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<PAGE> 1
CONFORMED
---------
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 March 31, 1999
----------------------------
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
incorporation or organization) (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) 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 April 30, 1999: 5,773,606
-------------------------
(Number of Shares)
<PAGE> 2
<TABLE>
PART I
------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 44,959 $ 20,252
------------------ -------------------
Trade receivables 514,735 460,016
------------------ -------------------
Merchandise inventory 523,506 440,406
------------------ -------------------
Other current assets 2,719 3,945
------------------ -------------------
Total current assets 1,085,919 924,619
------------------ -------------------
PROPERTY
Land 21,684 21,550
------------------ -------------------
Buildings and permanent
fixtures 303,390 297,780
------------------ -------------------
Capital equipment leases 26,682 26,682
------------------ -------------------
Less-Accumulated depreciation 148,124 142,934
------------------ -------------------
Net property 203,632 203,078
------------------ -------------------
DEFERRED FEDERAL INCOME TAXES 8,425 8,105
------------------ -------------------
OTHER ASSETS 31,909 32,045
------------------ -------------------
$1,329,885 $1,167,847
================== ===================
CURRENT LIABILITIES
Notes payable to banks $ 110,871 $ 43,948
------------------ -------------------
Current portion of
long-term debt 14,510 16,475
------------------ -------------------
Trade accounts payable 449,376 344,869
------------------ -------------------
Income taxes 14,885 --
------------------ -------------------
Other accrued taxes 12,857 12,439
------------------ -------------------
Accrued payroll and benefit
costs 20,495 44,466
------------------ -------------------
Dividends payable -- 5,479
------------------ -------------------
Other payables and accruals 40,685 56,093
------------------ -----------------------
Total current liabilities 663,679 523,769
------------------ -------------------
POSTRETIREMENT BENEFITS LIABILITY 77,783 77,708
------------------ -------------------
LONG TERM DEBT 267,125 269,570
------------------ -------------------
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
SHAREHOLDERS' EQUITY
CAPITAL STOCK
Preferred:
---------
Par value $20 per share
Authorized 300,00 shares
<CAPTION>
SHARES
------
1999 1998
---- ----
<S> <C> <C> <C> <C>
Issued to shareholders 5,386 5,386
----------- -----------
In treasury, at cost (246) --
----------- -----------
Outstanding 5,140 5,386 103 108
----------- ----------- ------------------ -------------------
Common:
------
Stated value $20 per share
Authorized 7,500,000 shares
<CAPTION>
SHARES
------
1999 1998
---- ----
<S> <C> <C> <C> <C>
Issued to voting trustees 5,560,085 4,883,638
----------- -----------
Issued to shareholders 339,531 326,586
----------- -----------
In treasury, at cost (89,969) (25,706)
----------- -----------
Outstanding 5,809,647 5,184,518 116,193 103,690
----------- ----------- ------------------ -------------------
Advance payments on subscriptions
to common stock 61 --
------------------ -------------------
Retained earnings 205,620 193,838
------------------ -------------------
Accumulated other comprehensive
income (679) (836)
------------------ -------------------
TOTAL SHAREHOLDERS' EQUITY 321,298 296,800
------------------ -------------------
$1,329,885 $1,167,847
================== ===================
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
MARCH 31, 1999 MARCH 31, 1998
------------------ ------------------
<S> <C> <C>
GROSS SALES, net of returns and allowances $988,470 $871,855
------------------ ------------------
Less - Cash discounts 2,520 2,524
------------------ ------------------
NET SALES 985,950 869,331
------------------ ------------------
COST OF MERCHANDISE SOLD 812,131 710,189
------------------ ------------------
Gross margin 173,819 159,142
------------------ ------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 142,441 124,366
------------------ ------------------
DEPRECIATION AND AMORTIZATION 6,310 5,649
------------------ ------------------
Income from operations 25,068 29,127
------------------ ------------------
OTHER INCOME, net 3,815 1,753
------------------ ------------------
INTEREST EXPENSE 5,790 6,143
------------------ ------------------
Income before provision for income taxes 23,093 24,737
------------------ ------------------
PROVISION FOR INCOME TAXES
Current 9,885 9,973
------------------ ------------------
Deferred (320) 213
------------------ ------------------
Total provision for income taxes 9,565 10,186
------------------ ------------------
NET INCOME $ 13,528 $ 14,551
================== ==================
NET INCOME PER SHARE OF COMMON STOCK (NOTE 2) $ 2.40 $ 2.69
================== ==================
DIVIDENDS
Preferred - $.25 per share $ 1 $ 1
------------------ ------------------
Common - $.30 per share 1,745 1,537
------------------ ------------------
$ 1,746 $ 1,538
================== ==================
