UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| |
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
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 |
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 |
Indicate by check mark whether the registrant has submitted electronically 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 |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. |
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | 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 |
Common Stock Outstanding at | |
(Number of Shares) |
Graybar Electric Company, Inc. and Subsidiaries
Quarterly Report on Form 10-Q
For the Period Ended
(Unaudited)
Table of Contents
PART I. | FINANCIAL INFORMATION | Page | ||||
Item 1. | Financial Statements | |||||
Item 2. | 16 | |||||
Item 3. | 20 | |||||
Item 4. | 20 | |||||
PART II. | OTHER INFORMATION | |||||
Item 1A. | 21 | |||||
Item 2. | 21 | |||||
Item 6. | 22 | |||||
23 |
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) | ||||||
Three Months Ended | ||||||
(Stated in millions, except per share data) | 2020 | 2019 | ||||
Net Sales | $ | 1,773.2 | $ | 1,777.8 | ||
Cost of merchandise sold | (1,432.8) | (1,439.1) | ||||
Gross Margin | 340.4 | 338.7 | ||||
Selling, general and administrative expenses | (290.1) | (273.5) | ||||
Depreciation and amortization | (13.2) | (12.5) | ||||
Other income, net | 0.6 | 1.3 | ||||
Income from Operations | 37.7 | 54.0 | ||||
Non-operating expenses | (7.5) | (6.6) | ||||
Income before Provision for Income Taxes | 30.2 | 47.4 | ||||
Provision for income taxes | (8.7) | (13.0) | ||||
Net Income | 21.5 | 34.4 | ||||
Net income attributable to noncontrolling interests | (0.1) | (0.1) | ||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 21.4 | $ | 34.3 | ||
Net Income attributable to Graybar Electric Company, Inc. per share of Common Stock(A) | $ | 0.94 | $ | 1.51 | ||
Cash Dividends per share of Common Stock | $ | 0.30 | $ | 0.30 | ||
Average Common Shares Outstanding(A) | 22.7 | 22.7 |
Graybar Electric Company, Inc. and Subsidiaries | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(Stated in millions, except per share data) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Gross Sales | $ | 1,990.8 | $ | 1,878.9 | $ | 5,734.0 | $ | 5,364.3 | |||||||
Cash discounts | (9.4 | ) | (8.7 | ) | (26.8 | ) | (24.1 | ) | |||||||
Net Sales | 1,981.4 | 1,870.2 | 5,707.2 | 5,340.2 | |||||||||||
Cost of merchandise sold | (1,603.6 | ) | (1,516.8 | ) | (4,623.0 | ) | (4,324.2 | ) | |||||||
Gross Margin | 377.8 | 353.4 | 1,084.2 | 1,016.0 | |||||||||||
Selling, general and administrative expenses | (293.0 | ) | (276.4 | ) | (851.0 | ) | (810.5 | ) | |||||||
Depreciation and amortization | (12.6 | ) | (12.6 | ) | (37.7 | ) | (37.0 | ) | |||||||
Other income, net | 0.6 | 1.0 | 2.4 | 2.4 | |||||||||||
Income from Operations | 72.8 | 65.4 | 197.9 | 170.9 | |||||||||||
Non-operating expenses | (5.9 | ) | (7.8 | ) | (18.8 | ) | (22.8 | ) | |||||||
Income before Provision for Income Taxes | 66.9 | 57.6 | 179.1 | 148.1 | |||||||||||
Provision for income taxes | (17.9 | ) | (4.0 | ) | (48.7 | ) | (28.7 | ) | |||||||
Net Income | 49.0 | 53.6 | 130.4 | 119.4 | |||||||||||
Less: Net income attributable to noncontrolling interests | (0.2 | ) | (0.1 | ) | (0.3 | ) | (0.3 | ) | |||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 48.8 | $ | 53.5 | $ | 130.1 | $ | 119.1 | |||||||
Net Income per share of Common Stock(A) | $ | 2.28 | $ | 2.50 | $ | 6.05 | $ | 5.55 | |||||||
Cash Dividends per share of Common Stock | $ | 0.30 | $ | 0.30 | $ | 0.90 | $ | 0.90 | |||||||
Average Common Shares Outstanding(A) | 21.5 | 21.4 | 21.5 | 21.4 |
(A)
Adjusted for the declaration of aThe 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 | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(Stated in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net Income | $ | 49.0 | $ | 53.6 | $ | 130.4 | $ | 119.4 | |||||||
Other Comprehensive Income | |||||||||||||||
Foreign currency translation | (1.2 | ) | 1.8 | 3.0 | (2.5 | ) | |||||||||
Pension and postretirement benefits liability adjustment (net of tax of $(1.2), $(1.7), $(3.7), and $(5.0), respectively) | 3.6 | 4.8 | 10.8 | 14.3 | |||||||||||
Total Other Comprehensive Income | 2.4 | 6.6 | 13.8 | 11.8 | |||||||||||
Comprehensive Income | $ | 51.4 | $ | 60.2 | $ | 144.2 | $ | 131.2 | |||||||
Less: comprehensive income attributable to noncontrolling interests, net of tax | 0.2 | 0.2 | 0.5 | 0.2 | |||||||||||
Comprehensive Income attributable to Graybar Electric Company, Inc. | $ | 51.2 | $ | 60.0 | $ | 143.7 | $ | 131.0 |
Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) | ||||||
Three Months Ended | ||||||
(Stated in millions) | 2020 | 2019 | ||||
Net Income | $ | 21.5 | $ | 34.4 | ||
Other Comprehensive Income | ||||||
Foreign currency translation | (9.2) | 2.1 | ||||
Pension and postretirement benefits liability adjustment (net of | 5.5 | 3.7 | ||||
Total Other Comprehensive (Loss) Income | (3.7) | 5.8 | ||||
Comprehensive Income | $ | 17.8 | $ | 40.2 | ||
Less: Comprehensive (loss) income attributable to noncontrolling | (0.2) | 0.2 | ||||
Comprehensive Income attributable to Graybar Electric Company, Inc. | $ | 18.0 | $ | 40.0 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.
