10-Q 1 form10q.txt GRAYBAR ELECTRIC COMPANY, INC. FORM 10-Q CONFORMED --------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q Commission File Number 0-255 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 ------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ------------------ GRAYBAR ELECTRIC COMPANY, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEW YORK 13-0794380 ------------------------------------------------------------------------ (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 34 NORTH MERAMEC AVENUE, ST. LOUIS, MO 63105 ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) POST OFFICE BOX 7231, ST. LOUIS, MO 63177 ------------------------------------------------------------------------ (Mailing Address) (Zip Code) Registrant's telephone number, including area code: (314) 573-9200 ---------------------- 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 --- --- Common Stock Outstanding at July 31, 2002: 6,279,235 ---------------------- (Number of Shares) PART I ------ CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data)
JUNE 30, 2002 DECEMBER 31, 2001 --------------------- --------------------- CURRENT ASSETS Cash $ 10,602 $ 10,079 --------------------- --------------------- Trade receivables 563,650 592,752 --------------------- --------------------- Merchandise inventory 548,761 612,976 --------------------- --------------------- Other current assets 11,322 14,442 --------------------- --------------------- Total current assets 1,134,335 1,230,249 --------------------- --------------------- PROPERTY Land 25,554 25,402 --------------------- --------------------- Buildings and permanent fixtures 237,422 233,979 --------------------- --------------------- Furniture and fixtures 168,617 168,918 --------------------- --------------------- Software 18,937 1,510 --------------------- --------------------- Capital equipment leases 24,159 24,159 --------------------- --------------------- Less - Accumulated depreciation 198,787 187,492 --------------------- --------------------- Net property 275,902 266,476 --------------------- --------------------- DEFERRED FEDERAL INCOME TAXES 11,300 10,653 --------------------- --------------------- OTHER ASSETS 31,487 28,620 --------------------- --------------------- $ 1,453,024 $ 1,535,998 ===================== ===================== CURRENT LIABILITIES Short-term borrowings $ 46,433 $ 98,737 --------------------- --------------------- Current portion of long-term debt 29,736 25,795 --------------------- --------------------- Trade accounts payable 497,389 495,143 --------------------- --------------------- Other accrued taxes 11,916 11,760 --------------------- --------------------- Accrued payroll and benefit costs 13,188 26,816 --------------------- --------------------- Dividends payable --- 6,299 --------------------- --------------------- Other payables and accruals 46,466 51,753 --------------------- --------------------- Total current liabilities 645,128 716,303 --------------------- --------------------- POSTRETIREMENT BENEFITS LIABILITY 77,431 77,431 --------------------- --------------------- PENSION LIABILITY 19,223 19,223 --------------------- --------------------- LONG TERM DEBT 294,231 315,549 --------------------- ---------------------
2 CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data)
JUNE 30, 2002 DECEMBER 31, 2001 --------------------- --------------------- SHAREHOLDERS' EQUITY CAPITAL STOCK Preferred: --------- Par value $20 per share Authorized 300,000 shares SHARES ------ 2002 2001 ---- ---- Issued to shareholders 2,593 2,593 ------------- ------------- In treasury, at cost (143) (27) ------------- ------------- Outstanding 2,450 2,566 49 51 ------------- ------------- --------------------- --------------------- Common: ------ Stated value $20 per share Authorized 7,500,000 shares SHARES ------ 2002 2001 ---- ---- Issued to voting trustees 6,159,689 5,427,152 ------------- ------------- Issued to shareholders 316,669 305,754 ------------- ------------- In treasury, at cost (170,835) (11,700) ------------- ------------- Outstanding 6,305,523 5,721,206 126,110 114,424 ------------- ------------- --------------------- --------------------- Advance payments on subscriptions to common stock 53 --- --------------------- --------------------- Retained earnings 308,649 310,521 --------------------- --------------------- Accumulated other comprehensive income (loss) (17,850) (17,504) --------------------- --------------------- TOTAL SHAREHOLDERS' EQUITY 417,011 407,492 --------------------- --------------------- $ 1,453,024 $ 1,535,998 ===================== ===================== See accompanying Notes to Consolidated Financial Statements
