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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 June 30, 2010 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: 000-00255 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 Website, 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 ¨ Non-accelerated filer x (Do not check if a 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 July 31, 2010: 10,563,878 (Number of Shares) For the Quarterly Period Ended June 30, 2010 (Unaudited) PART I. FINANCIAL INFORMATION Page(s) Item 1. Financial Statements 3 4 5
Condensed Consolidated Statements of Changes in Shareholders Equity 6 7-11 Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations 12-17 Item 3. 17 Item 4T. 17 PART II. OTHER INFORMATION Item 2. 18 Item 6. 18 19 20 PART 1. FINANCIAL INFORMATION Graybar Electric Company, Inc. and Subsidiaries (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (Stated in thousands except per share data) 2010 2009 2010 2009 Gross Sales $ 1,135,279 $ 1,125,942 $ 2,140,378 $ 2,187,773 Cash Discounts (4,508 ) (4,350 ) (8,433 ) (8,633 ) Net Sales 1,130,771 1,121,592 2,131,945 2,179,140 Cost of merchandise sold (921,230 ) (903,676 ) (1,727,745 ) (1,753,985 ) Gross Margin 209,541 217,916 404,200 425,155 Selling, general and administrative expenses (181,724 ) (190,959 ) (359,763 ) (381,754 ) Depreciation and amortization (9,979 ) (10,139 ) (19,693 ) (19,537 ) Other income, net 731 659 2,228 1,604 Income from Operations 18,569 17,477 26,972 25,468 Interest expense, net (2,173 ) (2,734 ) (4,472 ) (5,600 ) Income before Provision for Income Taxes 16,396 14,743 22,500 19,868 Provision for income taxes (6,827 ) (6,421 ) (9,368 ) (9,061 ) Net Income 9,569 8,322 13,132 10,807 Less: Net income attributable to noncontrolling interests (61 ) (1 ) (98 ) (1 ) Net Income attributable to Graybar Electric Company, Inc. $ 9,508 $ 8,321 $ 13,034 $ 10,806 Net Income per share of Common Stock (A) $ 0.90 $ 0.78 $ 1.23 $ 1.01 Cash Dividends per share of Common Stock (B) $ 0.30 $ 0.30 $ 0.60 $ 0.60 Average Common Shares Outstanding (A) 10,585 10,657 10,615 10,683 (A) Adjusted for the declaration of a ten percent (10%) stock dividend in 2009, shares related to which were issued in February 2010. Prior to the adjustment, the average common shares outstanding were 9,688 and 9,712 for the three and six months ended June 30, 2009, respectively. (B) Cash dividends declared were $3,185 and $2,912 for the three months ended June 30, 2010 and 2009, respectively. Cash dividends declared were $6,369 and $5,840 for the six months ended June 30, 2010 and 2009, 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 June 30, December 31, (Stated in thousands except share and per share data) 2010 2009 (Unaudited) Current Assets Cash and cash equivalents $ 87,891 $ 163,864 Trade receivables (less allowances of $6,415 and $6,217, respectively) 621,046 577,400 Merchandise inventory 378,611 309,622 Other current assets 28,074 27,353 Total Current Assets 1,115,622 1,078,239 Property, at cost Land 47,630 47,743 Buildings 341,727 337,781 Furniture and fixtures 172,792 172,753 Software 76,906 76,906 Capital leases 6,939 5,205 Total Property, at cost 645,994 640,388 Less accumulated depreciation and amortization (348,316 ) (336,686 ) Net Property 297,678 303,702 Other Non-current Assets 48,103 50,012 $ 1,461,403 $ 1,431,953 Current Liabilities Short-term borrowings $ 15,882 $ 15,232 Current portion of long-term debt 33,769 36,068 Trade accounts payable 519,256 451,279 Accrued payroll and benefit costs 55,542 66,939 Other accrued taxes 13,018 15,378 Dividends payable -- 10,660 Other current liabilities 42,008 57,690 Total Current Liabilities 679,475 653,246 Postretirement Benefits Liability 65,504 66,336 Pension Liability 77,541 77,699 Long-term Debt 73,491 80,959 Other Non-current Liabilities 15,677 15,544 Total Liabilities 911,688 893,784 Shares at June 30, December 31, 2009 Common, stated value $20.00 per share Authorized 15,000,000 15,000,000 Issued to voting trustees 8,908,232 8,638,604 Issued to shareholders 2,017,735 1,984,686 In treasury, at cost (317,322 ) (24,808 ) Outstanding Common Stock 10,608,645 10,598,482 212,173 211,970 343 -- 430,585 423,920 Accumulated Other Comprehensive Loss (98,279 ) (102,599 ) 544,822 533,291 4,893 4,878 549,715 538,169 Total Liabilities and Shareholders Equity $ 1,461,403 $ 1,431,953 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 4 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 5 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. (Graybar or the Company), without audit, pursuant to the rules and regulations of the United States (US) Securities and Exchange Commission (the 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 US (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 reported amounts. The Compa
nys 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 2010 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, 2009 included in the Companys latest Annual Report on Form 10-K. In the opinion of management, 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 Commission. 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 subsidiaries. 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. Note 4 The Companys inventory is stated 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. Note 5 The Company is party to an interest rate swap agreement that effectively converts its variable rate interest payments to a fixed rate on amounts due under a certain lease arrangement. The Companys interest rate swap agreement is designated as a cash flow hedge and 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. 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 established by FASB. At June 30, 2010 and December 31, 2009, the Company recorded a liability of $5,243 and $4,969, respectively, in other current liabilities on
the consolidated balance sheet for the fair value of the swap. 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 condensed consolidated statements of income during the three and six months ended June 30, 2010 and 2009. 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 $212 and $425 during the three and six month periods ended June 30, 2010, respectively. 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 $190 and $355 during the three and six month periods ended June 30, 2009, respectively.