Graybar Electric Company, Inc. and Subsidiaries | |||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||||
(Stated in millions, except share and per share data) | September 30, 2019 | December 31, 2018 | |||||||||||
ASSETS | (Unaudited) | ||||||||||||
Current Assets | |||||||||||||
Cash and cash equivalents | $ | 69.6 | $ | 58.9 | |||||||||
Trade receivables (less allowances of $6.8 and $5.9, respectively) | 1,175.8 | 1,187.0 | |||||||||||
Merchandise inventory | 633.2 | 658.7 | |||||||||||
Other current assets | 53.5 | 54.1 | |||||||||||
Total Current Assets | 1,932.1 | 1,958.7 | |||||||||||
Property, at cost | |||||||||||||
Land | 79.6 | 79.4 | |||||||||||
Buildings | 495.1 | 489.2 | |||||||||||
Furniture and fixtures | 242.2 | 233.0 | |||||||||||
Software | 168.9 | 166.4 | |||||||||||
Finance leases | 21.1 | 21.3 | |||||||||||
Total Property, at cost | 1,006.9 | 989.3 | |||||||||||
Less – accumulated depreciation and amortization | (592.4 | ) | (565.4 | ) | |||||||||
Net Property | 414.5 | 423.9 | |||||||||||
Operating Lease Right-of-use Assets | 114.1 | — | |||||||||||
Other Non-current Assets | 97.1 | 108.6 | |||||||||||
Total Assets | $ | 2,557.8 | $ | 2,491.2 | |||||||||
LIABILITIES | |||||||||||||
Current Liabilities | |||||||||||||
Short-term borrowings | $ | 110.0 | $ | 235.0 | |||||||||
Current portion of long-term debt | 3.8 | 3.4 | |||||||||||
Trade accounts payable | 903.2 | 895.2 | |||||||||||
Accrued payroll and benefit costs | 102.1 | 158.2 | |||||||||||
Other accrued taxes | 26.7 | 23.9 | |||||||||||
Current operating lease liabilities | 27.0 | — | |||||||||||
Other current liabilities | 94.0 | 101.0 | |||||||||||
Total Current Liabilities | 1,266.8 | 1,416.7 | |||||||||||
Postretirement Benefits Liability | 67.2 | 66.7 | |||||||||||
Pension Liability | 123.1 | 118.6 | |||||||||||
Long-term Debt | 8.2 | 10.0 | |||||||||||
Non-current Operating Lease Liabilities | 92.0 | — | |||||||||||
Other Non-current Liabilities | 3.4 | 8.7 | |||||||||||
Total Liabilities | 1,560.7 | 1,620.7 | |||||||||||
SHAREHOLDERS’ EQUITY | |||||||||||||
Shares at | |||||||||||||
Capital Stock | September 30, 2019 | December 31, 2018 | |||||||||||
Common, stated value $20.00 per share | |||||||||||||
Authorized | 50,000,000 | 50,000,000 | |||||||||||
Issued to voting trustees | 18,394,126 | 17,754,923 | |||||||||||
Issued to shareholders | 3,883,224 | 3,744,318 | |||||||||||
In treasury, at cost | (824,467 | ) | (58,172 | ) | |||||||||
Outstanding Common Stock | 21,452,883 | 21,441,069 | 429.1 | 428.8 | |||||||||
Advance Payments on Subscriptions to Common Stock | 1.0 | — | |||||||||||
Retained Earnings | 788.9 | 678.1 | |||||||||||
Accumulated Other Comprehensive Loss | (226.7 | ) | (240.3 | ) | |||||||||
Total Graybar Electric Company, Inc. Shareholders’ Equity | 992.3 | 866.6 | |||||||||||
Noncontrolling Interests | 4.8 | 3.9 | |||||||||||
Total Shareholders’ Equity | 997.1 | 870.5 | |||||||||||
Total Liabilities and Shareholders’ Equity | $ | 2,557.8 | $ | 2,491.2 |
Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||||
(Stated in millions, except share and per share data) | 2020 | 2019 | ||||||||
ASSETS | (Unaudited) | |||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 169.4 | $ | 60.8 | ||||||
Trade receivables (less allowances of $7.0 and $6.2, respectively) | 1,138.1 | 1,096.6 | ||||||||
Merchandise inventory | 646.6 | 654.2 | ||||||||
Other current assets | 56.2 | 51.7 | ||||||||
Total Current Assets | 2,010.3 | 1,863.3 | ||||||||
Property, at cost | ||||||||||
Land | 79.3 | 79.6 | ||||||||
Buildings | 506.1 | 505.5 | ||||||||
Furniture and fixtures | 251.3 | 250.4 | ||||||||
Software | 171.3 | 168.6 | ||||||||
Finance leases | 18.5 | 18.3 | ||||||||
Total Property, at cost | 1,026.5 | 1,022.4 | ||||||||
Accumulated depreciation and amortization | (606.1) | (597.2) | ||||||||
Net Property | 420.4 | 425.2 | ||||||||
Operating Lease Right-of-use Assets | 125.0 | 117.5 | ||||||||
Other Non-current Assets | 110.3 | 111.7 | ||||||||
Total Assets | $ | 2,666.0 | $ | 2,517.7 | ||||||
LIABILITIES | ||||||||||
Current Liabilities | ||||||||||
Short-term borrowings | $ | 270.0 | $ | 138.0 | ||||||
Current portion of long-term debt | 2.4 | 3.8 | ||||||||
Trade accounts payable | 900.7 | 832.3 | ||||||||
Accrued payroll and benefit costs | 102.1 | 151.1 | ||||||||
Other accrued taxes | 21.6 | 24.7 | ||||||||
Current operating lease liabilities | 30.2 | 28.6 | ||||||||
Other current liabilities | 84.2 | 101.1 | ||||||||
Total Current Liabilities | 1,411.2 | 1,279.6 | ||||||||
Postretirement Benefits Liability | 69.4 | 69.4 | ||||||||
Pension Liability | 158.6 | 164.6 | ||||||||
Long-term Debt | 7.2 | 7.8 | ||||||||
Non-current Operating Lease Liabilities | 102.4 | 96.2 | ||||||||
Other Non-current Liabilities | 2.3 | 2.3 | ||||||||
Total Liabilities | 1,751.1 | 1,619.9 | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||||
Shares at | ||||||||||
Capital Stock | March 31, 2020 | December 31, 2019 | ||||||||
Common, stated value $20.00 per share | ||||||||||
Authorized | 50,000,000 | 50,000,000 | ||||||||
Issued to voting trustees | 19,064,627 | 18,665,064 | ||||||||
Issued to shareholders | 3,943,540 | 3,872,159 | ||||||||
In treasury, at cost | (271,199) | (62,700) | ||||||||
Outstanding Common Stock | 22,736,968 | 22,474,523 | 454.7 | 449.5 | ||||||
Advance Payments on Subscriptions to Common Stock | 1.1 | — | ||||||||
Retained Earnings | 708.5 | 694.0 | ||||||||
Accumulated Other Comprehensive Loss | (254.0) | (250.6) | ||||||||
Total Graybar Electric Company, Inc. Shareholders’ Equity | 910.3 | 892.9 | ||||||||
Noncontrolling Interests | 4.6 | 4.9 | ||||||||
Total Shareholders’ Equity | 914.9 | 897.8 | ||||||||
Total Liabilities and Shareholders’ Equity | $ | 2,666.0 | $ | 2,517.7 |
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) | |||||||
Nine Months Ended September 30, | |||||||
(Stated in millions) | 2019 | 2018 | |||||
Cash Flows from Operating Activities | |||||||
Net Income | $ | 130.4 | $ | 119.4 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Depreciation and amortization | 37.7 | 37.0 | |||||
Non-cash operating lease expense | 22.2 | — | |||||
Deferred income taxes | 3.3 | 6.6 | |||||
Net loss on disposal of property | 0.1 | — | |||||
Losses on impairment of property | — | 0.3 | |||||
Net income attributable to noncontrolling interests | (0.3 | ) | (0.3 | ) | |||
Changes in assets and liabilities: | |||||||
Trade receivables | 11.7 | (148.4 | ) | ||||
Merchandise inventory | 25.5 | (87.6 | ) | ||||
Other current assets | 0.6 | 8.3 | |||||
Other non-current assets | (0.6 | ) | (13.3 | ) | |||
Trade accounts payable | 8.0 | 115.9 | |||||
Accrued payroll and benefit costs | (56.1 | ) | (25.8 | ) | |||
Other current liabilities | (0.6 | ) | 3.7 | ||||
Other non-current liabilities | (4.2 | ) | (33.0 | ) | |||
Total adjustments to net income | 47.3 | (136.6 | ) | ||||
