WESCO International, Inc. (WCC) Q4 2007 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2007 WESCO International Earnings Conference Call. My name is Maria and I will be your audio coordinator for today. At this time, all participants are in a listen-only mode, and we will be facilitating a question-and-answer session towards the end of today's conference. [Operator Instructions]. At this time, I will now turn the presentation over to Mr. Daniel Brailer, Vice President, Treasurer Legal and Investor Relations. Please proceed.

Thank you Maria. Good morning ladies and gentlemen. Thank you for joining us for WESCO International's conference call to review the fourth quarter and full year 2007 financial results. This morning participating in the earnings conference call are Mr. Roy Haley, WESCO's Chairman and Chief Executive Officer; Mr. John Engel, Senior Vice President and Chief Operation Officer; and Mr. Steve Van Oss, WESCO's Senior Vice President and Chief Financial and Administrative Officer. Means to access this conference call via webcast was disclosed in the press release and was posted on our corporate website. Replays of the conference will be archived and available for seven days. In order to keep the conference call one hour in length and to accommodate the maximum number of investor and analyst questions, we would ask that each person irrespective of the time constraint and limit to one question. This conference call may include forward-looking statements and therefore actual results may differ materially from the expectations. For additional information on WESCO International, please refer to the company's annual report on Form 10-K for the fiscal year ended December 31st, 2006 including risk factors described there in as well as other reports filed with the SEC. The following presentation may also include the discussion of certain non-GAAP financial measures, information required by Regulation G with respect to such non-GAAP financial measures can be obtained via WESCO's website at www.wesco.com. I would now like to turn the conference call over to Roy Haley.

Good morning and thanks for joining us. In a few moments Steve will take us through the financial results for the quarter and then John will be commenting on results achieved in some of the major end market customer segments along with a summary of key initiatives that we have got planned for the coming year. Before that, I would like to take this opportunity to acknowledge the good overall performance of our management and staff and the excellent relationships that we have with customers and suppliers. We had our challenges in 2007 and we experienced some short falls in achieving our own expectations in several areas, but those short falls were largely offset by outstanding performance and new record results in other areas. And on balanced we have had excellent results in another quarter and another year of record financial performance. Looking ahead in 2008, we will have our work cut out for us, but we have good momentum in the key areas involving sales initiatives and operations productivity. I believe that our team is up to the challenge. And now let me turn it over to Steve Van Oss, Chief Financial Officer and then John Engel, our Chief Operating Officer.

Thanks Roy, good morning everyone. As evidenced to our earnings release, we posted company's best ever fourth quarter sales, gross profits, operating profits, net income and earnings per share results. Consolidated sales were up 8% over last year's fourth quarter. Organic sales were up approximately 3% in the face of challenging end markets. Consolidated earnings per share were $1.34 versus $1.10 in the fourth quarter of 2006. And include the favorable one-time impact of tax incentives for U.S. export sales a change foreign deferred taxes and the timing of realization of Canadian tax benefits. Earnings per share adjusted for these items was approximately $1.22, still a company best fourth quarter result. Operating margin performance was strong at 6.6% and when adjusted for last year's one time acquisitions related benefits represents company's best ever fourth quarter performance. Operating margins in last year's fourth quarter at 6.8% were a record for any fourth quarter and include approximately $10.7 million or 80 basis points of one-time acquisition related benefits. Strong net income drove free cash flow of $50 million, which facilitated the purchase of nearly 1.1 million shares of WESCO stock for approximately $44 million under our current $400 million shares repurchase authorization. Return on invested capital, which we define as reported all in net operating profit after tax in relation to our total unadjusted capital base at 15% including the 2006 investment in datacom business and the three acquisitions completed in the last half of 2007 reflect continued growth in earnings and high asset efficiency. The integration of our datacom acquisition continues to progress well and the combining of our businesses has produced very positive results with the $170 million of revenues during the fourth quarter. The success of the initiatives in multiple project teams working on operational integration and achievement of current and future year's benefits has produced results that have exceeded our original projection for market synergies in $0.35 to $0.40 of corporate EPS secretion for 2007. Consolidated gross margins at 20.3% were equal to this year's third quarter and on an adjusted basis equal to last year's fourth quarter despite a slightly negative sale mix. Consolidated reported operating profit pull through at 38% was good and moved closer to our targeted level of 50% despite low sales growth. Adjusted pull through was 70%. This favorable operating profit pull through was achieved primarily due to operating efficiencies and effective cost controls. Overall cost containment actions were infected at reducing our SG&A expense as a percent of sales on core operations, the historical best performance for the year and for any previous fourth quarter. Additionally our effective integration of acquisitions has produced superior operating efficiencies resulting in low levels of SG&A expense on a consolidated basis as well. We achieved strong fourth quarter free cash flow of $50 million and record full year cash flow of approximately $246 million. These strong results helped facilitate the purchase of 7.5 million or 15% of our total shares of our stock over the last 12 months for approximately $443 million while maintaining financial leverage at last quarter's level of 3.1 times. Our all in average of borrowing costs are low and at under 5% have improved over the last three years despite arising interest rate environment during most of that time period. With liquidity at over $118 million in strong free cash flow projected, we continue to have ample capacity to fund organic growth...purchase additional stock and make accretive acquisition while maintaining targeted levels of leverage. Last quarter we acquired two companies J-Mark and Monti Electric Supply. J-Mark serves the manufacturing housing end market and Monti serves the contractor market in the Gulf Coast region. Both operations are being integrated into our operating model and we continue to evaluate other opportunities and the expect the balance share repurchase and acquisitions in line with free cash flow and leverage target. Let's now focus on our fourth quarter top-line results. Total sales were up over 8% with sales from core operations, up almost 3% in line with our expectations for the quarter. We saw mid single digit sales growth in both October and November. December sales were down approximately 1% due to the timing of the Christmas and New Year holidays, we believe resulted in the loss of 1 work day or 5% of sales growth in December. Our backlog increase from last year-end and we are seeing January sales to-date growth in line with the momentum experienced in the fourth quarter. Sales to customers in the industrial and commercial construction end markets were up in the low to mid single digit range. We continue to see the negative impact of the residential construction market slow down on our utility business, which was down in the low single digit range for the quarter. Our datacom acquisition results were in line with expectations. Actions increased the capacity of our sales force continue to gain traction and an analysis of the economic data reflecting activity in our end markets coupled with strong execution by our field operations indicated environment inductive for sales growth over the next couple of quarters in line what we experience in the fourth quarter. Our construction backlog is up over a year in 2006 and end of the year with good momentum. This signals what we believe is sustainable demand for our construction end-markets for the next 2 or 3 quarters. At this time, John Engel, our Chief Operating Officer will provide additional commentary on our end markets and initiatives we are undertaking to strengthen our organic growth. John?

