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, 2009
OR
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2009 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 000-0255 GRAYBAR ELECTRIC COMPANY, INC. (Exact name of registrant as specified in its charter) New York 13-0794380 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 34 North Meramec Avenue, St. Louis, Missouri 63105 (Address of principal executive offices) (Zip Code) (314)573 – 9200 (Registrant’s 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. YESx NO¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such 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 filerx (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 (Number of Shares) For the Quarterly Period Ended September 30, 2009 (Unaudited) PART I. FINANCIAL INFORMATION Page(s) Item 1. Financial Statements Condensed Consolidated Statements of Income 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Condensed Consolidated Statements of Changes in Shareholders’ Equity 6 Notes to Condensed Consolidated Financial Statements 7-11 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12-18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Item 4T. Controls and Procedures 19 PART II. OTHER INFORMATION Item 1A. Risk Factors 20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 6. Exhibits 21 Signatures 22 Exhibit Index 23 PART 1. FINANCIAL INFORMATION Graybar Electric Company, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (Stated in thousands except per share data) 2009 2008 2009 2008 Gross Sales $ 1,128,912 $ 1,455,639 $ 3,316,685 $ 4,169,941 Cash Discounts (4,805 ) (5,996 ) (13,438 ) (16,905 ) Net Sales 1,124,107 1,449,643 3,303,247 4,153,036 Cost of merchandise sold (908,282 ) (1,187,325 ) (2,662,267 ) (3,366,331 ) Gross Margin 215,825 262,318 640,980 786,705 Selling, general and administrative expenses (188,741 ) (217,988 ) (570,495 ) (642,987 ) Depreciation and amortization (9,582 ) (9,587 ) (29,119 ) (28,475 ) Other income, net 612 847 2,216 1,904 Income from Operations 18,114 35,590 43,582 117,147 Interest expense, net (2,354 ) (3,150 ) (7,954 ) (9,635 ) Income before Provision for Income Taxes 15,760 32,440 35,628 107,512 Provision for income taxes (5,696 ) (12,804 ) (14,757 ) (40,432 ) Net Income 10,064 19,636 20,871 67,080 Less: Net income attributable to noncontrolling interests (45 ) (65 ) (46 ) (143 ) Net Income attributable to Graybar Electric Company, Inc. $ 10,019 $ 19,571 $ 20,825 $ 66,937 Net Income per share of Common Stock (A) $ 1.04 $ 2.04 $ 2.15 $ 6.96 Cash Dividends per share of Common Stock (B) $ 0.30 $ 0.30 $ 0.90 $ 0.90 Average Common Shares Outstanding (A) 9,661 9,613 9,696 9,612 (A)Adjusted for the declaration of a twenty percent (20%) stock dividend in 2008, shares related to which were issued in February 2009. Prior to the adjustment, the average common shares outstanding were 8,011 and 8,010 for the three and nine month periods ended September 30, 2008. (B)Cash dividends declared were $2,910 and $2,417 for the three months ended September 30, 2009 and 2008, respectively. Cash dividends declared were $8,750 and $7,246 for the nine months ended September 30, 2009 and 2008, respectively. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. Graybar Electric Company, Inc. and Subsidiaries Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets September 30, December 31, (Stated in thousands except share and per share data) 2009 2008 (Unaudited) $ 112,440 $ 130,443 Trade receivables (less allowances of $7,238 and $7,563, respectively) Trade receivables (less allowances of $7,238 and $7,563, respectively) 602,971 659,778 334,651 373,813 27,307 30,873 1,077,369 1,194,907 47,733 45,630 339,274 326,704 173,490 170,134 76,906 76,906 3,054 2,413 640,457 621,787 Less – accumulated depreciation and amortization (334,069 ) (309,728 ) 306,388 312,059 49,318 49,233 $ 1,433,075 $ 1,556,199 $ 16,281 $ 20,449 35,502 32,457 464,932 511,497 62,190 120,584 14,204 13,305 -- 8,925 47,896 56,564 641,005 763,781 64,106 65,143 96,937 96,784 86,361 113,633 12,711 9,267 901,120 1,048,608 Shares at September 30, 2009 December 31, 2008 15,000,000 15,000,000 8,236,640 7,822,677 1,924,144 1,872,801 (490,602 ) (32,661 ) 9,670,182 9,662,817 193,404 193,256 728 -- 437,351 425,276 Accumulated Other Comprehensive Loss (104,244 ) (114,869 ) 527,239 503,663 4,716 3,928 531,955 507,591 Total Liabilities and Shareholders’ Equity $ 1,433,075 $ 1,556,199 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. (Unaudited) For the Nine Months Ended September 30, 2009 2008 $ 20,871 $ 67,080 29,119 28,475 (1,594 ) (4,593 ) (335 ) (25 ) (46 ) (143 ) 56,807 (87,756 ) 39,162 (23,137 ) 3,566 (3,089 ) (85 ) 3,539 (46,565 ) 76,293 (58,394 ) (35,070 ) 3,280 12,230 2,560 (4,831 ) 27,475 (38,107 ) 48,346 28,973 968 327 (21,736 ) (25,368 ) (20,768 ) (25,041 ) (4,168 ) 5,305 (25,148 ) (24,974 ) 641 -- (510 ) (335 ) Sales of common stock 10,034 9,539 (9,158 ) (6,593 ) Sales of noncontrolling interests’ common stock 464 -- (61 ) (58 ) (17,675 ) (14,573 ) (45,581 ) (31,689 ) (18,003 ) (27,757 ) 130,443 66,167 $ 112,440 $ 38,410 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. Graybar Electric Company, Inc. and Subsidiaries CONDENSED Consolidated Statements of Changes in Shareholders’ Equity CONDENSED Consolidated Statements of Changes in Shareholders’ Equity (Unaudited, stated in thousands) $ 158,633 $ -- $ 386,217 $ (65,899 ) $ 4,428 $ 483,379 66,937 143 67,080 (2,028 ) (174 ) (2,202 ) Unrealized gain from (net of tax of $36) 57 57 Pension and postretirement liability adjustment (net of tax of $3,141) 4,933 4,933 69,868 8,833 8,833 (6,593 ) (58 ) (6,651 ) 706 706 (7,246 ) (7,246 ) $ 160,873 $ 706 $ 445,908 $ (62,937 ) $ 4,339 $ 548,889 Subscribed, Other Comprehensive Loss Equity $ 193,256 $ -- $ 425,276 $ (114,869 ) $ 3,928 $ 507,591 20,825 46 20,871 5,149 339 5,488 Unrealized gain from interest rate swap (net of tax of $386) 606 606 Pension and postretirement liability adjustment (net of tax of $3,100) 4,870 4,870 31,835 9,306 464 9,770 (9,158 ) (61 ) (9,219 ) 728 728 (8,750 ) (8,750 ) $ 193,404 $ 728 $ 437,351 $ (104,244 ) $ 4,716 $ 531,955 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. Graybar Electric Company, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Stated in thousands except per share data)¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934YES xNO ¨
files).YES ¨NO ¨Accelerated filer¨ Smaller reporting company¨ NO xCommon Stock Outstanding at July 31, 2009:9,656,869.(Number of Shares)Graybar Electric Company, Inc. and SubsidiariesForm 10-Q Common Stock Outstanding at October 31, 2009: 9,609,043For the Quarterly Period Ended June 30, 2009Graybar Electric Company, Inc. and Subsidiaries
Form 10-Q
Table of Contents
(Unaudited)Table of Contents7-1213-2021212222Item 4.Submission of Matters to a Vote of Security Holders232425262PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Graybar Electric Company, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30, June 30, (Stated in thousands except per share data) 2009 2008 2009 2008 Gross Sales $ 1,125,942 $ 1,426,288 $ 2,187,773 $ 2,714,302 Cash Discounts (4,350 ) (5,569 ) (8,633 ) (10,909 ) Net Sales 1,121,592 1,420,719 2,179,140 2,703,393 Cost of merchandise sold (903,676 ) (1,147,350 ) (1,753,985 ) (2,179,006 ) Gross Margin 217,916 273,369 425,155 524,387 Selling, general and administrative expenses (190,959 ) (213,131 ) (381,754 ) (424,999 ) Depreciation and amortization (10,139 ) (9,645 ) (19,537 ) (18,888 ) Other income, net 659 411 1,604 1,057 Income from Operations 17,477 51,004 25,468 81,557 Interest expense, net (2,734 ) (3,088 ) (5,600 ) (6,485 ) Income before Provision for Income Taxes 14,743 47,916 19,868 75,072 Provision for income taxes (6,421 ) (19,444 ) (9,061 ) (27,628 ) Net Income 8,322 28,472 10,807 47,444 Less: Net income attributable to noncontrolling interests (1 ) (56 ) (1 ) (78 ) Net Income attributable to Graybar Electric Company, Inc. $ 8,321 $ 28,416 $ 10,806 $ 47,366 Net Income per share of Common Stock (A) $ 0.86 $ 2.96 $ 1.11 $ 4.93 Cash Dividends per share of Common Stock (B) $ 0.30 $ 0.30 $ 0.60 $ 0.60 Average Common Shares Outstanding (A) 9,688 9,606 9,712 9,611 (A)Adjusted for the declaration of a twenty percent (20%) stock dividend in 2008, shares related to which were issued in February 2009. Prior to the adjustment, the average common shares outstanding were 8,005 and 8,009 for the three and six month periods ended June 30, 2008.(B)Cash dividends declared were $2,912 and $2,414 for the three months ended June 30, 2009 and 2008, respectively. Cash dividends declared were $5,840 and $4,829 for the six months ended June 30, 2009and 2008, respectively.Item 1. Financial Statements
