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DRIVING GROWTH > CREATING VALUE
2011 ANNUAL REPORT
G
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financial performance
Net Sales
(in millions)
4
0
0
6
$
,
1
4
1
1
0
,
6
0
$
6
$
,
1
1
1
,
6
$
4
2
6
4
$
,
,
4
6
0
4
2
5
6
$
4
$
,
6
2
1
,
6
$
6
2
1
,
6
$
4
6
0
5
$
,
Net Income
(in millions)
3
3
2
$
3
3
2
$
4
0
2
$
4
0
2
$
6
9
1
$
6
9
1
$
5
0
1
$
5
1
5
1
$
0
1
$
5
1
1
$
Free Cash Flow 2
(as a percent of net income)
Sales per Employee
%
5
6
2
%
5
6
2
,
1
9
2
8
2
8
$
%
0
%
2
6
1
0
1
%
6
0
1
%
0
2
1
%
7
9
%
7
9
%
8
6
%
8
6
,
,
5
1
9
8
2
3
8
5
2
3
8
8
$
$
,
5
8
3
5
4
3
0
8
9
$
3
1
7
$
,
,
1
9
9
0
4
0
0
8
9
$
3
1
7
$
,
,
7
8
6
3
8
8
$
,
7
8
6
1
9
3
8
9
8
0
$
0
8
$
,
investment
performance 1
Three Year Stock
Performance
%
6
7
1
%
6
7
1
%
6
4
1
%
6
4
1
%
7
9
%
7
9
%
5
5
%
5
5
P
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G
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P
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P
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G
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P
I
N
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T
A
S
N
E
P
M
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C
Ten Year Stock
Performance
%
1
7
9
%
1
7
9
%
3
7
%
%
3
4
7
5
2
%
3
0
4
%
4
5
2
P
U
O
R
G
R
E
E
P
I
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T
A
S
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P
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%
3
0
4
P
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E
P
I
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T
A
S
N
E
P
M
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C
financial HigHligHts
Year Ended December 31
(in millions except for Diluted EPS and ROIC)
Net sales
Income from operations (EBIT)
Net income attributable to WESCO International, Inc.
Diluted EPS
Diluted share count
Free cash flow 2
Long-term debt, net of debt discount
(including current portion and short-term debt)
Stockholders’ equity
ROIC 2
2011
2010
2009
2008
2007
$ 6,126 $ 5,064 $ 4,624
$ 6,111 $ 6,004
333
196
3.96
49.6
134
211
115
180
105
2.50
2.46
346
204
4.71
394
233
4.82
46.1
42.7
43.3
48.3
112
279
245
246
649
1,346
730
1,149
692
996
1,100
755
1,261
640
11.9%
9.2%
8.1%
13.2%
15.2%
1 Peer Groups are defined on page 83 under “Comparison of 5 Year Cummulative Total Return” graph.
2 Non-GAAP financial metrics are defined and reconciled on page 82.
0708091011070809101107080910110708091011RUSSELL2000PERFORMANCEPEER GROUPWESCORUSSELL2000PERFORMANCEPEER GROUPWESCO0708091011070809101107080910110708091011RUSSELL2000PERFORMANCEPEER GROUPWESCORUSSELL2000PERFORMANCEPEER GROUPWESCO
1
to our
sHareHolders,
employees,
and friends
Accelerating Profitable Growth
WESCO Evolution into a Growth Company
In response to the global recession, we developed
and launched a growth strategy two years ago to
take advantage of the share capture and value
creation opportunities that exist within the large,
fragmented markets in which we operate. We
proceeded to play offense while others were
reacting defensively to the challenging economic
and market conditions.
Our vision is to be a global leader of supply chain
solutions, a company that is known for the best
customer service and the best people. Through our
One WESCO initiatives, we are providing customers
with the leading products, services and solutions
they need to meet their MRO (Maintenance, Repair,
and Operating), OEM (Original Equipment Manufac-
turer), and Capital Project requirements.
During our investor day in 2010, we communicated
our objectives to deliver double-digit annual net
income growth, provide superior return on invested
capital, and generate strong free cash flow through
the economic cycle, and we further reinforced these
objectives during our investor day last year. I am
pleased to report that our investments are paying
off and execution of our strategy is producing results
that have exceeded these objectives. We increased
our net income 86% and achieved a return of 96%
for our shareholders over the last two years. After
delivering strong results in 2010, we accelerated our
profitable growth in 2011 and posted six consecutive
quarters of double digit organic sales growth through
the end of last year. We closed 2011 with record
sales of $6.1 billion on 21% sales growth, improved
operating margins 120 basis points to 5.4%, and
increased earnings per share 58%.
The strength of our WESCO team and the diversity
and operating leverage of our business are clearly
reflected in the profitable growth of our company over
the last two years. We have entered 2012 a stronger,
more capable, and more competitive company.
One WESCO integrates the various products and
services from our suppliers with our company’s
capabilities into comprehensive solutions for our
customers and their operations around the world.
We are investing in these WESCO capabilities to
strengthen our supplier partnerships and to provide
ever increasing value for our global customers in the
Industrial, Construction, Utility and CIG (Commercial,
Institutional, and Government) end markets. That
investment takes the form of increased sales and
marketing resources, new branches and distribution
centers, additional training and development
programs for our WESCO associates, and enhanced
information technology and e-business capabilities.
Over the last two years, our investments have
strengthened the company through the addition of
15% new personnel, 75 new or expanded branches,
two new distribution centers, and an expanded global
footprint where we now have commercial operations
in 14 countries. These increased investments have
enabled us to take share and deliver 21% sales
growth in 2011, with sales growth occurring in all
of our served end markets. We are committed to
providing increased efficiency, effectiveness, and
integrity for our customers as they re-engineer and
consolidate their supply chains. We have expanded
and strengthened our portfolio by diversifying our
2011 Annual Report | Driving Growth > Creating Value 2
end markets, customer base, service capabilities,
product lines, supplier relationships, and global
footprint, and we expect to continue to do so as
we move forward through the next decade.
Playing Offense and Strengthening
the Franchise
We defined and launched our growth engines over
two years ago with an objective to deliver above
market organic sales growth and supplement that
with accretive acquisitions. In 2011, our operating
mantra was to continue to play offense, execute
these growth engines, and deliver above market
results. We have made great progress with all of
our growth engines delivering strong sales growth
last year as outlined in the 2011 highlights below:
• Global accounts and integrated supply —
double digit sales growth, new customers, record
opportunity pipeline
• Communications and security — over $1 billion run
rate of data and broadband products, new branches,
global expansion
• Construction — double digit sales growth, record
backlog in a down market
• Utility — double digit sales and backlog growth,
new customers
• Lighting and sustainability — double digit sales
growth, new lighting solution center
• Government — over $500 million run rate, double
digit sales growth
• International — double digit sales growth, global
expansion, new branches and a new distribution
center in Toronto (WESCO’s largest)
• Acquisitions — five acquisitions completed over
last 24 months, which diversified the portfolio and
added over $460 million in annual sales
We are continuing to invest in these eight growth
engines and prioritize execution across our business
enterprise. Execution is supported by our compre-
hensive array of enterprise process initiatives,
including marketing leadership for demand creation,
pricing and sourcing effectiveness for margin
expansion, and sales and service management for
customer satisfaction.
We have a strong balance sheet, a robust pipeline
of acquisition opportunities, an increased global
presence, and a higher growth portfolio in 2012.
The significant operating leverage and effective cash
conversion inherent in our business model provides
us with excellent future value creation potential
as we look to play a consolidator role in the large,
fragmented wholesale distribution markets in
which we operate.
LEAN and Operational Excellence
LEAN is our enterprise-wide continuous improvement
system that we are applying to the entire value chain
from our customers through to our suppliers. We’re
building a continuous improvement culture by
deploying a comprehensive LEAN training structure,
comprised of five classes of belt training and
certification (blue, black, green, yellow, and white)
for all levels within our organization. Our LEAN
applications, which are focused on sales, operations,
and administrative processes, include an industry
leading value creation program for customers. While
our internal LEAN applications continue to drive
productivity improvements within WESCO, it is our
external customer-focused LEAN initiatives that are
proving to be a distinct competitive differentiator.
Even though we are well into our continuous
improvement journey, we have only just begun
and consider LEAN to be a never ending quest
for perfection.
WESCO International, Inc. 3
Talent and High Performance Culture
In business, we continue to believe that culture
matters, culture differentiates, and culture endures.
It is our people that determine our high performance
and continuous improvement culture, and we have
a highly committed and diverse workforce that is
focused on satisfying customers and finding a better
way every day. Talent management is all about
attracting, developing and retaining the best global
talent, and then building a culture that promotes
employee engagement. We have significantly
increased our investments in human resources
and talent management over the last two years,
including accelerating our college recruiting efforts,
expanding our mentoring program, continuing to
build WESCO University, and launching a new
HR Information System. Our goal is to be recognized
as the employer of choice in the industries we serve.
We are confident that the investments we are
making in our people will provide future capacity
for growth. Our people are our sustainable
competitive advantage.
To our customers, thank you for your business
and the opportunity to serve you. You have our
commitment that we will listen, understand your
needs and expectations, and do all that we can to
provide you with superior value.
To our employees, thank you for your continued
dedication and One WESCO teamwork. You have
our pledge to promote an environment where you
can grow and succeed and be part of a winning
One WESCO team.
To our suppliers, thank you for your partnership
and continued support. Together, we will continue
to combine our efforts and resources in providing
industry-leading solutions for our customers.
To our shareholders, thank you for your vote of
confidence through your investments in WESCO.
We are in the best shape we have ever been in
as a company, and remain completely focused on
increasing shareholder value. You will always get
our very best efforts.
Outlook and Summary
Our financial objectives have been consistent and
remain focused on shareholder value creation.
We’ve built an industry-leading Fortune 500 enter-
prise with a strong portfolio of businesses, and a
high performance continuous improvement culture.
We are playing offense and delivering strong results
by taking advantage of the countless growth
opportunities that exist in our large, fragmented
end markets. We are in an era of increased volatility
and uncertainty, but we remain focused on what
we can control, which is our strategy, our invest-
ments and operating plans, and our execution.
John J. Engel
Chairman, President and Chief Executive Officer
2011 Annual Report | Driving Growth > Creating Value 4
engines for
Growth
T I N G & S U S T A I N A B I L I T Y * CONSTRUCTIO
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ligHting & sustainaBility
An extensive array of lighting products supported by expert
knowledge and design, installation, and maintenance
services have positioned WESCO as a leader in lighting.
Beyond lighting, WESCO provides a broad range of
sustainability solutions including building automation,
recycling services, and renewable energy technolo-
gies, such as wind and solar, that help customers
cost-effectively achieve their sustainability goals.
government
Our large branch network, dedicated personnel,
and broad product and service offerings provide
our government customers and federal contrac-
tors with project management and supply chain
services for their operations around the world
as they look to reduce energy consumption,
enhance network security, and fulfill their global
logistics needs.
gloBal accounts & integrated supply
WESCO provides single-source supply chain
solutions of maintenance, repair, and operating
(MRO) supplies, original equipment manufacturer
(OEM) products, and capital project management
services to a diverse set of industrial, utility, and
commercial customers. WESCO’s global accounts and
integrated supply business models help our customers
reduce their costs, improve the efficiency and effectiveness of
their operations, and increase the integrity of their supply chains.
G
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acQuisitions
B
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WESCO operates in large and fragmented markets that offer substantial
opportunities to supplement our organic growth with acquisitions. Our
acquisition priorities are focused on enriching our product and service portfolio,
expanding in core and new markets, and strengthening our geographic position.
U
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WESCO International, Inc.
5
T I N G & S U S T A I N A B I L I T Y * CONSTRUCTIO
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construction
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WESCO provides specifications, value engineering, sourcing,
logistics, on-site materials management, and kitting and
assembly services to contractors for industrial, utility,
and commercial projects at the local, regional and
global levels. We deliver these as customized solutions
for each construction project and apply our LEAN
programs across the entire project life cycle in
order to deliver value for the contractor and
the end customer.
communications & security
WESCO provides a full range of products and
services that meet our global customers’ needs
for voice and data communications, physical
security, fire and life safety, building automation,
in-building wireless, professional audio and video,
mass notification, smart grid, and outside plant
and broadband services.
utility
WESCO provides utilities with inventory, sourcing,
and materials management services to support
the maintenance and expansion of electric and gas
distribution grids, communications networks, roadway
lighting systems, and power plant operations. We also
provide value engineering, sourcing, and onsite materials
management services for power generation, substation,
and transmission construction projects.
Y
TILIT
international
U
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WESCO has commercial operations in 14 countries and actively supports
customers in many others. We provide global supply chain services and
A
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a complete range of electrical, communications, and industrial products
and services to a diverse set of end markets including oil and gas, mining and
minerals, engineering and construction, original equipment manufacturers (OEM),
telecommunications, and financial services.
H
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2011 Annual Report | Driving Growth > Creating Value
8
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Signatures
Exhibits
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
9
18
23
23
24
24
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25
26
Selected Financial Data
27
Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
Quantitative and Qualitative Disclosures About Market Risks
38
Financial Statements and Supplementary Data
70
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
70
Controls and Procedures
70
Other Information
Directors, Executive Officers and Corporate governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
71
71
72
72
72
73
76
77
78
79
80
81
81
WESCO International, Inc.
9
PART I
Item 1. Business.
In this Annual Report on Form 10-K, “WESCO” refers to WESCO International, Inc., and its subsidiaries and its
predecessors unless the context otherwise requires. References to “we,” “us,” “our” and the “Company” refer to WESCO
and its subsidiaries.
THE COMPANY
WESCO International, Inc. (“WESCO International”), incorporated in 1993 and effectively formed in February 1994 upon
acquiring a distribution business from Westinghouse Electric Corporation, is a leading North American based distributor of
products and provider of advanced supply chain management and logistics services used primarily in industrial,
construction, utility and commercial, institutional and government markets. We serve over 65,000 active customers globally
through approximately 400 full service branches and eight distribution centers located in the United States, Canada, and
Mexico with offices in 11 additional countries. At the end of 2011, we had approximately 7,100 employees worldwide.
We are a leading provider of electrical, industrial, and communications maintenance, repair and operating (“MRO”) and
original equipment manufacturers (“OEM”) products, construction materials, and advanced supply chain management
and logistics services. Our primary product categories include general electrical and industrial supplies, wire, cable and
conduit, data and broadband communications, power distribution equipment, lighting and lighting control systems, control
and automation, and motors. We distribute over 1,000,000 products from more than 18,000 suppliers utilizing a highly
automated, proprietary electronic procurement and inventory replenishment system. In addition, we offer a comprehensive
portfolio of value-added services, which includes supply chain management, logistics and transportation procurement,
warehousing and inventory management, as well as kitting, limited assembly of products and system installation. Our
value-added capabilities, extensive geographic reach, experienced workforce and broad product and supply chain
solutions have enabled us to grow our business and establish a leading position in North America.
INDUSTRY OVERVIEW
We operate in highly fragmented markets that include thousands of small regional and locally based, privately owned
competitors. According to one industry publication, in 2010, the latest year for which market share data is available, the
five largest North American distributors, including WESCO, accounted for approximately 28% of estimated total electrical
distribution industry sales in the United States. Our global account, integrated supply and OEM programs provide
customers with a regional, national, North American and global supply chain consolidation opportunity. The demand for
these programs has grown in recent years, driven primarily by the desire of companies to reduce operating expenses by
implementing third-party programs for the operational and administrative functions associated with the procurement,
management and utilization of MRO supplies and OEM components. We believe that significant opportunities exist for
further expansion of these programs. The total potential in the United States for purchases of supplies and services across
all industrial distribution market segments and channels is currently estimated to be greater than $500 billion per an
industry publication.
According to management estimates, electrical distribution industry sales have grown at an approximately 5% compound
annual rate over the past 20 years. This expansion has been driven by general economic growth, increased price levels for
key commodities, increased use of electrical products in businesses and industries, new products and technologies, the
proliferation of enhanced building and safety codes and use of the internet. Wholesale distributors have also grown as a
result of a long-term shift in procurement preferences that favor the use of distributors over direct relationships with
manufacturers.
2011 Annual Report | Driving Growth > Creating Value 10
MARKETS AND CUSTOMERS
We have a large base of over 65,000 active customers across a diverse set of end markets. Our top ten customers
accounted for approximately 13% of our sales in 2011. No one customer accounted for more than 4% of our sales in 2011.
The following table outlines our sales breakdown by end market:
Year Ended December 31,
(percentages based on total sales)
Industrial
Construction
Utility
Commercial, Institutional and governmental
2011
2010
2009
43%
35%
11%
11%
42%
38%
13%
7%
40%
36%
17%
7%
Industrial. Sales to industrial customers of MRO, OEM, and construction products and services accounted for
approximately 43% of our sales in 2011, compared to 42% in 2010. Industrial sales product categories include a broad
range of electrical equipment and supplies as well as lubricants, pipe, valves, fittings, fasteners, cutting tools and power
transmission products. In addition, OEM customers require a reliable supply of assemblies and components to incorporate
into their own products as well as value-added services such as supplier consolidation, design and technical support,
just-in-time supply and electronic commerce.
Construction. Sales of electrical and communications products to contractors accounted for approximately 35% of our
sales in 2011, compared to 38% in 2010. Customers include a wide array of contractors and engineering, procurement
and construction firms for industrial, infrastructure, commercial and data and broadband communications projects.
Specific applications include projects for refineries, railways, hospitals, wastewater treatment facilities, data centers,
security installations, offices, and modular and mobile homes. In addition to a wide array of electrical products, we offer
contractors communications products for projects related to IT/network modernization, physical security upgrades,
broadband deployments, network security, and disaster recovery.
Utility. Sales to utilities and utility contractors accounted for approximately 11% of our sales in 2011, compared to 13% in
2010. Customers include large investor-owned utilities, rural electric cooperatives, municipal power authorities and
contractors that serve these customers. We provide our utility customers with products and services to support the
construction and maintenance of their generation, transmission and distribution systems along with an extensive range of
products that meet their power plant MRO and capital projects needs. Materials management and procurement
outsourcing arrangements are also important in this market, as cost pressures and deregulation have caused utility
customers to seek improvements in the efficiency and effectiveness of their supply chains.
Commercial, Institutional and Governmental (“CIG”). Sales to CIg customers accounted for approximately 11% of our
sales in 2011 compared to 7% in 2010. Customers include schools, hospitals, property management firms, retailers and
federal, state and local government agencies of all types, including federal contractors.
BUSINESS STRATEGY
Our goal is to grow organically and through accretive acquisitions at a rate greater than that of our industry. Our organic
growth strategy leverages our existing strengths and focuses on initiatives to enhance our sales and customer service,
develop new end markets, broaden our product and service offerings and expand our geographic footprint. We utilize
LEAN continuous improvement initiatives on a company-wide basis to deliver operational excellence and improve
productivity. We also extend our LEAN initiatives to customers to improve the efficiency and effectiveness of their
operations and supply chains. In addition, we seek to generate a distinct competitive advantage through talent
management and employee development processes and programs.
WESCO International, Inc.
11
We have identified selected end markets and product categories that we believe provide substantial opportunities for above
market growth. The end markets are construction, government, international, and utility. The product categories are data
communications and security products, and lighting and sustainability. We believe our business model of global accounts
and integrated supply programs also provides a significant growth opportunity. We have focused our growth efforts on these
end markets, products, and business model as discussed below.
Grow Our Global Account Customer Relationships and Base. Our typical global account customer is a Fortune 1000
industrial or commercial company, a large utility, a major contractor, or a governmental or institutional customer, in each
case with multiple locations. Our global account program is designed to provide customers with supply chain management
and cost reductions by coordinating and standardizing activity for MRO materials and OEM direct materials across their
multiple locations. Comprehensive implementation plans are managed at the local, national and international levels to
prioritize activities, identify key performance measures, and track progress against objectives. We involve our preferred
suppliers early in the implementation process, where they can contribute expertise and product knowledge to accelerate
program implementation and achievement of cost savings and process improvements.
Over the past ten years, growth from our global account programs has been a material component of our organic growth
strategy. Our objective is to continue to increase revenue from our global account programs by expanding our product and
service offerings to existing global account customers and expanding our reach to serve additional customer locations. We
also plan on expanding our customer base by capitalizing on our industry expertise and supply chain optimization
capabilities.
Extend Our Leadership Position in Integrated Supply Programs. Our integrated supply services are focused on customers
in the industrial, utility, construction and CIg markets. We combine our personnel, product and distribution expertise,
electronic technologies and service capabilities with the customer’s own internal resources to meet particular service
requirements. Each integrated supply program is configured to reduce the number of suppliers, total procurement costs,
and administrative expenses as well as improve operating controls. Our integrated supply programs focus on supply chain
optimization and replace the traditional multi-vendor, resource-intensive procurement process with a single, outsourced,
automated process. Our services range from timely product delivery to an outsourced procurement function. We believe
that customers will increasingly seek to utilize such services to consolidate and manage their MRO and OEM supply
chains. We plan to expand our position as an integrated supply services leader providing MRO supplies in the United
States by building upon established relationships within our large customer base and premier supplier network, and
extending our services to additional customers and locations outside the United States.
Expand Our Relationships with Construction Contractors. Our construction sales are focused on contractors, particularly
those involved with healthcare, government facilities, enterprise data communications, telecommunication and energy and
government infrastructure-related projects. We believe that significant cross selling opportunities exist for electrical and
data communications products and we intend to use our global account programs, LEAN initiatives and project
management expertise to capitalize on construction business opportunities.
Expand Government Business. Our dedicated government business development and sales team is focused on serving
federal, state and local government agencies. In addition to coordinating business at a federal, state and local level, we are
focused on monitoring all activity and opportunities related to the American Recovery and Reinvestment Act and have seen
positive results from these efforts.
Expand Products and Services for Utilities. Our utility customers continue to work on operating efficiency and cost
reduction. As a result, we anticipate an increase in distribution grid improvement and transmission expansion projects.
Accordingly, we are focused on expanding our logistical and project services, integrated supply services and project
management programs to increase our scope of supply on distribution grid, generation and other energy projects.
Expand International Operations. We seek to capitalize on existing and emerging international market opportunities
through collaborative investments with key customers and suppliers. We follow our established customers and pursue
business that we believe utilizes and extends our existing capabilities. We believe this strategy of working through well-
developed customer and supplier relationships significantly reduces risk and provides the opportunity to establish
2011 Annual Report | Driving Growth > Creating Value 12
profitable business. Our priorities are focused on global energy and construction projects, as well as attractive vertical
markets such as infrastructure, data communications, alternative energy and integrated supply and procurement
outsourcing.
Grow Our Communications Products Position. Over the last several years, there has been a convergence of electrical and
data communications contractors. Our ability to provide both electrical and communications products and services lines as
well as automation, electromechanical, non-electrical MRO, physical security and utility products has presented expanded
cross selling opportunities across WESCO. Communications products have continued to be in demand due to networking
upgrades, low voltage security investments, data center upgrades and increasing broadband utilization. We are investing in
the expansion of our communications sales force and geographic footprint. In December 2010, we expanded our
capabilities into broadband and telecommunication product lines with the acquisition of TVC Communications.
Grow Lighting System Sales. Lighting applications are undergoing significant innovation driven by energy efficiency and
sustainability trends. We expanded our sales team and marketing initiatives and will continue to add resources in this
product category and in product and service offerings to provide overall energy solutions.
Pursue Strategic Acquisitions. Since 1995, we have completed 36 acquisitions. In 2011, we acquired two businesses:
RECO LLC (“RECO”) and Brews Supply, Ltd. (“Brews”). We believe that the highly fragmented nature of the electrical and
industrial distribution industry will continue to provide acquisition opportunities. We expect that any future acquisitions will
be financed with internally generated funds, additional debt and/or the issuance of equity securities.
Drive Operational Excellence. LEAN continuous improvement is a set of company-wide strategic initiatives to increase
efficiency and effectiveness across the entire business enterprise, including sales, operations and administrative processes.
The basic principles behind LEAN are to systematically identify and implement improvements through simplification,
elimination of waste and reduction in errors. We apply LEAN in our distribution environment, and develop and deploy
numerous initiatives through the Kaizen approach targeting improvements in sales, margin, warehouse operations,
transportation, purchasing, inventory, accounts receivable, accounts payable, and administrative processes. Our objective
is to continue to implement LEAN initiatives across our business enterprise and to extend LEAN services to our customers
and suppliers.
Talent Management. Our strategy is to develop a distinct competitive advantage through talent management and employee
development. We believe our ability to attract, develop and retain diverse human capital is imperative to ongoing business
success. We improve workforce capability through various programs and processes that identify, recruit, develop and
promote our talent base. Significant enhancements in these programs have been made over the last several years and we
expect to continue to refine and enhance these programs in the future.
