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
September 30,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 | |
YES | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, | |
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 October 15, | |
(Number of Shares) | |
Graybar Electric Company, Inc. and Subsidiaries
Quarterly Report on Form 10-Q
For the Period Ended
September 30,(Unaudited)
Table of Contents
PART I. | FINANCIAL INFORMATION | Page | ||||
Item 1. | Financial Statements | |||||
9 | ||||||
Item 2. | 17 | |||||
Item 3. | 22 | |||||
Item 4. | 22 | |||||
PART II. | OTHER INFORMATION | |||||
Item 2. | 23 | |||||
Item | 23 | |||||
Item 6. | 24 | |||||
25 | ||||||
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
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) | 2023 | 2022 | 2023 | 2022 | ||||||||
Net Sales | $ | 2,852.6 | $ | 2,789.7 | $ | 8,317.3 | $ | 7,844.1 | ||||
Cost of merchandise sold | (2,283.7) | (2,215.5) | (6,640.6) | (6,250.8) | ||||||||
Gross Margin | 568.9 | 574.2 | 1,676.7 | 1,593.3 | ||||||||
Selling, general and administrative expenses | (389.6) | (369.7) | (1,126.9) | (1,044.4) | ||||||||
Depreciation and amortization | (18.0) | (13.4) | (47.6) | (39.6) | ||||||||
Other income, net | 1.6 | 0.2 | 3.5 | 2.6 | ||||||||
Income from Operations | 162.9 | 191.3 | 505.7 | 511.9 | ||||||||
Non-operating expenses | (2.7) | (21.3) | (8.6) | (32.3) | ||||||||
Income before Provision for Income Taxes | 160.2 | 170.0 | 497.1 | 479.6 | ||||||||
Provision for income taxes | (42.1) | (43.7) | (129.6) | (123.1) | ||||||||
Net Income | 118.1 | 126.3 | 367.5 | 356.5 | ||||||||
Net income attributable to noncontrolling interests | (0.4) | (0.2) | (0.8) | (0.6) | ||||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 117.7 | $ | 126.1 | $ | 366.7 | $ | 355.9 | ||||
Net Income attributable to Graybar Electric Company, Inc. per share of Common Stock(A) | $ | 4.40 | $ | 4.73 | $ | 13.68 | $ | 13.38 | ||||
Cash Dividends per share of Common Stock | $ | 0.30 | $ | 0.30 | $ | 0.90 | $ | 0.90 | ||||
Average Common Shares Outstanding(A) | 26.7 | 26.6 | 26.8 | 26.6 | ||||||||
| Graybar Electric Company, Inc. and Subsidiaries | ||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||
| (Unaudited) | ||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| (Stated in thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||
| Gross Sales | $ | 1,708,638 | $ | 1,697,037 | $ | 4,967,349 | $ | 4,806,245 | ||||||
| Cash discounts | (7,795 | ) | (7,418 | ) | (23,055 | ) | (20,625 | ) | ||||||
| Net Sales | 1,700,843 | 1,689,619 | 4,944,294 | 4,785,620 | ||||||||||
| Cost of merchandise sold | (1,378,859 | ) | (1,370,861 | ) | (3,999,588 | ) | (3,881,616 | ) | ||||||
| Gross Margin | 321,984 | 318,758 | 944,706 | 904,004 | ||||||||||
| Selling, general and administrative expenses | (260,752 | ) | (254,969 | ) | (776,135 | ) | (750,266 | ) | ||||||
| Depreciation and amortization | (12,211 | ) | (12,283 | ) | (36,231 | ) | (35,158 | ) | ||||||
| Other income, net | 1,511 | 629 | 5,640 | 3,438 | ||||||||||
| Income from Operations | 50,532 | 52,135 | 137,980 | 122,018 | ||||||||||
| Interest expense, net | (1,217 | ) | (1,215 | ) | (3,082 | ) | (2,635 | ) | ||||||
| Income before Provision for Income Taxes | 49,315 | 50,920 | 134,898 | 119,383 | ||||||||||
| Provision for income taxes | (19,761 | ) | (20,724 | ) | (54,220 | ) | (48,396 | ) | ||||||
| Net Income | 29,554 | 30,196 | 80,678 | 70,987 | ||||||||||
| Less: Net income attributable to noncontrolling interests | (120 | ) | (67 | ) | (229 | ) | (178 | ) | ||||||
| Net Income attributable to Graybar Electric Company, Inc. | $ | 29,434 | $ | 30,129 | $ | 80,449 | $ | 70,809 | ||||||
Net Income per share of Common Stock(A) | $ | 1.68 | $ | 1.73 | $ | 4.57 | $ | 4.07 | ||||||
| Cash Dividends per share of Common Stock | $ | 0.30 | $ | 0.30 | $ | 0.90 | $ | 0.90 | ||||||
Average Common Shares Outstanding(A) | 17,611 | 17,402 | 17,618 | 17,386 | ||||||||||
(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 thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||
| Net Income | $ | 29,554 | $ | 30,196 | $ | 80,678 | $ | 70,987 | ||||||
| Other Comprehensive Income | ||||||||||||||
| Foreign currency translation | 3,616 | (1,148 | ) | 6,550 | 4,012 | |||||||||
| Pension and postretirement benefits liability adjustment (net of tax of $(1,997), $(1,762), $(5,990), and $(5,286), respectively) | 3,136 | 2,767 | 9,408 | 8,301 | ||||||||||
| Total Other Comprehensive Income | 6,752 | 1,619 | 15,958 | 12,313 | ||||||||||
| Comprehensive Income | $ | 36,306 | $ | 31,815 | $ | 96,636 | $ | 83,300 | ||||||
Less: Comprehensive income attributable to noncontrolling interests, net of tax | 209 | 25 | 457 | 387 | ||||||||||
Comprehensive Income attributable to Graybar Electric Company, Inc. | $ | 36,097 | $ | 31,790 | $ | 96,179 | $ | 82,913 | ||||||
Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||
(Stated in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||
Net Income | $ | 118.1 | $ | 126.3 | $ | 367.5 | $ | 356.5 | ||||
Other Comprehensive Income | ||||||||||||
Foreign currency translation | (4.4) | (9.7) | (0.7) | (12.0) | ||||||||
Pension and postretirement benefits liability adjustments (net of | 0.3 | 15.7 | 0.7 | 24.4 | ||||||||
Total Other Comprehensive (Loss) Income | (4.1) | 6.0 | — | 12.4 | ||||||||
Comprehensive Income | $ | 114.0 | $ | 132.3 | $ | 367.5 | $ | 368.9 | ||||
Less: Comprehensive income (loss) attributable to noncontrolling | 0.1 | (0.1) | 0.6 | 0.3 | ||||||||
Comprehensive Income attributable to Graybar Electric Company, Inc. | $ | 113.9 | $ | 132.4 | $ | 366.9 | $ | 368.6 | ||||
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 thousands, except share and per share data) | September 30, 2017 | December 31, 2016 | |||||||||||
| ASSETS | (Unaudited) | ||||||||||||
| Current Assets | |||||||||||||
| Cash and cash equivalents | $ | 51,806 | $ | 43,339 | |||||||||
| Trade receivables (less allowances of $5,695 and $5,025, respectively) | 1,050,613 | 964,180 | |||||||||||
| Merchandise inventory | 610,873 | 516,732 | |||||||||||
| Other current assets | 22,659 | 24,148 | |||||||||||
| Total Current Assets | 1,735,951 | 1,548,399 | |||||||||||
| Property, at cost | |||||||||||||
| Land | 78,681 | 78,440 | |||||||||||
| Buildings | 464,829 | 454,587 | |||||||||||
| Furniture and fixtures | 295,498 | 286,615 | |||||||||||
| Software | 87,313 | 87,313 | |||||||||||
| Capital leases | 35,423 | 33,652 | |||||||||||
| Total Property, at cost | 961,744 | 940,607 | |||||||||||
| Less – accumulated depreciation and amortization | (539,639 | ) | (512,535 | ) | |||||||||
| Net Property | 422,105 | 428,072 | |||||||||||
| Other Non-current Assets | 124,132 | 122,761 | |||||||||||