3Graybar Electric Company, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, (Stated in thousands except share and per share data) 2009 2008 ASSETS (Unaudited) Current Assets Cash and cash equivalents $ 109,600 $ 130,443 Trade receivables (less allowances of $7,562 and $7,563, respectively) 605,366 659,778 Merchandise inventory 330,735 373,813 Other current assets 28,479 30,873 Total Current Assets 1,074,180 1,194,907 Property, at cost Land 45,607 45,630 Buildings 332,573 326,704 Furniture and fixtures 173,172 170,134 Software 76,906 76,906 Capital leases 3,054 2,413 Total Property, at cost 631,312 621,787 Less – accumulated depreciation and amortization Less – accumulated depreciation and amortization (327,385 ) (309,728 ) Net Property 303,927 312,059 Other Non-current Assets 54,503 49,233 Total Assets $ 1,432,610 $ 1,556,199 LIABILITIES Current Liabilities Short-term borrowings $ 13,455 $ 20,449 Current portion of long-term debt 32,670 32,457 Trade accounts payable 469,141 511,497 Accrued payroll and benefit costs 50,668 120,584 Other accrued taxes 14,622 13,305 Dividends payable -- 8,925 Other current liabilities 52,843 56,564 Total Current Liabilities 633,399 763,781 Postretirement Benefits Liability 64,226 65,143 Pension Liability 96,936 96,784 Long-term Debt 103,313 113,633 Other Non-current Liabilities 14,834 9,267 Total Liabilities 912,708 1,048,608 SHAREHOLDERS’ EQUITY Shares at Capital Stock June 30, December 31, 2009 2008 Common, stated value $20.00 per share Authorized 15,000,000 15,000,000 Issued to voting trustees 8,139,148 7,822,677 Issued to shareholders 1,914,965 1,872,801 In treasury, at cost (366,762 ) (32,661 ) Outstanding Common Stock 9,687,351 9,662,817 193,747 193,256 Advance Payments on Subscriptions to Common Stock Advance Payments on Subscriptions to Common Stock 401 -- Advance Payments on Subscriptions to Common Stock
Retained Earnings 430,242 425,276 Retained Earnings
Accumulated Other Comprehensive Loss (108,485 ) (114,869 ) Total Graybar Electric Company, Inc. Shareholders’ Equity Total Graybar Electric Company, Inc. Shareholders’ Equity 515,905 503,663 Total Graybar Electric Company, Inc. Shareholders’ Equity
Noncontrolling Interests 3,997 3,928 Noncontrolling Interests
Total Shareholders’ Equity 519,902 507,591 Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity Total Liabilities and Shareholders’ Equity $ 1,432,610 $ 1,556,199 4Graybar Electric Company, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, (Stated in thousands) 2009 2008 Cash Flows from Operations Net Income $ 10,807 $ 47,444 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 19,537 18,888 Deferred income taxes (4,315 ) (2,443 ) Net gains on disposal of property (398 ) (42 ) Net income attributable to noncontrolling interests (1 ) (78 ) Changes in assets and liabilities: Trade receivables 54,412 (59,116 ) Merchandise inventory 43,078 (8,039 ) Other current assets 2,394 (714 ) Other non-current assets (5,270 ) 2,581 Trade accounts payable (42,356 ) 59,405 Accrued payroll and benefit costs (69,916 ) (52,097 ) Other current liabilities 7,803 11,281 Other non-current liabilities 4,802 (4,796 ) Total adjustments to net income 9,770 (35,170 ) Net cash provided by operations 20,577 12,274 Cash Flows from Investing Activities Proceeds from disposal of property 611 352 Capital expenditures for property (10,636 ) (15,734 ) Net cash used by investing activities (10,025 ) (15,382 ) Cash Flows from Financing Activities Net (decrease) increase in short-term borrowings (6,994 ) 1,632 Repayment of long-term debt (10,776 ) (10,619 ) Proceeds from borrowings on long-term debt 641 -- Principal payments under capital leases (338 ) (222 ) Sale of common stock 7,574 7,170 Purchases of common stock (6,682 ) (4,565 ) Purchases of noncontrolling interests’ common stock (55 ) (49 ) Dividends paid (14,765 ) (12,156 ) Net cash used by financing activities (31,395 ) (18,809 ) Net Decrease in Cash (20,843 ) (21,917 ) Cash, Beginning of Year 130,443 66,167 Cash, End of Period $ 109,600 $ 44,250 5Graybar Electric Company, Inc. and Subsidiaries Graybar Electric Company, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited, stated in thousands) Graybar Electric Company, Inc. Shareholders’ Equity Common
Stock Common
Stock
Subscribed,
Unissued Retained
Earnings Accumulated
Other
Comprehensive
Loss Noncontrolling
Interests Total
Shareholders’
EquityBalance, December 31, 2007 $ 158,633 $ -- $ 386,217 $ (65,899 ) $ 4,428 $ 483,379 Net income 47,366 78 47,444 Foreign currency translation (789 ) (101 ) (890 ) Unrealized gain from interest rate swap (net of tax of $88) 138 138 Pension and postretirement liability adjustment (net of tax of $2,093) 3,288 3,288
interest rate swapComprehensive income 49,980 Stock issued 6,791 6,791 Stock purchased (4,565 ) (49 ) (4,614 ) Advance payments 379 379 Dividends declared (4,829 ) (4,829 ) Balance, June 30, 2008 $ 160,859 $ 379 $ 428,754 $ (63,262 ) $ 4,356 $ 531,086 Graybar Electric Company, Inc. Shareholders’ Equity Common
Stock Common
Stock
Subscribed,
Unissued Retained
Earnings Accumulated
Other
Comprehensive
Loss Noncontrolling
Interests Total
Shareholders’
EquityCommon
Stock
Common
Stock
Unissued
Retained
Earnings
Accumulated
Noncontrolling
Interests
Total
Shareholders’
Balance, December 31, 2008 $ 193,256 $ -- $ 425,276 $ (114,869 ) $ 3,928 $ 507,591 Net income 10,806 1 10,807 Foreign currency translation 2,414 123 2,537 Unrealized gain from interest rate swap (net of tax of $460) 723 723 Pension and postretirement liability adjustment (net of tax of $2,067) 3,247 3,247 Comprehensive income 17,314 Stock issued 7,173 7,173 Stock purchased (6,682 ) (55 ) (6,737 ) Advance payments 401 401 Dividends declared (5,840 ) (5,840 ) Balance, June 30, 2009 $ 193,747 $ 401 $ 430,242 $ (108,485 ) $ 3,997 $ 519,902 Balance, September 30, 2009
6
(Unaudited)
Note 1
The condensed consolidated financial statements included herein have been prepared by Graybar Electric Company, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC” or “Commission”) applicable to interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP)(“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 reportedreporte d amounts. The Company’s condensed consolidated financial sta tementsstatements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates. Certain reclassifications were made to prior year amounts to conform to the 2009 presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2008, included in the Company’s latest Annual Report on Form 10-K.
In the opinion of the Company, this quarterly report includes all adjustments, consisting of normal recurring accruals and adjustments, necessary for the fair presentation of the financial statements presented. Such interim financial information is subject to year-end adjustments. Results for interim periods are not necessarily indicative of results to be expected for the full year.
Note 2
In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing two levels of US GAAP – authoritative and non-authoritative – and making the FASB Accounting Standards Codification (“ASC”) the source of authoritative US GAAP to be applied by non-governmental entities, except for rules and interpretative releases of the SEC. This guidance was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption changed certain disclosure references to US GAAP, but did not have any other impact on the Company’s condensed consolidated financial statements.
Note 3
The consolidated financial statements include the accounts of Graybar Electric Company, Inc. and its subsidiary companies. All material intercompany balances and transactions have been eliminated. The ownership interests that are held by owners other than the Company in subsidiaries consolidated by the Company are accounted for and reported as noncontrolling interests.