Washington, D.C. 20549
FORM 10-Q
Accelerated filer ¨
Smaller reporting company ¨
Graybar Electric Company, Inc. and Subsidiaries
Form 10-Q
Table of Contents
Item 1. Financial Statements
ASSETS
Total Assets
LIABILITIES
SHAREHOLDERS EQUITY
Capital Stock
2010
Advance Payments on Subscriptions to Common Stock
Retained Earnings
Total Graybar Electric Company, Inc. Shareholders Equity
Noncontrolling Interests
Total Shareholders Equity
7
Unrealized losses, net of tax, of $(112) and $(167) related to the swap were recorded in accumulated other comprehensive loss during the three and six months ended June 30, 2010. Unrealized gains, net of tax, of $619 and $723 related to the swap were recorded in accumulated other comprehensive loss during the three and six months ended June 30, 2009, respectively.
These deferred gains and losses are recognized in income in the period in which the related interest payments being hedged are recognized in expense. The Company has recorded approximately $3,204 and $3,037, net of tax, in accumulated other comprehensive loss related to the effective portion of the interest rate swap at June 30, 2010 and December 31, 2009, respectively. The amount of loss expected to be reclassified from accumulated other comprehensive loss to interest expense over the next twelve months is $1,117.
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 calculated 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 income taxes in the consolidated financial statements.
The Companys unrecognized tax benefits of $4,100 and $3,754 at June 30, 2010 and December 31, 2009, respectively, are uncertain tax positions that would impact the Companys effective tax rate if recognized. The Company does not anticipate a material change in its unrecognized tax benefits during the next twelve months.
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 consolidated balance sheet at June 30, 2010 and December 31, 2009. 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.
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 $1,221 and $1,103 in interest and penalties on its balance sheet at June 30, 2010 and December 31, 2009, 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 US Internal Revenue Service (IRS). The Company closed an examination conducted by the IRS of its 2007 federal income tax return during the fourth quarter of 2009. The results of this examination were included in the 2009 provision for income taxes. This examination outcome did not have a material effect on the Companys financial results or its effective tax rate for the year ended December 31, 2009.
The Company has not agreed to extend its federal statute of limitations for the 2006 tax year as of June 30, 2010. 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 2009 remain subject to examination by various state authorities, with the latest period closing on December 31, 2014. The Company has not extended the statutes of limitations for any state jurisdictions with respect to years prior to 2005. Such statutes of limitations will expire on or before November 15, 2010 unless extended.
8
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 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 ceases to be an employee of the Company for any cause other than retirement on a Company pension. All outstanding shares of the Company have been issued at $20.00 per share. The Company has always exercised its purchase option and expects to continue to do so.
Approximately eighty-two percent (82%) and eighty-one percent (81%) of the Companys issued and outstanding shares of common stock was deposited with voting trustees and held under the 2007 Voting Trust Agreement by their beneficial owners as of June 30, 2010 and December 31, 2009, 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 June 30, 2010 and December 31, 2009.
Note 9
At June 30, 2010 and December 31, 2009, the Company had a $100,000 trade receivable securitization program 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 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 trade recei vable agreements were amended, effective as of June 11, 2010, to permit the Company to exclude the trade receivables of specific customers (obligors) from the trade receivable agreements, and to permit the Company to exclude the trade receivables of additional obligors subject to the consent of the bank (agent).
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 June 30, 2010 and December 31, 2009.
The Company plans to replace all or a portion of the debt financing available under the trade receivable securitization program with a new or amended credit facility prior to the expiration of the trade receivable securitization program in October 2010.
Note 10
Effective January 1, 2010, the Company adopted new accounting guidance that modified the consolidation model in previous guidance and expanded the disclosures related to variable interest entities (VIE). The adoption of this new accounting guidance had no impact on the Companys financial statements.
An entity is considered to be a VIE if its total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or if its equity investors, as a group, lack the characteristics of having a controlling financial interest. A reporting company is required to consolidate a VIE as its primary beneficiary when it has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company has a lease agreement with an independent lessor that is considered to be a VIE. The agreement provides $28,720 of financing for five of the Companys distribution facilities and carries a five-year term expiring July 2013. The financing structure used with this lease qualifies as a silo of a VIE. Graybar, as lessee, retains the power to direct the operational activities that most significantly impact the economic performance of the VIE and has an obligation to absorb losses and the right to receive benefits from the sale of the real property held by the VIE lessor. Therefore, the Company is the primary beneficiary of this VIE, and in accordance with US GAAP, consolidates the silo in its financial statements.
9
As of June 30, 2010, the consolidated silo included in the Companys consolidated financial statements had a net property balance of $16,026, long-term debt of $27,715, and a noncontrolling interest of $1,005. At December 31, 2009, the consolidated silo included in the Companys consolidated financial statements had a net property balance of $16,299, 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 June 30, 2010 and December 31, 2009.
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 three years of service regardless of age. The Companys plan funding policy is to make contributions, provided that the total annual contributions will not be less than the Employee Retirement Income Security Act (ERISA) and the Pension Protection Act of 2006 minimums or greater than the maximum tax-deductible amount, to review contribution and funding strategy on a regular basis, and to allow discretionary contributions to be made by the Company from time to time. The assets of the defined benefit pension plan are invested primarily in fixed income and equity securities, money mar ket funds, and other investments.
The Company made contributions to its defined benefit pension plan totaling $10,000 and $20,000 during the three and six month periods ended June 30, 2010, respectively. Contributions made during the three and six month periods ended June 30, 2009 totaled $8,500 and $16,000, respectively. The company expects to make additional contributions totaling $20,600 during the remainder of 2010.
Note 12
The Company and its subsidiaries are subject to various claims, disputes, and 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 Company accounts for loss contingencies in accordance with US GAAP. 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, and 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 a ny, of these matters will be material to its results of operations or financial condition in the period in which such matters are resolved or a better estimate becomes available.
Note 13
Comprehensive income for the three months ended June 30, 2010 and 2009 was $10,378 and $14,060, respectively. Comprehensive income for the six months ended June 30, 2010 and 2009 was $17,452 and $17,314, respectively. Comprehensive income is comprised of net income, foreign currency translation adjustments related to the Companys operations outside of the US, changes in the fair value of the Companys interest rate swap agreement, and the amortization of gains and losses related to the Companys pension and postretirement liabilities.
Note 14
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively the "Acts") were enacted by the US Congress in March 2010. The Acts have both short- and long-term implications for benefit plan standards. Implementation of this legislation is planned to occur in phases, with some plan standard changes taking effect beginning in 2010 and other changes becoming effective through 2018.
