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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
(Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2009 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 000-0255 GRAYBAR ELECTRIC COMPANY, INC. (Exact name of registrant as specified in its charter) New York 13-0794380 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 34 North Meramec Avenue, St. Louis, Missouri 63105 (Address of principal executive offices) (Zip Code) (314) 573 9200 (Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). YES ¨ NO ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x Common Stock Outstanding at October 31, 2009: 9,609,043 (Number of Shares) For the Quarterly Period Ended September 30, 2009 (Unaudited) PART I. FINANCIAL INFORMATION Page(s) Item 1. Financial Statements Condensed Consolidated Statements of Income 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Condensed Consolidated Statements of Changes in Shareholders Equity 6 Notes to Condensed Consolidated Financial Statements 7-11 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 12-18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Item 4T. Controls and Procedures 19 PART II. OTHER INFORMATION Item 1A. Risk Factors 20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 6. Exhibits 21 Signatures 22 Exhibit Index 23 2 PART 1. FINANCIAL INFORMATION Graybar Electric Company, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (Stated in thousands except per share data) 2009 2008 2009 2008 Gross Sales $ 1,128,912 $ 1,455,639 $ 3,316,685 $ 4,169,941 Cash Discounts (4,805 ) (5,996 ) (13,438 ) (16,905 ) Net Sales 1,124,107 1,449,643 3,303,247 4,153,036 Cost of merchandise sold (908,282 ) (1,187,325 ) (2,662,267 ) (3,366,331 ) Gross Margin 215,825 262,318 640,980 786,705 Selling, general and administrative expenses (188,741 ) (217,988 ) (570,495 ) (642,987 ) Depreciation and amortization (9,582 ) (9,587 ) (29,119 ) (28,475 ) Other income, net 612 847 2,216 1,904 Income from Operations 18,114 35,590 43,582 117,147 Interest expense, net (2,354 ) (3,150 ) (7,954 ) (9,635 ) Income before Provision for Income Taxes 15,760 32,440 35,628 107,512 Provision for income taxes (5,696 ) (12,804 ) (14,757 ) (40,432 ) Net Income 10,064 19,636 20,871 67,080 Less: Net income attributable to noncontrolling interests (45 ) (65 ) (46 ) (143 ) Net Income attributable to Graybar Electric Company, Inc. $ 10,019 $ 19,571 $ 20,825 $ 66,937 Net Income per share of Common Stock (A) $ 1.04 $ 2.04 $ 2.15 $ 6.96 Cash Dividends per share of Common Stock (B) $ 0.30 $ 0.30 $ 0.90 $ 0.90 Average Common Shares Outstanding (A) 9,661 9,613 9,696 9,612 (A) Adjusted for the declaration of a twenty percent (20%) stock dividend in 2008, shares related to which were issued in February 2009. Prior to the adjustment, the average common shares outstanding were 8,011 and 8,010 for the three and nine month periods ended September 30, 2008. (B) Cash dividends declared were $2,910 and $2,417 for the three months ended September 30, 2009 and 2008, respectively. Cash dividends declared were $8,750 and $7,246 for the nine months ended September 30, 2009 and 2008, respectively. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 3 Graybar Electric Company, Inc. and Subsidiaries Condensed Consolidated Balance Sheets September 30, December 31, (Stated in thousands except share and per share data) 2009 2008 (Unaudited) Current Assets Cash and cash equivalents $ 112,440 $ 130,443 Trade receivables (less allowances of $7,238 and $7,563, respectively) 602,971 659,778 Merchandise inventory 334,651 373,813 Other current assets 27,307 30,873 Total Current Assets 1,077,369 1,194,907 Property, at cost Land 47,733 45,630 Buildings 339,274 326,704 Furniture and fixtures 173,490 170,134 Software 76,906 76,906 Capital leases 3,054 2,413 Total Property, at cost 640,457 621,787 Less accumulated depreciation and amortization (334,069 ) (309,728 ) Net Property 306,388 312,059 Other Non-current Assets 49,318 49,233 $ 1,433,075 $ 1,556,199 Current Liabilities Short-term borrowings $ 16,281 $ 20,449 Current portion of long-term debt 35,502 32,457 Trade accounts payable 464,932 511,497 Accrued payroll and benefit costs 62,190 120,584 Other accrued taxes 14,204 13,305 Dividends payable -- 8,925 Other current liabilities 47,896 56,564 Total Current Liabilities 641,005 763,781 Postretirement Benefits Liability 64,106 65,143 Pension Liability 96,937 96,784 Long-term Debt 86,361 113,633 Other Non-current Liabilities 12,711 9,267 Total Liabilities 901,120 1,048,608 Shares at September 30, 2009 December 31, 2008 Common, stated value $20.00 per share Authorized 15,000,000 15,000,000 Issued to voting trustees 8,236,640 7,822,677 Issued to shareholders 1,924,144 1,872,801 In treasury, at cost (490,602 ) (32,661 ) Outstanding Common Stock 9,670,182 9,662,817 193,404 193,256 728 -- 437,351 425,276 Accumulated Other Comprehensive Loss (104,244 ) (114,869 ) 527,239 503,663 4,716 3,928 531,955 507,591 Total Liabilities and Shareholders Equity $ 1,433,075 $ 1,556,199 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 4 Graybar Electric Company, Inc. and Subsidiaries (Unaudited) For the Nine Months Ended September 30, (Stated in thousands) 2009 2008 Cash Flows from Operations Net Income $ 20,871 $ 67,080 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 29,119 28,475 Deferred income taxes (1,594 ) (4,593 ) Net gains on disposal of property (335 ) (25 ) Net income attributable to noncontrolling interests (46 ) (143 ) Changes in assets and liabilities: Trade receivables 56,807 (87,756 ) Merchandise inventory 39,162 (23,137 ) Other current assets 3,566 (3,089 ) Other non-current assets (85 ) 3,539 Trade accounts payable (46,565 ) 76,293 Accrued payroll and benefit costs (58,394 ) (35,070 ) Other current liabilities 3,280 12,230 Other non-current liabilities 2,560 (4,831 ) Total adjustments to net income 27,475 (38,107 ) Net cash provided by operations 48,346 28,973 Proceeds from disposal of property 968 327 Capital expenditures for property (21,736 ) (25,368 ) Net cash used by investing activities (20,768 ) (25,041 ) Net (decrease) increase in short-term borrowings (4,168 ) 5,305 Repayment of long-term debt (25,148 ) (24,974 ) Proceeds from borrowings on long-term debt 641 -- Principal payments under capital leases (510 ) (335 ) Sales of common stock 10,034 9,539 Purchases of common stock (9,158 ) (6,593 ) Sales of noncontrolling interests common stock 464 -- Purchases of noncontrolling interests common stock (61 ) (58 ) Dividends paid (17,675 ) (14,573 ) Net cash used by financing activities (45,581 ) (31,689 ) (18,003 ) (27,757 ) Cash, Beginning of Year 130,443 66,167 Cash, End of Period $ 112,440 $ 38,410 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 5 Graybar Electric Company, Inc. and Subsidiaries CONDENSED Consolidated Statements of Changes in Shareholders Equity (Unaudited, stated in thousands) Graybar Electric Company, Inc. Shareholders Equity Stock Subscribed, Accumulated Other Comprehensive Equity $ 158,633 $ -- $ 386,217 $ (65,899 ) $ 4,428 $ 483,379 Net income 66,937 143 67,080 Foreign currency translation (2,028 ) (174 ) (2,202 ) Unrealized gain from (net of tax of $36) 57 57 Pension and postretirement liability adjustment (net of tax of $3,141) 4,933 4,933 Comprehensive income 69,868 Stock issued 8,833 8,833 Stock purchased (6,593 ) (58 ) (6,651 ) Advance payments 706 706 Dividends declared (7,246 ) (7,246 ) $ 160,873 $ 706 $ 445,908 $ (62,937 ) $ 4,339 $ 548,889 Graybar Electric Company, Inc. Shareholders Equity Subscribed, Other Comprehensive Loss Equity $ 193,256 $ -- $ 425,276 $ (114,869 ) $ 3,928 $ 507,591 Net income 20,825 46 20,871 Foreign currency translation 5,149 339 5,488 Unrealized gain from interest rate swap (net of tax of $386) 606 606 Pension and postretirement liability adjustment (net of tax of $3,100) 4,870 4,870 Comprehensive income 31,835 Stock issued 9,306 464 9,770 Stock purchased (9,158 ) (61 ) (9,219 ) Advance payments 728 728 Dividends declared (8,750 ) (8,750 ) $ 193,404 $ 728 $ 437,351 $ (104,244 ) $ 4,716 $ 531,955 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 6 Graybar Electric Company, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Stated in thousands except per share data) (Unaudited) Note 1 The condensed consolidated financial statements included herein have been prepared by Graybar Electric Company, Inc. (the Company), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC or Commission) applicable to interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that its disclosures are adequate to make the information presented not misleading. The preparation of financial statements in accordance with US GAAP requires the use of estimates and assumptions that affect reporte
d amounts. The Companys condensed consolidated financial statements include amounts that are based on managements best estimates and judgments. Actual results could differ from those estimates. Certain reclassifications were made to prior year amounts to conform to the 2009 presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2008, included in the Companys latest Annual Report on Form 10-K. In the opinion of the Company, this quarterly report includes all adjustments, consisting of normal recurring accruals and adjustments, necessary for the fair presentation of the financial statements presented. Such interim financial information is subject to year-end adjustments. Results for interim periods are not necessarily indicative of results to be expected for the full year. Note 2 In June 2009, the Financial Accounting Standards Board (FASB) issued authoritative guidance establishing two levels of US GAAP authoritative and non-authoritative and making the FASB Accounting Standards Codification (ASC) the source of authoritative US GAAP to be applied by non-governmental entities, except for rules and interpretative releases of the SEC. This guidance was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption changed certain disclosure references to US GAAP, but did not have any other impact on the Companys condensed consolidated financial statements. Note 3 The consolidated financial statements include the accounts of Graybar Electric Company, Inc. and its subsidiary companies. All material intercompany balances and transactions have been eliminated. The ownership interests that are held by owners other than the Company in subsidiaries consolidated by the Company are accounted for and reported as noncontrolling interests. In accordance with an accounting standard issued by the FASB in December 2007, effective January 1, 2009, the Companys minority interests were recharacterized as noncontrolling interests and are reported as a separate component of shareholders equity. Purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. Net income attributable to the noncontrolling interests is separately identified and included in net income in the income statement. The Company has reclassified its noncontrolling interests to shareholders equity for all periods presented. The Company also adjusted its net income to include the net income attributable to the noncontrolling interests. Consolidated comprehensive income was also adjusted to include the comprehensive income attributable to the noncontrolling interests. Note 4 The Company values its inventories at the lower of cost (determined using the last-in, first-out (LIFO) cost method) or market. LIFO accounting is a method of accounting that, compared with other inventory accounting
methods, generally provides better matching of current costs with current revenues. An actual valuation of inventory under the LIFO method can be made only at year-end based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on managements estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation.
Washington, D.C. 20549
FORM 10-Q
Graybar Electric Company, Inc. and Subsidiaries
Form 10-Q
Table of Contents
Item 1. Financial Statements
ASSETS
Total Assets
LIABILITIES
SHAREHOLDERS EQUITY
Capital Stock
Advance Payments on Subscriptions to Common Stock
Retained Earnings
Total Graybar Electric Company, Inc. Shareholders Equity
Noncontrolling Interests
Total Shareholders Equity
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Investing Activities
Cash Flows from Financing Activities
Net Decrease in Cash
Common
Common
Stock
Unissued
Retained
Earnings
Loss
Noncontrolling
Interests
Total
Shareholders
Balance, December 31, 2007
interest rate swap
Balance, September 30, 2008
Common
Stock
Common
Stock
Unissued
Retained
Earnings
Accumulated
Noncontrolling
Interests
Total
Shareholders
Balance, December 31, 2008
Balance, September 30, 2009
7
Note 5
The Company has entered into an interest rate swap agreement that converts its floating rate interest payments on a leveraged lease agreement to a fixed-rate basis. Changes in the cash flows of the interest rate swap are expected to be highly effective in offsetting the changes in cash flows attributable to fluctuations in the variable rate on the notional amount of the debt. The Companys interest rate swap agreement is designated as a cash flow hedge, with the changes in fair value, to the extent the swap agreement is effective, recorded in accumulated other comprehensive loss until the hedged interest expense is recognized in earnings. The loss (net of tax) reclassified from accumulated other comprehensive loss to interest expense related to the effective portion of the interest rate swap was $213 and $568 during the three and nine month periods ended September 30, 2009, respectively. The Company recorded a loss (net of tax) of $330 in accumulated other comprehensive loss related to the change in fair value of the interest rate swap during the three month period ended September 30, 2009, and recorded a gain (net of tax) of $38 in accumulated other comprehensive loss related to the change in fair value of the interest rate swap during the nine month period ended September 30, 2009. The amount of loss (net of tax) expected to be reclassified from accumulated other comprehensive loss to interest expense over the next twelve months is $1,145. As of September 30, 2009 the Company has recorded a loss (net of tax) of $3,306 in accumulated other comprehensive loss related to the effective portion of the interest rate swap.