Net cash provided (used) by operating activities | 177.7 | (17.2 | ) | ||||
Cash Flows from Investing Activities | |||||||
Proceeds from disposal of property | 0.2 | 0.5 | |||||
Capital expenditures for property | (21.4 | ) | (27.3 | ) | |||
Net cash used by investing activities | (21.2 | ) | (26.8 | ) | |||
Cash Flows from Financing Activities | |||||||
Net (decrease) increase in short-term borrowings | (125.0 | ) | 76.4 | ||||
Principal payments under finance leases | (3.2 | ) | (3.6 | ) | |||
Sale of common stock | 16.6 | 15.9 | |||||
Purchases of common stock | (15.3 | ) | (12.8 | ) | |||
Sales of noncontrolling interests’ common stock | 0.8 | — | |||||
Purchases of noncontrolling interests’ common stock | (0.4 | ) | (0.3 | ) | |||
Dividends paid | (19.3 | ) | (17.5 | ) | |||
Net cash (used) provided by financing activities | (145.8 | ) | 58.1 | ||||
Net Increase in Cash | 10.7 | 14.1 | |||||
Cash, Beginning of Year | 58.9 | 42.8 | |||||
Cash, End of Period | $ | 69.6 | $ | 56.9 | |||
Non-cash Investing and Financing Activities | |||||||
Acquisitions of equipment under finance leases | $ | 1.9 | $ | 2.8 | |||
Acquisitions of assets under operating leases | $ | 44.4 | $ | — | |||
Acquisition of software and maintenance under financing arrangement | $ | — | $ | 5.0 |
Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) | ||||||
Three Months Ended March 31, | ||||||
(Stated in millions) | 2020 | 2019 | ||||
Cash Flows from Operating Activities | ||||||
Net Income | $ | 21.5 | $ | 34.4 | ||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||
Depreciation and amortization | 13.2 | 12.5 | ||||
Non-cash operating lease expense | 8.2 | 7.1 | ||||
Deferred income taxes | (1.1) | (1.8) | ||||
Net income attributable to noncontrolling interests | (0.1) | (0.1) | ||||
Changes in assets and liabilities: | ||||||
Trade receivables | (41.3) | 62.8 | ||||
Merchandise inventory | 7.6 | (37.6) | ||||
Other current assets | (4.5) | 0.6 | ||||
Other non-current assets | (1.1) | 0.3 | ||||
Trade accounts payable | 68.4 | 30.1 | ||||
Accrued payroll and benefit costs | (49.0) | (48.7) | ||||
Other current liabilities | (27.6) | (9.6) | ||||
Other non-current liabilities | (6.6) | 0.5 | ||||
Total adjustments to net income | (33.9) | 16.1 | ||||
Net cash (used) provided by operating activities | (12.4) | 50.5 | ||||
Cash Flows from Investing Activities | ||||||
Proceeds from disposal of property | — | 0.1 | ||||
Capital expenditures for property | (8.1) | (5.0) | ||||
Net cash used by investing activities | (8.1) | (4.9) | ||||
Cash Flows from Financing Activities | ||||||
Net increase (decrease) in short-term borrowings | 132.0 | (15.0) | ||||
Principal payments under finance arrangements | (2.2) | (2.1) | ||||
Sale of common stock | 10.5 | 9.9 | ||||
Purchases of common stock | (4.2) | (5.5) | ||||
Purchases of noncontrolling interests’ common stock | (0.1) | (0.3) | ||||
Dividends paid | (6.9) | (6.5) | ||||
Net cash provided (used) by financing activities | 129.1 | (19.5) | ||||
Net Increase in Cash | 108.6 | 26.1 | ||||
Cash, Beginning of Year | 60.8 | 58.9 | ||||
Cash, End of Period | $ | 169.4 | $ | 85.0 | ||
Non-cash Investing and Financing Activities | ||||||
Acquisitions of equipment under finance leases | $ | 0.2 | $ | 1.2 | ||
Acquisitions of assets under operating leases | $ | 16.0 | $ | 9.8 |
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 CHANGES IN SHAREHOLDERS' EQUITY | |||||||||||||||||||||||
(Unaudited, stated in millions) | |||||||||||||||||||||||
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, 2017 | $ | 387.7 | $ | — | $ | 619.9 | $ | (250.1 | ) | $ | 4.1 | $ | 761.6 | ||||||||||
Net income | 119.1 | 0.3 | 119.4 | ||||||||||||||||||||
Other comprehensive income | 11.8 | 11.8 | |||||||||||||||||||||
Adoption of ASC 606, net of tax | 0.8 | 0.8 | |||||||||||||||||||||
Stock issued | 14.9 | 14.9 | |||||||||||||||||||||
Stock purchased | (12.8 | ) | (0.3 | ) | (13.1 | ) | |||||||||||||||||
Advance payments | 1.0 | 1.0 | |||||||||||||||||||||
Dividends declared | (17.5 | ) | (17.5 | ) | |||||||||||||||||||
September 30, 2018 | $ | 389.8 | $ | 1.0 | $ | 722.3 | $ | (238.3 | ) | $ | 4.1 | $ | 878.9 | ||||||||||
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 | 130.1 | 0.3 | 130.4 | ||||||||||||||||||||
Other comprehensive income | 13.6 | 0.2 | 13.8 | ||||||||||||||||||||
Stock issued | 15.6 | 0.8 | 16.4 | ||||||||||||||||||||
Stock purchased | (15.3 | ) | (0.4 | ) | (15.7 | ) | |||||||||||||||||
Advance payments | 1.0 | 1.0 | |||||||||||||||||||||
Dividends declared | (19.3 | ) | (19.3 | ) | |||||||||||||||||||
September 30, 2019 | $ | 429.1 | $ | 1.0 | $ | 788.9 | $ | (226.7 | ) | $ | 4.8 | $ | 997.1 |
Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited, stated in millions) | |||||||||||||||||
Graybar Electric Company, Inc. Shareholders’ Equity | |||||||||||||||||
Common | Accumulated | ||||||||||||||||
Stock | Other | Total | |||||||||||||||
Common | Subscribed, | Retained | Comprehensive | Noncontrolling | Shareholders’ | ||||||||||||
Stock | Unissued | Earnings | Loss | Interests | Equity | ||||||||||||
December 31, 2018 | $ | 428.8 | $ | — | $ | 678.1 | $ | (240.3) | $ | 3.9 | $ | 870.5 | |||||
Net income |
|
| 34.3 |
| 0.1 | 34.4 | |||||||||||
Other comprehensive income |
|
|
| 5.7 | 0.1 | 5.8 | |||||||||||
Stock issued | 8.8 |
|
|
|
| 8.8 | |||||||||||
Stock purchased | (5.5) |
|
|
| (0.3) | (5.8) | |||||||||||
Advance payments |
| 1.1 |
|
|
| 1.1 | |||||||||||
Dividends declared |
|
| (6.5) |
|
| (6.5) | |||||||||||
March 31, 2019 | $ | 432.1 | $ | 1.1 | $ | 705.9 | $ | (234.6) | $ | 3.8 | $ | 908.3 | |||||
Graybar Electric Company, Inc. Shareholders’ Equity | |||||||||||||||||
Common | Accumulated | ||||||||||||||||
Stock | Other | Total | |||||||||||||||
Common | Subscribed, | Retained | Comprehensive | Noncontrolling | Shareholders’ | ||||||||||||
Stock | Unissued | Earnings | Loss | Interests | Equity | ||||||||||||
December 31, 2019 | $ | 449.5 | $ | — | $ | 694.0 | $ | (250.6) | $ | 4.9 | $ | 897.8 | |||||
Net income |
|
| 21.4 |
| 0.1 | 21.5 | |||||||||||
Other comprehensive loss |
|
|
| (3.4) | (0.3) | (3.7) | |||||||||||
Stock issued | 9.4 |
|
|
|
| 9.4 | |||||||||||
Stock purchased | (4.2) |
|
|
| (0.1) | (4.3) | |||||||||||
Advance payments |
| 1.1 |
|
|
| 1.1 | |||||||||||
Dividends declared |
|
| (6.9) |
|
| (6.9) | |||||||||||
March 31, 2020 | $ | 454.7 | $ | 1.1 | $ | 708.5 | $ | (254.0) | $ | 4.6 | $ | 914.9 |
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 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"governmental (“CIG”), and industrial & utility 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"). We purchase all of the products we sell from others, and we neither manufacture nor contract to manufacture any products we sell. Our business activity is primarily based 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,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.
