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WESCO International, Inc (NYSE:WCC)

2011 Annual Investor Day

August 09, 2011 1:00 pm ET

Executives

Dan Brailer, VP, Treasurer, Legal and IR

John Engel - President & CEO

Steve Van Oss - SVP & COO

David Bemoras - VP, Operations

Andrea Hogan - VP, General Manager Northeast Region

Les Kebler - International Business

Andy Bergdoll - VP, Utitlity

Richard Heyse - VP & CFO

Dan Brailer

Good afternoon. Welcome to the WESCO International Investor Day. My name is Dan Brailer and I am the Vice President of Investor Relations and Treasurer. On behalf of the entire WESCO management team I would like to thank you for being with us. We know your time is valuable and given the market volatility it’s especially gratifying for you to spend time with us today. And we thank you. Additionally without naming names, we know of a couple of you who have taken time from your family vacations to be with us today. And for that we thank you.

Before we get started I would like to address a few housekeeping matters. On the second page in the presentation, you’ll find the required Safe Harbor Statement pertaining to the presentation in discussion today. Many of the statements made today are forward-looking statements which involve risks and uncertainties and actual results may differ from the forward-looking statements.

Secondly, please turn all blackberries and cell phones to the silent mode. We thank you for that courtesy. We have provided to each of you there at your seats a WESCO pen to thank you for attending. These pens have a 2 GB USB memory stick embedded and downloaded on to the stick is today’s presentation. So please take this and think of WESCO as you are writing out orders.

Unidentified Company Representative

Many orders?

Dan Brailer

Many orders. Finally, safety is very important to us at WESCO. And in the unlikely event of an emergency I would direct your attention to the exit to your right and directly behind you. This is our second annual Investor Day and we’re very pleased to be with you. Today you will hear from John Engel our Chairman, President, and Chief Executive Officer; Steve Van Oss, our Senior Vice President and Chief Operating Officer; Richard Heyse, our Vice President and Chief Financial Officer. You’ll also be hearing from four business leaders who will discuss certain end markets and products categories and our strategies to deliver above market growth. David Bemoras, who was here last year will update you on our communications and security business, Andrea Hogan who will provide insight into our lighting and sustainability program. Les Kebler will highlight our international business and Andy Bergdoll will review the utility business. Also we are very pleased to have with us today three other managers from WESCO. I would ask them to be standing and be recognize as I call their name and they are seated in the rear of the room.

Diane Lazzaris, our Vice President and general counsel, Kim Windrow our Vice President of human resources and Harold Henze our group Vice President and General Manager of our Canadian operations. We would ask that you hold your questions until the end of the program when John will host the Q&A session. But we do look forward to your questions and your insights. We will be hosting a cocktail reception in the next room starting at the conclusion of our Q&A session with dinner beginning at 6:00 p.m. If you have not signed up for the dinner at the break at 2:45, please see me back and we would be delighted to have you join us for dinner this evening. And dinner will be just in the adjoining room. Please remove all belongings at the conclusion of the Q&A today as this room is reserved by another group and so we will have to remove all of our belongings and take them into the room for dinner.

Finally, we would like to leave you with three messages to take away from today’s meeting. One, we are investing in our business to drive above market growth. Two, we are consistently executing our strategy and three, we are generating outstanding financial results. It is now my pleasure to introduce you to John Engel. John?

John Engel

Thank you Dan. Good afternoon everyone and welcome to our 2011 Investor Day. Dan introduced members of our management team. I would like to take a moment to introduce one of the members of the WESCO Board of Directors. And that’s Jamie Singleton. Jamie, please stand. I want to thank Jamie and the entire WESCO Board for supporting the investments in our business and our growth plans. I think we are going to share with you today a plan that shows what we’ve done versus what we said we were going to do over the last two years and we will give an outlook on where we are going and the Board support has been terrific and Jamie, thank you very much again.

Let me start out by addressing the recent market volatility and our WESCO stock price. We are focused on what we can control. And that’s our execution. We have been significantly outperforming our end markets over the last six quarters and delivering results that are substantially above the targets that we outlined in our Investor Day, this meeting one year ago. This performance has been against a very challenging economic backdrop. It’s been a low growth economic backdrop and it includes some endmarkets that have been particularly challenging such as construction.

A year ago, when we provided an outlook on what the end of 2010 and 2011 looked like, we did not anticipate a GDP below 2% in the first half of 2011. We do not. We anticipated a more robust economy. We did not anticipate construction markets, end markets that were down high single to low double digits in the first half of this year. So, clearly the economy has been more challenging than what we anticipated a year ago and I have to say though when you look at our performance, particularly over the last six quarters, it shows what WESCO can do, it shows the performance strength of today’s WESCO. Today’s WESCO with our broader and stronger portfolio with our more consistent and disciplined execution and with our talented management team, we’re delivering very strong financial results and we are doing what we said we would do.

Our strategies working and our plan, our plan as it was last year and as it today is to continue to out perform the market. And we’re very pleased that you took time out of your busy schedule to be here today and it is our intention that we’re going to spend the rest of today reviewing that plan with you.

So now let’s moves to the agenda if we could and take look at the binders that are in front of you, you’ll see a detailed agenda. We’re going to walk through that, we’ve going a break plan mid-afternoon 15, 20 minute break. We do have an awful lot of materials to get through. As Dan said you got a hard copy in front and you have a soft copy on your memory sticks.

On the inside front cover of the binder I’d highlight for you a brochure that outlines one WESCO. What it means and it’s really from the lens or the eyes of the customer. So it represents the qualities and attributes of WESCO and it’s really our customer value proposition. So I’d encourage you to take some time and go through that at your leisure. In the back hand side cover, is what we call our one WESCO, our LEAN value creation solution. And these are the solutions that we take the customers, either the comprehensive array of supply chain solution that we offer to each of our customers. And this has proven to be a distinct competitive advantage for us versus our competition.

Outlined on this page is the agenda. I am going to start out by giving an update on our strategic plan and progress and talk about our business priorities and then I am going to give unlike last year give a kind of longer-term outlook of what our vision is and what our excellent value creation opportunity is for WESCO. I will then hand it to Steve Van Oss. Steve is going to spend some time going through our investments and our execution plan for our eight growth engines.

And new this year and we talked about it last year, he is going to spend substantial time reviewing what our gross margin expansion plans are. More detail than we've shared in the past. We will then move into our growth engines. You will recall for those of you that were here last year we drilled down on three different growth engines last year. We've got four this year. One we brought back but last year it was only data communications. Now it’s been renamed Communications & Security and it’s a much broader growth engine now that we've acquired TVC Communications in December of last year.

Our run rate on our Communications product and services portfolio is $1 billion plus and you will hear from David Bemoras on that. We’ve now jump ahead of Graybar and have a number two market position behind Anixter. That will be followed by Richard Heyse, our CFO. He will outline our latest expectations for 2011, what our results are and he will give you an early look at 2012. That's new for this year. We didn't do that last year, so we will give you our initial outlook and kind of the construct for how we think about 2012 and in addition we will provide a three year outlook on our financial targets and cash utilization priorities.

Last year we went through 2013 and Richard will show you that we are ahead of the pace of those targets that were set and this year we will extend that out through 2014. So let's move to the next page and let's talk about what progress we've made and how we are accomplishing our results versus our growth strategy. This was launched in the fall of 2009 and it was reviewed in detail in last year's Investor’s Day. So specifically upon the conclusion of the CEO succession plan in September of 2009 what have we done, we've defined and launched our eight growth engines.

We've initiated One WESCO, we've increased investments in our business, we've focused our execution on our top growth priorities, we've continued to aggressively develop our leaders and organizations. And we've increased the transparency of our company. This has all translated into excellent results, excellent results in the first half of 2011 that came on the heels of a very strong 2010.

As we move into the second half of 2011, we clearly have positive business momentum. Our investments are paying off, we are taking share, we've restarted our acquisition engine and we are producing very strong earnings growth. It’s our momentum and our track record of execution over the last six to eight quarters that gives us great confidence as we move through the second half of 2011.

Let's take a look at the numbers now in a little more detail. This is sales operating margin EPS and total shareholder return. On the top left is our sales results you can see that over the last four quarters we've had strong double digit sales growth, we've grown double digit sales on an aggregate roll up basis and also on an organic basis. More notably our backlog growth has exceeded our sales growth over those same four quarters. And as you will all recall our backlog is essentially project business. So it’s a good indicator, a good precursor for what portend for our construction projects going forward. The top right is our operating margin expansion, strong results. I think the takeaway is our operating model is working and our operational pullthrough is very strong.

And we had clearly talked about, that's kind of a foundational element of our business model and we are demonstrating that as move through this recovery period. Bottom left is EPS results and what we are demonstrating now I think is a track record of consistency in of meeting and beating expectations. And fundamentally on the bottom right is total shareholder return. The period that we measure here was the last six quarters. So it is from January of 2010 through the end of July 2011 and we’ve benchmarked against five key indices for us. We look at a lot more than that but I think for illustrative purposes today we picked two of the major industries, S&P 500 and Russell 2000. You can see we substantially outperformed them and three of our investment peers, Grainger, Fastenal and Anixter.

You have seen this chart before, this is our growth engines, our strategic calculation is on the left. These are our eight growth engines on the right. One is the business model or a series of business models, global accounts and integrated supply. We did a drilldown of that last year for our focused end market segments namely construction, government, utility and international and on the far right. Our major product and service categories, communications and security, lighting and sustainability and wire & cable.

As we’ve spoken about over the last few years, we are disproportionately investing in these eight areas and we continue to believe that they offer substantial opportunity for us to continue to drive and deliver above market sales growth.

On this page is the foundation of our strategic health is the operational excellence foundation. It’s comprised of these six key initiatives that are enterprise wide processes and functions and we execute these through a combination of LEAN and One WESCO and I will talk about One WESCO more in a few charts, but specifically what are these six? Marketing leadership, sales management, sourcing effectiveness, pricing effectiveness, service excellence and most importantly, talent management.

The first five Steve Van Oss will develop in his presentation and the four business leaders will touch upon the marketing sales and service elements. It’s the sixth one I want to spend a few moments on today. And we talked about this last year. We clearly are a people business and talent management for us is all about recruiting, retaining and developing the best and brightest.

We launched the talent management process in the spring of 2005, the origins of which are GE Session C process or Allied Signal’s MRI process. It had a profound effect on the company, clearly. The top 75% of our Top 100 leaders are new to the company on a new operating role over the last three to four years.

The ten senior managers who are here today, sitting in front of you and the three in the back in the last three to five years are new to the company, will have a fundamentally new or expanded operating roles. So, we absolutely are a people business. We continue to invest in our people. We’ve now launched something called WESCO University which will develop over the next decade which is a compilation of our training capabilities and programs. For us, the town equation is a key differentiator in our ability to serve customers and provide them value, sustainable value over the mid to long term.

Now, let’s shift to One WESCO. So, what is One WESCO. When we launched it and we talked about it briefly last year. We are going to develop it a little further in today’s Investor Day. We launched it in the beginning of last year and it’s gaining terrific momentum across the company. It’s all about integrating all our efforts, all our efforts around the customer.

If you are a supply chain company or you are a distributor, you have a choice to make or you are going to optimize the supplier or you are going to optimize the customer. We absolutely are optimizing the customer. And we are developing unique knowledge around the customers’ needs and application and we don’t exist with other suppliers and we have a terrific stable of supplier partnerships. But for us its all about the customer and One WESCO is about bringing all of our products and services and solutions to bear on every customer relationship be it an industrial customer and all their operations globally, be it a major construction contractor, be it a governmental agency, be it a major utility.

That’s what One WESCO is all about. On the right hand side of this chart is the progress we’ve made and it’s substantial over the last 18 months. We’ve deployed One WESCO branding. We’re fostering significant collaboration across various locations and our boundaries. Sales rep plus product specialists plus our teams in our various branches, there is still a highly localized nature to the markets that we compete in. And that’s true in distribution in the US, in Canada and globally. But we see a unique value add that we can bring by fostering this collaboration across locations and bringing our complete portfolio to bear on customers.

We’ve combined operations in some select geographies, we’re conducting specialized training as I mentioned using WESCO University. We’re extending core capabilities that were captive or resident in a certain part of the business across our entire business enterprise. One is the terrific capability for lead identification, generation and qualification. It’s a centralized high quality team that feels across our entire branch network. We’ve alluded to that in the past. It’s a capability we acquired when we acquired CSC and we built on that, added resources, added significant domain knowledge across the entire portfolio. And it is a big part of our demand generation and front end of our sales management process.

And we’ve adjusted some compensation and incentive plans to promote more team work across boundaries. So I think all in all, the results for us are very encouraging and net-net it is translating into some significant One WESCO I will call them customer wins.

David, Andrea Les and Andy will be a spotlighting number of these wins in their various presentations and I think you will begin to see the power of the broad portfolio that we have been able to bring more and more of that to bear on our customers needs, applications and operations.

This is a page that just outlines the breadth and depth of our portfolio and you can see it here. It’s extensive, coupled with our business models it gives us the opportunity to really provide that complete solution to our customers. I would encourage you if you haven’t had the chance already, either at the break or at the cocktail hour, to take a look at what we have displayed in the foyer.

We have a sampling of our product portfolio out in the foyer. Specifically we have a series of lighting products, two of the utility products, data and broadband communications products. We also have solar products this year and some general electrical products. So we tried to spotlight and highlight a number of the products that we will be drilling down in these various growth engine drilled outs.

Let’s shift to acquisitions. Our strategy hasn’t changed. Our strategy is to expand our product and service portfolio and to strengthen our position in the local market. As we've done and has been our practice historically, we've remained very focused on acquiring well-run companies with strong management teams. From our perspective today, the industry remains highly fragmented with many profitable niches. The analogy reviewed before is there is no Wal-Mart in any of our addressable wholesale distribution verticals today, highly fragmented, many opportunities.

In addition our global accounts and integrated supply business models have horizontal extension ability into other vertical and so we are able to bring some unique synergies to certain acquisition targets that some of our competitors cannot. We are a strategic buyer, make no mistake about it, we are an integrated operating company. And so when we acquired our company we look at getting those synergies as opposed to just the holding company in various individual pieces. So that's our approach.

Our acquisition engine was restarted, a little over a year ago, we've done three acquisitions since then for about a $350 million a year sales run rate. They have been terrific additions to our portfolio, they are meeting and exceeding expectations as we've discussed in our last earnings call. Our acquisition pipeline as we sit here today is at an all-time record level. How do we define record level? Number of targets, quality targets and total revenue size.

And in addition what's different today than in the past we have some dedicated resources working the acquisition pipeline. So I would tell you that our strategy of driving organic growth above the market supplemented by accretive acquisitions remains intact and it remains intact over the next three to five years of strategic planning horizon. This page outlines our business priorities and our financial objectives and our priorities are on the top left.

We've talked about and we may not have seen them laid out this succinctly. Put simply it’s the take share. Scale matters and distribution, so taking share matters. It’s to expand margins. It’s to continue to strengthen the portfolio, both through our organic investments and the acquisitions that we add to the portfolio and it’s to continue to build a high performance culture. On the bottom left is our long-term financial objectives. These have remained consistent and will remain consistent.

And so what is the takeaway and where do we stand today and what is today's WESCO. Today's WESCO is a Fortune 500 company. It’s a Fortune 500 company with market leadership positions, a balanced portfolio of businesses and an operational excellence culture. That's our company today.

Where are we going in the future. It’s a bit of a complicated chart, but what we try to capture here is a longer-term perspective. We have a column that's called current and so you can think of that as current stage. Okay and then right to the right of that you see future. You think of that as future state and vision and we've outlined a series of key dimensions for our company and our enterprise and so what's laid out on this chart is really an encapsulated view of our vision on where we are driving the company for each of these key dimensions. I will take a few minutes to highlight a few of these. For customers and markets it’s all about industry leadership. More industry verticals and an improved global mix, a good example of that is government.

We've identified government as an excellent vertical that we could go after, before stimulus was conceived. And we looked at that and said first of all where we do business with the government is profitable and traditionally they’ve paid their bills. And we said we have a terrific opportunity to really double, triple or quadruple that as a percentage of our portfolio. Before we acquired CSC, we had a $50 million government position and we have increased that business dramatically. So that’s an example of what we are talking about in terms of customers and market.

For products and services, it’s new product and service categories and it’s being the supplier of choice and the partner of choice for our supply base. Again, I think you can see with the last series of acquisitions we have done, we have clearly expanded on product and service portfolio. And we are not just rolling up individual selective electrical distributions locations. We are looking at strengthening and expanding our portfolio.

Next key dimension I want to touch on was LEAN. We launched LEAN in April 2003. We are in the eighth year of our journey. I will tell you that we see more opportunity today than the day we launched. We feel great about LEAN as being applied to all aspects of the enterprise. Steve is going to talk about the LEAN applications to our front end sales through operations. Richard is going to touch upon the LEAN applications to the administrative processes.

So we feel terrific in terms of the progress we have made over eight years, but we are far from where we expect to be ultimately. We are nowhere near yet where LEAN “self-initiated” in every location and in every group. And I think until and unless we get there, we have not reached a level of kind of baseline maturity where LEAN is completely inculcated across our company. But that’s clearly the direction that we are heading.

Talent and culture I talked about One WESCO, so it’s about operating as One WESCO team and being the employer of choice.. For marketing sales, service and IT, it’s about exploiting our capability, continuing to invest in those and refine those, but exploiting those capabilities is true competitive differentiators.

For acquisition, it’s faster pace and larger sizes, and then fundamentally, in terms of value creation, a double digit sales growth as a stretch goal for all the part portions of WESCO and it’s driving our operating margins back to 6% and into 8% and 8% plus percent as we move into the future. So, what’s the takeaway. The takeaway is WESCO is a strong company with an excellent value creation opportunity.

So with that, that’s a quick overview. Now, I would like to hand it off to Steve Van Oss, who will take us through operations.

Steve Van Oss

Thank you, John and good afternoon everyone. Our business is sound. Our initiatives are working. We are delivering above market growth while expanding our operating margins. Our results in have July continued this trend. I am going to review our operating priorities and that our focus on delivering this profitable growth.