In accordance with an accounting standard issued by the FASB in December 2007, effective January 1, 2009, the Company’s minority interests were recharacterized as noncontrolling interests and are reported as a separate component of shareholders’ equity. Purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. Net income attributable to the noncontrolling interests is separately identified and included in net income in the income statement.
The Company has reclassified its noncontrolling interests to shareholders’ equity for all periods presented. The Company also adjusted its net income to include the net income attributable to the noncontrolling interests. Consolidated comprehensive income was also adjusted to include the comprehensive income attributable to the noncontrolling interests.
Note 4
The Company values its inventories at the lower of cost (determined using the last-in, first-out (LIFO)(“LIFO”) cost method) or market. LIFO accounting is a method of accounting that, compared with other inventory accountingmethods, 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 management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation.
Note 35
The Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS 160), on January 1, 2009. SFAS 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations. This statement also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of FASB Statement No. 141 (revised 2007), “Business Combinations”.
SFAS 160 changes the accounting and reporting for minority interests. Upon adoption, the Company’s minority interests were recharacterized as noncontrolling interests and are reported as a separate component of shareholders’ equity. Purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interests is separately identified and included in net income in the income statement.
The presentation and disclosure requirements of SFAS 160 are applied retrospectively for all periods presented. Therefore, upon adoption, the Company reclassified its noncontrolling interests to shareholders’ equity for all periods presented. The Company also adjusted its net income to include the net income attributable to the noncontrolling interests. Consolidated comprehensive income was also adjusted to include the comprehensive income attributable to the noncontrolling interests.
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Note 4
The Company adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161), on January 1, 2009. SFAS 161 amended SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), and requires expanded disclosures about the Company’s derivative instruments and hedging activities, but does not change the scope of SFAS 133. SFAS 133, as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities – an amendment of FASB Statement No. 133”, and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, requires the Company to recognize all derivative instruments on the balance sheet at fair value.
The Company has entered into an interest rate swap agreement that converts its floating rate interest payments on a leveraged lease agreement to a fixed-rate basis. Changes in the cash flows of the interest rate swap are expected to be highly effective in offsetting the changes in cash flows attributable to fluctuations in the variable rate on the notional amount of the debt. The Company’s interest rate swap agreement is designated as a cash flow hedge, with the changes in fair value, to the extent the swap agreement is effective, recorded in accumulated other comprehensive loss until the hedged interest expense is recognized in earnings. The loss (net of tax) reclassified from accumulated other comprehensive loss to interest expense related to the effective portion of the interest rate swap was $190$213 and $355$568 during the three and sixnine month periods ended JuneSeptember 30, 2009, respectively. The Com panyCompany recorded gainsa loss (net of tax) of $429 and $368$330 in accumulated other comprehensive loss related to the effective portionchange in fair value of the interest rate swap during the three and six month periodsperiod ended JuneSeptember 30, 2009, respectively.and recorded a gain (net of tax) of $38 in accumulated other comprehensive loss related to the change in fair value of the interest rate swap during the nine month period ended September 30, 2009. The amount of loss (net of tax) expected to be reclassified from accumulated other comprehensive loss to interest expense over the next twelve months is $1,078.$1,145. As of JuneSeptember 30, 2009 the Company has recorded a loss (net(net of tax) of $3,189$3,306 in accumulated other comprehensive loss related to the effective portion of the interest rate swap.
Note 5
SFAS No. 157, “Fair Value Measurements” (SFAS 157) defines fair value, establishes a framework for measuring fair value under US GAAP, and expands disclosures about fair value measurements. SFAS 157 applies under accounting pronouncements that require or permit fair value measurements, but the standard does not require any new fair value measurements. In February 2008, the FASB amended SFAS 157
The Company’s interest rate swap is required to exclude leasing transactions and to delay the effective date by one year for nonfinancial assets and liabilities that are recognized or disclosedbe measured at fair value in the financial statements on a nonrecurringrecurring basis. The Company adoptedendeavors to utilize the provisions of SFAS 157 as of January 1, 2008.
SFAS 157 establishesbest available information in measuring fair value. US GAAP has established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. TheseThe tiers in the hierarchy include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own data inputs and assumptions.
The Company’s interest rate swap is required to be measured at fair value on a recurring basis. The Company endeavors to utilize the best available information in measuring fair value.
The interest rate swap is valued based on quoted data from the counterparty, corroborated with indirectly observable market data, which, combined, are deemed to be a Level 2 input in the fair value hierarchy. The fair value of the swap at JuneSeptember 30, 2009 and December 31, 2008, was $(5,218)$(5,410) and $(6,402), respectively, and recorded in other current liabilities in the condensed consolidated balance sheet. The effective portion of the related gains or losses on the swap are deferred in accumulated other comprehensive loss. No ineffectiveness was recorded in the consolidated statements of income during three and sixnine month periods ended JuneSeptember 30, 2009 and 2008. 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. Unrealized gains (net of tax) of $886 and $138 related to the swap were recorded in accumulated other comprehensive loss during the three and six months ended June 30, 2008, 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.
8
Note 6
The FASB issued SFAS No. 165, “Subsequent Events” (SFAS 165), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS 165 is effective for interim or annual periods ending after June 15, 2009. As such, the Company adopted SFAS 165 during the quarter ended June 30, 2009.
The Company has evaluated subsequent events through the time of the filing of this Form 10-Q with the SEC. No material subsequent events have occurred since June 30, 2009 that require recognition or disclosure in these financial statements.
Note 7
The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes” (SFAS 109). Under this standard, the Company determines its deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of its assets and liabilities using enacted applicable tax rates. The Company then assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance, when recorded, are included in the provision for (benefit from) income taxes in the consolidated financial statements.
The Company also follows the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company’s unrecognized tax benefits of $4,582$3,996 and $3,874 at JuneSeptember 30, 2009 and December 31, 2008, respectively, are uncertain tax positions that would impact the Company’s effective tax rate if recognized. The Company settled income tax - -relatedtax-related issues during the first quarter of 2008 and approximately $2,600 of unrecognized tax benefits related to uncertain tax positions were released. This resulted in a significantly lower effective tax rate for the sixnine month period ended Juneended September 30, 2008, compared to the same period of 2009.
There were no tax positions for which the ultimate deductibility was highly certain, but for which there was uncertainty about the timing of such deductibility included in the balance sheet at JuneSeptember 30, 2009 and December 31, 2008. Because of the impact of deferred tax accounting, other than interest and penalties, any disallowance of the shorter deductibility period would not affect the annual effective tax rate,, but would accelerate the payment of cash to the taxing authority to an earlier period.
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 $1,143$1,196 and $1,115 in interest and penalties inon its balance sheet at JuneSeptember 30, 2009 and December 31, 2008, respectively. Interest was computed on the difference between the provision for income taxes recognized in accordance with FIN 48US GAAP and the amount of benefit previously taken or expected to be taken in the Company’s federal, state, and local income tax returns.
The Company’s federal income tax returns for the tax years 20052006 and forward are available for examination by the United States Internal Revenue Service. The Company is currently under audit examination by the Internal Revenue Service for its 2007 federal income tax return. This examination commenced in December 2008 and is expected to be completed in 2009. At this time, the Company does not anticipate that the result of the audit will have a material effect on its financial statements.
The Company has not agreed to extend its federal statute of limitations for the 20052006 tax year as of JuneSeptember 30, 2009. The federal statute of limitations for the 20052006 tax year will expire on September 15, 2009.2010. The Company’s state income tax returns for 20042005 through 2008 remain subject to examination by various state authorities with the latest period closing on October 15, 2013. The Company has not extended the statutes of limitations for any state jurisdictions with respect to years prior to 2004.2005. Such state statutes of limitations will expire on or before October 15, 20092010 unless extended.
9
Note 87
The Company’s capital stock is one hundred percent (100%) owned by its active and retired employees and there is no public trading market for its common stock. No shareholder may sell, transfer, or otherwise dispose of shares of common stock or the voting trust interests issued with respect thereto (“common stock”, “common shares”, or “shares”) without first offering the Company the option to purchase such shares at the price at which the shares were issued. The Company also has the option to purchase at the issue price the common stock of any holder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension. 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. All outstanding shares of the Company have been issued at $20.00 per share.
Approximately eighty-one percent (81%) and eighty percent (80%) of the Company’s issued and outstanding shares of common stock was deposited with the Voting Trustees and held under the 2007 Voting Trust Agreement by their beneficial owners as of JuneSeptember 30, 2009 and December 31, 2008, respectively.
Note 98
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)(“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 JuneSeptember 30, 2009 and December 31, 2008.