Revenue Recognition
Sales revenue is recognized when performance obligations are satisfied, which is typically upon delivery of the product to the customer. Sometimes product is purchased from the manufacturer and 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 transfers to the 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 control passes to the customer at the time of shipment. We also earn revenue for professional services, general contracting services, and storage services. ServiceSuch service revenue represented less than 1% of grossnet sales for the three
months ended September 30,March 31, 2020 and 2019. Revenue is reported net of all taxes, primarily sales tax, assessed by governmental authorities as a result of revenue-producing transactions, primarily sales tax.
Outgoing Freight Expenses
We record certain95% of 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 andpooled on the aging of the receivables, specific risks identified in the receivables portfolio.portfolio based on current conditions, and expected future economic conditions when necessary. 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, comprised entirely of finished goods, is stated at the lower of cost (generally determined using the last-in, first-out (“LIFO”) cost method) or market. Inventories valued using the LIFO method comprised 91% of the total inventories at both March 31, 2020 and March 31, 2019. 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 agreementagreements and the deferred amounts that 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 are 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 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 3 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. 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.
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. AllFor all other leases, that containwe account for the 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.
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.
New Accounting Standards
No new accounting standards that were issued or became effective during 20192020 have had or are expected to have a material impact on our condensed consolidated financial statements, except those noted below:
In FebruaryJune 2016, the FASB issued Accounting Standard Update (“ASU” or “Update”) 2016-02, “Leases (Topic 842)” ("ASU 2016-02"). The core principle of this new guidance requires a lessee to recognize an ROU asset and lease liability on the balance sheet for both operating and finance leases while disclosing key information about the leasing arrangements. The amendments in ASU 2016-02 were effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We adopted the new guidance on 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 haveadopted this Update as of January 1, 2020. We determined that our trade receivables are financial instruments subject to this Update. We are currently evaluatingevaluated the accounting policies overapplicable to our allowance for doubtful accounts and are developingdeveloped new methods to encompassinclude 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 conditions, though less critical due to the short-term nature of our trade receivables. We have made substantial progress in our implementation of this ASU using historical loss rates while we continue to assess our reserves based on current and expected future economic conditions. We currently believe that theThe adoption of this Update willdid not have a material impact on our consolidated financial statements and plan to adopt this Update beginning on 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 impactadopted this Update as of theJanuary 1, 2020. The adoption of thethis Update did not have a material impact on our consolidated financial statements, but dostatements.
In August 2018, the FASB issued ASU 2018-15, "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. We adopted this Update as of January 1, 2020. The adoption did not expect it to have a material impact. We plan to adopt the Update inimpact on our fiscal year beginning on January 1, 2020.
In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU 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 eliminates 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 for fiscal years ending after December 15, 2020 for public entities. Early adoption is permitted. We are currently evaluating the impact of 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,March 2020, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)2020-04, “Reference Rate Reform (Topic 848): 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 termFacilitation of the hosting arrangement, beginning whenEffects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”) that provides temporary relief to the module or componentGAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the hosting arrangement is ready for its intended use. ASU 2018-15expected market transition from LIBOR and other interbank offered rates to alternative rates. This Update is effective for fiscal yearsall entities as of March 12, 2020 through December 31, 2022. The guidance on contract modifications can be applied prospectively from any date beginning March 12, 2020 and may also be applied to modifications of existing contracts made earlier in the interim period that includes March 12, 2020. The guidance on hedging can be applied to eligible hedging relationships existing at the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after December 15, 2019, andthe beginning of that interim periods within those fiscal years for public entities. Early adoption is permitted.period. We are currently believe thatevaluating the impact of the adoption of thisthe Update will not have a material impact on our contracts and our consolidated financial statements and we plan to adopt the 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 nine months ended September 30, 2019March 31, 2020 and 2018:2019:
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Construction | 57.8 | % | 58.2 | % | |||
CIG | 26.6 | 26.1 | |||||
Industrial & Utility | 15.6 | 15.7 | |||||
Total net sales | 100.0 | % | 100.0 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Construction | 60.8 | % | 60.4 | % | 60.3 | % | 59.4 | % | |||
Industrial & Utility | 18.9 | 20.9 | 19.1 | 20.9 | |||||||
CIG | 20.3 | 18.7 | 20.6 | 19.7 | |||||||
Total net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Certain reclassifications have been made to the vertical market assigned to customers in the prior years'year's information to conform to the September 30, 2019March 31, 2020 presentation.
We had no0 material contract assets, contract liabilities, or deferred contract costs recorded on the condensed consolidated balance sheet as of September 30, 2019March 31, 2020 and December 31, 2018.2019. In addition, for the three and nine months ended September 30,March 31, 2020 and 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
Our total provision for income taxes was $17.9 million and $48.7$8.7 million for the three- and nine- month periodsthree months ended September 30, 2019, respectively.March 31, 2020. We record our income tax provision using a full-year forecasted methodology, including discrete items in the period in which they occur. Our year-to-date effective tax rate for the ninethree months ended September 30, 2019March 31, 2020 was 27.2%28.8%. We do not expect material fluctuations in this rate throughout the remainder of the year.
Our unrecognized tax benefits of $2.8$1.6 million and $2.6$1.9 million at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, are uncertain tax positions that would impact our effective tax rate if recognized. We are periodically engaged in tax return examinations, the review of statute of limitation 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 and underpayment percentages. We have accrued $0.6$0.3 million and $0.4 million in interest and penalties at September 30, 2019March 31, 2020 and December 31, 2018,2019, 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.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property (QIP). At this point we do not believe that the CARES Act will have a material impact on our income tax provision for 2020. We continue to evaluate the impact of the CARES Act on our financial position, results of operations, and cash flows.
