WESCO INTERNATIONAL INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

The Company has operating segments comprising three strategic business units consisting of Electrical & Electronic Solutions (“EES”), Communications & Security Solutions (“CSS”) and Utility & Broadband Solutions (“UBS”).

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 International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 20, 2024. The Condensed Consolidated Balance Sheet at December 31, 2023 was derived from the audited Consolidated Financial Statements as of that date, but does not include all the disclosures required by accounting principles generally accepted in the United States of America.

The unaudited Condensed Consolidated Balance Sheet as of March 31, 2024, the unaudited Condensed Consolidated Statements of Income and Comprehensive Income, the unaudited Condensed Consolidated Statements of Stockholders’ Equity, and the unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023, 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.

Recently Adopted and Recently Issued Accounting Standards and Disclosure Rules

In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted this ASU in the first quarter of 2023, except for the amendment on rollforward information, which the Company will begin disclosing in its Annual Report on Form 10-K for the year ending December 31, 2024. The adoption of this ASU resulted in additional disclosure of the Company's supplier finance program, as described below.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances prior reportable segment disclosure requirements in part by requiring entities to disclose significant expenses related to their reportable segments. The amendments in this ASU are effective on a retrospective basis for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Management is currently evaluating the impact that this accounting standard will have on its consolidated financial statements and notes thereto.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU are effective for annual periods beginning after December 15, 2024 on a prospective basis. Management is currently evaluating the impact that this accounting standard will have on its consolidated financial statements and notes thereto.

In March 2024, the SEC issued final climate-related disclosure rules requiring disclosure of material climate-related risks, board and management governance of such risks, and material direct and indirect greenhouse gas emissions. The rules also require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions. Disclosures will be made prospectively, with phased-in effective dates starting with fiscal years beginning on or after January 1, 2025. In April 2024, the SEC voluntarily stayed implementation of the climate-related disclosure rules, pending completion of judicial review of consolidated challenges to the rules by the Court of Appeals for the Eighth Circuit. Management is currently evaluating the impact that these rules could have 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.

Supplier Finance Programs

The Company has supplier finance programs that are administered by intermediaries. Under these arrangements, participating suppliers may elect to receive early payment of invoices that have been confirmed by the Company, less an interest deduction or fees paid by the supplier, which is paid to the supplier by third-party finance providers. Wesco agrees to pay the stated amount of confirmed invoices in full on the original due date of the invoices, which is typically within 45 to 180 days of the invoice date, regardless of whether the supplier elects to receive early payment from the third-party finance providers. The Company does not provide assets pledged as security or other forms of guarantees to the finance providers or intermediaries under these arrangements. As of March 31, 2024 and December 31, 2023, the amounts due to suppliers that participate in the Company’s supplier finance program were approximately $21.7 million and $32.6 million, respectively, which are included in accounts payable in the Condensed Consolidated Balance Sheet.

Assets and Liabilities Held for Sale

The Company classifies assets and liabilities as held for sale in the Condensed Consolidated Balance Sheet when management has the authority and commits to a plan to sell the assets, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the plan to sell have been initiated and it is probable that the sale of the assets will occur within one year. Prior period balances are not reclassified. Once classified as held for sale, disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs.

Cash and cash equivalents as of March 31, 2024 shown in the Condensed Consolidated Statement of Cash Flows for the three months then ended includes $984.1 million of cash and cash equivalents and $1.4 million of cash included in current assets held for sale.

3. REVENUE

Wesco distributes products and provides services to customers globally in various end markets within its business segments. The segments operate in the United States, Canada and various other countries.

The following tables disaggregate Wesco’s net sales by segment and geography for the periods presented:

(1)No individual country's net sales are greater than 10% of total net sales.

(2)Wesco attributes revenues from external customers to individual countries on the basis of point of sale.