3 CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data)
QUARTER ENDED JUNE 30, 2002 JUNE 30, 2001 --------------------- --------------------- GROSS SALES, net of returns and allowances $ 1,049,060 $ 1,288,202 --------------------- --------------------- Less - Cash discounts 2,968 3,535 --------------------- --------------------- NET SALES 1,046,092 1,284,667 --------------------- --------------------- COST OF MERCHANDISE SOLD 855,854 1,057,336 --------------------- --------------------- Gross margin 190,238 227,331 --------------------- --------------------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 170,799 199,169 --------------------- --------------------- DEPRECIATION AND AMORTIZATION 8,037 8,163 --------------------- --------------------- Income from operations 11,402 19,999 --------------------- --------------------- OTHER INCOME, net 1,676 2,312 --------------------- --------------------- INTEREST EXPENSE 7,555 10,032 --------------------- --------------------- Income before provision for income taxes 5,523 12,279 --------------------- --------------------- PROVISION FOR INCOME TAXES Current 2,223 4,828 --------------------- --------------------- Deferred (96) 21 --------------------- --------------------- Total provision for income taxes 2,127 4,849 --------------------- --------------------- NET INCOME $ 3,396 $ 7,430 ===================== ===================== NET INCOME PER SHARE OF COMMON STOCK (NOTE 2) $ .54 $ 1.26 ===================== ===================== DIVIDENDS Preferred - $.25 per share $ 0 $ 1 --------------------- --------------------- Common - $.30 per share 1,895 1,761 --------------------- --------------------- $ 1,895 $ 1,762 ===================== ===================== See accompanying Notes to Consolidated Financial Statements
4 CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data)
SIX MONTHS ENDED JUNE 30, 2002 JUNE 30, 2001 --------------------- --------------------- GROSS SALES, net of returns and allowances $ 2,019,874 $ 2,554,638 --------------------- --------------------- Less - Cash discounts 5,872 6,903 --------------------- --------------------- NET SALES 2,014,002 2,547,735 --------------------- --------------------- COST OF MERCHANDISE SOLD 1,642,022 2,091,104 --------------------- --------------------- Gross margin 371,980 456,631 --------------------- --------------------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 341,168 403,783 --------------------- --------------------- DEPRECIATION AND AMORTIZATION 16,566 16,017 --------------------- --------------------- Income from operations 14,246 36,831 --------------------- --------------------- OTHER INCOME, net 3,797 6,942 --------------------- --------------------- INTEREST EXPENSE 14,888 21,596 --------------------- --------------------- Income before provision for income taxes 3,155 22,177 --------------------- --------------------- PROVISION FOR INCOME TAXES Current 1,407 8,471 --------------------- --------------------- Deferred (192) 288 --------------------- --------------------- Total provision for income taxes 1,215 8,759 --------------------- --------------------- NET INCOME $ 1,940 $ 13,418 ===================== ===================== NET INCOME PER SHARE OF COMMON STOCK (NOTE 2) $ .31 $ 2.27 ===================== ===================== DIVIDENDS Preferred - $.50 per share $ 1 $ 1 --------------------- --------------------- Common - $.60 per share 3,811 3,537 --------------------- --------------------- $ 3,812 $ 3,538 ===================== ===================== See accompanying Notes to Consolidated Financial Statements
5 CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Dollars Stated in Thousands)
