10-K 1 wcc-12312013x10k.htm 10-K WCC-12.31.2013-10K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended December 31, 2013
or
o
 
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
 
Name of Exchange on which registered
Common Stock, par value $.01 per share
 
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 þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ
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 þ No o
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. þ
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 þ No o
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 þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(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 o No þ
The registrant estimates that the aggregate market value of the voting shares held by non-affiliates of the registrant was approximately $2,991.5 million as of June 30, 2013, 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, 2014, 44,383,594 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 2014 Annual Meeting of Stockholders.

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WESCO INTERNATIONAL, INC.
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 2013
TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
 
 
 
 
 EX-10.23
 EX-10.24
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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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 475 full service branches and nine distribution centers located in the United States, Canada, and Mexico with offices in 15 additional countries. The Company employs approximately 9,200 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.
In December 2012, we completed the acquisition of EECOL Electric Corporation ("EECOL") with approximately $0.9 billion in annual sales, approximately 57 locations across Canada and approximately 20 in South America, and more than 20,000 customers.
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 2012, the latest year for which market share data is available, the five largest North American electrical distributors, including WESCO, accounted for only approximately 29% of all industry sales in North America. Our global account, integrated supply and OEM programs provide customers with a 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 currently 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.

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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 2013. No one customer accounted for more than 2% of our sales in 2013.
The following table outlines our sales breakdown by end market:

Year Ended December 31,
2013
 
2012
 
2011
(percentages based on total sales)
 
 
 
 
 
Industrial
43%
 
44%
 
43%
Construction
32%
 
32%
 
35%
Utility
13%
 
12%
 
11%
Commercial, Institutional and Governmental
12%
 
12%
 
11%
     Industrial. Sales to industrial customers of MRO, OEM, and construction products and services accounted for approximately 43% of our sales in 2013, compared to 44% in 2012. 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 32% of our sales in 2013 and 2012. 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 13% of our sales in 2013, compared to 12% in 2012. Customers include large investor-owned utilities, rural electric cooperatives, municipal power authorities and contractors that serve these customers. We provide our utility customers with products and services to support the construction and maintenance of their generation, transmission and distribution systems along with an extensive range of products that meet their power plant MRO and capital projects needs. Materials management and procurement outsourcing arrangements are also important in this market, as cost pressures and deregulation have caused utility customers to seek improvements in the efficiency and effectiveness of their supply chains.
     Commercial, Institutional and Governmental ("CIG"). Sales to CIG customers accounted for approximately 12% of our sales in 2013 and 2012. 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. These growth engines include business models, selected end markets and product categories. The end markets are construction, government, international, and utility. The product categories are communications and security products, and lighting and sustainability. We believe our business models of global accounts and integrated supply programs also provide significant growth opportunities and are applicable to any of our served end markets. We have focused our growth efforts on these end markets, product categories, and business models as discussed below.
     Grow Our Global Account Customer Relationships and Base. Our typical global account customer is a Fortune 1000 industrial or commercial company, a large utility, a major contractor, or a governmental or institutional customer, in each case with multiple locations. Our global account program is designed to provide customers with supply chain management services

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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 Leadership 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 plan to expand our position as an integrated supply services leader in North America 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 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.
     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.
     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. We opened our second Lighting & Sustainability Solutions Center to increase the customer's knowledge in lighting technology and solutions that contribute to an environmentally responsible future.
     Pursue Strategic Acquisitions. In the first quarter of 2014 we completed the previously announced acquisition of LaPrairie, Inc., a wholesale distributor of electrical products located in Ontario, with annual sales of approximately $30 million. Our acquisitions of RS Electronics, Trydor Industries, Conney Safety, and EECOL Electric were completed in 2012 and our efforts focused on integrating these companies into WESCO in 2013. 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.

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     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,
2013
 
2012
 
2011
(percentages based on total sales)
 
 
 
 
 
General and Industrial Supplies
40%
 
36%
 
34%
Wire, Cable and Conduit
16%
 
17%
 
18%
Data and Broadband Communications
14%
 
15%
 
17%
Power Distribution Equipment
11%
 
13%
 
11%
Lighting and Controls
10%
 
9%
 
9%
Control, Automation and Motors
9%
 
10%
 
11%

We purchase products from a diverse group of more than 25,000 suppliers. In 2013, our ten largest suppliers accounted for approximately 31% of our purchases. Our largest supplier accounted for approximately 12% of our total purchases. No other supplier accounted for more than 5% of our total purchases.
Our supplier relationships are important to us, providing access to a wide range of products, technical training, and sales and marketing support. We have over 300 preferred supplier arrangements and purchase over 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.

5


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.
     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 475 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 2013 were 13.3%.

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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,
 
2013
 
 
 
2012
 
 
 
2011
 
 
 
2013
 
2012
 
2011
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
$
5,275,275

 
70
%
 
$
5,215,849

 
79
%
 
$
4,994,641

 
82
%
 
$
137,904

 
$
144,947

 
$
131,988

Canada
1,882,313

 
25
%
 
1,084,109

 
17
%
 
900,551

 
15
%
 
93,642

 
100,366

 
24,609

Mexico
90,152

 
1
%
 
92,370

 
1
%
 
84,871

 
1
%
 
615

 
532

 
573

Subtotal North American Operations
7,247,740

 
 
 
6,392,328

 
 
 
5,980,063

 
 
 
232,161

 
245,845

 
157,170

Other International
265,602

 
4
%
 
186,973

 
3
%
 
145,655

 
2
%
 
11,115

 
6,047

 
771

Total
$
7,513,342

 
 
 
$
6,579,301

 
 
 
$
6,125,718

 
 
 
$
243,276

 
$
251,892

 
$
157,941


     United States. To serve our customers in the United States, we operate a network of approximately 325 branches supported by five distribution centers located in Pennsylvania, Nevada, Mississippi, Wisconsin, and Arkansas. Sales in the United States represented approximately 70% of our total sales in 2013. According to the Electrical Wholesaling Magazine, the U.S. electrical wholesale distribution industry had estimated sales of approximately $95 billion in 2013.
     Canada. To serve our Canadian customers, we operate a network of approximately 105 branches in nine provinces. Branch operations are supported by four distribution centers located in Edmonton, Montreal, Toronto, and Vancouver. Sales in Canada represented approximately 25% of our total sales in 2013. Total annual electrical industry sales in Canada are approximately $7.5 billion through December 31, 2013 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 2013.
     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 2013. 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 nine additional countries. The EECOL acquisition expanded WESCO's footprint into South America. All of our international locations have been established to serve our growing list of customers with global operations.
Intellectual Property
We currently have trademarks, patents and service marks registered with the U.S. Patent and Trademark Office 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.

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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.
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 21, 2014, are set forth below.

