10-Q 1 gray10q.txt GRAYBAR ELECTRIC COMPANY, INC. FORM 10-Q 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, 2006 --------------------------- 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) 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 April 30, 2006: 5,856,691 ---------------------- (Number of Shares) PART I ------ Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data)
MARCH 31, 2006 DECEMBER 31, 2005 -------------------------- ------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 14,093 $ 9,074 -------------------------- ------------------------- Trade receivables 635,871 633,980 -------------------------- ------------------------- Merchandise inventory 427,319 428,127 -------------------------- ------------------------- Other current assets 12,617 15,587 -------------------------- ------------------------- Total Current Assets 1,089,900 1,086,768 -------------------------- ------------------------- PROPERTY Land 38,330 37,958 -------------------------- ------------------------- Buildings 299,491 301,474 -------------------------- ------------------------- Furniture and fixtures 159,217 157,470 -------------------------- ------------------------- Software 76,906 76,906 -------------------------- ------------------------- Capital leases 3,741 3,741 -------------------------- ------------------------- Less-Accumulated depreciation and amortization (261,018) (257,700) -------------------------- ------------------------- Net property 316,667 319,849 -------------------------- ------------------------- OTHER NON-CURRENT ASSETS 36,530 36,770 -------------------------- ------------------------- TOTAL ASSETS $ 1,443,097 $ 1,443,387 ========================== ========================= LIABILITIES CURRENT LIABILITIES Short-term borrowings $ 60,595 $ 55,910 -------------------------- ------------------------- Current portion of long-term debt 32,131 32,133 -------------------------- ------------------------- Trade accounts payable 461,062 460,548 -------------------------- ------------------------- Accrued payroll and benefit costs 19,385 50,542 -------------------------- ------------------------- Other accrued taxes 21,480 12,715 -------------------------- ------------------------- Dividends payable --- 6,139 -------------------------- ------------------------- Other payables and accruals 81,253 69,892 -------------------------- ------------------------- Total Current Liabilities 675,906 687,879 -------------------------- ------------------------- POSTRETIREMENT BENEFITS LIABILITY 77,524 77,524 -------------------------- ------------------------- PENSION LIABILITY 60,081 60,081 -------------------------- ------------------------- LONG-TERM DEBT 233,457 233,527 -------------------------- ------------------------- OTHER NON-CURRENT LIABILITIES 2,969 2,941 -------------------------- ------------------------- TOTAL LIABILITIES 1,049,937 1,061,952 -------------------------- -------------------------
2 CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data)
MARCH 31, 2006 DECEMBER 31, 2005 -------------------- --------------------- SHAREHOLDERS' EQUITY CAPITAL STOCK Common: Stated value $20 per share Authorized 15,000,000 shares SHARES ------ March 31, 2006 December 31, 2005 ------------------ ----------------------- Authorized 15,000,000 15,000,000 ------------------ ----------------------- Issued to voting trustees 5,694,730 5,505,983 ------------------ ----------------------- Issued to shareholders 279,762 309,412 ------------------ ----------------------- In treasury, at cost (81,966) (22,992) ------------------ ----------------------- Outstanding 5,892,526 5,792,403 117,851 115,848 ------------------ ----------------------- -------------------- --------------------- Advance payments on subscriptions to common stock 515 --- -------------------- --------------------- RETAINED EARNINGS 317,554 308,935 -------------------- --------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (42,760) (43,348) -------------------- --------------------- TOTAL SHAREHOLDERS' EQUITY 393,160 381,435 -------------------- --------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,443,097 $ 1,443,387 ==================== ===================== See accompanying Notes to Condensed Consolidated Financial Statements.