SIX MONTHS ENDED JUNE 30, 2002 2001 --------------------- --------------------- CASH FLOWS FROM OPERATIONS Net Income $ 1,940 $ 13,418 --------------------- --------------------- Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 16,566 16,017 --------------------- --------------------- Deferred income taxes (192) 288 --------------------- --------------------- Gain on sale of property --- (2,549) --------------------- --------------------- Changes in assets and liabilities: Trade receivables 29,102 32,283 --------------------- --------------------- Merchandise inventory 64,215 49,008 --------------------- --------------------- Other current assets 3,120 20,928 --------------------- --------------------- Other assets (2,867) (7,432) --------------------- --------------------- Trade accounts payable 2,246 127,331 --------------------- --------------------- Accrued payroll and benefit costs (13,628) (37,545) --------------------- --------------------- Other accrued liabilities (5,932) (27,803) --------------------- --------------------- 92,630 170,526 --------------------- --------------------- Net cash provided by operations 94,570 183,944 --------------------- --------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property 2,409 2,746 --------------------- --------------------- Capital expenditures for property (28,401) (27,911) --------------------- --------------------- Net cash used by investing activities (25,992) (25,165) --------------------- --------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in short-term borrowings (52,304) (138,147) --------------------- --------------------- Proceeds from long-term debt --- -- --------------------- --------------------- Repayment of long-term debt (15,118) (15,503) --------------------- --------------------- Principal payments under capital equipment leases (2,259) (1,725) --------------------- --------------------- Sale of common stock 14,922 259 --------------------- --------------------- Purchase of treasury stock (3,185) (2,901) --------------------- --------------------- Dividends paid (10,111) (9,881) --------------------- --------------------- Net cash used by financing activities (68,055) (167,898) --------------------- --------------------- NET INCREASE (DECREASE) IN CASH 523 (9,119) --------------------- --------------------- CASH, BEGINNING OF YEAR 10,079 27,614 --------------------- --------------------- CASH, END OF SECOND QUARTER $ 10,602 $ 18,495 ===================== ===================== See accompanying Notes to Consolidated Financial Statements
6 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ---------------------------------------------------------- FOR THE SIX MONTHS ENDED ------------------------ JUNE 30, 2002 AND 2001 ---------------------- (Dollars Stated in Thousands)
COMMON ACCUMULATED STOCK OTHER COMMON PREFERRED SUBSCRIBED, RETAINED COMPREHENSIVE STOCK STOCK UNISSUED EARNINGS INCOME (LOSS) TOTAL ------------ ------------ ------------ ------------ ------------- ------------ December 31, 2000 $119,828 $ 57 $ 49 $290,405 $ (542) $409,797 ------------ Net Income 13,418 13,418 Currency Translation Adjustments (8) (8) Cumulative Impact of Adoption of SFAS 133 (net of tax of $877) (1,342) (1,342) Unrealized Gain/(Loss) from Interest Rate Swap (net of tax of $134) 204 204 ------------ Comprehensive Income 12,272 ------------ Stock Issued 266 266 Stock Redeemed (2,899) (2) (2,901) Advance Payments (7) (7) Dividends Declared (3,538) (3,538) ------------ ------------ ------------ ------------ ------------- ------------ June 30, 2001 $117,195 $ 55 $ 42 $300,285 $ (1,688) $415,889 ============ ============ ============ ============ ============= ============ COMMON ACCUMULATED STOCK OTHER COMMON PREFERRED SUBSCRIBED, RETAINED COMPREHENSIVE STOCK STOCK UNISSUED EARNINGS INCOME (LOSS) TOTAL ------------ ------------ ------------ ------------ ------------- ------------ December 31, 2001 $114,424 $ 51 $ 0 $310,521 $ (17,504) $407,492 ------------ Net Income 1,940 1,940 Currency Translation Adjustments 290 290 Unrealized Gain/(Loss) from Interest Rate Swap (net of tax of $414) (636) (636) ------------ Comprehensive Income 1,594 ------------ Stock Issued 14,869 14,869 Stock Redeemed (3,183) (2) (3,185) Advance Payments 53 53 Dividends Declared (3,812) (3,812) ------------ ------------ ------------ ------------ ------------- ------------ June 30, 2002 $126,110 $ 49 $ 53 $308,649 $ (17,850) $417,011 ============ ============ ============ ============ ============= ============ See accompanying Notes to Consolidated Financial Statements
7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION ----------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data) Note 1 ------ The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. In the opinion of the Company, the quarterly report includes all adjustments, consisting of normal recurring accruals, necessary for the fair presentation of the financial statements presented. Such interim financial information is subject to year-end adjustments and independent audit. Results for interim periods are not necessarily indicative of results to be expected for the full year. Note 2 ------