Name
 
Age
 
Position
John J. Engel
 
52
 
Chairman, President and Chief Executive Officer
Daniel A. Brailer
 
56
 
Vice President, Investor Relations and Corporate Affairs
Allan A. Duganier
 
58
 
Director, Internal Audit
Timothy A. Hibbard
 
57
 
Vice President and Corporate Controller
Diane E. Lazzaris
 
47
 
Senior Vice President and General Counsel
Kenneth S. Parks
 
50
 
Senior Vice President and Chief Financial Officer
Stephen A. Van Oss
 
59
 
Senior Vice President and Chief Operating Officer
Kimberly G. Windrow
 
56
 
Senior Vice President and Chief Human Resource Officer

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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.
     Diane E. Lazzaris has served as our Senior Vice President and General Counsel since January 1, 2014, and from February 2010 to December 2013 she served as our Vice President, Legal Affairs.  From February 2008 to February 2010, Ms. Lazzaris served as Senior Vice President - Legal, General Counsel and Corporate Secretary of Dick’s Sporting Goods, Inc.  From 1994 to February 2008, she held various corporate counsel positions at Alcoa Inc., most recently as Group Counsel to a group of global businesses.
Kenneth S. Parks has served as our Senior Vice President and Chief Financial Officer since January 1, 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 April 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 September 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 September 2009. From 2000 to 2004, he served as our Vice President and Chief Financial Officer. From 1997 to 2000, Mr. Van Oss served as our Director, Information Technology and, in 1997, as our Director, Acquisition Management. From 1995 to 1996, Mr. Van Oss served as Chief Operating Officer and Chief Financial Officer of Paper Back Recycling of America, Inc. Mr. Van Oss serves as a director of Cooper-Standard Holdings Inc. and as the chairman of its audit committee. He also serves as a trustee of Robert Morris University and is chairman of its finance committee and is a member of its government committee.
   Kimberly G. Windrow has served as our Senior Vice President and Chief Human Resources Officer since January 1, 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.


9


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.

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 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.

10



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 2013 accounted for approximately 31% of our purchases for the period. Our largest supplier in 2013 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, or the loss of key preferred supplier agreements, could have a material adverse effect on our business. Supply interruptions could arise from shortages of raw materials, effects of economic or financial market conditions on a supplier's operations, labor disputes or weather conditions affecting products or shipments, transportation disruptions, or other reasons beyond our control. In addition, certain of our products, such as wire and conduit, are commodity-price-based products and may be subject to significant price fluctuations which are beyond our control. Furthermore, we cannot be certain that particular products or product lines will be available to us, or available in quantities sufficient to meet customer demand. Such limited product access could cause us to be at a competitive disadvantage. The profitability of our business is also dependent upon the efficiency of our supply chain. An inefficient or ineffective supply chain strategy or operations could increase operational costs, reduce profit margins and adversely affect our business.

Expansion into new business activities, industries, product lines or geographic areas could subject the company to increased costs and risks and may not achieve the intended results.

Engaging in or significantly expanding business activities in product sourcing, sales and services could subject the company to unexpected costs and risks. Such activities could subject us to increased operating costs, product liability, regulatory requirements and reputational risks. Our expansion into new and existing markets, including manufacturing related or regulated businesses, may present competitive, distribution and regulatory challenges that differ from current ones. We may be less familiar with the target customers and may face different or additional risks, as well as increased or unexpected costs, compared to existing operations. Growth into new markets may also bring us into direct competition with companies with whom we have little or no past experience as competitors. To the extent we are reliant upon expansion into new geographic, industry and product markets for growth and do not meet the new challenges posed by such expansion, our future sales growth could be negatively impacted, our operating costs could increase, and our business operations and financial results could be negatively affected.

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.
     
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.

With the acquisition of EECOL Electric Corporation, our risk profile may differ materially from prior years as a result of increased levels of international operations, which could materially change our results of operations.

               On December 14, 2012 we completed our largest acquisition to date when we acquired EECOL Electric Corporation for approximately $1.1 billion.  EECOL is headquartered in Calgary, Alberta with approximately 57 locations throughout Canada and approximately 20 locations in South America.  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, exchange rate fluctuations, material developments in political, regulatory or economic conditions impacting those operations and various environmental and climatic conditions in particular areas of the world. 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. 

11



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.

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.

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, government contracting laws and regulations, labor and employment laws and regulations, product safety, occupational safety and health laws and regulations, securities and exchange laws and regulations (and other laws applicable to publicly-traded companies such as the Foreign Corrupt Practices Act), and environmental laws and regulations. In addition, proposed laws and regulations in these and other areas, such as healthcare, employment, or legal matters could affect the cost of our business operations. From time to time we are involved in legal proceedings which may relate to, for example, product liability, labor and employment (including wage and hour), tax, import and export compliance, worker health and safety, general commercial and securities matters. While we believe that the outcome of any pending matter is unlikely to have a material adverse effect on our financial condition or liquidity, additional legal proceedings may arise in the future and the outcome of any legal proceedings and other contingencies could require us to take actions which could adversely affect our operations or could require us to pay substantial amounts of money.

Because we conduct business in many countries, we are subject to income taxes as well as non-income based taxes in both the United States and various foreign jurisdictions. As a result, we are required to interpret the income tax laws and rulings in each jurisdiction in which we operate and are subject to ongoing tax audits in various jurisdictions. Due to ambiguity of tax laws in certain of these jurisdictions and the subjective nature of factual determinations, the respective taxing authorities may disagree with certain positions we have taken and assess additional taxes. While we regularly evaluate the likely outcomes of these audits in order to determine the appropriateness of our tax provision, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes could adversely affect our results of operations.

Our outstanding indebtedness requires debt service commitments that could adversely affect our ability to fulfill our obligations and could limit our growth and impose restrictions on our business.

     As of December 31, 2013, we had $1,662.4 million of consolidated indebtedness (excludes debt discount), including $300.2 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

12


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.

     Our debt service obligations have important consequences, including: our payments of principal and interest reduce the funds available to us for operations, future business opportunities and acquisitions and other purposes; they increase our vulnerability to adverse economic, financial market and industry conditions; our ability to obtain additional financing may be limited; they may hinder our ability to adjust rapidly to changing market conditions; we may be required to incur additional interest due to the contingent interest features of the 2029 Debentures, which are embedded derivatives; and our financial results are affected by increased interest costs. Our ability to make scheduled payments of principal and 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 $520.6 million of our currently outstanding indebtedness, of which $22.6 million is related to our Revolving Credit Facility, $453.6 million is related to our Receivables Facility, $37.6 million is related to our international lines of credit, and $4.2 million is related to our Term Loans.

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.

Goodwill and indefinite life intangible assets recorded as a result of our acquisitions could become impaired.

     As of December 31, 2013, our combined goodwill and indefinite life intangible assets amounted to $1,837.4 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.