Note 109
At JuneSeptember 30, 2009, and December 31, 2008, the Company had a $215,000 trade receivable securitization program that was scheduled to expire in October 2009. Prior to expiration, the Company amended the program agreement, effective October 9, 2009, to reduce the program to a $100,000 facility that expires in October 2009.2010. The trade receivable securitization program provides for the sale of certain of the Company’s 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 conduit’s receivables-backed commercial paper develops and the conduit is unable to purchase the undivided interest offered by GCC, the agentage nt bank for the receivable securitization program is obligated to purchase the undivided interest in the trade receivables from GCC under the terms of the program.
The Company accounts for the securitization as an on-balance sheet financing arrangement because the Company has maintained effective control of the trade receivables through a call option that gives GCC the unilateral right to repurchase the undivided interests. Accordingly, the trade receivables and related debt are included in the accompanying consolidated balance sheets. GCC has granted a security interest in its tradereceivables to the commercial paper conduit. There were no borrowings outstanding under the trade receivable securitization program at JuneSeptember 30, 2009 and December 31, 2008, respectively.2008.
The Company is currently negotiating 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 2009. It is expected that the cost of any replacement credit facility will exceed that of the current trade receivable securitization program and that the term of the replacement credit facility will likely be less than the current three-year trade receivable securitization program.
Given the continuing uncertainties in the market for asset-backed securities, there can be no assurance that an asset-backed commercial paper facility of the type employed by the Company will be available upon the expiration of the existing trade receivable securitization program in October 2009.
Note 1110
The Company has a lease agreement with an independent lessor, which provides $28,720 of financing for five of the Company’s distribution facilities. The agreement carries a five-year term expiring July 2013. The financing structure used with this lease qualifies as a silo of a variable interest entity and, therefore, is accounted for under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities – an interpretation of ARB No. 51” (FIN 46), andentity. In accordance with US GAAP, the Company, as the primary beneficiary, consolidates the silo in its subsequent revision FIN 46R,“Consolidation of Variable Interest Entities (revised December 2003)—an interpretation of ARB No. 51”.financial statements.
10
As of JuneSeptember 30, 2009, the consolidated silo included in the Company’s consolidated financial statements had a net property balance of $16,496,$16,320, long-term debt of $27,715, and a noncontrolling interest of $1,005. At December 31, 2008, the consolidated silo included in the Company’s consolidated financial statements had a net property balance of $16,862, long-term debt of $27,715, and a noncontrolling interest of $1,005.
Under the terms of the lease agreement, the amount guaranteed by the Company as the residual fair value of the property subject to the lease arrangement was $28,720 at JuneSeptember 30, 2009 and December 31, 2008.
Note 1211
The Company has a noncontributory defined benefit pension plan covering substantially all full-time employees. The plan provides retirement benefits based on an employee’s final average earnings and years of service. Employees become one hundred percent (100%) vested after five years of service regardless of age. The Company’s funding policy is to contribute the net periodic pension cost accrued each year, provided that the contribution will not be less than the Pension Protection Act of 2006 minimum or greater than the maximum tax-deductible amount. The assets of the defined benefit plan are invested in fixed income and equity securities, money market funds, and other investments.
The Company made contributions to its qualified defined benefit pension plan totaling $8,500 and $16,000$24,500 during the three and sixnine month periods ended JuneSeptember 30, 2009, respectively. Contributions made during the three and sixnine month periods ended JuneSeptember 30, 2008 totaled $8,800$6,200 and $18,800,$25,000, respectively. Additional contributions totaling $18,500$10,000 are expected to be paid during the remainder of 2009.
Note 1312
The Company and its subsidiaries are subject to various claims, disputes, administrative, and legal matters incidental to the Company’s 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 the provisions of SFAS No. 5, “Accounting for Contingencies”. EstimatedCompany’s estimated loss contingencies are accrued only if the loss is probable and the amount of the loss can be reasonably estimated. With respect to a particular loss contingency, it may be probable that a loss has occurred, but the estimate of the loss is a wide range. If the Company deems some amount within the range to be a better estimate than any other amount within the range, that amount will be accrued. However, if no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. While the Company believes that none of these claims, disputes, administrative, and legal matters will have a material adverse effect on its financial position, these matters are uncertain and the Company cannot, at this time, determine whether the financial impact, if any, of these matters will be material to its results of operations in the period in which such matters are resolved or a better estimate becomes available.
Note 1413
Comprehensive income for the three months ended JuneSeptember 30, 2009 and 2008 was $14,060$14,521 and $31,537,$19,888, respectively. Comprehensive income for the sixnine months ended JuneSeptember 30, 2009 and 2008 was $17,314$31,835 and $49,980,$69,868, respectively. Comprehensive income is comprised of net income, foreign currency translation adjustments related to the Company’s operations outside of the United States, pension and postretirement liability adjustments, and changes in the fair value of the Company’s interest rate swap agreement.
Note 1514
The FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTMand the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (Codification), in June 2009. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009.
11
The Codification replaces FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. The Codification will become the source of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities such as the Company. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. On its effective date, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will be considered non-authoritative.
The FASB will not issue new standards inCompany has evaluated subsequent events through the formtime of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts after the Codification becomes effective. Instead, it will issue Accounting Standards Updates. The FASB will not consider Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates will serve only to updatefiling of this Form 10-Q with the Codification, provide background information aboutSEC. Except for the guidance, and provide the bases for conclusions on the change(s)amendment to the Codification.trade receivable securitization program discussed in Note 9, no material subsequent events have occurred since September 30, 2009 that require recognition or disclosure in these financial statements.
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46R” (SFAS 167), which amends the consolidation guidance applicable to variable interest entities (VIEs). The amendments to the consolidation guidance affect all entities currently within the scope of FIN 46R, as well as qualifying special-purpose entities (QSPEs) that are currently excluded from the scope of FIN 46R. SFAS 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. The Company does not expect the adoption SFAS 167 to have a significant impact on its financial statement because of the Company’s limited use of VIE’s.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with ourthe accompanying unaudited condensed consolidated financial statements and notes thereto of Graybar Electric Company, Inc. (“Graybar” or the “Company”), and ourthe audited consolidated financial statements, notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2008, included in our Annual Report on Form 10-K for such period as filed with the U.S. Securities and Exchange Commission (“SEC” or “Commission”). The results shown herein are not necessarily indicative of the results to be expected in any future periods.
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements generally are identified by the words “believes”, “projects”, “expects”, “anticipates”, “estimates”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will be”, “will continue”, “will likely result”,result ”, and similar expressions. The Compa nyCompany intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. The Company’s 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 Company’s operations and future prospects on a consolidated basis include, but are not limited to: continued financial market turmoil, the impact of financial market distress on our defined benefit pension plan, disruptions in our sources of supply, changes in general economic conditions, volatility in the prices of industrial metal commodities, a sustained interruption in theth e operation of our information systems, adverse legal proceedings or other claims, and the inability, or limitation on our ability, to raise debt or equity capital. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially impact our financial results, is included herein and in our other filings with the SEC. Actual results and the timing of events could differ materially from the forward-looking statements as a result of certain factors, a number of which are outlined in Item 1A., “Risk Factors”, of the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2008.
All dollar amounts are stated in thousands ($000s) in the following discussion and accompanying tables. Certain reclassifications were made to prior year amounts to conform to the 2009 presentation.
Background
Graybar 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 Company’s business activity is primarily with customers in the United States. Graybar also has subsidiary operations with distribution facilities in Canada and Puerto Rico.
The Company’s capital stock is one hundred percent (100%) owned by its active and retired employees and there is no public trading market for its common stock. No shareholders may sell, transfer, or otherwise dispose of shares of common stock or the voting trust interests issued with respect thereto (“common stock”, “common shares”, or “shares”) without first offering the Company the option to purchase such shares at the price at which shares were issued. The Company also has the option to purchase at the issue price the common stock of any holder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension. The Company has always exercised its purchase option and expects to continue to do so. AllAll outstanding shares of the Company have been issued at $20.00$2 0.00 per share.
13
Business Overview
The credit and financial market crisis which began in September 2008 appears to have abated somewhat, particularly in the United States. However, recessionary conditions persist and credit availability remains tight within the Company’s North American trading area. Spending on new construction and capital expenditures on plant and equipment during the first halfnine months of 2009 was well below the level of a year ago and had a considerable negative impact on the Company’s results of operations for the three and sixnine month periods ended JuneSeptember 30, 2009.
