UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172019
or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number: 000-00255
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| |
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, Missouri | 63105 |
(Address of principal executive offices) | (Zip Code) |
|
(314) 573 - 9200 |
(Registrant’s telephone number, including area code) |
|
Securities registered pursuant to Section 12(b) of the Act: |
Title of each class Trading Symbol(s) Name of each exchange on which registered |
None N/A N/A |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
YES x NO ¨ |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). |
YES x NO ¨ |
|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. |
Large accelerated filer ¨ Accelerated filer ¨ |
Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨ |
Emerging growth company ¨ |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
YES ¨ NO x |
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Common Stock Outstanding at October 15, 2017: 17,570,167July 31, 2019: 21,426,148 |
(Number of Shares) |
Graybar Electric Company, Inc. and Subsidiaries
Quarterly Report on Form 10-Q
For the Period Ended SeptemberJune 30, 20172019
(Unaudited)
Table of Contents
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PART I. | FINANCIAL INFORMATION | Page |
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| Item 1. | Financial Statements | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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PART II. | OTHER INFORMATION | |
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| Item 2. | | |
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| Item 6. | | |
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
| | Graybar Electric Company, Inc. and Subsidiaries | | | | | | | | | | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | CONDENSED CONSOLIDATED STATEMENTS OF INCOME | | | | CONDENSED CONSOLIDATED STATEMENTS OF INCOME | | | | |
| (Unaudited) | (Unaudited) |
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Stated in thousands, except per share data) | 2017 |
| | 2016 |
| 2017 |
| | 2016 |
| |
(Stated in millions, except per share data) | | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
Gross Sales | $ | 1,708,638 |
| | $ | 1,697,037 |
| $ | 4,967,349 |
| | $ | 4,806,245 |
| $ | 1,957.1 |
| | $ | 1,840.4 |
| | $ | 3,743.2 |
| | $ | 3,485.4 |
|
Cash discounts | (7,795 | ) | | (7,418 | ) | (23,055 | ) | | (20,625 | ) | (9.1 | ) | | (8.1 | ) | | (17.4 | ) | | (15.4 | ) |
Net Sales | 1,700,843 |
| | 1,689,619 |
| 4,944,294 |
| | 4,785,620 |
| 1,948.0 |
| | 1,832.3 |
| | 3,725.8 |
| | 3,470.0 |
|
Cost of merchandise sold | (1,378,859 | ) | | (1,370,861 | ) | (3,999,588 | ) | | (3,881,616 | ) | (1,580.3 | ) | | (1,481.1 | ) | | (3,019.4 | ) | | (2,807.4 | ) |
Gross Margin | 321,984 |
| | 318,758 |
| 944,706 |
| | 904,004 |
| 367.7 |
| | 351.2 |
| | 706.4 |
| | 662.6 |
|
Selling, general and administrative expenses | (260,752 | ) | | (254,969 | ) | (776,135 | ) | | (750,266 | ) | (284.5 | ) | | (270.8 | ) | | (558.0 | ) | | (534.1 | ) |
Depreciation and amortization | (12,211 | ) | | (12,283 | ) | (36,231 | ) | | (35,158 | ) | (12.6 | ) | | (12.3 | ) | | (25.1 | ) | | (24.4 | ) |
Other income, net | 1,511 |
| | 629 |
| 5,640 |
| | 3,438 |
| 0.5 |
| | 0.6 |
| | 1.8 |
| | 1.4 |
|
Income from Operations | 50,532 |
| | 52,135 |
| 137,980 |
| | 122,018 |
| 71.1 |
| | 68.7 |
| | 125.1 |
| | 105.5 |
|
Interest expense, net | (1,217 | ) | | (1,215 | ) | (3,082 | ) | | (2,635 | ) | |
Non-operating expenses | | (6.3 | ) | | (7.5 | ) | | (12.9 | ) | | (15.0 | ) |
Income before Provision for Income Taxes | 49,315 |
| | 50,920 |
| 134,898 |
| | 119,383 |
| 64.8 |
| | 61.2 |
| | 112.2 |
| | 90.5 |
|
Provision for income taxes | (19,761 | ) | | (20,724 | ) | (54,220 | ) | | (48,396 | ) | (17.8 | ) | | (16.6 | ) | | (30.8 | ) | | (24.7 | ) |
Net Income | 29,554 |
| | 30,196 |
| 80,678 |
| | 70,987 |
| 47.0 |
| | 44.6 |
| | 81.4 |
| | 65.8 |
|
Less: Net income attributable to noncontrolling interests | (120 | ) | | (67 | ) | (229 | ) | | (178 | ) | — |
| | (0.1 | ) | | (0.1 | ) | | (0.2 | ) |
Net Income attributable to Graybar Electric Company, Inc. | $ | 29,434 |
| | $ | 30,129 |
| $ | 80,449 |
| | $ | 70,809 |
| $ | 47.0 |
| | $ | 44.5 |
| | $ | 81.3 |
| | $ | 65.6 |
|
Net Income per share of Common Stock(A) | $ | 1.68 |
| | $ | 1.73 |
| $ | 4.57 |
| | $ | 4.07 |
| $ | 2.18 |
| | $ | 2.07 |
| | $ | 3.77 |
| | $ | 3.05 |
|
Cash Dividends per share of Common Stock | $ | 0.30 |
| | $ | 0.30 |
| $ | 0.90 |
| | $ | 0.90 |
| $ | 0.30 |
| | $ | 0.30 |
| | $ | 0.60 |
| | $ | 0.60 |
|
Average Common Shares Outstanding(A) | 17,611 |
| | 17,402 |
| 17,618 |
| | 17,386 |
| 21.5 |
| | 21.5 |
| | 21.6 |
| | 21.5 |
|
(A)Adjusted for the declaration of a 5%10% stock dividend in 2016,2018, shares related to which were issued in February 2017.2019. Prior to the adjustment, the average common shares outstanding were 16,573 and 16,55819.5 million for the three and ninesix months ended SeptemberJune 30, 2016, respectively.2018.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
| | Graybar Electric Company, Inc. and Subsidiaries | | | | | | | | | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | | | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | | | |
| (Unaudited) | (Unaudited) |
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Stated in thousands) | 2017 |
| | 2016 |
| 2017 |
| | 2016 |
| |
(Stated in millions) | | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
Net Income | $ | 29,554 |
| | $ | 30,196 |
| $ | 80,678 |
| | $ | 70,987 |
| $ | 47.0 |
| | $ | 44.6 |
| | $ | 81.4 |
| | $ | 65.8 |
|
Other Comprehensive Income | | | | | | | | | | | | |
Foreign currency translation | 3,616 |
| | (1,148 | ) | 6,550 |
| | 4,012 |
| 2.1 |
| | (1.7 | ) | | 4.2 |
| | (4.3 | ) |
Pension and postretirement benefits liability adjustment (net of tax of $(1,997), $(1,762), $(5,990), and $(5,286), respectively) | 3,136 |
| | 2,767 |
| 9,408 |
| | 8,301 |
| |
Pension and postretirement benefits liability adjustment (net of tax of $(1.2), $(1.6), $(2.5), and $(3.3), respectively) | | 3.5 |
| | 4.7 |
| | 7.2 |
| | 9.5 |
|
Total Other Comprehensive Income | 6,752 |
| | 1,619 |
| 15,958 |
| | 12,313 |
| 5.6 |
| | 3.0 |
| | 11.4 |
| | 5.2 |
|
Comprehensive Income | $ | 36,306 |
| | $ | 31,815 |
| $ | 96,636 |
| | $ | 83,300 |
| $ | 52.6 |
| | $ | 47.6 |
| | $ | 92.8 |
| | $ | 71.0 |
|
Less: Comprehensive income attributable to noncontrolling interests, net of tax | 209 |
| | 25 |
| 457 |
| | 387 |
| |
Less: comprehensive income attributable to noncontrolling interests, net of tax | | 0.1 |
| | — |
| | 0.3 |
| | — |
|
Comprehensive Income attributable to Graybar Electric Company, Inc. | $ | 36,097 |
| | $ | 31,790 |
| $ | 96,179 |
| | $ | 82,913 |
| $ | 52.5 |
| | $ | 47.6 |
| | $ | 92.5 |
| | $ | 71.0 |
|
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
| | Graybar Electric Company, Inc. and Subsidiaries | Graybar Electric Company, Inc. and Subsidiaries | | |
| | | Graybar Electric Company, Inc. and Subsidiaries | | |
| | |
CONDENSED CONSOLIDATED BALANCE SHEETS | CONDENSED CONSOLIDATED BALANCE SHEETS | | | | | CONDENSED CONSOLIDATED BALANCE SHEETS | | | | |
(Stated in thousands, except share and per share data) | | September 30, 2017 |
| | December 31, 2016 |
| |
(Stated in millions, except share and per share data) | | (Stated in millions, except share and per share data) | | June 30, 2019 |
| | December 31, 2018 |
|
ASSETS | | | | | (Unaudited) |
| | |
| | | | | (Unaudited) |
| | |
|
Current Assets | | | | | | | |
| | | | | | | |
|
Cash and cash equivalents | | | | | $ | 51,806 |
| | $ | 43,339 |
| | | | | $ | 55.2 |
| | $ | 58.9 |
|
Trade receivables (less allowances of $5,695 and $5,025, respectively) | | 1,050,613 |
| | 964,180 |
| |
Trade receivables (less allowances of $7.3 and $5.9, respectively) | | Trade receivables (less allowances of $7.3 and $5.9, respectively) | | 1,183.1 |
| | 1,187.0 |
|
Merchandise inventory | | | | | 610,873 |
| | 516,732 |
| | | | | 689.5 |
| | 658.7 |
|
Other current assets | | | | | 22,659 |
| | 24,148 |
| | | | | 52.8 |
| | 54.1 |
|
Total Current Assets | | | | | 1,735,951 |
| | 1,548,399 |
| | | | | 1,980.6 |
| | 1,958.7 |
|
Property, at cost | | | | | | | | | | | | | | |
Land | | | | | 78,681 |
| | 78,440 |
| | | | | 79.6 |
| | 79.4 |
|
Buildings | | | | | 464,829 |
| | 454,587 |
| | | | | 491.5 |
| | 489.2 |
|
Furniture and fixtures | | | | | 295,498 |
| | 286,615 |
| | | | | 238.0 |
| | 233.0 |
|
Software | | | | | 87,313 |
| | 87,313 |
| | | | | 168.3 |
| | 166.4 |
|
Capital leases | | | | | 35,423 |
| | 33,652 |
| |
Finance leases | | | | | | 21.6 |
| | 21.3 |
|
Total Property, at cost | | | | | 961,744 |
| | 940,607 |
| | | | | 999.0 |
| | 989.3 |
|
Less – accumulated depreciation and amortization | Less – accumulated depreciation and amortization | | | | (539,639 | ) | | (512,535 | ) | Less – accumulated depreciation and amortization | | | | (583.4 | ) | | (565.4 | ) |
Net Property | | | | | 422,105 |
| | 428,072 |
| | | | | 415.6 |
| | 423.9 |
|
Operating Lease Right-of-use Assets | | | | | | 106.8 |
| | — |
|
Other Non-current Assets | | | | | 124,132 |
| | 122,761 |
| | | | | 106.6 |
| | 108.6 |
|
Total Assets | | | | | $ | 2,282,188 |
| | $ | 2,099,232 |
| | | | | $ | 2,609.6 |
| | $ | 2,491.2 |
|
LIABILITIES | | | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | | | |
Short-term borrowings | | | | | $ | 216,604 |
| | $ | 140,465 |
| | | | | $ | 186.5 |
| | $ | 235.0 |
|
Current portion of long-term debt | | | | | 2,157 |
| | 4,155 |
| | | | | 3.9 |
| | 3.4 |
|
Trade accounts payable | | | | | 835,939 |
| | 752,171 |
| | | | | 953.1 |
| | 895.2 |
|
Accrued payroll and benefit costs | | | | | 85,402 |
| | 121,421 |
| | | | | 80.4 |
| | 158.2 |
|
Other accrued taxes | | | | | 20,022 |
| | 16,926 |
| | | | | 21.7 |
| | 23.9 |
|
Current operating lease liabilities | | | | | | 26.9 |
| | — |
|
Other current liabilities | | | | | 86,155 |
| | 73,028 |
| | | | | 93.7 |
| | 101.0 |
|
Total Current Liabilities | | | | | 1,246,279 |
| | 1,108,166 |
| | | | | 1,366.2 |
| | 1,416.7 |
|
Postretirement Benefits Liability | | | | | 70,769 |
| | 70,628 |
| | | | | 67.0 |
| | 66.7 |
|
Pension Liability | | | | | 117,064 |
| | 160,950 |
| | | | | 127.7 |
| | 118.6 |
|
Long-term Debt | | | | | 7,063 |
| | 7,271 |
| | | | | 8.5 |
| | 10.0 |
|
Non-current Operating Lease Liabilities | | | | | | 84.5 |
| | — |
|
Other Non-current Liabilities | | | | | 25,029 |
| | 21,328 |
| | | | | 3.5 |
| | 8.7 |
|
Total Liabilities | | | | | 1,466,204 |
| | 1,368,343 |
| | | | | 1,657.4 |
| | 1,620.7 |
|
SHAREHOLDERS’ EQUITY | | | | | |
| | |
| | | | | |
| | |
|
| Shares at | | | | | Shares at | | | | |
Capital Stock | September 30, 2017 |
| | December 31, 2016 |
| | | | | June 30, 2019 |
| | December 31, 2018 |
| | | | |
Common, stated value $20.00 per share | | | | | | | | | | | | | | |
Authorized | 50,000,000 |
| | 50,000,000 |
| | |
| | | 50,000,000 |
| | 50,000,000 |
| | |
| | |
Issued to voting trustees | 14,717,825 |
| | 14,606,830 |
| | |
| | | 18,271,662 |
| | 17,754,923 |
| | |
| | |
Issued to shareholders | 3,469,173 |
| | 2,850,551 |
| | |
| | | 3,852,157 |
| | 3,744,318 |
| | |
| | |
In treasury, at cost | (590,066 | ) | | (18,854 | ) | | |
| | | (599,715 | ) | | (58,172 | ) | | |
| | |
Outstanding Common Stock | 17,596,932 |
| | 17,438,527 |
| | 351,939 |
| | 348,771 |
| 21,524,104 |
| | 21,441,069 |
| | 430.5 |
| | 428.8 |
|
Advance Payments on Subscriptions to Common Stock | Advance Payments on Subscriptions to Common Stock | | | | 966 |