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.

13



     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 option 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 475 branches, of which approximately 325 are located in the United States, approximately 105 are located in Canada and the remainder are in other locations including Chile, Mexico, the United Kingdom, Singapore, China, and Australia. Approximately 26% of our branches are owned facilities, and the remainder are leased.
The following table summarizes our distribution centers:
 
Square Feet
 
Leased/Owned
Location
 
 
 
Warrendale, PA
194,000

 
Owned
Sparks, NV
131,000

 
Leased
Byhalia, MS
148,000

 
Owned
Little Rock, AR
100,000

 
Leased
Madison, WI
136,000

 
Leased
Montreal, QC
126,000

 
Leased
Burnaby, BC
65,000

 
Owned
Edmonton, AB
101,000

 
Leased
Mississauga, ON
246,000

 
Leased
We also lease our 69,000 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.
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

14


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, and recorded a liability and a corresponding receivable in the amount of $4.7 million for all interest accrued in connection with this matter. Final judgment was entered by the court on July 16, 2013, and the Company is appealing the judgment. The Company has recorded an additional liability and a corresponding receivable in the amount of $1.6 million for post-judgment interest accrued in connection with this matter in the second half of 2013. 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.

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, 2014, there were 44,383,594 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 or acquisitions. 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.

 
Sales Prices
Quarter
High
 
Low
2012
 
 
 
First
$
67.34

 
$
52.67

Second
68.19

 
52.29

Third
64.17

 
51.76

Fourth
67.72

 
55.02

2013
 
 
 
First
$
77.49

 
$
67.22

Second
77.83

 
65.46

Third
79.03

 
65.63

Fourth
91.12

 
73.78


15



Company Performance. The following stock price performance graph illustrates the cumulative total return on an investment in WESCO International, Inc., a 2013 Performance Peer Group, and the Russell 2000 Index. The graph covers the period from December 31, 2008 to December 31, 2013, and assumes that the value for each investment was $100 on December 31, 2008, and that all dividends were reinvested.



2013 Performance Peer Group:
 
 
Airgas, Inc.
Eaton Corporation Plc
MSC Industrial Direct Co., Inc.
Anixter International, Inc.
Emerson Electric Company
Pool Corporation
Applied Industrial Technologies, Inc.
Fastenal Company
Rockwell Automation, Inc.
Arrow Electronics, Inc.
Genuine Parts Company
Tech Data Corporation
Avnet, Inc.
Houston Wire & Cable Company
United Stationers, Inc.
Beacon Roofing Supply, Inc.
Hubbell, Inc.
W.W. Grainger, Inc.
Danaher Corporation
Ingram Micro, Inc.
Watsco Inc


16


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,
2013
 
2012
 
2011
 
2010
 
2009
(Dollars in millions, except per share data)
 
 
 
 
 
 
 
 
 
Income Statement Data:
 
 
 
 
 
 
 
 
 
Net sales
$
7,513.3

 
$
6,579.3

 
$
6,125.7

 
$
5,063.9

 
$
4,624.0

Cost of goods sold
5,967.9

 
5,247.8

 
4,889.2

 
4,065.4

 
3,724.1

Selling, general and administrative expenses
996.8

 
961.0

 
872.0

 
763.7

 
693.9

Depreciation and amortization
67.6

 
37.6

 
31.6

 
23.9

 
26.0

Income from operations
481.0

 
332.9

 
332.9

 
210.9

 
180.0

Interest expense, net
85.6

 
47.8

 
53.6

 
57.6

 
53.8

Loss on debt extinguishment / (gain) on debt exchange(1)
13.2

 
3.5

 

 

 
(6.0
)
Other loss (income)(2)
2.3

 

 

 
(4.3
)
 
(5.0
)
Income before income taxes
379.9

 
281.6

 
279.3

 
157.6

 
137.2

Provision for income taxes
103.4

 
79.9

 
83.1

 
42.2

 
32.1

Net income
276.5

 
201.7

 
196.2

 
115.4

 
105.1

 Net (income) loss attributable to noncontrolling interest(3)
(0.1
)
 
0.1

 
0.1

 

 

 Net income attributable to WESCO International, Inc.
$
276.4

 
$
201.8

 
$
196.3

 
$
115.4

 
$
105.1

Earnings per common share attributable to WESCO International, Inc.
 
 
 
 
 
 
 
 
 
Basic
$
6.26

 
$
4.62

 
$
4.54

 
$
2.72

 
$
2.49

Diluted
$
5.25

 
$
3.95

 
$
3.96

 
$
2.50

 
$
2.46

Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
Basic
44.1

 
43.7

 
43.2

 
42.5

 
42.3

Diluted
52.7

 
51.1

 
49.6

 
46.1

 
42.7

Other Financial Data:
 
 
 
 
 
 
 
 
 
Capital expenditures
$
27.8

 
$
23.1

 
$
33.3

 
$
15.1

 
$
13.0

Net cash provided by operating activities
315.1

 
288.2

 
167.5

 
127.3

 
291.7

Net cash (used) provided by investing activities
(18.2
)
 
(1,311.0
)
 
(81.3
)
 
(220.5
)
 
(10.7
)
Net cash (used) provided by financing activities
(257.5
)
 
1,044.0

 
(70.9
)
 
30.6

 
(264.9
)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets
$
4,617.1

 
$
4,629.6

 
$
3,078.5

 
$
2,826.8

 
$
2,494.2

Total debt (including current and short-term debt)(4)
1,487.7

 
1,735.2

 
649.3

 
729.9

 
691.8

Stockholders’ equity(5)
1,764.8

 
1,553.7

 
1,345.9

 
1,148.6

 
996.3

(1) 
Represents the loss recognized in 2013 related to the repayment of $500 million of the Company's Term Loan, the loss recognized in 2012 due to the redemption of all the outstanding 7.50% 2017 Senior Subordinated Notes due 2017 (the "2017 Notes") and the gain related to the 2009 convertible debt exchange. See Note 7 of the Notes to Consolidated Financial Statements.
(2) 
Represents loss on the sale of the Company's Argentina business in 2013 and income from the LADD joint venture in 2010 and 2009.
(3) 
Represents the portion of a net (income) loss attributable to a consolidated entity 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 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.