PRODUCTS AND SERVICES
Products
Our network of branches and distribution centers stock more than 250,000 unique product stock keeping units and we
provide customers with access to more than 1,000,000 different products. Each branch tailors its inventory to meet the
needs of its local customers.
WESCO International, Inc. 13
Representative product categories and associated product lines that we offer include:
• General and Industrial Supplies. Wiring devices, fuses, terminals, connectors, boxes, enclosures, fittings, lugs,
terminations, tape, splicing and marking equipment, tools and testers, safety and security, personal protection,
abrasives, cutting tools, tapes, consumables, fasteners, janitorial and other MRO supplies;
• Wire, Cable and Conduit. Wire, cable, raceway, metallic and non-metallic conduit;
• Communications Products. Structured cabling systems, broadband products, low voltage specialty systems, specialty
wire and cable products, equipment racks and cabinets, access control, alarms, cameras, paging and voice
solutions;
• Power Distribution Equipment. Circuit breakers, transformers, switchboards, panel boards, metering products and
busway products;
• Lighting and Controls. Lamps, fixtures, ballasts and lighting control products; and
• Control, Automation and Motors. Motor control devices, drives, surge and power protection, relays, timers,
pushbuttons, operator interfaces, switches, sensors, and interconnects.
The following table sets forth sales information about our sales by product category:
Year Ended December 31,
(percentages based on total sales)
general and Industrial Supplies
Wire, Cable and Conduit
Data and Broadband Communications
Power Distribution Equipment
Lighting and Controls
Control, Automation and Motors
2011
2010
2009
34%
18%
17%
11%
9%
11%
35%
18%
15%
12%
10%
10%
35%
18%
14%
13%
11%
9%
We purchase products from a diverse group of more than 18,000 suppliers. In 2011, our ten largest suppliers accounted
for approximately 28% of our purchases. Our largest supplier accounted for approximately 10% of our total purchases. No
other supplier accounted for more than 5% of our total purchases.
Our supplier relationships are important to us, providing access to a wide range of products, technical training, and sales
and marketing support. We have over 300 preferred supplier agreements and purchase over 60% of our products
pursuant to these agreements. Consistent with industry practice, most of our agreements with suppliers, including both
distribution agreements and preferred supplier agreements, are terminable by either party on 60 days notice or less.
Services
As part of our overall offering, we provide customers a comprehensive portfolio of value added services which includes
more than 50 value add solutions, in 11 categories ranging from construction, e-business, energy, engineering services,
green and sustainability, production support, safety and security, supply chain optimization, training, and working capital.
These solutions are designed to address our customer’s business needs through:
• Providing technical support for manufacturing process improvements;
• Implementing inventory optimization programs, including just-in-time delivery and vendor managed inventory;
• Participating in joint cost savings teams;
• Assigning our employees as on-site support personnel;
• Consulting and recommending energy-efficient product upgrades; and
• Offering safety and product training for customer employees.
2011 Annual Report | Driving Growth > Creating Value
14
COMPETITIVE STRENGTHS
We compete directly with global, national, regional and local distributors of electrical and other industrial supplies.
Competition is primarily focused on the local service area, and is generally based on product line breadth, product
availability, service capabilities and price. We also compete with buying groups formed by smaller distributors to increase
purchasing power and provide some cooperative marketing capability. While increased buying power may improve the
competitive position of buying groups locally, we believe it is difficult to coordinate a diverse ownership group to provide
consistent quality products and services across multiple geographic regions. Although certain Internet-based procurement
service companies, auction businesses and trade exchanges remain in the marketplace, the impact on our business from
these competitors has not been significant to date.
Market Leadership. Our ability to manage complex global supply chains, multi-site facility maintenance programs and
construction projects that require special sourcing, technical advice, logistical support and locally based service has
enabled us to establish a strong presence in our served markets. We have utilized these skills to generate significant
revenues in a broad range of industries with intensive use of electrical and industrial products.
Broad Product Offering and Value-added Services. We provide a wide range of products, services and procurement
solutions, which draw on our product knowledge, supply and logistics expertise, system capabilities and supplier
relationships to enable our customers to maximize productivity, minimize waste, improve efficiencies, reduce costs and
enhance safety. Our broad product offering and stable source of supply enables us to consistently meet virtually all of a
customer’s product, MRO and OEM requirements.
Extensive Distribution Network. We operate approximately 400 geographically dispersed branch locations and eight
distribution centers (four in the United States and four in Canada). Our distribution centers add value for our customers,
suppliers, and branches through the combination of a broad and deep selection of inventory, online ordering, next-day
shipment and central order handling and fulfillment. Our distribution center network reduces the lead-time and cost of
supply chain activities through automated replenishment and warehouse management systems and economies of scale in
purchasing, inventory management, administration and transportation. This extensive network, which would be difficult
and expensive to duplicate, provides us with a distinct competitive advantage and allows us to:
• Enhance localized customer service, technical support and sales coverage;
• Tailor individual branch products and services to local customer needs; and
• Offer multi-site distribution capabilities to large customers and global accounts.
Low Cost Operator. Our competitive position has been enhanced by our consistent favorable operating cost position, which
is based on use of LEAN, strategically-located distribution centers, and purchasing economies of scale. As a result of these
factors, our operating cost as a percentage of sales is one of the lowest in our industry. Our selling, general and
administrative expenses as a percentage of revenues for 2011 were 14.2%.
GEOGRAPHY
Our network of branches and distribution centers are located primarily in the United States, Canada, and Mexico with
offices in 11 additional countries.
We attribute revenues from external customers to individual countries on the basis of the point of sale. The following table
sets forth information about us by geographic area:
WESCO International, Inc. 15
Net Sales
Year Ended December 31,
Long-Lived Assets
December 31,
2011
2010
2009
2011
2010
2009
(In thousands)
United States
$ 4,994,641 82%
$ 4,198,420 83%
$ 3,928,182 85%
$ 131,988
$ 117,768
$ 112,955
Canada
Mexico
Subtotal
900,551 15%
682,415 13%
559,367 12%
24,609
12,446
12,343
84,871 1%
51,413 1%
39,032 1%
573
641
624
North American Operations 5,980,063
4,932,248
4,526,581
157,170
130,855
125,922
Other Foreign
145,655 2%
131,614 3%
97,373 2%
771
325
74
Total U.S. and Foreign
$ 6,125,718
$ 5,063,862
$ 4,623,954
$ 157,941
$ 131,180
$ 125,996
United States. To serve our customers in the United States, we operate a network of approximately 325 branches
supported by four distribution centers located in Pennsylvania, Nevada, Mississippi and Arkansas. Sales in the United
States represented approximately 82% of our total sales in 2011. According to the Electrical Wholesaling Magazine, the
U.S. electrical wholesale distribution industry had estimated sales of approximately $87 billion in 2011.
Canada. To serve our Canadian customers, we operate a network of approximately 50 branches in nine provinces. Branch
operations are supported by four distribution centers located in Edmonton, Montreal and Vancouver. Sales in Canada
represented approximately 15% of our total sales in 2011. Total annual industry sales in Canada are approximately $6.4
billion through September 30, 2011 according to the Electro-Federation Canada - Electrical Council.
Mexico. We have 10 branch locations in Mexico. Our headquarters in Tlalnepantla Estado de Mexico operates similar to a
distribution center to enhance the service capabilities of the local branches. Sales in Mexico represented approximately 1%
of our total sales in 2011.
Other Foreign. We sell to global customers through domestic export sales offices located in Miami, Houston, Pittsburgh,
Montreal, and Calgary within North America and sales offices in various international locations. Sales from other foreign
locations represented approximately 2% of our total sales in 2011. Our branches in Aberdeen, Scotland and Manchester,
England support sales efforts in Europe and the Middle East. We have a branch in Singapore to support our sales to Asia, a
branch in Perth to serve customers in North, East, and West Australia, and a branch near Shanghai to serve customers in
China along with operations in 6 additional countries. All of our international locations have been established to serve our
growing list of customers with global operations.
INTELLECTUAL PROPERTY
We currently have trademarks, patents and service marks registered with the U.S. Patent and Trademark Office. The
registered trademarks and service marks include: “WESCO®”, our corporate logo and the running man logo. In addition,
trademarks, patents, and service mark applications have been filed in various foreign jurisdictions, including Canada,
Mexico, the United Kingdom, Singapore, China, Hong Kong, Thailand and the European Community.
ENVIRONMENTAL MATTERS
Our facilities and operations are subject to federal, state and local laws and regulations relating to environmental protection
and human health and safety. Some of these laws and regulations may impose strict, joint and several liabilities on certain
persons for the cost of investigation or remediation of contaminated properties. These persons may include former, current
or future owners or operators of properties and persons who arranged for the disposal of hazardous substances. Our owned
and leased real property may give rise to such investigation, remediation and monitoring liabilities under environmental
laws. In addition, anyone disposing of certain products we distribute, such as ballasts, fluorescent lighting and batteries,
must comply with environmental laws that regulate certain materials in these products.
We believe that we are in compliance, in all material respects, with applicable environmental laws. As a result, we do not
anticipate making significant capital expenditures for environmental control matters either in the current year or in the
near future.
2011 Annual Report | Driving Growth > Creating Value
16
SEASONALITY
Our operating results are not significantly affected by seasonal factors. Sales during the first and fourth quarters are
generally 1-3% below the sales of the second and third quarters, due to a reduced level of activity during the winter
months of November through February. Sales typically increase beginning in March, with slight fluctuations per month
through October. During periods of economic expansion or contraction our sales by quarter have varied significantly from
this seasonal pattern.
WEBSITE ACCESS
Our Internet address is www.wesco.com. Information contained on our website is not part of, and should not be construed
as being incorporated by reference into, this Annual Report on Form 10-K. We make available free of charge under the
“Investors” heading on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as well as our Proxy Statements, as soon as reasonably
practicable after such documents are electronically filed or furnished, as applicable, with the Securities and Exchange
Commission (the “SEC”). You also may read and copy any materials we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549-0213. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains
reports, proxy and information statements and other information regarding issuers like us who file electronically with the SEC.
In addition, our charters for our Executive Committee, Nominating and governance Committee, Audit Committee and
Compensation Committee, as well as our Independence Standards, our governance guidelines and our Code of Business
Ethics and Conduct for our Directors, officers and employees, are all available on our website in the “Corporate
governance” link under the “Investors” heading.
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains various “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve certain unknown risks and uncertainties, including,
among others, those contained in Item 1, “Business,” Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.” When used in this Annual Report on Form 10-K, the words
“anticipates,” “plans,” “believes,” “estimates,” “intends,” “expects,” “projects,” “will” and similar expressions may identify
forward-looking statements, although not all forward-looking statements contain such words. Such statements, including,
but not limited to, our statements regarding business strategy, growth strategy, competitive strengths, productivity and
profitability enhancement, competition, new product and service introductions and liquidity and capital resources are
based on management’s beliefs, as well as on assumptions made by and information currently available to, management,
and involve various risks and uncertainties, some of which are beyond our control. Our actual results could differ materially
from those expressed in any forward-looking statement made by us or on our behalf. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information will in fact prove to be accurate. We have
undertaken no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
WESCO International, Inc. 17
EXECUTIVE OFFICERS
Our executive officers and their respective ages and positions as of February 22, 2012, are set forth below.
Name
John J. Engel
Stephen A. Van Oss
Daniel A. Brailer
Allan A. Duganier
Timothy A. Hibbard
Diane E. Lazzaris
Kimberly g. Windrow
Age
50
57
54
56
55
45
54
Position
Chairman, President and Chief Executive Officer
Senior Vice President, Chief Operating Officer and interim Chief Financial Officer
Vice President, Treasurer, Investor Relations and Corporate Affairs
Director of Internal Audit
Vice President and Corporate Controller
Vice President, Legal Affairs
Vice President, Human Resources
Set forth below is biographical information for our executive officers listed above.
John J. Engel was appointed Chairman of the Board in May 2011 and has served as President and Chief Executive Officer
since September 2009. Previously, Mr. Engel served as our Senior Vice President and Chief Operating Officer from 2004 to
September 2009. From 2003 to 2004, Mr. Engel served as Senior Vice President and general Manager of gateway, Inc.
From 1999 to 2002, Mr. Engel served as an Executive Vice President and Senior Vice President of Perkin Elmer, Inc. From
1994 to 1999, Mr. Engel served as a Vice President and general Manager of Allied Signal, Inc. and held various
engineering, manufacturing and general management positions at general Electric Company from 1985 to 1994. Mr. Engel
is also a director of United States Steel Corporation, an integrated steel producer.
Stephen A. Van Oss was appointed as the Company’s Chief Financial Officer on February 3, 2012 on an interim basis and
has served as Senior Vice President and Chief Operating Officer since September 2009. Previously, Mr. Van Oss served as
our Senior Vice President and Chief Financial and Administrative Officer from 2004 to September 2009. From 2000 to
2004, he served as our Vice President and Chief Financial Officer. From 1997 to 2000, Mr. Van Oss served as our Director,
Information Technology and, in 1997, as our Director, Acquisition Management. From 1995 to 1996, Mr. Van Oss served
as Chief Operating Officer and Chief Financial Officer of Paper Back Recycling of America, Inc. Mr. Van Oss serves as a
director of Cooper-Standard Holdings Inc. and as the chairman of its audit committee. He also serves as a trustee of Robert
Morris University and is chairman of its finance committee and is a member of its government committee.
Daniel A. Brailer has served as our Vice President, Treasurer, Investor Relations and Corporate Affairs since February
2011. From May 2006 to February 2011, he served as our Vice President, Treasurer and Investor Relations. From 1999 to
May 2006, he served as our Treasurer and Director of Investor Relations. Prior to joining the Company, Mr. Brailer served in
various positions at Mellon Financial Corporation, most recently as Senior Vice President.
Allan A. Duganier has served as our Director of Internal Audit since January 2006. From 2001 to January 2006, Mr.
Duganier served as our Corporate Operations Controller and, from 2000 to 2001, as our Industrial/Construction group
Controller.
Timothy A. Hibbard was appointed as our Vice President and Corporate Controller on February 16, 2012. From July 2006
to February 2012, he served as our Corporate Controller. From 2002 to July 2006, he served as Corporate Controller at
Kennametal Inc. From 2000 to February 2002, Mr. Hibbard served as Director of Finance of Kennametal’s Advanced
Materials Solutions group, and, from 1998 to 2000, he served as Controller of greenfield Industries, Inc., a subsidiary of
Kennametal Inc.
Diane E. Lazzaris has served as our Vice President, Legal Affairs since February 2010. From February 2008 to February
2010, Ms. Lazzaris served as Senior Vice President — Legal, general Counsel and Corporate Secretary of Dick’s Sporting
goods, Inc. From 1994 to February 2008, she held various corporate counsel positions at Alcoa Inc., most recently as
group Counsel to a group of global businesses.
Kimberly G. Windrow has served as our Vice President, Human Resources since August 2010. From 2004 until July 2010,
Ms. Windrow served as Senior Vice President of Human Resources for The Mcgraw Hill Companies in the Education
segment. From 2000 until July 2004, she served as Senior Vice President of Human Resources for The MONY group, and
from 1988 until 1999, she served in various Human Resource positions at Willis, Inc.
2011 Annual Report | Driving Growth > Creating Value 18
Item 1A. Risk Factors.
The following factors, among others, could cause our actual results to differ materially from the forward-looking statements
we make. All forward-looking statements attributable to us or persons working on our behalf are expressly qualified by the
following factors. This information should be read in conjunction with Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, Item 7A, Quantitative and Qualitative Disclosures about Market Risks and
the consolidated financial statements and related notes included in this Form 10-K.
Adverse conditions in the global economy and disruptions of financial markets could negatively impact our results of
operations.
Our results of operations are affected by the level of business activity of our customers, which in turn is affected by global
economic conditions and market factors impacting the industries and markets that they serve. Although economic
conditions have been improving, certain global economies and markets continue to experience significant uncertainty and
volatility. Adverse economic conditions or lack of liquidity in various markets, particularly in North America, may adversely
affect our revenues and operating results. Economic and financial market conditions also affect the availability of financing
for projects and for our customers’ capital or other expenditures, which can result in project delays or cancellations and
thus affect demand for our products. There can be no assurance that any governmental responses to economic conditions
or disruptions in the financial markets ultimately will stabilize the markets or increase our customers’ liquidity or the
availability of credit to our customers. Should one or more of our larger customers declare bankruptcy, it could adversely
affect the collectability of our accounts receivable, bad debt reserves and net income. In addition, our ability to access the
capital markets may be restricted at a time when we would like, or need, to do so. The global economic and financial
environment also may affect our business and financial condition in ways that we currently cannot predict, and there can
be no assurance that global economic and market conditions will not adversely affect our results of operations, cash flow or
financial position in the future.
Downgrades of the U.S. sovereign credit rating could affect the strength of the U.S. dollar and since a majority of our sales
are denominated in U.S. dollars, fluctuations of the U.S. dollar relative to other currencies could negatively affect our
business, financial results and liquidity.
Acquisitions that we may undertake would involve a number of inherent risks, any of which could cause us not to
realize the benefits anticipated to result.
We have expanded our operations through organic growth and selected acquisitions of businesses and assets and may
seek to do so in the future. Acquisitions involve various inherent risks, including: problems that could arise from the
integration of the acquired business; uncertainties in assessing the value, strengths, weaknesses, contingent and other
liabilities and potential profitability of acquisition candidates; the potential loss of key employees of an acquired business;
the ability to achieve identified operating and financial synergies anticipated to result from an acquisition or other
transaction; and unanticipated changes in business, industry or general economic conditions that affect the assumptions
underlying the acquisition or other transaction rationale. Any one or more of these factors could increase our costs or cause
us not to realize the benefits anticipated to result from the acquisition of businesses or assets.
An increase in competition could decrease sales or earnings.
We operate in a highly competitive industry and compete directly with global, national, regional and local providers of our
products. Some of our existing competitors have, and new market entrants may have, greater resources than us.
Competition is primarily focused in the local service area and is generally based on product line breadth, product
availability, service capabilities and price. Other sources of competition are buying groups formed by smaller distributors to
increase purchasing power and provide some cooperative marketing capability.
Existing or future competitors may seek to gain or retain market share by reducing prices, and we may be required to lower
our prices or may lose business, which could adversely affect our financial results. Also, to the extent that we do not meet
changing customer preferences or demands or to the extent that one or more of our competitors becomes more successful
with private label products or otherwise, our ability to attract and retain customers could be materially adversely affected.
WESCO International, Inc. 19
Existing or future competitors also may seek to compete with us for acquisitions, which could have the effect of increasing
the price and reducing the number of suitable acquisitions. In addition, it is possible that competitive pressures resulting
from industry consolidation could affect our growth and profit margins.
Loss of key suppliers, product cost fluctuations, lack of product availability or inefficient supply chain operations could
decrease sales and earnings.
Most of our agreements with suppliers are terminable by either party on 60 days notice or less. Our ten largest suppliers in
2011 accounted for approximately 28% of our purchases for the period. Our largest supplier in 2011 was Eaton
Corporation, through its Eaton Electrical division, accounting for approximately 10% of our purchases. The loss of, or a
substantial decrease in the availability of, products from any of these suppliers, a supplier’s change in sales strategy to rely
less on distribution channels, or the loss of key preferred supplier agreements, could have a material adverse effect on our
business. Supply interruptions could arise from shortages of raw materials, effects of economic or financial market
conditions on a supplier’s operations, labor disputes or weather conditions affecting products or shipments, transportation
disruptions, or other reasons beyond our control. In addition, certain of our products, such as wire and conduit, are
commodity-price-based products and may be subject to significant price fluctuations which are beyond our control.
Furthermore, we cannot be certain that particular products or product lines will be available to us, or available in quantities
sufficient to meet customer demand. Such limited product access could cause us to be at a competitive disadvantage. The
profitability of our business is also dependent upon the efficiency of our supply chain. An inefficient or ineffective supply
chain strategy or operations could increase operational costs, reduce profit margins and adversely affect our business.
Expansion into new business activities, industries, product lines or geographic areas could subject the company to
increased costs and risks and may not achieve the intended results.
Engaging in or significantly expanding business activities in product sourcing, sales and services could subject the
company to unexpected costs and risks. Such activities could subject us to increased operating costs, product liability,
regulatory requirements and reputational risks. Our expansion into new and existing markets, including manufacturing
related or regulated businesses, may present competitive, distribution and regulatory challenges that differ from current
ones. We may be less familiar with the target customers and may face different or additional risks, as well as increased or
unexpected costs, compared to existing operations. growth into new markets may also bring us into direct competition with
companies with whom we have little or no past experience as competitors. To the extent we are reliant upon expansion into
new geographic, industry and product markets for growth and do not meet the new challenges posed by such expansion,
our future sales growth could be negatively impacted, our operating costs could increase, and our business operations and
financial results could be negatively affected.
Certain events or conditions could lead to interruptions in our operations, which may materially adversely affect our
business, financial condition or results of operations.
We operate a number of facilities and we coordinate company activities, including information technology systems and
administrative services and the like, through our headquarters operations. Our operations depend on our ability to maintain
existing systems and implement new technology, which includes allocating sufficient resources to periodically upgrade our
information technology systems, and to protect our equipment and the information stored in our databases against both
manmade and natural disasters, as well as power losses, computer and telecommunications failures, technological
breakdowns, unauthorized intrusions, and other events. Conversions to new information technology systems may result in
cost overruns, delays or business interruptions. If our information technology systems are disrupted, become obsolete or do
not adequately support our strategic, operational or compliance needs, it could result in competitive disadvantage and
adversely affect our financial results and business operations, including our ability to process orders, receive and ship
products, maintain inventories, collect accounts receivable and pay expenses.
Because we rely heavily on information technology both in serving our customers and in our enterprise infrastructure in
order to achieve our objectives, we may be vulnerable to damage or intrusion from a variety of cyber-attacks including
computer viruses, worms or other malicious software programs that access our systems. Despite the precautions we take to
mitigate the risks of such events, an attack on our enterprise information technology system could result in theft or
disclosure of our proprietary or confidential information or a breach of confidential customer or employee information. Such
events could have an adverse impact on revenue, harm our reputation, and cause us to incur legal liability and costs,
which could be significant, to address and remediate such events and related security concerns.
2011 Annual Report | Driving Growth > Creating Value 20
We also depend on accessible office facilities, distribution centers and information technology data centers for our
operations to function properly. An interruption of operations at any of our distribution centers could have a material
adverse effect on the operations of branches served by the affected distribution center. Such disaster related risks and
effects are not predictable with certainty and, although they can be mitigated, they cannot be eliminated. We seek to
mitigate our exposures to disaster events in a number of ways. For example, where feasible, we design the configuration of
our facilities to reduce the consequences of disasters. We also maintain insurance for our facilities against casualties and
we evaluate our risks and develop contingency plans for dealing with them. Although we have reviewed and analyzed a
broad range of risks applicable to our business, the ones that actually affect us may not be those we have concluded most
likely to occur. Furthermore, although our reviews have led to more systematic contingency planning, our plans are in
varying stages of development and execution, such that they may not be adequate at the time of occurrence for the
magnitude of any particular disaster event that befalls us.
We are subject to costs and risks associated with laws and regulations affecting our business.
The complex legal and regulatory environment exposes us to compliance costs and risks, as well as litigation and other
legal proceedings, that could materially affect our operations and financial results. These laws and regulations may change,
sometimes significantly, as a result of political or economic events. They include tax laws and regulations, import and
export laws and regulations, government contracting laws and regulations, labor and employment laws and regulations,
product safety, occupational safety and health laws and regulations, securities and exchange laws and regulations (and
other laws applicable to publicly-traded companies such as the Foreign Corrupt Practices Act), and environmental laws
and regulations. In addition, proposed laws and regulations in these and other areas, such as healthcare, employment, or
legal matters could affect the cost of our business operations. From time to time we are involved in legal proceedings which
may relate to, for example, product liability, labor and employment (including wage and hour), tax, import and export
compliance, worker health and safety, general commercial and securities matters. While we believe that the outcome of
any pending matter is unlikely to have a material adverse effect on our financial condition or liquidity, additional legal
proceedings may arise in the future and the outcome of any legal proceedings and other contingencies could require us to
take actions which could adversely affect our operations or could require us to pay substantial amounts of money.
Because we conduct business in many countries, we are subject to income taxes as well as non-income based taxes in
both the United States and various foreign jurisdictions. As a result, we are required to interpret the income tax laws and
rulings in each jurisdiction in which we operate and are subject to ongoing tax audits in various jurisdictions. Due to
ambiguity of tax laws in certain of these jurisdictions and the subjective nature of factual determinations, the respective
taxing authorities may disagree with certain positions we have taken and assess additional taxes. While we regularly
evaluate the likely outcomes of these audits in order to determine the appropriateness of our tax provision, there can be no
assurance that we will accurately predict the outcomes of these audits, and the actual outcomes could adversely affect our
results of operations.
