland limited company
WESCO Nevada, Ltd., a Nevada corporation
WESCO Netherlands B.V., a Netherlands private company with limited liability
WESCO Nigeria, Inc., a Delaware corporation
WESCO Procurement Canada ULC, an Alberta unlimited liability company
WESCO Real Estate I, LLC, a Delaware limited liability company
WESCO Real Estate II, LLC, a Delaware limited liability company
WESCO Real Estate III, LLC, a Delaware limited liability company
WESCO Real Estate IV, LLC, a Delaware limited liability company
WESCO Receivables Corp., a Delaware corporation
WESCO TLD Holdings Co., Ltd., a Thailand limited private company
WND Nigeria Limited, a Nigeria corporation
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No's. 333-188979,
333-188978, 333-81845, 333-172531, 333-91187, 333-81841, 333-81847, 333-81857 and 333-218541) of WESCO
International, Inc. of our report dated February 21, 2018 relating to the financial statements, financial statement schedule and
the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 21, 2018
Exhibit 31.1
CERTIFICATION
I, John J. Engel, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2017, of WESCO International,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 21, 2018
By: /s/ John J. Engel
John J. Engel
Chairman, President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, David S. Schulz, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2017, of WESCO International,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 21, 2018
By: /s/ David S. Schulz
David S. Schulz
Senior Vice President and Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of WESCO International, Inc. (the “Company”) on Form 10-K for the fiscal year ended
December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned,
in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operation of the Company.
Date: February 21, 2018
By: /s/ John J. Engel
John J. Engel
Chairman, President and Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of WESCO International, Inc. (the “Company”) on Form 10-K for the fiscal year ended
December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned,
in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operation of the Company.
Date: February 21, 2018
By: /s/ David S. Schulz
David S. Schulz
Senior Vice President and Chief Financial Officer
90 WESCO International, Inc.
Non-GAAP Reconciliations
(Dollars in millions, except for diluted EPS)
Adjusted EBITDA:
Income from operations (EBIT)
Litigation recovery
Adjusted income from operations (Adjusted EBIT)
Depreciation and amortization
Adjusted EBITDA
Adjusted net income attributable to
WESCO International, Inc.:
Net income attributable to WESCO International, Inc.
Litigation recovery, net of tax
Loss on debt redemption, net of tax
Income tax expense for the Tax Cuts and Jobs Act of 2017 (TCJA)
Adjusted net income attributable
to WESCO International, Inc.
Adjusted Diluted EPS:
Diluted share count
Adjusted Diluted EPS (1)
Adjusted stockholders’ equity:
Stockholders’ equity (2)
Add: Loss on debt redemption, net of tax
Add: Income tax expense for TCJA
Adjusted stockholders’ equity
2013
2014
2015
2016
2017
481
(36)
445
68
513
276
(22)
–
–
254
466
–
466
68
534
276
–
–
–
276
374
–
374
65
439
211
–
–
–
211
332
–
332
67
399
102
–
82
–
184
52.7
4.82
53.3
5.18
50.4
4.18
48.3
3.80
1,765
–
–
1,765
1,928
–
–
1,928
1,774
–
–
1,774
1,964
82
–
2,046
321
–
321
64
385
164
–
–
26
190
48.4
3.93
2,116
82
26
2,224
(1) 2016 excludes the third quarter loss per diluted share on debt redemption of $1.70, net of tax, based on 48.7 million diluted shares. 2017 excludes the income tax expense related to the application of the TCJA.
(2) As described in Note 2 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2017, the Consolidated Balance Sheet at December 31, 2016 was
revised to correct certain financial statement line items, including stockholders’ equity.
Non-GAAP Reconciliations
(Dollars in millions, except percentages)
Free Cash Flow:
Cash provided by operations
Less: capital expenditures
Add: non–recurring pension contribution
Free cash flow
Adjusted net income attributable
to WESCO International, Inc.
Free cash flow as a % of adjusted net income
Return on Invested Capital (ROIC):
Adjusted income from operations
Tax effect (year–end effective tax rate) (1)
Tax effected adjusted income from operations
Par debt
December 31 of the prior year
March 31 of the current year
June 30 of the current year
September 30 of the current year
December 31 of the current year
Average par debt
Stockholders’ equity
December 31 of the prior year (adjusted) (2) (3)
Less: debt discount
Stockholders’ equity, net of debt discount
March 31 of the current year (adjusted) (2) (3)
Less: debt discount
Stockholders’ equity, net of debt discount
June 30 of the current year (adjusted) (2) (3)
Less: debt discount
Stockholders’ equity, net of debt discount
September 30 of the current year (adjusted) (2) (3)
Less: debt discount
Stockholders’ equity, net of debt discount
December 31 of the current year (adjusted) (2) (3)
Less: debt discount
Stockholders’ equity, net of debt discount
Average stockholders’ equity, net of debt discount
Average par debt and stockholders’ equity
ROIC
(1) Adjusted for the income tax impact of applying the TCJA in 2017.
