UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 27, 2016
WESCO International, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation) | 001-14989 (Commission File Number) | 25-1723342 (IRS Employer Identification No.) | ||
225 West Station Square Drive Suite 700 Pittsburgh, Pennsylvania (Address of principal executive offices) | 15219 (Zip Code) | |||
(412) 454-2200
(Registrant's telephone number, including area code)
Not applicable.
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 | Results of Operations and Financial Condition. |
The information in this Item 2.02 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
On October 27, 2016, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the third quarter of 2016. A copy of the press release is attached hereto as Exhibit 99.1.
Item 7.01 | Regulation FD Disclosure. |
The information in this Item 7.01 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 7.01 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
A slide presentation to be used by senior management of the Company in connection with its discussions with investors regarding the Company's financial results for the third quarter of 2016 is included in Exhibit 99.2 to this report and is being furnished in accordance with Regulation FD of the Securities and Exchange Commission.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following are furnished as exhibits to this report.
99.1 Press Release, dated October 27, 2016
99.2 Slide presentation for investors
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 hereunto duly authorized.
WESCO International, Inc. | ||
(Registrant) | ||
October 27, 2016 | By: | /s/ David S. Schulz |
(Date) | David S. Schulz | |
Senior Vice President and Chief Financial Officer | ||
 | NEWS RELEASE |
WESCO International, Inc. / Suite 700, 225 West Station Square Drive / Pittsburgh, PA 15219 | |
WESCO International, Inc. Reports Third Quarter 2016 Results
Third quarter highlights:
•Consolidated net sales of $1.86 billion
•Operating profit of $92.6 million
•Completed redemption of 2029 Debentures; recognized non-recurring, non-cash, pre-tax charge of $123.9 million
•Reported loss per diluted share of $0.65; adjusted earnings per diluted share of $1.05, excluding redemption charge of $1.70 per share
•Operating cash flow of $78.6 million; free cash flow of $72.5 million, or 140% of adjusted net income
PITTSBURGH, October 27, 2016/PRNewswire/ -- WESCO International, Inc. (NYSE: WCC), a leading provider of electrical, industrial, and communications MRO and OEM products, construction materials, and advanced supply chain management and logistics services, announces its results for the third quarter of 2016.
Mr. John J. Engel, WESCO's Chairman, President and CEO, commented, "Sales were below expectations, reflecting a decline in construction in both the U.S. and Canada. Operating margin was in-line with our outlook as we took additional actions to reduce our costs and streamline our organization. Free cash flow generation remained strong, enabling us to reduce our debt and financial leverage in the quarter. We also completed the early redemption of our convertible debentures, which simplifies our capital structure, eliminates future EPS dilution associated with these debt instruments, and secures an ongoing benefit from reduced interest expense.”
The following are results for the three months ended September 30, 2016 compared to the three months ended September 30, 2015:
• | Net sales were $1.86 billion for the third quarter of 2016, compared to $1.92 billion for the third quarter of 2015, a decrease of 3.6%. Acquisitions had a 2.9% positive impact on net sales and were partially offset by a 0.3% impact from foreign exchange rates, resulting in a 6.2% decrease in normalized organic sales. |
• | Cost of goods sold for the third quarter of 2016 was $1.49 billion and gross profit was $365.0 million, compared to cost of goods sold and gross profit of $1.54 billion and $380.8 million for the third quarter of 2015, respectively. As a percentage of net sales, gross profit was 19.7% and 19.8% for the third quarter of 2016 and 2015, respectively. |
• | Selling, general, and administrative ("SG&A") expenses were $255.5 million, or 13.8% of net sales for the third quarter of 2016, compared to $258.2 million, or 13.4% of net sales, for the third quarter of 2015. |
• | Operating profit was $92.6 million for the current quarter, compared to $106.3 million for the third quarter of 2015. Operating profit as a percentage of net sales was 5.0% for the third quarter of 2016, compared to 5.5% for the third quarter of 2015. |
• | Interest expense for the third quarter of 2016 was $20.8 million, compared to $20.4 million for the third quarter of 2015. Non-cash interest expense for the third quarter of 2016 and 2015, which includes amortization of debt discounts and deferred financing fees, interest related to uncertain tax positions, and accrued interest, was $7.1 million and $4.6 million, respectively. |
• | Loss on debt redemption of $123.9 million for the third quarter of 2016 was the result of a non-cash charge from the early redemption of the Company's 6.0% Convertible Senior Debentures due 2029 on September 15, 2016. |
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• | The effective tax rate for the current quarter was 40.5%, compared to 27.4% for the prior year third quarter. As adjusted, the effective tax rate for the current quarter was 28.0%, which is comparable to the effective tax rate for the third quarter of 2015. |
• | Net loss attributable to WESCO International, Inc. was $31.6 million for the third quarter of 2016, compared to net income of $63.5 million for the third quarter of 2015. Adjusted net income attributable to WESCO International, Inc. was $51.1 million for the current quarter. |