Net sales declined 19.4%20.5% and gross margin decreased 18.9%18.5% during the first half ofnine months ended September 30, 2009, compared to the same sixnine months ended JuneSeptember 30, 2008. The Company believes that approximately fivefour percentage points (4%) of the net sales decline is attributable to product price deflation, though deflationary pressures eased somewhat during the second quarter of 2009, compared to the three months ended March 31, 2009.deflation. Selling, general and administrative expenses also declined, but to a lesser extent than gross margin, resulting in a 68.8%62.8% decrease in income from operations during the sixnine months ended JuneSeptember 30, 2009, compared to the same period in 2008.
The Company expects little, if any, improvement in the markets for products sold by the Company during the last halffourth quarter of 2009, although there are some indications that the downward trend of the overall economy may have reached a bottom. As a result, the Company anticipates continued negative year-over-year comparisons of both net sales and gross margin for the balance of 2009. Graybar believes, however, that its experienced management team, solid balance sheet, and continued positive, though lower, income from operations, will enable the Company to not only weather this severe downturn in the economy, but to emerge well-positioned for the return of economic growth.
14
Consolidated Results of Operations
The following table setstables set forth certain information relating to the operations of the Company stated in thousands of dollars and as a percentage of net sales for the three and sixnine months ended JuneSeptember 30, 2009 and 2008.
Three Months Ended | Three Months Ended | |||||||||||
June 30, 2009 | June 30, 2008 | |||||||||||
Dollars | Percent | Dollars | Percent | |||||||||
Net Sales | $ | 1,121,592 | 100.0 | % | $ | 1,420,719 | 100.0 | % | ||||
Cost of merchandise sold | (903,676 | ) | (80.6 | ) | (1,147,350 | ) | (80.8 | ) | ||||
Gross Margin | 217,916 | 19.4 | 273,369 | 19.2 | ||||||||
Selling, general and administrative expenses | (190,959 | ) | (17.1 | ) | (213,131 | ) | (15.0 | ) | ||||
Depreciation and amortization | (10,139 | ) | (0.9 | ) | (9,645 | ) | (0.7 | ) | ||||
Other income, net | 659 | 0.1 | 411 | 0.1 | ||||||||
Income from Operations | 17,477 | 1.5 | 51,004 | 3.6 | ||||||||
Interest expense, net | (2,734 | ) | (0.2 | ) | (3,088 | ) | (0.2 | ) | ||||
Income before Provision for Income Taxes | 14,743 | 1.3 | 47,916 | 3.4 | ||||||||
Provision for income taxes | (6,421 | ) | (0.6 | ) | (19,444 | ) | (1.4 | ) | ||||
Net Income | 8,322 | 0.7 | 28,472 | 2.0 | ||||||||
Less: Net income attributable to noncontrolling interests | (1 | ) | -- | (56 | ) | -- | ||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 8,321 | 0.7 | % | $ | 28,416 | 2.0 | % | ||||
Six Months Ended | Six Months Ended | |||||||||||
June 30, 2009 | June 30, 2008 | |||||||||||
Dollars | Percent | Dollars | Percent | |||||||||
Net Sales | $ | 2,179,140 | 100.0 | % | $ | 2,703,393 | 100.0 | % | ||||
Cost of merchandise sold | (1,753,985 | ) | (80.5 | ) | (2,179,006 | ) | (80.6 | ) | ||||
Gross Margin | 425,155 | 19.5 | 524,387 | 19.4 | ||||||||
Selling, general and administrative expenses | (381,754 | ) | (17.5 | ) | (424,999 | ) | (15.8 | ) | ||||
Depreciation and amortization | (19,537 | ) | (0.9 | ) | (18,888 | ) | (0.7 | ) | ||||
Other income, net | 1,604 | 0.1 | 1,057 | 0.1 | ||||||||
Income from Operations | 25,468 | 1.2 | 81,557 | 3.0 | ||||||||
Interest expense, net | (5,600 | ) | (0.3 | ) | (6,485 | ) | (0.2 | ) | ||||
Income before Provision for Income Taxes | 19,868 | 0.9 | 75,072 | 2.8 | ||||||||
Provision for income taxes | (9,061 | ) | (0.4 | ) | (27,628 | ) | (1.0 | ) | ||||
Net Income | 10,807 | 0.5 | 47,444 | 1.8 | % | |||||||
Less: Net income attributable to noncontrolling interests | (1 | ) | -- | (78 | ) | -- | ||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 10,806 | 0.5 | % | $ | 47,366 | 1.8 | % |
| Three Months Ended |
|
|
| Three Months Ended |
| |||||||
| September 30, 2009 |
|
|
| September 30, 2008 |
| |||||||
| Dollars |
|
| Percent |
|
|
| Dollars |
|
| Percent |
| |
Net Sales | $ | 1,124,107 |
|
| 100.0 | % |
| $ | 1,449,643 |
|
| 100.0 | % |
Cost of merchandise sold |
| (908,282 | ) |
| (80.8 | ) |
|
| (1,187,325 | ) |
| (81.9 | ) |
Gross Margin |
| 215,825 |
|
| 19.2 |
|
|
| 262,318 |
|
| 18.1 |
|
Selling, general and administrative expenses |
| (188,741 | ) |
| (16.8 | ) |
|
| (217,988 | ) |
| (15.1 | ) |
Depreciation and amortization |
| (9,582 | ) |
| (0.9 | ) |
|
| (9,587 | ) |
| (0.7 | ) |
Other income, net |
| 612 |
|
| 0.1 |
|
|
| 847 |
|
| 0.1 |
|
Income from Operations |
| 18,114 |
|
| 1.6 |
|
|
| 35,590 |
|
| 2.4 |
|
Interest expense, net |
| (2,354 | ) |
| (0.2 | ) |
|
| (3,150 | ) |
| (0.2 | ) |
Income before Provision for Income Taxes |
| 15,760 |
|
| 1.4 |
|
|
| 32,440 |
|
| 2.2 |
|
Provision for income taxes |
| (5,696 | ) |
| (0.5 | ) |
|
| (12,804 | ) |
| (0.9 | ) |
Net Income |
| 10,064 |
|
| 0.9 |
|
|
| 19,636 |
|
| 1.3 |
|
Less: Net income attributable tononcontrolling interests |
| (45 | ) |
| -- |
|
|
| (65) |
|
| -- |
|
Net Income attributable toGraybar Electric Company, Inc. | $ | 10,019 |
|
| 0.9 | % |
| $ | 19,571 |
|
| 1.3 | % |
| Nine Months Ended |
|
|
| Nine Months Ended |
| |||||||
| September 30, 2009 |
|
|
| September 30, 2008 |
| |||||||
| Dollars |
|
| Percent |
|
|
| Dollars |
|
| Percent |
| |
Net Sales | $ | 3,303,247 |
|
| 100.0 | % |
| $ | 4,153,036 |
|
| 100.0 | % |
Cost of merchandise sold |
| (2,662,267 | ) |
| (80.6 | ) |
|
| (3,366,331 | ) |
| (81.1 | ) |
Gross Margin |
| 640,980 |
|
| 19.4 |
|
|
| 786,705 |
|
| 18.9 |
|
Selling, general and administrative expenses |
| (570,495 | ) |
| (17.3 | ) |
|
| (642,987 | ) |
| (15.5 | ) |
Depreciation and amortization |
| (29,119 | ) |
| (0.9 | ) |
|
| (28,475 | ) |
| (0.7 | ) |
Other income, net |
| 2,216 |
|
| 0.1 |
|
|
| 1,904 |
|
| 0.1 |
|
Income from Operations |
| 43,582 |
|
| 1.3 |
|
|
| 117,147 |
|
| 2.8 |
|
Interest expense, net |
| (7,954 | ) |
| (0.2 | ) |
|
| (9,635 | ) |
| (0.2 | ) |
Income before Provision for Income Taxes |
| 35,628 |
|
| 1.1 |
|
|
| 107,512 |
|
| 2.6 |
|
Provision for income taxes |
| (14,757 | ) |
| (0.5 | ) |
|
| (40,432 | ) |
| (1.0 | ) |
Net Income |
| 20,871 |
|
| 0.6 |
|
|
| 67,080 |
|
| 1.6 | % |
Less: Net income attributable tononcontrolling interests |
| (46 | ) |
| -- |
|
|
| (143 | ) |
| -- |
|
Net Income attributable toGraybar Electric Company, Inc. | $ | 20,825 |
|
| 0.6 | % |
| $ | 66,937 |
|
| 1.6 | % |
Three Months Ended JuneSeptember 30, 2009 Compared to Three Months Ended JuneSeptember 30, 2008
Net sales totaled $1,121,592$1,124,107 for the three months ended JuneSeptember 30, 2009, compared to $1,420,719$1,449,643 for the three months ended JuneSeptember 30, 2008, a decrease of $299,127,$325,536, or 21.1%22.5%. Net sales to the electrical and comm/data market sectors for the three months ended JuneSeptember 30, 2009 decreased 22.2%25.1% and 18.0%17.8%, respectively, compared to the same three month period in 2008.
