WESCO INTERNATIONAL INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - June 12, 2020

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Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information has been prepared to illustrate the estimated effects of the following transactions (collectively, the “Transactions”):


 •
the proposed acquisition of Anixter International Inc., a Delaware corporation (“Anixter”), by WESCO International, Inc., a Delaware corporation (“WESCO”), pursuant to the Agreement and Plan of Merger, dated as of January 10, 2020 (as it may be amended, modified or supplemented from time to time, the “Merger Agreement”), by and among WESCO, Anixter and Warrior Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of WESCO (“Merger Sub”), pursuant to which Merger Sub will be merged with and into Anixter (the “Merger”), with Anixter surviving the Merger as a wholly owned subsidiary of WESCO;


•
the offering by WESCO Distribution, Inc. (the “Issuer”), a wholly owned subsidiary of WESCO, of $1,500,000,000 senior notes due 2025 (the “5-Year Notes”) and $1,325,000,000 senior notes due 2028 (the “8 Year Notes” and, together with the 5 Year Notes, the “notes”), as described in the Current Report on Form 8-K to which this Exhibit is attached;


•
the refinancing of certain indebtedness of WESCO, including the replacement of WESCO’s existing asset-based revolving credit facility (the “Existing ABL Facility”) with a senior secured asset‑based revolving credit facility in aggregate principal amount of approximately $1.1 billion (the “New ABL Facility”), and the increase in WESCO’s borrowing capacity under its accounts receivable securitization facility (the “Receivables Facility”) by $375 million to $975 million; and


•
the refinancing of certain existing indebtedness of Anixter contemplated by the Merger Agreement, including financing the satisfaction and discharge, defeasance, redemption or other repayment in full of Anixter Inc.’s 5.125% Senior Notes due 2021 (the “Anixter 2021 Notes”), and financing any amounts payable in connection with the consent solicitations and tender offers in respect of Anixter Inc.’s 5.50% Senior Notes due 2023 (the “Anixter 2023 Notes”) and Anixter Inc.’s 6.00% Senior Notes due 2025 (the “Anixter 2025 Notes”).

Under the terms of the Merger Agreement, at the effective time of the Merger, each share of Anixter common stock will be converted into the right to receive (i) $70.00 in cash, without interest, subject to adjustment as set forth in the Merger Agreement and as further described below (the “cash consideration”), (ii) 0.2397 shares of WESCO common stock, subject to adjustment as set forth in the Merger Agreement and as further described below (the “common stock consideration”) and (iii) 0.6356 depositary shares, each representing a 1/1,000th interest in a share of newly issued WESCO Series A fixed‑rate reset cumulative perpetual preferred stock, $25,000 stated amount per whole preferred share (the “WESCO Series A preferred stock”), subject to adjustment as set forth in the Merger Agreement and as further described below (the “preferred stock consideration” and, together with the cash consideration and the common stock consideration, the “Merger Consideration”), in each case, less any applicable withholding taxes.

The Merger Agreement provides for downside protection for the value of WESCO common stock, such that if the average of the volume‑weighted trading prices of WESCO common stock on the NYSE during the 10 consecutive trading days ending three days prior to the effective time of the Merger, subject to adjustment as set forth in the Merger Agreement (the “average WESCO stock price”), is less than $58.88, the closing price of WESCO common stock on the NYSE on January 2, 2020, but greater than $47.10, the amount of the cash consideration will be increased to offset the decline in the value of the common stock consideration below $58.88, up to a maximum cash increase of $2.82 per share of Anixter common stock. If the average WESCO stock price is less than $47.10, Anixter stockholders will not receive the benefit of additional downside protection above the $2.82 of additional cash consideration.

The Merger Agreement also provides that WESCO may elect to substitute additional cash consideration to reduce the preferred stock consideration on a dollar‑for‑dollar basis (valuing the preferred stock consideration for this purpose based on the value of the liquidation preference of the underlying WESCO Series A preferred stock). WESCO may not, however, reduce the preferred stock consideration if the aggregate face amount of the preferred stock consideration issued would be less than $100 million, unless the preferred stock consideration issued is reduced to zero. As of the date of this offering memorandum, WESCO has not made any determination to reduce the amount of the preferred stock consideration.

Additionally, the Merger Agreement provides that the common stock consideration may be reduced and the cash consideration increased, in each case, to the minimum extent necessary to ensure that the issuance of WESCO common stock at closing does not exceed 19.9% of the issued and outstanding shares of WESCO common stock immediately prior to the effective time.

1
The unaudited pro forma condensed combined financial information was derived from the following items:


 •
the audited consolidated financial statements of WESCO for the year ended December 31, 2019, incorporated by reference in this offering memorandum;


•
the unaudited consolidated financial statements of WESCO for the three months ended March 31, 2020, incorporated by reference in this offering memorandum;


•
the audited consolidated financial statements of Anixter for the year ended January 3, 2020, incorporated by reference in this offering memorandum; and


•
the unaudited consolidated financial statements of Anixter for the three months ended April 3, 2020, incorporated by reference in this offering memorandum.

The unaudited pro forma condensed combined statement of income for the twelve-month period ended March 31, 2020 has been calculated by (1) adding the unaudited pro forma financial data for the year ended December 31, 2019 and the unaudited pro forma financial data for the three months ended March 31, 2020 and (2) then subtracting the unaudited pro forma financial data for the three months ended March 31, 2019. The unaudited pro forma condensed combined statement of income has been adjusted to give effect to the Transactions as if they occurred on January 1, 2019, the first day of WESCO’s 2019 fiscal year. The unaudited pro forma condensed combined balance sheet has been adjusted to give effect to the Transactions as if they occurred on March 31, 2020.