For our top-line initiatives, the execution across eight growth engines and investments in the capacity and the capability of our sales force are working to deliver above market growth. In a very, very large fragmented market and we are talking for both organic as well as the acquisition growth.

Our acquisition pipeline is active as John talked about and is focused on product and geographic expansion. And along with organic growth initiatives are driving our ability to deliver consistent above market organic growth.

Our market expansion plans consists of pricing actions, sourcing and procurement initiatives, changes to our compensation programs and importantly, our margin focus culture as predicated on delivering value to our customers on a daily basis.

With LEAN, we have adapted and adopted manufacturing techniques and taken that to a service and logistics organization and apply that to our distribution business. We are taking LEAN and applying across all aspects, sales, operations, administration every place that we touch a customer, we touch things internally; we’re applying LEAN in our organization today.

A well run distribution company has a great cash characteristic, when it grows it delivers 80% to 90% free cash flow. In a challenging time or stability ability time, it can generate in access of 100% of net income; WESCO has done this consistently throughout the cycle.

To talk a little bit about the gross engines, we have many opportunities to grow our business in these large fragmented markets. The trends favor a well capitalized player like WESCO. Our eight growth engines are the focal point to drive above market profitable growth and I am going to review each one of these.

For these growth engines will be discussed in detail following my presentation. David Bemoras will discuss our communications and security initiatives. With over $10 billion market opportunity and $1 billion sales rate and a record backlog, we are well positioned to leverage our global accounts organization, expand our footprint and continue to gain market share.

This particular growth engine is a great example of WESCO’s ability to execute and take share in the given product category. Prior to 2006, we have a minimal presence nationally in data communications products. With the 2006 accusation, the addition of 30 locations on an organic growth basis and acquisition in 2010 which added another 30 locations, we become the second largest player in the U.S. and maintain a number two position in Canada. Dramatic results by the company in particular category that we set our sights on five years ago. Andrea Hogan will discuss our lighting and sustainability initiatives. We are investing in sales and marketing resources in this $19 billion addressable market. We are very well positioned to light the way for our customers as the industry shifts to LED technology and help our customers reduce cost and achieve their sustainability goals.

Next Les Kebler will review the success of our programs internationally that have resulted in a record backlog and hence we support our customers on a global basis. We have invested in resources, facilities and capabilities and see opportunities to grow our sales 15% to 25% compounded outside of North America. Lastly, Andy Bergdoll will discuss the initiatives surrounding our utility customer base.

This is a large market of over $10 billion of addressable spend via the distribution channel. We intend to increase the scope of supply to our investor on utility customers, grow our share in public power and participate in alternative energy markets and grow our market share in this attractive end market.

Four more growth engines are depicted in this slide. The first one I want to talk about is global accounts and integrated supply. These are two business models that uniquely leverage the needs of large sophisticated, national and global companies. If you look at our global accounts business, think about that as everything electrical from MRO, direct materials and project basis, anything they need on the electrical components across all those facets we are able to deliver that in superior fashion to customers that need this across the broad spectrum of geographies.

Integrated supply, think about that as electrical and everything else; it’s a totally outsourced model, where WESCO provides the systems; the personnel to manage the customer’s total MRO spend. Both of these models result in what I call sticky sales relationship and is extremely hard to disintermediate. We have the leadership position with $2 billion opportunity pipeline in front of us today.

Over one-third of WESCO’s total business utilizes this business model and we continue to see more opportunities to expand our count base globally and grow double digit on a compounded basis. Government, that’s a nice success story for WESCO. Even today, with the growth we've had and a $400 million opportunity pipeline we have a very small position in a very large market with the government and I do believe they will continue to pay their bills as they go forward.

We've leveraged the stimulus and we've created a dedicated team to focus on this government market. This team is still in place today and we continue to invest in their capacity and their capabilities. We believe we will see 10 plus compound annual growth in this category on a go forward basis.

Next in construction, these customers are major market for WESCO and is part of our heritage. What once was the primary end-market for WESCO; it’s now a $2 billion and our second largest end-market as we’ve consciously added additional profitable end-markets in a move to reduce cyclicality of our business.

Our success in applying LEAN applications across the construction lifecycle and applying our global accounts model to construction has paid off. While in the last two years, the market has been severely challenged, and with that I mean there has been sales went down double and single-digit respectively.

For WESCO we’ve seen single to double-digit growth that’s been balanced geographically throughout all of North America and it’s been driven by large complex projects and we continue to grow our backlog. As John mentioned, we’re growing our backlog at a rate faster in sales and as primarily in this market the market has just been down single to double digits while we’re growing in single to double digits as well.

Finally, wire and cable. This is a new growth engine that we’ve added in 2011, it’s more than just wire and cable includes a variety of products such as steel and PVC conduit, fiber optics and alike. So don’t think about wire and cables primarily copper-based, but it certainly has some of that in there, but it’s much broader than that.

We’re expanding our capabilities in this product category. We’re adding new facilities and we’re adding personnel and local inventory and we’re going to continue to invest in these, in the breadth and the depth of our product offerings with the local inventory with a site on growing this growth engine to 10% or more. All of these growth engines support our above market sales growth.

Talk a little bit marketing and sales activities. We view this as helping create and sustain and deliver consistent growth. We are an industry leader in utilizing marketing programs to drive incremental sales.

From direct campaigns where we have got over five years of point of sale data in our data warehouse to help us utilize new product introduction or penetration in any particular vertical market that we want to enter into. To award winning catalogs that are put in place are extremely customizable to quickly be able to take a large catalog, go on a geographic basis or an end-market basis and customize that for our sales personnel and our supplier partners to drive and penetrate sales in those market places.

All the way down to locally market driven theme trade shows. These shows are very effectively when getting our customers into our local branches and creating a spike demand and helping change the loyalties at a local basis.

These programs have been extremely effective for the company and the way I really put my belief behind that is our suppliers have voted with their wallet in this area. When we started the program of having supplier-funded marketing personnel embedded inside the WESCO’s marketing department to drive sales opportunities into weed through the labyrinth of their complex organization in WESCO branch network. We started off by asking for funding. We have three of those in 2005 and over 15 funded positions in our marketing department in 2012. It’s a very, very strong advantage that WESCO has in this industry.

LEAN on the sales side, it was the early focus of our LEAN journey and it continues today. I’ll highlight quickly five points on the star here. The first one in the area of perpetual sales development that were working LEAN through the management of that process to drive sales everyday on a continuous basis.

Our daily rally for sales had a manufacturing analog of the daily production meeting. This is a meeting each day, brief meeting inside the branch where they bring the sales and the inside personnel together, talk about what’s on the slide today, how are we going to meet our targets and what how we can do to help each other drive that through. These daily rally for sales successes have been shared throughout the organization on a monthly and a quarterly basis.

The LEAN process and systems that drive productivity and accuracy; basically, this is designed to help our personnel get the order while the customers on the phone. It is perishable demand when they are calling and then we want to get them on, we want to get them off with the PO in hand and we’ve done that. Professional sales management, continually raise the bar for order closure rate and a productivity of our sales force.

Let’s talk a little bit about our sales capability and our capacity expansion. We’ve been very successful. We are continually investing in our sales capacity to achieve sustainable profitable growth well in excess of the market.

If you look at what we’ve done in the last 12 months including acquisitions, we’ve added 12% to the capacity of the organization as far as sales and sales management personnel. We’ve added and increased our investment in training and development, we’ve added the college recruiting program, just start introducing high potential talented individuals into the organization in an industry that is traditionally broad-end what I call the old self, which is a lot of recycling going on between distributors and between suppliers. We are injecting a new flow of talent into the organization in a major way.

On the right hand side of the slide if you are looking at, is expanding our location. This is a little bit different than WESCO did in the past. We tried to really maximize each branch operations. If you look at this over 75 new physical or product line expansion locations over the last several years to drive our growth initiatives. More than half of this have come from Greenfield operations. That is not the old WESCO. This is a change in our culture to drive organic growth on a consistent basis in the company and add to that accretive acquisitions. We intend to continue to this as we go forward in the business.

And I’ll switch gears little bit from the sales side on that I would summarize we’re saying its working, its working well. We are demonstrating great sales momentum. The big challenge and the big opportunity we have is to switch that success into expanding our gross margins.

First, a little tutorial, we talk about gross margin externally; internally we’re focused on five or six components. We’re focused on first and foremost what we call our product margin and that is what we buy something from, but we ultimate sell it for. This has been a challenging area to move; we’ve had unprecedented level of price increases; we’ve had seen commodity price increases in an industry that has excess capacity.

Even with that, we’ve been able to maintain and improve over the last three quarters our product margin. Again we talk about gross margin, its product margin plus several components that either add to or detract from getting to a gross margin percent to put it into perspective, product margins for the company generally run around 19% on average, our gross margin roughly 20% so there is a one point spread between those two goal posts.

If you look at the transportation cost, that is transportation brining the goods into the company that’s generally a detract between that spread. So what we can do here to either charge more our customer or to reduce that cost in the company helps to increase the spread.

Customer-supplier cash discounts is another component. We do give cash discounts to our customers to better we can manage that and minimize that, but hoping to increase the spread in the cash discounts we can get from our suppliers help to increase the spread.

Supplier volume rebase is a major component of the spread and as a positive contributor. It is a big area of focus and it’s a challenging one in growth environment as well as the declining environment. These programs generally have three elements; there is kind a $1 element program, some programs are $1 plus when you get to a certain level generally a 100% or 105% of the previous year there is a kicker. And there is another set of programs that only work if a kicker when you get above last year’s levels.

So when we have a good growth here, we try to maximize and focus on those suppliers where we can increase that and in the down year we try to make sure that we can try to reevaluate may be renegotiate the ranges, so that’s the components of our gross margin initiatives.

Here is a little bit of history, you can see that we have had a fairly wide range of gross margin percent. In the last three years we have tightened and improved that, despite the recession that we saw in 2009, we rolled out in 2010; despite intense commodity pressures which we are currently seeing in the lighting area with rare responses that you may have read about in the paper and numerous, numerous supplier price increases.

So we are confident that we can get on top of these and improve them going forward. I am going to break out in that blue box talks about our pricing and the other activities that we’ve got and then I’ll review those in details.

First on the pricing actions, I draw your attention to the green balloon, 50 to 100 basis points. One full point of opportunity we see on the pricing arena alone; there is kind of what and how we get to these priorities and our initiatives. We are looking at pricing categorization and optimization, we’re looking how we handle customer rebates which I talked to you about and the spread how we manage price increases.

Think about the challenge for a distributor like WESCO. We generally represent 20 or so suppliers in any given time going in to a customer. Our suppliers generally don’t collaborate and do a price increase all in the same day, so we have to be careful, we can't be going in everyday, to every customer asking for a price increase. So there's a blend and balance of how you go in for that, take those, combine them and try to get what we call a price bump if the average increase is 3% we will go for 4% or 5% because we don't always be able to it in there on day one. We've been putting on a lot of pricing tools and systems to help our associates to drive this area as well.

Customer class points, small, medium and large customers, they don't all need to be treated the same way so we are trying to make sure that as we look at customers if it’s a small customer, the different pricing algorithm as a large customer. But it could be the same if you take a small customer and say I see them, having the ability in a short period of time to become a very large customer.

Listing the discounts mentality versus cost plus. We have a very large procurement organization, we have a lot of purchases, when we are successful in driving the procurement cost, first cost into inventory down, we have to be careful in a cost plus mentality that the industry operates in that can actually hurt our margins.

So if you buy something for $1 typically you market up $0.20, you sell it for a $1.20. If for no other reason, no change in the marketplace and no other reason that we've been able to negotiate a better price we now buy that for $0.80. If you have a cost press mentality what happens, 20% on $0.80 is only $0.16. Customer gets a $0.24 drop. We maintain margin percent, feel good about and maybe get a little bump, but our overall dollars to pay our bills and deliver a value to our shareholders can go down. So we are driving new organization towards this list discount mentality, away from a cost plus.

We are looking at freight, we are looking at our inside sales incentive program. These people on phone everyday, they have a tremendous ability to change and improve both customer service and the margin and we are looking at ways to incent them that will drive the desirable behavior.

Looking at variable sales commissioning structures and importantly John mentioned this on our talent management, we’re doing a serious upgrade across our pricing organization in talent, both inside, the electrical industry, so they have domain knowledge and importantly outside of the electronics and others that have higher margin type of mindsets so that people don’t think that 20% is a good margin, they should think of that as a floor not a ceiling. A lot of activities in pricing, we really believe that we can see this 50 to 100 basis points improvement coming out of this category overtime.

In the area of procurement, what priorities of volume leveraging, this could be including things like reverse options, maximizing utilization of preferred suppliers. We have several hundred preferred suppliers in the WESCO fold and it’s extremely important that we utilize them wide. There’s a lot to become a preferred suppliers, there’s multiple initiations to go through to get into the WESCO club.

They generally have to provide a dedicated sales force and sales focus force to tie their initiative into our 400 branch network. We want some type of a rebate program based on growth of both the company’s opportunities. We want to see extended terms on payables. We want to see cash discounts. We want to see collaborative advertising and direct investments into our marketing growth. The more we can drive to the preferred suppliers the better offer is for WESCO, our customers and our suppliers.

Customer specific supplier price negotiations, I’ll think about this is a depth of thousand cuts. In our industry there’s really little that is sold at the same price, to the same customer, in the same geography. It’s hard to get to the best price into a distribution center and take nicely I call that the best-worst price. But when you go in our industry and you look at an ability to take a new manufacturer into a new customer or to swap a manufacturer to customer, you can get significant price advantage for a specific customer, in a specific geography. But then our system have some notability going in there and says something that I sell for $1, that I pay $0.80 for, but when I do that for a different person in different geography, I am only going to pay $0.60. A lot of opportunities in that arena.

We are looking at areas under inventory optimization basically sell what we have in stock as well as stock the items that we believe are going to be the more profitable things going forward. Improve our bill rates in customer service, create a good customer experience with the company and you will be paid for doing that.

A lot of initiatives there; I think we are in very early stages of this. It is a very, very big opportunity for the company and we will definitely see this and I would personally like to see it be a lot more than one full point in this category.

Operationally, focus on transportation that was one of those items in that spread between billing margin and gross margin. We also talk about LEAN applications across the warehouse, since our evolution of launching LEAN in 2003, through the transportation arena as well as in customer service. This will help us to get our gross margins up as we can charge most of the value-add we bring, and we’ll keep our cost inline to help improve our operating profits. All of these should support our sales growth and our gross margin expansion initiatives.

So we take the last three slides or so in the discussion. You think about pricing, you think about procurement or LEAN initiatives that I just covered. Think about those as individual switches. I am going to talk you about improvement pattern that I have been working on. It takes all these switches so to speak and puts them into the up position in one geography, under one leader, as dedicated to do that and see what we come up.

So what’s the scope, 12 branches that is represented from a business mix of what WESCO looks like, about a third construction, about third OEM, 27% industrial and then commercial, institution, government and utility. Slightly over $100 million in sales, so I consider that to be statistically valid for a pilot. Our approach was very comprehensive. Essentially everything I talked about on the pricing procurement slides we put into this pilot.

And actually, Andrea Hogan who is going to be talking to you about our writing initiatives has been the business leader to drive that. We’ve looked at pricing, purchasing. We have instituted our activity-based costing, robust program to look at individual customer profitability, compensation and extremely important culture. We’ve had few casualties on the way. People do not think that this was real or that they needed to participate. They are no longer on the team or they have been re-assigned.

The challenge, extremely tough environment that we try this out in. Unprecedented supplier price increases. We saw a margin compression and we entered into this pilot with a certain backlog of business, some of which coming out of late ’09 and early 2010 was not brought in at the margin target that we would like to see and we have to flush those through.

So what’s been the results for that. If we look at halfway through 2011 for these 12 branches, sales were up 16%. I talked about profitable sales growth. Operating profit, combination of the sales, leverage on that sales as well as the gross margin up over 200 basis points. $100 million region, representative of the WESCO’s business mix, 16% growth about to where we have been since. This is all core growth, no acquisitions, over 200 points of improvement in our operating margin.

Three branches, over 250 points of improvement, and I am talking about gross margin rates. So we are talking about the pricing and procurement side of it. Four branches between 140 and 190 points of improvement, four between 10 and 100, one branch down 90 points and unfortunately was relatively rather large branch. We have some specific unique circumstances that we’re driving, so we expect to see that turnaround towards the second half of the year.

And I see a lot of further opportunities inside this pilot still for supplier rationalization, more utilization of our distribution centers and we continue to tweak this going through that. This pilot has been rolled out across the rest of the company, it will take time. We wanted to get it right, I am from Israel, and I want to prove this. We have cost involved and here we’ve been adding personnel in the pricing arena. We’ve been adding personnel in the procurement arena and we believe we have and I’ll tell you for the 14, 15 years I’ve been with the company this is the best I felt that we have the formula to drive the gross margin expansion while continue to profitably grow sales.

So let me summarize; what we’re doing is working and is working well. The execution of our growth engine and increased investment in sales and marketing have resulted in profitable above market growth rates. Our gross margin expansion opportunities are expected and will translate in higher operating margins. LEAN is here, has been around for while, its here to stay, it will continue to maintain WESCO’s low cost position and I believe we have current programs in place and initiatives that should build upon and improve upon the results we’ve seen to-date.

At this point, I would like to turn it over to David Bemoras and talk about our communications and security business. David?

David Bemoras

Thanks, Steve. Good afternoon. I am really pleased to be here today to present an update on the WESCO communications and security business. As you will see from today’s presentation we have made great progress over the last five years bringing data comp to life at WESCO and while we are proud of our accomplishments we know that there is substantial opportunity to continue growing a highly profitable business in this very dynamic space.

There is no doubt that our digital world is going to continue to accelerate at a very rapid pace and I am very pleased to report that WESCO is in the best position that ever to capitalize from these dynamics. My presentation today, I am going to provide you the insight as why we all feel this way.

First and foremost, we have a mission to become a global leader in value-added distribution and supply chain services specialized in communications and security infrastructure solutions for enterprise and broadband communications. Quite a mouthful, but that’s the mission.

