UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC
Washington, D.C. 20549FORM 10-Q
Commission File Number 0-255 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2007 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- -------------------- GRAYBAR ELECTRIC COMPANY, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934 For the quarterly period ended: March 31, 2008 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-255
GRAYBAR ELECTRIC COMPANY, INC. (Exact name of registrant as specified in its charter) NEW YORK 13 - 0794380 -------------------------------------------------------------------------------------------------------- (State13-0794380 (State or other jurisdiction of incorporation or organization) (I.R.S.(I.R.S. Employer Identification No.) 34 NORTH MERAMEC AVENUE, ST. LOUIS, MO 63105 -------------------------------------------------------------------------------------------------------- (Address(Address of principal executive offices) (Zip(Zip Code) POST OFFICE BOX 7231, ST. LOUIS, MO 63177 -------------------------------------------------------------------------------------------------------- (Mailing Address) (Zip Code)(314) 573 - 9200 (Registrant’s telephone number, including area code) Registrant's telephone number, including area code: (314) 573 - 9200 -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days YES X NO ------- ------- Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Large Accelerated Filer ( ) Accelerated Filer ( ) Non-Accelerated Filer (X) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES NO X ------- ------- Common Stock Outstanding at October 31, 2007: 6,586,888 -------------------- (Number of Shares)
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q SEPTEMBERIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES xNO ¨ 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 definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer¨ Non-accelerated filer x(Do not check if a smaller reporting company) Smaller reporting company¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨NO x
Common Stock Outstanding at April 30, 2007 TABLE OF CONTENTS2008: 7,982,873 (Number of Shares)
Graybar Electric Company, Inc. and Subsidiaries Form 10-Q For the Quarterly Period Ended March 31, 2008 (Unaudited) Table of Contents PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE(S) ITEMPage(s) Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Cash Flows 5 Condensed Consolidated StatementStatements of Changes inShareholders'Shareholders’ Equity6 Notes to theCondensed Consolidated Financial Statements7-10 ITEM7-11 Item 2. Management'sManagement’s Discussion &and Analysis of Financial Condition and Results ofOperations 11-17 ITEM12-18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 ITEM 4.Item 4T. Controls and Procedures 18 PART II. OTHER INFORMATION ITEMItem 2. Unregistered Sales of Equity Securities and Issuer PurchasesUse ofEquity SecuritiesProceeds19 ITEMItem 6. Exhibits and Reports on Form 8-K20 SIGNATURESSignatures 21 EXHIBIT INDEXExhibit Index 22 Exhibit (3.1) – Restated Certificate of Incorporation Exhibit (3.2) – Certificate of Amendment of Certificate of Incorporation Exhibit (3.3) – Bylaws Exhibit (31.1) -– Section 302 Certification- CEO– Principal Executive OfficerExhibit (31.2) -– Section 302 Certification- CFO– Principal Financial OfficerExhibit (32.1) -– Section 906 Certification- CEO– Principal Executive OfficerExhibit (32.2) -– Section 906 Certification- CFO– Principal Financial Officer2
PART I: FINANCIAL INFORMATION Item 1. Financial Statements
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Stated in thousands except for share data) (Unaudited)SEPTEMBER 30, December 31, ASSETS 2007 2006 - -----------------------------------------------------------------------------------------------------------------------------------CURRENT ASSETS Cash and cash equivalents $ 66,320 $ 52,210 Trade receivables 733,663 698,190 Merchandise inventory 407,689 385,479 Other current assets 11,741 19,302 - ----------------------------------------------------------------------------------------------------------------------------------- Total Current Assets 1,219,413 1,155,181 - ----------------------------------------------------------------------------------------------------------------------------------- PROPERTY, AT COST Land 43,168 44,135 Buildings 311,212 311,148 Furniture and fixtures 166,621 158,757 Software 76,906 76,906 Capital leases 2,413 2,413 - ----------------------------------------------------------------------------------------------------------------------------------- Total Property, at cost 600,320 593,359 Less - accumulated depreciation and amortization (288,268) (267,013) - ----------------------------------------------------------------------------------------------------------------------------------- Net Property 312,052 326,346 OTHER NON-CURRENT ASSETS 61,516 26,719 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,592,981 $ 1,508,246 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES - ----------------------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Short-term borrowings $ 41,814 $ 13,667 Current portion of long-term debt 60,051 32,319 Trade accounts payable 577,176 503,408 Accrued payroll and benefit costs 74,217 112,549 Other accrued taxes 17,086 13,010 Dividends payable --- 6,494 Other current liabilities 56,507 58,269 - ----------------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 826,851 739,716 POSTRETIREMENT BENEFITS LIABILITY 72,197 74,447 PENSION LIABILITY 43,321 43,449 LONG-TERM DEBT 122,409 203,869 OTHER NON-CURRENT LIABILITIES 15,597 4,042 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,080,375 1,065,523 - ----------------------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY - -----------------------------------------------------------------------------------------------------------------------------------CAPITAL STOCK SHARES AT ------------------------------- SEPTEMBER 30, December 31, 2007 2006 ---- ----Common, stated value $20.00 per share Authorized 15,000,000 15,000,000 ---------- ---------- Issued to voting trustees 5,409,741 6,158,008 Issued to shareholders 1,447,247 291,703 In treasury, at cost (249,839) (10,722) - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding Common Stock 6,607,149 6,438,989 132,143 128,780 ADVANCE PAYMENTS ON SUBSCRIPTIONS TO COMMON STOCK 613 --- RETAINED EARNINGS 402,748 342,878 ACCUMULATED OTHER COMPREHENSIVE LOSS (22,898) (28,935) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 512,606 442,723 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,592,981 $ 1,508,246 - -----------------------------------------------------------------------------------------------------------------------------------
PART I. – FINANCIAL INFORMATION Item 1. Financial Statements Graybar Electric Company, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Stated in thousands except share and per share data) (Unaudited) March 31, December 31, 2008 2007 ASSETS Current Assets Cash and cash equivalents $ 101,508 $ 66,167 Trade receivables 695,311 702,869 Merchandise inventory 410,174 397,076 Other current assets 20,941 20,135 Total Current Assets 1,227,934 1,186,247 Property, at cost Land 42,626 42,633 Buildings 313,791 310,120 Furniture and fixtures 163,825 162,445 Software 76,906 76,906 Capital Leases 2,413 2,413 Total Property, at cost 599,561 594,517 Less – accumulated depreciation and amortization (293,013 ) (286,549 ) Net Property 306,548 307,968 Other Non-current Assets 37,154 37,813 Total Assets $ 1,571,636 $ 1,532,028 LIABILITIES Current Liabilities Short-term borrowings $ 67,592 $ 19,201 Current portion of long-term debt 60,057 60,061 Trade accounts payable 518,696 515,035 Accrued payroll and benefit costs 87,424 117,283 Other accrued taxes 17,270 12,766 Dividends payable --- 7,327 Other current liabilities 65,914 60,283 Total Current Liabilities 816,953 791,956 Postretirement Benefits Liability 75,436 75,436 Pension Liability 51,736 52,938 Long-term Debt 115,088 115,419 Other Non-current Liabilities 13,820 16,662 Total Liabilities 1,073,033 1,052,411 SHAREHOLDERS’ EQUITY Shares at March 31, December 31, Capital Stock 2008 2007 Common, stated value $20.00 per share Authorized 15,000,000 15,000,000 Issued to voting trustees 6,509,121 6,313,724 Issued to shareholders 1,673,353 1,652,392 In treasury, at cost (138,771 ) (34,481 ) Outstanding Common Stock 8,043,703 7,931,635 160,874 158,633 Advance Payments on Subscriptions to Common Stock 739 --- Retained Earnings 402,752 386,217 Accumulated Other Comprehensive Loss (65,762 ) (65,233 ) Total Shareholders’ Equity 498,603 479,617 Total Liabilities and Shareholders’ Equity $ 1,571,636 $ 1,532,028 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
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Graybar Electric Company, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Stated in thousands except per share data) (Unaudited) For the Three Months Ended March 31, 2008 2007 Gross Sales $ 1,288,014 $ 1,228,041 Cash discounts (5,340 ) (4,483 ) Net Sales 1,282,674 1,223,558 Cost of merchandise sold (1,031,656 ) (984,374 ) Gross Margin 251,018 239,184 Selling, general and administrative expenses (211,868 ) (207,799 ) Depreciation and amortization (9,243 ) (8,696 ) Other income, net 611 2,153 Income from Operations 30,518 24,842 Interest expense, net (3,397 ) (4,698 ) Income before Provision for Income Taxes 27,121 20,144 Provision for income taxes: Current (11,884 ) (8,837 ) Deferred 3,713 633 Total provision for income taxes (8,171 ) (8,204 ) Net Income $ 18,950 $ 11,940 Net Income per share of Common Stock $ 2.36 $ 1.52 Cash Dividends on Common Stock - $0.30 per share $ 2,415 $ 1,975 Average Common Shares Outstanding (A) 8,017 7,855