Thanks Steve. Good morning everyone. I am pleased to report that WESCO is delivering increased sales momentum in the fourth quarter. With 3% core sales growth marking our strongest quarter of the year. Our increased emphasis and focus on sales and marketing execution and capacity expansion initiative over the past several quarters is yielding positive results. We continue to operate at high level of sales and operational productivity and remain committed to improving our top-line sales performance. Now moving to commentary on our major end markets. First starting with construction; commercial industrial construction sales had positive momentum growing mid single digits versus the fourth quarter of 2006. Our backlog is strong entering 2008 and non-residential construction continues to present project opportunities across our major markets despite forecast over declining construction start this year. A significant issue facing both our customers and us going into the year remains the availability of qualified labor and support personnel, a dilemma we are addressing through the combination of WESCO resources, improvements in customer sourcing and material management processes and featured products that improves safety and enhance labor productivity. We are aggressively executing a broad set of construction growth initiatives targeting the construction end market and are making good progress. Number 1, we are strengthening our relationship with North America's largest engineering procurement construction companies or the EPCs and national contractors by providing a complete solution comprised of multiple product lines that is electrical datacom industrial and materials and project management services delivered through WESCO's national account service/supply model to customer locations anywhere around the world. Number two, we are adding personnel and increasing our sales coverage in attractive industry verticals such as energy, healthcare, education, and government and unique applications such as data centers that offer opportunities for sustained growth over the several years. Number three, we continue to augment our geographical service capabilities through additional sales resources new branches and bolt-on acquisition such as Monti Electric Supply, whose strong and established presence in the Mississippi Gulf Coast gives us the ability to more fully participate in the rebuilding of the region's residential commercial hospitality and gaming infrastructure. And finally number four, we are emphasizing senior executive sales programs to drive additional penetration at both new and existing customers, including local and regional contractors, who were traveling out of their home towns to work on projects in other markets, and who desire consistency of pricing, product, service, and account representation regardless of the location of their next project. Now moving to industrials; opportunities with multi-site industrial customers remain strong as they continue to out source portion to their supply chin needs. Sales to customers using our integrated supply services model show good strength, and we are up high single digits in the quarter. Sales to our national customer were up rough mid single digits in the quarter. Supported by our industry leading business model, which continues to demonstrate its effectiveness in our high customer renewal rates and in our consistent addition of new Fortune 500 customers wins. We ended 2007 with a significant number of national account contracts up for renewal. And I am pleased to report that we experienced 100% renewal rate last year. Bid activity levels remain high with a national account opportunity pipeline at an all time record. Our increased sales and marketing activities in the second half of 2007 are continuing into with a particular emphasis and focus being placed on what we refer to as highly concentrated customer sales tight-on [ph] event and joined call with our supplier business partners. And these are targeting our Fortune 1000 customer base. Number two, a series of new product launches traveling trade shows and direct mail campaigns targeting our customers and driving customer demand. Three we are launching a nationally sponsored workplace safety campaign in collaboration with the electrical safety foundation international. And fourth we are launching a new marketing campaign to match best-in-class products and services with our customer's interest in energy savings and sustainability requirements. And this is being supported by a recently introduced in an electrical industry first, Green Buyers Guide. Despite the recent drop in the ISM index in December and 0.6% fourth quarter GDP rate, feedback from our customers in industrial MRO markets continues to be generally positive consistent their high levels of capacity utilization and a continued growth in industrial production. Now shifting to utility; sales to our utility customers experienced a softening in the fourth quarter declining mid single digit versus last year. And this has been driven by impact associated with the continued end-market declines in residential construction. Sales to investor-owned utility were up low single digit offset by declines with public power customers and utility contracts. Feedback from customers and suppliers indicate that we have not lost market share for distribution, equipment and suppliers, the D of T&D. Despite the decline in sales in the expectation and demand is expected to remain soft in the first half of 08, the utility market remains very attractive with a very active with bid request and key alliance proposals for traditional distributor sales as well as new and emerging supply...integrated supply opportunities. Implementation of our integrated supply program was one of the largest utilities in the U.S. is progressing well and remains on track. WESCO's integrated supply and national accounts business models has excellent growth potential via application to other investor-owned utility and public power customers, who are looking to outsource portions of their supply chain while demanding consistent service levels across their many locations. We believe this customer trend of outsourcing of non-core functions will continue; and when coupled with the underlying need to strengthen to generation transmission and distribution network represent strong growth drivers for the utility market over the mid to long-term. We are confident that our share in this market is steady and we remain very well positioned to capitalize on the forecasted future increases in spending on maintenance expansion and automation of the nation's electric power grid infrastructure. Now shifting to datacom; CSC continued to perform consistent with expectations and delivered a solid quarter, capping an excellent first full year as part of the WESCO team. Long-term growth prospects remain attractive driven by four continuing trends. First, the growing demand for bandwidth in commercial, government and residential application including network infrastructure retrofits and upgrade to support customers as they migrate to higher capacity network architectures, 10 gigabit ethernet. Second, new commercial construction with an emphasis on data centers. Third, opportunities for growth in the physical and network security market. And fourth, the overall trend to convergence and that is the convergence of voice, data, security, and video. Our new market initiative targeting data center opportunities, which cuts across all industries and commercial enterprises in the financial, telecom, medical, education, government, and other data intensive high tech market segments is yielding positive results with some recent wins. Overall, our sales of marketing initiatives remain focused on combining our newly acquired datacom expertise in network infrastructure, data communication, audio, visual, and IP-based physical security product with WESCO's electrical and power capabilities, and extensive geographic footprint to provide a comprehensive solution for commercial construction projects. In summary, we are continuing our investment in sales and marketing and are on track to add over 200 personnel to our sales force over the next 1.5 years to 2 years. These sales and marketing initiatives and resources are focused on increasing our customer penetration in attractive vertical market as well as in local branch geographies that offer strong incremental growth opportunities. The market is large and fragmented and offers many opportunities for customer value creation. We remain focused on creating and taking advantage of sales opportunities while preparing for and staying ahead of any further economic softening through disciplined execution of our lean initiative and a relentless focus on improving efficiencies and effectiveness and delivering productivity. Lean remains our foundation for operational excellence; and now in year five of our continuous improvement journey, we continue to aggressively peruse the countless opportunities to improve and profitably grow our business. Now back to Steve.