10
In the short term, the Companys healthcare costs could increase due to the Acts raising of the maximum eligible age for covered dependents to receive benefits, the elimination of the lifetime dollar limits per covered individual, and restrictions on annual dollar limits on essential benefits per covered individual, among other standard requirements. In the long term, the Companys healthcare costs may increase due to the enactment of the excise tax on high cost healthcare plans.
The Company continues to evaluate the impact, if any, the Acts will have on its financial statements, but was unable to make such a determination in the current period. The Company expects the general trend in healthcare costs to continue to rise and the effects of the Acts, and any future legislation, could materially impact the cost to provide healthcare benefits for all employers, including the Company.
Note 15
At the Companys annual meeting of shareholders on June 10, 2010, the shareholders approved an amendment to the Companys Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 15,000,000 to 20,000,000 shares, which amendment was effective August 2010.
11
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes thereto, and our 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, 2009, included in our Annual Report on Form 10-K for such period as filed with the United States Securities and Exchange Commission (the 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 (PSLRA), 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 simila r expressions. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the PSLRA. 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: general economic conditions, particularly in the residential, commercial, and industrial building construction industries, volatility in the prices of industrial metal commodities, disruptions in the Companys sources of supply, a sustained interruption in the operation of the Companys information systems, adverse legal proceed ings or other claims, and the inability, or limitations on the Companys 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 Commission. 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 Annual Report on Form 10-K for the year ended December 31, 2009.
All dollar amounts are stated in thousands ($000s) in the following discussion and accompanying tables.
Background
Graybar Electric Company, Inc. (Graybar or the Company) 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 US. 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 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 shares were issued. The Company also has the option to purchase at the issue price the common stock of any holder who 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.
Business Overview
General economic conditions in the Companys North American trading area continued to improve during the first half of 2010. Capital expenditures on business equipment have returned to positive growth following several quarters of decline. Spending on building construction, however, remains constrained as credit availability continues to be tight in the aftermath of the financial crisis that began in September 2008. As a result, the Companys net sales and gross margin declined 2.2% and 4.9%, respectively, during the six months ended June 30, 2010.
12
The Company expects modest improvement in the market for products sold by the Company during the second half of 2010. As a result, the Company now anticipates positive growth in net sales for the rest of 2010, compared to the second half of 2009, but also expects price competition coupled with rising product costs to continue to depress gross margin as a percent of net sales.
Consolidated Results of Operations
The following table sets 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 six months ended June 30, 2010 and 2009.
|
|
|
Three Months Ended |
|
|
|
Three Months Ended |
| ||||||
|
|
|
June 30, 2010 |
|
|
|
June 30, 2009 |
| ||||||
|
|
|
Dollars |
|
|
Percent |
|
|
|
Dollars |
|
|
Percent |
|
Net Sales |
|
$ |
1,130,771 |
|
|
100.0 |
% |
|
$ |
1,121,592 |
|
|
100.0 |
% |
Cost of merchandise sold |
|
|
(921,230 |
) |
|
(81.5 |
) |
|
|
(903,676 |
) |
|
(80.6 |
) |
Gross Margin |
|
|
209,541 |
|
|
18.5 |
|
|
|
217,916 |
|
|
19.4 |
|
Selling, general and administrative expenses |
|
|
(181,724 |
) |
|
(16.1 |
) |
|
|
(190,959 |
) |
|
(17.1 |
) |
Depreciation and amortization |
|
|
(9,979 |
) |
|
(0.9 |
) |
|
|
(10,139 |
) |
|
(0.9 |
) |
Other income, net |
|
|
731 |
|
|
0.1 |
|
|
|
659 |
|
|
0.1 |
|
Income from Operations |
|
|
18,569 |
|
|
1.6 |
|
|
|
17,477 |
|
|
1.5 |
|
Interest expense, net |
|
|
(2,173 |
) |
|
(0.2 |
) |
|
|
(2,734 |
) |
|
(0.2 |
) |
Income before Provision for Income Taxes |
|
|
16,396 |
|
|
1.4 |
|
|
|
14,743 |
|
|
1.3 |
|
Provision for income taxes |
|
|
(6,827 |
) |
|
(0.6 |
) |
|
|
(6,421 |
) |
|
(0.6 |
) |
Net Income |
|
|
9,569 |
|
|
0.8 |
|
|
|
8,322 |
|
|
0.7 |
|
Less: Net income attributable to noncontrolling interests |
|
|
(61 |
) |
|
-- |
|
|
|
(1 |
) |
|
-- |
|
Net Income attributable to Graybar Electric Company, Inc. |
|
$ |
9,508 |
|
|
0.8 |
% |
|
$ |
8,321 |
|
|
0.7 |
% |
|
|
|
Six Months Ended |
|
|
|
Six Months Ended |
| ||||||
|
|
|
June 30, 2010 |
|
|
|
June 30, 2009 |
| ||||||
|
|
|
Dollars |
|
|
Percent |
|
|
|
Dollars |
|
|
Percent |
|
Net Sales |
|
$ |
2,131,945 |
|
|
100.0 |
% |
|
$ |
2,179,140 |
|
|
100.0 |
% |
Cost of merchandise sold |
|
|
(1,727,745 |
) |
|
(81.0 |
) |
|
|
(1,753,985 |
) |
|
(80.5 |
) |
Gross Margin |
|
|
404,200 |
|
|
19.0 |
|
|
|
425,155 |
|
|
19.5 |
|
Selling, general and administrative expenses |
|
|
(359,763 |
) |
|
(16.9 |
) |
|
|
(381,754 |
) |
|
(17.5 |
) |
Depreciation and amortization |
|
|
(19,693 |
) |
|
(0.9 |
) |
|
|
(19,537 |
) |
|
(0.9 |
) |
Other income, net |
|
|
2,228 |
|
|
0.1 |
|
|
|
1,604 |
|
|
0.1 |
|
Income from Operations |
|
|
26,972 |
|
|
1.3 |
|
|
|
25,468 |
|
|
1.2 |
|
Interest expense, net |
|
|
(4,472 |
) |
|
(0.2 |
) |
|
|
(5,600 |
) |
|
(0.3 |
) |
Income before Provision for Income Taxes |
|
|
22,500 |
|
|
1.1 |
|
|
|
19,868 |
|
|
0.9 |
|
Provision for income taxes |
|
|
(9,368 |
) |
|
(0.5 |
) |
|
|
(9,061 |
) |
|
(0.4 |
) |
Net Income |
|
|
13,132 |
|
|
0.6 |
|
|
|
10,807 |
|
|
0.5 |
|
Less: Net income attributable to noncontrolling interests |
|
|
(98 |
) |
|
-- |
|
|
|
(1 |
) |
|
-- |
|
Net Income attributable to Graybar Electric Company, Inc. |
|
$ |
13,034 |
|
|
0.6 |
% |
|
$ |
10,806 |
|
|
0.5 |
% |
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
Net sales totaled $1,130,771 for the quarter ended June 30, 2010, compared to $1,121,592 for the quarter ended June 30, 2009, an increase of $9,179, or 0.8%. Net sales to the electrical market for the three months ended June 30, 2010 decreased 3.1%, while net sales to the comm/data market increased 5.4% for the three months ended June 30, 2010, compared to the same three month period of 2009.