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Stated in thousands except for per share data) (Unaudited)THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------------- ------------------------------------- 2007 2006 2007 2006 ---- ---- ---- ----GROSS SALES $ 1,370,173 $ 1,333,554 $ 3,942,935 $ 3,780,181 Cash Discounts (5,507) (5,093) (15,253) (14,034) ----------------- ----------------- ---------------- ----------------- NET SALES 1,364,666 1,328,461 3,927,682 3,766,147 Cost of merchandise sold (1,101,715) (1,082,723) (3,162,923) (3,055,118) ----------------- ----------------- ---------------- ----------------- GROSS MARGIN 262,951 245,738 764,759 711,029 Selling, general and administrative expenses (205,396) (202,294) (615,911) (599,343) Depreciation and amortization (8,831) (8,655) (26,400) (25,473) Other (loss) income, net (305) 524 2,387 9,992 ----------------- ----------------- ---------------- ----------------- INCOME FROM OPERATIONS 48,419 35,313 124,835 96,205 Interest expense (4,331) (5,758) (13,489) (18,318) ----------------- ----------------- ---------------- ----------------- INCOME BEFORE PROVISION FOR INCOME TAXES 44,088 29,555 111,346 77,887 Provision for income taxes Current (5,074) (15,143) (34,755) (39,357) Deferred (12,458) 3,467 (10,366) 8,218 ----------------- ----------------- ---------------- ----------------- Total provision for income taxes (17,532) (11,676) (45,121) (31,139) ----------------- ----------------- ---------------- ----------------- NET INCOME $ 26,556 $ 17,879 $ 66,225 $ 46,748 ================= ================= ================ ================= NET INCOME PER SHARE OF COMMON STOCK(A) $ 4.03 $ 2.77 $ 10.08 $ 7.25 ----------------- ----------------- ---------------- ----------------- CASH DIVIDENDS PER SHARE OF COMMON STOCK (B) $ 0.30 $ 0.30 $ 0.90 $ 0.90 ----------------- ----------------- ---------------- ----------------- AVERAGE COMMON SHARES OUTSTANDING (A) 6,587 6,447 6,567 6,450 ----------------- ----------------- ---------------- -----------------(A)Adjusted for the declaration of a 10%twenty percent (20%) stock dividend in December2006.2007. Prior to the adjustment, the average common shares outstanding at March 31, 2007 were5,861 and 5,864 for the three and nine month periods ended September 30, 2006. (B) Cash dividends were $1,983 and $1,760 for the three months ended September 30, 2007 and 2006 respectively. Cash dividends were $5,949 and $5,297 for the nine months ended September 30, 2007 and 2006, respectively.6,546.The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
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GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Stated in thousands) (Unaudited)- ------------------------------------------------------------------------------------------------------------------------------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 2006 - ------------------------------------------------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATIONS Net Income $66,225 $ 46,748 - ------------------------------------------------------------------------------------------------------------------------------------ Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 26,400 25,473 Deferred income taxes 10,366 (8,218) Net gain on disposal of property (1,025) (9,189) Loss on impairment of property 1,727 1,336 Changes in assets and liabilities: Trade receivables (35,473) (106,354) Merchandise inventory (22,210) (24,795) Other current assets 7,561 (6,477) Other non-current assets (34,797) (264) Trade accounts payable 73,768 75,387 Accrued payroll and benefit costs (38,332) 6,870 Other current liabilities (2,843) 23,277 Other non-current liabilities 8,517 (2,238) - ------------------------------------------------------------------------------------------------------------------------------------ Total adjustments to net income (6,341) (25,192) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash flow provided by operations 59,884 21,556 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of property 7,869 11,206 Capital expenditures for property (18,974) (27,827) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash flow used by investing activities (11,105) (16,621) - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net increase in short-term borrowings 28,147 36,815 Repayment of long-term debt (54,035) (24,802) Principal payments under capital leases (314) --- Sale of common stock 8,759 6,534 Purchases of treasury stock (4,783) (4,736) Dividends paid (12,443) (11,436) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash flow (used) provided by financing activities (34,669) 2,375 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCREASE IN CASH 14,110 7,310 - ------------------------------------------------------------------------------------------------------------------------------------ CASH, BEGINNING OF YEAR 52,210 9,074 - ------------------------------------------------------------------------------------------------------------------------------------ CASH, END OF PERIOD $66,320 $16,384 - ------------------------------------------------------------------------------------------------------------------------------------
Graybar Electric Company, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Stated in thousands) (Unaudited) For the Three Months Ended March 31, 2008 2007 Cash Flows from Operations Net Income $ 18,950 $ 11,940 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 9,243 8,696 Deferred income taxes (3,713 ) (633 ) Net gains on disposal of property (162 ) (924 ) Changes in assets and liabilities: Trade receivables 7,558 19,754 Merchandise inventory (13,098 ) (4,037 ) Other current assets (806 ) 1,396 Other non-current assets 659 (7,445 ) Trade accounts payable 3,661 16,826 Accrued payroll and benefit costs (29,859 ) (34,724 ) Other current liabilities 13,758 15,591 Other non-current liabilities (4,044 ) 6,152 Total adjustments to net income (16,803 ) 20,652 Net cash flow provided by operations 2,147 32,592 Cash Flows from Investing Activities Proceeds from disposal of property 355 1,438 Capital expenditures for property (8,611 ) (4,212 ) Net cash flow used by investing activities (8,256 ) (2,774 ) Cash Flows from Financing Activities Net increase (decrease) in short-term borrowings 48,391 (420 ) Repayment of long-term debt (69 ) (40 ) Principal payments under capital leases (110 ) (91 ) Sale of common stock 5,066 5,013 Purchases of treasury stock (2,086 ) (1,619 ) Dividends paid (9,742 ) (8,469 ) Net cash flow provided (used) by financing activities 41,450 (5,626 ) Net Increase in Cash 35,341 24,192 Cash, Beginning of Year 66,167 52,210 Cash, End of Period $ 101,508 $ 76,402 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
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GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Stated in thousands) (Unaudited)COMMON ACCUMULATED STOCK OTHER COMMON SUBSCRIBED, RETAINED COMPREHENSIVE STOCK UNISSUED EARNINGS LOSS TOTAL ---------------- ----------------- ----------------- ------------------ -------------------DECEMBER 31, 2005 $ 115,848 $ --- $ 308,935 $ (43,348) $ 381,435 ------------------- Net income --- --- 46,748 --- 46,748 Currency translation adjustments --- --- --- 1,672 1,672 Unrealized gain from interest rate swap (net of tax of $297) --- --- --- 466 466 ------------------- Comprehensive income 48,886 ------------------- Stock issued 6,083 --- --- --- 6,083 Stock redeemed (4,736) --- --- --- (4,736) Advance payments --- 451 --- --- 451 Dividends declared --- --- (5,297) --- (5,297) ---------------- ----------------- ----------------- ------------------ ------------------- SEPTEMBER 30, 2006 $ 117,195 $ 451 $ 350,386 $ (41,210) $ 426,822 ================ ================= ================= ================== ===================COMMON ACCUMULATED STOCK OTHER COMMON SUBSCRIBED, RETAINED COMPREHENSIVE STOCK UNISSUED EARNINGS LOSS TOTAL ---------------- ----------------- ----------------- ------------------ -------------------DECEMBER 31, 2006 $ 128,780 $ --- $ 342,878 $ (28,935) $ 442,723 ------------------- Cumulative impact of change in accounting for uncertainties in income taxes (Note 7) --- --- (406) --- (406) ---------------- ----------------- ----------------- ------------------ ------------------- January 1, 2007, as adjusted 128,780 --- 342,472 (28,935) 442,317 ---------------- ----------------- ----------------- ------------------ ------------------- Net income --- --- 66,225 --- 66,225 Currency translation adjustments --- --- --- 6,031 6,031 Unrealized gain from interest rate swap (net of tax of $4) --- --- --- 6 6 ------------------- Comprehensive income 72,262 ------------------- Stock issued 8,146 --- --- --- 8,146 Stock redeemed (4,783) --- --- --- (4,783) Advance payments --- 613 --- --- 613 Dividends declared --- --- (5,949) --- (5,949) ---------------- ----------------- ----------------- ------------------ ------------------- SEPTEMBER 30, 2007 $ 132,143 $ 613 $ 402,748 $ (22,898) $ 512,606 ================ ================= ================= ================== ===================
Graybar Electric Company, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Shareholders’ Equity For the Three Months Ended March 31, 2008 and 2007 (Stated in thousands) (Unaudited) Common Accumulated Stock Other Total Common Subscribed, Retained Comprehensive Shareholders’ Stock Unissued Earnings Loss Equity Balance, December 31, 2006 $ 128,780 $ --- $ 342,878 $ (28,935 ) $ 442,723 Cumulative impact of change in accounting for uncertainties in income taxes (Note 6) --- --- (406 ) --- (406 ) January 1, 2007, as adjusted 128,780 --- 342,472 (28,935 ) 442,317 Net income --- --- 11,940 --- 11,940 Foreign currency translation --- --- --- 655 655 Unrealized gain from interest rate swap (net of $11 tax) --- --- --- 18 18 Comprehensive income 12,613 Stock issued 4,293 --- --- --- 4,293 Stock repurchased (1,619 ) --- --- --- (1,619 ) Advance payments --- 720 --- --- 720 Dividends declared --- --- (1,975 ) --- (1,975 ) Balance, March 31, 2007 $ 131,454 $ 720 $ 352,437 $ (28,262 ) $ 456,349 Common Accumulated Stock Other Total Common Subscribed, Retained Comprehensive Shareholders’ Stock Unissued Earnings Loss Equity Balance, December 31, 2007 $ 158,633 $ --- $ 386,217 $ (65,233 ) $ 479,617 Net income 18,950 18,950 Foreign currency translation --- --- --- (1,461 ) (1,461 ) Unrealized loss frominterest rate swap(net of $476 tax) --- --- --- (748 ) (748 ) Prior service cost (net of $97 tax) 153 153 Actuarial loss (net of $973 tax) 1,527 1,527 Comprehensive income 18,421 Stock issued 4,327 --- --- --- 4,327 Stock repurchased (2,086 ) --- --- --- (2,086 ) Advance payments --- 739 --- --- 739 Dividends declared --- --- (2,415 ) --- (2,415 ) Balance, March 31, 2008 $ 160,874 $ 739 $ 402,752 $ (65,762 ) $ 498,603 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