Our federal income tax returns for the tax years 2016 and forward are available for examination by the United States Internal Revenue Service (“IRS”). The statute of limitations for the 2016 federal return will expire on October 15, 2020, unless extended by consent. Our state income tax returns for 20142015 through 20182019 remain subject to examination by various state authorities with the latest period closing on December 31, 2023.2024. We have not extended the statutes of limitations in any state jurisdictions with respect to years prior to 2014.
5. DEBT
Revolving Credit Facility
At September 30, 2019March 31, 2020 and December 31, 2018,2019, 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"Amended 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-
We were in compliance with all covenants under the Amended Credit Agreement as of September 30, 2019March 31, 2020 and December 31, 2018.
There were $110.0$270.0 million and $235.0$138.0 million in short-term borrowings outstanding under the Amended Credit Agreement at
Short-term borrowings outstanding during the
At
Interest expense, net was $1.4$0.9 million and $1.8 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Interest expense, net was $5.1 million and $4.9 million for the nine months ended September 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 Amended Credit Agreement.
NaN notes have been issued under either the Prudential Shelf Agreement or the MetLife Shelf Agreement as of September 30, 2019March 31, 2020 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 Amended 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 September 30, 2019March 31, 2020 and
Letters of Credit
At March 31, 2020 and December 31, 2019, we had total letters of credit of $5.6 million outstanding, at September 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 theAmended Credit Agreement. The letters of credit are issued primarily to support certain workers' compensation insurance policies.
6. LEASES
Three Months Ended | Nine Months Ended | |||||||
September 30, 2019 | September 30, 2019 | |||||||
Operating lease cost | $ | 8.8 | $ | 25.0 | ||||
Finance lease cost: | ||||||||
Amortization of right-of-use assets | 0.6 | 1.7 | ||||||
Interest on lease liabilities | 0.1 | 0.5 | ||||||
Total finance lease cost | 0.7 | 2.2 | ||||||
Variable lease cost | 2.3 | 7.2 | ||||||
Total lease cost | $ | 11.8 | $ | 34.4 |
September 30, 2019 | ||||
Operating leases: | ||||
Operating lease right-of-use assets | $ | 114.1 | ||
Current operating lease liabilities | $ | 27.0 | ||
Non-current operating lease liabilities | 92.0 | |||
Total operating lease liabilities | $ | 119.0 | ||
Finance leases: | ||||
Property, at cost | $ | 21.1 | ||
Less – accumulated depreciation and amortization | 12.3 | |||
Net property | $ | 8.8 | ||
Current obligations of finance leases | $ | 2.1 | ||
Finance leases, net of current obligations | 8.2 | |||
Total finance lease liabilities | $ | 10.3 | ||
Weighted average remaining lease term: | ||||
Operating leases | 5.1 years | |||
Finance leases | 5.2 years | |||
Weighted average discount rate: | ||||
Operating leases | 3.4 | % | ||
Finance leases | 7.0 | % |
Three Months Ended | Nine Months Ended | |||||||
September 30, 2019 | September 30, 2019 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 8.7 | $ | 24.8 | ||||
Operating cash flows from finance leases | 0.1 | 0.5 | ||||||
Financing cash flows from finance leases | 0.6 | 3.2 | ||||||
Right-of-use assets obtained in exchange for lease liabilities: | ||||||||
Operating leases | $ | 15.2 | $ | 44.4 | ||||
Finance leases | 0.4 | 1.9 |
September 30, 2019 | ||||||||
Operating Leases | Finance Leases | |||||||
Future minimum lease payments | ||||||||
2019 (excluding the nine months ended September 30, 2019) | $ | 6.4 | $ | 0.7 | ||||
2020 | 31.6 | 2.7 | ||||||
2021 | 26.1 | 2.7 | ||||||
2022 | 21.3 | 2.1 | ||||||
2023 | 16.3 | 1.4 | ||||||
Thereafter | 28.2 | 3.0 | ||||||
Total future minimum lease payments | $ | 129.9 | $ | 12.6 | ||||
Less: imputed interest | (10.9 | ) | (2.3 | ) | ||||
Total lease obligation | $ | 119.0 | $ | 10.3 | ||||
Less: current obligations | (27.0 | ) | (2.1 | ) | ||||
Long-term lease obligation | $ | 92.0 | $ | 8.2 |
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 |
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 final 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 no0 assets held in the postretirement benefits plan at
The net periodic benefit cost for the three and nine months ended
Pension Benefits | Postretirement Benefits | ||||||||||
Three Months Ended | Three Months Ended | ||||||||||
March 31, | March 31, | ||||||||||
Components of Net Periodic Benefit Cost | 2020 | 2019 | 2020 | 2019 | |||||||
Selling, general, and administrative expenses: | |||||||||||
Service cost | $ | 7.2 | $ | 6.5 | $ | 0.5 | $ | 0.5 | |||
Total selling, general, and administrative expenses | $ | 7.2 | $ | 6.5 | $ | 0.5 | $ | 0.5 | |||
Non-operating expenses: | |||||||||||
Interest cost | 7.0 | 7.6 | 0.6 | 0.8 | |||||||
Expected return on plan assets | (8.4) | (8.6) | — | — | |||||||
Amortization of: | |||||||||||
Net actuarial loss | 7.2 | 4.9 | 0.2 | 0.1 | |||||||
Total non-operating expenses | $ | 5.8 | $ | 3.9 | $ | 0.8 | $ | 0.9 | |||
Net periodic benefit cost | $ | 13.0 | $ | 10.4 | $ | 1.3 | $ | 1.4 |
Pension Benefits | Postretirement Benefits | ||||||||||||
Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||
Components of Net Periodic Benefit Cost | 2019 | 2018 | 2019 | 2018 | |||||||||
Selling, general, and administrative expenses: | |||||||||||||
Service cost | $ | 6.4 | $ | 7.1 | $ | 0.5 | $ | 0.5 | |||||
Total selling, general, and administrative expenses | $ | 6.4 | $ | 7.1 | $ | 0.5 | $ | 0.5 | |||||
Non-operating expenses: | |||||||||||||
Interest cost | 7.5 | 6.8 | 0.7 | 0.6 | |||||||||
Expected return on plan assets | (8.5 | ) | (7.9 | ) | — | — | |||||||
Amortization of: | |||||||||||||
Net actuarial loss | 4.8 | 6.7 | — | 0.3 | |||||||||
Prior service cost (gain) | — | — | — | (0.5 | ) | ||||||||
Total non-operating expenses | $ | 3.8 | $ | 5.6 | $ | 0.7 | $ | 0.4 | |||||
Net periodic benefit cost | $ | 10.2 | $ | 12.7 | $ | 1.2 | $ | 0.9 | |||||
Pension Benefits | Postretirement Benefits | ||||||||||||
Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
Components of Net Periodic Benefit Cost | 2019 | 2018 | 2019 | 2018 | |||||||||
Selling, general, and administrative expenses: | |||||||||||||
Service cost | $ | 19.2 | $ | 21.4 | $ | 1.5 | $ | 1.7 | |||||
Total selling, general, and administrative expenses | $ | 19.2 | $ | 21.4 | $ | 1.5 | $ | 1.7 | |||||
Non-operating expenses: | |||||||||||||
Interest cost | 22.5 | 20.5 | 2.2 | 2.0 | |||||||||
Expected return on plan assets | (25.5 | ) | (23.9 | ) | — | — | |||||||
Amortization of: | |||||||||||||
Net actuarial loss | 14.3 | 19.9 | 0.2 | 0.7 | |||||||||
Prior service cost (gain) | — | 0.2 | — | (1.5 | ) | ||||||||
Total non-operating expenses | $ | 11.3 | $ | 16.7 | $ | 2.4 | $ | 1.2 | |||||
Net periodic benefit cost | $ | 30.5 | $ | 38.1 | $ | 3.9 | $ | 2.9 |
We made qualified and nonqualified pension contributions totaling $10.0$11.8 million during the
7. 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. A new Voting Trust Agreement was established effective March 3, 2017, which expires by its terms on March 1, 2027. At
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. 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
Cash dividends paid were $6.3$6.9 million and $5.8$6.5 million for the
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 no0 shares of preferred stock outstanding at September 30, 2019March 31, 2020 and December 31, 2018.
8. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table represents amounts reclassified from accumulated other comprehensive loss for the
three months endedThree Months Ended | Three Months Ended | |||||||||||
Amortization of Pension and Other Postretirement Benefits Items | Amortization of Pension and Other Postretirement Benefits Items | |||||||||||
Actuarial | Total | Actuarial | Total | |||||||||
Affected Line in Condensed Consolidated Statement of Income: | ||||||||||||
Non-operating expenses | $ | 7.4 | $ | 7.4 | $ | 5.0 | $ | 5.0 | ||||
Tax benefit | (1.9) | (1.9) | (1.3) | (1.3) | ||||||||
Total reclassifications for the period, net of tax | $ | 5.5 | $ | 5.5 | $ | 3.7 | $ | 3.7 |
Three Months Ended September 30, 2019 | Three Months Ended September 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 | $ | 4.8 | $ | — | $ | 4.8 | $ | 7.0 | $ | (0.5 | ) | $ | 6.5 | |||||||||||
Tax (benefit) expense | (1.2 | ) | — | (1.2 | ) | (1.8 | ) | 0.1 | (1.7 | ) | ||||||||||||||
Total reclassifications for the period, net of tax | $ | 3.6 | $ | — | $ | 3.6 | $ | 5.2 | $ | (0.4 | ) | $ | 4.8 |
Nine Months Ended September 30, 2019 | Nine Months Ended September 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 | $ | 14.5 | $ | — | $ | 14.5 | $ | 20.6 | $ | (1.3 | ) | $ | 19.3 | |||||||||||
Tax (benefit) expense | (3.7 | ) | — | (3.7 | ) | (5.3 | ) | 0.3 | (5.0 | ) | ||||||||||||||
Total reclassifications for the period, net of tax | $ | 10.8 | $ | — | $ | 10.8 | $ | 15.3 | $ | (1.0 | ) | $ | 14.3 |
The following table represents the activity included in accumulated other comprehensive loss for the
three months endedThree Months Ended | Three Months Ended | |||||||||||||||||
Foreign | Pension and | Total | Foreign | Pension and | Total | |||||||||||||
Beginning balance January 1, | $ | (7.7) | $ | (242.9) | $ | (250.6) | $ | (12.4) | $ | (227.9) | $ | (240.3) | ||||||
Other comprehensive (loss) income before reclassifications | (8.9) | — | (8.9) | 2.0 | — | 2.0 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax $(1.9) and $(1.3)) | — | 5.5 | 5.5 | — | 3.7 | 3.7 | ||||||||||||
Net current-period other comprehensive (loss) income | (8.9) | 5.5 | (3.4) | 2.0 | 3.7 | 5.7 | ||||||||||||
Ending balance March 31, | $ | (16.6) | $ | (237.4) | $ | (254.0) | $ | (10.4) | $ | (224.2) | $ | (234.6) |
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | |||||||||||||||||||||||
Foreign Currency | Pension and Other Postretirement Benefits | Total | Foreign Currency | Pension and Other Postretirement Benefits | Total | |||||||||||||||||||
Beginning balance July 1, | $ | (8.4 | ) | $ | (220.7 | ) | $ | (229.1 | ) | $ | (8.7 | ) | $ | (236.0 | ) | $ | (244.7 | ) | ||||||
Other comprehensive (loss) income before reclassifications | (1.2 | ) | — | (1.2 | ) | 1.6 | — | 1.6 | ||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax $(1.2) and $(1.7)) | — | 3.6 | 3.6 | — | 4.8 | 4.8 | ||||||||||||||||||
Net current-period other comprehensive income (loss) | (1.2 | ) | 3.6 | 2.4 | 1.6 | 4.8 | 6.4 | |||||||||||||||||
Ending balance September 30, | $ | (9.6 | ) | $ | (217.1 | ) | $ | (226.7 | ) | $ | (7.1 | ) | $ | (231.2 | ) | $ | (238.3 | ) |
Nine Months Ended September 30, 2019 | Nine Months Ended September 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 | 2.8 | — | 2.8 | (2.5 | ) | — | (2.5 | ) | ||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax $(3.7) and $(5.0)) | — | 10.8 | 10.8 | — | 14.3 | 14.3 | ||||||||||||||||||
Net current-period other comprehensive income (loss) | 2.8 | 10.8 | 13.6 | (2.5 | ) | 14.3 | 11.8 | |||||||||||||||||
Ending balance September 30, | $ | (9.6 | ) | $ | (217.1 | ) | $ | (226.7 | ) | $ | (7.1 | ) | $ | (231.2 | ) | $ | (238.3 | ) |
9. COMMITMENTS AND CONTINGENCIES
We are subject to various claims, disputes, and administrative and legal matters incidental to our past and current business activities. As a result, contingencies arise resulting from an existing condition, situation, or set of circumstances involving an uncertainty as to the realization of a possible loss.
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 in which such matters are resolved or a better estimate becomes available.
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,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: the impact of the coronavirus (COVID-19) pandemic, general economic conditions, particularly in the residential, commercial, and industrial building construction industries; volatility in the prices of industrial commodities; a sustained interruption in the operation of our information systems; volatility in the prices of industrial commodities; 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; 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, 2018.
All dollar amounts, except per share data, are stated in 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"(“CIG”), and industrial & utility 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"). We purchase all the products we sell from others, and we neither manufacture nor contract to manufacture any products we sell. Our business activity is primarily based 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. 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
Net sales for the three months ended September 30, 2019 set a new quarterly sales record for the Company. Net sales for the third quarter of 2019 totaled $1,981.4 million, an increase of $111.2March 31, 2020 declined $4.6 million, or 5.9%0.3%, to $1,773.2 million, when compared to net sales of $1,870.2
Selling, general, and administrative (SG&A) expenses increased $16.6 million, or 6.1%, to $290.1 million from $273.5 million for the three months ended September 30, 2018. Income before provision forMarch 31, 2019. The increase was primarily due to increases in salary and benefit costs, as well as rent and utility expenses. As a result of the increase in SG&A expenses outpacing the increase in gross margin, income taxes totaled $179.1from operations declined $16.3 million, or 30.2%, to $37.7 million for the ninethree months ended September 30, 2019, an increase of $31.0 million, or 20.9%,March 31, 2020, from $148.1$54.0 million for the same period last year.
