2014 ANNUAL REPORT
ONE WORLD ONE WESCO
Net Sales
(in millions)
9
9
7
7
5
5
,
,
6
6
$
$
6
6
2
2
1
1
,
,
6
6
$
$
4
4
6
6
0
0
,
,
5
5
$
$
0
0
9
9
8
8
,
,
7
7
$
$
3
3
1
1
5
5
,
,
7
7
$
$
Income from
Operations (EBIT) 1
(in millions)
6
6
6
6
4
4
$
$
5
5
4
4
4
4
$
$
9
9
6
6
3
3
$
$
3
3
3
3
3
3
$
$
1
1
1
1
2
2
$
$
Diluted EPS 1
Free Cash Flow 1
(in millions)
8
8
1
1
.
.
5
5
$
$
2
2
8
8
.
.
4
4
$
$
8
8
3
3
.
.
4
4
$
$
6
6
9
9
.
.
3
3
$
$
0
0
5
5
.
.
2
2
$
$
8
8
0
0
3
3
$
$
5
5
6
6
2
2
$
$
0
0
3
3
2
2
$
$
4
4
3
3
1
1
$
$
2
2
1
1
1
1
$
$
10
10
11
11
12
12
13
13
14
14
10
10
11
11
12
12
13
13
14
14
10
10
11
11
12
12
13
13
14
14
10
10
11
11
12
12
13
13
14
14
FINANCIAL HIGHLIGHTS
Year Ended December 31,
(Dollars in millions except for diluted EPS, financial leverage ratio, and percentages)
2010
2011
2012
2013
2014
Net sales
Income from operations (EBIT) 1
Net income attributable to WESCO International, Inc. 1
Diluted EPS 1
Diluted share count
Free cash flow 1
Free cash flow as a % of net income 1
Total debt, including debt discount
Financial leverage ratio 2
Stockholders’ equity 1
ROIC 1
$ 5,064 $ 6,126 $ 6,579 $ 7,513 $ 7,890
211
115
2.50
46.1
112
97%
908
3.9
333
196
3.96
49.6
134
369
224
4.38
51.1
265
445
254
4.82
52.7
308
68%
118%
121%
466
276
5.18
53.3
230
84%
825
2.3
1,919
1,662
1,586
4.7
3.2
3.0
1,149
1,346
1,576
1,765
1,928
9.2%
11.9%
11.3%
9.9%
10.0%
1 Non-GAAP financial measures are defined and reconciled on pages 102 and 103. 2012 and 2013 exclude the impact of a litigation matter.
2 Financial leverage is calculated by dividing total debt, including debt discount, by earnings before interest, taxes, depreciation and amortization (EBITDA),
excluding the impact of a litigation matter in 2012 and 2013.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
$100 invested on 12/31/09 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.
TSR CAGR %
$400
$350
$300
$250
$200
$150
$100
$50
$0
2009
2010
2011
2012
2013
2014
3 Performance Peer Group is defined on page 25.
3 YEAR
5 YEAR
WESCO
Performance
Peer Group 3
Russell
2000 Index
12.9%
19.2%
23.1%
15.6%
10 YEAR
9.9%
7.7%
WESCO
Russell 2000 Index
2014 Annual Report | One World. One WESCO. 1
To Our Shareholders,
Employees, and
Business Partners
OUR RESULTS
OUR STRATEGY
2014 was a record year for WESCO in terms of sales,
profitability, and earnings per share. Re-establishing
profitable growth in our core business was our top priority
last year, and I am pleased to report that we delivered
sales growth across all of our end markets and
geographies. At the beginning of the year, we
implemented the most significant organization design
change in the history of our company. The purpose was
to accelerate our One WESCO strategy and fundamentally
improve our growth. As evidenced by our improving
momentum throughout 2014, we are beginning to see
the early benefits of these changes. Sales increased 6%
to a record $7.9 billion, operating profit grew to a record
$466 million, and diluted earnings per share (EPS) grew
to a record $5.18. After successfully completing three
acquisitions, our capital structure remains strong as our
financial leverage entering this year was well within our
2.0x to 3.5x target range. While we are pleased with
our progress, we are not satisfied with these results.
Economic and market conditions are expected to be
challenging again this year as we face increased
headwinds due to low inflation, commodity pricing, and
exchange rates. Our efforts and execution priorities for
2015 are focused on completing the build out of our new
organization and accelerating our One WESCO strategies
to further strengthen our company and outperform the
competition in our served markets.
Our vision is to be the global leader of supply chain
solutions. We are a customer-driven organization focused
on serving three demand streams: MRO indirect products
and services; OEM direct materials and value-added
assemblies; and capital projects for new construction,
as well as retrofits, renovations, and upgrades. Our
One WESCO growth strategy, launched five years ago,
integrates our products, services, and supplier
relationships into comprehensive supply chain solutions
for our customers and their operations around the world.
Our growth strategy has been working. Since 2010,
we strengthened our company and produced strong
financial results, posting a sales compound annual
growth rate (CAGR) of 12%, an EPS CAGR of 20%, and
generating free cash flow of over $1B, approximately
equal to net income. Total shareholder return over the
last five years exceeded 180%, above both our investor
peers and industry benchmarks.
Over the next five years, we remain sharply focused
on executing our One WESCO growth strategy to deliver
against four performance goals: sales growth above
the market, double digit EPS growth, free cash flow of at
least 80% of net income, and superior investor returns.
Building on our core competitive differentiators of a
broad product portfolio, extensive global footprint,
comprehensive service capabilities, talented team of
people, and a Lean continuous improvement culture,
we are positioned to deliver a repeat performance over
this next five-year period.
2 WESCO International, Inc.
OUR CAPABILITIES
OUR PEOPLE
Over the years, WESCO has evolved from a pure play
electrical distributor focused on the non-residential
construction market to a diversified, global wholesale
distribution and supply chain management company
serving the industrial, construction, utility, and
commercial/institution/government markets. Our
products, global footprint, and service capabilities
support the effective execution of our One WESCO
strategy by providing comprehensive solutions for our
customers’ operations and supply chain needs.
• Products
Our broad product portfolio was further strengthened
with the three acquisitions we completed last year –
LaPrairie, Hazmasters, and Hi-Line – which expanded
our safety and utility offerings in the United States
and Canada.
• Footprint
Our global footprint, combined with our global accounts
and integrated supply business models, provides
us with a competitive advantage in serving multi-
location customers. Including a new One WESCO
location in Kansas City and our first branch in
Thailand, we now have approximately 485 locations
and over 9,400 associates in 19 countries around
the world serving customers in more than twice that
many countries.
• Services
Our One WESCO service capabilities are proving to be
a key competitive differentiator for our company and
resulted in a series of notable new customer wins and
expanded relationships last year. Our extensive set of
services includes energy management, sustainability,
safety, procurement, warehousing, inventory, logistics,
and Lean applications for our customers’ operations,
projects, and supply chains.
We are building scale and strengthening our company
through our investments in people and the business,
including acquisitions. Our acquisition priorities remain
focused on consolidating core electrical in North America,
expanding into adjacent MRO product and service
categories, and selectively establishing international
operations to support our blue chip customer base.
WESCO is uniquely positioned to meet the increasing
demands of our customers and deliver superior value
in our large fragmented industry where the pace of
outsourcing and consolidation is accelerating.
Wholesale distribution is a service industry, and having the
best talent is the primary driver of our success over the
long term. Talent management is all about attracting,
developing, motivating, and retaining the best global
talent and then building a high-performance culture that
promotes employee engagement. We are committed to
being the employer of choice in the industries we serve.
Last year, we increased the investments in our human
resources and employee programs for the fifth year in a
row through further enhancements to our sales training,
college recruiting, mentoring, and WESCO University
training programs. We worked to advance employment
opportunities for military veterans and were pleased to be
recognized by the National Association of Manufacturers,
the Manufacturing Institute, and RecruitMilitary for our
efforts in 2014. We also continue to make solid progress
on our overall diversity agenda and were recognized, once
again, by the 2020 Women on Boards campaign. We are
confident that the investments we are making in our
people will provide future capacity for profitable growth.
In January of last year, we implemented a fundamental
organization design change to accelerate our One WESCO
strategy and improve our sales and profit growth rates.
The U.S. businesses were streamlined and consolidated
under one overall leader. We merged our network of
electrical and data communications branches into three
geographic regions and established a series of platform
businesses across the U.S. A new sales and marketing
organization was formed with a single global leader at the
enterprise level, a first for WESCO. This new customer-
facing front-end organization includes marketing, global
accounts, supplier relations, and sales operations, as well
as newly established product line and end-market focused
sales groups. Our Canadian and International businesses
were also significantly strengthened last year. We
supported this new One WESCO organization with talent
investment in several key areas, including sales, product
line management, supply chain, e-commerce, finance,
human resources, and Lean. We’re increasing our sales
resources and improving their productivity with more
effective marketing demand creation programs, an
expanded lead generation group, new One WESCO sales
force training materials, new sales person recognition
programs, and an improved customer relations
management platform.
2014 Annual Report | One World. One WESCO. 3
OUR CULTURE
OUR COMMITMENT
Our culture of Lean and continuous improvement is the
core of operational excellence and everything we do at
WESCO. Each and every day our employees are finding
new ways to solve problems and work smarter to deliver
value across the entire chain, from our customers’
operations and supply chains to inside WESCO and
through to our suppliers. By using our industry-leading
Value Creation program, we help customers reduce
operating costs, improve productivity, enhance safety,
improve energy management, and eliminate waste.
Lean is becoming part of our DNA and we see more
opportunities than ever to improve our business and
the overall supply chain.
Sustainability remains a strategic priority and a company-
wide responsibility at WESCO. We are introducing
sustainability into our daily business practices. Within our
own operations, we’re implementing strategies to improve
energy efficiency, increase recycling, reduce waste
generation, and reduce both greenhouse gas intensity
and emissions. We’re also helping our customers make
improvements in their operations in the areas of lighting,
energy management, renewable energy, water and waste
mitigation, and green procurement. Our progress is
outlined in our Sustainability Report published last year.
Safety is also central to all that we do. Our goal is to provide
a safe work environment for our employees and all those
who visit our operations. In 2014, we achieved our fifth
consecutive year of best ever safety performance, which
was significantly better than the wholesale distribution
industry average OSHA recordable incident rate.
IN APPRECIATION
George Miles retired from the WESCO Board of Directors
in May 2014 after providing 14 years of service. During
his tenure, George served as chairman of the nominating
and governance committee and member of the audit and
compensation committees. On behalf of the Board of
Directors and the entire WESCO management team, we
thank George for his outstanding leadership, dedication,
counsel, and invaluable contributions.
WESCO moves into 2015 with a stronger and deeper
management team and a steadfast commitment to deliver
results for investors, to grow our business, and to expand
global opportunities for our customers around the world.
We are building momentum with our One WESCO
initiatives and continuing to invest in our customers,
our sales and service capabilities, our suppliers, and
our employees. With our Lean continuous improvement
culture, our new organization gives us even greater
capabilities, a deeper knowledge base, and an
outstanding mix of talent to deliver value and growth
for years to come.
• To our customers, thank you for your business. We are
committed to creating value in your operations and
supply chains.
• To our employees, thank you for your dedication,
engagement, and extraordinary effort in providing
outstanding service to our customers. You are our
sustainable competitive advantage.
• To our suppliers, thank you for your support and
ongoing commitment to WESCO. We are focused
on combining our capabilities with yours to provide
complete solutions for our customers.
• To our shareholders, thank you for your continued
investments and confidence in us. We are committed
to strengthening our industry position and increasing
shareholder value.
John J. Engel
Chairman, President, and Chief Executive Officer
4 WESCO International, Inc.
Expertise and Experience
Are Invaluable for Nationwide
Internet Expansion
After learning about the expansion plans of a
national high-speed internet and video service
provider, a One WESCO team developed a
broad range of product solutions, including
data communications, fiber optic network
infrastructure, broadband and utility equipment,
outside plant construction materials, and video
broadcast equipment.
Our industry position enabled us to leverage
purchases from strategic suppliers, translating
into shorter lead times, increased service
levels, and a smaller capital investment for our
customer.
WESCO’s extensive domain knowledge, deep
project management expertise, excellent
customer service, and global footprint position
us as a trusted advisor for global communication
network projects.
Standardized Lighting Solution
Leads to Big Savings
A multi-national customer of WESCO inquired about a
lighting upgrade at one of its facilities. Taking a One WESCO
approach, we assembled a team of resources, including the
WESCO Lighting team, to develop a range of solutions for
the customer. Drawing from our broad portfolio of lighting
suppliers, we outlined “good, better, and best” options that
could be applied globally and shipped from any WESCO
location.
The WESCO team secured approximately 40% savings on
the installed cost through product rebates and special labor
rates. The facility reduced ongoing energy consumption
by an estimated 30% after installing the energy-efficient
lighting. To drive additional savings, the team conducted
lighting audits at several of the customer’s facilities and
developed a Lighting Standards Guide to make it easier for
the remaining facilities to implement the solution and secure
similar savings.
2014 Annual Report | One World. One WESCO. 5 5
One WESCO is about integrating our multi-company heritage and
capabilities into one operating company, where the whole is greater
than the sum of our parts.
• For our customers, it emphasizes the full range of products, services, and solutions that
WESCO provides for their demanding applications.
• For our suppliers, it emphasizes the sales gains that can be made by partnering with
WESCO.
• For our employees, it emphasizes the personal and professional benefits of working
together across all boundaries as one high-performance team with all efforts focused on
satisfying customers.
Solid Existing Relationship Grows Into a
New Business Model for Procurement
Based primarily on the existing relationship between WESCO global
accounts and their upstream procurement management team, an
international oil and gas customer turned to WESCO to help develop
a new business model for electrical MRO procurement in its
downstream business.
WESCO conducted a complete pricing assessment and offered
comprehensive branch support aligned with the customer’s
resources and locations. This led to a new five-year contract that
was implemented at six sites in 2014. Three additional sites are
scheduled for implementation in 2015 with opportunities for
further expansion.
Diverse Team Delivers
Complete Solution Covering
Installation to Operation
After other providers were unable to deliver the
complete set of required products and services
for its data centers, a global co-location cloud
storage and IT service provider allowed WESCO
to expand its offer and bid on the complete set
of requirements, including manufacturer and
installation contractor specifications. Employing
a One WESCO strategy, we assembled a
team from across the business, conducted
an assessment of the customer’s needs, and
identified products and services to deliver the
full solution.
The ability of WESCO to effectively collapse
the supply chain won the customer over.
WESCO currently supports this customer in the
western U.S. with the opportunity to expand the
relationship nationwide.
6 WESCO International, Inc.
APPROXIMATELY 485 LOCATIONS AROUND THE WORLD
CANADA
U.S.A.
MEXICO
ECUADOR
PERU
CHILE
SCOTLAND
IRELAND
ENGLAND
SPAIN
POLAND
BELGIUM
UAE
CHINA
THAILAND
SINGAPORE
BRAZIL
ANGOLA
AUSTRALIA
CORPORATE PROFILE
WESCO International, Inc. (NYSE: WCC), a publicly traded Fortune 500 holding company
headquartered in Pittsburgh, Pennsylvania, is 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 logistic services.
2014 annual sales were approximately $7.9 billion. The company employs approximately 9,400
people, maintains relationships with over 25,000 suppliers, and serves over 75,000 active customers
worldwide. Customers include commercial and industrial businesses, contractors, government
agencies, institutions, telecommunications providers, and utilities. WESCO operates nine fully
automated distribution centers and approximately 485 full-service branches in North America and
international markets, providing a local presence for customers and a global network to serve
multi-location businesses and multi-national corporations.
2014 Annual Report 7
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 001-14989
WESCO INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
25-1723342
(I.R.S. Employer Identification No.)
225 West Station Square Drive
Suite 700
Pittsburgh, Pennsylvania
(Address of principal executive offices)
15219
(Zip Code)
(412) 454-2200
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class
Common Stock, par value $.01 per share
Name of Exchange on which registered
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES [X] NO [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
YES [ ] NO [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such file).
YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act (Check one):
LARGE ACCELERATED FILER [X] ACCELERATED FILER [ ] NON-ACCELERATED FILER [ ] SMALLER REPORTING COMPANY [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES [ ] NO [X]
The registrant estimates that the aggregate market value of the voting shares held by non-affiliates of the registrant was
approximately $3,817.0 million as of June 30, 2014, the last business day of the registrant’s most recently completed
second fiscal quarter, based on the closing price on the New York Stock Exchange for such stock.
As of February 20, 2015, 44,562,948 shares of Common Stock, par value $.01 per share, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III of this Form 10-K incorporates by reference portions of the registrant’s Proxy Statement for its 2015 Annual Meeting
of Stockholders.
8 WESCO International, Inc.
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
17
22
22
23
23
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 24
26
Selected Financial Data
27
Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
Quantitative and Qualitative Disclosures about Market Risks
44
Financial Statements and Supplementary Data
85
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
85
Controls and Procedures
85
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
86
86
87
88
88
89
94
96
97
98
99
100
101
2014 Annual Report 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 (“CIG”) markets. 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, motors, and safety.
We serve over 75,000 active customers globally through approximately 485 full service branches and nine distribution
centers located in the United States, Canada, and Mexico with operations in 16 additional countries. The Company
employs approximately 9,400 employees worldwide. We distribute over 1,000,000 products, grouped into six categories,
from more than 25,000 suppliers utilizing a highly automated, proprietary electronic procurement and inventory
replenishment system.
In addition, we offer a comprehensive portfolio of value-added capabilities, 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 2013, the latest year for which market share data is available, the
five largest North American electrical distributors, including WESCO, accounted for only approximately 32% of all industry
sales in North America. Our global account, integrated supply and OEM programs provide customers with regional,
national, North American and global supply chain consolidation opportunities. The demand for these programs has grown
in recent years, driven primarily by the desire of companies to reduce operating expenses by outsourcing 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 MRO and OEM supplies and services across all industrial distribution market segments
and channels is estimated to be greater than $500 billion per an industry study.
According to management estimates, electrical distribution industry sales have grown at an approximately 4% 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. It is estimated that approximately 75% of electrical products sold in the United States are delivered to the
end user through the distribution channel.
10 WESCO International, Inc.
MARKETS AND CUSTOMERS
We have a large base of over 75,000 active customers across a diverse set of end markets. Our top ten customers
accounted for approximately 10% of our sales in 2014. No one customer accounted for more than 2% of our sales in
2014.
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
2014
2013
2012
42%
31%
14%
13%
43%
32%
13%
12%
44%
32%
12%
12%
Industrial. Sales to industrial customers of MRO, OEM, and construction products and services accounted for
approximately 42% of our sales in 2014, compared to 43% in 2013. Industrial sales product categories include a broad
range of electrical equipment and supplies as well as lubricants, pipe, valves, fittings, fasteners, cutting tools, power
transmission, and safety 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, and supply chain management.
Construction. Sales of electrical and communications products to contractors accounted for approximately 31% of our
sales in 2014, compared to 32% in 2013. 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 14% of our sales in 2014, compared to 13% in
2013. 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. Sales to CIG customers accounted for approximately 13% of our sales in
2014, compared to 12% in 2013. 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 at a rate greater than that of our industry while also making accretive acquisitions. 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.
We have identified certain growth engines that we believe provide substantial opportunities for above market growth, and
have developed strategies to address each of these areas of opportunity. These growth engines are a combination of
business models, selected end markets and product categories, as discussed below.
2014 Annual Report 11
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
services and cost reductions by coordinating and standardizing activity for MRO materials and OEM direct materials across
their multiple locations utilizing our broad geographic footprint and our largely integrated information technology platform.
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.
Growth from our global account programs is an important 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 Position in Integrated Supply Programs. Our integrated supply programs are focused on customers in the
industrial, utility, construction and CIG markets. We combine our personnel, product and distribution expertise, electronic
commerce 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 large customers will increasingly seek to utilize such services to consolidate and manage their MRO and OEM supply
chains. We are expanding our position in North America as an integrated supply service provider by building upon
established relationships within our large customer base and premier supplier network, and extending our services to
additional customers and locations around the world.
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 are involved in greenfield and retrofit projects, and we believe that
significant cross selling opportunities exist for electrical and communications products and we intend to use our global
account and integrated supply programs, LEAN initiatives and project management expertise to capitalize on construction
business opportunities.
Expand Products and Services for Utilities. Our utility customers continue to focus on improving grid reliability as well
as improving their operating efficiency and reducing costs. As a result, we anticipate an increase in distribution grid
improvement and transmission expansion projects as well as the adoption of integrated supply programs. 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, including alternative energy projects.
Investing in Industrial MRO and Safety. Our sales of industrial maintenance, repair, and operating supply (MRO) materials
include a broad range of electrical and non-electrical products used in the ongoing maintenance and repair of equipment
used in production processes. These products are also used for facility upkeep in manufacturing, commercial, institutional,
and other operations. In addition, through two acquisitions, we have expanded our safety products, personal protection
safety equipment, first aid supplies, and OSHA compliance categories to complement the industrial MRO product lines.
Expand International Operations. We seek to capitalize on existing and emerging international market opportunities
through local business development and the expansion of our global product and service platforms while taking advantage
of acquisitions that expand our global footprint. We target large, growing markets where we can leverage our value
proposition and relationships with key customers and suppliers. We believe this strategy of working with well-developed
customer and supplier relationships significantly reduces risk and provides the opportunity to establish profitable business.
Our priorities are focused on global vertical markets including energy, mining and metals, manufacturing, and
infrastructure, as well as key product categories such as communications and security. Additionally, we are extending our
procurement outsourcing and integrated supply programs following large, existing customers into international markets.
12 WESCO International, Inc.
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 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 and telecommunications utilization.
Grow Lighting System and Sustainability 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. In 2014, we acquired three businesses: LaPrairie, Inc. (“LaPrairie”), Hazmasters, Inc.
(“Hazmasters”), and Hi-Line Utility Supply (“Hi-Line”). 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
engagement and 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.
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;
• Data and Broadband Communications. 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
2014 Annual Report 13
2014
2013
2012
40%
16%
14%
11%
10%
9%
40%
16%
14%
11%
10%
9%
36%
17%
15%
13%
9%
10%
We purchase products from a diverse group of more than 25,000 suppliers. In 2014, our ten largest suppliers accounted
for approximately 32% of our purchases. Our largest supplier in 2014 was Eaton Corporation, accounting for approximately
12% of our 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 approximately 300 preferred supplier arrangements with more than 100 firms and
purchase nearly 60% of our products pursuant to these arrangements. 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 including 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.
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.
14 WESCO International, Inc.
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 capital project, product, MRO and OEM requirements.
Extensive Distribution Network. We operate approximately 485 geographically dispersed branch locations and nine
distribution centers (five 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 competitiveness 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 and others, 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 2014 were 13.6%.
GEOGRAPHY
Our network of branches and distribution centers are located primarily in North America. 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:
Net Sales
Year Ended December 31,
Long-Lived Assets
December 31,
2014
2013
2012
2014
2013
2012
(in thousands)
United States
$ 5,618,240 71%
$ 5,275,275 70%
$ 5,215,849 79%
$ 127,670
$ 137,904
$ 144,947
Canada
Mexico
Subtotal North
1,899,173 24%
1,882,313 25%
1,084,109 17%
80,080
93,642
100,366
95,585 1%
90,152 1%
92,370 1%
442
615
532
American Operations
7,612,998
7,247,740
6,392,328
208,192
232,161
245,845
Other International
276,628 4%
265,602 4%
186,973 3%
8,213
11,115
6,047
Total
$ 7,889,626
$ 7,513,342
$ 6,579,301
$ 216,405
$ 243,276
$ 251,892
United States. To serve our customers in the United States, we operate a network of approximately 320 branches
supported by five distribution centers located in Pennsylvania, Nevada, Mississippi, Wisconsin, and Arkansas. Sales in the
United States represented approximately 71% of our total sales in 2014. According to the Electrical Wholesaling Magazine,
the U.S. electrical wholesale distribution industry had estimated sales of approximately $100 billion in 2014.
Canada. To serve our Canadian customers, we operate a network of approximately 120 branches in nine provinces. Branch
operations are supported by four distribution centers located in Edmonton, Montreal, Toronto, and Vancouver. Sales in
Canada represented approximately 24% of our total sales in 2014. Total annual electrical industry sales in Canada are
approximately $7.5 billion through December 31, 2014 according to a recent publication.
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 2014.