| Total Assets | $ | 2,282,188 | $ | 2,099,232 | |||||||||
| LIABILITIES | |||||||||||||
| Current Liabilities | |||||||||||||
| Short-term borrowings | $ | 216,604 | $ | 140,465 | |||||||||
| Current portion of long-term debt | 2,157 | 4,155 | |||||||||||
| Trade accounts payable | 835,939 | 752,171 | |||||||||||
| Accrued payroll and benefit costs | 85,402 | 121,421 | |||||||||||
| Other accrued taxes | 20,022 | 16,926 | |||||||||||
| Other current liabilities | 86,155 | 73,028 | |||||||||||
| Total Current Liabilities | 1,246,279 | 1,108,166 | |||||||||||
| Postretirement Benefits Liability | 70,769 | 70,628 | |||||||||||
| Pension Liability | 117,064 | 160,950 | |||||||||||
| Long-term Debt | 7,063 | 7,271 | |||||||||||
| Other Non-current Liabilities | 25,029 | 21,328 | |||||||||||
| Total Liabilities | 1,466,204 | 1,368,343 | |||||||||||
| SHAREHOLDERS’ EQUITY | |||||||||||||
| Shares at | |||||||||||||
| Capital Stock | September 30, 2017 | December 31, 2016 | |||||||||||
| Common, stated value $20.00 per share | |||||||||||||
| Authorized | 50,000,000 | 50,000,000 | |||||||||||
| Issued to voting trustees | 14,717,825 | 14,606,830 | |||||||||||
| Issued to shareholders | 3,469,173 | 2,850,551 | |||||||||||
| In treasury, at cost | (590,066 | ) | (18,854 | ) | |||||||||
| Outstanding Common Stock | 17,596,932 | 17,438,527 | 351,939 | 348,771 | |||||||||
| Advance Payments on Subscriptions to Common Stock | 966 | — | |||||||||||
| Retained Earnings | 639,919 | 575,380 | |||||||||||
| Accumulated Other Comprehensive Loss | (180,870 | ) | (196,600 | ) | |||||||||
| Total Graybar Electric Company, Inc. Shareholders’ Equity | 811,954 | 727,551 | |||||||||||
| Noncontrolling Interests | 4,030 | 3,338 | |||||||||||
| Total Shareholders’ Equity | 815,984 | 730,889 | |||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 2,282,188 | $ | 2,099,232 | |||||||||
Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||||
(Stated in millions, except share and per share data) | 2023 | 2022 | ||||||||
ASSETS | (Unaudited) | |||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 73.3 | $ | 69.4 | ||||||
Trade receivables (less allowances of $14.3 and $13.4, respectively) | 1,781.9 | 1,673.0 | ||||||||
Merchandise inventory | 918.6 | 1,026.3 | ||||||||
Other current assets | 83.3 | 83.7 | ||||||||
Total Current Assets | 2,857.1 | 2,852.4 | ||||||||
Property, at cost | ||||||||||
Land | 97.3 | 97.3 | ||||||||
Buildings | 590.4 | 562.1 | ||||||||
Furniture and fixtures | 308.5 | 282.9 | ||||||||
Software | 151.3 | 148.0 | ||||||||
Finance leases | 12.9 | 12.8 | ||||||||
Total Property, at cost | 1,160.4 | 1,103.1 | ||||||||
Accumulated depreciation and amortization | (670.5) | (641.9) | ||||||||
Net Property | 489.9 | 461.2 | ||||||||
Operating Lease Right-of-use Assets | 191.3 | 175.3 | ||||||||
Goodwill | 180.9 | 83.1 | ||||||||
Intangible Assets (less accumulated amortization of $33.5 and $23.0, respectively) | 268.7 | 91.3 | ||||||||
Other Non-current Assets | 87.8 | 85.8 | ||||||||
Total Assets | $ | 4,075.7 | $ | 3,749.1 | ||||||
LIABILITIES | ||||||||||
Current Liabilities | ||||||||||
Short-term borrowings | $ | 102.0 | $ | 31.6 | ||||||
Current portion of long-term debt | 1.7 | 1.6 | ||||||||
Trade accounts payable | 1,307.6 | 1,276.8 | ||||||||
Accrued payroll and benefit costs | 166.8 | 219.2 | ||||||||
Other accrued taxes | 32.8 | 34.3 | ||||||||
Current operating lease liabilities | 49.7 | 43.9 | ||||||||
Other current liabilities | 210.3 | 213.5 | ||||||||
Total Current Liabilities | 1,870.9 | 1,820.9 | ||||||||
Postretirement Benefits Liability | 55.5 | 55.5 | ||||||||
Pension Liability | 57.4 | 140.8 | ||||||||
Long-term Debt | 3.0 | 3.9 | ||||||||
Non-current Operating Lease Liabilities | 158.5 | 147.1 | ||||||||
Other Non-current Liabilities | 55.9 | 55.3 | ||||||||
Total Liabilities | 2,201.2 | 2,223.5 | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||||
Shares at | ||||||||||
Capital Stock | September 30, 2023 | December 31, 2022 | ||||||||
Common, stated value $20.00 per share | ||||||||||
Authorized | 50,000,000 | 50,000,000 | ||||||||
Issued to voting trustees | 22,899,208 | 22,085,481 | ||||||||
Issued to shareholders | 4,711,944 | 4,568,288 | ||||||||
In treasury, at cost | (862,174) | (63,563) | ||||||||
Outstanding Common Stock | 26,748,978 | 26,590,206 | 535.0 | 531.8 | ||||||
Advance Payments on Subscriptions to Common Stock | 1.1 | — | ||||||||
Retained Earnings | 1,483.5 | 1,141.0 | ||||||||
Accumulated Other Comprehensive Loss | (152.6) | (152.8) | ||||||||
Total Graybar Electric Company, Inc. Shareholders’ Equity | 1,867.0 | 1,520.0 | ||||||||
Noncontrolling Interests | 7.5 | 5.6 | ||||||||
Total Shareholders’ Equity | 1,874.5 | 1,525.6 | ||||||||
Total Liabilities and Shareholders’ Equity | $ | 4,075.7 | $ | 3,749.1 | ||||||
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 thousands) | 2017 | 2016 | |||||
| Cash Flows from Operations | |||||||
| Net Income | $ | 80,678 | $ | 70,987 | |||
| Adjustments to reconcile net income to cash provided by operations: | |||||||
| Depreciation and amortization | 36,231 | 35,158 | |||||
| Deferred income taxes | (6,659 | ) | 2,585 | ||||
| Net gains on disposal of property | (270 | ) | (1,786 | ) | |||
| Net income attributable to noncontrolling interests | (229 | ) | (178 | ) | |||
| Changes in assets and liabilities: | |||||||
| Trade receivables | (86,433 | ) | (73,623 | ) | |||
| Merchandise inventory | (94,141 | ) | (83,059 | ) | |||
| Other current assets | 1,489 | 5,632 | |||||
| Other non-current assets | (2,503 | ) | 24,369 | ||||
| Trade accounts payable | 83,768 | 16,571 | |||||
| Accrued payroll and benefit costs | (36,019 | ) | (21,835 | ) | |||
| Other current liabilities | 20,875 | 17,673 | |||||
| Other non-current liabilities | (24,646 | ) | (51,832 | ) | |||
| Total adjustments to net income | (108,537 | ) | (130,325 | ) | |||
| Net cash used by operations | (27,859 | ) | (59,338 | ) | |||
| Cash Flows from Investing Activities | |||||||
| Proceeds from disposal of property | 2,015 | 3,301 | |||||
| Capital expenditures for property | (26,674 | ) | (24,820 | ) | |||
| Acquisition of business, net of cash acquired | — | (59,946 | ) | ||||
| Net cash used by investing activities | (24,659 | ) | (81,465 | ) | |||
| Cash Flows from Financing Activities | |||||||
| Net increase in short-term borrowings | 76,139 | 168,871 | |||||
| Repayment of long-term debt | — | (1,853 | ) | ||||
| Principal payments under capital leases | (3,613 | ) | (4,116 | ) | |||
| Sale of common stock | 15,558 | 15,192 | |||||
| Purchases of common stock | (11,424 | ) | (8,793 | ) | |||
| Sales of noncontrolling interests’ common stock | 627 | — | |||||
| Purchases of noncontrolling interests’ common stock | (392 | ) | (356 | ) | |||
