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ACQUISITIONS | 3 Months Ended
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Sep. 30, 2020
Business Combinations [Abstract] |
Business Combination Disclosure | Anixter International Inc. On June 22, 2020, WESCO completed its acquisition of Anixter International Inc. ("Anixter"), a Delaware corporation. 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. On June 23, 2020, Anixter merged with and into Anixter Inc., with Anixter Inc. surviving to become a wholly owned subsidiary of WESCO. The Company used the net proceeds from the issuance of senior unsecured notes, borrowings under its revolving credit and accounts receivable securitization facilities, 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 was 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 has afforded the Company the opportunity to digitize its business and expand its services portfolio and supply chain offerings. The total 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 consideration | 2,563,385 |
Common stock consideration | 313,512 |
Series A preferred stock consideration | 573,786 |
Fair value of equity consideration | 887,298 |
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 ASC 805, Business Combinations. Under the acquisition method of accounting, the 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 as Level 3 in the fair value hierarchy. Specifically, the fair values of the identified trademark and customer relationship intangible assets were estimated using the relief-from-royalty and multi-period excess earnings methods, respectively. Significant inputs used to value these identifiable intangible assets included projected revenues and expected operating margins, customer attrition rates, 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, "Goodwill and Intangible Assets". The resulting goodwill is primarily attributable to Anixter's workforce, significant cross-selling opportunities in additional geographies, enhanced scale, and other operational efficiencies. During the second quarter of 2021, the Company finalized its allocation of the purchase consideration to the respective fair values of assets acquired and liabilities assumed in the acquisition of Anixter. As the Company obtained additional information during the measurement period (one year from the acquisition date), it recorded adjustments to its preliminary estimates of fair value, which are presented in the table below. The net impact of these adjustments was an increase to goodwill of $13.4 million in the second quarter of 2021 and $16.4 million since the Company's initial estimate. The following table sets forth the allocation of the purchase consideration to the respective fair value of assets acquired and liabilities assumed for the acquisition of Anixter:
| Preliminary Fair Value Estimates |  | Measurement Period Adjustments |  | Final Purchase Price Allocation
Assets | (In thousands)
Cash and cash equivalents | $ | 103,463 |  |  | $ | — |  |  | $ | 103,463 |
Trade accounts receivable | 1,309,894 |  |  | (8,928) |  |  | 1,300,966 |
Other accounts receivable | 116,386 |  |  | — |  |  | 116,386 |
Inventories | 1,424,768 |  |  | (14,906) |  |  | 1,409,862 |
Prepaid expenses and other current assets | 53,462 |  |  | 14,202 |  |  | 67,664 |
Property, buildings and equipment | 215,513 |  |  | (3,792) |  |  | 211,721 |
Operating lease assets | 262,238 |  |  | 18,047 |  |  | 280,285 |
Intangible assets | 1,832,700 |  |  | 5,365 |  |  | 1,838,065 |
Goodwill | 1,367,981 |  |  | 16,356 |  |  | 1,384,337 |
Other assets | 114,258 |  |  | 25,589 |  |  | 139,847 |
Total assets | $ | 6,800,663 |  |  | $ | 51,933 |  |  | $ | 6,852,596 |
Liabilities |  |  |  |  |
Accounts payable | $ | 920,163 |  |  | $ | (1,239) |  |  | $ | 918,924 |
Accrued payroll and benefit costs | 69,480 |  |  | — |  |  | 69,480 |
Short-term debt and current portion of long-term debt | 13,225 |  |  | — |  |  | 13,225 |
Other current liabilities | 221,574 |  |  | 12,745 |  |  | 234,319 |
Long-term debt | 77,822 |  |  | (205) |  |  | 77,617 |
Operating lease liabilities | 200,286 |  |  | 17,017 |  |  | 217,303 |
Deferred income taxes | 392,165 |  |  | (15,111) |  |  | 377,054 |
Other noncurrent liabilities | 207,612 |  |  | 38,726 |  |  | 246,338 |
Total liabilities | $ | 2,102,327 |  |  | $ | 51,933 |  |  | $ | 2,154,260 |
Fair value of net assets acquired, including goodwill and intangible assets | $ | 4,698,336 |  |  | $ | — |  |  | $ | 4,698,336 |
The following table sets forth the identifiable intangible assets and their estimated weighted-average useful lives:
Identifiable Intangible Assets |  | Estimated Fair Value |  | Weighted-Average Estimated Useful Life in Years(1)
|  | (In thousands) |  |
Customer relationships |  | $ | 1,098,900 |  |  | 19
Trademarks |  | 735,000 |  |  | Indefinite
Non-compete agreements |  | 4,165 |  |  | 2
Total identifiable intangible assets |  | $ | 1,838,065 |  |  |
(1) During the three months ended December 31, 2020, the Company recorded measurement period adjustments to the estimated useful lives initially assigned to customer relationships, which resulted in income of $6.4 million. 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, 2021, the condensed consolidated statements of income include $2.5 billion and $7.0 billion of net sales, respectively, and $165.8 million and $437.3 million of income from operations, respectively, for Anixter. 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, $80.0 million and $98.4 million of income from operations for Anixter. For the three months ended September 30, 2021 and 2020, the Company incurred costs related to the Merger of $35.8 million and $14.2 million, respectively, which primarily consist of advisory, legal, integration, separation and other costs. For the nine months ended September 30, 2021 and 2020, such costs were $119.8 million and $92.1 million, respectively. These costs are included in selling, general and administrative expenses for all periods presented. 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 9, "Employee Benefit Plans", as well as the respective income tax effects of such adjustments. For the three and nine months ended September 30, 2020, adjustments totaling $1.3 million and $5.5 million, respectively increased 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 periods, nor is it necessarily indicative of future results of operations of the combined company.
| Three Months Ended |  | Nine Months Ended
(In thousands) | September 30, 2020 |  | September 30, 2020
Pro forma net sales(1) | $ | 4,141,801 |  |  | $ | 11,888,061 |
Pro forma net income attributable to common stockholders(1) | 66,651 |  |  | 112,717 |
(1) The Company reported pro forma net sales and pro forma net income attributable to common stockholders for the three and nine months ended September 30, 2020 in the Notes to Condensed Consolidated Financial Statements of its Quarterly Report on Form 10-Q for the period ended September 30, 2020 of $4,111.7 million and $11,802.5 million, respectively, and $63.8 million and $106.9 million, respectively. These amounts excluded the financial results of WESCO's legacy utility and data communications businesses in Canada, which were divested in the first quarter of 2021 under a Consent Agreement with the Competition Bureau of Canada, as described below. Canadian Divestitures 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 was required to divest certain legacy WESCO utility and data communications businesses in Canada. In February 2021, the Company completed such divestitures for cash consideration totaling $56.0 million. The Company recognized a net gain from the sale of these businesses of $8.9 million, which is reported as a component of selling, general and administrative expenses for the nine months ended September 30, 2021. These sales fulfilled the Company’s divestiture commitments under the Consent Agreement and the net cash proceeds were used to repay debt.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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