Thanks John. Couple of quick comments on commodity pricing and the sale of our 60% interest in our LADD operation, and then we will look at the first quarter in the full year of 2008. Commodity prices primarily copper are relatively stable during the last two quarters of 2007, and we are generally comparable to the last half of 2006. Top-line revenue results are comparable for sales of products in this category both sequentially and quarter-over-quarter. Margins for this product set was steady sequentially and comparable to last year's fourth quarter. As previously communicated on January 1st of this year we sold a majority interest in our LADD operation to its primary supplier Deutsch's Industrial Products division. LADD had annual sales of approximately $100 million in 2007. Effective with this year's first quarter, we will no longer report the results in our financial statements as revenue, cost, operating profit et cetera. Our 40% interest in the new joint venture will be reported on an equity basis below the operating profit line. LADD operation is an excellent business and we believe that our partnership with Deutsche will further strengthen the operation. Let's now turn to 2008. Typically, our seasonality is such that first quarter has the least sales of the year, second and third quarters are similar and the strongest and the fourth quarter is down sequentially from the third quarter, but higher than the first quarter. Economic data pertinent to our end markets continues to be mixed. The current weakness in the credit market and softness in residential construction market have the potential to weaken future end market activity levels. At this time, the consensus view is overall market activity levels will be somewhat slower to what we saw in the fourth quarter of last year, but we believe that our sales and marketing initiatives and our strong market position will enable our company perform well throughout 2008. For the first quarter, we expect to see sales growth rates quarter-over-quarter in the low single digit range after adjusting for the LADD joint venture accounting similar to what we saw last quarter. LADD sales were approximately $27 million in the first quarter of 2007. Therefore we expect to see sales in a range of $1.47 billion to $1.48 billion for the first quarter. Gross margin percentage should be maintained sequentially; and operating margins should be in line with last year's first quarter. Depreciation and amortization should be in the range of $7.5 million to $8 million. Our tax planning activities have been very effective. But at the present time, we anticipate the 2008 tax rate will be around 34%. Working capital productivity should improve several days and free cash flow over the next several quarters will be directed at debt reductions and WESCO's share purchases. Based on share repurchases to-date, share account for the first quarter of 2008 is anticipated to be approximately 44.5 million shares. Our view for 2008 calls for more aggressive actions on the sales front and will require us to continue to capitalize on sales opportunities to meet our growth objectives. We are confident in our ability to execute in the tougher environment and expect to grow our core business in the low to mid single digit range for the year even given a more difficult environment in 2007. We believe that we will receive success in our sales in the non-residential, commercial, industrial, and infrastructure construction projects; and that we are well positioned to participate in the forecasted increased spending on the nation's electrical grid. At this point, Maria, we will open up the call for a question-and-answer session. Maria? Question And Answer