Net income attributable to Graybar Electric Company, Inc. decreased by $12.9 million, or 37.6%, to $21.4 million for the three months ended September 30, 2019 was $48.8 million which was $4.7 million, or 8.8%, less than net income attributableMarch 31, 2020 compared to Graybar of $53.5$34.3 million for the same period last year. The decrease in net income attributable to Graybar was due to unusually low income tax expense in 2018 resulting from one-time items recorded inthree months ended March 31, 2019.
During the thirdfirst quarter of 20182020, the world financial markets and world economy experienced unprecedented instability as a result of the COVID-19 pandemic. We expect the overall general economic conditions to continue to deteriorate during the coming months as the markets and economy absorb the impact of the much-publicized turmoil in global and financial markets caused by COVID-19. This uncertainty continues to evolve, and we believe we are taking appropriate steps to address related to the Tax Cuts and Jobs Act ("TCJA").
Consolidated Results of Operations
Three Months Ended September 30, 2019March 31, 2020 Compared to Three Months Ended September 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 three months ended
Three Months Ended | Three Months Ended | ||||||||||
Dollars | Percent | Dollars | Percent | ||||||||
Net Sales | $ | 1,773.2 | 100.0 | % | $ | 1,777.8 | 100.0 | % | |||
Cost of merchandise sold | (1,432.8) | (80.8) | (1,439.1) | (80.9) | |||||||
Gross Margin | 340.4 | 19.2 | 338.7 | 19.1 | |||||||
Selling, general and administrative expenses | (290.1) | (16.4) | (273.5) | (15.5) | |||||||
Depreciation and amortization | (13.2) | (0.7) | (12.5) | (0.7) | |||||||
Other income, net | 0.6 | — | 1.3 | 0.1 | |||||||
Income from Operations | 37.7 | 2.1 | 54.0 | 3.0 | |||||||
Non-operating expenses | (7.5) | (0.4) | (6.6) | (0.4) | |||||||
Income before Provision for Income Taxes | 30.2 | 1.7 | 47.4 | 2.6 | |||||||
Provision for income taxes | (8.7) | (0.5) | (13.0) | (0.7) | |||||||
Net Income | 21.5 | 1.2 | 34.4 | 1.9 | |||||||
Net income attributable to noncontrolling interests | (0.1) | — | (0.1) | — | |||||||
Net Income attributable to | $ | 21.4 | 1.2 | % | $ | 34.3 | 1.9 | % |
Three Months Ended | Three Months Ended | ||||||||||||
September 30, 2019 | September 30, 2018 | ||||||||||||
Dollars | Percent | Dollars | Percent | ||||||||||
Net Sales | $ | 1,981.4 | 100.0 | % | $ | 1,870.2 | 100.0 | % | |||||
Cost of merchandise sold | (1,603.6 | ) | (80.9 | ) | (1,516.8 | ) | (81.1 | ) | |||||
Gross Margin | 377.8 | 19.1 | 353.4 | 18.9 | |||||||||
Selling, general and administrative expenses | (293.0 | ) | (14.8 | ) | (276.4 | ) | (14.8 | ) | |||||
Depreciation and amortization | (12.6 | ) | (0.6 | ) | (12.6 | ) | (0.7 | ) | |||||
Other income, net | 0.6 | — | 1.0 | 0.1 | |||||||||
Income from Operations | 72.8 | 3.7 | 65.4 | 3.5 | |||||||||
Non-operating expenses | (5.9 | ) | (0.3 | ) | (7.8 | ) | (0.4 | ) | |||||
Income before Provision for Income Taxes | 66.9 | 3.4 | 57.6 | 3.1 | |||||||||
Provision for income taxes | (17.9 | ) | (0.9 | ) | (4.0 | ) | (0.2 | ) | |||||
Net Income | 49.0 | 2.5 | 53.6 | 2.9 | |||||||||
Less: Net income attributable to noncontrolling interests | (0.2 | ) | — | (0.1 | ) | — | |||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 48.8 | 2.5 | % | $ | 53.5 | 2.9 | % |
Net sales increaseddecreased to $1,981.4$1,773.2 million for the quarterthree months ended September 30, 2019,March 31, 2020, compared to $1,870.2$1,777.8 million for the quarterthree months ended September 30, 2018, an
Gross margin increased $24.4$1.7 million, or 6.9%0.5%, to $377.8$340.4 million for the three months ended September 30, 2019,March 31, 2020, from $353.4$338.7 million for the same period in 2018. The increase in gross margin was primarily due to increased net sales in the third quarter ofthree months ended March 31, 2019. Our gross margin as a percent of net sales was 19.1% for the three-month period ended September 30, 2019,
Selling, general and administrative ("SG&A") expenses increased $16.6 million, or 6.0%6.1%, to $293.0$290.1 million, infor the
Depreciation and amortization for the
three months endedNon-operating expenses for the three months ended September 30, 2019 declined $1.9increased $0.9 million, or 24.4%13.6%, to $5.9 million from $7.8$7.5 million for the three months ended September 30, 2018.March 31, 2020, compared to $6.6 million for the same period of 2019. The decreaseincrease was due to decreasesan increase in non-service cost components of net periodic benefit costs of $1.5$1.8 million andoffset by a decrease in interest expense, net of $0.4$0.9 million for the three months ended September 30, 2019,March 31, 2020, compared to the same three-month period in 2018.2019. The decrease in interest expense, net was due to lower interest rates and lower levels of average outstanding short-term borrowings for the three months ended September 30, 2019,March 31, 2020, compared to the same three-month period in 2018.
Income before provision for income taxes totaled $66.9$30.2 million for the three months ended September 30, 2019, an increaseMarch 31, 2020, a decrease of $9.3$17.2 million, or 16.1%36.3%, from $57.6$47.4 million for the three months ended September 30, 2018.March 31, 2019. The increasedecrease was primarily due to increases in SG&A expenses and non-operating expenses that outpaced our growth in gross margin outpacing our growth in SG&A expenses.margin.
Our total provision for income taxes increased $13.9decreased $4.3 million, or 347.5%33.1%, to $17.9$8.7 million for the three months ended September 30, 2019,March 31, 2020, compared to $4.0$13.0 million for the same period of 2018.in 2019. The increasedecrease in our provision for income taxes quarteryear over quarter is primarily due to increasedyear resulted from decreased pretax income and one-time items recorded as a result of the TCJA in 2018.income. Our year-to-date effective tax rate was 26.8%28.8% for the three months ended September 30, 2019,March 31, 2020, compared to 7.0%27.4% for the same period of 2018.in 2019. The effective tax rate for the three months ended September 30, 2019March 31, 2020 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 three months ended September 30, 2019March 31, 2020 decreased $4.7$12.9 million, or 8.8%37.6%, to $48.8$21.4 million from $53.5$34.3 million for the three months ended September 30, 2018.
