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CONFORMED
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Commission File Number 0-255
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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GRAYBAR ELECTRIC COMPANY, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 13-0794380
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
34 NORTH MERAMEC AVENUE, ST. LOUIS, MO 63105
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(Address of principal executive offices) (Zip Code)
POST OFFICE BOX 7231, ST. LOUIS, MO 63177
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(Mailing Address) (Zip Code)
Registrant's telephone number, including area code: (314) 573-9200
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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
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Common Stock Outstanding at October 31, 2001: 5,760,532
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(Number of Shares)
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PART I
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CONSOLIDATED BALANCE SHEETS
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(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
SEPTEMBER 30, 2001 DECEMBER 31, 2000
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CURRENT ASSETS
Cash $ 6,504 $ 27,614
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Trade receivables 670,828 765,546
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Merchandise inventory 666,310 748,754
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Other current assets 5,448 25,444
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Total current assets 1,349,090 1,567,358
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PROPERTY
Land 25,401 24,178
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Buildings and permanent fixtures 396,068 365,705
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Capital equipment leases 24,159 20,380
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Less-Accumulated depreciation 183,358 166,832
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Net property 262,270 243,431
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DEFERRED FEDERAL INCOME TAXES 2,301 991
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OTHER ASSETS 39,137 31,658
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$1,652,798 $1,843,438
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CURRENT LIABILITIES
Notes payable to banks $ 139,264 $ 406,199
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Current portion of long-term debt 25,743 24,521
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Trade accounts payable 580,544 533,138
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Other accrued taxes 14,705 15,593
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Accrued payroll and benefit costs 24,242 58,196
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Dividends payable -- 6,343
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Other payables and accruals 48,610 74,111
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Total current liabilities 833,108 1,118,101
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POSTRETIREMENT BENEFITS LIABILITY 77,371 77,191
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LONG TERM DEBT 321,272 238,349
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CONSOLIDATED BALANCE SHEETS
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(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
SEPTEMBER 30, 2001 DECEMBER 31, 2000
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SHAREHOLDERS' EQUITY
CAPITAL STOCK
Preferred:
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Par value $20 per share
Authorized 300,000 shares
SHARES
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2001 2000
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Issued to shareholders 2,990 2,990
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In treasury, at cost (387) (125)
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Outstanding 2,603 2,865 52 57
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Common:
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Stated value $20 per share
Authorized 7,500,000 shares
SHARES
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2001 2000
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Issued to voting trustees 5,704,060 5,685,490
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Issued to shareholders 335,620 335,340
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In treasury, at cost (269,193) (29,440)
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Outstanding 5,770,487 5,991,390 115,410 119,828
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Advance payments on
subscriptions to common
stock 42 49
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Retained earnings 309,204 290,405
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Accumulated other comprehensive income (3,661) (542)
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TOTAL SHAREHOLDERS' EQUITY 421,047 409,797
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$1,652,798 $1,843,438
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See accompanying Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF INCOME
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(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
QUARTER ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
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GROSS SALES, net of returns and allowances $1,198,536 $1,343,962
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Less - Cash discounts 3,218 3,308
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NET SALES 1,195,318 1,340,654
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COST OF MERCHANDISE SOLD 984,223 1,094,509
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Gross margin 211,095 246,145
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 177,951 195,912
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DEPRECIATION AND AMORTIZATION 8,662 7,577
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Income from operations 24,482 42,656
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OTHER INCOME, net 2,305 1,916
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INTEREST EXPENSE 9,175 11,942
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Income before provision for income taxes 17,612 32,630
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PROVISION FOR INCOME TAXES
Current 6,799 13,872
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Deferred 159 (613)
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Total provision for income taxes 6,958 13,259
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NET INCOME 10,654 19,371
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NET INCOME PER SHARE OF COMMON STOCK $ 1.83 $ 3.19*
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DIVIDENDS
Preferred - $.25 per share $ 1 $ --
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Common - $.30 per share 1,734 1,731
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$ 1,735 $ 1,731
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<FN>
*Restated for the declaration of a 5% stock dividend in 2000.