2014 Annual Report 15
Other International. We sell to global customers through export sales offices located in Miami, Houston, Pittsburgh,
Montreal, and Calgary within North America and sales offices and branch operations in various international locations.
Sales from other international locations represented approximately 4% of our total sales in 2014. Our branches in
Aberdeen, Scotland, Dublin, Ireland 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 Australia, and a branch
near Shanghai to serve customers in China along with operations in ten additional countries. Many 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 and
Canadian Intellectual Property Office. The trademarks and service marks registered in the U.S. include: “WESCO®”, our
corporate logo and the running man logo. The Company’s “EECOL” trademark is registered in Canada. In addition,
trademarks, patents, and service mark applications have been filed in various foreign jurisdictions, including Canada,
Mexico, Chile, 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.
SEASONALITY
Our operating results are not significantly affected by seasonal factors. Sales during the first quarter are affected by a
reduced level of activity. Sales during the second, third and fourth quarters are generally 4-6% higher than the first quarter.
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 Corporate Governance Guidelines, Code of Principles for Senior Executives,
Independence Policy, Global Anti-Corruption Policy, and 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.
16 WESCO International, Inc.
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.
EXECUTIVE OFFICERS
Our executive officers and their respective ages and positions as of February 24, 2015, are set forth below.
Name
John J. Engel
Daniel A. Brailer
Allan A. Duganier
Timothy A. Hibbard
Diane E. Lazzaris
Kenneth S. Parks
Stephen A. Van Oss
Kimberly G. Windrow
Age
53
57
59
58
48
51
60
57
Position
Chairman, President and Chief Executive Officer
Vice President, Investor Relations and Corporate Affairs
Director, Internal Audit
Vice President and Corporate Controller
Senior Vice President and General Counsel
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Operating Officer
Senior Vice President and Chief Human Resource Officer
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 and chairman of its audit committee.
Daniel A. Brailer is our Vice President, Investor Relations and Corporate Affairs. From February 2011 to February 2012 he
served as our Vice President, Treasurer, Investor Relations and Corporate Affairs. From 2006 to February 2011, he served
as our Vice President, Treasurer and Investor Relations. From 1999 to 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 2006. From 2001 to 2006, Mr. Duganier served as our
Corporate Operations Controller and, from 2000 to 2001, as a Group Controller. Mr. Duganier served as the controller for
Rockwell Automation’s global Drive Systems business unit from 1995 to 2000.
Timothy A. Hibbard was appointed as our Vice President and Corporate Controller in February 2012. From 2006 to
February 2012, he served as our Corporate Controller. From 2002 to 2006, he served as Corporate Controller at Kennametal
Inc. From 2000 to 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.
2014 Annual Report 17
Diane E. Lazzaris has served as our Senior Vice President and General Counsel since January 2014, and from February 2010
to December 2013 she served as our Vice President, Legal Affairs. From 2008 to 2010, Ms. Lazzaris served as Senior Vice
President - Legal, General Counsel and Corporate Secretary of Dick’s Sporting Goods, Inc. From 1994 to 2008, she held
various corporate counsel positions at Alcoa Inc., most recently as Group Counsel to a group of global businesses.
Kenneth S. Parks has served as our Senior Vice President and Chief Financial Officer since January 2014, and from
June 2012 to December 2013 he served as our Vice President and Chief Financial Officer. From April 2008 to
February 2012, he served as Vice President of Finance of United Technologies Corporation for their global Fire and
Security business. From 2005 to 2008, he served as Director of Investor Relations of United Technologies Corporation. He
began his career in public accounting with Coopers & Lybrand.
Stephen A. Van Oss has served as Senior Vice President and Chief Operating Officer since 2009. From February 2012 to
June 2012, he also served as the Company’s Chief Financial Officer on an interim basis. Previously, Mr. Van Oss served as
our Senior Vice President and Chief Financial and Administrative Officer from 2004 to 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.
Kimberly G. Windrow has served as our Senior Vice President and Chief Human Resources Officer since January 2014,
and from August 2010 to December 2013 she served as our Vice President, Human Resources. 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 2001 until 2004, she served as Senior Vice President of Human Resources for The MONY
Group, and from 1988 until 2000, she served in various Human Resource positions at Willis, Inc.
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. 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. Fluctuations of the U.S. dollar
relative to other currencies could negatively affect our business, financial results and liquidity.
18 WESCO International, Inc.
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, cyber-attacks, 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, supplier 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.
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 typically 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.
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
2014 accounted for approximately 32% of our purchases for the period. Our largest supplier in 2014 was Eaton
Corporation, accounting for approximately 12% 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, the loss
of key preferred supplier agreements, or disruptions in a key supplier’s operations 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, information system 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.
2014 Annual Report 19
We are subject to costs and risks associated with laws and regulations affecting our business, as well as litigation for
product liability or other matters 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, 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. Furthermore, as a
government contractor selling to federal, state and local government entities, we are also subject to a wide variety of
additional laws and regulations. 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,
audits or investigations which may relate to, for example, product liability, labor and employment (including wage and
hour), tax, escheat, import and export compliance, government contracts, 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.
Changes in tax laws or challenges to the Company’s tax positions by taxing authorities could adversely impact the
Company’s results of operations and financial condition.
We are subject to taxes in jurisdictions in which we do business, including but not limited to taxes imposed on our income,
receipts, stockholders’ equity, property, sales, purchases and payroll. As a result, the tax expense we incur can be
adversely affected by changes in tax law. We frequently cannot anticipate these changes in tax law, which can cause an
unexpected volatility in our results from operations. While not limited to the United States and Canada, changes in the tax
law at the federal and state/provincial levels in the United States and Canada can have a materially adverse effect on our
results from operations. Additionally, the tax laws to which the Company is subject are inherently complex and ambiguous.
Therefore, we must interpret the applicable laws and make subjective judgments about the expected outcome upon
challenge by the applicable taxing authorities. As a result, the impact on our results from operations of the application of
enacted tax laws to our facts and circumstances is frequently uncertain. If a tax authority successfully challenges our
interpretation and application of the tax law to our facts and circumstances, there can be no assurance that we can
accurately predict the outcome and the taxes ultimately owed upon effective settlement may differ from the tax expense
recognized in our consolidated statements of comprehensive income and accrued in our consolidated balance sheets.
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.
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 and services. 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 as well as e-commerce companies.
20 WESCO International, Inc.
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.
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.
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;
unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the
acquisition or other transaction rationale; and expansion into new countries or geographic markets where we may be less
familiar with operating requirements, target customers and regulatory compliance. 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 business or assets.
While there are risks associated with acquisitions generally, including integration risks, there are additional risks more
specifically associated with owning and operating businesses internationally, including those arising from import and export
controls, foreign currency exchange rate changes, material developments in political, regulatory or economic conditions
impacting those operations and various environmental and climatic conditions in particular areas of the world. In
December 2012, we completed our largest acquisition to date when we acquired EECOL Electric Corporation, with
operations in Canada and South America. Following this acquisition, a greater percentage of our revenues and expenses
arise from international sources that may be subject to these risks from time to time.
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 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, 2014, we had $1,585.9 million of consolidated indebtedness (excluding debt discount), including
$252.3 million in aggregate principal amount of term loans due 2019 (the “Term Loans”), $500.0 million in aggregate
principal amount of 5.375% Senior Notes due 2021 (the “2021 Notes”) and $344.9 million in aggregate principal amount
of 6.0% Convertible Senior Debentures due 2029 (the “2029 Debentures”). Our consolidated indebtedness also includes
our revolving credit facility (the “Revolving Credit Facility”), which has an aggregate borrowing capacity of $600.0 million,
and our accounts receivable securitization facility (the “Receivables Facility”), through which we sell up to $500.0 million
of our accounts receivable to third-party financial institutions. We and our subsidiaries may undertake additional
borrowings in the future, subject to certain limitations contained in the instruments governing our indebtedness.
2014 Annual Report 21
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; 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 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 Revolving Credit Facility is subject to
renewal in August 2016 and our Receivables Facility is subject to renewal in September 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 $491.9 million of our currently outstanding
indebtedness, of which $8.0 million is related to our Revolving Credit Facility, $430.0 million is related to our Receivables
Facility, $46.8 million is related to our international lines of credit, $3.9 million is related to our Term Loans, and $3.2
million is related to our capital leases.
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 Term Loan, 2021 Notes and credit facilities 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 Term
Loan and 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 2021 Notes, the credit facilities, the Term Loan, 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.
Fluctuations in foreign currency have an effect on reported results from operations.
The results of our foreign operations are reported in the local currency and then translated into U.S. dollars at the
applicable exchange rates for inclusion in our consolidated financial statements. The exchange rates between some of
these currencies and the U.S. dollar have fluctuated significantly in recent years, and may continue to do so in the future.
In addition, because our financial statements are stated in U.S. dollars, such fluctuations may affect our results of
operations and financial position, and may affect the comparability of our results between financial periods.
Goodwill and indefinite life intangible assets recorded as a result of our acquisitions could become impaired.
As of December 31, 2014, our combined goodwill and indefinite life intangible assets amounted to $1,840.0 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.
22 WESCO International, Inc.
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
common stock for future sale will have on the trading price of our common stock or the value of the 2029 Debentures.
There may be future dilution of our common stock.
To the extent options to purchase common stock under our stock-based employee compensation plans are exercised,
holders of our common stock will incur dilution. Additionally, our 2029 Debentures include contingent conversion price
provisions and options for settlement in shares. Based on our current stock price, the 2029 Debentures may be converted
into common stock which would increase dilution to our stockholders.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We have approximately 485 branches, of which approximately 320 are located in the United States, approximately 120 are
located in Canada and the remainder are in other locations including Chile, Mexico, the United Kingdom, Singapore,
China, and Australia. Approximately 20% of our branches are owned facilities, and the remainder are leased.
The following table summarizes our distribution centers:
Location
Warrendale, PA
Sparks, NV
Byhalia, MS
Little Rock, AR
Madison, WI
Montreal, QC
Burnaby, BC
Edmonton, AB
Mississauga, ON
Square Feet
194,000
197,000
148,000
100,000
136,000
126,000
65,000
101,000
246,000
Leased/Owned
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
We also lease our 84,000 square-foot headquarters in Pittsburgh, Pennsylvania. We do not regard the real property
associated with any single branch location as material to our operations. We believe our facilities are in good operating
condition and are adequate for their respective uses.
2014 Annual Report 23
Item 3. Legal Proceedings.
From time to time, a number of lawsuits and claims have been or may be asserted against us relating to the conduct of our
business, including routine litigation relating to commercial and employment matters. The outcome of any litigation cannot
be predicted with certainty, and some lawsuits may be determined adversely to us. However, management does not
believe, based on information presently available, that the ultimate outcome of any such pending matters is likely to have a
material adverse effect on our financial condition or liquidity, although the resolution in any quarter of one or more of these
matters may have a material adverse effect on our results of operations for that period.
As initially reported in our 2008 Annual Report on Form 10-K, WESCO is a defendant in a lawsuit filed in a state court in
Indiana in which a customer, ArcelorMittal Indiana Harbor, Inc. (“AIH”), alleges that the Company sold defective products
to AIH in 2004 that were supplied to the Company by others. The lawsuit sought monetary damages in the amount of
approximately $50 million. On February 14, 2013, the jury returned a verdict in favor of AIH and awarded damages in the
amount of approximately $36.1 million, and judgment was entered on the jury’s verdict. As a result, the Company recorded
a $36.1 million charge to selling, general and administrative expenses in 2012. The Company disputes this outcome and
filed a post-trial motion challenging the verdict alleging various errors that occurred during trial. The Company received
letters from its insurers confirming insurance coverage of the matter and recorded a receivable in the quarter ended
March 31, 2013 in an amount equal to the previously recorded liability. AIH also filed a post-trial motion asking the court to
award additional amounts to AIH, including prejudgment and post-judgment interest. The Court denied the Company’s
post-trial motion on June 28, 2013 and granted in part AIH’s motion, awarding prejudgment interest in the amount of $3.9
million and ordering post-judgment interest to accrue on the entire judgment at 8% per annum. In the quarter ended
June 30, 2013, the Company received letters from its insurers confirming insurance coverage of all prejudgment and
post-judgment interest related to the matter. Final judgment was entered by the court on July 16, 2013, and the Company
is appealing the judgment. On November 10, 2014, the Indiana Court of Appeals reversed the prejudgment interest award,
but otherwise affirmed the underlying judgment. A petition for further review of the case has been filed with the Indiana
Supreme Court, which has discretion to decide whether it will consider the case or not. As of December 31, 2014, a liability
and a corresponding receivable in the amount of $9.5 million has been recorded by the Company in the Consolidated
Balance Sheets within other current liabilities and other accounts receivable, respectively, for the prejudgment interest of
$3.9 million and the post-judgment interest of $5.6 million that has accrued in connection with this matter. The judgment
may increase or decrease based on the outcome of the appellate proceedings that cannot be predicted with certainty.
Information relating to legal proceedings is included in Note 13, Commitments and Contingencies of the Notes to
Consolidated Financial Statements and is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
24 WESCO International, Inc.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
Market, Stockholder and Dividend Information. Our common stock is listed on the New York Stock Exchange under the
symbol “WCC.” As of February 20, 2015, there were 44,562,948 shares of common stock outstanding held by
approximately 21 holders of record. We have not paid dividends on the common stock and do not currently plan to pay
dividends. We do, however, evaluate the possibility from time to time. It is currently expected that earnings will be
reinvested to support business growth, debt reduction, acquisitions and share repurchases. In addition, our Revolving
Credit Facility and Term Loan Agreement restrict our ability to pay dividends. See Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
The following table sets forth the high and low sales prices per share of our common stock, as reported on the New York
Stock Exchange, for the periods indicated:
Quarter
2013
First
Second
Third
Fourth
2014
First
Second
Third
Fourth
$
$
Sales Prices
High
Low
77.97 $
79.20
80.30
91.62
94.75 $
93.07
88.31
86.92
66.63
64.26
65.23
73.66
78.52
83.48
78.17
68.97
Issuer Purchases of Equity Securities. On December 17, 2014, WESCO announced that its Board of Directors approved,
on December 11, 2014, the repurchase of up to $300 million of the Company’s common stock through December 31,
2017. As of December 31, 2014, no shares had been purchased under this repurchase authorization.
2014 Annual Report 25
Company Performance. The following stock price performance graph illustrates the cumulative total return on an
investment in WESCO International, Inc., a 2014 Performance Peer Group, and the Russell 2000 Index. The graph covers
the period from December 31, 2009 to December 31, 2014, and assumes that the value for each investment was $100 on
December 31, 2009, and that all dividends were reinvested.
WESCO International, Inc. - Cumulative Total Shareholder Return
e
u
l
a
V
t
n
e
m
t
s
e
v
n
I
e
v
i
t
a
l
u
m
u
C
)
0
0
1
$
x
e
d
n
i
(
$400
$350
$300
$250
$200
$150
$100
$50
$0
2009
WESCO International, Inc.
$100.00
2014 Performance Peer Group
$100.00
Russell 2000 Index
$100.00
2010
$195.48
$137.39
$126.85
2011
$196.26
$146.09
$121.55
2012
$249.65
$171.05
$141.42
2013
$337.17
$230.88
$196.32
2014
$282.15
$237.99
$205.92
2014 Performance Peer Group:
Airgas, Inc.
Anixter International, Inc.
Applied Industrial Technologies, Inc.
Arrow Electronics, Inc.
Avnet, Inc.
Beacon Roofing Supply, Inc.
Danaher Corporation
Eaton Corporation Plc
Emerson Electric Company
Fastenal Company
Genuine Parts Company
Houston Wire & Cable Company
Hubbell, Inc.
Ingram Micro, Inc.
MSC Industrial Direct Co., Inc.
Pool Corporation
Rockwell Automation, Inc.
Tech Data Corporation
United Stationers, Inc.
W.W. Grainger, Inc.
Watsco, Inc.
26 WESCO International, Inc.
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,
2014
2013
2012
2011
2010
(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
Loss on debt extinguishment / (gain)
on debt exchange(1)
Other loss (income)(2)
Income before income taxes
Provision for income taxes
Net income
Net (income) loss attributable to
noncontrolling interest(3)
Net income attributable
to WESCO International, Inc.
$
7,889.6 $
6,278.6
1,076.8
68.0
466.2
82.1
7,513.3 $
5,967.9
996.8
67.6
481.0
85.6
6,579.3 $
5,247.8
961.0
37.6
332.9
47.8
6,125.7 $
4,889.2
872.0
31.6
332.9
53.6
5,063.9
4,065.4
763.7
23.9
210.9
57.6
—
—
384.1
108.7
275.4
13.2
2.3
379.9
103.4
276.5
3.5
—
281.6
79.9
201.7
—
—
279.3
83.1
196.2
—
(4.3)
157.6
42.2
115.4
0.5
(0.1)
0.1
0.1
—
$
275.9 $
276.4 $
201.8 $
196.3 $
115.4
Earnings per common share attributable
to WESCO International, Inc.
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
$
$
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
$
6.21 $
5.18 $
6.26 $
5.25 $
4.62 $
3.95 $
4.54 $
3.96 $
44.4
53.3
44.1
52.7
43.7
51.1
43.2
49.6
2.72
2.50
42.5
46.1
20.5 $
27.8 $
23.1 $
33.3 $
251.2
(144.2)
(95.5)
315.1
(18.2)
(257.5)
288.2
(1,311.0)
1,044.0
167.5
(81.3)
(70.9)
15.1
127.3
(220.5)
30.6
Balance Sheet Data:
Total assets
Total debt (including current and
short-term debt)(4)
Stockholders’ equity(5)
$
4,754.4 $
4,648.9 $
4,629.6 $
3,078.5 $
2,826.8
1,415.6
1,928.2
1,487.7
1,764.8
1,735.2
1,553.7
649.3
1,345.9
729.9
1,148.6
(1) Represents the loss recognized in 2013 related to the repayment of $500 million of the Company’s Term Loans, and the loss recognized in 2012 due to
the redemption of all the outstanding 7.50% 2017 Senior Subordinated Notes due 2017 (the “2017 Notes”).
(2) Represents the loss on the sale of the Company’s Argentina business in 2013 and income from the LADD joint venture in 2010.
(3) Represents the portion of net (income) loss attributable to consolidated entities not owned by the Company.
(4) Includes the discount related to the 2029 Debentures, the 2.625% Convertible Senior Debentures due 2025 (the “2025 Debentures”), the 1.75%
Convertible Senior Debentures due 2026 (the “2026 Debentures” and together with the 2029 Debentures, the 2025 Debentures and the 2026
Debentures, the “Debentures”), and the Term Loan facility. See Note 7 of the Notes to Consolidated Financial Statements.
(5) Stockholders’ equity includes amounts related to the Debentures. See Note 7 of the Notes to Consolidated Financial Statements.
2014 Annual Report 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 2014, we strengthened our organization, operations and talent base, re-established organic sales growth in our core
business, integrated three accretive acquisitions into our operations, and increased profitability. Sales increased $376.3
million, or 5.0%, over the prior year. Organic sales increased 5.6%, acquisitions positively impacted consolidated sales by
1.4%, and foreign currency exchange and number of workdays negatively impacted sales by 1.6% and 0.4%, respectively.
Cost of goods sold as a percentage of net sales was 79.6% and 79.4% in 2014 and 2013, respectively. Operating income
of $466.2 million increased over the prior year’s adjusted results primarily due to growth in our core business and the
integration of the acquired operations of LaPrairie, Hazmasters and Hi-Line. Net income attributable to WESCO
International, Inc. increased approximately 9% over the prior year’s adjusted results to $275.9 million. Diluted earnings per
share attributable to WESCO International, Inc. were $5.18 in 2014, compared with adjusted diluted earnings per share of
$4.82 in 2013.
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 represented approximately 50% of
total sales for 2014 and 2013, respectively. Approximately 39% of our total sales were direct ship sales for both 2014 and
2013. 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
remaining 11% of total sales for 2014 and 2013, respectively.
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 $251.2 million in operating cash flow during 2014. Cash provided by operating activities included net
income of $275.4 million and adjustments to net income totaling $83.9 million. Cash used in investing activities consisted
primarily of aggregate payments of $133.8 million for the acquisitions of LaPrairie, Hazmasters, and Hi-Line, purchases of
capital assets totaling $20.5 million, partially offset by proceeds of $15.0 million from the sale of assets. Financing activities
during 2014 consisted of borrowings and repayments of $1,046.5 million and $1,059.7 million, respectively, related to our
Revolving Credit Facility, borrowings and repayments of $122.1 million and $145.7 million, respectively, related to our
Receivables Facility, and repayments of $38.8 million related to our Term Loan Facility. Financing activities in 2014 also
included borrowings and repayments on our various international lines of credit of $71.3 million and $57.8 million,
respectively.
Free cash flow for the years ended December 31, 2014 and 2013 was $230.7 million and $308.4 million, respectively.
28 WESCO International, Inc.
The following table sets forth the components of free cash flow:
Free Cash Flow
(in millions)
Cash flow provided by operations
Less: Capital expenditures
Add: Non-recurring pension contribution
Free cash flow
Twelve Months Ended
December 31,
2014
2013
$
$
251.2 $
(20.5)
—
230.7 $
315.1
(27.8)
21.1
308.4
Note: The table above reconciles cash flow provided by operations to free cash flow. Free cash flow is a non-GAAP financial measure provided by the
Company as an additional indicator of liquidity. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow
is available to provide a source of funds for any of the Company’s financing needs. During the quarter ended September 30, 2013, a non-recurring
contribution was made to fund the Canadian EECOL pension plan. This contribution was required pursuant to the terms of the share purchase
agreement by which the Company acquired EECOL in 2012. EECOL sellers fully funded this contribution by way of a direct reduction in the purchase
price at the date of acquisition. GAAP requires the contribution to be shown as a reduction of operating cash flow, however, it is added back to
accurately reflect free cash flow.
FINANCING AVAILABILITY
As of December 31, 2014, the Company had $637.7 million in total liquidity. Available borrowing capacity under our
Revolving Credit Facility, which matures in August 2016, was comprised of $290.1 million of availability under the U.S.
sub-facility and $268.1 million of availability under the Canadian sub-facility, with a maximum combined limit of $497.5
million. Available borrowing capacity under our Receivables Facility was $70.0 million. The remaining liquidity was
provided by invested cash of $70.2 million. 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. 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 discussion, refer to “Liquidity and Capital Resources.”
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 (GAAP). 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.
2014 Annual Report 29
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. We identify items at risk of becoming obsolete, which are defined as excess of 36 months supply relative to demand
or movement. We then analyze the ultimate disposition of previously identified excess inventory items, such as sold,
returned to supplier, or scrapped. This item by item analysis allows us to develop an estimate of the likelihood that an item
identified as being in excess supply ultimately becomes obsolete. 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 in the Consolidated Balance
Sheets. 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 us from suppliers. Supplier volume rebate rates have
historically ranged between approximately 0.8% and 1.4% of sales depending on market conditions. In 2014, the rebate
rate was 1.4%.
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.
A possible indicator of goodwill impairment is the relationship of a company’s market capitalization to its book value. As of
December 31, 2014, our market capitalization exceeded our book value and there were no indications of impairment with
any of the Company’s reporting units.
30 WESCO International, Inc.
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. Most trademarks have an indefinite life. We
amortize all other 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 2 and 20 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 deductible policies 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 account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities
result from (i) temporary differences in the recognition of income and expense for financial and income tax reporting
requirements, and (ii) differences between the recorded value of assets acquired in business combinations accounted for
as purchases for financial reporting purposes and their corresponding tax bases. Deferred income tax assets are reduced
by a valuation allowance if it is more-likely-than-not that some portion of the deferred income tax asset will not be realized.
We evaluate all available evidence, both positive and negative, in determining whether a valuation allowance is needed.
We recognize the tax benefit from an uncertain tax position only if it is at least more-likely-than-not that the tax position will
be sustained upon examination by the taxing authorities based on the technical merits of the position. The amount of the
tax benefit that is recognized is measured as the largest amount of benefit that is more-likely-than-not to be realized upon
effective settlement. We will adjust the tax benefit recognized with regard to an uncertain tax position if our judgment
changes as the result of the evaluation of new information not previously available. Due to the subjectivity inherent in the
evaluation of uncertain tax positions, the tax benefit ultimately recognized may materially differ from our estimate. We
recognize interest related to uncertain tax benefits as part of interest expense. Penalties are recognized as part of income
tax expense.
No provision is made for possible U.S. taxes on undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely.
