The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and WESCO International, Inc.'s Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in its 2011 Annual Report on Form 10-K. The matters discussed herein may contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Certain of these risks are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as well as the Company's other reports filed with the Securities and Exchange Commission.

Company Overview
WESCO International, Inc., incorporated in 1993 and effectively formed in February 1994 upon acquiring a distribution business from Westinghouse Electric Corporation, is a leading North American based distributor of products and provider of advanced supply chain management and logistics services used primarily in industrial, construction, utility and commercial, institutional and government markets. We serve over 65,000 active customers globally through approximately 400 full-service branches and eight distribution centers located in the United States, Canada, and Mexico, with offices in 11 additional countries. Approximately 80% of our net sales for the first nine months of 2012 were generated from operations in the United States, 16% from Canada and the remainder from other countries.
We sell electrical, industrial, and communications maintenance, repair and operating ("MRO") and original equipment manufacturers ("OEM") products, construction materials, and advanced supply chain management and logistics services. Our primary product categories include general electrical and industrial supplies, wire, cable and conduit, data and broadband communications, power distribution equipment, lighting and lighting control systems, control and automation, and motors. We distribute over 1,000,000 products from more than 18,000 suppliers utilizing a highly automated, proprietary electronic procurement and inventory replenishment system. In addition, we offer a comprehensive portfolio of value-added services, which includes supply chain management, logistics and transportation procurement, warehousing and inventory management, as well as kitting, limited assembly of products and system installation. Our value-added capabilities, extensive geographic reach, experienced workforce and broad product and supply chain solutions have enabled us to grow our business and establish a leading position in North America. Our financial results for the first nine months of 2012 reflect the continued execution of our growth strategy and the positive impact from recent acquisitions. Net sales increased $398.7 million, or 8.8%, over the same period last year. Cost of goods sold as a percentage of net sales was 79.9% and 80.0% for the first nine months of 2012 and 2011, respectively. Operating income increased by $41.1 million, or 17.0%, primarily from organic growth of the base business and from recent acquisitions. Net income attributable to WESCO International, Inc. for the nine months ended September 30, 2012 and 2011 was $175.3 million and $141.4 million, respectively.

Cash Flow
We generated $189.7 million in operating cash flow for the first nine months of 2012. Included in this amount was increased income as a result of improved operating results offset by investments in working capital to fund our growth. Investing activities included payments of $201.1 million for the acquisitions of RS Electronics, Conney Safety Products, and Trydor Industries along with $19.5 million for capital expenditures. Financing activities consisted of borrowings and repayments of $413.2 million and $414.8 million, respectively, related to our revolving credit facility (the "Revolving Credit Facility"), and borrowings and repayments of $327.2 million and $275.0 million, respectively, related to our accounts receivable securitization facility (the "Receivables Facility").

Financing Availability
As of September 30, 2012, we had $476.4 million in total available borrowing capacity. The available borrowing capacity under our Revolving Credit Facility, which has a maturity date in August 2016, was $328.6 million, of which $200.3 million was available for U.S. borrowings and $128.3 million was available for Canadian borrowings. The available borrowing capacity under the Receivables Facility, which has a maturity date in August 2014, was $147.8 million. We monitor the depository institutions that hold our cash and cash equivalents on a regular basis, and we believe that we have placed our deposits with creditworthy financial institutions. For further discussion refer to "Liquidity and Capital Resources."

Critical Accounting Policies and Estimates During the nine months ended September 30, 2012, there were no significant changes to our critical accounting policies and estimates referenced in our 2011 Annual Report on Form 10-K.
Results of Operations
Third Quarter of 2012 versus Third Quarter of 2011 The following table sets forth the percentage relationship to net sales of certain items in our condensed consolidated statements of income for the periods presented:

                                                          Three Months Ended
                                                             September 30,
                                                           2012         2011
Net sales                                                 100.0 %       100.0 %
Cost of goods sold                                         79.5          80.0
Selling, general and administrative expenses               13.6          13.7
Depreciation and amortization                               0.7           0.5
   Income from operations                                   6.2           5.8
Interest expense                                            0.8           0.9
   Income before income taxes                               5.4           4.9
Provision for income taxes                                  1.6           1.5
   Net income attributable to WESCO International, Inc.     3.8 %         3.4 %

Net sales in the third quarter of 2012 totaled $1,656.2 million versus $1,580.4 million in the comparable period for 2011, an increase of $75.8 million, or 4.8%, over the same period last year. Sales were positively impacted by recent acquisitions and the execution of growth initiatives. The increase in net sales included a positive impact from acquisitions of 4.0%, a negative impact of 1.6% due to one less workday in the quarter, and a negative impact from foreign exchange of 0.6%. Additionally, management estimates the positive impact on net sales due to pricing was approximately 0.5%.

Cost of goods sold for the third quarter of 2012 was $1,317.4 million versus $1,264.7 million for the comparable period in 2011, and cost of goods sold as a percentage of net sales was 79.5% and 80.0% in 2012 and 2011, respectively. The decrease in the cost of goods sold percentage was primarily due to higher supplier volume rebate rates driven by the increase in sales and the positive margin impact from recent acquisitions.

Selling, general and administrative ("SG&A") expenses in the third quarter of 2012 totaled $225.8 million versus $216.2 million in last year's comparable quarter. The increase in SG&A is primarily due to the recent acquisitions and payroll expenses related to the growth in headcount. As a percentage of net sales, SG&A expenses were 13.6% in the third quarter of 2012 compared to 13.7% in the third quarter of 2011. SG&A expenses expanded at a lower rate than sales due to the fixed cost nature of certain SG&A expense components and the effective execution of cost containment initiatives.

SG&A payroll expenses for the third quarter of 2012 of $161.6 million increased by $10.8 million compared to the same quarter in 2011. The increase in payroll expenses was primarily due to an increase in salaries and wages of $10.2 million and an increase in benefit and incentive costs of $1.1 million, both related to the recent acquisitions and growth in headcount. Other SG&A payroll related expenses decreased $0.6 million.

The remaining SG&A expenses for the third quarter of 2012 of $64.2 million decreased by $1.2 million compared to the same quarter in 2011 due to the effective execution of cost containment initiatives.

Depreciation and amortization for the third quarter of 2012 was $9.9 million versus $7.7 million in last year's comparable quarter. The increase in depreciation and amortization is due to an increase in capital expenditures in 2011.

Interest expense totaled $12.7 million for the third quarter of 2012 versus $15.1 million in last year's comparable quarter, a decrease of 16.1%. The decrease in interest expense was primarily due to a decrease in non-cash interest expense of $2.2 million. Interest expense for the three months ended September 30, 2011 included the write-off of $1.8 million of deferred financing fees as the result of a new Revolving Credit Facility in the third quarter of 2011.

Income tax expense totaled $27.0 million in the third quarter of 2012 compared to $22.8 million in last year's comparable quarter, and the effective tax rate was 29.9% compared to 29.7% in the same quarter in 2011. The increase in the effective tax rate is primarily due to increased income related to our domestic operations as well as the impact of discrete items.
For the third quarter of 2012, net income increased by $9.5 million to $63.4 million compared to $53.9 million in the third quarter of 2011.
Net loss attributable to the noncontrolling interest was less than $0.1 million for the third quarter of 2012.
Net income and diluted earnings per share attributable to WESCO International, Inc. was $63.4 million and $1.25 per share, respectively, for the third quarter of 2012, compared with $53.9 million and $1.11 per share, respectively, for the third quarter of 2011.
Nine Months Ended September 30, 2012 versus Nine Months Ended September 30, 2011 The following table sets forth the percentage relationship to net sales of certain items in our condensed consolidated statements of income for the periods presented:

                                                          Nine Months Ended
                                                            September 30,
                                                           2012        2011
Net sales                                                 100.0 %     100.0 %
Cost of goods sold                                         79.9        80.0
Selling, general and administrative expenses               13.9        14.2
Depreciation and amortization                               0.5         0.5
   Income from operations                                   5.7         5.3
Interest expense                                            0.7         0.9
   Income before income taxes                               5.0         4.4
Provision for income taxes                                  1.5         1.3
   Net income attributable to WESCO International, Inc.     3.5 %       3.1 %

Net sales in the first nine months of 2012 totaled $4,934.9 million versus $4,536.2 million in the comparable period for 2011, an increase of $398.7 million, or 8.8%, over the same period last year. Sales were positively impacted by our growth initiatives and recent acquisitions. The increase in net sales included a positive impact from acquisitions of 2.9% and a negative impact of 0.5% from foreign exchange rates. Additionally, management estimates the positive impact on net sales due to pricing was approximately 1.0%.

Cost of goods sold for the first nine months of 2012 was $3,940.8 million versus $3,627.7 million for the comparable period in 2011, and cost of goods sold as a percentage of net sales was 79.9% in 2012 and 80.0% in 2011.

SG&A expenses in the first nine months of 2012 totaled $685.1 million versus $644.2 million in last year's comparable period. The increase in SG&A expenses was primarily due to payroll expenses related to the recent acquisitions and growth in headcount. As a percentage of net sales, SG&A expenses were 13.9% in the first nine months of 2012 compared to 14.2% in the first nine months of 2011. SG&A expenses increased at a lower rate than sales due to the fixed cost nature of certain SG&A expense components and the effective execution of cost containment initiatives.

SG&A payroll expenses for the first nine months of 2012 of $491.7 million increased by $39.9 million compared to the same period in 2011. The increase in payroll expenses was primarily due to an increase in salaries and wages of $29.0 million and benefit costs of $9.4 million, both due to the recent acquisitions and an increase in headcount. The increase in commissions and incentives of $4.7 million is related to the growth in sales and income along with the recent acquisitions. Other SG&A payroll related expenses decreased $3.2 million.

The remaining SG&A expenses for the first nine months of 2012 of $193.4 million increased by approximately $1.0 million compared to the same period in 2011 due to an increase in variable operating expenses associated with the growth in sales. Expenses expanded at a lower rate than sales due to the effective execution of cost containment initiatives.

Depreciation and amortization for the first nine months of 2012 was $26.4 million versus $22.9 million in last year's comparable period. The increase in depreciation and amortization is primarily due to the increase in capital expenditures in 2011.

Interest expense totaled $33.1 million for the first nine months of 2012 versus $41.7 million in last year's comparable period, a decrease of 20.5%. Non-cash interest expense, which includes convertible debt interest, interest related to uncertain tax positions, and the amortization of deferred financing fees, for the first nine months of 2012 and 2011 was $0.8 million and $7.2 million, respectively. Non-cash interest for the nine months ended September 30, 2012 included a favorable adjustment of $3.3 million of previously recorded interest related to uncertain tax positions. This adjustment was the result of a favorable Internal Revenue Service appeals settlement in the first quarter of 2012 related to years 2000 to 2006. Interest expense for the nine months ended September 30, 2011 included the write-off of $1.8 million of deferred financing fees as the result of a new Revolving Credit Facility in the third quarter of 2011. The decrease in cash interest expense for the first nine months of 2012 was the result of a decrease in interest rates due to entering into a new Revolving Credit Facility and amending the Receivables Facility in August 2011.

Income tax expense totaled $74.3 million in the first nine months of 2012 compared to $58.4 million in the first nine months of 2011, and the effective tax rate was 29.8% compared to 29.2% in the same period in 2011. The increase in the effective tax rate is primarily due to increased income related to our domestic operations as well as the impact of discrete items.