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GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In ThousandsGraybar Electric Company, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Stated in thousands exceptfor Shareshare andPer Share Data)per share data)
(Unaudited)Note 1
- ------The condensed consolidated financial statements included herein have been prepared by
theGraybar Electric Company, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange 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 (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes thattheits disclosures are adequate to make the information presented not misleading. The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect reported amounts. TheCompany'sCompany’s condensed consolidated financial statements include amounts that are based onmanagement's bestmanagement’s b est estimates and judgments. Actual results could differ from those estimates.Certain reclassifications were made to prior year amounts to conform to the 2007 presentation.It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in theCompany'sCompany’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
- ------At
September 30, 2007March 31, 2008 and December 31,2006,2007, the Company had a $215,000 trade receivable securitization program that expires in October 2009. The trade receivable securitization program provides for the sale of certain of theCompany'sCompany’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. 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 condensed consolidated balance sheets. GCC has granted a security interest in its tradereceivablesreceiv ables to the commercial paper conduit. There were$20,000$50,000 and $0 in borrowings outstanding under the trade receivable securitization program atSeptember 30, 2007. There were no borrowings outstanding under the trade receivable securitization program atMarch 31, 2008 and December 31,2006.2007, respectively.Note 3
- ------ Prior to September 28, 2007, theThe Company had two lease arrangements with an independent lessor, which provided $58,777 of financing for eight of the
Company'sCompany’s distribution facilities. The agreements carried five-year terms expiring July 2008 and December 2009.7The financing structures usedCompany terminated the lease agreement expiring inthese two lease arrangements qualify as silosDecember 2009 on September 28, 2007 by exercising its purchase option. The independent lessor conveyed clear title to three distribution facilities to the Company in exchange for a cash payment ofa variable$30,479, which included the outstanding principal owed on the three properties totaling $30,057, unpaid interest,entityandtherefore are accounted for under Financial Accounting Standards Board (FASB) Interpretation No. 46, "Consolidation of Variable Interest Entities--an interpretation of ARB No. 51".other closing costs.7
The Company has the option, with the consent of the lessor’s lenders,
to the lessor,to renew theleasesremaining lease for an additional five-year term or to purchase the property for a price including the outstanding lease balance. If the Company elects not to renew the lease or purchase the property, or such lenders refuse to consent to a renewal, the Company may elect to remarket the property and arrange for its sale to a third party.The
Company terminated thefinancing structure used in this lease arrangementexpiringqualifies 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), and its subsequent revision FIN 46R. As of March 31, 2008, the remaining consolidated silo included in the Company’s financial statements had a net property balance of $17,319, long-term debt of $27,715, and a minority interest of $1,005. At December2009 on September 28,31, 2007,by exercising its purchase option. The independent lessor conveyed clear title to threethe remaining consolidated silo included in the Company’s financial statements had a net property balance ofthe Company's distribution facilities to the Company in exchange for$17,203, long-term debt of $27,715, and acash payment $30,479, which included the outstanding principal owed on the three properties totaling $30,057, unpaidminority interestand other closing costs.of $1,005.Under the terms of the
remaininglease arrangement, theCompany'sCompany’s maximum exposure to loss atSeptember 30,March 31, 2008 and December 31, 2007, in respect of the properties subject to theremaininglease agreement, is $24,412, the amount guaranteed by the Company as the residual fair value of the property.The amount guaranteed by the Company as the residual fair value of the property subject to the two lease arrangements was $49,961 at December 31, 2006.Note 4
- ------The Company made contributions to its qualified defined benefit pension plan totaling
$38,000$10,000 and$55,500$7,500 during the three months ended March 31, 2008 andnine month periods ended September 30,2007,respectively. Contributions made during the three and nine month periods ended September 30, 2006 totaled $7,500 and $22,500,respectively. Additional contributions totaling$10,000$22,500 are expected to be paid during the remainder of2007.2008.Note 5
- ------The 1997 Voting Trust Agreement expired on March 31, 2007 and was succeeded by the 2007 Voting Trust Agreement, which expires on March 15, 2017. Approximately
79.1%eighty-one percent (81%) and seventy-seven percent (77%) of theCompany'sCompany’s issued and outstanding shares ofCommon Stock had beencommon stock was deposited with the Voting Trusteesto beand held under the 2007 Voting Trust Agreement by their beneficial owners as ofSeptember 30, 2007.March 31, 2008 and 2007, respectively.Note 6
- ------ Comprehensive income for the quarters ended September 30, 2007 and 2006 was $27,801 and $17,628, respectively. Comprehensive income for the nine months ended September 30, 2007 and 2006 was $72,262 and $48,886, respectively, and is reported in the Condensed Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2007 and 2006. Comprehensive income is comprised of net income, currency translation adjustments related to the Company's operations in Canada and Mexico, and changes in the value of the Company's interest rate swap agreement. Note 7 - ------The Company adopted the provisions of FASB Interpretation No. 48,
"Accounting“Accounting for Uncertainty in Income Taxes,-aninterpretationInterpretation of FASB Statement No.109"109” (FIN 48), on8January 1, 2007. Under FIN 48, the Company had $6,980 of unrecognized tax benefits recorded in its statement of financial positionbalance sheet as of January 1, 2007. Of this amount, $406 was recorded as a reduction to the January 1, 2007 balance of retained earnings. TheCompany'sCompany’s unrecognized tax benefits of$6,995 as of September 30,$4,503 and $6,945 at March 31, 2008 and December 31, 2007, respectively, are uncertain tax positions that would impact theCompany'sCompany’s effective tax rate if recognized.The Company
does not expect any significant increases or decreases in itseffectively settled income tax-related issues during the first quarter of 2008 and approximately $2,600 of unrecognized tax benefitswithin one yearrelated to uncertain tax positions were released. This resulted in a significantly lower effective tax rate for the period ending March 31, 2008, compared to the same period ofthis reporting date.2007.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 March 31, 2008 and December 31, 2007. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the
8
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
$2,577$1,166 and $2,807 in interest and penalties in itsstatement of financial positionbalance sheet atSeptember 30, 2007.March 31, 2008 and December 31, 2007, respectively. Interest was computed on the difference between the provision for income taxes recognized in accordance with FIN 48 and the amount of benefit previously taken or expected to be taken in theCompany'sCompany’s federal, state, and local income tax returns.The
Company'sCompany’s federal income tax returns for the tax years 2004 and forward are available for examination by the United States Internal Revenue Service. The Company has not agreed to extend its federal statute of limitations for the 2004 tax year as ofSeptember 30, 2007.March 31, 2008. The federal statute of limitations for the 2004 tax year will expire on September 15, 2008. TheCompany'sCompany’s state income tax returns for20022003 through 2006 remain subject to examination by various state authorities with the latest period closingperiodon October 15, 2011.TheSimilarly, the Company has not extended the statutes of limitations for any state jurisdictions with respect to years prior to2002.2003. Suchstatutes of limitationsstate limitation periods will expire on or before October 15,20072008 unless extended.Note
