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Previous: ENGINEERING MEASUREMENTS CO, S-8, 1998-11-12 |
Next: CARLYLE REAL ESTATE LTD PARTNERSHIP VII, 10-Q, 1998-11-12 |
<PAGE> 1
CONFORMED
---------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10Q
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, 1998
------------------------------------------
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 (I.R.S. Employer Identification No.)
incorporation or organization)
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) 512 - 9200
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
------- -------
Common Stock Outstanding at October 31, 1998: 4,982,374
---------------------
(Number of Shares)
<PAGE> 2
PART I
------
<TABLE>
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 49,015 $ 18,523
------------------ ----------------
Trade receivables 458,074 402,455
------------------ ----------------
Merchandise inventory 452,216 389,314
------------------ ----------------
Other current assets 13,686 13,748
------------------ ----------------
Total current assets 972,991 824,040
------------------ ----------------
PROPERTY
Land 22,905 22,868
------------------ ----------------
Buildings and permanent fixtures 296,841 281,508
------------------ ----------------
Capital equipment leases 26,683 26,138
------------------ ----------------
Less-Accumulated depreciation 141,795 136,485
------------------ ----------------
Net property 204,634 194,029
------------------ ----------------
DEFERRED FEDERAL INCOME TAXES 8,140 9,639
------------------ ----------------
OTHER ASSETS 16,874 24,113
------------------ ----------------
$1,202,639 $1,051,821
================== ================
CURRENT LIABILITIES
Notes payable to banks $ 80,709 $ 136,925
------------------ ----------------
Current portion of long-term debt 17,471 15,059
------------------ ----------------
Trade accounts payable 368,584 326,969
------------------ ----------------
Income taxes 7,164 ---
------------------ ----------------
Other accrued taxes 11,343 10,663
------------------ ----------------
Accrued payroll and benefit costs 34,123 41,924
------------------ ----------------
Dividends payable --- 5,246
------------------ ----------------
Other payables and accruals 43,247 44,856
------------------ ----------------
Total current liabilities 562,641 581,642
------------------ ----------------
POSTRETIREMENT BENEFITS LIABILITY 77,606 77,300
------------------ ----------------
LONG-TERM DEBT 271,921 139,748
------------------ ----------------
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S>
SHAREHOLDERS' EQUITY
CAPITAL STOCK
Preferred:
---------
Par value $20 per share
Authorized 300,000 shares
<CAPTION>
SHARES
------
1998 1997
---- ----
<S> <C> <C> <C> <C>
Issued to shareholders 6,009 6,009
-------------- --------------
In treasury, at cost (623) (58)
-------------- --------------
Outstanding 5,386 5,951 108 119
-------------- -------------- ---------------- ------------------
Common:
------
Stated value $20 per share
Authorized 7,500,000 shares
<CAPTION>
SHARES
------
1998 1997
---- ----
<S> <C> <C> <C> <C>
Issued to voting trustees 4,896,511 4,883,162
-------------- --------------
Issued to shareholders 323,831 323,434
-------------- --------------
In treasury, at cost (233,128) (19,124)
-------------- --------------
Outstanding 4,987,214 5,187,472 99,744 103,749
-------------- -------------- ---------------- ------------------
Advance payments on
subscriptions to common
stock 35 37
---------------- ------------------
Retained earnings 191,330 149,226
---------------- ------------------
Accumulated other comprehensive income (Note 3) (746) ---
---------------- ------------------
TOTAL SHAREHOLDERS' EQUITY 290,471 253,131
---------------- ------------------
$1,202,639 $1,051,821
================ ==================
See accompanying Notes to Consolidated Financial Statements
</TABLE>
3
<PAGE> 4
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
QUARTER ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
GROSS SALES, net of returns and allowances $974,664 $893,577
------------------ ------------------
Less Cash discounts 3,022 2,862
------------------ ------------------
NET SALES 971,642 890,715
------------------ ------------------
COST OF MERCHANDISE SOLD 795,290 733,590
------------------ ------------------
Gross margin 176,352 157,125
------------------ ------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 136,219 121,402
------------------ ------------------
DEPRECIATION AND AMORTIZATION 6,452 5,724
------------------ ------------------
Income from operations 33,681 29,999
------------------ ------------------
OTHER INCOME, net 1,410 736
------------------ ------------------
INTEREST EXPENSE 5,997 4,997
------------------ ------------------
Income before provision for income taxes 29,094 25,738
------------------ ------------------
PROVISION FOR INCOME TAXES
Current 11,127 11,230
------------------ ------------------
Deferred 971 (634)
------------------ ------------------
Total provision for income taxes 12,098 10,596
------------------ ------------------
NET INCOME 16,996 15,142
================== ==================
NET INCOME PER SHARE OF COMMON STOCK $ 3.39 $ 2.88<F*>
================== ==================
DIVIDENDS
Preferred - $.25 per share $ 1 $ 2
------------------ ------------------
Common - $.30 per share 1,497 1,426
------------------ ------------------
$ 1,498 $ 1,428
================== ==================
<FN>
<F*>Restated for the declaration of a 10% stock dividend in 1997.