For the first nine months of 2012, net income increased by $33.9 million to $175.3 million compared to $141.4 million in the first nine months of 2011. Net loss attributable to the noncontrolling interest was less than $0.1 million for the first nine months of 2012.
Net income and diluted earnings per share attributable to WESCO International, Inc. was $175.3 million and $3.43 per share, respectively, for the first nine months of 2012, compared with $141.4 million and $2.84 per share, respectively, for the first nine months of 2011.
Liquidity and Capital Resources
Total assets were $3.4 billion at September 30, 2012, compared to $3.1 billion at December 31, 2011. The $341.5 million increase in total assets was primarily attributable to an increase in other assets of $173.1 million due to an increase in goodwill of $118.9 million and an increase in intangible assets of $47.7 million. The increase in total assets was also due to an increase in accounts receivable of $81.0 million and an increase in inventory of $35.8 million. Total liabilities at September 30, 2012 and December 31, 2011 were $1.9 billion and $1.7 billion, respectively. The $142.9 million increase in total liabilities was primarily a result of the increase in current and long-term debt of $72.5 million due to 2012 acquisitions and the increase in accounts payable of $50.4 million. Stockholders' equity increased by 14.8% to $1,544.5 million at September 30, 2012, compared with $1,345.9 million at December 31, 2011, primarily as a result of net earnings of $175.3 million, stock-based compensation expense of $11.7 million, and foreign currency translation adjustments of $14.3 million.
Our liquidity needs generally arise from fluctuations in our working capital requirements, capital expenditures, acquisitions and debt service obligations. As of September 30, 2012, we had $328.6 million in available borrowing capacity under our Revolving Credit Facility, which combined with our $147.8 million of available borrowing capacity under our Receivables Facility and our invested cash of $12.7 million provided liquidity of $489.1 million. Invested cash included in our determination of liquidity represents cash deposited in interest bearing accounts. Our intent is to repay our mortgage financing facility, which becomes due in early 2013, with borrowings under either the Revolving Credit Facility or the Receivables Facility. We believe cash provided by operations and financing activities will be adequate to cover our current operational and business needs.
We communicate on a regular basis with our lenders regarding our financial and working capital performance and liquidity position. We are in compliance with all covenants and restrictions contained in our debt agreements as of September 30, 2012.
At September 30, 2012, we had cash and cash equivalents totaling $107.6 million, of which $39.1 million was held by foreign subsidiaries. The cash held by some of our foreign subsidiaries could be subject to additional U.S. income taxes if repatriated. We believe that we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriation of the cash held by these foreign subsidiaries.
We did not note any conditions or events during the third quarter of 2012 requiring an interim evaluation of impairment of goodwill. We will perform our annual impairment testing of goodwill and indefinite-lived intangible assets during the fourth quarter of 2012.