SIX MONTHS 2002 SIX MONTHS 2001 ----------------------- ----------------------- Earnings for Six Months $ 1,940 $ 13,418 ----------------------- ----------------------- Dividends on Preferred Stock 1 1 ----------------------- ----------------------- Available for Common Stock $ 1,939 $ 13,417 ----------------------- ----------------------- Average Common Shares Outstanding 6,263,736 5,915,971 ----------------------- ----------------------- Earnings Per Share $ .31 $ 2.27 ----------------------- -----------------------
8 Note 3 ------ The Company entered into an accounts receivable securitization program in June 2000 which provides for the sale of the Company's trade accounts receivables to a wholly owned, bankruptcy remote, special purpose subsidiary, Graybar Commerce Corporation. The trade accounts receivable purchases are financed through the issuance of commercial paper under a revolving liquidity facility. Under the securitization program, Graybar Commerce Corporation has granted a security interest in its trade accounts receivable. The trade accounts receivable sold to Graybar Commerce Corporation under the program are fully consolidated in trade receivables in the Company's consolidated balance sheets. Borrowings outstanding under the securitization program at June 30, 2002 were $25 million and are included in short-term borrowings in the Company's consolidated balance sheets. The Company has $250 million available for additional borrowing under the program at June 30, 2002. The program expires in June 2003. Note 4 ------ On January 1, 2002 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Under SFAS 142, goodwill and indefinite-lived intangible assets will no longer be amortized but rather will be tested annually for impairment. The effect of amortization expense related to goodwill on net income in prior periods was not material. As of June 30, 2002 the Company has completed its initial impairment test and concluded that there is no impact on earnings or the financial position of the Company based on the results. Note 5 ------ Comprehensive income is reported in the Consolidated Statements of Changes in Shareholders' Equity. Comprehensive income for the quarters ended June 30, 2002 and 2001 was $2,622 and $8,479, respectively. 9 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (Dollars Stated in Thousands) RESULTS OF OPERATIONS --------------------- Net sales in the first six months of 2002 were 20.9% lower than in the first six months of 2001. The lower net sales resulted from a generally depressed economy in the market sectors in which the Company operates. The decrease in communications market sales when comparing the first six months of 2002 to the first six months of 2001 was significantly more than the decrease in sales in the electrical market. Gross margin in the first six months of 2002 decreased 18.5% compared to the first six months of 2001 primarily due to decreased sales in the electrical and communications markets. The decrease in selling, general and administrative expenses in the first six months of 2002 compared to the first six months of 2001 occurred largely because of adjustments in personnel complement and reductions in compensation and related expenses of approximately $35,000, including a reduction in the Company's rate of accrued contribution to the profit sharing and savings plan. Interest expense decreased in the first six months of 2002 compared to the first six months of 2001 primarily due to lower interest rates on short-term borrowings and decreased levels of short-term borrowings required to finance lower levels of inventory and receivables. Other income includes service charges for special services provided to one customer of $1,629 and $2,179 and gains on sale of property of $0 and $2,549 in the first six months of 2002 and 2001, respectively. The combined effect of the decreases in gross margin and other income, together with the increase in depreciation and amortization and decreases in selling, general and administrative expenses and interest expense, resulted in a decrease in pretax earnings of $19,022 in the first six months of 2002 compared to the same period in 2001. 10 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (Dollars Stated in Thousands) FINANCIAL CONDITION AND LIQUIDITY --------------------------------- At June 30, 2002, current assets exceeded current liabilities by $489,207, down $24,739 from December 31, 2001. The current assets at June 30, 2002 were sufficient to meet the cash needs required to pay current liabilities. The reduction in accounts receivable from December 31, 2001 to June 30, 2002 resulted primarily from the decrease in sales experienced by the Company. The average number of days of sales in accounts receivable has decreased during the first six months of 2002. Merchandise inventory levels were lower at June 30, 2002 when compared to December 31, 2001 inventory levels due largely to continuing reductions in specific inventory carried to support customer contract agreements. The Company is going to convert its existing computer systems to an Enterprise Resource Planning (ERP) system over the course of the next several years. The project is currently in the application design and development stage, and the Company expects to begin implementation of the new system in early 2003. The total project costs are expected to be approximately $90,000. The Company plans to fund the project through a combination of equipment leases and working capital. Project costs through June 30, 2002 are approximately $24,000, of which $18,937 has been capitalized. The Company expects that conversion to the new ERP system will provide future benefits to its results of operations. The Company does not have any other plans or commitments that would require significant amounts of additional working capital. At June 30, 2002, the Company had available to it unused lines of credit amounting to $621,641. These lines are available to meet short-term cash requirements of the Company. Short-term borrowings outstanding during 2002 through June 30 ranged from a minimum of $45,228 to a maximum of $216,779. The Company has funded its capital requirements from operations, stock issuances to its employees and long-term debt. During the first six months of 2002, cash provided by operations amounted to $94,570 compared to $183,944 cash provided by operations in the first six months of 2001. Cash provided from the sale of common stock and proceeds received on stock subscriptions amounted to $14,922 in the first six months of 2002. Additional cash of approximately $276 will be provided in the remainder of 2002 as a result of payments to be made for stock subscribed to by employees under the 2001 Common Stock Purchase Plan. Capital expenditures for property for the six-month periods ended June 30, 2002 and 2001 were $28,401 and $27,911, respectively. Purchases of treasury stock for the six-month periods ended June 30, 2002 and 2001 were $3,185 and $2,901, respectively. Dividends paid for the six-month periods ended June 30, 2002 and 2001 were $10,111 and $9,881, respectively. 11 PART II: OTHER INFORMATION -------------------------- Item 4. Submission of Matters to a Vote of Security Holders. The annual meeting of shareholders occurred on June 13, 2002. All of the nominees named in the Information Statement filed with the Commission and mailed to shareholders in accordance with the provisions of Regulation 14-C were elected. The names of the nominees elected follow; all received 6,052,290 votes, no negative votes were cast. 1. R. A. Cole 2. D. E. DeSousa 3. T. F. Dowd 4. L. R. Giglio 5. T. S. Gurganous 6. J. H. Hinshaw 7. G. D. Hodges 8. J. C. Loff 9. R. D. Offenbacher 10. R. A. Reynolds, Jr. 11. K. B. Sparks 12. C. R. Udell 13. J. F. Van Pelt Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits furnished in accordance with provisions of Item 601 of Regulation S-K. 99.1 - 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. 99.2 - 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. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter for which this report is filed. 12 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. August 12, 2002 GRAYBAR ELECTRIC COMPANY, INC. ------------------- (Date) /S/R. A. REYNOLDS, JR. --------------------------------------- R. A. REYNOLDS, JR. PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER /S/J. H. HINSHAW --------------------------------------- J. H. HINSHAW SENIOR VICE PRESIDENT AND PRINCIPAL FINANCIAL OFFICER /S/J. H. KIPPER --------------------------------------- J. H. KIPPER VICE PRESIDENT AND COMPTROLLER 13 EXHIBIT INDEX ------------- 99.1 - 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. 99.2 - 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. 14