UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



þ☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
~~For the quarterly period ended March 31, 2019~~

For the quarterly period ended September 30, 2019



o☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
~~For the transition period from~~ to

For the transition period from to

Commission File Number:001-14989

WESCO International, Inc.

(Exact name of registrant as specified in its charter)



Delaware		25-1723342
(State or other jurisdiction of incorporation or organization)		~~25-1723342~~ (I.R.S. Employer Identification No.)

225 West Station Square Drive Suite 700		15219
Pittsburgh,	Pennsylvania	(Zip Code)
(Address of principal executive offices)		~~15219~~ ~~(Zip Code)~~

~~(412)~~ (412) 454-2200

(Registrant's telephone number, including area code)

Not applicable.

(Former name, former address and former fiscal year, if changed since last report)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



Title of Class	Trading Symbol(s)	Name of Exchange on which registered
Common Stock, par value $.01 per share	WCC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes þ☑ No o☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filerþ	☑	Accelerated filero	☐

Non-accelerated filer o☐		Smaller reporting companyo	☐

		Emerging growth companyo	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑

As of ~~May 1,~~October 31, 2019, ~~44,856,784~~41,796,445 shares of common stock, $0.01 par value, of the registrant were outstanding.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

Table of Contents



	Page
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.	2

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.	2124

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	2630

Item 4. Controls and Procedures.	2630

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.	2731

Item 1A. Risk Factors.	2731

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	2731

Item 6. Exhibits.	2832

Signatures	2933

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

The interim financial information required by this item is set forth in the unaudited Condensed Consolidated Financial Statements and Notes thereto in this Quarterly Report on Form 10-Q, as follows:



	Page

Condensed Consolidated Balance Sheets (unaudited)	3
Condensed Consolidated Statements of Income and Comprehensive Income (unaudited)	4
Condensed Consolidated Statements of Cash Flows (unaudited)	5
Condensed Consolidated Statements of Stockholders' Equity (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	78

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of dollars, except share data)

(unaudited)


	As of						As of
Assets	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Current assets:
Cash and cash equivalents	$	106,100		$	96,343		$	138,160		$	96,343
Trade accounts receivable, net of allowance for doubtful accounts of $26,828 and $24,468 in 2019 and 2018, respectively	1,268,565			1,166,607
Trade accounts receivable, net of allowance for doubtful accounts of $27,122 and $24,468 in 2019 and 2018, respectively							1,315,026			1,166,607
Other accounts receivable	75,326			96,984			82,357			96,984
Inventories	1,001,353			948,726			961,997			948,726
Prepaid expenses and other current assets	62,406			76,980			80,940			76,980
Total current assets	2,513,750			2,385,640			2,578,480			2,385,640
Property, buildings and equipment, net of accumulated depreciation of $290,883 and $291,811 in 2019 and 2018, respectively	166,688			160,878
Property, buildings and equipment, net of accumulated depreciation of $289,882 and $291,811 in 2019 and 2018, respectively							174,459			160,878
Operating lease assets (Notes 2 and 4)	232,989			—			237,252			—
Intangible assets, net of accumulated amortization of $260,496 and $249,539 in 2019 and 2018, respectively	310,453			316,016
Intangible assets, net of accumulated amortization of $278,856 and $249,539 in 2019 and 2018, respectively							293,493			316,016
Goodwill	1,740,771			1,722,603			1,746,071			1,722,603
Other assets	19,987			19,899			17,656			19,899
Total assets	$	4,984,638		$	4,605,036		$	5,047,411		$	4,605,036
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	870,242		$	794,348		$	849,584		$	794,348
Accrued payroll and benefit costs	59,934			88,105			50,205			88,105
Short-term debt	27,313			30,785			25,561			30,785
Current portion of long-term debt, net of debt discount and debt issuance costs of $488 in 2018	1,159			25,429			338			25,429
Bank overdrafts	22,455			17,818			18,774			17,818
Other current liabilities (Note 4)	169,619			105,461			160,062			105,461
Total current liabilities	1,150,722			1,061,946			1,104,524			1,061,946
Long-term debt, net of debt discount and debt issuance costs of $8,508 and $9,243 in 2019 and 2018, respectively	1,214,276			1,167,311
Long-term debt, net of debt discount and debt issuance costs of $9,371 and $9,243 in 2019 and 2018, respectively							1,346,333			1,167,311
Operating lease liabilities (Notes 2 and 4)	178,606			—			182,044			—
Deferred income taxes	145,501			143,967			147,832			143,967
Other noncurrent liabilities	99,171			102,086			79,968			102,086
Total liabilities	$	2,788,276		$	2,475,310		$	2,860,701		$	2,475,310
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued or outstanding	—			—			—			—
Common stock, $.01 par value; 210,000,000 shares authorized, 59,271,892 and 59,157,696 shares issued and 44,854,825 and 45,106,085 shares outstanding in 2019 and 2018, respectively	593			592
Common stock, $.01 par value; 210,000,000 shares authorized, 59,294,497 and 59,157,696 shares issued and 41,783,995 and 45,106,085 shares outstanding in 2019 and 2018, respectively							593			592
Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2019 and 2018, respectively	43			43			43			43
Additional capital	1,015,563			993,666			1,034,888			993,666
Retained earnings	2,349,300			2,307,462			2,477,259			2,307,462
Treasury stock, at cost; 18,756,498 and 18,391,042 shares in 2019 and 2018, respectively	(777,216		)	(758,018		)
Treasury stock, at cost; 21,849,933 and 18,391,042 shares in 2019 and 2018, respectively							(937,135		)	(758,018		)
Accumulated other comprehensive loss	(385,918		)	(408,435		)	(382,530		)	(408,435		)
Total WESCO International, Inc. stockholders' equity	2,202,365			2,135,310			2,193,118			2,135,310
Noncontrolling interests	(6,003		)	(5,584		)	(6,408		)	(5,584		)
Total stockholders’ equity	2,196,362			2,129,726			2,186,710			2,129,726
Total liabilities and stockholders’ equity	$	4,984,638		$	4,605,036		$	5,047,411		$	4,605,036

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

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands of dollars, except per share data)

(unaudited)


	Three Months Ended						Three Months Ended						Nine Months Ended
	March 31						September 30						September 30
	2019			2018			2019			2018			2019			2018
Net sales (Note 3)	$	1,961,267		$	1,993,915		$	2,148,110		$	2,067,245		$	6,259,465		$	6,165,154
Cost of goods sold (excluding depreciation and
amortization)	1,578,771			1,613,966			1,747,913			1,670,037			5,067,799			4,988,103
Selling, general and administrative expenses	296,528			290,829			290,852			284,073			883,222			867,790
Depreciation and amortization	15,242			15,879			15,612			15,618			46,035			47,321
Income from operations	70,726			73,241			93,733			97,517			262,409			261,940
Net interest and other	17,120			19,783			13,508			17,050			47,934			54,574
Income before income taxes	53,606			53,458			80,225			80,467			214,475			207,366
Provision for income taxes	11,656			10,487			15,886			13,822			44,970			40,077
Net income	41,950			42,971			64,339			66,645			169,505			167,289
Less: Net loss attributable to noncontrolling interests	(419		)	(1,450		)	(156		)	(204		)	(824		)	(1,921		)
Net income attributable to WESCO International, Inc.	$	42,369		$	44,421		$	64,495		$	66,849		$	170,329		$	169,210
Other comprehensive income (loss):
Foreign currency translation adjustments	22,517			(28,800		)	(16,856		)	20,486			25,905			(37,029		)
Comprehensive income attributable to WESCO International, Inc.	$	64,886		$	15,621		$	47,639		$	87,335		$	196,234		$	132,181

Earnings per share attributable to WESCO International, Inc.
Basic	$	0.94		$	0.94		$	1.53		$	1.42		$	3.91		$	3.60
Diluted	$	0.93		$	0.93		$	1.52		$	1.41		$	3.88		$	3.56

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

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

(unaudited)


	Three Months Ended						Nine Months Ended
	March 31						September 30
	2019			2018			2019			2018
Operating activities:
Net income	$	41,950		$	42,971		$	169,505		$	167,289
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,242			15,879			46,035			47,321
Deferred income taxes	893			2,736			4,621			12,194
Other operating activities, net	5,961			5,085			10,876			7,590
Changes in assets and liabilities:
Trade accounts receivable, net	(76,696		)	(37,509		)	(122,903		)	(104,215		)
Other accounts receivable	22,425			29,986			15,450			19,859
Inventories	(40,768		)	2,992			(1,500		)	23,189
Prepaid expenses and other assets	15,074			4,817			(20,720		)	(22,088		)
Accounts payable	68,085			8,077			46,902			18,235
Accrued payroll and benefit costs	(27,851		)	(24,561		)	(36,055		)	2,788
Other current and noncurrent liabilities	4,554			2,520			4,453			2,298
Net cash provided by operating activities	28,869			52,993			116,664			174,460

Investing activities:
Capital expenditures							(30,323		)	(23,749		)
Acquisition payments	(27,742		)	—			(27,742		)	—
Capital expenditures	(10,828		)	(7,662		)
Other investing activities	53			(8,760		)	4,575			3,609
Net cash used in investing activities	(38,517		)	(16,422		)	(53,490		)	(20,140		)

Financing activities:
Proceeds from issuance of short-term debt	23,569			57,919
Repayments of short-term debt	(51,983		)	(52,220		)
Repayments of short-term debt, net							(29,600		)	(2,464		)
Proceeds from issuance of long-term debt	423,666			493,000			1,105,397			994,323
Repayments of long-term debt	(377,825		)	(515,000		)	(927,410		)	(1,081,323		)
Repurchases of common stock	(2,572		)	(1,661		)
Increase (decrease) in bank overdrafts	4,639			(10,575		)
Repurchases of common stock (Note 8)							(152,735		)	(27,055		)
Debt issuance costs							(2,508		)	—
Repayment of deferred acquisition payable							(11,401		)	—
Other financing activities, net	(248		)	(290		)	175			(8,301		)
Net cash used in financing activities	19,246			(28,827		)	(18,082		)	(124,820		)

Effect of exchange rate changes on cash and cash equivalents	159			(1,800		)	(3,275		)	(4,693		)

Net change in cash and cash equivalents	9,757			5,944			41,817			24,807
Cash and cash equivalents at the beginning of period	96,343			117,953			96,343			117,953
Cash and cash equivalents at the end of period	$	106,100		$	123,897		$	138,160		$	142,760
Supplemental disclosures:
Cash paid for interest	$	4,583		$	4,607		$	38,347		$	37,138
Cash paid for income taxes	5,018			5,505			54,044			48,744

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

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands of dollars)

(unaudited)

Accumulated Other
Class B Retained Comprehensive
Common Stock Common Stock Additional Earnings Treasury Stock Noncontrolling Income
Amount Shares Amount Shares Capital (Deficit) Amount Shares Interests (Loss)
Balance, December 31, 2018 $ 592
59,157,696
$ 43
4,339,431
$ 993,666
$ 2,307,462
$ (758,018 ) (18,391,042 ) $ (5,584 ) $ (408,435 )
Exercise of stock-based awards 1
156,760
(90 ) (54 ) (184 )
Stock-based compensation expense 4,665

Repurchases of common stock 19,144
(19,144 ) (365,272 )
Tax withholding related to vesting of restricted stock units and retirement of common stock —
(42,564 ) (1,822 ) (531 )
Noncontrolling interests (419 )
Net income attributable to WESCO 42,369

Translation adjustments 22,517
Balance, March 31, 2019 $ 593
59,271,892
$ 43
4,339,431
$ 1,015,563
$ 2,349,300
$ (777,216 ) (18,756,498 ) $ (6,003 ) $ (385,918 )

Accumulated Other
Class B Retained Comprehensive
Common Stock Common Stock Additional Earnings Treasury Stock Noncontrolling Income
Amount Shares Amount Shares Capital (Deficit) Amount Shares Interests (Loss)
Balance, December 31, 2017 $ 591
59,045,762
$ 43
4,339,431
$ 999,156
$ 2,079,697
$ (647,158 ) (16,375,653 ) $ (3,596 ) $ (312,590 )
Exercise of stock-based awards —
88,554
(67 ) (455 ) (5,521 )
Stock-based compensation expense 3,858

Tax withholding related to vesting of restricted stock units and retirement of common stock —
(16,614 ) (1,153 ) 417