Nine Months Ended | Nine Months Ended | ||||||||||||
September 30, 2019 | September 30, 2018 | ||||||||||||
Dollars | Percent | Dollars | Percent | ||||||||||
Net Sales | $ | 5,707.2 | 100.0 | % | $ | 5,340.2 | 100.0 | % | |||||
Cost of merchandise sold | (4,623.0 | ) | (81.0 | ) | (4,324.2 | ) | (81.0 | ) | |||||
Gross Margin | 1,084.2 | 19.0 | 1,016.0 | 19.0 | |||||||||
Selling, general and administrative expenses | (851.0 | ) | (14.9 | ) | (810.5 | ) | (15.1 | ) | |||||
Depreciation and amortization | (37.7 | ) | (0.7 | ) | (37.0 | ) | (0.7 | ) | |||||
Other income, net | 2.4 | — | 2.4 | — | |||||||||
Income from Operations | 197.9 | 3.4 | 170.9 | 3.2 | |||||||||
Non-operating expenses | (18.8 | ) | (0.3 | ) | (22.8 | ) | (0.4 | ) | |||||
Income before Provision for Income Taxes | 179.1 | 3.1 | 148.1 | 2.8 | |||||||||
Provision for income taxes | (48.7 | ) | (0.9 | ) | (28.7 | ) | (0.6 | ) | |||||
Net Income | 130.4 | 2.2 | 119.4 | 2.2 | |||||||||
Less: Net income attributable to noncontrolling interests | (0.3 | ) | — | (0.3 | ) | — | |||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 130.1 | 2.2 | % | $ | 119.1 | 2.2 | % |
Financial Condition and Liquidity
We manage our liquidity and capital levels so that we have the capability 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 enables us to invest in strategic long-term growth plans.
We have historically funded our working capital requirements using cash flows generated from 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 with cash from working capital management and short-term bank lines of credit.
Our cash and cash equivalents at September 30, 2019March 31, 2020 were $69.6$169.4 million, compared to $58.9$60.8 million at December 31, 2018,2019, an increase of $10.7$108.6 million, or 18.2%178.6%. As a result of the improvement to our cash collection efforts related to trade receivables and improvements to merchandise inventory management, we were able to pay down ourOur short-term borrowings increased by $125.0$132.0 million, or 53.2%95.7%, during the nine-monththree-month period to $110.0$270.0 million at September 30, 2019March 31, 2020 from $235.0$138.0 million at December 31, 2018.2019. The increase in cash and short-term borrowings was to enhance immediate liquidity in light of the circumstances surrounding the COVID-19 pandemic. Current assets exceeded current liabilities by $665.3$599.1 million at September 30, 2019,March 31, 2020, an increase of $123.3$15.4 million, or 22.7%2.6%, from $542.0$583.7 million at December 31, 2018 due to the decrease in short-term borrowings.
Operating Activities
Cash flows providedused by operating activities for the ninethree months ended
The average number of days of sales in trade receivables for the nine-monththree-month period ended September 30, 2019 improved significantlyMarch 31, 2020 increased modestly compared to the same nine-monththree-month period ended September 30, 2018.March 31, 2019. The days in inventory improved significantly for the ninethree months ended September 30, 2019,March 31, 2020, compared to the ninethree months ended September 30, 2018.
Investing Activities
Net cash used by investing activities totaled $21.2$8.1 million for the ninethree months ended September 30, 2019,March 31, 2020, compared to net cash used by investing activities of $26.8$4.9 million for the same nine-monththree month period in 2018, a decrease2019, an increase of $5.6$3.2 million. The decreaseincrease was primarily due to lowerhigher capital expenditures in the ninethree months ended September 30, 2019,March 31, 2020, compared to the ninethree months ended September 30, 2018, offsetMarch 31, 2019.
Financing Activities
Net cash provided by lower proceeds received onfinancing activities for the disposal of property during the ninethree months ended September 30, 2019,March 31, 2020 totaled $129.1 million, compared to the same period in 2018.
Liquidity
Our cash and cash equivalents at March 31, 2020 were $169.4 million, compared to $60.8 million at December 31, 2019. We also had a $750.0 million revolving credit facility with $639.5$479.5 million in available capacity at
We have not issued any notes under the Shelf Agreements as of
At March 31, 2020 and December 31, 2019, we had total letters of credit of $5.6 million outstanding, at September 30, 2019, of which $0.5 million was issued under the revolving credit facility. We had total letters of credit of $5.6 million outstanding at December 31, 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 is 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,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
(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 1A. Risk Factors
A pandemic, epidemic or other public health emergency, such as the recent outbreak of coronavirus disease 2019 (COVID-19), could continue to have amaterial adverse effect on our business, results of operations, financial condition and cash flows.
Although we are a company operating as an essential business supporting critical infrastructure, as defined by the U.S. Department of Homeland Security, and continue to operate across our footprint consistent with federal guidelines and with state and local orders to date, COVID-19 has begun to have an impact on our net sales and may have further negative impacts on our operations, supply chain, transportation networks and customers. Preventative and precautionary measures that governments are taking, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures that we and our customers are taking may reduce our gross margin. The progression of and global response to the COVID-19 outbreak has begun to cause and increases the risk of slowdowns in construction activities and related permitting and material delivery delays.
A continued economic downturn resulting from the COVID-19 epidemic and related response could adversely affect demand for the products and services we provide to our customers. If our customers are directly impacted by business curtailments or weak market conditions, this may result in higher than expected bad debt losses, which could impact our results of operations and our cash flows from operating activities. In the event that our operating performance or that of our suppliers were to decline, our vendor allowances would also be reduced, which would negatively impact our results of operation and our financial condition. We continue to carefully monitor both our customers and suppliers for signs of deterioration in their financial condition.
While we expect this matter to continue to negatively impact our results of operations, cash flows and financial position until the COVID-19 related effects moderate, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time.
Item 2. Unregistered Sales of Equity Securities and Use of 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. A new Voting Trust Agreement was established effective March 3, 2017, which expires by its terms on March 1, 2027. At
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. 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 | Average | Total Number of Shares |
January 1 - January 31, 2020 | 79,781 | $20.00 | N/A |
February 1 - February 29, 2020 | 64,101 | $20.00 | N/A |
March 1 - March 31, 2020 | 64,617 | $20.00 | N/A |
Total | 208,499 | $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 | |||||
July 1 - July 31, 2019 | 98,244 | $20.00 | N/A | |||||
August 1 - August 31, 2019 | 47,152 | $20.00 | N/A | |||||
September 1 - September 30, 2019 | 79,356 | $20.00 | N/A | |||||
Total | 224,752 | $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. | ||
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 | ||
104 | Cover Page Interactive Data File (formatted in Inline XBRL contained in Exhibit 101) |
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. | |||
April 28, 2020 | /s/ KATHLEEN M. MAZZARELLA | ||
Date | Kathleen M. Mazzarella | ||
President and Chief Executive Officer (Principal Executive Officer) | |||
April 28, 2020 | /s/ SCOTT S. CLIFFORD | ||
Date | Scott S. Clifford | ||
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |