1、 Wesco Aircraft Holdings,Inc.24911 Avenue Stanford Valencia,CA 2018 Wesco Aircraft Holdings,Inc.F I S C A L Y E A R 2 0 1 8WESCO AIRCRAFT AN N UAL R E P OR T 2018Annual Report F I S C A L Y E A R 2 0 1 8Wesco Aircraft Holdings,Inc.24911 Avenue Stanford Valencia,CA 91355WESCO AIRCRAFT AN N UAL RE P O
2、RT 2 0 1 2018 Wesco Aircraft Holdings,Inc.Annual Report WHO WE AREWesco Aircraft is the worlds leading independent distributor and provider of comprehensive supply chain management services to the global aerospace industry.The companys services range from traditional distribution to the management o
3、f supplier relationships,quality assurance,kitting,just-in-time delivery,chemical management services,third-party logistics or fourth-party logistics and point-of-use inventory management.BROAD PRODUCT OFFERING AND SERVICE CAPABILITIESWesco Aircrafts full-service approach aligns to the evolving need
4、s of our customers.We offer a comprehensive range of cost-saving innovative solutions by combining our vast breadth of products with our value-add supply chain services,allowing our customers to focus on their core competencies.ChemicalsMachined Parts and ToolingElectronic ComponentsHardwareBearings
5、Wesco at a GlanceComprehensive Supply Chain Management Services.Broad Product PortfolioCustomer Specific Solutions.Continuous Improvement ExpertiseQuality Is Our Priority.Global and Local Presence$1.6BFY 2018 Net Sales3,000+Wesco Aircraft Professionals7,000+Existing Customers50+Global Locations563,0
6、00+Active SKUsChemical Management Services(CMS)KittingQuality Assurance3PL/4PL ServicesJust-in-Time(JIT)ManagementDIRECTORSRandy J.Snyder Chairman of the Board Wesco Aircraft Holdings,Inc.Dayne A.Baird(2,4)Principal The Carlyle GroupThomas M.Bancroft III(3,4)Managing Member,Portfolio Manager and Chi
7、ef Investment Officer Makaira Partners LLCPaul E.Fulchino(2)Operating Partner AE Industrial Partners Former Chairman,President and Chief Executive Officer Aviall,Inc.Jay L.Haberland(1,4)Former Vice President of Business Controls United Technologies CorporationScott E.Kuechle(1,4)Former Executive Vic
8、e President and Chief Financial Officer Goodrich CorporationAdam J.Palmer(3)Managing Director The Carlyle GroupRobert D.Paulson(1)Chief Executive Officer Aerostar Capital LLCJennifer M.Pollino(2)Executive Coach and Consultant JMPollino,LLCFormer Executive Vice President Human Resources and Communica
9、tions Goodrich CorporationTodd Renehan Chief Executive Officer Wesco Aircraft Holdings,Inc.Norton A.Schwartz(3)President and Chief Executive Officer Business Executives for National Security General,USAF(Ret)(1)Audit Committee Member(2)Compensation Committee Member(3)Nominating and Corporate Governa
10、nce Committee Member(4)Finance Committee MemberEXECUTIVE OFFICERSTodd Renehan Chief Executive Officer Alex Murray President and Chief Operating OfficerKerry Shiba Executive Vice President and Chief Financial OfficerDeclan Grant Executive Vice President and Chief Commercial OfficerANNUAL MEETINGThe 2
11、019 Annual Meeting of Stockholders will be held on Thursday,January 24,2019,at 9:30 a.m.Pacific Standard Time at the Hyatt Regency Valencia 24500 Town Center Drive Valencia,CA 91355INVESTOR RELATIONSWesco Aircraft Holdings,Inc.Attention:Jeff Misakian 24911 Avenue Stanford Valencia,CA 91355 Telephone
12、:(661)775-7200STOCK LISTINGWesco Aircraft common shares are listed on the New York Stock Exchange under the ticker symbol“WAIR.”TRANSFER AGENT AND REGISTRARAmerican Stock Transfer&Trust Company,LLC 6201 15th Avenue Brooklyn,NY 11219 Telephone:(800)937-5449INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIR
13、MPricewaterhouseCoopers LLP 601 South Figueroa Street Los Angeles,CA 90017 Telephone:(213)356-6000CORPORATE INFORMATION WHO WE AREWesco Aircraft is the worlds leading independent distributor and provider of comprehensive supply chain management services to the global aerospace industry.The companys
14、services range from traditional distribution to the management of supplier relationships,quality assurance,kitting,just-in-time delivery,chemical management services,third-party logistics or fourth-party logistics and point-of-use inventory management.BROAD PRODUCT OFFERING AND SERVICE CAPABILITIESW
15、esco Aircrafts full-service approach aligns to the evolving needs of our customers.We offer a comprehensive range of cost-saving innovative solutions by combining our vast breadth of products with our value-add supply chain services,allowing our customers to focus on their core competencies.Chemical
16、sMachined Parts and ToolingElectronic ComponentsHardwareBearingsWesco at a GlanceComprehensive Supply Chain Management Services.Broad Product PortfolioCustomer Specific Solutions.Continuous Improvement ExpertiseQuality Is Our Priority.Global and Local Presence$1.6BFY 2018 Net Sales3,000+Wesco Aircra
17、ft Professionals7,000+Existing Customers50+Global Locations563,000+Active SKUsChemical Management Services(CMS)KittingQuality Assurance3PL/4PL ServicesJust-in-Time(JIT)ManagementDIRECTORSRandy J.Snyder Chairman of the Board Wesco Aircraft Holdings,Inc.Dayne A.Baird(2,4)Principal The Carlyle GroupTho
18、mas M.Bancroft III(3,4)Managing Member,Portfolio Manager and Chief Investment Officer Makaira Partners LLCPaul E.Fulchino(2)Operating Partner AE Industrial Partners Former Chairman,President and Chief Executive Officer Aviall,Inc.Jay L.Haberland(1,4)Former Vice President of Business Controls United
19、Technologies CorporationScott E.Kuechle(1,4)Former Executive Vice President and Chief Financial Officer Goodrich CorporationAdam J.Palmer(3)Managing Director The Carlyle GroupRobert D.Paulson(1)Chief Executive Officer Aerostar Capital LLCJennifer M.Pollino(2)Executive Coach and Consultant JMPollino,
20、LLCFormer Executive Vice President Human Resources and Communications Goodrich CorporationTodd Renehan Chief Executive Officer Wesco Aircraft Holdings,Inc.Norton A.Schwartz(3)President and Chief Executive Officer Business Executives for National Security General,USAF(Ret)(1)Audit Committee Member(2)
21、Compensation Committee Member(3)Nominating and Corporate Governance Committee Member(4)Finance Committee MemberEXECUTIVE OFFICERSTodd Renehan Chief Executive Officer Alex Murray President and Chief Operating OfficerKerry Shiba Executive Vice President and Chief Financial OfficerDeclan Grant Executiv
22、e Vice President and Chief Commercial OfficerANNUAL MEETINGThe 2019 Annual Meeting of Stockholders will be held on Thursday,January 24,2019,at 9:30 a.m.Pacific Standard Time at the Hyatt Regency Valencia 24500 Town Center Drive Valencia,CA 91355INVESTOR RELATIONSWesco Aircraft Holdings,Inc.Attention
23、:Jeff Misakian 24911 Avenue Stanford Valencia,CA 91355 Telephone:(661)775-7200STOCK LISTINGWesco Aircraft common shares are listed on the New York Stock Exchange under the ticker symbol“WAIR.”TRANSFER AGENT AND REGISTRARAmerican Stock Transfer&Trust Company,LLC 6201 15th Avenue Brooklyn,NY 11219 Tel
24、ephone:(800)937-5449INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPricewaterhouseCoopers LLP 601 South Figueroa Street Los Angeles,CA 90017 Telephone:(213)356-6000CORPORATE INFORMATION Dear Shareholders,Im pleased to report that after a lot of hard work on the part of our Wesco team and the enduring
25、support of our customers,we achieved stronger operational and financial performance in fiscal 2018.Throughout the year,we leveraged opportunities in a growing market and made many improvements to our business to drive better and more sustainable results.In fiscal 2018,we delivered robust sales growt
26、h across all business lines.Ad-hoc sales grew at a double-digit pace compared to fiscal 2017,as our improved performance enabled us to benefit from a strong market.Long-term contracts increased 7 percent year-over-year as a result of new business and increased volume with existing customers.Along wi
27、th the solid underlying growth,we also benefited from certain one-time sales during the year.Profitability also improved in fiscal 2018.Higher sales volumes and margin expansion led to an increase in gross profit,and we continued to exercise expense discipline while still investing for the long term
28、.Selling,general and administrative(SG&A)expenses were higher in fiscal 2018 primarily because of costs related to our Wesco 2020 initiatives;excluding these expenses,SG&A as a percent of sales was lower in fiscal 2018 compared to fiscal 2017.In addition,we made progress improving inventory manageme
29、nt during the year.We tightened processes from demand forecasting through procurement and utilized enhanced business tools more effectively.These changes led to significantly less growth in inventory than we reported in fiscal 2017,while we continued to support our customers who increased demand for
30、 our products.Very importantly,we also achieved positive cash flow for the year,largely due to improved inventory control.While these results are encouraging,we still have more work to do.We launched Wesco 2020 in fiscal 2018 to address remaining performance gaps in the business and deliver long-ter
31、m value to shareholders.Primary initiatives include aligning our footprint with our customer and supplier base,refining our organizational structure and investing strategically in people and capabilities.We made good progress implementing these initiatives in fiscal 2018,and we are accelerating our
32、execution in fiscal 2019.Key InitiativesAlignRefineInvestAlign the companys footprint with its customer and supplier base to enhance service,improve operating efficiency and reduce costs.Refine the organizational structure to drive greater accountability,enhance capabilities,reduce management layers
33、,eliminate duplication and lower costs.Invest strategically in people and capabilities,including automation and business tools to drive more effective inventory management and greater efficiency.Wesco 2020 is expected to generate significant financial benefits that will provide us with the flexibili
34、ty to make strategic investments to support our growth and evolve with the needs of our customers.As expected,benefits realized in fiscal 2018 were modest and more than offset by costs associated with implementation.We expect realization to increase in fiscal 2019,with implementation costs only part
35、ially offsetting the Wesco 2020 benefits.We anticipate full benefit realization in fiscal 2020.Fiscal 2018 has been a year of much needed change for our company.The operational improvements and financial results achieved set a new baseline that we intend to sustain and improve upon in fiscal 2019,wh
36、ile we make more foundational changes to the business through our Wesco 2020 initiatives.Fiscal 2019 will be a critical investment year as we transition product through our network and focus more resources on our systems,processes and people.We believe the improvements made in our business and a sol
37、id pipeline of new business prospects will enable us to capitalize on a continued healthy market and deliver another year of net sales growth in fiscal 2019.We also expect that these higher sales volumes,benefits from Wesco 2020,expense leverage and continued improvements in inventory management wil
38、l drive increases in profitability and cash flow in fiscal 2019.I continue to believe that we have a bright future ahead of us.As we build our capabilities,systems and processes,I believe we will be able to more fully leverage our unique value proposition in a growing market to deliver long-term sus
39、tainable value.I would like to thank our employees,customers,supplier partners and shareholders for their continued support of Wesco Aircraft.We know we have much work ahead of us,and Im confident we have the talent,resources and commitment to succeed.Sincerely,Todd Renehan Chief Executive OfficerFI
40、NANCIAL SUMMARYGLOBAL PRESENCEUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-K(Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGEACT OF 1934For the fiscal year ended September 30,2018or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
41、SECURITIESEXCHANGE ACT OF 1934For the transition period fromtoCommission File No.001-35253WESCO AIRCRAFT HOLDINGS,INC.(Exact Name of Registrant as Specified in Its Charter)Delaware20-5441563(State of Incorporation)(I.R.S.Employer Identification Number)24911 Avenue StanfordValencia,California 91355(A