Noncontrolling interests (1,450 )
Net income attributable to WESCO 44,421

Translation adjustments (28,800 )
Balance, March 31, 2018 $ 591
59,117,702
$ 43
4,339,431
$ 1,001,794
$ 2,124,535
$ (647,613 ) (16,381,174 ) $ (5,046 ) $ (341,390 )



																						Accumulated Other
					Class B						Retained											Comprehensive
	Common Stock				Common Stock			Additional			Earnings			Treasury Stock					Noncontrolling			Income
	Amount		Shares		Amount		Shares	Capital			(Deficit)			Amount			Shares		Interests			(Loss)
Balance, December 31, 2018	$	592	59,157,696		$	43	4,339,431	$	993,666		$	2,307,462		$	(758,018	)	(18,391,042	)	$	(5,584	)	$	(408,435	)
Exercise of stock-based awards	1		156,760					(90		)				(54		)	(184	)
Stock-based compensation expense								4,665
Repurchases of common stock								19,144						(19,144		)	(365,272	)
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(42,564	)				(1,822		)	(531		)
Noncontrolling interests																			(419		)
Net income attributable to WESCO											42,369
Translation adjustments																						22,517
Balance, March 31, 2019	$	593	59,271,892		$	43	4,339,431	$	1,015,563		$	2,349,300		$	(777,216	)	(18,756,498	)	$	(6,003	)	$	(385,918	)
Exercise of stock-based awards	—		20,831					6						(157		)	(3,029	)
Stock-based compensation expense								5,150
Repurchases of common stock								(22,500		)				(127,500		)	(2,394,816	)
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(19	)				(1		)	4
Noncontrolling interests																			(249		)
Net income attributable to WESCO											63,464
Translation adjustments																						20,244
Balance, June 30, 2019	$	593	59,292,704		$	43	4,339,431	$	998,218		$	2,412,768		$	(904,873	)	(21,154,343	)	$	(6,252	)	$	(365,674	)
Exercise of stock-based awards	—		1,983					—						(5		)	(94	)
Stock-based compensation expense								4,426
Repurchases of common stock								32,257						(32,257		)	(695,496	)
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(190	)				(13		)	(4		)
Noncontrolling interests																			(156		)
Net income attributable to WESCO											64,495
Translation adjustments																						(16,856		)
Balance, September 30, 2019	$	593	59,294,497		$	43	4,339,431	$	1,034,888		$	2,477,259		$	(937,135	)	(21,849,933	)	$	(6,408	)	$	(382,530	)

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

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands of dollars)

(unaudited)



																							Accumulated Other
					Class B						Retained												Comprehensive
	Common Stock				Common Stock			Additional			Earnings			Treasury Stock						Noncontrolling			Income
	Amount		Shares		Amount		Shares	Capital			(Deficit)			Amount				Shares		Interests			(Loss)
Balance, December 31, 2017	$	591	59,045,762		$	43	4,339,431	$	999,156		$	2,079,697		$	(647,158	)		(16,375,653	)	$	(3,596	)	$	(312,590	)
Exercise of stock-based awards	—		88,554					(67		)				(455		)		(5,521	)
Stock-based compensation expense								3,858
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(16,614	)				(1,153		)	417
Noncontrolling interests																				(1,450		)
Net income attributable to WESCO											44,421
Translation adjustments																							(28,800		)
Balance, March 31, 2018	$	591	59,117,702		$	43	4,339,431	$	1,001,794		$	2,124,535		$	(647,613	)		(16,381,174	)	$	(5,046	)	$	(341,390	)
Exercise of stock-based awards	—		26,867					(31		)				(230		)		(3,795	)
Stock-based compensation expense								4,102
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		—					32			11
Noncontrolling interests																				(267		)
Net income attributable to WESCO											57,940
Translation adjustments																							(28,715		)
Balance, June 30, 2018	$	591	59,144,569		$	43	4,339,431	$	1,005,897		$	2,182,486		$	(647,843	)		(16,384,969	)	$	(5,313	)	$	(370,105	)
Exercise of stock-based awards	1		8,990					14						(119		)		(1,976	)
Stock-based compensation expense								4,118
Repurchases of common stock								(3,750		)				(21,250		)		(351,821	)
Tax withholding related to vesting of restricted stock units and retirement of common stock	—		(749	)				(57		)	(8		)
Noncontrolling interests																				(203		)
Net income attributable to WESCO											66,849						��
Translation adjustments																							20,486
Balance, September 30, 2018	$	592	59,152,810		$	43	4,339,431	$	1,006,222		$	2,249,327		$	(669,212	)		(16,738,766	)	$	(5,516	)	$	(349,619	)

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

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ORGANIZATION

WESCO International, Inc. ("WESCO International") and its subsidiaries (collectively, “WESCO” or the "Company"), headquartered in Pittsburgh, Pennsylvania, is a full-line distributor of electrical, industrial and communications maintenance, repair and operating ("MRO") and original equipment manufacturer ("OEM") products, construction materials, and advanced supply chain management and logistics services used primarily in the industrial, construction, utility and commercial, institutional and government markets. WESCO serves approximately 70,000 active customers globally through approximately 500 branches primarily located in North America, with operations in 15 additional countries and 1011 distribution centers located in the United States and Canada.

2. ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of WESCO have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). The unaudited condensed consolidated financial information should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in WESCO’s 2018 Annual Report on Form 10-K as filed with the SEC on February 27, 2019. The Condensed Consolidated Balance Sheet at December 31, 2018 was derived from the audited Consolidated Financial Statements as of that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America.

The unaudited Condensed Consolidated Balance Sheet as of ~~March 31,~~September 30, 2019, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income, ~~the unaudited Condensed Consolidated Statements of Cash Flows,~~ and the unaudited Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, and the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018, respectively, in the opinion of management, have been prepared on the same basis as the audited Consolidated Financial Statements and include all adjustments necessary for the fair statement of the results of the interim periods presented herein. All adjustments reflected in the unaudited condensed consolidated financial information are of a normal recurring nature unless indicated. The results for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.

Reclassifications

The Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2018 includes certain reclassifications to previously reported amounts to conform to the current period presentation.

Recently Adopted Accounting Pronouncements

Effective January 1, 2019, WESCO adopted Accounting Standards Update (ASU) 2016-02, Leases, and all the related amendments (“Topic 842”), a comprehensive new standard that amended various aspects of existing accounting guidance for leases. The adoption of Topic 842 resulted in the recognition of right-of-use assets and lease liabilities for operating leases of approximately $240 million and $245 million, respectively, in the Consolidated Balance Sheet as of January 1, 2019, most of which relate to real estate. The adoption of Topic 842 did not have a material impact on the Consolidated ~~Statement~~Statements of Income and Comprehensive Income or Consolidated ~~Statement~~Statements of Cash ~~Flow~~Flows for the three and nine months ended ~~March 31, 2019.~~September 30, 2019, respectively.

The Company used the optional effective date transition method and therefore did not adjust the prior comparative periods presented herein. There was no cumulative-effect adjustment to beginning retained earnings as a result of using this method. In addition, the Company elected the package of practical expedients that allowed the adoption of Topic 842 without reassessing arrangements that commenced prior to the effective date. Additional qualitative and quantitative information about the Company's leases is disclosed in Note 4.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces new guidance for the accounting for credit losses on certain financial instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the impact of adopting this ASU, but does not expect ~~the adoption of this accounting standard to~~that it will have a material impact on its consolidated financial statements and notes thereto.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying and adding certain disclosures. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.

~~WESCO INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)~~

~~(unaudited)~~

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the disclosure requirements for all employers that sponsor defined benefit pension and other post retirement plans by removing and adding certain disclosures. The amendments in this ASU are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management does not expect the adoption of this accounting standard to have a material impact on its consolidated financial statements and notes thereto.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to WESCO’s financial position, results of operations or cash flows.

3. REVENUE

WESCO distributes products and provides services to customers globally within the following end markets: (1) industrial, (2) construction, (3) utility, and (4) commercial, institutional and government. Revenue is measured as the amount of consideration WESCO expects to receive in exchange for transferring goods or providing services.

The following tables disaggregate WESCO’s revenue by end market and geography:


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31				September 30				September 30
(In thousands)	2019		2018		2019		2018		2019		2018
Industrial	$	736,906	$	758,976	$	755,129	$	723,869	$	2,253,974	$	2,243,590
Construction	633,288		637,800		714,589		686,165		2,052,061		2,007,708
Utility	308,269		315,546		357,527		345,937		1,012,726		998,438
Commercial, Institutional and Government	282,804		281,593		320,865		311,274		940,704		915,418
Total by end market	$	1,961,267	$	1,993,915	$	2,148,110	$	2,067,245	$	6,259,465	$	6,165,154


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31				September 30				September 30
(In thousands)	2019		2018		2019		2018		2019		2018
United States	$	1,460,991	$	1,482,718	$	1,601,962	$	1,525,393	$	4,679,251	$	4,571,533
Canada ⁽¹⁾	384,596		398,738		431,233		429,830		1,230,855		1,234,600
Other International ⁽¹⁾	115,680		112,459		114,915		112,022		349,359		359,021
Total by geography	$	1,961,267	$	1,993,915	$	2,148,110	$	2,067,245	$	6,259,465	$	6,165,154


⁽¹⁾	The prior period has been reclassified to conform to the current period presentation.

In accordance with certain contractual arrangements, WESCO receives payment from its customers in advance and recognizes such payment as deferred revenue. Revenue for advance payment is recognized when the performance obligation has been satisfied and control has transferred to the customer, which is generally upon shipment. Deferred revenue is usually recognized within a year or less from the date of the customer’s advance payment. At ~~March 31,~~September 30, 2019 and December 31, 2018, ~~$8.8~~$11.0 million and $11.8 million, respectively, of deferred revenue was recorded as a component of other current liabilities in the Condensed Consolidated Balance Sheets.

WESCO’s revenues are adjusted for variable consideration, which includes customer volume rebates, returns, and discounts. WESCO measures variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, as well as current and forecasted information. Measurement and recognition of variable consideration is reviewed by management on a monthly basis and revenue is adjusted accordingly. Variable consideration reduced revenue for ~~the three months ended March 31, 2019 and 2018 by approximately $25.5 million and $23.8 million, respectively.~~

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

the three months ended September 30, 2019 and 2018 by approximately $26.3 million and $25.1 million, respectively, and by approximately $80.1 million and $74.5 million for the nine months ended September 30, 2019 and 2018, respectively.

Shipping and handling costs are recognized in net sales when they are billed to the customer. These costs are recognized as a component of selling, general and administrative expenses when WESCO does not bill the customer. WESCO has elected to recognize shipping and handling costs as a fulfillment cost. Shipping and handling costs recorded as a component of selling, general and administrative expenses totaled ~~$17.0~~$17.6 million and ~~$18.2~~$18.8 million for the three months ended ~~March 31,~~September 30, 2019 and 2018, respectively, and $52.8 million and $55.6 million for the nine months ended September 30, 2019 and 2018, respectively.

4. LEASES

WESCO leases real estate, automobiles, trucks and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company ~~has~~ elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to ~~its~~ leased automobiles and trucks. WESCO accounts for these nonlease components separately from the associated lease components. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. The Company uses the interest rate implicit in its leases to discount lease payments at the lease commencement date. When the implicit rate is not readily available, the Company uses its incremental borrowing rate.

The Company's finance leases, which are recorded in the Condensed Consolidated Balance Sheet as of ~~March 31,~~September 30, 2019 as a component of property, buildings and equipment, current portion of long-term debt and long-term debt, ~~respectively,~~ are not material to the consolidated financial statements and notes thereto. Accordingly, finance leases have not been disclosed herein.