The pro forma adjustments are based on the information available and certain assumptions that management believes are reasonable under the circumstances. The assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements.

The Merger has been accounted for as a business combination with WESCO acquiring Anixter in accordance with Accounting Standards Codification (“ASC”) 805 Business Combinations. Under the acquisition method of accounting, the acquisition date fair value will be allocated to the identified assets acquired and liabilities assumed based on their respective fair market value, with any excess allocated to goodwill.

The allocation of the purchase price used in the unaudited pro forma condensed combined financial information is based on preliminary estimates. The estimates and assumptions are subject to change at the effective time of the Merger. The final determination of the allocation of the purchase price will be based on the identification of Anixter’s assets acquired and liabilities assumed and their respective assigned fair values as of the effective time of the Merger.

WESCO estimated the fair value of Anixter’s assets and liabilities based on discussions with Anixter’s management, preliminary valuation studies and financial due diligence. Accordingly, the final purchase accounting adjustments may be materially different from the preliminary unaudited adjustments presented herein.

The unaudited pro forma condensed combined financial information is presented for illustrative and informative purposes only and is not intended to represent or be indicative of what WESCO’s results of operations and financial position would have been had the Transactions actually occurred on the dates indicated, and it is neither representative of nor projects WESCO’s results of operations for any future period or WESCO’s financial condition at any future date. See “Risk Factors—Risks Related to Our Business and the Merger—The combined company’s future results may differ materially from the unaudited pro forma financial results that we have disclosed.” The unaudited pro forma condensed combined financial information should be read in conjunction with Anixter’s and WESCO’s audited and unaudited financial statements and the accompanying notes incorporated by reference in this offering memorandum, as well as the other financial information included and incorporated by reference herein.

2
WESCO INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2020
(in thousands)

   
WESCO
Historical
    
Anixter
Historical
(as of April 3,
2020)
    
Pro Forma
Merger
Adjustments
(Note 3)
      
Funding of the
Merger (Note 3)
      
WESCO
Combined Pro
Forma
  
Assets
                                  
Current assets:
                                  
Cash and cash equivalents
  
$
342,560
    
$
282,032
    
$
(4,037,959
)
(a)
  
$
3,618,226
  
(a)
  
$
204,859
  
Trade accounts receivable, net
    
1,214,331
      
1,532,998
      
-
        
-
        
2,747,329
  
Other accounts receivable
    
77,691
      
-
      
-
        
-
        
77,691
  
Inventories
    
950,521
      
1,365,155
      
133,245
  
(b)
    
-
        
2,448,921
  
Prepaid expenses and other current assets
    
192,375
      
52,266
      
(100,000
)
(c)
    
-
        
144,641
  
Total current assets
    
2,777,478
      
3,232,451
      
(4,004,714
)
      
3,618,226
        
5,623,441
  
Property, buildings and equipment, net
    
183,997
      
174,755
      
-
        
-
        
358,752
  
Operating lease assets
    
271,602
      
263,539
      
-
        
-
        
535,141
  
Intangible assets, net
    
267,628
      
342,943
      
1,142,057
  
(d)
    
-
        
1,752,628
  
Goodwill
    
1,717,963
      
809,964
      
749,529
  
(e)
    
-
        
3,277,456
  
Other assets
    
12,288
      
126,838
      
(9,274
)
(f)
    
-
        
129,852
  
Total assets
  
$
5,230,956
    
$
4,950,490
    
$
(2,122,402
)
    
$
3,618,226
      
$
11,677,270
  
Liabilities and Equity
                                            
Current liabilities:
                                            
Accounts payable
  
$
804,330
    
$
1,104,759
    
$
-
      
$
-
      
$
1,909,089
  
Accrued payroll and benefit costs
    
28,940
      
-
      
52,931
  
(g)
    
-
        
81,871
  
Short-term debt
    
24,097
      
-
      
-
        
-
        
24,097
  
Current portion of long-term debt, net
    
379
      
-
      
-
        
-
        
379
  
Bank overdrafts
    
13,951
      
-
      
-
        
-
        
13,951
  
Other current liabilities
    
168,808
      
316,087
      
(59,229
)
(h)
    
-
        
425,666
  
Total current liabilities
    
1,040,505
      
1,420,846
      
(6,298
)
      
-
        
2,455,053
  
Long-term debt, net
    
1,542,602
      
1,316,835
      
(1,350,800
)
(i)
    
3,618,226
  
(a)
    
5,126,863
  
Operating lease liabilities
    
213,172
      
209,226
      
-
        
-
        
422,398
  
Deferred income taxes
    
146,977
      
5,098
      
275,041
  
(j)
    
-
        
427,116
  
Other noncurrent liabilities
    
85,574
      
165,145
      
532
  
(k)
    
-
        
251,251
  
Total liabilities
  
$
3,028,830
    
$
3,117,150
    
$
(1,081,525
)
    
$
3,618,226
      
$
8,682,681
  
                                             
Stockholders’ equity:
                                            
Preferred stock, at par value
  
$
-
    
$
-
    
$
-
  
(l)
  
$
-
      
$
-
  
Common stock, at par value
    
594
      
34,386
      
(34,304
)
(l)
    
-
        
676
  
Class B non-voting convertible common stock, at par value
    
43
      
-
      
-
        
-
        
43
  
Additional capital
    
1,041,637
      
311,076
      
558,223
  
(l)
    
-
        
1,910,936
  
Retained earnings
    
2,565,597
      
1,819,496
      
(1,896,414
)
(l)
    