Our outstanding indebtedness requires debt service commitments that could adversely affect our ability to fulfill our
obligations and could limit our growth and impose restrictions on our business.
As of December 31, 2011, we had $825.2 million of consolidated indebtedness (excludes debt discount), including
$150.0 million in aggregate principal amount of 7.50% Senior Subordinated Notes due 2017 (the “2017 Notes”) and
$345.0 million in aggregate principal amount of 6.0% Convertible Senior Debentures due 2029 (the “2029 Debentures”).
Our consolidated indebtedness also includes our mortgage facility, our revolving credit facility (the “Revolving Credit
Facility”), which has an aggregate borrowing capacity of $400.0 million, and accounts receivable securitization facility (the
“Receivables Facility”), through which we sell up to $450 million of our accounts receivable to a third-party conduit. We
and our subsidiaries may undertake additional borrowings in the future, subject to certain limitations contained in the
instruments governing our indebtedness.
Our debt service obligations have important consequences, including: our payments of principal and interest reduce the
funds available to us for operations, future business opportunities and acquisitions and other purposes; they increase our
vulnerability to adverse economic, financial market and industry conditions; our ability to obtain additional financing may
be limited; they may hinder our ability to adjust rapidly to changing market conditions; we may be required to incur
additional interest due to the contingent interest features of the 2029 Debentures, which are embedded derivatives; and
our financial results are affected by increased interest costs. Our ability to make scheduled payments of principal and
WESCO International, Inc. 21
interest on our debt, refinance our indebtedness, make scheduled payments on our operating leases, fund planned capital
expenditures or to finance acquisitions will depend on our future performance, which, to a certain extent, is subject to
economic, financial, competitive and other factors beyond our control. There can be no assurance that our business will
continue to generate sufficient cash flow from operations in the future to service our debt, make necessary capital
expenditures or meet other cash needs. If unable to do so, we may be required to refinance all or a portion of our existing
debt, to sell assets or to obtain additional financing. Our Receivables Facility is subject to renewal in August 2014, and our
Revolving Credit Facility is subject to renewal in August 2016. There can be no assurance that available funding or any sale
of additional receivables or additional financing will be possible at the times of renewal in amounts or terms favorable to us,
if at all.
Over the next three years, we will be required to repay approximately $293.3 million of our currently outstanding
indebtedness, of which $250.0 million is related to our Receivables Facility expiration, $37.6 million is related to our
mortgage credit facility (including a balloon payment of approximately $36.0 million due in the first quarter of 2013), and
$2.6 million is related to capital leases and notes payable associated with acquisitions.
We must attract, retain and motivate key employees, and the failure to do so may adversely affect our business and
results of operations.
Our success depends on hiring, retaining and motivating key employees, including executive, managerial, sales, technical,
marketing and support personnel. We may have difficulty locating and hiring qualified personnel. In addition, we may have
difficulty retaining such personnel once hired, and key people may leave and compete against us. The loss of key
personnel or our failure to attract and retain other qualified and experienced personnel could disrupt or adversely affect our
business, its sales and results of operations. In addition, our operating results could be adversely affected by increased
costs due to increased competition for employees, higher employee turnover, which may also result in loss of significant
customer business, or increased employee benefit costs.
Our debt agreements contain restrictions that may limit our ability to operate our business.
Our credit facilities also require us to maintain specific earnings to fixed expenses and to meet minimum net worth
requirements in certain circumstances. Our credit facilities and the indenture governing the 2017 Notes contain, and any
of our future debt agreements may contain, certain covenant restrictions that limit our ability to operate our business,
including restrictions on our ability to: incur additional debt or issue guarantees; create liens; make certain investments;
enter into transactions with our affiliates; sell certain assets; make capital expenditures; redeem capital stock or make other
restricted payments; declare or pay dividends or make other distributions to stockholders; and merge or consolidate with
any person. Our credit facilities contain additional affirmative and negative covenants, and our ability to comply with these
covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our
control, including prevailing economic conditions.
As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain
additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions
that might otherwise be beneficial to us. In addition, our failure to comply with these covenants could result in a default
under the 2029 Debentures, the 2017 Notes and our other debt, which could permit the holders to accelerate such debt.
If any of our debt is accelerated, we may not have sufficient funds available to repay such debt.
Goodwill and indefinite life intangible assets recorded as a result of our acquisitions could become impaired.
As of December 31, 2011, our combined goodwill and indefinite life intangible assets amounted to $1,055.0 million. To the
extent we do not generate sufficient cash flows to recover the net amount of any investments in goodwill and other
indefinite life intangible assets recorded, the investment could be considered impaired and subject to write-off. We expect
to record further goodwill and other indefinite life intangible assets as a result of future acquisitions we may complete.
Future amortization of such assets or impairments, if any, of goodwill or indefinite life intangible assets would adversely
affect our results of operations in any given period.
2011 Annual Report | Driving Growth > Creating Value 22
There is a risk that the market value of our common stock may decline.
Stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies in
our industry have been volatile. In recent years, volatility and disruption reached unprecedented levels. For some issuers,
the markets have exerted downward pressure on stock prices and credit capacity. It is impossible to predict whether the
price of our common stock will rise or fall. Trading prices of our common stock will be influenced by our operating results
and prospects and by global economic, financial and other factors.
Future sales of our common stock in the public market or issuance of securities senior to our common stock could
adversely affect the trading price of our common stock and the value of the 2029 Debentures.
Future sales of substantial amounts of our common stock or equity-related securities in the public market, or the perception
that such sales could occur, could adversely affect prevailing trading prices of our common stock and the value of the 2029
Debentures and could impair our ability to raise capital through future offerings of equity or equity-related securities. No
prediction can be made as to the effect, if any, that future sales of shares of common stock or the availability of shares of
WESCO International, Inc. 26
Item 6. Selected Financial Data.
Selected financial data and significant events related to the Company’s financial results for the last five fiscal years are
listed below. The financial data should be read in conjunction with the Consolidated Financial Statements and Notes
thereto included in Item 8 and with Management’s Discussion and Analysis of Financial Condition and Results of
Operations, included in Item 7.
Year Ended December 31,
2011
2010
2009
2008
2007
(Dollars in millions, except per share data)
Income Statement Data:
Net sales
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Interest expense, net
gain on debt exchange(1)
Other (income) expense(2)
Income before income taxes
Provision for income taxes(3)
Net income
Less: Net loss attributable to
noncontrolling interest(5)
Net income attributable
to WESCO International, Inc.
Earnings per common share attributable
to WESCO International, Inc.
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
$
6,125.7 $
4,889.2
872.0
31.6
332.9
53.6
—
—
279.3
83.1
196.2
5,063.9 $
4,065.4
763.7
23.9
210.9
57.6
—
(4.3)
157.6
42.2
115.4
4,624.0 $
3,724.1
693.9
26.0
180.0
53.8
(6.0)
(5.0)
137.2
32.1
105.1
6,110.8 $
4,904.2
834.3
26.7
345.6
64.2
—
(9.4)
290.8
86.7
204.1
6,003.5
4,781.4
791.1
36.8
394.2
76.5
—
—
317.7
85.2
232.5
(0.1)
—
—
—
—
$
196.3 $
115.4 $
105.1 $
204.1 $
232.5
$
$
4.54 $
3.96 $
2.72 $
2.50 $
2.49 $
2.46 $
4.82 $
4.71 $
43.2
49.6
42.5
46.1
42.3
42.7
42.4
43.3
5.09
4.82
45.7
48.3
Other Financial Data:
Capital expenditures
Net cash provided by operating activities
Net cash (used) provided by investing activities
Net cash (used) provided by financing activities
$
33.3 $
15.1 $
13.0 $
35.3 $
167.5
(81.3)
(70.9)
127.3
(220.5)
30.6
291.7
(10.7)
(264.9)
279.9
16.4
(265.0)
16.1
262.3
(48.0)
(212.6)
Balance Sheet Data:
Total assets
Total debt (including current portion
and short-term debt)(3)
Stockholders’ equity(4)
$
3,078.5 $
2,826.8 $
2,494.2 $
2,719.9 $
2,858.3
649.3
1,345.9
729.9
1,148.6
691.8
996.3
1,100.3
755.1
1,261.3
640.1
(1) Represents the gain related to the 2009 convertible debt exchange. See Note 7 of the Notes to Consolidated Financial Statements.
(2) In 2010, 2009 and 2008, represents income from the LADD joint venture. See Note 9 of the notes to consolidated financial statements.
(3) Includes the discount related to the 2029 Debentures, our 2.625% Convertible Senior Debentures due 2025 (the “2025 Debentures”) and our 1.75%
Convertible Senior Debentures due 2026 (the “2026 Debentures”) and, together with the 2029 Debentures and 2025 Debentures, the “Debentures”).
See Note 7 of the Notes to Consolidated Financial Statements.
(4) Stockholders’ equity includes amounts related to the Debentures. See Note 7 of the Notes to Consolidated Financial Statements.
(5) Represents the net loss attributable to a portion of a consolidated entity not owned by the Company. See Note 5 of the Notes to Consolidated Financial
Statements.
WESCO International, Inc.
27
Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the audited consolidated financial statements and notes
thereto included in Item 8 of this Annual Report on Form 10-K.
COMPANY OVERVIEW
In 2011, we strengthened our organization and talent base, made improvements to our capital structure, expanded our
international presence, improved productivity, and completed two accretive acquisitions. Our financial results reflect
improving conditions in our served markets, higher product prices and product costs, favorable foreign currency exchange
rates positively impacting net sales by 0.8%, and acquisitions positively impacting net sales by 6.8%. Sales increased
$1,061.9 million, or 21.0%, over the prior year. Cost of goods sold as a percentage of net sales was 79.8% and 80.3% in
2011 and 2010, respectively. Operating income increased to $332.9 million, or 57.9%, primarily from organic growth and
margin expansion. As a result, net income increased 69.9% over the prior year to $196.2 million. Diluted earnings per
share attributable to WESCO International, Inc. were $3.96 in 2011, compared with $2.50 in 2010.
Our end markets consist of industrial firms, electrical and data communications contractors, utilities and commercial
organizations, institutions and governmental entities. Our transaction types to these markets can be categorized as stock,
direct ship and special order. Stock orders are filled directly from existing inventory and represent approximately 46% of
total sales. Approximately 43% of our total sales are direct ship sales. Direct ship sales are typically custom-built products,
large orders or products that are too bulky to be easily handled and, as a result, are shipped directly to the customer from
the supplier. Special orders are for products that are not ordinarily stocked in inventory and are ordered based on a
customer’s specific request. Special orders represent the remainder of total sales.
We have historically financed our working capital requirements, capital expenditures, acquisitions, share repurchases and
new branch openings through internally generated cash flow, debt issuances, borrowings under our credit facilities and
funding through our Receivables Facility.
CASH FLOW
We generated $167.5 million in operating cash flow during 2011. Included in this amount was increased operating results
offset by investments in working capital to fund our growth. Investing activities included payments of $48.1 million for the
acquisitions of RECO and Brews and $33.3 million for capital expenditures. Refer to Note 5 of our Notes to the
Consolidated Financial Statements for additional information regarding the RECO and Brews acquisitions. Financing
activities during 2011 consisted of borrowings and repayments of $435.7 million and $398.9 million, respectively, related
to our Revolving Credit Facility, and borrowings and repayments of $210.0 million and $330.0 million, respectively, related
to our Receivables Facility. There was also an increase in bank overdrafts of $19.9 million.
FINANCING AVAILABILITY
As of December 31, 2011, we had $499.3 million in total available borrowing capacity. The available borrowing capacity
under our Revolving Credit Facility, which has a maturity date in August 2016 was $299.3 million, of which $188.6 million
was the U.S. sub-facility borrowing limit and $110.7 million was the Canadian sub-facility borrowing limit. The available
borrowing capacity under the Receivables Facility, which has a maturity date in August 2014 was $200.0 million. In
addition, in August 2009, we completed an exchange offer pursuant to which we issued $345.0 million in aggregate
principal amount of 2029 Debentures in exchange for approximately $299.7 million and $57.7 million in aggregate
principal amounts of our 2026 Debentures and 2025 Debentures, respectively. On December 23, 2010, we completed the
conversion and redemption of all our outstanding 2025 Debentures. Our 2029 Debentures cannot be redeemed or
repurchased until September 2016. For further discussion related to the Debentures, refer to Note 7 of our Notes to the
Consolidated Financial Statements. We monitor the depository institutions that hold our cash and cash equivalents on a
regular basis, and we believe that we have placed our deposits with creditworthy financial institutions. For further
discussions refer to “Liquidity and Capital Resources.”
2011 Annual Report | Driving Growth > Creating Value 28
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates, including those related to supplier programs, bad debts, inventories,
insurance costs, goodwill, income taxes, contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates. If actual market conditions are less favorable than those projected
by management, additional adjustments to reserve items may be required. We believe the following critical accounting
policies affect our judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
Revenues are recognized for product sales when title, ownership and risk of loss pass to the customer, or for services when
the service is rendered. In the case of stock sales and special orders, a sale occurs at the time of shipment from our
distribution point, as the terms of our sales are predominantly FOB shipping point. In cases where we process customer
orders but ship directly from our suppliers, revenue is recognized once product is shipped and title has passed. In all
cases, revenue is recognized once the sales price to our customer is fixed or is determinable and we have reasonable
assurance as to the collectability.
In certain customer arrangements, we provide services such as inventory management. We may perform some or all of the
following services for customers: determine inventory stocking levels; establish inventory reorder points; launch purchase
orders; receive material; put away material; and pick material for order fulfillment. We recognize revenue for services
rendered during the period based upon a previously negotiated fee arrangement. We also sell inventory to these customers
and recognize revenue at the time title and risk of loss transfers to the customer.
Selling, General and Administrative Expenses
We include warehousing, purchasing, branch operations, information services, and marketing and selling expenses in this
category, as well as other types of general and administrative costs.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to
make required payments. We have a systematic procedure using estimates based on historical data and reasonable
assumptions of collectibles made at the local branch level and on a consolidated corporate basis to calculate the
allowance for doubtful accounts.
Excess and Obsolete Inventory
We write down our inventory to its net realizable value based on internal factors derived from historical analysis of actual
losses. Looking back, we identify items at risk of becoming obsolete, defined as being in excess of 36 months supply
relative to demand or movement. We then analyze in a detailed manner the ultimate disposition of the previously identified
excess inventory items, such as sold, returned to supplier, or scrapped. This item by item analysis allows us to develop an
estimate which represents the historical likelihood that an item identified as being in excess supply ultimately becomes
obsolete. On a current basis, we apply the estimate to inventory items currently in excess of 36 months supply, and reduce
our inventory carrying value by the derived amount. We revisit and test our assumptions on a periodic basis. Historically,
we have not had material changes to our assumptions and do not anticipate any material changes in the future.
Supplier Volume Rebates
We receive rebates from certain suppliers based on contractual arrangements with them. Since there is a lag between actual
purchases and the rebates received from the suppliers, we must estimate and accrue the approximate amount of rebates
available at a specific date. We record the amounts as other accounts receivable on the balance sheet. The corresponding
WESCO International, Inc. 29
rebate income is recorded as a reduction of cost of goods sold. The appropriate level of such income is derived from the level
of actual purchases made by us from suppliers. Supplier volume rebate rates have historically ranged between approximately
0.8% and 1.2% of sales depending on market conditions. In 2011, the rebate rate was 1.2%.
Goodwill and Indefinite Life Intangible Assets
We test goodwill and indefinite life intangible assets for impairment annually during the fourth quarter using information
available at the end of September, or more frequently when events or circumstances occur indicating that their carrying
value may not be recoverable. We test for goodwill impairment on a reporting unit level. The evaluation of impairment
involves comparing the current fair value of goodwill and indefinite life intangible assets to the recorded value. We estimate
the fair value of goodwill using a combination of discounted cash flow analyses and market multiples. Assumptions used
for these fair value techniques are based on a combination of historical results, current forecasts, market data and recent
economic events. We evaluate the recoverability of indefinite life intangible assets using a discounted cash flow analysis
based on projected financial information. The determination of fair value involves significant management judgment and
we apply our best judgment when assessing the reasonableness of financial projections. Two primary assumptions were a
discount rate of 11.95% and a terminal growth rate of 4.6%.
A possible indicator of goodwill impairment is the relationship of a company’s market capitalization to its book value.
As of December 31, 2011, our market capitalization exceeded our book value and there were no reporting units
sensitive to impairment.
The reported value of trademarks totaled $46.9 million and $45.7 million at December 31, 2011 and 2010, respectively.
Two trademarks totaling $18.1 million are most sensitive to a decline in financial performance. We are taking actions to
improve our financial performance related to these businesses; however, we cannot predict whether or not there will be
certain events that could adversely affect their reported value.
Intangible Assets
We account for certain economic benefits purchased as a result of our acquisitions, including customer relations,
distribution agreements, technology and trademarks, as intangible assets. Except for trademarks, which have an indefinite
life, we amortize intangible assets over a useful life determined by the expected cash flows produced by such intangibles
and their respective tax benefits. Useful lives vary between 4 and 19 years, depending on the specific intangible asset.
Insurance Programs
We use commercial insurance for auto, workers’ compensation, casualty and health claims as a risk sharing strategy to
reduce our exposure to catastrophic losses. Our strategy involves large deductibles where we must pay all costs up to the
deductible amount. We estimate our reserve based on historical incident rates and costs.
Income Taxes
We recognize deferred tax assets and liabilities for expected future tax consequences of events that have been included in
our consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the
difference between the financial reporting and the tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
We record our deferred tax assets at amounts that are expected to be realized. We evaluate future taxable income and
potential tax planning strategies in assessing the potential need for a valuation allowance. Should we determine that it is
more likely than not that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to
the deferred tax asset would be charged to income in the period such determination was made.
We account for uncertainty in income taxes using a recognition threshold and measurement attribute prescribed by income
tax accounting guidance. We frequently review tax issues and positions taken on tax returns to determine the need and
amount of contingency reserves necessary to cover any probable audit adjustments.
2011 Annual Report | Driving Growth > Creating Value 30
Convertible Debentures
We separately account for the liability and equity components of our convertible debentures in a manner that reflects our
non-convertible debt borrowing rate. We estimate our non-convertible debt borrowing rate through a combination of
discussions with our financial institutions and review of relevant market data. The discounts to the convertible note
balances are amortized to interest expense, using the effective interest method, over the implicit life of the debentures.
Stock-Based Compensation
Our stock-based employee compensation plans are comprised of stock options, stock-settled stock appreciation rights and
restricted stock units. Compensation cost for all stock-based awards is measured at fair value on the date of grant, and
compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair
value of stock options and stock-settled appreciation rights is determined using the Black-Scholes valuation model.
Expected volatilities are based on historical volatility of our common stock. We estimate the expected life of stock options
and stock-settled stock appreciation rights using historical data pertaining to option exercises and employee terminations.
The risk-free rate is based on the U.S. Treasury yields in effect at the time of grant. The forfeiture assumption is based on
our historical employee behavior, which we review on an annual basis. Restricted stock units with vesting dependent upon
service conditions are valued based on the market price on the grant date. No dividends are assumed for stock-based
awards.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of certain items in our consolidated statements of
income for the periods presented.
Year Ended December 31,
Net sales
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Interest expense
gain on debt exchange
Other income
Income before income taxes
Provision for income taxes
Net income attributable to WESCO International, Inc.
2011 Compared to 2010
2011
100.0%
79.8
14.2
0.5
5.5
0.9
—
—
4.6
1.4
3.2%
2010
100.0%
80.3
15.1
0.5
4.1
1.1
—
(0.1)
3.1
0.8
2.3%
2009
100.0%
80.5
15.0
0.6
3.9
1.1
(0.1)
(0.1)
3.0
0.7
2.3%
Net Sales. Sales in 2011 increased 21.0% to $6,125.7 million, compared with $5,063.9 million in 2010. Sales were
positively impacted by our growth initiatives, improved conditions in our markets served, favorable foreign currency
exchange rates positively impacting net sales by 0.8%, and acquisitions positively impacting net sales by 6.8%.
Additionally, management estimates the price impact on net sales was approximately 3.0%.
Cost of Goods Sold. Cost of goods sold increased 20.3% in 2011 to $4,889.2 million, compared with $4,065.4 million in
2010. Cost of goods sold as a percentage of net sales was 79.8% in 2011 versus 80.3% in 2010. The decrease in the cost
of goods sold percentage was primarily due to the margin impact from recent acquisitions and higher supplier volume
rebate rates driven by the increase in sales.
Selling, General and Administrative (“SG&A”) Expenses. Sg&A expenses include costs associated with personnel,
shipping and handling, travel, advertising, facilities, utilities and bad debts. Sg&A expenses increased by $108.4 million, or
14.2%, to $872.0 million in 2011. The increase in Sg&A expenses is primarily due to compensation expenses related to
the growth in sales and the impact from recent acquisitions of $44.6 million. As a percentage of net sales, Sg&A expenses
decreased to 14.2% of sales, compared with 15.1% in 2010. Sg&A expenses increased at a lower rate than sales due to
the continued effectiveness of our cost control initiatives and the fixed cost nature of certain Sg&A expense components.
WESCO International, Inc.
31
Sg&A payroll expenses for 2011 of $608.9 million increased by $81.4 million compared to 2010. The increase in Sg&A
payroll expense was primarily due to an increase in salary expense of $43.9 million and an increase in commissions and
incentives of $23.7 million. These increases are primarily due to an increase in headcount, which is the result of both
recent acquisitions and organic growth initiatives.
The remaining Sg&A expenses for 2011 of $263.1 million increased by $27.0 million compared to 2010 due to an
increase in variable operating expenses associated with the growth in sales.
Depreciation and Amortization. Depreciation and amortization increased $7.7 million to $31.6 million in 2011, compared
with $23.9 million in 2010. The increase in depreciation and amortization was primarily due to an increase in capital
expenditures from $15.1 million in 2010 to $33.3 million in 2011.
Income from Operations. Income from operations increased by $122.1 million, or 57.9%, to $332.9 million in 2011,
compared to $210.9 million in 2010.
Interest Expense. Interest expense totaled $53.6 million in 2011, compared with $57.6 million in 2010, a decrease of 6.9%.
In 2010, interest expense was negatively impacted by $4.2 million resulting from the resolution of an outstanding tax matter.
Other Income. No other income was reported in 2011. In 2010, other income was comprised of equity income from the
LADD joint venture totaling $4.3 million.
Income Taxes. Our effective income tax rate increased to 29.8% in 2011, compared with 26.7% in 2010, primarily as a
result of the increase in taxable income in the United States.
Net Income. Net income increased by $80.8 million, or 69.9%, to $196.2 million in 2011, compared to $115.4
million in 2010.
Net Loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest totaled less than $0.1
million in 2011.
Net Income attributable to WESCO International, Inc. Net income and diluted earnings per share attributable to WESCO
International, Inc. on a consolidated basis totaled $196.3 million and $3.96 per share, respectively, in 2011, compared
with $115.4 million and $2.50 per share, respectively, in 2010.
2010 Compared to 2009
Net Sales. Sales in 2010 increased 9.5% to $5,063.9 million, compared with $4,624.0 million in 2009. Sales were
positively impacted by our growth initiatives, improved conditions in our markets served, higher product prices due
primarily to rising supplier product and commodity prices, favorable foreign currency exchange rates positively impacting
net sales by 1.3% and acquisitions positively impacting net sales by 0.4%. Additionally, management estimates the price
impact on net sales was approximately 2.7%.
Cost of Goods Sold. Cost of goods sold increased 9.2% in 2010 to $4,065.4 million, compared with $3,724.1 million in 2009.
Cost of goods sold as a percentage of net sales was 80.3% in 2010 versus 80.5% in 2009. The decrease in the cost of goods
sold percentage was primarily due to higher supplier volume rebate rates, which were driven by the increase in sales.
Selling, General and Administrative (“SG&A”) Expenses. Sg&A expenses include costs associated with personnel,
shipping and handling, travel, advertising, facilities, utilities and bad debts. Sg&A expenses increased by $69.7 million, or
10.0%, to $763.6 million in 2010 due to the increase in commissions and incentives and the restoration of temporary cost
and benefit reductions taken in the prior year. As a percentage of net sales, Sg&A expenses increased to 15.1% of sales,
compared with 15.0% in 2009, reflecting the impact of the reinstatement of discretionary benefits, the absence of
mandatory unpaid leave of absences in the current year, an impairment charge related to our 40% interest in the LADD
joint venture and an increase in variable operating expenses partially offset by the decrease in severance costs related to
headcount cost reduction actions taken in the prior year. Sg&A payroll expenses for 2010 of $527.5 million increased by
$60.5 million compared to 2009. The increase in payroll expense was primarily due to the increase in commissions and
2011 Annual Report | Driving Growth > Creating Value 32
incentives of $27.8 million, the net impact of $24.3 million related to temporary cost reductions taken in the prior year and
an increase in temporary labor costs of $5.2 million. Other Sg&A payroll related costs increased by $3.2 million.
Contributing to the remaining change in Sg&A expenses was a charge of $3.8 million related to the impairment of our 40%
interest in the LADD joint venture and an increase in various operating expenses of $5.4 million due to the increase in
business activity levels.
Depreciation and Amortization. Depreciation and amortization decreased $2.1 million to $23.9 million in 2010, compared
with $26.0 million in 2009. The decrease in depreciation and amortization was due to the reduction in capital expenditures
in 2009 and 2010.
Income from Operations. Income from operations increased by $31.0 million, or 17.2%, to $210.9 million in 2010,
compared to $180.0 million in 2009. The increase in operating income was primarily due to improved conditions in our
markets served.
Interest Expense. Interest expense totaled $57.6 million in 2010, compared with $53.8 million in 2009, an increase of
7.1%. Interest expense was impacted by an increase in interest rates and interest expense of $4.2 million resulting from
the resolution of an outstanding tax matter. Interest rates increased upon amending both the Receivables Facility and the
Revolving Credit Facility in April 2009 and February 2010, respectively. The Receivables Facility was amended again in
September 2010 to, among other things, reduce the program fee and commitment fee. It is expected that these changes
will have a favorable impact on interest expense in the future. Amortization of the debt discount resulted in non-cash
interest expense of $4.3 million in 2010 and $11.8 million in 2009.
Other Income. Other income, comprised of equity income from the LADD joint venture, totaled $4.3 million in 2010 versus
$5.0 million in 2009. The decrease in other income is due to the sale of our 40% interest in the LADD joint venture, on
June 7, 2010, to Deutsch Engineered Connecting Devices, Inc. (“Deutsch”), previously the 60% owner of the LADD joint
venture. We accounted for our investment in the LADD joint venture on an equity basis, and earnings were reported as
other income in the consolidated statement of income. We received equity income through May 31, 2010 and distributions
through April 20, 2010, the date Deutsch notified WESCO of its exercise of its option to purchase the remaining 40% of the
LADD joint venture. As a result of this transaction, in the future there will be no other income reported for the LADD joint
venture.
Income Taxes. Our effective income tax rate increased to 26.7% in 2010, compared with 23.4% in 2009, primarily as a
result of the increase in taxable income in the United States partially offset by the resolution of tax positions related to
transfer pricing between Canada and the United States.
Net Income. Net income and diluted earnings per share on a consolidated basis totaled $115.4 million and $2.50 per
share, respectively, in 2010, compared with $105.1 million and $2.46 per share, respectively, in 2009.
LIQUIDITY AND CAPITAL RESOURCES
Total assets were $3.1 billion at December 31, 2011, compared to $2.8 billion at December 31, 2010. The $251.7 million
increase in total assets was principally attributable to the increase in accounts receivable and inventory of $146.7 million
and $38.1 million, respectively. These increases were due to an increase in sales activity. Also contributing to the increase
in total assets was an increase in goodwill of $22.4 million due to recent acquisitions. Total liabilities at December 31, 2011
compared to December 31, 2010 increased by $54.4 million to $1,732.5 million. Contributing to the increase in total
liabilities was an increase in accounts payable of $105.3 million due to increased purchasing activity in support of the sales
increase and an increase in bank overdrafts of $19.9 million. Bank overdrafts represent outstanding checks drawn on zero
balance accounts that have not yet been presented to the banks for funding. These increases were partially offset by a
decrease in current and long-term debt of $80.5 million. Stockholders’ equity increased by 17.2% to $1,346.0 million at
December 31, 2011, compared with $1,148.6 million at December 31, 2010, primarily as a result of net earnings of
$196.2 million and stock-based compensation expense of $15.4 million. The increase in stockholders’ equity was partially
offset by a foreign currency translations adjustment of $12.6 million.
WESCO International, Inc. The following table sets forth our outstanding indebtedness:
As of December 31,
(In thousands)
$
Mortgage financing facility
Accounts receivable securitization facility
Revolving credit facility
7.50% Senior Subordinated Notes due 2017
1.75% Convertible Senior Debentures due 2026, less debt discount of $0 and $7 in 2011
and 2010, respectively
6.0% Convertible Senior Debentures due 2029, less debt discount of $175,908 and $178,420
in 2011 and 2010, respectively
Acquisition related notes
Capital leases
Other
Total debt
Less current portion
Total long-term debt
$
33
2011
2010
37,564 $
250,000
36,792
150,000
39,239
370,000
—
150,000
56
214
169,054
85
2,521
3,261
649,333
(6,411)
642,922 $
166,580
204
3,167
477
729,881
(3,988)
725,893
The required annual principal repayments for all indebtedness for the next five years and thereafter, as of December 31, 2011
is set forth in the following table:
(In thousands)
2012
2013
2014
2015
2016
Thereafter
Total payments on debt
Debt discount on convertible debentures
Total long-term debt
$
$
6,411
36,594
250,328
133
36,813
494,962
825,241
(175,908)
649,333
Our liquidity needs generally arise from fluctuations in our working capital requirements, capital expenditures, share
repurchases, acquisitions and debt service obligations. As of December 31, 2011, we had $299.3 million in available
borrowing capacity under our Revolving Credit Facility, which combined with our $200.0 million of available borrowing
capacity under our Receivables Facility and our invested cash of $11.5 million provided liquidity of $510.8 million.
Invested cash included in our determination of liquidity represents cash deposited in interest bearing accounts. We believe
cash provided by operations and financing activities will be adequate to cover our current operational and business needs.
We communicate on a regular basis with our lenders regarding our financial and working capital performance and liquidity
position. We are in compliance with all covenants and restrictions contained in our debt agreements as of December
31, 2011.
At December 31, 2011, we had cash and cash equivalents totaling $63.9 million, of which $34.8 million was held by
foreign subsidiaries. The cash held by some of our foreign subsidiaries could be subject to additional U.S. income taxes if
repatriated. We believe that we are able to maintain a sufficient level of liquidity for our domestic operations and
commitments without repatriation of the cash held by these foreign subsidiaries.
Over the next several quarters, we expect to maintain working capital productivity, and it is expected that excess cash will
be directed primarily at debt reduction and acquisitions. Our near term focus will be managing our working capital as we
experience sales growth and maintaining ample liquidity and credit availability. We anticipate capital expenditures in 2012
to be at levels similar to 2011. We believe our balance sheet and ability to generate ample cash flow provides us with a
durable business model and should allow us to fund expansion needs and growth initiatives.
2011 Annual Report | Driving Growth > Creating Value
34
We finance our operating and investing needs as follows:
Mortgage Financing Facility
In 2003, we finalized a mortgage financing facility of $51 million, of which $37.6 million was outstanding as of December
31, 2011. Total borrowings under the mortgage financing facility are subject to a 22-year amortization schedule, with a
balloon payment due at the end of the 10-year term. The interest rate on borrowings under this facility is fixed at 6.5%.
Accounts Receivable Securitization Facility
During 2011, we entered into an amendment of our existing Receivables Facility, pursuant to the terms and conditions of
the Fourth Amendment to Third Amended and Restated Receivables Purchase Agreement, dated as of April 13, 2009 (the
“Amendment”), by and among WESCO Receivables Corp., WESCO Distribution, the Purchasers and Purchaser Agents
party thereto and PNC Bank, National Association, as Administrator. The Amendment added an accordion feature, allowing
us to request increases to the purchase commitments of up to $100 million in the aggregate. The Amendment also lowered
the interest rate spread from 1.75% to 1.10%, the commitment fee from 0.75% to 0.55%, and extended the term of the
Receivables Facility to August 2014. As of December 31, 2011, the purchase commitment was $450 million.
Under the Receivables Facility, we sell, on a continuous basis, an undivided interest in all domestic accounts receivable to
WESCO Receivables Corp., a wholly owned special purpose entity (the “SPE”). The SPE sells, without recourse, a senior
undivided interest in the receivables to third-party conduits and financial institutions for cash while maintaining a
subordinated undivided interest in the receivables, in the form of overcollateralization. We have agreed to continue
servicing the sold receivables for the third-party conduits and financial institutions at market rates; accordingly, no servicing
asset or liability has been recorded.
As of December 31, 2011 and 2010, accounts receivable eligible for securitization totaled approximately $613.9 million
and $537.0 million, respectively. The consolidated balance sheets as of December 31, 2011 and 2010 include $250.0
million and $370.0 million, respectively, of account receivable balances legally sold to third parties, as well as borrowings
for equal amounts. At December 31, 2011, the interest rate on borrowings under this facility was approximately 1.64%.
Revolving Credit Facility
During 2011, we entered into a new Revolving Credit Facility, which has an aggregate borrowing capacity of $400 million
and includes a letter of credit sub-facility of up to $80 million. The Revolving Credit Facility consists of two separate
sub-facilities: (i) a U.S. sub-facility with a borrowing limit at any given time of up to $400 million less the amount of
outstanding borrowings under the Canadian sub-facility and (ii) a Canadian sub-facility with a borrowing limit of up to $175
million. The facility also contains an accordion feature, allowing us to request increases to the borrowing commitments
under the facility of up to $100 million in the aggregate. The facility matures in August 2016 and is collateralized by the
inventory and certain other assets of WESCO Distribution and certain of its domestic subsidiaries and the inventory,
accounts receivable, and certain other assets of WESCO Distribution Canada, L.P. WESCO Distribution’s obligations under
the Revolving Credit Facility have been guaranteed by WESCO International and by certain of WESCO International’s
subsidiaries.
Availability under the facility is limited to the amount of eligible U.S. and Canadian inventory and Canadian receivables
applied against certain advance rates. Depending upon the amount of excess availability under the facility, interest will be
calculated at LIBOR plus a margin that ranges between 1.50% and 2.00% or at the Alternative Rate (prime rate) plus a
margin that ranges between 0.50% and 1.00%. The interest rate margin is reduced by 0.25% if our leverage ratio, as
calculated under the Revolving Credit Facility, falls below a ratio of 2.5 to 1.0. At December 31, 2011, the interest rate on
borrowings under this facility was approximately 3.0%.
As long as pro forma combined availability for the preceding 60-day period, up to and including the transaction date, under
the facility and our accounts receivable securitization facility is greater than $125 million, we are permitted, subject to
certain specified conditions, to make acquisitions and repurchase WESCO International’s outstanding capital stock and
WESCO outstanding indebtedness.
WESCO International, Inc. 35
During 2011, we borrowed $435.7 million in the aggregate under the Revolving Credit Facility and made repayments in the
aggregate amount of $398.9 million. During 2010, aggregate borrowings and repayments were $636.0 million and $832.5
million, respectively. At December 31, 2011, we had a balance outstanding of $36.8 million under the facility. We had
$299.3 million available under the facility at December 31, 2011, after giving effect to outstanding letters of credit, as
compared to approximately $276.7 million at December 31, 2010.
7.50% Senior Subordinated Notes due 2017
At December 31, 2011, $150 million in aggregate principal amount of the 2017 Notes was outstanding. The 2017 Notes
were issued by WESCO Distribution under an indenture dated as of September 27, 2005 with The Bank of New York, as
successor to J.P. Morgan Trust Company, National Association, as trustee, and are unconditionally guaranteed on an
unsecured basis by WESCO International. The 2017 Notes accrue interest at the rate of 7.50% per annum and are payable
in cash semi-annually in arrears on each April 15 and October 15.
Between October 15, 2011 and October 14, 2012, WESCO Distribution may redeem all or a part of the 2017 Notes at a
redemption price equal to 102.50% of the principal amount. Between October 15, 2012 and October 14, 2013, WESCO
Distribution may redeem all or a part of the 2017 Notes at a redemption price equal to 101.25% of the principal amount.
On and after October 15, 2013, WESCO Distribution may redeem all or a part of the 2017 Notes at a redemption price
equal to 100% of the principal amount.
If WESCO Distribution undergoes a change of control prior to maturity, holders of 2017 Notes will have the right, at their
option, to require WESCO Distribution to repurchase for cash some or all of their 2017 Notes at a repurchase price equal to
101% of the principal amount of the 2017 Notes being repurchased, plus accrued and unpaid interest to, but not
including, the repurchase date.
6.0% Convertible Senior Debentures due 2029
On August 27, 2009, WESCO International completed an exchange offer pursuant to which it issued $345.0 million in
aggregate principal amount of 2029 Debentures in exchange for approximately $299.7 million and $57.7 million in
aggregate principal amounts of its outstanding 2026 Debentures and 2025 Debentures, respectively. As a result of the debt
exchange, we recorded a gain of $6.0 million, which included the write-off of debt issuance costs. The 2029 Debentures
were issued pursuant to an Indenture dated August 27, 2009 (the “Indenture”), with The Bank of New York Mellon, as
trustee, and are unconditionally guaranteed on an unsecured senior subordinate basis by WESCO Distribution.
We utilized an interest rate of 13.875% to reflect the non-convertible debt borrowing rate of our offering upon issuance,
which was determined based on discussions with our financial institutions and a review of relevant market data, and
resulted in a $181.2 million discount to the 2029 Debenture balance and a net increase in additional capital of $106.5
million. In addition, the financing costs related to the issuance of the 2029 Debentures were allocated between the debt
and equity components. We are amortizing the debt discount and financing costs over the life of the instrument. Non-cash
interest expense of $2.5 million and $2.1 million was recorded for the years ended December 31, 2011 and 2010,
respectively. The debt discount amortization will approximate $2.8 million in 2012, $3.1 million in 2013, $3.6 million in
2014, $4.1 million in 2015, and $4.6 million in 2016.
While the 2029 Debentures accrue interest at an effective interest rate of 13.875% (as described above), the coupon
interest rate of 6.0% per annum is payable in cash semi-annually in arrears on each March 15 and September 15,
commencing March 15, 2010. Beginning with the six-month period commencing September 15, 2016, we will also pay
contingent interest in cash during any six-month period in which the trading price of the 2029 Debentures for each of the
five trading days ending on the second trading day immediately preceding the first day of the applicable six-month interest
period equals or exceeds 120% of the principal amount of the 2029 Debentures. During any interest period when
contingent interest shall be payable, the contingent interest payable per $1,000 principal amount of 2029 Debentures will
equal 0.25% of the average trading price of $1,000 principal amount of the 2029 Debentures during the five trading days
immediately preceding the first day of the applicable six-month interest period. In accordance with guidance related to
derivatives and hedging, the contingent interest feature of the 2029 Debentures is an embedded derivative that is not
considered clearly and closely related to the host contract. The contingent interest component had no significant value at
issuance or December 31, 2011.
2011 Annual Report | Driving Growth > Creating Value 36
The 2029 Debentures are convertible into cash, and in certain circumstances, shares of WESCO International’s common
stock, $0.01 par value, at any time on or after September 15, 2028, or prior to September 15, 2028 in certain
circumstances. The 2029 Debentures will be convertible based on an initial conversion rate of 34.6433 shares of common
stock per $1,000 principal amount of the 2029 Debentures (equivalent to an initial conversion price of approximately
$28.87 per share). The conversion rate and conversion price may be adjusted under certain circumstances.
At any time on or after September 15, 2016, the Company may redeem all or a part of the 2029 Debentures plus accrued
and unpaid interest (including contingent interest and additional interest, if any) to, but not including, the redemption date.
If WESCO International undergoes certain fundamental changes, as defined in the Indenture, prior to maturity, holders of
the 2029 Debentures will have the right, at their option, to require WESCO International to repurchase for cash some or all
of their 2029 Debentures at a repurchase price equal to 100% of the principal amount of the 2029 Debentures being
repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but not
including, the repurchase date.
The following table sets forth the components of our outstanding convertible debenture indebtedness:
December 31, 2011
December 31, 2010
Principal
Balance
Discount
Net Carrying
Amount
Principal
Balance
Discount
Net Carrying
Amount
(In thousands)
Convertible Debentures:
2026
2029
Covenant Compliance
$
$
56 $
— $
56 $
221 $
(7) $
344,962
345,018 $
(175,908)
(175,908) $
169,054
169,110 $
345,000
345,221 $
(178,420)
(178,427) $
214
166,580
166,794
We were in compliance with all relevant covenants contained in our debt agreements as of December 31, 2011.
Cash Flow
An analysis of cash flows for 2011 and 2010 follows:
Operating Activities. Cash provided by operating activities for 2011 totaled $167.5 million, compared with $127.3 million
of cash generated in 2010. Cash provided by operating activities included net income of $196.2 million and adjustments to
net income totaling $65.1 million. Others sources of cash in 2011 were generated from an increase in accounts payable of
$101.7 million due to the increase in sales activity, an increase in accrued payroll and benefit costs of $10.0 million due to
the increase in commissions, incentives and benefit costs and a decrease in prepaid expenses and other current assets of
$11.3 million. Primary uses of cash in 2011 included: $143.5 million for the increase in trade and other receivables,
resulting from the increase in sales; $33.8 million for the increase in inventory; and $39.5 million for the decrease in other
current and noncurrent liabilities. In 2010, primary sources of cash were net income of $115.5 million and adjustments to
net income totaling $70.5 million. Other sources of cash in 2010 were generated from an increase in accounts payable of
$53.9 million, an increase in accrued payroll and benefit costs of $34.4 million due to the increase in commissions,
incentives, and benefit costs and a decrease in prepaid expenses and other current assets of $12.6 million. Primary uses
of cash in 2010 included: $118.5 million for the increase in trade and other receivables, resulting from the increase in
sales; $33.9 million for the increase in inventory; and $7.2 million for the decrease in other current and noncurrent
liabilities.
Investing Activities. Net cash used by investing activities in 2011 was $81.3 million, compared with $220.5 million of net
cash used in 2010. Included in 2011 were payments of $48.1 million for the acquisition of the businesses of RECO and
Brews Supply. During 2010, payments of $265.4 million were made for the acquisition of the businesses of TVC
Communications and Potelcom. Investing activities for 2010 also included proceeds from the sale of our 40% interest in
the LADD joint venture. Proceeds included $40.0 million for our 40% interest, plus $15.0 million for the collection of a
promissory note. Capital expenditures were $33.3 million and $15.1 million in 2011 and 2010, respectively.
WESCO International, Inc.
37
Financing Activities. Net cash used by financing activities in 2011 was $70.9 million, compared with $30.6 million of net
cash provided in 2010. During 2011, borrowings and repayments of long-term debt of $435.7 million and $398.9 million,
respectively, were made to our Revolving Credit Facility. Borrowings and repayments of $210.0 million and $330.0 million
respectively, were applied to our Receivables Facility, and there were repayments of $1.7 million to our mortgage financing
facility. During 2010, borrowings and repayments of long-term debt of $636.0 million and $832.5 million, respectively,
were made to our Revolving Credit Facility. Borrowings and repayments of $818.0 million and $493.0 million, respectively,
were applied to our Receivables Facility, and there were repayments of $1.6 million to our mortgage financing facility.
Financing activities in 2010 also included payments of $92.3 million related to the redemption of our 2025 Debentures.
Contractual Cash Obligations and Other Commercial Commitments
The following summarizes our contractual obligations, including interest, at December 31, 2011 and the effect such
obligations are expected to have on liquidity and cash flow in future periods.
(In millions)
2012
2013 to 2014
2015 to 2016
2017 – After
Total
Contractual cash obligations (including interest):
Long-term debt, excluding debt discount
of $175.9
Current and short-term debt
Interest on indebtedness(1)
Non-cancelable operating leases
Total contractual cash obligations
$
$
— $
6.4
36.0
47.0
89.4 $
286.9 $
—
73.5
57.2
417.6 $
36.9 $
—
65.9
36.9
139.7 $
495.0 $
—
271.0
42.5
808.5 $
818.8
6.4
446.4
183.6
1,455.2
(1)Interest on the variable rate debt was calculated using the rates and balances outstanding at December 31, 2011
Purchase orders for inventory requirements and service contracts are not included in the table above. generally, our
purchase orders and contracts contain clauses allowing for cancellation. We do not have significant agreements to
purchase material or goods that would specify minimum order quantities. Also, we do not consider obligations to taxing
authorities to be contractual obligations requiring disclosure due to the uncertainty surrounding the ultimate settlement and
timing of these obligations. As such, we have not included $33.1 million of such estimated liability in the table above.
INFLATION
The rate of inflation, as measured by changes in the producer price index, affects different commodities, the cost of
products purchased and ultimately the pricing of our different products and product classes to our customers. Our pricing
related to inflation did not have a material impact on our sales revenue for the year ended December 31, 2011. Historically,
price changes from suppliers have been consistent with inflation and have not had a material impact on the results of
operations.
SEASONALITY
Our operating results are not significantly affected by seasonal factors. Sales during the first and fourth quarters are
generally 1-3% below the sales of the second and third quarters, due to a reduced level of activity during the winter
months of November through February. Sales typically increase beginning in March, with slight fluctuations per month
through October. During periods of economic expansion or contraction our sales by quarter have varied significantly from
this pattern.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 2 of our Notes to the Consolidated Financial Statements for information regarding the effect of new accounting
pronouncements.
2011 Annual Report | Driving Growth > Creating Value
38
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
FOREIGN CURRENCY RISKS
Approximately 82% of our sales are denominated in U.S. dollars and are primarily from customers in the United States. As
a result, currency fluctuations are currently not material to our operating results. We do have foreign subsidiaries located in
North America, South America, Europe, Africa, Asia and Australia and may establish additional foreign subsidiaries in the
future. Accordingly, we may derive a larger portion of our sales from international operations, and a portion of these sales
may be denominated in foreign currencies. As a result, our future operating results could become subject to fluctuations in
the exchange rates of those currencies in relation to the U.S. dollar. Furthermore, to the extent that we engage in
international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies
could make our products less competitive in international markets. We have monitored and will continue to monitor our
exposure to currency fluctuations.
INTEREST RATE RISK
Fixed Rate Borrowings: Approximately 65% of our debt portfolio is comprised of fixed rate debt. At various times, we have
refinanced our debt to mitigate the impact of interest rate fluctuations. In 2005, we issued $150 million in aggregate
principal amount of our 2017 Notes at 7.5% and $150 million in aggregate principal amount of our 2025 Debentures at
2.625% (accounted for at an effective fixed rate of 6.0%). In 2006, we issued additional fixed rate debt, which included
$300 million in aggregate principal amount of our 2026 Debentures at 1.75% (accounted for at an effective fixed rate of
6.0%). In August 2009, we completed an exchange offer pursuant to which we issued $345.0 million in aggregate
principal amount of 2029 Debentures at 6.0% (accounted for at an effective fixed rate of 13.875%) in exchange for
approximately $299.7 million and $57.7 million in aggregate principal amounts of our outstanding 2026 Debentures and
2025 Debentures, respectively. The remaining outstanding balance of the 2025 Debentures was redeemed in December
2010. As these borrowings were issued at fixed rates, interest expense would not be impacted by interest rate fluctuations,
although market value would be. The aggregate fair value of these debt instruments was $850.9 million at December 31,
2011. Interest expense on our other fixed rate debt also would not be impacted by changes in market interest rates, and
for this debt, fair value approximated carrying value (see Note 7 to the Consolidated Financial Statements).
Floating Rate Borrowings: Our variable rate borrowings at December 31, 2011 totaled $286.8 million and represented the
amount outstanding under the Revolving Credit Facility and the Receivables Facility. The fair value of these debt
instruments at December 31, 2011 was $286.8 million. We borrow under our Revolving Credit Facility and Receivables
Facility for general corporate purposes, including working capital requirements and capital expenditures. Borrowings under
our Revolving Credit Facility bear interest at the applicable LIBOR or base rate and therefore we are subject to fluctuations
in interest rates. Additionally, we borrow under our Receivables Facility, which bears interest at the 30 day commercial
paper rate plus applicable margin. A 100 basis point increase or decrease in interest rates would not have a significant
impact on future earnings under our current capital structure.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is set forth in our Consolidated Financial Statements contained in this Annual Report
on Form 10-K. Specific financial statements can be found at the pages listed below:
WESCO International, Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2011, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements
PAGE
39
40
41
42
44
45
WESCO International, Inc.
39
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF WESCO INTERNATIONAL, INC.,
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
stockholders’ equity and cash flows present fairly, in all material respects, the financial position of WESCO International, Inc.
and its subsidiaries at December 31, 2011 and December 31, 2010, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s
internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Brews Supply,
Ltd. from its assessment of internal control over financial reporting as of December 31, 2011 because it was acquired by the
Company in a purchase business combination during October 2011. We have also excluded Brews Supply, Ltd. from our
audit of internal control over financial reporting. Brews Supply, Ltd. is a wholly-owned subsidiary whose total assets and total
revenues represent $49.2 million and $16.7 million, respectively, of the related consolidated financial statement amounts as
of and for the year ended December 31, 2011.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 22, 2012
2011 Annual Report | Driving Growth > Creating Value Consolidated Statements of Income
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
Year Ended December 31,
(In thousands, except per share data)
Net sales
Cost of goods sold (excluding depreciation and amortization below)
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Interest expense, net
gain on debt exchange
Other income (Note 9)
Income before income taxes
Provision for income taxes (Note 10)
Net income
Less: Net loss attributable to noncontrolling interest
Net income attributable to WESCO International, Inc.
Earnings per share attributable to WESCO International, Inc. (Note 11)
Basic
Diluted
The accompanying notes are an integral part of the condensed consolidated financial statements.
41
2011
2010
2009
$ 6,125,718 $ 5,063,862 $ 4,623,954
3,724,061
693,896
26,045
179,952
4,065,425
763,583
23,935
210,919
4,889,149
871,983
31,607
332,979
53,603
—
—
279,376
83,136
196,240
(11)
196,251 $
57,563
—
(4,285)
157,641
42,164
115,477
—
115,477 $
53,754
(5,962)
(4,991)
137,151
32,063
105,088
—
105,088
4.54 $
2.72 $
3.96 $
2.50 $
2.49
2.46
$
$
$
2011 Annual Report | Driving Growth > Creating Value
42
Consolidated Statements of Stockholders’ Equity
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except share data)
Balance, December 31, 2008
Exercise of stock options, including tax benefit of $895
Stock-based compensation expense
Issuance of convertible debt instruments, net of tax impact of $68,641
Exchange of debt, net of tax impact of $9,837
Net income
Translation adjustment
Comprehensive Income
Balance, December 31, 2009
Exercise of stock options, including tax benefit of $3,082
Stock-based compensation expense
Conversion of 2025 debentures
Net income
Translation adjustment
Comprehensive Income
Balance, December 31, 2010
Exercise of stock options, including tax benefit of $5,365
Stock-based compensation expense
Conversion of 2029 debentures
Issuance of treasury stock
Exercise of restricted stock units and retirement of common stock
Acquisition of noncontrolling interest
Net income (loss)
Translation adjustment
Comprehensive Income
Balance, December 31, 2011
The accompanying notes are an integral part of the condensed consolidated financial statements.
Comprehensive
Income
Common Stock
Amount
Shares
Class B Common Stock
Amount
Shares
Additional
Capital
Treasury Stock
Noncontrolling
Comprehensive
Amount
Shares
Interest
Income (Loss)
$
557
3
55,788,620
179,204
$
43
4,339,431 $
886,019 $
477,111 $
(590,288)
(17,888,089) $
— $
(18,338)
(65)
(2,370)
$
$
105,088
29,323
134,411
$
$
115,477
11,648
127,125
$
$
196,240
(12,576)
183,664
560
3
3
566
6
—
(1)
55,967,824
268,213
340,213
56,576,250
531,121
589
(86,437)
$
571
57,021,523
$
43
4,339,431 $ 1,036,867 $
891,789 $
(593,329)
(17,936,923) $
(88) $
10,057
Retained
Earnings
(Deficit)
105,088
115,477
(2,138)
196,251
2,270
13,324
106,462
(15,220)
4,852
15,751
5,225
5,783
15,407
(5)
(582)
(2,419)
43
4,339,431
992,855
582,199
(590,353)
(17,890,459)
—
10,985
(654)
(15,281)
43
4,339,431
1,018,683
697,676
(591,007)
(17,905,740)
—
22,633
(7,838)
(146,614)
957
4,559
28,994
86,437
(77)
(11)
(12,576)
Accumulated
Other
29,323
11,648
WESCO International, Inc.
Comprehensive
Income
Common Stock
Amount
Shares
Class B Common Stock
Shares
Amount
Additional
Capital
$
557
3
55,788,620
179,204
$
43
4,339,431 $
Exercise of stock options, including tax benefit of $3,082
560
55,967,824
43
4,339,431
886,019 $
2,270
13,324
106,462
(15,220)
992,855
4,852
15,751
5,225
Consolidated Statements of Stockholders’ Equity
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except share data)
Balance, December 31, 2008
Exercise of stock options, including tax benefit of $895
Stock-based compensation expense
Issuance of convertible debt instruments, net of tax impact of $68,641
Exchange of debt, net of tax impact of $9,837
Net income
Translation adjustment
Comprehensive Income
Balance, December 31, 2009
Stock-based compensation expense
Conversion of 2025 debentures
Net income
Translation adjustment
Comprehensive Income
Balance, December 31, 2010
Stock-based compensation expense
Conversion of 2029 debentures
Issuance of treasury stock
Acquisition of noncontrolling interest
Net income (loss)
Translation adjustment
Comprehensive Income
Balance, December 31, 2011
Exercise of stock options, including tax benefit of $5,365
Exercise of restricted stock units and retirement of common stock
The accompanying notes are an integral part of the condensed consolidated financial statements.
$
105,088
29,323
$
134,411
$
115,477
11,648
$
127,125
$
196,240
(12,576)
$
183,664
3
3
566
6
—
(1)
268,213
340,213
56,576,250
531,121
589
(86,437)
43
Retained
Earnings
(Deficit)
Treasury Stock
Amount
Shares
Noncontrolling
Interest
Accumulated
Other
Comprehensive
Income (Loss)
477,111 $
(590,288)
(65)
(17,888,089) $
(2,370)
— $
(18,338)
105,088
582,199
(590,353)
(654)
(17,890,459)
(15,281)
115,477
29,323
—
10,985
11,648
—
22,633
(77)
(11)
(12,576)
43
4,339,431
1,018,683
5,783
15,407
(5)
(582)
(2,419)
697,676
(591,007)
(7,838)
(17,905,740)
(146,614)
957
4,559
28,994
86,437
(2,138)
196,251
$
571
57,021,523
$
43
4,339,431 $ 1,036,867 $
891,789 $
(593,329)
(17,936,923) $
(88) $
10,057
2011 Annual Report | Driving Growth > Creating Value
44
Consolidated Statements of Cash Flows
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
Year Ended December 31,
(In thousands)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Amortization of debt issuance costs
Amortization of debt discount
gain on debt exchange
(gain) loss on sale of property, buildings and equipment
Asset impairment charge
Equity income, net of distributions in 2010 and 2009
of $1,864 and $5,658, respectively
Excess tax benefit from stock-based compensation
Interest related to uncertain tax positions
Deferred income taxes
Changes in assets and liabilities
Trade and other receivables, net
Inventories, net
Prepaid expenses and other current assets
Accounts payable
Accrued payroll and benefit costs
Other current and noncurrent liabilities
Net cash provided by operating activities
Investing Activities:
Capital expenditures
Acquisition payments, net of cash acquired
Proceeds from sale of subsidiary
Equity distribution
Collection of note receivable
Proceeds from sale of assets
Net cash used in investing activities
Financing Activities:
Proceeds from issuance of long-term debt
Repayments of long-term debt
Debt issuance costs
Proceeds from the exercise of stock options
Excess tax benefit from stock-based compensation
Repurchase of common stock
Increase (decrease) in bank overdrafts
Payments on capital lease obligations
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
Supplemental disclosures:
Cash paid for interest
Cash paid for taxes
Non-cash investing and financing activities:
Property, buildings and equipment acquired through capital leases
$
$
The accompanying notes are an integral part of the condensed consolidated financial statements.
2011
2010
2009
$
196,240 $
115,477 $
105,088
31,607
15,407
4,435
2,499
—
304
—
—
(5,408)
1,901
14,373
(143,491)
(33,769)
11,268
101,677
9,988
(39,498)
167,533
(33,347)
(48,093)
—
—
—
97
(81,343)
23,935
15,752
2,584
4,262
—
(224)
3,793
(2,420)
(3,217)
4,980
20,982
(118,478)
(33,956)
12,641
53,902
34,422
(7,152)
127,283
(15,132)
(265,397)
40,000
4,054
15,000
932
(220,543)
648,557
(730,897)
(4,703)
419
5,408
(7,840)
19,899
(1,751)
(70,908)
(4,990)
10,292
53,577
63,869 $
1,454,479
(1,419,526)
(2,553)
1,771
3,217
(655)
(4,601)
(1,497)
30,635
3,873
(58,752)
112,329
53,577 $
26,045
13,324
3,494
11,806
(5,962)
123
—
668
(1,250)
969
(7,959)
179,662
107,848
(12,492)
(114,289)
(19,418)
4,007
291,664
(12,970)
(262)
—
2,420
—
120
(10,692)
403,700
(657,385)
(13,749)
1,377
1,250
(64)
1,823
(1,897)
(264,945)
9,964
25,991
86,338
112,329
43,446 $
27,359
46,899 $
11,044
32,113
45,185
1,112
301
781
WESCO International, Inc.
45
Notes to Consolidated Financial Statements
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
1. ORGANIZATION
WESCO International, Inc. and its subsidiaries (collectively, “WESCO”), headquartered in Pittsburgh, Pennsylvania, is a
full-line distributor of electrical, industrial and communications maintenance, repair and operating (“MRO”) and original
equipment manufactures (“OEM”) products, construction materials, and advanced supply chain management and logistics
services used primarily in the industrial, construction, utility and commercial, institutional and government markets. We
serve over 65,000 active customers globally, through approximately 400 full service branches and eight distribution centers
located primarily in the United States, Canada and Mexico, with operations in 11 additional countries.
2. ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of WESCO International, Inc. (“WESCO International”) and all
of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge
of current events and actions WESCO may undertake in the future, actual results may ultimately differ from the estimates.
Revenue Recognition
Revenues are recognized for product sales when title, ownership and risk of loss pass to the customer or for services when
the service is rendered. In the case of stock sales and special orders, a sale occurs at the time of shipment from WESCO’s
distribution point, as the terms of WESCO’s sales are predominantly FOB shipping point. In cases where WESCO processes
customer orders but ships directly from its suppliers, revenue is recognized once product is shipped and title has passed.
In all cases, revenue is recognized once the sales price to the customer is fixed or is determinable and WESCO has
reasonable assurance as to the collectability.
In certain customer arrangements, WESCO provides services such as inventory management. WESCO may perform some
or all of the following services for customers: determine inventory stocking levels; establish inventory reorder points; launch
purchase orders; receive material; put away material; and pick material for order fulfillment. WESCO recognizes revenue for
services rendered during the period based upon a previously negotiated fee arrangement. WESCO also sells inventory to
these customers and recognizes revenue at the time title and risk of loss transfers to the customer. The amount of revenue
attributed to these services totaled $10.8 million, $11.1 million, and $10.0 million in 2011, 2010 and 2009, respectively.
Selling, General and Administrative Expenses
WESCO includes warehousing, purchasing, branch operations, information services, and marketing and selling expenses in
this category, as well as other types of general and administrative costs.
Supplier Volume Rebates
WESCO receives volume rebates from certain suppliers based on contractual arrangements with such suppliers. An asset,
included within other accounts receivable on the balance sheet, represents the estimated amounts due to WESCO under
the rebate provisions of such contracts. The corresponding rebate income is recorded as a reduction of cost of goods sold.
The appropriate level of such income is derived from the level of actual purchases made by WESCO from suppliers.
Receivables under the supplier rebate program were $38.5 million at December 31, 2011 and $31.0 million at December
31, 2010. Supplier volume rebate rates have historically ranged between approximately 0.8% and 1.2% of sales depending
on market conditions. In 2011, the rebate rate was 1.2%.
2011 Annual Report | Driving Growth > Creating Value 46
Shipping and Handling Costs and Fees
WESCO records the costs and fees associated with transporting its products to customers as a component of selling,
general and administrative expenses. These costs totaled $50.9 million, $42.4 million and $49.2 million in 2011, 2010 and
2009, respectively.
Cash Equivalents
Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less when purchased.
Asset Securitization
WESCO maintains control of the receivables transferred pursuant to its accounts receivable securitization program (the
“Receivables Facility”); therefore the transfers do not qualify for “sale” treatment. As a result, the transferred receivables
remain on the balance sheet, and WESCO recognizes the related secured borrowing. The expenses associated with the
Receivables Facility are reported as interest expense in the statement of income.
Allowance for Doubtful Accounts
WESCO maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments. WESCO has a systematic procedure using estimates based on historical data and reasonable
assumptions of collectability made at the local branch level and on a consolidated corporate basis to calculate the
allowance for doubtful accounts. If the financial condition of WESCO’s customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts
was $21.6 million at December 31, 2011 and $18.6 million at December 31, 2010. The total amount recorded as selling,
general and administrative expense related to bad debts was $6.6 million, $6.4 million and $6.1 million for 2011, 2010
and 2009, respectively.
Inventories
Inventories primarily consist of merchandise purchased for resale and are stated at the lower of cost or market. Cost is
determined principally under the average cost method. WESCO makes provisions for obsolete or slow-moving inventories
as necessary to reflect reduction in inventory value. WESCO writes down its inventory to its net realizable value based on
internal factors derived from historical analysis of actual losses. Looking back, WESCO identifies items at risk of becoming
obsolete, defined as being in excess of 36 months supply relative to demand or movement. WESCO then analyzes in a
detailed manner the ultimate disposition of the previously identified excess inventory items, such as sold, returned to
supplier, or scrapped. This item by item analysis allows WESCO to develop an estimate which represents the historical
likelihood that an item identified as being in excess supply ultimately becomes obsolete. On a current basis, WESCO
applies the estimate to inventory items currently in excess of 36 months supply, and reduces its inventory carrying value by
the derived amount. Reserves for excess and obsolete inventories were $14.6 million and $20.5 million at December 31,
2011 and 2010, respectively. The total expense related to excess and obsolete inventories, included in cost of goods sold, was
$5.5 million, $7.5 million and $7.8 million for 2011, 2010 and 2009, respectively. WESCO absorbs into the cost of inventory
the general and administrative expenses related to inventory such as purchasing, receiving and storage and at December 31,
2011 and 2010, $47.6 million and $43.8 million, respectively, of these costs were included in ending inventory.
Other Assets
WESCO amortizes deferred financing fees over the term of the various debt instruments. Deferred financing fees in the
amount of $4.7 million were incurred during the year ending December 31, 2011. As of December 31, 2011 and 2010,
the amount of other assets related to unamortized deferred financing fees was $12.9 million and $12.6 million,
respectively.
Property, Buildings and Equipment
Property, buildings and equipment are recorded at cost. Depreciation expense is determined using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are amortized over either their respective lease terms
or their estimated lives, whichever is shorter. Estimated useful lives range from five to forty years for leasehold
improvements and buildings and three to ten years for furniture, fixtures and equipment.
WESCO International, Inc. 47
Capitalized computer software costs are amortized using the straight-line method over the estimated useful life, typically
three to five years, and are reported at the lower of unamortized cost or net realizable value.
Expenditures for new facilities and improvements that extend the useful life of an asset are capitalized. Ordinary repairs
and maintenance are expensed as incurred. When property is retired or otherwise disposed of, the cost and the related
accumulated depreciation are removed from the accounts and any related gains or losses are recorded and reported as
selling, general and administrative expenses.
WESCO assesses its long-lived assets for impairment by periodically reviewing operating performance and respective
utilization of real and tangible assets. Upon closure of any branch, asset usefulness and remaining life are evaluated and
any charges taken as appropriate. Of WESCO’s $133.6 million net book value of property, plant and equipment as of
December 31, 2011, $72.9 million consists of land, buildings and leasehold improvements and are geographically
dispersed among WESCO’s 400 branches and eight distribution centers, mitigating the risk of impairment. Approximately
$27.8 million of assets consist of computer equipment and capitalized software and are evaluated for use and serviceability
relative to carrying value. The remaining fixed assets, mainly of furniture and fixtures, warehousing equipment and
transportation equipment, are similarly evaluated for serviceability and use.
Goodwill and Indefinite Life Intangible Assets
goodwill and indefinite life intangible assets are tested for impairment annually during the fourth quarter using information
available at the end of September, or more frequently if events or circumstances occur indicating that their carrying value
may not be recoverable. The evaluation of impairment involves comparing the current fair value of goodwill and indefinite
life intangible assets to the recorded value. WESCO estimates the fair value of goodwill using a combination of discounted
cash flow analyses and market multiples. Assumptions used for these fair value techniques are based on a combination of
historical results, current forecasts, market data and recent economic events. WESCO evaluates the recoverability of
indefinite life intangible assets using a discounted cash flow analysis based on projected financial information. The
determination of fair value involves significant judgment and management applies its best judgment when assessing the
reasonableness of financial projections. At December 31, 2011 and 2010, goodwill and trademarks totaled $1,055.0
million and $1,031.4 million, respectively. No impairment losses were identified in 2011 as a result of this review. However,
two trademarks valued at $18.1 million are sensitive to a further decline in financial performance. WESCO is taking actions
to improve its future financial performance; however, WESCO cannot predict whether or not there will be certain events that
could adversely affect the reported value of these trademarks.
Definite Lived Intangible Assets
Intangible assets are amortized over 4 to 19 years. A portion of intangible assets related to customer relationships are
amortized using an accelerated method whereas all other intangible assets subject to amortization use a straight-line
method which reflects the pattern in which the economic benefits of the respective assets are consumed or otherwise
used. Intangible assets are tested for impairment if events or circumstances occur indicating that the respective asset
might be impaired.
Insurance Programs
WESCO uses commercial insurance for auto, workers’ compensation, casualty and health claims as a risk-reduction
strategy to minimize catastrophic losses. The Company’s strategy involves large deductibles where WESCO must pay all
costs up to the deductible amount. WESCO estimates the reserve based on historical incident rates and costs. The
assumptions included in developing this accrual include the period of time from incurrence of a claim until the claim is
paid by the insurance provider. The total liability related to the insurance programs was $9.7 million at December 31, 2011
and $11.4 million at December 31, 2010.
Income Taxes
Income taxes are accounted for under the liability method in accordance with income tax accounting guidance. Deferred
tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances, if any, are provided when it is more likely than not that a portion or all of a deferred tax asset
may not be realized.
2011 Annual Report | Driving Growth > Creating Value 48
WESCO accounts for uncertainty in income taxes using a recognition threshold and measurement attribute prescribed by
income tax accounting guidance. WESCO frequently reviews tax issues and positions taken on tax returns to determine the
need and amount of contingency reserves necessary to cover any probable audit adjustments. WESCO recognizes interest
related to unrecognized tax benefits as part of interest expense. Penalties are recognized as part of income tax expense.
Convertible Debentures
WESCO separately accounts for the liability and equity components of its convertible debentures in a manner that reflects
its non-convertible debt borrowing rate. WESCO estimates its non-convertible debt borrowing rate through a combination of
discussions with its financial institutions and review of relevant market data. The discounts to the convertible note balances
are amortized to interest expense, using the effective interest method, over the implicit life of the Debentures.
Foreign Currency
The local currency is the functional currency for the majority of WESCO’s operations outside the United States. Assets and
liabilities of these operations are translated to U.S. dollars at the exchange rate in effect at the end of each period. Income
statement accounts are translated at the average exchange rate prevailing during the period. Translation adjustments arising
from the use of differing exchange rates from period to period are included as a component of other comprehensive income
within stockholders’ equity. gains and losses from foreign currency transactions are included in net income for the period.
Stock-Based Compensation
WESCO’s stock-based employee compensation plans are comprised of stock options, stock-settled stock appreciation
rights and restricted stock units. Compensation cost for all stock-based awards is measured at fair value on the date of
grant, and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to
vest. The fair value of stock options and stock-settled appreciation rights is determined using the Black-Scholes valuation
model. Expected volatilities are based on historical volatility of WESCO’s common stock. The expected life of stock options and
stock-settled appreciation rights is estimated using historical data pertaining to option exercises and employee terminations.
The risk-free rate is based on the U.S. Treasury yields in effect at the time of grant. The forfeiture assumption is based on
WESCO’s historical employee behavior that is reviewed on an annual basis. The fair value of restricted stock units is
determined by the grant-date closing price of WESCO’s common stock. No dividends are assumed for stock based awards.
WESCO granted the following stock-settled stock appreciation rights and restricted stock units at the following weighted
average assumptions:
Stock-settled appreciation rights granted
Restricted stock units
Risk free interest rate
Expected life (in years)
Expected volatility
2011
2010
2009
399,260
53,852
2.3%
5.0
49%
708,949
153,318
1.8%
5.0
49%
815,231
245,997
2.3%
4.5
51%
The weighted average fair value per stock-settled appreciation right granted was $26.46, $14.71 and $11.15 for the years
ended December 31, 2011, 2010 and 2009, respectively. The weighted average fair value per restricted stock unit granted
was $60.05, $33.05 and $25.37 for the years ended December 31, 2011, 2010 and 2009, respectively. WESCO
recognized $15.4 million, $15.8 million and $13.3 million of non-cash stock-based compensation expense, which is
included in selling, general and administrative expenses, in 2011, 2010 and 2009, respectively.
Treasury Stock
Common stock purchased for treasury is recorded at cost. At the date of subsequent reissue, the treasury stock account is
reduced by the cost of such stock, with cost determined on a weighted average basis.
WESCO International, Inc.
49
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities, and outstanding indebtedness. The estimated fair value of the Company’s outstanding
indebtedness described in Note 7 at December 31, 2011 and 2010 was $1,178.9 million and $1,269.7 million,
respectively. The aggregate fair value of the senior notes and debentures was approximately $850.9 million and $860.2
million at December 31, 2011 and 2010, respectively. The fair values of these fixed rate facilities are estimated based upon
market price quotes. The fair values of the mortgage facility, the Receivables Facility and our revolving credit facility (“the
Revolving Credit Facility”), approximated carrying values. The fair values for these facilities are based upon market price
quotes and market comparisons available for instruments with similar terms and maturities. For all remaining WESCO
financial instruments, carrying values are considered to approximate fair value due to their short maturities.
Environmental Expenditures
WESCO has facilities and operations that distribute certain products that must comply with environmental regulations and
laws. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures relating to existing
conditions caused by past operations, and that do not contribute to future revenue, are expensed. Liabilities are recorded
when remedial efforts are probable and the costs can be reasonably estimated.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (the “FASB”) issued new disclosure guidance related to the
presentation of the statement of comprehensive income. This guidance provides an entity the option to present the total of
comprehensive income, the components of net income and the components of other comprehensive income either in a
single continuous statement of comprehensive income or in two separate but consecutive statements; the current option to
report other comprehensive income and its components in the statement of changes in stockholders’ equity was
eliminated. This accounting standard is effective for periods beginning on or after December 15, 2011. Other than the
change in presentation, this accounting standard will not have an impact on WESCO’s financial position, results of
operations or cash flows.
In September 2011, the FASB issued guidance to amend and simplify the rules related to testing goodwill for impairment.
The revised guidance allows an entity to make an initial qualitative evaluation, based on the entity’s events and
circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. The results of this qualitative assessment determine whether it is necessary to perform the currently required
two-step impairment test. The new guidance is effective for annual and interim goodwill impairment tests performed for
fiscal years beginning after December 15, 2011. Early adoption is permitted. Adoption of this guidance is not expected to
have a material impact on WESCO’s financial position, results of operations or cash flows.
In September 2011, the FASB issued an accounting update that requires additional qualitative and quantitative disclosures
by employers that participate in multi-employer pension plans. The amendments are effective for annual periods for the
fiscal years ending after December 15, 2011, with early adoption permitted. Adoption of this guidance did not have a
material impact on WESCO’s financial position, results of operations or cash flows.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are
either not applicable or are not expected to be significant to WESCO’s financial position, results of operations or cash flows.
2011 Annual Report | Driving Growth > Creating Value 50
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table sets forth the changes in the carrying amount of goodwill:
Year Ended December 31
(In thousands)
2011
2010
Beginning balance January 1
Translation adjustments and payments to goodwill for prior acquisitions
Additions to goodwill for acquisitions
Ending balance December 31
$
985,714 $
(4,734)
27,147
$ 1,008,127 $
863,410
2,467
119,837
985,714
WESCO has never recorded an impairment loss related to goodwill or intangible assets.
Intangible Assets
The components of intangible assets are as follows:
December 31, 2011
December 31, 2010
gross Carrying
Life
Amount(1)
Accumulated
Amortization(1)
Net Carrying
Amount
gross Carrying
Amount(1)
Accumulated
Amortization(1)
Net Carrying
Amount
(In thousands)
Intangible Assets:
Trademarks
Non-compete
agreements
Customer
relationships
Distribution
agreements
Patents
Indefinite $
46,852 $
— $
46,852 $
45,687 $
— $
45,687
5-7
1,252
(1,038)
214
1,252
(895)
357
4-19
70,670
(32,527)
38,143
65,967
(25,933)
40,034
10-19
10
35,291
48,310
$
202,375 $
(6,897)
(5,039)
(45,501) $
28,394
43,271
31,084
48,310
156,874 $
192,300 $
(4,950)
(215)
(31,993) $
26,134
48,095
160,307
(1)Excludes the original cost and accumulated amortization of fully-amortized intangibles.
Amortization expense related to intangible assets totaled $13.4 million, $7.5 million and $7.3 million for the years ended
December 31, 2011, 2010 and 2009, respectively.
The following table sets forth the estimated amortization expense for intangibles for the next five years (in thousands):
For the year ended December 31,
2012
2013
2014
2015
2016
$
Estimated
Amortization
Expense
12,002
11,831
11,262
11,262
11,262
4. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT SUPPLIERS
WESCO distributes its products and services and extends credit to a large number of customers in the industrial,
construction, utility, commercial, institutional, and governmental markets. WESCO’s largest supplier accounted for
approximately 10% of WESCO’s purchases in 2011 and 12% of purchases in 2010 and 2009, and therefore, WESCO
could potentially incur risk due to supplier concentration. Based upon WESCO’s broad customer base, the Company has
concluded that it has no material credit risk as a result of customer concentration.
WESCO International, Inc.
5. ACQUISITIONS
The following table sets forth the consideration paid for acquisitions:
Year Ended December 31
(In thousands)
Details of acquisitions:
Fair value of assets acquired
Fair value of liabilities assumed
Deferred acquisition payments
Cash paid for acquisitions
Supplemental cash flow disclosure related to acquisitions:
Cash paid for acquisitions
Less: cash acquired
Cash paid for acquisitions, net of cash acquired
2011 Acquisitions of RECO, LLC and Brews Supply, Ltd.
51
2011
2010
$
$
$
$
54,663 $
(6,570)
—
48,093 $
297,849
(31,162)
185
266,872
48,093 $
—
48,093 $
266,872
(1,475)
265,397
On March 14, 2011, WESCO Distribution, Inc. (“WESCO Distribution”) completed its acquisition of RECO, LLC (“RECO”), a
Siemens automation, controls, and electrical distributor located in the midwest and southeastern regions of the United
States with approximately $25 million in annual sales. WESCO funded the purchase price paid at closing with cash and
borrowings under the Receivables Facility. The purchase price was allocated to the respective assets and liabilities based
upon their estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the net
assets acquired has been allocated to goodwill valued at $6.0 million. Management believes the majority of goodwill will be
deductible for tax purposes.
On October 3, 2011, WESCO Distribution through its wholly-owned Canadian subsidiary, completed its acquisition of Brews
Supply, Ltd. (“Brews”), a full line electrical distributor of industrial, utility, and commercial products located in western
Canada with approximately $50 million in annual sales. WESCO funded the purchase price paid at closing with cash and
borrowings under the Receivables Facility. The purchase price was allocated to the respective assets and liabilities based
upon their estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the net
assets acquired, including intangible assets, has been allocated to goodwill. The fair value of intangible assets was
estimated by management and the allocation resulted in goodwill and intangible assets of $19.8 million and $10.2 million,
respectively. Management believes the majority of goodwill will be deductible for tax purposes. The intangible assets
include customer relationships of $4.8 million amortized over 10 years, supplier relationships of $4.2 million amortized
over 10 years and trademarks of $1.2 million. Trademarks have an indefinite life and are not being amortized. No residual
value is estimated for the intangible assets. With the acquisition of Brews, WESCO obtained a 49% ownership in a joint
venture. This entity has been consolidated. The noncontrolling interest incurred a loss of less than $0.1 million in 2011.
2010 Acquisitions of TVC Communications, L.L.C. and Potelcom Supply, Inc.
On December 16, 2010, WESCO Distribution completed its acquisition of TVC Communications, L.L.C. (“TVC
Communications”), an international distributor in the Western Hemisphere of infrastructure products to the cable television
and telecommunication industries. TVC Communications offers products necessary to build out a broadband network,
ranging from the industry’s widest selection of premier branded components, to a variety of proprietary and private label
products. TVC Communications also offers a full suite of value-added services, including design, engineering, installation,
repair and maintenance.
WESCO paid at closing a cash purchase price of approximately $251.0 million, net of $1.5 million of cash acquired, of
which $20.0 million was held in escrow to address post-closing working capital adjustments. WESCO funded the purchase
price paid at closing with cash and borrowings under the Receivables Facility. The purchase price was allocated to the
respective assets and liabilities based upon their estimated fair values as of the acquisition date. The excess of the
purchase price over the fair value of the net assets acquired, including intangible assets, has been allocated to goodwill.
The fair value of intangible assets was estimated by management and the allocation resulted in intangible assets of $86.4
million and goodwill of $109.2 million. Management believes the majority of goodwill will be deductible for tax purposes.
2011 Annual Report | Driving Growth > Creating Value
52
The intangible assets include technology patents of $48.3 million amortized over 10 years, customer relationships of $20.6
million amortized over 10 years, supplier relationships of $9.7 million amortized over 15 years and trademarks of $7.8 million.
Trademarks have an indefinite life and are not being amortized. No residual value is estimated for the intangible assets.
The allocation of assets acquired and liabilities assumed for the TVC Communications acquisition is summarized below:
(In thousands)
Assets Acquired
Cash and cash equivalents
Trade accounts receivable
Other accounts receivable
Inventories
Prepaid expenses and other current assets
Property, buildings and equipment
Intangible assets
goodwill
Other noncurrent assets
Total assets acquired
Liabilities Assumed
Accounts payable
Accrued payroll and benefit costs
Other current liabilities
Total liabilities assumed
TVC Communications, LLC
$
1,475
38,744
978
41,313
1,377
2,268
86,442
109,183
158
281,938
24,249
1,183
4,019
29,451
Fair value of net assets acquired, including intangible assets
$
252,487
TVC Communications contributed $6.9 million in net sales and had no impact on net income of WESCO’s 2010 results.
Unaudited pro forma results of operations (in thousands, except per share data) for the twelve months ended December
31, 2010 and 2009 are included below as if the acquisition occurred on the first day of the respective periods. The
summary of the unaudited pro forma results of operations is not necessarily indicative of what WESCO’s results of
operations would have been had TVC Communications been acquired at the beginning of 2009, nor does it purport to
represent results of operations for any future periods. Seasonality of sales is not a significant factor to these pro forma
combined results of operations.
Year Ended December 31
(In thousands, except per share data)
Net Sales
Net Income
Earnings per common share:
Basic
Diluted
2010
2009
$ 5,315,929 $ 4,907,441
121,306
132,455
$
$
3.12 $
2.87 $
2.87
2.84
On June 30, 2010, WESCO Distribution completed its acquisition of Potelcom Supply, Inc., a single branch operation with
annual sales of approximately $25 million serving the utility, industrial, and governmental markets in Alaska. WESCO
funded the purchase price at closing with cash and borrowings under the Receivables Facility. The purchase price was
allocated to the respective assets and liabilities based upon their estimated fair value as of the acquisition date. The excess
of the purchase price over the fair value of the net assets acquired has been allocated to goodwill valued at $10.7 million.
WESCO International, Inc.
6. PROPERTY, BUILDINGS AND EQUIPMENT
The following table sets forth the components of property, buildings and equipment:
December 31,
(In thousands)
Buildings and leasehold improvements
Furniture, fixtures and equipment
Software costs
Accumulated depreciation and amortization
Land
Construction in progress
53
2011
2010
$
96,527 $
152,164
44,909
293,600
(190,385)
103,215
21,097
9,238
133,550 $
$
92,862
140,427
77,335
310,624
(215,768)
94,856
21,169
2,020
118,045
Depreciation expense was $12.5 million, $11.7 million and $13.7 million, and capitalized software amortization was $5.7
million, $4.7 million and $5.0 million, in 2011, 2010 and 2009, respectively. The unamortized software cost was $19.7
million and $18.0 million as of December 31, 2011 and 2010, respectively. Furniture, fixtures and equipment include
capitalized leases of $9.6 million and $9.2 million and related accumulated amortization of $4.7 million and $4.0 million as
of December 31, 2011 and 2010, respectively.
7. DEBT
The following table sets forth WESCO’s outstanding indebtedness:
As of December 31,
(In thousands)
Mortgage financing facility
Accounts receivable securitization facility
Revolving credit facility
7.50% Senior Subordinated Notes due 2017
1.75% Convertible Senior Debentures due 2026, less debt discount
of $0 and $7 in 2011 and 2010, respectively
6.0% Convertible Senior Debentures due 2029, less debt discount
of $175,908 and $178,420 in 2011 and 2010, respectively
Acquisition related notes
Capital leases
Other
Total debt
Less current portion
Total long-term debt
Mortgage Financing Facility
2011
2010
$
37,564 $
250,000
36,792
150,000
39,239
370,000
—
150,000
56
214
169,054
85
2,521
3,261
649,333
(6,411)
642,922 $
166,580
204
3,167
477
729,881
(3,988)
725,893
$
In 2003, WESCO finalized a mortgage financing facility of $51 million, of which $37.6 million was outstanding as of December
31, 2011. Total borrowings under the mortgage financing facility are subject to a 22-year amortization schedule, with a balloon
payment due at the end of the 10-year term. The interest rate on borrowings under this facility is fixed at 6.5%.
2011 Annual Report | Driving Growth > Creating Value
54
Accounts Receivable Securitization Facility
During 2011, WESCO Distribution entered into an amendment of its existing Receivables Facility, pursuant to the terms
and conditions of the Fourth Amendment to Third Amended and Restated Receivables Purchase Agreement, dated as of
April 13, 2009 (the “Amendment”), by and among WESCO Receivables Corp., WESCO Distribution, the Purchasers and
Purchaser Agents party thereto and PNC Bank, National Association, as Administrator. The Amendment added an
accordion feature, allowing WESCO Distribution to request increases to the purchase commitments of up to $100 million in
the aggregate. The Amendment also lowered the interest rate spread from 1.75% to 1.10%, the commitment fee from
0.75% to 0.55%, and extended the term of the Receivables Facility to August 2014. As of December 31, 2011, the
purchase commitment was $450 million.
Under the Receivables Facility, WESCO sells, on a continuous basis, an undivided interest in all domestic accounts
receivable to WESCO Receivables Corp., a wholly owned special purpose entity (the “SPE”). The SPE sells, without
recourse, a senior undivided interest in the receivables to third-party conduits and financial institutions for cash while
maintaining a subordinated undivided interest in the receivables, in the form of overcollateralization. WESCO has agreed to
continue servicing the sold receivables for the third-party conduits and financial institutions at market rates; accordingly, no
servicing asset or liability has been recorded.
As of December 31, 2011 and 2010, accounts receivable eligible for securitization totaled approximately $613.9 million
and $537.0 million, respectively. The consolidated balance sheets as of December 31, 2011 and 2010 include $250.0
million and $370.0 million, respectively, of account receivable balances legally sold to third parties, as well as borrowings
for equal amounts. At December 31, 2011, the interest rate on borrowings under this facility was approximately 1.64%.
Revolving Credit Facility
During 2011, WESCO Distribution entered into a new Revolving Credit Facility, which has an aggregate borrowing capacity
of $400 million and includes a letter of credit sub-facility of up to $80 million. The Revolving Credit Facility consists of two
separate sub-facilities: (i) a U.S. sub-facility with a borrowing limit at any given time of up to $400 million less the amount
of outstanding borrowings under the Canadian sub-facility and (ii) a Canadian sub-facility with a borrowing limit of up to
$175 million. The facility also contains an accordion feature, allowing WESCO Distribution to request increases to the
borrowing commitments under the facility of up to $100 million in the aggregate. The facility matures in August 2016 and
is collateralized by the inventory and certain other assets of WESCO Distribution and certain of its domestic subsidiaries
and the inventory, accounts receivable, and certain other assets of WESCO Distribution Canada, L.P. WESCO Distribution’s
obligations under the Revolving Credit Facility have been guaranteed by WESCO International and by certain of WESCO
International’s subsidiaries.
Availability under the facility is limited to the amount of eligible U.S. and Canadian inventory and Canadian receivables
applied against certain advance rates. Depending upon the amount of excess availability under the facility, interest will be
calculated at LIBOR plus a margin that ranges between 1.50% and 2.00% or at the Alternative Rate (prime rate) plus a
margin that ranges between 0.50% and 1.00%. The interest rate margin is reduced by 0.25% if WESCO’s leverage ratio, as
calculated under the Revolving Credit Facility, falls below a ratio of 2.5 to 1.0. At December 31, 2011, the interest rate on
borrowings under this facility was approximately 3.0%.
As long as pro forma combined availability for the preceding 60-day period, up to and including the transaction date, under
the facility and WESCO Distribution’s accounts receivable securitization facility is greater than $125 million, WESCO is
permitted, subject to certain specified conditions, to make acquisitions and repurchase WESCO International’s outstanding
capital stock and WESCO outstanding indebtedness.
During 2011, WESCO borrowed $435.7 million in the aggregate under the Revolving Credit Facility and made repayments
in the aggregate amount of $398.9 million. During 2010, aggregate borrowings and repayments were $636.0 million and
$832.5 million, respectively. At December 31, 2011, WESCO had a balance outstanding of $36.8 million under the facility.
WESCO had $299.3 million available under the facility at December 31, 2011, after giving effect to outstanding letters of
credit, as compared to approximately $276.7 million at December 31, 2010.
WESCO International, Inc. 55
7.50% Senior Subordinated Notes due 2017
At December 31, 2011, $150 million in aggregate principal amount of the 7.50% Senior Subordinated Notes due 2017
(the “2017 Notes”) was outstanding. The 2017 Notes were issued by WESCO Distribution under an indenture dated as of
September 27, 2005 with The Bank of New York, as successor to J.P. Morgan Trust Company, National Association, as
trustee, and are unconditionally guaranteed on an unsecured basis by WESCO International. The 2017 Notes accrue
interest at the rate of 7.50% per annum and are payable in cash semi-annually in arrears on each April 15 and
October 15.
Between October 15, 2011 and October 14, 2012, WESCO Distribution may redeem all or a part of the 2017 Notes at a
redemption price equal to 102.50% of the principal amount. Between October 15, 2012 and October 14, 2013, WESCO
Distribution may redeem all or a part of the 2017 Notes at a redemption price equal to 101.25% of the principal amount.
On and after October 15, 2013, WESCO Distribution may redeem all or a part of the 2017 Notes at a redemption price
equal to 100% of the principal amount.
If WESCO Distribution undergoes a change of control prior to maturity, holders of 2017 Notes will have the right, at their
option, to require WESCO Distribution to repurchase for cash some or all of their 2017 Notes at a repurchase price equal to
101% of the principal amount of the 2017 Notes being repurchased, plus accrued and unpaid interest to, but not
including, the repurchase date.
2.625% Convertible Senior Debentures due 2025
Proceeds of $150 million were received in connection with the issuance of the 2.625% Convertible Senior Debentures due
2025 (the “2025 Debentures”) by WESCO International in September 2005. On August 27, 2009, WESCO International
completed an exchange offer pursuant to which it issued $345.0 million in aggregate principal amount of 6.0% Convertible
Senior Debentures due 2029 (the “2029 Debentures”) in exchange for approximately $299.7 million and $57.7 million in
aggregate principal amounts of its outstanding 1.75% Convertible Senior Debentures due 2026 (the “2026 Debentures”) and
2025 Debentures, respectively (see the discussion below under “6.0% Convertible Senior Debentures due 2029” for
additional information). On November 19, 2010, WESCO International announced that it would redeem all of its outstanding
2025 Debentures. In connection with the redemption, holders of $89.8 million aggregate principal amount of 2025
Debentures converted on December 23, 2010 their 2025 debentures pursuant to the terms of the 2025 Debentures. In
settlement of those conversions, WESCO paid an aggregate of approximately $89.8 million in cash, including cash in lieu of
fractional shares, and issued 340,213 shares of its common stock. WESCO redeemed the remaining $2.5 million aggregate
principal amount of outstanding 2025 Debentures at a redemption price equal to 100% of the principal amount plus accrued
and unpaid interest. Following the redemption on December 23, 2010, there were no 2025 Debentures outstanding.
On January 1, 2009, WESCO retrospectively applied the provisions of guidance concerning convertible debt instruments to
the 2025 Debentures. WESCO utilized an interest rate of 6% to reflect the non-convertible market rate of its offering upon
issuance. WESCO amortized the debt discount over a five year period starting on the date of issuance. There was no
non-cash interest expense recorded for the year ended December 31, 2011. Non-cash interest expense of $2.1 million
and $4.0 million was recorded for the years ended 2010 and 2009, respectively.
1.75% Convertible Senior Debentures due 2026
Proceeds of $300 million were received in connection with the issuance of the 2026 Debentures by WESCO International
in November 2006. On August 27, 2009, WESCO International completed an exchange offer pursuant to which it issued
$345.0 million in aggregate principal amount of 2029 Debentures in exchange for approximately $299.7 million and $57.7
million in aggregate principal amounts of its outstanding 2026 Debentures and 2025 Debentures, respectively (see the
6.0% Convertible Senior Debentures due 2029 discussion below for additional information). On November 30, 2011,
WESCO International announced that it would redeem all of its 2026 Debentures on January 3, 2012. WESCO International
redeemed the remaining $0.1 million aggregate principal amount of outstanding 2026 Debentures at a redemption price
equal to 100% of the principal amount plus accrued and unpaid interest. Following the redemption on January 3, 2012,
there were no 2026 Debentures outstanding.
2011 Annual Report | Driving Growth > Creating Value 58
Additional Capital
WESCO separately accounts for the liability and equity components of its Debentures in a manner that reflects its non-
convertible debt borrowing rate. As of December 31, 2011 and 2010, the net equity included in additional capital related
to the Debentures totaled $106.4 million and $106.5 million, respectively.
9. EQUITY INVESTMENT
During the first quarter of 2008, WESCO and Deutsch Engineered Connecting Devices, Inc. (“Deutsch”) completed a
transaction with respect to WESCO’s LADD operations, which resulted in a joint venture in which Deutsch owned a 60%
interest and WESCO owned a 40% interest. WESCO accounted for its investment in the joint venture using the equity
method of accounting. Accordingly, earnings from the joint venture were recorded as other income in the consolidated
statement of income. Deutsch was entitled, but not obliged, to acquire the remaining 40% after January 1, 2010. Deutsch
paid to WESCO aggregate consideration of approximately $75.0 million, consisting of $60.0 million in cash plus a $15.0
million promissory note for its 60% interest in the joint venture.
On January 15, 2010, WESCO received $1.8 million in accrued interest related to the promissory note for the period from
January 2, 2008 to January 2, 2010. In addition, Deutsch and WESCO entered into an amended promissory note
agreement. The amendment extended the maturity date for the payment of principal and interest to the earlier of (a) the
closing date of Deutsch’s option to acquire the remaining 40% joint venture interest or (b) the maturity date of Deutsch’s
credit facility or mezzanine financing facility. Interest accrued at a rate of 8.5% compounded annually. Management
believed this rate was commensurate with a market rate of interest; therefore, no reserve or allowance was recorded
against the promissory note.
On April 30, 2010, Deutsch notified WESCO it would exercise its option to purchase the remaining 40% of the LADD joint
venture. The option price for Deutsch to acquire the remaining 40% of the joint venture was determined based upon a
multiple of trailing earnings, with a minimum purchase price of $40.0 million and maximum purchase price of $50.0
million. The investment in the LADD joint venture at March 31, 2010 was $43.4 million, and the estimated option exercise
price was $40.0 million. As a result, WESCO recorded a pre-tax impairment loss of $3.4 million to selling, general and
administrative expenses during the first quarter of 2010. On June 7, 2010, WESCO completed the sale of its 40% interest
in the LADD joint venture and recorded an additional impairment charge of $0.4 million to selling, general and
administrative expenses. WESCO received $40.0 million for its 40% interest plus $15.0 million for the outstanding
promissory note and $0.5 million for accrued interest.
10. INCOME TAXES
The following table sets forth the components of the provision for income taxes:
Year Ended December 31
2011
2010
2009
(In thousands)
Current taxes:
Federal(1)
State
Foreign
Total current
Deferred taxes:
Federal
State
Foreign
Total deferred
$
60,415 $
11,363 $
5,705
2,643
68,763
2,018
7,801
21,182
30,136
2,355
7,531
40,022
9,692
2,187
2,494
14,373
83,136 $
21,069
1,112
(1,199)
20,982
42,164 $
5,351
1,841
(15,151)
(7,959)
32,063
$
(1) Tax benefits related to stock options and other equity instruments recorded directly to additional paid in capital totaled $5.6 million, $8.2 million and $59.7
million in 2011, 2010 and 2009, respectively.
WESCO International, Inc.
59
The following table sets forth the components of income before income taxes by jurisdiction:
Year Ended December 31
(In thousands)
United States
Foreign
2011
2010
2009
$
260,859 $
18,517
$
279,376 $
166,108 $
(8,467)
157,641 $
171,508
(34,357)
137,151
The following table sets forth the reconciliation between the federal statutory income tax rate and the effective rate:
Year Ended December 31
2011
2010
2009
Federal statutory rate
State taxes, net of federal tax benefit
Nondeductible expenses
Domestic tax benefit from foreign operations
Foreign tax rate differences
Federal tax credits
Domestic production activity deduction
Adjustment related to uncertain tax positions
Revaluation of deferred tax items
Other
35.0%
2.1
0.7
—
(6.3)
(0.1)
(0.5)
(0.7)
0.4
(0.8)
29.8%
35.0%
1.5
1.3
(0.3)
(8.0)
(0.1)
(0.5)
(4.2)
1.9
0.1
26.7%
35.0%
2.5
1.3
(0.4)
(13.7)
(0.3)
(0.4)
0.4
(0.6)
(0.4)
23.4%
As of December 31, 2011, WESCO had approximately $246.8 million of undistributed earnings related to its foreign
subsidiaries. Management believes that these earnings will be indefinitely reinvested in foreign jurisdiction; accordingly,
WESCO has not provided for U.S. federal income taxes related to these earnings.
The following table sets forth deferred tax assets and liabilities:
December 31
(In thousands)
Accounts receivable
Inventory
Depreciation
Amortization of intangible assets
Convertible debt interest
Employee benefits
Tax loss carryforwards
Other
Total deferred taxes
2011
2010
Assets
Liabilities
Assets
Liabilities
$
$
4,015 $
—
—
—
—
30,454
24,232
37,529
96,230 $
— $
6,515
6,064
162,675
93,736
—
—
3,938
272,928 $
3,586 $
—
—
—
—
30,474
32,692
11,268
78,020 $
—
7,163
15,754
143,371
84,551
—
—
3,722
254,561
As of December 31, 2011 and 2010, WESCO had state tax benefits derived from net operating loss carryforwards of
approximately $6.3 million ($4.1 million, net of federal income tax) and $6.9 million ($4.5 million, net of federal income
tax), respectively. In addition, WESCO had tax benefits from net operating losses resulting from the recapitalization of its
Canadian operations of $20.2 million and $27.1 million, respectively. The amounts will begin expiring in 2012 and 2027,
respectively. Utilization of WESCO’s state net operating loss carryforwards is subject to annual limitations imposed by state
statute. Such annual limitations could result in the expiration of the net operating loss and tax credit carryforwards before
utilization. Management anticipates utilizing the net operating losses prior to the expiration of statutes of limitations;
accordingly, WESCO has not recorded a valuation allowance.
WESCO analyzes its filing positions for all open tax years in all jurisdictions. The Company is currently under examination in
several tax jurisdictions, both within the United States and outside the United States, and remains subject to examination
until the statute of limitations expires for the respective tax jurisdictions. In 2011, the Company settled its Internal Revenue
2011 Annual Report | Driving Growth > Creating Value
60
Service examination for the years 2000 to 2006, for which an income tax receivable was recorded, and its Canadian
Competent Authority examination for the years 1998 to 2003, for which the Company was fully reserved. The following
summary sets forth the tax years that remain open in the Company’s major tax jurisdictions:
United States — Federal
United States — States
Canada
* Open by waiver of statute only.
2000 and forward*
2006 and forward
1998 and forward*
The following table sets forth the reconciliation of gross unrecognized tax benefits:
December 31,
(In thousands)
Beginning balance January 1
Additions based on tax positions related to the current year
Additions for tax positions of prior years(1)
Reductions for tax positions of prior years
Settlements
Lapse in statute of limitations
Ending balance December 31
2011
2010
2009
$
$
3,394 $
265
20,064
(2,161)
(512)
(172)
20,878 $
8,085 $
1,439
4,668
(8,818)
(1,368)
(612)
3,394 $
7,451
319
927
—
(336)
(276)
8,085
(1)Additions for tax positions of prior years primarily relate to transfer pricing issues between the United States and Canada which are under review by the
Canadian Competent Authority. A corresponding deferred tax asset in the amount of $23.1 million excluding interest has been recorded for the position in the
United States.