| | — |
| Advance Payments on Subscriptions to Common Stock | | | | 0.5 |
| | — |
|
Retained Earnings | | | | | 639,919 |
| | 575,380 |
| | | | | 746.4 |
| | 678.1 |
|
Accumulated Other Comprehensive Loss | | | | | (180,870 | ) | | (196,600 | ) | | | | | (229.1 | ) | | (240.3 | ) |
Total Graybar Electric Company, Inc. Shareholders’ Equity | Total Graybar Electric Company, Inc. Shareholders’ Equity | | 811,954 |
| | 727,551 |
| Total Graybar Electric Company, Inc. Shareholders’ Equity | | 948.3 |
| | 866.6 |
|
Noncontrolling Interests | | | | | 4,030 |
| | 3,338 |
| | | | | 3.9 |
| | 3.9 |
|
Total Shareholders’ Equity | | | | | 815,984 |
| | 730,889 |
| | | | | 952.2 |
| | 870.5 |
|
Total Liabilities and Shareholders’ Equity | Total Liabilities and Shareholders’ Equity | | | | $ | 2,282,188 |
| | $ | 2,099,232 |
| Total Liabilities and Shareholders’ Equity | | | | $ | 2,609.6 |
| | $ | 2,491.2 |
|
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
| | Graybar Electric Company, Inc. and Subsidiaries | |
| | |
| |
| | |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | |
| (Unaudited) | (Unaudited) |
| Nine Months Ended September 30, | Six Months Ended June 30, |
(Stated in thousands) | 2017 |
| | 2016 |
| |
Cash Flows from Operations | |
| | |
| |
(Stated in millions) | | 2019 |
| | 2018 |
|
Cash Flows from Operating Activities | | |
| | |
|
Net Income | $ | 80,678 |
| | $ | 70,987 |
| $ | 81.4 |
| | $ | 65.8 |
|
Adjustments to reconcile net income to cash provided by operations: | |
| | |
| |
Adjustments to reconcile net income to cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | 36,231 |
| | 35,158 |
| 25.1 |
| | 24.4 |
|
Non-cash operating lease expense | | 14.5 |
| | — |
|
Deferred income taxes | (6,659 | ) | | 2,585 |
| (3.6 | ) | | (1.8 | ) |
Net gains on disposal of property | (270 | ) | | (1,786 | ) | — |
| | (0.1 | ) |
Net income attributable to noncontrolling interests | (229 | ) | | (178 | ) | (0.1 | ) | | (0.2 | ) |
Changes in assets and liabilities: | | | | | | |
Trade receivables | (86,433 | ) | | (73,623 | ) | 4.2 |
| | (87.9 | ) |
Merchandise inventory | (94,141 | ) | | (83,059 | ) | (30.8 | ) | | (43.4 | ) |
Other current assets | 1,489 |
| | 5,632 |
| 1.3 |
| | 8.0 |
|
Other non-current assets | (2,503 | ) | | 24,369 |
| (0.3 | ) | | (9.0 | ) |
Trade accounts payable | 83,768 |
| | 16,571 |
| 57.9 |
| | 58.3 |
|
Accrued payroll and benefit costs | (36,019 | ) | | (21,835 | ) | (77.8 | ) | | (43.5 | ) |
Other current liabilities | 20,875 |
| | 17,673 |
| (5.3 | ) | | (12.1 | ) |
Other non-current liabilities | (24,646 | ) | | (51,832 | ) | 3.2 |
| | 16.0 |
|
Total adjustments to net income | (108,537 | ) | | (130,325 | ) | (11.7 | ) | | (91.3 | ) |
Net cash used by operations | (27,859 | ) | | (59,338 | ) | |
Net cash provided (used) by operating activities | | 69.7 |
| | (25.5 | ) |
Cash Flows from Investing Activities | |
| | | |
| | |
Proceeds from disposal of property | 2,015 |
| | 3,301 |
| 0.2 |
| | 0.3 |
|
Capital expenditures for property | (26,674 | ) | | (24,820 | ) | (11.4 | ) | | (19.3 | ) |
Acquisition of business, net of cash acquired | — |
| | (59,946 | ) | |
Net cash used by investing activities | (24,659 | ) | | (81,465 | ) | (11.2 | ) | | (19.0 | ) |
Cash Flows from Financing Activities | |
| | | |
| | |
Net increase in short-term borrowings | 76,139 |
| | 168,871 |
| |
Repayment of long-term debt | — |
| | (1,853 | ) | |
Principal payments under capital leases | (3,613 | ) | | (4,116 | ) | |
Net (decrease) increase in short-term borrowings | | (48.5 | ) | | 60.4 |
|
Principal payments under finance leases | | (2.6 | ) | | (3.0 | ) |
Sale of common stock | 15,558 |
| | 15,192 |
| 13.0 |
| | 12.5 |
|
Purchases of common stock | (11,424 | ) | | (8,793 | ) | (10.8 | ) | | (9.2 | ) |
Sales of noncontrolling interests’ common stock | 627 |
| | — |
| |
Purchases of noncontrolling interests’ common stock | (392 | ) | | (356 | ) | (0.3 | ) | | (0.2 | ) |
Dividends paid | (15,910 | ) | | (14,962 | ) | (13.0 | ) | | (11.7 | ) |
Net cash provided by financing activities | 60,985 |
| | 153,983 |
| |
Net Increase in Cash | 8,467 |
| | 13,180 |
| |
Net cash (used) provided by financing activities | | (62.2 | ) | | 48.8 |
|
Net (Decrease) Increase in Cash | | (3.7 | ) | | 4.3 |
|
Cash, Beginning of Year | 43,339 |
| | 37,931 |
| 58.9 |
| | 42.8 |
|
Cash, End of Period | $ | 51,806 |
| | $ | 51,111 |
| $ | 55.2 |
| | $ | 47.1 |
|
| | | | | | |
Non-cash Investing and Financing Activities | |
| | |
| |
| | |
|
Acquisitions of equipment under capital leases | $ | 1,407 |
| | $ | 314 |
| |
Acquisitions of equipment under finance leases | | $ | 1.5 |
| | $ | 1.1 |
|
Acquisitions of assets under operating leases | | $ | 29.2 |
| | $ | — |
|
Acquisition of software and maintenance under financing arrangement | | $ | — |
| | $ | 5.0 |
|
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
| | Graybar Electric Company, Inc. and Subsidiaries | Graybar Electric Company, Inc. and Subsidiaries | | | | | | | Graybar Electric Company, Inc. and Subsidiaries | | | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY | | | | | | | | | | | |
| (Unaudited, stated in thousands) | | | | | (Unaudited, stated in millions) | | | | |
| | | | | | | | | | |
| Graybar Electric Company, Inc. Shareholders’ Equity | | | | | Graybar Electric Company, Inc. Shareholders’ Equity | | | | |
| Common Stock | | Common Stock Subscribed, Unissued | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Shareholders’ Equity | Common Stock | | Common Stock Subscribed, Unissued | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Shareholders’ Equity |
December 31, 2015 | $ | 326,482 |
| | $ | — |
| | $ | 548,780 |
| | $ | (190,435 | ) | | $ | 3,319 |
| | $ | 688,146 |
| |
December 31, 2017 | | $ | 387.7 |
| | $ | — |
| | $ | 619.9 |
| | $ | (250.1 | ) | | $ | 4.1 |
| | $ | 761.6 |
|
Net income | | | | | | 65.6 |
| | | | 0.2 |
| | 65.8 |
|
Other comprehensive income (loss) | | | | | | | | 5.4 |
| | (0.2 | ) | | 5.2 |
|
Adoption of ASC 606, net of tax | | | | | | 0.8 |
| | | | | | 0.8 |
|
Stock issued | | 12.0 |
| | | | | | | |
|
| | 12.0 |
|
Stock purchased | | (9.2 | ) | | | | | | | | (0.2 | ) | | (9.4 | ) |
Advance payments | | | | 0.5 |
| | | | | | | | 0.5 |
|
Dividends declared | | | | | | (11.7 | ) | | | | | | (11.7 | ) |
June 30, 2018 | | $ | 390.5 |
| | $ | 0.5 |
| | $ | 674.6 |
| | $ | (244.7 | ) | | $ | 3.9 |
| | $ | 824.8 |
|
| | | | | | | | | | | | |
| | Graybar Electric Company, Inc. Shareholders’ Equity | | | | |
| | Common Stock | | Common Stock Subscribed, Unissued | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Shareholders’ Equity |
|
December 31, 2018 | | $ | 428.8 |
| | $ | — |
| | $ | 678.1 |
| | $ | (240.3 | ) | | $ | 3.9 |
| | $ | 870.5 |
|
Net income |
| |
| | 70,809 |
| |
|
| | 178 |
| | 70,987 |
| | | | | 81.3 |
| | | | 0.1 |
| | 81.4 |
|
Other comprehensive income |
| |
| |
|
| | 12,104 |
| | 209 |
| | 12,313 |
| | | | | | | 11.2 |
| | 0.2 |
| | 11.4 |
|
Stock issued | 14,238 |
| |
|
| |
|
| |
|
| |
|
| | 14,238 |
| 12.5 |
| | | | | | | |
|
| | 12.5 |
|
Stock purchased | (8,793 | ) | |
|
| |
|
| |
|
| | (356 | ) | | (9,149 | ) | (10.8 | ) | | | | | | | | (0.3 | ) | | (11.1 | ) |
Advance payments |
|
| | 954 |
| |
|
| |
|
| |
|
| | 954 |
| | | 0.5 |
| | | | | | | | 0.5 |
|
Dividends declared |
|
| |
|
| | (14,962 | ) | |
|
| |
|
| | (14,962 | ) | | | | | (13.0 | ) | | | | | | (13.0 | ) |
September 30, 2016 | $ | 331,927 |
| | $ | 954 |
| | $ | 604,627 |
| | $ | (178,331 | ) | | $ | 3,350 |
| | $ | 762,527 |
| |
| | | | | | | | | | | | |
| Graybar Electric Company, Inc. Shareholders’ Equity | | | | | |
| Common Stock | | Common Stock Subscribed, Unissued | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Shareholders’ Equity |
| |
December 31, 2016 | $ | 348,771 |
| | $ | — |
| | $ | 575,380 |
| | $ | (196,600 | ) | | $ | 3,338 |
| | $ | 730,889 |
| |
Net income | | | | | 80,449 |
| | | | 229 |
| | 80,678 |
| |
Other comprehensive income | | | | | | | 15,730 |
| | 228 |
| | 15,958 |
| |
Stock issued | 14,592 |
| | | | | | | | 627 |
| | 15,219 |
| |
Stock purchased | (11,424 | ) | | | | | | | | (392 | ) | | (11,816 | ) | |
Advance payments | | | 966 |
| | | | | | | | 966 |
| |
Dividends declared |
|
| | | | (15,910 | ) | | | | | | (15,910 | ) | |
September 30, 2017 | $ | 351,939 |
| | $ | 966 |
| | $ | 639,919 |
| | $ | (180,870 | ) | | $ | 4,030 |
| | $ | 815,984 |
| |
June 30, 2019 | | $ | 430.5 |
| | $ | 0.5 |
| | $ | 746.4 |
| | $ | (229.1 | ) | | $ | 3.9 |
| | $ | 952.2 |
|
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
Graybar Electric Company, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Stated in thousands,millions, except share and per share data)
(Unaudited)
1. DESCRIPTION OF THE BUSINESS
Graybar Electric Company, Inc. (“Graybar”, “Company”, "we", "our", or "us") is a New York corporation, incorporated in 1925. We are engaged in the distribution of electrical and communications and data networking products and are a provider of related supply chain management and logistics services. We primarily serve customers in the construction, industrial & utility, and commercial, institutional and government ("CIG") vertical markets, with products and services that support new construction, infrastructure updates, building renovation, facility maintenance, repair and operations ("MRO"), and original equipment manufacturers ("OEM"). AllWe purchase all of the products sold by us are purchased by uswe sell from others, and we neither manufacture nor contract to manufacture any products that we sell. Our business activity is primarily with customersbased in the United States (“U.S.”). We also have subsidiary operations with distribution facilities in Canada and Puerto Rico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our accounting policies conform to generally accepted accounting principles in the U.S. ("GAAP”) and are applied on a consistent basis among all years presented. Significant accounting policies are described below.
Basis of Presentation
The unaudited condensed consolidated financial statements included herein have been prepared by Graybar pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “Commission”) applicable to interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that our disclosures are adequate to make the information presented not misleading. The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect reported amounts. Our condensed consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 20162018, included in our latest Annual Report on Form 10-K.
In the opinion of management, this quarterly report includes all adjustments, consisting of normal recurring accruals and adjustments, necessary for the fair presentation of the condensed consolidated financial statements presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Graybar and its subsidiary companies. All material intercompany balances and transactions have been eliminated. The ownership interests that are held by owners other than the Company in subsidiaries consolidated by the Company are accounted for and reported as noncontrolling interests.
Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
Subsequent EventsReclassifications
WeCertain reclassifications have evaluated subsequent events throughbeen made to prior years' financial information to conform to the time of the filing of this Quarterly Report on Form 10-Q with the Commission. No material subsequent events have occurred since September 30, 2017 that require recognition or disclosure in these financial statements.December 31, 2018 presentation.