[Operator Instructions]. The first question comes from the line of Matt Duncan with Stephens. Please proceed.

Good morning guys, and congrats on nice progress in the quarter.

Thank you.

My questions really are two things; first on SG&A, you guys have done a very nice job on that line. I am curious if you had any more foreign exchange benefits this quarter as you have the last few quarters. And then if you could talk a little bit about kind of what your...what portion of that line is really discretionary and how you are kind of managing those cost? And then my last question then is on the acquisition landscape with kind of an uncertain economic outlook. Are you seeing the willingness of your targets to sell kind of maybe go up and multiples come down? Thanks.

Okay. This is Steve; on the SG&A front, there was nothing unusual in the fourth quarter, there was no FX gain in there. We have been managing the inter-company debt between Canada and U.S. at the low level to take that out of your equation. So that was not in there. We had a very good cost controls, tight controls in there. We expect that general level to be maintained going forward. I would comment though on the fourth quarters SG&A. In that we are a and have a pay for performance culture in the organization. We have very significant amount of compensation that's tied to both relative and absolute performance absolute related to previous year and relative to the budgets that we have put together. In 2007, we had pretty aggressive budgets. As Roy mentioned, we had a great year, but it did not live up totally to our expectations. So when we look at incentive compensations, there will be somewhat what down from where it was last year, so you've seen some of that effect into the fourth quarter. Rolling forward to the first quarter as the percentage sales, our SG&A generally has a pretty significant jump for two reasons; one, the first quarter is generally the smallest in terms of absolute sales of the quarter, and two in that the bulk of our cost and this will address one of your other questions on discretionary relates to pay roll and benefits. We see that the costs go up in the first quarter due primarily to higher payroll taxes related to people that got over the limits in the previous year, restarts in the first quarter. And then on a compensation incentive...compensation, we would have aggressive plans again. But coming out of quarter, we expect to be on top of those plans, so you could see a little bit heavier approval on our compensation. So there is nothing unique about the fourth quarter. I think we did...organization did a excellent job in controlling the cost. And we have demonstrated that throughout the year. On the acquisition front, there is generally kind of a lead lag in people's mind on evaluation. I will tell you that it's coming down somewhat at this point in time, but probably not yet quite fully in line with the economic activity.

Okay, I appreciate. Thanks guys.

Your next question comes from the line of Deane Dray with Goldman Sachs. Please proceed

Thank you, good morning. Steve I'd like to hear you expand on your point looking ahead in 2008 regarding commercial construction just more part of regarding the backlog and the expectation, the market seems to be pricing and a fall off in commercial construction in the back end of the year, and how do you think you are positioned for that vis-à-vis your P&L goals 08?

Dean, this is John, good morning. I think caught all that question. The last part was breaking up a bit. So let me try to address it; and if I miss anything, just holler back, please. Well, first of all, we...despite the forecast of a 2% decline in construction start there we entered as we move through 08 and that's what the forecast looks like. We actually saw a solid performance in the fourth quarter. Our construction performance and sales our construction customers build momentum through...across the fourth quarter. So we exited the year feeling good as we entered 2008. Our construction backlog was up. It was up over prior year, it was up over to prior quarter sequentially. So we really entered a year feeling good about construction and prospect of future booking associated with commercial and industrial projects. I think we are seeing some good execution as a result of the broad set of initiatives that we launched. And I highlighted those earlier, our additional resources that we have added particularly are focus on EPC and national contractors, where we are seeing their needs being more ...better suited to our national accounts service and supply model. It is really paying us a nice dividend for us. We had three new and very expanded agreements in the latter part of 2007, with large national contractors and we are expanding our relationships with a number of the major EPCs. And I think that we've all seen these EPC companies engineering procurement construction companies are running, still running all time record backlogs as they enter 08. And there is a long tail to that business. So, I think that it will those backlogs run out for a 24 months plus timeframewith those major EPCs, and that bodes well for us. And we are beginning to see as well good traction from the integration efforts with communications supplies. So we are approaching each and every one of these construction project opportunities with a let's sell the complete portfolio of WESCO products and services. And so it's electrical plus datacom products with the full suite of electrical and wrap that in...wrap that around that our national service and supply model. So we understand the environment is going to tougher in 2008. But based upon our activities, our initiatives and the execution in the fourth quarter and our backlog entering early 08, we are encouraged by our start. One other comment I will make, it's early in the quarter and early in the month, but January is off to a start that's consistent with the fourth quarter relative with the construction. So again that's another data point that supports our encouraging view.

