Critical Accounting Policies and Estimates During the six month period ended June 30, 2008, there were no significant changes to our Critical Accounting Policies and Estimates referenced in the 2007 Annual Report on Form 10-K.
Results of Operations
Second Quarter of 2008 versus Second Quarter of 2007 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
                                                              June 30,
                                                          2008          2007
        Net sales                                           100.0 %      100.0 %
        Cost of goods sold                                   80.5         79.7
        Selling, general and administrative expenses         13.0         12.9
        Depreciation and amortization                         0.4          0.6

        Income from operations                                6.1          6.8
        Interest expense                                      0.8          1.1
        Other income                                         (0.2 )          -

        Income before income taxes                            5.5          5.7
        Provision for income taxes                            1.7          1.8

        Net income                                            3.8 %        3.9 %

Net sales in the second quarter of 2008 totaled $1,587.8 million versus $1,518.1 million in the comparable period for 2007, an increase of $69.7 million, or 4.6 %, over the same period last year. Sales were positively impacted by higher commodity prices, favorable exchange rates and the acquisitions completed in the second half of 2007. These increases were partially offset by the absence of $24.7 million of sales recognized in last year's comparable period for the LADD operations.
Cost of goods sold for the second quarter of 2008 was $1,277.4 million versus $1,210.0 million for the comparable period in 2007, and cost of goods sold as a percentage of net sales was 80.5% in 2008 versus 79.7% in 2007. The cost of goods sold percentage increased due to the divestiture of the LADD operations, an unfavorable sales mix and the time lag associated with passing supplier price increases to our customers.
Selling, general and administrative ("SG&A") expenses in the second quarter of 2008 totaled $206.8 million versus $195.3 million in last year's comparable quarter. As a percentage of net sales, SG&A expenses were 13.0% in the second quarter of 2008 compared to 12.9% in the second quarter of 2007, reflecting an increase in sales personnel, the impact from the recent acquisitions and the foreign currency transaction gain recognized in last years comparable period.
SG&A payroll expenses for the second quarter of 2008 of $142.8 million increased by $5.2 million compared to the same quarter in 2007. The increase in payroll expenses was primarily due to an increase in salaries and wages of $5.4 million and an increase in benefit costs of $0.9 million, offset by a decrease in incentive compensation costs of $0.9 million. Other SG&A related payroll expenses decreased $0.2 million.
The remaining SG&A expenses for the second quarter of 2008 of $64.0 million increased by approximately $6.3 million compared to same quarter in 2007. Contributing to the increase was a gain of $4.0 million recognized in last year's comparable period for a foreign currency transaction adjustment. Included in this year's SG&A expenses was an increase in transportation and travel expenses of $2.5 million, an increase in rent and insurance expenses of $1.0 million and an increase in other non-recurring SG&A expenses of $1.0 million. These increases were offset by a gain of $2.2 million recognized in the second quarter of 2008 for the sale of assets.
Depreciation and amortization for the second quarter of 2008 was $6.7 million versus $9.2 million in last year's comparable quarter. Of the $2.5 million decrease, $1.6 million is related to the recent divestiture.
Interest expense totaled $12.5 million for the second quarter of 2008 versus $16.8 million in last year's comparable quarter, a decrease of approximately 25.3%. Interest expense for the second quarter of 2008 was primarily impacted by the reduction in interest rates.

Other income totaled $2.6 million for the second quarter of 2008. As a result of selling a majority interest in our LADD operations, the investment in the new joint venture is accounted for on an equity basis, and earnings are reported as other income in the consolidated statement of income. There was no other income recorded for the second quarter of 2007.
Income tax expense totaled $26.8 million in the second quarter of 2008, and the effective tax rate was 30.8% compared to 31.3% in the same quarter in 2007. The current quarter's effective tax rate differed from the statutory rate primarily as a result of a lower tax rate from foreign operations.
For the second quarter of 2008, net income increased by $0.5 million to $60.1 million, or $1.38 per diluted share, compared with $59.6 million, or $1.22 per diluted share, for the second quarter of 2007. The increase in net income was primarily due to the increase in sales and a decrease in the effective tax rate of 0.5%.
Six Months Ended June 30, 2008 versus Six Months Ended June 30, 2007 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:

                                                          Six Months Ended
                                                              June 30,
                                                          2008         2007
         Net sales                                          100.0 %     100.0 %
         Cost of goods sold                                  80.2        79.5
         Selling, general and administrative expenses        13.7        13.6
         Depreciation and amortization                        0.4         0.6

         Income from operations                               5.7         6.3
         Interest expense                                     0.9         1.0
         Other income                                        (0.2 )         -

         Income before income taxes                           5.0         5.3
         Provision for income taxes                           1.6         1.7