Gross margin decreased $8,375, or 3.8%, to $209,541 from $217,916, due mainly to higher cost of merchandise sold in the second quarter of 2010, compared to the same period of 2009. The Companys gross margin rate on net sales decreased to 18.5% for the three months ended June 30, 2010 from 19.4% for the same period of 2009.
13
Selling, general and administrative expenses decreased $9,235, or 4.8%, to $181,724, in the second quarter of 2010 from $190,959 in the second quarter of 2009, mainly due to lower employee compensation costs. Selling, general and administrative expenses as a percentage of net sales were 16.1% in the second quarter of 2010, down from 17.1% of net sales in the second quarter of 2009.
Depreciation and amortization expenses for the three months ended June 30, 2010 decreased $160, or 1.6%, to $9,979 from $10,139 in the second quarter of 2009. This decrease was due primarily to an increase in disposals of property for the second quarter of 2010, compared to the second quarter of 2009. Depreciation and amortization expenses as a percentage of net sales remained flat at 0.9% for the three months ended June 30, 2010, compared to the same three month period in 2009.
Other income, net totaled $731 for the three months ended June 30, 2010, compared to $659 for the three months ended June 30, 2009. Other income, net consists primarily of gains (losses) on the disposal of property and trade receivable interest charges to customers, and other miscellaneous income items related to the Companys business activities. The increase in other income, net was mainly due to higher trade receivable interest charges for the three months ended June 30, 2010, compared to the three months ended June 30, 2009, partially offset by losses on the disposal of property. Losses on disposal of property were $(112) for the three months ended June 30, 2010, compared to $(3) for the three months ended June 30, 2009.
Income from operations totaled $18,569 for the three months ended June 30, 2010, an increase of $1,092, or 6.2%, from $17,477 for the three months ended June 30, 2009. The increase was largely due to lower selling, general and administrative expenses, lower depreciation and amortization expenses and higher other income, net, which more than offset lower gross margin.
Interest expense, net declined $561, or 20.5%, to $2,173 for the three months ended June 30, 2010 from $2,734 for the three months ended June 30, 2009. This reduction was mainly due to a lower level of outstanding long-term debt in the second quarter of 2010, compared to the same period of 2009. Long-term debt outstanding, including the current portion, was $107,260 at June 30, 2010, compared to $135,983 at June 30, 2009.
The increase in income from operations and lower interest expense, net resulted in income before provision for income taxes of $16,396 for the three months ended June 30, 2010, an increase of $1,653, or 11.2%, compared to $14,743 for the three months ended June 30, 2009.
The Companys total provision for income taxes increased $406, or 6.3%, to $6,827 for the three months ended June 30, 2010, compared to $6,421 for the same period of 2009. The Companys effective tax rate decreased to 41.6% for the three months ended June 30, 2010, down from 43.6% for the same period of 2009. This decrease was due to a decline in unrecognized tax benefits, interest and penalties for the three months ended June 30, 2010, compared to the three months ended June 30, 2009.
Net income attributable to Graybar Electric Company, Inc. for the three months ended June 30, 2010 increased $1,187, or 14.3%, to $9,508 from $8,321 for the three months ended June 30, 2009.
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
Net sales totaled $2,131,945 for the six month period ended June 30, 2010, compared to $2,179,140 for the six month period ended June 30, 2009, a decrease of $47,195, or 2.2%. Net sales to the electrical market during the first half of 2010 decreased 6.2% while net sales to the comm/data market increased 2.5% for the first half of 2010, compared to the same six month period of 2009.
Gross margin decreased $20,955, or 4.9%, to $404,200 from $425,155, due mainly to lower net sales in the first six months of 2010, compared to the same period of 2009. The Companys gross margin rate on net sales decreased to 19.0% for the six months ended June 30, 2010 from 19.5% for the same six month period of 2009.
Selling, general and administrative expenses decreased $21,991, or 5.8%, to $359,763, for the six month period ended June 30, 2010, compared to $381,754 for the six month period ended June 30, 2009, mainly due to lower employee compensation costs. Selling, general and administrative expenses as a percentage of net sales for the six month period ended June 30, 2009 were 16.9%, down from 17.5% for the same six month period of 2009.
Depreciation and amortization expenses for the six months ended June 30, 2010 increased $156, or 0.8%, to $19,693 from $19,537 for the same six month period in 2009. This increase was due primarily to an increase in depreciable information technology assets, partially offset by the disposal of property. Depreciation and amortization expenses as a percentage of net sales remained flat at 0.9% for the six months ended June 30, 2010, compared to the same six month period in 2009.
14
Other income, net totaled $2,228 for the six month period ended June 30, 2010, compared to $1,604 for the six month period ended June 30, 2009. Other income, net consists primarily of gains (losses) on the disposal of property and trade receivable interest charges to customers, and other miscellaneous income items related to the Companys business activities. The increase in other income, net was mainly due to higher net gains on the disposal of property, which were $783 for the six months ended June 30, 2010, compared to $398 for the six months ended June 30, 2009.
