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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     

Commission File Number: 001-14989
WESCO International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 25-1723342
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
225 West Station Square Drive
Suite 700
 15219
Pittsburgh,Pennsylvania(Zip Code)
(Address of principal executive offices)
(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 ClassTrading Symbol(s)Name of Exchange on which registered
Common Stock, par value $.01 per shareWCCNew York Stock Exchange
Depositary Shares, each representing a 1/1,00th interest in a share of Series A Fixed-Rate Reset Cumulative Perpetual Preferred StockWCC PR ANew York Stock Exchange
Preferred Share Purchase RightsN/ANew 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 No
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 No
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 filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of November 6, 2020, 50,042,827 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 
 
PART II—OTHER INFORMATION
 


1


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim financial information required by this item is set forth in the unaudited Condensed Consolidated Financial Statements and Notes thereto in this Quarterly Report on Form 10-Q, as follows:
Page

2


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share data)
(unaudited)
As of
AssetsSeptember 30,
2020
December 31,
2019
Current assets:  
Cash and cash equivalents$352,249 $150,902 
Trade accounts receivable, net of allowance for expected credit losses of $26,220 and $25,443 in 2020 and 2019, respectively
2,492,248 1,187,359 
Other accounts receivable229,275 98,029 
Inventories2,357,634 1,011,674 
Prepaid expenses and other current assets166,044 92,447 
Total current assets5,597,450 2,540,411 
Property, buildings and equipment, net of accumulated depreciation of $294,638 and $268,415 in 2020 and 2019, respectively
400,222 181,448 
Operating lease assets 540,142 235,834 
Intangible assets, net (Note 5)
2,078,468 287,275 
Goodwill3,118,818 1,759,040 
Other assets133,239 13,627 
    Total assets$11,868,339 $5,017,635 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$1,830,877 $830,478 
Accrued payroll and benefit costs146,670 49,508 
Short-term debt and current portion of long-term debt28,844 26,685 
Other current liabilities 534,544 177,388 
Total current liabilities2,540,935 1,084,059 
Long-term debt, net of debt discount and debt issuance costs of $92,343 and $8,876
 in 2020 and 2019, respectively
4,878,124 1,257,067 
Operating lease liabilities419,718 179,830 
Deferred income taxes523,958 146,617 
Other noncurrent liabilities292,380 91,391 
    Total liabilities$8,655,115 $2,758,964 
Commitments and contingencies (Note 12)
Stockholders’ equity:  
Preferred stock, $.01 par value; 20,000,000 shares authorized, no shares issued or outstanding
  
Preferred stock, Series A, $.01 par value; 25,000 shares authorized, 21,612 shares issued and outstanding in 2020 (Note 9)
  
Common stock, $.01 par value; 210,000,000 shares authorized, 67,562,621 and 59,308,018 shares issued and 50,042,751 and 41,797,093 shares outstanding in 2020 and 2019, respectively
676 593 
Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2020 and 2019, respectively
43 43 
Additional capital1,939,101 1,039,347 
Retained earnings2,596,022 2,530,429 
Treasury stock, at cost; 21,859,301 and 21,850,356 shares in 2020 and 2019, respectively
(937,520)(937,157)
Accumulated other comprehensive loss(377,461)(367,772)
Total WESCO International, Inc. stockholders' equity3,220,861 2,265,483 
Noncontrolling interests(7,637)(6,812)
    Total stockholders’ equity3,213,224 2,258,671 
    Total liabilities and stockholders’ equity$11,868,339 $5,017,635 
The accompanying notes are an integral part of the condensed consolidated financial statements.
3