Convertible Debentures
We separately account for the liability and equity components of our convertible debentures in a manner that reflects our
nonconvertible 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 debenture
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,
restricted stock units, and performance-based awards. 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. The performance-based awards are valued based upon a Monte Carlo simulation 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.
2014 Annual Report 31
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of certain items in our Consolidated Statements of
Comprehensive 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
Loss on debt extinguishment
Income before income taxes
Provision for income taxes
Net income attributable to WESCO International, Inc.
2014 Compared to 2013
2014
100.0%
79.6
13.6
0.9
5.9
1.0
—
4.9
1.4
3.5%
2013
100.0%
79.4
13.3
0.9
6.4
1.1
0.2
5.1
1.4
3.7%
2012
100.0%
79.8
14.6
0.5
5.1
0.7
0.1
4.3
1.2
3.1%
Net Sales. Sales in 2014 increased 5.0% to $7,889.6 million, compared with $7,513.3 million in 2013. The increase in
sales included positive impacts from organic growth and acquisitions of 5.6% and 1.4%, respectively, partially offset by the
negative effects of foreign exchange rates and number of workdays of 1.6% and 0.4%, respectively. Additionally,
management estimates a price impact on net sales of approximately 0.5%.
The following table sets forth normalized organic sales growth:
Normalized Organic Sales:
Change in net sales
Less: Impact from acquisitions
Less: Impact from foreign exchange rates
Less: Impact from number of workdays
Normalized organic sales growth
Twelve Months Ended
December 31,
2014
5.0%
1.4%
(1.6)%
(0.4)%
5.6%
2013
14.2%
14.6%
(0.4)%
—%
—%
Note: Normalized organic sales growth is a non-GAAP financial measure provided by the Company to provide a better understanding of the Company’s sales
growth trends. Normalized organic sales growth is calculated by deducting the percentage impact on net sales from acquisitions, foreign exchange rates
and number of workdays from the overall percentage change in consolidated net sales.
Cost of Goods Sold. Cost of goods sold increased 5.2% in 2014 to $6,278.6 million, compared with $5,967.9 million in
2013. Cost of goods sold as a percentage of net sales was 79.6% and 79.4% in 2014 and 2013, respectively.
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 $80.0 million, or
8.0%, to $1,076.8 million in 2014. The increase in SG&A expenses is primarily due to higher employment related costs
resulting from the growth in organic sales and the impact from the LaPrairie, Hazmasters and Hi-Line acquisitions. SG&A
expenses in 2013 include a $36.1 million favorable impact from the recognition of insurance coverage for a litigation-
related charge recorded in 2012. Adjusted SG&A expenses increased $43.9 million, or approximately 4.2%, from 2013. As
a percentage of net sales, adjusted SG&A expenses decreased to 13.6% in 2014, compared with 13.7% in 2013,
reflecting ongoing cost controls and incremental cost reduction actions implemented during 2014.
32 WESCO International, Inc.
The following table sets forth adjusted selling, general and administrative expenses:
Adjusted Selling, General and Administrative Expenses:
(in millions)
Selling, general and administrative expenses
ArcelorMittal litigation recovery included in SG&A
Adjusted selling, general and administrative expenses
Percent of sales
Twelve Months Ended
December 31,
2014
2013
$
$
1,076.8 $
—
1,076.8 $
13.6%
996.8
36.1
1,032.9
13.7%
Note: Adjusted SG&A is provided by the Company to allow financial statement users to compare the Company’s performance from period to period by
adjusting for transactions management views as impacting the comparability of results.
SG&A payroll expenses for 2014 of $758.9 million increased by $38.7 million compared to 2013. The increase in SG&A
payroll expenses was primarily due to an increase in salary expense of $23.6 million and an increase in commissions,
incentives and benefits of $13.9 million. These increases are primarily due to an increase in headcount, which is the result
of both recent acquisitions and organic sales growth.
The remaining SG&A expenses for 2014 of $317.9 million increased by $41.3 million compared to 2013 primarily due to
the favorable impact of the ArcelorMittal litigation recovery in 2013 and increased occupancy and transportation costs of
$5.8 in 2014 related to recent acquisitions and organic sales growth.
Depreciation and Amortization. Depreciation and amortization increased $0.4 million to $68.0 million in 2014, compared
with $67.6 million in 2013. The increase in depreciation and amortization was primarily due to the impact from recent
acquisitions, partially offset by the reduction in capital expenditures in 2014.
Income from Operations. Income from operations decreased by $14.8 million to $466.2 million in 2014, compared to
$481.0 million in 2013. Income from operations in 2014 increased by $21.3 million, or 4.8%, from adjusted income from
operations of $444.9 million in 2013. Adjusted income from operations as a percentage of net sales was 5.9% in 2014 and
2013, respectively.
The following table sets forth adjusted income from operations:
Adjusted Income from Operations:
(in millions)
Income from operations
ArcelorMittal litigation recovery included in SG&A
Adjusted income from operations
Percent of sales
Twelve Months Ended
December 31,
2014
2013
$
$
466.2 $
—
466.2 $
5.9%
481.0
(36.1)
444.9
5.9%
Note: Adjusted income from operations is provided by the Company to allow financial statement users to compare the Company’s performance from period to
period by adjusting for transactions management views as impacting the comparability of results.
Interest Expense. Interest expense totaled $82.1 million in 2014, compared with $85.6 million in 2013, a decrease of
4.1%. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and
the amortization of deferred financing fees was $9.5 million and $9.8 million for 2014 and 2013, respectively.
The following table sets forth the components of interest expense:
(in millions)
Amortization of convertible debt
Amortization of deferred financing fees
Interest related to uncertain tax provisions
Non-cash interest expense
Cash interest expense
Total interest expense
2014 Annual Report 33
Twelve Months Ended
December 31,
2014
2013
$
$
4.1 $
4.4
1.0
9.5
72.6
82.1 $
4.3
4.9
0.6
9.8
75.8
85.6
Loss on Debt Extinguishment. In 2013, the Company incurred a loss on debt extinguishment of $13.2 million in
connection with the repayment of $500 million of the Company’s term loan. In 2014, no such loss was incurred.
Loss on Sale of Argentina Business. The Company recorded a loss in 2013 of $2.3 million resulting from the sale and
complete divestiture of its EECOL Electric Argentina operations. The Company did not record such a loss in 2014.
Income Taxes. Our effective income tax rate was 28.3% in 2014 compared to 27.2% in 2013. Our effective tax rate is
affected by recurring items, such as the relative amounts of income earned in the United States and foreign jurisdictions,
primarily Canada, and the tax rates in these jurisdictions. The relative amounts of income earned in the United States and
Canada is affected by the exchange rate at which Canadian income is translated into U.S. dollars. The increase in the tax
rate from 2013 to 2014 was primarily due to a discrete benefit recorded in 2013 for foreign tax credits as a result of the
settlement of the Company’s 1998-2003 IRS examination and the impact of an unfavorable change in the Canadian to U.S.
dollar foreign exchange rate on the translation of taxable income from WESCO’s Canadian operations.
Our effective income tax rate was 26.0% in 2013, as adjusted for the impact of the ArcelorMittal litigation recovery.
Net Income. Net income decreased by $1.1 million, or 0.4%, to $275.4 million in 2014, compared to $276.5 million in
2013. Net income in 2014 increased $20.9 million compared to adjusted net income of $254.5 million in 2013.
Net Income (Loss) Attributable to Noncontrolling Interest. Net loss attributable to noncontrolling interest was $0.5 million
in 2014 primarily due to foreign exchange losses on cash balances. Net income attributable to noncontrolling interest
totaled $0.1 million in 2013.
Net Income Attributable to WESCO International, Inc. Net income and diluted earnings per share attributable to WESCO
International, Inc. on a consolidated basis totaled $275.9 million and $5.18 per share, respectively, in 2014, compared
with $276.4 million and $5.25 per share, respectively, in 2013. Adjusted net income attributable to WESCO International,
Inc. and adjusted diluted earnings per share was $254.4 million and $4.82, respectively, in 2013.
34 WESCO International, Inc.
The following table sets forth adjusted net income and adjusted net income attributable to WESCO International, Inc.:
Adjusted Net Income Attributable to WESCO International, Inc.:
(in millions)
Income before income taxes
ArcelorMittal litigation recovery included in SG&A
Adjusted income before income taxes
Adjusted provision for income taxes
Adjusted net income
Less: Net income (loss) attributable to noncontrolling interest
Adjusted net income attributable to WESCO International, Inc.
Adjusted Diluted EPS:
Diluted share count
Adjusted diluted EPS
Twelve Months Ended
December 31,
2014
2013
384.1 $
—
384.1
108.7
275.4
(0.5)
275.9 $
379.9
(36.1)
343.8
89.3
254.5
0.1
254.4
53.3
5.18 $
52.7
4.82
$
$
$
Note: Adjusted net income and adjusted net income attributable to WESCO International, Inc. is provided by the Company to allow financial statement users to
compare the Company’s performance from period to period by adjusting for transactions management views as impacting the comparability of results.
Adjusted diluted EPS is calculated by dividing adjusted net income attributable to WESCO International, Inc. by weighted average common shares
outstanding and common share equivalents.
2013 Compared to 2012
Net Sales. Sales in 2013 increased 14.2% to $7,513.3 million, compared with $6,579.3 million in 2012. The increase in
sales included a positive impact from acquisitions of 14.6% and a negative impact from foreign exchange of 0.4%.
Additionally, management estimates a price impact on net sales of approximately 0.2%.
The following table sets forth normalized organic sales growth:
Normalized Organic Sales:
Change in net sales
Less: Impact from acquisitions
Less: Impact from foreign exchange rates
Less: Impact from number of workdays
Normalized organic sales growth
Twelve Months Ended
December 31,
2013
14.2%
14.6%
(0.4)%
—%
—%
2012
7.4%
3.3%
(0.3)%
—%
4.4%
Cost of Goods Sold. Cost of goods sold increased 13.7% in 2013 to $5,967.9 million, compared with $5,247.9 million
in 2012. Cost of goods sold as a percentage of net sales was 79.4% and 79.8% in 2013 and 2012, respectively. The
decrease in cost of goods sold percentage was due to the positive margin impact from the Company’s EECOL, Conney and
Trydor acquisitions.
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 $35.8 million, or
3.7%, to $996.8 million in 2013. The increase in SG&A expenses is primarily due to the EECOL, Conney and Trydor
acquisitions. SG&A expenses in 2013 include a $36.1 million favorable impact from the recognition of insurance coverage
for a litigation-related charge recorded in 2012. Excluding the impact of this item in both periods, SG&A expenses were
$1,032.9 million and $924.9 million, or 13.7% and 14.1% of sales, in 2013 and 2012, respectively.
SG&A payroll expenses for 2013 of $720.2 million increased by $58.6 million compared to 2012. The increase in SG&A
payroll expense was primarily due to an increase in salary expense of $71.7 million, partially offset by a decrease in
commissions, incentives and benefits of $13.6 million. The increase in payroll expense was primarily due to an increase in
headcount, which is the result of the EECOL, Conney and Trydor acquisitions.
2014 Annual Report 35
The remaining SG&A expenses for 2013 of $312.7 million increased by $49.4 million compared to 2012, primarily due to
increased occupancy and transportation costs of $19.7 million and $13.9 million, respectively, related to recent
acquisitions.
Depreciation and Amortization. Depreciation and amortization increased $30.1 million to $67.6 million in 2013, compared
with $37.6 million in 2012. The increase in depreciation and amortization was primarily due to the impact from the
acquisitions of EECOL, Conney and Trydor in 2012. Amortization of intangible assets of EECOL, Conney and Trydor totaled
$26.7 million for 2013.
Income from Operations. Income from operations increased by $148.1 million to $481.0 million in 2013, compared to
$332.9 million in 2012.
Interest Expense. Interest expense totaled $85.6 million in 2013, compared with $47.8 million in 2012, an increase of
79.2%. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and
the amortization of deferred financing fees, for 2013 and 2012 was $9.8 million and $2.3 million, respectively.
The following table sets forth the components of interest expense:
(in millions)
Amortization of convertible debt
Amortization of deferred financing fees
Interest related to uncertain tax provisions
Non-cash interest expense
Cash interest expense
Total interest expense
Twelve Months Ended
December 31,
2013
2012
$
$
4.3 $
4.9
0.6
9.8
75.8
85.6 $
2.3
2.6
(2.6)
2.3
45.5
47.8
Loss on Debt Extinguishment. In 2013, the Company incurred a loss on debt extinguishment of $13.2 million in
connection with the repayment of $500 million of the Company’s term loan. In 2012, a loss on debt extinguishment of $3.5
million was incurred due to the redemption of the 2017 Notes.
Loss on Sale of Argentina Business. The Company recorded a loss in 2013 of $2.3 million resulting from the sale and
complete divestiture of its EECOL Electric Argentina operations. EECOL Electric Argentina was acquired in 2012 as part of
the EECOL Electric acquisition.
Income Taxes. Our effective income tax rate decreased to 27.2% in 2013, compared with 28.4% in 2012, primarily as a
result of recording the tax benefit associated with certain foreign tax credits. Our effective tax rate is affected by the relative
amounts of income earned in the United States and foreign jurisdictions and the related tax rate differentials on that
income.
Net Income. Net income increased by $74.8 million, or 37.1%, to $276.4 million in 2013, compared to $201.8 million
in 2012.
Net Income (Loss) Attributable to Noncontrolling Interest. Net income attributable to noncontrolling interest was $0.1
million in 2013. Net loss attributable to noncontrolling interest totaled less than $0.1 million in 2012.
Net Income Attributable to WESCO International, Inc. Net income and diluted earnings per share attributable to WESCO
International, Inc. on a consolidated basis totaled $276.4 million and $5.25 per share, respectively, in 2013, compared
with $201.8 million and $3.95 per share, respectively, in 2012.
36 WESCO International, Inc.
LIQUIDITY AND CAPITAL RESOURCES
Total assets were $4.8 billion and $4.6 billion at December 31, 2014 and 2013, respectively. Total liabilities at
December 31, 2014 and 2013 were $2.8 billion and $2.9 billion, respectively. Stockholders’ equity increased by 9.3% to
$1.9 billion at December 31, 2014, compared with $1.8 billion at December 31, 2013, primarily as a result of net earnings
of $275.9 million, partially offset by a loss of $120.3 million from foreign currency exchange recorded within accumulated
other comprehensive income.
The following table sets forth our outstanding indebtedness:
As of December 31,
(in thousands)
Term Loan Facility, less debt discount of $3,110 and $3,934
in 2014 and 2013, respectively
Senior Notes due 2021
Accounts Receivable Securitization Facility
Revolving Credit Facility
International lines of credit
6.0% Convertible Senior Debentures due 2029, less debt discount of
$167,257 and $170,752 in 2014 and 2013, respectively
Capital leases
Other notes
Total debt
Less current and short-term portion
Total long-term debt
2014
2013
$
249,235 $
500,000
430,000
8,000
46,787
296,295
500,000
453,600
22,558
37,551
177,638
3,891
9
1,415,560
(49,130)
174,149
3,505
37
1,487,695
(40,061)
$ 1,366,430 $ 1,447,634
The required annual principal repayments for all indebtedness for the next five years and thereafter, as of
December 31, 2014 is set forth in the following table:
(in thousands)
2015
2016
2017
2018
2019
Thereafter
Total payments on debt
Debt discount on convertible debentures and term loan facility
Total debt
$
49,130
440,763
1,975
1,712
1,530
1,090,817
$ 1,585,927
(170,367)
$ 1,415,560
Our liquidity needs generally arise from fluctuations in our working capital requirements, capital expenditures, acquisitions
and debt service obligations. As of December 31, 2014, we had $497.5 million in available borrowing capacity under our
Revolving Credit Facility and $70.0 million in available borrowing capacity under our Accounts Receivable Securitization
Facility, which combined with invested cash of $70.2 million provided liquidity of $637.7 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, 2014.
Our financial leverage ratio as of December 31, 2014 and 2013 was 3.0 and 3.2, respectively.
2014 Annual Report 37
The following table sets forth the Company’s financial leverage ratio as of December 31, 2014 and 2013:
Year ended December 31,
(Dollar amounts in millions)
Income from operations
Adjust for ArcelorMittal litigation recovery
Depreciation and amortization
Adjusted EBITDA
Current debt
Long-term debt
Debt discount related to convertible debentures and term loan(1)
Total debt including debt discount
Less: Cash and cash equivalents
Total debt including debt discount, net of cash
Financial leverage ratio based on total debt
Financial leverage ratio based on total debt, net of cash
2014
2013
$
$
466.2 $
—
68.0
534.2 $
481.0
(36.1)
67.6
512.5
December 31,
2014
December 31,
2013
$
49.1 $
1,366.4
170.4
1,585.9 $
128.3
1,457.6 $
$
$
3.0
2.7
40.1
1,447.6
174.7
1,662.4
123.7
1,538.7
3.2
3.0
Note: Financial leverage is a non-GAAP financial measure provided by the Company as an indicator of capital structure position. Financial leverage ratio based
on total debt is calculated by dividing total debt, including debt discount, by Adjusted EBITDA. Financial leverage ratio based on total debt, net of cash,
is calculated by dividing total debt, including debt discount, net of cash, by Adjusted EBITDA. Adjusted EBITDA is defined as the trailing twelve months
earnings before interest, taxes, depreciation and amortization, excluding the ArcelorMittal litigation recovery.
(1) The convertible debentures and term loan are presented in the Consolidated Balance Sheets in long-term debt net of the unamortized discount.
At December 31, 2014, we had cash and cash equivalents totaling $128.3 million, of which $107.1 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, acquisitions and share repurchases. 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 2015 to be at levels similar to 2014. 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.
We finance our operating and investing needs as follows:
Term Loan Facility
On December 12, 2012, WESCO Distribution, as U.S. borrower, WDCC Enterprises Inc. (WDCC and together with WESCO
Distribution, the “Borrowers”), as Canadian borrower, and WESCO International entered into a Term Loan Agreement (the
“Term Loan Agreement”) among WESCO Distribution, WDCC, the Company, the lenders party thereto and Credit Suisse AG
Cayman Islands Branch, as administrative agent and as collateral agent.
The Term Loan Agreement provided a seven-year term loan facility (the “Term Loan Facility”), which consisted of two
separate sub-facilities: (i) a Canadian sub-facility in an aggregate principal amount of CAD $150 million, issued at a 2.0%
discount and (ii) a U.S. sub-facility in an aggregate principal amount of $700 million, issued at a 1.0% discount. The
proceeds of the Term Loan Facility were used to finance the acquisition of EECOL, to pay fees and expenses incurred in
connection with the acquisition and certain other transactions. Subject to the terms of the Term Loan Agreement, the
Borrowers may request incremental term loans from time to time in an aggregate principal amount not to exceed at any
time $300 million, with an equivalent principal amount in U.S. Dollars being calculated for any incremental term loan
denominated in Canadian Dollars.
38 WESCO International, Inc.
On November 19, 2013, the Borrowers and WESCO International entered into an amendment (the “Term Loan
Amendment”) to the Term Loan Agreement. The Term Loan Amendment, among other things, reduced the applicable
margin on U.S. term loans by 0.50% and the LIBOR floor applicable to the U.S. sub-facility from 1.00% to 0.75%. The
modified pricing terms were effective December 13, 2013.
On November 26, 2013, WESCO Distribution sold $500 million aggregate principal amount of 5.375% Senior Notes due
2021 (the “2021 Notes”), and used the net proceeds plus excess cash to prepay $500 million under the Company’s U.S.
sub-facility of the Term Loan Facility (see discussion below under “5.375% Senior Notes due 2021” for additional
information). The prepayment satisfied all remaining quarterly repayment obligations under the U.S. sub-facility. As a
result, the Company recorded a non-cash pre-tax loss on debt extinguishment of $13.2 million in the fourth quarter of
2013. WESCO will amortize the remaining debt discount and financing costs over the life of the instrument. As of
December 31, 2014, the amounts outstanding under the U.S. and Canadian sub-facilities were $174.8 million and $77.6
million, respectively.
Borrowings under the Term Loan Facility bear interest at base rates plus applicable margins. At December 31, 2014 and
2013, the interest rates on borrowings under the Canadian sub-facility and U.S. sub-facility were approximately 5.3% and
3.75%, respectively. The Canadian Borrower will pay quarterly installments of principal equal to 0.25% of the original
principal amount of its term loan sub-facility, plus accrued and unpaid interest. To the extent not previously paid, the term
loans will become due and payable on December 12, 2019, with any unpaid incremental term loans becoming due and
payable on the respective maturity dates applicable to those incremental term loans. At any time or from time to time, the
Borrowers may prepay borrowings under the Term Loan Facility in whole or in part without premium or penalty. The
Borrowers’ obligations under the Term Loan Facility are secured by substantially all of the assets of the Borrowers, the
Company and certain of the Company’s other subsidiaries; provided that, with respect to borrowings under the U.S.
sub-facility, the collateral does not include assets of certain foreign subsidiaries or more than 65% of the issued and
outstanding equity interests in certain foreign subsidiaries.
The Term Loan Facility contains customary affirmative and negative covenants for credit facilities of this type. The Term
Loan Facility also provides for customary events of default.
5.375% Senior Notes due 2021
In November 2013, WESCO Distribution issued $500 million aggregate principal amount of 2021 Notes through a private
offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The
2021 Notes were issued at 100% of par and are governed by an indenture (the “Indenture”) entered into on
November 26, 2013 with WESCO International and U.S. Bank National Association, as trustee. The 2021 Notes are
unsecured senior obligations of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO
International. The 2021 Notes bear interest at a stated rate of 5.375%, payable semi-annually in arrears on June 15 and
December 15 of each year. In addition, WESCO recorded deferred financing fees related to the issuance of the 2021 Notes
totaling $8.2 million, which will be amortized over the life of the notes. The 2021 Notes mature on December 15, 2021.
The net proceeds of the 2021 Notes were used to prepay a portion of the U.S. Term Loan sub-facility.
Under the terms of a registration rights agreement dated as of November 26, 2013 among WESCO Distribution, Inc.,
WESCO International, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the representative of the initial
purchasers of the 5.375% Notes, WESCO Distribution and WESCO International agreed to register under the Securities Act
notes having terms identical in all material respects to the 5.375% Notes (the “5.375% Exchange Notes”) and to make an
offer to exchange the 5.375% Exchange Notes for the 5.375% Notes. WESCO Distribution launched the exchange offer on
June 12, 2014 and the exchange offer closed on July 17, 2014.
2014 Annual Report 39
At any time on or after December 15, 2016, WESCO Distribution may redeem all or a part of the 2021 Notes. Between
December 15, 2016 and December 14, 2017, WESCO Distribution may redeem all or a part of the 2021 Notes at a
redemption price equal to 104.031% of the principal amount. Between December 15, 2017 and December 14, 2018,
WESCO Distribution may redeem all or a part of the 2021 Notes at a redemption price equal to 102.688% of the principal
amount. Between December 15, 2018 and December 14, 2019, WESCO Distribution may redeem all or a part of the 2021
Notes at a redemption price equal to 101.344% of the principal amount. On and after December 15, 2019, WESCO
Distribution may redeem all or a part of the 2021 Notes at a redemption price equal to 100% of the principal amount.
The Indenture governing the 2021 Notes contains customary covenants and customary events of default. In addition, upon
a change of control, the holders of 2021 Notes have the right to require WESCO Distribution to repurchase all or any part of
the 2021 Notes at a redemption price equal to 101% of the principal amount, plus accrued and unpaid interest.
Mortgage Financing Facility
In 2003, WESCO finalized a mortgage financing facility of $51.0 million. This facility was extinguished with repayments of
$26.4 million in the first quarter of 2013. The interest rate on borrowings under this facility was fixed at 6.5%.
Accounts Receivable Securitization Facility
On September 20, 2013, WESCO Distribution and its subsidiary WESCO Receivables Corp. entered into an amendment
(the “Amendment”) of the Third Amended and Restated Receivables Purchase Agreement relating to the Receivables
Facility. The Amendment increased the purchase limit under the Receivables Facility from $475 million to $500 million,
with the opportunity to exercise an accordion feature which permits increases in the purchase limit of up to an additional
$100 million, extended the term of the Receivables Facility to September 20, 2016, and added and amended certain
defined terms. The Amendment also reduced the interest rate spread and commitment fee from 1.10% to 0.95% and from
0.55% to 0.45%, respectively. Substantially all other provisions of the Receivables Facility remained unchanged.