There are two key operative words in that mission statement, global and broadband. As I sit here today and Les will expand on this a little bit later on during his presentation, the data comp business within WESCO have become globally enabled. This is a big deal. Our ability to present ourselves as a viable alternative channel to U.S. based companies looking for a U.S. based global supply chain partner has become reality. We have a regional meter in Europe, focused on data comp, we have a regional meter in the Middle East focused on data comp, we have a Canadian business; we have a tele business now that was enabled by the TVC acquisition. And we are looking other regions around the globe to bring domain knowledge and expertise from those parts of the world.

The second operative word is broadband. The acquisition of TVC enables us to create a one-stop shop portfolio of communication products that is simply second to none. We've historically been in the enterprise space and now today acquiring TVC, the number one distributor of broadband network communications products in our portfolio enables us to deliver complete solutions on the enterprise side as well as a broadband side.

So we've established a very strong foundation for our mission to be accomplished and as I said a moment ago, it starts with our one-stop shop portfolio. Our products and services supporting a wide range of applications; voice and data communications, security, data centers, intelligent buildings, wireless communications, audio-video broadband networks and Andy Bergdoll will be talking about smartgrid applications as well, within the utility sector.

Our solution set enables us to deliver best- in-class offerings to commercial, residential, government and service provider type customers across those for end markets and we will talk about diversification here in a minute because that's a core element of our growth strategy. So we've put ourselves in a terrific position to achieve sustainable growth and to take market share no doubt. But I think its appropriate to reflect back and just how quickly WESCO became a relevant, leading channel in the Datacom space because it quite simply doesn't happen very often.

Going into 2006 WESCO had less than a $100 million Datacom business with a majority of that business being done in Canada. At the midpoint of that year the WESCO management team made a conscious, strategic decision to invest in the Datacom portfolio. And by November of 2006 the CSC acquisition was completed.

This set the foundation. This sets of the foundation for substantial incremental growth and we started at that point to begin the execution of our branch within branch Datacom expansion strategy. And since 2007, we’ve opened up 26 locations, planting a lot of seeds in pretty tough markets, a lot of investment that will for the long-term create the ability to drive sustainable market share gains.

In December 2010, we acquired TBC, as it was mentioned earlier, the largest US-based distributor of infrastructure products for broadband networks, and today, as Steve mentioned the portfolio, has a run rate to exceed $1 billion and represents just about 90% of the overall WESCO portfolio.

So in just five years, that’s a little less than five years, against the backdrop of a very difficult economic climate, WESCO has become a leader in Datacom distribution. But we’ve only just begun. As we look ahead, as we look to the future, we see nothing but opportunity.

We will continue to cost effectively expand our geographical reach, which will have global implications. We will be globally enabled to present ourselves as that viable alternative to global customers. We will nourish a common ERP platform, a platform that will be put in place by the end of Q3, early Q4 this year. We will expand our sales force and we will leverage the WESCO distribution brick and mortar investment to deliver our customers a better experience. There is no doubt, the future is bright for the WESCO communications portfolio no matter the economic climate.

The next slide helps explain one of the main reason, we continue to be very optimistic about our opportunities. There are three attractive end-markets that we target and they are broken down in each of those pie charts.

The first is enterprise networks, the second is broadband communications and the third is security systems. We detailed what’s included in each of those three segments. We give you, what we believe to be the CAGRs going forward and what you will see is there is a global addressable opportunity of approximately $17 billion. All three of these markets have solid growth dynamics and rely extensively on distribution. We possess the ability to engage each of these markets with robust capabilities, enabling us to target and grow across a diverse set of customers. Manufacturing growth against a diverse set of end markets has been and will continue to be a core strategy for the business.

These trends and the market trends we are seeing in these markets are very exciting and they also are contributing to our confidence and why we believe we can continue to deliver solid sustainable growth. Let me cover of them.

Video everywhere, tablets, phones, PCs, TVs, IP everywhere, right. Video is a killer act and it drives insatiable demand for bandwidth. I was recently at the Paul McCartney concert in Wrigley Field and there had to be 15,000 iPhones in the air, streaming video during that concert. Can you imagine the amount of bandwidth that was being consumed during that event?

It’s happening everywhere. This will continue to drive the need for bandwidth infrastructure to be deployed putting a huge pressure on data centers. There is a lot of limitation in datacenter today; capacity but also a lot of data centers are being rebuilt, retrofitted or redesigned to become more efficient.

Cloud computing; Co-location and virtualization; mobility and accessibility; 24/7 real time surveillance; IP based real time surveillance systems and storage; security and cyber terrorism; globalization and broadband access. When you think about the number of people in South America that have yet not been able to connect to a broadband network, it’s in the millions and millions of people.

So, we find ourselves from a technology standpoint, from a trend standpoint to be in a terrific place. Because business in consumer consumption of bandwidth is not stopping and it doesn’t matter what the economy is doing. The world is not getting any safer. One can make the argument it is getting quite a bit more dangerous. No matter what the economy is doing, we are going to have to do a better job of protecting our citizens. So, the need for investment to be stimulated, to support this we’ll continue as the digital world accelerates.

But it is one thing to have these trends and its quite another thing if we would capitalize it and WESCO is in a great position to that. Why? Because we’ve got a management team that gets it, we have the experience, we have the expertise. Our suppliers are shifting and navigating towards WESCO because they see the investments that we are making. They see the international expansion. They know we deliver and execute and they want to be a part of it. We can cost effectively expand geographically, more rapidly than any other distributor in the channel and we all know there is a direct correlation between market share and geographic presence and distribution.

Our marketing and demand creation programs are absolutely helping to drive organic growth faster than the market. We have a large customer base across the entire WESCO portfolio. And as Steve and John spoke about, the way we are collaborating, the way I am collaborating with Andrea and Les and Andy and Harold, to work together to maximize the opportunity that one wants to fashion, puts in a position that quite frankly is second to none and we’ve figured out how to operationalize that.

Our M&A capacity and our capability. We’ve got the capacity and I think we’ve proven we’ve got the ability to acquire great companies, integrate those companies, capitalize on the synergies and see a clear results.

And finally, there is a limited competitive landscape. We don’t have a lot of competition. We really don’t. There is two or three guys out there that we compete with in our space and there is limited, limited amount that would even be able to enter because barriers of entry our significant. So the combination of these growth trends and our market position puts us in an outstanding position to deliver long-term sustainable growth.

This next slide, really I think does a great job of showing what our one-stop shop product portfolio is all about. And it’s a key enabler for our market share gains and with the acquisition of TVC we have a deep and broad product offering that addresses end solutions for virtually any communications are enabled to this application.

If you look at the right side of your slide you’ll see primarily where we were a year ago. That made up the majority of the business that we did. With the acquisition now of TVC the products shown on the left are all products that we were selling before but almost like a hobby.

Now they’ve become strategic to the business and our ability to leverage that portfolio across the lot more customers has gone to whole new level and really give us an offering that’s second to none. But more importantly, these offering comes with the support of world-class manufacturer that is critical for any distributor to be successful. Companies like CommScope, Corning, Cisco, Motorola, [Daubin], General Cable all of them from the sea level down are investing in WESCO and seeing to it that they are part of growth opportunity that exist with our communications business.

While the leverage our one WESCO capability and combine the electrical product portfolio with the communications offering, we know we are uniquely positioned to differentiate ourselves from competition. And we already have had many success stories along these lines and expect many more in the future.

In the utility area Andy and I have enjoyed and seen some great wins just in the last six months in the tens and millions of dollars as a result of that coming to life and this puts us in a unique position compared to our competition.

As we look forward our strategic growth plans are focused on executing eight key initiatives. Let me highlight just a few of them for you. The first one that we already talked with some of you but its really is the center of what we need to do to continue down this growth path. Its what we call a data com everywhere strategy. It is well under way and we will accelerate this once our ERP conversion is complete and this effort will also take on a global approach that I said a moment ago and we all know as I said earlier there is direct co-relation between geographic presence and market share in distribution.

The second one and this is also very important, is our investment and focus in a sales force that will win the race to the end user. That will win the race to the end user and execute a consultative, value-added engagement resulting in supplier advocacy, solid relations to those customers and more profitable, stickier relations to those customers. Teaching our sales force how to do that investing in more sales people capable of doing that is one of the key things we will do in the years ahead. Leveraging the WESCO international footprint and becoming a globally-enabled Datacom channel is something that is really growing at a very rapid rate and Les will talk about in some more detail in a few minutes.

And then finally one of the other ones I wanted to highlight was how we can capitalize on the outside plan to product offerings the TVC brings to our portfolio and establishing ourselves as a market leader in that space. It’s a very large of an addressable market, it’s a market we have not played in historically. You will see some of the products displayed outside or later on, but we believe with the portfolio that TVC brings to us we can now assume a market leadership position and see significant organic growth to come as a result of that.

A lot of these products are also very adjacent to the traditional enterprise customer base that we've been selling to. They didn’t buy from us because they didn't see us as a strategic place to go get them. Now they do and we will capitalize on that strategy of selling more stuff to existing customers as a way to efficiently grow our business. So, very excited about that capability.

These four initiatives will be significantly impacting in helping us achieve our growth objectives. The other four objectives, the other four initiatives are equally important and management’s focus on execution will be intense.

Now let me spend a few minutes discussing our Go To Market strategy and this Go To Market strategy has really evolved over a number of years and its really led to our better than market growth that we've had over the years. And distribution, as John said its all about people. In my mind its about people that just want it more than the other guy. So you've got to have an empowering, an offensive minded, play to win mentality within your sales force and that's where it starts with us.

Our sales leadership and our field sales teams are focused on establishing preference with all customers and utilizing a very robust tool kit; a toolkit rich with resources you see some other things in your brochures that really describe in a more detail, by putting that to work to manufacture growth with existing and new customers. We then take this aggressive, empowering play to win team, we surround them with specialized support resources that focus on datacenter opportunities, global accounts, governments, security, utility opportunities and then those teams work together to promote a proprietary value-added approach to engage contractors, integrators and end users and a highly consultative manner. We’re not widget sales people. We’re really looking for ways to solve problems and deliver meaningful value to our customers and those teams work together to do that very effectively across multiple types of customers.

Our offensive minded sales teams are supported by a centralized business development organization. John talked about that earlier, this is unique to WESCO, there’s close to 30 people now sitting in a room in Chicago. All they do, all day long is see up opportunities for our sale force. We’re big believers that we want our sales to be closing deals not spending time looking for them. That’s what this group does, it’s really become integrated in to our sales culture and helps our sales force manufacture growth. Our demand creation marketing programs are second to none, they’re intrinsically linked with these field sales forces and also assist our growth efforts.

And then finally and this is really relevant. Finally, this go-to-market strategy facilitates our ability to create a healthy ecosystem. An ecosystem of advocacy, that creates supports from suppliers, consultants, customers, contractors. All right, we’re not in this alone, we have an ecosystem of support helping us be successful in winning the market place but also helps us in delivering value to our customers. And included in that eco-system are all the WESCO business units.

We promote collaboration across the organization. We leverage the Power of One WESCO whenever we can to create new incremental opportunities and resources to support our customers. This go-to-market strategy enables us to consistently achieve better than market performance by combining our offensive minded, value creation, make sure mindset with a thoughtful approach to investing in the right strategies to drive long-term growth in this space.

Let me now share with you several success stories that exemplify us executing our go to market strategy. The first success story is a data center. It’s a data center project. Its a financial services firm based in Texas. They had 20 smaller data centers that they needed to consolidate into one to become more efficient and to reduce the amount of real estate that they were using to support those 20 data centers, something that is going on across all of North America and actually within government agencies.

We have earned the trust and the respect of the IT staff of this organization. They saw as kind of an unpaid consultant and they asked us to assist them in design and make product recommendations. They were very impressed by our One WESCO capability. They are very impressed that we can talk to them and tell them not only about communications products as well as the electrical products. And as a result they were to see an entire project that never went to bid.

The second example is a security surveillance project for a large international retailer. We were actually brought into this opportunity by a larger security integrator who is very familiar with our ability to bundle and assemble a complete, integrated, IP based surveillance solution. We actually some brochures out there that you’ll be able to see at the table depicts what we did here. The customer wanted a solution that we consistently delivered across multiple locations across all of North America.

Our security expertise, combined with our One WESCO logistics capability really put us in a position that inspired confidence with this customer and they awarded us the entire project and today whenever they put in a security system in a new store or where they a retrofit a security system in an existing store, we receive the business. A very long-term sticky relationship with this client.

It’s exactly these kinds of wins, that we want to see become a bigger and bigger piece of our overall revenue stream within our data communications portfolio and we certainly expect that to happen.

In summary, market trends continue and we will continue to provide a solid foundation for sustainable growth no matter the economic climate. Our aggressive, cost effective geographic expansion will facilitate market share gains not just in the Americas but throughout the world. Our ability to engage customers as a viable, globally enabled this Data comm. distributor will open new doors to the global Fortune 500 market and inspire advocacy from a supplier community that’s really only been able to work with one other channel in this regard.

We will continue to expand our product and services portfolio to build on one-stop shop capability and deliver our customers a total solution and we will execute lean best practices to drive both internal and external incremental value within the organization.

We have come a long way in this past 4.5 years no doubt. Much has been accomplished as we leverage the power of WESCO become leading data com channel. As we look ahead there is still so much more opportunity for growth. We have track record and we are well positioned. We have the talent, we have the supplier support and advocacy and growing at a very rapid rate. We’ve a growing dynamic market and we have the resources in capital structure to continue our mission as a leading, global channel in the data communication and securities markets space.

Thank you for your time today and I’ll now like to turn it over to Andrea Hogan to can talk about lighting and sustainability and issues. Andrea?

Andrea Hogan

Thanks, David. The lighting category has traditionally been comprised of lamps, ballasts, fixtures and components. Today the industry has evolved with the much greater emphasis on technology and lighting systems that integrate dimming, control, natural light and lighting management. Energy efficient longer life products coupled with user control is that at the heart of the modern day lighting staff.

Today, lighting represent a $19 billion US addressable market for WESCO and it is one of our eight growth engines. Beyond significant market size the growth opportunity is enhanced by these facts. Lighting consumed 30% to 50% of the energy used in an industrial or commercial facility and in 80% of those facilities the lighting that is employed is 20 years old or older. Significant opportunity exists to reduce cost in the lighting space. The business community wants to be seen and wants to be actively doing something about reducing energy consumption and carbon emissions.

Rising energy cost, the emphasis on sustainability and the reduction of our carbon footprints combined with legislative efforts at all levels of government have resulted in unprecedented product innovation and an increase in the sophistication of customer requirements. Light; once considered the cost that could not be impacted is ascending in priority on the corporate, capital spending, agenda.

Lighting systems incorporating energy-efficient, longer life products and lighting management systems are putting the customer in the driver seat and enabling them to light for less, a lot less by reducing the energy needed to produce the light, the maintenance needed to keep it on when needed and the total cost of replacement components. We are seeing two-year payback on lighting upgrades and retrofit projects without incentives.

Where incentives are used we are seeing paybacks in the range of 14 to 18 months, with all 50 states offering some sort of incentive to upgrade or retrofit lighting. Its not a matter of if, this will be done, it is matter of when. WESCO has a very strong foundation and is well positioned to take advantage of this market opportunity.

Our lighting specialist team is over 100 strong and growing. Our supplier relationships are also strong and growing as WESCO demonstrates a commitment to this market through investments and driving results. Our global account strength provides a key pathway as these customers are typically out in front driving this kind of productivity in their facilities.

As part of our global accounts initiatives we have formed alliances with both regional and national energy services company or ESCOs to help us provide turnkey solutions to our customers.

Finally we are leveraging One WESCO synergies across all WESCO business divisions because all of our customers are potential lighting customers as are all of you. Its important to take a minute to highlight solid state lighting and what it means in the context of this discussion and this growth opportunity.

Semiconductor, organic and polymer light emitting diodes or LED lighting is expected to reach $100 billion in global sales by the year 2015 and will be found not just in commercial, industrial and residential lighting solutions but in thousands of consumer and industrial products.

In the context of these discussions, its estimated that LED lighting applications will account for 50% of the lighting industry by the year 2015. The cost of LED and its limited application drove a somewhat slow adoption during the introductory phase. Today LED has much wider application, the cost is coming down and this is driving a much faster adoption rate.

Traditional manufacturers Acuity, Cooper Lighting, Hubbell Lighting and Phillips; and there are new players such as Cree, Samsung and LG are aggressively pursuing this market and WESCO is well-positioned to help them because of our footprint, our customer base and our commitment to the lighting category. This transformation to LED is being driven by the product attributes, energy savings, longer life, light quality and an ever-increasing breadth of applications. All resulting in a more attractive ROI.

WESCO’s investments in LED expertise will promote WESCO strength in this market. The key drivers of WESCO’s lighting growth. Our lighting sales for 2011 will be in the $550 million range and represent about 10% of our total sales portfolio.

To drive lighting sales growth, we are penetrating and have solutions sets for the five key markets; industrial, OEM, utility, construction and institutional and government. In each case, our strong existing relationships provide a competitive advantage for initiating and driving lighting solutions to our customer.

The key actions to capture these opportunities continue to build and leverage our lighting solution’s team, penetrate global accounts with lean value solutions and search for savings events, install additional lighting centers of excellence and open additional WESCO lighting solution centers in selected areas. Our target is to impact to all end markets and customer groups.

To support lighting sales both within and outside of our existing relationship, we have developed programs to inform and generate demand. This includes specialized lighting marketing materials, supplier promotions and incentives, and a monthly newsletter called, In the Spotlight, that highlights lighting innovation, market trends, and WESCO success story.

We have also implemented strategic lead acceleration program or SLAP. We view this program very successfully for our global accounts and government initiatives for lead qualification, sending marketing kits to 850 potential customers, generating 330 customer meetings and completing 10 new deals worth $90 million over the last three years. We are using this to penetrate new lighting customers in government, education, property management, construction, hospitality and retail.

An example of the successes that we have been having a large first year automotive WESCO global account working with an ESCO with whom we also have a global account relationship with. We addressed 3.5 million square feet containing 50,000 fixtures that needed to be upgraded. WESCO drove the lamp and fixture specification with the customer and we worked with our ESCO partner to perform extensive lighting audits in support of the return on investment analysis. The first phases are complete and the project has a very attractive financial payback via reductions in energy demand and total cost.