Over the next several quarters, we expect to maintain working capital productivity, and it is expected that excess cash will be directed primarily at debt reduction and acquisitions. Our near term focus will be managing our working capital as we experience sales growth and maintaining ample liquidity and credit availability. We believe our balance sheet and ability to generate ample cash flow provides us with a durable business model and should allow us to fund expansion needs and growth initiatives. Cash Flow
Operating Activities. Cash provided by operating activities for the first nine months of 2012 totaled $189.7 million, compared with $71.8 million of cash generated for the first nine months of 2011. Cash provided by operating activities included net income of $175.3 million and adjustments to net income totaling $70.1 million. Other sources of cash in 2012 were generated from an increase in accounts payable of $38.5 million due to the increase in purchasing activity, a decrease in prepaid expenses and other current assets of $9.1 million, and an increase in other current and noncurrent liabilities of $6.4 million. Primary uses of cash in 2012 included: $64.0 million for the increase in trade and other receivables, resulting from the increase in sales; $15.4 million for the decrease in accrued payroll and benefit costs resulting from the payment of the 2011 management incentive compensation and 401(k) discretionary contribution; and $16.0 million for the increase in inventory. In the first nine months of 2011, primary sources of cash were net income of $141.4 million and adjustments to net income totaling $46.8 million. Other sources of cash included an increase in accounts payable of $110.6 million resulting from the increase in purchasing activity. Primary uses of cash in the first nine months of 2011 included: $154.7 million for the increase in trade and other receivables resulting from the increase in sales; $44.2 million for the increase in inventory; $24.4 million for the decrease in other current and noncurrent liabilities; and $2.7 million for the decrease in accrued payroll and benefit costs resulting from the payment of the 2010 management incentive compensation and 401(k) discretionary contribution; and a decrease in prepaid expenses and other current assets of $1.0 million.
Investing Activities. Net cash used by investing activities for the first nine months of 2012 was $220.5 million, compared with $32.0 million of net cash used during the first nine months of 2011. Included in 2012 were payments of $201.1 million related to the acquisition of RS Electronics, Conney Safety, and Trydor. Included in 2011 were payments of $8.2 million related to the acquisition of the business of RECO. Capital expenditures were $19.5 million and $24.0 million in the first nine months of 2012 and 2011, respectively.
Financing Activities. Net cash used by financing activities for the first nine months of 2012 and 2011 was $74.4 million and $5.2 million, respectively. During the first nine months of 2012, borrowings and repayments of long-term debt of $413.2 million and $414.8 million, respectively, were made to our Revolving Credit Facility. Borrowings and repayments of $327.2 million and $275.0 million respectively, were applied to our Receivables Facility, and there were repayments of $1.3 million to our mortgage financing facility. Financing activities in 2012 also included borrowings on our various international lines of credit of approximately $21.4 million. During the first nine months of 2011, borrowings and repayments of long-term debt of $323.5 million were made to our Revolving Credit Facility. Borrowings and repayments of $140.0 million were applied to our Receivables Facility, and there were repayments of $1.3 million to our mortgage financing facility.
Contractual Cash Obligations and Other Commercial Commitments There were no material changes in our contractual obligations and other commercial commitments that would require an update to the disclosure provided in our 2011 Annual Report on Form 10-K, other than the borrowings for acquisitions discussed in Note 3 of our Notes to these Condensed Consolidated Financial Statements. Management believes that cash generated from operations, together with amounts available under our Revolving Credit Facility and the Receivables Facility, will be sufficient to meet our working capital, capital expenditures and other cash requirements for the foreseeable future. However, there can be no assurances that this will continue to be the case. Inflation
The rate of inflation affects different commodities, the cost of products purchased, and ultimately the pricing of our different products and product classes to our customers. Our pricing related to inflation was approximately 1.0% of our sales revenue for the first nine months of 2012. Historically, price changes from suppliers have been consistent with inflation and have not had a material impact on the results of operations. Seasonality
Our operating results are not significantly affected by seasonal factors. Sales during the first and fourth quarters are generally 1 to 3% below the sales of the second and third quarters, due to a reduced level of activity during the winter months of November through February. Sales typically increase beginning in March, with slight fluctuations per month through October. During periods of economic expansion or contraction, our sales by quarter have varied significantly from this pattern.

Impact of Recently Issued Accounting Standards See Note 2 of our Notes to the Condensed Consolidated Financial Statements for information regarding the effect of new accounting pronouncements. Forward-Looking Statements
From time to time in this report and in other written reports and oral statements, references are made to expectations regarding our future performance. When used in this context, the words "anticipates," "plans," "believes," "estimates," "intends," "expects," "projects," "will" and similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words. Such statements including, but not limited to, our statements regarding business strategy, growth strategy, competitive strengths, productivity and profitability enhancement, competition, new product and service introductions and liquidity and capital resources are based on management's beliefs, as well as on assumptions made by and information currently available to, management, and involve various risks and uncertainties, some of which are beyond our control. Our actual results could differ materially from those expressed in any forward-looking statement made by us or on our behalf. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will in fact prove to be accurate. Certain of these risks are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as well as the Company's other reports filed with the Securities and Exchange Commission. We have undertaken no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.