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 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, 2014 and 2013, accounts receivable eligible for securitization totaled approximately $673.6 million
and $586.4 million, respectively. The Consolidated Balance Sheets as of December 31, 2014 and 2013 include $430.0
million and $453.6 million, respectively, of account receivable balances legally sold to third parties, as well as borrowings
for equal amounts. At December 31, 2014 and 2013, the interest rate on borrowings under this facility was approximately
1.0% and 1.2%, respectively.
Revolving Credit Facility
The Revolving Credit Facility was entered into pursuant to the terms and conditions of an Amended and Restated Credit
Agreement, dated as of December 12, 2012 (the “Credit Agreement”), among WESCO Distribution, the other U.S.
Borrowers party thereto, WESCO Distribution Canada LP (“WESCO Canada”) and WDCC, as Canadian Borrowers, the other
Loan Parties party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and JPMorgan
Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent. Subsequent to the acquisitions of EECOL on
December 14, 2012 and Hazmasters on March 17, 2014, EECOL and Hazmasters were added as Canadian Borrowers.
The Revolving Credit Facility contains an accordion feature allowing WESCO Distribution to request increases to the
borrowing commitments under the Credit Facility of up to $100 million in the aggregate.
40 WESCO International, Inc.
The Revolving Credit Facility matures in August 2016 and consists of two separate sub-facilities: (i) a Canadian sub-facility
with a borrowing limit of up to $400 million, which is collateralized by substantially all assets of WESCO Canada, WDCC,
EECOL and Hazmasters, and (ii) a U.S. sub-facility with a borrowing limit of up to $600 million less the amount of
outstanding borrowings under the Canadian sub-facility. The U.S. sub-facility is collateralized by substantially all assets of
WESCO Distribution and its U.S. subsidiaries other than real property and accounts receivable sold or intended to be sold
pursuant to the Receivables Facility. Availability under the Revolving Credit Facility is based upon the amount of eligible
inventory and receivables applied against certain advance rates. The applicable interest rate for borrowings under the
Revolving Credit Facility includes interest rate spreads based on available borrowing capacity that range between 1.50%
and 2.00% for LIBOR and CDOR-based borrowings and 0.50% and 1.00% for prime rate-based borrowings. The otherwise
applicable interest rate is reduced by 0.25% if the Company’s leverage ratio falls below a ratio of 2.5 to 1.0. At
December 31, 2014, the interest rate on borrowings under this facility was approximately 2.4%.
The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type. Subject to the
terms of the Credit Agreement, the Company is permitted to pay dividends, repurchase common stock or repurchase
indebtedness without limitation so long as pro forma combined availability under the Revolving Credit Facility and the
Receivables Facility exceeds $163.8 million and the adjusted fixed charge ratio is not less than a ratio of 1.1 to 1.0.
During 2014, WESCO borrowed $1,046.5 million in the aggregate under the Revolving Credit Facility and made
repayments in the aggregate amount of $1,059.7 million. During 2013, aggregate borrowings and repayments were $833.5
million and $1,026.7 million, respectively. WESCO had $497.5 million available under the Revolving Credit facility at
December 31, 2014, after giving effect to outstanding letters and international lines of credit, as compared to
approximately $512.2 million at December 31, 2013.
7.50% Senior Subordinated Notes due 2017
On December 10, 2012, WESCO International announced that WESCO Distribution would redeem all of its outstanding
2017 Notes on January 9, 2013 (the “Redemption Date”) at a redemption price equal to 101.25% of the principal amount
thereof plus accrued and unpaid interest to, but excluding, the Redemption Date, for a total of $1,030 per $1,000 principal
amount of 2017 Notes. The aggregate principal amount of 2017 Notes outstanding was $150.0 million. On
December 11, 2012, in accordance with the terms of the Indenture, dated as of September 27, 2005, among WESCO
Distribution, WESCO International and The Bank of New York Mellon, as trustee (the “Trustee”), WESCO Distribution
irrevocably deposited with the Trustee funds sufficient to pay principal and interest of all outstanding 2017 Notes on the
Redemption Date. As a result, the Indenture was satisfied and discharged.
International Lines of Credit
Certain foreign subsidiaries of WESCO have entered into uncommitted lines of credit, which serve as overdraft facilities, to
support local operations. The maximum borrowing limit varies by facility and ranges between $2.0 million and $16.0
million. The applicable interest rate for borrowings under these lines of credit varies by country and is governed by the
applicable loan agreement. The international lines of credit are renewable on an annual basis and certain facilities are fully
and unconditionally guaranteed by WESCO Distribution. Accordingly, these lines directly reduce availability under the
Revolving Credit Facility.
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.
2014 Annual Report 41
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, WESCO 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.
WESCO utilized an interest rate of 13.875% to reflect the non-convertible debt borrowing rate of its offering upon issuance,
which was determined based on discussions with its 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. WESCO is amortizing the debt discount and financing costs over the life of the instrument. For the
years ended December 31, 2014, 2013 and 2012, non-cash interest expense was $9.5 million, $9.8 million and $2.3
million, including $4.1 million, $4.3 million and $2.3 million of debt discount amortization, and the amortization of deferred
financing fees of $4.4 million, $4.9 million and $2.6 million, respectively. The debt discount amortization will approximate
$3.9 million in 2015, $4.4 million in 2016, $5.1 million in 2017, $5.8 million in 2018, and $6.6 million in 2019. The
amortization of deferred financing fees will approximate $4.5 million in 2015, $3.9 million in 2016 and $2.5 million in
2017, 2018 and 2019, respectively.
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.
Beginning with the six-month period commencing September 15, 2016, WESCO International will also pay contingent
interest 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 six-month 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 ending on the
second trading day 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 December 31, 2014 or 2013.
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 WESCO’s outstanding convertible debenture indebtedness:
December 31, 2014
December 31, 2013
Principal
Balance
Discount
Net Carrying
Amount
Principal
Balance
Discount
Net Carrying
Amount
(in thousands)
2029 Convertible Debentures
344,895
(167,257)
177,638
344,901
(170,752)
174,149
42 WESCO International, Inc.
Covenant Compliance
We were in compliance with all relevant covenants contained in our debt agreements as of December 31, 2014.
Cash Flow
An analysis of cash flows for 2014 and 2013 follows:
Operating Activities. Cash provided by operating activities for 2014 totaled $251.2 million, compared with $315.1 million of
cash generated in 2013. Cash provided by operating activities included net income of $275.4 million and adjustments to
net income totaling $83.9 million. Other sources of cash in 2014 were generated from increases in accounts payable of
$37.6 million, accrued payroll and benefit costs of $7.6 million, and other current and noncurrent liabilities of $11.2
million. Primary uses of cash in 2014 included a $89.0 million increase in trade receivables, a $36.8 million increase in
inventory, a $27.0 million increase in prepaid expenses and other noncurrent assets, and a $11.7 million increase in other
accounts receivable. In 2013, primary sources of cash were net income of $276.5 million and adjustments to net income
totaling $122.1 million. An increase in accounts payable of $37.8 million also provided a source of cash in 2013. Primary
uses of cash in 2013 included a $43.0 million increase in other accounts receivable, a $30.5 million increase in trade
receivables, a $19.2 million decrease in accrued payroll and benefit costs, a $19.2 million increase in prepaid expenses
and other noncurrent assets, and $9.3 million for the increase in inventory.
Investing Activities. Net cash used in investing activities in 2014 was $144.2 million, compared with $18.2 million of net
cash used in 2013. Capital expenditures were $20.5 million and $27.8 million in 2014 and 2013, respectively. Proceeds
from the sale of assets were $15.0 million and $10.8 million in 2014 and 2013, respectively. During 2014, the Company
paid $133.8 million to acquire LaPrairie, Hazmasters and Hi-Line. Acquisition payments in 2014 also included a post-close
payment to EECOL in the amount of $4.8 million.
Financing Activities. Net cash used in financing activities in 2014 was $95.5 million, compared with $257.5 million in
2013. During 2014, financing activities consisted of borrowings and repayments of $1,046.5 million and $1,059.7 million,
respectively, related to our Revolving Credit Facility, borrowings and repayments of $122.1 million and $145.7 million,
respectively, related to our Receivables Facility, and repayments of $38.8 million related to our Term Loan Facility.
Financing activities in 2014 also included borrowings and repayments on our various international lines of credit of $71.3
million and $57.8 million, respectively. During 2013, financing activities consisted of borrowings and repayments of $833.5
million and $1,026.7 million, respectively, related to our Revolving Credit Facility, borrowings and repayments of $96.5
million and $87.9 million, respectively, related to our Receivables Facility, repayments of $541.2 million related to our Term
Loan Facility, borrowings of $500.0 million related to the Senior 2021 Notes, and repayments of $26.4 million that
extinguished our mortgage financing facility. Financing activities in 2013 also included borrowings and repayments on our
various international lines of credit of $72.9 million and $58.3 million, respectively.
Contractual Cash Obligations and Other Commercial Commitments
The following summarizes our contractual obligations, including interest, at December 31, 2014 and the effect such
obligations are expected to have on liquidity and cash flow in future periods.
2015
2016 to 2017
2018 to 2019
2020 - After
Total
(in millions)
Contractual cash obligations (including interest):
Debt, excluding debt discount
Interest on indebtedness(1)
Non-cancelable operating leases
Total contractual cash obligations
$
$
49.1
66.0
67.2
182.3
$
$
442.7
119.7
105.6
668.0
$
$
3.2
116.5
66.1
185.8
$ 1,090.9
263.1
77.4
$ 1,431.4
$ 1,585.9
565.3
316.3
$ 2,467.5
(1) Interest on the variable rate debt was calculated using the rates and balances outstanding at December 31, 2014.
2014 Annual Report 43
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 liabilities for uncertain
tax benefits to be contractual obligations requiring disclosure due to the uncertainty surrounding the ultimate settlement
and timing of these liabilities. As such, we have not included liabilities for uncertain tax benefits of $16.8 million 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, 2014. 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 quarter are affected by a
reduced level of activity. Sales during the second, third and fourth quarters are generally 4 - 6% higher than the first
quarter. 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
FOREIGN CURRENCY RISKS
Approximately 29% of our sales in 2014 were made by our foreign subsidiaries located in North America, South America,
Europe, Africa, Asia and Australia and are denominated in foreign currencies. We 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.
44 WESCO International, Inc.
INTEREST RATE RISK
Fixed Rate Borrowings: Approximately 54% 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. As the 2021 Notes and 2029 Debentures 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 the 2021 Notes and 2029 Debentures was $504.4 million and $936.1 million, respectively, at
December 31, 2014. Interest expense on our other fixed rate debt also would not be impacted by changes in market
interest rates. For this fixed rate debt, fair value approximated carrying value at December 31, 2014 (see Note 7 to the
Consolidated Financial Statements).
Floating Rate Borrowings: The Company’s variable rate borrowings at December 31, 2014 were comprised of the amounts
outstanding under the Term Loan Facility, Receivables Facility, Revolving Credit Facility, and the international lines of credit.
The fair value of these debt instruments at December 31, 2014 approximated carrying value, which totaled $737.1 million.
We entered into the Term Loan Facility on December 12, 2012 and the proceeds were primarily used to finance the
acquisition of EECOL. Borrowings under the U.S. and Canadian sub-facilities of the Term Loan Facility bear interest at
0.75% and 1.0%, respectively, or, if greater, the applicable LIBOR (London Interbank Offered Rate) / CDOR (Canadian
Dealer Offered Rate) or base rates plus applicable margins and therefore are subject to fluctuations in interest rates. 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 / CDOR or base rates plus applicable margins, whereas borrowings under the Receivables Facility bear
interest at the 30 day LIBOR plus applicable margins. 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, 2014 and 2013
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
PAGE
45
46
47
48
50
51
2014 Annual Report 45
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF WESCO INTERNATIONAL, INC.:
In our opinion, the consolidated balance sheets and the related consolidated statements of comprehensive 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, 2014 and 2013, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2014 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, 2014, based on criteria established in Internal Control
- Integrated Framework (2013) 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.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 24, 2015
46 WESCO International, Inc.
Consolidated Balance Sheets
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
December 31,
(Dollars in thousands, except share data)
Assets
Current Assets:
Cash and cash equivalents
Trade accounts receivable, net of allowance for doubtful accounts
of $21,084 and $19,309 in 2014 and 2013, respectively
Other accounts receivable
Inventories, net
Current deferred income taxes (Note 9)
Income taxes receivable
Prepaid expenses and other current assets
Total current assets
Property, buildings and equipment, net (Note 6)
Intangible assets, net (Note 3)
Goodwill (Note 3)
Deferred income taxes (Note 9)
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable
Accrued payroll and benefit costs (Note 11)
Short-term debt (Note 7)
Current portion of long-term debt (Note 7)
Bank overdrafts
Other current liabilities
Total current liabilities
2014
2013
$
128,319 $
123,725
1,117,420
138,745
819,502
35,916
56,162
54,274
2,350,338
182,725
429,840
1,735,440
22,414
33,680
1,045,054
130,043
787,324
44,691
18,426
56,352
2,205,615
198,654
439,167
1,734,391
26,444
44,622
$ 4,754,437 $ 4,648,893
$
765,135 $
67,935
46,787
2,343
36,048
145,624
1,063,872
735,097
56,548
37,551
2,510
37,718
182,239
1,051,663
Long-term debt, net of discount of $170,367 and $174,686 in 2014 and 2013,
respectively (Note 7)
Deferred income taxes (Note 9)
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ Equity:
Preferred stock, $.01 par value; 20,000,000 shares authorized,
no shares issued or outstanding (Note 8)
Common stock, $.01 par value; 210,000,000 shares authorized,
58,400,736 and 58,107,304 shares issued and 44,489,989 and
44,267,460 shares outstanding in 2014 and 2013, respectively (Note 8)
Class B nonvoting convertible common stock, $.01 par value;
20,000,000 shares authorized, 4,339,431 issued and
no shares outstanding in 2014 and 2013, respectively
Additional capital (Note 8)
Retained earnings
Treasury stock, at cost; 18,250,178 and 18,179,275
shares in 2014 and 2013, respectively
Accumulated other comprehensive income
Total WESCO International stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of the consolidated financial statements.
1,366,430
346,743
49,227
1,447,634
341,334
43,471
$ 2,826,272 $ 2,884,102
—
—
584
581
43
1,102,369
1,643,914
43
1,082,772
1,368,386
(616,366)
(201,892)
1,928,652
(487)
1,928,165
(610,430)
(76,543)
1,764,809
(18)
1,764,791
$ 4,754,437 $ 4,648,893
Consolidated Statements of Comprehensive Income
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
Year Ended December 31,
(Dollars 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
Loss on debt extinguishment (Note 7)
Loss on sale of Argentina business
Income before income taxes
Provision for income taxes (Note 9)
Net income
Less: Net income (loss) attributable to noncontrolling interest
Net income attributable to WESCO International, Inc.
Comprehensive Income:
Foreign currency translation adjustment
Post retirement benefit plan adjustments (Note 11)
Comprehensive income attributable to WESCO International, Inc.
Earnings per share attributable to WESCO International, Inc. (Note 10)
Basic
Diluted
The accompanying notes are an integral part of the consolidated financial statements.
2014 Annual Report 47
2014
2013
2012
$ 7,889,626 $ 7,513,342 $ 6,579,301
5,247,855
961,014
37,561
332,871
47,762
3,470
—
281,639
79,880
201,759
(18)
201,777
6,278,584
1,076,808
68,017
466,217
82,064
—
—
384,153
108,716
275,437
(469)
275,906 $
5,967,892
996,810
67,642
480,998
85,607
13,225
2,315
379,851
103,333
276,518
88
276,430 $
$
(120,293)
(5,056)
150,557 $
(83,172)
7,673
200,931 $
(9,013)
—
192,764
6.21 $
6.26 $
5.18 $
5.25 $
4.62
3.95
$
$
$
48 WESCO International, Inc.
Consolidated Statements of Stockholders’ Equity
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except share data)
Balance, December 31, 2011
Exercise of stock-based awards, including tax benefit of $11,139
Stock-based compensation expense
Conversion of 2029 debentures
Tax withholding related to vesting of restricted stock
units and retirement of common stock
Noncontrolling interest
Net income
Translation adjustment
Balance, December 31, 2012
Exercise of stock-based awards, including tax benefit of $2,022
Stock-based compensation expense
Conversion of 2029 debentures
Tax withholding related to vesting of restricted stock
units and retirement of common stock
Noncontrolling interest
Net income
Translation adjustment
Benefit plan adjustments, net of tax effect of $2,244
Balance, December 31, 2013
Exercise of stock-based awards, including tax benefit of $4,899
Stock-based compensation expense
Conversion of 2029 debentures
Tax withholding related to vesting of restricted stock
units and retirement of common stock
Noncontrolling interest
Net income
Translation adjustment
Benefit plan adjustments, net of tax effect of $2,447
Balance, December 31, 2014
The accompanying notes are an integral part of the consolidated financial statements.
Common Stock
Amount
Shares
Class B Common Stock
Amount
Shares
Additional
Capital
Treasury Stock
Noncontrolling
Comprehensive
Amount
Shares
Interest
Income (Loss)
$
571
8
57,021,523
829,401
$
43
4,339,431 $ 1,036,867 $
891,789 $
(593,329)
(17,936,923) $
(88) $
10,057
(12,277)
(192,669)
688
(27,064)
57,824,548
304,441
425
(22,110)
$
579
3
(1)
(710)
(847)
1,556
27,064
$
43
4,339,431 $ 1,065,550 $ 1,092,719 $
(604,050)
(18,102,528) $
(106) $
(7,885)
(98,857)
(745)
(763)
1,505
22,110
$
581
3
58,107,304
308,399
$
43
4,339,431 $ 1,082,772 $ 1,368,386 $
(610,430)
(18,179,275) $
(18) $
(76,543)
(5,979)
(72,184)
134
(15,101)
(909)
(378)
43
1,281
$
584
58,400,736
$
43
4,339,431 $ 1,102,369 $ 1,643,914 $
(616,366) ( 18,250,178) $
(487) $
(201,892)
14,310
15,088
(5)
2,052
15,917
(2)
5,741
14,766
(1)
Retained
Earnings
(Deficit)
201,777
276,430
275,906
Accumulated
Other
(18)
88
(11,101)
(1,044)
(83,172)
7,673
(469)
(120,293)
(5,056)
Consolidated Statements of Stockholders’ Equity
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except share data)
Balance, December 31, 2011
Exercise of stock-based awards, including tax benefit of $11,139
Stock-based compensation expense
Conversion of 2029 debentures
Tax withholding related to vesting of restricted stock
units and retirement of common stock
Noncontrolling interest
Net income
Translation adjustment
Balance, December 31, 2012
Exercise of stock-based awards, including tax benefit of $2,022
Stock-based compensation expense
Conversion of 2029 debentures
Tax withholding related to vesting of restricted stock
units and retirement of common stock
Noncontrolling interest
Net income
Translation adjustment
Benefit plan adjustments, net of tax effect of $2,244
Balance, December 31, 2013
Exercise of stock-based awards, including tax benefit of $4,899
Stock-based compensation expense
Conversion of 2029 debentures
Tax withholding related to vesting of restricted stock
units and retirement of common stock
Noncontrolling interest
Net income
Translation adjustment
Benefit plan adjustments, net of tax effect of $2,447
Balance, December 31, 2014
The accompanying notes are an integral part of the consolidated financial statements.
2014 Annual Report 49
$
571
8
57,021,523
829,401
688
(27,064)
579
3
(1)
57,824,548
304,441
425
(22,110)
$
581
3
58,107,304
308,399
134
(15,101)
Common Stock
Amount
Shares
Class B Common Stock
Shares
Amount
Additional
Capital
Retained
Earnings
(Deficit)
Treasury Stock
Amount
Shares
Noncontrolling
Interest
Accumulated
Other
Comprehensive
Income (Loss)
$
43
4,339,431 $ 1,036,867 $
891,789 $
14,310
15,088
(5)
(593,329)
(12,277)
(17,936,923) $
(192,669)
(88) $
10,057
$
$
43
4,339,431 $ 1,065,550 $ 1,092,719 $
2,052
15,917
(2)
(604,050)
(7,885)
(18,102,528) $
(98,857)
(710)
(847)
1,556
27,064
201,777
(18)
(106) $
(11,101)
(1,044)
(745)
(763)
1,505
22,110
88
276,430
$
43
4,339,431 $ 1,082,772 $ 1,368,386 $
5,741
14,766
(1)
(610,430)
(5,979)
(18,179,275) $
(72,184)
(18) $
(909)
(378)
43
1,281
(469)
275,906
$
584
58,400,736
$
43
4,339,431 $ 1,102,369 $ 1,643,914 $
(616,366) ( 18,250,178) $
(487) $
(83,172)
7,673
(76,543)
(120,293)
(5,056)
(201,892)
50 WESCO International, Inc.
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
Loss on debt extinguishment
Gain on sale of property, buildings and equipment
Loss on sale of Argentina business
Excess tax benefit from stock-based compensation
Interest related to uncertain tax positions
Deferred income taxes
Changes in assets and liabilities:
Trade receivables, net
Other accounts receivable
Inventories, net
Prepaid expenses and other 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 assets
Other investing activities
Net cash used in investing activities
Financing Activities:
Proceeds from issuance of short-term debt
Repayments of short-term debt
Proceeds from issuance of long-term debt
Repayments of long-term debt
Repayment of deferred acquisition payable
Debt issuance costs
Proceeds from the exercise of stock options
Excess tax benefit from stock-based compensation
Repurchase of common stock
Decrease in bank overdrafts
Payments on capital lease obligations
Net cash (used in) provided 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 consolidated financial statements.
2014
2013
2012
$
275,437 $
276,518 $
201,759
68,017
14,766
4,426
4,136
—
(7,733)
—
(5,705)
964
4,979
(89,029)
(11,659)
(36,847)
(27,020)
37,587
7,619
11,218
251,156
(20,548)
(138,630)
14,991
—
(144,187)
67,642
15,917
4,880
4,308
13,229
(4,174)
2,315
(3,631)
599
20,634
(30,464)
(42,983)
(9,339)
(19,196)
37,789
(19,163)
260
315,141
37,561
15,088
2,655
2,260
1,595
(546)
—
(11,358)
(2,593)
17,663
58,194
(21,779)
(29,339)
19,588
(24,346)
(2,498)
24,280
288,184
(27,825)
—
10,807
(1,205)
(18,223)
(23,084)
(1,289,480)
1,558
—
(1,311,006)
71,308
(57,827)
1,168,580
(1,244,173)
(29,395)
(472)
838
5,705
(7,222)
(1,258)
(1,574)
(95,490)
(6,885)
4,594
123,725
128,319 $
72,895
(58,288)
1,429,956
(1,682,189)
—
(12,222)
30
3,631
(7,890)
(1,954)
(1,488)
(257,519)
(1,773)
37,626
86,099
24,569
(9,969)
2,299,797
(1,244,030)
—
(17,757)
3,174
11,358
(12,280)
(8,283)
(2,531)
1,044,048
1,004
22,230
63,869
86,099
$
123,725 $
$
74,016 $
107,147
75,462 $
90,678
42,935
51,733
1,091
1,970
3,216
2014 Annual Report 51
Notes to Consolidated Financial Statements
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
1. ORGANIZATION
WESCO International, Inc. (“WESCO International”) 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 75,000 active customers globally, through approximately 485 full service branches and nine
distribution centers located primarily in the United States, Canada and Mexico, with operations in 16 additional countries.
2. ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of 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.
Revision
Certain amounts in the Company’s Consolidated Balance Sheet as of December 31, 2013, as presented herein, have been
revised to appropriately present current and non-current deferred tax balances as well as current taxes refundable/payable
in accordance with ASC 740, “Income Taxes”. Specifically, deferred income tax assets and deferred income tax liabilities
each increased by $24.7 million at December 31, 2013. Additionally, prepaid expenses and other current assets increased
by $7.1 million with a corresponding increase to other current liabilities of $7.1 million at December 31, 2013.
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 typically 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 $31.0 million, $24.2 million, and $17.6 million in 2014, 2013 and 2012, 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.
52 WESCO International, Inc.
Supplier Volume Rebates
WESCO receives volume rebates from certain suppliers based on contractual arrangements with such suppliers. Volume
rebates are included within other accounts receivable in the Consolidated Balance Sheets, and represent the estimated
amounts due to WESCO under the rebate provisions of the various supplier 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 $82.6 million at
December 31, 2014 and $75.0 million at December 31, 2013. Supplier volume rebate rates have historically ranged
between approximately 0.8% and 1.4% of sales depending on market conditions. In 2014, the rebate rate was 1.4%.