• | Loss per diluted share was $0.65 for the third quarter of 2016, based on 48.7 million diluted shares, compared to earnings per diluted share of $1.28 for the third quarter of 2015, based on 49.7 million diluted shares. Adjusted earnings per diluted share for the third quarter of 2016 was $1.05. |
• | Operating cash flow for the third quarter of 2016 was $78.6 million, compared to $43.3 million for the third quarter of 2015. Free cash flow for the third quarter of 2016 was $72.5 million, or 140% of adjusted net income, compared to $39.7 million, or 64% of adjusted net income for the third quarter of 2015. |
The following are results for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015:
• | Net sales were $5.54 billion for the first nine months of 2016, compared to $5.66 billion for the first nine months of 2015, a decrease of 2.0%. Acquisitions and workdays had positive impacts on net sales of 3.5% and 1.1%, respectively, and were partially offset by a 1.2% impact from foreign exchange rates, resulting in a 5.4% decrease in normalized organic sales growth. |
• | Cost of goods sold for the first nine months of 2016 was $4.44 billion and gross profit was $1.10 billion, compared to cost of goods sold and gross profit of $4.53 billion and $1.13 billion for the first nine months of 2015, respectively. As a percentage of net sales, gross profit was 19.8% and 20.0% for the first nine months of 2016 and 2015, respectively. |
• | Selling, general, and administrative ("SG&A") expenses were $799.4 million, or 14.4% of net sales for the first nine months of 2016, compared to $798.0 million, or 14.1% of net sales, for the first nine months of 2015. |
• | Operating profit was $250.0 million for the first nine months of 2016, compared to $283.8 million for the first nine months of 2015. Operating profit as a percentage of net sales was 4.5% for the first nine months of 2016, compared to 5.0% for the first nine months of 2015. |
• | Interest expense for the first nine months of 2016 was $59.1 million, compared to $59.9 million for the first nine months of 2015. Non-cash interest expense for the first nine months of 2016 and 2015, which includes amortization of debt discounts and deferred financing fees, interest related to uncertain tax positions, and accrued interest, was $12.0 million and $11.6 million, respectively. |
• | Loss on debt redemption of $123.9 million for the first nine months of 2016 was the result of a non-cash charge from the early redemption of the Company's 6.0% Convertible Senior Debentures due 2029 on September 15, 2016. |
• | The effective tax rate for the first nine months of 2016 was 20.4%, compared to 28.6% for the first nine months of 2015. As adjusted, the effective tax rate for the current year was 28.8%, which is comparable to the effective tax rate for the prior year. |
• | Net income attributable to WESCO International, Inc. was $54.2 million for the first nine months of 2016, compared to $162.3 million for the first nine months of 2015. Adjusted net income attributable to WESCO International, Inc. was $136.9 million. |
• | Earnings per diluted share for the first nine months of 2016 was $1.13 per share, based on 48.0 million diluted shares, compared to $3.16 per share for the first nine months of 2015, based on 51.3 million diluted shares. Adjusted earnings per diluted share for 2016 was $2.85. |
• | Operating cash flow for the first nine months of 2016 was $217.2 million, compared to $176.0 million for the first nine months of 2015. Free cash flow for the first nine months of 2016 of $204.0 million, or 150% of adjusted net income, compared to $159.8 million, or 100% of adjusted net income for the first nine months of 2015. |
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Mr. Engel continued, “We expect the current end market challenges to continue in the fourth quarter and have reflected them in our revised full year outlook for sales to be down 2% to 3% and adjusted EPS to be $3.75 to $3.90 per diluted share, which excludes the $1.70 impact from the loss on our convertible debt redemption. Despite a year of end market challenges, both our current sales and adjusted EPS outlook are within the original range of the full year guidance provided during our 2016 Outlook call nearly a year ago. We have also increased our free cash flow outlook to at least 125% of adjusted net income.
We remain focused on executing our One WESCO strategy to deliver above-market sales growth, improve profitability, generate strong free cash flow, and increase shareholder value. Our customers rely on our One WESCO value proposition for the comprehensive product and service solutions they need to cost-effectively meet their MRO, OEM, and capital project management requirements."
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the third quarter earnings as described in this News Release on Thursday, October 27, 2016, at 11:00 a.m. E.T. The call will be broadcast live over the Internet and can be accessed from the Company's Website at http://www.wesco.com. The call will be archived on this Internet site for seven days.
WESCO International, Inc. (NYSE: WCC), a publicly traded Fortune 500 holding company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating (MRO) and original equipment manufacturers (OEM) products, construction materials, and advanced supply chain management and logistic services. 2015 annual sales were approximately $7.5 billion. The company employs approximately 9,300 people, maintains relationships with over 25,000 suppliers, and serves over 80,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers, and utilities. WESCO operates nine fully automated distribution centers and approximately 500 full-service branches in North America and international markets, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.
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 the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as well as the Company's other reports filed with the Securities and Exchange Commission.