42、ddress of Principal Executive Offices and Zip Code)(661)775-7200(Registrants Telephone Number,Including Area Code)Securities Registered pursuant to Section 12(b)of the Act:Title of Each ClassName of Each Exchange on Which RegisteredCommon Stock,par value$0.001 per shareNew York Stock ExchangeSecurit
43、ies Registered pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the A
44、ct.Yes No Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to
45、such filingrequirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period
46、that the registrant was required to submit such files).Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to thebest of the registrants knowledge,in definitive proxy or information statements incor
47、porated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K.Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or anemerging growth company.See the definitions of large accelerat
48、ed filer,accelerated filer,smaller reporting company,and emerging growth companyin Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has el
49、ected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).Yes No As of March 29,2018,t
50、he aggregate market value of the voting and non-voting common equity held by non-affiliates based on the closing price as of thatday was approximately$669,796,000.The number of shares of common stock(par value$0.001 per share)of the registrant outstanding as of November 8,2018,was 99,557,885.Documen
51、ts Incorporated by ReferencePart III of this Annual Report on Form 10-K incorporates by reference certain information from the registrants definitive proxy statement for the 2019annual meeting of stockholders,which the registrant intends to file pursuant to Regulation 14A with the Securities and Exc
52、hange Commission not later than120 days after the registrants fiscal year end of September 30,2018.With the exception of the sections of the definitive proxy statement specificallyincorporated herein by reference,the definitive proxy statement is not deemed to be filed as part of this Annual Report
53、on Form 10-K.TABLE OF CONTENTSPagePart IItem 1.Business.4Item 1A.Risk Factors.12Item 1B.Unresolved Staff Comments.27Item 2.Properties.27Item 3.Legal Proceedings.27Item 4.Mine Safety Disclosures.27Part IIItem 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchasesof Eq
54、uity Securities.28Item 6.Selected Financial Data.30Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations.31Item 7A.Quantitative and Qualitative Disclosures About Market Risks.50Item 8.Financial Statements and Supplementary Data.52Item 9.Changes in and Disagreeme
55、nts with Accountants on Accounting and Financial Disclosure.88Item 9A.Controls and Procedures.88Item 9B.Other Information.88Part IIIItem 10.Directors,Executive Officers and Corporate Governance.89Item 11.Executive Compensation.89Item 12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelat
56、edStockholderMatters.89Item 13.Certain Relationships and Related Transactions,and Director Independence.89Item 14.Principal Accounting Fees and Services.89Part IVItem 15.Exhibits,Financial Statement Schedules.90Item 16.Form 10-K Summary.90Signatures.91Exhibit Index.92CERTAIN DEFINITIONSUnless otherw
57、ise noted in this Annual Report,the term Wesco Aircraft means Wesco AircraftHoldings,Inc.,our top-level holding company,and the terms Wesco,the Company,we,us,ourand our Company mean Wesco Aircraft and its subsidiaries,including(1)Wesco Aircraft Hardware Corp.(Wesco Aircraft Hardware),which is our pr
58、imary historical domestic operating company and the solemember of Haas Group International,LLC,which we acquired,along with Haas Group,Inc.(now HaasGroup,LLC)and its direct and indirect subsidiaries(collectively,Haas),on February 28,2014,and(2)WescoAircraft EMEA,Ltd.(Wesco Aircraft EMEA),which succe
59、eded Wesco Aircraft Europe,Ltd.(Wesco Aircraft Europe)as our primary foreign operating company.References to fiscal year mean theyear ending or ended September 30.For example,fiscal year 2018 or fiscal 2018 means the period fromOctober 1,2017 to September 30,2018.1PART ICAUTIONARY NOTE REGARDING FOR
60、WARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements(including within the meaning ofthe Private Securities Litigation Reform Act of 1995)concerning Wesco and other matters.These statementsmay discuss goals,intentions and expectations as to future plans,trends,ev
61、ents,results of operations orfinancial condition,or otherwise,based on current beliefs of management,as well as assumptions made by,and information currently available to,management.Forward-looking statements may be accompanied bywords such as achieve,aim,anticipate,believe,can,continue,could,drive,
62、estimate,expect,forecast,future,grow,improve,increase,intend,may,outlook,plan,possible,potential,predict,project,should,target,will,would or similar words,phrases orexpressions.These forward-looking statements are subject to various risks and uncertainties,many of whichare outside our control.Theref
63、ore,you should not place undue reliance on such statements.Factors thatcould cause actual results to differ materially from those in the forward-looking statements include,but arenot limited to,the following:general economic and industry conditions;conditions in the credit markets;changes in militar
64、y spending;risks unique to suppliers of equipment and services to the U.S.government;risks associated with the loss of significant customers,a material reduction in purchase orders bysignificant customers or the delay,scaling back or elimination of significant programs on which werely;our ability to
65、 effectively compete in our industry;risks associated with our long-term,fixed-price agreements that have no guarantee of future salesvolumes;our ability to effectively manage our inventory;our suppliers ability to provide us with the products we sell in a timely manner,in adequatequantities and/or
66、at a reasonable cost,while also meeting our customers quality standards;our ability to maintain effective information technology(IT)systems and effectively implement ournew warehouse management system(WMS);our ability to successfully execute and realize the expected financial benefits from our Wesco
67、 2020initiative;our ability to retain key personnel;risks associated with our international operations,including exposure to foreign currencymovements;changes in trade policies;risks associated with assumptions we make in connection with our critical accounting estimates(including goodwill,excess an
68、d obsolete inventory and valuation allowance of our deferred taxassets)and legal proceedings;changes in U.S.income tax law;our dependence on third-party package delivery companies;fuel price risks;fluctuations in our financial results from period-to-period;environmental risks;risks related to the ha
69、ndling,transportation and storage of chemical products;risks related to the aerospace industry and the regulation thereof;risks related to our indebtedness;andother risks and uncertainties.2The foregoing list of factors is not exhaustive.You should carefully consider the foregoing factors andthe oth
70、er risks and uncertainties that affect our business,including those described under Part I,Item 1A.Risk Factors and the other documents we file from time to time with the Securities and ExchangeCommission(SEC).All forward-looking statements included in this Annual Report on Form 10-K(includinginform
71、ation included or incorporated by reference herein)are based upon information available to us as ofthe date hereof,and we undertake no obligation to update or revise publicly any forward-looking statements,whether as a result of new information,future events or otherwise.3ITEM 1.BUSINESSCompany Over
72、viewWe are the worlds leading independent distributor and provider of comprehensive supply chainmanagement services to the global aerospace industry,based on annual sales.Our services range fromtraditional distribution to the management of supplier relationships,quality assurance,kitting,just-in-tim
73、e(JIT)delivery,chemical management services(CMS),third-party logistics(3PL)or fourth-party logistics(4PL)programs and point-of-use inventory management.We supply over 563,000 active stock-keeping units(SKUs),including C-class hardware,chemicals,electronic components,bearings,tools and machined parts
74、.Infiscal 2018,sales of hardware including bearings and other products represented 50.9%of our net sales,salesof chemicals represented 41.8%of our net sales and sales of electronic components represented 7.3%of ournet sales.We serve our customers under both(1)long-term contractual arrangements(Contr
75、acts),whichinclude JIT contracts that govern the provision of comprehensive outsourced supply chain managementservices and long-term agreements(LTAs)that typically set prices for specific products,and(2)ad hoc sales.In February 2014,we acquired 100%of the outstanding stock of Haas,a provider of chem
76、ical supply chainmanagement services to the commercial aerospace,airline,military,automotive,energy,pharmaceutical andelectronics sectors.Founded in 1953 by the father of our current Chairman of the Board of Directors,we have grown toserve over 7,000 customers,which are primarily in the commercial,m
77、ilitary and general aviation sectors,including the leading original equipment manufacturers(OEMs)and their subcontractors,through which wesupport nearly all major Western aircraft programs,and also sell products to airline-affiliated andindependent maintenance,repair and overhaul(MRO)providers.We al
78、so service customers in theautomotive,energy,health care,industrial,pharmaceutical and space sectors.We have 3,069 employees andoperate across 56 locations in 17 countries.The following charts illustrate the composition of our fiscal year2018 net sales based on our sales data.4Our Products and Servi
79、cesOur ProductsWe offer more than 563,000 active SKUs,which fall into the following product categories during the yearended September 30,2018(dollars in thousands):HardwareChemicalsElectronicComponentsBearingsMachined Partsand ToolingNet product sales.$732,892$656,959$114,875$36,212$29,512%of net pr
80、oductsales.46.7%41.8%7.3%2.3%1.9%Types of productsoffered.Blind fasteners Adhesives Sealants Connectors Airframe control Brackets Panel fastenersand tapes Relaysbearings Milled parts Bolts and screws Lubricants Switches Rod ends Shims Clamps Oil and grease Circuit breakersSphericalBearings Stampings
81、 Hi lok pins and Paints and coatings Lighted products Ball bearing Turned partscollars Industrial gases Wire and cable Needle roller Welded assemblies Hydraulic fittings Coolants and Interconnectbearings Installation/Insertsmetalworking fluidsaccessories Bushingsremoval toolingLockbolts andcollarsCl
82、eaners andcleaning solventsPrecisionbearings Nuts Rivets Springs Valves WashersHardwareSales of C-class aerospace hardware represented 47%,47%and 48%of our fiscal 2018,2017 and 2016product sales,respectively.Fasteners,our largest category of hardware products,include a wide range ofhighly engineered
83、 aerospace parts that are designed to hold together two or more components,such as rivets(both blind and solid),bolts(including blind bolts),screws,nuts and washers.Many of these fasteners aredesigned for use in specific aircraft platforms and others can be used across multiple platforms.Materialsus
84、ed in the manufacture of these fasteners range from standard alloys,such as aluminum,steel or stainlesssteel,to more advanced materials,such as titanium,Inconel and Waspaloy.ChemicalsChemical sales represented 42%,42%and 41%of our fiscal 2018,2017 and 2016 product sales,respectively.Our chemical pro
85、duct offerings include adhesives;sealants and tapes;lubricants;oil and grease;paints and coatings;industrial gases;coolants and metalworking fluids;and cleaners and cleaning solvents.Electronic ComponentsWe offer highly reliable interconnect and electro-mechanical products,including connectors,relay
86、s,switches,circuit breakers,lighted products,wire and cable and interconnect accessories.We also offervalue-added assembled products including mil-circular and rack and panel connectors and illuminated pushbutton switches.We maintain large quantities of connector components in inventory,which allows
87、 us torespond quickly to customer orders.In addition,our lighted switch assembly operation affords customerssame day service,including engraving capabilities in multiple languages.BearingsOur product offering includes a variety of standard anti-friction products designed to both commercialand milita