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 $63.6 million, $63.8 million and $49.9 million in 2014, 2013
and 2012, 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 Consolidated Statements of Comprehensive 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 $21.1 million at December 31, 2014 and $19.3 million at December 31, 2013. The total amount recorded as selling,
general and administrative expense related to bad debts was $5.9 million, $2.9 million and $1.1 million for 2014, 2013
and 2012, 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. Retrospectively, WESCO identifies items at risk of becoming
obsolete, which are defined as excess of 36 months supply relative to demand or movement. WESCO then analyzes the
ultimate disposition of previously identified excess inventory items when they are sold, returned to supplier, or scrapped.
This item by item analysis allows WESCO to develop an estimate of the historical likelihood that an item identified as being
in excess supply ultimately becomes obsolete. 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 $19.9 million and $17.4 million at December 31, 2014 and 2013, respectively. The total expense related
to excess and obsolete inventories, included in cost of goods sold, was $6.2 million, $7.5 million and $11.4 million for
2014, 2013 and 2012, respectively. WESCO absorbs into the cost of inventory certain overhead expenses related to
inventory such as purchasing, receiving and storage and at December 31, 2014 and 2013, $62.5 million and $62.1
million, respectively, of these costs were included in ending inventory.
2014 Annual Report 53
Other Assets
WESCO amortizes deferred financing fees over the term of the various debt instruments. Deferred financing fees in the
amount of $0.5 million were incurred during the year ending December 31, 2014. As of December 31, 2014 and 2013, the
amount of other assets related to unamortized deferred financing fees was $20.7 million and $24.8 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.
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
charges are taken as appropriate. Of WESCO’s $182.7 million net book value of property, plant and equipment as of
December 31, 2014, $114.0 million consists of land, buildings and leasehold improvements and are geographically
dispersed among WESCO’s 485 branches and nine distribution centers, mitigating the risk of impairment. Approximately
$31.5 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 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, 2014 and 2013, goodwill and indefinite life trademarks totaled
$1,840.0 million and $1,837.4 million, respectively. No impairment losses were identified in 2014 as a result of this review.
Definite Lived Intangible Assets
Intangible assets are amortized over 2 to 20 years. A portion of intangible assets related to certain 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 deductible policies 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 $12.1 million at
December 31, 2014 and $11.4 million at December 31, 2013.
54 WESCO International, Inc.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements.
Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe these assets are more-likely-than-not to be realized. In
making such determination, we evaluate all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations in
determining whether a valuation allowance is needed. If we determine that we would be able to realize our deferred tax
assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset
valuation allowance, which would reduce income tax expense.
We recognize the tax benefit from an uncertain tax position only if it is at least more-likely-than-not that the tax position will
be sustained upon examination by the taxing authorities based on the technical merits of the position. The amount of the
tax benefit that is recognized is measured as the largest amount of benefit that is more-likely-than-not to be realized upon
effective settlement. We will adjust the tax benefit recognized with regard to an uncertain tax position if our judgment
changes as the result of the evaluation of new information not previously available. Due to the subjectivity inherent in the
evaluation of uncertain tax positions, the tax benefit ultimately recognized may materially differ from our estimate. We
recognize interest related to uncertain tax benefits as part of interest expense. Penalties are recognized as part of income
tax expense. Accrued interest and penalties are included within other current and other noncurrent liabilities in the
Consolidated Balance Sheet.
No provision is made for possible U.S. taxes on undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely.
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.
Defined Benefit Pension Plan
In connection with the December 14, 2012 acquisition of EECOL, the Company assumed a contributory defined benefit
plan covering all Canadian employees of EECOL. The plan provides retirement benefits based upon earnings and credited
service, and participants contribute 2% or 4% of their earnings to the plan depending on their employment level.
The Company also assumed EECOL’s Supplemental Executive Retirement Plan (SERP), which provides additional pension
benefits to certain executives based on earnings, credited service, and executive service.
2014 Annual Report 55
Liabilities and expenses for pension benefits are determined using actuarial methodologies and incorporate significant
assumptions, including the interest rate used to discount the future estimated cash flows, the expected long-term rate of
return on plan assets, and several assumptions relating to the employee workforce (salary increases, retirement age,
and mortality).
The interest rate used to discount future estimated cash flows is determined using a high quality corporate bonds yield
curve model developed with the assistance of an external actuary. The cash flows of the plans’ projected benefit obligations
are discounted using a single equivalent rate derived from yields on high quality corporate bonds. The yield curve model
parallels the plans’ projected cash flows. The discount rate used to determine benefit obligations for the Canadian pension
was 4.1% in 2014. An increase in the discount rate of one quarter percent would decrease the projected benefit obligation
by $5.4 million, and a decrease in the discount rate of one quarter percent would increase the projected benefit obligation
by $6.1 million. The impact of a change in the discount rate of one quarter percent would be either a charge or credit of
$0.4 million to earnings in the following year.
The expected long-term rate of return on plan assets is applied to the fair market-related value of plan assets.
Stock-Based Compensation
WESCO’s stock-based employee compensation plans are comprised of stock options, stock-settled stock appreciation
rights, restricted stock units, and performance-based awards. 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. Performance-
based awards are valued using a Monte Carlo simulation model. The probability of meeting market criteria is considered
when calculating the estimated fair market value on the date of grant. These awards are accounted for as awards with
market conditions, which are recognized over the service period, regardless of whether the market conditions are achieved
and the awards ultimately vest. No dividends are assumed for stock-based awards.
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.
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, 2014 and 2013 was $2,177.6 million and $2,443.9 million,
respectively. The aggregate fair value of the 2021 Notes, Term Loan Facility and 2029 Debentures was approximately
$1,692.8 million and $1,930.2 million at December 31, 2014 and 2013, respectively. The fair values of fixed rate facilities
are estimated based upon market price quotes. The fair values of the mortgage facility, the Term Loan Facility, the
Receivables Facility and the 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.
56 WESCO International, Inc.
Recently Adopted Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-11,
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists. This ASU updated guidance on the presentation of an unrecognized tax benefit when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This updated guidance requires entities
to present unrecognized tax benefits, or a portion of unrecognized tax benefits, in the financial statements as a reduction
to deferred tax assets for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain
exceptions. This guidance is effective for interim and annual periods beginning after December 15, 2013. WESCO
adopted this guidance in 2014. Adoption of this guidance did not have a material impact on WESCO’s financial position,
results of operations or cash flows.
Recently Issued Accounting Pronouncements
In May 2014, the FASB and International Accounting Standards Board issued a converged final standard on the
recognition of revenue from contracts with customers. This updated guidance provides a framework for addressing revenue
recognition issues and replaces almost all existing revenue recognition guidance in current U.S. generally accepted
accounting principles. The core principle of the new standard is for companies to recognize revenue to depict the transfer
of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in
exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide
guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element
arrangements. This guidance is effective for interim and annual periods beginning after December 15, 2016. Management
has not yet evaluated the future impact of this guidance on WESCO’s financial position, results of operations or cash flows.
In September 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern. This ASU describes how an entity should assess its ability to meet obligations and sets disclosure
requirements for how this information should be disclosed in the financial statements. The standard provides accounting
guidance that will be used with existing auditing standards. The amendments in this ASU are effective for the annual
period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is
permitted. The adoption of this guidance is not expected to have an impact on WESCO’s consolidated financial statements
and notes thereto.
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.
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)
Beginning balance January 1
Foreign currency exchange rate changes
Additions to goodwill for acquisitions
Ending balance December 31
2014
2013
$ 1,734,391 $ 1,777,797
(49,120)
5,714
$ 1,735,440 $ 1,734,391
(61,347)
62,396
WESCO has never recorded an impairment loss related to goodwill. At December 31, 2014, the estimated fair values of our
reporting units were at least 25% greater than their respective carrying values.
2014 Annual Report 57
Intangible Assets
The components of intangible assets are as follows:
December 31, 2014
December 31, 2013
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
Trademarks
Non-compete
agreements
Customer
relationships
Distribution
agreements
Patents
Total
Indefinite $
4-15
104,532 $
5,085
— $
(594)
104,532 $
4,491
101,867 $
1,648
— $
(218)
101,867
1,430
2-7
295
(95)
200
—
—
—
2-20
342,224
(76,267)
265,957
324,957
(48,630)
276,327
10-19
10
40,222
48,310
$
540,668 $
(14,340)
(19,532)
(110,828) $
25,882
28,778
37,663
48,310
429,840 $
514,445 $
(11,729)
(14,701)
(75,278) $
25,934
33,609
439,167
(1) Excludes the original cost and accumulated amortization of fully-amortized intangibles.
Amortization expense related to intangible assets totaled $39.0 million, $38.6 million and $15.1 million for the years ended
December 31, 2014, 2013 and 2012, 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,
2015
2016
2017
2018
2019
$
Estimated
Amortization
Expense
37,279
36,109
35,205
33,625
32,307
WESCO has never recorded an impairment loss related to intangible assets.
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. Our largest supplier in 2014, 2013, and 2012
was Eaton Corporation, accounting for approximately 12% of our purchases in each year. 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.
58 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
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
2014
2013
2012
$
$
153,597 $
(19,772)
133,825 $
$
133,825 $
—
$
133,825 $
— $ 1,609,785
(288,005)
—
— $ 1,321,780
— $ 1,321,780
(32,100)
—
— $ 1,289,680
The fair values of assets acquired and liabilities assumed were based upon preliminary calculations and valuations. Our
estimates and assumptions for our preliminary purchase price allocation are subject to change as we obtain additional
information for our estimates during the respective measurement periods (up to one year from the respective acquisition dates).
Acquisition of LaPrairie, Inc.
On February 1, 2014, WESCO Distribution, Inc., through its wholly-owned Canadian subsidiary, completed the acquisition
of LaPrairie, Inc. (“LaPrairie”), a wholesale distributor of electrical products that services the transmission, distribution, and
substation needs of utilities and utility contractors with approximately $30 million in annual sales from a single location in
Newmarket, Ontario. WESCO funded the price paid at closing with cash. The purchase price was allocated to the
respective assets and liabilities based upon their estimated fair values as of the acquisition date. The preliminary fair value
of intangibles was determined by management and the allocation resulted in intangible assets of $11.0 million and goodwill
of $8.9 million. Management believes the majority of goodwill will be deductible for tax purposes.
Acquisition of Hazmasters, Inc.
On March 17, 2014, WESCO Distribution, Inc., through its wholly-owned Canadian subsidiary, completed the acquisition of
Hazmasters, Inc. (“Hazmasters”), a leading independent Canadian distributor of safety products servicing customers in the
industrial, construction, commercial, institution, and government markets with approximately $80 million in annual sales
from 14 branches across Canada. WESCO funded the price paid at closing with cash and borrowings under the Revolving
Credit Facility. The purchase price was allocated to the respective assets and liabilities based upon their estimated fair
values as of the acquisition date. The preliminary fair value of intangibles was estimated by management and the allocation
resulted in intangible assets of $28.1 million and goodwill of $29.5 million, which is not deductible for tax purposes.
Acquisition of Hi-Line Utility Supply
On June 11, 2014, WESCO Distribution, Inc., completed the acquisition of Hi-Line Utility Supply (“Hi-Line”), a provider of
utility MRO and safety products, as well as rubber goods testing and certification services, with approximately $30 million
in annual sales from locations in Chicago, Illinois and Millbury, Massachusetts. WESCO funded the price paid at closing
with cash and borrowings under our variable rate credit facilities. The purchase price was allocated to the respective assets
and liabilities based upon their estimated fair values as of the acquisition date. The preliminary fair value of intangibles was
estimated by management and the allocation resulted in intangible assets of $14.2 million and goodwill of $24.0 million.
Management believes the majority of goodwill will be deductible for tax purposes.
For the acquisitions of LaPrairie, Hazmasters, and Hi-Line made in 2014, the intangible assets include customer
relationships of $38.9 million amortized over 2 to 12 years, supplier relationships of $3.2 million amortized over 10 years,
trademarks of $10.9 million, and other intangibles of $0.3 million as of December 31, 2014. Certain trademarks have been
assigned an indefinite life while others are amortized over 5 years. No residual value is estimated for the intangible assets
being amortized.
2014 Annual Report 59
Acquisition of EECOL Electric Corporation
On December 14, 2012, WESCO International completed its acquisition of EECOL Electric Corporation (“EECOL”). WESCO
paid at closing a cash purchase price of approximately $1.1 billion, of which $50.8 million was placed in escrow to address
post-closing purchase price adjustments and potential indemnification claims. The remaining escrow was distributed to the
sellers in 2014. To fund the purchase price paid at closing, WESCO and its subsidiaries borrowed $851 million under new
term loans and $264 million under the Revolving Credit Facility. The Company incurred $4.0 million in acquisition costs
related to the EECOL acquisition in 2012. With the acquisition of EECOL, WESCO obtained a 60% ownership in a joint
venture. This entity has been consolidated. The noncontrolling interest recognized income of less than $0.1 million in 2014
and 2013, respectively.
EECOL is a full-line distributor of electrical equipment, products and services with approximately 57 locations across
Canada and approximately 20 in South America. EECOL has a warehouse-based business focused on serving industrial,
oil, gas, mining, utility, and commercial and residential construction customers.
The preliminary purchase price was allocated to the respective assets and liabilities based upon their estimated fair values
as of the acquisition date. The fair value of the intangible assets was estimated by management and the allocation resulted
in intangible assets of $301.7 million and goodwill of $676.1 million which is not deductible for tax purposes. The
intangible assets include customer relationships of $246 million amortized over 20 years and trademarks of $55.7 million.
Trademarks have an indefinite life and are not being amortized. No residual value is estimated for these intangible assets.
The goodwill arising from the acquisition is based largely on the depth and diversity of name brand products, warehouse
locations, and a highly-trained and knowledgeable workforce. The purchase price allocation was finalized in 2013 and the
fair value of assets and liabilities acquired were adjusted at that time, resulting in an increase to goodwill of $5.7 million, a
decrease in all other assets of $0.9 million, and a corresponding increase in liabilities of $4.8 million.
Approximately $31.5 million of the $32.1 million of cash and equivalents that was transferred to the Company was remitted
back to the sellers in 2014 along with approximately $4.8 million of post-closing purchase price adjustments.
The following summary presents the fair value of the assets acquired and liabilities assumed for the EECOL acquisition:
(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 expenses and other current liabilities
Short-term debt
Deferred income taxes - long-term
Long-term debt
Other long-term liabilities
Total liabilities assumed
Fair value of net assets acquired, including intangible assets
EECOL
$
32,071
137,161
23,284
118,129
21,113
73,097
301,676
676,070
16,666
1,399,267
76,549
66,680
5,734
75,682
6,205
47,760
278,610
$ 1,120,657
60 WESCO International, Inc.
The operating results of EECOL have been included in WESCO’s consolidated financial statements since
December 14, 2012. EECOL contributed $24.1 million to 2012 net sales. Unaudited pro forma results of operations (in
thousands, except per share data) for the twelve months ended December 31, 2012 are included below as if the
acquisition occurred on the first day of the period. This summary of the unaudited pro forma results of operations is not
necessarily indicative of what WESCO’s results of operations would have been had EECOL been acquired at the beginning
of 2012, nor does it purport to represent results of operations for any future periods.
Year Ended December 31,
(in thousands, except per share data)
Net Sales
Net Income
Earnings per common share:
Basic
Diluted
Acquisition of RS Electronics
2012
$ 7,493,978
263,149
$
$
6.02
5.15
On January 3, 2012, WESCO completed its acquisition of RS Electronics, a leading North American distributor of electronic
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 $60.0 million in annual sales.
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 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 of $12.2 million. Management believes the majority of goodwill will be deductible for tax purposes.
Acquisition of Trydor Industries (Canada), Ltd.
On July 3, 2012, WESCO completed its acquisition of Trydor Industries (Canada), Ltd. (“Trydor”) through one of its
wholly-owned Canadian subsidiaries. Trydor is a full-line distributor of high-voltage electrical products and services
addressing the transmission, substation and distribution network needs for utilities, independent power producers and
utility contractors in Canada with approximately $35.0 million in annual sales. 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 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 $19.1
million and $11.8 million, respectively. Management believes the majority of goodwill will be deductible for tax purposes.
The intangible assets include customer relationships of $8.9 million amortized over 10 years, supplier relationships of $2.7
million amortized over 10 years and trademarks of $0.2 million amortized over 4 years. No residual value is estimated for
the intangible assets.
Acquisition of Conney Safety Products, LLC
On July 9, 2012, WESCO completed the acquisition of Conney Safety Products, LLC, a distributor of MRO safety products
with approximately $85 million in annual sales. 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 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 $83.6 million and $45.3 million, respectively.
Management believes the majority of goodwill will be deductible for tax purposes. The intangible assets include customer
relationships of $40.3 million amortized over 12 years, a trademark of $1.5 million amortized over 15 years, and a
trademark valued at $3.5 million with an indefinite life. No residual value is estimated for the intangible assets.
6. PROPERTY, BUILDINGS AND EQUIPMENT
The following table sets forth the components of property, buildings and equipment:
As of December 31,
(in thousands)
Buildings and leasehold improvements
Furniture, fixtures and equipment
Software costs
Accumulated depreciation and amortization
Land
Construction in progress
Total property, buildings and equipment, net
2014 Annual Report 61
2014
2013
$
$
126,465 $
176,302
77,288
380,055
(229,196)
150,859
30,818
1,048
182,725 $
135,030
167,842
71,633
374,505
(213,758)
160,747
34,714
3,193
198,654
Depreciation expense was $18.5 million, $18.2 million and $14.4 million, and capitalized software amortization was $10.5
million, $10.8 million and $8.1 million, in 2014, 2013 and 2012, respectively. The unamortized software cost was $24.1
million and $27.1 million as of December 31, 2014 and 2013, respectively. Furniture, fixtures and equipment include
capitalized leases of $13.2 million and $11.7 million and related accumulated amortization of $7.3 million and $6.2 million
as of December 31, 2014 and 2013, respectively.
7. DEBT
The following table sets forth WESCO’s outstanding indebtedness:
As of December 31,
(in thousands)
Term Loan Facility, less debt discount of $3,110 and $3,934
in 2014 and 2013, respectively
Senior Notes due 2021
Accounts Receivable Securitization Facility
Revolving Credit Facility
International lines of credit
6.0% Convertible Senior Debentures due 2029, less debt discount of
$167,257 and $170,752 in 2013 and 2012, respectively
Capital leases
Other notes
Total debt
Less current and short-term portion
Total long-term debt
Term Loan Facility
2014
2013
$
249,235 $
500,000
430,000
8,000
46,787
296,295
500,000
453,600
22,558
37,551
177,638
3,891
9
1,415,560
(49,130)
174,149
3,505
37
1,487,695
(40,061)
$ 1,366,430 $ 1,447,634
On December 12, 2012, WESCO Distribution, as U.S. borrower, WDCC Enterprises Inc. (WDCC and together with WESCO
Distribution, the “Borrowers”), as Canadian borrower, and WESCO International entered into a Term Loan Agreement (the
“Term Loan Agreement”) among WESCO Distribution, WDCC, the Company, the lenders party thereto and Credit Suisse AG
Cayman Islands Branch, as administrative agent and as collateral agent.
The Term Loan Agreement provided a seven-year term loan facility (the “Term Loan Facility”), which consisted of two
separate sub-facilities: (i) a Canadian sub-facility in an aggregate principal amount of CAD $150 million, issued at a 2.0%
discount and (ii) a U.S. sub-facility in an aggregate principal amount of $700 million, issued at a 1.0% discount. The
proceeds of the Term Loan Facility were used to finance the acquisition of EECOL, to pay fees and expenses incurred in
62 WESCO International, Inc.
connection with the acquisition and certain other transactions. Subject to the terms of the Term Loan Agreement, the
Borrowers may request incremental term loans from time to time in an aggregate principal amount not to exceed at any
time $300 million, with an equivalent principal amount in U.S. Dollars being calculated for any incremental term loan
denominated in Canadian Dollars.
On November 19, 2013, the Borrowers and WESCO International entered into an amendment (the “Term Loan
Amendment”) to the Term Loan Agreement. The Term Loan Amendment, among other things, reduced the applicable
margin on U.S. term loans by 0.50% and the LIBOR floor applicable to the U.S. sub-facility from 1.00% to 0.75%. The
modified pricing terms were effective December 13, 2013.
On November 26, 2013, WESCO Distribution sold $500 million aggregate principal amount of 5.375% Senior Notes due
2021 (the “2021 Notes”), and used the net proceeds plus excess cash to prepay $500 million under the Company’s U.S.
sub-facility of the Term Loan Facility (see discussion below under “5.375% Senior Notes due 2021” for additional
information). The prepayment satisfied all remaining quarterly repayment obligations under the U.S. sub-facility. As a
result, the Company recorded a non-cash pre-tax loss on debt extinguishment of $13.2 million in the fourth quarter of
2013. WESCO will amortize the remaining debt discount and financing costs over the life of the instrument. As of
December 31, 2014, the amounts outstanding under the U.S. and Canadian sub-facilities were $174.8 million and $77.6
million, respectively.
Borrowings under the Term Loan Facility bear interest at base rates plus applicable margins. At December 31, 2014 and
2013, the interest rates on borrowings under the Canadian sub-facility and U.S. sub-facility were approximately 5.3% and
3.75%, respectively. The Canadian Borrower will pay quarterly installments of principal equal to 0.25% of the original
principal amount of its term loan sub-facility, plus accrued and unpaid interest. To the extent not previously paid, the term
loans will become due and payable on December 12, 2019, with any unpaid incremental term loans becoming due and
payable on the respective maturity dates applicable to those incremental term loans. At any time or from time to time, the
Borrowers may prepay borrowings under the Term Loan Facility in whole or in part without premium or penalty. The
Borrowers’ obligations under the Term Loan Facility are secured by substantially all of the assets of the Borrowers, the
Company and certain of the Company’s other subsidiaries; provided that, with respect to borrowings under the U.S.
sub-facility, the collateral does not include assets of certain foreign subsidiaries or more than 65% of the issued and
outstanding equity interests in certain foreign subsidiaries.
The Term Loan Facility contains customary affirmative and negative covenants for credit facilities of this type. The Term
Loan Facility also provides for customary events of default.
5.375% Senior Notes due 2021
In November 2013, WESCO Distribution issued $500 million aggregate principal amount of 2021 Notes through a private
offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The
2021 Notes were issued at 100% of par and are governed by an indenture (the “Indenture”) entered into on
November 26, 2013 with WESCO International and U.S. Bank National Association, as trustee. The 2021 Notes are
unsecured senior obligations of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO
International. The 2021 Notes bear interest at a stated rate of 5.375%, payable semi-annually in arrears on June 15 and
December 15 of each year. In addition, WESCO recorded deferred financing fees related to the issuance of the 2021 Notes
totaling $8.2 million, which will be amortized over the life of the notes. The 2021 Notes mature on December 15, 2021.
The net proceeds of the 2021 Notes were used to prepay a portion of the U.S. Term Loan sub-facility.
Under the terms of a registration rights agreement dated as of November 26, 2013 among WESCO Distribution, Inc.,
WESCO International, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the representative of the initial
purchasers of the 5.375% Notes, WESCO Distribution and WESCO International agreed to register under the Securities Act
notes having terms identical in all material respects to the 5.375% Notes (the “5.375% Exchange Notes”) and to make an
offer to exchange the 5.375% Exchange Notes for the 5.375% Notes. WESCO Distribution launched the exchange offer on
June 12, 2014 and the exchange offer closed on July 17, 2014.
2014 Annual Report 63
At any time on or after December 15, 2016, WESCO Distribution may redeem all or a part of the 2021 Notes. Between
December 15, 2016 and December 14, 2017, WESCO Distribution may redeem all or a part of the 2021 Notes at a
redemption price equal to 104.031% of the principal amount. Between December 15, 2017 and December 14, 2018,
WESCO Distribution may redeem all or a part of the 2021 Notes at a redemption price equal to 102.688% of the principal
amount. Between December 15, 2018 and December 14, 2019, WESCO Distribution may redeem all or a part of the 2021
Notes at a redemption price equal to 101.344% of the principal amount. On and after December 15, 2019, WESCO
Distribution may redeem all or a part of the 2021 Notes at a redemption price equal to 100% of the principal amount.