The following table sets forth supplemental balance sheet information related to operating leases for the period presented:


	As of		As of
(In thousands)	March 31, 2019		September 30, 2019
Operating lease assets	$	232,989	$	237,252

Current operating lease liabilities	59,236		61,114
Noncurrent operating lease liabilities	178,606		182,044
Total operating lease liabilities	$	237,842	$	243,158

The following table sets forth the Company's total lease cost, which is recorded as a component of selling, general and administrative expenses, for the ~~period~~periods presented:



	Three Months Ended		Nine Months Ended
	September 30		September 30
(In thousands)	2019		2019
Operating lease cost	$	18,605	$	54,879
Short-term lease cost	23		56
Variable lease cost	5,335		17,119
Total lease cost	$	23,963	$	72,054

Three Months Ended
March 31
(In thousands) 2019
Operating lease cost $ 18,003
Short-term lease cost 11
Variable lease cost 5,321
Total lease cost $ 23,335

Variable lease cost consists of the non-lease components described above, as well as taxes and insurance for WESCO's leased real estate.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

The following table sets forth supplemental cash flow information related to operating leases for the period presented:


	Three Months Ended		Nine Months Ended
	March 31		September 30
(In thousands)	2019		2019
Operating cash flows from operating leases	$	18,012	$	48,484
Right-of-use assets obtained in exchange for new operating lease liabilities	8,092		48,622

~~For the three months ended March 31,~~As of September 30, 2019, the weighted-average remaining lease term for operating leases was ~~5.5~~5.4 years and the weighted-average discount rate used to measure operating lease assets and liabilities was 4.6%.

The following table sets forth the maturities of the Company's operating lease liabilities and reconciles the respective undiscounted payments to the operating lease liabilities in the Condensed Consolidated Balance Sheet as of ~~March 31,~~September 30, 2019:



	(In thousands)
2019	$	18,464
2020	68,791
2021	58,134
2022	44,780
2023	34,872
Thereafter	51,749
Total undiscounted operating lease payments	276,790
Less: interest	(33,632		)
Total operating lease liabilities	$	243,158

(In thousands)
2019 $ 59,033
2020 61,233
2021 49,587
2022 36,767
2023 27,547
Thereafter 45,701
Total undiscounted operating lease payments 279,868
Less: interest (42,026 )
Total operating lease liabilities $ 237,842

The following table sets forth the future minimum rental payments for operating leases accounted for in accordance with Accounting Standards Codification Topic 840, Leases, as of December 31, 2018:



Years ending December 31	(In thousands)
2019	$	71,640
2020	59,594
2021	47,264
2022	34,490
2023	24,493
Thereafter	40,302

Years ending December 31 (In thousands)
2019 $ 71,640
2020 59,594
2021 47,264
2022 34,490
2023 24,493
Thereafter 40,302

5. ACQUISITIONS

The following table sets forth the consideration paid for acquisitions:



	Nine Months Ended
	September 30
	2019
	(In thousands)
Fair value of assets acquired	$	36,188
Fair value of liabilities assumed	8,446
Cash paid for acquisitions	$	27,742

Three Months Ended
March 31
2019
(In thousands)
Fair value of assets acquired $ 34,812
Fair value of liabilities assumed 7,070
Cash paid for acquisitions $ 27,742

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

Sylvania Lighting Services Corp.

On March 5, 2019, WESCO Distribution, Inc. ("WESCO Distribution"), through its WESCO Services, LLC subsidiary, acquired certain assets and assumed certain liabilities of Sylvania Lighting Services Corp. ("SLS"). Headquartered in Wilmington, Massachusetts, SLS offers a full spectrum of energy-efficient lighting upgrade, retrofit, and renovation solutions with annual sales of approximately $100 million and approximately 220 employees across the U.S. and Canada. WESCO Distribution funded the purchase price paid at closing with borrowings under its accounts receivable securitization facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date, resulting in goodwill of ~~$5.5~~$5.9 million, which is deductible for tax purposes.

6. GOODWILL

The following table sets forth the changes in the carrying value of goodwill:



	Nine Months Ended
	September 30
(In thousands)	2019
Beginning balance January 1	$	1,722,603
Foreign currency exchange rate changes	17,522
Additions to goodwill for acquisitions	5,946
Ending balance September 30	$	1,746,071

Three Months Ended
March 31
(In thousands) 2019
Beginning balance January 1 $ 1,722,603
Foreign currency exchange rate changes 12,642
Additions to goodwill for acquisitions 5,526
Ending balance March 31 $ 1,740,771

7. STOCK-BASED COMPENSATION

WESCO’s stock-based employee compensation plans are comprised of stock-settled stock appreciation rights, restricted stock units and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair value of stock-settled stock appreciation rights and performance-based awards with market conditions is determined using the Black-Scholes and Monte Carlo simulation models, respectively. The fair value of restricted stock units and performance-based awards with performance conditions is determined by the grant-date closing price of WESCO’s common stock. The forfeiture assumption is based on WESCO’s historical employee behavior that is reviewed on an annual basis. No dividends are assumed. For stock-settled stock appreciation rights that are exercised and for restricted stock units and performance-based ~~award~~awards that vest, shares are issued out of WESCO's outstanding common stock.

Stock-settled stock appreciation rights vest ratably over a three-year period and terminate on the tenth anniversary of the grant date unless terminated sooner under certain conditions. Vesting of restricted stock units is based on a minimum time period of three years. Vesting of performance-based awards is based on a three-year performance period, and the number of shares earned, if any, depends on the attainment of certain performance levels. Outstanding awards would vest upon the consummation of a change in control transaction and performance-based awards would vest at the target level.

Performance-based awards granted in 2019 were based on two equally-weighted performance ~~measures, which include~~measures: the three-year average growth rate of WESCO's net income and the three-year cumulative return on net assets. Performance-based awards granted in 2018 were based on two equally-weighted performance ~~measures, which include~~measures: the three-year average growth rate of the Company’s fully diluted earnings per share and the three-year cumulative return on net assets. From 2015 to 2017, the two equally-weighted performance-based award metrics were the three-year average growth rate of WESCO's net income and WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

During the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, WESCO granted the following stock-settled stock appreciation rights, restricted stock units and performance-based awards at the following weighted-average fair values:



	Three Months Ended				Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Stock-settled stock appreciation rights granted	—		9,415		213,618		509,046
Weighted-average fair value	$	—	$	17.40	$	16.36	$	18.38

Restricted stock units granted	6,256		2,686		181,800		119,457
Weighted-average fair value	$	47.95	$	61.41	$	54.41	$	62.72

Performance-based awards granted	—		—		126,874		44,144
Weighted-average fair value	$	—	$	—	$	54.64	$	62.80

Three Months Ended
March 31,
2019 March 31,
2018
Stock-settled stock appreciation rights granted 213,618
491,229
Weighted-average fair value $ 16.36
$ 18.40

Restricted stock units granted 175,544
114,269
Weighted-average fair value $ 54.64
$ 62.81

Performance-based awards granted 126,874
44,144
Weighted-average fair value $ 54.64
$ 62.80

The fair value of stock-settled stock appreciation rights was estimated using the following weighted-average assumptions:



	Three Months Ended			Nine Months Ended
	September 30, 2019	September 30, 2018		September 30, 2019		September 30, 2018
Risk free interest rate	n/a	2.8	%	2.5	%	2.5	%
Expected life (in years)	n/a	5		5		5
Expected volatility	n/a	28	%	29	%	28	%

Three Months Ended
March 31,
2019 March 31,
2018
Risk free interest rate 2.5 % 2.5 %
Expected life (in years) 5
5
Expected volatility 29 % 28 %

The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve as of the grant date. The expected life is based on historical exercise experience and the expected volatility is based on the volatility of the Company's daily stock prices over a five-year period preceding the grant date.

The following table sets forth a summary of stock-settled stock appreciation rights and related information for the ~~three~~nine months ended ~~March 31,~~September 30, 2019:



	Awards		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2018	2,351,633		$	59.26
Granted	213,618		54.63
Exercised	(108,022	)	34.84
Forfeited	(87,351	)	65.96
Outstanding at September 30, 2019	2,369,878		59.71		5.8	$	4,948
Exercisable at September 30, 2019	1,749,201		$	59.00	4.9	$	4,948

Awards
Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual Term (In years)

Aggregate
Intrinsic
Value
(In thousands)
Outstanding at December 31, 2018 2,351,633
$ 59.26

     Granted 213,618
54.63

     Exercised (51,635 ) 35.11

     Forfeited (26,236 ) 70.00

Outstanding at March 31, 2019 2,487,380
59.25
6.3 $ 9,222
Exercisable at March 31, 2019 1,815,662
$ 58.38
5.3 $ 9,217

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

The following table sets forth a summary of time-based restricted stock units and related information for the ~~three~~nine months ended ~~March 31,~~September 30, 2019:



	Awards		Weighted- Average Fair Value
Unvested at December 31, 2018	327,798		$	57.87
Granted	181,800		54.41
Vested	(118,560	)	44.58
Forfeited	(17,736	)	59.57
Unvested at September 30, 2019	373,302		$	60.25

Awards
Weighted-
Average
Fair
Value
Unvested at December 31, 2018 327,798
$ 57.87
     Granted 175,544
54.64
     Vested (112,500 ) 43.58
     Forfeited (1,565 ) 57.49
Unvested at March 31, 2019 389,277
$ 60.48

Performance shares are awards for which the vesting will occur based on market or performance conditions. The following table sets forth a summary of performance-based awards for the ~~three~~nine months ended ~~March 31,~~September 30, 2019:



	Awards		Weighted- Average Fair Value
Unvested at December 31, 2018	138,896		$	59.33
Granted	126,874		54.64
Vested	(25,696	)	42.44
Forfeited	(44,769	)	52.15
Unvested at September 30, 2019	195,305		$	60.24

Awards
Weighted-
Average
Fair
Value
Unvested at December 31, 2018 138,896
$ 59.33
     Granted 126,874
54.64
     Vested (25,696 ) 42.44
     Forfeited (35,486 ) 50.79
Unvested at March 31, 2019 204,588
$ 60.11

The unvested performance-based awards in the table above include 17,507 shares in which vesting of the ultimate number of shares is dependent upon WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. These awards are accounted for as awards with market conditions; compensation cost is recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest.

Vesting of the remaining ~~187,081~~177,798 shares of performance-based awards in the table above is dependent upon the achievement of certain performance targets, including ~~80,944~~77,856 that are dependent upon the three-year average growth rate of WESCO's net income, ~~21,350~~19,797 that are dependent upon the three-year average growth rate of the Company's fully diluted earnings per share, and ~~84,787~~80,145 that are based upon the three-year cumulative return on net assets. These awards are accounted for as awards with performance conditions; compensation cost is recognized over the performance period based upon WESCO's determination of whether it is probable that the performance targets will be achieved.

WESCO recognized ~~$4.7~~$4.4 million and ~~$3.9~~$4.1 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the three months ended ~~March 31,~~September 30, 2019 and 2018, respectively. WESCO recognized $14.2 million and $12.1 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the nine months ended September 30, 2019 and 2018, respectively. As of ~~March 31,~~September 30, 2019, there was ~~$36.6~~$24.9 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements for all awards previously made, of which approximately ~~$15.4~~$4.8 million is expected to be recognized over the remainder of 2019, ~~$13.5~~$12.7 million in 2020, ~~$7.0~~$6.7 million in 2021 and $0.7 million in 2022.

8. 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.

The following table sets forth the details of basic and diluted earnings per share:

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

~~The following table sets forth the details of basic and diluted earnings per share:~~



	Three Months Ended				Nine Months Ended
	September 30				September 30
(In thousands, except per share data)	2019		2018		2019		2018
Net income attributable to WESCO International	$	64,495	$	66,849	$	170,329	$	169,210
Weighted-average common shares outstanding used in computing basic earnings per share	42,100		47,010		43,545		47,044
Common shares issuable upon exercise of dilutive equity awards	278		476		355		503
Weighted-average common shares outstanding and common share equivalents used in computing diluted earnings per share	42,378		47,486		43,900		47,547
Earnings per share attributable to WESCO International
Basic	$	1.53	$	1.42	$	3.91	$	3.60
Diluted	$	1.52	$	1.41	$	3.88	$	3.56

Three Months Ended
March 31
(In thousands, except per share data) 2019 2018
Net income attributable to WESCO International $ 42,369
$ 44,421
Weighted-average common shares outstanding used in computing basic earnings per share 45,076
47,038
Common shares issuable upon exercise of dilutive equity awards 415
570
Weighted-average common shares outstanding and common share equivalents used in computing diluted earnings per share

45,491
47,608
Earnings per share attributable to WESCO International
Basic $ 0.94
$ 0.94
Diluted $ 0.93
$ 0.93

For the three and nine months ended ~~March 31,~~September 30, 2019, the computation of diluted earnings per share attributable to WESCO International excluded approximately 1.8 million of stock-based awards. For the three and nine months ended September 30, 2018, the computation of diluted earnings per share attributable to WESCO International excluded stock-based awards of approximately ~~1.8~~1.7 million and 1.5 million, respectively. These amounts were excluded because their effect would have been antidilutive.