Contact: Mary Ann Bell, Vice President, Investor Relations
WESCO International, Inc. (412) 454-4220, Fax: (412) 222-7409
http://www.wesco.com
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Three Months Ended | |||||||||||
September 30, 2016 | September 30, 2015 | ||||||||||
Net sales | $ | 1,855.2 | $ | 1,923.9 | |||||||
Cost of goods sold (excluding | 1,490.2 | 80.3 | % | 1,543.1 | 80.2 | % | |||||
depreciation and amortization) | |||||||||||
Selling, general and administrative expenses | 255.5 | 13.8 | % | 258.2 | 13.4 | % | |||||
Depreciation and amortization | 16.9 | 16.3 | |||||||||
Income from operations | 92.6 | 5.0 | % | 106.3 | 5.5 | % | |||||
Interest expense, net | 20.8 | 20.4 | |||||||||
Loss on debt redemption | 123.9 | — | |||||||||
(Loss) income before income taxes | (52.1 | ) | (2.8 | )% | 85.9 | 4.5 | % | ||||
Provision for income taxes | (21.1 | ) | 23.5 | ||||||||
Net (loss) income | (31.0 | ) | (1.7 | )% | 62.4 | 3.2 | % | ||||
Net income (loss) attributable to noncontrolling interests | 0.6 | (1.1 | ) | ||||||||
Net (loss) income attributable to WESCO International, Inc. | $ | (31.6 | ) | (1.7 | )% | $ | 63.5 | 3.3 | % | ||
Diluted (loss) earnings per common share | $ | (0.65 | ) | $ | 1.28 | ||||||
Weighted-average common shares outstanding and common | |||||||||||
share equivalents used in computing diluted (loss) earnings per | |||||||||||
share (in millions) | 48.7 | 49.7 | |||||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in millions, except per share amounts)
(Unaudited)
Nine Months Ended | |||||||||||
September 30, 2016 | September 30, 2015 | ||||||||||
Net sales | $ | 5,542.8 | $ | 5,656.9 | |||||||
Cost of goods sold (excluding | 4,443.1 | 80.2 | % | 4,526.8 | 80.0 | % | |||||
depreciation and amortization) | |||||||||||
Selling, general and administrative expenses | 799.4 | 14.4 | % | 798.0 | 14.1 | % | |||||
Depreciation and amortization | 50.3 | 48.3 | |||||||||
Income from operations | 250.0 | 4.5 | % | 283.8 | 5.0 | % | |||||
Interest expense, net | 59.1 | 59.9 | |||||||||
Loss on debt redemption | 123.9 | — | |||||||||
Income before income taxes | 67.0 | 1.2 | % | 223.9 | 4.0 | % | |||||
Provision for income taxes | 13.7 | 64.1 | |||||||||
Net income | 53.3 | 1.0 | % | 159.8 | 2.8 | % | |||||
Net loss attributable to noncontrolling interests | (0.9 | ) | (2.5 | ) | |||||||
Net income attributable to WESCO International, Inc. | $ | 54.2 | 1.0 | % | $ | 162.3 | 2.9 | % | |||
Diluted earnings per common share | $ | 1.13 | $ | 3.16 | |||||||
Weighted-average common shares outstanding and common | |||||||||||
share equivalents used in computing diluted earnings per | |||||||||||
share (in millions) | 48.0 | 51.3 | |||||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in millions)
(Unaudited)
September 30, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 112.8 | $ | 160.3 | |||
Trade accounts receivable, net | 1,102.1 | 1,075.3 | |||||
Inventories | 832.5 | 810.1 | |||||
Current deferred income taxes (1) | — | 8.5 | |||||
Other current assets | 196.4 | 203.4 | |||||
Total current assets | 2,243.8 | 2,257.6 | |||||
Other assets (2) | 2,365.5 | 2,312.2 | |||||
Total assets | $ | 4,609.3 | $ | 4,569.8 | |||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 699.5 | $ | 715.5 | |||
Current debt and short-term borrowings | 36.8 | 44.3 | |||||
Other current liabilities | 223.7 | 188.0 | |||||
Total current liabilities | 960.0 | 947.8 | |||||
Long-term debt (2) | 1,418.7 | 1,439.1 | |||||
Other noncurrent liabilities | 238.0 | 409.0 | |||||
Total liabilities | 2,616.7 | 2,795.9 | |||||
Stockholders' Equity | |||||||
Total stockholders' equity | 1,992.6 | 1,773.9 | |||||
Total liabilities and stockholders' equity | $ | 4,609.3 | $ | 4,569.8 | |||
(1) | The Company early adopted Accounting Standards Update (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes, on a prospective basis during the first quarter of 2016. This guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. |
(2) | The Company adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, on a retrospective basis during the first quarter of 2016. These ASUs simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. As a result of adopting this guidance, the Company reclassified approximately $17.7 million of deferred financing fees from other noncurrent assets to long-term debt in the balance sheet as of December 31, 2015. |
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in millions)
(Unaudited)
Nine Months Ended | |||||||
September 30, 2016 | September 30, 2015 | ||||||
Operating Activities: | |||||||
Net income | $ | 53.3 | $ | 159.8 | |||
Add back (deduct): | |||||||
Depreciation and amortization | 50.3 | 48.3 | |||||
Deferred income taxes | (21.8 | ) | 26.3 | ||||
Change in trade receivables, net | (3.1 | ) | (49.8 | ) | |||
Change in inventories | (7.7 | ) | (38.9 | ) | |||
Change in accounts payable | (30.3 | ) | 30.4 | ||||
Other (1) | 176.5 | (0.1 | ) | ||||
Net cash provided by operating activities | 217.2 | 176.0 | |||||
Investing Activities: | |||||||
Capital expenditures | (13.2 | ) | (16.2 | ) | |||