17


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 2013, we strengthened our organization and talent base, made improvements to our operations and capital structure, expanded our international presence, improved productivity, and integrated four accretive acquisitions into our operations. Sales increased $934.0 million, or 14.2%, over the prior year. Acquisitions positively impacted consolidated sales by 14.6%, organic sales were flat, and foreign currency exchange negatively impacted sales by 0.4%. Cost of goods sold as a percentage of net sales was 79.4% and 79.8% in 2013 and 2012, respectively. Operating income of $481.0 million increased over the prior year primarily due to the integration of EECOL's operations in 2013, and due to the $36.1 million 2013 ArcelorMittal litigation recovery and related fourth quarter 2012 charge of the same amount. Net income attributable to WESCO International, Inc. increased 37.0% over the prior year to $276.4 million. Diluted earnings per share attributable to WESCO International, Inc. were $5.25 in 2013, compared with $3.95 in 2012.
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% and 45% of total sales for 2013 and 2012, respectively. Approximately 39% and 42% of our total sales were direct ship sales for 2013 and 2012, respectively. Direct ship sales are typically custom-built products, large orders or products that are too bulky to be easily handled and, as a result, are shipped directly to the customer from the supplier. Special orders are for products that are not ordinarily stocked in inventory and are ordered based on a customer’s specific request. Special orders represent the remainder of total sales.
We have historically financed our working capital requirements, capital expenditures, acquisitions, share repurchases and new branch openings through internally generated cash flow, debt issuances, borrowings under our credit facilities and funding through our Receivables Facility.
Cash Flow
We generated $315.1 million in operating cash flow during 2013. Cash provided by operating activities included net income of $276.5 million and adjustments to net income totaling $122.1 million. Cash used in investing activities consisted primarily of purchases of capital assets totaling $27.8 million, partially offset by proceeds of $10.8 million from the sale of assets. Financing activities during 2013 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 Loans, borrowings of $500.0 million related to our recently issued senior notes due 2021, and repayments of $26.4 million which 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 $56.5 million, respectively.
Free cash flow for the years ended December 31, 2013 and 2012 was $308.4 million and $265.1 million, respectively.

The following table sets forth the components of free cash flow:
 
Twelve Months Ended
 
December 31,
Free Cash Flow:
2013
 
2012
(In millions)
 
 
 
  Cash flow provided by operations
$
315.1

 
$
288.2

  Less: Capital expenditures
(27.8
)
 
(23.1
)
  Add: Non-recurring pension contribution
21.1

 

    Free cash flow
$
308.4

 
$
265.1


Note: Free cash flow is 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.

18


U.S. 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, 2013, the Company had $605.6 million in total liquidity. Available borrowing capacity under our Revolving Credit Facility, which has a maturity date in August 2016, was $512.2 million, of which $265.7 million was the U.S. sub-facility borrowing limit and $246.5 million was the Canadian sub-facility borrowing limit. The remaining liquidity was provided by invested cash of $93.4 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 discussions 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. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to supplier programs, bad debts, inventories, insurance costs, goodwill, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. If actual market conditions are less favorable than those projected by management, additional adjustments to reserve items may be required. We believe the following critical accounting policies affect our judgments and estimates used in the preparation of our consolidated financial statements.
     Revenue Recognition
Revenues are recognized for product sales when title, ownership and risk of loss pass to the customer, or for services when the service is rendered. In the case of stock sales and special orders, a sale occurs at the time of shipment from our distribution point, as the terms of our sales are predominantly FOB shipping point. In cases where we process customer orders but ship directly from our suppliers, revenue is recognized once product is shipped and title has passed. In all cases, revenue is recognized once the sales price to our customer is fixed or is determinable and we have reasonable assurance as to the collectability.
In certain customer arrangements, we provide services such as inventory management. We may perform some or all of the following services for customers: determine inventory stocking levels; establish inventory reorder points; launch purchase orders; receive material; put away material; and pick material for order fulfillment. We recognize revenue for services rendered during the period based upon a previously negotiated fee arrangement. We also sell inventory to these customers and recognize revenue at the time title and risk of loss transfers to the customer.
     Selling, General and Administrative Expenses
We include warehousing, purchasing, branch operations, information services, and marketing and selling expenses in this category, as well as other types of general and administrative costs.
     Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We have a systematic procedure using estimates based on historical data and reasonable assumptions of collectibles made at the local branch level and on a consolidated corporate basis to calculate the allowance for doubtful accounts.
     Excess and Obsolete Inventory
We write down our inventory to its net realizable value based on internal factors derived from historical analysis of actual losses. 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.

19


     Supplier Volume Rebates
We receive rebates from certain suppliers based on contractual arrangements with them. Since there is a lag between actual purchases and the rebates received from the suppliers, we must estimate and accrue the approximate amount of rebates available at a specific date. We record the amounts as other accounts receivable on the balance sheet. The corresponding 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 2013, 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, 2013, our market capitalization exceeded our book value and there were no indications of impairment with any of the Company's reporting units.
The reported value of indefinite life trademarks totaled $101.9 million and $105.1 million at December 31, 2013 and 2012, respectively. One trademark valued at $16.6 million is most sensitive to a decline in financial performance. We are taking actions to improve our financial performance related to this business; however, we cannot predict whether or not there will be certain events that could adversely affect the reported value of this trademark.
     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 4 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 deductibles where we must pay all costs up to the deductible amount. We estimate our reserve based on historical incident rates and costs.
     Income Taxes
We 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.  In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations.
 
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.


 

20


    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.
Results of Operations
The following table sets forth the percentage relationship to net sales of certain items in our consolidated statements of income for the periods presented.
Year Ended December 31,
2013
 
2012
 
2011
Net sales
100.0
%
 
100.0
%
 
100.0
%
Cost of goods sold
79.4

 
79.8

 
79.8

Selling, general and administrative expenses
13.3

 
14.6

 
14.2

Depreciation and amortization
0.9

 
0.5

 
0.5

Income from operations
6.4

 
5.1

 
5.5

Interest expense
1.1

 
0.7

 
0.9

Loss on debt extinguishment
0.2

 
0.1

 

Income before income taxes
5.1

 
4.3

 
4.6

Provision for income taxes
1.4

 
1.2

 
1.4

Net income attributable to WESCO International, Inc.
3.7
%
 
3.1
%
 
3.2
%
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:
 
Twelve Months Ended
 
December 31,
Normalized Organic Sales:
2013
 
2012
    Change in net sales
14.2
 %
 
7.4
 %
    Less: Impact from acquisitions
14.6
 %
 
3.3
 %
    Less: Impact from foreign exchange rates
(0.4
)%
 
(0.3
)%
    Less: Impact from number of workdays
 %
 
 %
        Normalized organic sales growth
 %
 
4.4
 %

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.


21


     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. 2013 SG&A expenses 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.
     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 $10.2 million and $1.5 million, respectively.
The following table sets forth the components of interest expense:
 
Twelve Months Ended
 
December 31,
 
2013
 
2012
(In millions)
 
 
 
Amortization of convertible debt
$
4.3

 
$
2.3

Amortization of deferred financing fees
4.9

 
2.6

Interest related to uncertain tax provisions
1.0

 
(3.4
)
 Non-Cash Interest Expense
10.2

 
1.5

   Cash Interest Expense
75.4

 
46.3

 
$
85.6

 
$
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.