In December 2017, the Company's Board of Directors authorized the repurchase of up to $300 million of the Company's common stock through December 31, ~~2020.~~2020. In October 2018, the Board approved an increase to this repurchase authorization from $300 million to $400 million.

On ~~November 6, 2018,~~May 7, 2019, the Company entered into an accelerated stock repurchase agreement ~~(the "ASR Transaction")~~ with a financial institution to repurchase additional shares of its common stock. In exchange for an up-front cash payment of ~~$100.0~~$150.0 million, the Company received a total of ~~1,953,167~~3,090,312 shares, ~~365,272~~ of which 695,496 were received during the three months ended ~~March 31,~~September 30, 2019. WESCO funded the repurchase primarily with borrowings under its accounts receivable securitization ~~and revolving credit facilities.~~facility. For the nine months ended September 30, 2019, the Company received a total of 3,455,584 shares, of which 365,272 were received upon the settlement of an accelerated stock repurchase agreement entered into on November 6, 2018.

The total number of shares ultimately delivered under ~~the ASR Transaction was~~an accelerated stock repurchase transaction is determined by the average of the ~~volume-weighted average~~volume-weighted-average price of the Company's common stock for each exchange business day during the respective settlement valuation ~~period.~~periods. For purposes of computing earnings per share for the three and nine months ended ~~March 31,~~September 30, 2019, ~~shares received under the ASR Transaction were~~share repurchases have been reflected as a reduction to common shares outstanding on the respective delivery dates.

9. DEBT

Revolving Credit Facility

On September 26, 2019, WESCO International, WESCO Distribution and certain other subsidiaries of the Company entered into a $600 million revolving credit facility (the “Revolving Credit Facility”) as a replacement of its existing revolving credit facility entered into on September 24, 2015. The Revolving Credit Facility contains a letter of credit sub-facility of up to $125 million, pursuant to the terms and conditions of a Third Amended and Restated Credit Agreement, dated as of September 26, 2019 (the “Credit Agreement”). The Revolving Credit Facility contains an accordion feature allowing WESCO Distribution to request increases to the borrowing commitments under the Revolving Credit Facility of up to $200 million in the aggregate, subject to customary conditions.

The Revolving Credit Facility matures in September 2024 and is collateralized by (i) 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 WESCO Distribution’s accounts receivable securitization facility, and (ii) 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. The obligations of WESCO Distribution and the other U.S. Borrowers under the Revolving Credit Facility have been guaranteed by the Company and certain of WESCO Distribution’s subsidiaries.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

The obligations of WESCO Canada and the other Canadian Borrowers under the Revolving Credit Facility have been guaranteed by certain subsidiaries of WESCO Canada and the other Canadian Borrowers. 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 1.50% for LIBOR-based borrowings and 0.25% and 0.50% for prime rate-based borrowings.

The Credit Agreement requires compliance with conditions precedent that must be satisfied prior to any borrowing as well as ongoing compliance with certain customary affirmative and negative covenants. The Credit Agreement contains customary events of default.

Accounts Receivable Securitization Facility

On September 26, 2019, WESCO Distribution amended its accounts receivable securitization facility (the “Receivables Facility”) pursuant to the terms and conditions of a Ninth Amendment to the Fourth Amended and Restated Receivables Purchase Agreement, dated as of September 26, 2019 (the “Receivables Amendment”), by and among WESCO Receivables Corp. (“WESCO Receivables”), WESCO Distribution, the various purchaser groups from time to time party thereto and PNC Bank, National Association, as Administrator. The Receivables Amendment amends the amended and restated receivables purchase agreement entered into on September 24, 2015 (the “Existing Receivables Purchase Agreement” and as amended by the Receivables Amendment, the “Receivables Purchase Agreement”).

The Receivables Amendment increased the purchase limit under the Existing Receivables Purchase Agreement from $550 million to $600 million, with the opportunity to exercise an accordion feature which permits increases in the purchase limit of up to $200 million, extended the term of the Receivables Facility to September 26, 2022 and added and amended certain defined terms. The interest rate spread and commitment fee of the Receivables Facility remains 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. Since WESCO maintains control of the transferred receivables, 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. 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.

10. EMPLOYEE BENEFIT PLANS

A majority of WESCO’s employees are covered by defined contribution retirement savings plans for their services rendered subsequent to WESCO’s formation. WESCO also offers a deferred compensation plan for select individuals. For U.S. participants, WESCO matches contributions made by employees at an amount equal to 50% of participants' total monthly contributions up to a maximum of 6% of eligible compensation. For Canadian participants, WESCO makes contributions in amounts ranging from 3% to 5% of participants' eligible compensation based on years of continuous service. WESCO may also make, subject to the Board of Directors' approval, a discretionary contribution to the defined contribution retirement savings plan covering U.S. participants if certain predetermined profit levels are attained. For the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, WESCO incurred charges of ~~$12.6~~$24.7 million and ~~$10.7~~$33.5 million, respectively, for all such plans. Contributions are made in cash to employee retirement savings plan accounts. The deferred compensation plan is an unfunded plan. As of ~~March 31,~~September 30, 2019 and December 31, 2018, the Company's obligation under the deferred compensation plan was ~~$23.1~~$23.8 million and $21.9 million, respectively. Employees have the option to transfer balances allocated to their accounts in the defined contribution retirement savings plan and the deferred compensation plan into any of the available investment options.

The Company sponsors a contributory defined benefit plan covering substantially all Canadian employees of EECOL and a Supplemental Executive Retirement Plan (the "SERP") for certain executives of EECOL. During the three and nine months ended ~~March 31,~~September 30, 2019, the Company contributed $0.1 million and $0.3 million, respectively, to the SERP.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

The following table sets forth the components of net periodic benefit costs for the defined benefit plans:



	Three Months Ended						Nine Months Ended
	September 30						September 30
(In thousands)	2019			2018			2019			2018
Service cost	$	1,158		$	1,296		$	3,446		$	3,955
Interest cost	1,098			1,026			3,267			3,131
Expected return on plan assets	(1,433		)	(1,482		)	(4,265		)	(4,522		)
Recognized actuarial gain	(16		)	(11		)	(47		)	(35		)
Net periodic benefit cost	$	807		$	829		$	2,401		$	2,529

Three Months Ended
March 31
(In thousands) 2019 2018
Service cost $ 1,149
$ 1,347
Interest cost 1,089
1,066
Expected return on plan assets (1,422 ) (1,540 )
Recognized actuarial gain (16 ) (12 )
Net periodic benefit cost $ 800
$ 861

The service cost of ~~$1.1~~$1.2 million and $1.3 million for the three months ended ~~March 31,~~September 30, 2019 and 2018, respectively, and $3.4 million and $4.0 million for the nine months ended September 30, 2019 and 2018, respectively, was reported as a component of selling, general and administrative expenses. The other components of net periodic benefit cost totaling a net benefit of ~~$0.3~~$0.4 million and $0.5 million for the three months ended ~~March 31,~~September 30, 2019 and 2018, respectively, and $1.0 million and $1.4 million for the nine months ended September 30, 2019 and 2018, respectively, were presented as a component of net interest and other.

~~10.~~11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank overdrafts, and outstanding indebtedness. The Company uses a market approach to determine the fair value of its debt instruments, utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving similar instruments. Therefore, the inputs used to measure the fair value of the Company's debt instruments are classified as Level 2 within the fair value hierarchy. The reported carrying amounts of WESCO's financial instruments approximated their fair values as of ~~March 31,~~September 30, 2019 and December 31, 2018.

~~11.~~12. COMMITMENTS AND CONTINGENCIES

From time to time, a number of lawsuits and claims have been or may be asserted against the Company relating to the conduct of its business, including litigation relating to commercial, product 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.

In an effort to expand the Company's footprint in the Middle East, WESCO has been doing business since 2009 with WESTEC Supplies General Trading (“WESTEC”), an industrial equipment supplier headquartered in the United Arab Emirates. WESTEC has a line of credit with a maximum borrowing capacity of approximately $6.8 million to support its working capital requirements and joint sales efforts with WESCO. Due to the nature of WESCO’s arrangement with WESTEC, WESCO has provided a standby letter of credit under its revolving credit facility of up to $7.3 million as security for WESTEC’s line of credit. As of ~~March 31,~~September 30, 2019, WESTEC had an outstanding loan balance of ~~$6.5~~$6.4 million. Management currently believes the estimated fair value of the noncontingent guarantee on the line of credit is nominal and therefore a liability has not been recorded as of ~~March 31,~~September 30, 2019.

~~12.~~13. INCOME TAXES

The effective tax rate for the three and nine months ended ~~March 31,~~September 30, 2019 was 19.8% and 21.0%, respectively. The effective tax rate for the three and nine months ended September 30, 2018 was ~~21.7%~~17.2% and ~~19.6%~~19.3%, respectively. WESCO’s effective tax rate is typically impacted by the tax effect of intercompany financing, foreign tax rate differences, nondeductible expenses and state income taxes. The ~~higher~~ effective tax ~~rate~~rates for the ~~three months ended March 31, 2019 was~~current year periods are higher than the prior year periods primarily due to the full application of the international provisions of U.S. tax ~~reform. There have been no material adjustments~~reform, as well as the discrete effect of accruing taxes attributable to ~~liabilities for uncertain~~the undistributed earnings of operations in China that are expected to be remitted in the future.

The total amount of unrecognized tax ~~positions since~~benefits was reduced from $1.3 million to $0.1 million during the ~~last annual disclosure for~~nine months ended September 30, 2019 due to the ~~year ended December 31, 2018.~~resolution of transfer pricing matters associated with the Canadian taxing authority.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

~~13.~~14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

WESCO Distribution has outstanding $500 million in aggregate principal amount of 5.375% Senior Notes due 2021 (the "2021 Notes") and $350 million in aggregate principal amount of 5.375% Senior Notes due 2024 (the "2024 Notes"). The 2021 Notes and 2024 Notes are unsecured senior obligations of WESCO Distribution and are fully and unconditionally guaranteed on a senior unsecured basis by WESCO International.

Condensed consolidating financial information for WESCO International, WESCO Distribution and the non-guarantor subsidiaries is presented in the following tables.



	Condensed Consolidating Balance Sheet
	September 30, 2019

(In thousands)	WESCO International, Inc.		WESCO Distribution, Inc.		Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Consolidated
Cash and cash equivalents	$	—	$	37,889	$	100,271		$	—		$	138,160
Trade accounts receivable, net	—		—		1,315,026			—			1,315,026
Inventories	—		437,470		524,527			—			961,997
Prepaid expenses and other current assets	1,123		27,376		136,719			(1,921		)	163,297
Total current assets	1,123		502,735		2,076,543			(1,921		)	2,578,480
Intercompany receivables, net	—		—		2,543,978			(2,543,978		)	—
Property, buildings and equipment, net	—		76,980		97,479			—			174,459
Operating lease assets	—		146,247		91,005			—			237,252
Intangible assets, net	—		1,658		291,835			—			293,493
Goodwill	—		257,623		1,488,448			—			1,746,071
Investments in affiliates	3,383,537		5,318,786		—			(8,702,323		)	—
Other assets	—		854		16,802			—			17,656
Total assets	$	3,384,660	$	6,304,883	$	6,606,090		$	(11,248,222	)	$	5,047,411

Accounts payable	$	—	$	418,502	$	431,082		$	—		$	849,584
Short-term debt	—		—		25,561			—			25,561
Other current liabilities	—		69,505		161,795			(1,921		)	229,379
Total current liabilities	—		488,007		618,438			(1,921		)	1,104,524
Intercompany payables, net	1,191,542		1,352,436		—			(2,543,978		)	—
Long-term debt, net	—		856,992		489,341			—			1,346,333
Operating lease liabilities	—		116,336		65,708			—			182,044
Other noncurrent liabilities	—		107,575		120,225			—			227,800
Total WESCO International stockholders' equity	2,193,118		3,383,537		5,318,786			(8,702,323		)	2,193,118
Noncontrolling interests	—		—		(6,408		)	—			(6,408		)
Total liabilities and stockholders’ equity	$	3,384,660	$	6,304,883	$	6,606,090		$	(11,248,222	)	$	5,047,411

Condensed Consolidating Balance Sheet
March 31, 2019

(In thousands)
WESCO
International,
Inc.