The total amount of unrecognized tax benefits were $20.9 million, $3.4 million and $8.1 million as of December 31, 2011,
2010 and 2009, respectively. If these tax benefits were recognized in the consolidated financial statements, the portion of
these amounts that would reduce the Company’s tax provision would be $19.7 million, $1.9 million, and $7.1 million
respectively. This amount in 2011 would be offset by the corresponding deferred tax asset discussed above.
During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will decrease by as
much as $17.3 million (all of which will be offset by the reversal of a deferred tax asset) due to certain issues being settled
by the resolution of federal, state and/or foreign tax examinations and/or the expiration of statutes of limitations.
Management does not expect this decrease to have an impact on the effective tax rate.
WESCO records interest related to uncertain tax positions as a part of interest expense in the consolidated statement of
income. Any penalties are recognized as part of income tax expense. Penalties recorded to income tax expense were
immaterial in amount for 2011, 2010 and 2009, respectively. As of December 31, 2011 and 2010, WESCO had an
accrued liability of $11.4 million and $9.5 million, respectively, for interest related to uncertain tax positions.
11. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the weighted average common shares outstanding
during the periods. Diluted earnings per share are computed by dividing net income by the weighted average common
shares and common share equivalents outstanding during the periods. The dilutive effect of common share equivalents is
considered in the diluted earnings per share computation using the treasury stock method, which includes consideration of
stock-based compensation.
WESCO International, Inc.
61
The following table sets forth the details of basic and diluted earnings per share:
Year Ended December 31
(In thousands)
Net income
Weighted average common shares outstanding used
in computing basic earnings per share
Common shares issuable upon exercise of dilutive stock options
Common shares issuable from contingently convertible
debentures (see below for basis of calculation)
Weighted average common shares outstanding and common share
equivalents used in computing diluted earnings per share
Earnings per share attributable to WESCO International, Inc.
Basic
Diluted
2011
2010
2009
$
196,251 $
115,477 $
105,088
43,220
1,179
42,499
840
42,282
390
5,224
2,774
—
49,623
46,113
42,672
$
$
4.54 $
3.96 $
2.72 $
2.50 $
2.49
2.46
As of December 31, 2011, 2010 and 2009, the computation of diluted earnings per share attributable to WESCO
International, Inc. excluded stock-settled stock appreciation rights of approximately 1.2 million, 2.4 million and 3.6 million
at weighted average exercise prices of $62.48 per share, $46.73 per share and $39.65 per share, respectively. These
amounts were excluded because their effect would have been antidilutive.
Because of WESCO’s obligation to settle the par value of the 2029 Debentures and the 2026 Debentures (the “Debentures”)
in cash, WESCO is not required to include any shares underlying the Debentures in its diluted weighted average shares
outstanding until the average stock price per share for the period exceeds the conversion price of the respective Debentures.
At such time, only the number of shares that would be issuable (under the treasury stock method of accounting for share
dilution) will be included, which is based upon the amount by which the average stock price exceeds the conversion price.
The conversion prices of the 2029 Debentures and 2026 Debentures are $28.87 and $88.15, respectively. Share dilution is
limited to a maximum of 11,950,622 shares for the 2029 Debentures and 635 shares for the 2026 Debentures. Share dilution
for the 2026 Debentures reflects the impact of the convertible debt exchange. For the periods ended December 31, 2011 and
2010, the effect of the 2029 debentures on diluted earnings per share attributable to WESCO International, Inc. was a
decrease of $0.47 and $0.16, respectively. There was no impact of the Debentures on diluted earnings per share attributable
to WESCO International, Inc. for the year ended December 31, 2009.
12. EMPLOYEE BENEFIT PLANS
A majority of WESCO’s employees are covered by defined contribution retirement savings plans for their service rendered
subsequent to WESCO’s formation. WESCO also offers a deferred compensation plan for select individuals. For U.S.
participants, WESCO will make contributions in an amount equal to 50% of the participant’s total monthly contributions up
to a maximum of 6% of eligible compensation. For Canadian participants, WESCO will make contributions in an amount
ranging from 1% to 7% of the participant’s eligible compensation based on years of continuous service. In addition,
employer contributions may be made at the discretion of the Board of Directors. Discretionary employer contributions
charges of $16.2 million and $14.2 million were incurred in 2011 and 2010, respectively. All discretionary contributions
were suspended during 2009 due to cost reductions actions; accordingly, no discretionary charges were incurred. For the
years ended December 31, 2011, 2010 and 2009, WESCO incurred charges of $27.6 million, $25.3 million and $8.3
million, respectively, for all such plans. Contributions are made in cash to employee retirement savings plan accounts.
Employees then have the option to transfer balances allocated to their accounts into any of the available investment
options, including WESCO common stock.
13. STOCK-BASED COMPENSATION
WESCO has sponsored four stock option plans: the 1999 Long-Term Incentive Plan (“LTIP”), the 1998 Stock Option Plan, the
Stock Option Plan for Branch Employees and the 1994 Stock Option Plan. The LTIP was designed to be the successor plan to
all prior plans. Any shares remaining reserved for future issuance under the prior plans are available for issuance under the
LTIP. The LTIP and predecessor plans are administered by the Compensation Committee of the Board of Directors.
2011 Annual Report | Driving Growth > Creating Value
62
An initial reserve of 6,936,000 shares of common stock has been authorized for issuance under the LTIP. This reserve
automatically increases by (i) the number of shares of common stock covered by unexercised options granted under prior
plans that are canceled or terminated after the effective date of the LTIP, and (ii) the number of shares of common stock
surrendered by employees to pay the exercise price and/or minimum withholding taxes in connection with the exercise of
stock options granted under our prior plans. As of December 31, 2011, 2.7 million shares of common stock were reserved
under the LTIP for future equity award grants. In December 2003, in a privately negotiated transaction, WESCO redeemed
the net equity value of stock options originally granted in 1994 and 1995, representing approximately 2.9 million shares.
These shares are included in the reserve of common stock available for issuance under the LTIP.
Awards granted vest and become exercisable once criteria based on time is achieved. All awards vest immediately in the
event of a change in control. Each award terminates on the tenth anniversary of its grant date unless terminated sooner
under certain conditions.
As of December 31, 2011, there was $16.7 million of total unrecognized compensation expense related to non-vested
stock-based compensation arrangements for all awards previously made of which approximately $10.0 million is expected
to be recognized in 2012, $6.1 million in 2013 and $0.6 million in 2014.
The total intrinsic value of awards exercised during the years ended December 31, 2011 and 2010 was $13.8 million and
$9.9 million, respectively. The total amount of cash received from the exercise of options was $0.4 million and $1.8 million,
respectively. The tax benefit associated with the exercise of stock options and stock-settled stock appreciation rights totaled
$5.4 million and $3.1 million in 2011 and 2010, respectively. WESCO uses the direct only method and tax law ordering
approach to calculate the tax effects of stock-based compensation. The tax benefit was recorded as a credit to additional
paid-in capital.
The following table sets forth a summary of both stock options and stock appreciation rights and related information for the
years indicated:
2011
2010
2009
Weighted
Weighted
Average
Average Remaining
Exercise Conntractual
Life
Price
Awards
Aggregate
Intrinsic
Value
(In thousands)
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Awards
Awards
Beginning of year
4,498,303
$ 36.38
4,226,153
$
35.30
3,933,035
$
36.44
granted
Exercised
Cancelled
End of year
Exercisable at
end of year
399,260
(543,154)
(87,876)
4,266,533
59.16
25.83
46.86
39.64
708,949
(335,155)
(101,644)
6.1
$ 63,668
4,498,303
33.19
14.79
40.62
36.38
815,231
(253,253)
(268,860)
4,226,153
25.37
12.55
43.22
35.30
3,176,161
$ 39.23
5.3
$ 48,986
3,011,120
$
38.65
2,661,320
$
35.61
The following table sets forth a summary of restricted stock units and related information for the year ended December
31, 2011:
Unvested at December 31, 2010
granted
Vested
Forfeited
Unvested at December 31, 2011
Weighted
Average
Fair
Value
28.36
60.05
27.93
32.02
37.16
Awards
392,493 $
53,852
(236,913)
(6,141)
203,291 $
WESCO International, Inc.
14. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under operating leases, primarily for real property that have noncancelable
lease terms in excess of one year as of December 31, 2011, are as follows:
63
(In thousands)
2012
2013
2014
2015
2016
Thereafter
$
47,015
32,768
24,470
20,580
16,276
42,498
Rental expense for the years ended December 31, 2011, 2010 and 2009 was $48.0 million, $45.4 million and $46.3
million, respectively.
From time to time, a number of lawsuits and claims have been or may be asserted against WESCO relating to the conduct
of its business, including routine litigation relating to commercial and employment matters. The outcomes of litigation
cannot be predicted with certainty, and some lawsuits may be determined adversely to WESCO. However, management
does not believe that the ultimate outcome is likely to have a material adverse effect on WESCO’s financial condition or
liquidity, although the resolution in any fiscal quarter of one or more of these matters may have a material adverse effect on
WESCO’s results of operations for that period.
WESCO is a co-defendant in a lawsuit filed in a state court in Indiana in which a customer alleges that WESCO sold
defective products manufactured or remanufactured by others and is seeking monetary damages in the amount of
approximately $50 million. WESCO has denied any liability, continues to believe that it has meritorious defenses and
intends to vigorously defend itself against these allegations. Accordingly, no liability was recorded for this matter as of
December 31, 2011. Furthermore, due to the uncertainty of this litigation, WESCO is not currently able to reasonably
estimate the possible loss or range of loss from this legal proceeding.
15. SEGMENTS AND RELATED INFORMATION
WESCO provides distribution of product and services through its ten operating segments which have been aggregated as
one reportable segment. WESCO has over 250,000 unique product stock keeping units and markets more than 1,000,000
products for customers. There were no material amounts of sales or transfers among geographic areas and no material
amounts of export sales.
WESCO attributes revenues from external customers to individual countries on the basis of the point of sale. The following
table sets forth information about WESCO by geographic area:
Net Sales
Year Ended December 31,
Long-Lived Assets
December 31,
2011
2010
2009
2011
2010
2009
(In thousands)
United States
$ 4,994,641 82%
$ 4,198,420 83%
$ 3,928,182 85%
$ 131,989
$ 117,768
$ 112,955
Canada
Mexico
Subtotal North
American Operations
900,551 15%
682,415 13%
559,367 12%
24,609
12,446
12,343
84,871 1%
51,413 1%
39,032 1%
572
641
624
5,980,063
4,932,248
4,526,581
157,170
130,855
125,922
Other Foreign
145,655 2%
131,614 3%
97,373 2%
771
325
74
Total U.S. and Foreign
$ 6,125,718
$ 5,063,862
$ 4,623,954
$ 157,941
$ 131,180
$ 125,996
2011 Annual Report | Driving Growth > Creating Value
64
The following table sets forth sales information about WESCO’s sales by product category:
Year Ended December 31,
(percentages based on total sales)
general and Industrial Supplies
Wire, Cable and Conduit
Data and Broadband Communications
Power Distribution Equipment
Lighting and Controls
Control, Automation and Motors
16. OTHER FINANCIAL INFORMATION
2011
2010
2009
34%
18%
17%
11%
9%
11%
35%
18%
15%
12%
10%
10%
35%
18%
14%
13%
11%
9%
WESCO Distribution, a 100% owned subsidiary of WESCO International, has outstanding $150.0 million in aggregate
principal amount of 2017 Notes, and WESCO International has outstanding $0.1 million in aggregate principal amount of
2026 Debentures and $345.0 million in aggregate principal amount of 2029 Debentures. The 2017 Notes are fully and
unconditionally guaranteed by WESCO International on a subordinated basis to all existing and future senior indebtedness
of WESCO International. The 2026 Debentures and 2029 Debentures are fully and unconditionally guaranteed by WESCO
Distribution on a senior subordinated basis to all existing and future senior indebtedness of WESCO Distribution.
Condensed consolidating financial information for WESCO International, WESCO Distribution, Inc. and the non-guarantor
subsidiaries is as follows:
WESCO International, Inc.
Condensed Consolidating Balance Sheets
December 31, 2011
(In thousands)
Cash and cash equivalents
Trade accounts receivable, net
Inventories, net
Other current assets
Total current assets
Intercompany receivables, net
Property, buildings and equipment, net
Intangible assets, net
goodwill and other intangibles, net
Investments in affiliates and other
noncurrent assets
Total assets
Accounts payable
Other current liabilities
Total current liabilities
Intercompany payables, net
Long-term debt
Other noncurrent liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
December 31, 2010
(In thousands)
Cash and cash equivalents
Trade accounts receivable, net
Inventories, net
Other current assets
Total current assets
Intercompany receivables, net
Property, buildings and equipment, net
Intangible assets, net
goodwill and other intangibles, net
Investments in affiliates and other
noncurrent assets
Total assets
Accounts payable
Other current liabilities
Total current liabilities
Intercompany payables, net
Long-term debt
Other noncurrent liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
65
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
5 $
—
—
270
275
—
—
—
—
19,452 $
44,412 $
—
341,423
32,548
418,383
—
54,038
6,981
246,125
939,422
285,544
74,344
1,318,762
1,881,208
79,512
149,893
762,002
— $
—
—
—
—
(1,881,208)
—
—
—
63,869
939,422
626,967
107,162
1,737,420
—
133,550
156,874
1,008,127
2,219,142
42,481
$ 2,219,417 $ 4,138,262 $ 4,223,122 $ (7,502,349) $ 3,078,452
(5,621,141)
3,412,735
31,745
$
— $
642,777
219,268 $
203,069
188,762
7,797
845,846
408,030
7,797
—
—
668,447
642,922
285,787
169,054
243,774
52,466
28,131
1,345,910
3,406,839
1,345,988
$ 2,219,417 $ 4,138,262 $ 4,153,122 $ (7,432,349) $ 3,078,452
— $
—
—
(1,811,208)
—
—
(5,621,141)
423,509 $
6,510
430,019
1,142,761
188,081
163,177
2,214,224
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
1 $
—
—
(4,492)
(4,491)
—
—
—
—
21,235 $
32,341 $
—
321,111
90,105
443,557
—
41,115
7,817
240,313
792,681
267,737
(7,033)
1,074,620
1,933,768
76,930
152,490
745,401
— $
—
—
—
—
(1,933,768)
—
—
—
53,577
792,681
588,848
78,580
1,513,686
—
118,045
160,307
985,714
2,002,358
49,022
$ 1,997,867 $ 3,970,610 $ 4,022,736 $ (7,164,439) $ 2,826,774
(5,230,671)
3,237,808
39,527
$
— $
349,250 $
537,505
188,255 $
170,728
145,150
8,016
708,233
333,405
8,016
—
—
646,607
725,893
407,565
166,573
244,054
48,272
28,077
1,148,594
3,233,494
1,148,594
$ 1,997,867 $ 3,970,610 $ 4,022,736 $ (7,164,439) $ 2,826,774
— $
—
—
(1,933,768)
—
—
(5,230,671)
17,562
366,812
1,287,161
151,755
167,705
1,997,177
2011 Annual Report | Driving Growth > Creating Value
66
Condensed Consolidating Statements of Income
Year Ended December 31, 2011
(In thousands)
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
Net sales
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Results of affiliates’ operations
Interest expense, net
Other income
Provision for income taxes
Net income (loss)
— $ 3,230,753 $ 2,998,639 $
—
70
—
229,621
23,990
—
9,321
196,240
2,406,845
325,011
19,611
—
13,093
—
60,658
173,421
2,585,978
546,902
11,996
173,421
16,520
—
13,157
229,621
(103,674) $ 6,125,718
4,889,149
(103,674)
871,983
—
31,607
—
—
(403,042)
53,603
—
—
—
83,136
—
196,240
(403,042)
Less: Net loss attributable to
noncontrolling interest
Net income (loss) attributable to
WESCO International, Inc.
Year Ended December 31, 2010
(In thousands)
—
—
(11)
—
(11)
$
196,240 $
229,621 $
173,432 $
(403,042) $
196,251
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
Net sales
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Results of affiliates’ operations
Interest expense, net
Other income
Provision for income taxes
— $ 2,820,855 $ 2,318,495 $
—
234
—
153,107
27,565
—
9,831
2,262,038
518,100
12,581
126,711
16,816
(4,285)
(10,791)
1,878,875
245,249
11,354
—
13,182
—
43,124
(75,488) $ 5,063,862
4,065,425
(75,488)
763,583
—
23,935
—
—
(279,818)
57,563
—
(4,285)
—
42,164
—
Net income (loss) attributable to
WESCO International, Inc.
$
115,477 $
153,107 $
126,711 $
(279,818) $
115,477
Year Ended December 31, 2009
(In thousands)
Net sales
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Results of affiliates’ operations
Interest expense, net
gain on debt exchange
Other income
Provision for income taxes
Net income (loss) attributable to
WESCO International, Inc.
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
— $ 3,049,745 $ 1,574,209 $
—
39
—
136,606
28,014
(5,962)
—
9,427
2,470,956
503,831
19,736
99,375
16,106
—
(4,991)
6,876
1,253,105
190,026
6,309
—
9,634
—
—
15,760
— $ 4,623,954
3,724,061
—
693,896
—
26,045
—
—
(235,981)
53,754
—
(5,962)
—
(4,991)
—
32,063
—
$
105,088 $
136,606 $
99,375 $
(235,981) $
105,088
WESCO International, Inc.
67
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2011
(In thousands)
Net cash (used) provided
by operating activities
Investing activities:
Capital expenditures
Acquisition payments
Other
Net cash used in investing activities
Financing activities:
Net borrowings (repayments)
Equity transactions
Other
Net cash provided (used)
by financing activities
Effect of exchange rate changes
on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents
at the beginning of year
Cash and cash equivalents
at the end of period
Year Ended December 31, 2010
(In thousands)
Net cash (used) provided
by operating activities
Investing activities:
Capital expenditures
Acquisition payments
Sale of subsidiary
Other
Net cash used in investing activities
Financing activities:
Net borrowings (repayments)
Equity transactions
Other
Net cash provided
(used) by financing activities
Effect of exchange rate changes
on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents
at the beginning of year
Cash and cash equivalents
at the end of period
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
(19,823) $
181,348 $
6,008 $
— $
167,533
—
—
—
—
(30,546)
(48,093)
97
(78,542)
(2,801)
—
—
(2,801)
21,840
(2,013)
—
(105,931)
—
15,196
19,827
(90,735)
—
—
—
—
—
4
1
—
12,071
(4,990)
(1,783)
32,341
21,235
—
—
—
—
—
—
—
—
—
—
—
(33,347)
(48,093)
97
(81,343)
(84,091)
(2,013)
15,196
(70,908)
(4,990)
10,292
53,577
$
5 $
44,412 $
19,452 $
— $
63,869
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
(96,685) $
301,578 $
(77,610) $
— $
127,283
—
—
—
—
—
92,350
4,333
—
(14,702)
(265,397)
40,000
19,986
(220,113)
(58,894)
—
(7,154)
96,683
(66,048)
(430)
—
—
—
(430)
—
—
—
—
—
(2)
3
—
15,417
3,873
(74,167)
16,924
95,402
—
—
—
—
—
—
—
—
—
—
—
—
(15,132)
(265,397)
40,000
19,986
(220,543)
33,456
4,333
(7,154)
30,635
3,873
(58,752)
112,329
$
1 $
32,341 $
21,235 $
— $
53,577
2011 Annual Report | Driving Growth > Creating Value
68
Condensed Consolidating Statements of Cash Flows (continued)
Year Ended December 31, 2009
(In thousands)
Net cash (used) provided
by operating activities
Investing activities:
Capital expenditures
Acquisition payments
Other
Net cash used in investing activities
Financing activities:
Net borrowings (repayments)
Equity transactions
Other
Net cash provided
(used) by financing activities
Effect of exchange rate changes
on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents
at the beginning of year
Cash and cash equivalents
at the end of period
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
(61,795) $
335,097 $
18,362 $
— $
291,664
—
—
—
—
(12,161)
(262)
2,540
(9,883)
59,235
2,563
—
(314,817)
—
(11,926)
61,798
(326,743)
(809)
—
—
(809)
—
—
—
—
—
3
—
—
(1,529)
9,964
27,517
18,453
67,885
—
—
—
—
—
—
—
—
—
—
—
(12,970)
(262)
2,540
(10,692)
(255,582)
2,563
(11,926)
(264,945)
9,964
25,991
86,338
$
3 $
16,924 $
95,402 $
— $
112,329
WESCO International, Inc.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for the years ended December 31, 2011 and 2010:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
69
2011
Net sales
Cost of goods sold
Income from operations
Income before income taxes
Net income
Net income attributable to
WESCO International, Inc.
Basic earnings per share attributable to
WESCO International, Inc.(A)
Diluted earnings per share attributable to
WESCO International, Inc.(B)
2010
Net sales
Cost of goods sold
Income from operations
Income before income taxes
Net income
Net income attributable to
WESCO International, Inc.
Basic earnings per share attributable to
WESCO International, Inc.(A)
Diluted earnings per share attributable to
WESCO International, Inc.(B)
$ 1,431,305 $ 1,524,515 $ 1,580,376 $ 1,589,522
1,261,483
91,486
79,534
54,838
1,264,745
91,752
76,673
53,890
1,217,666
84,996
71,065
50,207
1,145,255
64,745
52,104
37,305
37,305
50,207
53,890
54,849
0.87
0.74
1.16
1.00
1.24
1.11
1.27
1.12
$ 1,148,599 $ 1,259,121 $ 1,324,555 $ 1,331,587
1,061,304
60,042
44,158
34,823
1,016,169
51,355
38,733
27,793
1,066,769
61,246
47,498
33,661
921,183
38,276
27,252
19,200
19,200
27,793
33,661
34,823
0.45
0.44
0.65
0.60
0.79
0.74
0.82
0.72
(A) Earnings per share (EPS) in each quarter is computed using the weighted average number of shares outstanding during the quarter while EPS for the full
year is computed by taking the average of the weighted average number of shares outstanding each quarter. Thus, the sum of the four quarters’ EPS may
not equal the full-year EPS.
(B) Diluted earnings per share (DEPS) in each quarter is computed using the weighted average number of shares outstanding during that quarter while DEPS
for the full year is computed by taking the average of the weighted average number of shares outstanding each quarter. Thus, the sum of the four quarters’
DEPS may not equal the full-year DEPS.
18. SUBSEQUENT EVENT
On January 3, 2012, WESCO Distribution, Inc. completed its acquisition of RS Electronics, a leading North American
distributor of electronic and electrical products serving primarily the industrial, medical equipment, automotive, and
contract manufacturing end markets with eight branches located in the midwest and southeastern United States and
approximately $60 million in annual sales. WESCO funded the purchase price paid at closing with cash and borrowings
under the Receivables Facility. The purchase price allocation will be completed during the first quarter of 2012.
2011 Annual Report | Driving Growth > Creating Value
70
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures as such term is defined under Rule
13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our principal executive officer and our principal
financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered
by this report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such
term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in
Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was
effective as of December 31, 2011. Management has excluded Brews Supply, Ltd. from its assessment of internal control
over financial reporting as of December 31, 2011 because it was acquired by the Company in a purchase business
combination during October 2011. Brews Supply, Ltd. is a wholly owned subsidiary whose total assets and total revenues
represent $49.2 million and $16.7 million, respectively, of the related consolidated financial statement amounts as of and
for the year ended December 31, 2011.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included
herein.
Changes in Internal Control Over Financial Reporting
During the last fiscal quarter of 2011, there were no changes in the Company’s internal control over financial reporting
identified in connection with management’s evaluation of the effectiveness of the Company’s internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B. Other Information.
None.
WESCO International, Inc. 71
PART III
Item 10. Directors, Executive Officers and Corporate governance.
The information set forth under the captions “Board of Directors” and “Executive Officers” in our definitive Proxy Statement
for our 2012 Annual Meeting of Stockholders is incorporated herein by reference.
CODES OF BUSINESS ETHICS AND CONDUCT
We have adopted a Code of Business Ethics and Conduct (“Code of Conduct”) that applies to our Directors, officers and
employees that is available on our website at www.wesco.com by selecting the “Investors” tab followed by the “Corporate
governance” heading. Any amendment or waiver of the Code of Conduct for our officers or Directors will be disclosed
promptly at that location on our website.
We also have adopted a Senior Financial Executive Code of Principles for Senior Executives (“Senior Financial Executive
Code”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or
persons performing these functions. The Senior Financial Executive Code is also available at that same location on our
website. We intend to timely disclose any amendment or waiver of the Senior Financial Executive Code on our website and
will retain such information on our website as required by applicable SEC rules.