Due to the terms of certain contractual arrangements, Wesco bills or receives payment from its customers in advance of satisfying the respective performance obligation. Such advance billings or payments are recorded as deferred revenue and recognized as revenue 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 advance billing or payment. At March 31, 2024 and December 31, 2023, $150.3 million and $111.9 million, respectively, of deferred revenue was recorded as a component of other current liabilities in the Condensed Consolidated Balance Sheets. The Company recognized $42.8 million and $21.0 million of revenue during the three months ended March 31, 2024 and 2023, respectively, that was included in the deferred revenue balances as of December 31, 2023 and 2022, respectively.

The Company also has certain long-term contractual arrangements where revenue is recognized over time based on the cost-to-cost input method. As of March 31, 2024 and December 31, 2023, the Company had contract assets of $34.3 million and $35.4 million, respectively, resulting from contracts where the amount of revenue recognized exceeded the amount billed to the customer. Contract assets are recorded in the Condensed Consolidated Balance Sheets as a component of prepaid expenses and other current assets.

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 historical data, as well as current and forecasted information. 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, 2024 and 2023 by approximately $110.8 million and $96.5 million, respectively. As of March 31, 2024 and December 31, 2023, the Company's estimated product return obligation was $37.4 million and $41.3 million, respectively.

Billings to customers for shipping and handling are recognized in net sales. 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 $69.6 million and $76.9 million for the three months ended March 31, 2024 and 2023, respectively.

4. ACQUISITIONS

Rahi Systems Holdings, Inc.

On November 1, 2022, through its wholly-owned subsidiary WESCO Distribution, Inc. (“Wesco Distribution”), the Company acquired 100% of the equity securities of Rahi Systems Holdings, Inc. (“Rahi Systems” or “Rahi”). Headquartered in Fremont, California, Rahi Systems is a leading provider of global hyperscale data center solutions with over 900 employees in 25 countries. Rahi’s expertise with complex information technology projects and global presence strengthen Wesco’s data center solution offerings. Wesco Distribution funded the purchase price paid at closing with cash on hand as well as borrowings under its accounts receivable securitization and revolving credit facilities.

The estimated fair values of assets acquired and liabilities assumed were based on preliminary calculations and valuations using estimates and assumptions at the time of acquisition. As the Company obtained additional information during the measurement period, it recorded adjustments to its preliminary estimates of fair value, which were as of November 1, 2022. During the fourth quarter of 2023, the Company finalized its allocation of the purchase consideration to the respective fair values of assets acquired and liabilities assumed in the acquisition of Rahi. The Company recorded adjustments to inventories of $19.6 million, other current and non-current assets of $6.4 million, accounts payable of $28.0 million, deferred income taxes of $7.2 million, and other current and non-current liabilities of $6.1 million. The net impact of these adjustments was an increase to goodwill of $0.9 million.

The results of operations of Rahi Systems are included in Wesco’s unaudited Condensed Consolidated Financial Statements beginning on November 1, 2022, the acquisition date. For the three months ended March 31, 2024 and 2023, the Condensed Consolidated Statements of Income include $108.8 million and $136.3 million of net sales, respectively, and an immaterial amount of income from operations for Rahi Systems. The Company has not presented supplemental pro forma revenue and earnings of the combined business as the acquisition of Rahi Systems is not material to Wesco’s unaudited Condensed Consolidated Financial Statements.

5. ASSETS AND LIABILITIES HELD FOR SALE

On February 22, 2024, Wesco Distribution entered into a definitive agreement to sell 100% of the equity interests of its Wesco Integrated Supply (“WIS”) business. The WIS business, located primarily in the U.S. and Canada, is part of the UBS segment and provides products and services to large industrial and commercial end-users to support their maintenance, repair, and operating spend. The sale was completed on April 1, 2024. Refer to Note 16, “Subsequent Events” for further information.

The following is a summary of the major categories of current and noncurrent assets and liabilities classified as held for sale in the Condensed Consolidated Balance Sheet:

Income before income taxes attributable to the WIS business was $11.5 million and $11.4 million for the three months ended March 31, 2024 and 2023, respectively.

The sale of the WIS business does not represent a strategic shift that will have a major effect on the Company’s operations and financial results, and therefore does not meet the criteria to be classified as discontinued operations.