-
        
2,488,679
  
Treasury stock
    
(937,078
)
    
-
      
-
        
-
        
(937,078
)
Accumulated other comprehensive loss
    
(461,623
)
    
(331,618
)
    
331,618
  
(l)
    
-
        
(461,623
)
Total stockholders’ equity
    
2,209,170
      
1,833,340
      
(1,040,877
)
      
-
        
3,001,633
  
Non-controlling interests
    
(7,044
)
    
-
      
-
        
-
        
(7,044
)
Total equity
    
2,202,126
      
1,833,340
      
(1,040,877
)
      
-
        
2,994,589
  
Total liabilities and stockholders’ equity
  
$
5,230,956
    
$
4,950,490
    
$
(2,122,402
)
    
$
3,618,226
      
$
11,677,270
  

See accompanying “Notes to Unaudited Pro Forma Condensed Combined Financial Information”

3
WESCO INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(in thousands, except per share amounts)

   
WESCO
Historical
    
Anixter
Historical
(Three
Months
Ended April
3, 2020)
    
Pro Forma
Merger
Adjustments
(Note 3)
        
Funding of
the Merger
(Note 3)
      
WESCO
Combined
Pro Forma
  
Net sales
  
$
1,968,647
    
$
2,071,662
    
$
-
        
$
-
      
$
4,040,309
  
Cost of goods sold (excluding depreciation and amortization)
    
1,592,249
      
1,655,284
      
-
          
-
        
3,247,533
  
Selling, general and administrative expenses
    
299,392
      
327,900
      
(6,883
)
(m,n)

   
-
        
620,409
  
Depreciation and amortization
    
16,093
      
17,072
      
10,891
  
(o)
      
-
        
44,056
  
Income from operations
    
60,913
      
71,406
      
(4,008
)
        
-
        
128,311
  
Net interest and other
    
16,472
      
23,412
      
(15,402
)
(p)
      
57,732
  
(p)
    
82,214
  
Income before income taxes
    
44,441
      
47,994
      
11,394
          
(57,732
)
      
46,097
  
Provision for income taxes
    
10,266
      
12,327
      
1,767
  
(q)
      
(14,618
)
(q)
    
9,742
  
Net income
    
34,175
      
35,667
      
9,627
          
(43,114
)
      
36,355
  
Less: Net loss attributable to non-controlling interests
    
(232
)
    
-
      
-
          
-
        
(232
)
Net income attributable to common stockholders
    
34,407
      
35,667
      
9,627
          
(43,114
)
      
36,587
  
Preferred dividends
    
-
      
-
      
14,351
  
(r)
      
-
        
14,351
  
Income applicable to common stockholders
  
$
34,407
    
$
35,667
    
$
(4,724
)
      
$
(43,114
)
    
$
22,236
  
                                               
Basic earnings per common share (s)
  
$
0.82
                                      
$
0.44
  
Diluted earnings per share (s)
  
$
0.82
                                      
$
0.44
  
Weighted average number of common shares outstanding:
                                              
Basic
    
41,837
                                    
49,987
  
Diluted
    
42,075
                                    
50,225
  

See accompanying “Notes to Unaudited Pro Forma Condensed Combined Financial Information”

4
WESCO INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2019
(in thousands, except per share amounts)

   
WESCO
Historical
    
Anixter
Historical
(Year Ended
January 3,
2020)
    
Pro Forma
Merger
Adjustments
(Note 3)
        
Funding of
the Merger
(Note 3)
      
WESCO
Combined
Pro Forma
  
Net sales
  
$
8,358,917
    
$
8,845,555
    
$
-
        
$
-
      
$
17,204,472
  
Cost of goods sold (excluding depreciation and amortization)
    
6,777,456
      
7,069,768
      
-
          
-
        
13,847,224
  
Selling, general and administrative expenses
    
1,173,137
      
1,336,005
      
(8,582
)
(m,n)

   
-
        
2,500,560
  
Depreciation and amortization
    
62,107
      
72,249
      
42,952
  
(o)
      
-
        
177,308
  
Income from operations
    
346,217
      
367,533
      
(34,370
)
        
-
        
679,380
  
Net interest and other
    
64,156
      
74,125
      
(70,663
)
(p)
      
229,333
  
(p)
    
296,951
  
Income before income taxes
    
282,061
      
293,408
      
36,293
          
(229,333
)
      
382,429
  
Provision for income taxes
    
59,863
      
30,464
      
5,874
  
(q)
      
(57,921
)
(q)
    
38,280
  
Net income
    
222,198
      
262,944
      
30,419
          
(171,412
)
      
344,149
  
Less: Net loss attributable to non-controlling interests
    
(1,228
)
    
-
      
-
          
-
        
(1,228
)
Net income attributable to common stockholders
    
223,426
      
262,944
      
30,419
          
(171,412
)
      
345,377
  
Preferred dividends
    
-
      
-
      
57,404
  
(r)
      
-
        
57,404
  
Income applicable to common stockholders
  
$
223,426
    
$
262,944
    
$
(26,985
)
      
$
(171,412
)
    
$
287,973
  
                                               
Basic earnings per common share (s)
  
$
5.18
                                      
$
5.62
  
Diluted earnings per share (s)
  
$
5.14
                                      
$
5.58
  
Weighted average number of common shares outstanding:
                                              
Basic
    
43,104
                                    
51,254
  
Diluted
    
43,487
                                    
51,637
  

See accompanying “Notes to Unaudited Pro Forma Condensed Combined Financial Information”

5

WESCO INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 2020
(in thousands, except per share amounts)

   
WESCO
Historical
    
Anixter
Historical
(Twelve
Months
Ended April
3, 2020)
    