The Companys interest rate swap is required to be measured at fair value on a recurring basis. The Company endeavors to utilize the best available information in measuring fair value. US GAAP has established a fair value hierarchy, which prioritizes the inputs used in measuring fair value. The tiers in the hierarchy include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own data inputs and assumptions.
The interest rate swap is valued based on quoted data from the counterparty, corroborated with indirectly observable market data, which, combined, are deemed to be a Level 2 input in the fair value hierarchy. The fair value of the swap at September 30, 2009 and December 31, 2008, was $(5,410) and $(6,402), respectively, and recorded in other current liabilities in the condensed consolidated balance sheet. The effective portion of the related gains or losses on the swap are deferred in accumulated other comprehensive loss. No ineffectiveness was recorded in the consolidated statements of income during three and nine month periods ended September 30, 2009 and 2008.
Note 6
The Company determines its deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of its assets and liabilities using enacted applicable tax rates. The Company then assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance, when recorded, are included in the provision for (benefit from) income taxes in the consolidated financial statements.
The Companys unrecognized tax benefits of $3,996 and $3,874 at September 30, 2009 and December 31, 2008, respectively, are uncertain tax positions that would impact the Companys effective tax rate if recognized. The Company settled income tax-related issues during the first quarter of 2008 and approximately $2,600 of unrecognized tax benefits related to uncertain tax positions were released. This resulted in a significantly lower effective tax rate for the nine month period ended September 30, 2008, compared to the same period of 2009.
There were no tax positions for which the ultimate deductibility was highly certain, but for which there was uncertainty about the timing of such deductibility included in the balance sheet at September 30, 2009 and December 31, 2008. Because of the impact of deferred tax accounting, other than interest and penalties, any disallowance of the shorter deductibility period would not affect the annual effective tax rate, but would accelerate the payment of cash to the taxing authority to an earlier period.
8
The Company classifies interest expense and penalties as part of its provision for income taxes based upon applicable federal and state interest/underpayment percentages. The Company has accrued $1,196 and $1,115 in interest and penalties on its balance sheet at September 30, 2009 and December 31, 2008, respectively. Interest was computed on the difference between the provision for income taxes recognized in accordance with US GAAP and the amount of benefit previously taken or expected to be taken in the Companys federal, state, and local income tax returns.
The Companys federal income tax returns for the tax years 2006 and forward are available for examination by the United States Internal Revenue Service. The Company is currently under audit examination by the Internal Revenue Service for its 2007 federal income tax return. This examination commenced in December 2008 and is expected to be completed in 2009. At this time, the Company does not anticipate that the result of the audit will have a material effect on its financial statements.
The Company has not agreed to extend its federal statute of limitations for the 2006 tax year as of September 30, 2009. The federal statute of limitations for the 2006 tax year will expire on September 15, 2010. The Companys state income tax returns for 2005 through 2008 remain subject to examination by various state authorities with the latest period closing on October 15, 2013. The Company has not extended the statutes of limitations for any state jurisdictions with respect to years prior to 2005. Such state statutes of limitations will expire on or before October 15, 2010 unless extended.
Note 7
The Companys capital stock is one hundred percent (100%) owned by its active and retired employees and there is no public trading market for its common stock. No shareholder may sell, transfer, or otherwise dispose of shares of common stock or the voting trust interests issued with respect thereto (common stock, common shares, or shares) without first offering the Company the option to purchase such shares at the price at which the shares were issued. The Company also has the option to purchase at the issue price the common stock of any holder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension. The Company has always exercised its purchase option and expects to continue to do so. All outstanding shares of the Company have been issued at $20.00 per share.
Approximately eighty-one percent (81%) and eighty percent (80%) of the Companys issued and outstanding shares of common stock was deposited with the Voting Trustees and held under the 2007 Voting Trust Agreement by their beneficial owners as of September 30, 2009 and December 31, 2008, respectively.
Note 8
The Company has a revolving credit agreement with a group of thirteen banks at an interest rate based on the London Interbank Offered Rate (LIBOR) that consists of an unsecured $200,000 five-year facility expiring in May 2012. There were no amounts outstanding under the credit agreement at September 30, 2009 and December 31, 2008.
Note 9
At September 30, 2009, the Company had a $215,000 trade receivable securitization program that was scheduled to expire in October 2009. Prior to expiration, the Company amended the program agreement, effective October 9, 2009, to reduce the program to a $100,000 facility that expires in October 2010. The trade receivable securitization program provides for the sale of certain of the Companys trade receivables on a revolving basis to Graybar Commerce Corporation (GCC), a wholly-owned, bankruptcy-remote, special-purpose subsidiary. GCC sells an undivided interest in the trade receivables to an unrelated multi-seller commercial paper conduit. In the event that a dislocation in the market for the conduits receivables-backed commercial paper develops and the conduit is unable to purchase the undivided interest offered by GCC, the age nt bank for the receivable securitization program is obligated to purchase the undivided interest in the trade receivables from GCC under the terms of the program.
The Company accounts for the securitization as an on-balance sheet financing arrangement because the Company has maintained effective control of the trade receivables through a call option that gives GCC the unilateral right to repurchase the undivided interests. Accordingly, the trade receivables and related debt are included in the accompanying consolidated balance sheets. GCC has granted a security interest in its trade receivables to the commercial paper conduit. There were no borrowings outstanding under the trade receivable securitization program at September 30, 2009 and December 31, 2008.