22


     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.
2012 Compared to 2011
     Net Sales. Sales in 2012 increased 7.4% to $6,579.3 million, compared with $6,125.7 million in 2011. Sales were positively impacted by execution of our growth initiatives and recent acquisitions. The increase in sales included a positive impact from acquisitions of 3.3% and a negative impact from foreign exchange of 0.3%. Additionally, management estimates the price impact on net sales was approximately 1.0%.
The following table sets forth normalized organic sales growth:
 
Twelve Months Ended
 
December 31,
Normalized Organic Sales:
2012
 
2011
    Change in net sales
7.4
 %
 
21.0
%
    Less: Impact from acquisitions
3.3
 %
 
6.8
%
    Less: Impact from foreign exchange rates
(0.3
)%
 
0.8
%
    Less: Impact from number of workdays
 %
 
%
        Normalized organic sales growth
4.4
 %
 
13.4
%

     Cost of Goods Sold. Cost of goods sold increased 7.3% in 2012 to $5,247.9 million, compared with $4,889.1 million in 2011. Cost of goods sold as a percentage of net sales was 79.8% in both 2012 and 2011.
     Selling, General and Administrative Expenses. SG&A expenses include costs associated with personnel, shipping and handling, travel, advertising, facilities, utilities and bad debts. SG&A expenses increased by $89.0 million, or 10.2%, to $961.0 million in 2012. The increase in SG&A expenses is primarily due to the $36.1 million 2012 fourth quarter charge related to the ArcelorMittal jury verdict. Additionally, SG&A expenses increased due to the impact from recent acquisitions of $29.7 million and compensation expenses related to the growth in sales. As a percentage of net sales, SG&A expenses increased to 14.6% of sales, compared with 14.2% in 2011.
     SG&A payroll expenses for 2012 of $661.6 million increased by $52.7 million compared to 2011. The increase in SG&A payroll expense was primarily due to an increase in salary expense of $40.8 million and an increase in benefits of $15.5 million. These increases are primarily due to an increase in headcount, which is the result of both recent acquisitions and organic growth initiatives. Temporary labor costs and other SG&A payroll related costs each decreased $2.0 million.
     The remaining SG&A expenses for 2012 of $263.3 million increased by $0.2 million compared to 2011.
     Depreciation and Amortization. Depreciation and amortization increased $6.0 million to $37.6 million in 2012, compared with $31.6 million in 2011. The increase in depreciation and amortization was primarily due to the impact from recent acquisitions of $4.6 million.
     Income from Operations. Income from operations decreased by $0.1 million to $332.9 million in 2012, compared to $333.0 million in 2011.
     Interest Expense. Interest expense totaled $47.8 million in 2012, compared with $53.6 million in 2011, a decrease of 10.9%. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and the amortization of deferred financing fees, for 2012 and 2011 was $1.5 million and $8.8 million, respectively.

23


The following table sets forth the components of interest expense:
 
Twelve Months Ended
 
December 31,
 
2012
 
2011
(In millions)
 
 
 
Amortization of convertible debt
$
2.3

 
$
2.5

Amortization of deferred financing fees
2.6

 
4.4

Interest related to uncertain tax provisions
(3.4
)
 
1.9

 Non-Cash Interest Expense
1.5

 
8.8

   Cash Interest Expense
46.3

 
44.8

 
$
47.8

 
$
53.6

     Loss on Debt Extinguishment. In 2012, a loss on debt extinguishment of $3.5 million was incurred due to the redemption of the 2017 Notes.
     Income Taxes. Our effective income tax rate decreased to 28.4% in 2012, compared with 29.8% in 2011, primarily as a result of the increase in taxable income outside the United States that is taxed at a lower rate. 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 $5.5 million, or 2.8%, to $201.8 million in 2012, compared to $196.2 million in 2011.
     Net Loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest totaled less than $0.1 million in 2012 and 2011.
     Net Income attributable to WESCO International, Inc. Net income and diluted earnings per share attributable to WESCO International, Inc. on a consolidated basis totaled $201.8 million and $3.95 per share, respectively, in 2012, compared with $196.3 million and $3.96 per share, respectively, in 2011.
   
Liquidity and Capital Resources
Total assets were $4.6 billion at December 31, 2013 and 2012. Total liabilities at December 31, 2013 compared to December 31, 2012 decreased by $223.6 million to $2.9 billion. The decrease in total liabilities was primarily due to a decrease in long-term debt of $247.8 million. Stockholders’ equity increased by 13.6% to $1.8 billion at December 31, 2013, compared with $1.6 billion at December 31, 2012, primarily as a result of net earnings of $276.4 million.
The following table sets forth our outstanding indebtedness:
As of December 31,
2013
 
2012
(In thousands)
 
 
 
Term Loan Facility, less debt discount of $3,934 and $9,936 in 2013 and 2012, respectively
$
296,295

 
$
840,827

Senior Notes due 2021
500,000

 

Mortgage financing facility

 
26,414

Accounts Receivable Securitization Facility
453,600

 
445,000

Revolving Credit Facility
22,558

 
218,295

International lines of credit
37,551

 
30,136

6.0% Convertible Senior Debentures due 2029, less debt discount of $170,752 and $173,708 in 2013 and 2012, respectively
174,149

 
171,213

Capital leases
3,505

 
3,220

Other notes
37

 
67

Total debt
1,487,695

 
1,735,172

Less current and short-term portion
(40,061
)
 
(39,759
)
Total long-term debt
$
1,447,634

 
$
1,695,413



24


The required annual principal repayments for all indebtedness for the next five years and thereafter, as of December 31, 2013 is set forth in the following table:
(In thousands)
 
2014
$
40,061

2015
2,237

2016
478,259

2017
1,871

2018
1,691

Thereafter
1,138,262

Total payments on debt
1,662,381

Debt discount on convertible debentures and term loan facility
(174,686
)
Total debt
$
1,487,695


Our liquidity needs generally arise from fluctuations in our working capital requirements, capital expenditures, acquisitions and debt service obligations. As of December 31, 2013, we had $512.2 million in available borrowing capacity under our Revolving Credit Facility, which combined with invested cash of $93.4 million provided liquidity of $605.6 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, 2013.
Our financial leverage ratio as of December 31, 2013 and December 31, 2012 was 3.2 and 4.7, respectively.
The following table sets forth the Company's financial leverage ratio as of December 31, 2013 and December 31, 2012:
Twelve months ended December 31,
2013
 
2012
(Dollar amounts in millions)
 
 
 
    Income from operations
$
481.0

 
$
332.8

    Adjust for ArcelorMittal litigation (recovery) charge
(36.1
)
 
36.1

    Depreciation and amortization
67.6

 
37.6

        Adjusted EBITDA
$
512.5

 
$
406.5

 
 
 
 
 
December 31,
2013
 
December 31,
2012
Current debt
$
40.1

 
$
39.8

Long-term debt
1,447.6

 
1,695.4

Debt discount related to convertible debentures and term loan(1)
174.7

 
183.6

    Total debt including debt discount
$
1,662.4

 
$
1,918.8

Less: Cash and cash equivalents
123.7

 
86.1

Total debt including debt discount, net of cash
1,538.7

 
1,832.7

 
 
 
 
Financial leverage ratio based on total debt
3.2

 
4.7

Financial leverage ratio based on total debt, net of cash
3.0

 
4.5


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 charge. Financial leverage ratio based on total net debt is calculated by dividing total debt, including debt discount less cash and cash equivalents, by Adjusted EBITDA.