3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data)
QUARTER ENDED MARCH 31, 2006 MARCH 31, 2005 -------------------------- -------------------------- SALES, NET OF RETURNS AND ALLOWANCES $ 1,125,273 $ 967,336 -------------------------- -------------------------- Less - Cash discounts (4,062) (3,397) -------------------------- -------------------------- Net Sales 1,121,211 963,939 -------------------------- -------------------------- COST OF MERCHANDISE SOLD 898,447 772,950 -------------------------- -------------------------- Gross Margin 222,764 190,989 -------------------------- -------------------------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 197,782 170,607 -------------------------- -------------------------- DEPRECIATION AND AMORTIZATION 7,972 8,627 -------------------------- -------------------------- Income from Operations 17,010 11,755 -------------------------- -------------------------- OTHER INCOME, NET 6,801 1,340 -------------------------- -------------------------- INTEREST EXPENSE 6,174 6,815 -------------------------- -------------------------- Income Before Provision for Income Taxes 17,637 6,280 -------------------------- -------------------------- PROVISION FOR INCOME TAXES Current 8,027 905 -------------------------- -------------------------- Deferred (778) 1,714 -------------------------- -------------------------- Total Provision for Income Taxes 7,249 2,619 -------------------------- -------------------------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 10,388 $ 3,661 -------------------------- -------------------------- Cumulative effect of change in accounting principle, net of $3,587 tax effect $ --- $ (5,634) -------------------------- -------------------------- NET INCOME (LOSS) $ 10,388 $ (1,973) ========================== ========================== INCOME PER SHARE OF COMMON STOCK BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NOTE 3) $ 1.77 $ .63 -------------------------- -------------------------- NET INCOME (LOSS) PER SHARE OF COMMON STOCK (NOTE 3) $ 1.77 $ (.34) ========================== ========================== DIVIDENDS Common - $.30 per share 1,769 1,676 -------------------------- -------------------------- $ 1,769 $ 1,676 ========================== ========================== See accompanying Notes to Condensed Consolidated Financial Statements.
4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data)
THREE MONTHS ENDED MARCH 31, 2006 2005 -------------------------- -------------------------- CASH FLOWS FROM OPERATIONS Income before cumulative effect of change in accounting principle $ 10,388 $ 3,661 -------------------------- -------------------------- Adjustments to reconcile income before cumulative effect of change in accounting principle to cash provided by operations: Depreciation and amortization 7,972 8,627 -------------------------- -------------------------- Deferred income taxes (778) 1,714 -------------------------- -------------------------- Gain on sale of property (7,212) --- -------------------------- -------------------------- Loss on impairment of property 1,336 --- -------------------------- -------------------------- Changes in assets and liabilities: Trade receivables (1,891) 31,623 -------------------------- -------------------------- Merchandise inventory 808 (11,096) -------------------------- -------------------------- Other current assets 2,970 1,585 -------------------------- -------------------------- Other assets 240 1,334 -------------------------- -------------------------- Trade accounts payable 514 81,111 -------------------------- -------------------------- Accrued payroll and benefit costs (31,157) (22,132) -------------------------- -------------------------- Other accrued liabilities 22,274 (3,093) -------------------------- -------------------------- Total adjustments to income (4,924) 89,673 -------------------------- -------------------------- Net cash provided by operations 5,464 93,334 -------------------------- -------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property 8,277 237 -------------------------- -------------------------- Capital expenditures for property (7,945) (5,910) -------------------------- -------------------------- Net cash provided (used) by investing activities 332 (5,673) -------------------------- -------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings 4,685 (41,774) -------------------------- -------------------------- Repayment of long-term debt (72) (183) -------------------------- -------------------------- Principal payments under capital leases --- (1,272) -------------------------- -------------------------- Sale of common stock 3,697 2,651 -------------------------- -------------------------- Purchase of treasury stock (1,179) (1,872) -------------------------- -------------------------- Dividends paid (7,908) (7,792) -------------------------- -------------------------- Net cash used by financing activities (777) (50,242) -------------------------- -------------------------- NET INCREASE IN CASH 5,019 37,419 -------------------------- -------------------------- CASH, BEGINNING OF YEAR 9,074 9,961 -------------------------- -------------------------- CASH, END OF FIRST QUARTER $ 14,093 $ 47,380 ========================== ========================== See accompanying Notes to Condensed Consolidated Financial Statements.