Income from operations totaled $26,972 for the six month period ended June 30, 2010, an increase of $1,504, or 5.9%, from $25,468 for the six month period ended June 30, 2009. The increase was largely due to lower selling, general and administrative expenses and higher other income, net, which more than offset lower gross margin and higher depreciation and amortization expenses.
Interest expense, net declined $1,128, or 20.1%, to $4,472 for the six month period ended June 30, 2010 from $5,600 for the six month period ended June 30, 2009. This reduction was mainly due to a lower level of outstanding long-term debt in 2010, compared to 2009. Long-term debt outstanding, including the current portion, was $107,260 at June 30, 2010, compared to $135,983 at June 30, 2009.
The increase in income from operations and lower interest expense, net resulted in income before provision for income taxes of $22,500 for the six month period ended June 30, 2010, an increase of $2,632, or 13.2%, compared to $19,868 for the six month period ended June 30, 2009.
The Companys total provision for income taxes increased $307, or 3.4%, to $9,368 for the six month period ended June 30, 2010, compared to $9,061 for the same six month period in 2009. The Companys effective tax rate decreased to 41.6% for the six month period ended June 30, 2010, down from 45.6% for the same six month period in 2009. This decrease was due to a decline in uncertain tax positions for the six months ended June 30, 2010, compared to the six months ended June 30, 2009.
Net income attributable to Graybar Electric Company, Inc. for the six month period ended June 30, 2010 increased $2,228, or 20.6%, to $13,034 from $10,806 for the six month period ended June 30, 2009.
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 the sale of common stock to the Companys employees and long-term debt.
Operating Activities
Net cash used by operations was $37,243 for the six month period ended June 30, 2010, compared to net cash provided by operations of $20,577 for the six month period ended June 30, 2009. Negative cash flows from operations for the six month period ended June 30, 2010 were attributable to the increases in trade receivables of $43,646, inventory of $68,989, and a decrease of $11,397 in accrued payroll and benefit costs, partially offset by an increase in trade accounts payable of $67,977.
Trade receivables increased primarily due to a moderate increase in the average number of days of sales of trade receivables for the three month period ended June 30, 2010, compared to the same three month period ended June 30, 2009. Merchandise inventory levels were significantly higher at June 30, 2010, compared to December 31, 2009, in anticipation of higher net sales expected during the ongoing summer construction season. Merchandise inventory turnover decreased moderately for the three month period ended June 30, 2010, compared to the three month period ended June 30, 2009.
Current assets exceeded current liabilities by $436,147 at June 30, 2010, an increase of $11,154, or 2.6%, from $424,993 at December 31, 2009.
15
Investing Activities
Net cash used by investing activities totaled $11,200 for the six month period ended June 30, 2010, compared to $9,384 for the same period of 2009. Capital expenditures for property were $12,283 and $9,995, and proceeds from the disposal of property were $1,083 and $611, for the six month periods ended June 30, 2010 and 2009, respectively. The proceeds received resulted primarily from the sale of real property during the six month periods ended June 30, 2010 and 2009.
Financing Activities
Net cash used by financing activities totaled $27,530 for the six month period ended June 30, 2010, compared to $32,036 for the six month period ended June 30, 2009.
Cash provided by short-term borrowings was $650 for the six month period ended June 30, 2010, compared to cash used for short-term borrowings of $6,994 for the six month period ended June 30, 2009. The Company made payments on long-term debt, including current portion, of $10,783 and capital lease obligations of $831 for the six month period ended June 30, 2010. During the six month period ended June 30, 2009, the Company made payments on long-term debt, including current portion, of $10,776 and capital lease obligations of $338.
Cash provided by the sale of common stock amounted to $6,397 and $7,574, and purchases of stock to be held in treasury were $5,851 and $6,682, for the six month periods ended June 30, 2010 and 2009, respectively. Cash paid for noncontrolling interest common stock was $83 and $55 for the six month periods ended June 30, 2010 and 2009, respectively. Cash dividends paid were $17,029 and $14,765 for the six month periods ended June 30, 2010 and 2009, respectively.
Cash and cash equivalents were $87,891 at June 30, 2010, compared to $163,864 at December 31, 2009, a decrease of $75,973, or 46.4%.
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 June 30, 2010 and December 31, 2009.
At June 30, 2010 and December 31, 2009, the Company had a $100,000 trade receivable securitization program 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 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 trade recei vable agreements were amended, effective as of June 11, 2010, to permit the Company to exclude the trade receivables of specific customers (obligors) from the trade receivable agreements, and to permit the Company to exclude the trade receivables of additional obligors subject to the consent of the bank (agent).
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 June 30, 2010 and December 31, 2009.
The Company plans to replace all or a portion of the debt financing available under the trade receivable securitization program with a new or amended credit facility prior to the expiration of the trade receivable securitization program in October 2010.
At June 30, 2010, the Company had unused lines of credit amounting to $309,881 available, compared to $310,504 at December 31, 2009. Certain committed lines of credit have annual fees of up to 92 basis points (0.92%) of the committed lines of credit. These lines are available to meet the short-term cash requirements of the Company.
16
Short-term borrowings outstanding during the six month periods ended June 30, 2010 and 2009 ranged from a minimum of $10,786 and $11,189 to a maximum of $18,618 and $65,858, 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 June 30, 2010 and December 31, 2009.
The Company has a lease agreement with an independent lessor that is considered to be a VIE. The agreement provides $28,720 of financing for five of the Companys distribution facilities and carries a five-year term expiring July 2013. The financing structure used with this lease qualifies as a silo of a VIE. Graybar, as lessee, retains the power to direct the operational activities that most significantly impact the economic performance of the VIE and has an obligation to absorb losses and the right to receive benefits from the sale of the real property held by the VIE lessor. Therefore, the Company is the primary beneficiary of this VIE, and in accordance with US GAAP, consolidates the silo in its financial statements.
As of June 30, 2010, the consolidated silo included in the Companys consolidated financial statements had a net property balance of $16,026, long-term debt of $27,715, and a noncontrolling interest of $1,005. At December 31, 2009, the consolidated silo included in the Companys consolidated financial statements had a net property balance of $16,299, 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 June 30, 2010 and December 31, 2009.
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, 2009.
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 June 30, 2010, 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.
