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, 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) NEW YORK 13 - 0794380 -------------------------------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 34 NORTH MERAMEC AVENUE, ST. LOUIS, MO 63105 -------------------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) POST OFFICE BOX 7231, ST. LOUIS, MO 63177 -------------------------------------------------------------------------------------------------------- (Mailing Address) (Zip Code) Registrant's telephone number, including area code: (314) 573 - 9200 -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days YES X NO ------- ------- 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 SEPTEMBER 30, 2007 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE(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 Statement of Changes in Shareholders' Equity 6 Notes to the Condensed Consolidated Financial Statements 7-10 ITEM 2. Management's Discussion & Analysis of Financial Condition and Results of Operations 11-17 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 18 ITEM 4. Controls and Procedures 18 PART II. OTHER INFORMATION ITEM 2. Unregistered Sales of Equity Securities and Issuer Purchases of Equity Securities 19 ITEM 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21 EXHIBIT INDEX 22 Exhibit (31.1) - Section 302 Certification - CEO Exhibit (31.2) - Section 302 Certification - CFO Exhibit (32.1) - Section 906 Certification - CEO Exhibit (32.2) - Section 906 Certification - CFO 2 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 - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 3 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES 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 ----------------- ----------------- ---------------- ----------------- <FN> (A) Adjusted for the declaration of a 10% stock dividend in December 2006. Prior to the adjustment, the average common shares outstanding were 5,861 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. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 4 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 - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 5 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 ================ ================= ================= ================== =================== The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 6 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands except for Share and Per Share Data) (Unaudited) Note 1 - ------ The condensed consolidated financial statements included herein have been prepared by 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 that the 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. The Company's condensed consolidated financial statements include amounts that are based on management's best estimates and judgments. Actual results could differ from those estimates. Certain reclassifications were made to prior year amounts to conform to the 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 the Company's latest annual report on Form 10-K. In the opinion of the Company, this quarterly report includes all adjustments, consisting of normal recurring accruals and adjustments, necessary for the fair presentation of the financial statements presented. Such interim financial information is subject to year-end adjustments. Results for interim periods are not necessarily indicative of results to be expected for the full year. Note 2 - ------ At September 30, 2007 and December 31, 2006, 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 condensed consolidated balance sheets. GCC has granted a security interest in its trade receivables to the commercial paper conduit. There were $20,000 in borrowings outstanding under the trade receivable securitization program at September 30, 2007. There were no borrowings outstanding under the trade receivable securitization program at December 31, 2006. Note 3 - ------ Prior to September 28, 2007, 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. 7 The financing structures used in these two lease arrangements qualify as silos of a variable interest entity and therefore are accounted for under Financial Accounting Standards Board (FASB) Interpretation No. 46, "Consolidation of Variable Interest Entities--an interpretation of ARB No. 51". The Company has the option, with the consent of the lenders to the lessor, to renew the leases 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 the lease arrangement expiring in December 2009 on September 28, 2007 by exercising its purchase option. The independent lessor conveyed clear title to three of the Company's distribution facilities to the Company in exchange for a cash payment $30,479, which included the outstanding principal owed on the three properties totaling $30,057, unpaid interest, and other closing costs. Under the terms of the remaining lease arrangement, the Company's maximum exposure to loss at September 30, 2007, in respect of the properties subject to the remaining lease 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 and $55,500 during the three and nine 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 are expected to be paid during the remainder of 2007. 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% of the Company's issued and outstanding shares of Common Stock had been deposited with the Voting Trustees to be held under the 2007 Voting Trust Agreement by their beneficial owners as of September 30, 2007. 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 for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" (FIN 48), on 8 January 1, 2007. Under FIN 48, the Company had $6,980 of unrecognized tax benefits recorded in its statement of financial position as of January 1, 2007. Of this amount, $406 was recorded as a reduction to the January 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, 2008. 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. 