To further support lighting sales growth, WESCO opened our first ever, lighting solution center in Boston. While most major lighting manufacturers have lighting experience centers, to our knowledge this is the first one of it’s kind in distribution.

The center provides hands-on lighting experience in a show and tell environment. It provides vignettes that allow customers the opportunity to experience lighting as they would in their own facilities. The facility includes a training area, a lamp and ballast room and a tremendous amount of information and tools to help us train our employees and train our customers.

We have made the facility available throughout the community. Customer meetings and trainings, trade associations, the pictures give us 15 minutes to talk to you about lighting and you can have your monthly meeting here at our center. New global account rollout meetings, supplier and customer meetings and of course, employee training. I should also tell you that the space also includes and features additional One WESCO product such as Datacom, power distribution and security. The center opened in May of this year and is generating substantial interest and attention from both our customers and our suppliers.

Here are few pictures of the vignettes that are featured in the lighting solution center. We have a hospital room, several retail rooms and a couple of office space rooms and it’s an open invitation to come and check it out.

In summary, I would like to leave you with just a few thoughts. Lighting is a very large addressable market with attractive growth characteristics, which is why we are investing in it. Energy efficiency, sustainability, legislation, product innovations and technologies are catalysts for growth, not just here in the US but globally. WESCO’s marketing and sale initiatives are focus on providing complete and sustainable lighting solutions to grow sales and out pace the market. Thank you.

Believe we are keyed up for a 15 minutes break.

[BREAK]

John Engel

I would now like to start the second part of our Investor Day with Andy Bergdoll and Les Kebler who is our Vice President of our International Business. I would now like to turn it over to Les.

Les Kebler

Good afternoon everyone. It’s a pleasure to be here to talk to you about and give you an overview of the international operations. WESCO made a strategic decision to invest in international and now its one of our eight strategic growth engines. There are key takeaways that I like to present you today. WESCO is investing in international. We are expanding our footprint and moving into new markets. We have a set of global products and service platforms that we are moving across all our international locations. And finally, we have an integrated operating model that we feel provides WESCO with a competitive advantage as we move into these new markets.

I would like to start with five basic components of our strategy for focus on large growing markets, we are focused on global accounts, these are accounts with multi locations or companies that are moving from national to global infrastructure. We are focused on in-country business development where we add resources and infrastructure into new countries. We are setting up a global supply chain with the support of our key suppliers that will enable us to provide products and services around the world. And finally we have our set of globally enabled product and service platforms.

We see a number of opportunities in international markets growing rapidly. Technology is creating new markets almost daily. New countries are opening up for the first time presenting WESCO with significant opportunities. The distribution channels in many emerging markets are still undeveloped and provide WESCO an opportunity to position ourselves in those markets early in the game.

The product and portfolio we have today has never been more extensive. We have electrical products representing all global standards. In addition, we provide non-electrical products including industrial supply, safety, tools and OEM spare parts.

Our OEM direct model which basically sets up global sourcing, local inventory supply kitting and assembly is unique in our industry and provides a set of products for our customers for equipment is going out their door if you will.

Our capital project material management system along with our technology solution provides an extension of our customers engineering and procurement teams. Our communications and security platform as you heard is a $1 billion platform that we’re now moving into the international space. And finally, that integrated supply platform provides turnkey solutions for products and inventory management for our customers.

What’s our value proposition? WESCO is focused on providing solutions to customer’s increasingly complex problems that they’re facing in the global marketplace.

Our experience goes back decades and we have a legacy reaching back to the Westinghouse days. Our integrated operating models are a competitive advantage. By integrated operating model, I mean all our operations outside the US and Canada are in one operating group. This facilitates speed, streamline communication and drives quick decision making. It enables in an execution of customer and global platforms in a rapid fashion. Our speed to market is key in these markets as they are developing very, very quickly.

We have a flexible business model where we can go into new markets, leverage our capabilities, use partnerships if we need to, to react quickly to market dynamics. Our global accounts program is industry leading. It provides a single portal into the WESCO products and services and we have a people processes and technologies to drive that across our platform.

We are positioning ourselves to take advantages of some significant growth trend that are benefiting the distribution market today. Three of them are growth in emerging markets, investment infrastructure and globalization.

If you look at the demand of energy, which is projected to increase over 40% in the coming 20 years, which is going to be driven by a population growth and growth in world income, that is going to drive emerging markets. The emerging markets rather are going to drive 90% of that incremental growth. So if you think of amount of infrastructure that needs to go in place to support that type of growth and the energy delivered today over 90% of it delivered by oil, coal and natural gas, that’s going to continue for the next 20 years.

The key there is that can require significant capital investment that we are in front of today, as well as long-term MRO opportunities. The key here is that oil and gas today is WESCO’s largest vertical in our business. So we are well positioned to capture these opportunities.

In addition, the emerging markets are creating new markets within their own countries as they build out the infrastructure around hospital, airports, power stations etcetera. There is an increasing demand for world-class products from a world-class set of suppliers that WESCO represents.

We are taking the appropriate action to position to capture these opportunities. We are investing in attractive markets, large growing that are consistent with our value proposition. We are adding sales capacity, inventory and resources in these markets, so that we can win, win at the local level as well as at the global level. We have a vertical market focused, oil and gas, mining, metals, aerospace, which drive the domain expertise, the ability to integrate best practices across our operations, as well as leverage customer/ supplier relationships.

Our global sourcing including low-cost country sourcing is a competitive advantage, especially when you look at a customer’s desire to maintain the supply chain integrity, which is so critical to their operations as they demand one product to be shifted from one part of the world, often to developing parts the world.

Our profile today is expanding. We have a diversified set of end markets and we are adding new customers as we speak. A majority of our investments are less than three years old. So, everything you see on the map today is relatively new.

Which means we’ve invested during the downturn. We made a strategic decision; we made the investments when the markets were not accommodating. But the interesting thing was our timing was very, very good. As we went out to our customers and our suppliers, we discovered that they were talking to their partners figuring out that, either their supply chain maybe wasn’t as solid as they believed and they needed partners with a stronger balance sheet with the ability to expand and grow with them. That’s presented WESCO with an opportunity to step in and provide their supply chain solutions.

We do have an export plus in-country model. So, if you look at the map today, the key export locations in North America, Europe and Asia, we have covered. We have been in those markets for greater than 10 years and we supplement that one, in-country business development, which is their local resources, inventory and infrastructure.

Some of the new markets that are being created if you look at Iraq for example, just 18 months ago, this was not a viable opportunity for WESCO. The government however has opened up the country. The western drilling, oil and gas companies have stepped in and they are spending, each of them are spending tens of billion of dollars per year on oil and gas infrastructure.

If you think about a country, with some of the largest reserves in the world, with no investments for the last 30 years, they want to 2X and 3X their output, you can imagine the amount of investment that’s going in to that country today. We are in front of that and we are participating in it.

Another example is the LNG market in Asia Pacific where either technology or the commercial viability of the projects weren’t there a decade ago. And although they were planned, they were just not commercially viable. They are now in motion and it’s creating significant capital project opportunities today as well as long-term MRO opportunities. This is the reason we’re positioned in the market and we’re to again capitalize on these large markets that are growing rapidly.

We do have an integrated operating model and as an example we have a product called MaxCell as part of our broadband package and it was broadest part of the TVC acquisition. We bring that product in and we quickly enable it to cross the international locations. So when we have when it was outside of the WESCO family limited distribution comes into our family immediately is brought into our location and stocked across our network. So going forward we will continue to build out infrastructure new locations, we will also look to and enter new geographies as we go forward.

Here is a little deeper dive on some of our locations either fully commercialized distribution locations like you had seen in the US. We localize the business; we hire top talent in the regions that talent is responsible for business execution in each country. Basic our view, overview of Mexico of 14 locations we’ve been there over a decade due to rising cost in some other parts of the world we’re seeing a resurgence of Mexico as a low cost country manufacturing location.

In fact one of our large OEM customers that we recently have a contract with requested that we implement that contract first in Mexico which really show the capacity that they require for their Mexican sourcing operation. And unique to WESCO, we are the one of the few companies in North America that can ever meet global accounts across China, the US and Mexico today.

In addition of that we see Mexico as a platform for growth across Latin America mainly for three reasons. One, it has incredible manufacturing capabilities; two access to North American products which is the vital and three there is existing free trade agreements with the South American countries. So we very, very bullish on Mexico.

Another example, Southeast Asia; in the past two years, we’ve created a capital project expertise in the region. We set up integrated supply with one of our largest customers that like what we did in the US and wanted us to shift that process and capability to Asia. We are now servicing their plants in Southeast Asia.

In addition, we are providing light assembly and inventory management for a large global account that again like that we are doing in one country, wanted us to support them as part of their Asian shift strategy into Southeast Asia where their customers are located. So again we will continue to add to these capabilities and the capacity and expand these operations.

As I mentioned in my opening remarks, one of the key drivers to our growth and our accelerated growth is our world enable product and service platforms. Our integrated operating model drives speed of this implementation consisted with One WESCO initiative which is about providing complete portfolio products and services. These platforms which are enabled today can be and rapidly moved into the international locations.

I have outlined four of them here; the first is global accounts which supplies supply chain solutions to Fortune 1000 and other multi-site customers for the MRO, OEM and project needs. They are increasingly looking for support in international locations and asking for our assistance. They need us to drive standardization and improve their supply chain efficiencies. WESCO is uniquely qualified with the people, process and technology to deliver that solution. Global accounts have been part of the WESCO DNA for over 15 years and we’re uniquely positioned to capitalize in these markets.

Capital project is a next area; we have a domain expertise to our EPC centers of excellence, where we create a dedicated team focused around the design, sourcing and local services required to support large capital projects. We put a wrap around that which is our RPM material management system which is basically a software package that drives business visibility into the project. The key here is that’s how you drive cost savings to your customer; you move the product closer to the jobsite and you reduce the surplus material. Surplus material doesn't sound like a big thing, but on a large project can be double digit price savings to a customer.

The data, communications and security platform we are going to take our leading North America position and we are going to immediately expand that across the network. We've got a dedicated product and marketing teams engaged and we provide a single point of contact for our customers in the region. We are rolling out to international locations and that includes dedicated resources, inventory as well as customer specific support.

The government operations, 100% dedicated team in the US; same rhythm is in communications platform. We are going to take that government group, roll it out into the international locations specifically in EMEA, Asia Pacific where we already have resource. So these four platforms are examples of how we are going to accelerate growth once we have the infrastructure in place which we do. These programs are rolling out as we speak.

A couple of success stories: The first is really about having the right product, at the right place, at the right time. In this case, it was a multi-billion dollar refinery project with design in one country, sourcing in another five countries and then project execution and site support in a final country. The key benefit to the customer was our building the pipes provides visibility into tracking the material, move the product towards the site and deliver it on a just in time basis. The estimated cost savings were in excess of 20% which is significant on a spend of this level. We do have, again eliminating surplus and providing for productivity to the craft in the field.

The key to success for WESCO in this case, where decades of capital project experience, a global reach to our integrated platform and a technology solution that’s proprietary to WESCO. These three things create a significant barrier to entry to our competitors trying to enter the space for large complex capital projects.

The second success story is about helping a multi-national company, make their supply chain more efficient or operating with this company in 10 different country and if you can imagine each country having a slightly different need, everything from procurement services which could be I need this product to be delivered to this country and I need you to maintain the integrated supply chain to make sure I get the product that I asked for when I ask for it.

We have the people to prove and process in the technology to deliver that and if you think about a customer that’s expanding rapidly, and their ability to plug and play into our system and a complete portfolio of products and services very powerful. Our ability to do this and act as a one vertical fashion is what’s going to drive our sales and market share growth in these customers.

So in summary, WESCO is investing international. We’re adding new resources and we’re investing in large growing markets. We’re committed to the cause. Key global trends including emerging market growth, investment infrastructure and globalization support these objectives. Our integrated operating model instead of globally enabled product and service platforms will allow us to accelerate growth across these markets.

And finally, WESCO is uniquely positioned to support our customers and suppliers that are increasingly asking for well capitalized large global supply chain partners to work with them across the globe. WESCO is that company.

So thank you for your time today and I’d like to turn it over to Andy Bergdoll.

Andy Bergdoll

Thank you, Les. Okay, I am here to talk to you about the utility markets, the utility industry and I know from the break by the amount of questions, a number of you are very focused and interest in this segment. So I am thrilled to be here and to share that with you.

Now utility, as John mentioned is one of our eight growth engines or growth initiatives, but it also is a platform where the other seven growth initiatives come to this vertical segment. And with each of the presentations today, you noticed that utility or energy was mentioned a number of times. I am going to give you a little bit of color now and show you how we apply that from a customer perspective.

I am going to cover three things. First, I am going to give you a framework about how WESCO looks at the utility business. I think that will help some of you that might be more general as to cap some context into what we are talking about. Second is, I want to hit on a number of the major investment themes in the utility market. And the third, I want to talk about WESCO’s business models that we use to expand our share and our scope across the segment.

So moving onto the first slide; this is kind of a framework slide. The utility market overall, a big market, $90 billion to $100 billion of non-fuel procurement across the US market; so big, big market; its also complex and actually changing very rapidly relative to historical trends.

First cut, you had to think about the market is looking at the power chain segments, from generation to transmission, substation and distribution. This is important for a couple of reasons. One, the spend profile was quite different across each of those segments. Second, the procurement process and the services the customers require is different across each of those segments. Probably the third is WESCO view those segments almost like a portfolio.

Historically, our business was very heavily concentrated on the distribution segment. If I was standing up to your 10 years ago we probably talk about 90% concentration in that segment. Over the years and really accelerating over the last few years we’ve dramatically expanded through our business models and our product scope into the other segments. The word now the non-distribution part, it was about 30% of our business, so very important.

Next one is to look at the market, is through the customers that we serve. Roughly, 4,000 customers represent the utility universe and that split about 3,000 in public power, municipal, oil, electric, co-op electric utility.

Second sector is the investor owned utilities. These are the big boys; roughly, a 100 major investor on utilities.

Third segment is generation. And here I call out 700 generation sites, as many of you know there is thousands of generation sites in the US, but there is really 700 that we are really focused on that represent the bulk of the spend.

And then finally utility contractors; I have a number up there at 60 for several 100 contractors that play in this space, but there is really 60 of them that control the bulk of the spend and I’ll talk about the business models that we have addressed and we developed to address those.

So, moving over to the opportunities, these customers is facing a really a very complex, unique and evolving set of challenges, both externally driven by the markets and the regulators and internally driven, based on the change in their business mix and resource turnover. This has created unprecedented opportunities. Both, due to the flexibility now of utilities and adopting new business models, but also in new investment themes, many of them very familiar here, transmission, reliability, smart grid. I am going to touch on a few of those major themes.

I don’t want to leave you with on this slide; roughly, $100 billion total procurement, WESCO addressable spend about 10 billion a year. Our share less than 10%, we have a great share growth potential across all four segments.

So what I would like to do on the next two slides is to give you a little bit of color about WESCO’s position and the market trend in each segment of the power delivery change. Starting with generation, generation represents about half, about 50% of that total $100 billion of procurement.

If you look at the profile of the US generation market, our US generation capacity, about half of this is tied up in powerful plants. Those powerful plants are under intense pressure, intense pressure due to environment regulations, both on greenhouse gas as well as emissions; that is leading to an investment opportunity both in upgrading those plants and replacing those plants that aren’t viable and we need to replace them. That replacement is going to come in the form of either gas plants investment or renewables investment. Either one of them WESCO is positioned to participate.

So on generation three pronged strategy WESCO is taking. The first which we call our bottom-up strategy is to hit every one of those 700 generations plants with a local WESCO sales person, local WESCO inventory, local WESCO service.

Second strategy, we call it our top-down strategy; hit the corporate supply chain organization with a supply chain model that enables to them leverage their spend and leverage their service model across their fleet.

Third level is major construction; major construction gives us kind of a side door strategy into a new customer relationship by leveraging some of the things that the less talked about in terms of service model.

Move over the other side of the page on the right hand side is transmission. You can think of transmission as the interstate highways systems for electricity. Several hundred thousand miles of transmission line around the country; the issue is that we’ve got some heavy congestion bottlenecks in some places and we don’t have enough own ramps on that highway system to pull of it distributed renewable capacity that we are going to adding.

That’s leading to a big surge of major projects and many of you know there is a thick pipeline of major projects in this countries transmission work. The issue is one of those projects is going to be released. WESCO is participating in the transmission side of the business in 2A where we have a major alliance with investor on utilities; we participate in hardware supplying. We also participate on a major project targeted with utility contractors as a project services provider. And I am going to share some details about that business models within a few slides.

Moving on to the next slide and moving down the power delivery chain is substation. Substation is a really interesting opportunity for WESCO. There is roughly 1.5 million substation across the US network and interesting statistic is that the major equipment in that substations, a majority of it is more than 25 years old. So there is a major upgrade requirement that is pent up demand.

In addition to that, the substation is really the nerve center for a lot of the smart grid initiatives, we talk about grid optimization. So product category and expansion are some of the things that David talked about in his presentation around communications, feed back, upgrade of equipment so that you can control it remotely, the substation is really a center of that. Again, WESCOs participation, hardware provider, where we have a new IOU alliance we’re also a packager for utility contractors that are doing substation construction work.

Moving to the right hand side is distribution; still a core part of WESCO’s business represents about 30% of the total procurement of utilities; represents about half of our addressable spend, so it is a critically important segment for WESCO. If you look at our position right now, we are the leading national distributor to public power which has really been a core legacy business and we are still laser focused on that. We are the leader in alliance integrated supply programs to utilities in this space. We have core supplier relationships across all product categories and we’ve dramatically expanded that scope of supply over the last few years and this is really the foundation of a lot of One WESCO initiatives where we are leveraging the balance of all WESCO capabilities to expand our service models.

Now what I would like to do is hit on two major investment themes in utilities. The first is smart grid. I know you've heard a lot about smart grid. Smart grid in our world is basically the convergence of the power grid with communication network and I used the word evolution because this is a long-term trend. Smart grid is a long-term trend. It did not become, it was not invented when we started stimulus funding. This has been going on for a long time and its going to be going on for a long time to come and it hits all four segments of the power delivery chain.