Acquisition payments | (50.7 | ) | (68.5 | ) | |||
Other | (3.9 | ) | 1.8 | ||||
Net cash used in investing activities | (67.8 | ) | (82.9 | ) | |||
Financing Activities: | |||||||
Debt (repayments) borrowings, net | (191.5 | ) | 92.5 | ||||
Equity activity, net | (2.2 | ) | (154.1 | ) | |||
Other | (4.4 | ) | (11.7 | ) | |||
Net cash used in financing activities | (198.1 | ) | (73.3 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 1.2 | (15.2 | ) | ||||
Net change in cash and cash equivalents | (47.5 | ) | 4.6 | ||||
Cash and cash equivalents at the beginning of the period | 160.3 | 128.3 | |||||
Cash and cash equivalents at the end of the period | $ | 112.8 | $ | 132.9 | |||
(1) | Other operating cash flow activities for the nine months ended September 30, 2016 include a $123.9 million loss on redemption of the Company's 6.0% Convertible Senior Debentures due 2029. |
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NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures include normalized organic sales growth, gross profit, financial leverage, free cash flow, adjusted net income and adjusted earnings per diluted share. The Company believes that these non-GAAP measures are useful to investors in order to provide a better understanding of the Company's organic growth trends, capital structure position and liquidity on a comparable basis. Additionally, certain of the aforementioned non-GAAP measures either focus on or exclude transactions impacting comparability of results, allowing investors to more easily compare the Company's financial performance from period to period. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
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WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions, except sales growth data)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||
Normalized Organic Sales Growth - Year-Over-Year: | September 30, 2016 | September 30, 2016 | |||
Change in net sales | (3.6 | )% | (2.0 | )% | |
Impact from acquisitions | 2.9 | % | 3.5 | % | |
Impact from foreign exchange rates | (0.3 | )% | (1.2 | )% | |
Impact from number of workdays | — | % | 1.1 | % | |
Normalized organic sales growth | (6.2 | )% | (5.4 | )% | |
Note: Normalized organic sales growth is provided by the Company as an additional financial measure to provide a better understanding of the Company's sales growth trends. Normalized 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.
Three Months Ended | Nine Months Ended | ||||||||||||||
Gross Profit: | September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | |||||||||||
Net sales | $ | 1,855.2 | $ | 1,923.9 | $ | 5,542.8 | $ | 5,656.9 | |||||||
Cost of goods sold (excluding depreciation and amortization) | 1,490.2 | 1,543.1 | 4,443.1 | 4,526.8 | |||||||||||
Gross profit | $ | 365.0 | $ | 380.8 | $ | 1,099.7 | $ | 1,130.1 | |||||||
Gross margin | 19.7 | % | 19.8 | % | 19.8 | % | 20.0 | % | |||||||
Note: Gross profit is provided by the Company as an additional financial measure. Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. This amount represents a commonly used financial measure within the distribution industry. Gross margin is calculated by dividing gross profit by net sales.
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WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions)
(Unaudited)
Twelve Months Ended | |||||||
Financial Leverage: | September 30, 2016 | December 31, 2015 | |||||
Income from operations | $ | 340.0 | $ | 373.7 | |||
Depreciation and amortization | 66.9 | 65.0 | |||||
EBITDA | $ | 406.9 | $ | 438.7 | |||
September 30, 2016 | December 31, 2015 | ||||||
Current debt and short-term borrowings | $ | 36.8 | $ | 44.3 | |||
Long-term debt | 1,418.7 | 1,439.1 | |||||
Debt discount and deferred financing fees(1) | 18.2 | 182.0 | |||||
Total debt | $ | 1,473.7 | $ | 1,665.4 | |||
Financial leverage ratio | 3.6 | 3.8 | |||||
(1) | Long-term debt is presented in the condensed consolidated balance sheets net of deferred financing fees and debt discount related to the convertible debentures and term loan. |
Note: Financial leverage is a non-GAAP financial measure provided by the Company to illustrate its capital structure position. Financial leverage ratio is calculated by dividing total debt, including debt discount and deferred financing fees, by EBITDA. EBITDA is defined as the trailing twelve months earnings before interest, taxes, depreciation and amortization.
Three Months Ended | Nine Months Ended | ||||||||||||||
Free Cash Flow: | September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | |||||||||||
Cash flow provided by operations | $ | 78.6 | $ | 43.3 | $ | 217.2 | $ | 176.0 | |||||||
Less: Capital expenditures | (6.1 | ) | (3.6 | ) | (13.2 | ) | (16.2 | ) | |||||||
Free cash flow | $ | 72.5 | $ | 39.7 | $ | 204.0 | $ | 159.8 | |||||||
Percent of adjusted net income (1) | 140 | % | 64 | % | 150 | % | 100 | % | |||||||
(1) | See the following page for a reconciliation of adjusted net income. |
Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund the Company's other investing and financing activities.