5 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -------------------------------------------------------------------- FOR THE QUARTERS ENDED ---------------------- MARCH 31, 2006 AND 2005 ----------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data)
COMMON ACCUMULATED STOCK OTHER COMMON SUBSCRIBED, RETAINED COMPREHENSIVE STOCK UNISSUED EARNINGS INCOME (LOSS) TOTAL -------------- ----------------- --------------- --------------------- --------------- December 31, 2004 $110,967 $ 0 $ 308,780 $ (27,383) $ 392,364 --------------- Net income (loss) (1,973) (1,973) Currency translation adjustments (186) (186) Unrealized gain/(loss) from interest rate swap (net of tax of $398) 665 665 --------------- Comprehensive income (1,494) --------------- Stock issued 2,478 2,478 Stock redeemed (1,872) (1,872) Advance payments 173 173 Dividends declared (1,676) (1,676) -------------- ----------------- ------------------------------------- --------------- March 31, 2005 $111,573 $ 173 $ 305,131 $ (26,904) $ 389,973 ============== ================= ===================================== =============== COMMON ACCUMULATED STOCK OTHER COMMON SUBSCRIBED, RETAINED COMPREHENSIVE STOCK UNISSUED EARNINGS INCOME (LOSS) TOTAL -------------- ----------------- --------------- --------------------- --------------- December 31, 2005 $ 115,848 $ 0 $ 308,935 $ (43,348) $ 381,435 --------------- Net income 10,388 10,388 Currency translation adjustments 14 14 Unrealized gain/(loss) from interest rate swap (net of tax of $365) 574 574 --------------- Comprehensive income 10,976 --------------- Stock issued 3,182 3,182 Stock redeemed (1,179) (1,179) Advance payments 515 515 Dividends declared (1,769) (1,769) -------------- ----------------- ------------------------------------- --------------- March 31, 2006 $ 117,851 $ 515 $ 317,554 $ (42,760) $ 393,160 ============== ================= ===================================== =============== See accompanying Notes to Condensed Consolidated Financial Statements.
6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION ---------------------------- (Dollars Stated in Thousands) (Except for Share and Per Share Data) 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 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 annual independent audit. Results for interim periods are not necessarily indicative of results to be expected for the full year. Note 2 ------ At March 31, 2006 the Company had a $200 million accounts receivable securitization program that expires in October 2006. The 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 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 accounts receivable through a call option that gives GCC the unilateral right to repurchase the undivided interests. Accordingly, the accounts receivable and related debt are included in the accompanying consolidated balance sheets. GCC has granted a security interest in its trade receivables to the commercial paper conduit. Borrowings outstanding under the securitization program were $20,000 at both March 31, 2006 and December 31, 2005. Note 3 ------ The Company has two lease arrangements with an independent lessor which provided $58,777 of financing for eight of the Company's distribution facilities as of March 31, 2006. Each of the agreements carries a five-year term. 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 financing structures used in these two lease arrangements qualify as silos of a variable interest entity under FASB Interpretation No. 46 (FIN 46). On January 1, 2005, the Company adopted the provisions of FIN 46 and in accordance therewith, as the primary beneficiary, consolidated these silos in its financial statements as if the interpretations of FIN 46 had been in place from the inception of these leases. The impact of consolidation increased the Company's property by $64,257, the net book value of the distribution facilities then financed under the two 7 leases. Additionally, the Company increased long-term debt by $70,906, and recorded a minority interest in the silos of $2,572 at the date of adoption. The Company also recorded a cumulative effect of change in accounting principle of $(5,634), net of income tax effect of $3,587 during the first quarter of 2005 to affect the consolidation. The Company has treated the adoption of FIN 46 as a non-cash item in its consolidated statements of cash flows.
THREE MONTHS 2006 THREE MONTHS 2005 ------------------------ ------------------------ Earnings for Three Months Before Cumulative Effect of Change in Accounting Principle $ 10,388 $ 3,661 ------------------------ ------------------------ Cumulative Effect of Change in Accounting Principle $ --- $ (5,634) ------------------------ ------------------------ Earnings (Loss) for Three Months $ 10,388 $ (1,973) ------------------------ ------------------------ Available for Common Stock $ 10,388 $ (1,973) ------------------------ ------------------------ Average Common Shares Outstanding 5,866,306 5,853,490* ------------------------ ------------------------ Earnings Per Share Before Cumulative Effect of Change in Accounting Principle $ 1.77 $ .63* ------------------------ ------------------------ Earnings (Loss) Per Share $ 1.77 $ (.34)* ------------------------ ------------------------ *Adjusted for the declaration of a 5% stock dividend in 2005. Prior to adjusting for the stock dividend, the average common shares outstanding were 5,574,752.