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands of dollars, except per share data)
(unaudited)
 Three Months EndedNine Months Ended
September 30September 30
2020201920202019
Net sales (Note 3)$4,141,801 $2,148,110 $8,197,154 $6,259,465 
Cost of goods sold (excluding depreciation and amortization)3,356,259 1,747,913 6,641,438 5,067,799 
Selling, general and administrative expenses561,971 290,852 1,221,114 883,222 
Depreciation and amortization45,476 15,612 80,324 46,035 
Income from operations178,095 93,733 254,278 262,409 
Interest expense, net74,540 14,306 152,281 49,293 
Other, net(777)(798)(1,463)(1,359)
Income before income taxes104,332 80,225 103,460 214,475 
Income tax expense24,294 15,886 23,707 44,970 
Net income80,038 64,339 79,753 169,505 
Less: Net loss attributable to noncontrolling interests(640)(156)(825)(824)
Net income attributable to WESCO International, Inc.80,678 64,495 80,578 170,329 
Less: Preferred stock dividends14,511  15,787  
Net income attributable to common stockholders$66,167 $64,495 $64,791 $170,329 
Other comprehensive income (loss):
Foreign currency translation adjustments41,428 (16,856)(9,689)25,905 
Comprehensive income attributable to common stockholders$107,595 $47,639 $55,102 $196,234 
Earnings per share attributable to common stockholders
Basic$1.32 $1.53 $1.44 $3.91 
Diluted$1.31 $1.52 $1.44 $3.88 

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

4


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(unaudited)
 Nine Months Ended
 September 30
20202019
Operating activities:  
Net income$79,753 $169,505 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization80,324 46,035 
Deferred income taxes(8,261)4,621 
Other operating activities, net(1,763)10,876 
Changes in assets and liabilities:
Trade accounts receivable, net3,584 (122,903)
Other accounts receivable(14,702)15,450 
Inventories77,681 (1,500)
Prepaid expenses and other assets(26,655)(20,720)
Accounts payable80,489 46,902 
Accrued payroll and benefit costs25,872 (36,055)
Other current and noncurrent liabilities122,616 4,453 
Net cash provided by operating activities418,938 116,664 
Investing activities:
Capital expenditures(42,562)(30,323)
Acquisition payments, net of cash acquired (Note 4)(3,707,575)(27,742)
Other investing activities26,240 4,575 
Net cash used in investing activities(3,723,897)(53,490)
Financing activities:
Repayments of short-term debt, net(9,824)(29,600)
Proceeds from issuance of long-term debt4,661,830 1,105,397 
Repayments of long-term debt(1,045,667)(927,410)
Repurchases of common stock (Note 7)(2,032)(152,735)
Debt issuance costs(79,945)(2,508)
Payment of dividends(15,787) 
Other financing activities, net(1,255)(11,226)
Net cash provided by (used in) financing activities3,507,320 (18,082)
Effect of exchange rate changes on cash and cash equivalents(1,014)(3,275)
Net change in cash and cash equivalents201,347 41,817 
Cash and cash equivalents at the beginning of period150,902 96,343 
Cash and cash equivalents at the end of period$352,249 $138,160 
Supplemental disclosures:
Cash paid for interest$36,035 $38,347 
Cash paid for income taxes$44,994 $54,044 
Right-of-use assets obtained in exchange for new operating lease liabilities$80,626 $48,622 

The accompanying notes are an integral part of the condensed consolidated financial statements.
5

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands of dollars, except shares)
(unaudited)
Accumulated Other
   Class BSeries A Retained  Comprehensive
 Common StockCommon StockPreferred StockAdditionalEarningsTreasury StockNoncontrollingIncome
AmountSharesAmountSharesAmountSharesCapital(Deficit)AmountSharesInterests(Loss)
Balance, December 31, 2019$593 59,308,018 $43 4,339,431 $  $1,039,347 $2,530,429 $(937,157)(21,850,356)$(6,812)$(367,772)
Exercise of stock-based awards
1 105,620 (39)79 2,020 
Stock-based compensation expense
4,626 
Tax withholding related to vesting of restricted stock units and retirement of common stock
 (31,680)(2,297)761 
Noncontrolling interests(232)
Net income attributable to WESCO
34,407 
Translation adjustments(93,851)
Balance, March 31, 2020$594 59,381,958 $43 4,339,431 $  $1,041,637 $2,565,597 $(937,078)(21,848,336)$(7,044)$(461,623)
Exercise of stock-based awards
 30,665  (437)(10,858)
Stock-based compensation expense
4,901 
Tax withholding related to vesting of restricted stock units and retirement of common stock
 (652)(37)27 
Capital stock issuance82 8,150,228  21,612 886,740 
Noncontrolling interests47 
Net loss attributable to WESCO
(34,506)
Preferred stock dividends(1,276)
Translation adjustments42,734 
Balance, June 30, 2020$676 67,562,199 $43 4,339,431 $ 21,612 $1,933,241 $2,529,842 $(937,515)(21,859,194)$(6,997)$(418,889)
Exercise of stock-based awards
 479  (5)(107)
Stock-based compensation expense
6,002 
Tax withholding related to vesting of restricted stock units and retirement of common stock
 (57)(3)13 
Capital stock issuance(139)
Noncontrolling interests(640)
Net income attributable to WESCO
80,678 
Preferred stock dividends(14,511)
Translation adjustments41,428 
Balance, September 30, 2020$676 67,562,621 $43 4,339,431 $ 21,612 $1,939,101 $2,596,022 $(937,520)(21,859,301)$(7,637)$(377,461)

The accompanying notes are an integral part of the condensed consolidated financial statements.
6

WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands of dollars, except shares)
(unaudited)
Accumulated Other
   Class BSeries A Retained  Comprehensive
 Common StockCommon StockPreferred StockAdditionalEarningsTreasury StockNoncontrollingIncome
AmountSharesAmountSharesAmountSharesCapital(Deficit)AmountSharesInterests(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 adjustments22,517 
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 adjustments20,244 
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.
7

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 leading provider of business-to-business distribution, logistics services and supply chain solutions.
On June 22, 2020, WESCO completed its previously announced acquisition of Anixter International Inc., a Delaware corporation (“Anixter”). Pursuant to the terms of the Agreement and Plan of Merger, dated January 10, 2020 (the “Merger Agreement”), by and among Anixter, WESCO and Warrior Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of WESCO (“Merger Sub”), Merger Sub was merged with and into Anixter (the “Merger”), with Anixter surviving the Merger and continuing as a wholly owned subsidiary of WESCO.
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 2019 Annual Report on Form 10-K as filed with the SEC on February 24, 2020. The Condensed Consolidated Balance Sheet at December 31, 2019 was derived from the audited Consolidated Financial Statements as of that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America.
The unaudited Condensed Consolidated Balance Sheet as of September 30, 2020, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income, the unaudited Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019, and the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, 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.
In the third quarter of 2020, in connection with the acquisition of Anixter, the Company identified new operating segments. These operating segments, which have been organized around three strategic business units, consist of Electrical & Electronic Solutions ("EES"), Communications & Security Solutions ("CSS") and Utility & Broadband Solutions ("UBS"). The Company's operating segments, which are equivalent to its reportable segments, are described further in Note 14. The applicable comparative financial information reported in the Company's previously issued interim financial statements for the three and nine months ended September 30, 2019 has been recast in this Quarterly Report on Form 10-Q to conform to the basis of the new segments.
Reclassifications
The Condensed Consolidated Balance Sheet as of December 31, 2019, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2019, and the unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2019, respectively, include certain reclassifications to previously reported amounts to conform to the current period presentation.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced new guidance for the accounting for credit losses on certain financial instruments. The Company adopted this ASU effective January 1, 2020. The adoption of this new credit loss guidance did not have a material impact on the unaudited condensed consolidated financial statements and notes thereto presented herein, and WESCO does not expect it to have a material impact on its financial position or results of operation on an ongoing basis.
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 Company adopted this ASU
8

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

in the first quarter of 2020. The adoption of this guidance did not have a material impact on the unaudited condensed consolidated financial statements and notes thereto presented herein.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard was effective for fiscal years beginning after December 15, 2019. The Company adopted this ASU in the first quarter of 2020. The adoption of this guidance did not have a material impact on the unaudited condensed consolidated financial statements and notes thereto presented herein.
Recently Issued Accounting Pronouncements
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 condensed consolidated financial statements and notes thereto.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles of Accounting Standards Codification Topic 740, Income Taxes, and simplifies other aspects of accounting for income taxes. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. Management does not expect the adoption of this accounting standard to have a material impact on its condensed consolidated financial statements and notes thereto.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. Management is currently evaluating the impact related to the replacement of London Interbank Offered Rate (LIBOR) and whether the Company will elect the adoption of the optional guidance.
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 in various end markets within its business segments. The segments, which consist of Electrical & Electronic Solutions, Communications & Security Solutions, and Utility & Broadband Solutions operate in the United States, Canada and various other foreign countries. 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 net sales by segment and geography for the periods presented:
Three Months EndedNine Months Ended
 September 30September 30
(In thousands)2020201920202019
Electrical & Electronic Solutions$1,653,726 $1,250,080 $3,811,498 $3,626,423 
Communications & Security Solutions1,388,791 235,920 1,953,967 681,087 
Utility & Broadband Solutions1,099,284 662,110 2,431,689 1,951,955 
Total by segment$4,141,801 $2,148,110 $8,197,154 $6,259,465 

9

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

Three Months EndedNine Months Ended
 September 30September 30
(In thousands)2020201920202019
United States$3,033,101 $1,601,962 $6,100,877 $4,679,251 
Canada 582,700 431,233 1,311,724 1,230,855 
Other International526,000 114,915 784,553 349,359 
Total by geography(1)
$4,141,801 $2,148,110 $8,197,154 $6,259,465 

(1)    WESCO attributes revenues from external customers to individual countries on the basis of point of sale.
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 September 30, 2020 and December 31, 2019, $27.7 million and $12.3 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 September 30, 2020 and 2019 by approximately $75.4 million and $26.3 million, respectively, and by approximately $129.0 million and $80.1 million for the nine months ended September 30, 2020 and 2019, respectively.
Shipping and handling activities are recognized in net sales when they are billed to the customer. The related costs are recognized as a component of selling, general and administrative expenses. 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 $55.5 million and $17.6 million for the three months ended September 30, 2020 and 2019, respectively, and $94.4 million and $52.8 million for the nine months ended September 30, 2020 and 2019, respectively.
4. ACQUISITIONS
Anixter International Inc.
As described in Note 1, on June 22, 2020, WESCO completed its previously announced merger with Anixter. The Company used the net proceeds from the issuance of senior unsecured notes, borrowings under its revolving credit facility and accounts receivable securitization facility (as described further in Note 8), as well as cash on hand, to finance the acquisition of Anixter and related transaction costs.
At the effective time of the Merger, each outstanding share of common stock of Anixter (subject to limited exceptions) was converted into the right to receive (i) $72.82 in cash, (ii) 0.2397 shares of common stock of WESCO, par value $0.01 per share (the “WESCO Common Stock”) and (iii) 0.6356 depositary shares, each representing a 1/1,000th interest in a share of newly issued fixed-rate reset cumulative perpetual preferred stock of WESCO, Series A, with a $25,000 stated amount per whole preferred share and an initial dividend rate equal to 10.625%.
Anixter is a leading distributor of network and security solutions, electrical and electronic solutions, and utility power solutions with locations in over 300 cities across approximately 50 countries, and 2019 annual sales of more than $8 billion. The Merger brought together two companies with highly compatible capabilities and characteristics. The combination of WESCO and Anixter created an enterprise with scale and should afford the Company the opportunity to digitize its business, and expand its services portfolio and supply chain offerings.
10

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

The total preliminary estimated fair value of consideration transferred for the Merger consisted of the following:
(In thousands)
Cash portion attributable to common stock outstanding$2,476,010 
Cash portion attributable to options and restricted stock units outstanding
87,375 
Fair value of cash consideration2,563,385 
Common stock consideration313,512 
Series A preferred stock consideration573,786 
Fair value of equity consideration887,298 
Extinguishment of Anixter obligations, including accrued and unpaid interest
1,247,653 
Total purchase consideration$4,698,336 
Supplemental cash flow disclosure related to acquisitions:
Cash paid for acquisition$3,811,038 
Less: Cash acquired(103,463)
Cash paid for acquisition, net of cash acquired$3,707,575 

The Merger was accounted for as a business combination with WESCO acquiring Anixter in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the acquisition method of accounting, the preliminary purchase consideration was allocated to the identified assets acquired and liabilities assumed based on their respective acquisition date fair value, with any excess allocated to goodwill. The fair value estimates were based on income, market and cost valuation methods using primarily unobservable inputs developed by management, which are categorized within Level 3 of the fair value hierarchy. Significant inputs used to value the identifiable intangible assets included projected revenues, estimated future cash flows, discount rates, royalty rates, and applicable income tax rates. The excess purchase consideration recorded to goodwill is not deductible for income tax purposes, and has been assigned to the Company's reportable segments based on their relative fair values, as disclosed in Note 5. The resulting goodwill is primarily attributable to Anixter's workforce, significant cross-selling opportunities in additional geographies, enhanced scale, and other operational efficiencies.
In the third quarter of 2020, the Company recognized adjustments to total identifiable intangible assets and deferred income taxes of $5.4 million and $7.3 million, respectively. Certain other measurement period adjustments were made to the identified assets acquired and liabilities assumed, none of which were significant, individually or in aggregate. The net impact of the adjustments made in the third quarter of 2020 was a decrease to goodwill of $7.6 million.
The estimated fair values of assets acquired and liabilities assumed are based on preliminary calculations and valuations using estimates and assumptions at the time of acquisition. The determination of the fair values of assets acquired and liabilities assumed, especially those related to identifiable intangible assets, is preliminary due to the complexity of combining multibillion dollar businesses. Accordingly, as the Company obtains additional information during the measurement period (not to exceed one year from the acquisition date), estimates and assumptions for the preliminary purchase consideration allocations may change materially.
11

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

The following table sets forth the preliminary allocation of the purchase consideration to the respective fair value of assets acquired and liabilities assumed for the acquisition of Anixter:
(In thousands)
Assets
Cash and cash equivalents$103,463 
Trade accounts receivable1,309,104 
Other accounts receivable116,386 
Inventories1,424,678 
Prepaid expenses and other current assets53,462 
Property, buildings and equipment213,020 
Operating lease assets262,413 
Intangible assets1,838,065 
Goodwill1,360,373 
Other assets112,386 
Total assets
$6,793,350 
Liabilities
Accounts payable$920,163 
Accrued payroll and benefit costs69,480 
Short-term debt and current portion of long-term debt13,225 
Other current liabilities222,615 
Long-term debt77,822 
Operating lease liabilities199,959 
Deferred income taxes384,890 
Other noncurrent liabilities206,860 
Total liabilities
$2,095,014 
Fair value of net assets acquired, including goodwill and intangible assets$4,698,336 

The following table sets forth the preliminary identifiable intangible assets and their estimated weighted-average useful lives:
Identifiable Intangible AssetsEstimated
Fair Value
Weighted-Average Estimated Useful Life in Years
(In thousands)
Customer relationships$1,098,900 16
Trademarks735,000 Indefinite
Non-compete agreements4,165 1
Total identifiable intangible assets$1,838,065 