WESCO
Distribution,
Inc.

Non-Guarantor
Subsidiaries

Consolidating
and
Eliminating
Entries
Consolidated
Cash and cash equivalents $ —
$ 38,774
$ 67,326
$ —
$ 106,100
Trade accounts receivable, net —
—
1,268,565
—
1,268,565
Inventories —
453,738
547,615
—
1,001,353
Prepaid expenses and other current assets 1,127
22,341
118,406
(4,142 ) 137,732
Total current assets 1,127
514,853
2,001,912
(4,142 ) 2,513,750
Intercompany receivables, net —
—
2,400,124
(2,400,124 ) —
Property, buildings and equipment, net —
68,829
97,859
—
166,688
Operating lease assets —
139,397
93,592
—
232,989
Intangible assets, net —
1,974
308,479
—
310,453
Goodwill —
257,623
1,483,148
—
1,740,771
Investments in affiliates 3,252,590
5,202,712
—
(8,455,302 ) —
Other assets —
2,717
17,270
—
19,987
Total assets $ 3,253,717
$ 6,188,105
$ 6,402,384
$ (10,859,568 ) $ 4,984,638

Accounts payable $ —
$ 426,015
$ 444,227
$ —
$ 870,242
Short-term debt —
—
27,313
—
27,313
Other current liabilities —
82,527
174,782
(4,142 ) 253,167
Total current liabilities —
508,542
646,322
(4,142 ) 1,150,722
Intercompany payables, net 1,051,352
1,348,772
—
(2,400,124 ) —
Long-term debt, net —
841,554
372,722
—
1,214,276
Operating lease liabilities —
110,998
67,608
—
178,606
Other noncurrent liabilities —
125,649
119,023
—
244,672
Total WESCO International stockholders' equity 2,202,365
3,252,590
5,202,712
(8,455,302 ) 2,202,365
Noncontrolling interests —
—
(6,003 ) —
(6,003 )
Total liabilities and stockholders’ equity $ 3,253,717
$ 6,188,105
$ 6,402,384
$ (10,859,568 ) $ 4,984,638

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)



	Condensed Consolidating Balance Sheet
	December 31, 2018

(In thousands)	WESCO International, Inc.		WESCO Distribution, Inc.		Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Consolidated
Cash and cash equivalents	$	—	$	35,931	$	60,412		$	—		$	96,343
Trade accounts receivable, net	—		—		1,166,607			—			1,166,607
Inventories	—		440,422		508,304			—			948,726
Prepaid expenses and other current assets	1,123		57,586		124,523			(9,268		)	173,964
Total current assets	1,123		533,939		1,859,846			(9,268		)	2,385,640
Intercompany receivables, net	—		—		2,403,704			(2,403,704		)	—
Property, buildings and equipment, net	—		63,506		97,372			—			160,878
Intangible assets, net	—		2,131		313,885			—			316,016
Goodwill	—		257,623		1,464,980			—			1,722,603
Investments in affiliates	3,182,469		5,137,783		—			(8,320,252		)	—
Other assets	—		2,905		16,994			—			19,899
Total assets	$	3,183,592	$	5,997,887	$	6,156,781		$	(10,733,224	)	$	4,605,036

Accounts payable	$	—	$	404,373	$	389,975		$	—		$	794,348
Short-term debt	—		—		30,785			—			30,785
Other current liabilities	—		86,600		159,481			(9,268		)	236,813
Total current liabilities	—		490,973		580,241			(9,268		)	1,061,946
Intercompany payables, net	1,048,282		1,355,422		—			(2,403,704		)	—
Long-term debt, net	—		842,093		325,218			—			1,167,311
Other noncurrent liabilities	—		126,930		119,123			—			246,053
Total WESCO International stockholders' equity	2,135,310		3,182,469		5,137,783			(8,320,252		)	2,135,310
Noncontrolling interests	—		—		(5,584		)	—			(5,584		)
Total liabilities and stockholders’ equity	$	3,183,592	$	5,997,887	$	6,156,781		$	(10,733,224	)	$	4,605,036

Condensed Consolidating Balance Sheet
December 31, 2018

(In thousands)
WESCO
International,
Inc.

WESCO
Distribution,
Inc.

Non-Guarantor
Subsidiaries

Consolidating
and
Eliminating
Entries
Consolidated
Cash and cash equivalents $ —
$ 35,931
$ 60,412
$ —
$ 96,343
Trade accounts receivable, net —
—
1,166,607
—
1,166,607
Inventories —
440,422
508,304
—
948,726
Prepaid expenses and other current assets 1,123
57,586
124,523
(9,268 ) 173,964
Total current assets 1,123
533,939
1,859,846
(9,268 ) 2,385,640
Intercompany receivables, net —
—
2,403,704
(2,403,704 ) —
Property, buildings and equipment, net —
63,506
97,372
—
160,878
Intangible assets, net —
2,131
313,885
—
316,016
Goodwill —
257,623
1,464,980
—
1,722,603
Investments in affiliates 3,182,469
5,137,783
—
(8,320,252 ) —
Other assets —
2,905
16,994
—
19,899
Total assets $ 3,183,592
$ 5,997,887
$ 6,156,781
$ (10,733,224 ) $ 4,605,036

Accounts payable $ —
$ 404,373
$ 389,975
$ —
$ 794,348
Short-term debt —
—
30,785
—
30,785
Other current liabilities —
86,600
159,481
(9,268 ) 236,813
Total current liabilities —
490,973
580,241
(9,268 ) 1,061,946
Intercompany payables, net 1,048,282
1,355,422
—
(2,403,704 ) —
Long-term debt, net —
842,093
325,218
—
1,167,311
Other noncurrent liabilities —
126,930
119,123
—
246,053
Total WESCO International stockholders' equity 2,135,310
3,182,469
5,137,783
(8,320,252 ) 2,135,310
Noncontrolling interests —
—
(5,584 ) —
(5,584 )
Total liabilities and stockholders’ equity $ 3,183,592
$ 5,997,887
$ 6,156,781
$ (10,733,224 ) $ 4,605,036

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)



	Condensed Consolidating Statement of Income and Comprehensive Income
	Three Months Ended
	September 30, 2019

(In thousands)	WESCO International, Inc.			WESCO Distribution, Inc.			Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Consolidated
Net sales	$	—		$	939,909		$	1,244,847		$	(36,646	)	$	2,148,110
Cost of goods sold (excluding depreciation and
amortization)	—			768,200			1,016,359			(36,646		)	1,747,913
Selling, general and administrative expenses	—			146,925			143,927			—			290,852
Depreciation and amortization	—			4,834			10,778			—			15,612
Results of affiliates’ operations	64,339			58,725			—			(123,064		)	—
Net interest and other	—			12,944			564			—			13,508
Income tax expense	—			1,392			14,494			—			15,886
Net income	64,339			64,339			58,725			(123,064		)	64,339
Net loss attributable to noncontrolling interests	—			—			(156		)	—			(156		)
Net income attributable to WESCO International	$	64,339		$	64,339		$	58,881		$	(123,064	)	$	64,495
Other comprehensive income:
Foreign currency translation adjustments	(16,856		)	(16,856		)	(16,856		)	33,712			(16,856		)
Comprehensive income attributable to WESCO International	$	47,483		$	47,483		$	42,025		$	(89,352	)	$	47,639

Condensed Consolidating Statement of Income and Comprehensive Income
Three Months Ended
March 31, 2019

(In thousands)
WESCO
International,
Inc.

WESCO
Distribution,
Inc.

Non-Guarantor
Subsidiaries

Consolidating
and
Eliminating
Entries
Consolidated
Net sales $ —
$ 857,982
$ 1,142,394
$ (39,109 ) $ 1,961,267
Cost of goods sold (excluding depreciation and
amortization) —
689,556
928,324
(39,109 ) 1,578,771
Selling, general and administrative expenses —
152,429
144,099
—
296,528
Depreciation and amortization —
4,555
10,687
—
15,242
Results of affiliates’ operations 41,950
42,413
—
(84,363 ) —
Net interest and other —
12,034
5,086
—
17,120
Income tax expense —
(129 ) 11,785
—
11,656
Net income 41,950
41,950
42,413
(84,363 ) 41,950
Net loss attributable to noncontrolling interests —
—
(419 ) —
(419 )
Net income attributable to WESCO International $ 41,950
$ 41,950
$ 42,832
$ (84,363 ) $ 42,369
Other comprehensive loss:

Foreign currency translation adjustments 22,517
22,517
22,517
(45,034 ) 22,517
Comprehensive income attributable to WESCO International $ 64,467
$ 64,467
$ 65,349
$ (129,397 ) $ 64,886



	Condensed Consolidating Statement of Income and Comprehensive Income
	Nine Months Ended
	September 30, 2019

(In thousands)	WESCO International, Inc.		WESCO Distribution, Inc.		Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Consolidated
Net sales	$	—	$	2,736,224	$	3,643,193		$	(119,952	)	$	6,259,465
Cost of goods sold (excluding depreciation and
amortization)	—		2,220,792		2,966,959			(119,952		)	5,067,799
Selling, general and administrative expenses	—		445,487		437,735			—			883,222
Depreciation and amortization	—		13,861		32,174			—			46,035
Results of affiliates’ operations	169,505		155,100		—			(324,605		)	—
Net interest and other	—		37,856		10,078			—			47,934
Income tax expense	—		3,823		41,147			—			44,970
Net income	169,505		169,505		155,100			(324,605		)	169,505
Net loss attributable to noncontrolling interests	—		—		(824		)	—			(824		)
Net income attributable to WESCO International	$	169,505	$	169,505	$	155,924		$	(324,605	)	$	170,329
Other comprehensive income:
Foreign currency translation adjustments	25,905		25,905		25,905			(51,810		)	25,905
Comprehensive income attributable to WESCO International	$	195,410	$	195,410	$	181,829		$	(376,415	)	$	196,234

Condensed Consolidating Statement of Income and Comprehensive Income
Three Months Ended
March 31, 2018

(In thousands)
WESCO
International,
Inc.

WESCO
Distribution,
Inc.

Non-Guarantor
Subsidiaries

Consolidating
and
Eliminating
Entries
Consolidated
Net sales $ —
$ 882,399
$ 1,150,110
$ (38,594 ) $ 1,993,915
Cost of goods sold (excluding depreciation and
amortization) —
716,258
936,302
(38,594 ) 1,613,966
Selling, general and administrative expenses —
150,482
140,347
—
290,829
Depreciation and amortization —
4,616
11,263
—
15,879
Results of affiliates’ operations 42,971
45,200
—
(88,171 ) —
Net interest and other —
13,816
5,967
—
19,783
Income tax (benefit) expense —
(544 ) 11,031
—
10,487
Net income 42,971
42,971
45,200
(88,171 ) 42,971
Net loss attributable to noncontrolling interests —
—
(1,450 ) —
(1,450 )
Net income attributable to WESCO International $ 42,971
$ 42,971
$ 46,650
$ (88,171 ) $ 44,421
Other comprehensive loss:

Foreign currency translation adjustments (28,800 ) (28,800 ) (28,800 ) 57,600
(28,800 )
Comprehensive income attributable to WESCO International $ 14,171
$ 14,171
$ 17,850
$ (30,571 ) $ 15,621

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)



	Condensed Consolidating Statement of Income and Comprehensive Income
	Three Months Ended
	September 30, 2018

(In thousands)	WESCO International, Inc.		WESCO Distribution, Inc.		Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Consolidated
Net sales	$	—	$	899,994	$	1,206,174		$	(38,923	)	$	2,067,245
Cost of goods sold (excluding depreciation and
amortization)	—		727,052		981,908			(38,923		)	1,670,037
Selling, general and administrative expenses	—		149,390		134,683			—			284,073
Depreciation and amortization	—		4,475		11,143			—			15,618
Results of affiliates’ operations	66,645		61,771		—			(128,416		)	—
Net interest and other	—		13,127		3,923			—			17,050
Income tax expense	—		1,076		12,746			—			13,822
Net income	66,645		66,645		61,771			(128,416		)	66,645
Net loss attributable to noncontrolling interests	—		—		(204		)	—			(204		)
Net income attributable to WESCO International	$	66,645	$	66,645	$	61,975		$	(128,416	)	$	66,849
Other comprehensive income:
Foreign currency translation adjustments	20,486		20,486		20,486			(40,972		)	20,486
Comprehensive income attributable to WESCO International	$	87,131	$	87,131	$	82,461		$	(169,388	)	$	87,335

Condensed Consolidating Statement of Cash Flows
Three Months Ended
March 31, 2019

(In thousands)
WESCO
International,
Inc.