8 - ------ The FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Instruments" (SFAS 157), in September 2006. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements. This Statement applies to other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect that its adoption of SFAS 157 will have a material impact on its financial statements. The FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)" (SFAS 158), in September 2006. Among other items, SFAS 158 requires recognition of the over- or under-funded status of an entity's defined benefit postretirement plan(s) as an asset or liability in its financial statements, requires the measurement of defined benefit postretirement plan assets and obligations as of the end of the employer's fiscal year, and requires recognition of the funded status of defined benefit postretirement plans in other comprehensive income. SFAS 158 is effective for fiscal years ending after June 15, 2007 for employers, such as the Company, that do not issue publicly-traded equity securities. The Company believes that the adoption of SFAS 158 will have a material impact on its statement of financial position, as the unfunded portion of the Company's pension plan at December 31, 2006 was approximately $102,533. The unfunded portion related to other 9postretirement benefit obligations was $91,061 at December 31, 2006. The liabilities recognized in the consolidated balance sheet for the Company's pension plan and postretirement benefit obligations are $43,321 and $72,197, respectively, as of September 30, 2007, compared to $43,449 and $74,447, respectively, at December 31, 2006. The FASB issued SFAS No.159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), in February 2007. SFAS 159 permits the Company to choose to measure many financial instruments and certain other items at fair value. The fair value option established by SFAS 159 permits the Company to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method or interest in a variable interest entity that the entity is required to consolidate. The application is irrevocable unless a new election date occurs and is applied only to entire instruments and not to portions of instruments. This Statement is effective as of the beginning of the Company's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the Company also elects to apply the provisions of SFAS 157. The Company is not permitted to apply SFAS 159 retrospectively to fiscal years preceding the effective date unless it chooses early adoption. The Company does not expect the provisions of SFAS 159 to have a material impact on its financial statements. Note 9 - ------7The Company and its subsidiaries are subject to various claims, disputes, administrative, and legal matters incidental to the
Company'sCompany’s past and current business activities. As a result, contingencies ariseresultingfrom 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
SFASStatement of Financial Accounting Standards (SFAS) No. 5,"Accounting“Accounting forContingencies"Contingencies”. 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 amountwouldshall be accrued. However, if no amount within the range is a better estimate than any other amount, the minimum amountinof 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 atthisthi s 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
10 - ------- The8At March 31, 2007, the Company had
an unsecured Credit Agreementa revolving credit agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR) that consisted ofaan unsecured $150,000, 364-day facility that was toexpirehave expired in July 2007.On May 8, 2007,Prior to expiration, the Company executed a new, unsecured LIBOR-basedCredit Agreement with a group of banksrevolving credit agreement that consists of a $200,000 five-year facilitythat expiresexpiring in May20122012. There were no amounts outstanding under the credit agreement at March 31, 2008 andcanceledDecember 31, 2007.9
Note 9
The FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161), in March 2008. SFAS 161 amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), and requires expanded disclosures about the
$150,000, 364-day facility previouslyCompany’s derivative instruments and hedging activities, but does not change the scope of SFAS 133. SFAS 161 also amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” (SFAS 107), by clarifying that derivative instruments are subject to the concentration-of-credit-risk disclosures of SFAS 107. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect SFAS 161 to have a significant impact on its financial statements because of the Company’s limited use of derivative i nstruments and hedging activities.In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
place.Consolidated Financial Statements – an Amendment of ARB No. 51” (SFAS 160). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company has not completed its evaluation of the potential impact of the adoption of SFAS 160, but does not expect that the adoption of SFAS 160 will have a material impact on its consolidated financial statements.In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (SFAS 141R). This statement revises SFAS No. 141, “Business Combinations”, and will change the accounting treatment and disclosure for certain specific items in a business combination. Under SFAS 141R, an acquiring entity will be required to recognize all of the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, if the Company were to engage in a business combination, it will be recorded and disclosed following existing U.S. GAAP until January 1, 2009. SFAS 141R may have an impact on the accounting for business combinations, if any, the Company m ay consummate after SFAS 141R is adopted.
In February 2008, the FASB issued Staff Position No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (FSP-157-1) and Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2). FSP 157-1 removes leasing transactions accounted for under SFAS No. 13, “Accounting for Leases”, from the scope of SFAS 157. FSP 157-2 delays the effective date of SFAS No. 157, “Fair Value Measurements” (SFAS 157), for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. The Company does not expect either FSP 157-1 or FSP 157-2 to have a material impact on its financial statements.
In September 2006, the FASB issued SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. The Company adopted the provisions of SFAS 157 as of January 1, 2008. Although the adoption of SFAS 157 did not materially impact its financial condition, results of operations, or cash flow, the Company is now required to provide additional disclosures as part of its financial statements.
10
SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers 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 assumptions.
The Company is party to an interest rate swap, which 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 classified in its entirety based on the lowest level of input that is significant to the fair value measurement, in this case, Level 2 in the fair value hierarchy. The fair value of the Company’s financial liability relating to the interest rate swap is $5,296 as of March 31, 2008.
11
Item 2.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations(Dollars Stated in Thousands)The following discussion should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes thereto, and our audited consolidated financial statements, notes thereto and
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31,2006,2007, included in our Annual Report on Form 10-K for such period as filed with the U.S. Securities and Exchange Commission. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements (as such term is defined in the federal securities laws) and is based on current expectations, which involve risks and uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of certain factors, a number of whicharear e outlined in Item 1A.,"Risk Factors"“Risk Factors”, of our Annual Report on Form 10-K for the year ended December 31,2006. OVERVIEW - --------2007.All dollar amounts are stated in thousands ($000) in the following discussion.
Overview
Graybar Electric Company, Inc.
(the "Company"(“Graybar” or the “Company”) is a New York corporation, incorporated in 1925. The Company is engaged in the distribution of electrical, telecommunications and networking products, and the provision of related supply chain management and logistics services, primarily to construction contractors, industrial plants, telephone companies, power utilities, federal, state, andmunicipallocal governments, and commercial users in North America. All products sold by the Company are purchased by the Company from others. TheCompany'sCompany’s business activity is primarily with customers in the United States. The Company also has subsidiary operations with distribution facilities in Canada and PuertoRico and Mexico.Rico. TheCompanyCompany’s capital stock is100%one hundred percent (100%) owned by itsactiveemployees andretired employees,retirees, and there is no publictradingmarket for itscommonstock.The Company experienced moderate sales growth
in both sales and gross margin duringfor thefirst ninethree monthsof 2007,ended March 31, 2008, compared to thefirst nine monthssame period in 2007, despite a slowing general economy in much of2006, which more than offset an increaseits North American trading area. Growth intotal expense and lower other income, net. Aselectrical market sales was modest, as declining residential construction continued to have a negative impact on that sector. Comm/data market sales continued to grow at a solid rate as a resultincome from operations forof thethree and nine months ended September 30, 2007, increased 37.1% and 29.8%, respectively, when compared toCompany’s competitive performance in this sector, coupled with continued growth in thethree and nine months ended September 30, 2006. The combination of higher income from operations and lower interest expense resulted in an increase in net income for the three and nine months ended September 30, 2007 of 48.5% and 41.7%, respectively, when compared to the three and nine months ended September 30, 2006.overall comm/data market.Continued profitable sales growth is expected for
the balance2008.12
Consolidated Results of
2007. 11CONSOLIDATED RESULTS OF OPERATIONS - ----------------------------------OperationsThe following
tables settable sets forth certain information relating to the operations of the Company stated in thousands of dollars and as a percentage of net sales for the three months ended March 31, 2008 andnine month periods ended September 30, 2007 and 2006:2007.
THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, 2007 SEPTEMBER 30, 2006 ----------------------------------- -------------------------------- (Dollars stated in thousands) DOLLARS PERCENT DOLLARS PERCENT ------------------ ------------- ---------------- -----------Net sales $ 1,364,666 100.0% $ 1,328,461 100.0% Cost of merchandise sold (1,101,715) (80.7) (1,082,723) (81.5) ------------------ ------------- ---------------- ----------- Gross margin 262,951 19.3 245,738 18.5 Selling, general and administrative expenses (205,396) (15.1) (202,294) (15.2) Depreciation and amortization (8,831) (0.6) (8,655) (0.7) Other (loss) income, net (305) (0.1) 524 --- ------------------ ------------- ---------------- ----------- Income from operations 48,419 3.5 35,313 2.6 Interest expense (4,331) (0.3) (5,758) (0.4) ------------------ ------------- ---------------- ----------- Income before provision for income taxes 44,088 3.2 29,555 2.2 Provision for income taxes (17,532) (1.3) (11,676) (0.9) ------------------ ------------- ---------------- ----------- Net income $ 26,556 1.9% $ 17,879 1.3% ================== ============= ================ ===========NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2007 SEPTEMBER 30, 2006 ----------------------------------- -------------------------------- (Dollars stated in thousands) DOLLARS PERCENT DOLLARS PERCENT ------------------ ------------- ---------------- -----------Net sales $ 3,927,682 100.0% $ 3,766,147 100.0% Cost of merchandise sold (3,162,923) (80.5) (3,055,118) (81.1) ------------------ ------------- ---------------- ----------- Gross margin 764,759 19.5 711,029 18.9 Selling, general and administrative expenses (615,911) (15.7) (599,343) (16.0) Depreciation and amortization (26,400) (0.7) (25,473) (0.7) Other income, net 2,387 0.1 9,992 0.3 ------------------ ------------- ---------------- ----------- Income from operations 124,835 3.2 96,205 2.5 Interest expense (13,489) (0.4) (18,318) (0.5) ------------------ ------------- ---------------- ----------- Income before provision for income taxes 111,346 2.8 77,887 2.0 Provision for income taxes (45,121) (1.1) (31,139) (0.8) ------------------ ------------- ---------------- ----------- Net income $ 66,225 1.7% $ 46,748 1.2% ================== ============= ================ ===========
For the Three Months Ended March 31, 2008 March 31, 2007 Dollars Percent Dollars Percent Net Sales $ 1,282,674 100.0 % $ 1,223,558 100.0 % Cost of merchandise sold (1,031,656 ) (80.4 ) (984,374 ) (80.5 ) Gross Margin 251,018 19.6 239,184 19.5 Selling, general and administrative expenses (211,868 ) (16.6 ) (207,799 ) (16.9 ) Depreciation and amortization (9,243 ) (0.7 ) (8,696 ) (0.7 ) Other income, net 611 0.1 2,153 0.2 Income from Operations 30,518 2.4 24,842 2.1 Interest expense, net (3,397 ) (0.3 ) (4,698 ) (0.4 ) Income before Provision for Income Taxes 27,121 2.1 20,144 1.7 Provision for income taxes (8,171 ) (0.6 ) (8,204 ) (0.7 ) Net Income $ 18,950 1.5 % $ 11,940 1.0 % The Company
continued to benefitachieved significant growth in income frompositive, though slowing, general economic conditions in North America during the nine month period ended September 30, 2007. Growth in electrical market sales was moderate, though negatively impacted by the continued decline in residential construction throughout much of North America. Higher salesoperations due to thecomm/data market resulted from the Company's improved competitive performance in this market, coupled withcombination of moderate growth in gross margin and a lesser increase in operating expenses. Income from operations for theoverall comm/data market. THREE MONTHS ENDED SEPTEMBER 30,period ended March 31, 2008 rose 22.8% which, coupled with a 27.7% decrease in interest expense, net, and a low effective tax rate, led to a 58.7% increase in net income for the first quarter of 2008.Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2006Net sales totaled
$1,364,666$1,282,674 for the three months endedSeptember 30, 2007, an increase of $36,205, or 2.7%, whenMarch 31, 2008, compared tonet sales of $1,328,461$1,223,558 for the three months endedSeptember 30, 2006.March 31, 2007, an increase of $59,116, or 4.8% . Increases in net sales were recorded in both of the primary market sectors in which the Company operates. Net sales to the electrical market for the three months endedSeptember 30, 2006March 31, 2008 increased0.2%2.9%,when compared to the three months ended September 30, 2006,while net sales to the comm/data market rose9.0% during8.0% for the three months ended March 31, 2008, compared to the sameperiod. 12period in 2007. Gross margin increased
$17,213,$11,834, or7.0%4.9%, to$262,951$251,018 from$245,738,$239,184, partly due to higher net salesvolumevolumes in thethirdfirst quarter of20072008, compared to the same period in2006.2007. In addition, theCompany'sCompany’s gross margin rate on net sales increased to19.3%19.6% during the three months endedSeptember 30, 2007,March 31, 2008, up from18.5%19.5% for the same three month period in2006,2007, primarily due toa return to a more stable product cost environment compared tothethree months ended September 30, 2006 and the Company'sCompany’s ongoing gross margin rate improvement initiatives.Selling, general and administrative expenses increased
$3,102,$4,069, or1.5%2.0%, to $211,868, in thethirdfirst quarter of2007 to $205,3962008 from$202,294$207,799 in thethirdfirst quarter of2006,2007, mainly due to increased compensation costs resulting from a modest increase in the number of employees, partially offset by reduced employee benefitlegal, and professionalexpenses. Selling, general and administrative expenses as a percentage of net salesdecreased to 15.1%were 16.6% in thethirdfirst quarter of2007,2008, down from15.2%16.9% in thethirdfirst quarter of2006.2007.Depreciation and amortization expenses
in the third quarter of 2007 increased $176, or 2.0%, to $8,831 from $8,655 in the third quarter of 2006, due to higher average balances of property, at cost,for the three months endedSeptember 30, 2007March 31, 2008 increased $547, or 6.3%, to $9,243 from $8,696 in the first quarter of 2007. Depreciation and amortization expenses as a percentage of net sales remained at 0.7% for the three months ended March 31, 2008, compared to the same periodin 2006.of 2007.13
Other income,
(loss),netof $(305) intotaled $611 for thethird quarterthree months ended March 31, 2008, compared to $2,153 for the three months ended March 31, 2007. Other income, net consists primarily of2007 included netgains on the disposal of propertyof $289anda property impairment loss of $(1,305). Trade receivables interest charges to customers and other interest income together accounted for $711 of other income, net in the third quarter of 2007. Other income, net of $524 in the third quarter of 2006 was comprised oftrade receivable interest charges tocustomerscustomers. Gains on the disposal of property were $162 andother interest income.$924 for the three months ended March 31, 2008 and 2007, respectively.Income from operations totaled
$48,419 in$30,518 for thethird quarter of 2007,three months ended March 31, 2008, an increase of$13,106,$5,676, or37.1%22.8%, from$35,313$24,842 for thesame period in 2006.three months ended March 31, 2007. The increase was due to higher gross margin, partially offset byhighersmaller increases in selling, general and administrative expenses, higher depreciation and amortization expenses, and lower other income, net.Interest expense, net declined
$1,427,$1,301, or24.8%27.7%, to$4,331 in$3,397 for thethird quarter of 2007three months ended March 31, 2008 from$5,758 in$4,698 for thethird quarter of 2006.three months ended March 31, 2007. This reduction was mainly due to a lowerlevelslevel of outstandingshort- andlong-term debt in thethirdfirst quarter of2007,2008, compared to the same period of 2007.The increase in gross margin, combined with increased selling, general and administrative expenses, higher depreciation and amortization expenses, lower other income, net, and lower interest expense, net, resulted in pre-tax earnings of $27,121 for the three months ended March 31, 2008, an increase of $6,977, or 34.6%, compared to $20,144 for the three months ended March 31, 2007.