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WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in millions, except per share amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||
Adjusted Income Before Income Taxes: | September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | |||||||||||
(Loss) income before income taxes | $ | (52.1 | ) | $ | 85.9 | $ | 67.0 | $ | 223.9 | ||||||
Loss on debt redemption | 123.9 | — | 123.9 | — | |||||||||||
Adjusted income before income taxes | $ | 71.8 | $ | 85.9 | $ | 190.9 | $ | 223.9 | |||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
Adjusted Tax Provision: | September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | |||||||||||
Provision for income taxes | $ | (21.1 | ) | $ | 23.5 | $ | 13.7 | $ | 64.1 | ||||||
Income tax benefit from loss on debt redemption | 41.2 | — | 41.2 | — | |||||||||||
Adjusted provision for income taxes | $ | 20.1 | $ | 23.5 | $ | 54.9 | $ | 64.1 | |||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
Adjusted Net Income Attributable to WESCO International, Inc.: | September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | |||||||||||
Adjusted income before income taxes | $ | 71.8 | $ | 85.9 | $ | 190.9 | $ | 223.9 | |||||||
Adjusted provision for income taxes | 20.1 | 23.5 | 54.9 | 64.1 | |||||||||||
Adjusted net income | 51.7 | 62.4 | 136.0 | 159.8 | |||||||||||
Net income (loss) attributable to noncontrolling interests | 0.6 | (1.1 | ) | (0.9 | ) | (2.5 | ) | ||||||||
Adjusted net income attributable to WESCO | |||||||||||||||
International, Inc. | $ | 51.1 | $ | 63.5 | $ | 136.9 | $ | 162.3 | |||||||
Adjusted Earnings Per Diluted Share: | |||||||||||||||
Diluted shares | 48.7 | 49.7 | 48.0 | 51.3 | |||||||||||
Adjusted earnings per diluted share | $ | 1.05 | $ | 1.28 | $ | 2.85 | $ | 3.16 | |||||||
Three Months Ended | |||
Adjusted Earnings Per Diluted Share: | September 30, 2016 | ||
Diluted loss per common share | $ | (0.65 | ) |
Loss on debt redemption | 2.54 | ||
Tax effect of loss on debt redemption | (0.84 | ) | |
Adjusted diluted earnings per common share | $ | 1.05 | |
Note: Adjusted net income attributable to WESCO International, Inc. is defined as income (loss) before income taxes plus the loss on debt redemption, less the provision for income taxes excluding the benefit of such loss. Adjusted earnings per diluted share is computed by dividing adjusted net income attributable to WESCO International, Inc. by the weighted-average common shares outstanding and common share equivalents. The Company believes that these non-GAAP financial measures are useful to investors' overall understanding of the Company's current financial performance and provides a consistent measure for assessing the current and historical financial results.
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Webcast Presentation
October 27, 2016
Q3 2016 Earnings
2
Q3 2016 Earnings Webcast, 10/27/16
Safe Harbor Statement
Note: All statements made herein that are not historical facts should be considered as “forward-
looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such
statements involve known and unknown risks, uncertainties and other factors that may cause
actual results to differ materially. Such risks, uncertainties and other factors include, but are not
limited to: adverse economic conditions; disruptions in operations or information technology
systems; product, labor or other cost fluctuations; supply chain disruptions or loss of key
suppliers; expansion of business activities; exchange rate fluctuations; tax law changes or
challenges to tax matters; increase in competition; risks related to acquisitions, including the
integration of acquired businesses; litigation, disputes, contingencies or claims; legal or
regulatory matters; debt levels, terms, financial market conditions or interest rate fluctuations;
goodwill or intangible asset impairment; common stock dilution; and other factors described in
detail in the Form 10-K for WESCO International, Inc. for the year ended December 31, 2015
and any subsequent filings with the Securities & Exchange Commission. Any numerical or other
representations in this presentation do not represent guidance by management and should not
be construed as such. The following presentation includes a discussion of certain non-GAAP
financial measures. Information required by Regulation G with respect to such non-GAAP
financial measures can be found in the appendix and obtained via WESCO’s website,
www.wesco.com.
3
Q3 2016 Earnings Webcast, 10/27/16
Q3 2016 Highlights
…operating margin in-line with outlook
• Reported sales were down 3.6%
• Organic sales were down 5% in
the US and down 7% in Canada
• Oil & gas sales down over 20%
• Operating margin was in-line with
expectations, driven by cost
management actions
• Strong free cash flow at 140% of
adjusted net income
• Successfully redeemed
convertible bonds
• Reported diluted EPS ($0.65);
adjusted EPS of $1.05
• October month-to-date reported
sales flat to prior year
1.6
6.0
6.7
8.1
3.2
(3.0)
(5.3)
(7.6)
(6.7)
(3.1)
(6.2)
Organic Growth
(%)
Jul (5)%
Aug (10)%
Sep (4)%
Note: See appendix for non-GAAP reconciliations.
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2014 2015
Q1
2016
Q2 Q3
4
Q3 2016 Earnings Webcast, 10/27/16
Industrial End Market
• Q3 2016 Sales
− Organic sales down 10% versus prior year
(down 7% in the U.S. and down 20% in
Canada in local currency)
− Down 3% sequentially
− Sales declines driven by oil and gas, metals
and mining, and OEM customers
• Reduced demand outlook, weak commodity prices,
and strong U.S. dollar are weighing on
manufacturing sector, causing deferred project and
maintenance spending.