6. GOODWILL AND INTANGIBLE ASSETS

The following table sets forth the changes in the carrying value of goodwill by reportable segment for the period presented:

(1)Represents the amount of goodwill that is classified as held for sale related to the sale of the WIS business, as disclosed in Note 5, “Assets and Liabilities Held for Sale”.

The components of intangible assets are as follows:

(1)Excludes the original cost and related accumulated amortization of fully-amortized intangible assets.

Amortization expense related to intangible assets totaled $21.9 million and $22.0 million for the three months ended March 31, 2024 and 2023, respectively.

The following table sets forth the remaining estimated amortization expense for intangible assets for the next five years and thereafter:

7. STOCK-BASED COMPENSATION

Wesco’s stock-based compensation awards consist of stock options, 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 options and 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 participant behavior that is reviewed on at least an annual basis. For stock options and 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 options and 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. Restricted stock unit awards that were granted under the Company’s 1999 Long-Term Incentive Plan, as amended and restated, vest fully on the third anniversary of the date of grant. Restricted stock units awarded under the WESCO International, Inc. 2021 Omnibus Incentive Plan, which was adopted on May 27, 2021, vest ratably over a three-year period on each of the first, second and third anniversaries of the grant date. 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, as described below. Outstanding awards would vest upon the consummation of a change in control transaction with performance-based awards vesting at the greater of the target level or actual.

Performance-based awards are based on two equally-weighted performance measures: the three-year average growth rate of Wesco’s net income attributable to common stockholders and 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.

During the three months ended March 31, 2024 and 2023, Wesco granted the following stock options, restricted stock units, and performance-based awards at the following weighted-average fair values:

(1)As described further below, the three months ended March 31, 2024 includes performance-based awards granted in February 2021 for which actual achievement levels were certified in February 2024, as well as performance-based awards granted during the three months ended March 31, 2024.

The fair values of stock options, as disclosed in the table above, were estimated using the following weighted-average assumptions in the respective periods:

The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve rate as of the grant date. The expected life is based on historical exercise experience, the expected volatility is based on the volatility of the Company’s daily stock price over the expected life preceding the grant date of the award, and the expected dividend yield is based on the calculated yield on the Company’s common stock at date of grant using the current fiscal year projected dividend distribution rate.

The following table sets forth a summary of stock options and related information for the three months ended March 31, 2024:

For the three months ended March 31, 2024, the aggregate intrinsic value of stock options exercised during such period was not material.

The following table sets forth a summary of stock-settled stock appreciation rights and related information for the three months ended March 31, 2024:

For the three months ended March 31, 2024, the aggregate intrinsic value of stock-settled stock appreciation rights exercised during such period was $2.8 million.

The following table sets forth a summary of restricted stock units and related information for the three months ended March 31, 2024:

The following table sets forth a summary of performance-based awards and related information for the three months ended March 31, 2024:

(1) Includes 80,951 performance-based awards granted in February 2024 with a fair value of $152.07 and three-year performance period ending December 31, 2026, and 111,521 of additional performance-based awards related to awards originally granted in February 2021 with a fair value of $77.08 and three-year performance period ended December 31, 2023 for which actual achievement levels were certified in February 2024.

Wesco recognized $10.1 million and $11.7 million of non-cash stock-based compensation expense for the three months ended March 31, 2024 and 2023, respectively, which is included in selling, general and administrative expenses for such periods. As of March 31, 2024, there was $84.1 million of total unrecognized compensation expense related to unvested stock-based compensation arrangements for all awards previously made, which is expected to be recognized as follows:

8. STOCKHOLDERS’ EQUITY

Share Repurchases

On May 31, 2022, the Company’s Board of Directors adopted a resolution authorizing the repurchase of up to $1 billion of the Company’s common stock and Series A Preferred Stock. The share repurchase authorization has no expiration date and may be modified, suspended, or terminated at any time without prior notice.

During the three months ended March 31, 2024, the Company entered into spot repurchase transactions through a broker to purchase 343,147 shares of its common stock in the open market for cash totaling $50.5 million, including excise taxes. Wesco funded the repurchases with available cash and borrowings under its Revolving Credit Facility. No shares of common stock were repurchased under the share repurchase authorization during the three months ended March 31, 2023.