Gross margin decreased $55,453,$46,493, or 20.3%17.7%, to $217,916$215,825 from $273,369,$262,318, primarily due to lower net sales in the secondthird quarter of 2009, compared to the same period of 2008. The Company’s gross margin rate on net sales increased to 19.4%19.2% for the three month period ended JuneSeptember 30, 2009, compared to 19.2 %18.1% the same three month period of 2008.
15
Selling, general and administrative expenses decreased $22,172,$29,247, or 10.4%13.4%, to $190,959,$188,741, in the secondthird quarter of 2009 from $213,131$217,988 in the secondthird quarter of 2008, mainly due to lower employee compensation and benefit costs. Selling, general and administrative expenses as a percentage of net sales were 17.1%16.8% in the secondthird quarter of 2009, up from 15.0%15.1% of net sales in the secondthird quarter of 2008.
Depreciation and amortization expenses for the three months ended JuneSeptember 30, 2009 of $9,582 were flat, compared to $9,587 recorded in the third quarter of 2008. Depreciation and amortization expenses as a percentage of net sales increased to 0.9% for the three months ended September 30, 2009, compared to 0.7% of net sales for the same three month period in 2008.
Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to the Company’s business activities. Other income, net totaled $612 for the three months ended September 30, 2009, compared to $847 for the three months ended September 30, 2008. The decrease was due to lower trade receivable interest charges to customers as a result of lower levels of delinquent trade receivables for the three months ended September 30, 2009, compared to the same period last year.
Income from operations totaled $18,114 for the three months ended September 30, 2009, a decrease of $17,476, or 49.1%, from $35,590 for the three months ended September 30, 2008. The decrease was due to lower net sales and gross margin and lower other income, net, partially offset by decreases in selling, general and administrative expenses.
Interest expense, net declined $796, or 25.3%, to $2,354 for the three months ended September 30, 2009 from $3,150 for the three months ended September 30, 2008. This reduction was mainly due to a lower level of outstanding long-term debt in the third quarter of 2009, compared to the same period of 2008.
The decrease in income from operations and lower interest expense, net resulted in income before provision for income taxes of $15,760 for the three months ended September 30, 2009, a decrease of $16,680, or 51.4%, compared to $32,440 for the three months ended September 30, 2008.
The Company’s total provision for income taxes decreased $7,108, or 55.5%, for the three months ended September 30, 2009, compared to the same period in 2008, as a result of lower income before provision for income taxes. The Company’s effective tax rate decreased to 36.1% for the three months ended September 30, 2009, down from 39.5% for the same period in 2008, due to a decrease in unrecognized tax benefits, interest, and penalties.
Net income attributable to Graybar Electric Company, Inc. for the three months ended September 30, 2009 decreased $9,552, or 48.8%, to $10,019 from $19,571 for the three months ended September 30, 2008.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Net sales totaled $3,303,247 for the nine months ended September 30, 2009, compared to $4,153,036 for the same period of 2008, a decrease of $849,789 or 20.5%. Net sales to the electrical and comm/data market sectors during the nine month period ended September 30, 2009 decreased 21.6% and 18.1%, respectively, compared to the nine month period ended September 30, 2008.
Gross margin decreased $145,725, or 18.5%, to $640,980 from $786,705, due to lower net sales in the first nine months of 2009, compared to the same period of 2008. The Company’s gross margin rate on net sales was 19.4% for the nine month period ended September 30, 2009, compared to 18.9% for the same period in 2008.
Selling, general and administrative expenses decreased $72,492, or 11.3%, to $570,495, for the nine month period ended September 30, 2009, compared to $642,987 for the nine month period ended September 30, 2008, mainly due to lower employee compensation and benefit costs. Selling, general and administrative expenses as a percentage of net sales for the nine month period ended September 30, 2009 were 17.3%, up from 15.5% for the same nine month period of 2008.
Depreciation and amortization expenses for the nine months ended September 30, 2009 increased $494,$644, or 5.1%2.3%, to $10,139$29,119 from $9,645$28,475 for the same nine month period in the second quarter of 2008. This increase was due primarily to an increase in information technology assets, partially offset by the disposal of property. Depreciation andamortization expenses as a percentage of net sales increased to 0.9% for the threenine months ended JuneSeptember 30, 2009, compared to 0.7% of net sales for the same threenine month period in 2008.
Other income, net totaled $659 for the three months ended June 30, 2009, compared to $411 for the three months ended June 30, 2008.
Other income, net consists primarily of gains on the disposal of property,, trade receivable interest charges to customers, and other miscellaneous income items related to the Company’s business activities. Other income, net totaled $2,216 for the nine month period ended September 30, 2009, compared to $1,904 for the nine month period ended September 30, 2008. The increase was mainly due to losseshigher net gains on the disposal of property, which were $334 for the nine month period ended September 30, 2009, compared to net gains on the disposal of property of $(119)$25 for the three monthsnine month period ended JuneSeptember 30, 2008, which were not repeated during the same period of 2009.2008.
Income from operations totaled $17,477$43,582 for the three monthsnine month period ended JuneSeptember 30, 2009, a decrease of $33,527,$73,565, or 65.7%62.8%, from $51,004$117,147 for the three monthsnine month period ended JuneSeptember 30, 2008. The decrease was due to lower net sales and gross margin and higher depreciation and amortization expenses, partially offset by decreases in selling, general and administrative expenses, and higher other income, net.
Interest expense, net declined $354,$1,681, or 11.5%17.4%, to $2,734$7,954 for the three monthsnine month period ended JuneSeptember 30, 2009 from $3,088$9,635 for the three monthsnine month period ended JuneSeptember 30, 2008. This reduction was mainly due to a lower level of outstanding long-term debt induring the second quarter ofnine month period ended September 30, 2009, compared to the same period of 2008.
The decrease in income from operations and lower interest expense, net resulted in income before provision for income taxes of $14,743$35,628 for the threenine months ended JuneSeptember 30, 2009, a decrease of $33,173,$71,884, or 69.2%66.9%, compared to $47,916$107,512 for the three monthsnine month period ended JuneSeptember 30, 2008.
The Company’s total provision for income taxes decreased $13,023,$25,675, or 67.0%63.5%, for the three monthsnine month period ended JuneSeptember 30, 2009, compared to the same period in 2008, as a result of lower income before provision for income taxes. The Company’s effective tax rate increased to 43.6% for the three months ended June 30, 2009, up from 40.6% for the same period in 2008. This increase was due to an increase in unrecognized tax benefits, interest, and penalties.
Net income attributable to Graybar Electric Company, Inc. for the three months ended June 30, 2009 decreased $20,095, or 70.7%, to $8,321 from $28,416 for the three months ended June 30, 2008.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Net sales totaled $2,179,140 for the six months ended June 30, 2009, compared to $2,703,393 for the same period of 2008, a decrease of $524,253, or 19.4%. Net sales to the electrical and comm/data market sectors during the first half of 2009 decreased 19.7% and 18.3%, respectively, compared to the same six month period ended June 30, 2008.
Gross margin decreased $99,232, or 18.9%, to $425,155 from $524,387, due to lower net sales in the first six months of 2009, compared to the same period of 2008. The Company’s gross margin rate on net sales was 19.5% for the six month period ended June 30, 2009, compared to 19.4% for the same period in 2008.
Selling, general and administrative expenses decreased $43,245, or 10.2%, to $381,754, for the six month period ended June 30, 2009, compared to $424,999 for the six month period ended June 30, 2008, mainly due to lower employee compensation and benefit costs. Selling, general and administrative expenses as a percentage of net sales for the six month period ended June 30, 2009 were 17.5%, up from 15.8% for the same six month period of 2008.
Depreciation and amortization expenses for the six months ended June 30, 2009 increased $649, or 3.4%, to $19,537 from $18,888 for the same six month period in 2008. This increase was due primarily to an increase in information technology assets, partially offset by the disposal of property. Depreciation and amortization
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expenses as a percentage of net sales increased to 0.9% for the six months ended June 30, 2009, compared to 0.7% of net sales for the same six month period in 2008.
Other income, net totaled $1,604 for the six month period ended June 30, 2009, compared to $1,057 for the six month period ended June 30, 2008. Other income, net consists primarily of gains on the disposal of property,trade receivable interest charges to customers, and other miscellaneous income items related to the Company’s business activities. The increase was mainly due to higher net gains on the disposal of property, which were $398 for the six month period ended June 30, 2009, compared to net gains on the disposal of property of $42 for the six month period ended June 30, 2008.