That's really helpful. What about...last quarter you talked about the recent initiatives around new branches. Were there any new branch activities in the fourth quarter that would have boosted organic revenue growth or is it really a same-store basis apples-to-apples?

Yes, it's effectively same store basis in the fourth quarter. We have opened a number of new location in 2007. And the revenue contribution in the first several months is not significant, but we do expect that they will begin to contribute as we move through 2008. We have mentioned a few of these locations I think in the past. Let me just highlight a couple, we open up an operation in the Grand Junction, Colorado focused on the oil shale. And that was in support of some...two of our national account customers. And that should pay huge dividends for us in the coming years. So it's a U.S. equivalent of Western Canada tar sands. We opened up a new branch in LaGrange, Georgia focused on a new Kia plant will have opened up in the fourth quarter and operation in Las Vegas for our datacom...CSC datacom business and that...they are basically it's within the branch concept, which is part of our integration plan, where data...where CSC did not have a presence in Las Vegas. Obviously a large datacom market, so they are opening up effectively a branch with a leader in applications specials inside of WESCO, and not occurred in the fourth quarter. And then one other one I will highlight is Reno, Nevada, where we have opened up a new operation. Again, no material sales in 2007 are just starting here in first part of 08. And that's another interesting concept we are opening a branch inside our DC in Reno, which is a model that we have used in Canada very effectively. So to answer your question, no material contribution yet in 07, but we expect that to begin to kicking in 08.

If I could just last question on the tax rate, it does seem like a surprise that you are going to be...it will be moving up as high as 34%, how set at this stage should we expect? Is that going to be an immediate step up in the first quarter? Is it gradually increasing to 34% and what's driving that?

Dean, this is Steve. When we look at the effective tax rate, we continually try to do that on full year basis. So we'll come out of the quarter above of all that. The drivers are that...two things, one in 2007 we had fairly significant amount of tax initiatives that were launched previously that we saw to come to fruition throughout the year. That was one-time in nature that affected permanently both the effective tax rate for the period of time. And most importantly brought free cash flow into the company. So those go away if you have adjusted for that in 2007, our overall rate would have been closer to 32%. And as we go forward and continue to grow the profitability, the company to tax initiatives, we have in place that give us the lower rate and the statutory tend to be discreet in nature and have a fixed dollar amount. So as our overall profitability grows, the dollars are still there, but the impact on a percent basis are slightly less.

Okay, thank you.

Your next question comes from the line of Adam Uhlman with Cleveland Research. Please proceed

Hi good morning.

Good morning.

Steve, I was wondering if you could talk about your experience with bad debt and receivables for the quarter.

Pretty much inline with what we saw throughout the year. We have done a nice job of managing that. Overall for the full year slightly higher than what we saw in 2006. We are very cognizant of the environment and are staying on top of all the activities. The concern area would generally be in the construction area with contractors that have been hit by some of this down turn. For the most part on any large project, we have the...we have lean rights on there. There is bid bonds by the contractor. So generally comes into the category of when you get paid, not if you get paid. No significant change in AR as far as performance, but I would tell you that our activity levels heightened in that regard. We also late 06 and beat up in 2007, a contract administration department that is really focuses on terms and conditions, and we are trying to kind of bridge through from the customer through WESCO to our suppliers to make sure that we have got the appropriate projects for the employee. So financial results are not significantly different, the attention level in the organization turned up several notches.

Good to hear. And then John, just a clarification here; you had mentioned that you had a significant number of national account renewals that are coming up here in 2008. Can you quantify how much of your revenue was coming under renegotiation this year?

Yes, what I said Adam was...I am glad you raised the question, because maybe it was...maybe I wasn't clear with the comment I made. We actually had a record level of renewals coming up as we entered 2007. And we had 100% renewal rate in 2007. We always have renewals that occur every year typically our national account contracts run anywhere... they are typically three years in duration, but they can anywhere from two years to five years if you were to look at our across our complete account base. And so that gives you sense, but the again the comment I made with respect to 07, we had a record number in front of us. The team did a terrific job in executing through those and basically entering 2008 it's fraction of the number of renewals that we have ion front of us. In fact...and just to quantify, it's less well under $100 million of annual revenue.

Okay, great. Thanks.

And which is up for renewal in 08, which is a fraction of...the 2007 number was twice that.

Great, thank you.

Your next question comes from the line of Curtis Woodworth with JP Morgan. Please proceed.

Yes, hi good morning. Looking at your guidance for 08, top-line load of mid single-digit and kind of thinking about, where your SG&A structure is right now, and how the pull through is looking. And Steve, you commented in the past that typically in downturns or upturns, you don't see much vacillations in the gross margin line. It seems that it will be very unlikely scenario given your top-line guidance and where your SG&A is right now that operating margins will go down in 08. Is that a fair characterization?