The Company’s total provision for income taxes decreased $33, or 0.4%, for the three months ended March 31, 2008, compared to the same period in
2006.2007, as a result of a lower effective tax rate. Thecombination of higher gross margin, increased selling, general and administrative expenses and higher depreciation and amortization expenses, and lower interest expenses, resulted in pre-tax earnings of $44,088Company’s effective tax rate decreased to 30.1% for the three months endedSeptember 30, 2007, an increase of $14,533, or 49.2%, over pre-tax earnings of $29,555March 31, 2008, down from 40.7% for thethree months ended September 30, 2006. Assame period in 2007. This decrease was primarily due to aresult of higher pre-tax earnings, the Company's total provision forreduction in unrecognized tax benefits, interest, and penalties, which had a favorable impact on incometaxes increased $5,856, or 50.2%, to $17,532 for the three months ended September 30,tax expense. The 2007from $11,676 for the three months ended September 30, 2006. The Company'seffective tax rateincreased to 39.8% for the three months ended September 30, 2007, up from 39.5% in the same three month period in 2006. The 2007 and 2006 effective tax rates werewas higher than the 35.0% U.S. federal statutory rate primarily due to state and local income taxes.Net income for the three months ended
September 30, 2007March 31, 2008 increased$8,677,$7,010, or48.5%58.7%, to$26,556$18,950 from$17,879$11,940 for the three months endedSeptember 30, 2006. 13NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006 Net sales totaled $3,927,682 for the nine months ended September 30, 2007, an increase of $161,535, or 4.3%, when compared to net sales of $3,766,147 for the nine months ended September 30, 2006. Increases in net sales were recorded in both of the primary market sectors in which the Company operates. Net sales to the electrical market for the nine months ended September 30, 2007 increased 3.2%, when compared to the nine months ended September 30, 2006, while net sales to the comm/data market rose 7.1% during the period. Gross margin increased $53,730, or 7.6%, to $764,759 from $711,029, partly due to higher net sales volume recorded for the nine months ended September 30, 2007 compared to the same period in 2006. In addition, the Company's gross margin rate on net sales increased to 19.5% during the nine months ended September 30, 2007, up from 18.9% for the same nine month period in 2006, primarily due to a return to a more stable product cost environment compared to the nine months ended September 30, 2006March 31, 2007.Financial Condition and
the Company's ongoing gross margin rate improvement initiatives. Selling, general and administrative expenses increased $16,568, or 2.8%, for the nine months ended September 30, 2007 to $615,911 from $599,343, compared to the nine months ended September 30, 2006, mainly due to increased compensation costs resulting from a modest increase in the number of employees, partially offset by reduced employee benefit, bad debt, legal, and professional expenses. Selling, general and administrative expenses as a percentage of net sales decreased to 15.7% for the nine months ended September 30, 2007 from 16.0% in the same period of 2006. Depreciation and amortization expenses increased $927, or 3.6%, to $26,400 from $25,473 for the nine months ended September 30, 2007 compared to the same nine months in 2006. The increase is due to higher average balances of property, at cost, and higher amortization on capital leases. Other income, net totaled $2,387 for the nine months ended September 30, 2007, compared to $9,992 for the nine months ended September 30, 2006. Other income, net for the nine months ended September 30, 2007 included net gains on the disposal of property of $1,025, property impairment losses of $(1,727) and interest income and trade receivable interest charges to customers of $3,089. Other income, net for the nine months ended September 30, 2006, included net gains on disposal of property of $9,189 and a property impairment loss of $(1,336). Trade receivable interest charges to customers and other interest income accounted for the remaining $2,139 of other income, net for the nine months ended September 30, 2006. Income from operations totaled $124,835 for the nine months ended September 30, 2007, an increase of $28,630, or 29.8%, from $96,205 for the same period in 2006. The increase was due to higher gross margin, partially offset by higher selling, general, and administrative expenses, higher depreciation and amortization expenses, and lower other income, net. Interest expense declined $4,829, or 26.4%, to $13,489 for the nine months ended September 30, 2007 from $18,318 for the same nine month period in 2006. This reduction was due to lower levels of outstanding short- and long-term debt in 2007, compared to 2006. The combination of higher gross margin, increased selling, general and administrative expenses, and higher depreciation and amortization expenses, and lower interest expense, 14resulted in pre-tax earnings of $111,346 for the nine months ended September 30, 2007, an increase of $33,459, or 43.0%, compared to pre-tax earnings of $77,887 for the nine months ended September 30, 2006. As a result of higher pre-tax earnings, the Company's total provision for income taxes increased $13,982, or 44.9%, to $45,121 for the nine months ended September 30, 2007 from $31,139 for the nine months ended September 30, 2006. The Company's effective tax rate increased to 40.5% for the nine months ended September 30, 2007, up from 40.0% in the same nine month period in 2006. The 2007 and 2006 effective tax rates were higher than the 35.0% U.S. federal statutory rate primarily due to state and local income taxes. Net income for the nine months ended September 30, 2007 increased $19,477, or 41.7%, to $66,225 from $46,748 for the nine months ended September 30, 2006. FINANCIAL CONDITION AND LIQUIDITY - ---------------------------------LiquidityThe Company has historically funded its capital requirements using cash flow provided by operations, stock issuances to its employees, and long-term debt.
Operating Activities
- --------------------Cash provided by operations was
$59,884$2,147 for theninethree months endedSeptember 30, 2007,March 31, 2008, compared to$21,556$32,592 for theninethree months endedSeptember 30, 2006.March 31, 2007. Positive cashflowflows from operations for theninethree months endedSeptember 30, 2007 wasMarch 31, 2008 were primarily due to net income of$66,225, an increase in trade accounts payable of $73,768, and increases in other current- and non-current liabilities totaling $5,674, partially offset by an increase$18,950, a decrease in trade receivables of$35,473,$7,558, and an increase in other current liabilities totaling $13,758, partially offset by a $13,098 increase in merchandise inventoryof $22,210, increases in other current and non-current assets totaling $27,236,and a$38,332$29,859 decrease in accrued payroll and benefit costs.The average number of days of sales in trade receivables at
September 30, 2007March 31, 2008 decreasedmoderatelymodestly from the average number of days atSeptember 30, 2006.March 31, 2007. Merchandise inventory levels were slightly higher atSeptember 30, 2007March 31, 2008 when compared to December 31,20062007 to support the14
growth in net sales. Average inventory turnover
improved moderately, when comparingwas virtually unchanged during theninethree months endedSeptember 30, 2007 and 2006, respectively.March 31, 2008, compared to the same period of 2007.Current assets exceeded current liabilities by
$392,562$410,981 atSeptember 30, 2007, a decreaseMarch 31, 2008, an increase of$22,903,$16,690, or5.5%4.2%, from$415,465$394,291 at December 31,2006.2007.Investing Activities
- --------------------Capital expenditures for property were
$18,974$8,611 and$27,827,$4,212, and proceeds from the disposal of property were$7,869,$355 and$11,206,$1,438, for theninethree months endedSeptember 30,March 31, 2008 and 2007,and 2006,respectively. The proceeds received resulted primarily from the sale of real property.Financing Activities
- -------------------- TheCash flows from operations enabled the company to reduce long-term debt by $69 and capital lease obligations by $110 for the three months ended March 31, 2008. During the three months ended March 31, 2007, the excess of cash provided by operations over investing activities
as well as an increase in short-term borrowings for the nine months ended September 30, 2007 of $28,147, was used byenabled the Company to reduce short-term debt by $420, long-term debt by$54,035$40, and capital lease obligations by$314 for the nine months ended September 30, 2007. During the nine months ended September 30, 2006, the Company's cash flow provided by financing activities resulted from 15an$91.An increase in short-term borrowings of