(1)The convertible debentures and term loan are presented in the consolidated balance sheets in long-term debt net of the
unamortized discount.

25


At December 31, 2013, we had cash and cash equivalents totaling $123.7 million, of which $97.9 million was held by foreign subsidiaries. Included in cash held by foreign subsidiaries is approximately $31.5 million, which was obtained in connection with the acquisition of EECOL on December 14, 2012. This amount is expected to be returned to the sellers in the first half of 2014 and is fully accrued at December 31, 2013. The cash held by some of our foreign subsidiaries could be subject to additional U.S. income taxes if repatriated. We believe that we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriation of the cash held by these foreign subsidiaries.
Over the next several quarters, we expect to maintain working capital productivity, and it is expected that excess cash will be directed primarily at debt reduction and acquisitions. Our near term focus will be managing our working capital as we experience sales growth and maintaining ample liquidity and credit availability. We anticipate capital expenditures in 2014 to be at levels similar to 2013. 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 (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 US $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 US $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. Non-cash interest expense of $2.2 million and $0.1 million was recorded for the years ended December 31, 2013 and 2012, respectively.
Borrowings under the Term Loan Facility bear interest at base rates plus applicable margins. At December 31, 2013, the interest rates on borrowings under the Canadian sub-facility and U.S. sub-facility were approximately 5.3% and 3.75%, respectively. At December 31, 2012, the interest rates on borrowings under the Canadian sub-facility and U.S. sub-facility were approximately 5.2% and 4.5%, 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. Other than in certain circumstances prior to June 13, 2014, 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.

26


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, with the first interest payment occurring on June 15, 2014. 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.
At any time on or after December 15, 2016, WESCO Distribution may redeem all or a part of the 2021 Notes. 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 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 (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, 2013 and 2012, accounts receivable eligible for securitization totaled approximately $586.4 million and $601.1 million, respectively. The consolidated balance sheets as of December 31, 2013 and 2012 include $453.6 million and $445.0 million, respectively, of account receivable balances legally sold to third parties, as well as borrowings for equal amounts. At December 31, 2013 and 2012, the interest rate on borrowings under this facility was approximately 1.2% and 1.4%, 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 US 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 acquisition of EECOL on December 14, 2012, EECOL was added as a Canadian Borrower. On November 19, 2013, WESCO Distribution and certain other subsidiaries of the Company entered into a First Amendment to Amended and Restated Credit Agreement and Waiver (the “First Amendment”). The First Amendment, among other things, revised certain covenants and financial statement covenant calculations in the Credit Agreement. 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 US $100 million in the aggregate.
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 US $400 million, which is collateralized by substantially all assets of WESCO Canada, WDCC

27


and EECOL, and (ii) a U.S. sub-facility with a borrowing limit of up to US $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, 2013, the interest rate on borrowings under this facility was approximately 3.5%.
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 US $163.8 million and the adjusted fixed charge ratio is not less than a ratio of 1.1 to 1.0.
During 2013, WESCO borrowed $833.5 million in the aggregate under the Revolving Credit Facility and made repayments in the aggregate amount of $1,026.7 million. During 2012, aggregate borrowings and repayments were $814.1 million and $632.9 million, respectively. WESCO had $512.2 million available under the Revolving Credit facility at December 31, 2013, after giving effect to outstanding letters and international lines of credit, as compared to approximately $270.9 million at December 31, 2012.
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 US $1.0 million and US $15.0 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 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.
6.0% Convertible Senior Debentures due 2029
On August 27, 2009, WESCO International completed an exchange offer pursuant to which it issued $345 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.

28


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. Non-cash interest expense of $10.2 million and $1.5 million was recorded for the years ended December 31, 2013 and 2012, respectively. The debt discount amortization will approximate $3.4 million in 2014, $3.9 million in 2015, $4.5 million in 2016, $5.1 million in 2017, and $5.8 million in 2018.
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, 2013 or 2012.
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, 2013
 
December 31, 2012
 
Principal
Balance
 
Discount
 
Net Carrying
Amount
 
Principal
Balance
 
Discount
 
Net Carrying
Amount
(In thousands)
 

 
 

 
 

 
 

 
 

 
 

2029 Convertible Debentures
344,901

 
(170,752
)
 
174,149

 
344,921

 
(173,708
)
 
171,213

Covenant Compliance
We were in compliance with all relevant covenants contained in our debt agreements as of December 31, 2013.
Cash Flow
An analysis of cash flows for 2013 and 2012 follows:
     Operating Activities. Cash provided by operating activities for 2013 totaled $315.1 million, compared with $288.2 million of cash generated in 2012. Cash provided by operating activities included net income of $276.5 million and adjustments to net income totaling $122.1 million. Others sources of cash in 2013 were generated from an increase in accounts payable of $37.8 million. 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, an $19.2 million increase in prepaid expenses and other noncurrent assets, and $9.3 million for the increase in inventory. In 2012, primary sources of cash were net income of $201.8 million and adjustments to net income totaling $61.6 million. Others sources of cash in 2012 were generated from a decrease in trade receivables of $58.2 million, $25.0 million for the increase in other current and noncurrent liabilities and a decrease in prepaid expenses and other current assets of $19.6 million. Primary uses of cash in 2012 included $29.3 million for the increase in inventory, $24.3 million for the decrease in payables and $21.8 million for the increase in other accounts receivable.

29


     Investing Activities. Net cash used by investing activities in 2013 was $18.2 million, compared with $1,311.0 million of net cash used in 2012. Capital expenditures were $27.8 million and $23.1 million in 2013 and 2012, respectively. Proceeds from the sale of assets were $10.8 million and $1.6 million in 2013 and 2012, respectively. During 2012, payments of $1,289.5 million were made for the acquisition of the businesses of EECOL, RS, Trydor and Conney.
     Financing Activities. Net cash used by financing activities in 2013 was $257.5 million, compared with $1,044.0 million of net cash provided in 2012. 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 our recently issued 2021 Notes, and repayments of $26.4 million which 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. During 2012, financing activities consisted of borrowings and repayments of $787.0 million and $605.7 million, respectively, related to our Revolving Credit Facility, borrowings and repayments of $672.1 million and $477.1 million, respectively, related to our Receivables Facility, borrowings of $840.8 related to the Term Loan Facility, and repayments of $150.0 related to early redemption of all the outstanding 2017 Notes.
Contractual Cash Obligations and Other Commercial Commitments
The following summarizes our contractual obligations, including interest, at December 31, 2013 and the effect such obligations are expected to have on liquidity and cash flow in future periods.
 