88、ry aircraft specifications,such as airframe control bearings,rod ends,spherical bearings,ballbearings,needle roller bearings,bushings and precision bearings.5Machined Parts and ToolingMachined parts are designed for a specific customer and are assigned unique OEM-specific SKUs.Themachined parts we d
89、istribute include laser cut or stamped brackets,milled parts,shims,stampings,turnedparts and welded assemblies made of materials ranging from high-grade steel or titanium to nickel basedalloys.We stock a full range of tools needed for the installation and removal of many of our products,includingair
90、 and hydraulic tools as well as drill motors,and we also offer factory authorized maintenance and repairservices for these tools.In addition to selling these tools,we also rent or lease these tools to our customers.Our ServicesIn addition to our traditional distribution services,we have developed in
91、novative value-added services,such as quality assurance,kitting,JIT supply chain management,CMS and 3PL/4PL programs for ourcustomers.Quality AssuranceOur quality assurance(QA)function is a key component of our service offering,with approximately6%of our employees dedicated to this area.We believe w
92、e offer an industry-leading QA function as a resultof our rigorous processes,sophisticated testing equipment and dedicated QA staff.Our superior QAperformance is demonstrated by a comparison of our customers aggregate rejection rate of the products wedeliver,which was 0.09%during fiscal 2018,to our
93、rejection rate of the products we receive from oursuppliers,which was 2.97%during fiscal 2018.Our QA department inspects the inventory we purchase to ensure the accuracy and completeness ofdocumentation.For many of our customers,these inspections are conducted at our in-house laboratory,where we ope
94、rate sophisticated testing equipment.We also maintain an electronic copy of the relevantcertifications for the inventory,which can include a manufacturer certificate of conformance,test reports,process certifications,material distributor certifications and raw material mill certifications.Ourindustr
95、y-leading QA capabilities also allow our JIT customers to reduce the number of personnel dedicated tothe QA function and reduce the delays caused by the rejection of improperly inspected products.KittingKitting involves the packaging of an entire bill of materials or a complete ship-set of products,
96、whichreduces the amount of time workers spend retrieving products from storage locations.Kits can be customizedin varying configurations and sizes and can contain up to several hundred different products.All of our kitsand components contain fully certified and traceable products and are assembled b
97、y our full-service kittingdepartment at our Central Stocking Locations(CSLs),or at our customer sites.JIT Supply Chain Management and CMSJIT supply chain management,which includes CMS,involves the delivery of products on an as-neededbasis to the point-of-use at a customers manufacturing line.JIT pro
98、grams are designed to prevent excessinventory build-up and shortages and improve manufacturing efficiency.Each JIT contract requires us tomaintain an efficient inventory tracking,analysis and replenishment program and is designed to provide highlevels of stock availability and on-time delivery.We be
99、lieve customers that utilize our comprehensive JITsupply chain management services are frequently able to realize significant benefits including:reduced inventory levels and lower inventory excess and obsolescence(E&O)expense,in partbecause such customers only purchase what they need,and make more e
100、fficient use of their floorspace;increased accuracy in forecasting and planning,resulting in substantially improved on-time delivery,reduced expediting costs and fewer disruptions of production schedules;improved quality assurance resulting in a substantial reduction in customer product rejection ra
101、tes;andreduced administrative and overhead costs relating to procurement,QA,supplier management andstocking functions.6Before signing a JIT contract,our customers typically experience outages of many SKUs and,in somecases,have up to a years worth of inventory on hand for other SKUs.As part of our JI
102、T programs,wegenerally assume custody of the customers existing inventory at the onset of the contract,immediatelyreducing their management of their physical inventory on-hand with lower costs.Customer inventory isgenerally assumed on a consignment basis and is entered in our perpetual inventory sys
103、tem in a distinctcustomer-specific virtual warehouse.Software protocol in our IT systems requires the system to first lookto a customers consigned inventory when parts replenishment is required.In certain cases,we can sell thisconsigned inventory to our base of over 7,000 other active customers arou
104、nd the world,gradually drawingdown the customers inventory.As the consigned inventory for each SKU is exhausted,our stock ofWesco-sourced product is then used for replenishment.Another key strength of our JIT programs is our ability to utilize highly scalable and customizablepoint-of-use systems to
105、develop an efficient supply chain management system and automated replenishmentsolution for any number of SKUs.In order to minimize inventory on hand,certain indicators are used totrigger the replenishment of product,with all replenishment activity done via hand-held scanners thattransmit orders to
106、our stocking locations.In certain circumstances,we also provide our JIT and CMS customers with additional value-addedservices,including the implementation of process control and usage reduction programs;safety data-sheetmanagement,support for environmental,health and safety compliance(EHS)and report
107、ing;and assistancewith the development of waste management strategies.Customers are also increasingly seeking 3PL or 4PL arrangements to optimize supply chain managementby outsourcing either specific logistics and distribution functions or their entire logistics function to a serviceprovider like us
108、.Aftermarket SalesWe sell products to airline-affiliated,OEM-affiliated and independent MRO providers on both aContract and ad hoc basis.We have expanded our efforts to increase our presence in both the commercialand military aerospace MRO markets,particularly as a result of our acquisition of Haas
109、in 2014 and throughthe introduction of our Wesco e-commerce sales platform,which we believe provides us with a cost-effectiveway to further penetrate the aftermarket.In addition,we have targeted domestic and international airlinesand maintenance centers that we believe are assuming an expanded role
110、within the MRO market.Going forward,we expect commercial MRO providers to benefit from many of the same trends as thoseimpacting the commercial OEM market,including industry passenger volumes and capacity utilization,as wellas requirements to maintain aging aircraft and the cost of fuel,which can le
111、ad to greater utilization of existingplanes.The commercial MRO market may also benefit from directives or notifications announced byinternational industry regulators and trade associations.Such directives or notifications can serve to bolsterrequired maintenance,and thus the demand for new and exist
112、ing aerospace products.Furthermore,we expectdemand in the military MRO market to be driven by changes in overall fleet size and the level of U.S.militaryoperational activity domestically and overseas.We believe that our presence in this market helps us mitigatethe volatility of new military aircraft
113、 sales with sales to the aftermarket.Customer ContractsWe sell products to our customers under two types of arrangements:(1)Contracts,which include JITsupply chain management contracts and LTAs,and(2)ad hoc sales.ContractsJIT Contracts.JIT contracts,which include CMS contracts,are typically three to
114、 five years in length andare structured to supply the product requirement for specific SKUs,production lines or facilities.Given ourdirect involvement with JIT customers,volume requirements and purchasing frequency under these contractsis highly predictable.Under JIT contracts,customers commit to pu
115、rchase specified products from us at a fixedprice or a pass-through price,on an as needed basis,and we are often responsible for maintaining high levelsof stock availability of those products.JIT contracts typically contain termination for convenience provisions,which generally allow our customers t
116、o terminate their contracts on short notice without meaningful penalties7and often provide for us to be reimbursed for the cost of any inventory specifically procured for the customeror inventory that is not commonly sold to our other customers.JIT customers often purchase products fromus that are n
117、ot covered under their contracts on an ad hoc basis.For additional information about our JITsupply chain management services,see-Our Products and Services-Our Services-JIT Supply ChainManagement and CMS.LTAs.Like JIT contracts,LTAs also typically run for three to five years.LTAs are essentially nego
118、tiatedprice lists for customers or individual customer sites that cover a range of pre-determined products,purchasedon an as-needed basis.LTAs allow the customer to buy contracted SKUs from us and may obligate us tomaintain stock availability for those products.Once an LTA is in place,the customer i
119、s then able to placeindividual purchase orders with us for any of the contractually specified products.LTAs typically containtermination for convenience provisions,which generally allow for our customers to terminate their contractson short notice without meaningful penalties and often provide that
120、we are reimbursed for the cost of anyinventory specifically procured for the customer or inventory that is not commonly sold to other customers.LTA customers also frequently purchase products from us on an ad hoc basis,which are not captured underthe contractual pricing arrangement.Ad Hoc SalesAd ho
121、c sales represent products purchased from us on an as-needed basis and are generally supplied outof our existing inventory.Typically,ad hoc orders are for smaller quantities of products than those orderedunder Contracts,and are often urgent in nature.Given our breadth and volume of inventory,it is n
122、otuncommon for even our competitors to purchase products from us on an ad hoc basis when their own stocksprove to be inadequate.In an environment of increasing aircraft production and oftentimes relatively longsupplier lead-times,product shortages can become increasingly common for OEMs,subcontracto
123、rs,MROproviders and distributors with less sophisticated forecasting abilities and procurement organizations.Under each of the sales arrangements described above we typically warrant that the products we sellconform to the drawings and specifications that are in effect at the time of delivery in the
124、 applicable contract,and that we will replace defective or non-conforming products for a period of time that varies from contractto contract.We,in turn,look to the product manufacturer to indemnify us for liabilities resulting fromdefective or non-conforming products.We do not accrue for warranty ex
125、penses as our claims related todefective and non-conforming products have been nominal.BacklogWe believe that sales backlog is not a relevant measure of our business,given the long-term nature of ourContracts with our customers.CustomersWe sell to over 7,000 active customers worldwide.During fiscal
126、2018,Lockheed Martin representedapproximately 11%of our total net sales,consisting of multiple contracts across multiple independentprograms such that no individual contract is material.Our top 10 customers collectively accounted for 49%ofour total net sales during fiscal 2018.During fiscal 2018,76%
127、of our net sales were derived from major OEMs,such as Airbus,Boeing,BAESystems,Bell Helicopter,Bombardier,Cessna,Embraer,Gulfstream,Lockheed Martin,Northrop Grummanand Raytheon,and many of their subcontractors.Government sales comprised 14%of our net sales duringfiscal 2018 and were derived from var
128、ious military parts procurement agencies such as the U.S.DefenseLogistics Agency,or from defense contractors buying on their behalf.Aftermarket sales to airline-affiliated orindependent MRO providers made up 5%of our fiscal 2018 net sales.The remaining 5%of our net saleswere to other distributors.Du