$36,815, partially offset by$48,391 allowed the Company to fund investing activities, as well as the excess of cash dividends over net stock issuances, and finish the period with adecrease in long-term debtcash balance of$24,802.$101,508, up $35,341 from December 31, 2007.Cash provided by the sale of common stock amounted to
$8,759$5,066 and$6,534,$5,013, and purchases of treasury stock were$4,783$2,086 and$4,736$1,619 for theninethree months endedSeptember 30,March 31, 2008 and 2007,and 2006,respectively. Dividends paid were$12,443$9,742 and$11,436$8,469 for theninethree months endedSeptember 30,March 31, 2008 and 2007,and 2006,respectively.Liquidity
- --------- On May 8,At March 31, 2007, the Company had a revolving credit agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR) that consisted of an unsecured $150,000, 364-day facility that was to have expired in July 2007. Prior to expiration, the Company executed a new, unsecured LIBOR-based
Credit Agreement with a group of banksrevolving credit agreement that consists of a $200,000 five-year facilitythat expiresexpiring in May2012 and cancelled the $150,000, 364-day facility previously in place.2012. There were noborrowingsamounts outstanding underthis facilitythe credit agreement atSeptember 30, 2007. At September 30, 2007March 31, 2008 and December 31,2006,2007.At March 31, 2008 and December 31, 2007, the Company had a $215,000 trade receivable securitization program that expires in October 2009. 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. The Company accounts for the securitization as an on-balance sheet financing arrangement because the Company has maintained effective control of the trade receivables through a call option that gives GCC the unilateral right to repurchase the undivided interests. Accordingly, the trade receivables and related debt are included in the accompanying consolidated balance sheets. GCC has granted a security interest in its trade receivables to t he commercial paper conduit. There were
$20,000$50,000 and $0 in borrowings outstanding under the trade receivable securitization program atSeptember 30, 2007. There were no borrowings outstanding under the trade receivable securitization program atMarch 31, 2008 and December 31,2006.2007, respectively.15
At
September 30, 2007,March 31, 2008, the Company had available to it unused lines of credit amounting to$413,510$386,540, compared to$377,076$436,575 at December 31,2006.2007. These lines are available to meet the short-term cash requirements of theCompany.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
ninethree months endedSeptember 30,March 31, 2008 and 2007and 2006ranged from a minimum of$13,871$5,145 and$28,630$11,909 to a maximum of$49,355$58,288 and$140,924,$46,758, 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
reduced its outstanding long-term debt (including current portionrequired to maintain certain financial ratios as defined in the agreements. The Company was in compliance with all covenants under these agreements as of March 31, 2008 andcapital lease obligations) to $182,460 at September 30, 2007 from $236,188 atDecember 31,2006, compared2007.The Company had two lease arrangements with an independent lessor, which provided $58,777 of financing for eight of the Company’s distribution facilities. The agreements carried five-year terms expiring July 2008 and December 2009. The Company terminated the lease arrangement expiring in December 2009 on September 28, 2007 by exercising its purchase option. The independent lessor conveyed clear title to three distribution facilities to the Company in exchange for a cash payment of $30,479, which included the outstanding principal owed on the three properties totaling $30,057, unpaid interest, and other closing costs.
The Company has the option, with the consent of the lessor’s lenders, to renew the remaining lease for an additional five-year term or to purchase the property for a price including the outstanding lease balance. If the Company elects not to renew the lease or purchase the property, or such lenders refuse to consent to a
reductionrenewal, the Company may elect to remarket the property and arrange for its sale to a third party.The financing structure used in this lease arrangement qualifies as a silo of
$24,802 in long-term debt (including current portion) to $240,858 at September 30, 2006 from $265,660 at December 31, 2005. NEW ACCOUNTING PRONOUNCEMENTS - ----------------------------- The Company adopted the provisions ofa variable interest entity and, therefore, is accounted for under FASB Interpretation No.48, "Accounting for Uncertainty in Income Taxes -46, “Consolidation of Variable Interest Entities – an interpretation ofFASB StatementARB No.109" (FIN 48), on January 1, 2007.51”. As of March 31, 2008, the consolidated silo included in the Company’s financial statements had a net property balance of $17,319, long-term debt of $27,715, and a minority interest of $1,005. At December 31, 2007, the consolidated silo included in the Company’s financial statements had a net property balance of $17,203, long-term debt of $27,715, and a minority interest of $1,005.Under
FIN 48,the terms of the lease arrangement, the Company’s maximum exposure to loss at March 31, 2008 and December 31, 2007, in respect of the properties subject to the lease arrangement, was $24,412, the amount guaranteed by the Companyhad $6,980as the residual fair value ofunrecognized tax benefits recorded in its statement of financial position as of January 1, 2007. Of this amount, $406 was recorded as a reduction totheJanuary 1, 2007 balance of retained earnings. The Company's unrecognized tax benefits of $6,995 as of September 30, 2007 are uncertain tax positions that would impact the Company's effective tax rate if recognized. The Company does not expect any significant increases or decreases in its unrecognized tax benefits within one year of this reporting date. 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 $2,577 in interest and penalties in its statement of financial position at September 30, 2007. Interest was computed on the difference between the provision for income taxes recognized in accordance with FIN 48 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 2004 and forward are available for examination by the United States Internal Revenue Service. The Company has not agreed to extend its federal statute of limitations for the 2004 tax year as of September 30, 2007. The federal statute of limitations for the 2004 tax year will expire on September 15, 162008. The Company's state income tax returns for 2002 through 2006 remain subject to examination by various state authorities with the latest closing period on October 15, 2011. The Company has not extended the statutes of limitations for any state jurisdictions with respect to years prior to 2002. Such statutes of limitations will expire on or before October 15, 2007 unless extended.property.New Accounting Pronouncements
The FASB issued Statement of Financial Accounting Standards (SFAS) No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161), in March 2008. SFAS 161 amends 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 161 also amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” (SFAS 107), by clarifying that derivative instruments are subject to the concentration-of-credit-risk disclosures of SFAS 107. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15,
16
2008, with early application encouraged. The Company does not expect SFAS 161 to have a significant impact on its financial statements because of the Company’s limited use of derivative instruments and hedging activities.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51” (SFAS 160). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company has not completed its evaluation of the potential impact of the adoption of SFAS 160, but does not expect the adoption of SFAS 160 to have a material impact on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (SFAS 141R). This statement revises SFAS No. 141, “Business Combinations”, and will change the accounting treatment and disclosure for certain specific items in a business combination. Under SFAS 141R, an acquiring entity will be required to recognize all of the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, if the Company were to engage in a business combination, it will be recorded and disclosed following existing U.S. generally accepted accounting principles (U.S. GAAP) until January 1, 2009. SFAS 141R may have an impact on the accounting for business combinations, if any, the Company may consummate after SFAS 141R is adopted.