2014
 
2015 to 2016
 
2017 to 2018
 
2019 - After
 
Total
(In millions)
 

 
 

 
 

 
 

 
 

Contractual cash obligations (including interest):
 
 
 

 
 

 
 

 
 

  Debt, excluding debt discount
$
40.1

 
$
480.5

 
$
3.6

 
$
1,138.3

 
$
1,662.5

  Interest on indebtedness(1)
68.4

 
131.7

 
121.7

 
313.3

 
635.1

  Non-cancelable operating leases
55.9

 
92.2

 
60.9

 
63.7

 
272.7

Total contractual cash obligations
$
164.4

 
$
704.4

 
$
186.2

 
$
1,515.3

 
$
2,570.3


(1) 
Interest on the variable rate debt was calculated using the rates and balances outstanding at December 31, 2013.
Purchase orders for inventory requirements and service contracts are not included in the table above. Generally, our purchase orders and contracts contain clauses allowing for cancellation. We do not have significant agreements to purchase material or goods that would specify minimum order quantities. Also, we do not consider obligations to taxing authorities for uncertain tax benefits to be contractual obligations requiring disclosure due to the uncertainty surrounding the ultimate settlement and timing of these obligations. As such, we have not included $34.1 million of such estimated liability in the table above.
Inflation
The rate of inflation, as measured by changes in the producer price index, affects different commodities, the cost of products purchased and ultimately the pricing of our different products and product classes to our customers. Our pricing related to inflation did not have a material impact on our sales revenue for the year ended December 31, 2013. 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.


30


Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
Foreign Currency Risks
Approximately 70% of our sales are denominated in U.S. dollars and are primarily from customers in the United States. As a result, currency fluctuations are currently not material to our operating results. We do have foreign subsidiaries located in North America, South America, Europe, Africa, Asia and Australia and may establish additional foreign subsidiaries in the future. Accordingly, we may derive a larger portion of our sales from international operations, and a portion of these sales may be denominated in foreign currencies. As a result, our future operating results could become subject to fluctuations in the exchange rates of those currencies in relation to the U.S. dollar. Furthermore, to the extent that we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. We have monitored and will continue to monitor our exposure to currency fluctuations.
Interest Rate Risk
     Fixed Rate Borrowings: Approximately 51% 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 $505.6 million and $1,124.3 million, respectively, at December 31, 2013. 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, 2013 (see Note 7 to the Consolidated Financial Statements).

     Floating Rate Borrowings: The Company's variable rate borrowings at December 31, 2013 were comprised of the amounts outstanding under the Term Loan Facility, Receivables Facility and Revolving Credit Facility. The fair value of these debt instruments at December 31, 2013 approximated carrying value, which totaled $776.4 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 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.


31


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.


32


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, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 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, 2013, based on criteria established in Internal Control - Integrated Framework (1992) 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.

/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 21, 2014



33


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
December 31,
 
2013
 
2012
 
(Dollars in thousands,
except share data)
Assets

 

Current Assets:
 
 
 
Cash and cash equivalents
$
123,725

 
$
86,099

Trade accounts receivable, net of allowance for doubtful accounts of $19,309 and $17,242 in 2013 and 2012, respectively
1,045,054

 
1,036,235

Other accounts receivable
130,043

 
89,801

Inventories, net
787,324

 
793,974

Current deferred income taxes (Note 9)
44,691

 
42,151

Income taxes receivable
18,426

 
8,849

Prepaid expenses and other current assets
49,278

 
44,728

Total current assets
2,198,541

 
2,101,837

Property, buildings and equipment, net (Note 6)
198,654

 
210,723

Intangible assets, net (Note 3)
439,167

 
496,761

Goodwill (Note 3)
1,734,391

 
1,777,797

Deferred income taxes (Note 9)
1,733

 
1,342

Other assets
44,622

 
41,169

    Total assets
$
4,617,108

 
$
4,629,629

Liabilities and Stockholders’ Equity
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
735,097

 
$
706,580

Accrued payroll and benefit costs (Note 11)
56,548

 
86,375

Short-term debt (Note 7)
37,551

 
30,136

Current portion of long-term debt (Note 7)
2,510

 
9,623

Bank overdrafts
37,718

 
39,641

Current deferred income taxes (Note 9)
175

 
1,018

Other current liabilities
174,990

 
134,622

Total current liabilities
1,044,589

 
1,007,995

Long-term debt, net of discount of $174,686 and $183,644 in 2013 and 2012, respectively (Note 7)
1,447,634

 
1,695,413

Deferred income taxes (Note 9)
316,623

 
300,470

Other noncurrent liabilities
43,471

 
72,060

    Total liabilities
$
2,852,317

 
$
3,075,938

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, 58,107,304 and 57,824,548 shares issued and 44,267,460 and 44,061,451 shares outstanding in 2013 and 2012, respectively (Note 8)
581

 
579

Class B nonvoting convertible common stock, $.01 par value; 20,000,000 shares authorized, 4,339,431 issued and no shares outstanding in 2013 and 2012, respectively
43

 
43

Additional capital (Note 8)
1,082,772

 
1,065,550

Retained earnings
1,368,386

 
1,092,719

Treasury stock, at cost; 18,179,275 and 18,102,528 shares in 2013 and 2012, respectively
(610,430
)
 
(604,050
)
Accumulated other comprehensive income
(76,543
)
 
(1,044
)
Total WESCO International stockholders' equity
1,764,809

 
1,553,797

Noncontrolling interest
(18
)
 
(106
)
    Total stockholders’ equity
1,764,791

 
1,553,691

    Total liabilities and stockholders’ equity
$
4,617,108

 
$
4,629,629

The accompanying notes are an integral part of the consolidated financial statements.