| Dividends paid | (15,910 | ) | (14,962 | ) | |||
| Net cash provided by financing activities | 60,985 | 153,983 | |||||
| Net Increase in Cash | 8,467 | 13,180 | |||||
| Cash, Beginning of Year | 43,339 | 37,931 | |||||
| Cash, End of Period | $ | 51,806 | $ | 51,111 | |||
| Non-cash Investing and Financing Activities | |||||||
| Acquisitions of equipment under capital leases | $ | 1,407 | $ | 314 | |||
Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) | ||||||
Nine Months Ended September 30, | ||||||
(Stated in millions) | 2023 | 2022 | ||||
Cash Flows from Operating Activities | ||||||
Net Income | $ | 367.5 | $ | 356.5 | ||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||
Depreciation and amortization | 47.6 | 39.6 | ||||
Non-cash operating lease expense | 36.8 | 28.7 | ||||
Deferred income taxes | 22.5 | (8.9) | ||||
Net gain on disposal of property | (0.5) | (0.2) | ||||
Losses on impairment of assets | 0.4 | — | ||||
Non-cash pension settlement charge | — | 15.9 | ||||
Earnings on investment in employee deferred compensation trust | (0.5) | — | ||||
Net income attributable to noncontrolling interests | (0.8) | (0.6) | ||||
Changes in assets and liabilities: | ||||||
Trade receivables | (10.1) | (260.7) | ||||
Merchandise inventory | 162.9 | (184.5) | ||||
Other current assets | 1.7 | (20.7) | ||||
Other non-current assets | (1.1) | (1.7) | ||||
Trade accounts payable | (27.2) | 238.4 | ||||
Accrued payroll and benefit costs | (57.4) | (22.7) | ||||
Other current liabilities | (5.6) | 24.8 | ||||
Other non-current liabilities | (119.7) | (38.1) | ||||
Total adjustments to net income | 49.0 | (190.7) | ||||
Net cash provided by operating activities | 416.5 | 165.8 | ||||
Cash Flows from Investing Activities | ||||||
Proceeds from disposal of property | 0.8 | 0.5 | ||||
Capital expenditures for property | (58.7) | (41.1) | ||||
Acquisitions, net of cash acquired | (380.2) | (18.7) | ||||
Investment in employee deferred compensation trust | (25.0) | — | ||||
Net cash used by investing activities | (463.1) | (59.3) | ||||
Cash Flows from Financing Activities | ||||||
Net increase (decrease) in short-term borrowings | 70.4 | (83.0) | ||||
Principal payments under finance arrangements | (1.3) | (1.7) | ||||
Sales of common stock | 20.3 | 18.0 | ||||
Purchases of common stock | (16.0) | (11.6) | ||||
Sales of noncontrolling interests’ common stock | 1.5 | — | ||||
Purchases of noncontrolling interests’ common stock | (0.2) | (0.4) | ||||
Dividends paid | (24.2) | (20.9) | ||||
Net cash provided (used) by financing activities | 50.5 | (99.6) | ||||
Net Increase in Cash | 3.9 | 6.9 | ||||
Cash, Beginning of Year | 69.4 | 48.5 | ||||
Cash, End of Period | $ | 73.3 | $ | 55.4 | ||
Non-cash Investing and Financing Activities | ||||||
Acquisitions of equipment under finance leases | $ | 0.5 | $ | 1.3 | ||
Acquisitions of assets under operating leases | $ | 53.2 | $ | 55.3 | ||
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 thousands) | |||||||||||||||||||||||
| 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, 2015 | $ | 326,482 | $ | — | $ | 548,780 | $ | (190,435 | ) | $ | 3,319 | $ | 688,146 | ||||||||||
| Net income | 70,809 | 178 | 70,987 | ||||||||||||||||||||
| Other comprehensive income | 12,104 | 209 | 12,313 | ||||||||||||||||||||
| Stock issued | 14,238 | 14,238 | |||||||||||||||||||||
| Stock purchased | (8,793 | ) | (356 | ) | (9,149 | ) | |||||||||||||||||
| Advance payments | 954 | 954 | |||||||||||||||||||||
| Dividends declared | (14,962 | ) | (14,962 | ) | |||||||||||||||||||
| September 30, 2016 | $ | 331,927 | $ | 954 | $ | 604,627 | $ | (178,331 | ) | $ | 3,350 | $ | 762,527 | ||||||||||
| Graybar Electric Company, Inc. Shareholders’ Equity | |||||||||||||||||||||||
Common Stock | Common Stock Subscribed, Unissued | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Shareholders’ Equity | ||||||||||||||||||
| December 31, 2016 | $ | 348,771 | $ | — | $ | 575,380 | $ | (196,600 | ) | $ | 3,338 | $ | 730,889 | ||||||||||
| Net income | 80,449 | 229 | 80,678 | ||||||||||||||||||||
| Other comprehensive income | 15,730 | 228 | 15,958 | ||||||||||||||||||||
| Stock issued | 14,592 | 627 | 15,219 | ||||||||||||||||||||
| Stock purchased | (11,424 | ) | (392 | ) | (11,816 | ) | |||||||||||||||||
| Advance payments | 966 | 966 | |||||||||||||||||||||
| Dividends declared | (15,910 | ) | (15,910 | ) | |||||||||||||||||||
| September 30, 2017 | $ | 351,939 | $ | 966 | $ | 639,919 | $ | (180,870 | ) | $ | 4,030 | $ | 815,984 | ||||||||||
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, 2022 | $ | 531.8 | $ | — | $ | 1,141.0 | $ | (152.8) | $ | 5.6 | $ | 1,525.6 | |||||
Net income | 124.8 | 0.2 | 125.0 | ||||||||||||||
Other comprehensive income | 0.3 | — | 0.3 | ||||||||||||||
Stock issued | 11.6 | 11.6 | |||||||||||||||
Stock purchased | (5.4) | (0.2) | (5.6) | ||||||||||||||
Advance payments | 1.2 | 1.2 | |||||||||||||||
Dividends declared | (8.0) | (8.0) | |||||||||||||||
March 31, 2023 | $ | 538.0 | $ | 1.2 | $ | 1,257.8 | $ | (152.5) | $ | 5.6 | $ | 1,650.1 | |||||
Net income | 124.2 | 0.2 | 124.4 | ||||||||||||||
Other comprehensive income | 3.7 | 0.1 | 3.8 | ||||||||||||||
Stock issued | 4.1 | 4.1 | |||||||||||||||
Stock purchased | (6.1) | — | (6.1) | ||||||||||||||
Dividends declared | (8.1) | (8.1) | |||||||||||||||
June 30, 2023 | $ | 536.0 | $ | 1.2 | $ | 1,373.9 | $ | (148.8) | $ | 5.9 | $ | 1,768.2 | |||||
Net income | 117.7 | 0.4 | 118.1 | ||||||||||||||
Other comprehensive loss | (3.8) | (0.3) | (4.1) | ||||||||||||||
Stock issued | 3.5 | 1.5 | 5.0 | ||||||||||||||
Stock purchased | (4.5) | — | (4.5) | ||||||||||||||
Advance payments | (0.1) | (0.1) | |||||||||||||||
Dividends declared | (8.1) | (8.1) | |||||||||||||||
September 30, 2023 | $ | 535.0 | $ | 1.1 | $ | 1,483.5 | $ | (152.6) | $ | 7.5 | $ | 1,874.5 | |||||
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 | Accumulated | ||||||||||||||||
Stock | Other | Total | |||||||||||||||
Common | Subscribed, | Retained | Comprehensive | Noncontrolling | Shareholders’ | ||||||||||||
Stock | Unissued | Earnings | Loss | Interests | Equity | ||||||||||||
December 31, 2021 | $ | 456.7 | $ | — | $ | 850.3 | $ | (180.5) | $ | 5.4 | $ | 1,131.9 | |||||
Net income | 102.2 | 0.2 | 102.4 | ||||||||||||||
Other comprehensive income | 6.5 | 0.1 | 6.6 | ||||||||||||||
Stock issued | 10.4 | 10.4 | |||||||||||||||
Stock purchased | (4.1) | (0.3) | (4.4) | ||||||||||||||
Advance payments | 1.1 | 1.1 | |||||||||||||||
Dividends declared | (7.0) | (7.0) | |||||||||||||||
March 31, 2022 | $ | 463.0 | $ | 1.1 | $ | 945.5 | $ | (174.0) | $ | 5.4 | $ | 1,241.0 | |||||
Net income | 127.6 | 0.2 | 127.8 | ||||||||||||||
Other comprehensive loss | (0.1) | (0.1) | (0.2) | ||||||||||||||
Stock issued | 3.7 | 3.7 | |||||||||||||||
Stock purchased | (4.2) | (0.1) | (4.3) | ||||||||||||||
Advance payments | (0.6) | (0.6) | |||||||||||||||
Dividends declared | (6.9) | (6.9) | |||||||||||||||
June 30, 2022 | $ | 462.5 | $ | 0.5 | $ | 1,066.2 | $ | (174.1) | $ | 5.4 | $ | 1,360.5 | |||||
Net income | 126.1 | 0.2 | 126.3 | ||||||||||||||
Other comprehensive income (loss) | 6.3 | (0.3) | 6.0 | ||||||||||||||
Stock issued | 2.9 | — | 2.9 | ||||||||||||||
Stock purchased | (3.3) | — | (3.3) | ||||||||||||||
Advance payments | 0.5 | 0.5 | |||||||||||||||
Dividends declared | (7.0) | (7.0) | |||||||||||||||
September 30, 2022 | $ | 462.1 | $ | 1.0 | $ | 1,185.3 | $ | (167.8) | $ | 5.3 | $ | 1,485.9 | |||||
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 thousands,millions, except share and per share data)
(Unaudited)
1. DESCRIPTION OF THE BUSINESS
Graybar Electric Company, Inc. (“Graybar”, “Company”, "we", "our", or "us") is a New York corporation, incorporated in 1925. We are engaged in the distribution of electrical and communications and data networking products and are a provider of related supply chain management and logistics services. We primarily serve customers in the construction, industrial & utility, and commercial, institutional and government ("CIG"), 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"). All products sold by us are purchased by us from others, andIn our primary role as third-party wholesale distributor, we neither manufacture nor contract to manufacture anythe products that we sell.sell; however, one of our subsidiaries may contract to manufacture some of its private label lighting fixtures. Our business activity is primarily with customersbased in the United States (“U.S.”). We also have subsidiary operations with distribution facilities in Canada and Puerto Rico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our accounting policies conform to generally accepted accounting principles in the U.S. ("GAAP”) and are applied on a consistent basis among all years presented. SignificantThe full summary of our 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 StatesU.S. 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
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 itsour subsidiary companies. All material intercompany balances and transactions have been eliminated. The ownership interests that are held by owners other than the Company are in subsidiaries consolidatedowned by the Company and are accounted for and reported as noncontrolling interests.
Reclassifications
Certain reclassifications have been made to prior year's financial statements in accordance with GAAP requires managementinformation to make estimates and assumptions that affectconform to the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
New Accounting Standards
In December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU” or “Update”) 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” which provides final guidance that were issued or becamedefers the sunset date for applying the reference rate reform relief in Accounting Standards Codification ("ASC") 848 to December 31, 2024, from December 31, 2022. The guidance is effective during 2017upon issuance. We have had or are expectedtransitioned to the Secured Overnight Financing Rate (“SOFR”) as our reference rate effective March 29, 2023, as described in Note 5, “Debt”. The adoption of this Update did not have a material impact on our condensed consolidated financial statements except those noted below:
3. REVENUE
The following table summarizes the FASB issued ASU 2016-02, “Leases (Topic 842)” ("ASU 2016-02"). The core principlepercentages of Topic 842 requires that a lessee should recognizeour net sales attributable to each of our vertical markets for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||
Construction | 59.4 | % | 55.8 | % | 57.7 | % | 56.7 | % | |||||
CIG | 22.6 | 26.5 | 24.1 | 25.9 | |||||||||
Industrial & Utility | 18.0 | 17.7 | 18.2 | 17.4 | |||||||||
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 year’s information to conform to the September 30, 2023 presentation.
We had no material contract assets, andcontract liabilities, or deferred contract costs recorded on the condensed consolidated balance sheet as of September 30, 2023 and disclose key information about leasing arrangements. The amendmentsDecember 31, 2022. In addition, for the three and nine months ended September 30, 2023 and 2022, revenue recognized in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. We are currently evaluating the impact the provisions will have on our condensed consolidated financial statements.
4. INCOME TAXES
Our total provision for income taxes was $42.1 million and $129.6 million for the three and nine months ended September 30, 2023, respectively. We record our income tax provision using a full-year forecasted methodology, including discrete items in the condensed consolidated financial statements.
Our federal income tax returns for the tax years 20142020 and forward are available for examination by the United StatesU.S. Internal Revenue Service (“IRS”). The statute of limitations for the 20142019 federal return will expireexpired on SeptemberOctober 15, 2018, unless extended by consent.2023. Our state income tax returns for 20122018 through 20162022 remain subject to examination by various state authorities with the latest period closing on December 31, 2021.2027. We have not extended the statutes of limitations in any state jurisdictions with respect to years prior to 2012.2018.
5. DEBT
Revolving Credit Facility
At December 31, 2022, we, along with Graybar Canada Limited, our Canadian operating subsidiary ("Graybar Canada"), had an unsecured, five-year, $750.0 million committed revolving credit agreement maturing in August 2026 with Bank of America, N.A. and the other lenders named therein (the "Revolving Credit Facility "), which included a combined letter of credit sub-facility of up to $25.0 million, a U.S. swing-line loan facility of up to $75.0 million, and a Canadian swing-line loan facility of up to $20.0 million. The Revolving Credit Facility included a $100.0 million sublimit (in U.S. or Canadian dollars) available for borrowings by Graybar Canada. Our borrowing availability under the facility is reduced by the amount of borrowings by Graybar Canada, but we may use the sublimit amount to increase our borrowings, to the extent available. If we were to use available borrowings under the Revolving Credit Facility that included the sublimit amount, then Graybar Canada’s available capacity would be reduced by our use of such amount. The Revolving Credit Facility contained an accordion feature, which allowed us to request increases in the aggregate borrowing commitments of up to $375.0 million.