         Net income                                           3.4 %       3.6 %

Net sales in the first six months of 2008 totaled $3,053.0 million versus $2,968.7 million in the comparable period for 2007, an increase of $84.3 million, or 2.8%, over the same period last year. Sales were positively impacted by higher commodity prices, favorable exchange rates and the acquisitions completed in the second half of 2007. These increases were partially offset by the absence of $50.8 million of sales recognized in last year's comparable period for the LADD operations.
Cost of goods sold for the first six months of 2008 was $2,447.0 million versus $2,361.6 million for the comparable period in 2007, and cost of goods sold as a percentage of net sales was 80.2% in 2008 versus 79.5% in 2007. The cost of goods sold percentage increased due to the divestiture of the LADD operations and the time lag associated with passing supplier price increases to our customers.
SG&A expenses in the first six months of 2008 totaled $418.4 million versus $402.9 million in last year's comparable period. As a percentage of net sales, SG&A expenses were 13.7% in the first six months of 2008 compared to 13.6% in the first six months of 2007, reflecting an increase in sales personnel, the impact from the recent acquisitions and the impact of non-recurring items.
SG&A payroll expenses for the first six months of 2008 of $287.9 million increased by $9.4 million compared to the same period in 2007. The increase in payroll expenses was primarily due to an increase in salaries and wages of $10.5 million and an increase in incentive compensation costs of $0.5 million, offset by a decrease in benefit costs of $0.9 million. Other SG&A related payroll expenses decreased $0.7 million.
The remaining SG&A expenses for the first six months of 2008 of $130.5 million increased by approximately $6.1 million compared to same period in 2007. Contributing to the change were amounts recognized in last year's comparable period which included a charge of $6.7 million for a legal settlement partially offset by a gain of $4.0 million for the settlement of a foreign currency transaction. Included in this year's SG&A expenses was a charge of $3.0 million for the partial sale of the LADD operations partially offset by a gain of $2.2 million for the sale of assets. In addition, there was an increase in travel and transportation costs of $3.1 million, an increase in rent and insurance of $1.2 million, an increase in bad debt expense of $0.8 million primarily related to a customer bankruptcy filing, and an increase in other SG&A expenses of $2.9 million.

Depreciation and amortization for the first six months of 2008 was $13.6 million versus $18.1 million in last year's comparable period. Of the $4.5 million decrease, $3.1 million is related to the recent divestiture.
Interest expense totaled $27.1 million for the first six months of 2008 versus $29.0 million in last year's comparable period, a decrease of approximately 6.6%. Included in last year's comparable period was a pre-tax gain of $2.4 million related to the change in the accounting treatment of the Receivables Facility. Interest expense for the first six months of 2008 was primarily impacted by the reduction in interest rates.
Other income totaled $5.4 million for the first six months of 2008. As a result of selling a majority interest in our LADD operations, the investment in the new joint venture is accounted for on an equity basis, and earnings are reported as other income in the consolidated statement of income. There was no other income recorded for the first six months of 2007.
Income tax expense totaled $47.2 million for the first six months of 2008, and the effective tax rate was 31.0% compared to 31.4% in the same period in 2007. The current period's effective tax rate differed from the statutory rate primarily as a result of a lower tax rate from foreign operations.
For the first six months of 2008, net income decreased by $2.8 million to $105.0 million, or $2.39 per diluted share, compared with $107.8 million, or $2.14 per diluted share, for the first six months of 2007. The decrease in net income was primarily due to the higher cost of goods sold resulting from supplier price increases, the increase in SG&A costs and the partial divestiture of the LADD operations.
Liquidity and Capital Resources
Total assets at June 30, 2008 and December 31, 2007 were $2.9 billion. Total assets remained unchanged primarily as a result of the LADD divestiture, the impact, of which was offset by an increase in accounts receivable. Total liabilities at June 30, 2008 compared to December 31, 2007 decreased by $21.7 million to $2.2 billion. Contributing to the decrease in total liabilities was a decrease in short-term and long-term debt of $70.9 million; a decrease in bank overdrafts of $19.1 million; a decrease in accrued payroll and benefit costs of $11.8 million due to the payment in 2008 of the 2007 management incentive compensation; and a decrease in deferred income taxes of $5.3 million due to the LADD divestiture. This decrease was offset by an increase in accounts payable of $86.5 million due to the increase in the cost of sales. Stockholders' equity increased 10.0% to $669.4 million at June 30, 2008, compared with $608.5 million at December 31, 2007, primarily as a result of net earnings of $105.0 million offset by stock repurchases, which totaled $60.8 million for the six months ended June 30, 2008. Also contributing to the change in stockholders' equity was a loss of $4.4 million from foreign currency translation adjustments offset by benefits of $14.8 million from the exercise of stock options and $6.5 million from stock-based compensation expense.
Our liquidity needs arise from working capital requirements, capital expenditures, acquisitions and debt service obligations. As of June 30, 2008, we had $243.6 million in available borrowing capacity under our revolving credit facility.
We finance our operating and investing needs as follows:
Accounts Receivable Securitization Facility We maintain a $500 million accounts receivable securitization program that has a three year term and is subject to renewal in May 2010. Under the Receivables Facility, we sell, on a continuous basis, an undivided interest in all domestic accounts receivable to WESCO Receivables Corporation, a wholly owned SPE. The SPE sells, without recourse, a senior undivided interest in the receivables to third-party conduits and financial institutions for cash while maintaining a subordinated undivided interest in a portion of the receivables, in the form of overcollateralization. We have agreed to continue servicing the sold receivables for the third-party conduits and financial institutions at market rates; accordingly, no servicing asset or liability has been recorded.
Prior to December 2006, we accounted for transfers of receivables pursuant to the Receivables Facility as a "sale" and removed them from the consolidated balance sheet. In December 2006, the Receivables Facility was amended and restated such that we effectively maintain control of receivables transferred pursuant to the Receivables Facility; therefore the transfers no longer qualify for "sale" treatment under SFAS No. 140. As a result, all transfers are accounted for as secured borrowings and the receivables sold pursuant to the Receivables Facility are included on the balance sheet as trade receivables, along with our retained subordinated undivided interest in those receivables.
As of June 30, 2008 and December 31, 2007, accounts receivable eligible for securitization totaled approximately $664.8 million and $604.0 million, respectively. The consolidated balance sheets as of June 30, 2008 and December 31, 2007 reflect $500.0 million and $480.0 million, respectively, of account receivable balances legally sold to third parties, as well as the related borrowings for equal amounts.