129、ring fiscal 2018,55%of our net sales were derived from customers supporting commercial programsand 45%of our net sales were derived from customers supporting military programs.We also serviceinternational customers in markets that include Australia,Canada,China,France,Germany,India,Ireland,Israel,It
130、aly,Malaysia,Mexico,Philippines,Poland,Saudi Arabia,Singapore,South Korea,Turkey and theUnited Kingdom.For additional information about our net sales and long-lived assets by geographic area,seeNote 20 of the Notes to Consolidated Financial Statements in Part II,Item 8 of this Annual Report onForm 1
131、0-K.8ProcurementWe source our inventory from over 6,000 suppliers globally,including Amphenol,Arconic,ConsolidatedAerospace Manufacturing(CAM),Esterline,Henkel,Lisi Aerospace,PRC Desoto,Precision CastpartsCorp.,TriMas,and 3M.During fiscal 2018,Precision Castparts Corp.and Arconic supplied 12%and 8%,
132、respectively,of the products we purchased.Suppliers typically prefer to deal with a relatively small number oflarge and sophisticated distributors in order to improve production efficiency;reduce finished goods inventoryand related obsolescence costs;maintain pricing discipline;improve performance i
133、n meeting on-time-deliverytargets to the end customers;and consolidate customer accounts,which can reduce administrative andoverhead costs relating to sales and marketing,customer service and other functions.As a result of our sizeand our long-standing relationships with many of our suppliers,we are
134、 often able to take advantage ofsignificant volume-based discounts when purchasing inventory.Given our industry position and closecooperation with suppliers,we believe that we are in an excellent position to become a distributor for newproduct lines as they become available.Our management analyzes s
135、upply,demand,cost and pricing factors to make inventory investmentdecisions,which are facilitated by our highly customized IT systems,and we maintain close relationships withthe leading suppliers in the industry.Our strong understanding of the global aerospace industry is derived from our long-term
136、relationshipswith major OEMs,subcontractors and suppliers.In addition,our direct insight into our customers productionrates often allows us to detect industry trends.Furthermore,our ability to forecast demand,share inventoryand usage information,and place purchase orders with our suppliers well in a
137、dvance of our customerrequirements can provide us with a distinct advantage in an industry where inventory availability is critical forcustomers that need specific products within a stipulated timeframe to meet their own production anddelivery commitments.However,despite our expertise in this area,e
138、ffective inventory management is anongoing challenge,and we continue to take steps to enhance the effectiveness of our procurement practicesand mitigate the negative impact of inventory builds on our cash flow.For additional information about theimpact of inventory on our business,including our cash
139、 flows,see Part I,Item 1A.Risk Factors-RisksRelated to Our Business and Industry-We may be unable to effectively manage our inventory,which couldhave a material adverse effect on our business,financial condition and results of operations,Part II,Item 7.Managements Discussion and Analysis of Financia
140、l Condition and Results of Operations-Other FactorsAffecting Our Financial Results-Fluctuations in Cash Flow,and Part II,Item 7.Managements Discussionand Analysis of Financial Condition and Results of Operations-Critical Accounting Policies andEstimates-Inventories.Information Technology SystemsWe h
141、ave invested to build integrated,highly customized IT systems that enable our purchasing and salesorganizations to make more informed decisions,our inventory management system to operate in an efficientmanner and certain of our customers to make online purchases directly from us.Our primary scalable
142、 ITinfrastructure is based on IBM and Oracle hardware and applications including the Oracle JD EdwardsEnterpriseOne(JDE)enterprise resource planning(ERP)system and our proprietary chemical supply chainmanagement system,tcmIS,which was developed on the Oracle Enterprise database.These customized ITsy
143、stems provide us visibility into quantities,stocking locations and purchases across our customer base byindividual inventory item,enabling us to accurately fill an average of 16,000 orders per day and provide anexceptional level of customer service.These systems are fully capable of interfacing with
144、 external enterprisebusiness systems.Additionally,we have developed functionality for JIT delivery,which can integrate directlyinto our customers manufacturing process.This functionality includes recognition of signals and actions to fillcustomer bins from hand-held scanners,min/max data or propriet
145、ary signals from a customers ERP system.JDE and tcmIS also support our EDI functionality,which allows our system to interface with customers andsuppliers,regardless of technology,data format or connectivity.tcmIS also supports additionalchemical-specific functionality,such as product labeling and Gl
146、obal Harmonized System compliance.We alsocontinue to invest in our infrastructure and cyber-defense capabilities to enhance both availability and dataprotection.For our shipping logistics and export compliance support,we employ Precision Softwares TRA/X.TRA/X enables us to ship globally while mainta
147、ining tracking numbers and rating information for eachcustomer shipment.In addition,at several of our distribution facilities,we use Minervas AIMS inventory9management system to provide the best possible warehouse flow and cycle times.AIMS is tailored to fit ourglobal warehouse operational needs and
148、 allows us to provide an expandable warehouse management systemthat can also incorporate transaction processing,work-in-progress and other manufacturing operations.AIMSinterfaces with a broad range of material handling equipment,including horizontal and vertical carousels,conveyors,sorting equipment
149、,pick systems and cranes.Going forward,we will continue to evaluate our IT infrastructure and expect to undertake efforts tomodernize our capabilities,particularly through investments in additional state of the art software andhardware that is designed to improve our ability to service our customers
150、.SeasonalityOur net sales may fluctuate quarterly based on the number of production days at our customersfacilities,which is driven by holidays and planned production shutdowns,particularly the winter holidaysduring our first fiscal quarter and the summer months during our fourth fiscal quarter.Comp
151、etitionThe industry in which we operate is highly competitive and fragmented.We believe the principalcompetitive factors in our industry include the ability to provide superior customer service and support,on-time delivery,sufficient inventory availability,competitive pricing and an effective QA pro
152、gram.Ourcompetitors include both U.S.and foreign companies,including divisions of larger companies and certain ofour suppliers,some of which have significantly greater financial resources than we do,and therefore may beable to adapt more quickly to changes in customer requirements than we can.In add
153、ition to facingcompetition for Contract customers from our primary competitors,Contract customers or potential Contractcustomers may also determine that it is more cost effective to establish or re-establish an in-house supplychain management capability.Under these circumstances,we may be unable to
154、sufficiently reduce our coststo provide competitive pricing while also maintaining acceptable operating margins.EmployeesAs of September 30,2018,we employed 3,069 personnel worldwide,1,035 of whom were located atcustomer sites.We have 839 employees located outside of North America.We are not a party
155、 to anycollective bargaining agreements with our employees.Regulatory MattersGovernmental agencies throughout the world,including the U.S.Federal Aviation Administration(FAA),prescribe standards for aircraft components,including virtually all commercial airline and generalaviation products,as well a
156、s regulations regarding the repair and overhaul of airframes and engines.Specificregulations vary from country to country,although compliance with FAA requirements generally satisfiesregulatory requirements in other countries.In addition,the products we distribute must also be certified byaircraft a
157、nd engine OEMs.If any of the material authorizations or approvals that allow us to supply productsis revoked or suspended,then the sale of the related products would be prohibited by law,which would havean adverse effect on our business,financial condition and results of operations.From time to time
158、,the FAA or equivalent regulatory agencies in other countries propose newregulations or changes to existing regulations,which are usually more stringent than existing regulations.Ifthese proposed regulations are adopted and enacted,we could incur significant additional costs to achievecompliance,whi
159、ch could have a material adverse effect on our business,financial condition and results ofoperations.We are also subject to government rules and regulations that include the U.S.Foreign Corrupt PracticesAct(FCPA),the Bribery Act 2010(Bribery Act),the International Traffic in Arms Regulations(ITAR),t
160、heExport Administration Regulations(EAR),economic sanctions and the False Claims Act.See RiskFactors-Risks Related to Our Business and Industry-We are subject to unique business risks as a result ofsupplying equipment and services to the U.S.government directly and as a subcontractor,which could lea
161、d toa reduction in our net sales from,or the profitability of our supply arrangements with,the U.S.government10and-Our international operations require us to comply with numerous applicable anti-corruption and tradecontrol laws and regulations,including those of the U.S.government and various other
162、jurisdictions,and ourfailure to comply with these laws and regulations could adversely affect our reputation,business,financialcondition and results of operations.Environmental MattersWe are subject to extensive federal,state,local and foreign laws,regulations,rules and ordinancesrelating to polluti
163、on,protection of the environment and human health and safety,and the handling,transportation,storage,treatment,disposal and remediation of hazardous substances,including potentiallywith respect to historical chemical blending and other activities that pre-dated our purchase of Haas.Actualor alleged
164、violations of EHS laws or permit requirements could result in restrictions or prohibitions onoperations and substantial civil or criminal sanctions,as well as,under some EHS laws,the assessment ofstrict liability and/or joint and several liability.Furthermore,we may be liable for the costs of invest
165、igating and cleaning up environmentalcontamination on or from our operations or at off-site locations,including potentially with respect tohistorical chemical blending and other activities that pre-dated our purchase of our businesses.We maytherefore incur additional costs and expenditures beyond th
166、ose currently anticipated to address all suchknown and unknown situations under existing and future EHS laws.In addition,governmental,regulatory and societal demands for increasing levels of product safety andenvironmental protection are resulting in increased pressure for more stringent regulatory
167、control withrespect to the chemical industry.The European Unions Registration,Evaluation,Authorization andRestriction of Chemicals(REACH)regulations enacted in 2009 have been a continuing source of complianceobligations and restrictions on certain chemicals,and REACH-like regimes have now been adopt
168、ed in severalother countries.In the United States,the core provisions of the Toxic Substances Control Act(TSCA)wereamended in June 2016 for the first time in nearly 40 years.Among the more significant changes are that theseamendments mandate safety reviews of existing high priority chemicals and reg
169、ulatory action to control anyunreasonable risks identified as result of such reviews.The Environmental Protection Agency(EPA)alsonow must make a no unreasonable risk finding before a new chemical can be fully commercialized.Thesenew mandates create uncertainty about whether existing chemicals of imp