In February 2008, the FASB issued Staff Position No. 157-1, “Application of FASB Statement No. 157
"Fairto FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair ValueInstruments"Measurements for Purposes of Lease Classification or Measurement under Statement 13” (FSP 157-1) and Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2). FSP 157-1 removes leasing transactions accounted for under SFAS No. 13, “Accounting for Leases”, from the scope of SFAS 157. FSP 157-2 delays the effective date of SFAS No. 157, “Fair Value Measurements” (SFAS 157),infor all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. The Company does not expect either FSP 157-1 or FSP 157-2 to have a material impact on its financial statements.In September
2006.2006, the FASB issued SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair valueunder generally accepted accounting principlesin accordance with U.S. GAAP, and expands disclosures about fair value measurements.This Statement applies to other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.The Companydoes not expect that itsadopted the provisions of SFAS 157 as of January 1, 2008. Although the adoption of SFAS 157will have a materialdid not materially impactonits financialstatements. The FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendmentcondition, results ofFASB Statements No. 87, 88, 106, and 132(R)" (SFAS 158), in September 2006. Among other items, SFAS 158 requires recognitionoperations, or cash flow, the Company is now required to provide additional disclosures as part ofthe over- or under-funded status of an entity's defined benefit postretirement plan(s) as an asset or liability inits financialstatements, requiresstatements.SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the
measurement ofinputs used in measuring fair value. These tiers include: Level 1, definedbenefit postretirement plan assets and obligationsasof the end of the employer's fiscal year, and requires recognition of the funded status of defined benefit postretirement plans in other comprehensive income. SFAS 158 is effective for fiscal years ending after June 15, 2007 for employers,observable inputs such asthe Company,quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets thatdo not issue publicly-traded equity securities.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 assumptions.The Company
believes thatis party to an interest rate swap, which is required to be measured at fair value on a recurring basis. The Company endeavors to utilize theadoption of SFAS 158 will have a material impact on its statement of financial position, as the unfunded portion of the Company's pension plan at December 31, 2006 was approximately $102,533. The unfunded portion related to other postretirement benefit obligations was $91,061 at December 31, 2006. The liabilities recognizedbest available information inthe consolidated balance sheet for the Company's pension plan and postretirement benefit obligations are $43,321 and $72,197, respectively, as of September 30, 2007, compared to $43,449 and $74,447, respectively, at December 31, 2006. The FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), in February 2007. SFAS 159 permits the Company to choose to measure many financial instruments and certain other items atmeasuring fair value. Thefair value option established by SFAS 159 permitsinterest rate swap is classified in its entirety based on theCompanylowest level of input that is significant tochoose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for whichthe fair valueoption has been electedmeasurement, inearnings at each subsequent reporting date.this case, Level 2 in the fair value17
hierarchy. The fair value
option may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for byof theequity method orCompany’s financial liability relating to the interestin a variable interest entity that the entityrate swap isrequired to consolidate. The application is irrevocable unless a new election date occurs and is applied only to entire instruments and not to portions of instruments. This Statement is effective$5,296 as ofthe beginning of the Company's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the Company also elects to apply the provisions of SFAS 157. The Company is not permitted to apply SFAS 159 retrospectively to fiscal years preceding the effective date unless the Company chooses early adoption. The Company does not expect the provisions of SFAS 159 to have a material impact on its financial statements. 17March 31, 2008. Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the policies, procedures, controls or risk profile from
thatthose provided in Item 7A.,"Quantitative“Quantitative and Qualitative Disclosures About MarketRisk"Risk”, of theCompany'sCompany’s Annual Report on Form 10-K for the year ended December 31,2006.2007.Item
4.4T. Controls and ProceduresAn evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was performed under the supervision and with the participation of the Company's management as of September 30, 2007. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective.
(a) Evaluation of disclosure controls and procedures
An evaluation was performed under the supervision and with the participation of the Company’s management of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2008. 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 in providing 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.
18
PART
II:II. – OTHER INFORMATIONItem 2. Unregistered Sales
ofOf Equity Securities And Use Of ProceedsThe Company’s capital stock is one hundred percent (100%) owned by its employees and
Use of Proceedsretirees, and there is no public market for its stock. No shareholder may sell, transfer or otherwise dispose of shares ofCommon Stock (orcommon stock or theVoting Trust Interestsvoting trust interests issued with respectthereto)thereto (“common stock”, “common shares”, or “shares”) without first offering the Company the option to purchase such shares(or Voting Trust Interests issued with respect thereto)at the price at which the shares were issued. The Company also has the option to purchase at the issue price theCommon Stock (or Voting Trust Interests issued with respect thereto)common stock of anyshareholderholder whodies orceases to be an employee of the Company for any cause other than retirement on a Company pension.InAll outstanding shares of thepast, all sharesCompany have been issued at $20.00 per share. The Company has always exercised its repurchase option and expects to continue to do so.The following table sets forth information regarding purchases of
Common Stock (and Voting Trust Interests issued with respect thereto)common stock by the Company pursuant to the foregoing provisions:ISSUER PURCHASES OF EQUITY SECURITIES
- -------------------------------------------------------------------------------------------------------------------------------- Total Total Number of Shares Number Average Purchased as Part of of Shares Price Paid Publicly Announced Period Purchased per Share Plans or Programs - --------------------------------------------------------------------------------------------------------------------------------July 1 to July 31, 2007 40,301 $20.00 N/A - -------------------------------------------------------------------------------------------------------------------------------- August 1 to August 31, 2007 50,821 $20.00 N/A - -------------------------------------------------------------------------------------------------------------------------------- September 1 to September 30, 2007 15,523 $20.00 N/A - -------------------------------------------------------------------------------------------------------------------------------- Total 106,645 $20.00 N/A - --------------------------------------------------------------------------------------------------------------------------------
Issuer Purchases of Equity Securities Average Total Number of Shares Total Number of Price Paid Purchased as Part of Publicly Period Shares Purchased per Share Announced Plans or Programs January 1 to January 31, 2008 38,671 $20.00 N/A February 1 to February 28, 2008 47,511 $20.00 N/A March 1 to March 31, 2008 18,108 $20.00 N/A Total 104,290 $20.00 N/A 19
Item 6. Exhibits
and Reports on Form 8-K (a) Exhibits furnished in accordance with provisions of Item 601 of Regulation S-K. (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 (b) Reports on Form 8-K. No reports on Form 8-K have been filed with the Commission during the quarter for which this report is filed.
(a) Exhibits furnished in accordance with provisions of Item 601 of Regulation S-K.
(3) Articles of Incorporation and By-Laws
3.1 Restated Certficate of Incorporation, as amended (incorporated by reference to Exhibit 4(i) to the Company’s Registration Statement on Form S-1 (Registration No. 333-15761))
3.2 Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 4(ii) to the Company’s Registration Statement on Form S-2 (Registration No. 133-118575))
3.3 Bylaws as amended through June 14, 2007 (incorporated by reference to Exhibit 9.01(d)(3)(ii) to the Company’s Current Report on Form 8-K dated June 14, 2007 (Commission File No. 0-255))
(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.
20
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.
November 9, 2007 GRAYBAR ELECTRIC COMPANY, INC. ---------------------- (Date) /s/
May 9, 2008 GRAYBAR ELECTRIC COMPANY, INC. Date /s/ R. A. Reynolds, Jr. R. A. REYNOLDS, JR. PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER /s/ D. B. D’Alessandro D. B. D’ALESSANDRO SENIOR VICE PRESIDENT AND PRINCIPAL FINANCIAL OFFICER /s/ Martin J. Beagen MARTIN J. BEAGEN VICE PRESIDENT AND CONTROLLER AND PRINCIPAL ACCOUNTING OFFICER 21
EXHIBIT INDEX 3.1 – Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 4(i) to the Company’s Registration Statement on Form S-1 (Registration No. 333-15761)) 3.2 – Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 4(ii) to the Company’s Registration Statement on Form S-2 (Registration No. 333-118575)) 3.3 – Bylaws as amended through June 14, 2007 (incorporated by reference to Exhibit 9.01(d)(3)(ii) to the Company’s Current Report on Form 8-K dated June 14, 2007(Commission File No. 0-255)) 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. 22
Exhibit 31.1
CERTIFICATION
I, Robert A. Reynolds, Jr.
---------------------------------------- R., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Graybar Electric Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2008 /s/ ROBERT A. REYNOLDS, JR. Robert A. Reynolds, Jr. President and Principal Executive Officer Exhibit 31.2
CERTIFICATION
I, D. Beatty D’Alessandro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Graybar Electric Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2008 /s/ D. B. D’ALESSANDRO D. Beatty D’Alessandro Senior Vice President and Principal Financial Officer Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, Robert A.
REYNOLDS, JR. PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER /s/ D. B. D'Alessandro ---------------------------------------- D. B. D'ALESSANDRO SENIOR VICE PRESIDENT AND PRINCIPAL FINANCIAL OFFICER /s/ Martin J. Beagen ---------------------------------------- MARTIN J. BEAGEN VICE PRESIDENT AND CONTROLLER AND PRINCIPAL ACCOUNTING OFFICER 21EXHIBIT INDEX ------------- 31.1 - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 -Reynolds, Jr., President and Principal Executive Officer31.2 - Certification Pursuant to Section 302of Graybar Electric Company, Inc. (“theSarbanes-Oxley Act of 2002 - Principal Financial Officer 32.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted PursuantCompany”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,- Principal Executive Officer 32.2 - Certification Pursuant to18 U.S.C. Section 1350,as Adopted Pursuantthat:
(1) The Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Robert A. Reynolds, Jr.
Robert A. Reynolds, Jr.
President and Principal Executive OfficerMay 9, 2008
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, D. Beatty D’Alessandro, Senior Vice President and Principal Financial Officer of Graybar Electric Company, Inc. (“the Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
-18 U.S.C. Section 1350, that:
(1) The Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ D. Beatty D’Alessandro
D. Beatty D’Alessandro
Senior Vice President and Principal Financial Officer22
May 9, 2008