See accompanying Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income $ 13,528 $ 14,551
-------------- --------------
Adjustments to reconcile net income
to cash used by operations:
Depreciation and amortization 6,310 5,649
-------------- --------------
Deferred income taxes (320) 213
-------------- --------------
Gain on sale of property -- (554)
-------------- --------------
Changes in assets and liabilities:
Trade receivables (54,719) (24,602)
-------------- --------------
Merchandise inventory (83,100) (45,825)
-------------- --------------
Other current assets 1,226 146
-------------- --------------
Other assets 136 2,781
-------------- --------------
Trade accounts payable 104,507 16,465
-------------- --------------
Accrued payroll and benefit costs (23,971) (22,557)
-------------- --------------
Other accrued liabilities (30) (11)
-------------- --------------
(49,961) (68,295)
-------------- --------------
Net cash used by operations (36,433) (53,744)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property 39 1,293
-------------- --------------
Capital expenditures for property (6,903) (5,145)
-------------- --------------
Net cash used by investing activities (6,864) (3,852)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in notes payable to banks 66,923 74,730
-------------- --------------
Proceeds from long-term debt -- 25,000
-------------- --------------
Repayment of long-term debt (2,619) (1,637)
-------------- --------------
Principal payments under capital equipment leases (1,791) (1,401)
-------------- --------------
Sale of common stock 13,849 92
-------------- --------------
Purchase of treasury stock (1,290) (1,608)
-------------- --------------
Dividends paid (7,225) (6,784)
-------------- --------------
Net cash flow provided by financing activities 67,847 88,392
-------------- --------------
EFFECT OF CURRENCY TRANSLATION ADJUSTMENTS
ON CASH 157 (96)
-------------- --------------
NET INCREASE IN CASH 24,707 30,700
-------------- --------------
CASH, BEGINNING OF YEAR 20,252 18,523
-------------- --------------
CASH, END OF FIRST QUARTER $ 44,959 $ 49,223
============== ==============
See accompanying Notes to Consolidated Financial Statements
</TABLE>
5
<PAGE> 6
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE QUARTERS ENDED
----------------------
MARCH 31, 1999 AND 1998
-----------------------
(Dollars Stated in Thousands)
(Except for Share and Per Share Data)
<CAPTION>
ACCUMULATED
COMMON OTHER
STOCK COMPRE-
COMMON PREFERRED SUBSCRIBED, RETAINED HENSIVE
STOCK STOCK UNISSUED EARNINGS INCOME TOTAL
------ --------- ---------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997 $103,749 $119 $37 $149,226 $253,131
--------
Net Income 14,551 14,551
Currency Translation Adjustments $ (96) (96)
--------
Comprehensive Income 14,455
--------
Stock Issued 93 93
Stock Redeemed (1,599) (9) (1,608)
Advance Payments (1) (1)
Dividends Declared (1,538) (1,538)
---------- ------ ------ ---------- --------- ----------
March 31, 1998 $102,243 $110 $36 $162,239 $ (96) $264,532
========== ====== ====== ========== ========= ==========
<CAPTION>
ACCUMULATED
COMMON OTHER
STOCK COMPRE-
COMMON PREFERRED SUBSCRIBED, RETAINED HENSIVE
STOCK STOCK UNISSUED EARNINGS INCOME TOTAL
------ --------- ---------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998 $103,690 $108 $ 0 $193,838 $(836) $296,800
--------
Net Income 13,528 13,528
Currency Translation Adjustments 157 157
--------
Comprehensive Income 13,685
--------
Stock Issued 13,788 13,788
Stock Redeemed (1,285) (5) (1,290)
Advance Payments 61 61
Dividends Declared (1,746) (1,746)
---------- ------ ------ ---------- --------- ----------
March 31, 1999 $116,193 $103 $61 $205,620 $(679) $321,298
========== ====== ====== ========== ========= ==========
See accompanying Notes to Consolidated Financial Statements
</TABLE>
6
<PAGE> 7
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>
THREE MONTHS 1999 THREE MONTHS 1998
--------------------- ---------------------
<S> <C> <C>
Earnings for Three Months $ 13,528 $ 14,551
--------------------- ---------------------
Dividends on Preferred Stock 1 1
--------------------- ---------------------
Available for Common Stock $ 13,527 $ 14,550
--------------------- ---------------------
Average Common Shares Outstanding 5,640,988 5,402,265<F*>
--------------------- ---------------------
Earnings Per Share $ 2.40 $ 2.69<F*>
--------------------- ---------------------
<FN>
<F*>Restated for the declaration of a 5% stock dividend in 1998. Prior
to adjusting for the stock dividend, the average common shares
outstanding were 5,145,014.
</TABLE>
7
<PAGE> 8
MANAGEMENT'S DISCUSSION & ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Dollars Stated in Thousands)
RESULTS OF OPERATIONS
- ---------------------
Net sales in the first three months of 1999 were 13.4% higher than in
the first three months of 1998. The higher net sales resulted from
improvements in the market sectors of the economy in which the Company
operates.
Gross margin in the first three months of 1999 increased $14,677 (9.2%)
compared to the first three months of 1998 primarily due to increased sales
in the electrical and communication markets.
The increase in selling, general and administrative expenses in the
first three months of 1999 compared to the first three months of 1998
occurred largely because of adjustments in personnel complement and
adjustments in compensation and related expenses.
Interest expense decreased in the first three months of 1999 compared
to the first three months of 1998 primarily due to lower interest rates on
short-term borrowings.
The combined effect of the increases in gross margin and other income
and the decrease in interest expense, together with increases in selling,
general and administrative expenses and depreciation and amortization,
resulted in a decrease in pretax earnings of $1,644 in the first three months
of 1999 compared to the same period in 1998.
8
<PAGE> 9
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 March
31, 1999, current assets exceeded current liabilities by $422,240, up $21,390
from December 31, 1998. The current assets at March 31, 1999 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 1998 and 1999, 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 offset by a corresponding
increase in trade accounts payable. The Company does not have any other
plans or commitments which would require significant amounts of additional
working capital.
At March 31, 1999, the Company had available to it unused lines of
credit amounting to $232,189. These lines are available to meet short-term
cash requirements of the Company. Bank borrowings outstanding during 1999
through March 31 ranged from a minimum of $14,000 to a maximum of $111,811.
The Company has funded its capital requirements from operations, stock
issuances to its employees and long term debt. During the first three months
of 1999, cash used by operations amounted to $36,433 compared to $53,744 cash
used by operations in the first three months of 1998. Cash provided from the
sale of common stock and proceeds received on stock subscriptions amounted to
$13,849 in the first three months of 1999. Additional cash of approximately
$508 will be provided in the remainder of 1999 as a result of payments to be
made for stock subscribed to by employees under the 1998 Common Stock
Purchase Plan.
Capital expenditures for property for the three-month periods ended
March 31, 1999 and 1998 were $6,903 and $5,145, respectively. Purchases of
treasury stock for the three-month periods ended March 31, 1999 and 1998 were
$1,290 and $1,608, respectively. Dividends paid for the three-month periods
ended March 31, 1999 and 1998 were $7,225 and $6,784, respectively.
9
<PAGE> 10
IMPACT OF YEAR 2000 ISSUE
- -------------------------
In early 1996 the Company began its review and analysis of the Year 2000
Issues and the potential risks to our operations. Modifications to our
existing internal 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 of the analytical and remedial projects connected with the Year
2000. The Company has also used independent consultants to assist the
Company with its Year 2000 readiness efforts.
The Company believes that with modifications to existing internal
software and conversions to new software, the Year 2000 will not pose
significant problems for all of its systems, including its accounting,
management information, warehouse and administrative systems. However, if
such modifications and conversions are not completed in a timely manner, the
Year 2000 could have a material impact on the operations of the Company.
Communications have been initiated by the Company with over 600
suppliers of products and large customers to determine the extent to which
the interface between their systems and the Company's systems are vulnerable
to those parties' failures to remediate their own Year 2000 issues. Most
responses relating to products indicated Year 2000 compliance for the
specific product. A significant number of the responses indicated that Year
2000 analytical studies were in process for both internal systems and some
products. 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 modified in a timely
manner so there will not be an adverse impact 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 may involve alternate means of communications for
electronic data interchange suppliers and customers or an alternate source of
supply in the case of a supplier or a specific product.
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. Communications will continue with customers and suppliers to
identify any potential problems requiring contingency plans. The Company
anticipates completing the Year 2000 project by September 30, 1999, although
some additional testing will continue after that date. The Year 2000
projects will be funded through operating cash flows and expensed as
incurred. The project costs have not had and are not expected to have a
material impact on the results of operations.
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.
10
<PAGE> 11
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.
11
<PAGE> 12
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.
May 12, 1999 GRAYBAR ELECTRIC COMPANY, INC.
--------------------
(Date)
/S/ C. L. HALL
------------------------------
C. L. HALL
PRESIDENT
/S/ J. R. SEATON
------------------------------
J. R. SEATON
VICE PRESIDENT
AND COMPTROLLER
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 44,959
<SECURITIES> 0
<RECEIVABLES> 514,735
<ALLOWANCES> 0
<INVENTORY> 523,506
<CURRENT-ASSETS> 1,085,919
<PP&E> 351,756
<DEPRECIATION> 148,124
<TOTAL-ASSETS> 1,329,885
<CURRENT-LIABILITIES> 663,679
<BONDS> 267,125
<COMMON> 116,193
0
103
<OTHER-SE> 205,002
<TOTAL-LIABILITY-AND-EQUITY> 1,329,885
<SALES> 985,950
<TOTAL-REVENUES> 985,950
<CGS> 812,131
<TOTAL-COSTS> 812,131
<OTHER-EXPENSES> 148,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,790
<INCOME-PRETAX> 23,093
<INCOME-TAX> 9,565
<INCOME-CONTINUING> 13,528
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,528
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.40
</TABLE>
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