Pro Forma
Merger
Adjustments
(Note 3)
        
Funding of
the Merger
(Note 3)
      
WESCO
Combined
Pro Forma
  
Net sales
  
$
8,366,297
    
$
8,808,716
    
$
-
        
$
-
      
$
17,175,013
  
Cost of goods sold (excluding depreciation and amortization)
    
6,790,934
      
7,035,489
      
-
          
-
        
13,826,423
  
Selling, general and administrative expenses
    
1,176,001
      
1,337,623
      
(17,061
)
(m,n)

   
-
        
2,496,563
  
Depreciation and amortization
    
62,958
      
71,260
      
43,156
  
(o)
      
-
        
177,374
  
Income from operations
    
336,404
      
364,344
      
(26,095
)
        
-
        
674,653
  
Net interest and other
    
63,508
      
78,987
      
(67,270
)
(p)
      
229,940
  
(p)
    
305,165
  
Income before income taxes
    
272,896
      
285,357
      
41,175
          
(229,940
)
      
369,488
  
Provision for income taxes
    
58,473
      
25,811
      
6,011
  
(q)
      
(58,005
)
(q)
    
32,290
  
Net income
    
214,423
      
259,546
      
35,164
          
(171,935
)
      
337,198
  
Less: Net loss attributable to non-controlling interests
    
(1,041
)
    
-
      
-
          
-
        
(1,041
)
Net income attributable to common stockholders
    
215,464
      
259,546
      
35,164
          
(171,935
)
      
338,239
  
Preferred dividends
    
-
      
-
      
57,404
  
(r)
      
-
        
57,404
  
Income applicable to common stockholders
  
$
215,464
    
$
259,546
    
$
(22,240
)
      
$
(171,935
)
    
$
280,835
  
                                               
Basic earnings per common share (s)
  
$
5.09
                                      
$
5.57
  
Diluted earnings per share (s)
  
$
5.06
                                      
$
5.53
  
Weighted average number of common shares outstanding:
                                              
Basic
    
42,304
                                    
50,454
  
Diluted
    
42,617
                                    
50,767
  

See accompanying “Notes to Unaudited Pro Forma Condensed Combined Financial Information”

6
Notes to Unaudited Pro Forma Condensed Combined Financial Information

NOTE 1:  Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial information has been prepared from the respective historical consolidated information of WESCO and Anixter, and reflects adjustments to the historical information using the guidance in Article 11 of Regulation S-X of the Exchange Act using the acquisition method of accounting, as defined by ASC 805, and using the fair value concepts as defined in ASC 820 Fair Value Measurement. As a result, WESCO will record the business combination in its consolidated financial statements and will apply the acquisition method to account for Anixter’s assets acquired and liabilities assumed upon completion of the Merger. The acquisition method requires the recording of identifiable assets acquired and liabilities assumed at their fair values on the acquisition date, and the recording of goodwill for the excess of the purchase price over the aggregate fair value of the identifiable assets acquired and liabilities assumed. In addition, ASC 805 requires that, at the date of the Merger, the consideration transferred be measured at its then-current fair value.

The unaudited pro forma condensed combined financial information is not necessarily indicative of what WESCO’s financial position or results of operations would have been had the Merger and the other Transactions been consummated on the date indicated, nor is it necessarily indicative of what the financial position or results of operations of the combined company will be in future periods. The historical financial information has been adjusted to give effect to estimated pro forma events that are directly attributable to the Merger and the other Transactions, factually supportable and, with respect to the unaudited pro forma condensed combined statement of income, expected to have a continuing impact on the combined results of operations.  Additionally, the preliminary unaudited pro forma condensed combined financial information does not reflect the cost of any integration activities or benefits that may result from potential revenue enhancements, anticipated cost savings and expense efficiencies or other synergies that may be achieved in the Merger or any strategies that management may consider in order to continue to efficiently manage WESCO’s operations.

To prepare the unaudited pro forma condensed combined financial information, WESCO adjusted Anixter’s assets and liabilities to their estimated fair values based on preliminary valuation procedures performed. As of the date of this offering memorandum, WESCO has not completed the detailed valuation procedures necessary to finalize the required estimated fair values and lives of Anixter’s assets to be acquired and liabilities to be assumed and the related allocation of the purchase price. The final valuation and related allocation of the purchase price will be determined after the transaction is completed. Accordingly, the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments. Also, as of the date of this offering memorandum, certain reclassifications have been made to align Anixter presentation with that of WESCO. Furthermore, WESCO has not as yet completed its review of Anixter’s accounting policies/ presentation and as such may not have identified all adjustments and further reclassifications necessary to conform Anixter’s accounting and presentation with that of WESCO. As a result of this review, the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments.

Accounting Periods Presented

WESCO and Anixter have different fiscal years. WESCO’s fiscal year ends on December 31, whereas Anixter’s fiscal year ends on the Friday nearest December 31, with the fiscal quarters spanning thirteen weeks and the first quarter ending on the Friday of the first thirteen-week period. The unaudited pro forma condensed combined balance sheet and statement of income have been prepared utilizing period ends that differ by less than 93 days, as permitted by Rule 11-02 of Regulation S-X of the Exchange Act.

The unaudited pro forma condensed combined balance sheet as of March 31, 2020 has been prepared as if the Transactions occurred on March 31, 2020 and combines WESCO’s balance sheet as of March 31, 2020 with Anixter’s balance sheet as of April 3, 2020.  The unaudited pro forma condensed combined statement of income for the three months ended March 31, 2020, the year ended December 31, 2019 and for the twelve months ended March 31, 2020 have been prepared as if the Transactions occurred on January 1, 2019, the first day of WESCO’s 2019 fiscal year; and combines the historical results of WESCO for the three months ended March 31, 2020, the fiscal year ended December 31, 2019 and the twelve months ended March 31, 2020 with the historical results of Anixter for the three months ended April 3, 2020, the fiscal year ended January 3, 2020 and the twelve months ended April 3, 2020, respectively.