170、ortance to our business may bedesignated for restriction and whether the new chemical approval process may become more difficult andcostly to comply with.These types of changes in the Companys regulatory environment,particularly,but notlimited to,in the United States,the European Union,Canada and Ch
171、ina,could lead to heightened regulatoryscrutiny and could adversely impact our ability to supply certain products and provide supply chainmanagement services to our customers.Such changes also could result in compliance obligations for usdirectly or as part of our supply chain management services to
172、 customers,fines,ongoing monitoring and otherfuture business activity restrictions,which could have a material adverse effect on the Companys liquidity,financial position and results of operations.Finally,we have in the past sold products containing per-andpolyfluoroalkyl substances(PFAS),including
173、perfluorooctanoic acid(PFOA).Certain PFAS,includingPFOA,have been targeted for risk assessment,restriction,and high priority remediation and have been thesubject of ongoing and substantial litigation in the both the U.S.and European Union.We have not receivedany claims or enforcement actions from go
174、vernments or third parties relating to PFOA or any other PFAS.Available InformationWe file annual,quarterly and current reports and other information with the SEC.The SEC maintainsan Internet website(www.sec.gov)that contains reports,proxy and information statements and otherinformation regarding re
175、gistrants that file electronically with the SEC,including us.You may also access,freeof charge,our reports filed with the SEC(for example,our Annual Report on Form 10-K,our QuarterlyReports on Form 10-Q and our Current Reports on Form 8-K and any amendments to those forms)throughthe Investor Relatio
176、ns portion of our website().We also make available on our websiteour(1)Corporate Governance Guidelines,(2)Code of Business Conduct and Ethics,which applies to ourdirectors,officers and employees,(3)Whistleblower Policy and(4)the charters of the Audit,Compensationand Nominating and Corporate Governan
177、ce Committees.Reports filed with or furnished to the SEC will beavailable as soon as reasonably practicable after they are filed with or furnished to the SEC.Our website isincluded in this Annual Report as an inactive textual reference only.The information found on our website isnot part of this or
178、any other report filed with or furnished to the SEC.11ITEM 1A.RISK FACTORSYou should consider and read carefully all of the risks and uncertainties described below,as well as otherinformation included in this Annual Report,including our consolidated financial statements and related notes.The risks d
179、escribed below are not the only ones facing us.The occurrence of any of the following risks or additionalrisks and uncertainties not presently known to us or that we currently believe to be immaterial could materially andadversely affect our business,financial condition or results of operations.This
180、 Annual Report also containsforward-looking statements and estimates that involve risks and uncertainties.Our actual results could differmaterially from those anticipated in the forward-looking statements as a result of specific factors,including therisks and uncertainties described below.Risks Rela
181、ted to Our Business and IndustryWe are directly dependent upon the condition of the aerospace industry,which is closely tied to global economicconditions,and if the aerospace industry or the U.S.or global economy were to experience a recession,our business,financial condition and results of operatio
182、ns could be negatively impacted.Demand for the products and services we offer are directly tied to the delivery of new aircraft,aircraftutilization,and repair of existing aircraft,which,in turn,are impacted by global economic conditions.Forexample,2009 revenue passenger miles(RPMs)on commercial airc
183、raft declined due to the global recession.During the same period,the industry experienced declines in large commercial,regional and business jetdeliveries.A slowdown in the global economy,or a return to a recession,would negatively impact theaerospace industry,and could negatively impact our busines
184、s,financial condition and results of operations.Military spending,including spending on the products we sell,is dependent upon national defense budgets,and areduction in military spending could have a material adverse effect on our business,financial condition and resultsof operations.During the yea
185、r ended September 30,2018,45%of our net sales were related to military aircraft.Themilitary market is significantly dependent upon government budget trends,particularly the U.S.Departmentof Defense(DoD)budget.Future DoD budgets could be negatively impacted by several factors,including,but not limite
186、d to,a change in defense spending policy by the current and future presidential administrationsand Congress,the U.S.governments budget deficits,spending priorities,the cost of sustaining the U.S.military presence in overseas operations and possible political pressure to reduce U.S.Government militar
187、yspending,each of which could cause the DoD budget to decline.A decline in U.S.military expenditures couldresult in a reduction in military aircraft production,which could have a material adverse effect on ourbusiness,financial condition and results of operations.In particular,military spending may
188、be negatively impacted by the Budget Control Act of 2011(theBudget Control Act),which was passed in August 2011.The Budget Control Act established limits on U.S.government discretionary spending,including a reduction of defense spending by approximately$490 billionbetween the 2012 and 2021 U.S.gover
189、nment fiscal years,and also provided that the defense budget wouldface sequestration cuts of up to an additional$500 billion during that same period to the extent thatdiscretionary spending limits were exceeded.The impact of sequestration was reduced with respect to thegovernments 2014 and 2015 fisc
190、al years,in exchange for extending sequestration into fiscal years 2022 and2023,following the enactment of the Bipartisan Budget Act of 2013 in December 2013.The impact ofsequestration was further reduced with respect to the governments 2016 and 2017 fiscal years,following theenactment of the Bipart
191、isan Budget Act of 2015 in November 2015 and with respect to the governments 2018and 2019 fiscal years,following the enactment of the Bipartisan Budget Act of 2018 in February 2018.Sequestration is currently scheduled to resume in the governments 2020 fiscal year.We are unable to predictthe impact t
192、hat the cuts associated with sequestration will ultimately have on funding for the militaryprograms which we support.However,such cuts could result in reductions,delays or cancellations of theseprograms,which could have a material adverse effect on our business,financial condition and results ofoper
193、ations.12We are subject to unique business risks as a result of supplying equipment and services to the U.S.governmentdirectly and as a subcontractor,which could lead to a reduction in our net sales from,or the profitability of oursupply arrangements with,the U.S.government.Companies engaged in supp
194、lying defense-related equipment and services to U.S.government agenciesare subject to business risks specific to the defense industry.We contract directly with the U.S.governmentand are also a subcontractor to customers contracting with the U.S.government.Accordingly,the U.S.government may unilatera
195、lly suspend or prohibit us from receiving new contracts pending resolution ofalleged violations of procurement laws or regulations,revoke required security clearance,reduce the value ofexisting contracts or audit our contract-related costs and fees.In addition,most of our U.S.governmentcontracts and
196、 subcontracts can be terminated by the U.S.government or the contracting party,as applicable,at its convenience.Termination for convenience provisions provide only for our recovery of costs incurred orcommitted,settlement expenses and profit on the work completed prior to termination.In addition,we
197、are subject to U.S.government inquiries and investigations,including periodic audits ofcosts that we determine are reimbursable under government contracts.U.S.government agencies routinelyaudit government contractors to review performance under contracts,cost structure and compliance withapplicable
198、laws,regulations,and standards,as well as the adequacy of and compliance with internal controlsystems and policies,including the contractors purchasing,property,estimating,compensation andmanagement information systems.Any costs found to be misclassified or inaccurately allocated to a specificcontra
199、ct are not reimbursable,and to the extent already reimbursed,must be refunded.Also,anyinadequacies in our systems and policies could result in payments being withheld,penalties and reducedfuture business.Government rules require contracting officers to impose contractual withholdings at no less than
200、 certainminimum levels if a contracting officer determines that one or more of a contractors business systems haveone or more significant deficiencies.If a contracting officer were to impose such a withholding on us or evenone of our prime contractors,it would increase the risk that we would not be
201、paid in full or paid timely.Iffuture audit adjustments exceed our estimates,our profitability could be adversely affected.If a government inquiry or investigation uncovers improper or illegal activities,we could be subject tocivil or criminal penalties or administrative sanctions,including contract
202、termination,fines,forfeiture of fees,suspension of payment and suspension or debarment from doing business with U.S.government agencies,anyof which could materially adversely affect our reputation,business,financial condition and results ofoperations.We are also subject to the federal False Claims A
203、ct,which provides for substantial civil penalties andtreble damages where a contractor presents a false or fraudulent claim to the government for payment.Actions under the False Claims Act may be brought by the government or by other persons on behalf of thegovernment(who may then share in any recov
204、ery).If we lose significant customers,significant customers materially reduce their purchase orders or significantprograms on which we rely are delayed,scaled back or eliminated,our business,financial condition and results ofoperations may be adversely affected.Our top ten customers for the year end
205、ed September 30,2018 accounted for 49%of our net sales.Areduction in purchasing by or loss of one of our larger customers for any reason,including changes inmanufacturing or procurement practices,loss of a customer as a result of the acquisition of such customer bya purchaser who does not fully util
206、ize a distribution model or uses a competitor,in-sourcing by customers,atransfer of business to a competitor,an economic downturn,failure to adequately service our clients or tomanage the implementation of new customer sites,decreased production or a strike,could have a materialadverse effect on our
207、 business,financial condition and results of operations.As an example of changes in manufacturing practices that could impact us,OEMs such as Boeing andAirbus have incorporated a higher proportion of composite materials in some of the aircraft theymanufacture.Aircraft utilizing composite materials g
208、enerally require the use of significantly fewer C-classaerospace parts than new aircraft made of more traditional non-composite materials,although the parts usedare generally higher priced than C-class aerospace parts used in non-composite aircraft structures.To theextent Boeing,Airbus and other cus
209、tomers increase their reliance on composite materials,they maymaterially reduce their purchase orders from us.13As an example of the potential loss of business due to customer in-sourcing,a major OEM is undertakingan initiative to cause its first and second tier suppliers to source certain OEM-speci
210、fic materials,includingfasteners,directly from the OEM itself,rather than through distributors such as us.If such initiative is broadlyimplemented by the OEM,or if other OEMs pursue similar initiatives,a portion of our sales to theirsuppliers,and consequently our business,financial condition and res