Dividends

The Company’s dividends on common stock are declared at the discretion of the Board of Directors. The following table is a summary of cash dividends declared and paid on the Company’s common stock for the three months ended March 31, 2024:

The following table is a summary of cash dividends declared and paid on the Company’s common stock for the three months ended March 31, 2023:

During the three months ended March 31, 2024 and 2023, the Company's Board of Directors also declared and the Company paid quarterly cash dividends of $0.664 per depositary share relating to its Series A Preferred Stock totaling $14.4 million each quarter.

9. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the periods. Diluted earnings per share is computed by dividing net income attributable to common stockholders 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 computation of basic and diluted earnings per share for the periods presented:

The computation of diluted earnings per share attributable to common stockholders excludes stock-based awards that would have had an antidilutive effect on earnings per share. For the three months ended March 31, 2024 and 2023, there were approximately 0.2 million and 0.4 million antidilutive shares, respectively.

10. DEBT

The following table sets forth Wesco's outstanding indebtedness:

Accounts Receivable Securitization Facility

On March 8, 2024, Wesco Distribution amended its accounts receivable securitization facility (the “Receivables Facility”) pursuant to the terms and conditions of an Eighth Amendment to Fifth Amended and Restated Receivables Purchase Agreement (the “Eighth Receivables Amendment”), by and among WESCO Receivables Corp., Wesco Distribution, the various purchasers and purchaser agents party thereto and PNC Bank, National Association, as administrator. The Eighth Receivables Amendment modified the receivables purchase agreement originally entered into on June 22, 2020 (the “Receivables Purchase Agreement”). The Eighth Receivables Amendment, among other things, (i) reduced the purchase limit under the Receivables Facility from $1,625 million to $1,550 million, (ii) increased the capacity to request increases in the purchase limit under the Receivables Facility from $125 million to $300 million, (iii) extended the termination date of the Receivables Facility to March 1, 2027, (iv) added a commercial paper funding option for any conduit purchaser funding its investment through issuances of notes, and (v) modified the drawn spread applicable to investments. No other material terms were changed.

Revolving Credit Facility

On March 6, 2024, Wesco Distribution amended its revolving credit facility (the “Revolving Credit Facility”) pursuant to the terms and conditions of a Sixth Amendment to Fourth Amended and Restated Credit Agreement (the “Sixth Revolver Amendment”). The Sixth Revolver Amendment amended the Revolving Credit Agreement to, among other things, modify the Canadian interest rate options and increase certain negative covenant baskets. No other material terms were changed.

6.375% Senior Notes due 2029

6.625% Senior Notes due 2032

On March 7, 2024, Wesco Distribution issued $900 million aggregate principal amount of 6.375% senior notes due 2029 (the “2029 Notes”) and $850 million aggregate principal amount of 6.625% senior notes due 2032 (the “2032 Notes” and, together with the 2029 Notes, the “2029 and 2032 Notes”). The 2029 and 2032 Notes were issued at a price of 100% of the aggregate principal amount thereof. Wesco incurred costs related to the issuance of the 2029 Notes and 2032 Notes totaling $11.3 million and $10.6 million, respectively, which were recorded as a reduction to the carrying value of the debt and are being amortized over the respective lives of the notes.

The 2029 and 2032 Notes were issued pursuant to, and are governed by, an indenture (the “2029 and 2032 Notes Indenture”), dated as of March 7, 2024, among Wesco Distribution, the Company, Anixter Inc., and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The 2029 and 2032 Notes and related guarantees were issued in a private transaction exempt from the Securities Act of 1933, as amended (the “Securities Act”), and have not been, and will not be, registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and other applicable securities laws.

The Company intends to use the net proceeds from the issuance of the 2029 and 2032 Notes to redeem all of its outstanding 7.125% senior notes due 2025 (the “2025 Notes”) on or after June 15, 2024, the date at which Wesco Distribution may redeem the 2025 Notes at a redemption price equal to 100% of the principal amount, and for general corporate purposes. Prior to repaying the 2025 Notes, the Company used the net proceeds temporarily to repay a portion of the amounts outstanding under its Receivables Facility and repaid all of the outstanding borrowings under its Revolving Credit Facility. The Company intends to subsequently redraw under the Receivables Facility and the Revolving Credit Facility in an aggregate amount sufficient to redeem the 2025 Notes.