9
Note 10
The Company has a lease agreement with an independent lessor, which provides $28,720 of financing for five of the Companys distribution facilities. The agreement carries a five-year term expiring July 2013. The financing structure used with this lease qualifies as a silo of a variable interest entity. In accordance with US GAAP, the Company, as the primary beneficiary, consolidates the silo in its financial statements.
As of September 30, 2009, the consolidated silo included in the Companys consolidated financial statements had a net property balance of $16,320, long-term debt of $27,715, and a noncontrolling interest of $1,005. At December 31, 2008, the consolidated silo included in the Companys consolidated financial statements had a net property balance of $16,862, long-term debt of $27,715, and a noncontrolling interest of $1,005.
Under the terms of the lease agreement, the amount guaranteed by the Company as the residual fair value of the property subject to the lease arrangement was $28,720 at September 30, 2009 and December 31, 2008.
Note 11
The Company has a noncontributory defined benefit pension plan covering substantially all full-time employees. The plan provides retirement benefits based on an employees final average earnings and years of service. Employees become one hundred percent (100%) vested after five years of service regardless of age. The Companys funding policy is to contribute the net periodic pension cost accrued each year, provided that the contribution will not be less than the Pension Protection Act of 2006 minimum or greater than the maximum tax-deductible amount. The assets of the defined benefit plan are invested in fixed income and equity securities, money market funds, and other investments.
The Company made contributions to its qualified defined benefit pension plan totaling $8,500 and $24,500 during the three and nine month periods ended September 30, 2009, respectively. Contributions made during the three and nine month periods ended September 30, 2008 totaled $6,200 and $25,000, respectively. Additional contributions totaling $10,000 are expected to be paid during the remainder of 2009.
Note 12
The Company and its subsidiaries are subject to various claims, disputes, administrative, and legal matters incidental to the Companys past and current business activities. As a result, contingencies may arise resulting from an existing condition, situation, or set of circumstances involving an uncertainty as to the realization of a possible loss.
The Companys estimated loss contingencies are accrued only if the loss is probable and the amount of the loss can be reasonably estimated. With respect to a particular loss contingency, it may be probable that a loss has occurred, but the estimate of the loss is a wide range. If the Company deems some amount within the range to be a better estimate than any other amount within the range, that amount will be accrued. However, if no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. While the Company believes that none of these claims, disputes, administrative, and legal matters will have a material adverse effect on its financial position, these matters are uncertain and the Company cannot, at this time, determine whether the financial impact, if any, of these matters will be material to its results of operations in the period in which such matters are resolved or a better estimate becomes available.
Note 13
Comprehensive income for the three months ended September 30, 2009 and 2008 was $14,521 and $19,888, respectively. Comprehensive income for the nine months ended September 30, 2009 and 2008 was $31,835 and $69,868, respectively. Comprehensive income is comprised of net income, foreign currency translation adjustments related to the Companys operations outside of the United States, pension and postretirement liability adjustments, and changes in the fair value of the Companys interest rate swap agreement.
10
Note 14
The Company has evaluated subsequent events through the time of the filing of this Form 10-Q with the SEC. Except for the amendment to the trade receivable securitization program discussed in Note 9, no material subsequent events have occurred since September 30, 2009 that require recognition or disclosure in these financial statements.
11
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto of Graybar Electric Company, Inc. (Graybar or the Company), and the audited consolidated financial statements, notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2008, included in our Annual Report on Form 10-K for such period as filed with the U.S. Securities and Exchange Commission (SEC or Commission). The results shown herein are not necessarily indicative of the results to be expected in any future periods.
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). These forward-looking statements generally are identified by the words believes, projects, expects, anticipates, estimates, intends, strategy, plan, may, will, would, will be, will continue, will likely result , and similar expressions. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. The Companys ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse impact on the Companys operations and future prospects on a consolidated basis include, but are not limited to: continued financial market turmoil, the impact of financial market distress on our defined benefit pension plan, disruptions in our sources of supply, changes in general economic conditions, volatility in the prices of industrial metal commodities, a sustained interruption in th e operation of our information systems, adverse legal proceedings or other claims, and the inability, or limitation on our ability, to raise debt or equity capital. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially impact our financial results, is included herein and in our other filings with the SEC. Actual results and the timing of events could differ materially from the forward-looking statements as a result of certain factors, a number of which are outlined in Item 1A., Risk Factors, of the Companys latest Annual Report on Form 10-K for the year ended December 31, 2008.
All dollar amounts are stated in thousands ($000s) in the following discussion and accompanying tables. Certain reclassifications were made to prior year amounts to conform to the 2009 presentation.
Background
Graybar is a New York corporation, incorporated in 1925. The Company is engaged in the distribution of electrical, communications and data networking (comm/data) products, and the provision of related supply chain management and logistics services, primarily to electrical and comm/data contractors, industrial plants, telephone companies, federal, state, and local governments, commercial users, and power utilities in North America. All products sold by the Company are purchased by the Company from others. The Companys business activity is primarily with customers in the United States. Graybar also has subsidiary operations with distribution facilities in Canada and Puerto Rico.
The Companys capital stock is one hundred percent (100%) owned by its active and retired employees and there is no public trading market for its common stock. No shareholders may sell, transfer, or otherwise dispose of shares of common stock or the voting trust interests issued with respect thereto (common stock, common shares, or shares) without first offering the Company the option to purchase such shares at the price at which shares were issued. The Company also has the option to purchase at the issue price the common stock of any holder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension. The Company has always exercised its purchase option and expects to continue to do so. All outstanding shares of the Company have been issued at $2 0.00 per share.
12
Business Overview
The credit and financial market crisis which began in September 2008 appears to have abated somewhat, particularly in the United States. However, recessionary conditions persist and credit availability remains tight within the Companys North American trading area. Spending on new construction and capital expenditures on plant and equipment during the first nine months of 2009 was well below the level of a year ago and had a considerable negative impact on the Companys results of operations for the three and nine month periods ended September 30, 2009.
Net sales declined 20.5% and gross margin decreased 18.5% during the nine months ended September 30, 2009, compared to the same nine months ended September 30, 2008. The Company believes that approximately four percentage points (4%) of the net sales decline is attributable to product price deflation. Selling, general and administrative expenses also declined, but to a lesser extent than gross margin, resulting in a 62.8% decrease in income from operations during the nine months ended September 30, 2009, compared to the same period in 2008.