17
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities And Use Of Proceeds
(c) 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 June 30, 2010, approximately eighty-two percent (82%) 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 |
April 1 to April 30, 2010 |
35,531 |
$20.00 |
N/A |
May 1 to May 31, 2010 |
45,393 |
$20.00 |
N/A |
June 1 to June 30, 2010 |
29,726 |
$20.00 |
N/A |
Total |
110,650 |
$20.00 |
N/A |
18
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. |
|
|
|
|
|
|
August 9, 2010 |
|
/s/ ROBERT A. REYNOLDS, JR. |
Date |
|
Robert A. Reynolds, Jr. |
|
|
Chairman, President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
August 9, 2010 |
|
/s/ D. BEATTY DALESSANDRO |
Date |
|
D. Beatty DAlessandro |
|
|
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
|
|
|
August 9, 2010 |
|
/s/ MARTIN J. BEAGEN |
Date |
|
Martin J. Beagen |
|
|
Vice President and Controller (Principal Accounting Officer) |
19
EXHIBIT INDEX
Exhibits
3.1 Restated Certificate of Incorporation as amended to date.
3.2 By-laws as amended through December 10, 2009, filed as Exhibit 3(ii) to the Companys Current Report on Form 8-K dated December 16, 2009 (Commission File No. 000-00255) and incorporated herein by reference.
10.1 Amendment No. 15 to the Receivables Purchase Agreement, dated as of June 11, 2010, filed as Exhibit 10(i) to the Companys Current Report on Form 8-K dated June 11, 2010 (Commission File No. 000-00255) and incorporated herein by reference.
10.2 Amendment No. 3 to the Receivables Sale Agreement, dated as of June 11, 2010, filed as Exhibit 10(ii) to the Companys Current Report on Form 8-K dated June 11, 2010 (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.
20
/($.*'$FRI,F3*%.J7,FRI
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
GRAYBAR ELECTRIC COMPANY, INC.
(a New York corporation)
FIRST: The name of the corporation is GRAYBAR ELECTRIC COMPANY, INC.
SECOND: The purposes for which it is formed are as follows:
(a) To manufacture or otherwise acquire, own, use, buy, sell, lease and deal in all kinds and descriptions of electric and other instruments, machinery, apparatus, appliances and equipment, and all materials, supplies, tools and implements appertaining thereto;
(b) To carry on and conduct any and every kind of manufacturing business;
(c) To carry on and conduct any and every kind of general contracting, construction and engineering business;
(d) To carry on and conduct any and every kind of general purchasing, mercantile and supply business;
(e) To mine, extract, remove or otherwise acquire and use, turn to account and dispose of coal, oil, metal, stone, minerals of every kind, and timber.
THIRD: The aggregate number of shares that the corporation shall have authority to issue is 30,000,000, of which 10,000,000 shares of the par value of One Cent ($.01) shall be preferred stock and 20,000,000 shares of the par value of One Dollar ($1.00) each shall be common stock.
FOURTH: The rights, preferences, and limitations of the shares of each class are as follows:
A.The preferred stock shall be designated as "Preferred Stock."
(a) Shares of Preferred Stock may be issued in one or more series, and each series shall be so designated as to distinguish the shares thereof from the shares of all other series. All shares of Preferred Stock shall be identical except as to the relative rights, preferences and limitations as are stated and expressed in the resolution or resolutions providing for the issue of a series adopted by the board of directors as hereinafter provided.
(b) Authority is hereby expressly granted to the board of directors to fix, before the issuance of any shares of a particular series, the designation of the series, the number of shares to be included in such series, the dividend rate per annum, the amount in addition to any accrued dividends thereon that the holders of shares of such series shall be entitled to receive upon the voluntary or involuntary liquidation, dissolution or winding up of the corporation, the redemption price or prices, if any, and the terms and conditions of the redemption, any sinking fund provisions for the redemption or purchase of the shares of the series, the terms and conditions on which the shares are convertible, if they are convertible, and any other rights, preferences, and limitations pertaining to such series.
B.The common stock shall be designated as "Common Stock."
(a) No holder of Common Stock shall sell, transfer, or otherwise dispose of any shares of such stock to any party other than the corporation without first offering to sell said shares to the corporation at the price for which said shares were issued by the corporation (or in the event of any change, subdivision, combination or reclassification of said shares, then at the price for which were issued the shares so changed, subdivided, combined or reclassified into the shares so offered to the corporation), plus an amount equal to dividends accrued on said stock from the beginning of the calendar quarter to be paid at the close of such calendar quarter only if a dividend for said quarter is declared, and tendering to the corporation the certificates therefor duly endorsed in proper form for transfer, and the corporation is hereby given an option to purchase all or any part of t he Common Stock held by such holder at the price aforesaid good from the date of such offer and tender until the expiration of thirty (30) days after said date. Nothing in this Section B contained, however, shall be construed to prevent any holder of shares of Common Stock from transferring such shares to voting or other trustees under a voting trust agreement, or under any other agreement relating to stock of the corporation approved by the board of directors of the corporation or to prevent any subscriber to the Common Stock from causing the stock subscribed for by him from being issued direct to such voting
or other trustees and in either event receiving voting trust certificates or other certificates of interest covering the shares so transferred to or issued to such voting or other trustees; and in the event that shares of Common Stock of the corporation shall be transferred to or issued to such voting or other trustees, the voting trust certificates or other certificates of interest so issued to such stockholders or subscribers shall be held by each and every owner thereof subject to the same terms and conditions as provided in this Section B for shares of Common Stock of the corporation; and the terms "shares," "stock," "Common Stock," "shares of stock," "shares of Common Stock," "stock certificates," or "certificates for stock" whenever used in this Section B shall be deemed to include voting trust certificates or other certifi cates of interest covering shares of Common Stock of the corporation unless otherwise stated, and the term "stockholder" as used in this Section B shall also be deemed to include the owner of such voting trust certificates or other certificates of interest covering shares of Common Stock of the corporation.