• Global Account and Integrated Supply opportunity
pipeline and bidding activity levels remain strong.
• Customer trends include high expectations for
supply chain process improvements, cost
reductions, and supplier consolidation.
Organic Sales Growth versus Prior Year
36%
Industrial
• Global Accounts
• Integrated Supply
• OEM
• General Industrial
Awarded a multi-year One WESCO integrated supply contract for
MRO materials by a North American chemical manufacturer and
services provider.
(1.8%)
(7.8%)
(10.9%)
(13.6%) (13.7%)
(10.1%) (10.1%)
Q3 2015 Q2 2015 Q1 2015
2015
(8.6%)
Q4 2015 Q1 2016 Q2 2016
Note: See appendix for non-GAAP reconciliations.
Q3 2016
5
Q3 2016 Earnings Webcast, 10/27/16
• Q3 2016 Sales
− Organic sales down 6% versus prior year
(down 6% in U.S. and down 4% in Canada
in local currency)
− Down 3% sequentially
− Continued weakness with contractors
serving the industrial market
• Core backlog declined 3% versus prior year, but
is up 2% from year-end.
• Outside of oil and gas, metals and mining,
expecting modest uptrend in non-residential
construction.
• Non-residential construction market still well
below its prior peak in 2008.
Construction
• Non-
Residential
• Residential
34%
Organic Sales Growth versus Prior Year
Construction End Market
Awarded a contract to provide an LED lighting package for a new
hospital in western Canada.
8.8%
(3.0%)
(4.2%)
(6.7%)
(3.6%)
2.3%
(5.5%)
Q2 2015 Q1 2015 Q3 2015 Q4 2015
2015
(1.7%)
Q2 2016 Q1 2016
Note: See appendix for non-GAAP reconciliations.
Q3 2016
6
Q3 2016 Earnings Webcast, 10/27/16
Utility End Market
Organic Sales Growth versus Prior Year
16%
Utility
• Investor Owned
• Public Power
• Utility Contractors
• Q3 2016 Sales
− Organic sales down 2% versus prior year
(down 2% in U.S. and up 5% in Canada in
local currency)
− Down 2% sequentially
• Scope expansion and value creation with investor
owned utility, public power, and generation
customers.
• Continued interest in Integrated Supply solution
offerings.
• Secular improvement in housing market,
renewables growth, and consolidation trend within
Utility industry expected to be positive catalyst for
future spending.
Renewed a multi-year contract to provide power delivery and
generation materials for a large municipal owned utility.
7.8%
7.2%
3.7%
1.9%
0.6% 0.6%
(1.7%)
2015
5.1%
Note: See appendix for non-GAAP reconciliations.
Q2 2015 Q1 2015 Q3 2015 Q4 2015 Q2 2016 Q1 2016 Q3 2016
7
Q3 2016 Earnings Webcast, 10/27/16
CIG End Market
• Q3 2016 Sales
− Organic sales down 2% versus prior
year (down 2% in US and up 9% in
Canada in local currency)
− Down 2% sequentially
• Customer focus remains on energy efficiency
(lighting, automation, metering), security and
FTTX (fiber-to-the-x) applications.
• Continued opportunities exist to support data
center construction and retrofits and cloud
technology projects.
Organic Sales Growth versus Prior Year
CIG
• Commercial
• Institutional
• Government
14%
Awarded a One WESCO contract to provide electrical and
communications products to multiple local government agencies.
6.3%
1.5%
(0.3%)
(0.8%)
0.4%
0.8%
(1.6%)
Q2 2015 Q1 2015 Q3 2015 Q4 2015
2015
1.6%
Q1 2016 Q2 2016
Note: See appendix for non-GAAP reconciliations.
Q3 2016
8
Q3 2016 Earnings Webcast, 10/27/16
Q3 2016 Results
Outlook Actual YOY
Sales (3)% to Flat $1.86B (3.6)% growth
Gross Margin 19.7% Down 10 bps
SG&A $256M, 13.8% Down 1%, Up 40 bps; core down 4%
Operating Profit $93M Down 13%
Operating Margin 4.9% to 5.3% 5.0% Down 50 bps
Effective Tax Rate ~29% 28.0%* Up 60 bps
290 bps
(5.1)%
Growth
140 bps 390 bps
$1.86B
$1.92B
Q3 2016
Sales
Acquisitions Foreign
Exchange
Rest of
World
Canada U.S. Q3 2015
Sales
30 bps
90 bps
(6.9)%
Growth
(17.7)%
Growth
(6.2)%
Organic
Growth
(3.6)%
Growth
*See appendix for non-GAAP reconciliations.
9
Q3 2016 Earnings Webcast, 10/27/16
Diluted EPS Walk
Q3
2015 $1.28)
Core operations (0.30)
Acquisitions 0.05)
Foreign exchange impact 0.01)
Tax (0.01)
Share count 0.02)
After tax loss on debt redemption (1.70)
2016 $(0.65)
Pretax loss on debt redemption 2.54)
Tax effect of loss debt on redemption (0.84)
Adjusted 2016 $1.05)
10
Q3 2016 Earnings Webcast, 10/27/16
1.5
2
2.5
3
3.5
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
159.8
204.0
YTD 2015 YTD 2016
Cash Generation
Free Cash Flow
($ Millions)
See appendix for non-GAAP reconciliations.