The Indenture governing the 2021 Notes contains customary covenants and customary events of default. In addition, upon
a change of control, the holders of 2021 Notes have the right to require WESCO Distribution to repurchase all or any part of
the 2021 Notes at a redemption price equal to 101% of the principal amount, plus accrued and unpaid interest.
Mortgage Financing Facility
In 2003, WESCO finalized a mortgage financing facility of $51.0 million. This facility was extinguished with repayments of
$26.4 million in the first quarter of 2013. The interest rate on borrowings under this facility was fixed at 6.5%.
Accounts Receivable Securitization Facility
On September 20, 2013, WESCO Distribution and its subsidiary WESCO Receivables Corp. entered into an amendment
(the “Amendment”) of the Third Amended and Restated Receivables Purchase Agreement relating to the Receivables
Facility. The Amendment increased the purchase limit under the Receivables Facility from $475 million to $500 million,
with the opportunity to exercise an accordion feature which permits increases in the purchase limit of up to an additional
$100 million, extended the term of the Receivables Facility to September 20, 2016, and added and amended certain
defined terms. The Amendment also reduced the interest rate spread and commitment fee from 1.10% to 0.95% and from
0.55% to 0.45%, respectively. Substantially all other provisions of the Receivables Facility remained unchanged.
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 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, 2014 and 2013, accounts receivable eligible for securitization totaled approximately $673.6 million
and $586.4 million, respectively. The Consolidated Balance Sheets as of December 31, 2014 and 2013 include $430.0
million and $453.6 million, respectively, of account receivable balances legally sold to third parties, as well as borrowings
for equal amounts. At December 31, 2014 and 2013, the interest rate on borrowings under this facility was approximately
1.0% and 1.2%, respectively.
Revolving Credit Facility
The revolving credit facility (the “Revolving Credit Facility”) was entered into pursuant to the terms and conditions of an
Amended and Restated Credit Agreement, dated as of December 12, 2012 (the “Credit Agreement”), among WESCO
Distribution, the other U.S. Borrowers party thereto, WESCO Distribution Canada LP (“WESCO Canada”) and WDCC, as
Canadian Borrowers, the other Loan Parties party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, and JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent. Subsequent to
the acquisitions of EECOL on December 14, 2012 and Hazmasters on March 17, 2014, EECOL and Hazmasters were
added as Canadian Borrowers. The Revolving Credit Facility contains an accordion feature allowing WESCO Distribution to
request increases to the borrowing commitments under the Credit Facility of up to $100 million in the aggregate.
64 WESCO International, Inc.
The Revolving Credit Facility matures in August 2016 and consists of two separate sub-facilities: (i) a Canadian sub-facility
with a borrowing limit of up to $400 million, which is collateralized by substantially all assets of WESCO Canada, WDCC,
EECOL and Hazmasters, and (ii) a U.S. sub-facility with a borrowing limit of up to $600 million less the amount of
outstanding borrowings under the Canadian sub-facility. The U.S. sub-facility is collateralized by substantially all assets of
WESCO Distribution and its U.S. subsidiaries other than real property and accounts receivable sold or intended to be sold
pursuant to the Receivables Facility. Availability under the Revolving Credit Facility is based upon the amount of eligible
inventory and receivables applied against certain advance rates. The applicable interest rate for borrowings under the
Revolving Credit Facility includes interest rate spreads based on available borrowing capacity that range between 1.50%
and 2.00% for LIBOR and CDOR-based borrowings and 0.50% and 1.00% for prime rate-based borrowings. The otherwise
applicable interest rate is reduced by 0.25% if the Company’s leverage ratio falls below a ratio of 2.5 to 1.0. At
December 31, 2014, the interest rate on borrowings under this facility was approximately 2.4%.
The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type. Subject to the
terms of the Credit Agreement, the Company is permitted to pay dividends, repurchase common stock or repurchase
indebtedness without limitation so long as pro forma combined availability under the Revolving Credit Facility and the
Receivables Facility exceeds $163.8 million and the adjusted fixed charge ratio is not less than a ratio of 1.1 to 1.0.
During 2014, WESCO borrowed $1,046.5 million in the aggregate under the Revolving Credit Facility and made
repayments in the aggregate amount of $1,059.7 million. During 2013, aggregate borrowings and repayments were $833.5
million and $1,026.7 million, respectively. WESCO had $497.5 million available under the Revolving Credit facility at
December 31, 2014, after giving effect to outstanding letters and international lines of credit, as compared to
approximately $512.2 million at December 31, 2013.
7.50% Senior Subordinated Notes due 2017
On December 10, 2012, WESCO International announced that WESCO Distribution would redeem all of its outstanding
2017 Notes on January 9, 2013 (the “Redemption Date”) at a redemption price equal to 101.25% of the principal amount
thereof plus accrued and unpaid interest to, but excluding, the Redemption Date, for a total of $1,030 per $1,000 principal
amount of 2017 Notes. The aggregate principal amount of 2017 Notes outstanding was $150.0 million. On
December 11, 2012, in accordance with the terms of the Indenture, dated as of September 27, 2005, among WESCO
Distribution, WESCO International and The Bank of New York Mellon, as trustee (the “Trustee”), WESCO Distribution
irrevocably deposited with the Trustee funds sufficient to pay principal and interest of all outstanding 2017 Notes on the
Redemption Date. As a result, the Indenture was satisfied and discharged.
International Lines of Credit
Certain foreign subsidiaries of WESCO have entered into uncommitted lines of credit, which serve as overdraft facilities, to
support local operations. The maximum borrowing limit varies by facility and ranges between $2.0 million and $16.0
million. The applicable interest rate for borrowings under these lines of credit varies by country and is governed by the
applicable loan agreement. The international lines of credit are renewable on an annual basis and certain facilities are fully
and unconditionally guaranteed by WESCO Distribution. Accordingly, these lines directly reduce availability under the
Revolving Credit Facility.
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.
2014 Annual Report 65
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, WESCO 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.
WESCO utilized an interest rate of 13.875% to reflect the non-convertible debt borrowing rate of its offering upon issuance,
which was determined based on discussions with its 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. WESCO is amortizing the debt discount and financing costs over the life of the instrument. For the
years ended December 31, 2014, 2013 and 2012, non-cash interest expense was $9.5 million, $9.8 million and $2.3
million, including $4.1 million, $4.3 million and $2.3 million of debt discount amortization, and the amortization of deferred
financing fees of $4.4 million, $4.9 million and $2.6 million, respectively. The debt discount amortization will approximate
$3.9 million in 2015, $4.4 million in 2016, $5.1 million in 2017, $5.8 million in 2018, and $6.6 million in 2019. The
amortization of deferred financing fees will approximate $4.5 million in 2015, $3.9 million in 2016 and $2.5 million in
2017, 2018 and 2019, respectively.
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.
Beginning with the six-month period commencing September 15, 2016, WESCO International will also pay contingent
interest 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 six-month 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 ending on the
second trading day 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 December 31, 2014 or 2013.
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.
66 WESCO International, Inc.
The following table sets forth the components of WESCO’s outstanding convertible debenture indebtedness:
December 31, 2014
December 31, 2013
Principal
Balance
Discount
Net Carrying
Amount
Principal
Balance
Discount
Net Carrying
Amount
(in thousands)
2029 Convertible Debentures $
344,895 $
(167,257) $
177,638 $
344,901 $
(170,752) $
174,149
Covenant Compliance
WESCO was in compliance with all relevant covenants contained in its debt agreements as of December 31, 2014.
The following table sets forth the aggregate principal repayment requirements for all indebtedness for the next five years
and thereafter, as of December 31, 2014:
(in thousands)
2015
2016
2017
2018
2019
Thereafter
Total payments on debt
Debt discount on convertible debentures and term loan facility
Total debt
$
49,130
440,763
1,975
1,712
1,530
1,090,817
1,585,927
(170,367)
$ 1,415,560
WESCO’s credit agreements contain various restrictive covenants that, among other things, impose limitations on (i)
dividend payments or certain other restricted payments or investments; (ii) the incurrence of additional indebtedness and
guarantees; (iii) creation of liens; (iv) mergers, consolidation or sales of substantially all of WESCO’s assets; (v) certain
transactions among affiliates; (vi) payments by certain subsidiaries to WESCO; and (vii) capital expenditures. In addition,
the Revolving Credit Facility and Receivables Facility require WESCO to meet certain fixed charge coverage tests depending
on availability or liquidity, respectively.
8. CAPITAL STOCK
Preferred Stock
There are 20 million shares of preferred stock authorized at a par value of $.01 per share. The Board of Directors has the
authority, without further action by the stockholders, to issue all authorized preferred shares in one or more series and to fix
the number of shares, designations, voting powers, preferences, optional and other special rights and the restrictions or
qualifications thereof. The rights, preferences, privileges and powers of each series of preferred stock may differ with
respect to dividend rates, liquidation values, voting rights, conversion rights, redemption provisions and other matters.
Common Stock
There are 210 million shares of common stock and 20 million shares of Class B common stock authorized at a par value of
$.01 per share. The Class B common stock is identical to the common stock, except for voting and conversion rights. The
holders of Class B common stock have no voting rights. With certain exceptions, Class B common stock may be converted,
at the option of the holder, into the same number of shares of common stock.
The terms of the Revolving Credit Facility and the Term Loan Agreement provide certain restrictions on declaring or paying
dividends. At December 31, 2014 and 2013, no dividends had been declared and, therefore, no retained earnings were
reserved for dividend payments.
2014 Annual Report 67
Additional Capital
WESCO separately accounts for the liability and equity components of its 2029 Debentures in a manner that reflects its
non-convertible debt borrowing rate. As of December 31, 2014 and 2013, the net equity included in additional capital
related to the 2029 Debentures totaled $106.3 million, respectively.
9. INCOME TAXES
The following table sets forth the components of income before income taxes by jurisdiction:
Year Ended December 31,
(in thousands)
United States
Foreign
2014
2013
2012
$
326,934 $
338,069 $
57,219
41,782
$
384,153 $
379,851 $
255,700
25,939
281,639
The following table sets forth the components of the provision (benefit) for income taxes:
Year Ended December 31,
2014
2013
2012
(in thousands)
Current taxes:
Federal(1)
State
Foreign
Total current
Deferred taxes:
Federal
State
Foreign
Total deferred
$
69,495 $
48,740 $
7,161
27,081
103,737
14,525
2,522
(12,068)
4,979
108,716 $
4,669
29,290
82,699
32,979
4,705
(17,050)
20,634
103,333 $
$
51,132
6,006
5,079
62,217
15,034
1,080
1,549
17,663
79,880
(1) Tax benefits related to stock-based awards and other equity instruments recorded directly to additional paid in capital totaled $5.0 million, $2.3 million
and $11.3 million in 2014, 2013 and 2012, respectively.
The following table sets forth the reconciliation between the federal statutory income tax rate and the effective rate:
Year Ended December 31,
Federal statutory rate
State taxes, net of federal tax benefit
Nondeductible expenses
Foreign tax rate differences
Tax effect of intercompany financing
Federal tax credits
Adjustment related to uncertain tax positions
Other
Effective tax rate
2014
35.0%
1.9
0.7
(1.4)
(7.8)
—
(0.2)
0.1
28.3%
2013
35.0%
2.0
1.0
(0.9)
(8.4)
(1.4)
0.5
(0.6)
27.2%
2012
35.0%
1.8
1.0
(0.9)
(6.3)
—
(0.6)
(1.6)
28.4%
68 WESCO International, Inc.
As of December 31, 2014, WESCO’s foreign subsidiaries had unremitted earnings of approximately $596.6 million, which
would be subject to tax at the U.S. tax rate, net of applicable foreign tax credits, including $497.8 million attributable to the
Company’s Canadian operations. WESCO asserts that these earnings are permanently reinvested and, therefore, has not
provided a deferred tax liability on these earnings. WESCO’s current plans do not require it to repatriate these earnings to
fund liquidity needs in the U.S. and it intends to utilize these earnings to fund growth in foreign markets. It is not
practicable for WESCO to determine the deferred tax liability associated with repatriation of these earnings as such
determination involves material uncertainties about the potential extent and timing of any distributions, the availability and
complexity of calculating foreign tax credits, and the potential indirect tax consequences of such distributions, including
withholding taxes. However, if tax were payable at the U.S. statutory rate of 35% upon repatriation of these earnings, the
unrecognized deferred tax liability would be approximately $208.8 million.
The following table sets forth deferred tax assets and liabilities:
As of December 31,
(in thousands)
Accounts receivable
Inventory
Depreciation
Amortization of intangible assets
Convertible debt interest
Employee benefits
Stock-based compensation
Canada royalty and management fee
Foreign tax credits
Tax loss carryforwards
Other
Total deferred taxes
2014
2013
Assets
Liabilities
Assets
Liabilities
$
3,510 $
—
—
—
—
15,297
27,068
25,277
11,239
25,522
11,647
$
119,560 $
— $
2,517
13,074
246,895
139,315
—
—
—
—
—
6,231
408,032 $
2,475 $
—
—
—
—
9,574
26,265
25,270
4,689
36,796
12,618
117,687 $
—
4,915
16,751
243,285
116,819
—
—
—
—
—
6,291
388,061
As of December 31, 2014 and 2013, WESCO had deferred tax assets of $18.3 million and $30.3 million, respectively,
related to Canadian net operating loss carryforwards. The year-over-year reduction in the balance of deferred tax assets
related to Canadian net operating loss carryforwards is primarily due to the prospective implementation of ASU 2013-11, as
discussed in Note 2 of the Notes to Consolidated Financial Statements, which requires jurisdictional netting of liabilities for
unrecognized tax benefits against certain deferred tax assets. These carryforwards expire beginning in 2033 through 2034.
As of December 31, 2014 and 2013, WESCO had deferred tax assets of $3.4 million and $3.8 million, respectively, related
to state net operating loss carryforwards. These carryforwards expire beginning in 2019 through 2029. Additionally, WESCO
had deferred tax assets of $1.6 million and $1.8 million as of December 31, 2014 and 2013, respectively, related to
Mexican net operating loss carryforwards. These carryforwards expire in 2023. The Company has determined, based upon
an evaluation of all available positive and negative evidence, that it more-likely-than-not will utilize these net operating loss
carryforwards before expiration and, accordingly, has not recorded any valuation allowance.
The Company is under examination by tax authorities in the United States and Canada and remains subject to examination
until the applicable statutes of limitation expire. The statutes of limitation for the material jurisdictions in which the
Company files income tax returns remain open as follows:
United States — Federal
United States — Material States
Canada
1996 and forward
2011 and forward
2004 and forward
2014 Annual Report 69
The statutes of limitation with respect to the Company’s 1996-2007 U.S. federal income tax returns are open by waiver
only, in connection with Mutual Agreement Procedure proceedings under the income tax treaty between the U.S. and
Canada. The Mutual Agreement Procedure proceedings with respect to the 1996-2003 U.S. federal income tax returns
have concluded and the statute of limitation with respect to these periods is expected to close on January 31, 2016. The
statute of limitation with respect to the Company’s 2008 U.S. federal income tax return is open by waiver only, in
connection with Advance Pricing Agreement negotiations between the U.S. and Canada. The statute of limitation with
respect to the Company’s 2009-2010 U.S. Federal income tax returns is open by waiver in connection with the IRS
examination of those years.
The recognition and measurement of tax benefits associated with uncertain income tax positions requires the use of judgment
and estimates by management, which are inherently subjective. Changes in judgment about uncertain tax positions taken in
previous periods may result from new information concerning an uncertain tax position, completion of an audit, or expiration
of statutes of limitation. These changes may create volatility in the Company’s effective tax rate in future periods.
The following table sets forth the reconciliation of gross unrecognized tax benefits:
As of 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
Additions for acquired tax positions
Reductions for tax positions of prior years
Settlements
Lapse in statute of limitations
Foreign currency exchange rate changes
Ending balance December 31
2014
2013
2012
$
$
25,548 $
69
191
308
(5,608)
(209)
(40)
(226)
20,033 $
21,075 $
1,573
4,566
1,428
—
(2,226)
(310)
(558)
25,548 $
20,878
929
1,224
1,825
(85)
(3,400)
(296)
—
21,075
The total amount of unrecognized tax benefits were $20.0 million, $25.5 million, and $21.1 million as of December 31, 2014
2013 and 2012, respectively. The amount of unrecognized tax benefits that would affect the effective tax rate if recognized in
the consolidated financial statements was $20.4 million, $25.7 million, and $21.2 million, respectively. These amounts, which
primarily relate to transfer pricing adjustments made by Canada Revenue Agency, which are subject to Mutual Agreement
Procedure proceedings under the U.S./Canada income tax treaty, would be offset by deferred tax expense resulting from the
reversal of a deferred tax asset in the amount of $25.3 million, excluding interest, related to the correlative impact of these
adjustments on the Company’s U.S. income tax liability. These amounts would be discrete items in the quarter recognized.
It is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $15.7 million within
the next twelve months due to the effective settlement of uncertain tax positions related to transfer pricing adjustments
made by Canada Revenue Agency or the expiration of statutes of limitation. Of this amount, approximately $13.9 million
could be offset by deferred tax expense as discussed above.
The Company classifies interest related to unrecognized tax benefits as interest expense in the Consolidated Statements of
Comprehensive Income. Interest expense on unrecognized tax benefits was $1.0 million and $0.6 million for 2014 and
2013, respectively. In 2012, interest income of $2.6 million was recognized, primarily as a result of a favorable IRS appeals
settlement. As of December 31, 2014, 2013 and 2012, WESCO had an accrued liability of $12.7 million, $8.6 million and
$8.0 million respectively, for interest expense related to unrecognized tax benefits. The Company classifies penalties
related to unrecognized tax benefits as part of income tax expense. Penalties recorded as part of income tax expense were
immaterial in amount in 2014, 2013, and 2012.
70 WESCO International, Inc.
10. 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.
The following table sets forth the details of basic and diluted earnings per share:
Year Ended December 31,
(in thousands, except per share data)
Net income attributable to WESCO International, Inc.
Weighted average common shares outstanding used
in computing basic earnings per share
Common shares issuable upon exercise of dilutive stock-based awards
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
2014
2013
2012
$
275,906 $
276,430 $
201,777
44,440
997
44,148
1,121
43,677
1,147
7,821
7,381
6,310
53,258
52,650
51,134
$
$
6.21 $
5.18 $
6.26 $
5.25 $
4.62
3.95
The computation of diluted earnings per share attributable to WESCO International, Inc. excluded stock-settled stock
appreciation rights of approximately 0.3 million as of December 31, 2014 and 2013, and 0.9 million as of
December 31, 2012 at weighted average exercise prices of $84.48 per share, $66.08 per share and $64.17 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 in cash, WESCO is not required to include
any shares underlying the 2029 Debentures in its diluted weighted average shares outstanding until the average stock
price per share for the period exceeds the conversion price of the 2029 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 price of the 2029
Debentures is $28.87. Share dilution is limited to a maximum of 11,948,301 shares for the 2029 Debentures. For the
periods ended December 31, 2014, 2013, and 2012, the effect of the 2029 Debentures on diluted earnings per share
attributable to WESCO International, Inc. was a decrease of $0.89, $0.86, and $0.56, respectively.
2014 Annual Report 71
11. EMPLOYEE BENEFIT PLANS
Defined Contribution 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. A discretionary employer contributions
charge of $9.7 million was incurred in 2014. For the years ended December 31, 2014, 2013 and 2012, WESCO incurred
charges of $28.3 million, $22.1 million, and $31.8 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.
Defined Benefit Plans
In connection with the December 14, 2012 acquisition of EECOL discussed in Note 5, the Company assumed a
contributory defined benefit plan (the “Plan”) covering all employees of EECOL. The Plan provides retirement benefits
based on earnings and credited service, and participants may contribute 2% of their earnings to the Plan. Participants
become 100% vested after two years of continuous service.
The Company also assumed EECOL’s Supplemental Executive Retirement Plan (SERP), which provides additional pension
benefits to certain executives based on earnings, credited service and executive service. Participants in the SERP are
vested after two years of continuous service and may contribute 4% of their earnings to the SERP.
72 WESCO International, Inc.
The following tables present the changes in benefit obligations, plan assets and funded status for the pension plans and
the components of net periodic pension cost:
Year Ended December 31,
(in thousands)
2014
2013
Accumulated Benefit Obligation (ABO) at December 31
$
70,594 $
74,196
Change in Projected Benefit Obligation (PBO)
PBO at beginning of year
Service cost
Interest cost
Participant contributions
Actuarial loss (gain), including assumption changes
Benefits paid
Foreign currency exchange rate changes
PBO at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Participant contributions
Employer contributions
Benefits paid
Foreign currency exchange rate changes
Fair value of plan assets at end of year
$
96,860 $
3,610
4,600
857
12,791
(4,125)
(8,268)
106,325 $
103,466
4,082
4,556
946
(5,505)
(3,754)
(6,931)
96,860
$
$
$
87,606 $
11,042
857
2,310
(4,125)
(7,348)
90,342 $
61,450
8,515
946
24,543
(3,754)
(4,094)
87,606
Funded Status
$
(15,983) $
(9,254)
Amounts Recognized in the Consolidated Balance Sheets
Current liabilities
Noncurrent liabilities
Net amount recognized
Amounts Recognized in Accumulated
Other Comprehensive Loss
Net actuarial gain
Prior service cost
Total net amount recognized, before tax effect
Components of Net Periodic Pension Cost
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial gain
Net periodic pension cost
Other Changes in Plan Assets and Projected Benefit Obligation Recognized
in Accumulated Other Comprehensive Loss
Net actuarial loss (gain)
Amortization of unrecognized net actuarial gain
Total net amount recognized, before tax effect
$
(422) $
(15,561)
(15,983) $
$
(460)
(8,794)
(9,254)
$
$
$
$
$
$
(2,828) $
—
(2,828) $
(10,331)
—
(10,331)
3,610 $
4,600
(5,408)
(55)
2,747 $
4,082
4,556
(4,103)
—
4,535
7,448 $
55
7,503 $
(9,917)
—
(9,917)
Total recognized in net periodic pension cost and accumulated other comprehensive loss $
10,250 $
(5,382)
2014 Annual Report 73
The following weighted-average actuarial assumptions were used to determine benefit obligations at December 31:
Discount rate
Rate of compensation increase
2014
2013
Pension Plan
SERP
Pension Plan
4.1%
4.0%
4.1%
4.0%
4.9%
4.0%
SERP
4.9%
4.0%
The following weighted-average actuarial assumptions were used to determine net periodic pension costs at January 1:
Discount rate
Expected long-term return on assets
Rate of compensation increase
2014
2013
Pension Plan
SERP
Pension Plan
4.9%
6.4%
4.0%
4.9%
n/a
4.0%
4.5%
6.3%
4.0%
SERP
4.5%
n/a
4.0%
The following benefit payments, which reflect expected future service, are expected to be paid:
Years ending December 31,
(in thousands)
2015
2016
2017
2018
2019
2020-2024
The Company expects to contribute approximately $2.9 million to the plans in 2015.
The Company’s pension plan weighted asset allocations by asset category are as follows:
As of December 31,
Asset Category
Equity securities
Debt securities
Total
$
2,243
2,334
2,451
2,512
2,793
19,850
2014
2013
55.9%
44.1%
100.0%
57.1%
42.9%
100.0%
The Plan’s long-term overall objective is to maintain benefits at their current level without affecting the cost of maintaining
the Plan, assuming that the demographic make-up of the group of members remains the same.
The primary investment objective, in support of the overall objective, is to earn the highest rate of return possible for the
Plan, while keeping risk at acceptable levels. The long-term return objective of the Plan is to achieve a minimum
annualized rate of return in excess of the actuarial requirements. This translates into a required return of 3.5% above
inflation, net of investment management fees. The return objective is consistent with the overall investment risk level that
the Plan assumes in order to meet the pension obligations of the Plan. To achieve this long term investment objective, the
Plan has adopted an asset mix that has a combination of equity and fixed income investments. Risk is controlled by
investing in a well-diversified portfolio of asset classes. To meet this objective, a benchmark portfolio is established based
on the expected returns for each asset class available. The investment of the Plan’s assets in accordance with the
benchmark portfolio should enable the Plan to not only attain, but also exceed the minimum overall objective.
74 WESCO International, Inc.
The following table presents the target asset mix based on market value for each investment category within which the
investment managers must invest the Plan’s assets. The manager is required to rebalance the asset mix back to the target
on a quarterly basis.