211、ults of operations,could be adverselyaffected.In addition,major OEMs have recently indicated that they are pursuing initiatives to increase theservices portion of their business.These initiatives could lead to greater in-sourcing on the part of the OEMs,which could adversely affect a portion of our
212、sales to the OEMs and their suppliers.We expect to derive a significant portion of our net sales from certain aerospace programs in their earlyproduction stages.Our future growth will be dependent,in part,upon our sales to various OEMs andsubcontractors as related to such programs.If production of a
213、ny of the programs we support is terminated ordelayed,or if our sales to customers affiliated with these programs are reduced or eliminated,our business,financial condition and results of operations could be adversely affected.We operate in a highly competitive market and our failure to compete effe
214、ctively may negatively impact our results ofoperations.We operate in a highly competitive global industry and compete against a number of companies,including divisions of larger companies and certain of our suppliers,some of which may have significantlygreater financial resources than we do and ther
215、efore may be able to adapt more quickly to changes incustomer requirements than we can.Our competitors consist of both U.S.and foreign companies and range insize from divisions of large public corporations to small privately held entities.We believe that our ability tocompete depends on superior cus
216、tomer service and support,on-time delivery,sufficient inventory availability,competitive pricing and effective quality assurance programs.To remain competitive,we may have to adjustthe prices of some of the products and services we sell and continue investing in our procurement,supply-chain manageme
217、nt and sales and marketing functions,the costs of which could negatively impact ourresults of operations.In addition,we face competition for our Contract customers from both competitors in our industry(including OEMs who are increasing the services portion of their business)and the in-sourcing ofsup
218、ply-chain management by our customers themselves.If any of our Contract customers decides to in-sourcethe services we provide or switches to one of our competitors,we would be adversely affected.We do not have guaranteed future sales of the products we sell and when we enter into Contracts with our
219、customerswe generally take the risk of certain cost increases,and our business,financial condition,results of operations andoperating margins may be negatively affected if we purchase more products than our customers require,product costsincrease unexpectedly,we experience high start-up costs on new
220、 Contracts or our Contracts are terminated.A majority of our Contracts are long-term,fixed-price agreements with no guarantee of future salesvolumes,and they may be terminated for convenience on short notice by our customers,often withoutmeaningful penalties,and often provide that we are reimbursed
221、for the cost of any inventory specificallyprocured for the customer or inventory that is not commonly sold to our other customers.In addition,wepurchase inventory based on our forecasts of anticipated future customer demand.As a result,we may takethe risk of having excess inventory if our customers
222、do not place orders consistent with our forecasts,particularly with respect to inventory that has a more limited shelf-life.Also,even though we often enter intolong-term pricing agreements with our suppliers,we do run the risk of not being able to pass along orotherwise recover unexpected increases
223、in our product costs,including as a result of commodity priceincreases and tariffs,which may increase above our established prices at the time we entered into theContract and established prices for products we provide.When we are awarded new Contracts,particularlyJIT contracts,we may incur high cost
224、s,including salary and overtime costs,to hire and train on-site personnel,in the start-up phase of our performance.In the event that we purchase more products than our customersrequire,product costs increase unexpectedly,we experience high start-up costs on new Contracts or ourContracts are terminat
225、ed,our business,financial condition,results of operations and operating margins couldbe negatively affected.14We may be unable to effectively manage our inventory,which could have a material adverse effect on our business,financial condition and results of operations.Due to the lead times required b
226、y many of our suppliers,we typically order products,particularlyhardware products,in advance of expected sales,and the volume of such orders may be significant.Leadtimes generally range from several weeks up to two years,depending on industry conditions,which makes itdifficult to successfully manage
227、 our inventory as we plan for future demand.In addition,demand for ourproducts can fluctuate significantly,which can also negatively impact our cash flows and inventory level.Forexample,in the three months ended September 30,2015,we determined that inventory previously purchasedin connection with a
228、specific program that was subsequently terminated had no alternative use,and werecorded a provision to write-down such inventory by$33.0 million.If suppliers are unable to supply us with the products we sell in a timely manner,inadequate quantities and/or at areasonable cost,while also meeting our c
229、ustomers quality standards,we may be unable to meet the demands of ourcustomers,which could have a material adverse effect on our business,financial condition and results of operations.Our inventory is primarily sourced directly from producers and manufacturing firms,and we depend onthe availability
230、 of large supplies of the products we sell,which must also meet our customers qualitystandards.Our largest suppliers for the year ended September 30,2018 were Precision Castparts Corp.andArconic.During fiscal 2018,12%of the products we purchased were from Precision Castparts Corp.and8%were purchased
231、 from Arconic.In addition,our ten largest suppliers during fiscal 2018 accounted for 40%of our purchases.These manufacturers and producers may experience capacity constraints that result in theirbeing unable to supply us with products in a timely manner,in adequate quantities and/or at a reasonablec
232、ost.Contributing factors to manufacturer capacity constraints include,among other things,industry orcustomer demands in excess of manufacturing capacity,labor shortages and changes in raw material flows.Inaddition,changes in trade policies,such as the imposition of additional tariffs on certain prod
233、ucts importedinto the United States,could result in increased procurement costs.Any significant interruption in the supplyof these products or termination of our relationship with any of our suppliers could result in us being unableto meet the demands of our customers,which would have a material adv
234、erse effect on our business,financialcondition and results of operations.Our business is highly dependent on complex information technology and our business and operations could suffer inthe event of cyber-security breaches.The provision and application of IT is an increasingly critical aspect of ou
235、r business.Among other things,our IT systems must frequently interact with those of our customers,suppliers and logistics providers.Ourfuture success will depend on our continued ability to employ IT systems that drive operational efficiency andmeet our customers demands.The failure or disruption of
236、 the hardware or software that supports ourIT systems,including redundancy systems,could significantly harm our ability to service our customers andcause economic losses for which we could be held liable and which could damage our reputation.In addition,we are subject to the risk of cyber-security a
237、ttacks,which includes,but is not limited to,malicious software,ransomware or terrorists attacks,unauthorized attempts to gain access to sensitive,confidential or otherwiseprotected information related to us,our customers and our suppliers and other cyber-security breaches.Acyber-related attack could
238、 cause a loss of data and interruptions or delays in our business(particularly withrespect to our tcmIS operating system),cause us to incur remediation costs,subject us to claims and damageour reputation.In addition,the failure or disruption of our IT systems,communications or utilities,or thoseof t
239、hird parties on which we rely,could cause us to interrupt or suspend our operations or otherwise adverselyaffect our business.Our property and business interruption insurance may be inadequate to compensate usfor all losses that may occur as a result of any system or operational failure or disruptio
240、n which could have amaterial adverse effect on our business,results of operations and financial condition.In addition,systemimprovements and other IT-related upgrades could require us to accelerate the depreciation of certain assets,which could have a material adverse effect on our operating results
241、.Our competitors may have or may develop IT systems that permit them to be more cost effective andotherwise better able to meet customer demands than we are able to with IT systems we are able to acquire ordevelop.Larger competitors may be able to develop or license IT systems more cost effectively
242、than we can byspreading the cost across a larger revenue base,and competitors with greater financial resources may be ableto acquire or develop IT systems that we cannot afford.If we fail to meet the demands of our customers or15protect against disruptions of our IT systems,we may lose customers,whi
243、ch could seriously harm our businessand adversely affect our operating results and operating cash flow.Our implementation of a new WMS could adversely affect our business,financial condition and results of operationsor the effectiveness of our financial reporting processes,including our internal con
244、trols over financial reporting.We are currently implementing a new WMS,which we expect will provide our business with enhancedwarehouse transaction management capabilities and improved labor efficiency around the globe.Such animplementation is a major undertaking,both financially and from a manageme
245、nt and personnel perspective.Even if successfully implemented,we may not realize the anticipated productivity improvements or costefficiencies from the WMS.In addition,any disruptions,delays or deficiencies in the design andimplementation of the WMS could adversely affect our ability to manage our i
246、nventory,process orders,shipproducts in a timely manner or provide services and customer support,and could also result in loss ofinformation,diminished management reporting capabilities,harm to our control environment,diminishedemployee productivity and unanticipated increases in costs.If we do not
247、effectively implement the WMS or ifthe WMS does not operate as intended,it could adversely affect our business,financial condition and resultsof operations and the effectiveness of our financial reporting processes,including our internal controls overfinancial reporting.If we are unable to successfu
248、lly execute and realize the expected financial benefits from our Wesco 2020 initiative,our business and financial results could be adversely affected.In May 2018,we announced the launch of our Wesco 2020 initiative,which is designed to broaden andinstitutionalize improvements already made to our bus
249、iness during fiscal 2018 and further improve theCompanys service excellence,inventory management,productivity and profitability.The Company expectsWesco 2020 to deliver significant operational and financial benefits through footprint alignment,organizational refinement,productivity gains and investm
250、ent in critical capabilities to serve customers better.However,we may be unable to effectively execute certain of these improvement initiatives,which could limitour realization of expected costs savings,anticipated synergies and efficiencies and customer serviceimprovements.Moreover,the expenses ass
251、ociated with these initiatives can be difficult to predict,and we mayincur substantial additional expenses in connection with the execution of Wesco 2020 in excess of what iscurrently expected,particularly if any of these initiatives are unsuccessful or prove unsustainable,which mayrequire us to inc