Mortgage Financing Facility
In February 2003, we finalized a $51 million mortgage financing facility, $43.0 million of which was outstanding as of June 30, 2008. Borrowings under the mortgage financing facility are collateralized by 75 domestic properties and are subject to a 22-year amortization schedule with a balloon payment due at the end of the 10-year term. Interest rates on borrowings under this facility are fixed at 6.5%.
Revolving Credit Facility
The revolving credit facility provides for an aggregate borrowing limit of up to $375 million and matures on November 1, 2013. During the first six months of 2008, we borrowed $369.4 million and made repayments of $460.0 million in the aggregate. At June 30, 2008, we had $96.7 million outstanding under the facility. We were in compliance with all covenants and restrictions as of June 30, 2008.
7.50% Senior Subordinated Notes due 2017 At June 30, 2008, $150 million in aggregate principal amount of the 2017 Notes was outstanding. The 2017 Notes were issued by WESCO Distribution, Inc. under an indenture dated as of September 27, 2005 with The Bank of New York, as successor to J.P. Morgan Trust Company, National Association, as trustee, and are unconditionally guaranteed on an unsecured basis by WESCO International, Inc. The 2017 Notes accrue interest at the rate of 7.50% per annum and are payable in cash semi-annually in arrears on each April 15 and October 15. 2.625% Convertible Senior Debentures due 2025 At June 30, 2008, $150 million in aggregate principal amount of the 2025 Debentures was outstanding. The 2025 Debentures were issued by WESCO International Inc. under an indenture dated as of September 27, 2005 with The Bank of New York, as successor to J.P. Morgan Trust Company, National Association, as trustee, and are unconditionally guaranteed on an unsecured senior subordinated basis by WESCO Distribution, Inc. The 2025 Debentures accrue interest at the rate of 2.625% per annum and are payable in cash semi-annually in arrears on each April 15 and October 15. Beginning with the six-month interest period commencing October 15, 2010, we also will pay contingent interest in cash during any six-month interest period in which the trading price of the 2025 Debentures for each of the five trading days ending on the second trading day immediately preceding the first day of the applicable six-month interest period equals or exceeds 120% of the principal amount of the 2025 Debentures. During any interest period when contingent interest shall be payable, the contingent interest payable per $1,000 principal amount of 2025 Debentures will equal 0.25% of the average trading price of $1,000 principal amount of the 2025 Debentures during the five trading days immediately preceding the first day of the applicable six-month interest period. As defined in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities("SFAS 133"), the contingent interest feature of the 2025 Debentures is an embedded derivate that is not considered clearly and closely related to the host contract. The contingent interest component had no significant value at June 30, 2008 or at December 31, 2007.
The 2025 Debentures are convertible into cash and, in certain circumstances, shares of WESCO International, Inc.'s common stock, $0.01 par value, at any time on or after October 15, 2023, or prior to October 15, 2023 in certain circumstances. The 2025 Debentures will be convertible based on an initial conversion rate of 23.8872 shares of common stock per $1,000 principal amount of the 2025 Debentures (equivalent to an initial conversion price of approximately $41.86 per share). The conversion rate and the conversion price may be adjusted under certain circumstances.
At any time on or after October 15, 2010, we may redeem all or a part of the 2025 Debentures at a redemption price equal to 100% of the principal amount of the 2025 Debentures plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but not including, the redemption date. Holders of 2025 Debentures may require us to repurchase all or a portion of their 2025 Debentures on October 15, 2010, October 15, 2015 and October 15, 2020 at a cash repurchase price equal to 100% of the principal amount of the 2025 Debentures, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but not including, the repurchase date. If we undergo certain fundamental changes prior to maturity, holders of 2025 Debentures will have the right, at their option, to require us to repurchase for cash some or all of their 2025 Debentures at a repurchase price equal to 100% of the principal amount of the 2025 Debentures being repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but not including, the repurchase date.