The Company expects little, if any, improvement in the markets for products sold by the Company during the fourth quarter of 2009, although there are some indications that the downward trend of the overall economy may have reached a bottom. As a result, the Company anticipates continued negative year-over-year comparisons of both net sales and gross margin for the balance of 2009. Graybar believes, however, that its experienced management team, solid balance sheet, and continued positive, though lower, income from operations, will enable the Company to not only weather this severe downturn in the economy, but to emerge well-positioned for the return of economic growth.
13
Consolidated Results of Operations
The following tables set forth certain information relating to the operations of the Company stated in thousands of dollars and as a percentage of net sales for the three and nine months ended September 30, 2009 and 2008.
|
|
Three Months Ended |
|
|
|
Three Months Ended |
| ||||||
|
|
September 30, 2009 |
|
|
|
September 30, 2008 |
| ||||||
|
|
Dollars |
|
|
Percent |
|
|
|
Dollars |
|
|
Percent |
|
Net Sales |
$ |
1,124,107 |
|
|
100.0 |
% |
|
$ |
1,449,643 |
|
|
100.0 |
% |
Cost of merchandise sold |
|
(908,282 |
) |
|
(80.8 |
) |
|
|
(1,187,325 |
) |
|
(81.9 |
) |
Gross Margin |
|
215,825 |
|
|
19.2 |
|
|
|
262,318 |
|
|
18.1 |
|
Selling, general and administrative expenses |
|
(188,741 |
) |
|
(16.8 |
) |
|
|
(217,988 |
) |
|
(15.1 |
) |
Depreciation and amortization |
|
(9,582 |
) |
|
(0.9 |
) |
|
|
(9,587 |
) |
|
(0.7 |
) |
Other income, net |
|
612 |
|
|
0.1 |
|
|
|
847 |
|
|
0.1 |
|
Income from Operations |
|
18,114 |
|
|
1.6 |
|
|
|
35,590 |
|
|
2.4 |
|
Interest expense, net |
|
(2,354 |
) |
|
(0.2 |
) |
|
|
(3,150 |
) |
|
(0.2 |
) |
Income before Provision for Income Taxes |
|
15,760 |
|
|
1.4 |
|
|
|
32,440 |
|
|
2.2 |
|
Provision for income taxes |
|
(5,696 |
) |
|
(0.5 |
) |
|
|
(12,804 |
) |
|
(0.9 |
) |
Net Income |
|
10,064 |
|
|
0.9 |
|
|
|
19,636 |
|
|
1.3 |
|
Less: Net income attributable tononcontrolling interests |
|
(45 |
) |
|
-- |
|
|
|
(65) |
|
|
-- |
|
Net Income attributable toGraybar Electric Company, Inc. |
$ |
10,019 |
|
|
0.9 |
% |
|
$ |
19,571 |
|
|
1.3 |
% |
|
|
Nine Months Ended |
|
|
|
Nine Months Ended |
| ||||||
|
|
September 30, 2009 |
|
|
|
September 30, 2008 |
| ||||||
|
|
Dollars |
|
|
Percent |
|
|
|
Dollars |
|
|
Percent |
|
Net Sales |
$ |
3,303,247 |
|
|
100.0 |
% |
|
$ |
4,153,036 |
|
|
100.0 |
% |
Cost of merchandise sold |
|
(2,662,267 |
) |
|
(80.6 |
) |
|
|
(3,366,331 |
) |
|
(81.1 |
) |
Gross Margin |
|
640,980 |
|
|
19.4 |
|
|
|
786,705 |
|
|
18.9 |
|
Selling, general and administrative expenses |
|
(570,495 |
) |
|
(17.3 |
) |
|
|
(642,987 |
) |
|
(15.5 |
) |
Depreciation and amortization |
|
(29,119 |
) |
|
(0.9 |
) |
|
|
(28,475 |
) |
|
(0.7 |
) |
Other income, net |
|
2,216 |
|
|
0.1 |
|
|
|
1,904 |
|
|
0.1 |
|
Income from Operations |
|
43,582 |
|
|
1.3 |
|
|
|
117,147 |
|
|
2.8 |
|
Interest expense, net |
|
(7,954 |
) |
|
(0.2 |
) |
|
|
(9,635 |
) |
|
(0.2 |
) |
Income before Provision for Income Taxes |
|
35,628 |
|
|
1.1 |
|
|
|
107,512 |
|
|
2.6 |
|
Provision for income taxes |
|
(14,757 |
) |
|
(0.5 |
) |
|
|
(40,432 |
) |
|
(1.0 |
) |
Net Income |
|
20,871 |
|
|
0.6 |
|
|
|
67,080 |
|
|
1.6 |
% |
Less: Net income attributable tononcontrolling interests |
|
(46 |
) |
|
-- |
|
|
|
(143 |
) |
|
-- |
|
Net Income attributable toGraybar Electric Company, Inc. |
$ |
20,825 |
|
|
0.6 |
% |
|
$ |
66,937 |
|
|
1.6 |
% |
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Net sales totaled $1,124,107 for the three months ended September 30, 2009, compared to $1,449,643 for the three months ended September 30, 2008, a decrease of $325,536, or 22.5%. Net sales to the electrical and comm/data market sectors for the three months ended September 30, 2009 decreased 25.1% and 17.8%, respectively, compared to the same three month period in 2008.
Gross margin decreased $46,493, or 17.7%, to $215,825 from $262,318, primarily due to lower net sales in the third quarter of 2009, compared to the same period of 2008. The Companys gross margin rate on net sales increased to 19.2% for the three month period ended September 30, 2009, compared to 18.1% the same three month period of 2008.
14
Selling, general and administrative expenses decreased $29,247, or 13.4%, to $188,741, in the third quarter of 2009 from $217,988 in the third quarter of 2008, mainly due to lower employee compensation and benefit costs. Selling, general and administrative expenses as a percentage of net sales were 16.8% in the third quarter of 2009, up from 15.1% of net sales in the third quarter of 2008.
Depreciation and amortization expenses for the three months ended September 30, 2009 of $9,582 were flat, compared to $9,587 recorded in the third quarter of 2008. Depreciation and amortization expenses as a percentage of net sales increased to 0.9% for the three months ended September 30, 2009, compared to 0.7% of net sales for the same three month period in 2008.
Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to the Companys business activities. Other income, net totaled $612 for the three months ended September 30, 2009, compared to $847 for the three months ended September 30, 2008. The decrease was due to lower trade receivable interest charges to customers as a result of lower levels of delinquent trade receivables for the three months ended September 30, 2009, compared to the same period last year.
Income from operations totaled $18,114 for the three months ended September 30, 2009, a decrease of $17,476, or 49.1%, from $35,590 for the three months ended September 30, 2008. The decrease was due to lower net sales and gross margin and lower other income, net, partially offset by decreases in selling, general and administrative expenses.
Interest expense, net declined $796, or 25.3%, to $2,354 for the three months ended September 30, 2009 from $3,150 for the three months ended September 30, 2008. This reduction was mainly due to a lower level of outstanding long-term debt in the third quarter of 2009, compared to the same period of 2008.
The decrease in income from operations and lower interest expense, net resulted in income before provision for income taxes of $15,760 for the three months ended September 30, 2009, a decrease of $16,680, or 51.4%, compared to $32,440 for the three months ended September 30, 2008.
The Companys total provision for income taxes decreased $7,108, or 55.5%, for the three months ended September 30, 2009, compared to the same period in 2008, as a result of lower income before provision for income taxes. The Companys effective tax rate decreased to 36.1% for the three months ended September 30, 2009, down from 39.5% for the same period in 2008, due to a decrease in unrecognized tax benefits, interest, and penalties.
Net income attributable to Graybar Electric Company, Inc. for the three months ended September 30, 2009 decreased $9,552, or 48.8%, to $10,019 from $19,571 for the three months ended September 30, 2008.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Net sales totaled $3,303,247 for the nine months ended September 30, 2009, compared to $4,153,036 for the same period of 2008, a decrease of $849,789 or 20.5%. Net sales to the electrical and comm/data market sectors during the nine month period ended September 30, 2009 decreased 21.6% and 18.1%, respectively, compared to the nine month period ended September 30, 2008.
Gross margin decreased $145,725, or 18.5%, to $640,980 from $786,705, due to lower net sales in the first nine months of 2009, compared to the same period of 2008. The Companys gross margin rate on net sales was 19.4% for the nine month period ended September 30, 2009, compared to 18.9% for the same period in 2008.
Selling, general and administrative expenses decreased $72,492, or 11.3%, to $570,495, for the nine month period ended September 30, 2009, compared to $642,987 for the nine month period ended September 30, 2008, mainly due to lower employee compensation and benefit costs. Selling, general and administrative expenses as a percentage of net sales for the nine month period ended September 30, 2009 were 17.3%, up from 15.5% for the same nine month period of 2008.
Depreciation and amortization expenses for the nine months ended September 30, 2009 increased $644, or 2.3%, to $29,119 from $28,475 for the same nine month period in 2008. This increase was due primarily to an increase in information technology assets, partially offset by the disposal of property. Depreciation and amortization expenses as a percentage of net sales increased to 0.9% for the nine months ended September 30, 2009, compared to 0.7% of net sales for the same nine month period in 2008.
15
Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to the Companys business activities. Other income, net totaled $2,216 for the nine month period ended September 30, 2009, compared to $1,904 for the nine month period ended September 30, 2008. The increase was mainly due to higher net gains on the disposal of property, which were $334 for the nine month period ended September 30, 2009, compared to net gains on the disposal of property of $25 for the nine month period ended September 30, 2008.
Income from operations totaled $43,582 for the nine month period ended September 30, 2009, a decrease of $73,565, or 62.8%, from $117,147 for the nine month period ended September 30, 2008. The decrease was due to lower net sales and gross margin and higher depreciation and amortization expenses, partially offset by decreases in selling, general and administrative expenses, and higher other income, net.
Interest expense, net declined $1,681, or 17.4%, to $7,954 for the nine month period ended September 30, 2009 from $9,635 for the nine month period ended September 30, 2008. This reduction was mainly due to a lower level of outstanding long-term debt during the nine month period ended September 30, 2009, compared to the same period of 2008.
The decrease in income from operations and lower interest expense, net resulted in income before provision for income taxes of $35,628 for the nine months ended September 30, 2009, a decrease of $71,884, or 66.9%, compared to $107,512 for the nine month period ended September 30, 2008.
The Companys total provision for income taxes decreased $25,675, or 63.5%, for the nine month period ended September 30, 2009, compared to the same nine month period in 2008, as a result of lower income before provision for income taxes. The Companys effective tax rate increased to 41.4% for the nine months ended September 30, 2009, up from 37.6% for the same nine month period in 2008, due to an increase in unrecognized tax benefits, interest, and penalties. The Company settled income tax-related issues during the nine months ended September 30, 2008 and approximately $2,600 of unrecognized tax benefits related to uncertain tax positions were released, producing a lower effective tax rate for that period.
Net income attributable to Graybar Electric Company, Inc. for the nine month period ended September 30, 2009 decreased $46,112, or 68.9%, to $20,825 from $66,937 for the nine month period ended September 30, 2008.
Financial Condition and Liquidity
The Company has historically funded its working capital requirements using cash flows generated by the collection of trade receivables and trade accounts payable terms with its suppliers, supplemented by short-term bank lines of credit. Capital assets are financed primarily by common stock issuances to the Companys employees and long-term debt.
Operating Activities
Net cash provided by operations was $48,346 for the nine month period ended September 30, 2009, compared to $28,973 for the nine month period ended September 30, 2008. Positive cash flows from operations for the nine months ended September 30, 2009 were primarily due to net income of $20,871, non-cash depreciation and amortization expenses of $29,119, and decreases in trade receivables of $56,807 and merchandise inventory of $39,162, partially offset by decreases in trade accounts payable of $46,565 and accrued payroll and benefit costs of $58,394.
Trade receivables decreased during the nine months ended September 30, 2009, due primarily to a 20.5% decline in net sales for the period, compared to the same nine month period in 2008. The average number of days of sales in trade receivables at September 30, 2009 declined modestly, compared to the average number of days at September 30, 2008. Merchandise inventory levels decreased significantly at September 30, 2009, compared to December 31, 2008, as adjustments were made to accommodate the declining net sales level. Merchandise inventory turnover declined significantly for the three month period ended September 30, 2009, compared to the quarter ended September 30, 2008.