34


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands, except per share data)
Net sales
$
7,513,342

 
$
6,579,301

 
$
6,125,718

Cost of goods sold (excluding depreciation and amortization below)
5,967,892

 
5,247,855

 
4,889,149

Selling, general and administrative expenses
996,810

 
961,014

 
871,983

Depreciation and amortization
67,642

 
37,561

 
31,607

Income from operations
480,998

 
332,871

 
332,979

Interest expense, net
85,607

 
47,762

 
53,603

Loss on debt extinguishment (Note 7)
13,225

 
3,470

 

Loss on sale of Argentina business
2,315

 

 

Income before income taxes
379,851

 
281,639

 
279,376

Provision for income taxes (Note 9)
103,333

 
79,880

 
83,136

Net income
276,518

 
201,759

 
196,240

Less: Net income (loss) attributable to noncontrolling interest
88

 
(18
)
 
(11
)
  Net income attributable to WESCO International, Inc.
$
276,430

 
$
201,777

 
$
196,251

Comprehensive Income:
 
 
 
 
 
  Foreign currency translation adjustment
(83,172
)
 
(9,013
)
 
(12,576
)
  Post retirement benefit plan adjustments (Note 11)
7,673

 

 

  Comprehensive income attributable to WESCO International, Inc.
$
200,931

 
$
192,764

 
$
183,675

 
 
 
 
 
 
Earnings per share attributable to WESCO International, Inc. (Note 10)
 
 
 
 
 
Basic
$
6.26

 
$
4.62

 
$
4.54

Diluted
$
5.25

 
$
3.95

 
$
3.96

The accompanying notes are an integral part of the consolidated financial statements.


35


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other
 
 
 
 
 
 
Class B
 
 
 
Retained
 
 
 
 
 
 
 
Comprehensive
 
 
Common Stock
 
Common Stock
 
Additional
 
Earnings
 
Treasury Stock
 
Noncontrolling
 
Income
(Dollars in thousands)
 
Amount
 
Shares
 
Amount
 
Shares
 
Capital
 
(Deficit)
 
Amount
 
Shares
 
Interest
 
(Loss)
Balance, December 31, 2010
 
$
566

 
56,576,250

 
$
43

 
4,339,431

 
$
1,018,683

 
$
697,676

 
$
(591,007
)
 
(17,905,740
)
 
$

 
$
22,633

Exercise of stock options, including tax benefit of $5,365, and vesting of restricted stock units, net of taxes
 
6

 
531,121

 
 
 
 
 
5,783

 
 
 
(7,838
)
 
(146,614
)
 
 
 
 
Stock-based compensation expense
 
 
 
 
 
 
 
 
 
15,407

 
 
 
 
 
 
 
 
 
 
Conversion of 2029 debentures
 

 
589

 
 
 
 
 
(5
)
 
 
 
 

 
 

 
 
 
 
Issuance of treasury stock
 
 
 
 
 
 
 
 
 
(582
)
 
 
 
957

 
28,994

 
 
 
 
Tax withholding related to vesting of restricted stock units and retirement of common stock
 
(1
)
 
(86,437
)
 
 
 
 
 
(2,419
)
 
(2,138
)
 
4,559

 
86,437

 
 
 
 
Noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(77
)
 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
196,251

 
 
 
 
 
(11
)
 
 
Translation adjustment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(12,576
)
Balance, December 31, 2011
 
$
571

 
57,021,523

 
$
43

 
4,339,431

 
$
1,036,867

 
$
891,789

 
$
(593,329
)
 
(17,936,923
)
 
$
(88
)
 
$
10,057

Exercise of stock options, including tax benefit of $11,139
 
8

 
829,401

 
 
 
 
 
14,310

 
 
 
(12,277
)
 
(192,669
)
 
 
 
 
Stock-based compensation expense
 
 
 
 
 
 
 
 
 
15,088

 
 
 
 
 
 
 
 
 
 
Conversion of 2029 debentures
 
 
 
688

 
 
 
 
 
(5
)
 
 
 
 
 
 
 
 
 
 
Tax withholding related to vesting of restricted stock units and retirement of common stock
 

 
(27,064
)
 
 
 
 
 
(710
)
 
(847
)
 
1,556

 
27,064

 
 
 
 
Noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(18
)
 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
201,777

 
 
 
 
 
 
 
 
Translation adjustment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(11,101
)
Balance, December 31, 2012
 
$
579

 
57,824,548

 
$
43

 
4,339,431

 
$
1,065,550

 
$
1,092,719

 
$
(604,050
)
 
(18,102,528
)
 
$
(106
)
 
$
(1,044
)
Exercise of stock options, including tax benefit of $2,022
 
3

 
304,441

 
 
 
 
 
2,052

 
 
 
(7,885
)
 
(98,857
)
 
 
 
 
Stock-based compensation expense
 
 
 
 
 
 
 
 
 
15,917

 
 
 
 
 
 
 
 
 
 
Conversion of 2029 debentures
 
(1
)
 
425

 
 
 
 
 
(2
)
 
 
 
 
 
 
 
 
 
 
Tax withholding related to vesting of restricted stock units and retirement of common stock
 
 
 
(22,110
)
 
 
 
 
 
(745
)
 
(763
)
 
1,505

 
22,110

 
 
 
 
Noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
88

 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
276,430

 
 
 
 
 
 
 
 
Translation adjustment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(83,172
)
Benefit plan adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,673

Balance, December 31, 2013
 
$
581

 
58,107,304

 
$
43

 
4,339,431

 
$
1,082,772

 
$
1,368,386

 
$
(610,430
)
 
(18,179,275
)
 
$
(18
)
 
$
(76,543
)

The accompanying notes are an integral part of the consolidated financial statements.

36


WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Operating Activities:
 
 
 
 
 
Net income
$
276,518

 
$
201,759

 
$
196,240

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
67,642

 
37,561

 
31,607

Stock-based compensation expense
15,917

 
15,088

 
15,407

Amortization of debt issuance costs
4,880

 
2,655

 
4,435

Amortization of debt discount
4,308

 
2,260

 
2,499

Loss on debt extinguishment
13,229

 
1,595

 

(Gain) loss on sale of property, buildings and equipment
(4,174
)
 
(546
)
 
304

Loss on sale of Argentina business
2,315

 

 

Excess tax benefit from stock-based compensation
(3,631
)
 
(11,358
)
 
(5,408
)
Interest related to uncertain tax positions
952

 
(3,371
)
 
1,901

Deferred income taxes
20,635

 
17,685

 
14,373

Changes in assets and liabilities
 
 
 
 
 
Trade receivables, net
(30,464
)
 
58,194

 
(137,673
)
Other accounts receivable
(42,983
)
 
(21,779
)
 
(5,818
)
Inventories, net
(9,339
)
 
(29,339
)
 
(33,769
)
Prepaid expenses and other current assets
(19,196
)
 
19,588

 
11,268

Accounts payable
37,789

 
(24,346
)
 
101,677

Accrued payroll and benefit costs
(19,163
)
 
(2,498
)
 
9,988

Other current and noncurrent liabilities
(94
)
 
25,036

 
(39,498
)
Net cash provided by operating activities
315,141

 
288,184

 
167,533

Investing Activities:
 
 
 
 
 
Capital expenditures
(27,825
)
 
(23,084
)
 
(33,347
)
Acquisition payments, net of cash acquired

 
(1,289,480
)