Revenue Recognition
RevenueSales revenue is recognized when evidenceperformance obligations are satisfied, which is typically upon delivery of a customer arrangement exists, prices are fixedthe product to the customer. Sometimes product is purchased from the manufacturer and determinable,drop-shipped to the customer. We generally take control of the goods when shipped by the manufacturer and then recognize revenue when control of the product title, ownership and risk of loss transfers to the customer, and collectability is reasonably assured.customer. Revenues recognized are primarily for product sales, but may also include freight and handling charges. Our standard warehouse shipping terms are FOB shipping point, under which product titlecontrol passes to the customer at the time of shipment. We also earn revenue for professional services, provided to customers for supply chain managementgeneral contracting services, and logisticsstorage services. Service revenue is recognized when services are rendered and completed.represented less than 1% of gross sales for the three months ended June 30, 2019. Revenue is reported net of all taxes assessed by governmental authorities as a result of revenue-producing transactions, primarily sales tax.
Outgoing Freight Expenses
We record certain outgoing freight expenses as a component of selling, general and administrative expenses.
Cash and Cash Equivalents
We account for cash on hand, deposits in banks, and other short-term, highly liquid investments with an original maturity of three months or less as cash and cash equivalents.
Allowance for Doubtful Accounts
We perform ongoing credit evaluations of our customers, and a significant portion of our trade receivables is secured by mechanic’s lien or payment bond rights. We maintain allowances to reflect the expected uncollectability of trade receivables based on past collection history and specific risks identified in the receivables portfolio. Although actual credit losses have historically been within management’s expectations, additional allowances may be required if the financial condition of our customers were to deteriorate.
Merchandise Inventory
Our inventory is stated at the lower of cost (determined(generally determined using the last-in, first-out (“LIFO”) cost method) or market. LIFO accounting is a method of accounting that, compared with other inventory accounting methods, generally provides better matching of current costs with current sales.
We make provisions for obsolete or excess inventories as necessary to reflect reductions in inventory value.
Vendor Allowances
Our agreements with many of our suppliers provide for us to earn volume incentives based on purchases during the agreement period. Based on the provisions of our vendor agreements, we develop vendor accrual rates by estimating the point at which we will have completed our performance under the agreement and the deferred amounts will be earned. We perform analyses and review historical trends to ensure the deferred amounts earned are appropriately recorded. Certain vendor agreements contain purchase volume incentives that provide for increased funding when graduated purchase volumes are met. Amounts accrued throughout the year are based on estimates of future activity levels, and could be materially impacted if actual purchase volumes differ. Changes in the estimated amount of incentives are treated as changes in estimate and are recognized in earnings in the period in which the change in estimate occurs. In the event that the operating performance of our suppliers were to decline, however, there can be no assurance that amounts earned would be paid or that the volume incentives would continue to be included in future agreements.
Property and Depreciation
Property, plant and equipment are recorded at cost. Depreciation is expensed on a straight-line basis over the estimated useful lives of the related assets. Interest costs incurred to finance expenditures for major long-term construction projects are capitalized as part of the asset's historical cost and included in property, plant and equipment, then depreciated over the useful life of the asset. Leasehold improvements are amortized over the term of the lease or the estimated useful life of the improvement, whichever is shorter. Expenditures for maintenance and repairs are charged to expense when incurred, while the costs of significant improvements, which extend the useful life of the underlying asset, are capitalized.
Credit Risk
Financial instruments that potentially expose us to concentrations of credit risk consist primarily of trade receivables. We perform ongoing credit evaluations of our customers, and a significant portion of our trade receivables may be protectedare secured by mechanic’s lien or payment bond rights. We maintain allowances for potential credit losses, and such losses historically have been within management’s expectations.
Fair Value
We endeavor to utilize the best available information in measuring fair value. GAAP has established a fair value hierarchy, which prioritizes the inputs used in measuring fair value. The tiers in the hierarchy include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own data inputs and assumptions. We have used fair value measurements to value our pension plan assets.
Foreign Currency Exchange Rate
The functional currency for our Canadian subsidiary is the Canadian dollar. Accordingly, its balance sheet amounts are translated at the exchange rates in effect at the end of each reporting period and its statements of income amounts are translated at the average rates of exchange prevailing during the current period. Currency translation adjustments are included in accumulated other comprehensive loss.
Goodwill
Our goodwill is not amortized, but rather tested annually for impairment. Goodwill is reviewed annually in the fourth quarter and/orand when circumstances or other events might indicate that impairment may have occurred. We first perform a qualitative assessment of goodwill impairment. The qualitative assessment considers several factors including the excess fair value over carrying value as of the last quantitative impairment test, the length of time since the last fair value measurement, the current carrying value, market conditions, actual performance compared to forecasted performance, and the current business outlook. If the qualitative assessment indicates that it is more likely than not that goodwill is impaired, the reporting unit is then quantitatively tested for impairment. If a quantitative assessment is required, the fair value is determined using a variety of assumptions including estimated future cash flows of the reporting unit and applicable discount rates.
Definite Lived Intangible Assets
The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Customer relationships, trade names and other non-contractual intangible assets with determinable lives are amortized over periods generally ranging from 53 to 20 years. Intangible assets are tested for impairment if events or circumstances occur indicating that the respective asset might be impaired.
Income Taxes
Our income tax provision is recorded in accordance with a full-year forecasted rate methodology, including discrete items in the periods in which they occur. We recognize deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the financial statements or tax returns. Uncertainty exists regarding tax positions taken in previously filed tax returns still subject to examination and positions expected to be taken in future returns. A deferred tax asset or liability results from the temporary difference between an item’s carrying value as reflected in the financial statements and its tax basis, and is calculated using enacted applicable tax rates. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the condensed consolidated financial statements. We classify interest expense and penalties as part of our provision for income taxes based upon applicable federal and state interest/underpayment percentages. We assess uncertainty regarding tax positions taken in previously filed returns and record reserves in accordance with the guidance under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740-10, "Accounting for Uncertainty in Income Taxes".
Other Postretirement Benefits
We account for postretirement benefits other than pensions by accruing the costs of benefits to be provided over the eligible employees’ periods of active service. These costs are determined on an actuarial basis. Our condensed consolidated balance sheets reflect the funded status of postretirement benefits.
Pension Plan
We sponsor a noncontributory defined benefit pension plan accounted for by accruing the cost to provide the benefits over the eligible employees’ periods of active service. These costs are determined on an actuarial basis. Our condensed consolidated balance sheets reflect the funded status of the defined benefit pension plan.
Non-Operating Expenses
Non-operating expenses are comprised of interest expense, net and non-service cost components of the net periodic benefit cost for the pension and other postretirement benefit plans. The non-service cost components include interest cost, expected return on plan assets, amortization of net actuarial gains/losses, and amortization of prior service costs/gains.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and non-current operating lease liabilities on our condensed consolidated balance sheets. Amounts related to finance leases are included in property and equipment, current portion of long-term debt, and long-term debt on our condensed consolidated balance sheets. ROU assets and lease liabilities are recognized and measured on the date the underlying asset is made available to us.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. We use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
For certain leases, such as real estate and information technology (IT) equipment, we account for the lease and non-lease components as a single lease component. All other leases that contain lease and non-lease components are accounted for separately. We have elected as an accounting policy not to apply the recognition requirements for short-term leases. Therefore, leases with a term of twelve months or less are not recorded on the condensed consolidated balance sheets. Lease expenses associated with short-term leases are immaterial and are recorded in the condensed consolidated statements of income in selling, general and administrative expenses. Additionally, for certain vehicle leases, we apply a portfolio approach to account for the operating lease ROU assets and liabilities.
New Accounting Standards
No new accounting standards that were issued or became effective during 20172019 have had or are expected to have a material impact on our condensed consolidated financial statements, except those noted below:
In March 2017,February 2016, the Financial Accounting Standards Board ("FASB")FASB issued Accounting StandardsStandard Update (“ASU” or “Update”) 2017-07, “Compensation - Retirement Benefits (Topic 715)” ("ASU 2017-07"). The changes to the standard require employers to report the service cost component in the same line as other compensation costs arising from services rendered by employees during the reporting period. The other components of net benefit costs will be presented in the income statement separately from the service cost and outside of a subtotal of income from operations. In addition, only the service cost component may be eligible for capitalization where applicable. ASU 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact ASU 2017-07 will have on our condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” ("ASU 2016-02"). The core principle of Topic 842this new guidance requires that a lessee shouldto recognize the assetsan ROU asset and liabilitieslease liability on the balance sheet for both operating and disclosefinance leases while disclosing key information about the leasing arrangements. The amendments in ASU 2016-02 arewere effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. TheWe adopted the new guidance is required to be adopted at the earliest period presentedon January 1, 2019, using a modified retrospective approach. Therefore, comparative periods are presented in accordance with the previous lease guidance and do not include retrospective adjustments to reflect the adoption of the new lease guidance.
We elected the package of transitional practical expedients which allows an entity not to reassess whether expired or existing contracts contain leases, lease classification of expired or existing leases, and whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. As the guidance allows, this package can be elected separate of
any other practical expedient. As a practical expedient, we have elected as an accounting policy not to separate non-lease components from lease components for real estate properties and information technology agreements.
In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial information. The standard had a material impact on our condensed consolidated balance sheets, but did not have a material impact on our condensed consolidated statements of income. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for capital leases remains unchanged.
Adoption of ASU 2016-02 resulted in the recognition of additional ROU assets and lease liabilities for operating leases of $98.1 million at January 1, 2019.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which introduces new guidance for the accounting for credit losses on certain financial instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We have determined that our trade receivables are financial instruments subject to this Update. We are currently evaluating the accounting policies over our allowance for doubtful accounts and are developing new methods to encompass three components into our allowance to comply with requirements of the ASU: 1) a reserve derived from historical loss rates based upon the aging of our trade receivables, 2) a reserve based upon specifically-identified trade receivables in our portfolio that are considered higher risk based on current conditions, and 3) an additional reserve, as necessary, to consider the impact of future economic outlook, though less critical due to the short-term nature of our trade receivables. We currently believe that the adoption of this Update will not have a material impact on our consolidated financial statements and plan to adopt this Update by January 1, 2020.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13") that makes minor changes to the disclosure requirements on fair value measurements in Topic 820. The guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and adds new disclosure requirements that the FASB considers pertinent. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact of the provisions will haveadoption of the Update on our condensed consolidated financial statements.statements, but do not expect it to have a material impact. We plan to adopt the Update in our fiscal year beginning on January 1, 2020.
In May 2014,August 2018, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, with amendments in 2015 and 20162018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU 2014-09"2018-14"). that makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The guidance was initiallyeliminates requirements for certain disclosures that are no longer considered cost beneficial and adds new disclosure requirements that the FASB considers pertinent. ASU 2018-14 is effective January 1, 2017 and earlyfor fiscal years ending after December 15, 2020 for public entities. Early adoption was notis permitted. The amended guidance provides for a one-year deferral of the effective date to January 1, 2018, with an option of applying the standard on the original effective date.
The new standard and related amendments provide for two alternative implementation methods: a full retrospective approach and a modified retrospective approach. The full retrospective approach applies the new standard retrospectively to each prior reporting period presented. This method allows the use of certain practical expedients. The modified retrospective approach applies the new standard retrospectively in the year of initial adoption and records a cumulative effect adjustment forWe are currently evaluating the impact of adjusting contracts open at the date of adoption. Under this transition method, we would apply this guidance retrospectively only to contracts that are not completed at the date of initial application, which for us will be January 1, 2018. We would then recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. This method also requires us to disclose comparative information for the year of adoption.
Our primary source of revenues is from customer purchase orders in the construction, industrial & utility, and CIG markets for electrical and comm/data products. Revenue is currently recognized when evidence of a customer arrangement exists, prices are fixed and determinable, product title, ownership and risk of loss transfers to the customer, and collectability is reasonably assured. Given the scope of work required to implement the recognition and disclosure requirements under the new standard, we have identified and are currently assessing our revenue streams and reporting disclosures to determine the potential impact related to the adoption of the Update on our consolidated financial statements, but do not expect it to have a material impact. We plan to adopt the Update by our fiscal year beginning on January 1, 2021.
In August 2018, the FASB issued ASU 2014-09. Upon2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15") requiring a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years for public entities. Early adoption is permitted. We currently believe that the adoption of ASU 2014-09, the timing of revenue related tothis Update will not have a material impact on our sales will remain relatively consistent, in all material respects, with current practices. We intendconsolidated financial statements and we plan to adopt ASU 2014-09 under the modified retrospective approach.Update in our fiscal year beginning on January 1, 2020.
3. REVENUE
The following table summarizes the percentages of our net sales attributable to each of our vertical markets for the three and six months ended June 30, 2019 and 2018:
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
Construction | 60.2 | % | | 59.2 | % | | 60.0 | % | | 58.9 | % |
Industrial & Utility | 19.3 |
| | 19.0 |
| | 19.3 |
| | 19.1 |
|
CIG | 20.5 |
| | 21.8 |
| | 20.7 |
| | 22.0 |
|
Total net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
We had no material contract assets, contract liabilities, or deferred contract costs recorded on the condensed consolidated balance sheet as of June 30, 2019 and December 31, 2018. In addition, for the three and six months ended June 30, 2019 and 2018, revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period is not material.
Revenue expected to be recognized in any future year related to remaining performance obligations is not material. As permitted in ASC Topic 606, we have elected to omit disclosure related to performance obligations for revenue pertaining to contracts that have an original expected duration of one year or less, to contracts where revenue is recognized as invoiced and to contracts with variable consideration related to wholly unsatisfied performance obligations.
4. INCOME TAXES
We determine our deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of our assets and liabilities, calculated using enacted applicable tax rates. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. Changes in the valuation allowance, when recorded, are included in theOur total provision for income taxes is $17.8 million and $30.8 million for the three- and six- months periods ended June 30, 2019, respectively. We record our income tax provision using a full-year forecasted methodology, including discrete items in the condensed consolidated financial statements.period in which they occur. Our year-to-date effective tax rate for the six months ended June 30, 2019 is 27.5%. We do not expect material fluctuations in this rate throughout the remainder of the year.