16
Current assets exceeded current liabilities by $436,364 at September 30, 2009, an increase of $5,238, or 1.2%, from $431,126 at December 31, 2008.
Investing Activities
Net cash used by investing activities totaled $20,768 for the nine months ended September 30, 2009, compared to net cash used by investing activities of $25,041 for the same period of 2008. Capital expenditures for property were $21,736 and $25,368, and proceeds from the disposal of property were $968 and $327, for the nine months ended September 30, 2009 and 2008, respectively. The proceeds received resulted from the sale of real and personal property.
Financing Activities
Net cash used by financing activities totaled $45,581 for the nine months ended September 30, 2009, compared to $31,689 for the nine months ended September 30, 2008.
Cash used to decrease short-term borrowings was $4,168 for the nine months ended September 30, 2009, compared to cash provided by short-term borrowings of $5,305 for the nine months ended September 30, 2008. The Company reduced net long-term debt (including current portion) by $24,277 for the nine months ended September 30, 2009. This was due to payments on long-term debt of $25,148 and payments on capital lease obligations of $510, partially offset with increased borrowings associated with capital leases of $641 for the nine months ended September 30, 2009. During the nine months ended September 30, 2008, the Company reduced long-term debt (including current portion) by $24,974 and capital lease obligations by $335.
Cash provided by the sale of common stock amounted to $10,034 and $9,539, and purchases of stock to be held in treasury were $9,158 and $6,593, for the nine months ended September 30, 2009 and 2008, respectively. Cash paid to purchase noncontrolling interest stock was $61 and $58, and cash provided by the sale of noncontrolling interest stock was $464 and $0, for the nine months ended September 30, 2009 and 2008, respectively. Cash dividends paid on common stock were $17,675 and $14,573 for the nine months ended September 30, 2009 and 2008, respectively.
Cash and cash equivalents were $112,440 at September 30, 2009, compared to $130,443 at December 31, 2008, a decrease of $18,003, or 13.8%.
Liquidity
The Company has a revolving credit agreement with a group of thirteen banks at an interest rate based on the London Interbank Offered Rate (LIBOR) that consists of an unsecured $200,000 five-year facility expiring in May 2012. There were no amounts outstanding under this credit agreement at September 30, 2009 and December 31, 2008. The credit and financial market crisis which began in September 2008 impacted two banks that participate in the Companys revolving credit facility. The Company expects, however, that it will continue to have full access to this facility.
At September 30, 2009 and December 31, 2008, the Company had a $215,000 trade receivable securitization program that was scheduled to expire in October 2009. Prior to expiration, the Company amended the program agreement, effective October 9, 2009, to reduce the program to a $100,000 facility that expires in October 2010. The trade receivable securitization program provides for the sale of certain of the Companys trade receivables on a revolving basis to Graybar Commerce Corporation (GCC), a wholly-owned, bankruptcy-remote, special-purpose subsidiary. GCC sells an undivided interest in the trade receivables to an unrelated multi-seller commercial paper conduit. In the event that a dislocation in the market for the conduits receivables-backed commercial paper develops and the conduit is unable to purchase the undivided interest o ffered by GCC, the agent bank for the trade receivable securitization program is obligated to purchase the undivided interest in the trade receivables from GCC under the terms of the program.
The Company accounts for the securitization as an on-balance sheet financing arrangement because the Company has maintained effective control of the trade receivables through a call option that gives GCC the unilateral right to repurchase the undivided interests. Accordingly, the trade receivables and related debt are included in the accompanying consolidated balance sheets. GCC has granted a security interest in its trade receivables to the commercial paper conduit. There were no borrowings outstanding under the trade receivable securitization program at September 30, 2009 and December 31, 2008.
17
At September 30, 2009, the Company had available to it unused lines of credit amounting to $423,589, compared to $427,283 at December 31, 2008. These lines are available to meet the short-term cash requirements of the Company and certain committed lines of credit have annual fees of up to 50 basis points (0.5%) of the committed lines of credit.
Short-term borrowings outstanding during the nine months ended September 30, 2009 and 2008 ranged from a minimum of $11,189 and $15,240 to a maximum of $65,858 and $70,028, respectively.
The revolving credit agreement, the trade receivable securitization program, and certain other note agreements contain various covenants that limit the Companys ability to make investments, pay dividends, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreements. The Company was in compliance with all covenants under these agreements as of September 30, 2009 and December 31, 2008.
The Company has a lease agreement with an independent lessor, which provides $28,720 of financing for five of the Companys distribution facilities. The agreement carries a five-year term expiring July 2013. The financing structure used with this lease qualifies as a silo of a variable interest entity. In accordance with accounting principles generally accepted in the United States (US GAAP), the Company, as the primary beneficiary, consolidates the silo in its financial statements.
As of September 30, 2009, the consolidated silo included in the Companys consolidated financial statements had a net property balance of $16,320, long-term debt of $27,715, and a noncontrolling interest of $1,005. At December 31, 2008, the consolidated silo included in the Companys consolidated financial statements had a net property balance of $16,862, long-term debt of $27,715, and a noncontrolling interest of $1,005.
Under the terms of the lease agreement, the amount guaranteed by the Company as the residual fair value of the property subject to the lease arrangement was $28,720 at September 30, 2009 and December 31, 2008.
New Accounting Guidance
In June 2009, the Financial Accounting Standards Board (FASB) issued authoritative guidance establishing two levels of US GAAP authoritative and non-authoritative and making the FASB Accounting Standards Codification (ASC) the source of authoritative US GAAP to be applied by non-governmental entities, except for rules and interpretative releases of the SEC. This guidance was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption changed certain disclosure references to US GAAP, but did not have any other impact on the Companys condensed consolidated financial statements.
18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the policies, procedures, controls or risk profile from those provided in Item 7A., Quantitative and Qualitative Disclosures About Market Risk, of the Companys Annual Report on Form 10-K for the year ended December 31, 2008.
Item 4T. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
An evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2009, was performed under the supervision and with the participation of the Companys management. Based on that evaluation, the Companys management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Companys disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.