12

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

The results of operations of Anixter are included in the unaudited condensed consolidated financial statements beginning on June 22, 2020, the acquisition date. For the three and nine months ended September 30, 2020, the condensed consolidated statements of income include $2.2 billion and $2.4 billion of net sales, respectively, and $80.0 million and $98.4 million of income from operations for Anixter, respectively. Transaction costs related to the merger were comprised of legal, advisory and other costs of $14.5 million and $92.1 million, which are included in selling, general and administrative expenses for the three and nine months ended September 30, 2020, respectively.
Pro Forma Financial Information
The following unaudited pro forma financial information presents combined results of operations for the periods presented, as if the Company had completed the Merger on January 1, 2019. The unaudited pro forma financial information includes adjustments to amortization and depreciation for intangible assets and property, buildings and equipment, adjustments to interest expense for the additional indebtedness incurred to complete the acquisition (including the amortization of debt discount and issuance costs), transaction costs, change in control and severance costs, dividends accrued on the Series A preferred stock, compensation expense associated with the WESCO phantom stock unit awards described in Note 10, as well as the respective income tax effects of such adjustments. For the three months ended September 30, 2020 and 2019, adjustments totaling $1.5 million and $57.4 million, respectively, decreased the unaudited pro forma net income attributable to common stockholders. For the nine months ended September 30, 2020 and 2019, adjustments totaling $0.4 million and $167.8 million, respectively, decreased the unaudited pro forma net income attributable to common stockholders. The unaudited pro forma financial information does not reflect any cost savings, operating synergies or revenue enhancements that WESCO may achieve as a result of its acquisition of Anixter, the costs to integrate the operations of WESCO and Anixter or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements. The unaudited pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the acquisition occurred at the beginning of the respective fiscal years, nor is it necessarily indicative of future results of operations of the combined company.
Three Months EndedNine Months Ended
(In thousands)September 30,
2020
September 30,
2019
September 30,
2020
September 30,
2019
Pro forma net sales$4,111,716 $4,332,980 $11,802,538 $12,758,461 
Pro forma net income attributable to common stockholders
63,844 66,416 106,858 164,424 
On August 6, 2020, the Company entered into a Consent Agreement with the Competition Bureau of Canada regarding the merger with Anixter. Under the Consent Agreement, the Company is required to divest its legacy Utility and Datacom businesses in Canada, which had total sales of less than $150 million in 2019. The process to divest the businesses has commenced, and WESCO is working to complete the divestitures on a timely basis. The Company expects to use the net proceeds from the divestiture to repay indebtedness.
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"). 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 then outstanding 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 $11.6 million, which is deductible for tax purposes.
The following table sets forth the consideration paid for the acquisition of SLS:
Nine Months Ended
September 30
2019
(In thousands)
Fair value of assets acquired$34,812 
Fair value of liabilities assumed7,070 
Cash paid for acquisition$27,742 
13