150%
of
adjusted
net
income
100%
of net
income
> $1B of free
cash flow over
last 4 years
2014
Target
Leverage
2.0x – 3.5x
3.6X
Leverage
(Total Par Debt to TTM EBITDA)
2015 2016
11
Q3 2016 Earnings Webcast, 10/27/16
2016 Outlook
Q4 FY (Current)
FY
(Previous)
Sales (1)% to (4)% (2)% to (3)% Flat to (2)%
Operating Margin 4.5% to 4.8% 4.5% to 4.6% 4.6% to 4.8%
Effective Tax Rate ~ 30% ~ 29% ~ 29%
Adjusted Diluted EPS $3.75 to $3.90 $3.85 to $4.10
Free Cash Flow >125% of adjusted net income >100% of net income
Notes: Excludes unannounced acquisitions.
Assumes a CAD/USD exchange rate of 0.76 in Q4.
Excludes the effects of the redemption of our 6.0% Convertible Senior Debentures due 2029.
See appendix for non-GAAP reconciliations.
…current sales and adjusted EPS outlook still in original 2016 Outlook range
12
Q3 2016 Earnings Webcast, 10/27/16
Appendix
NON-GAAP FINANCIAL MEASURES
This earnings release includes certain non-GAAP financial measures. These financial measures
include normalized organic sales growth, gross profit, financial leverage, free cash flow, adjusted net
income and adjusted earnings per diluted share. The Company believes that these non-GAAP
measures are useful to investors in order to provide a better understanding of the Company's organic
growth trends, capital structure position and liquidity on a comparable basis. Additionally, certain of
the aforementioned non-GAAP measures either focus on or exclude transactions impacting
comparability of results, allowing investors to more easily compare the Company's financial
performance from period to period. Management does not use these non-GAAP financial measures
for any purpose other than the reasons stated above.
13
Q3 2016 Earnings Webcast, 10/27/16
WESCO Profile 2016
36%
34%
16%
14%
40%
15%
14%
12%
11%
8%
Note: Markets & Customers and Products & Services percentages reported on a TTM consolidated basis.
Products & Services Markets & Customers
Utility
CIG
Industrial
Construction
Investor Owned | Public Power
Utility Contractors
Commercial | Institutional | Government
Global Accounts | Integrated Supply
OEM | General Industrial
Non-Residential | Contractors
Automation, Controls & Motors
Lighting & Sustainability
General Supplies
Communications & Security
Wire, Cable & Conduit
Electrical Distribution & Controls
14
Q3 2016 Earnings Webcast, 10/27/16
Sales Growth
2014 2015 2016
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
Change in Net Sales 0.2 5.9 7.6 6.1 5.0 0.3 (4.4) (7.4) (6.7) (4.7) (2.2) (0.3) (3.6)
Acquisition Impact 0.5 1.6 1.8 1.6 1.4 1.2 1.6 2.0 3.0 2.0 3.9 3.7 2.9
Core (0.3) 4.3 5.8 4.5 3.6 (0.9) (6.0) (9.4) (9.7) (6.7) (6.1) (4.0) (6.5)
FX Impact (1.9) (1.7) (0.9) (2.0) (1.6) (2.5) (3.0) (4.1) (3.7) (3.4) (2.6) (0.9) (0.3)
Organic 1.6 6.0 6.7 6.5 5.2 1.6 (3.0) (5.3) (6.0) (3.3) (3.5) (3.1) (6.2)
Workday Impact (1.6) (0.4) (1.6) 1.6 3.2
Normalized Organic 1.6 6.0 6.7 8.1 5.6 3.2 (3.0) (5.3) (7.6) (3.3) (6.7) (3.1) (6.2)
(%)
15
Q3 2016 Earnings Webcast, 10/27/16
Q3 2016 Sales Growth – Geography
U.S. Canada International Total
Change in net sales (USD) (1.2) (7.9) (20.6) (3.6)
Impact from acquisitions 3.9 - - 2.9
Impact from foreign exchange rates - (1.0) (2.9) (0.3)
Impact from number of workdays - - - -
Normalized organic sales growth (5.1) (6.9) (17.7) (6.2)
(%)
16
Q3 2016 Earnings Webcast, 10/27/16
Note: The prior period end market amounts noted above may contain reclassifications to conform to current period presentation.