2017 Annual Report | A World of Solutions 91
2013
2014
2015
2016
2017
315
(28)
21
308
254
121%
445
121
324
1,919
1,857
1,797
1,758
1,662
1,799
1,576
184
1,392
1,614
183
1,431
1,639
181
1,458
1,739
180
1,559
1,765
175
1,590
1,486
3,285
9.9%
251
(21)
–
230
276
84%
466
132
334
1,662
1,676
1,741
1,689
1,586
1,671
1,765
175
1,590
1,774
174
1,600
1,890
173
1,717
1,909
172
1,737
1,928
170
1,758
1,680
3,351
10.0%
283
(22)
–
261
211
125%
374
117
257
1,586
1,557
1,653
1,667
1,665
1,626
1,928
170
1,758
1,837
169
1,668
1,866
167
1,699
1,760
166
1,594
1,774
164
1,610
1,666
3,292
7.8%
300
(18)
–
282
184
154%
332
77
255
1,665
1,621
1,589
1,474
1,403
1,550
1,774
164
1,610
1,893
163
1,730
1,943
162
1,781
1,993
–
1,993
2,046
–
2,046
1,832
3,382
7.5%
149
(21)
–
128
190
67%
321
80
241
1,403
1,355
1,375
1,424
1,363
1,384
2,045
–
2,045
2,093
–
2,093
2,131
–
2,131
2,143
–
2,143
2,224
–
2,224
2,127
3,511
6.9%
(2) Adjusted for the impact of a litigation matter in 2013, loss on debt redemption in 2016 and income tax expense from the TCJA in 2017.
(3)
Adjusted for the revision to the Consolidated Balance Sheet at December 31, 2016, as described in Note 2 of the Notes to Consolidated Financial Statements in the
Annual Report on Form 10-K for the year ended December 31, 2017.
92 WESCO International, Inc.
CORPORATE INFORMATION
Corporate Headquarters
WESCO International, Inc.
Suite 700
225 West Station Square Drive
Pittsburgh, PA 15219-1122
Phone: 412-454-2200
www.wesco.com
Investor Relations
For questions regarding WESCO, contact Investor Relations
at investorrelations@wesco.com. A copy of the Company’s
Annual Report on Form 10-K or other financial information may
be requested through our website (www.wesco.com) or
by contacting Investor Relations.
Common Stock
WESCO International, Inc. is listed on the New York Stock Exchange
under the ticker symbol WCC.
Annual Meeting
The Annual Meeting of Stockholders will be held on
May 31, 2018, at 2:00 p.m., E.D.T., at:
Hyatt Regency Pittsburgh International Airport
1111 Airport Boulevard
Pittsburgh, PA 15231
Transfer Agent and Registrar
Computershare
P.O. Box 505000
Louisville, KY 40233
Toll free: 877-264-3927
TDD for Hearing Impaired: 800-231-5469
Foreign Shareholders: 201-680-6578
TDD Foreign Shareholders: 201-680-6610
Website address:
www.computershare.com/investor
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
Pittsburgh, PA
Certifications to the NYSE and the SEC
On June 15, 2017, the Company submitted its CEO Certification
to the NYSE under NYSE Rule 303A.12(a). Also, any CEO/CFO
certifications required to be filed with the SEC, including the Section
302 certifications, are filed by the Company as exhibits to its Annual
Report on Form 10-K.
An online version of the Annual Report is available
at www.wesco.com
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
(left to right)
John K. Morgan
Former Chairman, President,
and Chief Executive Officer
Zep, Inc.
John J. Engel
Chairman, President, and
Chief Executive Officer
WESCO International, Inc.
Lynn M. Utter
Chief Executive Officer
First Source, LLC
Sandra Beach Lin
Former Chief Executive Officer
Calisolar, Inc.
Bobby J. Griffin
Former President,
International Operations
Ryder System, Inc.
James L. Singleton
Chairman and
Chief Executive Officer
Cürex Group Holdings, LLC
Steven A. Raymund
Former Chairman
Tech Data Corporation
Matthew J. Espe
Operating Partner
Advent International
Term expires May 2018
Sandra Beach Lin
John J. Engel
Matthew J. Espe
Bobby J. Griffin
John K. Morgan
Steven A. Raymund
James L. Singleton
Lynn M. Utter
EXECUTIVE OFFICERS
(as of December 31, 2017)
John J. Engel
Chairman, President, and
Chief Executive Officer
Diane E. Lazzaris
Senior Vice President and
General Counsel
Robert Minicozzi
Vice President and
Chief Information Officer
David S. Schulz
Senior Vice President and
Chief Financial Officer
Kimberly G. Windrow
Senior Vice President and
Chief Human Resources Officer
WESCO International, Inc.
Suite 700
225 West Station Square Drive
Pittsburgh, Pennsylvania 15219-1122
Phone: 412-454-2200
www.wesco.com
The printer and paper utilized for this report have been certified by the Forest Stewardship Council® (FSC®), which promotes
environmentally appropriate, socially beneficial and economically viable management of the world’s forests. This report is
printed on paper made from mixed sources of post-industrial recycled and virgin fiber.
© Copyright by WESCO 2017– 2018. All rights reserved.