WESCO
Distribution,
Inc.

Non-Guarantor
Subsidiaries

Consolidating
and Eliminating
Entries
Consolidated
Net cash (used in) provided by operating activities $ 5,157
$ 27,122
$ (3,410 ) $ —
$ 28,869
Investing activities:

Acquisition payments —
(27,742 ) —
—
(27,742 )
Capital expenditures —
(2,513 ) (8,315 ) —
(10,828 )
Dividends received from subsidiaries —
22,095
—
(22,095 ) —
Other —
(19,510 ) 53
19,510
53
Net cash used in investing activities —
(27,670 ) (8,262 ) (2,585 ) (38,517 )
Financing activities:
Borrowings —
139,134
330,196
(22,095 ) 447,235
Repayments (2,585 ) (140,134 ) (289,674 ) 2,585
(429,808 )
Repurchases of common stock (2,572 ) —
—
—
(2,572 )
Dividends paid by subsidiaries —
—
(22,095 ) 22,095
—
Increase in bank overdrafts —
4,639
—
—
4,639
Other —
(248 ) —
—
(248 )
Net cash provided by (used in) financing activities (5,157 ) 3,391
18,427
2,585
19,246
Effect of exchange rate changes on cash and cash equivalents —
—
159
—
159
Net change in cash and cash equivalents —
2,843
6,914
—
9,757
Cash and cash equivalents at the beginning of period —
35,931
60,412
—
96,343
Cash and cash equivalents at the end of period $ —
$ 38,774
$ 67,326
$ —
$ 106,100



	Condensed Consolidating Statement of Income and Comprehensive Income
	Nine Months Ended
	September 30, 2018

(In thousands)	WESCO International, Inc.			WESCO Distribution, Inc.			Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Consolidated
Net sales	$	—		$	2,703,468		$	3,578,653		$	(116,967	)	$	6,165,154
Cost of goods sold (excluding depreciation and
amortization)	—			2,189,683			2,915,387			(116,967		)	4,988,103
Selling, general and administrative expenses	—			447,437			420,353			—			867,790
Depreciation and amortization	—			13,749			33,572			—			47,321
Results of affiliates’ operations	167,289			158,093			—			(325,382		)	—
Net interest and other	—			41,202			13,372			—			54,574
Income tax expense	—			2,201			37,876			—			40,077
Net income	167,289			167,289			158,093			(325,382		)	167,289
Net loss attributable to noncontrolling interests	—			—			(1,921		)	—			(1,921		)
Net income attributable to WESCO International	$	167,289		$	167,289		$	160,014		$	(325,382	)	$	169,210
Other comprehensive loss:
Foreign currency translation adjustments	(37,029		)	(37,029		)	(37,029		)	74,058			(37,029		)
Comprehensive income attributable to WESCO International	$	130,260		$	130,260		$	122,985		$	(251,324	)	$	132,181

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)



	Condensed Consolidating Statement of Cash Flows
	Nine Months Ended
	September 30, 2019

(In thousands)	WESCO International, Inc.			WESCO Distribution, Inc.			Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Consolidated
Net cash provided by (used in) operating activities	$	9,480		$	210,707		$	(103,523	)	$	—		$	116,664
Investing activities:
Capital expenditures	—			(13,269		)	(17,054		)	—			(30,323		)
Acquisition payments	—			(27,742		)	—			—			(27,742		)
Dividends received from subsidiaries	—			67,065			—			(67,065		)	—
Other	—			(210,320		)	4,575			210,320			4,575
Net cash used in investing activities	—			(184,266		)	(12,479		)	143,255			(53,490		)
Financing activities:
Borrowings	143,255			333,418			856,464			(210,320		)	1,122,817
Repayments	—			(344,167		)	(630,263		)	—			(974,430		)
Repurchases of common stock	(152,735		)	—			—			—			(152,735		)
Dividends paid by subsidiaries	—			—			(67,065		)	67,065			—
Other	—			(13,734		)	—			—			(13,734		)
Net cash (used in) provided by financing activities	(9,480		)	(24,483		)	159,136			(143,255		)	(18,082		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(3,275		)	—			(3,275		)
Net change in cash and cash equivalents	—			1,958			39,859			—			41,817
Cash and cash equivalents at the beginning of period	—			35,931			60,412			—			96,343
Cash and cash equivalents at the end of period	$	—		$	37,889		$	100,271		$	—		$	138,160

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(unaudited)

Condensed Consolidating Statement of Cash Flows
Three Months Ended
March 31, 2018

(In thousands)
WESCO
International,
Inc.

WESCO
Distribution,
Inc.

Non-Guarantor
Subsidiaries

Consolidating
and Eliminating
Entries
Consolidated
Net cash provided by (used in) operating activities $ 5,497
$ 57,694
$ (10,198 ) $ —
$ 52,993
Investing activities:
Capital expenditures —
(2,954 ) (4,708 ) —
(7,662 )
Dividends received from subsidiaries —
22,744
—
(22,744 ) —
Other —
(18,908 ) (8,760 ) 18,908
(8,760 )
Net cash provided by (used in) investing activities —
882
(13,468 ) (3,836 ) (16,422 )
Financing activities:
Borrowings —
58,000
515,663
(22,744 ) 550,919
Repayments (3,836 ) (90,000 ) (477,220 ) 3,836
(567,220 )
Repurchases of common stock (1,661 ) —
—
—
(1,661 )
Dividends paid by subsidiaries —
—
(22,744 ) 22,744
—
Decrease in bank overdrafts —
(10,575 ) —
—
(10,575 )
Other —
(290 ) —
—
(290 )
Net cash (used in) provided by financing activities (5,497 ) (42,865 ) 15,699
3,836
(28,827 )
Effect of exchange rate changes on cash and cash equivalents —
—
(1,800 ) —
(1,800 )
Net change in cash and cash equivalents —
15,711
(9,767 ) —
5,944
Cash and cash equivalents at the beginning of period —
50,602
67,351
—
117,953
Cash and cash equivalents at the end of period $ —
$ 66,313
$ 57,584
$ —
$ 123,897



	Condensed Consolidating Statement of Cash Flows
	Nine Months Ended
	September 30, 2018

(In thousands)	WESCO International, Inc.			WESCO Distribution, Inc.			Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Consolidated
Net cash provided by operating activities	$	14,198		$	62,439		$	97,823		$	—		$	174,460
Investing activities:
Capital expenditures	—			(12,831		)	(10,918		)	—			(23,749		)
Dividends received from subsidiaries	—			118,271			—			(118,271		)	—
Other	—			(81,128		)	3,609			81,128			3,609
Net cash provided by (used in) investing activities	—			24,312			(7,309		)	(37,143		)	(20,140		)
Financing activities:
Borrowings	12,857			246,323			933,046			(81,128		)	1,111,098
Repayments	—			(318,323		)	(882,239		)	—			(1,200,562		)
Repurchases of common stock	(27,055		)	—			—			—			(27,055		)
Dividends paid by subsidiaries	—			—			(118,271		)	118,271			—
Other	—			(8,301		)	—			—			(8,301		)
Net cash used in financing activities	(14,198		)	(80,301		)	(67,464		)	37,143			(124,820		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(4,693		)	—			(4,693		)
Net change in cash and cash equivalents	—			6,450			18,357			—			24,807
Cash and cash equivalents at the beginning of period	—			50,602			67,351			—			117,953
Cash and cash equivalents at the end of period	$	—		$	57,052		$	85,708		$	—		$	142,760

~~14.~~15. SUBSEQUENT EVENTS

The Company evaluated subsequent events and concluded that no subsequent events have occurred that would require recognition in the unaudited Condensed Consolidated Financial Statements or disclosure in the Notes thereto.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and WESCO International, Inc.’s audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its 2018 Annual Report on Form 10-K. The matters discussed herein may contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Certain of these risks are set forth in WESCO International, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as well as WESCO International, Inc.’s other reports filed with the Securities and Exchange Commission.

Company Overview

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 1011 distribution centers located in the United States and Canada. We employ approximately 9,300 employees worldwide. We distribute over 1,000,000 products, grouped into six categories, from approximately 30,000 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.

Our financial results for the first ~~three~~nine months of 2019 reflect ~~gross margin expansion, as well as the impact of foreign exchange headwinds, adverse weather,~~sales growth and ~~one less work day.~~operating cost management. Net sales ~~decreased $32.6~~increased $94.3 million, or ~~1.6%~~1.5%, over the same period last year. Cost of goods sold as a percentage of net sales was ~~80.5%~~81.0% and 80.9% for the first ~~three~~nine months of 2019 and 2018, respectively. Selling, general and administrative ("SG&A") expenses as a percentage of net sales were ~~15.1% and 14.6%~~14.1% for the first ~~three~~nine months of 2019 and ~~2018, respectively.~~2018. Operating profit was ~~$70.7~~$262.4 million for the current ~~three~~nine month period, compared to ~~$73.2~~$261.9 million for the first ~~three~~nine months of 2018. ~~Operating profit decreased primarily due to higher SG&A expenses.~~ Net income attributable to WESCO International for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 was ~~$42.4~~$170.3 million and ~~$44.4~~$169.2 million, respectively.

Cash Flow

We generated ~~$28.9~~$116.7 million of operating cash flow for the first ~~three~~nine months of 2019. Investing activities included payments of $27.7 million to acquire Sylvania Lighting Solutions ("SLS") and ~~$10.8~~$30.3 million of capital expenditures. Financing activities were comprised of borrowings and repayments of ~~$253.7~~$625.4 million and ~~$272.8~~$662.4 million, respectively, related to our revolving credit facility (the "Revolving Credit Facility"), borrowings and repayments of ~~$170.0~~$480.0 million and ~~$105.0~~$265.0 million, respectively, related to our accounts receivable securitization facility (the “Receivables Facility”) and repayments of $24.8 million to pay off our term loan facility (the "Term Loan Facility"). Financing activities for the first ~~three~~nine months of 2019 also included ~~borrowings and~~net repayments onof our various international lines of credit of approximately ~~$23.6 million and $27.2 million, respectively. Free cash flow~~$4.8 million. Additionally, financing activities for the first ~~three~~nine months of 2019 included the repurchase of $150.0 million of the Company's common stock pursuant to the share repurchase plan announced on December 13, 2017 and ~~2018 was $18.1 million and $45.3 million, respectively.~~

~~WESCO INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~The following table sets forth the components of free cash flow for the periods presented:~~

Three Months Ended
(In millions) March 31,
2019 March 31,
2018
Cash flow provided by operations $ 28.9
$ 53.0
Less: Capital expenditures (10.8 ) (7.7 )
Free cash flow $ 18.1
$ 45.3

Note: 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.amended on October 31, 2018.

Financing Availability

As of ~~March 31,~~September 30, 2019, we had ~~$533.7~~$551.5 million in total available borrowing capacity under our Revolving Credit Facility, which was comprised of ~~$399.3~~$381.4 million of availability under the U.S. sub-facility and ~~$134.4~~$170.1 million of availability under the Canadian sub-facility. Available borrowing capacity under our Receivables Facility was ~~$210.0~~$110.0 million. These debt facilities were amended and restated in September 2019. The Revolving Credit Facility and the Receivables Facility ~~both~~ mature in September ~~2020.~~2024 and September 2022, respectively. See Note 9 of our Notes to the unaudited Condensed Consolidated Financial Statements for further information regarding these facilities.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

Critical Accounting Policies and Estimates

Effective January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases, and all the related amendments. See Note 2 of our Notes to the unaudited Condensed Consolidated Financial Statements for information regarding our ~~critical~~significant accounting policies.