On March 29, 2023, we, along with Graybar Canada, amended the Revolving Credit Facility, pursuant to the terms and conditions of a Fifth Amendment to Credit Agreement, dated as of March 29, 2023 (the “Amended Credit Agreement”), by and among Graybar, as parent borrower, Graybar Canada Limited, as a borrower, the lenders party thereto, Bank of America, N.A. as Domestic Administrative Agent, Domestic Swing Line Lender and Domestic L/C Issuer and Bank of America, N.A., acting through its Canada Branch, as Canadian Administrative Agent, Canadian Swing Line Lender and Canadian L/C Issuer.
The Amended Credit Agreement replaced the London Interbank Offered Rate (“LIBOR”)-based Eurodollar reference interest rate with a reference interest rate based on Term SOFR and introduced transition language for the Canadian Dealer Offered Rate
(“CDOR”), in anticipation of the eventual discontinuation of CDOR, which is expected to be on or before June 28, 2024. Our borrowing availability remains unchanged under the Amended Credit Agreement.
The Amended Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations on us and all but certain of our subsidiaries with respect to indebtedness (with specified, limited exceptions), liens, changes in the nature of our business, investments, mergers and acquisitions, issuance of equity securities, dispositions of assets and dissolution of certain subsidiaries, transactions with affiliates, as well as securitizations, factoring transactions, and transactions with sanctioned parties or in violation of certain US or Canadian anti-corruption and anti-money laundering laws. There are also maximum leverage ratio and minimum interest coverage ratio financial covenants to which we will be subject during the term of the Amended Credit Agreement.
We were in compliance with all covenants under the Amended Credit Agreement and Revolving Credit Facility, respectively, as of September 30, 2023 and December 31, 2022.
There were $102.0 million in short-term borrowings as of September 30, 2023, of which all were under the Amended Credit Agreement. There were $31.6 million in short-term borrowings as of December 31, 2022, of which $30.0 million were under the Revolving Credit Facility.
Short-term borrowings outstanding during the nine months ended September 30, 2023 ranged from no short-term borrowings to a maximum of $232.0 million. Short-term borrowings outstanding during the nine months ended September 30, 2022 ranged from no short-term borrowings to a maximum of $173.1 million.
At September 30, 2023, we had unused lines of credit under the Amended Credit Agreement amounting to $645.7 million available, compared to $718.1 million at December 31, 2022 under the Revolving Credit Facility. These lines are available to meet our short-term cash requirements and are subject to annual fees of up to 40 basis points (0.40%).
Interest expense, net was $1.5 million and $0.8 million for the three months ended September 30, 2023 and 2022, respectively. Interest expense, net was $3.9 million and $2.3 million for the nine months ended September 30, 2023 and 2022, respectively.
Private Placement Shelf Agreements
We have an uncommitted, unsecured private placement shelf agreement (the “Prudential Shelf Agreement”) with PGIM, Inc., 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. On July 20, 2023, we amended the Prudential Shelf Agreement to increase borrowing availability from $100.0 million to $200.0 million and to extend the issuance period to August 2026.
We also have an uncommitted, unsecured $150.0 million private placement shelf agreement (the "MetLife Shelf Agreement") with MetLife Investment Management, LLC (formerly known as MetLife Investment Advisors, LLC), and MetLife Investment Management Limited (collectively, “MetLife”) and each other MetLife affiliate that becomes a party to the agreement. 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 issuance period ending in June 2024.
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.
No notes have been issued under either the Prudential Shelf Agreement or the MetLife Shelf Agreement as of September 30, 2023 and December 31, 2022.
Each shelf agreement contains representations and warranties of the Company and the applicable lender, 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 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, 2023 and December 31, 2022.
Letters of Credit
We had total letters of credit of $8.1 million outstanding at September 30, 2023, of which $2.3 million were issued under the Amended Credit Agreement. We had total letters of credit of $7.8 million outstanding at December 31, 2022, of which $1.9 million were issued under the Revolving Credit Facility. The letters of credit are issued primarily to support certain workers' compensation insurance policies and support performance under certain customer contracts.
6. PENSION AND OTHER POSTRETIREMENT BENEFITS
We have a noncontributory defined benefit pension plan (the "Pension Plan") covering substantially all employees first hired prior to July 1, 2015 after the completion of one year of service and 1,000 hours of service. The Pension Plan provides retirement benefits based on an employee’s final average earnings and years of service. 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 the Employee Retirement Income Security Act of 1974 (“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. Postretirement life insurance benefits are insured through an insurance company. We fund postretirement benefits as incurred, and accordingly, there were no assets held in the postretirement benefits plan at September 30, 2023 and December 31, 2022.
The net periodic benefit cost for the three and nine months ended September 30, 2023 and 2022 included the following components:
Pension Benefits | Postretirement Benefits | ||||||||||
Three Months Ended | Three Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
Components of Net Periodic Benefit Cost | 2023 | 2022 | 2023 | 2022 | |||||||
Selling, general and administrative expenses: | |||||||||||
Service cost | $ | 6.1 | $ | 7.0 | $ | 0.3 | $ | 0.5 | |||
Total selling, general and administrative expenses | $ | 6.1 | $ | 7.0 | $ | 0.3 | $ | 0.5 | |||
Non-operating expenses: | |||||||||||
Interest cost | $ | 8.0 | $ | 5.9 | $ | 0.9 | $ | 0.5 | |||
Expected return on plan assets | (7.2) | (7.6) | — | — | |||||||
Amortization of net actuarial loss | 0.3 | 5.7 | — | 0.1 | |||||||
Settlement charge | — | 15.9 | — | — | |||||||
Total non-operating expenses | $ | 1.1 | $ | 19.9 | $ | 0.9 | $ | 0.6 | |||
Net periodic benefit cost | $ | 7.2 | $ | 26.9 | $ | 1.2 | $ | 1.1 | |||
Pension Benefits | Postretirement Benefits | ||||||||||
Nine Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
Components of Net Periodic Benefit Cost | 2023 | 2022 | 2023 | 2022 | |||||||
Selling, general and administrative expenses: | |||||||||||
Service cost | $ | 18.3 | $ | 21.0 | $ | 1.0 | $ | 1.5 | |||
Total selling, general and administrative expenses | $ | 18.3 | $ | 21.0 | $ | 1.0 | $ | 1.5 | |||
Non-operating expenses: | |||||||||||
Interest cost | $ | 23.9 | $ | 17.9 | $ | 2.6 | $ | 1.5 | |||
Expected return on plan assets | (21.7) | (22.8) | — | — | |||||||
Amortization of net actuarial loss | 0.9 | 17.1 | — | 0.4 | |||||||
Settlement charge | — | 15.9 | — | — | |||||||
Total non-operating expenses | $ | 3.1 | $ | 28.1 | $ | 2.6 | $ | 1.9 | |||
Net periodic benefit cost | $ | 21.4 | $ | 49.1 | $ | 3.6 | $ | 3.4 | |||
During the nine months ended September 30, 2022, we made lump-sum pension benefit distributions exceeding the cumulative amount of service and interest cost components of the net periodic pension cost for the year. Accordingly, we recorded a non-cash pension settlement charge of $15.9 million in non-operating expenses on our condensed consolidated statements of income for the nine months ended September 30, 2022. This settlement charge represented the immediate recognition into expense of a portion of the unrecognized loss within accumulated other comprehensive loss in proportion to the share of the projected benefit obligation that was settled by the lump-sum pension benefit distributions.
We made qualified and nonqualified pension contributions totaling $80.0 million during the three-month period ended September 30, 2023 and contributions totaling $22.8 million during the three-month period ended September 30, 2022. Contributions made during the nine-month periods ended September 30, 2023 and 2022 totaled $103.9 million and $44.8 million, respectively. No additional contributions are expected to be paid during the remainder of 2023, but may change at our discretion.