Our unrecognized tax benefits of $2,066$2.9 million and $1,755$2.6 million at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, are uncertain tax positions that would impact our effective tax rate if recognized. We are periodically engaged in tax return examinations, reviewsthe review of statute of limitationslimitation periods, and settlements surrounding income taxes. We do not anticipate a material change in unrecognized tax benefits during the next twelve months.
We classify interest expense and penalties as part of our provision for income taxes based upon applicable federal and state interest/interest and underpayment percentages. We have accrued $736$0.6 million and $650$0.4 million in interest and penalties at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. Interest was computed on the difference between the provision for income taxes recognized in accordance with GAAP and the amount of benefit previously taken or expected to be taken in our federal, state, and local income tax returns.
Our federal income tax returns for the tax years 20142015 and forward are available for examination by the United States Internal Revenue Service (“IRS”). The statute of limitations for the 20142015 federal return will expire on September 15, 2018,2019, unless extended by consent. Our state income tax returns for 20122014 through 20162018 remain subject to examination by various state authorities with the latest period closing on December 31, 2021.2023. We have not extended the statutes of limitations in any state jurisdictions with respect to years prior to 2012.2014.
4.5. DEBT
Revolving Credit Facility
At June 30, 2019 and December 31, 2018, we, along with Graybar Canada Limited, our Canadian operating subsidiary ("Graybar Canada"), had an unsecured, five-year, $750.0 million revolving credit agreement maturing in August 2023 with Bank of America, N.A. and the other lenders named therein (the "Credit Agreement"), which includes a combined letter of credit sub-facility of up to $25.0 million, a U.S. swing-line loan facility of up to $75.0 million, and a Canadian swing-line loan facility of up to $20.0 million. The Credit Agreement includes a $100.0 million sublimit (in U.S. or Canadian dollars) for borrowings by Graybar Canada. The Credit Agreement contains an accordion feature, which allows us to request increases in the aggregate borrowing commitments of up to $375.0 million.
We were in compliance with all covenants under the Credit Agreement as of June 30, 2019 and December 31, 2018.
There were $186.5 million and $235.0 million in short-term borrowings outstanding under the Credit Agreement at June 30, 2019 and December 31, 2018, respectively.
Short-term borrowings outstanding during the six months ended June 30, 2019 and 2018 ranged from a minimum of $120.0 million and $140.0 million to a maximum of $257.0 million and $242.0 million, respectively.
At June 30, 2019, we had unused lines of credit under the Credit Agreement amounting to $563.0 million available, compared to $515.0 million at December 31, 2018. These lines are available to meet our short-term cash requirements and are subject to annual fees of up to 40 basis points (0.40%).
Interest expense, net was $1.9 million and $1.7 million for the three months ended June 30, 2019 and 2018, respectively. Interest expense, net was $3.7 million and $3.1 million for the six months ended June 30, 2019 and 2018, respectively.
Private Placement Shelf Agreements
We have an uncommitted $100.0 million private placement shelf agreement with PGIM, Inc. (the "Prudential Shelf Agreement"), which is expected to allow us to issue senior promissory notes to affiliates of PGIM, Inc. at fixed rate terms to be agreed upon at the time of any issuance during a three-year issuance period ending in August 2020. We also have an uncommitted $100.0 million private placement shelf agreement (the "MetLife Shelf Agreement") with Metropolitan Life Insurance Company and MetLife Investment Advisors, LLC and each other affiliate of MetLife that becomes a party to the agreement (collectively, "MetLife"). The MetLife Shelf Agreement is expected to allow us to issue senior promissory notes to MetLife at fixed or floating rate economic terms to be agreed upon at the time of issuance during a three-year period ending in August 2021.
We remain obligated under a most favored lender clause which is designed to ensure that any notes in the future under the Prudential Shelf Agreement and MetLife Shelf Agreement will continue to be of equal ranking with indebtedness under our Credit Agreement.
No notes have been issued under either the Prudential Shelf Agreement or the MetLife Shelf Agreement as of June 30, 2019 and December 31, 2018.
Each shelf agreement contains representations and warranties of the Company and the applicable lender, customary events of default and affirmative and negative covenants, customary for agreements of this type. These covenants are substantially similar to those contained in the Credit Agreement, subject to a number of important exceptions and qualifications set forth in the applicable shelf agreement. All outstanding obligations of Graybar under one or both of these agreements may be declared immediately due and payable upon the occurrence of an event of default.
We were in compliance with all covenants under the Prudential Shelf Agreement and the MetLife Shelf Agreement as of June 30, 2019 and December 31, 2018.
Letters of Credit
We had total letters of credit of $5.6 million outstanding at June 30, 2019, of which $0.5 million were issued under the Credit Agreement. We had total letters of credit of $5.6 million outstanding at December 31, 2018, of which none were issued under the Credit Agreement. The letters of credit are issued primarily to support certain workers' compensation insurance policies.
6. LEASES
We have operating and finance leases for corporate offices, warehouse buildings, sales offices, branch locations, vehicles, and certain equipment. Our leases have remaining lease terms of up to ten years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases within one year. In addition to fixed lease payments, we incur variable lease charges that are recognized as incurred. These charges are primarily for maintenance and real estate taxes on leased facilities. As of June 30, 2019 and December 31, 2018, assets recorded under finance leases net of accumulated depreciation were $9.1 million and $8.7 million, respectively.
The components of the lease expense for the three and six months ended June 30, 2019 were as follows:
|
| | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, 2019 | June 30, 2019 |
Operating lease cost | | $ | 8.1 |
| | $ | 16.2 |
|
Finance lease cost: | | | | |
Amortization of right-of-use assets | | 0.6 |
| | 1.1 |
|
Interest on lease liabilities | | 0.2 |
| | 0.4 |
|
Total finance lease cost | | 0.8 |
| | 1.5 |
|
Variable lease cost | | 2.6 |
| | 4.9 |
|
Total lease cost | | $ | 11.5 |
| | $ | 22.6 |
|
Supplemental balance sheet information at June 30, 2019 related to leases was as follows:
|
| | | | |
| June 30, 2019 |
Operating leases: | | |
Operating lease right-of-use assets | | $ | 106.8 |
|
| | |
Current operating lease liabilities | | $ | 26.9 |
|
Non-current operating lease liabilities | | 84.5 |
|
Total operating lease liabilities | | $ | 111.4 |
|
| | |
Finance leases: | | |
Property, at cost | | $ | 21.6 |
|
Less – accumulated depreciation and amortization | | 12.5 |
|
Net property | | $ | 9.1 |
|
| | |
Current obligations of finance leases | | $ | 2.2 |
|
Finance leases, net of current obligations | | 8.5 |
|
Total finance lease liabilities | | $ | 10.7 |
|
| | |
Weighted average remaining lease term: | | |
Operating leases | | 5.0 years |
|
Finance leases | | 5.4 years |
|
Weighted average discount rate: | | |
Operating leases | | 3.5 | % |
Finance leases | | 7.0 | % |
Supplemental cash flow and other information for the three and six months ended June 30, 2019 related to leases was as follows:
|
| | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, 2019 | June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 8.1 |
| | $ | 16.1 |
|
Operating cash flows from finance leases | | 0.2 |
| | 0.4 |
|
Financing cash flows from finance leases | | 0.5 |
| | 2.6 |
|
| | | | |
Right-of-use assets obtained in exchange for lease liabilities: | | | | |
Operating leases | | $ | 19.4 |
| | $ | 29.2 |
|
Finance leases | | 0.3 |
| | 1.5 |
|
Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:
|
| | | | | | | | |
| June 30, 2019 |
| Operating Leases | Finance Leases |
Future minimum lease payments | | | | |
2019 (excluding the six months ended June 30, 2019) | | $ | 14.8 |
| | $ | 1.4 |
|
2020 | | 29.1 |
| | 2.7 |
|
2021 | | 23.2 |
| | 2.6 |
|
2022 | | 18.6 |
| | 2.0 |
|
2023 | | 13.9 |
| | 1.4 |
|
Thereafter | | 22.2 |
| | 3.0 |
|
Total future minimum lease payments | | $ | 121.8 |
| | $ | 13.1 |
|
Less: imputed interest | | (10.4 | ) | | (2.4 | ) |
Total lease obligation | | $ | 111.4 |
| | $ | 10.7 |
|
Less: current obligations | | (26.9 | ) | | (2.2 | ) |
Long-term lease obligation | | $ | 84.5 |
| | $ | 8.5 |
|
Disclosures related to periods prior to adoption of Leases (Topic 842)
Rental expense was $29.4 million, $27.3 million, and $25.1 million for the twelve months ended December 31, 2018, 2017, and 2016, respectively. Future minimum rental payments required under operating leases that have either initial or remaining noncancelable lease terms in excess of one year as of December 31, 2018 were as follows:
|
| | | |
For the Years Ending December 31, | Minimum Rental Payments |
2019 | $ | 30.0 |
|
2020 | 21.9 |
|
2021 | 16.4 |
|
2022 | 12.3 |
|
2023 | 8.8 |
|
After 2023 | 17.3 |
|
7. PENSION AND OTHER POSTRETIREMENT BENEFITS
We have a noncontributory defined benefit pension plan (the "Pension Plan") covering substantially all employees first hired prior to July 1, 2015 after the completion of one year of service and 1,000 hours of service. The Pension Plan provides retirement benefits based on an employee’s average earnings and years of service. These employees become 100% vested after three years of service, regardless of age. A supplemental benefit plan provides nonqualified pension benefits for compensation in excess of the IRS compensation limits applicable to the Pension Plan and eligible compensation deferred by a participant.
Our funding policy is to make contributions to the Pension Plan, provided that the total annual contributions will not be less than ERISA and the Pension Protection Act of 2006 minimums or greater than the maximum tax-deductible amount, to review the contribution and funding strategy on a regular basis, and to allow discretionary contributions to be made by us from time to time. The assets of the Pension Plan are invested primarily in fixed income investments and equity securities. We pay nonqualified pension benefits when they are due according to the terms of the supplemental benefit plan.
We provide certain postretirement healthcare and life insurance benefits to retired employees. Substantially all of our employees hired or rehired prior to 2014 may become eligible for postretirement medical benefits if they reach the age and service requirements of the retiree medical plan and retire on a pension (except a deferred pension) under the Pension Plan. Medical benefits are self-insured and claims are administered through a third party administrator. The cost of coverage is determined based on the annual projected plan costs. The participant's premium or cost is determined based on Company guidelines. Postretirement life insurance benefits are insured through an insurance company. We fund postretirement benefits as incurred, and accordingly, there were no assets held in the postretirement benefits plan at June 30, 2019 and December 31, 2018.
The net periodic benefit cost for the three and six months ended June 30, 2019 and 2018 includes the following components:
|
| | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| Three Months Ended June 30, | | Three Months Ended June 30, |
|
Components of Net Periodic Benefit Cost | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
Selling, general, and administrative expenses: | | | | | |
Service cost | $ | 6.3 |
| $ | 7.2 |
| | $ | 0.5 |
| $ | 0.6 |
|
Total selling, general, and administrative expenses | $ | 6.3 |
| $ | 7.2 |
| | $ | 0.5 |
| $ | 0.6 |
|
Non-operating expenses: | | | | | |
Interest cost | 7.4 |
| 6.7 |
| | 0.7 |
| 0.7 |
|
Expected return on plan assets | (8.4 | ) | (7.9 | ) | | — |
| — |
|
Amortization of: |
|
| |
|
|
Net actuarial loss | 4.6 |
| 6.5 |
| | 0.1 |
| 0.2 |
|
Prior service cost (gain) | — |
| 0.1 |
| | — |
| (0.5 | ) |
Total non-operating expenses | $ | 3.6 |
| $ | 5.4 |
| | $ | 0.8 |
| $ | 0.4 |
|
Net periodic benefit cost | $ | 9.9 |
| $ | 12.6 |
| | $ | 1.3 |
| $ | 1.0 |
|
| | | | | |
|
| | | |
| Pension Benefits | | Postretirement Benefits |
| Six Months Ended June 30, | | Six Months Ended June 30, |
|
Components of Net Periodic Benefit Cost | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
Selling, general, and administrative expenses: | | | | | |
Service cost | $ | 12.8 |
| $ | 14.3 |
| | $ | 1.0 |
| $ | 1.2 |
|
Total selling, general, and administrative expenses | $ | 12.8 |
| $ | 14.3 |
| | $ | 1.0 |
| $ | 1.2 |
|
Non-operating expenses: | | | | | |
Interest cost | 15.0 |
| 13.7 |
| | 1.5 |
| 1.4 |
|
Expected return on plan assets | (17.0 | ) | (16.0 | ) | | — |
| — |
|
Amortization of: | | | | | |
Net actuarial loss | 9.5 |
| 13.2 |
| | 0.2 |
| 0.4 |
|
Prior service cost (gain) | — |
| 0.2 |
| | — |
| (1.0 | ) |
Total non-operating expenses | $ | 7.5 |
| $ | 11.1 |
| | $ | 1.7 |
| $ | 0.8 |
|
Net periodic benefit cost | $ | 20.3 |
| $ | 25.4 |
| | $ | 2.7 |
| $ | 2.0 |
|
We made no qualified and nonqualified pension contributions during the three-month period ended June 30, 2019 and $10.0 million during the three-month period ended June 30, 2018. Contributions made during the six-month periods ended June 30, 2019 and 2018 totaled $1.7 million and $21.6 million, respectively. Additional contributions of $10.0 million are expected to be paid during the remainder of 2019, but may change at our discretion.