As a result of the disposition and substitution of properties subject to the lease arrangements in 2005, the consolidated silos included in the Company's financial statements have a net property balance of $43,422, long-term debt of $56,720, and a minority interest of $2,057 at March 31, 2006. Under the terms of the lease arrangements, the Company's maximum exposure to loss at March 31, 2006, in respect of the properties subject to the two lease agreements, is $49,961, the amount guaranteed by the Company as the residual fair value of the property. Note 4 ------ During the first quarter of 2006, the Company entered into an agreement to sell certain real property at a sale price of $1,950. The book value of the property on the date the sale agreement was executed was approximately $3,100. It is expected that the sale transaction will close during the second quarter of 2006 and the Company estimates that it will incur additional costs of approximately $185 to sell the property. The Company has determined that the sale of this real property meets the criteria for recognition of an impairment loss on an asset classified as held for sale as outlined in FASB Statement of Financial Accounting Standards No. 144 (SFAS 144) "Accounting for the Impairment or Disposal of Long-Lived Assets", and, in accordance therewith, has recorded an impairment loss of $(1,336) to account for the expected loss on the sale. The impairment loss is included in other income, net in the Consolidated Statements of Income for the quarter ended March 31, 2006. Gains on the sale of real property totaling $7,212 are also included in other income, net in the quarter ending March 31, 2006. 8 Note 5 ------ During the three months ended March 31, 2006, the Company made contributions totaling $7,500 to its defined benefit pension plan. Additional contributions totaling $22,500 are expected to be paid during the remainder of 2006. 9 Item 2. MANAGEMENT'S DISCUSSION & 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, 2005, 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 a number 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, 2005. OVERVIEW -------- Graybar Electric Company, Inc. (the "Company") is engaged internationally 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 and commercial users. The Company experienced significant growth in both sales and gross margin in the first quarter of 2006, compared to the first quarter of 2005, which more than offset an increase in total expense. As a result, income from operations rose 44.7% in the first quarter of 2006, compared to the first quarter of 2005. The combination of higher income from operations and an increase in other income, net resulted in an increase in income before cumulative effect of accounting change of 183.7% in the first quarter of 2006, when compared to the first quarter of 2005. With the combined effects of favorable economic conditions and the enhanced capabilities resulting from the upgrade of its computer systems to an Enterprise Resource Planning (ERP) system, the Company believes it is positioned to grow profitably and expand its business opportunities. Moderate, profitable sales growth is expected in 2006. 10 RESULTS OF OPERATIONS --------------------- The following table sets forth certain information relating to the operations of the Company expressed as a percentage of net sales:
Quarter Ended March 31: 2006 2005 ---- ---- Net Sales 100.0% 100.0% Cost of Merchandise Sold (80.1) (80.2) ----------- ------------- Gross Margin 19.9 19.8 Selling, General and Administrative Expenses (17.7) (17.7) Depreciation and Amortization (0.7) (0.9) ----------- ------------- Income from Operations 1.5 1.2 Other Income, net 0.6 0.1 Interest Expense (0.5) (0.7) ----------- ------------- Income Before Provision for Income Taxes 1.6 0.6 Provision for Income Taxes (0.7) (0.2) ----------- ------------- Income Before Cumulative Effect of Change in Accounting Principle 0.9 0.4 Cumulative Effect of Change in Accounting Principle --- (0.6) ----------- ------------- Net Income 0.9 (0.2)% =========== =============
Net sales totaled $1,121,211 in the first quarter of 2006, an increase of $157,272, or 16.3%, when compared to the first quarter of 2005. Significant increases in net sales were recorded in both of the primary market sectors in which the Company operates. Net sales to the electrical market increased 16.9%, while net sales to the comm/data market rose 13.7%. The Company continued to benefit from positive general economic conditions in North America during the first quarter of 2006. Electrical market net sales were particularly strong in the construction sector. Higher net sales to the comm/data market resulted from the Company's improved competitive performance in this market, coupled with modest growth in the overall comm/data market. Gross margin increased $31,775, or 16.6%, due to the higher net sales volume recorded in the first quarter of 2006 compared to the same period of 2005. The Company's gross margin rate on net sales rose slightly to 19.9% during the first quarter of 2006, up from 19.8% during the same period of 2005. Selling, general and administrative expenses increased $27,175, or 15.9% in the first quarter of 2006, compared to the first quarter