NOTE 2: Calculation of Estimated Purchase Consideration and Preliminary Purchase Price Allocation

The preliminary estimated fair value of purchase consideration to be transferred on the closing date of the Merger is comprised of (i) total cash consideration, which includes cash to be paid to Anixter stockholders for the issued and outstanding shares of Anixter common stock, cash settlement of vested equity awards, fair value of estimated Anixter RSUs vested prior to closing and the repayment of certain preexisting Anixter obligations described below, and (ii) shares of WESCO common stock and depositary shares representing an interest in the WESCO Series A preferred stock. Estimated purchase consideration of approximately $4.8 billion is based on WESCO’s closing share price of $40.38 on June 8, 2020. The value of the purchase consideration will change based on fluctuations in the share price of WESCO’s common stock and Series A preferred stock and the number of common shares of Anixter outstanding on the closing date.

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The following table summarizes the components of the estimated purchase consideration:

in thousands, except for per share amounts and exchange ratio
      
Estimated shares of Anixter common stock outstanding (i)
    
34,002
  
Cash consideration (per share of common stock) (ii)
  
$
72.82
  
Estimated cash portion attributable to common stock outstanding
  
$
2,476,010
  
         
Estimated number of Anixter options eligible for Merger Consideration (iii)
    
201
  
Cash consideration (per Anixter share) of Merger Consideration value less weighted average exercise price (iv)
  
$
36.12
  
Estimated cash portion attributable to outstanding Anixter options
  
$
7,250
  
         
Estimated number of Anixter restricted stock units eligible for Merger Consideration (v)
    
817
  
Cash consideration (per Anixter share) of Merger Consideration value
  
$
98.39
  
Estimated cash portion attributable to outstanding restricted stock units
  
$
80,364
  
         
Fair value of estimated cash consideration for Anixter equity
  
$
2,563,624
  
         
Estimated shares of Anixter common stock outstanding (i)
    
34,002
  
Exchange ratio (per share of Anixter common stock)
    
0.2397
  
Estimated total shares of WESCO common stock to be issued
    
8,150
  
Assumed share price of WESCO common stock (vi)
  
$
40.38
  
Estimated common stock portion
  
$
329,106
  
         
Estimated total shares of WESCO Series A preferred stock to be issued (vii)
    
22
  
Assumed share price of WESCO Series A preferred stock
  
$
25,000
  
Estimated WESCO Series A preferred stock portion
  
$
540,275
  
         
Fair value of estimated equity consideration
  
$
869,381
  
         
Fair value of estimated Anixter RSUs vested prior to closing (viii)
  
$
532
  
         
Total estimated consideration pre-settlement obligations
  
$
3,433,537
  
         
Add: Extinguishment of the following Anixter obligations ("Anixter obligations"), including accrued and unpaid interest:
        
CD&R termination fee (ix)
  
$
100,000
  
Extinguishment of Anixter 2021 Notes and partial retirement of the Anixter 2023 Notes and Anixter 2025 Notes (x)
    
972,390
  
Extinguishment of Anixter existing receivables facility (xi)
    
310,000
  
Extinguishment of finance lease obligations and other debt (xii)
    
19,499
  
Total estimated purchase consideration
  
$
4,835,426
  

(i)
Represents outstanding shares of Anixter common stock as of June 8, 2020.
(ii)
Represents the cash consideration related to Anixter common stock calculated, with respect to each share of Anixter common stock, as the sum of the base cash amount of $70 plus the cash collar adjustment amount of $2.82. The cash collar adjustment amount is triggered if the average of the volume-weighted trading prices of WESCO common stock on the NYSE during the 10 consecutive trading days ending three trading days prior to the effective time falls between $47.10 and $58.88. For purposes of calculating the pro forma information WESCO has taken the closing price of its stock as of June 8, 2020 which was below $47.10. As such the cash collar adjustment amount is $2.82.
(iii)
Represents outstanding Anixter options as of June 8, 2020.
(iv)
Represents the cash consideration related to Anixter options calculated with respect to each Anixter option outstanding, a Merger Consideration value of $98.39, less the weighted average exercise price of $62.27.
(v)
Represents Anixter’s outstanding restricted stock units as of June 8, 2020 that are subject to a change of control provision.
(vi)
Represents the closing price of shares of WESCO common stock on June 8, 2020, which was used as a proxy for the average WESCO common stock price.
(vii)
Represents 0.6356 depositary shares for each common share outstanding, with each whole depositary share representing a 1/1,000th interest in a share of WESCO Series A preferred stock with a liquidation preference of $25,000 per preference share.
(viii)
Represents the estimated portion of the replacement WESCO phantom stock units issued to Anixter’s employees that is attributable to pre-Merger service.
(ix)
Represents the total cash settlement paid by WESCO to terminate Anixter’s merger agreement with affiliates of Clayton, Dubilier & Rice (“CD&R”).
(x)
Represents the total cash settlement to extinguish the Anixter 2021 Notes and the cash paid to partially retire the Anixter 2023 Notes and the Anixter 2025 Notes pursuant to the WESCO Tender Offers. The amount represents the principal amounts to be settled/retired, plus accrued interest, the early tender premium and fees paid.
(xi)
Represents the total cash settlement to extinguish Anixter’s existing receivables facility. The amount represents the total outstanding principal amount and accrued and unpaid interest.
(xii)
Represents the total cash settlement to extinguish Anixter finance lease obligations and other debt.