The 2029 and 2032 Notes are unsecured and unsubordinated obligations of Wesco Distribution and are guaranteed on an unsecured, unsubordinated basis by the Company and Anixter Inc. The 2029 Notes accrue interest at a rate of 6.375% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. The 2029 Notes will mature on March 15, 2029. The 2032 Notes accrue interest at a rate of 6.625% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. The 2032 Notes will mature on March 15, 2032.

Wesco Distribution may redeem all or a part of the 2029 Notes at any time prior to March 15, 2026 by paying a “make-whole” premium plus accrued and unpaid interest, if any, to but excluding the redemption date. In addition, at any time prior to March 15, 2026, Wesco Distribution may redeem up to 35% of the original aggregate principal amount of the 2029 Notes with the net cash proceeds from certain equity offerings. At any time between March 15, 2026 and March 14, 2027, Wesco Distribution may redeem all or a part of the 2029 Notes at a redemption price equal to 103.188% of the principal amount. Between March 15, 2027 and March 14, 2028, Wesco Distribution may redeem all or a part of the 2029 Notes at a redemption price equal to 101.594% of the principal amount. On and after March 15, 2028, Wesco Distribution may redeem all or a part of the 2029 Notes at a redemption price equal to 100% of the principal amount.

Wesco Distribution may redeem all or a part of the 2032 Notes at any time prior to March 15, 2027 by paying a “make-whole” premium plus accrued and unpaid interest, if any, to but excluding the redemption date. In addition, at any time prior to March 15, 2027, Wesco Distribution may redeem up to 35% of the original aggregate principal amount of the 2032 Notes with the net cash proceeds from certain equity offerings. At any time between March 15, 2027 and March 14, 2028, Wesco Distribution may redeem all or a part of the 2032 Notes at a redemption price equal to 103.313% of the principal amount. Between March 15, 2028 and March 14, 2029, Wesco Distribution may redeem all or a part of the 2032 Notes at a redemption price equal to 101.657% of the principal amount. On and after March 15, 2029, Wesco Distribution may redeem all or a part of the 2032 Notes at a redemption price equal to 100% of the principal amount.

The 2029 and 2032 Notes Indenture contains certain covenants that, among other things, limit the Company’s and its restricted subsidiaries’ ability to incur liens on assets, make certain restricted payments, engage in certain sale and leaseback transactions or sell certain assets or merge or consolidate with or into other companies, subject to certain qualifications and exceptions, including the termination of certain of these covenants upon the 2029 and 2032 Notes receiving investment grade credit ratings.

The 2029 and 2032 Notes Indenture contains certain events of default, including, among other things, failure to make required payments, failure to comply with certain agreements or covenants, failure to pay or acceleration of certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. An event of default under the 2029 and 2032 Notes Indenture will allow either the Trustee or the holders of at least 25% in aggregate principal amount of the applicable series of the then-outstanding Notes to accelerate or, in certain cases, will automatically cause the acceleration of the amounts due under the applicable series of Notes.

11. EMPLOYEE BENEFIT PLANS

The following table sets forth the components of net periodic pension cost for the Company’s defined benefit plans:

(1)Defined as the Anixter Inc. Pension Plan, which was settled during the first quarter of 2024, as described below.

(2)Defined as the EECOL Electric ULC Retirement Plan, the EECOL Electric ULC Supplemental Executive Retirement Plan, the Pension Plan for Employees of Anixter Canada Inc., and various defined benefit pension plans covering employees of foreign subsidiaries in Europe.

(3)For the three months ended March 31, 2024 and 2023, no material amounts were reclassified from accumulated other comprehensive income into net income.