8. CAPITAL STOCK
Our common stock is 100% owned by active and retired employees, and there is no public trading market for our common stock. Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable New York law, a voting trust may not have a term greater than ten years. Accordingly, aA new Voting Trust Agreement was established effective March 3, 2017, which expires by its terms on March 1, 2027. At SeptemberJune 30, 20172019, approximately 82%83% of the total shares of common stock was held in the voting trust. The participation of shareholders in the voting trust is voluntary at the time the voting trust is created, but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record. Shareholders may elect to participate in the voting trust at any time during the term of the voting trust.
No holder of our common stock or voting trust interests representing our common stock ("common stock", "common shares", or "shares") may sell, transfer or otherwise dispose of any shares without first offering us the option to purchase those shares at the price at which they were issued. Additionally, a shareholder was entitled to any cash dividends, if any, accrued for the quarter in which the purchase offer is made, adjusted pro rata for the number of days such shares were held prior to the dividend record date. On June 8, 2017, the shareholders voted to remove this adjustment for accruing dividends on the common stock. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any reason other than death or "retirement" (as defined in our amended restated certificate of incorporation), and on the first anniversary of any holder's death. In the past, we have always exercised these
purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $20.00 per share.
Cash dividends declaredpaid were $5,286$6.5 million and $4,985$5.8 million for the three months ended SeptemberJune 30, 20172019 and 20162018, respectively. Cash dividends declaredpaid were $15,910$13.0 million and $14,962$11.7 million for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
We also have authorized 10,000,000 shares of Delegated Authority Preferred Stock (“preferred stock”), par value one cent ($0.01). The preferred stock may be issued in one or more series, with the designations, relative rights, preferences, and limitations of shares of each such series being fixed by a resolution of our Board of Directors. There were no shares of preferred stock outstanding at SeptemberJune 30, 20172019 and December 31, 2016.2018.
5. DEBT
Revolving Credit Facility
At September 30, 2017 and December 31, 2016, we along with Graybar Canada Limited, our Canadian operating subsidiary (“Graybar Canada”), had an unsecured, five-year, $550,000 revolving credit agreement maturing in June 2019 with Bank of America, N.A. and the other lenders named therein (the "Credit Agreement"), which includes a combined letter of credit sub-facility of up to $50,000, a U.S. swing line loan facility of up to $50,000, and a Canadian swing line loan facility of up to $20,000. The Credit Agreement includes a $100,000 sublimit (in U.S. or Canadian dollars) for borrowings by Graybar Canada and contains an accordion feature, which allows us to request increases to the aggregate borrowing commitments of up to $300,000.
The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations on us and our subsidiaries with respect to indebtedness, liens, changes in the nature of our business, investments, mergers and acquisitions, issuance of equity securities, dispositions of assets and dissolution of certain subsidiaries, transactions with affiliates, restricted payments (subject to incurrence tests, with certain exceptions), as well as securitizations, factoring transactions, and transactions with sanctioned parties or in violation of certain U.S. or Canadian anti-corruption laws. There are also maximum leverage ratio and minimum interest coverage ratio financial covenants that we are subject to during the term of the Credit Agreement. We were in compliance with all these covenants as of September 30, 2017 and December 31, 2016.
There were $216,604 and $140,465 in short-term borrowings outstanding under the Credit Agreement at September 30, 2017 and December 31, 2016, respectively.
Short-term borrowings outstanding during the nine months ended September 30, 2017 and 2016 ranged from a minimum of $112,292 and $105,014 to a maximum of $229,782 and $311,506, respectively.
We had total letters of credit of $5,371 and $5,244 outstanding, of which none were issued under the Credit Agreement at September 30, 2017 and December 31, 2016. The letters of credit are issued primarily to support certain workers' compensation insurance policies.
At September 30, 2017, we had unused lines of credit under the Credit Agreement amounting to $333,396 available, compared to $409,535 at December 31, 2016. These lines are available to meet our short-term cash requirements and are subject to annual fees of up to 40 basis points (0.40%).
Private Placement Shelf Agreements
On August 2, 2017, we amended our uncommitted $100,000 private placement shelf agreement with PGIM, Inc., formerly known as Prudential Investment Management, Inc. (the "Prudential Shelf Agreement"). The Prudential Shelf Agreement allows us to issue senior promissory notes to affiliates of Prudential at fixed rate terms to be agreed upon at the time of any issuance during a three year issuance period ending in August 2020. No notes had been issued under the Prudential Shelf Agreement as of September 30, 2017 and December 31, 2016.
On September 22, 2016, we entered into an uncommitted $100,000 private placement shelf agreement (the “MetLife Shelf Agreement”) with Metropolitan Life Insurance Company and MetLife Investment Advisors, LLC and each other affiliate of MetLife that becomes a party to the agreement (collectively, “MetLife”). Subject to the terms and conditions set forth below, the MetLife Shelf Agreement is expected to allow the Company to issue senior promissory notes to MetLife at fixed or floating rate economic terms to be agreed upon at the time of any issuance during a three-year issuance period ending in September 2019. Floating rate note interest rates will be based on London Interbank Offered Rate ("LIBOR") plus a spread. No notes have been issued under the MetLife Shelf Agreement, which ranks equally with the Company’s Credit Agreement and Prudential Shelf Agreement. No notes had been issued under the MetLife Shelf Agreement as of September 30, 2017 and December 31, 2016.
Under these shelf agreements, the term of each note issuance will be selected by us and will not exceed 12 years and will have such other particular terms as shall be set forth, in the case of any series of notes, in the Confirmation of Acceptance with respect to such series. Any notes issued under the Prudential Shelf Agreement or under the MetLife Shelf Agreement will be guaranteed by our material domestic subsidiaries, if any, as described in the Prudential Shelf Agreement and the MetLife Shelf Agreement. Any future proceeds of any issuance under the facilities will be used for general corporate purposes, including working capital and capital expenditures, to refinance existing indebtedness and/or to fund potential acquisitions.
Each shelf agreement contains customary representations and warranties of the Company and the applicable lender. Each shelf agreement also contains customary events of default, including: a failure to pay principal, interest or fees when due; a failure to comply with covenants; the fact that any representation or warranty made by any of the credit parties is incorrect when given; the occurrence of an event of default under the Credit Agreement or certain other indebtedness of us and our subsidiaries; the commencement of certain insolvency or receivership events affecting any of the credit parties; certain actions under ERISA; and the occurrence of a change in control of Graybar (subject to certain permitted transactions as described in the Credit Agreement). All outstanding obligations of Graybar under one or both of these agreements may be declared immediately due and payable upon the occurrence of an event of default.
Each shelf agreement contains customary affirmative and negative covenants for facilities of this type, including limitations on us and our subsidiaries with respect to indebtedness, liens, changes in the nature of our business, investments, mergers and acquisitions, issuance of equity securities, dispositions of assets and dissolution of certain subsidiaries, transactions with affiliates, restricted payments (subject to incurrence tests, with certain exceptions), as well as securitizations, factoring transactions, and transactions with sanctioned parties or in violation of certain U.S. or Canadian anti-terrorism laws. There are also maximum leverage ratio and minimum interest coverage ratio financial covenants that we are subject to during the term of the shelf agreements. We were in compliance with all covenants as of September 30, 2017 and December 31, 2016.
In addition, we have agreed to a most favored lender clause which is designed to ensure that any notes issued in the future under the Prudential Shelf Agreement and MetLife Shelf Agreement will continue to be of equal ranking with indebtedness under our Credit Agreement.
6. PENSION AND OTHER POSTRETIREMENT BENEFITS
We have a noncontributory defined benefit pension plan covering substantially all employees first hired prior to July 1, 2015 after the completion of one year of service and 1,000 hours of service. The plan provides retirement benefits based on an employee’s average earnings and years of service. These employees become 100% vested after three years of service, regardless of age. A supplemental benefit plan provides nonqualified benefits for compensation in excess of the IRS compensation limits applicable to the plan.
Our plan funding policy is to make contributions, provided that the total annual contributions will not be less than ERISA and the Pension Protection Act of 2006 minimums or greater than the maximum tax-deductible amount, to review the contribution and funding strategy on a regular basis, and to allow discretionary contributions to be made by us from time to time. The assets of the defined benefit pension plan are invested primarily in fixed income investments and equity securities. We pay nonqualified pension benefits when they are due according to the terms of the supplemental benefit plan.
We provide certain postretirement health care and life insurance benefits to retired employees. Substantially all of our employees hired or rehired prior to 2014 may become eligible for postretirement medical benefits if they reach the age and service requirements of the retiree medical plan and retire on a service pension (except a deferred pension) under the defined benefit pension plan. Medical benefits are self-insured and claims are administered through an insurance company. The cost of coverage is determined based on the annual projected plan costs. The participant's premium or cost is determined based on Company guidelines. Postretirement life insurance benefits are insured through an insurance company. We fund postretirement benefits as incurred, and accordingly, there were no assets held in the postretirement benefits plan at September 30, 2017 and December 31, 2016.
The net periodic benefit cost for the three and nine months ended September 30, 2017 and 2016 includes the following components:
|
| | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| Three Months Ended September 30, | | Three Months Ended September 30, |
|
Components of Net Periodic Benefit Cost | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
Service cost | $ | 6,604 |
| $ | 6,342 |
| | $ | 582 |
| $ | 572 |
|
Interest cost | 6,954 |
| 7,066 |
| | 711 |
| 757 |
|
Expected return on plan assets | (7,658 | ) | (6,754 | ) | | — |
| — |
|
Amortization of: |
|
| |
|
|
Net actuarial loss | 5,376 |
| 4,791 |
| | 197 |
| 177 |
|
Prior service cost (gain) | 105 |
| 106 |
| | (545 | ) | (545 | ) |
Net periodic benefit cost | $ | 11,381 |
| $ | 11,551 |
| | $ | 945 |
| $ | 961 |
|
|
| Pension Benefits | | Postretirement Benefits |
| Nine Months Ended September 30, | | Nine Months Ended September 30, |
|
Components of Net Periodic Benefit Cost | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
Service cost | $ | 19,812 |
| $ | 19,026 |
| | $ | 1,745 |
| $ | 1,716 |
|
Interest cost | 20,863 |
| 21,197 |
| | 2,133 |
| 2,272 |
|
Expected return on plan assets | (22,973 | ) | (20,262 | ) | | — |
| — |
|
Amortization of: | | | | | |
Net actuarial loss | 16,127 |
| 14,373 |
| | 591 |
| 531 |
|
Prior service cost (gain) | 315 |
| 318 |
| | (1,635 | ) | (1,635 | ) |
Net periodic benefit cost | $ | 34,144 |
| $ | 34,652 |
| | $ | 2,834 |
| $ | 2,884 |
|
We made qualified and nonqualified pension contributions totaling $24,001 and $44,002 during the three-month periods ended September 30, 2017 and 2016, respectively. Contributions made during the nine-month periods ending September 30, 2017 and 2016 totaled $61,587 and $81,633, respectively. Additional contributions totaling $2 are expected to be paid during the remainder of 2017.