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. Under applicable New York law, a voting trust may not have a term greater than ten years. Accordingly, aA new Voting Trust Agreement was established effective March 3, 2017, which expires by its terms on March 1, 2027.2027 because under applicable New York law, a voting trust may not have a term greater than ten years. 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. Additionally, a shareholder was entitled to any cash dividends, if any, accrued for the quarter in which the purchase offer is made, adjusted pro rata for the number of days such shares were held prior to the dividend record date. On June 8, 2017, the shareholders voted to remove this adjustment for accruing dividends on the common stock. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any reason other than death or "retirement" (as defined in our amended restated certificate of incorporation), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at
Cash dividends declaredpaid were $5,286$8.1 million and $4,985$7.0 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 no shares of preferred stock outstanding at September 30, 20172023 and December 31, 2016.
| Pension Benefits | Postretirement Benefits | ||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||
| Components of Net Periodic Benefit Cost | 2017 | 2016 | 2017 | 2016 | |||||||||
| Service cost | $ | 6,604 | $ | 6,342 | $ | 582 | $ | 572 | |||||
| Interest cost | 6,954 | 7,066 | 711 | 757 | |||||||||
| Expected return on plan assets | (7,658 | ) | (6,754 | ) | — | — | |||||||
| Amortization of: | |||||||||||||
| Net actuarial loss | 5,376 | 4,791 | 197 | 177 | |||||||||
| Prior service cost (gain) | 105 | 106 | (545 | ) | (545 | ) | |||||||
| Net periodic benefit cost | $ | 11,381 | $ | 11,551 | $ | 945 | $ | 961 | |||||
| Pension Benefits | Postretirement Benefits | ||||||||||||
| Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| Components of Net Periodic Benefit Cost | 2017 | 2016 | 2017 | 2016 | |||||||||
| Service cost | $ | 19,812 | $ | 19,026 | $ | 1,745 | $ | 1,716 | |||||
| Interest cost | 20,863 | 21,197 | 2,133 | 2,272 | |||||||||
| Expected return on plan assets | (22,973 | ) | (20,262 | ) | — | — | |||||||
| Amortization of: | |||||||||||||
| Net actuarial loss | 16,127 | 14,373 | 591 | 531 | |||||||||
| Prior service cost (gain) | 315 | 318 | (1,635 | ) | (1,635 | ) | |||||||
| Net periodic benefit cost | $ | 34,144 | $ | 34,652 | $ | 2,834 | $ | 2,884 | |||||
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table represents amounts reclassified from accumulated other comprehensive income (loss)loss for the
Three Months Ended | Three Months Ended | |||||
Amortization of Pension | Amortization of Pension | |||||
Actuarial | Actuarial | |||||
Affected Line in Condensed Consolidated Statement of Income: | ||||||
Non-operating expenses(A) | $ | 0.3 | $ | 21.7 | ||
Tax benefit | — | (5.6) | ||||
Total reclassifications for the period, net of tax | $ | 0.3 | $ | 16.1 | ||
| Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | |||||||||||||||||||||||
| Amortization of Pension and Other Postretirement Benefits Items | Amortization of Pension and Other Postretirement Benefits Items | |||||||||||||||||||||||
| Actuarial Losses Recognized | Prior Service Costs Recognized | Total | Actuarial Losses Recognized | Prior Service Costs Recognized | Total | |||||||||||||||||||
| Affected Line in Condensed Consolidated Statement of Income: | ||||||||||||||||||||||||
Selling, general and administrative expenses | $ | 5,573 | $ | (440 | ) | $ | 5,133 | $ | 4,968 | $ | (439 | ) | $ | 4,529 | ||||||||||
| Tax (benefit) expense | (2,168 | ) | 171 | (1,997 | ) | (1,933 | ) | 171 | (1,762 | ) | ||||||||||||||
| Total reclassifications for the period, net of tax | $ | 3,405 | $ | (269 | ) | $ | 3,136 | $ | 3,035 | $ | (268 | ) | $ | 2,767 | ||||||||||
(A) A settlement charge of $15.9 million is included in 2022 non-operating expenses.
The following table represents amounts reclassified from accumulated other comprehensive income (loss)loss for the nine months ended September 30, 20172023 and 2016:2022:
Nine Months Ended | Nine Months Ended | |||||
Amortization of Pension | Amortization of Pension | |||||
Actuarial | Actuarial | |||||
Affected Line in Condensed Consolidated Statement of Income: | ||||||
Non-operating expenses(B) | $ | 0.9 | $ | 33.4 | ||
Tax benefit | (0.2) | (8.6) | ||||
Total reclassifications for the period, net of tax | $ | 0.7 | $ | 24.8 | ||
(B) A settlement charge of $15.9 million is included in 2022 non-operating expenses.
| Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
| Amortization of Pension and Other Postretirement Benefits Items | Amortization of Pension and Other Postretirement Benefits Items | |||||||||||||||||||||||
| Actuarial Losses Recognized | Prior Service Costs Recognized | Total | Actuarial Losses Recognized | Prior Service Costs Recognized | Total | |||||||||||||||||||
| Affected Line in Condensed Consolidated Statement of Income: | ||||||||||||||||||||||||
| Selling, general and administrative expenses | $ | 16,718 | $ | (1,320 | ) | $ | 15,398 | $ | 14,904 | $ | (1,317 | ) | $ | 13,587 | ||||||||||
| Tax (benefit) expense | (6,503 | ) | 513 | (5,990 | ) | (5,798 | ) | 512 | (5,286 | ) | ||||||||||||||
| Total reclassifications for the period, net of tax | $ | 10,215 | $ | (807 | ) | $ | 9,408 | $ | 9,106 | $ | (805 | ) | $ | 8,301 | ||||||||||
The following table represents the activity included in accumulated other comprehensive income (loss)loss for the
Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | |||||||||||||||||
Foreign | Pension and Other Postretirement | Total | Foreign | Pension and Other Postretirement | Total | |||||||||||||
Beginning balance July 1, | $ | (11.0) | $ | (137.8) | $ | (148.8) | $ | (7.3) | $ | (166.8) | $ | (174.1) | ||||||
Other comprehensive loss before reclassifications | (4.1) | — | (4.1) | (9.4) | — | (9.4) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax $(—) and $(5.6)) | — | 0.3 | 0.3 | — | 16.1 | 16.1 | ||||||||||||
Actuarial loss (net of tax of $— and $0.1) | — | — | — | — | (0.4) | (0.4) | ||||||||||||
Net current-period other comprehensive (loss) income | (4.1) | 0.3 | (3.8) | (9.4) | 15.7 | 6.3 | ||||||||||||
Ending balance September 30, | $ | (15.1) | $ | (137.5) | $ | (152.6) | $ | (16.7) | $ | (151.1) | $ | (167.8) | ||||||
| Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | |||||||||||||||||||||||
| Foreign Currency | Pension and Other Postretirement Benefits | Total | Foreign Currency | Pension and Other Postretirement Benefits | Total | |||||||||||||||||||
| Beginning balance July 1, | $ | (7,548 | ) | $ | (179,985 | ) | $ | (187,533 | ) | $ | (7,507 | ) | $ | (172,485 | ) | $ | (179,992 | ) | ||||||
| Other comprehensive income (loss) before reclassifications | 3,527 | — | 3,527 | (1,106 | ) | — | (1,106 | ) | ||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (net of tax $(1,997) and $(1,762)) | — | 3,136 | 3,136 | — | 2,767 | 2,767 | ||||||||||||||||||
| Net current-period other comprehensive income (loss) | 3,527 | 3,136 | 6,663 | (1,106 | ) | 2,767 | 1,661 | |||||||||||||||||
| Ending balance September 30, | $ | (4,021 | ) | $ | (176,849 | ) | $ | (180,870 | ) | $ | (8,613 | ) | $ | (169,718 | ) | $ | (178,331 | ) | ||||||
The following table represents the activity included in accumulated other comprehensive income (loss)loss for the nine months ended September 30, 20172023 and 2016:2022:
Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | |||||||||||||||||
Foreign | Pension and Other Postretirement | Total | Foreign | Pension and Other Postretirement | Total | |||||||||||||
Beginning balance January 1, | $ | (14.6) | $ | (138.2) | $ | (152.8) | $ | (5.0) | $ | (175.5) | $ | (180.5) | ||||||
Other comprehensive loss before reclassifications | (0.5) | — | (0.5) | (11.7) | — | (11.7) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax $(0.2) and $(8.6)) | — | 0.7 | 0.7 | — | 24.8 | 24.8 | ||||||||||||
Actuarial loss (net of tax of $— and $0.1) | — | — | — | — | (0.4) | (0.4) | ||||||||||||
Net current-period other comprehensive (loss) income | (0.5) | 0.7 | 0.2 | (11.7) | 24.4 | 12.7 | ||||||||||||
Ending balance September 30, | $ | (15.1) | $ | (137.5) | $ | (152.6) | $ | (16.7) | $ | (151.1) | $ | (167.8) | ||||||
| Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
| Foreign Currency | Pension and Other Postretirement Benefits | Total | Foreign Currency | Pension and Other Postretirement Benefits | Total | |||||||||||||||||||
| Beginning balance January 1, | $ | (10,343 | ) | $ | (186,257 | ) | $ | (196,600 | ) | $ | (12,416 | ) | $ | (178,019 | ) | $ | (190,435 | ) | ||||||
| Other comprehensive income (loss) before reclassifications | 6,322 | — | 6,322 | 3,803 | — | 3,803 | ||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (net of tax $(5,990) and $(5,286)) | — | 9,408 | 9,408 | — | 8,301 | 8,301 | ||||||||||||||||||
| Net current-period other comprehensive income (loss) | 6,322 | 9,408 | 15,730 | 3,803 | 8,301 | 12,104 | ||||||||||||||||||
| Ending balance September 30, | $ | (4,021 | ) | $ | (176,849 | ) | $ | (180,870 | ) | $ | (8,613 | ) | $ | (169,718 | ) | $ | (178,331 | ) | ||||||
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 may arise resulting from an existing condition, situation, or set of circumstances involving an uncertainty as to the realization of a possible loss.
We have in place insurance coverage for litigation defense and claim settlement costs incurred in connection with our asbestos claims. We estimate the value of probable insurance recoveries associated with our asbestos reserve based on management’s interpretations and estimates surrounding the available or applicable insurance coverage. We estimate the future payments for litigation defense and claim settlement costs based on our historical liabilities and current and projected caseloads. At September 30, 2023 and December 31, 2022, we had $2.5 million and $41.5 million of insurance receivables recorded in other current assets and other non-current assets, respectively, and $2.5 million and $41.5 million recorded in other current liabilities and other non-current liabilities, respectively, related to our asbestos litigation defense and claims settlement reserve.
Estimated loss contingencies are accrued only if the loss is probable and the amount of the loss can be reasonably estimated. With respect to a particular loss contingency, it may be probable that a loss has occurred but the estimate of the loss is a wide range. If we deem an amount within the range to be a better estimate than any other amount within the range, that amount will be accrued. However, if no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued. While we believe that none of these claims, disputes, administrative, and legal matters will have a material adverse effect on our financial position, these matters are uncertain and we cannot at this time determine whether the financial impact, if any, of these matters will be material to our results of operations in the period duringin which such matters are resolved or a better estimate becomes available.
10. ACQUISITIONS
During the nine months ended September 30, 2023, we acquired Cape Electrical Supply ("Cape Electric"),completed two acquisitions for a regional distributor serving electrical contractors and large engineering construction firms, as well as industrial, institutional and utility customers, for approximately $59,946combined preliminary purchase price of $380.2 million in cash, net of cash acquired. The acquisitions were financed using cash on hand and short-term borrowings.
The 2023 acquisitions present a strategic opportunity for us to expand our reach in current markets and provide a solid foundation for growth into new markets.
The following table sets forth the preliminary purchase price allocation resulted in $16,377 and $23,586summarizes the estimated fair values of tax deductiblethe assets acquired and liabilities assumed at the respective dates of the acquisitions. The purchase price allocation is preliminary pending finalization of the calculations of the fair values of the assets acquired and liabilities assumed, and the valuations of the acquired identifiable intangible assets.
Fair Value | ||
Current Assets | $ | 153.5 |
Property | 5.0 | |
Goodwill | 97.8 | |
Intangible Assets | 187.9 | |
Other Non-current Assets | 0.4 | |
Current Liabilities | (64.4) | |
Total combined preliminary purchase price | $ | 380.2 |
The fully tax-deductible goodwill resulting from the acquisitions largely consists of our expected future product sales and othersynergies from combining the newly acquired subsidiaries’ products and services with our existing product and service offerings. The following table sets forth the components of preliminary identifiable intangible assets acquired and their useful lives as of the respective dates of the acquisitions:
Weighted Average Life (in years) | Fair Value | ||
Customer relationships | 14.9 | $ | 146.1 |
Trade name | 15.0 | 38.2 | |
Other intangibles | 6.3 | 2.4 | |
Non-Compete Agreements | 5.0 | 1.2 | |
Total Intangible Assets | 14.7 | $ | 187.9 |
The fair values of the identified customer relationships and trade name intangible assets were estimated using the multi-period excess earnings and relief-from-royalty methods, respectively.
Since the daterespective dates of acquisition, Cape Electricthe acquisitions, the results of the newly acquired subsidiaries are reflected in our condensed consolidated financial statements.Condensed Consolidated Financial Statements, which consisted of approximately $155.9 million in revenue and $1.3 million in operating income. Pro forma results of this acquisition arethe acquisitions were not material; therefore, they are not presented.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes thereto, and our audited consolidated financial statements, notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended
December 31,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
“will be”, “will continue”, “will likely result”, and other similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the PSLRA. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse impact on our operations and future prospects on a consolidated basis include, but are not limited to: general economic conditions, particularly in the residential, commercial, and industrial building construction industries; volatility in the prices of industrial commodities; cyber-attacks; a sustained interruption in the operation of our information systems; 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; a pandemic, epidemic, or other public health emergency similar to the recent COVID-19 pandemic; the inability, or limitations on our ability, to borrow under our existing credit facilities or any replacements thereof; disruptions in our sources of supply; compliance with increasing governmental regulations; adverse legal proceedings or other claims; compliance with changing governmental regulations; and the inability, or limitations on our ability, to raise debt or equity capital. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by applicable securities law. Further information concerning our business, including additional factors that could materially impact our financial results, is included herein and in our other filings with the Commission. Actual results and the timing of events could differ materially from the forward-looking statements as a result of certain factors, a number of which are outlined in Item 1A., “Risk Factors”, of our Annual Report on Form 10-K for the year ended
All dollar amounts, except per share data, are stated in thousands ($000s)millions in the following discussion and accompanying tables.
Background
Graybar Electric Company, Inc. (“Graybar”, “Company”, "we", "our", or "us") is a New York corporation, incorporated in 1925. We are engaged in the distribution of electrical and communications and data networking products and are a provider of related supply chain management and logistics services. We primarily serve customers in the construction, industrial & utility and commercial, institutional and government ("CIG"), 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"OEM"). All products sold by us are purchased by us from others, andIn our primary role as third-party wholesale distributor, we neither manufacture nor contract to manufacture anythe products that we sell.sell; however, one of our subsidiaries may contract to manufacture some of its private label lighting fixtures. Our business activity is primarily with customersbased in the United States ("U.S."). We also have subsidiary operations with distribution facilities in Canada and Puerto Rico.