Income from operations totaled $25,468 for the six month period ended June 30, 2009, a decrease of $56,089, or 68.8%, from $81,557 for the six month period ended June 30, 2008. The decrease was due to lower net sales and gross margin and higher depreciation and amortization expenses, partially offset by decreases in selling, general and administrative expenses, and higher other income, net.
Interest expense, net declined $885, or 13.6%, to $5,600 for the six month period ended June 30, 2009 from $6,485 for the six month period ended June 30, 2008. This reduction was mainly due to a lower level of outstanding long-term debt during the first half of 2009, compared to the same period of 2008.
The decrease in income from operations and lower interest expense, net resulted in income before provision for income taxes of $19,868 for the six months ended June 30, 2009, a decrease of $55,204, or 73.5%, compared to $75,072 for the six month period ended June 30, 2008.
The Company’s total provision for income taxes decreased $18,567, or 67.2%, for the six month period ended June 30, 2009, compared to the same sixnine month period in 2008, as a result of lower income before provision for income taxes. The Company’s effective tax rate increased to 45.6%41.4% for the six month periodnine months ended JuneSeptember 30, 2009, up from 36.8%37.6% for the same sixnine month period in 2008. This increase was2008, due to an increase in unrecognized tax benefits, interest, and penalties. The Company settled income tax-related issues during the first half ofnine months ended September 30, 2008 and approximately $2,600 of unrecognized tax benefits related to uncertain tax positions were released, producing a lowlower effective tax rate for that period.
Net income attributable to Graybar Electric Company, Inc. for the sixnine month period ended JuneSeptember 30, 2009 decreased $36,560,$46,112, or 77.2%68.9%, to $10,806$20,825 from $47,366$66,937 for the sixnine month period ended JuneSeptember 30, 2008.
Financial Condition and Liquidity
The Company has historically funded its working capital requirements using cash flows generated by the collection of trade receivables and trade accounts payable terms with its suppliers, supplemented by short-term bank lines of credit. Capital assets are financed primarily by common stock issuances to the Company’s employees and long-term debt.
Operating Activities
Net cash provided by operations was $20,577$48,346 for the sixnine month period ended JuneSeptember 30, 2009, compared to $12,274$28,973 for the sixnine month period ended JuneSeptember 30, 2008. Positive cash flows from operations for the sixnine months ended JuneSeptember 30, 2009 were primarily due to net income of $10,807, $20,871, non-cash depreciation and amortization expenses of $19,537,$29,119, and decreases in trade receivables of $54,412$56,807 and merchandise inventory of $43,078,$39,162, partially offset by decreases in trade accounts payable of $42,356$46,565 and accrued payroll and benefit costs of $69,916.$58,394.
Trade receivables decreased during the sixnine months ended JuneSeptember 30, 2009, due primarily to a 19.4%20.5% decline in net sales for the period, compared to the same sixnine month period in 2008. The average number of days of sales in trade receivables at JuneSeptember 30, 2009 declined slightly,modestly, compared to the average number of days at JuneSeptember 30, 2008, but was moderately higher than the three month period ended December 31, 2008. Merchandise inventory levels decreased significantly at JuneSeptember 30, 2009, compared to December 31, 2008, as adjustments were made to accommodate the declining net sales level. Merchandise inventory turnover declined significantly for the six monthsthree month period ended JuneSeptember 30, 2009, compared to the six month periodquarter ended December 31,September 30, 2008.
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Current assets exceeded current liabilities by $440,781$436,364 at JuneSeptember 30, 2009, an increase of $9,655,$5,238, or 2.2%1.2%, from $431,126 at December 31, 2008.
Investing Activities
Net cash used by investing activities totaled $10,025$20,768 for the sixnine months ended JuneSeptember 30, 2009, compared to $15,382net cash used by investing activities of $25,041 for the same period of 2008. Capital expenditures for property were $10,636$21,736 and $15,734,$25,368, and proceeds from the disposal of property were $611$968 and $352,$327, for the sixnine months ended JuneSeptember 30, 2009 and 2008, respectively. The proceeds received resulted from the sale of real and personal property.
Financing Activities
Net cash used by financing activities totaled $31,395$45,581 for the sixnine months ended JuneSeptember 30, 2009, compared to $18,809$31,689 for the sixnine months ended JuneSeptember 30, 2008.
Cash used forto decrease short-term borrowings was $6,994$4,168 for the sixnine months ended JuneSeptember 30, 2009, compared to cash provided by short-term borrowings of $1,632$5,305 for the sixnine months ended JuneSeptember 30, 2008. The Company reduced net long-term debt (including current portion) by $10,107$24,277 for the sixnine months ended JuneSeptember 30, 2009. This was due to payments on long-term debt of $10,776$25,148 and payments on capital lease obligations of $388 for the six months ended June 30, 2009,$510, partially offset with increased borrowings associated with capital leases of $641.$641 for the nine months ended September 30, 2009. During the sixnine months ended JuneSeptember 30, 2008, the Company reduced long-term debt (including current portion) by $10,619$24,974 and capital lease obligations by $222.$335.
Cash provided by the sale of common stock amounted to $7,574$10,034 and $7,170,$9,539, and purchases of stock to be held in treasury were $6,682$9,158 and $4,565,$6,593, for the sixnine months ended JuneSeptember 30, 2009 and 2008, respectively. Cash paid forto purchase noncontrolling interest stock was $55$61 and $49 $58, and cash provided by the sale of noncontrolling interest stock was $464 and $0,for the sixnine months ended JuneSeptember 30, 2009 and 2008, respectively. Cash dividends paid on common stock were $14,765$17,675 and $12,156$14,573 for the sixnine months ended JuneSeptember 30, 2009 and 2008, respectively.
Cash and cash equivalents were $109,600$112,440 at JuneSeptember 30, 2009, compared to $130,443 at December 31, 2008, a decrease of $20,843,$18,003, or 16.0%13.8%.
Liquidity
The Company has a revolving credit agreement with a group of thirteen banks at an interest rate based on the London Interbank Offered Rate (LIBOR)(“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 JuneSeptember 30, 2009 and December 31, 2008. The credit and financial market crisis which began in September 2008 impacted two banks that participate in the Company’s revolving credit facility. The Company expects, however, that it will continue to have full access to this facility.
At JuneSeptember 30, 2009 and December 31, 2008, the Company had a $215,000 trade receivable securitization program that was scheduled to expire in October 2009. Prior to expiration, the Company amended the program agreement, effective October 9, 2009, to reduce the program to a $100,000 facility that expires in October 2009.2010. The trade receivable securitization program provides for the sale of certain of the Company’s 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 conduit’s receivables-backed commercial paper develops and the conduit is unable to purchase the undivided interest offeredo ffered by GCC, the agent bank for the trade receivable securitization program is obligated to purchase the undivided interest in the trade receivables from GCC under the terms of the program.
The Company accounts for the securitization as an on-balance sheet financing arrangement because the Company has maintained effective control of the trade receivables through a call option that gives GCC the unilateral right to repurchase the undivided interests. Accordingly, the trade receivables and related debt are included in the accompanying consolidated balance sheets. GCC has granted a security interest in its tradereceivables to the commercial paper conduit. There were no borrowings outstanding under the trade receivable securitization program at JuneSeptember 30, 2009 and December 31, 2008.
The Company is currently negotiating 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
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receivable securitization program in October 2009. It is expected that the cost of any replacement credit facility will exceed that of the current trade receivable securitization program and that the term of the replacement credit facility will likely be less than the current three-year trade receivable securitization program.
Given the continuing uncertainties in the market for asset-backed securities, there can be no assurance that an asset-backed commercial paper facility of the type employed by the Company will be available upon the expiration of the existing trade receivable securitization program in October 2009.
At JuneSeptember 30, 2009, the Company had available to it unused lines of credit amounting to $436,165,$423,589, compared to $427,283 at December 31, 2008. These lines are available to meet the short-term cash requirements of the Company and certain committed lines of credit have annual fees of up to 50 basis points (0.5%) of the committed lines of credit.
Short-term borrowings outstanding during the sixnine months ended JuneSeptember 30, 2009 and 2008 ranged from a minimum of $11,189 and $15,240 to a maximum of $65,858 and $70,028, respectively.
The revolving credit agreement, the trade receivable securitization program, and certain other note agreements contain various covenants that limit the Company’s 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 JuneSeptember 30, 2009 and December 31, 2008.
The Company has a lease agreement with an independent lessor, which provides $28,720 of financing for five of the Company’s distribution facilities. The agreement carries a five-year term expiring July 2013. The financing structure used with this lease qualifies as a silo of a variable interest entity and, therefore, is accounted for under Financial Accounting Standards Board (FASB) Interpretation No. 46, “Consolidation of Variable Interest Entities – an interpretation of ARB No. 51” (FIN 46)entity. In accordance with accounting principles generally accepted in the United States (“US GAAP”), andthe Company, as the primary beneficiary, consolidates the silo in its subsequent revision, FIN 46R.financial statements.