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Purchase Price Sensitivity

Should the assumed share price of the WESCO common stock increase or decrease by 30%, the total estimated purchase price would increase to $4.9 billion or decrease to $4.7 billion, respectively. For the purposes of this calculation, the common stock portion of the estimated purchase price is based on the number of shares of Anixter common stock outstanding and the estimated shares underlying Anixter stock-based awards, in each case reflected in the table above, but is subject to change based on the outstanding shares of Anixter common stock and Anixter stock-based awards at the time of the closing of the Merger. Should the share price of the WESCO Series A preferred stock increase or decrease by 30%, the total estimated purchase price would increase or decrease by $162.1 million. Changes in the purchase price would result in a re-evaluation of the preliminary purchase price allocation.

Preliminary Purchase Price Allocation

The preliminary allocation of the estimated purchase price to the assets acquired and liabilities assumed includes adjustments for the fair value of Anixter’s assets and liabilities. The final allocation will be determined as of the closing of the Merger once WESCO has determined the final purchase price and completed the detailed valuation analysis. The final allocation could differ materially from the preliminary allocation used in the unaudited condensed combined financial information and related pro forma adjustments. The following table summarizes the allocation of the preliminary estimated purchase price:

in thousands
  
As of
March 31, 2020
  
Fair value of assets acquired:
      
Cash and cash equivalents
  
$
282,032
  
Trade accounts receivable
    
1,532,998
  
Inventories
    
1,498,400
  
Other current assets
    
52,266
  
Property and equipment
    
174,755
  
Operating lease assets
    
263,539
  
Intangible assets
    
1,485,000
  
Other non-current assets
    
117,564
  
Amount attributable to assets acquired
  
$
5,406,554
  

in thousands
  
As of
March 31, 2020
  
Fair value of liabilities assumed:
      
Current liabilities
  
$
1,412,129
  
Long term debt
    
63,982
  
Non-current lease liabilities
    
209,226
  
Deferred income taxes
    
280,139
  
Other Non-current liabilities
    
165,145
  
Amount attributable to liabilities assumed
  
$
2,130,621
  
         
Fair value of net assets acquired
  
$
3,275,933
  
Goodwill as of March 31, 2020
    
1,559,493
  
Total estimated purchase price
  
$
4,835,426
  

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Anixter’s preliminary identifiable intangible assets and their estimated useful lives consist of the following:

Identifiable Intangible Assets
  
Weighted
Average
Estimated Useful
Life in Years
    
Estimated Fair
Value
  
             
Customer relationships
    
20
    
$
1,260,000
  
Trademark
    
15
      
225,000
  
           
$
1,485,000
  

WESCO has not yet determined the fair value of the property and equipment acquired; therefore carrying value has been used in the preliminary purchase price allocation and in the pro forma financial information.

The deferred tax liabilities included in other non-current liabilities above represent the deferred tax impact associated with the incremental difference in book and tax basis created from the preliminary purchase price allocation. WESCO has estimated that the fair value adjustment to increase deferred tax liabilities, net would be $284.3 million. This assumes the estimated blended statutory tax rate of approximately 24.5% for the combined company.

The effective tax rate of the combined company could be significantly different (either higher or lower) depending on the post-acquisition activities, including repatriation decisions, cash needs and the geographical mix of taxable income. The estimate is preliminary and subject to change based upon the final determination of fair value of the identifiable assets and liabilities.

Goodwill is calculated as the difference between the acquisition date fair value of the consideration expected to be transferred and the values assigned to the identified assets to be acquired and liabilities assumed. Goodwill recognized in the Merger is not expected to be deductible for tax purposes.

NOTE 3: Pro Forma Adjustments

The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All taxable adjustments were calculated using a 24.5% blended statutory tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.

a)
Reflects the use of the combined company cash balances, after reflecting the debt financing used to fund a portion of the estimated purchase consideration (including the proceeds from this offering and borrowings under the New ABL Facility and the Receivables Facility). Additionally, WESCO’s debt issuance costs, both WESCO and Anixter’s transaction costs, and WESCO and Anixter’s debt instruments extinguished concurrent with the closing of the Merger are included in the net cash outflow.

Cash inflow related to the Merger

The pro forma adjustments assume that the funding anticipated to be received to effectuate the Merger consists of debt financing of approximately $3.6 billion, net of issuance costs of $119.9 million. This amount may be reduced by available cash flow from operations. WESCO anticipates issuing $2.8 billion in senior unsecured notes to partially fund the Merger, as further described in this offering memorandum. The remaining debt financing will be a mix of funds borrowed under the New ABL Facility and the Receivables Facility.

Cash outflow related to the Merger

The portion of the Merger Consideration anticipated to be paid in cash of $4.0 billion represents: $3.9 billion of cash consideration paid for shares of Anixter common stock, Anixter options and restricted stock units and the settlement of certain Anixter obligations; $100.0 million to extinguish the Existing ABL Facility; $61.5 million of transaction costs anticipated to be incurred and paid by WESCO and Anixter at close; and $10.9 million in payments to Anixter named executive officers due to the change of control.

b)
Reflects the step-up in inventory to fair value of approximately $133.2 million. The preliminary fair value adjustment related to inventory acquired was not included in the pro forma adjustments related to the cost of goods sold in the unaudited pro forma condensed combined statement of income as there is no continuing impact on operations of the combined business.