7.9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)LOSS
The following table represents amounts reclassified from accumulated other comprehensive income (loss)loss for the three months ended SeptemberJune 30, 20172019 and 20162018:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| | Amortization of Pension and Other Postretirement Benefits Items | | Amortization of Pension and Other Postretirement Benefits Items |
| | Actuarial Losses Recognized | | Prior Service Costs Recognized | | Total | | Actuarial Losses Recognized | | Prior Service Costs Recognized | | Total |
Affected Line in Condensed Consolidated Statement of Income: | | | | | | | | | | | | |
Selling, general and administrative expenses | | $ | 5,573 |
| | $ | (440 | ) | | $ | 5,133 |
| | $ | 4,968 |
| | $ | (439 | ) | | $ | 4,529 |
|
Tax (benefit) expense | | (2,168 | ) | | 171 |
| | (1,997 | ) | | (1,933 | ) | | 171 |
| | (1,762 | ) |
Total reclassifications for the period, net of tax | | $ | 3,405 |
| | $ | (269 | ) | | $ | 3,136 |
| | $ | 3,035 |
| | $ | (268 | ) | | $ | 2,767 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 |
| | Amortization of Pension and Other Postretirement Benefits Items | | Amortization of Pension and Other Postretirement Benefits Items |
| | Actuarial Losses Recognized | | Prior Service Costs Recognized | | Total | | Actuarial Losses Recognized | | Prior Service Costs Recognized | | Total |
Affected Line in Condensed Consolidated Statement of Income: | | | | | | | | | | | | |
Non-operating expenses | | $ | 4.7 |
| | $ | — |
| | $ | 4.7 |
| | $ | 6.7 |
| | $ | (0.4 | ) | | $ | 6.3 |
|
Tax (benefit) expense | | (1.2 | ) | | — |
| | (1.2 | ) | | (1.7 | ) | | 0.1 |
| | (1.6 | ) |
Total reclassifications for the period, net of tax | | $ | 3.5 |
| | $ | — |
| | $ | 3.5 |
| | $ | 5.0 |
| | $ | (0.3 | ) | | $ | 4.7 |
|
The following table represents amounts reclassified from accumulated other comprehensive income (loss)loss for the ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
| | | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | | Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
| | Amortization of Pension and Other Postretirement Benefits Items | | Amortization of Pension and Other Postretirement Benefits Items | | Amortization of Pension and Other Postretirement Benefits Items | | Amortization of Pension and Other Postretirement Benefits Items |
| | Actuarial Losses Recognized | | Prior Service Costs Recognized | | Total | | Actuarial Losses Recognized | | Prior Service Costs Recognized | | Total | | Actuarial Losses Recognized | | Prior Service Costs Recognized | | Total | | Actuarial Losses Recognized | | Prior Service Costs Recognized | | Total |
Affected Line in Condensed Consolidated Statement of Income: | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | $ | 16,718 |
| | $ | (1,320 | ) | | $ | 15,398 |
| | $ | 14,904 |
| | $ | (1,317 | ) | | $ | 13,587 |
| |
Non-operating expenses | | | $ | 9.7 |
| | $ | — |
| | $ | 9.7 |
| | $ | 13.6 |
| | $ | (0.8 | ) | | $ | 12.8 |
|
Tax (benefit) expense | | (6,503 | ) | | 513 |
| | (5,990 | ) | | (5,798 | ) | | 512 |
| | (5,286 | ) | | (2.5 | ) | | — |
| | (2.5 | ) | | (3.5 | ) | | 0.2 |
| | (3.3 | ) |
Total reclassifications for the period, net of tax | | $ | 10,215 |
| | $ | (807 | ) | | $ | 9,408 |
| | $ | 9,106 |
| | $ | (805 | ) | | $ | 8,301 |
| | $ | 7.2 |
| | $ | — |
| | $ | 7.2 |
| | $ | 10.1 |
| | $ | (0.6 | ) | | $ | 9.5 |
|
The following table represents the activity included in accumulated other comprehensive income (loss)loss for the three months ended SeptemberJune 30, 20172019 and 20162018:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| | Foreign Currency | | Pension and Other Postretirement Benefits | | Total | | Foreign Currency | | Pension and Other Postretirement Benefits | | Total |
Beginning balance July 1, | | $ | (7,548 | ) | | $ | (179,985 | ) | | $ | (187,533 | ) | | $ | (7,507 | ) | | $ | (172,485 | ) | | $ | (179,992 | ) |
Other comprehensive income (loss) before reclassifications | | 3,527 |
| | — |
| | 3,527 |
| | (1,106 | ) | | — |
| | (1,106 | ) |
Amounts reclassified from accumulated other comprehensive income (net of tax $(1,997) and $(1,762)) | | — |
| | 3,136 |
| | 3,136 |
| | — |
| | 2,767 |
| | 2,767 |
|
Net current-period other comprehensive income (loss) | | 3,527 |
| | 3,136 |
| | 6,663 |
| | (1,106 | ) | | 2,767 |
| | 1,661 |
|
Ending balance September 30, | | $ | (4,021 | ) | | $ | (176,849 | ) | | $ | (180,870 | ) | | $ | (8,613 | ) | | $ | (169,718 | ) | | $ | (178,331 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 |
| | Foreign Currency | | Pension and Other Postretirement Benefits | | Total | | Foreign Currency | | Pension and Other Postretirement Benefits | | Total |
Beginning balance April 1, | | $ | (10.4 | ) | | $ | (224.2 | ) | | $ | (234.6 | ) | | $ | (7.1 | ) | | $ | (240.7 | ) | | $ | (247.8 | ) |
Other comprehensive income (loss) before reclassifications | | 2.0 |
| | — |
| | 2.0 |
| | (1.6 | ) | | — |
| | (1.6 | ) |
Amounts reclassified from accumulated other comprehensive income (net of tax $(1.2) and $(1.6)) | | — |
| | 3.5 |
| | 3.5 |
| | — |
| | 4.7 |
| | 4.7 |
|
Net current-period other comprehensive income (loss) | | 2.0 |
| | 3.5 |
| | 5.5 |
| | (1.6 | ) | | 4.7 |
| | 3.1 |
|
Ending balance June 30, | | $ | (8.4 | ) | | $ | (220.7 | ) | | $ | (229.1 | ) | | $ | (8.7 | ) | | $ | (236.0 | ) | | $ | (244.7 | ) |
The following table represents the activity included in accumulated other comprehensive income (loss)loss for the ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| | Foreign Currency | | Pension and Other Postretirement Benefits | | Total | | Foreign Currency | | Pension and Other Postretirement Benefits | | Total |
Beginning balance January 1, | | $ | (10,343 | ) | | $ | (186,257 | ) | | $ | (196,600 | ) | | $ | (12,416 | ) | | $ | (178,019 | ) | | $ | (190,435 | ) |
Other comprehensive income (loss) before reclassifications | | 6,322 |
| | — |
| | 6,322 |
| | 3,803 |
| | — |
| | 3,803 |
|
Amounts reclassified from accumulated other comprehensive income (net of tax $(5,990) and $(5,286)) | | — |
| | 9,408 |
| | 9,408 |
| | — |
| | 8,301 |
| | 8,301 |
|
Net current-period other comprehensive income (loss) | | 6,322 |
| | 9,408 |
| | 15,730 |
| | 3,803 |
| | 8,301 |
| | 12,104 |
|
Ending balance September 30, | | $ | (4,021 | ) | | $ | (176,849 | ) | | $ | (180,870 | ) | | $ | (8,613 | ) | | $ | (169,718 | ) | | $ | (178,331 | ) |
8. ASSETS HELD FOR SALE
We consider properties to be assets held for sale when all of the following criteria are met: (i) a formal commitment to a plan to sell a property has been made and exercised; (ii) the property is available for sale in its present condition; (iii) actions required to complete the sale of the property have been initiated; (iv) sale of the property is probable and we expect the sale will occur within one year; and (v) the property is being actively marketed for sale at a price that is reasonable given its current market value.
Upon designation as an asset held for sale, we record the carrying value of each property at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and depreciation of the property ceases. The net book value of assets held for sale was $464 at December 31, 2016, and is recorded in net property in the condensed consolidated balance sheets. During the three months ended September 30, 2017, there were no assets that were classified as assets held for sale. During the three months ended September 30, 2016, we did not sell any assets that were classified as held for sale. During the nine months ended September 30, 2017 and 2016, we sold assets classified as held for sale with net book values of $464 and $58, respectively, and recorded net gains on the assets held for sale of $197 and $1,627, respectively, in other income, net.
We review long-lived assets held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For assets classified as held and used, impairment may occur if projected undiscounted cash flows are not adequate to cover the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of the loss to be recognized. The impairment loss is calculated as the difference between the carrying amount of the asset and its estimated fair value. The analysis requires estimates of the amount and timing of projected cash flows and, where applicable, selection of an appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed necessary.
For assets held for sale, impairment occurs whenever the net book value of the property listed for sale exceeds the expected selling price less estimated selling expenses. There were no impairment charges recorded during the three- and nine-month periods ended September 30, 2017 and 2016. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
| | Foreign Currency | | Pension and Other Postretirement Benefits | | Total | | Foreign Currency | | Pension and Other Postretirement Benefits | | Total |
Beginning balance January 1, | | $ | (12.4 | ) | | $ | (227.9 | ) | | $ | (240.3 | ) | | $ | (4.6 | ) | | $ | (245.5 | ) | | $ | (250.1 | ) |
Other comprehensive income (loss) before reclassifications | | 4.0 |
| | — |
| | 4.0 |
| | (4.1 | ) | | — |
| | (4.1 | ) |
Amounts reclassified from accumulated other comprehensive income (net of tax $(2.5) and $(3.3)) | | — |
| | 7.2 |
| | 7.2 |
| | — |
| | 9.5 |
| | 9.5 |
|
Net current-period other comprehensive income (loss) | | 4.0 |
| | 7.2 |
| | 11.2 |
| | (4.1 | ) | | 9.5 |
| | 5.4 |
|
Ending balance June 30, | | $ | (8.4 | ) | | $ | (220.7 | ) | | $ | (229.1 | ) | | $ | (8.7 | ) | | $ | (236.0 | ) | | $ | (244.7 | ) |
9.10. COMMITMENTS AND CONTINGENCIES
Graybar and our subsidiaries are subject to various claims, disputes, and administrative and legal matters incidental to our past and current business activities. As a result, contingencies may arise resulting from an existing condition, situation, or set of circumstances involving an uncertainty as to the realization of a possible loss.
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 we deem an amount within the range to be a better estimate than any other amount within the range, that amount will be accrued. However, if no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued. While we believe that none of these claims, disputes, administrative, and legal matters will have a material adverse effect on our financial position, these matters are uncertain and we cannot at this time determine whether the financial impact, if any, of these matters will be material to our results of operations in the period duringin which such matters are resolved or a better estimate becomes available.
10. ACQUISITIONS
In July 2016, we acquired Cape Electrical Supply ("Cape Electric"), a regional distributor serving electrical contractors and large engineering construction firms, as well as industrial, institutional and utility customers, for approximately $59,946 in cash, net of cash acquired. The purchase price allocation resulted in $16,377 and $23,586 of tax deductible goodwill and other intangible assets, respectively.
Since the date of acquisition, Cape Electric results are reflected in our condensed consolidated financial statements. Pro forma results of this acquisition are not material; therefore, they are not presented.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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, 20162018, included in our Annual Report on Form 10-K for such period as filed with the United States Securities and Exchange Commission (the “Commission”). The results shown herein are not necessarily indicative of the results to be expected in any future periods.
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes”, “projects”, “expects”, “anticipates”, “estimates”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will be”, “will continue”, “will likely result”, and other similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the PSLRA. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse impact on our operations and future prospects on a consolidated basis include, but are not limited to: general economic conditions, particularly in the residential, commercial, and industrial building construction industries; volatility in the prices of industrial commodities; cyber-attacks; a sustained interruption in the operation of our information systems; cyber-attacks; increased funding requirements and expenses related to our pension plan; disruptions in our sources of supply; the inability, or limitations on our ability to borrow under our existing credit facilities or any replacements thereof; disruptions in our sources of supply; compliance with increasing governmental regulations; adverse legal proceedings or other claims; compliance with changing governmental regulations; and the inability, or limitations on our ability, to raise debt or equity capital. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by applicable securities law. Further information concerning our business, including additional factors that could materially impact our financial results, is included herein and in our other filings with the Commission. 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, 20162018.
All dollar amounts, except per share data, are stated in thousands ($000s)millions in the following discussion and accompanying tables.
Background
Graybar Electric Company, Inc. (“Graybar”, “Company”, "we", "our", or "us") is a New York corporation, incorporated in 1925. We are engaged in the distribution of electrical and communications and data networking products and are a provider of related supply chain management and logistics services. We primarily serve customers in the construction, industrial & utility and commercial, institutional and government ("CIG") vertical markets, with products and services that support new construction, infrastructure updates, building renovation, facility maintenance, repair and operations ("MRO"), and original equipment manufacturers ("OEMs"). AllWe purchase all the products sold by us are purchased by uswe sell from others, and we neither manufacture nor contract to manufacture any products we sell. Our business activity is primarily with customersbased in the United States ("U.S."). We also have subsidiary operations with distribution facilities in Canada and Puerto Rico.
Our common stock is 100% owned by active and retired employees, and there is no public trading market for our common stock. No holder of our common stock or voting trust interests representing our common stock (“common stock”, “common shares”, or “shares”) may sell, transfer, or otherwise dispose of any shares without first offering us the option to purchase those shares at the price at which they were issued. Additionally, a shareholder was entitled to any cash dividends, if any, accrued for the quarter in which the purchase offer is made, adjusted pro rata for the number of days such shares were held prior to the dividend record date. On June 8, 2017, the shareholders voted to remove this adjustment for accruing dividends on the common stock. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any reason other than death or "retirement" (as defined in our amended restated certificate of incorporation), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $20.00 per share.
Business Overview
ForThe strong sales performance we experienced in the thirdfirst quarter of 2017, our2019 continued through the second quarter of 2019. Our net sales for the three months ended June 30, 2019 set a new quarterly sales record for the Company.
Net sales for the second quarter of 2019 totaled $1,700,843,$1,948.0 million, an increase of $11,224,$115.7 million, or 0.7%6.3%, compared to net sales of $1,832.3 million for the second quarter of 2018. Gross margin increased $16.5 million, or 4.7%, to $367.7 million for the three months ended June 30, 2019, from $351.2 million for the same period last year. Sales in our industrial & utility and construction vertical markets increased 9.9% and 0.5%, respectively, while our CIG vertical market sales decreased 7.8% for the quarter. Although gross margin rate remained constant at 18.9%Net income attributable to Graybar was $47.0 million for the three months ended SeptemberJune 30, 20172019, and 2016, respectively, gross margin increased $3,226,was $2.5 million, or 1.0%5.6%, to $321,984 for the three months ended September 30, 2017, from $318,758 for the same period of 2016 as a result of our pricing and product diversification initiatives and our acquisition in the prior year.
Our third quarter results were negatively impacted by moderate increases in selling, general and administrative expenses ("SG&A") that morehigher than offset the modest increase in gross margin. SG&A increased $5,783, or 2.3%, to $260,752 in the third quarter of 2017 from $254,969 in the third quarter of 2016, due primarily to increases in headcount and compensation expenses. As a result, net income from the quarter was $29,434, down $695, or 2.3%, from the same three-month period in 2016.
For the nine months ended September 30, 2017, we reported net sales of $4,944,294, an increase of $158,674, or 3.3%, compared to the same period last year. Year-to-date
Net sales for the six months ended June 30, 2019 were $3,725.8 million, an increase of $255.8 million, or 7.4%, from net sales in our industrial & utility and construction vertical markets increased 10.7% and 3.9%, respectively, while our CIG vertical market net sales decreased 5.7%.of $3,470.0 million for the six months ended June 30, 2018. Gross margin for the ninesix months ended SeptemberJune 30, 20172019 was $944,706,$706.4 million, an increase of $40,702,$43.8 million, or 4.5%6.6%, compared to gross margin of $904,004$662.6 million for the same nine-monthsix-month period last year. Gross margin rate was 19.0% for the six-month period ended June 30, 2019, compared to 19.1% for the nine-monthsix-month period ended SeptemberJune 30, 2017 compared to 18.9% for the nine-month period ended September 30, 2016.2018. Net income attributable to the CompanyGraybar was $81.3 million for the ninesix months ended SeptemberJune 30, 2017 increased $9,640,2019, an increase of $15.7 million, or 13.6%23.9%, from net income attributable to $80,449.Graybar of $65.6 million for the same six-month period last year.
We remain focusedAs we look ahead, we will continue to focus on achieving profitabledelivering an exceptional customer experience, driving accelerated growth and strengtheningtransforming our business for the future. We will continue to manage our business to achieve profitable organic growth, while we seek out new opportunities that will enhance our long-term performance and strengthen our position as a leader in the supply chain. We will continue to enhance our value proposition to drive growth, while we pursue strategic investments in technology and potential acquisitions to broaden our reach and diversify our business.
chain innovation.