That would be from how we see it right now, yes.

So the thing that would change that, likelihood would essentially be...if the top-line falls automatically in the back half of the year.

What we are seeing, I mean...you think about it, we have got a top-line growth that's kind of right on above where it takes to maintain the leverage on our cost structure and maintain that percentage and this is kind of the slow mid single-digit range. We obviously like to see a higher than that we have done a great job over the last year and half and a slower growth environment of keeping the cost under control and we expect continue to do doing that forward. And we feel confident that we have got enough initiatives attraction that will maintain or hopefully overtime continue to expand our gross margin lines. So we feel pretty confidence given what we see today that we would maintain profitability and ideally continue to expand the operating margin.

Okay. And then in terms of the revenue outlook, I assume that's obviously your base case view. I would assume it will be more conservative getting a lot of the macro data that's out there that's pretty bearish. What could be an upside scenario what could potentially go right everyone is looking at what could go wrong, but...would it be market share gains or construction hold them better. They could potentially get you to a high single digit revenue growth

Well, we talked about adding capacity to our sales force and John mentioned that I am sure he'll have some additional color to put on to that. And I think what you look at the aggressiveness that the financial markets are taking, the reserve stake into bring rates down to extent of that is affective with the 125 basis points here over the last several weeks to the extent that that is effective of blunting the residential slow down in some of concerns that could certainly lead to a much stronger second half and what people are forecasting right now. So...and we are encouraged. On the industrial side, industrial business looks pretty good. The ISM data was down. You look at capacity utilization, you look at industrial production growth, it's still there and that's a very meaningful segment of our business, so that's the plus side.

Yes, the only thing I would add is, here is how we view it. The market is very large, it's fragmented. There is many, many, many opportunities for growth. And if particularly given our position in the market. So when you begin to ask the question about what is the upside, the upside really is our ability to get quick return on all our initiatives I would sum it up with the word execution, okay? And that really would...that word was the theme that our three day leadership meeting last week that we held. We had the top-100 leaders in the company. We kicked off the year, we do this every year. That was though one word, the theme of the meeting, which said basically, we have got an opportunity to control our destiny whether GDP is a 0.5 point, 1.0, 3.5 point or 4.0, the market is large, it's fragmented. We got all these initiatives and our ability to execute will determine our ability to just to drive superior results.

Great. Thank you very much and good luck.

Thanks Curt.

Your next question comes from the line of Sam Darkatsh with Raymond James. Please proceed.

Good morning guys. Two really quick questions. First off a clarification question. Steve the incentive comp accrual, the reversal in the accrual in the fourth quarter; can you quantify that for me if you could?

That was...no reversal on that. This is something we watch all year long, and it would start out the year obviously on...kind of on planned target, which were generally fairly aggressive and so there is all accruals at that point in time. And we adjusted throughout the yea. We have a very sophisticated process looking to all the locations, where they are at, where the forecast is, and challenging whether that's accurate or not so. There were adjustments throughout the year. And from a planned perspective, fourth quarter was kind of the final truing up of that. So it wasn't significant, but as probably $1 million, $1.5 million that type of a range.

Okay, thank you. The second question, I don't know if this goes to Roy or John, but if you take a look at the...at your order book and particularly the long lead time orders over the next 6 to 12 months. Is it about the same as where it was this time last year or better, worst I mean? I respect the fact you said it over the next two or three quarters, you feel that you have sustainable demand, but I am just trying to sense of whether you are starting to see on the cost for the longer lead time backlog that the things are beginning to slow down a little bit.

Excellent question. No, we have not seen that yet. We have not really been impacted by project cancellations, project slip out. Our backlog this entering 2008 is higher than it was entering 2007, and I think Steve made the comment the quality of our backlog is better. And what do we mean by that when we just look at kind of the distribution of it. So we feel a good again given our fourth quarter performance and our current state as we enter 2008, and so far the initial results out of the gate in January, which are consistent with the fourth quarter and again we have not seen that slippage to the right.

Thank you very much.

Your next question comes from the line of David Manthey with Robert W. Baird. Please proceed. David Manthey - Robert W. Baird & Co.: Hi good morning. Thanks.

Good morning David Manthey - Robert W. Baird & Co.: You say you are on track to add these 200 people over the next 18 to 24 months. Could you talk about the number of people...sales people you have added both in the third quarter and in the fourth quarter, just to give us an idea of how that is tracking?

Yes, we have added several dozen. So more than two, less than five...less than four. So we have added in that range, and we are off to a good start. And these are net additions. So we have a turn over rate that we deal with traditionally. Anyway...but these are true net additions to the sales force and they are targeting our growth initiatives in market verticals and certain geographies, where we see attractive growth. And that's new for us. I mean if you look at our performance over the last four plus year period, we were essentially holding flat headcount, and we were not expanding our sales force. And that's why we made this...we made this comment in the middle of last year and said that we are embarking upon this path and really the opportunity we saw in front of us was to kind of increase our number of initiatives and our sales force coverage. On these opportunities that represents strong incremental growth for us, versus our current position. So we feel good about it. Again we frame this up over 1.5 to 2 years period, and you got a sense of how SG&A performed even given that net sales personal addition. David Manthey - Robert W. Baird & Co.: Okay. And when I do the math, it would come out to be something like 25 to 30 people per quarter and you are saying several dozen it sounds like it's even more than that front end loading this?