of 2005, mainly due to increased employee compensation and benefit expenses totaling approximately $23,400. Legal and professional expenses rose $2,035, or 129.9%, in the first quarter of 2006, compared to the first quarter of 2005, due to an increase in exposure on pending litigation. Depreciation and amortization expenses decreased $655, mainly due to lower amortization on capital leases, when comparing the first quarter of 2006 to the first quarter of 2005. Income from operations totaled $17,010 in the first quarter of 2006, an increase of $5,255, or 44.7% over the same period of 2005. Other income, net in the first quarter of 2006 totaled $6,801, compared to $1,340 in the first quarter of 2005. Gains on the sale of real property of $7,212 and the recording of a property impairment loss of $(1,336) accounted for the largest part of other income, net in the first quarter of 2006. Accounts receivable interest charges to customers and other interest income, accounted for the remaining $925 of other income, net. 11 Interest expense declined $641, or 9.4%, in the first quarter of 2006 to $6,174, down from $6,815 in the first quarter of 2005. This reduction was mainly due to lower interest expense on decreased principal balances of long-term, fixed-rate debt. The combination of increased gross margin, other income, net, and selling, general and administrative expenses, coupled with lower depreciation and amortization and interest expenses, resulted in pre-tax earnings of $17,637 in the first quarter of 2006, an increase of $11,357, or 180.8%, compared to the first quarter of 2005. As a result of higher pre-tax earnings, the Company's total provision for income taxes rose $4,630. The Company's effective tax rate decreased to 41.1% in the first quarter of 2006, down slightly from 41.7% in the first quarter of 2005. Income before cumulative effect of accounting change in the first quarter of 2006 increased $6,727, or 183.7%, when compared to the same period of 2005. Results for the first quarter of 2005 reflect the Company's adoption on January 1, 2005 of FASB Interpretation No. 46 (FIN 46), which applies to the financing structures used in two lease arrangements between the Company and an independent lessor. The financing structures used in these two lease arrangements qualify as variable interest entities under FIN 46, and the Company's interests in the variable interest entities were required to be consolidated in the Company's financial statements beginning with first quarter of 2005. The Company recorded a cumulative effect of change in accounting principle of $(5,634), net of income tax effect of $3,587, in its consolidated financial statements during the first quarter of 2005 as a consequence of the adoption of FIN 46, which resulted in a net loss of $(1,973) for that period. Net Income in the first quarter of 2006 totaled $10,388, a $12,361 increase over the same period of 2005. FINANCIAL CONDITION AND LIQUIDITY --------------------------------- At March 31, 2006, current assets exceeded current liabilities by $413,994, up $15,105 from December 31, 2005. Accounts receivable increased $1,891 due to the combined effect of higher average daily sales for the quarter ending March 31, 2006, compared to the period ending December 31, 2005, and a modest improvement in collections, as measured by average days of sales outstanding. Merchandise inventory declined $808, reflecting a moderate improvement in average inventory turnover when comparing March 31, 2006 to December 31, 2005. The Company had available to it unused lines of credit totaling $287,109 at March 31, 2006. These lines are available to meet the short-term cash requirements of the Company. Short-term borrowings outstanding during 2006 through March 31 ranged from a minimum of $47,941 to a maximum of $140,115. The Company has funded its capital requirements from operations, stock issuances to its employees and long-term debt. Cash provided by operations in the first quarter of 2006 totaled $5,464, compared to $93,334 for the same period of 2005. 12 Capital expenditures for property were $7,945 and $5,910, and proceeds from the sale of property were $8,277 and $237, in the quarters ended March 31, 2006 and 2005, respectively. Cash provided by the sale of common stock and proceeds received on common stock subscriptions totaled $3,697 in the first quarter of 2006, compared to $2,651 in the first quarter of 2005. Purchases of treasury stock in the quarters ending March 31, 2006 and 2005 were $1,179 and $1,872 respectively. Dividends paid in the quarters ended March 31, 2006 and 2005 were $7,908 and $7,792, respectively. 13 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, 2005. Item 4. CONTROLS AND PROCEDURES ----------------------- An evaluation was performed under the supervision and with the participation of the Company's management of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2006. 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. 14 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. (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 during the quarter for which this report is filed. 15 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 11, 2006 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 16