</FN>
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
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(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
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GROSS SALES, net of returns and allowances $3,753,174 $3,888,199
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Less - Cash discounts 10,121 9,842
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NET SALES 3,743,053 3,878,357
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COST OF MERCHANDISE SOLD 3,075,327 3,178,712
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Gross margin 667,726 699,645
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 581,734 553,206
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DEPRECIATION AND AMORTIZATION 24,679 21,763
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Income from operations 61,313 124,676
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OTHER INCOME, net 9,247 6,228
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INTEREST EXPENSE 30,771 34,464
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Income before provision for income taxes 39,789 96,440
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PROVISION FOR INCOME TAXES
Current 15,270 41,026
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Deferred 447 (1,812)
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Total provision for income taxes 15,717 39,214
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NET INCOME 24,072 57,226
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NET INCOME PER SHARE OF COMMON STOCK (NOTE 2) $ 4.09 $ 9.34
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DIVIDENDS
Preferred - $.75 per share $ 2 $ 2
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Common - $.90 per share 5,271 5,240
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$ 5,273 $ 5,242
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See accompanying Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
NINE MONTHS ENDED SEPTEMBER 30,
2001 2000
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CASH FLOWS FROM OPERATIONS
Net Income $ 24,072 $ 57,226
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Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 24,679 21,763
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Deferred income taxes 447 (1,812)
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Gain on sale of property (2,539) (5)
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Changes in assets and liabilities:
Trade receivables 94,718 (152,896)
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Merchandise inventory 82,444 (122,371)
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Other current assets 19,996 (1,053)
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Other assets (7,479) (1,436)
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Trade accounts payable 47,406 209,116
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Accrued payroll and benefit costs (33,954) (3,607)
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Other accrued liabilities (31,086) 18,880
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194,632 (33,421)
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Net cash provided by operations 218,704 23,805
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property 2,886 2,495
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Capital expenditures for property (40,086) (41,465)
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Net cash used by investing activities (37,200) (38,970)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings (266,935) 100,438
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Proceeds from long-term debt 100,000 --
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Repayment of long-term debt (16,980) (16,131)
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Principal payments under capital equipment leases (2,654) (2,443)
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Sale of common stock 370 953
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Purchase of treasury stock (4,800) (3,980)
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Dividends paid (11,615) (11,498)
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Net cash (used) provided by financing activities (202,614) 67,339
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NET INCREASE (DECREASE) IN CASH (21,110) 52,174
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CASH, BEGINNING OF YEAR 27,614 16,750
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CASH, END OF THIRD QUARTER $ 6,504 $ 68,924
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See accompanying Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
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FOR THE NINE MONTHS ENDED
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SEPTEMBER 30, 2001 AND 2000
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(Dollars Stated in Thousands)
ACCUMULATED
COMMON OTHER
STOCK COMPRE-
COMMON PREFERRED SUBSCRIBED, RETAINED HENSIVE
STOCK STOCK UNISSUED EARNINGS INCOME TOTAL
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December 31, 1999 $118,270 $ 68 $ 56 $241,473 $ (204) $359,663
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Net Income 57,226 57,226
Currency Translation Adjustments (526) (526)
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Comprehensive Income 56,700
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Stock Issued 960 960
Stock Redeemed (3,972) (8) (3,980)
Advance Payments (7) (7)
Dividends Declared (5,242) (5,242)
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September 30, 2000 $115,258 $ 60 $ 49 $293,457 $ (730) $408,094
========= ======== ======== ========= ========= =========
ACCUMULATED
COMMON OTHER
STOCK COMPRE-
COMMON PREFERRED SUBSCRIBED, RETAINED HENSIVE
STOCK STOCK UNISSUED EARNINGS INCOME TOTAL
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December 31, 2000 $119,828 $ 57 $ 49 $290,405 $ (542) $409,797
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Net Income 24,072 24,072
Currency Translation Adjustments (427) (427)
Unrealized Gain/(Loss) from
Interest Rate Swap (2,692) (2,692)
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Comprehensive Income 20,953
Stock Issued 377 377
Stock Redeemed (4,795) (5) (4,800)
Advance Payments (7) (7)
Dividends Declared (5,273) (5,273)
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September 30, 2001 $115,410 $ 52 $ 42 $309,204 $ (3,661) $421,047
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See accompanying Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
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(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
Note 1
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The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, the quarterly report includes all
adjustments, consisting of normal recurring accruals, necessary for the fair
presentation of the financial statements presented. Such interim financial
information is subject to year-end adjustments and independent audit.
