01—Abstract
Summary
Summary of the 10-K/A filed March 9, 2020. Cited figures are marked; the original filing is the authoritative source.
This Form 10-K/A amendment, filed March 9, 2020 by WESCO International, Inc., supplies Part III information (Items 10 through 14) on directors, executive officers, governance, executive compensation, security ownership, related-party transactions and auditor fees.
The financial statements are not included; the filing states they appear in the original Form 10-K filed February 24, 2020. The company reports record 2019 sales of $8.4 billiona, up 2.2%, and record diluted EPS of $5.14, up 7%. Operating cash flow was $234 million and free cash flow was $180 million, or 81% of net income.
Compensation disclosures show the 2019 short-term incentive paid no EBITDA-based payout (EBITDA of $411.5 millionb was 58.6% of target, against a $448.6 million target) and no free cash flow payout ($180.3 million, against a $220.2 million target). Performance shares for 2017 paid at 1.48 times target on the net income growth measure (7.4% three-year average growth) and nothing on relative TSR. Total stockholder return for 2019 was 24%.
Shareholders approved the say-on-pay vote with over 94% support. The CEO's 2019 total compensation was $6,642,192,c and the CEO pay ratio to the median employee was approximately 116 to 1. Governance details include a nine-member board, with eight directors determined to be independent.
John J. Engel serves as Chairman, President and CEO.
The filing also reports changes to the 2019 incentive design, including a move to 100% quantitative short-term incentive targets and a rise in the performance share weighting to 50%. PricewaterhouseCoopers LLP's fees were $2.2 milliond for 2019 and $2.3 million for 2018, and the filing reports no related-party transactions for 2019.
02—Key points
Key Highlights
- Record 2019 sales of $8.4 billion, up 2.2% compared to the prior year, and record diluted EPS of $5.14, up 7%.
- 2019 operating cash flow of $234 million and free cash flow of $180 million, or 81% of net income.
- Both 2019 short-term incentive metrics paid below target: EBITDA paid 58.6% of target and free cash flow paid 0%, with actual EBITDA of $411.5 million and free cash flow of $180.3 million.
- Total stockholder return of 24% for 2019; say-on-pay received support from over 94% of shares voted.
- CEO John J. Engel's 2019 total compensation was $6,642,192, and the CEO pay ratio was approximately 116 to 1 against a median employee compensation of $57,269.
- Starting in 2019, the short-term incentive is 100% based on quantitative measures and the performance share weighting rose from 30% to 50% in response to stockholder feedback.
- The Board has nine directors, eight of whom were determined independent in February 2020; PricewaterhouseCoopers LLP fees were $2.2 million for 2019 and $2.3 million for 2018, and no related-party transactions were reported for 2019.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Wesco International kept $0.03.
- Revenue$8.36B100.0%
- Cost of revenue−$6.78B81.1%
- Gross profit$1.58B18.9%
- Operating costs−$1.24B14.8%
- Operating income$346.2M4.1%
- Interest, other & tax−$122.8M1.5%
- Net income$223.4M2.7%
Where FY2019 revenue went
$8.36B- Cost of revenue: $6.78B, 81% of revenue
- SG&A: $1.17B, 14% of revenue
- Net income: $223.4M, 2.7% of revenue
- Other operating costs: $62.1M, 0.7% of revenue
- Interest, other & tax: $122.8M, 1.5% of revenue
Kept 2.7% as net incomeNet income $223.4M · 2.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2019filed March 9, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $8.36B$8.18B | +2.2% |
| Cost of Revenue | $6.78B$6.61B | +2.5% |
| Gross Profit | $1.58B$1.57B | +0.9% |
| SG&A Expenses | $1.17B$1.15B | +1.8% |
| Operating Income | $346.22M$352.44M | −1.8% |
| Net Income | $223.43M$227.34M | −1.7% |
| EPS (Basic) | $5.18$4.87 | +6.4% |
| EPS (Diluted) | $5.14$4.82 | +6.6% |
| Shares Outstanding (Basic) | 43.10M46.72M | −7.7% |
| Shares Outstanding (Diluted) | 43.49M47.20M | −7.9% |
05—Questions
Frequently Asked Questions
Did WESCO's executives earn their 2019 annual bonuses?
Only partially in one case and not at all in the other. The EBITDA component, weighted 75%, paid 58.6% of target, which the filing shows as below target. The free cash flow component, weighted 25%, paid 0% because actual free cash flow of $180.3 million was below the $187.2 million threshold. For CEO John J. Engel, the short-term incentive total was $617,058.
How did the long-term incentive program perform for the 2017 grants?
The 2017 performance shares were measured over the three years ended December 31, 2019. The net income growth measure reached 7.4% and paid 1.48 times target, while the relative TSR measure ranked at the 6th percentile against the 40th percentile threshold and paid nothing. The filing states that excluding three items from the calculation would have produced 32.7% growth instead of 7.4%.
What changed in executive pay practices after stockholder feedback?
Investors asked for more objective measures. For 2019, the short-term incentive target became 100% quantitative, down from 75% quantitative and 25% subjective, and the performance share weighting in the long-term incentive mix rose from 30% to 50%. Stockholders also received more disclosure about peer group selection, target setting and the independent compensation consultant, Meridian Compensation Partners.
What changes in leadership and board composition are disclosed?
Nelson J. Squires III was promoted to Senior Vice President and Chief Operating Officer effective October 1, 2019. Laura K. Thompson joined the board on October 1, 2019, and Sandra Beach Lin retired at the 2019 Annual Meeting. The filing also reports that David S. Schulz serves as Senior Vice President and Chief Financial Officer.
06—Continue