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c)
Reflects the elimination of the termination fee paid by WESCO on Anixter’s behalf from prepaid expenses and other current assets in order to reflect the amount as part of the purchase price consideration transferred to CD&R in connection with the termination of Anixter’s merger agreement with CD&R.

d)
Reflects the preliminary estimate of fair value of identifiable intangible assets acquired in the amount of $1.5 billion and the elimination of intangible assets associated with Anixter in the amount of $342.9 million.

e)
Reflects the pro forma adjustment for the goodwill arising from the Merger in the amount of $1.6 billion and the elimination of goodwill associated with Anixter in the amount of $810.0 million.

f)
Reflects the offset of $9.3 million against deferred tax liabilities associated with fair value adjustments.

g)
Reflects the pro forma reclassifications of accrued payroll and benefit costs of $52.9 million from other current liabilities.

h)
Reflects the pro forma adjustments to other current liabilities which includes:


i.
Reclassification of accrued payroll and benefit costs in the amounts of $52.9 million;


ii.
An accrual of transaction costs of $19.5 million anticipated to be incurred;


iii.
Removal of accrued interest of $8.7 million related to the partial retirement of the Anixter 2023 Notes and the Anixter 2025 Notes; and


iv.
Reduction of current tax liabilities of $17.1 million related to tax deductible transaction costs estimated to be incurred after March 31, 2020 and change of control bonus to be paid to named executive officers as part of the closing of the Merger.

i)
Reflects the pro forma adjustments to non-current long-term debt which includes:


i.
Extinguishment of the Anixter 2021 Notes, the partial retirement of the Anixter 2023 Notes and the Anixter 2025 Notes and Anixter’s receivables facility totaling $1.3 billion; associated unamortized debt issuance costs of $10.2 million; and fair value adjustment to assumed debt of $1.2 million; and


ii.
Extinguishment of WESCO’s Existing ABL Facility totaling $100.0 million and associated unamortized debt issuance costs of $2.1 million.

j)
Reflects the adjustment to deferred tax liabilities, net based on the estimated statutory tax rate for the combined entity multiplied by the fair value adjustments made to assets acquired and liabilities assumed, as calculated below:

in thousands
  
As of
March 31,
2020
  
Fair value adjustment to increase Anixter’s inventories
  
$
133,245
  
Fair value adjustment to increase Anixter’s intangible assets, net
    
1,142,057
  
Elimination of the tax deductible component of Anixter historical goodwill
    
(114,832
)
   
$
1,160,470
  
Estimated statutory domestic tax rate for the combined entity
    
24.5
%
   
$
284,315
  
Less reclassification of Anixter deferred tax asset
    
(9,274
)
   
$
275,041
  

k)
Reflects the estimated fair value portion of the replacement WESCO phantom stock units issued to Anixter’s employees at the time of closing attributable to pre-Merger services to be settled at the completion of the vesting period in cash.
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Reflects the adjustments to eliminate Anixter’s historical equity balances, record estimated purchase price at fair value and reflect the issuance of depositary shares representing an interest in WESCO Series A preferred stock and shares of WESCO common stock:

in thousands
  
As of
March 31, 2020
  
Estimated stock portion of purchase price:
      
WESCO common stock, $0.01 per share par value, expected to be issued in the Merger
  
$
82
  
WESCO Series A preferred stock, $25,000 stated amount per whole share, expected to be issued in the Merger
    
-
  
Adjustment to additional capital in excess of par value for common and WESCO Series A preferred stock expected to be issued in the Merger
    
869,299
  
Estimated stock portion of purchase price
  
$
869,381
  
         
Common stock issued for Merger Consideration and elimination of Anixter historical equity balances:
        
WESCO common stock expected to be issued  in the Merger
  
$
82
  
Elimination of Anixter’s historical common stock
    
(34,386
)
Pro forma adjustment to common stock
  
$
(34,304
)
         
Additional paid in capital arising from the Merger:
        
Adjustment to additional capital in excess of par value for common and WESCO Series A preferred stock expected to be issued in the Merger
  
$
869,299
  
Elimination of Anixter historical capital surplus
    
(311,076
)
Pro forma adjustment to additional capital in excess of par value
  
$
558,223
  
         
Retained earnings:
        
Retained earnings impact for estimated Merger-related transaction costs, net of tax
  
$
(66,647
)
Retained earnings impact for change in control bonuses vested at close, net of tax
    
(8,218
)
Removal of deferred financing fees on WESCO’s Existing ABL Facility
    
(2,053
)
Elimination of Anixter historical retained earnings
    
(1,819,496
)
Pro forma adjustment to retained earnings
  
$
(1,896,414
)
         
Elimination of Anixter historical accumulated other comprehensive loss
  
$
331,618
  

l)
In connection with the Merger Agreement, Anixter may grant restricted stock unit equity awards in the ordinary course of business with a grant date fair value of no more than $20.0 million to its employees, directors, and service providers. These awards, which are not part of the change in control severance agreement, are converted into cash-only settled WESCO phantom stock units with certain vesting criteria. The estimated fair value of these WESCO phantom stock units is $19.2 million which vests ratably over a 3 year period. The unaudited pro forma condensed combined statements of income reflect the adjustment of additional equity compensation expense for post-Merger services of $0.5 million, $6.4 million and $5.3 million for the three months ended March 31, 2020, year ended December 31, 2019 and twelve months ended March 31, 2020, respectively.

m)
Reflects the adjustment to eliminate $7.4 million, $15.0 million and $22.4 million of non-recurring Merger related transaction costs for the three months ended March 31, 2020, year ended December 31, 2019 and twelve months ended March 31, 2020, respectively.