(b) The corporation is hereby given an option in the event of the death of the holder of any shares of Common Stock of the corporation to purchase from his estate all or any part of such shares at the price per share provided in paragraph (a) of this Section B, at any time from and after the expiration of one year from the date of his death until thirty (30) days after such shares shall have been offered for sale to the corporation at the said price and certificates for said shares of stock duly endorsed in proper form for transfer shall have been tendered to the corporation, accompanied by any other papers necessary or proper to effect a valid transfer. The option in this paragraph (b) given to the corporation, however, is subject to the provision that in the event the estate of any deceased stockholder shall offer to sell and shall tender to the corporation at any time bef ore the expiration of the period of one year from the date of death of such deceased stockholder any stock held by his estate, the option shall terminate unless within thirty (30) days from the time said stock is presented to the corporation for purchase, the corporation shall purchase said stock at the said purchase price.
(c) In the event that any holder of Common Stock ceases to be an employee of the corporation, or of a subsidiary corporation, for any cause other than death or retirement on a pension allowed by the corporation or by such subsidiary corporation, the corporation is hereby given an option to purchase all the Common Stock held by such stockholder at the price provided in paragraph (a) of this Section B good from the date such holder ceases to be an employee as aforesaid until the expiration of thirty (30) days after he has made an offer to the corporation to sell said stock at said price and a tender of the certificates therefor duly endorsed in proper form for transfer.
(d) All offers for sale of shares to the corporation and tenders of certificates for such shares must be made at the principal office of the corporation, in the County of St. Louis, State of Missouri or such other place as the corporation shall designate by notice in writing to stockholders of record. In the event of any such offer and tender, the mailing of a check for the purchase price as determined pursuant to the provisions of paragraph (a) of this Section B of the shares under option to the seller at the address shown upon the books of the corporation or in the event that the seller is a holder of a voting trust certificate at the address shown upon the books of the voting trustees or at any other address furnished by the seller for such purpose at any time within the option period shall be deemed to be due exercise of the option. The corporation may at any time, whether or not such offer and tender has been made, exercise any option to purchase, redeem, or otherwise acquire any shares of stock of the corporation granted to it hereunder by mailing notice of its election so to do to the record holder of the stock covered thereby at his address as shown upon the stock books of the corporation, or in case of voting trust certificates or other certificates of interest covering stock of the corporation then at the address of the owner thereof as shown upon the books of the voting or other trustees. Said notice shall state in substance that the corporation has elected to exercise its option and that it will make payment for the stock to be thus purchased upon delivery to it at its principal office in the County of St. Louis, State of Missouri or such other place as the corporation shall designate by notice in writing to stockholders of record, of the certificates therefor, properly endorsed for transfer, accompanied by such instruments as the corporation may deem necessar y, and such stockholder, or his executors or administrators as the case may be, shall forthwith surrender and deliver at said office the certificates for said stock duly endorsed in blank, accompanied by such instruments, and shall be entitled to receive payment (which payment may be by check) of the purchase price therefor as determined pursuant to the provisions of paragraph (a) of this Section B.
(e) In the event that the corporation shall purchase any of the Common Stock upon exercising any of the aforesaid options, the corporation may purchase such stock in the name and for the account of any employee of the corporation or of a subsidiary corporation with funds provided by any such party, or at its option, if it has funds available for the purpose, the corporation may purchase the shares for its own account and deposit them in its treasury, and may resell from time to time any or all such shares purchased for its own account for such price or prices, and to such employee or employees of the corporation or of a subsidiary corporation as the board of directors may determine, or at the option of the board of directors, any or all of such shares may be retired or cancelled in any manner permitted by law.
(f) Subject to all of the rights of the Preferred Stock, dividends may be paid upon the Common Stock if and when declared by the board of directors out of any funds of the corporation legally available therefor.
(g) Except as otherwise provided in the certificate of incorporation as amended or in the terms of any series of Preferred Stock as fixed by the board of directors as provided herein, the holders of the Common Stock shall have exclusive voting power for the election of directors and upon all other matters that may be submitted to the stockholders for their vote or consent.
C. No holder of Common Stock shall hypothecate or pledge any Common Stock except under an agreement of hypothecation or pledge with the pledgee containing the following provisions together in the following sequence:
"In the event of the death of the pledgor or in the event that he ceases to be an employee of Graybar Electric Company, Inc. or of a subsidiary corporation for any cause other than death or retirement on a pension, Graybar Electric Company, Inc. shall have the same right to purchase any or all of the pledged stock as it would have had if the stock had not been pledged, and may make payment therefor to the pledgee or any party presenting the certificates therefor, properly endorsed for transfer. The provisions of the certificate of incorporation of the corporation relating to the rights of the corporation to such stock and the price to be paid therefor are set forth on the back of the stock certificates pledged and the pledgee has notice thereof.
"In the event that the pledgor shall be in default under the pledge, Graybar Electric Company, Inc. shall have an option, good until the expiration of thirty (30) days from the time written notice of such default is served upon said corporation by the pledgee, to take over the stock pledged and the debt to secure which such stock has been pledged, upon payment to the pledgee of the amount then owing on said debt, and no sale shall be made by the pledgee under said pledge until such option has expired.
"In the event that the pledgor shall be in default under the pledge and the amount then owing on the debt shall exceed the price at which Graybar Electric Company, Inc. would be entitled to purchase stock under option given to it in case the pledgor should desire to sell same, said corporation shall have the right, good until the expiration of thirty (30) days from the time written notice is served upon said corporation by the pledgee, to redeem or purchase such stock, at said option price, and may make payment therefor to the pledgee or any party presenting the certificates therefor properly endorsed for transfer, and no sale shall be made by the pledgee until such option has expired.
"No other provisions in the hypothecation or pledge shall in any way affect the rights given in the three preceding paragraphs, and by accepting the pledge the pledgee agrees to carry out and be bound by the provisions of the three preceding paragraphs and of the certificate of incorporation as amended of Graybar Electric Company, Inc.
"Any right or option in the corporation to purchase, redeem, take over or otherwise acquire any stock of the corporation shall, in accordance with the provisions of the certificate of incorporation as amended, also accrue to and may be exercised by any person, persons, firm or corporation designated by the corporation to purchase or acquire such stock or any part thereof.
"It is understood that the certificate of incorporation of Graybar Electric Company, Inc. also provides, in substance, that if any party shall claim or establish ownership of or any interest in shares of stock of the corporation and if such ownership or interest is the result of a sale or transfer in breach of the provisions of the certificate of incorporation, such shares or interest shall at the option of the corporation be subject at all times to purchase by said corporation at prices and under terms and conditions set forth in or to be determined as provided in said certificate of incorporation."
In the event that the corporation shall have exercised any such option to take over any stock which shall have been pledged or hypothecated and the debt to secure which such stock has been pledged, the corporation shall have the right, at any time after the expiration of thirty (30) days after written notice mailed to the holder of record of the pledged stock at his address as shown on the books of the corporation, to purchase said stock by paying or tendering to the pledgor the difference, if any, between the amount paid by the corporation to the pledgee in taking over said stock, together with interest to the time of such purchase, and the price which the corporation would be required to pay to purchase said stock in case of sale by the stockholder to the corporation under the provisions of paragraph (a) of Section B; provided, however, that at any time prior to such purchase of said stock by the corporation the pledgor may redeem said stock from the corporation by paying to the corporation the amount which the corporation paid to the pledgee in taking over the said stock, together with interest thereon. All such interest shall be computed at the rate of six per cent (6%) per annum. In the event that the corporation shall have exercised its option to take over any stock which shall have been pledged or hypothecated, and the debt to secure which the stock has been pledged, the corporation shall, in addition to any rights herein granted, be subrogated to all the rights of the pledgee of said stock. No pledge or hypothecation of any stock of the corporation, except in accordance with the foregoing conditions, shall in any way affect the right of the corporation to treat the stock as if it had not been pledged, whether in the hands of the pledgee or any subsequent holder whose title is through the pledgee or through any sale or transfer resulting from the pledge.
D. All certificates of Common Stock of the corporation shall contain or have endorsed thereon the provisions of the certificate of incorporation as amended in respect of the sale, transfer and pledge of stock, and all voting trust certificates or other certificates of interest covering stock of the corporation issued under a voting trust agreement or other agreement to which the corporation may be a party shall likewise contain or have endorsed thereon said provisions. No transfers of stock shall be recorded on the books of the corporation unless effected in accordance with the provisions of the certificate of incorporation as amended. Each holder of a certificate of stock of the corporation shall be charged with notice of the provisions of the certificate of incorporation of the corporation as amended and shall by receiving any such stock certificate be deemed to assent to and be bound by all of the provisions of the certificate of incorporation as amended.
If for any reason whatsoever any party to whom a sale or transfer has been made in breach of any of the provisions of the certificate of incorporation as amended should claim or establish ownership of or any interest in any shares of stock of the corporation, such shares shall thereupon become subject to redemption or purchase at any and all times thereafter at the option of the corporation, whether in the hands of such party or any subsequent transferee, immediate or remote, upon mailing thirty (30) days notice of the election of the corporation to redeem or purchase such shares to the then holder of record at its address as it appears upon the stock books of the corporation or the books of the voting or other trustees at the price provided in paragraph (a) of Section B hereof, and the corporation may redeem or purchase any such shares upon paying the price specified.
The corporation shall withhold any dividends and refuse to permit the exercise of any voting right upon any shares transferred in violation of the provisions of the certificate of incorporation as amended or in regard to which there has been any default in notifying the corporation of the stockholder's desire to sell his stock in order to give the corporation opportunity to exercise its option to purchase, or default in delivery of stock after the corporation has given notice of its election to exercise any option to purchase. Whenever herein the corporation shall be given any right or option to purchase, redeem or otherwise acquire any shares of stock of the corporation in any manner whatsoever, such rights shall also accrue and may be exercised by any person, persons, firm or corporation designated by the corporation to purchase or acquire such stock or any part thereof. font>
If any one or more provisions of Section A, B or C or of this Section D shall be declared to be invalid, it shall not affect the validity of any other provisions of said sections or this section or of the certificate of incorporation as amended, nor shall the fact that any shares of the corporation shall be held at any time by any party not entitled to hold the same or from whom the corporation might purchase the same under the provisions of this Section D relieve any other stockholder from compliance with the terms of the provisions of Sections A, B and C and of this Section D.
The term "employee" as used in Sections B and C shall be deemed to include salaried officers.
The term "subsidiary" or "subsidiary company" as used in the certificate of incorporation as amended shall be deemed to mean any company seventy-five per cent (75%) of whose outstanding shares of equity stock, as hereinafter defined, shall be owned by the corporation or by another subsidiary. The term "equity stock" as herein used means the outstanding class or classes of shares entitled upon liquidation of a company to the final distribution of all assets remaining after the payment and discharge of all obligations and after payment and distribution to all classes of shares entitled to priority on the distribution of assets.
E. No stockholder of any class of the corporation shall as such be entitled as of right to purchase or subscribe for stock of any class of the corporation, whether authorized by this certificate of incorporation or by any amendment to this certificate of incorporation or to purchase or subscribe for any other securities of the corporation whether or not such securities may be convertible into stock of any class of the corporation.
FIFTH: No stockholder shall be entitled as of right to purchase or subscribe for any part of any unissued stock or of any additional stock to be issued by reason of any increase of the authorized capital stock of the corporation or of bonds, certificates of indebtedness, debentures or other securities convertible into stock of the corporation, but any such unissued stock or such additional authorized issue of new stock or of other securities convertible into stock may be issued and disposed of pursuant to resolution of the board of directors to such persons, firms, corporations or associations and upon such terms as may be deemed advisable by the board of directors in the exercise of their discretion.
SIXTH: The Secretary of State of New York is hereby designated as the agent of the corporation upon whom process in any action or proceeding against the corporation may be served. The principal office of the corporation in the State of New York is located in the City, County and State of New York, and the address to which the Secretary of State shall mail a copy of process in any action or proceeding against the corporation which may be served upon him is c/o CT Corporation System, 111 Eighth Avenue, New York, New York 10011. The name of the registered agent upon whom and the address of the registered agent at which process against the corporation may be served is CT Corporation System, 111 Eighth Avenue, New York, New York 10011.
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: August 9, 2010
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/s/ ROBERT A. REYNOLDS, JR. |
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Robert A. Reynolds, Jr. |
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Chairman, 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: August 9, 2010
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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., Chairman, 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 June 30, 2010 (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. |
Chairman, President and Chief Executive Officer (Principal Executive Officer) |
August 9, 2010
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 June 30, 2010 (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) |
August 9, 2010