(b) Changes in internal control over financial reporting
There were no changes in the Companys internal control over financial reporting that occurred during the period covered by this report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
19
PART II. OTHER INFORMATION
There have been no material changes to the risk factors disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds
The Company is one hundred percent (100%) owned by its active and retired employees and there is no public trading market for its common stock. Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable state law, a voting trust may not have a term greater than ten years. At September 30, 2009, approximately eighty-one percent (81%) of the common stock was held in a voting trust that expires by its terms on March 15, 2017. The participation of shareholders in the voting trust is voluntary at the time the voting trust is created but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record.
No shareholder may sell, transfer, or otherwise dispose of shares of common stock or the voting trust interests issued with respect thereto (common stock, common shares, or shares) without first offering the Company the option to purchase such shares at the price at which the shares were issued. The Company also has the option to purchase at the issue price the common stock of any holder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension. The Company has always exercised its purchase option and expects to continue to do so. All outstanding shares of the Company have been issued at $20.00 per share.
The following table sets forth information regarding purchases of common stock by the Company pursuant to the foregoing provisions:
Issuer Purchases of Equity Securities
Period |
Total Number ofShares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly |
July 1 to July 31, 2009 |
30,888 |
$20.00 |
N/A |
August 1 to August 31, 2009 |
41,347 |
$20.00 |
N/A |
September 1 to September 30, 2009 |
51,605 |
$20.00 |
N/A |
Total |
123,840 |
$20.00 |
N/A |
20
Item 6. Exhibits
(a) Exhibits furnished in accordance with provisions of Item 601 of Regulation S-K.
(3) (i) Articles of Incorporation
(a) Restated Certificate of Incorporation, as amended, filed as Exhibit 4(i) to the Companys Registration Statement on Form S-1 (Registration No. 333-15761) filed with the Commission on November 7, 1996 and incorporated herein by reference.
(b) Certificate of Amendment of Certificate of Incorporation, filed as Exhibit 4(ii) to the Companys Registration Statement on Form S-2 (Registration No. 333-118575) filed with the Commission on August 26, 2004 and incorporated herein by reference.
(ii) By-laws
(a) By-laws, as amended through June 14, 2007, filed as Exhibit (3)(ii) to the Companys Current Report on Form 8-K filed June 15, 2007 (Commission File No. 000-0255) and incorporated herein by reference.
(10) (i) Material Contracts
(v) Amendment No. 13, dated September 25, 2009, and signed September 30, 2009, to Receivables Purchase Agreement, dated June 30, 2000, among Graybar Commerce Corporation, as Seller; Graybar Electric Company, Inc., as Servicer; Falcon Asset Securitization Corporation, as Conduit; JP Morgan Chase Bank NA (successor by merger to Bank One, NA), as agent; and other banks named therein filed as Exhibit 10(v) to Companys Current Report on Form 8-K filed October 6, 2009 (Commission File No. 000-00255) and incorporated herein by reference.
(31) Rule 13a-14(a)/15d-14(a) Certifications
(31.1) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Principal Executive Officer.
(31.2) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Principal Financial Officer.
(32) Section 1350 Certifications
(32.1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Principal Executive Officer.
(32.2) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Principal Financial Officer.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
GRAYBAR ELECTRIC COMPANY, INC. |
|
|
|
|
|
|
November 9, 2009 |
|
/s/ R. A. REYNOLDS, JR. |
Date |
|
R. A. Reynolds, Jr. |
|
|
President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
November 9, 2009 |
|
/s/ D. B. DALESSANDRO |
Date |
|
D. B. DAlessandro |
|
|
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
|
|
|
November 9, 2009 |
|
/s/ MARTIN J. BEAGEN |
Date |
|
Martin J. Beagen |
|
|
Vice President and Controller (Principal Accounting Officer) |
22
EXHIBIT INDEX
Exhibits
(3(i)) Articles of Incorporation
(a) Restated Certificate of Incorporation, as amended, filed as Exhibit 4(i) to the Companys Registration Statement on Form S-1 (Registration No. 333-15761) filed with the United States Security and Exchange Commission (the Commission) on November 7, 1996 and incorporated herein by reference.
(b) Certificate of Amendment of Certificate of Incorporation, filed as Exhibit 4(ii) to the Companys Registration Statement on Form S-2 (Registration No. 333-118575) filed with the Commission on August 26, 2004 and incorporated herein by reference.
(3(ii)) By-laws
(a) By-laws, as amended through June 14, 2007, filed as Exhibit (3)(ii) to the Companys Current Report on Form 8-K filed June 15, 2007 (Commission File No. 000-0255) and incorporated herein by reference.
(10) Material Contracts
(v) Amendment No. 13, dated September 25, 2009, and signed September 30, 2009, to Receivables Purchase Agreement, dated June 30, 2000, among Graybar Commerce Corporation, as Seller; Graybar Electric Company, Inc., as Servicer; Falcon Asset Securitization Corporation, as Conduit; JP Morgan Chase Bank NA (successor by merger to Bank One, NA), as agent; and other banks named therein filed as Exhibit 10(v) to Companys Current Report on Form 8-K filed October 6, 2009 (Commission File No. 000-00255) and incorporated herein by reference.
(31.1) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Principal Executive Officer.
(31.2) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Principal Financial Officer.
(32.1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Principal Executive Officer.
(32.2) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Principal Financial Officer.
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Exhibit 31.1
CERTIFICATION
I, Robert A. Reynolds, Jr., certify that:
1) I have reviewed this Quarterly Report on Form 10-Q of Graybar Electric Company, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 9, 2009
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/s/ ROBERT A. REYNOLDS, JR. |
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Robert A. Reynolds, Jr. |
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President and Chief Executive Officer (Principal Executive Officer) |
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Exhibit 31.2
CERTIFICATION
I, D. Beatty D’Alessandro, certify that:
1) I have reviewed this Quarterly Report on Form 10-Q of Graybar Electric Company, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 9, 2009
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/s/ D. BEATTY D’ALESSANDRO |
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D. Beatty D’Alessandro |
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Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Reynolds, Jr., President and Chief Executive Officer of Graybar Electric Company, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ ROBERT A. REYNOLDS, Jr. |
Robert A. Reynolds, Jr. |
President and Chief Executive Officer (Principal Executive Officer) |
November 9, 2009
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, D. Beatty D’Alessandro, Senior Vice President and Chief Financial Officer of Graybar Electric Company, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ D. BEATTY D’ALESSANDRO |
D. Beatty D’Alessandro |
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
November 9, 2009
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