Results for interim periods are not necessarily indicative of results to
be expected for the full year.
Note 2
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NINE MONTHS 2001 NINE MONTHS 2000
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Earnings for Nine Months $ 24,072 $ 57,226
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Dividends on Preferred Stock 2 2
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Available for Common Stock $ 24,070 $ 57,224
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Average Common Shares Outstanding 5,878,816 6,126,506*
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Earnings Per Share $ 4.09 $ 9.34*
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<FN>
* Restated for the declaration of a 5% stock dividend in 2000. Prior to
adjusting for the stock dividend, the average common shares outstanding
were 5,834,768.
</FN>
Note 3
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On January 1, 2001 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, as amended by SFAS No. 138, "Accounting for
Derivative Instruments and Hedging Activities". The statement requires the
Company to recognize all derivative instruments on the balance sheet at fair
value. The adoption of SFAS No. 133 impacts the accounting for the Company's
interest rate swap agreement. The Company manages interest rates on amounts
due under certain operating leases through its swap agreement. The Company's
interest rate swap agreement is designated as a cash flow hedge.
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Upon adoption of SFAS No. 133, the Company recorded a liability for the
fair value of the interest rate swap of $2,219 in its consolidated balance
sheet. On an ongoing basis, the Company will reflect the current fair value
of the interest rate swap on its balance sheet. The related gains or losses
on the swap are deferred in shareholders' equity as a component of
comprehensive income. At January 1, 2001 the Company included unrealized net
losses of $1,342 (net of tax) in accumulated other comprehensive income to
record the cumulative transition adjustment as a result of adopting SFAS
No. 133. During the three and nine-month periods ended September 30, 2001,
unrealized net losses of $1,554 (net of tax) and $1,350 (net of tax),
respectively, related to the swap were recorded in accumulated other
comprehensive income. These deferred gains and losses are recognized in
income in the period in which the related interest rates being hedged have
been recognized in expense.
Note 4
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Comprehensive income is reported in the Consolidated Statements of
Changes in Shareholders' Equity. Comprehensive income for the quarters ended
September 30, 2001 and 2000 was $8,681 and $19,211, respectively.
Note 5
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The Company entered into an accounts receivable securitization program
in June 2000 which provides for the sale of the Company's trade accounts
receivable to a wholly owned, bankruptcy remote, special purpose subsidiary,
Graybar Commerce Corporation. The trade accounts receivable purchases are
financed through the issuance of commercial paper under a revolving liquidity
facility. Under the securitization program, Graybar Commerce Corporation has
granted a security interest in its trade accounts receivable. Borrowings
outstanding under the securitization program at September 30, 2001 were
$100 million. The Company has $100 million available for additional
borrowing under the program at September 30, 2001. The program expires
in June 2003.
Note 6
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In July 2001 the Company received the proceeds from a ten-year note
for $100,000 at a fixed interest rate of 7.49% with principal payable in
annual installments beginning in July 2005. The note agreement has various
covenants which limit the Company's ability to make investments, pay
dividends, incur debt, dispose of property, and issue equity securities.
The Company is also required to maintain certain financial ratios as defined
in the agreement.
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MANAGEMENT'S DISCUSSION & ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Dollars Stated in Thousands)
RESULTS OF OPERATIONS
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Net sales in the first nine months of 2001 were 3.5% lower than in the
first nine months of 2000. The lower net sales resulted from a generally
depressed economy in the market sectors in which the Company operates.
Gross margin in the first nine months of 2001 decreased 4.6% compared
to the first nine months of 2000 primarily due to decreased sales in the
electrical and communication markets.
The increase in selling, general and administrative expenses in the
first nine months of 2001 compared to the first nine months of 2000 occurred
largely because of growth in personnel complement and increases in
compensation and related expenses. Selling, general and administrative
expenses were lower for the quarter ending September 30, 2001 compared to
the quarter ending September 30, 2000 primarily due to adjustments in
compensation and related expenses. In addition, continued implementation of
a company-wide customer service and logistics project throughout 2000 and
2001 resulted in higher selling, general and administrative expenses in the
first nine months of 2001 compared to the first nine months of 2000 due to
increases in the Company's number of facilities and related staffing and
start-up expenses. The increased expenses were anticipated by management and
are expected to provide future benefits to the Company's results of
operations.