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


5. GOODWILL AND INTANGIBLE ASSETS
The following table sets forth the changes in the carrying value of goodwill:
 Nine Months Ended
September 30
2020
EES
CSSUBSTotal
(In thousands)
Beginning balance January 1$573,447 $235,711 $949,882 $1,759,040 
Adjustments to goodwill for acquisitions
(Note 4)(1) (2)
245,624 858,022 262,544 1,366,190 
Foreign currency exchange rate changes(9,137)323 2,402 (6,412)
Ending balance September 30
$809,934 $1,094,056 $1,214,828 $3,118,818 
(1)    Adjustments to goodwill include the final allocation of the purchase price paid for SLS, as described in Note 4, to the respective assets acquired and liabilities assumed.
(2)    The effect of the merger with Anixter on the Company's determination of reportable segments is disclosed in Note 14.
Certain triggering events occurred during the first quarter of 2020, including the effect of the ongoing macroeconomic disruption and uncertainty caused by the COVID-19 pandemic, as well as the decline in the Company's share price and market capitalization, both of which indicated that the carrying value of goodwill and indefinite-lived intangible assets may not be recoverable. Accordingly, the Company performed an interim test for impairment as of March 31, 2020. There were no impairment losses identified as a result of this interim test.
As disclosed in Note 1, the Company identified new operating segments during the third quarter of 2020, which changed the composition of its reporting units. Accordingly, the Company reassigned goodwill to the new reporting units using a relative fair value allocation approach. The Company performed a goodwill impairment test immediately before and after it reorganized its reporting structure. Goodwill was tested for impairment on a reporting unit level and the evaluation involved comparing the fair value of each reporting unit to its carrying value. The fair values of the Company's reporting units were determined using a combination of a discounted cash flow analysis and market multiples. In performing the quantitative assessments, management used expected operating margins supported by a combination of historical results, current forecasts, market data and recent economic events, which are categorized within Level 3 of the fair value hierarchy. The Company used a discount rate that reflects market participants' cost of capital. There were no impairment losses identified as a result of these tests.
Although all of the Company's reporting units have fair values that currently exceed the respective carrying values, the EES reporting unit with goodwill of $809.9 million had an estimated fair value that exceeded its respective carrying value by less than 10%. The determination of fair value of the reporting units involves significant management judgment, particularly as it relates to the underlying assumptions and factors around expected operating margins and discount rate.
Due to the ongoing uncertainty surrounding the current macroeconomic environment and conditions in the markets in which WESCO operates, as well as the risk that the Company may not fully realize cost savings, operating synergies or revenue improvement as a result of its acquisition of Anixter, there can be no assurance that the fair values of the Company's reporting units will exceed their carrying values in the future, and that goodwill and indefinite-lived intangible assets will be fully recoverable.

14

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

The components of intangible assets are as follows:
September 30, 2020December 31, 2019
(In thousands)
Gross Carrying Amount (1)
Accumulated Amortization (1)
Net Carrying Amount
Gross Carrying Amount (1)
Accumulated Amortization (1)
Net Carrying Amount
Intangible assets:Life
TrademarksIndefinite$832,525 $— $832,525 $98,699 $— $98,699 
Trademarks
10 - 15
24,894 (10,961)13,933 24,800 (9,319)15,481 
Non-compete agreements
2 - 5
4,342 (694)3,648 196 (180)16 
Customer relationships
10 - 20
1,455,003 (237,896)1,217,107 358,341 (201,962)156,379 
Distribution agreements
10 - 19
37,281 (27,031)10,250 37,371 (25,294)12,077 
Patents1048,310 (47,305)1,005 48,310 (43,687)4,623 
$2,402,355 $(323,887)$2,078,468 $567,717 $(280,442)$287,275 
(1) Excludes the original cost and related accumulated amortization of fully-amortized intangible assets.
Amortization expense related to intangible assets totaled $27.3 million and $8.6 million for the three months ended September 30, 2020 and 2019, respectively, and $45.9 million and $25.7 million for the nine months ended September 30, 2020 and 2019, respectively.
The following table sets forth the remaining estimated amortization expense for intangible assets for the next five years and thereafter:
For year ending December 31,(In thousands)
2020$26,960 
2021100,459 
202296,608 
202395,288 
202491,870 
Thereafter834,758 

6. STOCK-BASED COMPENSATION
WESCO’s stock-based employee compensation plans are comprised of stock-settled stock appreciation rights, restricted stock units and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair value of stock-settled stock appreciation rights is determined using the Black-Scholes model. 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 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. Except for the special award described below, 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.
On July 2, 2020, a special award of restricted stock units was granted to certain officers of the Company. These awards vest in tranches of 30% on each of the first and second anniversaries of the grant date and 40% on the third anniversary of the grant date, subject, in each case, to continued employment through the applicable anniversary date.
15

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

Performance-based awards granted in 2020 and 2019 were based on two equally-weighted performance 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: the three-year average growth rate of the Company’s fully diluted earnings per share and the three-year cumulative return on net assets.
During the three and nine months ended September 30, 2020 and 2019, 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 EndedNine Months Ended
September 30,
2020
September 30,
2019
September 30,
2020
September 30,
2019
Stock-settled stock appreciation rights granted