Results of Operations

~~First~~Third Quarter of 2019 versus ~~First~~Third Quarter of 2018

The following table sets forth the percentage relationship to net sales of certain items in our Condensed Consolidated Statements of Income and Comprehensive Income for the periods presented:


	Three Months Ended				Three Months Ended
	March 31				September 30
	2019		2018		2019		2018
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold (excluding depreciation and amortization)	80.5		80.9		81.4		80.8
Selling, general and administrative expenses	15.1		14.6		13.5		13.7
Depreciation and amortization	0.8		0.8		0.7		0.8
Income from operations	3.6		3.7		4.4		4.7
Net interest and other	0.8		1.0		0.7		0.8
Income before income taxes	2.8		2.7		3.7		3.9
Provision for income taxes	0.6		0.5		0.7		0.7
Net income attributable to WESCO International	2.2	%	2.2	%	3.0	%	3.2	%

Net sales were ~~$2.0~~$2.1 billion for the ~~first~~third quarter of 2019, ~~and~~up 3.9% compared to the third quarter of 2018. Organic sales for the ~~first~~third quarter of 2019 grew by ~~1.0%~~3.4% as ~~number of workdays and~~ foreign exchange rates negatively impacted net sales by ~~1.6%~~0.4%, and ~~1.3%, respectively, while~~ acquisitions positively impacted net sales by ~~0.3%~~0.9%.

~~WESCO INTERNATIONAL, INC. AND SUBSIDIARIES~~

The following table sets forth organic sales growth for the period presented:



	Three Months Ended
	~~March 31,~~September 30, 2019
Change in net sales	~~(1.6~~3.9	)%
Impact from acquisitions	~~0.3~~0.9	%
Impact from foreign exchange rates	(~~1.3~~0.4	)%
Impact from number of workdays	~~(1.6~~—	)%
Organic sales growth	~~1.0~~3.4	%

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 for the ~~first~~third quarter of 2019 and 2018 was ~~$1.6~~$1.7 billion. As a percentage of net sales, cost of goods sold was ~~80.5%~~81.4% and ~~80.9%~~80.8%, respectively. ~~The decrease in cost~~Cost of goods sold as a percentage of net sales ~~was~~for the third quarter of 2019 primarily ~~due~~reflects unfavorable business mix and the ~~execution~~impact of ~~margin initiatives in all end markets and geographies.~~supplier price increases.

SG&A expenses for the ~~first~~third quarter of 2019 totaled ~~$296.6~~$290.9 million versus ~~$290.8~~$284.1 million for the ~~first~~third quarter of 2018. As a percentage of net sales, SG&A expenses were ~~15.1%~~13.5% and ~~14.6%~~13.7%, respectively. The increase in SG&A expenses ~~was primarily due to costs associated with~~reflects the impact of the SLS acquisition and gains from the sale of ~~SLS, as well as higher~~certain long-lived assets in the prior year, partially offset by lower payroll expenses.

SG&A payroll expenses for the ~~first~~third quarter of 2019 of ~~$206.6~~$202.7 million ~~increased~~decreased by ~~$4.8~~$2.1 million compared to the same period in ~~2018 primarily due to wage inflation and the impact of the SLS acquisition.~~2018.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

Depreciation and amortization for the ~~first~~third quarter of 2019 and 2018 was ~~$15.2 million and $15.9 million, respectively.~~$15.6 million.

Net interest and other totaled ~~$17.1~~$13.5 million for the ~~first~~third quarter of 2019, compared to ~~$19.8~~$17.1 million for the ~~first~~third quarter of 2018. The resolution of transfer pricing matters associated with the Canadian taxing authority resulted in non-cash interest income of $3.7 million for the third quarter of 2019.

Income tax expense totaled ~~$11.7~~$15.9 million for the ~~first~~third quarter of 2019, compared to ~~$10.5~~$13.8 million in last year's comparable period, and the effective tax rate was ~~21.7%~~19.8% and ~~19.6%~~17.2%, respectively. The higher effective tax rate in the current quarter is primarily due to the full application of the international provisions of U.S. tax ~~reform.~~reform, as well as taxes attributable to the undistributed earnings of operations in China that are expected to be remitted in the future.

Net income for the ~~first~~third quarter of 2019 was ~~$42.0~~$64.3 million, compared to net income of ~~$42.9~~$66.6 million for the ~~first~~third quarter of 2018.

Net loss of ~~$0.4~~$0.2 million was attributable to noncontrolling interests for the third quarter of 2019 and 2018.

Net income and diluted earnings per share attributable to WESCO International were $64.5 million and ~~$1.5~~$1.52 per diluted share, respectively, for the third quarter of 2019, compared with net income and diluted earnings per share of $66.8 million and $1.41 per diluted share, respectively, for the third quarter of 2018.

Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018

The following table sets forth the percentage relationship to net sales of certain items in our Condensed Consolidated Statements of Income and Comprehensive Income for the periods presented:



	Nine Months Ended
	September 30
	2019		2018
Net sales	100.0	%	100.0	%
Cost of goods sold (excluding depreciation and amortization)	81.0		80.9
Selling, general and administrative expenses	14.1		14.1
Depreciation and amortization	0.7		0.8
Income from operations	4.2		4.2
Net interest and other	0.8		0.8
Income before income taxes	3.4		3.4
Provision for income taxes	0.7		0.7
Net income attributable to WESCO International	2.7	%	2.7	%

Net sales were $6.3 billion for the first nine months of 2019, compared to $6.2 billion for the first nine months of 2018. Organic sales for the first nine months of 2019 grew by 2.1% as foreign exchange rates and the number of workdays negatively impacted net sales by 0.9% and 0.5%, respectively, and were partially offset by the positive 0.8% impact from acquisitions.

The following table sets forth organic sales growth for the period presented:



	Nine Months Ended
	September 30, 2019
Change in net sales	1.5	%
Impact from acquisitions	0.8	%
Impact from foreign exchange rates	(0.9	)%
Impact from number of workdays	(0.5	)%
Organic sales growth	2.1	%

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

Cost of goods sold for the first nine months of 2019 was $5.1 billion, compared to $5.0 billion for the first nine months of 2018. As a percentage of net sales, cost of goods sold was 81.0% and 80.9%, respectively.

SG&A expenses for the first nine months of 2019 totaled $883.2 million versus $867.8 million for the first nine months of 2018. As a percentage of net sales, SG&A expenses were 14.1% for both periods. The increase in SG&A expenses reflects the impact of the SLS acquisition, partially offset by lower payroll expenses and the absence of a bad debt charge that was recorded in the prior year.

SG&A payroll expenses for the first nine months of 2019 of $613.0 million increased by $4.3 million compared to the same period in 2018 primarily due to wage inflation and the impact of the SLS acquisition, partially offset by lower variable compensation expense and benefit costs.

Depreciation and amortization for the first nine months of 2019 and 2018 was $46.0 million and $47.3 million, respectively.

Net interest and other totaled $47.9 million for the first nine months of 2019, compared to $54.6 million for the first nine months of 2018. The resolution of transfer pricing matters associated with the Canadian taxing authority resulted in non-cash interest income of $3.7 million for the first nine months of 2019. For the nine months ended September 30, 2018, net interest and other includes a foreign exchange loss of $2.6 million from the remeasurement of financial instruments, as well as accelerated amortization of debt discount and debt issuance costs totaling $0.8 million due to early repayments of our then outstanding term loan facility.

Income tax expense totaled $45.0 million for the first nine months of 2019, compared to $40.1 million in last year's comparable period, and the effective tax rate was 21.0% and 19.3%, respectively. The higher effective tax rate in the current year is primarily due to the full application of the international provisions of U.S. tax reform, as well as taxes attributable to the undistributed earnings of operations in China that are expected to be remitted in the future.

Net income for the first nine months of 2019 was $169.5 million, compared to net income of $167.3 million for the first nine months of 2018.

Net loss of $0.8 million and $1.9 million was attributable to noncontrolling interests for the first ~~quarter~~nine months of 2019 and 2018, respectively.

Net income and diluted earnings per share attributable to WESCO International were ~~$42.4~~$170.3 million and ~~$0.93~~$3.88 per diluted share, respectively, for the first ~~quarter~~nine months of 2019, compared with net income and diluted earnings per share of ~~$44.4~~$169.2 million and ~~$0.93~~$3.56 per diluted share, respectively, for the first ~~quarter~~nine months of 2018.

Liquidity and Capital Resources

Total assets were $5.0 billion and $4.6 billion at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively. Total liabilities were ~~$2.8~~$2.9 billion and $2.5 billion at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively. Total stockholders' equity was $2.2 billion ~~at March 31, 2019~~ and $2.1 billion at September 30, 2019 and December 31, ~~2018.~~2018, respectively.

Our liquidity needs generally arise from fluctuations in our working capital requirements, capital expenditures, acquisitions and debt service obligations. As of ~~March 31,~~September 30, 2019, we had ~~$533.7~~$551.5 million in available borrowing capacity under our Revolving Credit Facility and ~~$210.0~~$110.0 million in available borrowing capacity under our Receivables Facility, which combined with available cash of ~~$37.2~~$61.5 million, provided liquidity of ~~$780.9~~$723.0 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. In addition, we regularly review our mix of fixed versus variable rate debt, and we may, from time to time, issue or retire borrowings and/or refinance existing debt in an effort to mitigate the impact of interest rate and foreign exchange rate fluctuations, and to maintain a cost-effective capital structure consistent with our anticipated capital requirements. At ~~March 31,~~September 30, 2019, approximately ~~68%~~62% of our debt portfolio was comprised of fixed rate debt.

~~WESCO INTERNATIONAL, INC. AND SUBSIDIARIES~~

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 3.0 as of ~~March 31,~~September 30, 2019 and 2.7 as of December 31, 2018. In addition, we are in compliance with all covenants and restrictions contained in our debt agreements as of ~~March 31,~~September 30, 2019.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

The following table sets forth our financial leverage ratio as of ~~March 31,~~September 30, 2019 and December 31, 2018:


	Twelve months ended				Twelve months ended
(In millions of dollars, except ratio)	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Income from operations	$	349.9	$	352.5	$	352.9	$	352.4
Depreciation and amortization	62.4		63.0		61.7		63.0
EBITDA	$	412.3	$	415.5	$	414.6	$	415.4

	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Short-term borrowings and current debt	$	28.5	$	56.2	$	25.9	$	56.2
Long-term debt	1,214.3		1,167.3		1,346.3		1,167.3
Debt discount and debt issuance costs ⁽¹⁾	8.5		9.6		9.4		9.6
Total debt	1,251.3		1,233.1		1,381.6		1,233.1
Less: cash and cash equivalents	106.1		96.3		138.2		96.3
Total debt, net of cash	$	1,145.2	$	1,136.8	$	1,243.4	$	1,136.8

Financial leverage ratio	3.0		3.0		3.0		2.7
Financial leverage ratio, net of cash	2.8		2.7


⁽¹⁾	Long-term debt is presented in the condensed consolidated balance sheets net of debt discount and debt issuance costs.

Note: Financial leverage is a non-GAAP measure of the use of debt. Financial leverage ratio is calculated by dividing total debt, including debt discount and debt issuance costs, ~~by EBITDA. Financial leverage ratio, net of cash is calculated by dividing total debt, including debt discount and debt issuance costs,~~ net of cash, by EBITDA. EBITDA, which is also a non-GAAP financial measure, is defined as the trailing twelve months earnings before interest, taxes, depreciation and amortization.

At ~~March 31,~~September 30, 2019, we had cash and cash equivalents totaling ~~$106.1~~$138.2 million, of which ~~$72.6~~$106.1 million was held by foreign subsidiaries. As a result of the Tax Cuts and Jobs Act of 2017 (the "TCJA"), we reevaluated our intent and ability to repatriate foreign earnings based upon the liquidity of our domestic operations and the cash flow needs of our foreign subsidiaries. Consequently, during the year ended December 31, 2018, we repatriated a portion of the previously taxed earnings attributable to our Canadian operations. WeIn the current quarter, we determined that a portion of the undistributed earnings attributable to our Chinese operations are expected to be remitted in the future, and accordingly accrued taxes for such remittance. Except for this change, we continue to assert that the remaining undistributed earnings of our foreign subsidiaries, the majority of which were subject to the one-time tax imposed by the TCJA, are indefinitely reinvested. We believe that we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriating cash held by these foreign subsidiaries. Upon any future repatriation, additional ~~income taxes~~tax expense or benefit may be incurred; however, we do not believe it ~~is not practicable to determine the amount at this time.~~will be material.

