STOCK-BASED COMPENSATION

WESCO’s stock-based employee compensation plans are comprised of stock options, stock-settled stock appreciation rights, restricted stock units and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant, and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair value of stock options and stock-settled appreciation rights is determined using the Black-Scholes valuation model. The fair value of restricted stock units is determined by the grant-date closing price of WESCO’s common stock. The forfeiture assumption is based on WESCO’s historical employee behavior that is reviewed on an annual basis. No dividends are assumed.

During the three and nine month periods ended September 30, 2012 and 2011, WESCO granted the following stock-settled stock appreciation rights, restricted stock units and performance-based awards at the following weighted average assumptions:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock-settled appreciation rights granted	850		15,156		257,932		399,330
Restricted stock units granted	2,400		—		74,724		53,852
Performance-based awards granted	—		—		46,804		—
Risk free interest rate	0.6	%	1.0	%	0.9	%	2.3	%
Expected life (in years)	5.0		5.0		5.0		5.0
Expected volatility	50	%	48	%	50	%	49	%

For the three and nine months ended September 30, 2012, the weighted average fair value per stock-settled appreciation right granted was $24.33 and $27.89, respectively. For the three and nine months ended September 30, 2011, the weighted average fair value per stock-settled appreciation right granted was $16.42 and $26.47, respectively. For the three and nine months ended September 30, 2012, the weighted average fair value per restricted stock unit granted was $62.49 and $64.27, respectively. For the nine months ended September 30, 2011, the weighted average fair value per restricted stock unit granted was $60.05. For the nine months ended September 30, 2012, the weighted average fair value per performance-based award granted was $75.72.

The following table sets forth a summary of stock options and stock-settled stock appreciation rights and related information for the nine months ended September 30, 2012:



	Awards		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2011	4,266,533		$	39.64
Granted	257,932		64.12
Exercised	(697,037	)	32.46
Forfeited	(36,061	)	49.43
Outstanding at September 30, 2012	3,791,367		42.54		5.8	$	72,535
Exercisable at September 30, 2012	3,084,703		$	40.06	5.1	$	66,470

The following table sets forth a summary of restricted stock units and related information for the nine months ended September 30, 2012:



	Awards		Weighted Average Fair Value
Unvested at December 31, 2011	203,291		$	37.16
Granted	74,724		64.27
Vested	(78,305	)	25.37
Forfeited	(8,684	)	45.02
Unvested at September 30, 2012	191,026		$	52.24

Performance shares are awards for which the vesting will occur based on market or performance conditions. The following table sets forth a summary of performance-based awards for the nine months ended September 30, 2012:



	Awards		Weighted Average Fair Value
Unvested at December 31, 2011	—		—
Granted	46,804		$	75.72
Vested	—		—
Forfeited	(304	)	75.72
Unvested at June 30, 2012	46,500		$	75.72

The performance-based awards in the table above include 23,250 shares in which vesting of the ultimate number of shares underlying such awards will be dependent upon WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. These awards are valued based upon a Monte Carlo simulation model, which is a valuation model that represents the characteristics of these grants. The probability of meeting the market criteria was considered when calculating the estimated fair market value on the date of grant. These awards were accounted for as awards with market conditions, which are recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest.

The fair value of the performance shares granted during the nine months ended September 30, 2012 were estimated using the following weighted-average assumptions:



Weighted Average Assumptions
Grant date share price	$	64.33
WESCO expected volatility	41.97		%
Peer group median volatility	33.40		%
Risk-free interest rate	0.40		%
Correlation	135.4		%

Vesting of the remaining 23,250 shares of performance-based awards in the table above will be dependent upon the three-year average growth rate of WESCO's net income. These awards are valued based upon the grant-date closing price of WESCO's common stock. These awards were accounted for as awards with performance conditions, in which stock-based compensation expense is recognized over the performance period based upon WESCO's determination of whether it is probable that the performance targets will be achieved.

WESCO recognized $3.2 million and $2.9 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the three months ended September 30, 2012 and 2011, respectively. WESCO recognized $11.7 million and $12.4 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, there was $21.4 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements for all awards previously made, of which approximately $3.4 million is expected to be recognized over the remainder of 2012, $11.4 million in 2013, $5.9 million in 2014 and $0.7 million in 2015.

During the nine months ended September 30, 2012 and 2011, the total intrinsic value of awards exercised was $22.4 million and $12.0 million, respectively. The total amount of cash received from the exercise of options was $0.2 million for both the nine months ended September 30, 2012 and 2011. The tax benefit associated with the exercise of awards for the nine months ended September 30, 2012 and 2011 totaled $5.4 million and $3.5 million, respectively, and was recorded as an increase to additional capital.