So basically WESCO brings kind of focus to this market by looking at it in terms of seven major buckets or seven major applications which you will see on the chart and you see that today we are really at the infancy stage of what's going to happen with smart grid. As the market expands there's going to be new and exciting opportunities that open up for WESCO. What we are focused on right now today is spending on projects that are happening now.

Two areas that I want to highlight for you, the first one is what's called the foundation. You will see advanced metering infrastructure. The buzz word for that is AMI, smart meters. Metering is a core product category for WESCO, has been for a long, long time. What's exciting about smart grid is that you take the metering product category and it turns into a system. Turns into a system that requires communication infrastructure and hardware, turns into a system that has data management, requires data centers, it’s a whole new opportunity and today WESCO is involved in dozens of smart grid deployments across the public power network and there’s lots more room to grow there.

Next category I want to highlight if you go up to is called grid optimization. That really is a collection of many, many different applications; some of them long-term, some of them near-term. Things are happening right now that are very, very important from a utility investment perspective, one is called [VDO] or voltage optimization, we’ll called it which is a series of equipment that we sell today, but now through cost effective technology and communication that equipment now is smart and provide 2A communication and allows the utility once they implemented to upgrade that equipment to regulate the voltage of their line which is a great energy efficiency device. We’re going around the country and having seminars on voltage optimization which pulls our customers then and rather there we talked about all of our other product categories.

Similar to that is another buzz where that’s out there called FDIR, FDIR stands for fault detection, isolation and restoration. Same buzz were in the utility world right now, but basically what is it is, is rather than waiting for all of you call up to say when your line is out, this is technology, communications technology that enables the utility to isolate locate and default and restore it. Fantastic payback on this and very popular with regulators, so utilities are eager to go and make those investments because they know that politically it’s possible to get that into the rates.

Moving onto another investment team is renewables, an area that everyone hears a lot about. From a WESCO perspective, two different roles in renewables. The utility scale renewables, commercial and residential scale renewables; and it really is two totally different customer stats different approaches. WESCO is well positioned for both sides of it.

On the utility scale, there is going to be over the next decade roughly 30,000 megawatts of new renewables that’s installed. How do we know that, well if you take the state renewal energy portfolio standard, you extend those out and there is 33 states that have them. They range anywhere from 10% to 33% of the state’s generation capacity to come from renewable resources are pretty well established and there is still strong political support for that. That’s going to drive the utility scale renewable development.

For WESCO, we are somewhat indifferent, on the utility scale whether it is a solar plant, or solar farm or a wind farm. Our scope is similar. It’s going to be balance the plan, collection system substation, transmission that tied into the grid. That 30,000 of capacity addition is a $2 billion to $5 billion opportunity over the next 10 years, we have a good healthy backlog of renewable projects right now as well.

On the commercial scale, different animal, there is going to be 600 to 1 million commercial residential solar installations that happen. That really driven these are net mere types systems that are really driven by incentives and consumer paybacks staying a strong market in that area in California.

Again, for WESCO, we are positioned locally with the local installers and electrical contractors doing this work. The interesting thing on the commercial side is that our scope of supply involves the entire system including the PV and there is some product examples out in the four where you can take a look at the next break.

So what we are doing? Two things: One, WESCO front add, what does that mean. We are deploying our whole network to calm the contractors and the installers that are playing on the renewable side, dedicated support resources. So from the utility scale and the commercial scale, but we then support our branches to help them get into this business.

Moving onto the next page, I would like to give you some color now and change a theme a little bit and talk a little bit about our growth plan and our share growth strategy. Our business model is built around four service models. I have up on the chart here.

If you look across the top, you see generation and the bottom is basically the transmission and distribution part of the business, left hand side, operations; right hand side, major projects; that’s how it plays out. So if you look on the top left with generation, our business model for generation MRO is basically a consolidation play for MRO spend and for generation, the MRO spend is highly fragmented, spread-out and today in most cases its controlled at the plant level.

Utility supply chain, we want to consolidate that and control that spend. So our business model is to offer a fleet-wide solution to the utility to enable them to control and manage that spend and also drive standardization and cost savings across the fleet. We’ve been very, very successful in this area.

If you move down to the lower left, same model, but for power delivery, here the service model has been more evolutionary. It could be from a spot buy to a blanket agreement where our branches have regular scheduled kind of no-problem delivery, to an alliance model, all the way up to full aggregated supplies.

Product categories, again a lot of them you will see out there, full line hardware, insulation, transformers, cable and lighting tools, safety consumables, broad product category, again is expanding. But the play here is on the investor owned, generally an alliance model. So, it’s a multi-year agreement.

That is based on KPIs and joint cost savings; whereas the public power, our business has been more of a traditional distributor model. However, we are taking elements from our alliance model and applying that to public power and successfully building public power alliances.

If you move over to the project part of the business, these projects are the project models both for generation and for transmission and distribution are really tailored to subcontractors and it’s a different type of contractor for each type of business. This is important as I said before because projects represent not only a good revenue opportunity of WESCO, but they representative really an account management opportunity for us to break into a new account, because after the construction project is over, our objective is to save and become an ongoing recurring revenue service provider to that customer.

So moving on to the services; I mentioned services in each of the four business models. And services is really the cornerstone of both our account management strategy and our share growth strategy. We have elements of each – of that base with seven components to our service model each one as you go across the top year from category management, inventory management, procurement, expediting, transaction management, warehouse operations and logistics, each component or each element of our service model has a whole suite of tools, systems and resources to help our branches deliver those services to our clients.

As I mentioned on my first slide, the economic pressure and the cost pressure the utilities are facing today had made them very receptive to embracing outside service providers to come in and be part of their business. So this is not only an account management tool, but it’s a growth expansion tools for us, because as we get involved with the utility and providing service then we can pull in additional product categories for the utilities.

The entrée point varies; in some of our relationships, we’ll start with the warehouse operations; utility will say, I need some help, I need you to lean my warehouse or maybe I want to outsource my warehouse operations, so we will come in and we will be an operator of the warehouse or may be we will take and shutdown the warehouse and we will use our distribution center as a warehouse.

That can then lead to moving downstream and providing logistics services or it mean moving upstream and getting more involved in the transaction side of the business. Likewise we can enter through inventory, say a customer has issues with managing their inventory, or they are looking at standardization or maybe even taking some of the inventory out of their systems that’s the common entrée point and will come in and will run inventory optimization service programs or even the VMI programs that often leads then upstream to category management as well as downstream to procurement services.

Bottom-line, we have been able to take integrated supply desk practices and we have developed in our global accounts in industrial business, customized that and applied that to utility. So when the utility world when you talk about the integrated supply, you are really talking about three things; you are talking about system integration and that system integration goes from utilities through WESCO all the way back to the suppliers. You are talking about elimination of redundant resources across that supply channel then and that’s really where the lean methodology comes into play.

And then finally alignment of goals and alignment of incentives so that WESCO’s incentive and utilities incentive are completely aligned. Once those three things are in place, we are able to take our integrated supply business model and apply it not just to WESCO core scope.

We are going to apply the same business models to direct spend or to spend from other distributors which we then we call the second tier distributor. We also can take the same models and apply it to major construction projects. So to give you a couple of reasons of success stories, I've got three success stories here and these are basically all 2011 stories; where I hit three that really highlights the service offering.

The first one is a major utility, one of the largest generators in the country. A year ago they issued an RFP for industrial and electrical MRO, fleet-wide out to 300 suppliers and distributors. WESCO was fortunate to be among the 300. We responded to that, but then also responded with an alternative bid which was an integrated supply model.

Customer was intriguing because of the very complex problem; where they engaged us actually to come in really and act as a consultant and design a business model for them. That actually ended up leading to into an integrated supply contract that we are implementing right now. So its about $100 million worth of spend under management, 50,000 line items from 4,000 legacy suppliers, you can imagine the amount of complexity across the fleet of roughly 58 generation sites.

Our model, we set up a centralized distribution center where we cross-stock our second tier distributors and there's 12 of them, plus direct spend and deploy a fleet, our own fleet out to service the generation fleet on a daily basis.

Next example was on the transmission side, again a recent booking. Here an existing alliance account had a difficult time with an earlier transmission project with transmission material overrun, schedule issues and some sit up issues. We worked with them to define an alternative business model, then teamed up with one of the contractors that was bidding the job and was successful in bidding a project services on a major transmission project. That's under construction right now, its about a 100 miles of the 345 lines and what's interesting about this one is we set up a temporary warehouse on-site remotely, the contractor actually ended up co-locating with us as well as the customer. So we’re running that site temporarily and the project is going very smoothly.

Third one is on renewables. Similar scope of services applied to a wind farm. So in wrap up, a couple of summary points I’d like to make. First, utility market is large and is undergoing significant changes and those changes are very, very favorable to a large well capitalized player like WESCO.

Second, WESCO’s core competencies are very closely aligned with the utility’s investment criteria. So if you look at that services portfolio that I showed you, basically we take in WESCO’s core competencies as a distributor, package them and provide those services to the utility. WESCO has share growth opportunities across all sectors of the utility value chain and we are continuing to invest in each of our four business models to grow share.

And then finally, WESCO is a recognized industry leader and integrated supplying utility actually really the first to apply that model to utility and utilities are increasingly placing a value on those services. So we see a lot of room to grow from here.

So with that, I’d like to introduce Richard Heyse, our CFO.

Richard Heyse

Thanks, Andy. It’s great to be here, great turnout and really it’s been so far I think a very solid second investor day for us. One of the objectives our management team set out for the last two years is to significantly improve the quality and transparency of the communications we’ve had with our investor base. I think the presentation today are in that theme had greatly increased the transparency of our goals, particularly our financial goals.

And in my personal perspective is that we’re at the highest level of transparency that WESCO had in its history and as I go through my presentation concerning financials, I will try to keep to that theme of both transparency and clarity.

As John noted, we had a strong first half of the year and really the foundation for our first half results were built in the third and fourth quarter of last year. If you look, we launched our growth engine strategy, we began working the strategy and we really saw significant results especially starting about August-September timeframe. We were building momentum in the third and fourth quarter and really capped that momentum build-off with the acquisition of TVC in December which was really well received by the investment community.

If you look going into this year, both the first and second quarter, we posted very strong sales comps year-over-year, really some of best sales comps in our history. And we really felt that we feel that those sales comps gave compelling proof that our growth engine strategies are driving share gain in the marketplace.

In addition, we have been focused on driving productivity improvement fixed cost leverage. We made a commitment last year to be at least at 50% core operating profit pull-through, we achieved that in the first half of this year and the result was by the second quarter we were at 5.6% operating margin.

We expect to continue the momentum in the second half of this year and particularly if you look and we note up there, there has been questions about how things going so far, what does July, what does August look like. In July we posted 21% year-over-year sales comps. If you look at our daily sales comps typically in July we actually trend a bit below June. If you look back 10-12 years, we would be about four-tenths of a percent down on a sales for work day basis. In July we were actually up about 2.5% over June level and to cap that off, we continue to build backlog in July.

So our July results have been strong. We don’t see any slowdown yet in any of our business segment. And so we are very confident at this point about sustaining the momentum we developed in the first half of the year into the second half of the year.

Touched on productivity expansion in the recovery phase of the economic cycle as a critical characteristic for WESCO, something we are known for. We have a great fixed cost discipline. Last year, we showed you these charts and showed how we were and what these charts demonstrates; it’s a way to measure sales productivity per person. So we chart trended sales versus trended headcount and if you look at the gap between the two, that gives us a measure of the rate of productivity improvement that we are driving.

Last year, we showed the chart on the right. On the left hand side is the vast economic recovery where we drove productivity expansion for over three years during the recovery portion of cycle. On the right hand side is the most recent recovery and from the dotted line four, the results we’ve driven over the last years.

So we are in the second year of an economic recovery cycle. We are driving the productivity expansion we are known for. And one thing I would note, the scale on the two charts are quite exactly the same. If we have the same scale essentially, the productivity expansion we’re driving in this current recovery is very similar analogy to the last recovery.

And our goal would be continuing with the use of win, the other initiatives we discussed today and just the cost discipline that we are known for. Our goal would be to continue to drive this productivity expansion over the next three to four years.

Another metric and a critical metric of course is shareholder return. I know the last couple of days have been a challenge. But when we look at, the shareholder return that we’ve driven, whether it’s over the full last economic cycle, starting from the recovery in 2003 to current or over the last year’s measured from our previous investor day to the most recent as did these slides. WESCO’s shareholder return has significantly outperformed the benchmark indices like the Russell 2000 etcetera. Management’s goal will be with our strategy to continue to drive that superior shareholder return and over the long-haul outperform the indices that we are compared to.

Now switching to our full year outlook; this is one of the slides which is actually lot of fun for me. Because if you look last year we came up we gave outlook and goals that we are setting for our 2011 performance so in 2010 investor day, our first investor day we set a goal of sales growth to 7% to 11% and that included 2% to 3% acquisition component.

In our most recent conference call, we updated our expectations for the full year and set our current expectations that our sales growth will be at least 19% year-over-year and that’s made of up balanced component of 12% to 13% organic growth and 6% to 7% growth through acquisitions.

Likewise on operating margins, last year we set a target of 50 to 70 basis points operating margin expansion. In our most recent guidance, we updated our current year outlook to be at least 90 basis points of operating margin expansion and again driven through balance recipe of both growth margin expansion as Steve makes progress we make progress in our gross margin initiatives and likewise from fixed cost leverage the balance coming from fixed cost leverage and driving our productivity per person up in the economy and in our business expense.

Next is our objectives; we set our long-term goal over the economic recovery cycle is to drive annual net income growth of 20% to 25% per year. If you take our current guidance and translate it into net income growth, our current outlook for this year is growth of in excess of 55% of net income. So more than double the commitment we made last year.

Finally, we said we were going to accomplish all of our goals, fund our growth initiatives and pursue M&A and de-lever the company. If you look, currently we said our commitment was to maintain the leverage rate ratio between 2 and 3.5 times and we have peaked at about 4.2 or 4.3 during the economic downturn.

If you look currently we’re assuming no more acquisitions this year, we think its potential that we could exit this year about 2.5 multiples as far as financial leverage. So clearly we are delivering on the commitments we made last year; we are actually over delivering and I think right now we feel highly confident on the balance of the year and being able to outperform the targets we set last year.

One of the initiatives the one I touched on guts and numbers. I also want to talk about lean and lean for administration one of the programs that John mentioned earlier in his presentation. We in the fourth quarter last year pulled a teamed together of WESCO managers who have competency both in lean approaches and lean tools and techniques, knowledge of WESCO’s business processes and understanding of our information system and technologies and we formed a team that’s committed to drive lean approach toward administratively intense processes.

And this team is also part of the focus we have been making investment in Oracle EBS systems. We put in Oracle financials, we are adding Oracle HRS, we are adding other financial software tools and part of this team’s purpose is to partner and make sure that as we put in new administrative processes, they are efficient and have the highest cycle times that we can achieve. Examples and process of this team is addressed so far would be examples of establishing credit for a new customer.

We are reengineering our time and our travel and expense reimbursement system. We are working on how we administer special pricing adjustments from our suppliers which is a highly complicated process, but absolutely critical to our margin performance. We are just about to kick-up a process to reengineer how we handle sales tax certificates from customers which is also burdensome, but necessary. And so far the results of this team in a number of the processes they've touched upwards of 30% to 40% of the work load of the process is removed and we are improving cycle times.

So this is another nice building block in our overall approach to lean and we are really going to use this as a tool to help continue to drive the great fixed cost structure that WESCO has and take us to that next level of absolute top cortile performance as far as administrative cost structure.

So touched on why we feel pretty good about 2011, but I also now would like to kind of turn forwards in talking about 2012 and why we are equally up beat about the landscape for 2012 and WESCO’s potential to perform in that landscape.

If you look right now, if we look at the macro economy there's clearly some minuses, but there's also some pluses. If you recall, our view going back even to 2000 we were very consistent. We said this is going to be a long, slow recovery. That while there's going to be an economic expansion cycle, there is a number of factors that are going to take years to resolve and as we look at 2012 we don't see that view changing. While there are negatives out there, we feel the positive somewhat outweigh the negatives and that economic expansion is going to continue albeit at a modest rate, you know 2% to 3% GDP.

However, one more positive trend as we look into 2012 landscape is that if you look at our performance for example this year we've been delivering 20% plus sales comps in an environment where at the beginning of the year the utility markets were still somewhat of a drag. Non-residential construction in the U.S. is contracting, so think about here. We posted over 10% favorable year-over-year comps in the second quarter and electrical contractors and a market that was up double-digit percent. So we’ve been delivering these results in an environment where some of our markets where frankly the base demand is still a drag on the overall performance.

As we look forward into 2012, as Andy touched on, we clearly see utility growth becoming favorable and accelerating. We see industrial growth still occurring albeit at a more modest rate because simply in the industrial economies entering a mature phase in the recovery cycle and we see non-residential construction no longer being a drag and that is in contraction. We see non-residential construction beginning to bottom out and possibly recover in the late 2012 and I think we’re fairly confident that we’ll start to recover by 2013. So if you look while the macro environment, the macro factors in 2012, our balance to somewhat positive, we look at the market factors and the markets that we’re in and overall we see favorable trends.

So given that backdrop, what targets are we setting for ourselves in 2012? As we look at sales growth, we’re still going to target, we’re targeting 7% to 11% sales growth rate. The basis of that target is assuming market growth you know GDP is in that 2% to 3% may be I think our current outlook is probably 1.5 to 2.5, but we see the electric demand for electrical goods continuing to be above GDP level growth as it was this year. I think during the recovery cycle, electrical goods demands tends to be a GDP plus type numbers up to 2%, 3% higher, so we see that continuing to occur.

Our share gain, our growth engines, we’re confident of their functioning. We see the momentum. We see ourselves taking share. We are continuing to set a goal to gain at least 1% to 2% sales growth through our share, our growth engines. And also as John and Steve touched on, our acquisition pipeline is full. We are targeting acquisitions. We have done three in the last year. We are looking to maintain that pace. So we would be looking to have sales growth from acquisitions to be at least 2% to 3% in 2012.

Likewise on operating margin expansion which is our second critical area, our goal will be continue to drive operating margin expansion as we have over the last year. Specifically, we are going to combine our operating margin expansion through the gross margin expansion programs as Steve mentioned and continue to fix cost discipline in operating leverage and we are going to stick to our goal of maintaining operating profit pull-through at or above 50%.

