Improved financial performance was the result of disciplined operational execution by thousands of WESCO employees in all areas of the Company. Major initiatives in sales and service activities brought expanded product offerings and new customer relationships. This new business was instrumental in offsetting general market declines in many industrial segments, utility markets, and large construction projects. WESCO’s leading position in integrated supply and national accounts marketing programs was enhanced by increasing sales to new and existing customers, producing further market share gains. The value and effectiveness of our sales and service programs are continuously being reconfirmed by additions to our high-quality customer base.

Systems improvements and refinements in contract administration, pricing, and procurement contributed to gross profit gains, notwithstanding the highly competitive sales environment, an increasing number of reverse auctions, and the renewal of major agreements with existing customers. The full-year gross margin rate of 18.6% was a record for the Company, and further gains are expected as a result of continuous improvement activities.

Productivity Improvement Initiatives
Last year, we reported that we were exploring the potential for applying productivity improvement concepts similar to those employed by leading industrial firms. During the second half of 2003, we launched a series of major productivity initiatives utilizing concepts and techniques drawn from LEAN manufacturing methodologies and adapted to a sales, service, and logistics environment. Our approach to LEAN was developed and piloted in one branch, then refined and extended to full implementation in approximately 100 branches. More than 1,500 employees have now participated in various aspects of nearly 500 LEAN improvement events. As a result of this effort, WESCO has established a broad-based continuous improvement program that will help drive gains in service levels and operational productivity for years to come.

Our initial focus for LEAN implementation was branch operations, where we concentrated on warehousing, purchasing, inventory control, back office administrative functions, and sales. We have identified more than $10 million in profit improvement and working capital opportunities in the first 100 branches participating in this program. In addition to cost savings, we are significantly improving order service levels, and reducing both cycle times and the incidence of processing delays. We have launched the largest training initiative ever attempted by the Company for branch sales and administrative personnel with an emphasis on streamlining and increasing the efficiency of order handling, and reducing the frequency of special processing, errors, and rework. WESCO’s LEAN initiative has also provided a highly effective mechanism for training warehousing personnel, achieving workflow efficiencies and space reduction, and upgrading delivery and service quality.

As a result of our initial LEAN projects, we expect to realize significant benefits in 2004 and extend the program to another group of 100 or more branches. We have also begun to implement LEAN improvement initiatives in major administrative departments that support branch operations. In addition, we have found that major customers and suppliers are quite interested in working on joint LEAN initiatives that can increase both the size and operational effectiveness of our business relationships.

Sales and Marketing Emphasis
In 2003, WESCO also enhanced its sales and marketing programs and related support activities. An ongoing program of traveling product trade shows is helping to strengthen WESCO’s position as a primary source for customer information on new products and innovative applications and product solutions. During the past year, we completed two different trade show efforts targeting energy management and safety solutions, and launched a new program featuring tools, testers, and instrumentation. To date, we have completed 87 shows featuring products and solutions from 45 suppliers and drawing customer attendance and participation of nearly 6,000. These programs provide significant sales benefits through increased hands-on product-related training, higher levels of supplier participation and technical assistance, and stronger overall customer and supplier relationships.

We also made strides in utilizing advanced information systems technology to drive sales and marketing programs. Over the past several years, WESCO has developed extensive data warehousing and data mining capabilities, and during 2003, began a largescale program of direct mail information campaigns and product promotions. With access to millions of sales transactions that have occurred over the past four years, we have been systematically refining data mining capabilities to target specific products and market segments. Based on documented success in multiple product categories, direct mail programs are being significantly expanded in 2004.

In addition to our successful Trade Show program, we have expanded our use of advanced information systems technology to drive sales and marketing programs. Over the past several years, WESCO has developed extensive data warehousing and data mining capabilities, and during 2003, we began a continuous program of targeted direct mail information campaigns and focused product promotions. Through careful analysis of millions of sales transactions that have occurred over the past four years, we have been systematically refining our data mining capabilities to target specific products and market segments. Based on documented successes in multiple product categories, direct mail programs are being significantly expanded in 2004.

Also in 2003, WESCO expanded its product offering and produced new general line and product-specific catalogs and periodic supplements that feature promotional specials and catalog additions. Comprehensive new product catalogs were developed for utilityoriented operating and consumable supplies and for the full line of Craftsman branded tools. Additionally, supplemental customized editions of the completely upgraded Electrical Buyers Guide® were produced for certain WESCO branch operating groups.

2003 Operating Results
WESCO’s management and “extra effort” employees once again demonstrated the strength inherent in our basic business model. Even in a period of weak end-market demand and declining sales, we improved gross margins, controlled operating costs, generated significant free cash flow, paid down debt, and improved the overall quality of our working capital and financial structure.

Sales revenue for 2003 was $3.29 billion, a 1.2% decline from 2002 levels. However, operating income increased 12% to $86 million, and net income improved 30% to $30 million. Earnings per share increased from $0.49 to $0.65.

The combination of earnings, improved working capital performance, and disciplined investment spending in 2003 resulted in operating cash flow of $36 million (in addition to a $68 million reduction in our accounts receivable securitization). Over the past three years, WESCO has generated over $215 million of operating cash flow (in addition to a $150 million reduction in our accounts receivable securitization), which is a clear indication of a highly effective business model.

Balance Sheet Strength
The actions taken over the past two years by our Treasury department have significantly strengthened our financial position and established a significant reserve of funding capacity that is available to respond to future opportunities. During 2003 we improved asset quality and working capital turnover, and we made great improvements in overall corporate capitalization. Early in the year, we took advantage of favorable long-term rates to successfully complete $51 million of mortgage financing of certain owned facilities. We also renewed our most efficient and lowest cost funding facility – our accounts receivables securitization program – incorporating a three-year term component for 45% of this $300 million facility. During the second half of the year, we repurchased some higher cost debt and completed two equity purchase transactions. Taken together, these transactions created additional financing flexibility, lengthened the average term of outstanding debt, and locked in favorable interest rates.

By most measures, WESCO had excellent overall performance in 2003. We thank our employess for their dedication, and we extend our gratitude to WESCO’s customers, supplier partners, and shareholders for their continued support.


ROY W. HALEY
Chairman and Chief Executive Officer