See accompanying Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
GROSS SALES, net of returns and allowances $2,808,225 $2,476,165
------------------ ------------------
Less-Cash discounts 8,581 7,957
------------------ ------------------
NET SALES 2,799,644 2,468,208
------------------ ------------------
COST OF MERCHANDISE SOLD 2,293,550 2,023,641
------------------ ------------------
Gross margin 506,094 444,567
------------------ ------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 394,515 351,571
------------------ ------------------
DEPRECIATION AND AMORTIZATION 18,425 16,665
------------------ ------------------
Income from operations 93,154 76,331
------------------ ------------------
OTHER INCOME, net 4,403 4,005
------------------ ------------------
INTEREST EXPENSE 17,993 14,634
------------------ ------------------
Income before provision for income taxes 79,564 65,702
------------------ ------------------
PROVISION FOR INCOME TAXES
Current 31,405 27,946
------------------ ------------------
Deferred 1,499 (915)
------------------ ------------------
Total provision for income taxes 32,904 27,031
------------------ ------------------
NET INCOME 46,660 38,671
================== ==================
NET INCOME PER SHARE OF COMMON STOCK (NOTE 2) $ 9.18 $ 7.28
================== ==================
DIVIDENDS
Preferred - $.75 per share $ 4 $ 5
------------------ ------------------
Common - $.90 per share 4,552 4,332
------------------ ------------------
$ 4,556 $ 4,337
================== ==================
See accompanying Notes to Consolidated Financial Statements
</TABLE>
5
<PAGE> 6
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income $ 46,660 $ 38,671
------------------ ------------------
Adjustments to reconcile net income
to cash provided (used) by operations:
Depreciation and amortization 18,425 16,665
------------------ ------------------
Deferred income taxes 1,499 (915)
------------------ ------------------
Gain on sale of property (554) (1,340)
------------------ ------------------
Changes in assets and liabilities:
Trade receivables (55,619) (66,101)
------------------ ------------------
Merchandise inventory (62,902) (63,001)
------------------ ------------------
Other current assets 62 (1,307)
------------------ ------------------
Other assets 7,239 (18,657)
------------------ ------------------
Trade accounts payable 41,615 89,006
------------------ ------------------
Accrued payroll and benefit costs (7,801) (4,669)
------------------ ------------------
Other accrued liabilities 6,541 14,436
------------------ ------------------
(51,495) (35,883)
------------------ ------------------
Net cash provided (used) by operations (4,835) 2,788
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property 1,511 3,033
------------------ ------------------
Capital expenditures for property (20,025) (17,600)
------------------ ------------------
Net cash used by investing activities (18,514) (14,567)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in notes payable to banks (56,216) 69,874
------------------ ------------------
Proceeds from long-term debt 140,000 ---
------------------ ------------------
Repayment of long-term debt (12,522) (9,527)
------------------ ------------------
Principal payments under capital equipment leases (2,855) (3,554)
------------------ ------------------
Sale of common stock 273 699
------------------ ------------------
Purchase of treasury stock (4,291) (4,055)
------------------ ------------------
Dividends paid (9,802) (9,551)
------------------ ------------------
Net cash flow provided by financing activities 54,587 43,886
------------------ ------------------
EFFECT OF CURRENCY TRANSLATION ADJUSTMENTS
ON CASH (746) ---
------------------ ------------------
NET INCREASE IN CASH 30,492 32,107
------------------ ------------------
CASH, BEGINNING OF YEAR 18,523 13,820
------------------ ------------------
CASH, END OF THIRD QUARTER $ 49,015 $ 45,927
================== ==================
See accompanying Notes to Consolidated Financial Statements
</TABLE>
6
<PAGE> 7
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE NINE MONTHS ENDED
-------------------------
SEPTEMBER 30, 1998 AND 1997
---------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
ACCUMULATED
OTHER
COMPRE-
COMMON PREFERRED RETAINED HENSIVE
STOCK STOCK EARNINGS INCOME TOTAL
---------- ------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
December 31, 1996 $ 98,373 $143 $115,218 $213,734
------------
Net Income and
Total Comprehensive Income 38,671 38,671
Stock Issued 699 699
Stock Redeemed (4,032) (23) (4,055)
Dividends Declared (4,337) (4,337)
---------- ------------- ------------ --------------- ------------
September 30, 1997 $95,040 $120 $149,552 $244,712
========== ============= ============ =============== ============
<CAPTION>
ACCUMULATED
OTHER
COMPRE-
COMMON PREFERRED RETAINED HENSIVE
STOCK STOCK EARNINGS INCOME TOTAL
---------- ------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
December 31, 1997 $103,786 $119 $149,226 $253,131
------------
Comprehensive Income:
Net Income 46,660 46,660
Currency Translation Adjustments,
Net of Tax $(746) (746)
------------
Total Comprehensive Income 45,914
------------
Stock Issued 273 273
Stock Redeemed (4,280) (11) (4,291)
Dividends Declared (4,556) (4,556)
---------- ------------- ------------ --------------- ------------
September 30, 1998 $ 99,779 $108 $191,330 $(746) $290,471
========== ============= ============ =============== ============
See accompanying Notes to Consolidated Financial Statements
</TABLE>
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
---------------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
Note 1
- ------
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, the quarterly report includes all
adjustments, consisting of normal recurring accruals, necessary for the fair
presentation of the financial statements presented. Such interim financial
information is subject to year-end adjustments and independent audit.