Asset Category
Canadian equities
U.S. equities
Non-North American equities
Total equities
Fixed income bond managers
Target %
25%
15%
20%
60%
40%
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1)
market participant assumptions developed based on market data obtained from independent sources (observable inputs)
and (2) an entity’s own assumptions about market participant assumptions developed based on the best information
available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
• Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities.
• Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are
observable for the asset and liability (e.g., interest rates); and inputs that are derived principally from or corroborated
by observable market data by correlation or other means.
• Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
The following section describes the valuation methodologies used by the trustees to measure the fair value of plan assets,
including an indication of the level in the fair value hierarchy in which each type of asset is generally classified.
Equity Securities. These securities consist of the Plan’s share of segregated funds that invest in the stock of publicly
traded companies and are valued at the net asset value of shares held at December 31. As such, these securities are
generally included in Level 2.
Debt Securities. These securities consist of segregated funds that invest in publicly traded U.S and non-U.S. fixed interest
obligations and government securities and are valued through consultation and evaluation with brokers in the institutional
market using other observable market data. As such, these securities are generally included in Level 2. Also, these
securities include cash and cash equivalents consisting of money market funds and are generally valued using quoted
prices or observable market data. As such, these funds are included in Level 1.
The fair value methods described above may not be indicative of net realizable value or reflective of future fair values.
Additionally, while the Company believes the valuation method used by the plan’s trustee is appropriate and consistent with
other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
2014 Annual Report 75
The following tables set forth the fair value of plan assets classified under the appropriate level of fair value hierarchy:
December 31, 2014
Equity securities
Debt securities
Total investments
December 31, 2013
Equity securities
Debt securities
Total investments
$
$
$
$
Level 1
Level 2
Level 3
— $
335
335 $
50,546 $
39,461
90,007 $
— $
—
— $
Level 1
Level 2
Level 3
— $
389
389 $
50,023 $
37,194
87,217 $
— $
—
— $
Total
50,546
9,796
90,342
Total
50,023
37,583
87,606
12. STOCK-BASED COMPENSATION
WESCO has sponsored four stock-based compensation plans: the 1999 Long-Term Incentive Plan, as amended and
restated (“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.
On May 30, 2013, the Company renewed and restated the LTIP, increasing the maximum number of shares of common
stock that may be issued under the plan by 1.6 million shares to 4.0 million. Under the LTIP, the total number of shares of
Common Stock authorized to be issued under the LTIP will be reduced by 1 share of Common Stock for every 1 share that
is subject to an option or stock appreciation right granted under the LTIP on or after May 30, 2013, and 1.83 shares of
Common Stock for every 1 share that was subject to an award other than an option or stock appreciation right granted on
or after May 30, 2013. As of December 31, 2014, 3.6 million shares of common stock were reserved under the LTIP for
future equity award grants.
Except for the performance-based award, awards granted vest and become exercisable once criteria based on time is
achieved. Performance-based awards vest based on market or performance conditions. 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.
WESCO recognized $14.8 million, $15.9 million and $15.1 million of non-cash stock-based compensation expense, which is
included in selling, general and administrative expenses, in 2014, 2013 and 2012, respectively. As of December 31, 2014,
there was $17.1 million of total unrecognized compensation expense related to non-vested stock-based compensation
arrangements for all awards previously made of which approximately $10.6 million is expected to be recognized in 2015,
$5.8 million in 2016 and $0.7 million in 2017.
The total intrinsic value of awards exercised during the years ended December 31, 2014, 2013, and 2012 was $25.2 million,
$23.4 million, and $41.1 million, respectively. The total amount of cash received from the exercise of options was $0.8 million,
less than $0.1 million, and $3.2 million during the years ended December 31, 2014, 2013, and 2012, respectively. The tax
benefit associated with the exercise of stock-based awards totaled $9.4 million, $8.4 million, and $11.4 million in 2014, 2013,
and 2012, 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.
76 WESCO International, Inc.
The following table sets forth a summary of both stock options and stock appreciation rights and related information for the
years indicated:
2014
2013
2012
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
2,715,651
$ 45.93
3,142,021
$
45.40
4,266,533
$
39.64
Granted
Exercised
Cancelled
End of year
Exercisable at
end of year
274,508
(485,469)
(23,945)
2,480,745
85.35
41.58
70.30
50.91
253,999
(659,872)
(20,497)
5.2
$ 65,238
2,715,651
72.26
257,932
53.08
(1,340,986)
61.26
45.93
(41,458)
3,142,021
64.12
30.54
49.96
45.40
1,980,767
$ 44.06
4.4
$ 63,696
2,192,800
$
40.94
2,450,391
$
43.16
WESCO granted the following stock-settled stock appreciation rights at the following weighted average assumptions:
Stock-settled appreciation rights granted
Risk free interest rate
Expected life (in years)
Expected volatility
2014
2013
2012
274,508
253,999
257,932
1.5%
5
39%
0.9%
5
50%
0.9%
5
50%
The following table sets forth a summary of time-based restricted stock units and related information for the year ended
December 31, 2014:
Unvested at December 31, 2013
Granted
Vested
Forfeited
Unvested at December 31, 2014
Weighted
Average
Fair
Value
66.08
85.32
60.85
69.52
73.87
Awards
184,746 $
63,117
(51,287)
(11,119)
185,457 $
The weighted average fair value per stock-settled appreciation right granted was $30.64, $31.34 and $27.89 for the years
ended December 31, 2014, 2013 and 2012, respectively. The weighted average fair value per restricted stock unit granted
was $85.32, $72.15 and $64.27 for the years ended December 31, 2014, 2013 and 2012, respectively.
The following table sets forth a summary of performance-based awards for the year ended December 31, 2014:
2014 Annual Report 77
Unvested at December 31, 2013
Granted
Vested
Forfeited
Unvested at December 31, 2014
Weighted
Average
Fair
Value
76.98
86.65
—
77.87
80.21
Awards
92,484 $
44,046
—
(6,526)
130,004 $
The unvested performance-based awards at December 31, 2014 includes 65,002 market-based performance awards. The
number of shares that vest from these awards will be dependent upon WESCO’s total stockholder return over a three-year
period in relation to the total stockholder return of a select group of peer companies. These awards are valued based upon
a Monte Carlo simulation model. The probability of meeting the market criteria was considered when calculating the
estimated fair market value on the date of grant. These awards were accounted for as awards with market conditions,
which are recognized over the service period, regardless of whether the market conditions are achieved and the awards
ultimately vest.
The fair value of the performance shares based on total stockholder return granted during the year ended
December 31, 2014 were estimated using the following weighted-average assumptions:
Grant date share price
WESCO expected volatility
Peer group median volatility
Risk-free interest rate
Correlation
Weighted Average Assumptions
$
87.95
35.4%
28.7%
0.62%
103.1%
Vesting of the remaining 65,002 shares of performance-based awards in the table above will be dependent upon the
three-year average growth rate of WESCO’s net income. The fair value of these awards is based upon the grant-date closing
price of WESCO’s common stock. These awards were accounted for as awards with performance conditions, accordingly
stock-based compensation expense is recognized over the performance period and considers the probability that the
performance targets will be achieved.
13. 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, 2014, are as follows:
(in thousands)
2015
2016
2017
2018
2019
Thereafter
$
67,168
57,438
48,187
38,532
27,585
77,363
Rental expense for the years ended December 31, 2014, 2013 and 2012 was $63.2 million, $60.0 million and $50.0
million, respectively.
78 WESCO International, Inc.
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.
As initially reported in our 2008 Annual Report on Form 10-K, WESCO is a defendant in a lawsuit filed in a state court in
Indiana in which a customer, ArcelorMittal Indiana Harbor, Inc. (“AIH”), alleges that the Company sold defective products
to AIH in 2004 that were supplied to the Company by others. The lawsuit sought monetary damages in the amount of
approximately $50 million. On February 14, 2013, the jury returned a verdict in favor of AIH and awarded damages in the
amount of approximately $36.1 million, and judgment was entered on the jury’s verdict. As a result, the Company recorded
a $36.1 million charge to selling, general and administrative expenses in 2012. The Company disputes this outcome and
filed a post-trial motion challenging the verdict alleging various errors that occurred during trial. The Company received
letters from its insurers confirming insurance coverage of the matter and recorded a receivable in the quarter ended
March 31, 2013 in an amount equal to the previously recorded liability. AIH also filed a post-trial motion asking the court to
award additional amounts to AIH, including prejudgment and post-judgment interest. The Court denied the Company’s
post-trial motion on June 28, 2013 and granted in part AIH’s motion, awarding prejudgment interest in the amount of $3.9
million and ordering post-judgment interest to accrue on the entire judgment at 8% per annum. In the quarter ended
June 30, 2013, the Company received letters from its insurers confirming insurance coverage of all prejudgment and
post-judgment interest related to the matter. Final judgment was entered by the court on July 16, 2013, and the Company
is appealing the judgment. On November 10, 2014, the Indiana Court of Appeals reversed the prejudgment interest award,
but otherwise affirmed the underlying judgment. A petition for further review of the case has been filed with the Indiana
Supreme Court, which has discretion to decide whether it will consider the case or not. As of December 31, 2014, a liability
and a corresponding receivable in the amount of $9.5 million has been recorded by the Company in the Consolidated
Balance Sheets within other current liabilities and other accounts receivable, respectively, for the prejudgment interest of
$3.9 million and the post-judgment interest of $5.6 million that has accrued in connection with this matter. The judgment
may increase or decrease based on the outcome of the appellate proceedings that cannot be predicted with certainty.
WESCO is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and
escheatment (the transfer of property to the state) of unclaimed or abandoned funds, and is subject to audit and
examination for compliance with these requirements. WESCO Distribution, Inc. is currently undergoing a compliance audit
in the State of Delaware concerning the identification, reporting and escheatment of unclaimed or abandoned property. A
third party auditor is conducting the audit on behalf of the State, and the Company has been working with an outside
consultant during the audit process and in discussions with the auditors. The Company is defending the audit, the
outcome of which cannot be predicted with certainty at this time. After the third party auditor completes its field work, it is
expected to issue preliminary findings for review by the Company and the State, and thereafter the auditor is expected to
issue a final report of examination. If the Company and State do not reach resolution after further discussion, the State
issues a demand for payment, which the Company may either agree to pay or appeal, in full or in part. The Company has
recorded a liability for unclaimed property based on the facts currently known to the Company.
In October 2014, WESCO was notified that the New York County District Attorney’s Office is conducting a criminal
investigation involving minority and disadvantaged business contracting practices in the construction industry in New York
City and that various contractors, minority and disadvantaged business firms, and their material suppliers, including the
Company, are a part of this investigation. The Company has commenced an internal review of this matter and intends to
cooperate with the government investigation. The Company cannot predict the outcome or impact of the matter at this
time, but could be subject to fines, penalties or other adverse consequences. Based on the facts currently known to the
Company, it cannot reasonably estimate a range of exposure to potential liability at this time.
2014 Annual Report 79
14. SEGMENTS AND RELATED INFORMATION
WESCO provides distribution of product and services through its four 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,
2014
2013
2012
2014
2013
2012
(in thousands)
United States
$ 5,618,240 71%
$ 5,275,275 70%
$ 5,215,849 79%
$ 127,670
$ 137,904
$ 144,947
Canada
Mexico
Subtotal North
American Operations
1,899,173 24%
1,882,313 25%
1,084,109 17%
95,585 1%
90,152 1%
92,370 1%
80,080
442
93,642
615
100,366
532
7,612,998
7,247,740
6,392,328
208,192
232,161
245,845
Other International
276,628 4%
265,602 4%
186,973 3%
8,213
11,115
6,047
Total
$ 7,889,626
$ 7,513,342
$ 6,579,301
$ 216,405
$ 243,276
$ 251,892
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
15. OTHER FINANCIAL INFORMATION
2014
2013
2012
40%
16%
14%
11%
10%
9%
40%
16%
14%
11%
10%
9%
36%
17%
15%
13%
9%
10%
WESCO International has outstanding $344.9 million in aggregate principal amount of 2029 Debentures. The 2029
Debentures are fully and unconditionally guaranteed by WESCO Distribution, a 100% owned subsidiary of WESCO
International, on a senior subordinated basis to all existing and future senior indebtedness of WESCO Distribution.
WESCO Distribution has $500 million aggregate principal amount of 2021 Notes. The 2021 Notes are unsecured senior
obligations of WESCO Distribution and are guaranteed on a senior unsecured basis by WESCO International.
Condensed consolidating financial information for WESCO International, WESCO Distribution, Inc. and the non-guarantor
subsidiaries is presented on the following pages.
80 WESCO International, Inc.
Condensed Consolidating Balance Sheets
December 31, 2014
(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
Other noncurrent assets
Total assets
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
95,811 $
— $
—
—
12
12
—
—
—
—
3,304,914
4,083
128,319
1,117,420
819,502
285,097
2,350,338
—
182,725
429,840
1,735,440
—
56,094
$ 3,309,009 $ 4,700,538 $ 5,691,211 $ (8,946,321) $ 4,754,437
— $
—
—
(6,465)
(6,465)
(1,806,215)
—
—
—
(7,133,641)
—
32,508 $
—
373,938
144,282
550,728
—
56,735
4,733
246,771
3,828,727
12,844
1,117,420
445,564
147,268
1,806,063
1,806,215
125,990
425,107
1,488,669
—
39,167
$
445,680 $
319,455 $
— $
Accounts payable
—
Short-term debt
12,465
Other current liabilities
12,465
Total current liabilities
1,168,366
Intercompany payables, net
177,638
Long-term debt
21,888
Other noncurrent liabilities
Total WESCO International stockholders’ equity 1,928,652
Noncontrolling interest
—
Total liabilities and stockholders’ equity
765,135
46,787
251,950
1,063,872
—
1,366,430
395,970
1,928,652
(487)
$ 3,309,009 $ 4,700,538 $ 5,691,211 $ (8,946,321) $ 4,754,437
— $
—
(6,465)
(6,465)
(1,806,215)
—
—
(7,133,641)
—
46,787
132,204
498,446
—
505,385
141,538
4,546,329
(487)
—
113,746
559,426
637,849
683,407
232,544
2,587,312
—
December 31, 2013
(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
Other noncurrent assets
Total assets
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
92,030 $
— $
—
—
22
22
—
—
—
—
3,137,418
4,361
123,725
1,045,054
787,324
249,512
2,205,615
—
198,654
439,167
1,734,391
—
71,066
$ 3,141,801 $ 4,599,104 $ 5,719,582 $ (8,811,594) $ 4,648,893
— $
—
—
(44,489)
(44,489)
(1,906,785)
—
—
—
(6,860,320)
—
31,695 $
—
351,242
166,540
549,477
—
59,569
5,404
246,125
3,722,902
15,627
1,045,054
436,082
127,439
1,700,605
1,906,785
139,085
433,763
1,488,266
—
51,078
$
325,080 $
410,017 $
— $
Accounts payable
—
Short-term debt
11,920
Other current liabilities
11,920
Total current liabilities
1,168,507
Intercompany payables, net
174,149
Long-term debt
Other noncurrent liabilities
22,416
Total WESCO International stockholders’ equity 1,764,809
—
Noncontrolling interest
Total liabilities and stockholders’ equity
735,097
37,551
279,015
1,051,663
—
1,447,634
384,805
1,764,809
(18)
$ 3,141,801 $ 4,599,104 $ 5,719,582 $ (8,811,594) $ 4,648,893
— $
—
(44,489)
(44,489)
(1,906,785)
—
—
(6,860,320)
—
37,551
196,690
559,321
—
598,061
141,739
4,420,479
(18)
—
114,894
524,911
738,278
675,424
220,650
2,439,841
—
2014 Annual Report 81
Condensed Consolidating Statements of Income and Comprehensive Income
Year Ended December 31, 2014
(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
Provision for income taxes
Net income
— $ 3,557,839 $ 4,446,139 $
—
9
—
292,845
24,472
(7,072)
275,436
3,544,523
519,203
48,933
—
(17,061)
99,342
251,199
2,848,413
557,596
19,084
231,174
74,653
16,446
272,821
(114,352) $ 7,889,626
6,278,584
(114,352)
1,076,808
—
68,017
—
(524,019)
—
82,064
—
108,716
—
275,437
(524,019)
Less: Net loss attributable to
noncontrolling interest
Net income attributable to
WESCO International, Inc.
Comprehensive income:
Foreign currency translation adjustment
Post retirement benefit plan adjustments
Comprehensive income attributable to
WESCO International, Inc.
Year Ended December 31, 2013
(in thousands)
—
—
(469)
—
(469)
$
275,436 $
272,821 $
251,668 $
(524,019) $
275,906
(120,293)
(5,056)
(120,293)
(5,056)
(120,293)
(5,056)
240,586
10,112
(120,293)
(5,056)
$
150,087 $
147,472 $
126,319 $
(273,321) $
150,557
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
Loss on debt extinguishment
Loss on sale of Argentina business
Provision for income taxes
Net income
— $ 3,386,043 $ 4,253,666 $
—
29
—
294,137
23,918
—
—
(6,327)
276,517
3,393,567
511,206
49,311
—
(13,605)
—
2,315
84,003
226,869
2,700,692
485,575
18,331
207,630
75,294
13,225
—
25,657
274,899
(126,367) $ 7,513,342
5,967,892
(126,367)
996,810
—
67,642
—
(501,767)
—
85,607
—
13,225
—
2,315
—
103,333
—
276,518
(501,767)
Less: Net income attributable to
noncontrolling interest
Net income attributable to
WESCO International, Inc.
Comprehensive income:
Foreign currency translation adjustment
Post retirement benefit plan adjustments
Comprehensive income attributable to
WESCO International, Inc.
—
—
88
—
88
$
276,517 $
274,899 $
226,781 $
(501,767) $
276,430
(83,172)
7,673
(83,172)
7,673
(83,172)
7,673
166,344
(15,346)
(83,172)
7,673
$
201,018 $
199,400 $
151,282 $
(350,769) $
200,931
82 WESCO International, Inc.
Condensed Consolidating Statements of Income and Comprehensive Income (continued)
Year Ended December 31, 2012
(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
Loss on debt extinguishment
Provision for income taxes
Net income
$
$
— $ 3,442,714 $ 3,265,007 $
—
59
—
218,398
23,163
—
(6,583)
201,759 $
2,637,334
367,555
22,353
—
(22,265)
—
72,617
2,738,941
593,400
15,208
168,876
46,864
3,470
13,846
199,861 $
187,413 $
(128,420) $ 6,579,301
5,247,855
(128,420)
961,014
—
37,561
—
—
(387,274)
47,762
—
3,470
—
79,880
—
201,759
(387,274) $
Less: Net loss attributable to
noncontrolling interest
Net income attributable to
WESCO International, Inc.
—
—
(18)
—
(18)
$
201,759 $
199,861 $
187,431 $
(387,274) $
201,777
Comprehensive income:
Foreign currency translation adjustment
Comprehensive income attributable to
WESCO International, Inc.
(9,013)
(9,013)
(9,013)
18,026
(9,013)
$
192,746 $
190,848 $
178,418 $
(369,248) $
192,764
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2014
(in thousands)
Net cash provided by operating activities
Investing activities:
Capital expenditures
Acquisition payments
Proceeds from sale of assets
Advances to subsidiaries and other
Net cash used in investing activities
Financing activities:
Proceeds from issuance of debt
Repayments of debt
Other
Net cash (used in) provided 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
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
820 $
51,738 $
198,598 $
— $
251,156
—
—
—
—
—
(13,717)
(42,226)
—
141
(55,802)
(6,831)
(96,404)
14,991
—
(88,244)
—
—
—
(141)
(141)
(20,548)
(138,630)
14,991
—
(144,187)
6,517
(6,658)
(679)
798,315
(790,315)
(3,123)
441,573
(541,080)
(181)
(6,517)
6,658
—
1,239,888
(1,331,395)
(3,983)
(820)
4,877
(99,688)
141
(95,490)
—
—
—
—
813
(6,885)
3,781
31,695
92,030
—
—
—
(6,885)
4,594
123,725
$
— $
32,508 $
95,811 $
— $
128,319
2014 Annual Report 83
Condensed Consolidating Statements of Cash Flows (continued)
Year Ended December 31, 2013
(in thousands)
Net cash (used in) provided by
operating activities
Investing activities:
Capital expenditures
Proceeds from sale of assets
Advances to subsidiaries and other
Net cash used in investing activities
Financing activities:
Proceeds from issuance of debt
Repayments of debt
Other
Net cash provided by (used in)
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
Year Ended December 31, 2012
(in thousands)
Net cash (used in) provided by
operating activities
Investing activities:
Capital expenditures
Acquisition payments
Advances to subsidiaries and other
Net cash used in investing activities
Financing activities:
Proceeds from issuance of debt
Repayments of debt
Other
Net cash provided 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
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
(10,716) $
209,501 $
116,356 $
— $
315,141
—
—
—
—
(16,728)
—
(14,945)
(31,673)
(11,097)
10,807
(1,205)
(1,495)
—
—
14,945
14,945
(27,825)
10,807
(1,205)
(18,223)
14,945
—
(4,229)
1,143,604
(1,327,916)
(14,096)
359,247
(412,561)
(1,568)
(14,945)
—
—
1,502,851
(1,740,477)
(19,893)
10,716
(198,408)
(54,882)
(14,945)
(257,519)
—
—
—
—
(20,580)
(1,773)
58,206
52,275
33,824
—
—
—
(1,773)
37,626
86,099
$
— $
31,695 $
92,030 $
— $
123,725
WESCO
International, Inc. Distribution, Inc.
WESCO
Non-Guarantor
Subsidiaries
Consolidating
and Eliminating
Entries
Consolidated
$
(19,476) $
680,813 $
(373,153) $
— $
288,184
—
—
—
—
(18,697)
(142,483)
(1,164,221)
(1,325,401)
(4,387)
(1,146,997)
1,558
(1,149,826)
—
—
1,164,221
1,164,221
(23,084)
(1,289,480)
1,558
(1,311,006)
17,224
—
2,252
19,476
1,145,300
(469,244)
(23,605)
652,451
2,326,063
(784,755)
(4,966)
1,536,342
(1,164,221)
—
—
(1,164,221)
2,324,366
(1,253,999)
(26,319)
1,044,048
—
—
—
—
7,863
1,004
14,367
44,412
19,457
—
—
—
1,004
22,230
63,869
$
— $
52,275 $
33,824 $
— $
86,099
The Company revised its condensed consolidating balance sheet as of December 31, 2013 to appropriately present current and non-current deferred tax
balances as well as current taxes refundable/payable in accordance with ASC 740, “Income Taxes.” Specifically, other noncurrent assets and other noncurrent
liabilities each increased by $24.7 million at December 31, 2013. Additionally, other current assets increased by $7.1 million with a corresponding increase to
other current liabilities of $7.1 million at December 31, 2013. All of these revisions impacted the non-guarantor subsidiaries in the December 31, 2013
consolidating balance sheet above.
84 WESCO International, Inc.
The Company revised its condensed consolidating statements of income and comprehensive income for interest expense related to intercompany borrowings,
increasing interest expense of WESCO Distribution by $29.2 million and decreasing interest expense of non-guarantor subsidiaries by $29.2 million for the
year ended December 31, 2012. In addition, the Company revised its methodology for allocating income tax expense, resulting in a decrease in income tax
expense of WESCO International by $17.1 million, a decrease in income tax expense of WESCO Distribution by $9.6 million and an increase in income tax
expense of non-guarantor subsidiaries by $26.7 million for the year ended December 31, 2012.
The impact of the revisions noted above, which the Company has determined is not material to the consolidated financial statements taken as a whole, did not
have any impact on the consolidated amounts previously reported, nor did they impact the Company’s obligations under the 2029 Debentures.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for the years ended December 31, 2014 and 2013:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
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)
2013
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)
$ 1,810,825 $ 2,005,165 $ 2,078,150 $ 1,995,486
1,593,328
124,177
103,936
73,977
1,655,787
133,248
112,450
80,818
1,593,437
115,833
95,496
68,787
1,436,032
92,959
72,271
51,855
51,905
68,802
80,816
74,383
1.17
0.97
1.55
1.29
1.82
1.52
1.67
1.40
$ 1,808,059 $ 1,893,953 $ 1,931,260 $ 1,880,070
1,503,901
110,554
76,721
57,955
1,535,609
123,646
100,027
69,118
1,501,403
109,891
88,122
65,351
1,426,979
136,907
114,981
84,094
83,989
65,285
69,162
57,994
1.91
1.60
1.48
1.25
1.57
1.32
1.31
1.09
(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 EPS in each quarter is computed using the weighted average number of shares outstanding and common share equivalents during that quarter
while Diluted EPS for the full year is computed by taking the average of the weighted average number of shares outstanding and common share
equivalents each quarter. Thus, the sum of the four quarters’ Diluted EPS may not equal the full-year Diluted EPS.