252、ur additional costs.Furthermore,improvement initiatives of this sort are a complex andtime-consuming process that can place substantial demands on management,which could divert attentionfrom other business priorities or disrupt our daily operations.Any of these failures could,in turn,materiallyadver
253、sely affect our business,financial condition,results of operations and cash flows,and could negativelyimpact our ability to achieve our other strategic goals and business plans.We may be unable to retain personnel who are key to our operations.Our success,among other things,is dependent on our abili
254、ty to attract,develop and retain highlyqualified senior management and other key personnel.Competition for key personnel is intense,and ourability to attract and retain key personnel is dependent on a number of factors,including prevailing marketconditions and compensation packages offered by compan
255、ies competing for the same talent.The inability tohire,develop and retain these key employees may adversely affect our operations.There are risks inherent in international operations that could have a material adverse effect on our business,financial condition and results of operations.While the maj
256、ority of our operations are based in the United States,we have significant internationaloperations,with facilities in Australia,Canada,China,France,Germany,India,Israel,Italy,Mexico,Singapore and the United Kingdom,and customers throughout North America,Latin America,Europe,Asiaand the Middle East.F
257、or the years ended September 30,2018 and 2017,33%and 35%,respectively,of ournet sales were derived from customers located outside the United States.Our international operations are subject to,without limitation,the following risks:the burden of complying with multiple and possibly conflicting laws a
258、nd any unexpected changes inregulatory requirements;political risks,including risks of loss due to civil disturbances,acts of terrorism,acts of war,guerillaactivities and insurrection;16unstable economic,financial and market conditions and increased expenses due to inflation,orhigher interest rates;
259、difficulties in enforcement of third-party contractual obligations and collecting receivables throughforeign legal systems;changes in global trade policies;increasingly complex laws and regulations concerning privacy,data protection and data security,including the European Unions General Data Protec
260、tion Regulation;difficulties in staffing and managing international operations and the application of foreign laborregulations;differing local product preferences and product requirements;andpotentially adverse tax consequences from changes in tax laws,requirements relating to withholdingtaxes on re
261、mittances and other payments by subsidiaries and restrictions on our ability to repatriatedividends from our subsidiaries.In addition,fluctuations in the value of foreign currencies affect the dollar value of our net investment inforeign subsidiaries,with these fluctuations being included in a separ
262、ate component of stockholders equity.At September 30,2018,we reported a cumulative foreign currency translation adjustment loss of$84.4 millionin stockholders equity,and we may incur additional adjustments in future periods.In addition,operatingresults of certain of our foreign subsidiaries are tran
263、slated into U.S.dollars for purposes of our statements ofcomprehensive income at average monthly exchange rates.Moreover,to the extent that our net sales are notdenominated in the same currency as our expenses,our net earnings could be materially adversely affected.For example,a portion of labor,mat
264、erial and overhead costs for our facilities in the United Kingdom,Germany,France and Italy are incurred in British pounds or euros,but in certain cases the related net salesare denominated in U.S.dollars.Changes in the value of the U.S.dollar or other currencies could result inmaterial fluctuations
265、in foreign currency translation amounts or the U.S.dollar value of transactions and,as aresult,our net earnings could be materially adversely affected.At times we engage in hedging transactions tomanage or reduce our foreign currency exchange risk,but these transactions may not be successful and,as
266、aresult,our business,financial condition and results of operations could be materially adversely affected.During fiscal 2018 and 2017,fluctuations in foreign currency translation had a positive impact on net sales of$1.1 million and a negative impact of$22.9 million,respectively.Our international op
267、erations require us to comply with numerous applicable anti-corruption and trade control lawsand regulations,including those of the U.S.government and various other jurisdictions,and our failure to complywith these laws and regulations could adversely affect our reputation,business,financial conditi
268、on and results ofoperations.Doing business on a worldwide basis requires us to comply with the laws and regulations of theU.S.government and various other jurisdictions,and our failure to successfully comply with these rules andregulations may expose us to liabilities.These laws and regulations can
269、apply to companies,individualdirectors,officers,employees and agents,and may restrict our operations,trade practices,investmentdecisions and partnering activities.Our risk of violating anti-corruption laws is increased because some of theinternational locations in which we operate lack a highly deve
270、loped legal system and have elevated levels ofcorruption,and because our industry is highly regulated.In particular,our international operations are subject to U.S.and foreign anti-corruption laws andregulations,such as the FCPA,the Bribery Act and other applicable anti-corruption regimes.These laws
271、generally prohibit us from corruptly providing anything of value,directly or indirectly,to foreign governmentofficials for the purposes of improperly influencing official decisions,improperly obtaining or retainingbusiness,or otherwise obtaining favorable treatment.As part of our business,we may dea
272、l with governmentsand state-owned business enterprises,the employees and representatives of which may be consideredgovernment officials for purposes of the FCPA,the Bribery Act or other applicable anti-corruption laws.Some anti-corruption laws,such as the Bribery Act,also prohibit commercial bribery
273、 and the acceptance ofbribes.In addition,the FCPA further requires publicly traded companies to maintain adequaterecord-keeping that accurately reflects the transactions of the company,as well as a system of internalaccounting controls.17As an exporter,we must comply with various laws and regulation
274、s relating to the export of products,services and technology from the United States and other countries having jurisdiction over our operations.Inthe U.S.,these laws include,among others,the EAR administered by the U.S.Department of CommercesBureau of Industry and Security,the ITAR administered by t
275、he U.S.Department of States Directorate ofDefense Trade Controls,and trade sanctions,regulations and embargoes administered by the U.S.Department of the Treasurys Office of Foreign Assets Control.These laws and regulations may require us toobtain individual validated licenses from the relevant agenc
276、y to export,re-export,or transfer commodities,software,technology,or services to certain jurisdictions,individuals,or entities.We cannot be certain that ourapplications for export licenses or other authorizations will be granted or approved.Furthermore,the exportlicense and export authorization proc
277、ess is often time-consuming.Violations of these legal requirements can be punishable by criminal fines and imprisonment,civilpenalties,disgorgement of profits,injunctions,debarment from government contracts,seizure and forfeitureof unlawful attempted exports,and/or denial of export privileges,as wel
278、l as other remedial measures.Wehave established policies and procedures designed to assist us,our personnel and our agents to comply withapplicable U.S.and international laws and regulations.However,there can be no guarantee that our policiesand procedures will effectively prevent us,our employees a
279、nd our agents from violating these regulations inevery transaction in which we may engage,and violations,allegations or investigations of such violations couldmaterially adversely affect our reputation,business,financial condition and results of operations.Changes in trade policies,including the imp
280、osition of additional tariffs,could negatively impact our business,financial condition and results of operations.The current United States administration has signaled support for,and in some instances has takenaction with respect to,major changes to certain trade policies,such as the imposition of a
281、dditional tariffs onimported products and the withdrawal from or renegotiation of certain trade agreements,including the NorthAmerican Free Trade Agreement.Such changes could also result in retaliatory actions by the United Statestrade partners.For example,the United States has increased tariffs on
282、certain imports from China,as well ason steel and aluminum products imported from various countries.In response,China,the European Union,and several other countries have imposed or proposed additional tariffs on certain exports from theUnited States.We procure certain of the products we sell directl
283、y or indirectly from outside of the United States,including from China.The imposition of tariffs and other potential changes in United States trade policycould increase the cost or limit the availability of such products,which could hurt our competitive positionand adversely impact our business,fina
284、ncial condition and results of operations.In addition,we sell asignificant proportion of our products to customers outside of the United States.Retaliatory actions by othercountries could result in increases in the price of our products,which could limit demand for such products,hurt our global comp
285、etitive position and have a material adverse effect on our business,financial conditionand results of operations.Our total assets include substantial intangible assets,and the write-off of a significant portion of our intangible assetswould negatively affect our financial results.Our total assets re
286、flect substantial intangible assets.At September 30,2018,goodwill and intangibleassets,net represented 24.0%of our total assets.Goodwill represents the excess of the purchase price ofacquired businesses over the fair value of the assets acquired and liabilities assumed resulting fromacquisitions,inc
287、luding the acquisition of our Company by affiliates of The Carlyle Group(Carlyle)and theacquisition of Haas.Intangible assets represent trademarks,backlogs,non-compete agreements,technologyand customer relationships.On at least an annual basis,we assess whether there has been impairment in thevalue
288、of goodwill and indefinite-lived intangible assets.If our testing identifies impairment under generallyaccepted accounting principles in the United States(GAAP),the impairment charge we calculate wouldresult in a charge to income from operations.For example,during the three months ended June 30,2017
289、,werecorded a non-cash goodwill impairment of$311.1 million.Any future determination requiring the write-offof a significant portion of goodwill and unamortized identified intangible assets would negatively affect ourresults of operations and total capitalization,which could be material.For addition
290、al information,seePart II,Item 7.Managements Discussion and Analysis of Financial Condition and Results ofOperations-Critical Accounting Policies and Estimates-Goodwill and Indefinite-Lived Intangible Assets.18Changes in U.S.tax law have affected and may continue to affect our business,financial con
291、dition and results ofoperations.On December 22,2017,the Tax Act was signed into law.As a fiscal year taxpayer,certain provisions ofthe Tax Act have impacted the Company for our fiscal year ended September 30,2018,while other provisionsof the Tax Act will impact the Company for our fiscal year beginn
292、ing October 1,2018 and beyond.We are stillevaluating the full impact of the Tax Act on our liability for U.S.corporate tax and the related impact on ourbusiness,financial condition and results of operations,and based on our current estimates,we believe thesechanges will be material(see Note 15 of th