Results for interim periods are not necessarily indicative of results
to be expected for the full year.
Note 2
- ------
<TABLE>
<CAPTION>
NINE MONTHS 1998 NINE MONTHS 1997
---------------- ----------------
<S> <C> <C>
Earnings for Nine Months $ 46,660 $ 38,671
---------------- ----------------
Dividends on Preferred Stock 4 5
---------------- ----------------
Available for Common Stock $ 46,656 $ 38,666
---------------- ----------------
Average Common Shares Outstanding 5,080,188 5,310,369<F*>
---------------- ----------------
Earnings Per Share $ 9.18 $ 7.28<F*>
---------------- ----------------
<FN>
<F*> Restated for the declaration of a 10% stock dividend in 1997. Prior to
adjusting for the stock dividend, the average common shares outstanding
were 4,827,608.
</TABLE>
Note 3
- ------
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
Comprehensive income is reported in the Consolidated Statements of Changes in
Shareholders' Equity. Comprehensive income for the quarters ended September
30, 1998 and 1997 was $16,770 and $15,142, respectively.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION & ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Dollars Stated in Thousands)
RESULTS OF OPERATIONS
- ---------------------
Net sales in the first nine months of 1998 were 13.4% higher than in
the first nine months of 1997. The higher net sales resulted from
improvements in the market sectors of the economy in which the Company
operates.
Gross margin in the first nine months of 1998 increased $61,527 (13.8%)
compared to the first nine months of 1997 primarily due to increased sales in
the electrical and communication markets.
The increase in selling, general and administrative expenses in the
first nine months of 1998 compared to the first nine months of 1997 occurred
largely because of adjustments in personnel complement and adjustments in
compensation and related expenses.
Interest expense increased in the first nine months of 1998 compared to
the first nine months of 1997 primarily due to increased levels of borrowing
incurred to finance higher aggregate levels of inventory and receivables.
Interest rates on 1998 short-term borrowings have been slightly higher than
for the same period in 1997.
Other income in the first nine months of 1998 included gains on sale of
property of $554.
The combined effect of the increase in gross margin and the increase in
other income, together with increases in selling, general and administrative
expenses, interest expense and depreciation and amortization, resulted in an
increase in pretax earnings of $13,862 in the first nine months of 1998
compared to the same period in 1997.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION & ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Dollars Stated in Thousands)
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
The financial condition of the Company continues to be strong. At
September 30, 1998, current assets exceeded current liabilities by $410,350,
up $167,952 from December 31, 1997. The current assets at September 30, 1998
were sufficient to meet the cash needs required to pay current liabilities.
The substantial increases in accounts receivable and merchandise inventory
resulted primarily from the growth in sales experienced by the Company.
While the average number of days of sales in accounts receivable has remained
relatively stable during 1997 and 1998, inventory turnover has decreased
slightly during that same period. The decrease in inventory turnover is due
largely to a companywide customer service and logistics project to redeploy
inventory into a system of national zones, regional zones and branch
locations. Although the project objective is to provide better customer
service and reduce overall costs, management expected some temporary
inventory increase, unrelated to sales volume, during the transition to the
new system. This temporary increase in inventory investment is largely
offset by a corresponding increase in trade accounts payable. The Company
does not have any other plans or commitments that would require significant
amounts of additional working capital.
At September 30, 1998, the Company had available to it unused lines of
credit amounting to $242,100. These lines are available to meet short-term
cash requirements of the Company. Bank borrowings outstanding during 1998
through September 30 ranged from a minimum of $19,000 to a maximum of
$211,655.
The Company has funded its capital requirements from operations, stock
issuances to its employees and long-term debt. In January, 1998, the Company
received the proceeds from a seven-year note for $25,000 at a fixed interest
rate of 6.44% with principal payable in quarterly installments beginning in
April, 1998. In April, 1998, the Company received the proceeds from a
fifteen-year note for $75,000 at a fixed interest rate of 6.59% with
principal payable in semiannual installments beginning in October, 2003. In
June, 1998, the Company received the proceeds from a fifteen-year note for
$40,000 at a fixed interest rate of 6.65% with principal payable in annual
installments beginning in June, 2003. All three note agreements have 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 agreements. During the first nine months of 1998, cash used by
operations amounted to $4,835 compared to $2,788 cash provided by operations
in the first nine months of 1997.
10
<PAGE> 11
Capital expenditures for property for the nine-month periods ended
September 30, 1998 and 1997 were $20,025 and $17,600, respectively.
Purchases of treasury stock for the nine-month periods ended September 30,
1998 and 1997 were $4,291 and $4,055, respectively. Dividends paid for the
nine-month periods ended September 30, 1998 and 1997 were $9,802 and $9,551,
respectively.
IMPACT OF YEAR 2000 ISSUE
- -------------------------
In early 1996 the Company began its review and analysis of the Year
2000 Issue and the potential risks to our operations. Modifications to our
existing software began in 1996 and continue to be made. A full-time senior
manager of the Company was appointed in January 1998 to oversee all the
analytical and remedial projects connected with the Year 2000 Issue. In June
1998 the Company received a report based on a review by independent
consultants of our Year 2000 readiness. The consultants confirmed the
appropriateness of our approach and progress to date and made certain
recommendations for future actions.
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
problems for all of its systems, including its information, warehouse, office
or administrative systems. However, if such modifications and conversions
are not made, or are not completed in a timely manner, the year 2000 Issue
could have a material impact on the operations of the Company.
Communications have been initiated by the Company with all of its
significant suppliers and large customers to determine the extent to which
the interface between their systems and the Company's systems are vulnerable
to those parties' failure to remediate their own Year 2000 Issues. The
Company's total Year 2000 project schedule and cost estimates to complete
include the estimated costs and time associated with the impact of supplier
and customer Year 2000 Issues based on currently available information.
However, there can be no guarantee that the systems of these companies on
which the Company's systems rely will be converted in a timely manner so
there will not be an adverse effect on the Company's business. Contingency
plans will be developed on a case-by-case basis for suppliers or customers
where a problem is identified that cannot be remedied in time. Contingency
plans could involve an alternate means of communication for an electronic
data interchange customer or an alternate source of supply in the case of a
supplier.
The Company has and will continue to utilize both internal and external
resources to reprogram, or replace, and test the software for Year 2000
modifications. The Company anticipates completing the Year 2000 project no
later than June 30, 1999, although some testing will continue after that
date. The Year 2000 project will be funded through operating cash flows and
expensed as incurred. It has not and is not expected to have a material
effect on the results of operations.
11
<PAGE> 12
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability
and cost of personnel trained in this area, the ability to locate and correct
all relevant computer codes, and similar uncertainties.
12
<PAGE> 13
PART II: OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished in accordance with provisions of Item
601 of Regulation S-K.
(27) Financial Data Schedule (submitted in EDGAR format
only).
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
for which this report is filed.
13
<PAGE> 14
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 12, 1998 GRAYBAR ELECTRIC COMPANY, INC.
- -------------------------------
(Date)
/S/ C. L. HALL
---------------------------------------
C. L. HALL
PRESIDENT
/S/ J. R. SEATON
---------------------------------------
J. R. SEATON
VICE PRESIDENT
AND COMPTROLLER
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 49,015
<SECURITIES> 0
<RECEIVABLES> 458,074
<ALLOWANCES> 0
<INVENTORY> 452,216
<CURRENT-ASSETS> 972,991
<PP&E> 346,429
<DEPRECIATION> 141,795
<TOTAL-ASSETS> 1,202,639
<CURRENT-LIABILITIES> 562,641
<BONDS> 271,921
<COMMON> 99,744
0
108
<OTHER-SE> 190,619
<TOTAL-LIABILITY-AND-EQUITY> 1,202,639
<SALES> 2,799,644
<TOTAL-REVENUES> 2,799,644
<CGS> 2,293,550
<TOTAL-COSTS> 2,293,550
<OTHER-EXPENSES> 412,940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,993
<INCOME-PRETAX> 79,564
<INCOME-TAX> 32,904
<INCOME-CONTINUING> 46,660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,660
<EPS-PRIMARY> 9.18
<EPS-DILUTED> 9.18
</TABLE>
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