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 9 postretirement 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 - ------ The Company and its subsidiaries are subject to various claims, disputes, administrative, and legal matters incidental to the Company's past and current business activities. As a result, contingencies arise resulting from an existing condition, situation, or set of circumstances involving an uncertainty as to the realization of a possible loss. The Company accounts for loss contingencies in accordance with the provisions of SFAS No. 5, "Accounting for Contingencies". Estimated loss contingencies are accrued only if the loss is probable and the amount of the loss can be reasonably estimated. With respect to a particular loss contingency, it may be probable that a loss has occurred but the estimate of the loss is a wide range. If the Company deems some amount within the range to be a better estimate than any other amount within the range, that amount would be accrued. However, if no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. While the Company believes that none of these claims, disputes, administrative, and legal matters will have a material adverse effect on its financial position, these matters are uncertain and the Company cannot at this time determine whether the financial impact, if any, of these matters will be material to its results of operations in the period in which such matters are resolved or a better estimate becomes available. Note 10 - ------- The Company had an unsecured Credit Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR) that consisted of a $150,000, 364-day facility that was to expire in July 2007. On May 8, 2007, the Company executed a new unsecured, LIBOR-based Credit Agreement with a group of banks that consists of a $200,000, five-year facility that expires in May 2012 and canceled the $150,000, 364-day facility previously in place. 10 Item 2. Management'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's Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2006, 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 which are outlined in Item 1A., "Risk Factors", of our Annual Report on Form 10-K for the year ended December 31, 2006. OVERVIEW - -------- Graybar Electric Company, Inc. (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 contractors, industrial plants, telephone companies, power utilities, federal, state and municipal governments, and commercial users in North America. All products sold by the Company are purchased by the Company from others. The Company's business activity is primarily with customers in the United States. The Company also has subsidiary operations with distribution facilities in Canada, Puerto Rico and Mexico. The Company is 100% owned by its active and retired employees, and there is no public trading market for its common stock. The Company experienced moderate growth in both sales and gross margin during the first nine months of 2007, compared to the first nine months of 2006, which more than offset an increase in total expense and lower other income, net. As a result, income from operations for the three and nine months ended September 30, 2007, increased 37.1% and 29.8%, respectively, when compared to the three 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. Continued profitable sales growth is expected for the balance of 2007. 11 CONSOLIDATED RESULTS OF OPERATIONS - ---------------------------------- The following tables set forth certain information relating to the operations of the Company stated in thousands of dollars and as a percentage of net sales for the three and nine month periods ended September 30, 2007 and 2006: 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% ================== ============= ================ =========== The Company continued to benefit from positive, 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 sales to the comm/data market resulted from the Company's improved competitive performance in this market, coupled with moderate growth in the overall comm/data market. THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2006 Net sales totaled $1,364,666 for the three months ended September 30, 2007, an increase of $36,205, or 2.7%, when compared to net sales of $1,328,461 for the three 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 three months ended September 30, 2006 increased 0.2%, when compared to the three months ended September 30, 2006, while net sales to the comm/data market rose 9.0% during the same period. 12 Gross margin increased $17,213, or 7.0%, to $262,951 from $245,738, partly due to higher net sales volume in the third quarter of 2007 compared to the same period in 2006. In addition, the Company's gross margin rate on net sales increased to 19.3% during the three months ended September 30, 2007, up from 18.5% for the same three month period in 2006, primarily due to a return to a more stable product cost environment compared to the three months ended September 30, 2006 and the Company's ongoing gross margin rate improvement initiatives. Selling, general and administrative expenses increased $3,102, or 1.5%, in the third quarter of 2007 to $205,396 from $202,294 in the third quarter of 2006, mainly due to increased compensation costs resulting from a modest increase in the number of employees, partially offset by reduced employee benefit, legal, and professional expenses. Selling, general and administrative expenses as a percentage of net sales decreased to 15.1% in the third quarter of 2007, from 15.2% in the third quarter of 2006. 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 ended September 30, 2007 compared to the same period in 2006. Other income (loss), net of $(305) in the third quarter of 2007 included net gains on the disposal of property of $289 and a 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 of trade receivable interest charges to customers and other interest income. Income from operations totaled $48,419 in the third quarter of 2007, an increase of $13,106, or 37.1%, from $35,313 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 $1,427, or 24.8%, to $4,331 in the third quarter of 2007 from $5,758 in the third quarter of 2006. This reduction was due to lower levels of outstanding short- and long-term debt in the third quarter of 2007, compared to the same period in 2006. The combination 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 $44,088 for the three months ended September 30, 2007, an increase of $14,533, or 49.2%, over pre-tax earnings of $29,555 for the three months ended September 30, 2006. As a result of higher pre-tax earnings, the Company's total provision for income taxes increased $5,856, or 50.2%, to $17,532 for the three months ended September 30, 2007 from $11,676 for the three months ended September 30, 2006. The Company's effective tax rate increased 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 were 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, 2007 increased $8,677, or 48.5%, to $26,556 from $17,879 for the three months ended September 30, 2006. 