Service cost is reported as a component of selling, general and administrative expenses. The other components of net periodic pension cost (benefit) totaling net costs of $5.9 million for the three months ended March 31, 2024, and net benefits $0.3 million for the three months ended March 31, 2023, are presented as components of other expense, net.

The Company expects to contribute approximately $7.0 million to its Foreign Plans in 2024. Approximately $2.4 million was contributed during the three months ended March 31, 2024. The Company did not make any contributions to its domestic qualified pension plan during the three months ended March 31, 2024 due to the plan’s settlement, as described below.

Anixter Inc. Pension Plan Settlement

On February 12, 2024, the remaining benefit obligation of the Anixter Inc. Pension Plan was settled through the purchase of single premium annuity contracts for total cash of $138.8 million. The purchase was funded entirely by the assets of the plan.

The final settlement of the Anixter Inc. Pension Plan triggered a remeasurement of the related plan benefit obligations and assets as of February 29, 2024. The net effect of the plan remeasurement was a reduction of $30.6 million to the net funded status of the plan, which represented an excess plan asset reversion, and was accounted for as a negative employer contribution. The assets related to the excess plan asset reversion are included in other current assets in the Condensed Consolidated Balance Sheet as of March 31, 2024. Additionally, the Company incurred excise taxes of $4.8 million resulting from the excess plan asset reversion, which are recorded as a component of selling, general and administrative expenses in the Condensed Consolidated Statement of Income during the three months ended March 31, 2024 and are included in other current liabilities in the Condensed Consolidated Balance Sheet as of March 31, 2024.

During the three months ended March 31, 2024, the Company recognized settlement costs of $5.5 million to recognize unrealized losses previously reported as a component of other comprehensive income (loss) related to the benefit obligation of the Anixter Inc. Pension Plan.

Other Employee Benefit Plans

Wesco sponsors defined contribution retirement savings plans for the majority of its employees in the U.S. and certain employees in Canada, which provide employer contributions.

Wesco incurred expenses of $18.8 million and $21.4 million for the three months ended March 31, 2024 and 2023, respectively, for its defined contribution plans.

Wesco Distribution sponsors a non-qualified deferred compensation plan (the “Wesco Deferred Compensation Plan”) that permits select employees to make pre-tax deferrals of salary and bonus. Employees have the option to transfer balances allocated to their accounts in the Wesco Deferred Compensation Plan into any of the available investment options. The Wesco Deferred Compensation Plan is an unfunded plan. As of March 31, 2024 and December 31, 2023, the Company’s obligation under the Wesco Deferred Compensation Plan was $29.8 million and $27.4 million, respectively, which is included in other noncurrent liabilities in the Condensed Consolidated Balance Sheets.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, accounts payable, bank overdrafts, outstanding indebtedness, foreign currency forward contracts, and benefit plan assets. Except for benefit plan assets, outstanding indebtedness and foreign currency forward contracts, the carrying value of the Company’s other financial instruments approximates fair value.

The assets of the Company’s various defined benefit plans primarily comprise common/collective/pool funds (i.e., mutual funds). These funds are valued at the net asset value (“NAV”) of shares held in the underlying funds. Investments for which fair value is measured using the NAV per share practical expedient are not classified in the fair value hierarchy.

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 carrying value of Wesco’s debt instruments with fixed interest rates was $4,574.0 million and $2,823.7 million as of March 31, 2024 and December 31, 2023, respectively. The estimated fair value of this debt was $4,635.5 million and $2,880.3 million as of March 31, 2024 and December 31, 2023, respectively. The reported carrying values of Wesco’s other debt instruments, including those with variable interest rates, approximated their fair values as of March 31, 2024 and December 31, 2023.

The Company purchases foreign currency forward contracts to reduce the effect of fluctuations in foreign currency-denominated accounts on its earnings. The foreign currency forward contracts are not designated as hedges for accounting purposes. The Company’s strategy is to negotiate terms for its derivatives and other financial instruments to be highly effective, such that the change in the value of the derivative offsets the impact of the underlying hedge. Its counterparties to foreign currency forward contracts have investment-grade credit ratings. The Company regularly monitors the creditworthiness of its counterparties to ensure no issues exist that could affect the value of its derivatives.