A copy of the Code of Conduct and/or Senior Financial Executive Code may also be obtained upon request by any
stockholder, without charge, by writing to us at WESCO International, Inc., 225 West Station Square Drive, Suite 700,
Pittsburgh, Pennsylvania 15219, Attention: Corporate Secretary.
The information required by Item 10 that relates to our Directors and executive officers is incorporated by reference from
the information appearing under the captions “Corporate governance”, “Board and Committee Meetings” and “Security
Ownership” in our definitive Proxy Statement for our 2012 Annual Meeting of Stockholders that is to be filed with the SEC
pursuant to the Exchange Act within 120 days of the end of our fiscal year on December 31, 2011.
Item 11. Executive Compensation.
The information set forth under the captions “Compensation Discussion and Analysis” and “Director Compensation” in our
definitive Proxy Statement for our 2012 Annual Meeting of Stockholders is incorporated herein by reference.
2011 Annual Report | Driving Growth > Creating Value 72
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
The information set forth under the caption “Security Ownership” in our definitive Proxy Statement for our 2012 Annual
Meeting of Stockholders is incorporated herein by reference.
The following table provides information as of December 31, 2011 with respect to the shares of our common stock that
may be issued under our existing equity compensation plans:
Plan Category
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Equity compensation plans approved
by security holders
Equity compensation plans not approved
by security holders
Total
4,266,533
$
39.64
—
4,266,533
$
—
39.64
Number of securities
remaining available
for future issuance
under equity
compensation plans
2,711,671
—
2,711,671
Item 13. Certain Relationships and Related Transactions, and Director
Independence.
The information set forth under the captions “Transactions with Related Persons” and “Corporate governance” in our
definitive Proxy Statement for our 2012 Annual Meeting of Stockholders is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information set forth under the caption “Independent Registered Public Accounting Firm Fees and Services” in our
definitive Proxy Statement for our 2012 Annual Meeting of Stockholders is incorporated herein by reference.
WESCO International, Inc.
74
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Form of Stock Appreciation Rights Agreement for
Employees.
Form of Restricted Stock Unit Agreement for
Employees.
Form of Stock Appreciation Rights Agreement for
Non-Employee Directors.
Form of Restricted Stock Unit Agreement for
Non-Employee Directors.
Lease dated December 13, 2002 between WESCO
Distribution, Inc. and WESCO Real Estate IV, LLC.
Filed herewith
Filed herewith
Incorporated by reference to Exhibit 10.3 to WESCO’s
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2010
Incorporated by reference to Exhibit 10.4 to WESCO’s
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2010
Incorporated by reference to Exhibit 10.27 to WESCO’s
Annual Report on Form 10-K for the year ended
December 31, 2002
Lease guaranty dated December 13, 2002 by WESCO
International, Inc. in favor of WESCO Real Estate IV,
LLC.
Incorporated by reference to Exhibit 10.28 to WESCO’s
Annual Report on Form 10-K for the year ended
December 31, 2002
Amended and Restated Registration and Participation
Agreement, dated as of June 5, 1998, among WESCO
International, Inc. and certain security holders of
WESCO International, Inc. named therein.
Incorporated by reference to Exhibit 10.19 to WESCO’s
Registration Statement on Form S-4 (No. 333-43225)
Loan Agreement between Bear Stearns Commercial
Mortgage, Inc. and WESCO Real Estate IV, LLC, dated
December 13, 2002.
Incorporated by reference to Exhibit 10.26 to WESCO’s
Annual Report on Form 10-K for the year ended
December 31, 2002
guaranty of Non-Recourse Exceptions Agreement dated
December 13, 2002 by WESCO International, Inc. in
favor of Bear Stearns Commercial Mortgage, Inc.
Incorporated by reference to Exhibit 10.29 to WESCO’s
Annual Report on Form 10-K for the year ended
December 31, 2002
Environmental Indemnity Agreement dated December
13, 2002 made by WESCO Real Estate IV, Inc. and
WESCO International, Inc. in favor of Bear Stearns
Commercial Mortgage, Inc.
Asset Purchase Agreement, dated as of September
11, 1998, among Bruckner Supply Company, Inc.
and WESCO Distribution, Inc.
Amendment dated March 29, 2002 to Asset
Purchase Agreement, dated as of September 11,
1998, among Bruckner Supply Company, Inc. and
WESCO Distribution, Inc.
Agreement and Plan of Merger, dated August 16,
2005, by and among Carlton-Bates Company, the
shareholders of Carlton-Bates Company signatory
thereto, the Company Representative (as defined
therein), WESCO Distribution, Inc. and C-B WESCO,
Inc.
Agreement and Plan of Merger, dated October 2,
2006, by and among WESCO Distribution, Inc.,
WESCO Voltage, Inc., Communications Supply
Holdings, Inc. and Harvest Partners, LLC, as
Shareholders’ Representative.
Credit Agreement, dates as of August 22, 2011, by and
among WESCO Distribution, Inc., the other U.S.
Borrowers party thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, and JPMorgan Chase Bank, N.A.,
Toronto Branch, as Canadian Administrative Agent.
Incorporated by reference to Exhibit 10.30 to WESCO’s
Annual Report on Form 10-K for the year ended
December 31, 2002
Incorporated by reference to Exhibit 2.01 to WESCO’s
Current Report on Form 8-K, dated September 11,
1998
Incorporated by reference to Exhibit 10.25 to WESCO’s
Annual Report on Form 10-K for the year ended
December 31, 2002
Incorporated by reference to Exhibit 10.3 to WESCO’s
Current Report on Form 8-K, dated September 28,
2005
Incorporated by reference to Exhibit 2.1 to WESCO’s
Current Report on Form 8-K, dated November 8, 2006
Incorporated by reference to Exhibit 10.1 to WESCO’s
Current Report on Form 8-K, dated August 22, 2011
WESCO International, Inc. 75
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
21.1
23.1
31.1
31.2
32.1
32.2
101
Third Amended and Restated Receivables Purchase
Agreement, dated as of April 13, 2009, by and among
WESCO Receivables Corp., WESCO Distribution, Inc.,
the Purchasers and Purchaser Agents party thereto
and PNC Bank, National Association (as successor to
Wachovia Capital Markets, LLC), as Administrator.
Incorporated by reference to Exhibit 10.1 to WESCO’s
Current Report on Form 8-K, dated April 13, 2009
First Amendment to the Third Amended and Restated
Receivables Purchase Agreement, dated as of August
31, 2009.
Incorporated by reference to Exhibit 10.4 to WESCO’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009
Second Amendment to the Third Amended and
Restated Receivables Purchase Agreement, dated as
of September 7, 2010.
Incorporated by reference to Exhibit 10.1 to WESCO’s
Current Report on Form 8-K, dated September 7,
2010
Third Amendment to the Third Amended and
Restated Receivables Purchase Agreement, dated as
of December 16, 2010.
Incorporated by reference to Exhibit 10.1 to WESCO’s
Current Report on Form 8-K, dated December 16,
2010
Term Sheet, dated May 21, 2009, memorializing
terms of employment of Richard P. Heyse by WESCO
International, Inc.
Incorporated by reference to Exhibit 10.23 to WESCO’s
Annual Report on Form 10-K for the year ended
December 31, 2009
Amended and Restated Employment Agreement,
dated as of September 1, 2009, between WESCO
International Inc. and John J. Engel.
Amended and Restated Employment Agreement,
dated as of September 1, 2009, between WESCO
International Inc. and Stephen A. Van Oss.
Incorporated by reference to Exhibit 10.2 to WESCO’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009
Incorporated by reference to Exhibit 10.3 to WESCO’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009
Term Sheet, dated January 15, 2010, memorializing
terms of employment of Diane Lazzaris by WESCO
International, Inc.
Incorporated by reference to Exhibit 10.28 to WESCO’s
Annual Report on Form 10-K for the year ended
December 31, 2009
Term Sheet, dated June 18, 2010, memorializing
terms of employment of Kimberly Windrow by WESCO
International, Inc.
Incorporated by reference to Exhibit 10.1 to WESCO’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2010
Subsidiaries of WESCO.
Consent of PricewaterhouseCoopers LLP.
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) promulgated under the Exchange Act.
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) promulgated under the Exchange Act.
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Interactive Data File*
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
* In with accordance with Rule 406T of Regulation S-T promulgated by the Securities and Exchange Commission, Exhibit 101 is deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the
Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
The registrant hereby agrees to furnish supplementally to the Commission, upon request, a copy of any omitted schedule
to any of the agreements contained herein.
Copies of exhibits may be retrieved electronically at the Securities and Exchange Commission’s home page at www.sec.gov.
Exhibits will also be furnished without charge by writing to Stephen A. Van Oss, Senior Vice President, Chief Operating
Officer and interim Chief Financial Officer, 225 West Station Square Drive, Suite 700, Pittsburgh, Pennsylvania 15219.
Requests may also be directed to (412) 454-2200.
2011 Annual Report | Driving Growth > Creating Value 76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WESCO INTERNATIONAL, INC.
/s/ JOHN J. ENgEL
By:
Name: John J. Engel
Title: Chairman, President and Chief Executive Officer
Date: February 22, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ JOHN J. ENgEL
John J. Engel
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date
February 22, 2012
/s/ STEPHEN A. VAN OSS
Stephen A. Van Oss
Senior Vice President, Chief Operating Officer and interim Chief Financial Officer
(Principal Financial and Accounting Officer)
February 22, 2012
/s/ SANDRA BEACH LIN
Sandra Beach Lin
/s/ gEORgE L. MILES, JR.
george L. Miles, Jr.
/s/ JOHN K. MORgAN
John K. Morgan
/s/ STEVEN A. RAYMUND
Steven A. Raymund
/s/ JAMES L. SINgLETON
James L. Singleton
/s/ ROBERT J. TARR, JR.
Robert J. Tarr, Jr.
/s/ LYNN M. UTTER
Lynn M. Utter
/s/ WILLIAM J. VARESCHI
William J. Vareschi
Director
Director
Director
Director
Director
Director
Director
Director
Schedule II–Valuation and Qualifying Accounts
February 22, 2012
February 22, 2012
February 22, 2012
February 22, 2012
February 22, 2012
February 22, 2012
February 22, 2012
February 22, 2012
(In thousands)
Allowance for doubtful accounts
Year ended December 31, 2011
Year ended December 31, 2010
Year ended December 31, 2009
Col. A
Col. B
Col. C
Col. D
Col. E
Balance at
Beginning of Period
Charged to
Expense
Charged to
Other Accounts
Deductions(1)
Balance at
End of Period
$
18,562 $
20,060
19,665
6,583 $
6,439
6,072
— $
—
2,059
(3,555) $
(7,937)
(7,736)
21,590
18,562
20,060
(1)Includes a reduction in the allowance for doubtful accounts due to write-off of accounts receivable.
WESCO International, Inc.
Exhibit 21.1 Subsidiaries of WESCO International, Inc.
1502218 Alberta, Ltd., an Alberta corporation
WDINESCO II CV, a Netherlands limited partnership
Bruckner Polska sp z.o.o., a Poland limited company
WEAS Company, Srl, a Mexico private limited company
77
Bruckner Supply Singapore, a Singapore sole proprietor
Buckner Supply Company, Inc., a Delaware corporation
Calvert-Wire & Cable Corporation, a Delaware corporation
Carlton-Bates Company, an Arkansas corporation
Carlton-Bates Company de Mexico S.A. de C.V.,
a Mexico variable capital company
Carlton-Bates Company of Texas,
g.P., a Texas corporation
CBC LP Holdings, LLC,
a Delaware limited liability company
CDW Holdco, LLC, a Delaware limited liability company
Communications Supply Corporation,
a Connecticut corporation
Liberty-Wire & Cable, Inc., a Delaware corporation
M&M Power Products, LP, a California limited partnership
Stone Eagle Electrical Supply gP, Inc.,
an Alberta corporation
Stone Eagle Electrical Supply LP,
an Alberta limited partnership
TVC Canada Corp.,
a Nova Scotia unlimited liability company
TVC Communications, LLC,
a Delaware limited liability company
TVC Espana Distribucion y Venta De Equipos, S.L., a Spain
limited liability company
TVC International Holding, LLC,
a Delaware limited liability company
TVC Mexico Distribution S. de R.L. de C.V., a Mexico limited
liability company
TVC Mexico Services S. de R.L. de C.V.,
a Mexico limited liability company
TVC UK Holdings, Limited,
a United Kingdom limited company
WDC Holding, Inc., a Delaware corporation
WDCH, LP, a Pennsylvania limited partnership
WDINESCO B.V., a Netherlands company
WDINESCO Cooperatief U.A., a Netherlands company
WESCO (Suzhou) Trading Co. Ltd.,
a China limited liability company
WDI Angola, LDA, an Angola company
WESCO Australia Pty Ltd, an Australian company
WESCO Distribution Canada Co.,
a Nova Scotia unlimited liability company
WESCO Distribution Canada gP, Inc.,
a Nova Scotia limited liability company
WESCO Distribution Canada LP,
an Ontario limited partnership
WESCO Distribution de Mexico, Srl,
a Mexico private limited company
WESCO Distribution HK Limited,
a Hong Kong limited private company
WESCO Distribution II ULC,
a Nova Scotia unlimited liability company
WESCO Distribution III ULC,
a Nova Scotia unlimited liability company
WESCO Distribution International, Ltd.,
a United Kingdom limited company
WESCO Distribution, Inc., a Delaware Corporation
Wesco do Brasil Equipamentos Eletrônicos Ltda,
a Brazil limited liabilty company
WESCO Equity Corporation, a Delaware corporation
WESCO Finance Corporation, a Delaware corporation
WESCO International Supply Co. Singapore Pte Ltd.,
a Singapore limited private company
WESCO Nevada, Ltd, a Nevada corporation
WESCO Nigeria Ltd., a Nigeria corporation
WESCO Nigeria, Inc., a Delaware corporation
WESCO Real Estate I, LLC,
a Delaware limited liability company
WESCO Real Estate II, LLC,
a Delaware limited liability company
WESCO Real Estate III, LLC,
a Delaware limited liability company
WESCO Real Estate IV, LLC,
a Delaware limited liability company
WDINESCO CV, a Netherlands limited partnership
WESCO Receivables Corporation, a Delaware corporation
WDINESCO II B.V.,
a Netherlands private company with limited liability
WESCO Sourcing and Procurement Services Pte Ltd.,
a Singapore limited private company
2011 Annual Report | Driving Growth > Creating Value 78
Exhibit 23.1 Consent Of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No’s. 333-81857,
333-81847, 333-81845, 333-81841 and 333-91187) of WESCO International, Inc. of our report dated February 22, 2012
relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial
reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 22, 2012
WESCO International, Inc. 79
Exhibit 31.1 Certification
I, John J. Engel, certify that:
1. I have reviewed this annual report on Form 10-K of WESCO International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 22, 2012
By:
/s/ John J. Engel
John J. Engel
Chairman, President and Chief Executive Officer
2011 Annual Report | Driving Growth > Creating Value
80
Exhibit 31.2 Certification
I, Stephen A. Van Oss, certify that:
1. I have reviewed this annual report on Form 10-K of WESCO International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 22, 2012
By: /s/ Stephen A. Van Oss
Stephen A. Van Oss
Senior Vice President, Chief Operating Officer and interim Chief Financial Officer
WESCO International, Inc.
81
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of WESCO International, Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operation of the Company.
Date: February 22, 2012
By: /s/ John J. Engel
John J. Engel
Chairman, President and Chief Executive Officer
Exhibit 32.2 Certification Pursuant To 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of WESCO International, Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operation of the Company.
Date: February 22, 2012
By:
/s/ Stephen A. Van Oss
Stephen A. Van Oss
Senior Vice President, Chief Operating Officer and interim Chief Financial Officer
2011 Annual Report | Driving Growth > Creating Value 82
Non-gAAP Reconciliations
(Dollars in millions)
Free Cash Flow: 1
Cash provided by operations
Less: capital expenditures
Free cash flow
Net income
Free cash flow as a % of net income
ROIC: 2
Income from operations
Equity income
Income from operations plus equity income
Tax effect (year end effective tax rate)
Tax effected income from operations
plus equity income
Par debt
December 31 of the prior year
March 31 of the current year
June 30 of the current year
September 30 of the current year
December 31 of the current year
Average par debt
Stockholders’ equity
December 31 of the prior year
Less: debt discount
Stockholders’ equity, net of debt discount
March 31 of the current year
Less: debt discount
Stockholders’ equity, net of debt discount
June 30 of the current year
Less: debt discount
Stockholders’ equity, net of debt discount
September 30 of the current year
Less: debt discount
Stockholders’ equity, net of debt discount
December 31 of the current year
Less: debt discount
Stockholders’ equity, net of debt discount
Average stockholders’ equity
Average par debt and stockholders’ equity
ROIC
2011
2010
2009
2008
2007
167.5
(33.3)
134.2
196.3
68%
332.9
-
332.9
99.2
127.3
(15.1)
112.2
115.4
97%
210.9
4.3
215.2
57.5
291.7
(13.0)
278.7
105.1
265%
180.0
5.0
185.0
43.3
279.9
(35.3)
244.6
204.1
120%
345.6
9.4
355.0
105.8
262.3
(16.1)
246.2
232.5
106%
394.2
-
394.2
105.6
233.7
157.7
141.7
249.2
288.6
908.3
886.0
935.6
907.4
825.2
892.5
1,148.6
178.4
970.2
1,199.2
177.8
1,021.4
1,253.3
177.2
1,076.1
1,283.5
176.6
1,106.9
1,345.9
175.9
1,170.0
1,068.9
1,961.4
11.9%
874.5
817.1
759.9
759.3
908.3
823.8
996.3
182.7
813.6
1,027.2
181.4
845.8
1,051.4
180.1
871.3
1,095.3
179.0
916.3
1,148.6
178.4
970.2
883.4
1,707.3
9.2%
1,140.8
1,042.7
966.6
888.9
874.5
982.7
1,316.3
1,236.7
1,245.4
1,177.5
1,140.8
1,223.3
1,140.3
1,244.8
1,336.6
1,304.2
1,316.3
1,268.4
755.1
40.5
714.6
775.7
36.7
739.0
821.6
32.8
788.8
961.4
183.9
777.5
996.3
182.7
813.6
608.5
-
608.5
628.6
-
628.6
669.4
-
669.4
717.0
-
717.0
755.1
40.5
714.6
763.2
-
763.2
623.2
-
623.2
559.1
-
559.1
571.8
-
571.8
608.5
-
608.5
766.7
1,749.4
8.1%
667.6
1,891.0
13.2%
625.2
1,893.6
15.2%
Non-GAAP Financial Metrics Definitions
1 Free cash flow is calculated by deducting capital expenditures from operating cash flow.
2 ROIC is calculated by dividing tax effected income from operations plus equity income by average par debt and stockholders’ equity, less any debt discount.
WESCO International, Inc.
Comparison of 5 Year Cummulative Total Return*
* $100 invested on 12/31/06 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.
83
250
200
150
100
50
0
2006
2007
2008
2009
2010
2011
Compensation Peer Group
Andersen Corporation 1,2
Anixter International, Inc.
Applied Industrial Technologies, Inc.
AutoZone, Inc.
Avis Budget Group
Belk, Inc. 1
Big Lots, Inc.
Boise, Inc.
BorgWarner Inc.
Brinker International, Inc.
Cameron International Corporation
Cooper Industries
Corn Products International, Inc.
Darden Restaurants, Inc.
Dover Corporation
Ecolab Inc.
Fastenal Company
FMC Technologies
Hubbell Incorporated
Hy-Vee, Inc. 1,2
Kohler Company 1,2
Lennox International Inc.
MSC Industrial Direct Co., Inc.
NCR Corporation
NewPage Corporation 1,2
OfficeMax Incorporated
Pitney Bowes, Inc.
Praxair, Inc.
Rockwell Automation, Inc.
Ross Stores, Inc.
Ryder System, Inc.
Sauer-Danfoss Inc.
Schneider National, Inc. 1,2
Smurfit-Stone Container Corporation
Sonoco Products Company
Spartan Stores, Inc.
Temple-Inland Inc.
The Bon-Ton Stores, Inc.
The Pantry, Inc.
Thomas & Betts Corporation
United Stationers, Inc.
Vulcan Materials Company
W.W. Grainger, Inc.
Waste Management, Inc.
Watsco, Inc.
1 Privately held
2 Data not publicly available but summary statistics do incorporate their data
Wesco International, Inc.
2011 compensation Peer Group
2011 Performance Peer Group
Russell 2000 Index
Performance Peer Group
Airgas Inc.
Anixter International, Inc.
Applied Industrial Technologies, Inc.
Arrow Electronics, Inc.
Avnet Inc.
Beacon Roofing Supply Inc.
Cooper Industries
Danaher Corp.
Eaton Corp.
Emerson Electric Co.
Fastenal Company
Genuine Parts Co.
Houston Wire & Cable Co.
Hubbell Inc.
Ingram Micro Inc.
Interline Brands Inc.
MSC Industrial Direct Co., Inc.
Pool Corp.
Rockwell Automation Inc.
RSC Holdings, Inc.
Tech Data Corp.
United Stationers, Inc.
W.W. Grainger, Inc.
Watsco, Inc.
2011 Annual Report | Driving Growth > Creating Value 84
Corporate Headquarters
WESCO International, Inc.
Suite 700
225 West Station Square Drive
Pittsburgh, PA 15219-1122
Phone: 412-454-2200
www.wesco.com
Investor Relations
Transfer Agent and Registrar
Computershare
P.O. Box 358015
Pittsburgh, PA 15252-8015
Toll free: 877-264-3927
TDD for Hearing Impaired: 800-231-5469
Foreign Shareholders: 201-680-6578
TDD Foreign Shareholders: 201-680-6610
For questions regarding WESCO, contact Daniel A. Brailer,
Vice President, Investor Relations and Corporate Affairs,
at investorrelations@wesco.com. A copy of the Company’s
Annual Report on Form 10-K or other financial
information may be requested through our website
(www.wesco.com) or by contacting Investor Relations.
Website address:
www.bnymellon.com/shareowner/equityaccess
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Pittsburgh, PA
Common Stock
WESCO International, Inc. is listed on the New York Stock
Exchange under the ticker symbol WCC.
Annual Meeting
The Annual Meeting of stockholders will be held on
May 23, 2012, at 2:00 p.m., E.D.T., at:
Sheraton Station Square
300 West Station Square Drive
Pittsburgh, PA 15219
Certifications to the NYSE and the SEC
On June 17, 2011, the Company submitted its CEO
Certification to the NYSE under NYSE Rule 303A.12(a).
Also, any CEO/CFO certifications required to be filed with
the SEC, including the Section 302 certifications, are
filed by the Company as exhibits to its Annual Report
on Form 10-K.
An online version of the Annual Report is available
at www.wesco.com.
WESCO International, Inc. corporate governance
Board of directors
(bottom row, left to right)
(top row, left to right)
James L. Singleton
Vice Chairman
Cürex Group Holdings, LLC
John K. Morgan
Chairman, President and
Chief Executive Officer
Zep, Inc.
George L. Miles, Jr.
Executive Chairman
Chester Engineers, Inc.
Stephen A. Van Oss
Senior Vice President,
Chief Operating Officer and
interim Chief Financial Officer
WESCO International, Inc.
Class I: Term expires 2012
John J. Engel
Steven A. Raymund
Lynn M. Utter
William J. Vareschi
Class II: Term expires 2013
Sandra Beach Lin
Robert J. Tarr, Jr.
Stephen A. Van Oss
Class III: Term expires 2014
George L. Miles, Jr.
John K. Morgan
James L. Singleton
Steven A. Raymund
Chairman
Tech Data Corporation
Sandra Beach Lin
Former Chief Executive Officer
Calisolar, Inc.
John J. Engel
Chairman, President and
Chief Executive Officer
WESCO International, Inc.
William J. Vareschi
Former Chief Executive Officer
Central Parking Corporation
Robert J. Tarr, Jr.
Professional Director and
Private Investor
Lynn M. Utter
President and
Chief Operating Officer
Knoll Office
executive officers
(as of April 1, 2012)
John J. Engel
Chairman, President and
Chief Executive Officer
Stephen A. Van Oss
Senior Vice President,
Chief Operating Officer and
interim Chief Financial Officer
Daniel A. Brailer
Vice President, Investor Relations
and Corporate Affairs
Allan A. Duganier
Director, Internal Audit
Timothy A. Hibbard
Vice President and
Corporate Controller
Diane E. Lazzaris
Vice President, Legal Affairs
Kimberly G. Windrow
Vice President,
Human Resources
Design: Mizrahi, Inc. www.mizrahionline.com
WESCO International, Inc.
Suite 700
225 West Station Square Drive
Pittsburgh, Pennsylvania 15219-1122
Phone: 412-454-2200
www.wesco.com
Printed on PaPer containing
30% Post-consumer waste fiber
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