Consolidated Results of Operations
Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
The following table sets forth certain information relating to our operations stated in thousandsmillions of dollars and as a percentage of net sales for the three and nine months ended SeptemberJune 30, 20172019 and 20162018:
|
| | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended |
| September 30, 2017 | | September 30, 2016 |
| Dollars |
| | Percent |
| | Dollars |
| | Percent |
|
Net Sales | $ | 1,700,843 |
| | 100.0 | % | | $ | 1,689,619 |
| | 100.0 | % |
Cost of merchandise sold | (1,378,859 | ) | | (81.1 | ) | | (1,370,861 | ) | | (81.1 | ) |
Gross Margin | 321,984 |
| | 18.9 |
| | 318,758 |
| | 18.9 |
|
Selling, general and administrative expenses | (260,752 | ) | | (15.3 | ) | | (254,969 | ) | | (15.1 | ) |
Depreciation and amortization | (12,211 | ) | | (0.7 | ) | | (12,283 | ) | | (0.7 | ) |
Other income, net | 1,511 |
| | 0.1 |
| | 629 |
| | — |
|
Income from Operations | 50,532 |
| | 3.0 |
| | 52,135 |
| | 3.1 |
|
Interest expense, net | (1,217 | ) | | (0.1 | ) | | (1,215 | ) | | (0.1 | ) |
Income before Provision for Income Taxes | 49,315 |
| | 2.9 |
| | 50,920 |
| | 3.0 |
|
Provision for income taxes | (19,761 | ) | | (1.2 | ) | | (20,724 | ) | �� | (1.2 | ) |
Net Income | 29,554 |
| | 1.7 |
| | 30,196 |
| | 1.8 |
|
Less: Net income attributable to noncontrolling interests | (120 | ) | | — |
| | (67 | ) | | — |
|
Net Income attributable to Graybar Electric Company, Inc. | $ | 29,434 |
| | 1.7 | % | | $ | 30,129 |
| | 1.8 | % |
|
| | | | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| September 30, 2017 | | September 30, 2016 |
| Dollars |
| | Percent |
| | Dollars |
| | Percent |
|
Net Sales | $ | 4,944,294 |
| | 100.0 | % | | $ | 4,785,620 |
| | 100.0 | % |
Cost of merchandise sold | (3,999,588 | ) | | (80.9 | ) | | (3,881,616 | ) | | (81.1 | ) |
Gross Margin | 944,706 |
| | 19.1 |
| | 904,004 |
| | 18.9 |
|
Selling, general and administrative expenses | (776,135 | ) | | (15.7 | ) | | (750,266 | ) | | (15.7 | ) |
Depreciation and amortization | (36,231 | ) | | (0.7 | ) | | (35,158 | ) | | (0.7 | ) |
Other income, net | 5,640 |
| | 0.1 |
| | 3,438 |
| | — |
|
Income from Operations | 137,980 |
| | 2.8 |
| | 122,018 |
| | 2.5 |
|
Interest expense, net | (3,082 | ) | | (0.1 | ) | | (2,635 | ) | | — |
|
Income before Provision for Income Taxes | 134,898 |
| | 2.7 |
| | 119,383 |
| | 2.5 |
|
Provision for income taxes | (54,220 | ) | | (1.1 | ) | | (48,396 | ) | | (1.0 | ) |
Net Income | 80,678 |
| | 1.6 |
| | 70,987 |
| | 1.5 |
|
Less: Net income attributable to noncontrolling interests | (229 | ) | | — |
| | (178 | ) | | — |
|
Net Income attributable to Graybar Electric Company, Inc. | $ | 80,449 |
| | 1.6 | % | | $ | 70,809 |
| | 1.5 | % |
Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016 |
| | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended |
| June 30, 2019 | | June 30, 2018 |
| Dollars |
| | Percent |
| | Dollars |
| | Percent |
|
Net Sales | $ | 1,948.0 |
| | 100.0 | % | | $ | 1,832.3 |
| | 100.0 | % |
Cost of merchandise sold | (1,580.3 | ) | | (81.1 | ) | | (1,481.1 | ) | | (80.8 | ) |
Gross Margin | 367.7 |
| | 18.9 |
| | 351.2 |
| | 19.2 |
|
Selling, general and administrative expenses | (284.5 | ) | | (14.7 | ) | | (270.8 | ) | | (14.8 | ) |
Depreciation and amortization | (12.6 | ) | | (0.6 | ) | | (12.3 | ) | | (0.7 | ) |
Other income, net | 0.5 |
| | — |
| | 0.6 |
| | — |
|
Income from Operations | 71.1 |
| | 3.6 |
| | 68.7 |
| | 3.7 |
|
Non-operating expenses | (6.3 | ) | | (0.3 | ) | | (7.5 | ) | | (0.4 | ) |
Income before Provision for Income Taxes | 64.8 |
| | 3.3 |
| | 61.2 |
| | 3.3 |
|
Provision for income taxes | (17.8 | ) | | (0.9 | ) | | (16.6 | ) | | (0.9 | ) |
Net Income | 47.0 |
| | 2.4 |
| | 44.6 |
| | 2.4 |
|
Less: Net income attributable to noncontrolling interests | — |
| | — |
| | (0.1 | ) | | — |
|
Net Income attributable to Graybar Electric Company, Inc. | $ | 47.0 |
| | 2.4 | % | | $ | 44.5 |
| | 2.4 | % |
Net sales increased to $1,700,843$1,948.0 million for the quarter ended SeptemberJune 30, 2017,2019, compared to $1,689,619$1,832.3 million for the quarter ended SeptemberJune 30, 2016,2018, an increase of $11,224,$115.7 million, or 0.7%6.3%. Net sales in our construction, CIG, and industrial & utility and construction vertical markets increased for the three months ended SeptemberJune 30, 2017,2019, compared to the same three-month period of 20162018 by 9.9%8.0%, 5.7%, and 0.5%1.8%, respectively, while net sales in our CIG vertical market declined by 7.8%.respectively.
Gross margin increased $3,226,$16.5 million, or 1.0%4.7%, to $321,984$367.7 million for the three months ended SeptemberJune 30, 2017,2019, from $318,758$351.2 million for the same period of 2016.in 2018. The increase in gross margin was primarily due to pricing and product diversification initiatives and recent acquisitions, as well as increased net sales in the thirdsecond quarter of 2017.2019. Our gross margin as a percent of net sales was 18.9% for the three-month period ended June 30, 2019, compared to 19.2% for the three months ended SeptemberJune 30, 2017 and 2016.2018. The decrease in gross margin rate was primarily due to competitive pricing pressures.
Selling, general and administrative expenses ("SG&A") expenses increased$5,783, $13.7 million, or 2.3%5.1%, to $260,752$284.5 million in the thirdsecond quarter of 20172019 from $254,969$270.8 million in the thirdsecond quarter of 2016,2018, due primarily to growth in headcounthigher compensation and normal compensation increases. Selling, generalbenefit-related
costs and administrativehigher bad debt expenses. SG&A expenses as a percentage of net sales totaled 15.3%14.7% for the three months ended June 30, 2019, down from 14.8% for the three months ended SeptemberJune 30, 20172018.
, compared to 15.1%Depreciation and amortization for the three months ended SeptemberJune 30, 2016.
Depreciation and amortization expenses for the three months ended September 30, 2017decreased$72,2019 increased $0.3 million, or 0.6%2.4%, to $12,211$12.6 million from $12,283$12.3 million in the thirdsecond quarter of 2016. The decrease was due to an increase in disposals of property during the third quarter of 2017, compared to the third quarter of 2016. Depreciation and amortization expenses as a percentage of net sales totaled 0.7% for the three months ended September 30, 2017 and 2016.
Other income, net totaled $1,511 for the three-month period ended September 30, 2017, compared to $629 for the three months ended September 30, 2016. Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to our business activities.2018. The increase in other income, net was primarily due to favorable settlements of prior claims for the three months ended September 30, 2017 compared to the same three-month period in 2016.
Income before provision for income taxes totaled $49,315 for the three months ended September 30, 2017, a decrease of $1,605, or 3.2%, from $50,920 for the three months ended September 30, 2016. The decrease was primarily due to an increase in SG&A partially offset by our growth in gross margin and increase in other income, net.
Our total provision for income taxes decreased $963, or 4.6%, to $19,761 for the three months ended September 30, 2017, compared to $20,724 for the same period of 2016. The decrease in our provision for income taxes is due to lower pretax income for the three months ended September 30, 2017 as compared to the same period in 2016. Our effective tax rate was 40.1% for the three months ended September 30, 2017, compared to 40.7% for the same period of 2016. The effective tax rate for the three months ended September 30, 2017 and 2016 was higher than the 35.0% U.S. federal statutory rate primarily due to state and local income taxes.
Net income attributable to Graybar Electric Company, Inc. for the three months ended September 30, 2017decreased$695, or 2.3%, to $29,434 from $30,129 for the three months ended September 30, 2016.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Net sales increased to $4,944,294 for the nine-month period ended September 30, 2017, compared to $4,785,620 for the nine-month period ended September 30, 2016, an increase of $158,674, or 3.3%. Net sales in our industrial & utility and construction vertical markets increased by 10.7% and 3.9%, respectively, for the nine months ended September 30, 2017, compared to the same nine-month period of 2016, while net sales in our CIG vertical market declined by 5.7%.
Gross margin increased $40,702, or 4.5%, to $944,706 from $904,004 primarily due to pricing and product diversification initiatives and recent acquisitions, as well as increased net sales in the first nine months of 2017, compared to the same period of 2016. Our gross margin as a percent of net sales totaled 19.1% for the nine months ended September 30, 2017, up from 18.9% for the nine months ended September 30, 2016.
Selling, general and administrative expenses increased $25,869, or 3.4%, to $776,135, for the nine-month period ended September 30, 2017, compared to $750,266 for the nine-month period ended September 30, 2016, due primarily to growth in headcount and normal compensation increases for the nine months ended September 30, 2017. Selling, general and administrative expenses as a percentage of net sales were 15.7% for the nine months ended September 30, 2017 and 2016.
Depreciation and amortization expenses for the nine months ended September 30, 2017 increased $1,073, or 3.1%, to $36,231 from $35,158 for the same nine-month period in 2016, due to an increase in property, at cost. Total property, at cost, at SeptemberJune 30, 20172019 was $961,744,$999.0 million, an increase of $27,119,$19.4 million, or 2.9%2.0%, when compared to total property, at cost, at SeptemberJune 30, 20162018 of $934,625.$979.6 million. Depreciation and amortization expenses as a percentage of net sales remained constant atdecreased to 0.6% for the three months ended June 30, 2019, compared to 0.7% for the ninethree months ended SeptemberJune 30, 2017 and 2016.2018.
Other income, net totaled $5,640Non-operating expenses for the nine-month periodthree months ended SeptemberJune 30, 2017, compared2019 declined $1.2 million, or 16.0%, to $3,438$6.3 million from $7.5 million for the ninethree months ended SeptemberJune 30, 2016. Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to our business activities.2018. The increase in other income, netdecrease was due to a favorable settlementdecreases in non-service cost components of a prior claimnet periodic benefit costs of $1.4 million, partially offset by reducedan increase in interest expense, net gains on the disposal of real and personal property of $1,517$0.2 million for the ninethree months ended SeptemberJune 30, 2017,2019, compared to the same nine-monththree-month period in 2016.
Interest2018. The increase in interest expense, net increased $447, or 17.0%, to $3,082 for the nine months ended September 30, 2017, compared to $2,635 for the same period of 2016. The increase was due to higher interest rates on our short-term borrowings for the ninethree months ended SeptemberJune 30, 2017,2019, compared to the same nine-monththree-month period in 2016.2018.
Income before provision for income taxes totaled $134,898$64.8 million for the ninethree months ended SeptemberJune 30, 2017,2019, an increase of $15,515,$3.6 million, or 13.0%5.9%, from $119,383$61.2 million for the ninethree months ended SeptemberJune 30, 2016.2018. The increase was primarily due to our growth in gross margin and increase in other income, net partially offset by increasesoutpacing our growth in SG&A expenses and depreciation and amortization expenses.amortization.
Our total provision for income taxes increased $5,824,$1.2 million, or 12.0%7.2%, to $54,220$17.8 million for the ninethree months ended SeptemberJune 30, 2017,2019, compared to $48,396$16.6 million for the same period in 2016.of 2018. The increase in our provision for income taxes quarter over quarter is primarily due to higherincreased pretax income for the nine months ended September 30, 2017 as compared to the same period in 2016.income. Our year-to-date effective tax rate was 40.2%27.5% for the ninethree months ended SeptemberJune 30, 2017,2019, compared to 40.5%27.1% for the same period in 2016.of 2018. The effective tax rate for the ninethree months ended SeptemberJune 30, 20172019 and 2018 was higher than the 35.0%21.0% U.S. federal statutory rate primarily due to state, local and localforeign income taxes.
Net income attributable to Graybar Electric Company, Inc. for the nine-monththree months ended June 30, 2019 increased $2.5 million, or 5.6%, to $47.0 million from $44.5 million for the three months ended June 30, 2018.