Interest expense decreased in the first nine months of 2001 compared
to the first nine months of 2000 primarily due to lower interest rates on
short-term borrowings.
Other income includes service charges for special services provided to
one customer of $3,191 and $3,388 and gains on sale of property of $2,539 and
$5 in the first nine months of 2001 and 2000, respectively.
The combined effect of the decrease in gross margin and the increase in
other income, together with the decrease in interest expense and increases
in selling, general and administrative expenses and depreciation and
amortization, resulted in a decrease in pretax earnings of $56,651 in the
first nine months of 2001 compared to the same period in 2000.
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MANAGEMENT'S DISCUSSION & ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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(Dollars Stated in Thousands)
FINANCIAL CONDITION AND LIQUIDITY
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At September 30, 2001, current assets exceeded current liabilities by
$515,982, up $66,725 from December 31, 2000. The current assets at September
30, 2001 were sufficient to meet the cash needs required to pay current
liabilities. The reduction in accounts receivable from December 31, 2000 to
September 30, 2001 resulted primarily from the decrease in sales experienced
by the Company. The average number of days of sales in accounts receivable
has remained relatively stable during 2001. Merchandise inventory levels
were lower at September 30, 2001 when compared to December 31, 2000 inventory
levels due largely to improved inventory turnover and reductions in specific
inventory carried to support customer contract agreements. The increase in
trade accounts payable and the reduction in short-term borrowings resulted
primarily from additional dating taken on supplier payments. The Company
does not have any other plans or commitments which would require significant
amounts of additional working capital.
The Company is going to convert its existing computer systems to an
Enterprise Resource Planning (ERP) system over the course of the next several
years. Although the initial stages of the project are currently under way,
scheduled implementation dates and the costs to complete the project have not
been finalized, although the Company expects that the costs will be
substantial. The Company is actively pursuing special financing arrangements
to fund the project. The Company expects that conversion to the ERP system
will provide future benefits to its results of operations.
At September 30, 2001, the Company had available to it unused lines of
credit amounting to $474,000. These lines are available to meet short-term
cash requirements of the Company. Short-term borrowings outstanding during
2001 through September 30 ranged from a minimum of $139,264 to a maximum of
$479,000.
The Company has funded its capital requirements from operations, stock
issuances to its employees and long-term debt. In July 2001 the Company
received the proceeds from a ten-year note for $100,000 at a fixed interest
rate of 7.49% with principal payable in annual installments beginning in July
2005. The note agreement has various covenants which limit the Company's
ability to make investments, pay dividends, incur debt, dispose of property,
and issue equity securities. The Company is also required to maintain
certain financial ratios as defined in the agreement. Net proceeds from the
note were used to pay down outstanding debt. During the first nine months of
2001, cash provided by operations amounted to $218,704 compared to $23,805
cash provided by operations in the first nine months of 2000. Cash provided
from the sale of common stock and proceeds received on stock subscriptions
amounted to $370 in the first nine months of 2001.
Capital expenditures for property for the nine-month periods ended
September 30, 2001 and 2000 were $40,086 and $41,465, respectively.
Purchases of treasury stock for the nine-month periods ended September 30,
2001 and 2000 were $4,800 and $3,980, respectively. Dividends paid for the
nine-month periods ended September 30, 2001 and 2000 were $11,615 and
$11,498, respectively.
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PART II: OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished in accordance with provisions of Item 601
of Regulation S-K.
None.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
for which this report is filed.
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SIGNATURES
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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 13, 2001 GRAYBAR ELECTRIC COMPANY, INC.
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(Date)
/S/ R. A. REYNOLDS, JR.
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R. A. REYNOLDS, JR.
PRESIDENT
/S/ J. H. HINSHAW
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J. H. HINSHAW
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
/S/ J. H. KIPPER
-----------------------------------
J. H. KIPPER
VICE PRESIDENT
AND COMPTROLLER
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