As of JuneSeptember 30, 2009, the consolidated silo included in the Company’s consolidated financial statements had a net property balance of $16,496,$16,320, long-term debt of $27,715, and a noncontrolling interest of $1,005. At December 31, 2008, the consolidated silo included in the Company’s consolidated financial statements had a net property balance of $16,862, long-term debt of $27,715, and a noncontrolling interest of $1,005.
Under the terms of the lease agreement, the amount guaranteed by the Company as the residual fair value of the property subject to the lease arrangement was $28,720 at JuneSeptember 30, 2009 and December 31, 2008, respectively.2008.
New Accounting PronouncementsGuidance
The FASB issued Statement of
In June 2009, the Financial Accounting Standards (SFAS) No. 168, “TheBoard (“FASB”) issued authoritative guidance establishing two levels of US GAAP – authoritative and non-authoritative – and making the FASB Accounting Standards CodificationTM (“ASC”) the source of authoritative US GAAP to be applied by non-governmental entities, except for rules and interpretative releases of the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (Codification), in June 2009. The Codification isSEC. This guidance was effective for financial statements issued for interim and annual periods ending after September 15, 2009.
The Codification replaces FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. The Codification will become the source of authoritative US generally accepted accounting principles (US GAAP) recognized by the FASBadoption changed certain disclosure references to be applied by nongovernmental entities such as the Company. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP, for SEC registrants. On its effective date, the Codification will supersede all then-existing non-SEC accounting and reporting standards. Allbut did not have any other non-grandfathered, non-SEC accounting literature not included in the Codification will be considered non-authoritative.
The FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts after the Codification becomes effective. Instead, it will issue Accounting Standards Updates. The Board will not consider Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification.
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In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167), which amends the consolidation guidance applicable to variable interest entities (VIEs). The amendments to the consolidation guidance affect all entities currently within the scope of FIN 46(R), as well as qualifying special-purpose entities (QSPEs) that are currently excluded from the scope of FIN 46(R). SFAS 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. The Company does not expect the adoption SFAS 167 to have a significant impact on its financial statement because of the Company’s limited use of VIE’s.
On May 28, 2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS 165), which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS 165 is effective for interim or annual periods ending after June 15, 2009. As such, the Company adopted SFAS 165 during the quarter ended June 30, 2009. The adoption of SFAS 165 had no impact on the Company’s condensed consolidated financial statements.
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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 Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
Item 4T. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2009, was performed under the supervision and with the participation of the Company’s management. Based on that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company’s 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 Commission’s rules and forms.
(b) Changes in internal control over financial reporting
There were no changes in the Company’s 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 Company’s internal control over financial reporting.
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PART II. – OTHER INFORMATION
There have been no material changes fromto the risk factors disclosed in the Company’s AnnualAnnual Report onForm 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds
The Company is one hundred percent (100%) owned by its active and retired employees and there is no public trading market for its common stock. Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable state law, a voting trust may not have a term greater than ten years. At JuneSeptember 30, 2009, approximately eighty-one percent (81%) of the common stock was held in a voting trust that expires by its terms on March 15, 2017. The participation of shareholders in the voting trust is voluntary at the time the voting trust is created but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record.
No shareholder may sell, transfer, or otherwise dispose of shares of common stock or the voting trust interests issued with respect thereto (“common stock”, “common shares”, or “shares”) without first offering the Company the option to purchase such shares at the price at which the shares were issued. The Company also has the option to purchase at the issue price the common stock of any holder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension. The Company has always exercised its purchase option and expects to continue to do so. All outstanding shares of the Company have been issued at $20.00 per share.
The following table sets forth information regarding purchases of common stock by the Company pursuant to the foregoing provisions:
Issuer Purchases of Equity Securities
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
April 1 to April 30, 2009 | 54,892 | $20.00 | N/A |
May 1 to May 31, 2009 | 68,794 | $20.00 | N/A |
June 1 to June 30, 2009 | 49,961 | $20.00 | N/A |
Total | 173,647 | $20.00 | N/A |
Period | Total Number ofShares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly |
July 1 to July 31, 2009 | 30,888 | $20.00 | N/A |
August 1 to August 31, 2009 | 41,347 | $20.00 | N/A |
September 1 to September 30, 2009 | 51,605 | $20.00 | N/A |
Total | 123,840 | $20.00 | N/A |
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Item 4. Submission of Matters to a Vote of Security Holders
1. | R. A. Cole | 8. | R. C. Lyons | ||
2. | D. B. D’Alessandro | 9. | K. M. Mazzarella | ||
3. | D. E. DeSousa | 10. | R. L. Nowak | ||
4. | M. W. Geekie | 11. | R. D. Offenbacher | ||
5. | L. R. Giglio | 12. | B. L. Propst | ||
6. | T. S. Gurganous | 13. | R. A. Reynolds | ||
7. | F. H. Hughes | 14. | K. B. Sparks |
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Item 6. Exhibits
(a) Exhibits furnished in accordance with provisions of Item 601 of Regulation S-K.
(3) (i) Articles of Incorporation
(a) Restated Certificate of Incorporation, as amended, filed as Exhibit 4(i) to the Company’s Registration Statement on Form S-1 (Registration No. 333-15761) filed with the Commission on November 7, 1996 and incorporated herein by reference.
(b) Certificate of Amendment of Certificate of Incorporation, filed as Exhibit 4(ii) to the Company’s Registration Statement on Form S-2 (Registration No. 333-118575) filed with the Commission on August 26, 2004 and incorporated herein by reference.
(ii) By-laws
(a) By-laws, as amended through June 14, 2007, filed as Exhibit (3)(ii) to the Company’s Current Report on Form 8-K filed June 15, 2007 (Commission File No. 000-0255) and incorporated herein by reference.
(10) (i) Material Contracts
(v) Amendment No. 13, dated September 25, 2009, and signed September 30, 2009, to Receivables Purchase Agreement, dated June 30, 2000, among Graybar Commerce Corporation, as Seller; Graybar Electric Company, Inc., as Servicer; Falcon Asset Securitization Corporation, as Conduit; JP Morgan Chase Bank NA (successor by merger to Bank One, NA), as agent; and other banks named therein filed as Exhibit 10(v) to Company’s Current Report on Form 8-K filed October 6, 2009 (Commission File No. 000-00255) and incorporated herein by reference.
(31) Rule 13a-14(a)/15d-14(a) Certifications
(31.1) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.
(31.2) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.
(32) Section 1350 Certifications
(32.1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.
(32.2) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GRAYBAR ELECTRIC COMPANY, INC. | ||||
November 9, 2009 | /s/ R. A. REYNOLDS, JR. | |||
Date | R. A. Reynolds, Jr. | |||
President and Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
November 9, 2009 | /s/ D. B. D’ALESSANDRO | |||
Date | D. B. D’Alessandro | |||
Senior Vice President and Chief Financial Officer | ||||
(Principal Financial Officer) | ||||
November 9, 2009 | /s/ MARTIN J. BEAGEN | |||
Date | Martin J. Beagen | |||
Vice President and Controller | ||||
(Principal Accounting Officer) |
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EXHIBIT INDEX
Exhibits
(3(i)) Articles of Incorporation
(a) Restated Certificate of Incorporation, as amended, filed as Exhibit 4(i) to the Company’s Registration Statement on Form S-1 (Registration No. 333-15761) filed with the United States Security and Exchange Commission (the “Commission”) on November 7, 1996 and incorporated herein by reference.
(b) Certificate of Amendment of Certificate of Incorporation, filed as Exhibit 4(ii) to the Company’s Registration Statement on Form S-2 (Registration No. 333-118575) filed with the Commission on August 26, 2004 and incorporated herein by reference.
(3(ii)) By-laws
(a) By-laws, as amended through June 14, 2007, filed as Exhibit (3)(ii) to the Company’s Current Report on Form 8-K filed June 15, 2007 (Commission File No. 000-0255) and incorporated herein by reference.
(10) Material Contracts
(v) Amendment No. 13, dated September 25, 2009, and signed September 30, 2009, to Receivables Purchase Agreement, dated June 30, 2000, among Graybar Commerce Corporation, as Seller; Graybar Electric Company, Inc., as Servicer; Falcon Asset Securitization Corporation, as Conduit; JP Morgan Chase Bank NA (successor by merger to Bank One, NA), as agent; and other banks named therein filed as Exhibit 10(v) to Company’s Current Report on Form 8-K filed October 6, 2009 (Commission File No. 000-00255) and incorporated herein by reference.
(31.1) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.
(31.2) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.
(32.1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.
(32.2) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.
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