The Company does not hedge 100% of its foreign currency-denominated accounts. In addition, the results of hedging can vary significantly based on various factors, such as the timing of executing foreign currency forward contracts versus the movement of currencies, as well as fluctuations in the account balances throughout each reporting period. The fair value of foreign currency forward contracts is based on the difference between the contract rate and the current price of a forward contract with an equivalent remaining term. The fair value of foreign currency forward contracts is measured using observable market information. These inputs are considered Level 2 in the fair value hierarchy. At March 31, 2024 and December 31, 2023, foreign currency forward contracts were revalued at then-current foreign exchange rates with the changes in valuation reflected directly in other non-operating expense (income) in the Condensed Consolidated Statements of Income and Comprehensive Income offsetting the transaction gain (loss) recorded on foreign currency-denominated accounts. The gross and net notional amounts of foreign currency forward contracts outstanding were approximately $203.3 million and $168.4 million, at March 31, 2024 and December 31, 2023, respectively. While all of the Company’s foreign currency forward contracts are subject to master netting arrangements with its counterparties, assets and liabilities related to these contracts are presented on a gross basis within the Condensed Consolidated Balance Sheets. The gross fair value of assets and liabilities related to foreign currency forward contracts were immaterial.

13. 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 (including wage and hour). 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.

14. INCOME TAXES

The effective tax rate for the three months ended March 31, 2024 and 2023 was 21.0% and 18.3%, respectively. For the three months ended March 31, 2024 and 2023, the effective tax rate reflects discrete income tax benefits of $7.7 million and $21.2 million, respectively, resulting from the exercise and vesting of stock-based awards. These discrete income tax benefits reduced the estimated annual effective tax rate in such periods by approximately 5.3 and 8.8 percentage points, respectively.

The effective tax rate, excluding discrete income tax benefits, differs from the federal statutory income tax rate due primarily to state income taxes, nondeductible expenses, and the tax impact of international operations.

There have been no material adjustments to liabilities for uncertain tax positions since December 31, 2023.

15. BUSINESS SEGMENTS

The Company has operating segments comprising three strategic business units consisting of EES, CSS and UBS. These operating segments are equivalent to the Company’s reportable segments. The Company’s chief operating decision maker evaluates the performance of its operating segments based on net sales, adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), and adjusted EBITDA margin percentage.

The Company incurs corporate costs primarily related to treasury, tax, information technology, legal and other centralized functions. The Company also has various corporate assets. Segment assets may not include jointly used assets, but segment results include depreciation expense or other allocations related to those assets. Interest expense and other non-operating items are either not allocated to the segments or reviewed on a segment basis. Corporate expenses and assets not directly identifiable with a reportable segment are reported in the tables below to reconcile the reportable segments to the consolidated financial statements.

The following tables set forth financial information by reportable segment for the periods presented:

The following table sets forth total assets by reportable segment for the periods presented:

(1)Total assets for Corporate primarily consist of cash and cash equivalents, deferred income taxes, property, buildings and equipment, capitalized cloud computing arrangement costs, operating lease assets, and pension assets.

The following table reconciles adjusted EBITDA by segment to income before income taxes, for the periods presented:

Note: Adjusted EBITDA and Adjusted EBITDA margin % provide indicators of the Company’s performance and its ability to meet debt service requirements. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization before other non-operating expenses (income) and non-cash stock-based compensation expense. Adjusted EBITDA margin % is calculated by dividing Adjusted EBITDA by net sales.

16. SUBSEQUENT EVENTS

On April 1, 2024, Wesco Distribution completed the sale of its WIS business for total consideration of approximately $338.3 million, adjusted from the base purchase price of $350.0 million for estimated net working capital, estimated closing cash, and estimated closing indebtedness. The Company expects to recognize a gain on sale in the range of $88.0 million to $108.0 million in the second quarter of 2024. Upon closing, Wesco Distribution entered into certain Transition Services Agreements (“TSAs”) under which Wesco Distribution agreed to provide transition services to the purchaser for approximately nine months. The Company does not expect the revenues associated with these TSAs to be material.