We did not note any triggering events or substantive changes during the first ~~three~~nine months of 2019 that would require an interim evaluation of impairment of goodwill or indefinite-lived intangible assets. We will perform our annual impairment testing of goodwill and indefinite-lived intangible assets during the fourth quarter.

Over the next several quarters, we plan to closely manage working capital, and it is expected that excess cash will be directed primarily at growth initiatives, acquisitions, debt reduction, and share repurchases. We remain focused on maintaining ample liquidity and credit availability. We anticipate increased capital expenditures in 2019 to ~~be similar to 2018.~~support business initiatives. 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 growth initiatives and expansion needs.

~~WESCO INTERNATIONAL, INC. AND SUBSIDIARIES~~

Cash Flow

Operating Activities. Net cash provided by operating activities for the first ~~three~~nine months of 2019 totaled ~~$28.9~~$116.7 million, compared with ~~$53.0~~$174.5 million of cash generated for the first ~~three~~nine months of 2018. ~~Net cash provided by operating~~Operating activities included net income of ~~$42.0~~$169.5 million and adjustments to net income totaling ~~$22.1~~$61.6 million. Other sources of cash in the first ~~three~~nine months of 2019 included an increase in accounts payable of ~~$68.1~~$46.9 million, a decrease in other accounts receivable of ~~$22.4 million due primarily to the collection of supplier volume rebates earned in 2018, a decrease in prepaid expenses and other assets of $15.1~~$15.5 million, and an increase in other current and noncurrent liabilities of ~~$4.6~~$4.4 million. Primary uses of cash in the first ~~three~~nine months of 2019 included: an increase in trade accounts receivable of ~~$76.7 million resulting from higher sales in the latter part of the quarter; an increase in inventories of $40.8 million primarily to support growth in our business; and,~~$122.9 million; a decrease in accrued payroll and benefit costs of ~~$27.9 million resulting from the payment~~$36.1 million; an increase in prepaid expenses and other assets of ~~management incentive compensation earned~~$20.7 million; and, an increase in ~~2018.~~inventories of $1.5 million.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

Net cash provided by operating activities for the first ~~three~~nine months of 2018 totaled ~~$53.0~~$174.5 million, which included net income of ~~$42.9~~$167.3 million and adjustments to net income totaling ~~$23.7~~$67.1 million. Other sources of cash in the first nine months of 2018 included a decrease in inventories of $23.2 million, a decrease in other accounts receivable of ~~$30.0~~$19.9 million, ~~due primarily to the collection of supplier volume rebates earned in 2017,~~ an increase in accounts payable of ~~$8.1~~$18.2 million, ~~a decrease~~an increase in ~~prepaid expenses~~accrued payroll and ~~other assets~~benefit costs of ~~$4.8 million, a decrease in inventories of $3.0~~$2.8 million, and an increase in other current and noncurrent liabilities of ~~$2.6~~$2.3 million. Primary uses of cash in the first nine months of 2018 included: an increase in trade accounts receivable of ~~$37.5~~$104.2 million resulting from higher ~~sales~~sales; and, an increase in ~~the latter part~~prepaid expenses and other assets of ~~the quarter; and, a decrease in accrued payroll and benefit costs of $24.6 million resulting from the payment of management incentive compensation earned in 2017.~~$22.1 million.

Investing Activities. Net cash used in investing activities for the first ~~three~~nine months of 2019 was ~~$38.5~~$53.5 million, compared with ~~$16.4~~$20.1 million used during the first ~~three~~nine months of 2018. Included in the first ~~three~~nine months of 2019 were acquisition payments of $27.7 million. Capital expenditures were ~~$10.8~~$30.3 million for the ~~three~~nine month period ended ~~March 31,~~September 30, 2019, compared to ~~$7.7~~$23.7 million for the ~~three~~nine month period ended ~~March 31,~~September 30, 2018. ~~The first three months of 2018 also included other payments of $8.8 million for the purchase of a foreign financial instrument.~~

Financing Activities. Net cash used in financing activities for the first ~~three~~nine months of 2019 was ~~$19.2~~$18.1 million, compared to ~~$28.8~~$124.8 million used in the first ~~three~~nine months of 2018. During the first ~~three~~nine months of 2019, financing activities consisted of borrowings and repayments of ~~$253.7~~$625.4 million and ~~$272.8~~$662.4 million, respectively, related to our Revolving Credit Facility, borrowings and repayments of ~~$170.0~~$480.0 million and ~~$105.0~~$265.0 million, respectively, related to our Receivables Facility and repayments of $24.8 million to pay off our Term Loan Facility. Financing activities for the first ~~three~~nine months of 2019 also included ~~borrowings and~~net repayments onof our various international lines of credit of approximately ~~$23.6~~$4.8 million. Additionally, financing activities for the first nine months of 2019 included the repurchase of $152.7 million of the Company's common stock, of which $150.0 million was pursuant to an accelerated stock repurchase transaction under the share repurchase plan announced on December 13, 2017 and ~~$27.2 million, respectively.~~amended on October 31, 2018.

During the first ~~three~~nine months of 2018, financing activities consisted of borrowings and repayments of ~~$308.0~~$504.3 million and ~~$320.0~~$516.3 million, respectively, related to our Revolving Credit Facility, borrowings and repayments of ~~$185.0~~$490.0 million and ~~$175.0~~$505.0 million, respectively, related to our Receivables Facility, and repayments of ~~$20.0~~$60.0 million applied to our Term Loan Facility. Financing activities for the first ~~three~~nine months of 2018 also included ~~borrowings and~~net repayments onof our various international lines of credit of approximately ~~$57.9 million and $52.2 million, respectively.~~$2.5 million.

Contractual Cash Obligations and Other Commercial Commitments

There were no material changes in our contractual obligations and other commercial commitments that would require an update to the disclosure provided in our 2018 Annual Report on Form 10-K. Management believes that cash generated from operations, together with amounts available under our Revolving Credit Facility and the Receivables Facility, will be sufficient to meet our working capital, capital expenditures and other cash requirements for the foreseeable future. However, there can be no assurances that this will continue to be the case.

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. For the ~~three~~nine months ended ~~March 31,~~September 30, 2019, pricing related to inflation impacted our sales by ~~approximately~~1% to 2%.

Seasonality

Our operating results are not significantly affected by seasonal factors. Sales during the first quarter are usually affected by a reduced level of activity. Sales during the second, third and fourth quarters are generally 66% to 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.

~~WESCO INTERNATIONAL, INC. AND SUBSIDIARIES~~

Impact of Recently Issued Accounting Standards

See Note 2 of our Notes to Condensed Consolidated Financial Statements for information regarding the effect of new accounting pronouncements.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

Forward-Looking Statements

From time to time in this report and in other written reports and oral statements, references are made to expectations regarding our future performance. When used in this context, 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. Certain of these risks are set forth in the WESCO International’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as well as WESCO International’s other reports filed with the Securities and Exchange Commission. 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risks.

There have not been any material changes to our exposures to market risk during the quarterly period ended ~~March 31,~~September 30, 2019 that would require an update to the relevant disclosures provided in our 2018 Annual Report on Form 10-K.

Item 4. 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.

Effective January 1, 2019, we adopted ASU 2016-02, Leases, and all the related amendments. In connection with the adoption of this new lease standard, we modified certain processes and implemented internal controls related to leases. Except for the effect of adopting the new lease standard, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

PART II—OTHER INFORMATION

Item 1. 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 litigation relating to commercial, product 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.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed in Item 1A. to Part 1 of WESCO’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth all issuer purchases of common stock during the three months ended ~~March 31,~~September 30, 2019, including those made pursuant to publicly announced plans or programs:

Period
Total Number of Shares Purchased⁽²⁾
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾

Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs ^{(2) (3)}
(In Millions)
January 1 – January 31, 2019 2,821
$ 50.39
—
$ 275.0
February 1 – February 28, 2019 31,893
$ 55.67
—
$ 275.0
March 1 – March 31, 2019 377,304
$ 52.47
365,272
$ 275.0
Total 412,018
$ 52.71
365,272



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs ^{(2) (3)}
Period					(In Millions)
July 1 – July 31, 2019	26	$	47.15	—	$	125.0
August 1 – August 31, 2019	695,679	$	46.38	695,496	$	125.0
September 1 – September 30, 2019	75	$	50.57	—	$	125.0
Total	695,780	$	46.38	695,496


⁽¹⁾	There were ~~46,746~~284 shares purchased induring the quarterly period ended September 30, 2019 that were not part of the publicly announced share repurchase program. These shares were surrendered by stock-based compensation plan participants to satisfy tax withholding obligations arising from the exercise of stock-settled stock appreciation rights and vesting of restricted stock units.


⁽²⁾	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. On October 31, 2018, the Company's Board of Directors approved an increase to the authorization from $300 million to $400 million.

⁽³⁾

This amount represents the remaining authorization under the Company's share repurchase program that is available to repurchase shares of the Company's common stock. Due to the nature of accelerated share repurchases, the Company receives a certain percentage of shares immediately upon an up-front payment of cash. The remaining shares are delivered by the respective counterparty at the end of the valuation period. The amount authorized under the Company’s share repurchase program was reduced at the time of the up-front cash payment.

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

Item 6.Exhibits.

(a)Exhibits

(10) Material Contracts

(1) Term Sheet, dated September 25, 2019, memorializing terms of employment of Nelson Squires by WESCO International, Inc.

(31) Rule 13a-14(a)/15d-14(a) Certifications

(1) Certification of Chief Executive Officer pursuant to Rules 13a-14(a) promulgated under the Exchange Act.

(2) Certification of Chief Financial Officer pursuant to Rules 13a-14(a) promulgated under the Exchange Act.

(32) Section 1350 Certifications

(1) Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(2) Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB XBRL Taxonomy Extension Label Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		WESCO International, Inc.
		(Registrant)



~~May 3,~~November 1, 2019	By:	/s/ David S. Schulz
(Date)		David S. Schulz
		Senior Vice President and Chief Financial Officer

2933



	(In thousands)
2019	$	59,033
2020	61,233
2021	49,587
2022	36,767
2023	27,547
Thereafter	45,701
Total undiscounted operating lease payments	279,868
Less: interest	(42,026		)
Total operating lease liabilities	$	237,842



	Three Months Ended
	March 31, 2019		March 31, 2018
Stock-settled stock appreciation rights granted	213,618		491,229
Weighted-average fair value	$	16.36	$	18.40

Restricted stock units granted	175,544		114,269
Weighted-average fair value	$	54.64	$	62.81

Performance-based awards granted	126,874		44,144
Weighted-average fair value	$	54.64	$	62.80



	Condensed Consolidating Statement of Income and Comprehensive Income
	Three Months Ended
	March 31, 2018

(In thousands)	WESCO International, Inc.			WESCO Distribution, Inc.			Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Consolidated
Net sales	$	—		$	882,399		$	1,150,110		$	(38,594	)	$	1,993,915
Cost of goods sold (excluding depreciation and
amortization)	—			716,258			936,302			(38,594		)	1,613,966
Selling, general and administrative expenses	—			150,482			140,347			—			290,829
Depreciation and amortization	—			4,616			11,263			—			15,879
Results of affiliates’ operations	42,971			45,200			—			(88,171		)	—
Net interest and other	—			13,816			5,967			—			19,783
Income tax (benefit) expense	—			(544		)	11,031			—			10,487
Net income	42,971			42,971			45,200			(88,171		)	42,971
Net loss attributable to noncontrolling interests	—			—			(1,450		)	—			(1,450		)
Net income attributable to WESCO International	$	42,971		$	42,971		$	46,650		$	(88,171	)	$	44,421
Other comprehensive loss:
Foreign currency translation adjustments	(28,800		)	(28,800		)	(28,800		)	57,600			(28,800		)
Comprehensive income attributable to WESCO International	$	14,171		$	14,171		$	17,850		$	(30,571	)	$	15,621



Period	Total Number of Shares Purchased⁽²⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs ^{(2) (3)}
Period					(In Millions)
January 1 – January 31, 2019	2,821	$	50.39	—	$	275.0
February 1 – February 28, 2019	31,893	$	55.67	—	$	275.0
March 1 – March 31, 2019	377,304	$	52.47	365,272	$	275.0
Total	412,018	$	52.71	365,272