We are on track. When I say several dozen, it's 3 plus dozen over...since we started, which was really...we announced it in our second quarter earnings release last year, but it takes some time to get traction on these initiatives with. And so all intense intensive purposes that's the result of fourth quarter and a little bit of the third. And I wouldn't look at it as necessarily a linear function, that's the first point. The second point is we are monitoring the end markets and the economy. And we are going to be very careful that we need to travel this a bit to keep SG&A under control, we will. So we are on track and we feel very good Dave about the start. David Manthey - Robert W. Baird & Co.: Okay. And then John you have talked about the backlog being up over the beginning of the year or year-end 06. Could you talk about the percentage? I think last quarter you said that backlog was up 2% to 3% still in that type ballpark or where is backlog year-over-year?

We exited year, backlog is up 5%. David Manthey - Robert W. Baird & Co.: 5%:

At the end of 07 versus the end of 06. David Manthey - Robert W. Baird & Co.: Okay. Great, thank you very much.

Yes.

Your next question comes from the line John Baliotti with FTN Midwest Securities. Please proceed.

Good morning. Maybe this is a combination question for Steve and John. But I was just curious, it sound like based on your last comments that you have some discretion over the pace of the initiatives in terms of hirings and so. I was wondering is there any color you can give us in terms of underlying what you think ex, the initiatives ex recent deal that you...how the profitability looked in the quarter?

Could you repeat that question? I got...I missed the part of it.

Sure I mean underlying in the quarter, do you have a sense of what you are the core margin of the company whether it's gross profit or overall operating margin ex, the initiatives you are working on that are going to have more of a longer-term benefit.

I don't really think you can really dive into it that way. We have numerous initiatives the spearheaded our lean process that attack a wide ray of activities from working capital performance to margin expansions to sales productivity to warehouse productivity that I put this in a colloquialism...the death of 1000 cuts with improvement of 1000 cuts type. But we don't look at that way. We don't have and traditionally have not done huge step out initiatives, where we wouldn't have a major investment and say our results about this major investments were X, Y or Z. The closest thing that comes to that is what John talked about earlier on the sales force expansion. But even with that we tried to balance that on a net basis that we don't have a big impact on the company. We continue to get more efficient lean and take out some cost and administrative area to kind help fund some of that growth on an overall basis. So I really can't give you a good answer on that John.

Okay. In terms of then...maybe another way to look at it going forward is do you have a feel or a goal in terms of the period that you expect us to sort of start to reap the benefits or get the tailwind from. Is it more like a year benefit or two year, or is it just sort of a layering affects to your other initiatives are going to kind of come in as these are paying back?

John, the way we look at it is very long-term. Basically what this involves is building in a pattern of continuous improvements in sales productivity that is the productivity of everyone that's already in the organization and simultaneously layering in on that a perpetual program of bringing more into the organization. So if you look at it in that context that we are going to continue to be working on this type of activity over a long period of time. Now sometimes occasionally you will see greater results coming out of the improvements in productivity based on initiatives that we've got. Other times, it's going to be more because we have greater capacity and we are going after additional markets, our market segments. I look at it as a long-term issue now. Having said that, we have high expectations of getting our sales personnel up to an average performance level within 18 months or so. And so we recognized that in the initial six to nine months, they are going to be underperforming. We will in fact have some in affect net cost associated with that. However after that point in time, we expect that we will begin to see them in effect, producing at rates that cover all the costs and then start making contribution. So the way we have to look at this is not on a short-term basis, but really a long-term building it into our capability, our average cost structure. And we've had a lot of experience with this. Because when you develop training programs and you bring lots of people and do a lot of that kind of training, you have to be able to absorb those kinds of costs into your structuring organization. We have done that with [Technical Difficulty]. Can you just walk me through the other volatility or seasonality in the D&A number? It bounced around a lot.

Well, it's bounced around a lot and if you go back, the balancing as you go started early in 2005 when we began acquisitions after a period or two of not being in there. So you had to roll on of two acquisitions small and medium size fairly large one at the end performance of 05 that moved around and then in 06, we had very large acquisitions with CSC. And then a couple of smaller acquisitions three this year. The delta going from the fourth quarter into the first quarter really relates to primarily the drop in that relates to the way we will account for our investment in the land operation into an equity basis verses fully on our balance sheet of P&L, next to delta. Once we get passed that, the acquisitions that we did in 07 relatively small, and you should see that borrowing future acquisitions will be relatively stable.

Great, thank you.

Maria, we will take one more question, please.

All right. Your last question comes from the line of Chrisopher Glynn with Ophenhimer. Please proceed. Chrisopher D Glynn - Oppenheimer & Co., Inc.: Thanks for squeezing me in. Guidance, if I heard it correctly kind of interesting twist when I think low single stop line in the first quarter and low to midst for the year, but that's against another comment, but kind of better visibility for two to three quarters out. Could you just explain that discrepancy a little bit?

There really shouldn't be much of a discrepancy. We are kind of talking about first quarter being inline with what we saw in the fourth quarter, which was about 3% growth on an organic basis and we are seeing low to mid, so read that 3%, 4%, 5% for the year. We talked fair amount today already on the initiatives. We have got John cover the host of initiatives in the industrial and the commercial markets and data communications, that combined with continued expansion of our sales, which we believe will help drive that up in face of what kind of the consensus of the prognosticators and the economists saying that the 2008 is going to be a tougher year, so we kind of got a blend in the balance between better execution and more capacity into a tougher economic environment. Chrisopher D Glynn - Oppenheimer & Co., Inc.: Okay, and then that overall guidance of course that's after taking LADD out, correct?

Yes. Chrisopher D Glynn - Oppenheimer & Co., Inc.: Okay. And just finally, do you know what price was roughly in the quarter?

Not much. We sell such a wide range of products, it's a little bit of an art at best. And in the past the big drivers have been commodities and we are seeing that been relatively stable.

Okay. Maria, I will yield my time at any summary. So why don't we take another question or two and we will round it out after that.

All right. Your next question comes from the line of William Nobler with Atlanta Partners [ph]. Please proceed.

Thanks very much for squeezing me in. You mentioned the three tax items and one was for U.S. export...for, U.S. export sales and other was for foreign differed taxes and the third Canadian. WESCO doesn't really have a large international business. So I was kind of intrigued and surprised that the foreign area or international area had so much of an impact. Can you expand on that, a color on how of your business now is overseas and why this would have been a plus factor?

The business level, you are right, overseas is not...is very meaningful, but not significant as it relates to our WESCO businesses. These particular tax initiatives relate to multi year, type of studies we did on primarily on the export sales and recapture in that regards and then there were some tax law changes in another country that is always the one-time re-balancing of the differed taxes. So it's multi-year impact on an area that's not that large with...that had one-time favorable impact. And the Canadian piece, we do have a very significant operation. Canada, we have talked about this in the past, and this was just a time to kind of a full year timing adjustment that caught a little bit extra in the fourth quarter.

Okay. And also I gathered you bought 1.1 million shares after the second authorization for $44 million; was that the number?

Correct.

So I would assume that subject to everything changing or variabilities whatever in the credit environment and your cash flow 1 million share...or 1 million share buyback per year would not be inconsistent with your plans and thoughts?

You said 1 million share per year.

Per quarter

They are not per quarter, but we are looking at a measured process throughout 2000, and we have got the capacity. We obviously...we believe that the current levels of the stock is extremely under valued from what we believe that the organization has delivered and will deliver. So we would intend to kind of balance free cash flow and share repurchases and looking at accretive acquisitions at the same time. But that's a reasonable assumption.

Right, congratulations on a excellent call and an excellent fourth quarter.

Thank you.

Okay last call, our last question rather.

Your last question comes from the line of Brent Rakers with Morgan Keegan. Please proceed.

Good morning, just though a follow-up little bit more on the...you have talked a lot about the sales force additions; I think John you talked primarily about it. But one of you also addresses where the overall headcount is going. I know you have talked in the past in about adding headcount, but maybe subtracting other personnel so maybe the net addition of zero; is that still the plan?

Yes, Brent, it's Steve. We were successful like when we started our movement in adding the sales force actually in the third quarter. We were net-net down slightly the fourth quarter on a net basis. We made good progress on the sales and we were up slightly. So if you look at 04, 05, and 06, we have had a tremendous productivity increase, and headcount was relatively flat. So we are going to continue to try to balance that. We will see some modest headcount increases they could balance around a little bit in the quarter, but we are not looking at any dramatic changes.

And then Steve, just one other follow-up question. I think you had commented on the incentive comp issue in the quarter. I think the last two quarters if I am not incorrect. You averaged it to drop off about $5 million to $6 million year-over-year. Are you saying that this was $1 million to $1.5 million in addition to that or that was the total down year-over-year in the quarter?

When you look at some of the drops in the second and third quarter, which you might be relating, we had some pretty nice side foreign exchange benefits that showed up in SG&A would have been probably the lion's share on kind of quarter-over-quarter drop.

And then last question...

If you look at our overall...our absolute incentive compensation for example, 07 is not going to be dramatically different than 06, and then we have a larger organization still had record performance. It's just not running at the rates that we would see if we were way, way over our plan. But some of that timing was a little heavier in the first half than in the second half.

And then just the last question, do you...Steve, do you have the number handy as to what the core salaries and variable commission were up year-over-year?

No, I do not.

Okay, great. Thanks a lot.

Okay, thanks to all of you for your participation. And we look forward to hearing from you; I know we will over the next several days. So have a good day, and we will talk to you soon.

Thank you for your participation in today's conference. Ladies and gentlemen, all parties may now disconnect. Enjoy your day.