n)
Reflects the adjustment to record amortization expense related to identifiable intangible assets based on the preliminary determination of WESCO’s estimated useful lives and amortization method:

in thousands
  
Three Months
Ended
March 31, 2020
    
Year Ended
December 31,
2019
    
Twelve Months
Ended
March 31, 2020
  
Reversal of historical amortization expense related to Anixter’s intangible assets
  
$
(8,609
)
  
$
(35,048
)
  
$
(34,844
)
Amortization of identifiable intangible assets acquired
    
19,500
      
78,000
      
78,000
  
Total incremental amortization expense
  
$
10,891
    
$
42,952
    
$
43,156
  

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o)
Reflects the reversal of interest expense and amortization of debt issuance costs associated with the extinguishment of the Anixter 2021 Notes and partial retirement of the Anixter 2023 and Anixter 2025 Notes, Anixter’s receivables facility and WESCO’s Existing ABL Facility and incremental interest expense and amortization of debt issuance costs associated with the new debt structure assumed at the effective time of the Merger.

in thousands
  
Three Months
Ended
March 31, 2020
    
Year Ended
December 31,
2019
    
Twelve Months
Ended
March 31, 2020
  
Reversal of Anixter's historical interest expense and amortization of debt issuance costs
  
$
(15,469
)
  
$
(70,932
)
  
$
(67,539
)
Adjustment to Anixter's historical expense related to debt fair value adjustment of assumed notes
    
67
      
269
      
269
  
   
$
(15,402
)
  
$
(70,663
)
  
$
(67,270
)
                         
Reversal of WESCO’s historical interest expense and amortization of debt issuance costs for the Existing ABL Facility
  
$
(708
)
  
$
(4,432
)
  
$
(3,825
)
Interest expense and amortization of debt issuance costs related to the new assumed debt structure
    
58,440
      
233,765
      
233,765
  
   
$
57,732
    
$
229,333
    
$
229,940
  
                         
Total incremental interest expense
  
$
42,330
    
$
158,670
    
$
162,670
  

A one-eighth percent change in the assumed interest rate of the new debt would increase or decrease the interest expense by $0.3 million, $1.1 million and $1.1 million for the three months ended March 31, 2020, year ended December 31, 2019 and twelve months ended March 31, 2020, respectively.

p)
The pro forma income tax adjustments included in the pro forma statements of income for the three months ended March 31, 2020, year ended December 31, 2019 and twelve months ended March 31, 2020, respectively, reflect the income tax effects of the pro forma adjustments. The effective blended tax rate of the combined company could be significantly different from what has been used in these pro forma financial statements for a variety of reasons, including post-Merger activities.

q)
Reflects the adjustment of $14.4 million, $57.4 million and $57.4 million for the three months ended March 31, 2020, year ended December 31, 2019 and twelve months ended March 31, 2020, respectively, assuming the initial annual dividend rate for the WESCO Series A preferred stock will be 10.625%, based on the highest yield to maturity using the issue price of the 8-Year Notes, plus a spread of 325 basis points. This is calculated based on the number of shares of WESCO Series A preferred stock issued and the $25,000 liquidation preference per whole share of WESCO Series A preferred stock.

13
r)
Reflects the elimination of Anixter’s weighted-average shares outstanding; the issuance of WESCO common stock and depositary shares of WESCO Series A preferred stock to Anixter stockholders as part of the purchase price. Basic and diluted net earnings per share (“EPS”) are each calculated by dividing adjusted pro forma net earnings by the weighted average shares outstanding and diluted weighted average shares outstanding, respectively, for the three months ended March 31, 2020, year ended December 31, 2019 and twelve months ended March 31, 2020.

Basic and Diluted earnings per share have been reduced by $14.4 million, $57.4 million and $57.4 million for the three months ended March 31, 2020, year ended December 31, 2019 and twelve months ended March 31, 2020, respectively, for pro forma dividends on the WESCO Series A preferred stock.

in thousands
  
Three Months
Ended
March 31, 2020
    
Year Ended
December 31, 2019
    
Twelve Months
Ended
March 31, 2020
  
Basic EPS
                  
Combined pro forma net income
  
$
36,355
    
$
344,149
    
$
337,198
  
Add: Loss attributable to non-controlling interests
    
232
      
1,228
      
1,041
  
Less: Pro forma preferred stock dividend
    
(14,351
)
    
(57,404
)
    
(57,404
)
Combined pro forma net income attributable to WESCO common stockholders
  
$
22,236
    
$
287,973
    
$
280,835
  
Historical weighted average number of basic shares - WESCO
    
41,837
      
43,104
      
42,304
  
Pro forma shares issued to Anixter stockholders
    
8,150
      
8,150
      
8,150
  
Pro forma weighted average common shares outstanding
    
49,987
      
51,254
      
50,454
  
Basic EPS
  
$
0.44
    
$
5.62
    
$
5.57
  
                         
Diluted EPS
                        
Combined pro forma net income
  
$
36,355
    
$
344,149
    
$
337,198
  
Add: Loss attributable to non-controlling interests
    
232
      
1,228
      
1,041
  
Less: Pro forma preferred stock dividend
    
(14,351
)
    
(57,404
)
    
(57,404
)
Combined pro forma net income attributable to WESCO common stockholders
  
$
22,236
    
$
287,973
    
$
280,835
  
Pro forma weighted average common shares outstanding
    
49,987
      
51,254
      
50,454
  
Historical diluted equity awards
    
238
      
383
      
313
  
Total Pro forma diluted weighted average common shares
    
50,225
      
51,637
      
50,767
  
Diluted EPS
  
$
0.44
    
$
5.58
    
$
5.53
  


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