1.75% Convertible Senior Debentures due 2026 At June 30, 2008, $300 million in aggregate principal amount of the 2026 Debentures was outstanding. The 2026 Debentures were issued by WESCO International, Inc. under an indenture dated as of November 2, 2006, with The Bank of New York, as Trustee, and are unconditionally guaranteed on an unsecured senior subordinated basis by WESCO Distribution, Inc. The 2026 Debentures accrue interest at the rate of 1.75% per annum and are payable in cash semi-annually in arrears on each May 15 and November 15. Beginning with the six-month interest period commencing November 15, 2011, we also will pay contingent interest in cash during any six-month interest period in which the trading price of the 2026 Debentures for each of the five trading days ending on the second trading day immediately preceding the first day of the applicable six-month interest period equals or exceeds 120% of the principal amount of the 2026 Debentures. During any interest period when contingent interest shall be payable, the contingent interest payable per $1,000 principal amount of 2026 Debentures will equal 0.25% of the average trading price of $1,000 principal amount of the 2026 Debentures during the five trading days immediately preceding the first day of the applicable six-month interest period. As defined in SFAS 133, the contingent interest feature of the 2026 Debentures is an embedded derivate that is not considered clearly and closely related to the host contract. The contingent interest component had no significant value at June 30, 2008 or at December 31, 2007.
The 2026 Debentures are convertible into cash and, in certain circumstances, shares of WESCO International, Inc.'s common stock, $0.01 par value, at any time on or after November 15, 2024, or prior to November 15, 2024 in certain circumstances. The 2026 Debentures will be convertible based on an initial conversion rate of 11.3437 shares of common stock per $1,000 principal amount of the 2026 Debentures (equivalent to an initial conversion price of approximately $88.15 per share). The conversion rate and the conversion price may be adjusted under certain circumstances.
At any time on or after November 15, 2011, we may redeem all or a part of the 2026 Debentures at a redemption price equal to 100% of the principal amount of the 2026 Debentures plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but not including, the redemption date. Holders of 2026 Debentures may require us to repurchase all or a portion of their 2026 Debentures on November 15, 2011, November 15, 2016 and November 15, 2021 at a cash repurchase price equal to 100% of the principal amount of the 2026 Debentures, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but not including, the repurchase date. If we undergo certain fundamental changes, as defined in the indenture governing the 2026 Debentures, prior to maturity, holders of 2026 Debentures will have the right, at their option, to require us to repurchase for cash some or all of their 2026 Debentures at a repurchase price equal to 100% of the principal amount of the 2026 Debentures being repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but not including, the repurchase date. Cash Flow
Operating Activities. Cash provided by operating activities for the first six months of 2008 totaled $138.0 million compared with $128.3 million of cash generated for the first six months of 2007. The increased level of cash flow is primarily attributable to net income of $105.0 million and adjustments to net income totaling $3.4 million; an accounts payable increase of $96.9 million, resulting from the increase in the cost of sales; and a reduction in prepaid and other current assets of $26.1 million. Cash used by operating activities in the first six months of 2008 included: $70.1 million for the increase in trade and other receivables, resulting from the increase in sales; $11.7 million for the decrease in accrued payroll and benefit costs, resulting from the payment of the 2007 management incentive compensation; $7.7 million for the decrease in other current and noncurrent liabilities; and $3.9 million for the increase in inventory. In the first six months of 2007, primary sources of cash were net income of $107.8 million and adjustments to net income totaling $19.4 million; an increase in accounts payable of $66.5 million, resulting from the increase in the cost of sales; and a reduction in prepaid and other current assets of $27.5 million. Cash used by operating activities in the first six months of 2007 . . .