Sales of C-class aerospace hardware represented 47%46%, 47% and 48%47% of our fiscal 2019, 2018 2017 and 20162017 product sales, respectively. Fasteners, our largest category of hardware products, include a wide range of highly engineered 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 are designed for use in specific aircraft platforms and others can be used across multiple platforms. Materials used in the manufacture of these fasteners range from standard alloys, such as aluminum, steel or stainless steel, to more advanced materials, such as titanium, Inconel and Waspaloy.

Chemical sales represented 42%43%, 42% and 41%42% of our fiscal 2019, 2018 2017 and 20162017 product sales, respectively. Our chemical product offerings include adhesives; sealants and tapes; lubricants; oil and grease; paints and coatings; industrial gases; coolants and metalworking fluids; and, cleaners and cleaning solvents.

Machined parts are designed for a specific customer and are assigned unique OEM-specific SKUs. The machined parts we distribute include laser cut or stamped brackets, milled parts, shims, stampings, turned parts and welded assemblies made of materials ranging from high-grade steel or titanium to nickel based alloys.

Before signing a JIT contract, our customers typically experience outages of many SKUs and, in some cases, have up to a year’s worth of inventory on hand for other SKU’s. As part of our JIT programs, we generally assume custody of the customer’s existing inventory at the onset of the contract, immediately reducing their management of their physical inventory on-handon hand with lower costs. Customer inventory is generally assumed on a consignment basis and is entered in our perpetual

Another key strength of our JIT programs is our ability to utilize highly scalable and customizable point-of-use systems to develop an efficient supply chain management system and automated replenishment solution for any number of SKUs. In order to minimize inventory on hand, certain indicators are used to trigger the replenishment of product, with all replenishment activity done via hand-held scanners that transmit orders to our stocking locations.

In certain circumstances, we also provide our JIT and CMS customers with additional value-added services, including the implementation of process control and usage reduction programs; safety data-sheet management, support for environmental, health and safety compliance (EHS) and reporting; and assistance with the development of waste management strategies.

We sell products to airline-affiliated, OEM-affiliated and independent MRO providers on both a Contract and ad hoc basis. We have expanded our efforts to increase our presence in both the commercial and military aerospace MRO markets, particularly as a result of our acquisition of Haas in 2014 andpart through the introduction of our updated Wesco e-commerce sales platform, which we believe provides us with a cost-effective way to further penetrate the aftermarket. In addition, we have targeted domestic and international airlines and maintenance centers that we believe are assuming an expanded role within the MRO market.

Going forward, we expect commercial MRO providers to benefit from many of the same trends as those impacting the commercial OEM market, including industry passenger volumes and capacity utilization, as well as requirements to maintain aging aircraft and the cost of fuel, which can lead to greater utilization of existing planes. The commercial MRO market may also benefit from directives or notifications announced by international industry regulators and trade associations. Such directives or notifications can serve to bolster required maintenance, and thus the demand for new and existing aerospace products. Furthermore, we expect demand in the military MRO market to be driven by changes in overall fleet size and the level of U.S. military operational activity domestically and overseas. We believe that our presence in this market helps us mitigate the volatility of new military aircraft sales with sales to the aftermarket.

Ad hoc sales represent products purchased from us on an as-needed basis and are generally supplied out of our existing inventory. Typically, ad hoc orders are for smaller quantities of products than those ordered under Contracts, and are often urgent in nature. Given our breadth and volume of inventory, it is not uncommon for even our competitors to purchase products from us on an ad hoc basis when their own stocks prove to be inadequate. In an environment of increasing aircraft production and oftentimes relatively long supplier lead-times, product shortages can become increasingly common for OEMs, subcontractors, MRO providers 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 sell conform to the drawings and specifications that are in effect at the time of delivery in the applicable contract, and that we will replace defective or non-conforming products for a period of time that varies from contract to contract. We, in turn, look to the product manufacturer to indemnify us for liabilities resulting from defective or non-conforming products. We do not accrue for warranty expenses as our claims related to defective and non-conforming products have not been nominal.significant.

During fiscal 2018, 76%2019, 73% of our net sales were derived from major OEMs, such as Airbus, Boeing, BAE Systems, Bell Helicopter, Bombardier, Cessna, Embraer, Gulfstream, Lockheed Martin, Northrop Grumman and Raytheon, and many of their subcontractors. Government sales comprised 14%16% of our net sales during fiscal 20182019 and were derived from various military parts procurement agencies such as the U.S. Defense Logistics Agency, or from defense contractors buying on their behalf. Aftermarket sales to airline-affiliated or independent MRO providers made up 5%4% of our fiscal 20182019 net sales. The remaining 5%7% of our net sales were to other distributors.

During fiscal 2018, 55%2019, 56% of our net sales were derived from customers supporting commercial programs and 45%44% of our net sales were derived from customers supporting military programs. We also service international customers in markets that include Australia, Canada, China, France, Germany, India, Ireland, Israel, Italy, Malaysia, Mexico, the Philippines, Poland, Saudi Arabia, Singapore, South Korea, Turkey and the United Kingdom. For additional information about our net sales and long-lived assets by geographic area, see Note 20 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

We source our inventory from over 6,000 suppliers globally, including Amphenol, Arconic, Consolidated Aerospace Manufacturing (CAM),CAAP Company, Esterline, Henkel, Lisi Aerospace, PRC Desoto,PPG Industries, Precision Castparts Corp., TriMas, and 3M. During fiscal 2018,2019, Precision Castparts Corp. and Arconic supplied 12%9% and 8%, respectively, of the products we purchased.purchased, and our ten largest suppliers during fiscal 2019 accounted for 38% of our purchases. Suppliers typically prefer to deal with a relatively small number of large and sophisticated distributors in order to improve production efficiency; reduce finished goods inventory and related obsolescence costs; maintain pricing discipline; improve performance in meeting on-time-delivery targets to the end customers; and consolidate customer accounts, which can reduce administrative and overhead costs relating to sales and marketing, customer service and other functions. As a result of our size and our long-standing relationships with many of our suppliers, we are often able to take advantage of significant volume-based discounts when purchasing inventory. Given our industry position and close cooperation with suppliers, we believe that we are in an excellent position to become a distributor for new product lines as they become available.

For our shipping logistics and export compliance support, we employ Precision Software’s TRA/X. TRA/X enables us to ship globally while maintaining tracking numbers and rating information for each customer shipment. In addition, at several of our distribution facilities, we use Minerva’s AIMS inventory management system to provide the best possible warehouse flow and cycle times. AIMS is tailored to fit our global warehouse operational needs and allows us to provide an expandable warehouse management system that can also incorporate transaction processing, work-in-progress and other manufacturing operations. AIMS interfaces with a broad range of material handling equipment, including horizontal and vertical carousels, conveyors, sorting equipment, pick systems and cranes.

Going forward, we will continue to evaluate our IT infrastructure and expect to undertake efforts to modernize our capabilities, particularly through investments in additional state of the art software and hardware that is designed to improve our ability to service our customers.

Our net sales may fluctuate quarterly based on the number of production days at our customers' facilities, which is driven by holidays and planned production shutdowns, particularly the winter holidays during our first fiscal quarter and the summer months during our fourth fiscal quarter.

As of September 30, 2018,2019, we employed 3,0693,302 personnel worldwide, 1,0351,161 of whom were located at customer sites. We have 839876 employees located outside of North America. We are not a party to any collective bargaining agreements with our employees.

Governmental agencies throughout the world, including the U.S. Federal Aviation Administration (FAA), prescribe standards for aircraft components, including virtually all commercial airline and general aviation products, as well as regulations regarding the repair and overhaul of airframes and engines. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries. In addition, the products we distribute must also be certified by aircraft and engine OEMs. If any of the material authorizations or approvals that allow us to supply products is revoked or suspended, then the sale of the related products would be prohibited by law, which would have an adverse effect on our business, financial condition and results of operations.

From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which are usually more stringent than existing regulations. If these proposed regulations are adopted and enacted, we could incur significant additional costs to achieve compliance, which could have a material adverse effect on our business, financial condition and results of operations.

We are also subject to government rules and regulations that include the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act 2010 (Bribery Act), the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), economic sanctions and the False Claims Act. See “Risk Factors-Risks Related to Our Business and Industry-We are subject to unique business risks as a result of supplying equipment and services to the U.S. government directly and as a subcontractor, which could lead to a reduction in our net sales from, or the profitability of our supply

We are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and human health and safety, and the handling, transportation, storage, treatment, disposal and remediation of hazardous substances, including potentially with respect to historical chemical blending and other activities that pre-dated our purchase of Haas. Actual or alleged violations of EHS laws or permit requirements could result in restrictions or prohibitions on operations and substantial civil or criminal sanctions, as well as, under some EHS laws, the assessment of strict liability and/or joint and several liability.

Furthermore, we may be liable for the costs of investigating and cleaning up environmental contamination on or from our operations or at off-site locations, including potentially with respect to historical chemical blending and other activities that pre-dated our purchase of our businesses. We may therefore incur additional costs and expenditures beyond those currently anticipated to address all such known and unknown situations under existing and future EHS laws.

Demand for the products and services we offer are directly tied to the delivery of new aircraft, aircraft utilization, and repair of existing aircraft, which, in turn, are impacted by global economic conditions. For example, 2009 revenue passenger miles (RPMs) on commercial aircraft declined due to the global recession. During the same period, the industry experienced declines in large commercial, regional and business jet deliveries. A slowdown in the global economy, or a return to a recession, would negatively impact the aerospace industry, and could negatively impact our business, financial condition and results of operations.

During the year ended September 30, 2018, 45%2019, 44% of our net sales were related to military aircraft. The military market is significantly dependent upon government budget trends, particularly the U.S. Department of Defense (DoD) budget. Future DoD budgets could be negatively impacted by several factors, including, but not limited to, a change in defense spending policy by the current and future presidential administrations and Congress, the U.S. government’s 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 military spending, each of which could cause the DoD budget to decline. A decline in U.S. military expenditures could result in a reduction in military aircraft production, which could have a material adverse effect on our business, financial condition and results of operations.

Companies engaged in supplying defense-related equipment and services to U.S. government agencies are subject to business risks specific to the defense industry. We contract directly with the U.S. government and are also a subcontractor to customers contracting with the U.S. government. Accordingly, the U.S. government may unilaterally suspend or prohibit us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations, revoke required security clearance, reduce the value of existing contracts or audit our contract-related costs and fees. In addition, most of our U.S. government contracts and 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 or committed, settlement expenses and profit on the work completed prior to termination.

In addition, we are subject to U.S. government inquiries and investigations, including periodic audits of costs that we determine are reimbursable under government contracts. U.S. government agencies routinely audit government contractors to review performance under contracts, cost structure and compliance with applicable laws, regulations, and standards, as well as the adequacy of and compliance with internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be misclassified or inaccurately allocated to a specific contract are not reimbursable, and to the extent already reimbursed, must be refunded. Also, any inadequacies in our systems and policies could result in payments being withheld, penalties and reduced future business.business, which we are not aware of any.

Government rules require contracting officers to impose contractual withholdings at no less than certain minimum levels if a contracting officer determines that one or more of a contractor’s business systems have one or more significant deficiencies. If a contracting officer were to impose such a withholding on us or even one of our prime contractors, it would increase the risk that we would not be paid in full or paid timely. If future 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 to civil or criminal penalties or administrative sanctions, including contract termination, fines, forfeiture of fees, suspension of payment and suspension or debarment from doing business with U.S. government agencies, any of which could materially adversely affect our reputation, business, financial condition and results of operations.

We are also subject to the federal False Claims Act, which provides for substantial civil penalties and treble 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 the government (who may then share in any recovery).

Our top ten customers for the year ended September 30, 20182019 accounted for 49%53% of our net sales. A reduction in purchasing by or loss of one of our larger customers for any reason, including changes in manufacturing or procurement practices, loss of a customer as a result of the acquisition of such customer by a purchaser who does not fully utilize a distribution model or uses a competitor, in-sourcing by customers, a transfer of business to a competitor, an economic

As an example of changes in manufacturing practices that could impact us, OEMs such as Boeing and Airbus have incorporated a higher proportion of composite materials in some of the aircraft they manufacture. Aircraft utilizing composite materials generally require the use of significantly fewer C-class aerospace parts than new aircraft made of more traditional non-composite materials, although the parts used are generally higher priced than C-class aerospace parts used in non-composite aircraft structures. To the extent Boeing, Airbus and other customers increase their reliance on composite materials, they may materially reduce their purchase orders from us.

As an example of the potential loss of business due to customer in-sourcing, a major OEM is undertakinghas undertaken an initiative to causeencourage its first and second tier suppliers to source certain OEM-specific materials, including fasteners, directly from the OEM itself, rather than through distributors such as us. If suchthis initiative is more broadly implemented by the OEM, or if other OEMs pursue similar initiatives, a portion of our sales to their suppliers, and consequently our business, financial condition and results of operations, could be adversely affected.

In addition, major OEMs have recently indicated that they are pursuing initiatives to increase the services 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 sales to the OEMs and their suppliers.

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 significantly greater financial resources than we do and therefore may be able to adapt more quickly to changes in customer requirements than we can. Our competitors consist of both U.S. and foreign companies and range in size from divisions of large public corporations to small privately held entities. We believe that our ability to compete depends on superior customer service and support, on-time delivery, sufficient inventory availability, competitive pricing and effective quality assurance programs. To remain competitive, we may have to adjust the prices of some of the products and services we sell and continue investing in our procurement, supply-chain management and sales and marketing functions, the costs of which could negatively impact our results 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 of supply-chain management by our customers themselves. If any of our Contract customers decides to in-source the services we provide or switches to one of our competitors, we would be adversely affected.

A majority of our Contracts are long-term, fixed-price agreements with no guarantee of future sales volumes, and they may be terminated for convenience on short notice by our customers, often without meaningful penalties, and often provide that we are reimbursed for the cost of any inventory specifically procured for the customer or inventory that is not commonly sold to our other customers. In addition, we purchase inventory based on our forecasts of anticipated future customer demand. As a result, we may take the risk of having excess inventory if our customers 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 into long-term pricing agreements with our suppliers, we do run the risk of not being able to pass along or otherwise recover unexpected increases in our product costs, including as a result of commodity price increases and tariffs, which may increase above our established prices at the time we entered into the Contract and established prices for products we provide. When we are awarded new Contracts, particularly JIT contracts, we may incur high costs, 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 customers require,

Due to the lead times required by many of our suppliers, we typically order products, particularly hardware products, in advance of expected sales, and the volume of such orders may be significant. Lead times generally range from several weeks up to two years, depending on industry conditions, which makes it difficult to successfully manage our inventory as we plan for future demand. In addition, demand for our products can fluctuate significantly, which can also negatively impact our cash flows and inventory level. For example, in the three months ended September 30, 2015, we determined that inventory previously purchased in connection with a specific program that was subsequently terminated had no alternative use, and we recorded a provision to write-down such inventory by $33.0 million.

Our competitors may have or may develop IT systems that permit them to be more cost effective and otherwise better able to meet customer demands than we are able to with IT systems we are able to acquire or develop. Larger competitors may be able to develop or license IT systems more cost effectively than we can by spreading the cost across a larger revenue base, and competitors with greater financial resources may be able to acquire or develop IT systems that we cannot afford. If we fail to meet the demands of our customers or protect against disruptions of our IT systems, we may lose customers, which could seriously harm our business and adversely affect our operating results and operating cash flow.

We are currently implementing a new WMS, which we expect will provide our business with enhanced warehouse transaction management capabilities and improved labor efficiency around the globe.��Such an implementation is a major undertaking, both financially and from a management and personnel perspective. Even if successfully implemented, we may not realize the anticipated productivity improvements or cost efficiencies from the WMS. In addition, any disruptions, delays or deficiencies in the design and implementation of the WMS could adversely affect our ability to manage our inventory, process orders, ship products in a timely manner or provide services and customer support, and could also result in loss of information, diminished management reporting capabilities, harm to our control environment, diminished employee productivity and unanticipated increases in costs. If we do not effectively implement the WMS or if the WMS does not operate as intended, it could adversely affect our business, financial condition and results of operations and the effectiveness of our financial reporting processes, including our internal controls over financial reporting.

In May 2018, we announced the launch of our “Wesco 2020” initiative, which is designed to broaden and institutionalize improvements already made to our business during fiscal 2018 and further improve the Company’s service excellence, inventory management, productivity and profitability. The Company expects “Wesco 2020” to deliver significant operational and financial benefits through footprint alignment, organizational refinement, productivity gains and investment in critical capabilities to serve customers better. However, we may be unable to effectively execute certain of these improvement initiatives, which could limit our realization of expected costs savings, anticipated synergies and efficiencies and customer service improvements. Moreover, the expenses associated with these initiatives can be difficult to predict, and we may incur substantial additional expenses in connection with the execution of “Wesco 2020” in excess of what is currently expected, particularly if any of these initiatives are unsuccessful or prove unsustainable, which may require us to incur additional costs. Furthermore, improvement initiatives of this sort are a complex and time-consuming process that can place substantial demands on management, which could divert attention from other business priorities or disrupt our daily operations. Any of these failures could, in turn, materially adversely affect our business, financial condition, results of operations and cash flows, and could negatively impact our ability to achieve our other strategic goals and business plans. 

Our success, among other things, is dependent on our ability to attract, develop and retain highly qualified senior management and other key personnel. Competition for key personnel is intense, and our ability to attract and retain key personnel is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent. The inability to hire, develop and retain these key employees may adversely affect our operations.

While the majority of our operations are based in the United States, we have significant international operations, with facilities in Argentina, Australia, Canada, China, France, Germany, India, Israel, Ireland, Italy, Mexico, the Philippines, Poland, Singapore, Turkey and the United Kingdom, and customers throughout North America, LatinSouth America, Europe, Asia, Australia and the Middle East. For the years ended September 30, 2019 and 2018, 32% and 2017, 33% and 35%, respectively, of our net sales, respectively, were derived from customers located outside the United States.

Our international operations are subject to, without limitation, the following risks:

    

Doing business on a worldwide basis requires us to comply with the laws and regulations of the U.S. government and various other jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. These laws and regulations can apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. Our risk of violating anti-corruption laws is increased because some of the international locations in which we operate lack a highly developed legal system and have elevated levels of corruption, and because our industry is highly regulated.

In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the FCPA, the Bribery Act and other applicable anti-corruption regimes. These laws generally prohibit us from corruptly providing anything of value, directly or indirectly, to foreign government officials for the purposes of improperly influencing official decisions, improperly obtaining or retaining business, or otherwise obtaining favorable treatment. As part of our business, we may deal with governments and state-owned business enterprises, the employees and representatives of which may be considered government 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 and the acceptance of bribes. In addition, the FCPA further requires publicly traded companies to maintain adequate record-keeping that accurately reflects the transactions of the company, as well as a system of internal accounting controls.

As an exporter, we must comply with various laws and regulations relating to the export of products, services and technology from the United States and other countries having jurisdiction over our operations. In the U.S., these laws include, among others, the EAR administered by the U.S. Department of Commerce’s Bureau of Industry and Security, the ITAR administered by the U.S. Department of State’s Directorate of Defense Trade Controls, and trade sanctions, regulations and embargoes administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control. These laws and regulations may require us to obtain individual validated licenses from the relevant agency to export, re-export, or transfer commodities, software, technology, or services to certain jurisdictions, individuals, or entities. We cannot be certain that our applications for

The current United States administration has signaled support for, and in some instances has taken action with respect to, majorimplemented significant changes to certain trade policies, such as the imposition of additional tariffs on certain imported products and the withdrawal from or renegotiation of certain trade agreements, including the North American Free Trade Agreement. Such changes have also resulted, and could alsocontinue to result, in retaliatory actions by the United States’ trade partners. For example, the United States has increasedimposed additional tariffs on certain imports from China, as well as on steel and aluminum products imported from various countries.countries, and recently announced additional tariffs on certain products imported from the European Union. In response, China, the European Union, and several other countries have imposed or proposed additional tariffs on certain exports from the United States.

Our total assets reflect substantial intangible assets. At September 30, 2018,2019, goodwill and intangible assets, net represented 24.0%23.1% of our total assets. Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the assets acquired and liabilities assumed resulting from acquisitions, including the acquisition of our Company by affiliates of The Carlyle Group (Carlyle) and the acquisition of Haas. Intangible assets represent trademarks, backlogs, non-compete agreements, technology and customer relationships. On at least an annual basis, we assess whether there has been impairment in the value of goodwill and indefinite-lived intangible assets. If our testing identifies impairment under generally accepted accounting principles in the United States (GAAP), the impairment charge we calculate would result in a charge to income from operations. For example, during the three months ended June 30, 2017, we recorded a non-cash goodwill impairment of $311.1 million. Any future determination requiring the write-off of a significant portion of goodwill and unamortized identified intangible assets would negatively affect our results of operations and total capitalization, which could be material. For additional information, see “Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates-Goodwill and Indefinite-Lived Intangible Assets.”

On December 22, 2017, the Tax Act was signed into law. As a fiscal year taxpayer, certain provisions of the Tax Act have impacted the Company for our fiscal year ended September 30, 2018, while other provisions of the Tax Act will impact the Company for our fiscal year beginning October 1, 2018 and beyond. We are still evaluatingOur ongoing evaluation of the full impact of the Tax Act on our liability for U.S. corporate tax and the related impact on our business, financial condition and results of operations and based on our current estimates, we believe these changes willmay be material (see Note 15 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K). For example, we believe that the following changes included in the Tax Act, among others, will or could have a material impact on our liability for U.S. corporate tax: (i) the transition to a territorial tax system that generally allows for the repatriation of foreign earnings without additional U.S. corporate income tax while maintaining and expanding existing rules regarding the taxation of foreign earnings prior to their repatriation to the U.S. and (ii) the limitations on the deductibility of interest expense, entertainment expense and certain

If any of the customers with whom we do business becomes insolvent or experiences substantial financial difficulties we may be unable to timely collect amounts owed to us by such customers and may not be able to sell the inventory we have purchased for such customers, which could have a material adverse effect on our business, financial condition and results of operations.

Several of our facilities or those of our suppliers and customers could be subject to a catastrophic loss caused by earthquakes, tornadoes, floods, hurricanes, fire, power loss, telecommunication and information systems failure or other similar events. Should insurance be insufficient to recover all such losses or should we be unable to reestablish our operations, or if our customers or suppliers were to experience material disruptions in their operations as a result of such events, our business, financial condition and results of operations could be adversely affected.

Our ability to provide efficient distribution of the products we sell to our customers is an integral component of our overall business strategy. We do not maintain our own delivery networks, and instead rely on third-party package delivery companies. We cannot assure you that we will always be able to ensure access to preferred delivery companies or that these companies will continue to meet our needs or provide reasonable pricing terms. In addition, if the package delivery companies on which we rely experience delays resulting from inclement weather or other disruptions, we may be unable to maintain products in inventory and deliver products to our customers on a timely basis, which may adversely affect our business, financial condition and results of operations.

Labor disputes involving us or one or more of our customers or suppliers could affect our operations. If our customers or suppliers are unable to negotiate new labor agreements and our customers’ or suppliers’ plants experience slowdowns or closures as a result, our net sales and profitability could be negatively impacted.

While our employees are not currently unionized, they may attempt to form unions in the future, and the employees of our customers, suppliers and other service providers may be, or may in the future be, unionized. We cannot assure you that there will not be any strike, lock out or material labor dispute with respect to our business or those of our customers or suppliers in the future that materially affects our business, financial condition and results of operations.

There are many factors, such as the cyclical nature of the aerospace industry, fluctuations in our ad hoc sales, delays in major aircraft programs, planned production shutdowns, downward pressure on sales prices and changes in the volume of our customers’ orders that could cause our financial results to fluctuate from period-to-period. For example, during the year ended September 30, 2018,2019, 24% of our net sales were derived from ad hoc sales. The prices we charge for ad hoc sales are typicallyoftentimes higher than the prices under our Contract sales. However, customers may not continue to purchase the same amount of products from us on an ad hoc basic as they have in the past, so it cannot be assured that in any given year we will be able to generate similar levels of ad hoc net sales as we did in the past. We are also actively working to transition customers from ad hoc purchases to Contracts, which may also result in a reduction in our ad hoc net sales. In addition, 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 result in fluctuations in our financial results and operating margins. As a result of these factors, we believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.

As a publicly traded company, we will continue to incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) and the rules of the SEC and the New York Stock Exchange have imposed various requirements on public companies. Our management and other personnel will continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will continue to result in increased legal and financial compliance costs compared to a private company and make some activities more time-consuming and costly. For example, we believe these rules and regulations make it more difficult and more expensive for us to maintain appropriate levels of director and officer liability insurance.

We are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and human health and safety, and the handling, transportation, storage, treatment, disposal and remediation of hazardous substances, including potentially with respect to historical chemical blending and other

Furthermore, we may be liable for the costs of investigating and cleaning up environmental contamination on or from our operations or at off-site locations, including potentially with respect to historical chemical blending and other activities that pre-dated the purchase of the Haas business by us. We may therefore incur additional costs and expenditures beyond those currently anticipated to address all such known and unknown situations under existing and future EHS laws.

In addition, these concerns could influence public perceptions regarding our operations and our ability to attract and retain customers and employees. Moreover, changes in EHS regulations could inhibit or interrupt our operations, or require us to modify our facilities or operations. Accordingly, environmental or regulatory matters may cause us to incur significant unanticipated losses, costs, capital expenditures or liabilities, which could reduce our profitability. Such losses, costs, capital expenditures or liabilities will be subject to evolving regulatory requirements and will depend on the timing of the promulgation and enforcement of specific standards which impose requirements on our operations. As a result, these losses, costs, capital expenditures or liabilities may be more than currently anticipated.

Our business is subject to hazards inherent in the handling, transportation, storage and disposal of chemical products. These hazards include: chemical spills, storage tank leaks, discharges or releases of toxic or hazardous substances or gases and other hazards incident to the handling, transportation, storage and disposal of dangerous chemicals. We are also potentially subject to other hazards, including natural disasters and severe weather; explosions and fires; transportation problems, including interruptions, spills and leaks; mechanical failures; unscheduled downtimes; labor difficulties; and other risks. Many potential hazards can cause bodily injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of our own or our customers’ operations and the imposition of civil or criminal penalties and liabilities. Furthermore, we are subject to present and future claims with respect to our employees when working within our own operations or when supplying chemicals to and/or providing chemical management services at our customer’s operations, other persons, including potentially our customers and their employees, workers’ compensation and other matters.

We maintain property, business interruption, products liability and casualty insurance policies which we believe are in accordance with customary industry practices, as well as insurance policies covering other types of risks, including pollution legal liability insurance, but we are not fully insured against all potential hazards and risks incident to our business. Each of these insurance policies is subject to customary exclusions, deductibles and coverage limits, in accordance with industry standards and practices. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance may become unavailable or available only for reduced amounts of

Many of the chemical products we sell are sensitive to temperature. Our storage facilities and the vehicles maintained by the third-party delivery companies on whom we rely utilize sophisticated temperature control systems to ensure safe storage and handling of these products. If these temperature control systems fail, products that are sensitive to temperature may become

We may be exposed to liabilities for personal injury, death or property damage due to the failure of a product we have sold. We typically agree to indemnify our customers against certain liabilities resulting from the products we sell, and any third-party indemnification we seek from our suppliers and our liability insurance may not fully cover our indemnification obligations to customers. We also may not be able to maintain insurance coverage in the future at an acceptable cost. Any liability for which third-party indemnification is not available that is not covered by insurance could have a material adverse effect on our business, financial condition and results of operations.

In addition, a crash caused by one of the products we have sold could damage our reputation for selling quality products. We believe our customers consider safety and reliability as key criteria in selecting a provider of aircraft products and believe our reputation for quality assurance is a significant competitive strength. If a crash were to be caused by one of the

The aerospace industry is highly regulated in the United States and in other countries. The FAA prescribes standards and other requirements for aircraft components in the U.S. and comparable agencies, such as the European Aviation Safety Agency, the Civil Aviation Administration of China and the Japanese Civil Aviation Bureau, regulate these matters in other countries. Our suppliers and customers must generally be certified by the FAA, the DoD and similar agencies in foreign countries. If any of our suppliers’ government certifications are revoked, we would be less likely to buy such supplier’s products, and, as a result, would need to locate a suitable alternate supply of such products, which we may be unable to accomplish on commercially reasonable terms or at all. If any of our customers’ government certifications are revoked, their demand for the products we sell would decline. In each case, our business, financial condition and results of operations may be adversely affected.

In addition, if new and more stringent government regulations are adopted or if industry oversight increases, our suppliers and customers may incur significant expenses to comply with such new regulations or heightened industry oversight. In the case of our suppliers, these expenses may be passed on to us in the form of price increases, which we may be unable to pass along to our customers. In the case of our customers, these expenses may limit their ability to purchase products from us. In each case, our business, financial condition and results of operations may be adversely affected.

WeIn the event the Merger Agreement is terminated, we may consider future acquisitions, some of which could be material to us. Depending upon the acquisition opportunities available, we may need to raise additional funds through the capital markets or arrange for additional debt financing to consummate such acquisitions. We may be unable to raise the capital required for future acquisitions on satisfactory terms or at all, which could adversely affect our business, financial condition and results of operations. Economics related to acquisitions including valuation, purchase price, synergies and competitive advantage may rely on our ability to efficiently integrate an acquired business with our existing enterprise, which we may not be able to execute successfully.

We have material business operations in both the United Kingdom and the broader European Union. In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The terms ofFollowing the withdrawal are subject to a negotiation period that could last until or beyond March 2019, two years afternational referendum, the government of the United Kingdom formally initiated the process for withdrawal process in March 2017. ThisThe terms of any withdrawal are subject to a complex and ongoing negotiation between the United Kingdom and the European Union whose result and timing remain unclear and which has created significant political and economic uncertainty about the future trading relationship between the United Kingdom and the European Union and has given rise to calls forin the governmentsevent of other European Union member states to consider withdrawal.a withdrawal, particularly in light of the possibility that an immediate, so-called “no deal” withdrawal could occur without a negotiated agreement.

These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings may be especially subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal, including financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in the United Kingdom, increase costs, depress economic activity and restrict our access to capital. If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms or if other European Union member states pursue withdrawal, barrier-free access between the United Kingdom and other European Union member states or among the European economic area overall could be diminished or eliminated. Any of these factors could have a direct or indirect impact on our business in the United Kingdom and the broader European Union, on our suppliers and customers in the United Kingdom and the broader European Union and on our business outside the United Kingdom and the broader European Union, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our common stock.

As of September 30, 2018,2019, our total indebtedness outstanding under our Credit Facilities (as defined in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities”) was $854.6$786.6 million, which was 55.2%52% of our total capitalization.

In addition, in the event the Merger Agreement is terminated, we may incur substantial additional indebtedness in the future. Our Credit Facilities contain certain significant qualifications and exceptions that allow us to incur additional indebtedness, and the indebtedness incurred in compliance with these qualifications and exceptions could be substantial. If we incur additional debt, the risks associated with our substantial leverage would increase.

Our substantial indebtedness could have important consequences to investors. For example, it could:

    

The Credit Facilities contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests. The Credit Facilities include covenants restricting, among other things, our ability to:

    

Our global headquarters is located at 24911 Avenue Stanford, Valencia, California 91355. As of September 30, 2018,2019, we have a total of 5655 administrative, sales and/or stocking facilities, all of which are either leased, or located at a customer site, except for our global headquarters, which is owned by us. These facilities, including facilities in Northlake, Texas;Tempe, Arizona; Rancho Cordova, California; McDonough, Georgia; Wichita, Kansas; Jonestown, Pennsylvania; Austin, Texas; Northlake, Texas; Mississauga, Ontario; Wroclaw, Poland; Clayton West, United Kingdom; Cleckheaton, United KingdomKingdom; and Clayton West,Crawley, United Kingdom, are located in 17 countries including the(the U.S., Argentina, Australia, Canada, China, France, Germany, India, Israel, Ireland, Italy, Mexico, the Philippines, Poland, Singapore, Turkey and the United Kingdom.Kingdom).

Our warehouse operations are divided between CSLs and Forward Stocking Locations (FSLs). Our CSLs serve as the primary supply warehouses for most of our net sales and also house our procurement, customer service, document control, IT, material support and quality assurance functions. Our CSLs are supported by sales offices throughout the U.S., Australia, Canada, China, France, Germany, India, Israel, Italy, Mexico, Singapore, Poland and the United Kingdom.

Complementing our CSLs and sales offices are FSLs. An FSL is a specialized stocking point for one or more Contracts located within a geographic region. FSLs are typically located either near or within a customer facility and are established to support large Contracts. In certain instances, FSLs initially established to service a single customer are expanded to service other regional customers.

We believe that our existing facilities, including both owned and leased, are in good condition and suitable for the conduct of our business. For additional information regarding obligations under operating leases, see Note 17 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Consolidated income from operations was $109.5 million for the year ended September 30, 2018 compared with a $208.8 million loss from operations for the year ended September 30, 2017. The increase in income from operations resulted primarily from a prior year non-cash goodwill impairment charge of $311.1 million recorded in the three months ended June 30, 2017. Excluding the goodwill impairment charge, income from operations increased $7.1 million compared with the prior year. The $7.1 million increase is comprised of higher gross profit of $41.2 million which was partially offset by an increase in SG&A expenses of $34.1 million. Excluding the prior year goodwill impairment charge, income from operations as a percentage of net sales was 7.0% for the year ended September 30, 2018 compared to 7.2% for the prior year.

The increase in gross profit was primarily driven by the revenue growth described above. Average gross margins increased 0.4 percentage points, primarily due to higher margins on ad hoc sales and a stronger sales mix, partially offset by lower margins on chemical product sales, compared with the prior year.

Interest expense, net was $48.9 million for the year ended September 30, 2018, which increased $9.1 million, compared to the year ended September 30, 2017. The increase was primarily due to both higher short-term borrowings and interest rates, partially offset by a lower amortization of deferred debt issuance costs when compared with the prior year which included a $2.3 million write offwrite-off of deferred debt issuance costs.

We reported net income of $32.7 million for the year ended September 30, 2018, compared to a net loss of $237.3 million for the year ended September 30, 2017. The increase in net income primarily reflects the goodwill impairment charge of $311.1 million in 2017, as well as a current year increase in gross profit of $41.2 million, partially offset by current year increases in SG&A expenses of $34.1 million, interest expense of $9.1 million and the provision for income taxes, as discussed above.

 Consolidated netNet sales decreased $48.0for our Americas segment increased $112.8 million, or 3.2%8.9%, to $1,429.4$1,384.7 million for the year ended September 30, 20172019, compared with $1,477.4$1,271.9 million for the year ended September 30, 2016. Foreign currency translation impacts reduced2018. The $112.8 million increase reflects growth across all product groups including chemicals, ad hoc hardware and Contract hardware sales. For the year ended September 30, 2019, sales by $22.9 million. Excluding foreign currency translation impacts,increased $67.2 million, $30.5 million and $15.1 million for chemical, ad hoc hardware and Contract hardware, respectively. In addition, approximately $9.6 million of the $112.8 million net sales increase in the current year represents higher revenue from end-of-contract related sales compared with the prior year.

Income from operations for our Americas segment for the year ended September 30, 2017 decreased $25.12019 was $117.2 million compared to the same period in the prior year. The $25.1 million decrease was due to a decrease in ad hoc sales of $27.7 million, partially offset by an increase in Contract sales of $2.6 million. The decline in ad hoc sales was primarily due to production schedule changes and customer service issues. Contract sales for the year ended September 30, 2016 included $9.8 million related to a large commercial hardware contract that ended on March 31, 2015. Excluding this $9.8 million, which did not repeat in the corresponding 2017 period, Contract sales increased $12.4 million due to significant new Contracts partially offset by lost Contracts and declines on existing and renewed Contracts. The reduction in customer production days and customer service issues also affected Contract sales; however, other increases in Contract sales more than offset this impact. Ad hoc and Contract sales as a percentage of net sales represented 24% and 76%, respectively, for the year ended September 30, 2017 as compared to 25% and 75%, respectively, for the same period in the prior year.

The $22.5 million increase in SG&A expenses largely reflects increases in payroll and other personnel related costs of $18.4 million, building and equipment costs of $3.5 million, professional fees of $0.4 million and marketing and travel expense of $1.2 million. Increases in these areas primarily were driven by investments to execute Wesco 2020 initiatives and personnel-related costs to support revenue growth. Wesco 2020 related costs totaled $15.5 million in fiscal 2019. The majority of the increase is the result of execution steps that have a defined end point. Key examples include professional fees for consulting support, duplicative staffing costs required during transition and consolidation of single product warehouses into multi-product service centers, severance expense and project performance incentives. Partially offsetting these higher costs were savings achieved through Wesco 2020 initiatives of approximately $8.9 million in the year ended September 30, 2019. SG&A as a percent of net sales increased by 2.30.3 percentage points.

Net sales for our Americas segment increased $129.5 million, or 11.3%, to $1,271.9 million for the year ended September 30, 2018, compared with $1,142.4 million for the year ended September 30, 2017. The $129.5 million increase was due primarily to an increase in ad hoc sales, chemical product sales and hardware Contract sales, and one-time sales of $16.9 million in 2018from end-of-contract related to customer contract related claims.sales.

Income from operations for our Americas segment for the year ended September 30, 2018 was $128.9 million compared with a $213.5 million loss from operations for the year ended September 30, 2017. The increase in income from operations reflects primarily a prior year non-cash goodwill impairment charge of $308.4 million. Excluding the prior year goodwill impairment charge, income from operations increased $34.0 million compared with the prior year. The $34.0 million increase is comprised of higher gross profit of $45.5 million which was partially offset by an increase in SG&A expenses of $11.5 million. Income from operations as a percentage of net sales was 10.1% for the year ended September 30, 2018, compared with 8.3% for the year ended September 30, 2017 excluding the goodwill impairment charge.

The $45.5 million increase in gross profit was primarily driven by increases in ad hoc, hardware Contract and chemical product sales compared with the prior year. Average gross margins increased 1.0 percentage point, due primarily to higher margins for ad hoc and hardware Contract sales, offset partially by lower margins for chemical product sales, compared with the same period in the prior year.

Net sales for our AmericasEMEA segment decreased $35.1$1.5 million, or 3.0%0.6%, to $1,142.4$260.6 million for the year ended September 30, 2017,2019, compared with $1,177.5$262.1 million for the year ended September 30, 2016. Foreign currency translation2018. For the year ended September 30, 2019, sales declined $5.3 million and $1.6 million for ad hoc hardware and chemical, respectively, partially offset by an increase in Contract hardware sales of $5.4 million, compared with the prior year. The $1.5 million decrease primarily reflects unfavorable pricing and a decline in ad hoc hardware sales volume, and to lesser degree, chemical product sales volume. The chemical sales volume decline was caused primarily by temporary execution issues.

Income from operations for our EMEA segment declined $16.1 million, or 90.1%, to $1.8 million for the year ended September 30, 2017 decreased $31.8 million2019, compared to the same period in the prior year. The $31.8$17.9 million decline was due to a decrease in ad hoc sales of $34.9 million, slightly offset by an increase in Contract sales of $3.1 million. The $34.9 million decline in ad hoc sales was primarily due to production schedule changes and customer service issues. Contract sales for the year ended September 30, 2016 included $9.82018. The $16.1 million related to a large commercial hardware contract that ended on March 31, 2015. Excluding this $9.8 million, which did not repeat in the corresponding 2017 period, Contract sales increased $12.9 million due to increases in contract volume and new contracts, net of contracts losses.

The 0.7 percentage point decline in gross margins was due primarily to changes in product mix, a decrease in ad hoc margins and an increase in provisions for customer claims compared to the same period of the prior year. The$3.0 million increase in SG&A expenses was $22.8 million after adjusting for the $0.9 million favorable foreign currency translation impact, which was largely driven byprimarily reflects increases in payroll and other personnel related costs of $17.5 million, IT related costs of $2.5 million, rent expense of $1.5 million, bad debt expense of $1.3 million, travel expenses of $1.1 million, depreciation expense of $1.1 million, non-cash stock-based compensation of $0.7 million and repair and maintenance cost of $0.7 million. These increases were partially offset by decreases in professional fees of $1.3$1.8 million, commissionwarehouse-related expense incurred to dispose of $1.1expired chemicals of $0.4 million, travel expense of $0.3 million, and property liability insurancedepreciation expense of $1.0$0.4 million. Increases in these areas primarily were driven by investments to execute Wesco 2020 initiatives. Wesco 2020 related costs totaled $3.5 million in the year ended September 30, 2019. The majority of the increase is the result of execution steps that have a defined end point. Key examples include professional fees for consulting support, duplicative staffing costs required during transition and consolidation of single product warehouses into multi-product service centers, severance expense and project performance incentives. Partially offsetting these higher costs were savings achieved through Wesco 2020 initiatives of approximately $2.2 million in the year ended September 30, 2019. SG&A as a percent of net sales increased 1.2 percentage points.