So the way we are approaching things, that is the primary goal. As we earned the right to grow and if that is our baseline, and as such in essence, earnings above that 50% pull-through or what we are following back into our growth initiatives. As far as tax rate, we do see because of the success we are having internationally, that’s actually having a somewhat unfavorable impact on our tax rate.

We saw tax rate going up modestly next year and part to the success of less is driving and finally, I think the metric that we tag is really the most critical. We had set a goal through this cycle to drive to 20% to 25% per year net income growth. Our target next year is to beat that and to be at least to 25% net income growth in 2012.

So how does that translate into financial KPIs. If you take those goals, take our current operating expectations and forecast for 2012 and you would roll it into financial KPIs for 2012, it gives you a top-line sales at least 6.5 billion. And again, for those of you familiar with our convention, when we give guidance, we give the floor. So we are talking terms of at or above certain numbers. So that would be our expectation as far as the floor for our sales number.

So sales at or above 6.5 billion. Operating margin at or above 5.5%, net income of at least $225 million and EPS of $4.40 a share and that’s based on a fully diluted share kind of 51.5 million shares. So for the current year, our forecast is based on 50 million shares as you know. And you know, we have converged that can cause a dilution effect. So based on our current modeling, we are using 51.5 million shares for 2012.

I would also like to note, if you assume we are driving our growth agenda, pursuing an acquisition agenda that’s roughly 2% to 3% of sales growth. If we look to the future, we could exit 2012 with a leverage ratio that is low as 2.0 churns. But I think overall right now that’s where our -- that’s our target. That’s our early look. We are setting goals for ourselves for 2012 and we think right now given the momentum we see, we feel pretty good about our planning assumptions at this point.

So looking forward, looking at 2012, ’13, ’14, you know right now given the days environment, people are trying to look through the next couple of hours of trading. So I am trying to talk about you know what does ’13, ’14 look like. But frankly, that’s important.

Our management team has come in with a long-term due. If you look at the people at the table, we are all here for the long-haul. That’s our view. You know we are committed to the company; we are committed to our strategy. We think we’ve got the right playbook and we are going to continue to use it.

If you look at the macro, you know macro factors overall in our industry, we think the industrial economy will continue to recover. The US in a number of ways is advantaged. The US dollar has weakened somewhat, as Les mentioned, Mexico and some of the North American content manufacturing is coming back to North America. You throw in low natural gas prices is a number of process industry that are frankly very much advantaged now because of North American supply and the fact that there is a lot of surplus gas and shale gas hitting the market.

If you look construction, as I mentioned construction has been an essence, the demand has been a drag for 2011 and 2012; we see that turning by 2013 and ‘14 construction demand becoming a tailwind to WESCO.

Utilities we’ve mentioned, as Andy has mentioned, there is a lot of pent up demand. There is a lot of infrastructure that needs to be rebuilt. There is a number of projects going to have to get done, so we see the momentum in utility spending continuing for the next several years.

The only market we say we don’t see you know that strength of grow is our commercial institution and governmental spending and that’s frankly because the government going to have to cut its spending levels over the next several years. As John touched on we’ve launched several years ago a number of governmental growth initiatives and we’ve been getting excellent growth in government, even though spending has been flat to declining and for WESCO government is where we started off as a small base. This has been a very strategic initiative for us, so while we see the demand in that market has been neutral to stable, we have confidence that our share gain initiatives will function how contribute to our overall sales growth.

So as we step back, our strategy is one you know where we really expected a long slow recovery. We see that long slow recovery. It's frankly an environment that advantages a player like WESCO. You know the large, well financed, robust players in the marketplace are taking share right now from the smaller players. So this long slow recovery type environment is actually to our advantage. So as we lookout through 2013, 2014 we feel comfortable about maintaining those sales growth targets of you know 7 to 11% per year.

Likewise you turn okay to operating margins. As Steve touched on, we have a number of initiatives in pricing and sourcing. He outlined the various projects we are pursuing, the potential for those projects. We are going to pursue those whether the economy is good or bad. Those potentials are real regardless of the environment. Likewise we are driving on LEAN, we're driving productivity and efficiency initiatives. Those efforts will continue regardless of the economic backdrop. And we are also making progress in our portfolio as David touched on the progress are making in Datacom and security, we are adding to our portfolio. It's an advantage position.

We are going to continue to drive that. So if you look at our operating margin objectives for the upcoming years, regardless of kind of the landscape or backdrop, we are going to continue to focus on both expanding our gross margins and continue to drive productivity improvements and so we feel that we should continue to target a 40 to 60 basis point per year expansion in our operating margins. And specifically one of the goals we touched on last year and is still a core focus for the company is to reach a 6% operating margin by 2013.

Capital structure. You will see focused in up and front of a group like this today and not talk about capital structure. Didn't want to put up a slide with all our different pieces of debt and bore you with the balance sheet and the pieces there. But there are a couple of points that I think are really critical to touch on. I think first our liquidity is increasing. We have got strong liquidity, no issues on that front. We have staggered debt maturities. We have access to capital markets. So our overall balance sheet is strong.

I think another point that we think is critical to make. If you go back and play back 2006-2007, WESCO we get a lot of questions about how are you guys with your leverage going to handle the downturn. And people are worried about a 10 to 15% downturn. We went through a 15%, really 25% clip in a matter of months. Our demand dropped off 25%. We proved in that situation our strong business model. As demand dropped off, we converted working capital into cash, we paid down our debt. We managed our leverage, we peaked out at about 4.2. As the recovery started, we rebuilt our working capital and not only we rebuilt our working capital, we pulled off three acquisitions, one of them a significant size and if you look at where we stand today, we are actually at a lower leverage ratio than what we entered the downturn at.

And we continue to see if we stick to our game plan and the balance of growth, M&A and deleveraging that we have the potential as I noted to be at a two times gearing by the end of next year. So long story short, we have ample balance sheet capacity to execute all the growth initiatives we discussed today to execute our M&A program and simultaneously delever. And we are going to continue to stick to that game plan and so we see our balance sheet strengthening through the next several years.

I think one of the questions that, if it's okay Richard, were you looking at a two times gearing which WESCO is known for targeting, really staying around at three times gearing. What about return of capital to shareholders? Last year we stepped in front of you, we wanted to clarify what our priorities for cash flow use are and our first use in priority is to fund our growth initiatives and we have been doing that.

We are growing the company, we are focusing on growth and that's going to be our first priority for use of cash. Our second priority is to fund accretive acquisitions. We have turned on our growth engines, we have closed on three deals this year. We are going to continue to do that, but as I note in third years is to reduce our financial average. So while we're doing everything we need to do on growth, we are funding our acquisitions. We are still degearing the company and want to keep focusing on that.

And what we said last year was if we get to a leverage ratio of two or below and sustain that level, at that we will start discussions with our Board about return of capital to shareholders. If you look at our current forecast, current expectations, we don't see hitting that level until late next year at the earliest. But I think we're at least a year away of having any kind of discussions about return of capital to shareholders because our priority is going to be first is to grow the company.

So in closing, this is a similar slide to what John showed. So I'm not going to go through all the specifics. But the financial objectives are and we have been financially oriented. It's part of WESCO’s culture. We came out of a private equity LBO and our management team is extremely financially oriented. On top of that in the last two years we have really tried to step up the transparency to investors on what are those financial goals. What are the goals we are setting for ourselves and how are we going to achieve them. I think more important is we have been delivering on those commitments. So we are financially oriented, we are communicating our goals to the investors and to date the delivering on those goals.

So going forward, we are going to continue to focus on driving long-term strategic change, but at the same time we are not going to lose focus on executing on a day-by-day, month-by- month and quarter-by-quarter basis. As may be David would put in, we are stepping up our gas. I think we are definitely in a play to win mode. I mean, our whole monitor coming out of 2009 was no more defense, we are going on offense.

And I think if you look at the results we have been delivering, we have been consistent with that message. So it’s been really good to standup here in front of you guys today specifically to talk about how we are over delivering on our 2011 commitments. I look forward actually to spending this time with you this time next year and be able to deliver the same message. So with that I will turn it over John for our Q&A and closing.

John Engel

Thank you. Well, thanks for joining us today and thank you all for your support. Just a few final closing comments then we will open it up for Q&A. We have a clear vision. We have a winning strategy. We have a proven business model. And hopefully from what you saw today, we have a very passionate and committed management team. We remain focused on our strategy of above market organic growth plus accretive acquisitions.

And as we stand here today, I am happy to say, we are in great confidence. We are in the best shape that we have ever been in. So as we look forward, I think there is an excellent value creation opportunity that we have in front of us and we are absolutely committed to deliver on that. So with that we are going to open it up for Q&A and then I think we do have some mobile mikes that will go around. We are a bit ahead of schedule and it’s been our practice is to try to start a little ahead of time and finish at least on time or a little early. So we will take every question and cocktails are waiting for us, but we will be there whenever we get finished. So with that Dean go ahead.

Question-and-Answer Session

Dean

Thank you. Our first question on Steve's presentation, maybe I missed it but on that pilot program for the gross margin improvement, just what is the plan for rolling that out broader to the company and what is the timetable for that. And then for you John in terms of the government spending and I'm glad you're able to size that for us, there has been some discussions, just you know what is that business because the expectation of this municipal austerity to say that there is flattish for next year might be optimistic but what is your business in the government side, what is it not and a lot of misperceptions and maybe address the stimulus upside from here.

John Engel

You I mean we said that this year would be our biggest year for stimulus. I think we're seeing that are pipelines at a record level. I think there is no doubt that no matter how it ultimately shapes out, if there is going to be a headwind and some downward pressure on government spending, whether it is federal local or federal-state local or municipal. Even as we stand here today Dean, we have more than tripled our position in the government market.

But in our current run rate it’s still well below 10% of our sales runrate and so it still represents a great opportunity for us because we are underrepresented in terms of government as a percent of our portfolio versus some of our core competitors whether it be Grainger and Anixter or a Graybar. So that really was the rational of why we focused on government back in 2005 and 2006. We weren’t very transparent about it then because that was inside the company, but we started investing back then pre-CSC and pre-stimulus clearly. And I think for us there is still significant growth opportunity for as far as we can see again because of our position. The other point I’ll make about government you know had this question on our Q2 earnings call, you know what about you know data center consolidation and the government space we see that as an upside. So I think you talk about all the trends that David talked about and how they impact the large infrastructure and the mobile forces based that exist today across all the various governmental agencies, we see that as having strong demand driver in the form of communication and communications and securities. So I would say stimulus it was a nice stimulus and provide an incremental for us but we are focused on government pre-stimulus, we will be focused on government post-stimulus.

In terms of the margin pilot I think all of you know we worked at that very aggressively for a long time. It’s a continuous process. I think now we feel pretty darn good about our recipe. It’s a very comprehensive recipe, where we are not just working various pieces and going our across the branch network. We’ve bundled those together and organized them in end-to-end comprehensive program and focus it on a cluster of branches. The initial pilot we’ve (inaudible) business and so we are highly encouraged with the results. We’re still in the I say the early days of that pilot.

What we shared with you real time was you know it’s a few months of pilot execution and here is the initial results. We want to make sure that we have some thing that’s step and repeatable and we are also trying to make some refinements and improvement as a result of what we learned in the pilot. But then it will be in our intention to begin the step that across our entire network, would not been public about the rate at which we will do that, but I would say given the encouraging result that something will push on pretty hard. What Steve mentioned on is a critical point you know. It is not we have actually invested in and have upgraded our talent base part and parcel of the pilot to event some additional pricing talent and we have some additional purchasing and sourcing talent. So that becomes a gating item. So it is not something even if we try to throw unlimited resources, it is not something that we can throw at and we need a whole enterprise of six or nine or twelve months. Think of it as something that’s part of our next three year plan just to stepwise go across the enterprise. So does that answer your question Steve?

Unidentified Analyst

Yes. So I just wanted to understand the operating leverage a little bit better. The gross margin pullthrough that’s implied by the guidance is about 46%, I think if I calculate that right which is what you did in the first half and so I am trying to understand something in the second half that I am missing because you did 53% in the second quarter despite the Datacom issue right, CBC has become much less dilutive since you have added in the organization for a couple of months. The incentive comp ramped up significantly in the second half of last year because you guys were killing it on the top line.

Yeah I think you added some headcount Q3 and Q4 of last year and I will see you keep talking about productivity improvements continuing. So is there something I am missing in the second half in terms of is there an acceleration of the investment in the growth initiatives or it is just a level of conservatism that you know?

John Engel

I would say that the expectations we have outlined for the second half were consistent with how we have been laying out our expectations for the last 4 to 6 quarters. So you are not missing anything, we are targeting roughly 50% pullthrough as a target, that’s our long run target. We will continue to run the business that way. We are particularly pleased with the second quarter results, our most relevant and most recent data point in that we are over 50% on the core without acquisitions and it was roughly a 50-50 split of gross margin expansion and operating cost leverage, but you are not missing anything. I think we want to be mindful of what the environment is that we are facing and our comps get a little tougher as we move through the year. I would say again it’s very consistent with how we've been setting our expectations.

Unidentified Analyst

And just in terms of how the growth initiatives go from here in terms of the investment, is a lot of that already done, I mean you talked about adding people?

John Engel

I think what's critical to understand is and this has not been a subtle shift you know Richard made the point on that one chart but I would like to spotlight it a little differently. The one chart that he showed side by side productivity and the last cycle, expansion cycle versus this, the one thing to note was the top line growth in the last cycle was in the mid teens. The top line growth in this cycle is mid teens plus.

So I think we've got an improved recipe and we are seeing very good return on the incremental investment we are making and we outlined these four business priorities of taking share fundamentally and building scale and increasing scale and expanding margins and strengthening our portfolio and building a high performance culture. I think what's different is we are consciously investing organically in the business and supporting it with accretive acquisitions. The last run and I was at the company as COO and Steve was CFO, okay. What we did was you know back in 2003 and 2004 we committed to the investment community we get the 6% operating margin. We had never been above 3.X% EBIT ever since we spun out in a separate company in 1994.

So we drove a strategy of really emphasizing actually, over emphasizing productivity. Through that last run in the recovery cycle, we did not add any locations and we added very little in the form of incremental headcount. So we did no greenfield expansions and we had launched LEAN remember April 2003, so we’re using LEAN to create additional capacity that allowed us to support the sales growth.

Upon reflection, like we mentioned this last year, upon reflection if we are critical of ourselves we probably missed an opportunity that maybe add some additional capacity and even take greater share. So as we came through this cycle this time, we moved very quickly as Richard mentioned, we never thought our top line would drop 25%. The market drop upwards of 30. We move very quickly to size our cost structure, we took over 1000 people out, we took over 100 million of inventory out but as we move through that process, we continue to invest

David mentioned new locations we opened in Datacom. We were doing that as we were managing through the downturn. We opened a brand new distribution center Edmonton, Canada. And so as we start to go through the downturn, once we reached the bottom and we started to see the inflection point we started to improve. We said, let’s play off that. Now the recipe of this playing off and still getting productivity like we had in the past I think our operating model delivered that and LEAN is still alive well and continue to try to improve that, but it was incremental investments. So we were confident but we had to prove to, our sales improve to you that with this incremental investment, we’re still able to deliver the 50% plus pull through.

And I would say based-upon six quarters of data points now, we’re pretty confident that we have an improved recipe. And so that’s our recipe. Our recipe is very consistent this year as we laid out last year.

(Multiple Speakers)

Richard Heyse

Just to clarify, and when we talk about core operating pull through, that’s like a same-store sales or same branch sales metric. So you have to peel off the acquisitions to do a calculation properly. Because it increments and operating profit versus incremental gross profit on same branch sales. So if you are taking out the whole company and trying to make the calculation, you are correct. You are going to get a number that looks to low. But that’s because you are not comparing Apples and Apples. So that’s why in each quarter we are giving the number and we release it as part of our results and what our core operating profit pullthrough was.

Unidentified Analyst

I never understand that and I think little bit more averse than first half, the second half versus first half, with more (inaudible) talk about the second quarter being 52%. Three, four or whatever, has that gotten, so I guess the question.

John Engel

And I think our objective is over the full year cycle we will achieve that 50% pull through. Again, given quarter we are making investment decisions as John notes, but our target is to deliver that operating profit pull through over the long term. And I think we feel very confident. Our first half results, we were over 50%. We are driving our growth engines. We are making the investments and we are getting the productivity improvement simultaneously. So we feel good about the results for first half of the year and clearly we are going to drive in the second half of the year to have similar results.

Unidentified Analyst

Thanks. John, a question on the long term sales, you had 1% to 2% the market share gains, I am wondering what has that been historically and could it be a little conservative given the eight growth engines and how well they are performing.

John Engel

We have maintained the position for some time. Let’s say many, many years that we are performing at or above the market. We maintained that position in the last cycle. But I think and there is no one single source of truth so to speak in our industry in terms of what is the market. So, you have to try to get a sense of what is the market by looking at what suppliers report, what various public competitors report what we get from the part of the agency we are a part of, any W et cetera. But with all that said, I think we can say with great confidence and over the last six quarters we’ve been significantly outperforming the market.

And we’ve outperformed our own expectation. And so, if we look at the expectation we laid out a year ago, we didn’t think the market will be as bad as it end up turning to be, turning out to be and as Richard said, we didn’t think that we delivered 19-plus% quarter growth. So, I think we are outperforming our own expectation. We would love to continue to outperform but we are not forecasting that. We will drive the best execution we can going forward. I think, in terms of long-term planning construct. You know we want to grow one or two points greater than the market over the very long run. We will obviously do everything within our power to beat that.

But that’s our long-term planning construct. I think, we have been very consistent as a company. I think our long-term planning framework is rather conservative. It’s the only time I will use that word, rather conservative. And then we want to make sure that we consistently deliver against that.

Unidentified Analyst

Okay. And then second question, but you had a comment there, maybe this is for David. Pretty powerful example of how you had a data center consolidation that did not go to bid. I am wondering how broad based example like that might be?

David Bemoras

Not enough. But when they happen, they are very powerful and very profitable. Our goal as I mentioned in my presentation, is to be become a higher and higher percentage of our overall revenue stream. It is a smaller piece obviously of the overall business, but the investments we are making in the sale forces that I described will absolutely deliver more, more those types of success stories going forward and we’ve seen that. And I think when you combine the power of One WESCO and all the resources we are capable bringing to bear the chances of us being able to have more over those successful engagement increase over time.

Unidentified Analyst

Sure, in Andy’s presentation you actually had the transmission broken out I think you called up maybe 1 to $2 billion addressable market, there addressable spend there. Can you just talk about I mean that’s historically not been a market you played in too much, can you just talk about the inroads that you have made there and what makes you think that that market is really sort of an addressable market for you going forward?

John Engle

It’s a great question. I’ll make a few framing comments and ask Andy to elaborate. We have said for a few years now that no pun intended. When you look at the utility power change from generation through transmission to sub station steps down the road to distribution and historically the way that power chain would serve be in the market was a distribution grid was served by distributors and transmission to [TFTND] was serve direct by manufactures predominantly. But we have said for some time in a number of years that we’ve been focusing on transmission and substation those portions of the power chain with a whole series of capability that are beyond typical or only standard distribution.

And so that challenge we have with executing that strategy was we had something called global recession, right. So no one thought energy demand will be down one year let alone two. And energy demand was down in the US in 2009 and 2010 and thankfully it is coming back led by the industrial recovery. So we’ve had strategies at play for a number of years and I think we actually have some terrific capability to serve every segment and today’s presentation by Andy was an attempt to give much more detail around the utility market, the structure of the market, what we see as addressable, our value proposition and the business model that we are applying to each of the four segment. So this is not new for us to go to try to expand outside the [DFTND] upstream in the substations and transmission.

The good news is we are getting a market with energy demand growing that will give us a little help and support there. The generation we have been serving for a long time although our capability is greater than ever in the form of new construction or MRO via various alliance type of grid or integrated power supply. So Andy why don’t you with that as a framework give a little bit of specifics around I would say both transmission and substation right in terms of and you had success stories on those you. Give some color on that.

Andy Bergdoll

It is a good question and we’ve had through the first half of the year some really good success in booking transmission projects. But it is not something that just happened. We invested and you go back to that business model chart lower, right hand corner handy project services. That’s a capability in a business model that we have been investing in for quite some time. What we say is that the utility supply chain and utility contract and procurement properties are now more receptive to that kind of a model. So what is as well I kind of refer to as an engineering building materials where you start with. So our service proposition is we will help the utility contractor and the utility refine, validate and clean up their building material, make sure that materials are compatible. We will do subassembly and fitting on site where we will help the contractor manage the risk of the project associated with the materials. So we had some good, fairly high visibility projects where that didn't work well when the contractors hit it on their own.

So more receptive to that model, both of the case that as I talked about incorporated this project services. So it’s one dimension in how we participate, the other is with our existing utility alliances, it’s probably safe to say when you are out doing a million housing starts a year, your team on the ground is busy taking care of that distribution product but when that business slows down I would say people’s eyes opened to spend and maybe they had nothing.

So in our major alliances, our alliance management teams are laser focused on transmission. So we have a whole portfolio of services really around job trailers and kitting where we provide packages for the utility when they are just doing transmission maintenance work. We will roll a trailer out on site, it’s a DMI. Once we roll it back to our warehouse, we take an inventory of what they used and we charge them for it. So that's a business model where that stem was always there but probably our guys weren't noticing it. So very conscious long-term delivery strategy to expand that scope.

Unidentified Analyst

Great thanks, and then just secondly you know I really appreciate the clarity and the transparency and the guidance, I don't think anyone here is going to be upset that you gave us more data instead of less data but I just want to, in this environment I mean obviously the macro data has been pretty choppy the last couple of months. What really gives you the confidence to stand up there and put up what I think is a pretty strong 2012 sort of outlook all the way down to the EPS line.

John Engle

I would tell you, let's just look at the last year. Our view as I mentioned a few of us have mentioned that our view of the economy in the first half was stronger than it ended up being in our view of the end markets, it was pretty much on par for every segment except construction. Non-residential construction which is much worse than we thought a year ago and yet given that economic backdrop and the challenging end market backdrop in construction, we over delivered our expectations. That’s the first point.

The second point is, we come off the strongest quarter we’ve had since the recovery started in Q2. Third point is which is not been our practice historically, we’ve shared intra-quarter data. So Richard shared July sales data at 21% on a same workday basis as equal to Q2. Again it’s a tougher comp and sequentially July grew over June which is not typical. In addition, he may or may not have mentioned we grew backlog again sequentially in July, so versus the end of June.

So at the most recent relevant data point for us is how we’re performing and what activity levels we see in the end markets and July was literally days ago. And so from our perspective, we don’t control the investment markets and there’s no doubt there’s been extreme volatility over the last three weeks but the markets that we’re serving whether on products and services we see no change in the last three weeks.

No change and our view remains the same as it has been not just for the last year but quite frankly for several years. That there’s some fundamental structural issues in a number of economies around the world and it’s going to be a long protracted recovery. But some of the major trends that we’re taking advantage of where customers increasingly want to do business with a smaller number of larger suppliers, that bodes well for us. And suppliers increasingly want to do business with a smaller number of larger channel partners because they are concerned about viability of the whole distribution channel.

Those macro trends existed before this global recession and recovery. If anything this new world with its increased uncertainty and volatility is accelerating those. So that’s what gives us the confidence. I mean, we absolutely and hopefully you have the confidence. We are not planning for a recession. But if we have to face that environment we know what to do and we move with great speed. I think we have shown that we have done that before.

But our fundamental planning thesis is we are not going to predict or peg when a recession is going occur. We are not economists. All that we know is here’s what we are seeing in our end markets in terms of demand signals, what type of quoting activity, opportunity pipelines at a record level, backlog is growing still. And we are focused on executing our business. So, Martin.

Martin

Thank you John. As WESCO expands internationally, I guess first of the company is going to have to deal with a different set of suppliers than it does in the United States. Because you know certain companies are better positioned outside of the United States than they are here, have better ability to supply. And there is also another whole set of indigenous supplier such as in China for example, many of whom want to become global suppliers and would probably be interested in using Go WESCO as a platform to advance their ambition. So, then of course as WESCO wants to become more of a integrated supply and a solutions supplier company on a global basis, how do you balance the need to provide a economic customer solution, the ambitions of your indigenous supplies go global plus the global suppliers to try to keep them at bay?

John Engle

It’s a great question. You know we chose strategically to unveil international business meeting. So, we debated it this year or next year. With that said, I will come and answer your question and with that said, I will tell you and lest we did we say it this way because this world is focused completely on international growth. But from a company perspective, our front and backyard is still North America, Latin America and to some degree, South America with our new CBC acquisition.

And the opportunities in our front and backyard, absolutely swamp out any opportunities we have internationally. So, our priority is, and because these are large fragmented markets, with many players, where benefits are accruing to those that have the leadership position and can bring differentiated solutions to customers and we are in that very small minority of large players.

So, our emphasis and priority still remains on our front and backyard. With that said, as we serve the global Fortune 1000 companies well, those customers. They are increasingly applying pressure to service in these other locations. So, we’ve been using customers as the catalyst. Customers as the catalyst, not suppliers, I will come to that. Or where we go internationally. We are not adopting a high risks, Let us build it and they will come.

Although, we have those business cases, we have not done that. So, we are putting in place and implementing business model and capabilities to serve our current customers and we are expanding geographically with them and to answer your question directly with our current supplier relationships. I think that’s incredibly important because I think the way we manage our risk equation if we don’t manage international expansion appropriately, the risk profile can change fairly dramatically. So we are very mindful of that.

Its turn out the you know for most of our suppliers we are the largest channel partner in getting to market, not globally but in North America. So we have huge opportunities as David mentioned and I think as Les mentioned to expand with our current supply base. Whether it be Eaton, Cooper, CommScope, [Corning] Panduit and others and so those suppliers are supporting us with global expansion as we follow our customers globally.

So Martin it’s a great question. We are mindful of the incremental and additional challenges of doing business globally. But it is a global interlinked economy increasingly and for integrated supply business and for other parts in WESCO, we increasingly are leveraging global sourcing base. So its part of our long-term strategy, the good news is for WESCO in the short to mid term, 3 to 5 years we do not need, we don’t have to bank on.

We don’t have to over prioritize international to support the earnings target that we’ve laid out, the earning growth target that we laid out. With that said we feel great about our international performance. We are growing doubled digitally, backlogs at a record level. It’s profitable and by the way it’s always been profitable. Steve right since we spun out of Westinghouse in 1994. That being international business, our definition outside of US, Canada, Mexico. Ajay.

Unidentified Analyst

May be two questions while I have the mic. First one for Richard, could you build up the cash flow all of the 2012 I know you talked about 80% free cash flow and net income D&A, capital spending, working capital?

Richard Heyse

You know if you look at – we target just based to convert about 90% of our net income into free cash flow and Steve touched on his presentation 90% to 95% stable year. And the growth here clearly we have fund some working capital. We are seeing that the next year is a growth year. If you look at the acquisitions, roughly 2% to 3% of sales could be anywhere from 100, 150 million type use of cash so that is really the big variable. So as you look at operating cash flow, the big driver on how we can de-lever really depends on the size of the acquisitions we accomplish in a year.

Unidentified Analyst

So your target of 80% drop through that would imply for instance something about $180 million dollars.

Richard Heyse

I think if you all things model growth here, we would be at 85% to 90% in the growth here like next year.

Unidentified Analyst

And would that include that 2% acquisition?

Richard Heyse

No.

Unidentified Analyst

Okay. What is the working capital requirement for $1 when thinking of the revenue?

Richard Heyse

It is probably about $0.10 we run about working capital as a percentage of sales in probably 13% to 14% range but it’s been declining and we moved up a bit during the downturn and its coming back now and we are targeting that to be 12% to 13% on $1 range right now on total working capital excluding cash and short-term debt.

Unidentified Analyst

Okay. John, an obvious question, do you know what’s happened over the last few days in terms of your priorities of cash flow, where does share repurchase stand in the scheme while trying to create value for the shareholders.

John Engel

Well, I think Richard laid out a – it is a great question, we always have this kind. Richard laid out a framework and so I think that's the framework by which we are operating the company. With that said, we always want to take advantage of opportunities so its something that we continue to discuss with our Broad and we consider at all times. But we don't in general try to manage the company for, to try to market anything we manage over the mid to long term with a very clear thought out strategy. I think Richard laid out that framework.

In general our cash utilization priorities and what we established last year, and what we have in place and given where we are heading right now, we want to drive our leverage, continue to drive our leverage ratio down and be in a position where we can be thoughtful about. If in fact we don't have the acquisition opportunities or the organic investment opportunities how would we return capital to shareholders, because I mean right now quite frankly we are seeing still significant opportunities to invest in our business; that is our priority; organic investments and acquisitions.

Unidentified Analyst

The share creep for next year of 1.5 million, is that options and alike?

Richard Heyse

Primarily we assume to have an increase in the dilution from convergence standpoint. That's primarily a dilution of that.

John Engel

I was going to suggest if it’s simply options in SARs at a minimum keep the share count flat.

Richard Heyse

I think we provided table in our, every supplementary each quarter, and the dilution effect of options and of convergence by far the dominant in fact for us is dilution effect from our 20-29 converts.

Unidentified Analyst

John thanks for providing that July data point that’s very reassuring, a very solid number but I wanted to follow-up on your earlier comment on the alignment. You’re positioning the company for growth and that’s the argument and the right thing to do most industrials are positioned that way, but to the extent, any color you can provide on what metrics are you looking at, are there any pressure curves where you’d be like, hey you know let’s stop the brakes and pull plan B, any color there?

John Engel

That’s a great question. And we look at all the macros and all the general leading indicators that all of you had access to, one. We get significant amount of data from our suppliers; particularly, that’s where we have great partnership with, so keep in mind the suppliers are selling to and through us, they’re selling through into our competition and are also selling direct, right. Some of them sell more direct versus others. That’s another set of data points.

But most important data points are what we experienced with our customer base and because we sell to a majority of Fortune 500 companies, virtually any end market segment you pick, we have end customers. So we can look at what our daily sales rates are and we can look at our daily bookings rates and we measure book-to-bill rates and we get that on a daily basis.

So I think we have a very good sense of what real-time activity is in terms of order patterns and again we came through Q2 at a very strong quarter, we signal that we exited with strength now we have just disclosed the July number that is not typical seasonality, right, its stronger than typical seasonality. We should send the message that July was very, very strong relative to historical standards and historical patterns. And we have not seen anything that would give us concern as of yet in terms of, from our customers in terms of slowdown.

The world did not change in three weeks. It doesn’t mean it can’t change in a week. I mean, I think we do remember what happened in 2008. And typically I had this discussion in one of the breaks, typically we will lag going in. You know, if you look at 2008, we grew 6% organically in Q2. We grew 6% organically in Q3. We grew 6% in our October of ’08 organically. When we were getting tremendous number of questions from many of you, wait a minute, look at what some of your competitors are doing, look at what your suppliers are doing, haven’t you seen it yet. You may recall this. And then we move to November of ’08, we had flat sales. And then December we had minus 12% and then here we go. So we have not seen anything like that in our lifetime, hopefully we will never see anything like that again. I think there are some fundamental structure reasons that caused a true end market demand collapse.

We have given you our best view on Richard’s chart in terms of what our current thinking is and framework for 2012. We normally don’t do it this early, but it is based upon everything we know as we stand here today. We will do our normal process. As we go through the year, we will give you an update as we move into the subsequent earnings call and give a more crystallized view. But as of this moment, we don’t have any of our early warning indicators are, none other than negative position.

Unidentified Analyst

Good, thank you. Just one more, may be on that long-term operating margins. So one of the slides I think you have 6% going on to 8% long-term. I know you have to get to 6% first. But what are the things you need to do now over the next couple years to get to that 8%. Is it global with the current portfolio or any changes you need to make there?

John Engel

I think it’s a great question. You know we peaked out at 7%, not on a full year basis for a few quarters, during our last run, right? During the recovery period. And if you do a side by side of the company then in the company now, there is no doubt in my mind that the portfolio is stronger today. We’ve a much stronger management team and we are executing better. We got a very clear strategy, with a more growth oriented strategy and we are executing.

So I think the company is stronger today than it was when we peaked at essentially 7% EBIT. We are investing, we are investing for growth. We want to drive the balance of gross margin expansion and operating cost leverage and have a nice healthy recipe. You will recall when we got the 6% before, when we had set that out as a target, 2003-04 timeframe. We got there. We set our sights on it, right? We communicated that. Then we had this global recession.

So I said for a long time, I am highly confident that the end markets we serve our business models and continuing to refine and improve the portfolio. That is part of it. Coupled with what Steve outlined, because I think we have several hundred basis points of fundamental gross margin improvement opportunity by working the core plus getting acquisition help that improve our mix there. This portfolio and what we are focused on is well beyond a percent.

But in our initial long-term planning pieces that’s got to get back to six first. We set our sights on it. We get to eight, but we have clearly competitors that are doing much better than eight. Now they have different business models, and refined business models, you could argue a little more diverse than probably all of them. Right, but there are parts of our business they can do a lot better. So you know I am giving your much longer term view right. So we have not set a timeframe for that, we are not going to put that on a timeframe at this point, we got to at least get back to six first and then keep climbing the ladder.

Unidentified Analyst

Thanks. Maybe this is one is for Andy, but with all the investment that seems ready to deploy into transmission, power sharing capability and smart grid which actually all improved the productivity existing generation and maybe reduce the need for future generation investment which has a much longer payback period. I think we have seen the beginning of the fundamental of long-term shift in the CapEx pie of utilities?

Andy Bergdoll

Yeah that’s good question. We shared with you a lot of data about our review, a lot of it driven you know from a DOE data probably the same data that you look at but we put our own spin on the base from the product categories that we see. If you look just on that generation piece, our view is in terms of the total capacity, we might not be seeing an increase; what’s driving some of that investment is actually coal plant retirement.

So how you model that and trade offer where you are going to put scrubbers and clean technology into coal plant versus retire and then replace it with gas and renewables as they are variable. The reason why we like to have such a diversified portfolio or why the project piece is so important, we are going to participate in a way. So we are somewhat indifferent although obviously we love to have a bigger Greenfield you know and going and doing a supply deal there, but we are going to participate even if we hold that capacity straight and we just put scrubbers on all the coal plants. Does that answer your question?

Unidentified Analyst

In a sense; as what it means to you, but you would agree that there is probably a shift and how they are going to allocate capital way from generation investment in the future towards G&D improvement?

Andy Bergdoll

You know I am probably not smart enough to make that call. I am looking a lot of the same data that you are. We just said you, and as you look at generation, you got a $50 billion non-fuel spend there; give or take our adjustable spend $2 billion to $3 billion. We are playing in such relatively smaller part of it. With the MRO, and we get so much share growth that that still ends that we are looking through. I would say your overall composite is consistent where we have seen that you have a total spend and you are pushing on the balloon a little bit if you are spending a lot on smart grid, you might not be spending in another area. So I think in terms of overall power generation that is the big question but, particularly on the renewable side.

Unidentified Analyst

First off, thank you for putting together I know its taking too bit of your time, thank you. Two questions, last year if memory serves I think lighting was 11% of your sales and now it’s 10% of your sales. I know that there were some acquisition activities in the tubing. It seems like there may be some real headwinds or roadblocks in terms of that business growing proportionate to the opportunity if you could speak to that. The second question is also in the years past you have talked about extending LEAN into your customer as well as part of your value adding sales process and I didn’t hear that today, is that initiative been in the block hole or what’s the status there as well?

John Engel

As usual, you have a great memory so and I think in terms of lighting and again the acquisitions with TVC and with RECO and Potelcom, we do not acquire lighting so there's $350 million of sales that were acquired that don't have essentially any lighting content. That's the first point.

The second point is and I think this data is public; the fundamental lighting market has been particularly challenged. Its not been growing, its not been growing at the rate of the core electrical market for the last few years through this recovery cycle.

With that said, I think Andrea did an outstanding job and this is why we, it is one of our growth engines and we had it on the agenda this year because I think there is tremendous opportunity, tremendous opportunity for growth in lighting. Similar to the government rationale when you look at lighting as a percent of our portfolio it should be a much larger percentage, number one.

Number two, you look at the customers we are serving today and where we are good we are very good in lighting, where we are not good is because we are not good is because we are not leveraging our capabilities beyond that local branch at serving that customer.

So and now couple that with which Andrea touched upon and I think you could trump any of our major suppliers, they have a very compelling view on this is, this is a, lighting is a 100-year old plus technology and so for the first and only time in our lifetime there's a huge catalyst that's called the shift to solid state. And so that has potentials for dramatic implications across the entire value chain.

Quite frankly, you know the existence of lighting agents in the value chain, in the whole value chain is because distribution advocated a leadership opportunity many decades ago. Well, now with the advent and introduction of solid state technology what happens is lighting becomes a design element. It’s an integral part of design whether it’s only in product, whether it’s new construction, residential or various non-residential facilities and so it has a huge potential to change the dynamics of how that value chain works.

So I think we have that point of view, a number of our major supplier partners we have a shared view on that and I think there’s a great opportunity. If you were to look at the margin across the value chain it’s not proportional today, I mean leave it at that. And so we’re very focused on lighting. It does not mean and we’re focused on delivering double-digit growth in lighting and this last quarter was good result. It does not mean it’s going to pop out a double-digit every quarter, it’s a long-term view, but it’s such a critical part of our portfolio and again the solid state shift is something we’re going to fundamentally take advantage of. Many people have different views on that; it’s not clear at all that plays out yet, but huge opportunity for a company.

Unidentified Analyst

Any other distributors that you compete against, some major distributors base is proportional larger than you or are you behind…

John Engel

What happens it depends, it depends. We’re so diverse and broad, there’s really we don’t have anyone who’s a real good identical proxy, you can look at great work side by side and where we you know we have integrated supplier. You look at that extent their communications, data comp, pure play you look at ranges in industrial they all have a good sort of – they are larger ones. They’re not our mix in terms of end markets and products and service portfolio.

What happens is when you get to the 10,000 plus locally oriented sometimes limited distributors in the US and the Canada some of those are very specialized in lighting and so but we’re good in branches, we look and behave like that. Right, so I think, that’s just goes back to the one WESCO initiative, how can we leverage across the enterprise. Again, it’s a major growth engine that I think we are going to stay on for a long time.

Unidentified Analyst

And then expanding LEAN?

John Engel

Extending LEAN is the back tail of your book. We chose not to drill it today; quite frankly as we sit here today, we are over-subscribed. We have more demand on behalf of our customers today than we can fill with our current resources. We chose strategically because we have talked about it a lot of years, not to profile it today. But I will take this moment to say what started out as a small dedicated LEAN group in April 2003 and we view that as a talent injection point for the company, so we hired people. They didn’t grow up in wholesale distribution. There are multiple cycles of learning in other industries and we use that as an incubator to bring them in and all they do is run kind of projects on various branch operations and headquarter processes.

We have dramatically expanded the capability across, unless we do some internal training. We have a bulk system. So we have got a much larger percentage of our resources now have been are can speak LEAN and can implement LEAN into varying degrees. And even with that said, we are still over subscribed. I think it is a key differentiator for us. So what we are trying to do is work our internal training and development as aggressively as we can in parallel. So we can bring that into more and more customer relationships.

Unidentified Analyst

Just a follow-up on the capital allocation question from there; firstly, I commend you very much on your leverage goals in bringing the leverage down and you know what it might look like at the end of the year. And not adjusting anything to do with that, but the mix, the choice between acquisitions and share repurchases, actually quite frankly what are the acquisition targets you are looking at dropped by 35% in the last three weeks, which I am sure they have not. Then, from a long run perspective, share repurchases if you are buying back your stock, when your stock is undervalued, it’s not a short run thing, it’s a long run thing. So could you just tell me how do you think about that from purchasing your own stock at what looks to be undervalue price?

John Engel

Look, we fully understand the math, I got it. And we have shown the ability in the past, where we have implemented a share repurchase program when we thought that was the best use of our (inaudible). That’s about all I am going to say at this point. I mean, it’s amazing how fast the world can move in just a few short hours, days and less than a couple of weeks.

I think, you know what we try to accomplish and this has laid out our long-term frame work how we think about things and so given normal evolution and normal market behavior and how things operate, what we’ve laid out is a framework. You know we said our leverage ratio is 2 to 3.5 we’re very comfortable in that band. We’ve shown new ability where we are comfortable to go above that. For a great acquisition, we get it back in the band quickly.

Right now, we are sitting at 2.9 in the first half, and we are targeting potentially to get the 2.5 by the end of the year, assuming no additional acquisitions in the second half. Yeah, we do have an acquisition pipeline at a record level. You know, we don’t want to miss out on opportunities to fundamentally strengthen the franchise. And you look at what TVC is doing for us; you look at what CSC did for us. These are tremendous acquisitions in terms of what they are going to deliver in terms of long-term value creation. We understand the numbers, understand the balance and it’s something that we’ll be thoughtful about.

Unidentified Analyst

Thank you. Richard when you were discussing the guidance, you talked about 2% to 3% GDP growth and then you mentioned something in that monologue about 1.5% to 2.5% growth. I just want to make sure we are clear on what the base mind is and if you think you can still get to the at or above target based on a lower rate of growth and is that what you are saying or?

Richard Heyse

Yeah, I think you get our planning constant long-term is through this economic recovery that you there would be about 2% to 3% GDP growth from 2010 to 2014. As John mentioned you know this year its been less than 2% to 3% you know we are still delivering on our commitment. So part of my comment was that you know now looks in some of the economy and think they maybe more leaning towards 1.5% to 2.5% you know for next year 1.5% to 2.5%, 2% to 3% I think that makes a difference in our planning construct we think we still deliver results that we discussed today.

John Engel

Yeah. I mean David whether it’s one to two; two to three in that range I mean the seven or 11 is our current look right now for next year in terms of what are target is organic plus 2 points of acquisition.

Unidentified Analyst

Okay. Fair enough. Thank you. And second this is for Andrea, how fast you think in many of these areas you talked about the available market and then the growth rate in lighting it doesn’t necessarily saying here how fast do you think you can grow within that market; I am wondering if you can help us with that and then could you talk about the margins within that segment or margins on the LED product higher than traditional lighting which I assume are slightly lower margin?

Andrea Hogan

Well, I think we are in the very beginning stages of the strategy, so I probably can’t comment on how fast we think we can grow it. However, we want to stay pace or be WESCO’s growth expectations, so we are looking for double digit year-over-year growth in that sale. What I can say about the newer technology is that as we are able to move existing customers from the older technologies to newer technologies we are able to expand margins.

John Engle

And I think I will just talk about that Dave, solid state lining technologies at the early part the embryonic stage of the S curve and so right now with that said it always comes back to supply and demand, right. So what is the fundamental demand, the adoption rate is increasing dramatically. I think if you were to talk to any of the global lighting manufactures, whether it is Philips (inaudible) or GE I think what they would tell you is that the adoption of LED technology is much greater rate than what they had anticipated through this point.

We are sitting here in mid 2011 and not even with this challenging non-residential end market and so I think it is very interesting, but the bottom line is we are at the early part of the S curve, so absolutely margin opportunities and will be for some time to come. With that said there is lot of global investment and do not underestimate the impact what Andrea mentioned in her presentation when you started talking about Samsung and a lucky gold star. What will that do to the global competitive construct of lighting?

It creates more of the device manufacturer. I won't comment on whether they had a strategy to be a full lighting solution provider or not, but LG and Samsung are at a whole different level right so. So it’s attractive to us and lighting in general, lighting can be a very attractive margin business. If you are adding value and we are depending where you play in the value chain. In other words if we as a distributor supply chain player is performing some functionality of a lighting agent, we can garner very attractive margins.

If we are not, if the lighting agent is controlling the design in that project and they are going out end bids in a buy to eight distributors for that lighting project, our ability to garner margins are extremely challenged. And so I think again our strategy is with our technical application solution oriented selling resources and our demand creation to be involved in the different parts of the value chain. Where we do that regarding great margins I think overall portfolio wise its very attractive to us, right in terms of core, I mean it does not have the margin characteristics that wire and cable have fundamentally.

Unidentified Analyst

Given that it’s a pretty large product category, could you give us a little bit more detail on your new wiring cable growth platform from kind of a product standpoint, how much is data communications and broadband cable, how much is industrial and then where you see more of the growth opportunity there from a market standpoint.

John Engle

Steve, why don’t you take through kind of current composition strategy on that category?

Steve Van Oss

Yeah that category is roughly a $1 billion at this point in time and it includes all the enterprise data cabling component of that. It would include the high-powered medium voltage cable and that’s really one of the areas that we’re focused on and putting in specialty inventory and technical capability around that. Some of that you could use in in-sourcing, we’re taking some of the specialty wire manufacturers do and other distributors and bringing that into WESCO and it came in through one of our acquisition as well and we’re providing points of presence, physical inventory and new facilities as well as sales and marketing team around that to put that together to drive additional sales versus two strategy one, improving the profit margins and two, improving the sales growth rate of that.

I don’t have a good solid breakdown of what of that would be in that category results, so conduit, there is steel conduit in there, there is PVC conduit in there. There is fiber optic cable in there and there’s low voltage cable that goes with the security and the data communication devices. So we’ll do a better job of that going forward to pull that through, but we have brought that as a focus for the organization. It’s a big component of what we do and we see some very attractive growth characteristics of that.

Unidentified Analyst

You’ve done a great job emphasizing the benefit of the One WESCO selling proposition to your customers? And I’m wondering how are your competitors responding, have they attempted to implement something like that strategy bringing all of their respective business segments into a pitch or is it something that they’re still lagging behind you on doing?

Steve Van Oss

You know for such a large fragmented industry it’s relatively small and with respect to WESCO and because many of our competitors are in the say private independently held companies, we don’t necessarily have the advantage that they have where we have increased our transparency, giving more color about what we are investing and how we are investing, how we are running our business all that’s public.

So we have seen clearly over the years competitors trying to duplicate certain parts of our strategy. We see them doing something that is powerful and compelling. We will try to take pieces of that and refine it as well. I am not going to speak to whether any of them have that specific strategy or not. All that I will say is this again, I think that we have got a level of breadth and diversity to our portfolio and in terms of the end markets that we serve, that wider and broader than our competitor. So this strategy absolutely can be a winning combination for us. I am not going to speak to what their specific strategies are.

Unidentified Analyst

And one more question on your guidance and I appreciate you going as far out as 2014 on the sales line. One thing I wanted to ask is you have several end markets that are rather large for you. Yet you don’t see your sales growth rate accelerating and I am just wondering if they turn up and there is still such a big portion of your current sales, why you don’t see your top line growth rate accelerating in this 12 through 14 timeframe?

John Engle

We are outlining our general framework again. I think the forecast integrity for 2013 and 2014 is probably a little more challenging than it is for 2012. I think, look again our view again our fundamental premise or assumption is this is a protracted recovery period. And the question is going to be when does (inaudible) for us in our portfolio because I think we have been clear about industrial, we are clear about utility. We had some discussions about government and various institutions. The wild card is when there is non-residential construction truly bottom and then what’s the shape of the recovery.

So, what Richard advanced in his presentation was our view of when we think the bottoming process occurs for non-resi. And we’ve been very consistent with that. But again, what is the shape of that recovery and I think that will ultimately determine you know, to what degree do we get a tailwind and to the degree, we get a significant tailwind, that could represent upside to the framework we have laid out there. Historically, it would be residential recovery that would lead non-residential. That’s not happening and so we didn’t talk a lot about residential but I think most people’s view of that is that’s a long way off.

You know, we kind of had a head fake a year ago when residential grew 30-35% off a very, very low base, right? But it’s just got to flatten down and I think there is some structural challenges in the residential market. So it is going to take a long time to get through. So, I think, what we are talking about is kind of a different dynamic to this recovery because it’s not necessarily going to be residential lag for non-resi and that will have a huge impact I think on the shape of it. And also, when that occurs, again, this is our view right now. We will continue to provide updates to our view. We would love for non-residential to start to recover and for when it does, for it to be strong and to the extent it becomes a tailwind, great. Adam

Unidentified Analyst

Thanks. I had a couple of pricing question. Steve, when you were going through the margin initiatives, one of the headwinds that you have is the cost plus mentality that why do the sales folks have I am wondering if you can mention I mean how much of their volume today you would get to put through at the price cost strategy and then are there any additional software investments that are necessary to change that attitude and then along with that you also mentioned there is some comp plan changes for the sale guys, can you just you know walk through that a little bit more.

Steve Van Oss

Sure. I think you get about four questions there and we will try to get to that pretty clearly

Unidentified Analyst

It might be five.

Steve Van Oss

The cost plus component of that tends to be historically an industry a phenom where a lot of distributors price that way particularly sensitive around the commodities in that area it actually makes sense when you looking at copper and steel and precious metal and those things tend to have price each coming from manufacturers that come out you know daily, weekly, monthly for depending on the slope of the curve. So those that type of relationship will probably maintain in a lot of annual contracts that we do or contracts with large player will have commodity just you know those tend to get tagged some type of index who will never probably truly get totally away from cost price when we are dealing with cost plus when we are dealing those.

But there is a powerful tool and we’ve got the technology in place. It’s just rolling it out now I think headed on there was called dynamic order suspension that allows us to more rigorously police the list discount mentality while still giving the people that are on the phone with the customer the flexibility to take the order off the street and so essentially what that is using the pricing algorithms and some of the classes I talked about whether it is small, medium, low, large customer or a particular industry where we are setting the target of pricing and since that locking that down or moving to a list discount, this dynamic order suspension will allow some flexibility for the inside sales people or the outside sales person to price at a level down but would be locked down at a certain margin target where they will have to come back the pricing group to get them. So software is important, this is as much as a cultural change as anything else in that regard. So software is in place for that, it’s being rolled out as we speak in that regards.

Unidentified Analyst

And compensation

Steve Van Oss

And compensation we have got variable commission programs that have existed for some period of time depending on the type of customer, the support that is required. So it is a highly tactical sale and you get a tech support group behind that, the commission rate on that would be substantially different than another item that didn’t require and that is really just a sales relationship. We are looking as part of the pilot and changing comp, some of the structures of the compensation moving away from a fully commission basis, which one would think about on fully commission that would tend to drive higher margins, better reality 8% of a sale is better than a larger percentage of no sale.

So it tends to drive towards billing margin dollars versus percent, so as part of the pilot program we are looking at balancing a base component with a tighter band of commissioning and then looking at variable commissioning based on the gross margin percent rate. Having said all that we got to balance that with the fact that you do not want to discourage sales process from happening and that the volume does matter as you go through it. Io it is a blended balance if we very carefully watch out for what I would call unintended consequences because people do figure out compensation programs immediately and generally try to work that to the best of their advantage.

So we are not going to bet the [farm], we are not going to through a wholesale change in the organization. One of the beautiful things about our company is that we can as pilot quickly and with 400 branches, we essentially have best practices in virtually every aspect of our business that will exist in the quantity across the branches that we can take then and step and repeat throughout the organization.

John Engle

Yeah I mean I would say just to add on to that, we've continuously refined compensation structures over the years and so we are not foreshadowing a major change and we are never going to disclose the details on what we do there because I think on any thing because I think that's one where to the extent we've got a better system process, you know it’s not something we would ever want to fully disclose because I think we are absolutely a sales driven company and we are competing for the best sales talent. And we are trying to retain and develop the best and brightest sales talent and compensation is a critical part of that equation. It’s a small industry and so we would want to protect and defend any unique special recipe we have there. This should be one question out of five.

Unidentified Analyst

John, I believe I am right in saying in the great recession you let something like 1200 people and at some point you had added 60 back and excluding acquisitions, assuming no recession, what kind of growth do you need in employment to keep up with your growth target here?

John Engle

Richard why don't you answer that and first of all we've added more than 60 back. So I mean because we've added organically but then we've added acquisitions too so but.

Richard Heyse

One thing that was, I wanted to speak to (inaudible) and I have touched on my presentation actually, skipped over, was if you look where our current productivity levels are, as productivity per person in WESCO we are right now about 10% to 15% below our peak sustained productivity levels of last cycle. So we’re continuing as Steve noted in his presentation on our sales force we’re adding sales forces or incrementally adding resources, but we’re continuing our productivity per individual has also expanded.

So we’ve got about a 10 to 15% gap before we even hit the productivity of the last cycle and if you think about it, and those intervene in three, four, or five years, we’ve been driving LEAN, we’ve been investing our information systems, we’ve been improving our processes. So clearly our goal is to have productivity levels. This is on a real basis. So real sales, productivity, not nominal sales productivity. So our goal is to drive real sales productivity to a higher level in the last cycle. So if you look at our outlook and our forecast, we’re comfortable, we’ve got hedge-based through 2014 that continue to drive that tax cost leverage, but we will also be continuing to add personnel because for example if you add a branch, you got to add people.

You can't open a branch without new people. So as we continue to add branches et cetera, we’re going to be adding the right staff for that. Off the top of my head, I don’t know the actual number of headcount that we’ve added excluding acquisitions, but it’s been pretty significant. It’s in the hundreds, correct? Later two years?

Unidentified Analyst

And is that going to be 2% per annum or 3% per annum?

Richard Heyse

Again I think we’ve not converted it to a headcount target. Again, what we’ve laid out is our controlling algorithm as pull through, right. And that’s how we think about because we’re delivering, for every dollar gross margin growth, we want $0.50 should pulled through the operating process. And in that, to the extent we’re driving top line growth which translates in the gross margin dollar growth is significant. That allows us, we earned the right to invest in growth faster, right so that gives us the support for incremental investment. We can move at great speed either way. So that’s our framework. We have not converted into a x% per year.

I will tell you we are disproportionately and I think Steve addressed it, you may recall when Steve started to talk about sales, capability and capacity expansion he addressed that we are disproportionately targeting the direct sales, selling resources and sales management resources for where we add. Because I think that is support of our whole strategy.

John Engle

Okay. Off the cocktail, again thank you very much for taking time out of your busy schedule and spend a day with us. I trust and hope that you found it worthwhile.

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Source: WESCO International's 2011 Annual Investor Day - Event Transcript

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