2014 Annual Report 85
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 updated framework in Internal Control — Integrated Framework (2013) (2013
Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission on May 14, 2013. Based
on our evaluation under the 2013 Framework, our management concluded that our internal control over financial reporting
was effective as of December 31, 2014.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 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 2014, 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.
86 WESCO International, Inc.
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 2015 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 2015 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, 2014.
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 2015 Annual Meeting of Stockholders is incorporated herein by reference.
2014 Annual Report 87
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 2015 Annual
Meeting of Stockholders is incorporated herein by reference.
The following table provides information as of December 31, 2014 with respect to the shares of our common stock that
may be issued under our existing equity compensation plans:
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans
not approved by security holders
Total
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
2,796,206
$
44.06
—
2,796,206
$
—
44.06
Number of securities
remaining available
for future issuance
under equity
compensation plans
3,556,251
—
3,556,251
88 WESCO International, Inc.
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 2015 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 2015 Annual Meeting of Stockholders is incorporated herein by reference.
2014 Annual Report 89
PART IV
Item 15. Exhibits and Financial Statement Schedules
The financial statements, financial statement schedule and exhibits listed below are filed as part of this annual report:
(a)
(1) Financial Statements
The list of financial statements required by this item is set forth in Item 8, “Financial Statements and
Supplementary Data,” and is incorporated herein by reference.
(2) Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts
(b) Exhibits
Exhibit No.
Description of Exhibit
Prior Filing or Sequential Page Number
2.1
2.2
2.3
3.1
3.2
4.1
4.2
Recapitalization Agreement, dated as of
March 27, 1998, among Thor Acquisitions
L.L.C., WESCO International, Inc. (formerly
known as CDW Holding Corporation) and
certain security holders of WESCO
International, Inc.
Membership Interest Purchase Agreement,
dated as of November 16, 2010, by and
among WESCO Distribution, Inc., WDCH,
LP, TVC Communications, L.L.C. and
Palisades TVC Holding, L.L.C.
Share Purchase Agreement, dated as of
October 15, 2012, between WDCC
Enterprises Inc., the Shareholders party
thereto, EECOL Holdings Ltd., Jarich
Holdings Ltd., EESA Corp., EESA Holdings
Ltd. and EECOL Electric Corp.
Restated Certificate of Incorporation of
WESCO International, Inc.
Incorporated by reference to Exhibit 2.1 to WESCO’s
Registration Statement on Form S-4 (No. 333-
43225)
Incorporated by reference to Exhibit 2.1 to WESCO’s
Current Report on Form 8-K, dated
November 16, 2010
Incorporated by reference to Exhibit 2.1 to
WESCO’s Current Report on Form 8-K, dated
October 17, 2012
Incorporated by reference to Exhibit 3.1 to
WESCO’s Registration Statement on Form S-4
(No. 333-70404)
Amended and Restated By-laws of
WESCO International, Inc., effective as of
September 28, 2009.
Incorporated by reference to Exhibit 3.1 to
WESCO’s Current Report on Form 8-K, dated
September 28, 2009
Indenture, dated August 27, 2009, by and
among WESCO International, Inc., WESCO
Distribution, Inc. and The Bank of New
York, as Trustee.
Form of 6.0% Convertible Senior
Debenture due 2029.
Incorporated by reference to Exhibit 4.1 to
WESCO’s Current Report on Form 8-K, dated
August 27, 2009
Incorporated by reference to Exhibit 4.1 to
WESCO’s Current Report on Form 8-K, dated
August 27, 2009
90 WESCO International, Inc.
4.3
4.4
4.5
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Indenture, dated November 26, 2013,
among WESCO Distribution, Inc. and U.S.
Bank National Association, as trustee.
Incorporated by reference to Exhibit 4.1 to
WESCO’s Current Report on Form 8-K, dated
November 27, 2013
Form of 5.375% Restricted Note due
2021.
Form of 5.375% Unrestricted Note due
2021.
10.1
Form of Stock Option Agreement.
Form of Amendment to Stock Option
Agreement.
Form of Management Stock Option
Agreement.
Form of Amendment to Management
Stock Option Agreement.
Incorporated by reference to Exhibit A-1 to Exhibit
4.1 to WESCO’s Current Report on Form 8-K, dated
November 27, 2013
Incorporated by reference to Exhibit A-2 to Exhibit
4.1 to WESCO’s Current Report on Form 8-K, dated
November 27, 2013
Incorporated by reference to Exhibit 10.4 to
WESCO’s Registration Statement on Form S-4 (No.
333-43225)
Incorporated by reference to Exhibit 10.2 to
WESCO’s Current Report on Form 8-K, dated
March 2, 2006
Incorporated by reference to Exhibit 10.2 to
WESCO’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998
Incorporated by reference to Exhibit 10.6 to
WESCO’s Current Report on Form 8-K dated
March 2, 2006
1999 Deferred Compensation Plan for
Non-Employee Directors, as amended and
restated September 20, 2007.
Incorporated by reference to Exhibit 10.5 to
WESCO’s Annual Report on Form 10-K for the year
ended December 31, 2011
1999 Long-Term Incentive Plan, as
restated effective as of May 21, 2008.
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.
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 Appendix B to the
Proxy Statement for the 2008 Annual Meeting of
Stockholders filed on Schedule 14A on April
24, 2008
Incorporated by reference to Exhibit 10.7 to
WESCO’s Annual Report on Form 10-K for the year
ended December 31, 2011
Incorporated by reference to Exhibit 10.8 to
WESCO’s Annual Report on Form 10-K for the year
ended December 31, 2011
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 10.19 to
WESCO’s Registration Statement on Form S-4 (No.
333-43225)
2014 Annual Report 91
Incorporated by reference to Exhibit 10.1 to
WESCO’s Current Report on Form 8-K, dated April
13, 2009
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.
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.
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
September 7, 2010
Incorporated by reference to Exhibit 10.1 to
WESCO’s Current Report on Form 8-K, dated
December 16, 2010
Fourth Amendment to the Third Amended
and Restated Receivables Purchase
Agreement, dated as of August 22, 2011.
Incorporated by reference to Exhibit 10.2 to
WESCO’s Current Report on Form 8-K dated
August 24, 2011
Fifth Amendment to the Third Amended
and Restated Receivables Purchase
Agreement, dated as of July 31, 2012.
Incorporated by reference to Exhibit 10.23 to
WESCO’s Annual Report on Form 10-K for the year
ended December 31, 2012
Sixth Amendment to the Third Amended
and Restated Receivables Purchase
Agreement, dated as of October 9, 2012.
Incorporated by reference to Exhibit 10.24 to
WESCO’s Annual Report on Form 10-K for the year
ended December 31, 2012
Seventh Amendment to the Third
Amended and Restated Receivables
Purchase Agreement, dated
December 11, 2012.
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 10.3 to
WESCO’s Current Report on Form 8-K, dated
December 17, 2012
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
Notice of Performance Share Award under
the WESCO International, Inc. 1999
Long-Term Incentive Plan.
Incorporated by reference to Exhibit 10.1 to
WESCO’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2012
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
92 WESCO International, Inc.
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Term Sheet, dated May 24, 2012,
memorializing terms of employment of
Kenneth Parks by WESCO International,
Inc.
Term Loan agreement, dated as of
December 12, 2012 among WESCO
Distribution, Inc., WDCC Enterprises Inc.,
WESCO International, Inc., Credit Suisse
AG, Cayman Islands Branch, as
Administrative Agent and Collateral Agent
and the other Lenders and Agents party
thereto.
Amended and Restated Credit Agreement,
dated as of December 12, 2012, by and
among WESCO Distribution, Inc., the other
U.S. Borrowers party thereto, WESCO
Distribution Canada LP and WDCC
Enterprises Inc., JPMorgan Chase Bank,
N.A., as Administrative Agent, and
JPMorgan Chase Bank, N.A., Toronto
Branch, as Canadian Administrative Agent,
and the other Loan Parties and Lenders
party thereto.
1999 Long-Term Incentive Plan, as
restated effective as of May 30, 2013.
Incorporated by reference to Exhibit 10.1 to
WESCO’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012
Incorporated by reference to Exhibit 10.1 to
WESCO’s Current Report on Form 8-K, dated
December 17, 2012
Incorporated by reference to Exhibit 10.2 to
WESCO’s Current Report on Form 8-K, dated
December 17, 2012
Incorporated by reference to Appendix A to the
Proxy Statement filed on Schedule 14A on
April 16, 2013
Eighth Amendment to the Third Amended
and Restated Receivables Purchase
Agreement, dated September 20, 2013.
Incorporated by reference to Exhibit 10.1 to
WESCO’s Current Report on Form 8-K, dated
September 23, 2013
Registration Rights Agreement, dated
November 26, 2013 among WESCO
Distribution, Inc., WESCO International,
Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
First Amendment to Term Loan
Agreement, dated as of
November 19, 2013 among WESCO
Distribution, Inc., WDCC Enterprises Inc.,
WESCO International, Inc., Credit Suisse
AG, Cayman Islands Branch, as
Administrative Agent and Collateral Agent
and the other Lenders and Agents party
thereto.
Form of Non-Employee Director Restricted
Stock Unit Agreement.
Incorporated by reference to Exhibit 10.1 to
WESCO’s Current Report on Form 8-K dated
November 27, 2013
Incorporated by reference to Exhibit 10.31 to
WESCO’s Annual Report on Form 10-K for the year
ended December 31, 2013
Incorporated by reference to Exhibit 10.32 to
WESCO’s Annual Report on Form 10-K for the
year ended December 31, 2013
Form of Stock Appreciation Rights
Agreement for Employees.
Form of Restricted Stock Unit Agreement
For Employees.
Filed herewith
Filed herewith
2014 Annual Report 93
10.35
10.36
21.1
23.1
31.1
31.2
32.1
32.2
Filed herewith
Filed herewith
Notice of Performance Share Award
Under the WESCO International, Inc.
1999 Long-Term Incentive Plan,
as amended May 30, 2013.
Second Amendment to Amended and
Restated Credit Agreement, dated as of
July 17, 2014 among WESCO Distribution,
Inc., the other U.S. Borrowers party thereto,
WESCO Distribution Canada LP, WDCC
Enterprises Inc., and EECOL Electric Corp.,
as Canadian Borrowers, JPMorgan Chase
Bank, N.A., as Administrative Agent, and
JPMorgan Chase Bank, N.A., Toronto
Branch, as Canadian Administrative Agent,
and the other Loan Parties and Lenders
party thereto.
Subsidiaries of WESCO International, Inc.
Filed herewith
Consent of PricewaterhouseCoopers LLP.
Filed herewith
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.
Filed herewith
Filed herewith
Filed herewith
Filed herewith
101
Interactive Data File
Filed herewith
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 Kenneth S. Parks, Senior Vice President and
Chief Financial Officer, 225 West Station Square Drive, Suite 700, Pittsburgh, Pennsylvania 15219. Requests may also
be directed to (412) 454-2200.
94 WESCO International, Inc.
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 24, 2015
/s/ KENNETH S. PARKS
WESCO INTERNATIONAL, INC.
By:
Name: Kenneth S. Parks
Title: Senior Vice President and Chief Financial Officer
Date: February 24, 2015
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)
/s/ KENNETH S. PARKS
Kenneth S. Parks
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ SANDRA BEACH LIN
Sandra Beach Lin
/s/ BOBBY J. GRIFFIN
Bobby J. Griffin
/s/ JOHN K. MORGAN
John K. Morgan
/s/ STEPHEN 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/ STEPHEN A. VAN OSS
Stephen A. Van Oss
/s/ WILLIAM J. VARESCHI
William J. Vareschi
Director
Director
Director
Director
Director
Director
Director
Director
Director
Date
February 24, 2015
February 24, 2015
February 24, 2015
February 24, 2015
February 24, 2015
February 24, 2015
February 24, 2015
February 24, 2015
February 24, 2015
February 24, 2015
February 24, 2015
2014 Annual Report 95
Schedule II—Valuation and Qualifying Accounts
(in thousands)
Allowance for doubtful accounts
Year ended December 31, 2014
Year ended December 31, 2013
Year ended December 31, 2012
Balance at
Beginning of Period
Charged to
Expense
Charged to
Other Accounts(1)
Deductions(2)
Balance at
End of Period
$
19,309 $
17,242
21,590
5,937 $
2,878
1,119
194 $
2,623
—
(4,356) $
(3,434)
(5,467)
21,084
19,309
17,242
(1) Represents allowance for doubtful accounts in connection with certain acquisitions and divestitures.
(2) Includes a reduction in the allowance for doubtful accounts due to write-off of accounts receivable.
96 WESCO International, Inc.
Exhibit 21.1 Subsidiaries of WESCO International, Inc.
1502218 Alberta Ltd., an Alberta corporation
WDI-Angola, LDA, an Angola company
Bruckner Polska Spolka z o.o., a Poland limited company
Bruckner Supply Singapore, a Singapore sole proprietor
Bruckner 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 GP, Inc., 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
Conney Investment Holdings, LLC,
a Delaware limited liability company
Conney Safety Products, LLC, a Delaware limited liability company
Distribuidora Materiales Electricos E-Supply Limitada,
a Chile limited liability company
EECOL Electric Bolivia Ltda., a Bolivia limited liability company
EECOL Electric Peru S.A.C., a Peru sociedad anonima cerrada
EECOL Electric ULC, an Alberta unlimited liability company
EECOL Industrial Electric Ecuador Limitada,
an Ecuador limited liability company
EECOL Industrial Electric (SudAmerica) Limitada,
a Chile limited liability company
EECOL Industrial Electric Limitada, a Chile limited liability company
EECOL Power S.A., a Chile closed stock corporation
EECOL Properties Corp., an Alberta corporation
Hazmasters Inc., an Ontario corporation
Hazmasters Quebec Inc., a Quebec corporation
Hi-Line Utility Supply Company, LLC,
an Illinois limited liability company
Liberty Wire & Cable, Inc., a Delaware corporation
Obras Y Servicios Sunpark S.A.C. (OS Sunpark),
a Peru sociedad anonima cerrada
SASK Alta Holdings S.A., a Chile closely held stock corporation
Services Voice, Video and Data Distribution de Mexico, S. de R.L.
de C.V., a Mexico limited liability company
Stone Eagle Electrical Supply GP Inc., an Alberta corporation
Stone Eagle Electrical Supply Limited Partnership,
an Alberta limited partnership
WDINESCO B.V.,
a Netherlands private company with limited liability
WDINESCO C.V.,
a Netherlands limited partnership
WDINESCO II B.V.,
a Netherlands private company with limited liability
WDINESCO III B.V.,
a Netherlands private company with limited liability
WDINESCO II C.V., a Netherlands limited partnership
WDINESCO III C.V., a Netherlands limited partnership
WEAS Company, S. de R.L., a Mexico private limited company
WECOL Holdings ULC, an Alberta unlimited liability company
WESCO (Suzhou) Trading Co., Ltd.,
a China limited liability company
WESCO Australia Pty Ltd, an Australian company
WESCO Canada I, LP, an Alberta limited partnership
WESCO Canada II, LP, an Alberta limited partnership
WESCO Distribution Canada Co.,
a Nova Scotia unlimited liability company
WESCO Distribution Canada GP Inc., an Ontario Corporation
WESCO Distribution Canada LP, an Ontario limited partnership
WESCO Distribution de Mexico, S. de R.L.,
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 Limited,
a United Kingdom limited company
WESCO Distribution, Inc., a Delaware Corporation
WESCO Distribution NL B.V.,
a Netherlands private company with limited liability
WESCO Distribution Pte. Ltd., a Singapore limited private company
Wesco do Brasil Equipamentos Eletrônicos Ltda.,
a Brazil limited liability company
WESCO Enterprises, Inc., a Delaware corporation
WESCO Equity Corporation, a Delaware corporation
WESCO Finance Corporation, a Delaware corporation
TVC Canada Corp., a Nova Scotia unlimited liability company
WESCO Holdings, LLC, a Delaware limited liability company
TVC Communications, L.L.C., a Delaware limited liability company
WESCO Nevada, Ltd., a Nevada corporation
TVC Espana Distribucion y Venta De Equipos, S.L.,
a Spain limited liability company
TVC International Holding, L.L.C.,
a Delaware limited liability company
TVC UK Holdings Limited, a United Kingdom limited company
Voice, Video and Data Distribution de Mexico, S. de R.L. de C.V.,
a Mexico limited liability company
WDC Holding Inc., a Delaware corporation
WDCC Enterprises Inc., an Alberta corporation
WDCH, LP, a Pennsylvania limited partnership
WDCH US LP, a Delaware limited partnership
WESCO Netherlands B.V.,
a Netherlands private company with limited liability
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
WESCO Receivables Corp., a Delaware corporation
WESCO TLD Holdings Co., Ltd., a Thailand limited private company
WND Nigeria Limited, a Nigeria corporation
2014 Annual Report 97
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. 333-188979,
333-188978, 333-81857, 333-81847, 333-81845, 333-81841, 333-91187 and 333-172531) of WESCO International,
Inc. of our report dated February 24, 2015 relating to the financial statements, financial statement schedule and the
effectiveness of internal control over financial reporting, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 24, 2015
98 WESCO International, Inc.
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)
(b)
(c)
(d)
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;
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;
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
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 24, 2015
By:
/s/ John J. Engel
John J. Engel
Chairman, President and Chief Executive Officer
2014 Annual Report 99
Exhibit 31.2. Certification
I, Kenneth S. Parks, 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)
(b)
(c)
(d)
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;
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;
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
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 24, 2015
By:
/s/ Kenneth S. Parks
Kenneth S. Parks
Senior Vice President and Chief Financial Officer
100 WESCO International, Inc.
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, 2014 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 24, 2015
By:
/s/ John J. Engel
John J. Engel
Chairman, President and Chief Executive Officer
2014 Annual Report 101
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, 2014 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 24, 2015
By:
/s/ Kenneth S. Parks
Kenneth S. Parks
Senior Vice President and Chief Financial Officer
102 WESCO International, Inc.
Non-GAAP Reconciliations
2010
2011
2012
2013
2014
(Dollars in millions, except for diluted EPS)
Adjusted EBITDA:
Income from operations (EBIT)
ArcelorMittal litigation charge (recovery)
Adjusted income from operations (Adjusted EBIT)
Depreciation and amortization
Adjusted EBITDA
211
—
211
24
235
333
—
333
32
365
Adjusted net income attributable to
WESCO International, Inc.:
Net income attributable to WESCO International, Inc.
ArcelorMittal litigation charge (recovery), net of tax
Adjusted net income attributable
to WESCO International, Inc.
115
—
196
—
115
196
333
36
369
38
407
202
22
224
481
(36)
445
68
513
276
(22)
254
466
—
466
68
534
276
—
276
Adjusted Diluted EPS:
Diluted share count
Adjusted Diluted EPS
Adjusted stockholders’ equity:
Stockholders’ equity
ArcelorMittal litigation charge, net of tax
Adjusted stockholders’ equity
46.1
2.50
49.6
3.96
51.1
4.38
52.7
4.82
53.3
5.18
1,149
1,346
—
—
1,149
1,346
1,554
22
1,576
1,765
1,928
—
—
1,765
1,928
2014 Annual Report 103
2010
2011
2012
2013
2014
Non-GAAP Reconciliations
(Dollars in millions, except percentages)
Free Cash Flow:
Cash provided by operations
Less: capital expenditures
Add: non-recurring pension contribution
Free cash flow
Adjusted net income attributable
to WESCO International, Inc.
Free cash flow as a % of adjusted net income
ROIC:
Adjusted income from operations
Equity income
Adjusted income from operations plus equity income
Tax effect (year-end effective tax rate)
Tax effected adjusted 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 (adjusted) 1
Less: debt discount
Stockholders’ equity, net of debt discount
March 31 of the current year (adjusted) 1
Less: debt discount
Stockholders’ equity, net of debt discount
June 30 of the current year (adjusted) 1
Less: debt discount
Stockholders’ equity, net of debt discount
September 30 of the current year (adjusted) 1
Less: debt discount
Stockholders’ equity, net of debt discount
December 31 of the current year (adjusted)
Less: debt discount
Stockholders’ equity, net of debt discount
127
(15)
—
112
115
97%
211
4
215
58
158
875
817
760
759
908
824
996
183
814
1,027
181
846
1,051
180
871
1,095
179
916
1,149
178
970
168
(33)
—
134
196
68%
333
—
333
99
234
908
886
936
907
825
893
1,149
178
970
1,199
178
1,021
1,253
177
1,076
1,284
177
1,107
1,346
176
1,170
Average stockholders’ equity, net of debt discount
883
1,069
1,292
Average par debt and stockholders’ equity
ROIC
1,707
9.2%
1,961
11.9%
2,331
11.3%
1 Adjusted for ArcelorMittal litigation impact.
288
(23)
—
265
315
(28)
21
308
224
118%
254
121%
369
—
369
105
264
445
—
445
121
324
825
794
759
896
1,919
1,039
1,346
176
1,170
1,411
175
1,236
1,469
175
1,294
1,545
175
1,370
1,576
184
1,392
1,919
1,857
1,797
1,758
1,662
1,799
1,576
184
1,392
1,614
183
1,431
1,639
181
1,458
1,739
180
1,559
1,765
175
1,590
1,486
3,285
9.9%
251
(21)
—
230
276
84%
466
—
466
132
334
1,662
1,676
1,741
1,689
1,586
1,671
1,765
175
1,590
1,774
174
1,600
1,890
173
1,717
1,909
172
1,737
1,928
170
1,758
1,680
3,351
10.0%
104 WESCO International, Inc.
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
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.
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 28, 2015, at 2:00 p.m., E.D.T., at:
Sheraton Station Square
300 West Station Square Drive
Pittsburgh, PA 15219
Transfer Agent and Registrar
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Toll free: 877-264-3927
TDD for Hearing Impaired: 800-231-5469
Foreign Shareholders: 201-680-6578
TDD Foreign Shareholders: 201-680-6610
Website address:
www.computershare.com/investor
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
Pittsburgh, PA
Certifications to the NYSE and the SEC
On June 19, 2014, 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
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
(left to right)
John K. Morgan
Chairman, President, and
Chief Executive Officer
Zep, Inc.
Steven A. Raymund
Chairman
Tech Data Corporation
Sandra Beach Lin
Former Chief Executive Officer
Calisolar, Inc.
William J. Vareschi
Former Chief Executive Officer
Central Parking Corporation
Robert J. Tarr, Jr.
Professional Director and
Private Investor
Bobby J. Griffin
Former President,
International Operations of
Ryder System, Inc.
James L. Singleton
Chairman and
Chief Executive Officer
Cürex Group Holdings, LLC
Lynn M. Utter
President and
Chief Operating Officer
Knoll Office
John J. Engel
Chairman, President, and
Chief Executive Officer
WESCO International, Inc.
Stephen A. Van Oss
Senior Vice President and
Chief Operating Officer
WESCO International, Inc.
Class I: Term expires
May 2015
John J. Engel
Steven A. Raymund
Lynn M. Utter
William J. Vareschi
Class II: Term expires
May 2016
Sandra Beach Lin
Robert J. Tarr, Jr.
Stephen A. Van Oss
Class III: Term expires
May 2017
Bobby J. Griffin
John K. Morgan
James L. Singleton
(as of April 1, 2015)
John J. Engel
Chairman, President, and
Chief Executive Officer
Daniel A. Brailer
Vice President,
Investor Relations and
Corporate Affairs
Timothy A. Hibbard
Vice President and
Corporate Controller
Diane E. Lazzaris
Senior Vice President and
General Counsel
Kenneth S. Parks
Senior Vice President and
Chief Financial Officer
Stephen A. Van Oss
Senior Vice President and
Chief Operating Officer
Kimberly G. Windrow
Senior Vice President and
Chief Human Resources Officer
WESCO International, Inc.
Suite 700
225 West Station Square Drive
Pittsburgh, Pennsylvania 15219-1122
Phone: 412-454-2200
www.wesco.com
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