13 NINE 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, 2006 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, 14 resulted 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 - --------------------------------- The 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 for the nine months ended September 30, 2007, compared to $21,556 for the nine months ended September 30, 2006. Positive cash flow from operations for the nine months ended September 30, 2007 was 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 in trade receivables of $35,473, an increase in merchandise inventory of $22,210, increases in other current and non-current assets totaling $27,236, and a $38,332 decrease in accrued payroll and benefit costs. The average number of days of sales in trade receivables at September 30, 2007 decreased moderately from the average number of days at September 30, 2006. Merchandise inventory levels were higher at September 30, 2007 when compared to December 31, 2006 to support the growth in net sales. Average inventory turnover improved moderately, when comparing the nine months ended September 30, 2007 and 2006, respectively. Current assets exceeded current liabilities by $392,562 at September 30, 2007, a decrease of $22,903, or 5.5%, from $415,465 at December 31, 2006. Investing Activities - -------------------- Capital expenditures for property were $18,974 and $27,827, and proceeds from the disposal of property were $7,869, and $11,206, for the nine months ended September 30, 2007 and 2006, respectively. The proceeds received resulted primarily from the sale of real property. Financing Activities - -------------------- 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 by the Company to reduce long-term debt by $54,035 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 15 an increase in short-term borrowings of $36,815, partially offset by a decrease in long-term debt of $24,802. Cash provided by the sale of common stock amounted to $8,759 and $6,534, and purchases of treasury stock were $4,783 and $4,736 for the nine months ended September 30, 2007 and 2006, respectively. Dividends paid were $12,443 and $11,436 for the nine months ended September 30, 2007 and 2006, respectively. Liquidity - --------- On May 8, 2007, the Company executed a new unsecured, LIBOR-based Credit Agreement with a group of banks that consists of a $200,000, five-year facility that expires in May 2012 and cancelled the $150,000, 364-day facility previously in place. There were no borrowings outstanding under this facility at September 30, 2007. At September 30, 2007 and December 31, 2006, the Company had a $215,000 trade receivable securitization program that expires in October 2009. There were $20,000 in borrowings outstanding under the trade receivable securitization program at September 30, 2007. There were no borrowings outstanding under the trade receivable securitization program at December 31, 2006. At September 30, 2007, the Company had available to it unused lines of credit amounting to $413,510 compared to $377,076 at December 31, 2006. These lines are available to meet the short-term cash requirements of the Company. Short-term borrowings outstanding during the nine months ended September 30, 2007 and 2006 ranged from a minimum of $13,871 and $28,630 to a maximum of $49,355 and $140,924, respectively. The Company also reduced its outstanding long-term debt (including current portion and capital lease obligations) to $182,460 at September 30, 2007 from $236,188 at December 31, 2006, compared to a reduction 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 of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" (FIN 48), on January 1, 2007. Under FIN 48, the Company had $6,980 of unrecognized tax benefits recorded in its statement of financial position as of January 1, 2007. Of this amount, $406 was recorded as a reduction to the January 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, 16 2008. 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. 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 postretirement 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 the Company chooses early adoption. The Company does not expect the provisions of SFAS 159 to have a material impact on its financial statements. 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the policies, procedures, controls or risk profile from that provided in Item 7A., "Quantitative and Qualitative Disclosures About Market Risk", of the Company's Annual Report on Form 10-K for the year ended December 31, 2006. Item 4. Controls and Procedures An 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. 18 PART II: OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shareholder may sell, transfer or otherwise dispose of shares of Common Stock (or the Voting Trust Interests issued with respect thereto) 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, the Common Stock (or Voting Trust Interests issued with respect thereto) of any shareholder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension. In the past, all shares 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) 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 - -------------------------------------------------------------------------------------------------------------------------------- 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. 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/ 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 ------------- 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