Net sales for our EMEA segment increased $4.0 million, or 1.6%, to $262.1 million for the year ended September 30, 2018, compared with $258.1 million for the year ended September 30, 2017. The $4.0 million increase reflects higher chemical product sales, partially offset by a decline in Ad hoc sales and hardware Contract sales.

Income from operations for our EMEA segment declined $7.2 million, or 28.7%, to $17.9 million for the year ended September 30, 2018, compared to $25.1 million for the year ended September 30, 2017. The $7.2 million decline in income from operations was comprised of a decrease in gross profit of $5.7 million and an increase in SG&A expenses of $1.5 million. Income from operations as a percentage of net sales was 6.8% for the year ended September 30, 2018, compared to 9.7% for the year ended September 30, 2017, a decrease of 2.9 percentage points.

The $5.7 million decline in gross profit was primarily driven by lower Contracts sales of hardware products and a weaker sales mix compared with the prior year. Average gross margins declined 2.6 percentage points, due primarily to a weaker sales mix and lower margins for hardware Contract sales and chemical product sales compared with the prior year.

The $1.5 million increase in SG&A expenses primarily reflects a negative $1.8 million impact resulting from strengthening of the British Pound vs. the U.S. dollar. Excluding the exchange rate impact of $1.8 million, SG&A decreased slightly compared to the prior year, primarily driven by decreases in marketing and travel expenses of $0.5 million, bad debt expense of $0.7 million, partially offset by increases in payroll and other people costs of $1.1 million.

Net sales for our EMEAAPAC segment decreased $16.9increased $14.7 million, or 6.1%40.3%, to $258.1$51.2 million for the year ended September 30, 2017,2019, compared with $275.0$36.5 million for the year ended September 30, 2016. Foreign currency translation impacts reduced2018. For the year ended September 30, 2019, sales increased $7.4 million, $4.3 million and $3.0 million for Contract hardware, chemical and ad hoc hardware, respectively. The increase reflects volume increases in Contract hardware sales, chemical sales and ad hoc hardware sales, compared with the prior year, partially offset by $19.5 million. Excluding foreign currency translation impacts, net salesdecreases in pricing of ad hoc hardware sales.

Income from operations of our APAC segment for the year ended September 30, 2017 increased $2.62019 was $4.6 million compared to the same period inwith $2.0 million for the prior year. The $2.6 million increase was due to ad hoc sales growth of $7.2 million, partially offset by a decline in Contract sales of $4.6 million. The increase in ad hoc salesincome from operations was primarily due to increased customer production ratesan increase in gross profit of $2.2 million and expanded content. Thea decrease in Contract sales was driven by a decline in existing contract volumes partially offset by new contracts in excessSG&A expenses of lost business.

The decrease in income from operations was comprised of a $15.9$0.4 million decrease in gross profitSG&A expenses was due primarily to decreases in payroll and a $2.8other personnel related costs of $0.9 million, partially offset by an increase in other SG&A expenses. Average gross margins decreased 4.1 percentage points andexpenses of $0.5 million, reflecting investment made to grow the business in this region. SG&A as a percent of net sales increased by 2.2decreased 6.2 percentage points. The $15.9 million decrease in gross profit was partially due to a $5.9 million decrease due to negative foreign currency translation impact. The remaining $10.0 million decrease in gross profit was primarily driven by lower product margin, higher write downs of E&O inventory, higher freight and expedite costs, partially offset by the increase in sales on a constant currency basis. The 4.1 percentage point decline in gross margins was due primarily to a decrease in chemical margins, a decrease in ad hoc margins due to higher than usual margins in the prior year, an increase in write downs of E&O inventory and changes in product mix compared to the same period of the prior year. Excluding a favorable $3.4 million impact of foreign currency translation, SG&A expenses increased by $6.2 million, largely driven by increases in payroll and other people costs of $3.9 million, travel expenses of $0.6 million, repair and maintenance costs of $0.3 million, rent expense of $0.2 million, warehouse expense of $0.2 million, depreciation expense of $0.2 million and professional fees of $0.2 million.

Net sales for our APAC segment increased $7.5 million, or 25.8%, to $36.5 million for the year ended September 30, 2018, compared with $29.0 million for the year ended September 30, 2017. The increase primarily reflects increases in ad hoc sales, hardware Contract sales and chemical product sales.

Income from operations of our APAC segment for the year ended September 30, 2018 was $2.0 million compared with a $0.2 million of loss from operations for the same period in the prior year. The $2.2 million increase in income from operations primarily resulted from a non-cash goodwill impairment charge of $2.7 million recorded for the three months ended June 30, 2017. Excluding the prior year's goodwill impairment charge of $2.7 million, income from operations declined $0.5 million when compared with the prior year. Gross profit increased $1.4 million, which was more than offset by an increase in SG&A expenses of $1.9 million. Excluding the prior year's goodwill impairment charge, income from operations as a percentage of net sales declined 3.3 percentage points compared with the prior year.

The $1.4 million increase in gross profit was primarily driven by increases in ad hoc sales and hardware Contract sales and a lower E&O provision, partially offset by lower chemical product sales compared with the prior year. Average gross margins declined 1.4 percentage points due primarily to lower gross margins in ad hoc sales, hardware Contract sales and chemical product sales, offset partially by a stronger sales mix and a lower E&O provision, compared with the prior year.

The $1.9 million increase in SG&A expenses was due primarily to increases in payroll and other personnel related costs of $1.1 million and building and equipment related expenses of $0.6 million as part of our growth in the APAC region. SG&A as a percent of net sales increased 1.9 percentage points.