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
The following table sets forth certain information relating to our operations stated in millions of dollars and as a percentage of net sales for the six months ended June 30, 2019 and 2018:
|
| | | | | | | | | | | | | |
| Six Months Ended | | Six Months Ended |
| June 30, 2019 | | June 30, 2018 |
| Dollars |
| | Percent |
| | Dollars |
| | Percent |
|
Net Sales | $ | 3,725.8 |
| | 100.0 | % | | $ | 3,470.0 |
| | 100.0 | % |
Cost of merchandise sold | (3,019.4 | ) | | (81.0 | ) | | (2,807.4 | ) | | (80.9 | ) |
Gross Margin | 706.4 |
| | 19.0 |
| | 662.6 |
| | 19.1 |
|
Selling, general and administrative expenses | (558.0 | ) | | (15.0 | ) | | (534.1 | ) | | (15.4 | ) |
Depreciation and amortization | (25.1 | ) | | (0.7 | ) | | (24.4 | ) | | (0.7 | ) |
Other income, net | 1.8 |
| | — |
| | 1.4 |
| | — |
|
Income from Operations | 125.1 |
| | 3.3 |
| | 105.5 |
| | 3.0 |
|
Non-operating expenses | (12.9 | ) | | (0.3 | ) | | (15.0 | ) | | (0.4 | ) |
Income before Provision for Income Taxes | 112.2 |
| | 3.0 |
| | 90.5 |
| | 2.6 |
|
Provision for income taxes | (30.8 | ) | | (0.8 | ) | | (24.7 | ) | | (0.7 | ) |
Net Income | 81.4 |
| | 2.2 |
| | 65.8 |
| | 1.9 |
|
Less: Net income attributable to noncontrolling interests | (0.1 | ) | | — |
| | (0.2 | ) | | — |
|
Net Income attributable to Graybar Electric Company, Inc. | $ | 81.3 |
| | 2.2 | % | | $ | 65.6 |
| | 1.9 | % |
Net sales increased to $3,725.8 million for the six-month period ended SeptemberJune 30, 2017 increased $9,640, or 13.6%,2019, compared to $80,449 from $70,809$3,470.0 million for the ninesix-month period ended June 30, 2018, an increase of $255.8 million, or 7.4%. Net sales in our construction, CIG, and industrial & utility vertical markets increased by 9.3%, 6.7%, and 2.4%, respectively, for the six months ended SeptemberJune 30, 2016.2019, compared to the same six-month period of 2018.
Gross margin increased $43.8 million, or 6.6%, to $706.4 million from $662.6 million primarily due to increased net sales for the six months ended June 30, 2019, compared to the same period of 2018. Our gross margin as a percent of net sales totaled 19.0% for the six months ended June 30, 2019, compared to 19.1% for the six months ended June 30, 2018.
SG&A expenses increased $23.9 million, or 4.5%, to $558.0 million, for the six-month period ended June 30, 2019, compared to $534.1 million for the six-month period ended June 30, 2018, due primarily to higher compensation and benefit-related costs and higher bad debt expenses for the six months ended June 30, 2019. SG&A expenses as a percentage of net sales were 15.0% for the six months ended June 30, 2019, down from 15.4% for the six months ended June 30, 2018.
Depreciation and amortization for the six months ended June 30, 2019 increased $0.7 million, or 2.9%, to $25.1 million from $24.4 million for the same six-month period in 2018, due to an increase in property, at cost. Total property, at cost, at June 30, 2019 was $999.0 million, an increase of $19.4 million, or 2.0%, when compared to total property, at cost, at June 30, 2018 of $979.6 million. Depreciation and amortization as a percentage of net sales remained constant at 0.7% for the six months ended June 30, 2019 and 2018.
Non-operating expenses declined $2.1 million, or 14.0%, to $12.9 million for the six months ended June 30, 2019, compared to $15.0 million for the same period of 2018. The decrease was due to a decrease in non-service cost components of net periodic benefit costs of $2.7 million offset by an increase in interest expense, net of $0.6 million for the six months ended June 30, 2019, compared to the same six-month period in 2018. The increase in interest expense, net was due to higher interest rates and higher levels of average outstanding short-term borrowings for the six months ended June 30, 2019, compared to the same six-month period in 2018.
Income before provision for income taxes totaled $112.2 million for the six months ended June 30, 2019, an increase of $21.7 million, or 24.0%, from $90.5 million for the six months ended June 30, 2018. The increase was primarily due to our growth in gross margin outpacing our increases in SG&A expenses and depreciation and amortization.
Our total provision for income taxes increased $6.1 million, or 24.7%, to $30.8 million for the six months ended June 30, 2019, compared to $24.7 million for the same period in 2018. The increase in our provision for income taxes year over year resulted from increased pretax income. Our year-to-date effective tax rate was 27.5% for the six months ended June 30, 2019, compared to 27.3% for the same period in 2018. The effective tax rate for the six months ended June 30, 2019 and 2018 was higher than the 21.0% U.S. federal statutory rate primarily due to state, local, and foreign income taxes.
Net income attributable to Graybar Electric Company, Inc. for the six-month period ended June 30, 2019 increased $15.7 million, or 23.9%, to $81.3 million from $65.6 million for the six months ended June 30, 2018.
Financial Condition and Liquidity
We manage our liquidity and capital levels so that we have the capacitycapability to invest in the growth of our business, meet debt service obligations, finance anticipated capital expenditures, pay dividends, make benefit payments, finance information technology needs, fund acquisitions and finance other miscellaneous cash outlays. We believe that maintaining a strong company financial condition enables us to competitively access multiple financing channels, maintain an optimal cost of capital and enable our companyenables us to invest in strategic long-term growth plans.
We have historically funded our working capital requirements using cash flows generated by the collection of trade receivables and trade accounts payable terms with our suppliers, supplemented by short-term bank lines of credit. Capital expenditures have been financed primarily by cash from working capital management and short-term bank lines of credit and long-term debt.credit.
Our cash and cash equivalents at SeptemberJune 30, 20172019 were $51,806,$55.2 million, compared to $43,339$58.9 million at December 31, 2016, an increase2018, a decrease of $8,467,$3.7 million, or 19.5%6.3%. Our short-term borrowings increased significantly, $76,139,decreased by $48.5 million, or 54.2%20.6%, during the nine-monthsix-month period to $216,604$186.5 million at SeptemberJune 30, 20172019 from $140,465$235.0 million at December 31, 2016, primarily due to higher working capital investment required to support operating activities due to the growth in sales, funding of employee benefits, and additional voluntary pension contributions, all funded via short-term lines of credit.2018. Current assets exceeded current liabilities by $489,672$614.4 million at SeptemberJune 30, 2017,2019, an increase of $49,439,$72.4 million, or 11.2%13.4%, from $440,233$542.0 million at December 31, 2016.2018.
Operating Activities
Cash usedflows provided by operationsoperating activities for the ninesix months ended SeptemberJune 30, 20172019 was $27,859,$69.7 million, compared to cash used by operationsoperating activities of $59,338$25.5 million for the ninesix months ended SeptemberJune 30, 2016.2018. Cash usedprovided by operationsoperating activities for the ninesix months ended SeptemberJune 30, 20172019 was primarily attributable to net income of $81.4 million, an increase in collections of trade receivables of $4.2 million from December 31, 2018 to June 30, 2019, and an increase in trade receivablesaccounts payable of $86,433 as a result of increased sales, increased$57.9
million from December 31, 2018 to June 30, 2019, partially offset by an increase in merchandise inventory levels of $94,141$30.8 million during the six months ended June 30, 2019 to support our continued growth ofthe increase in net sales, for the nine months ended September 30, 2017, andas well as a decrease in accrued payroll benefitsand benefit costs of $36,019, partially offset by net income of $80,678 and increases in trade accounts payable of $83,768.$77.8 million from December 31, 2018 to June 30, 2019.
The average number of days of sales in trade receivables for the nine-monthsix-month period ended SeptemberJune 30, 2017 decreased modestly2019 improved moderately compared to the same nine-monthsix-month period ended SeptemberJune 30, 2016. Merchandise2018. The days in inventory turnover improvedincreased modestly for the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016.2018.
Investing Activities
Net cash used by investing activities totaled $24,659$11.2 million for the ninesix months ended SeptemberJune 30, 2017,2019, compared to $81,465net cash used by investing activities of $19.0 million for the same nine-monthsix-month period in 2016,2018, a decrease of $56,806,$7.8 million, or 69.7%41.1%. The decrease was primarily due to the purchase of Cape Electric for $59,946 during the nine months ended September 30, 2016, partially offset by slightly higherlower capital expenditures in the ninesix months ended SeptemberJune 30, 2017,2019, compared to the ninesix months ended SeptemberJune 30, 2016. Proceeds2018 and lower proceeds received on the disposal of property decreased during the ninesix months ended SeptemberJune 30, 2017,2019, compared to 2016 primarily as a result of disposing of a local distribution facility that provided proceeds of $1,686the same period in the first quarter of 2016.2018.
Financing Activities
Net cash providedused by financing activities for the ninesix months ended SeptemberJune 30, 20172019 totaled $60,985,$62.2 million, compared to $153,983net cash provided by financing activities of $48.8 million for the ninesix months ended SeptemberJune 30, 2016,2018, a decrease of $92,998,$111.0 million, or 60.4%227.5%. The decrease was primarily due to lowerpayments made on the short-term borrowings forduring the ninesix months ended SeptemberJune 30, 2017,2019 compared to an increase in short-term borrowings in the ninesix months ended SeptemberJune 30, 2016.2018.
Liquidity
We had a $550,000$750.0 million revolving credit facility with $333,396$563.0 million in available capacity at SeptemberJune 30, 20172019, compared to $409,535available capacity of $515.0 million at December 31, 20162018. At SeptemberJune 30, 20172019 and December 31, 20162018, we also had two uncommitted $100,000$100.0 million private placement shelf agreements ("shelf agreement"Shelf Agreements"). The first shelf agreement allowsOne of the Shelf Agreements is expected to allow us to issue senior promissory notes to PGIM, Inc. at fixed rate terms to be agreed upon at the time of any issuance during a three yearthree-year issuance period ending in August 2020. The second shelf agreement allowsOur other Shelf Agreement is expected to allow us to issue senior promissory notes to Metropolitan Life Insurance Company and MetLife Investment Advisors, LLC and each other affiliate of MetLife Investment Advisors, LLC that becomes a party to the agreement at fixed or floating rate terms to be agreed upon at the time of any issuance during a three-year issuance period ending in September 2019.August 2021.
We have not issued any notes under the shelf agreementsShelf Agreements as of SeptemberJune 30, 20172019 and December 31, 20162018. For further discussion related to our revolving credit facility and our private placement shelf agreements,Shelf Agreements, refer to Note 5, "Debt", of the notes to the condensed consolidated financial statements located in Item 1.
We had total letters of credit of $5,371 and $5,244$5.6 million outstanding at June 30, 2019, of which none$0.5 million were issued under the $550,000 revolving credit facilityfacility. We had total letters of credit of $5.6 million outstanding at September 30, 2017 and December 31, 2016.2018, of which none were issued under the revolving credit facility. The letters of credit are issued primarily to support certain workers' compensation insurance policies.
New Accounting Standards Updates
Our adoption of new accounting standards areis discussed in Note 2, "Summary of Significant Accounting Policies", of the notes to the condensed consolidated financial statements located in Item 1., "Financial Statements", of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the policies, procedures, controls, or risk profile from those provided in Item 7A., “Quantitative and Qualitative Disclosures About Market Risk”, of our Annual Report on Form 10-K for the year ended December 31, 20162018.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of SeptemberJune 30, 20172019, was performed under the supervision and with the participation of management. Based on that evaluation, our management, including the Principal Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use Ofof Proceeds.
Our common stock is 100% owned by active and retired employees, and there is no public trading market for our common stock. Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable New York law, a voting trust may not have a term greater than ten years. Accordingly, aA new Voting Trust Agreement was established effective March 3, 2017, which expires by its terms on March 1, 2027. At SeptemberJune 30, 20172019, approximately 82%83% of the common stock was held in the voting trust. The participation of shareholders in the voting trust is voluntary at the time the voting trust is created, but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record. Shareholders may elect to participate in the voting trust at any time during the term of the voting trust.
No holder of our common stock or voting trust interests representing our common stock ("common stock", "common shares", or "shares") may sell, transfer, or otherwise dispose of any shares without first offering us the option to purchase those shares at the price at which they were issued. Additionally, a shareholder was entitled to any cash dividends, if any, accrued for the quarter in which the purchase offer is made, adjusted pro rata for the number of days such shares were held prior to the dividend record date. On June 8, 2017, the shareholders voted to remove this adjustment for accruing dividends on the common stock. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any cause other than death or "retirement" (as defined in our amended restated certificate of incorporation), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $20.00 per share.
The following table sets forth information regarding purchases of common stock by the Company, all of which were made pursuant to the foregoing provisions:
Issuer Purchases of Equity Securities
|
| | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
July 1 - July 31, 2017 | | 100,701 |
| | | $20.00 | | N/A |
August 1 - August 31, 2017 | | 97,188 |
| | | $20.00 | | N/A |
September 1 - September 30, 2017 | | 42,697 |
| | | $20.00 | | N/A |
Total | | 240,586 |
| | | $20.00 | | N/A |
|
| | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
April 1 - April 30, 2019 | | 127,083 |
| | | $20.00 | | N/A |
May 1 - May 31, 2019 | | 96,395 |
| | | $20.00 | | N/A |
June 1 - June 30, 2019 | | 41,915 |
| | | $20.00 | | N/A |
Total | | 265,393 |
| | | $20.00 | | N/A |
Item 6. Exhibits.
|
| | |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
4.2 | | |
| | |
9 | | Voting Trust Agreement dated as of March 3, 2017, included at Exhibit 4.2 above. |
| | |
10 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
101.INS | | XBRL Instance Document |
| | |
101.SCH | | XBRL Taxonomy Extension Schema Document |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
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.
|
| | | |
| | | GRAYBAR ELECTRIC COMPANY, INC. |
| | | |
| | | |
| October 31, 2017August 7, 2019 | | /s/ KATHLEEN M. MAZZARELLA |
| Date | | Kathleen M. Mazzarella |
| | | President and Chief Executive Officer (Principal Executive Officer) |
| | | |
| October 31, 2017August 7, 2019 | | /s/ RANDALL R. HARWOODSCOTT S. CLIFFORD |
| Date | | Randall R. HarwoodScott S. Clifford |
| | | Senior Vice President and Chief Financial Officer (Principal Financial Officer) |