($ Millions)
Sales Growth-End Markets
Q3 2016 vs. Q3 2015 Q3 2016 vs. Q2 2016
Q3 Q3 Q3 Q2
2016 2015
%
Growth 2016 2016
%
Growth
Industrial Core 656 733 (10.5) % 658 680 (3.2)%
Construction Core 602 640 (6.0) % 642 666 (3.5)%
Utility Core 292 297 (1.8) % 292 298 (2.1)%
CIG Core 255 261 (2.0) % 270 275 (1.9)%
Total Core Gross Sales 1,805 1,931 (6.5) % 1,862 1,919 (3.0)%
Total Gross Sales from Acquisitions 57 - - - - -00
Total Gross Sales 1,862 1,931 (3.6) % 1,862 1,919 (3.0)%
Gross Sales Reductions/Discounts (7) (7) - (7) (7) -00
Total Net Sales 1,855 1,924 (3.6) % 1,855 1,912 (3.0)%
17
Q3 2016 Earnings Webcast, 10/27/16
Q3 2016 Organic Sales by End Market
Industrial Construction Utility CIG WESCO
Core Sales Growth (10.5) (6.0) (1.8) (2.0) (6.5)
Workday Impact - - - - -
Workday Adjusted Core Growth (10.5) (6.0) (1.8) (2.0) (6.5)
FX Impact (0.4) (0.5) (0.1) (0.4) (0.3)
Workday Adjusted Organic Growth (10.1) (5.5) (1.7) (1.6) (6.2)
(%)
Note: Core sales growth excludes acquisitions during the first year ownership.
18
Q3 2016 Earnings Webcast, 10/27/16
2029 Debentures Loss Non-GAAP Reconciliation
(in millions, except for EPS)
Q3 2016 YTD 2016
Reported
Results Adjustments (1)
Adjusted
Results
Reported
Results Adjustments (1)
Adjusted
Results
Operating profit $ 92.6 - $ 92.6 $ 250.0 - $ 250.0
Interest 20.8 - 20.8 59.1 - 59.1
Loss on redemption of convertible
debentures
123.9 (123.9) 1 - 123.9 (123.9) 1 -
(Loss) income before income taxes (52.1) 123.9 71.8 67.0 123.9 190.9
Taxes (21.1) 41.2 1 20.1 13.7 41.2 1 54.9
Effective tax rate 40.5% 28.0% 20.4% 28.8%
Net (loss) income (31.0) 82.7 51.7 53.3 82.7 136.0
Less: Non-controlling interest 0.6 - 0.6 (0.9) - (0.9)
Net (loss) income attributable to WESCO $ (31.6) 82.7 $ 51.1 $ 54.2 82.7 $ 136.9
Diluted Shares 48.7 48.7 48.0 48.0
EPS $ (0.65) $ 1.05 $ 1.13 $ 2.85
(1) Loss on redemption of 2029 Debentures and related income tax benefit.
19
Q3 2016 Earnings Webcast, 10/27/16
Outstanding at
December 31, 2015
Outstanding at
September 30, 2016
Debt
Maturity Schedule
AR Revolver (V) 525 426 2018
Inventory Revolver (V) 75 - 2020
2019 Term Loans (V) 175 160 2019
2021 Senior Notes (F) 500 500 2021
2024 Senior Notes (F) - 350 2024
2029 Convertible Bonds (F) 345 - 2029 (1)
Other (V) 45 38 N/A
Total Par Debt 1,665 1,474
Capital Structure
Key Financial Metrics
Q3 2015 YE 2015 Q3 2016
Cash 133 160 113
Capital Expenditures 16 22 13
Free Cash Flow (2) 160 261 204
Liquidity (3) 520 546 693
($ Millions)
V = Variable Rate Debt 1 = Redeemed on September 15, 2016.
F = Fixed Rate Debt 2 = Cash flow provided by operations less capital expenditures.
3 = Total availability under asset-backed credit facilities plus invested cash.
20
Q3 2016 Earnings Webcast, 10/27/16
Financial Leverage
Twelve Months Ended
September 30, 2016
Financial leverage ratio:
Income from operations $ 340
Depreciation and amortization 67
EBITDA $ 407
September 30, 2016
Current debt and short-term borrowings $ 37
Long-term debt 1,419
Debt discount and deferred financing (1) 18
Total debt $ 1,474
Less: cash and cash equivalents $ 113
Total debt, net of cash $ 1,361
Financial leverage ratio 3.6X
Financial leverage ratio, net of cash 3.3X
(1)Long-term debt is presented in the condensed consolidated balance sheet as of September 30, 2016 net of deferred financing
fees and discount related to the term loan.
($ Millions)
21
Q3 2016 Earnings Webcast, 10/27/16
($ Millions)
2014 2015
YTD
2016
Amortization of Debt Discount* 4.1 6.1 3.0
Amortization of Deferred Financing Fees 4.4 6.1 2.7
FIN 48 1.0 (8.7) 0.4
Accrued Interest (1.4) - 5.9
Total 8.1 3.5 12.0
Non-Cash Interest Expense
* Includes convertible debt and term loan.
22
Q3 2016 Earnings Webcast, 10/27/16
Free Cash Flow Reconciliation
Q3
2015
Q3
2016
YTD
2015
YTD
2016
Cash flow provided by operations 43.3 78.6 176.0 217.2
Less: Capital expenditures (3.6) (6.1) (16.2) (13.2)
Free Cash Flow 39.7 72.5 159.8 204.0
Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are
deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund the Company's
other investing and financing activities.
($ Millions)
23
Q3 2016 Earnings Webcast, 10/27/16
Work Days
Q1
Q2 Q3 Q4 FY
2014 63 64 64 62 253
2015 62 64 64 63 253
2016 64 64 64 62 254
2017 64 64 63 62 253