293、e Notes to Consolidated Financial Statements in Part II,Item 8 ofthis Annual Report on Form 10-K).For example,we believe that the following changes included in the TaxAct,among others,will or could have a material impact on our liability for U.S.corporate tax:(i)thetransition to a territorial tax sy
294、stem that generally allows for the repatriation of foreign earnings withoutadditional U.S.corporate income tax while maintaining and expanding existing rules regarding the taxation offoreign earnings prior to their repatriation to the U.S.and(ii)the limitations on the deductibility of interestexpens
295、e,entertainment expense and certain executive compensation.However,our estimates regarding theimpact of the Tax Act may change,possibly materially,following managements review of historical records,refinement of calculations,modifications of assumptions and further interpretation of the Tax Act base
296、d onU.S.Treasury regulations and guidance from the Internal Revenue Service and state tax authorities.If any of our customers were to become insolvent or experience substantial financial difficulties,our business,financial condition and results of operations may be adversely affected.If any of the c
297、ustomers with whom we do business becomes insolvent or experiences substantial financialdifficulties we may be unable to timely collect amounts owed to us by such customers and may not be able tosell the inventory we have purchased for such customers,which could have a material adverse effect on our
298、business,financial condition and results of operations.We or our suppliers or customers may experience damage to or disruptions at our or their facilities caused by naturaldisasters and other factors,which may result in our business,financial condition and results of operations beingadversely affect
299、ed.Several of our facilities or those of our suppliers and customers could be subject to a catastrophic losscaused by earthquakes,tornadoes,floods,hurricanes,fire,power loss,telecommunication and informationsystems failure or other similar events.Should insurance be insufficient to recover all such
300、losses or should webe unable to reestablish our operations,or if our customers or suppliers were to experience materialdisruptions in their operations as a result of such events,our business,financial condition and results ofoperations could be adversely affected.We are dependent on access to and th
301、e performance of third-party package delivery companies.Our ability to provide efficient distribution of the products we sell to our customers is an integralcomponent of our overall business strategy.We do not maintain our own delivery networks,and instead relyon third-party package delivery compani
302、es.We cannot assure you that we will always be able to ensure accessto preferred delivery companies or that these companies will continue to meet our needs or providereasonable pricing terms.In addition,if the package delivery companies on which we rely experience delaysresulting from inclement weat
303、her or other disruptions,we may be unable to maintain products in inventoryand deliver products to our customers on a timely basis,which may adversely affect our business,financialcondition and results of operations.A significant labor dispute involving us or one or more of our customers or supplier
304、s,or a labor dispute thatotherwise affects our operations,could reduce our net sales and harm our profitability.Labor disputes involving us or one or more of our customers or suppliers could affect our operations.Ifour customers or suppliers are unable to negotiate new labor agreements and our custo
305、mers or suppliersplants experience slowdowns or closures as a result,our net sales and profitability could be negativelyimpacted.While our employees are not currently unionized,they may attempt to form unions in the future,and theemployees of our customers,suppliers and other service providers may b
306、e,or may in the future be,unionized.19We cannot assure you that there will not be any strike,lock out or material labor dispute with respect to ourbusiness or those of our customers or suppliers in the future that materially affects our business,financialcondition and results of operations.We may be
307、 materially adversely affected by high fuel prices.Fluctuations in the global supply of crude oil and the possibility of changes in government policies on theproduction,transportation and marketing of jet fuel make it impossible to predict the future availability andprice of jet fuel.In the event th
308、ere is an outbreak or escalation of hostilities or other conflicts or significantdisruptions in oil production or delivery in oil-producing areas or elsewhere,there could be reductions in theproduction or importation of crude oil and significant increases in the cost of jet fuel.If there were majorr
309、eductions in the availability of jet fuel or significant increases in its cost,commercial airlines would faceincreased operating costs.Due to the competitive nature of the airline industry,airlines are often unable topass on increases in fuel prices to customers by increasing fares.As a result,an in
310、crease in jet fuel could resultin a decrease in net income from either lower margins or,if airlines increase ticket fares,lower net sales fromreduced airline travel.Decreases in airline profitability could decrease the demand for new commercialaircraft,resulting in delays of or reductions in deliver
311、ies of commercial aircraft that utilize the products wesell,and,as a result,our business,financial condition and results of operations could be materially adverselyaffected.Our financial results may fluctuate from period-to-period,making quarter-to-quarter comparisons of our business,financial condi
312、tion and results of operations less reliable indicators of our future performance.There are many factors,such as the cyclical nature of the aerospace industry,fluctuations in our ad hocsales,delays in major aircraft programs,planned production shutdowns,downward pressure on sales pricesand changes i
313、n the volume of our customers orders that could cause our financial results to fluctuate fromperiod-to-period.For example,during the year ended September 30,2018,24%of our net sales were derivedfrom ad hoc sales.The prices we charge for ad hoc sales are typically higher than the prices under ourCont
314、ract sales.However,customers may not continue to purchase the same amount of products from us onan ad hoc basic as they have in the past,so it cannot be assured that in any given year we will be able togenerate similar levels of ad hoc net sales as we did in the past.We are also actively working to
315、transitioncustomers from ad hoc purchases to Contracts,which may also result in a reduction in our ad hoc net sales.Inaddition,our acquisition of Haas has contributed to lower our ad hoc sales as a percentage of total net sales.A significant diminution in our ad hoc sales in any given period could r
316、esult in fluctuations in our financialresults and operating margins.As a result of these factors,we believe that quarter-to-quarter comparisons ofour financial results are not necessarily meaningful and that these comparisons cannot be relied upon asindicators of future performance.We will continue
317、to incur significant costs as a result of operating as a publicly traded company,and ourmanagement is required to devote substantial time to public company compliance requirements and investor needs.As a publicly traded company,we will continue to incur significant legal,accounting and other expense
318、s.In addition,the Sarbanes-Oxley Act of 2002(the Sarbanes-Oxley Act)and the rules of the SEC and theNew York Stock Exchange have imposed various requirements on public companies.Our management andother personnel will continue to devote a substantial amount of time to these compliance initiatives.Mor
319、eover,these rules and regulations will continue to result in increased legal and financial compliance costscompared to a private company and make some activities more time-consuming and costly.For example,webelieve these rules and regulations make it more difficult and more expensive for us to maint
320、ain appropriatelevels of director and officer liability insurance.We are subject to health,safety and environmental laws and regulations,any violation of which could subject us tosignificant liabilities and penalties.We are subject to extensive federal,state,local and foreign laws,regulations,rules
321、and ordinancesrelating to pollution,protection of the environment and human health and safety,and the handling,transportation,storage,treatment,disposal and remediation of hazardous substances,including potentiallywith respect to historical chemical blending and other activities that pre-dated the p
322、urchase of the Haas20business by us.Actual or alleged violations of EHS laws,or permit requirements could result in restrictions orprohibitions on operations and substantial civil or criminal sanctions,as well as,under some EHS laws,theassessment of strict liability and/or joint and several liabilit
323、y.Furthermore,we may be liable for the costs of investigating and cleaning up environmentalcontamination on or from our operations or at off-site locations,including potentially with respect tohistorical chemical blending and other activities that pre-dated the purchase of the Haas business by us.We
324、may therefore incur additional costs and expenditures beyond those currently anticipated to address all suchknown and unknown situations under existing and future EHS laws.Governmental,regulatory and societal demands for increasing levels of product safety and environmentalprotection are resulting i
325、n increased pressure for more stringent regulatory control with respect to thechemical industry.The European Unions REACH regulations enacted in 2009 have been a continuing sourceof compliance obligations and restrictions on certain chemicals,and REACH-like regimes have now beenadopted in several ot
326、her countries.In the United States,the core provisions of the TSCA were amended inJune 2016 for the first time in nearly 40 years.Among the more significant changes are that theseamendments mandate safety reviews of existing high priority chemicals and regulatory action to control anyunreasonable ri
327、sks identified as result of such reviews.The EPA also now must make a no unreasonablerisk finding before a new chemical can be fully commercialized.These new mandates create uncertaintyabout whether existing chemicals of importance to our business may be designated for restriction and whetherthe new
328、 chemical approval process may become more difficult and costly.These types of changes in the Companys regulatory environment,particularly,but not limited to,in theUnited States,the European Union,Canada and China,could lead to heightened regulatory scrutiny andcould adversely impact our ability to
329、supply certain products and provide supply chain management servicesto our customers.Such changes also could result in compliance obligations for us directly or as part of oursupply chain management services to customers,fines,ongoing monitoring and other future business activityrestrictions,which c
330、ould have a material adverse effect on our business,financial condition and results ofoperations.Finally,we have in the past sold products containing PFAS,including PFOA.Certain PFAS,including PFOA,have been targeted for risk assessment,restriction,and high priority remediation and havebeen the subj
331、ect of ongoing and substantial litigation in the both the U.S.and European Union.We have notreceived any claims or enforcement actions from governments or third parties relating to PFOA or any otherPFAS.In addition,these concerns could influence public perceptions regarding our operations and our ab
332、ility toattract and retain customers and employees.Moreover,changes in EHS regulations could inhibit or interruptour operations,or require us to modify our facilities or operations.Accordingly,environmental or regulatorymatters may cause us to incur significant unanticipated losses,costs,capital exp
333、enditures or liabilities,whichcould reduce our profitability.Such losses,costs,capital expenditures or liabilities will be subject to evolvingregulatory requirements and will depend on the timing of the promulgation and enforcement of specificstandards which impose requirements on our operations.As a result,these losses,costs,capital expendituresor liabilities may be more than currently anticipate
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