Our common stock is 100% owned by active and retired employees, and there is no public trading market for our common stock. No holder of our common stock or voting trust interests representing our common stock (“common stock”, “common shares”, or “shares”) may sell, transfer, or otherwise dispose of any shares without first offering us the option to purchase those shares at the price at which they were issued. Additionally, a shareholder was entitled to any cash dividends, if any, accrued for the quarter in which the purchase offer is made, adjusted pro rata for the number of days such shares were held prior to the dividend record date. On June 8, 2017, the shareholders voted to remove this adjustment for accruing dividends on the common stock. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any reason other than death or "retirement" (as defined in our amended restated certificate of incorporation), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $20.00 per share.
Business Overview
We set a new quarterly net sales record in the third quarter of 2017, our2023. Our net sales for the third quarter of 2023 totaled $1,700,843,$2,852.6 million, compared to $2,789.7 million for the third quarter of 2022, an increase of $11,224,$62.9 million, or 0.7%2.3%. Our gross margin for the
third quarter of 2023 decreased $5.3 million, or 0.9%, to $568.9 million, compared to gross margin of $574.2 million for the same three-month period last year. Sales inended September 30, 2022, mainly due to competitive pricing pressures. As a result, our industrial & utility and construction vertical markets increased 9.9% and 0.5%, respectively, while our CIG vertical market sales decreased 7.8% for the quarter. Although gross margin rate remained constant at 18.9%decreased to 19.9% for the third quarter of 2023, compared to 20.6% for the third quarter of 2022.
Selling, general and administrative (“SG&A”) expenses increased $19.9 million, or 5.4%, to $389.6 million for the three months ended September 30, 2017 and 2016, respectively, gross margin increased $3,226, or 1.0%, to $321,9842023 from $369.7 million for the three months ended September 30, 2017, from $318,758 for the same period of 20162022, primarily due to higher compensation, rent, and maintenance expenses. SG&A expenses as a resultpercentage of our pricing and product diversification initiatives and our acquisition in the prior year.
Net sales for the nine months ended September 30, 2017, we reported2023 were $8,317.3 million, an increase of $473.2 million, or 6.0%, from net sales of $4,944,294, an increase of $158,674, or 3.3%, compared to$7,844.1 million for the same nine-month period last year. Year-to-date net sales in our industrial & utility and construction vertical markets increased 10.7% and 3.9%, respectively, while our CIG vertical market net sales decreased 5.7%. Gross margin for the nine months ended September 30, 20172023 was $944,706,$1,676.7 million, an increase of $40,702,$83.4 million, or 4.5%5.2%, compared to gross margin of $904,004$1,593.3 million for the same nine-month period last year. Gross margin rate was 19.1%20.2% for the nine-month period ended September 30, 20172023, compared to 18.9%20.3% for the nine-month period ended September 30, 2016.2022. Net income attributable to the CompanyGraybar for the nine months ended September 30, 2017 increased $9,640,2023 was $366.7 million, an increase of $10.8 million, or 13.6%3.0%, from net income attributable to $80,449.
We continue to see demand for our products and services, even as the markets we serve are affected by rising interest rates, skilled laborshortages and economic uncertainty. Supply chain conditions have improved, although ongoing challenges persist for some product categories. Looking ahead, we remain focused on achieving profitable growthproviding exceptional service to our customers, minimizing potential risks, and strengtheningmanaging our position asbusiness wisely. We are also moving forward with a leader in the supply chain. We will continuestrategic business transformation program and pursuing opportunities to enhance our value proposition to drive growth, while we pursue strategic investments in technology and potential acquisitions to broadenexpand our reach and diversifystrengthen our business.
Consolidated Results of Operations
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
The following table sets forth certain information relating to our operations stated in thousandsmillions of dollars and as a percentage of net sales for the three and nine months ended
Three Months Ended | Three Months Ended | ||||||||||
Dollars | Percent | Dollars | Percent | ||||||||
Net Sales | $ | 2,852.6 | 100.0 | % | $ | 2,789.7 | 100.0 | % | |||
Cost of merchandise sold | (2,283.7) | (80.1) | (2,215.5) | (79.4) | |||||||
Gross Margin | 568.9 | 19.9 | 574.2 | 20.6 | |||||||
Selling, general and administrative expenses | (389.6) | (13.7) | (369.7) | (13.2) | |||||||
Depreciation and amortization | (18.0) | (0.6) | (13.4) | (0.5) | |||||||
Other income, net | 1.6 | 0.1 | 0.2 | — | |||||||
Income from Operations | 162.9 | 5.7 | 191.3 | 6.9 | |||||||
Non-operating expenses | (2.7) | (0.1) | (21.3) | (0.8) | |||||||
Income before Provision for Income Taxes | 160.2 | 5.6 | 170.0 | 6.1 | |||||||
Provision for income taxes | (42.1) | (1.5) | (43.7) | (1.6) | |||||||
Net Income | 118.1 | 4.1 | 126.3 | 4.5 | |||||||
Net income attributable to noncontrolling interests | (0.4) | — | (0.2) | — | |||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 117.7 | 4.1 | % | $ | 126.1 | 4.5 | % | |||
| Three Months Ended | Three Months Ended | ||||||||||||
| September 30, 2017 | September 30, 2016 | ||||||||||||
| Dollars | Percent | Dollars | Percent | ||||||||||
| Net Sales | $ | 1,700,843 | 100.0 | % | $ | 1,689,619 | 100.0 | % | |||||
| Cost of merchandise sold | (1,378,859 | ) | (81.1 | ) | (1,370,861 | ) | (81.1 | ) | |||||
| Gross Margin | 321,984 | 18.9 | 318,758 | 18.9 | |||||||||
| Selling, general and administrative expenses | (260,752 | ) | (15.3 | ) | (254,969 | ) | (15.1 | ) | |||||
| Depreciation and amortization | (12,211 | ) | (0.7 | ) | (12,283 | ) | (0.7 | ) | |||||
| Other income, net | 1,511 | 0.1 | 629 | — | |||||||||
| Income from Operations | 50,532 | 3.0 | 52,135 | 3.1 | |||||||||
| Interest expense, net | (1,217 | ) | (0.1 | ) | (1,215 | ) | (0.1 | ) | |||||
| Income before Provision for Income Taxes | 49,315 | 2.9 | 50,920 | 3.0 | |||||||||
| Provision for income taxes | (19,761 | ) | (1.2 | ) | (20,724 | ) | �� | (1.2 | ) | ||||
| Net Income | 29,554 | 1.7 | 30,196 | 1.8 | |||||||||
| Less: Net income attributable to noncontrolling interests | (120 | ) | — | (67 | ) | — | |||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 29,434 | 1.7 | % | $ | 30,129 | 1.8 | % | |||||
| Nine Months Ended | Nine Months Ended | ||||||||||||
| September 30, 2017 | September 30, 2016 | ||||||||||||
| Dollars | Percent | Dollars | Percent | ||||||||||
| Net Sales | $ | 4,944,294 | 100.0 | % | $ | 4,785,620 | 100.0 | % | |||||
| Cost of merchandise sold | (3,999,588 | ) | (80.9 | ) | (3,881,616 | ) | (81.1 | ) | |||||
| Gross Margin | 944,706 | 19.1 | 904,004 | 18.9 | |||||||||
| Selling, general and administrative expenses | (776,135 | ) | (15.7 | ) | (750,266 | ) | (15.7 | ) | |||||
| Depreciation and amortization | (36,231 | ) | (0.7 | ) | (35,158 | ) | (0.7 | ) | |||||
| Other income, net | 5,640 | 0.1 | 3,438 | — | |||||||||
| Income from Operations | 137,980 | 2.8 | 122,018 | 2.5 | |||||||||
| Interest expense, net | (3,082 | ) | (0.1 | ) | (2,635 | ) | — | ||||||
| Income before Provision for Income Taxes | 134,898 | 2.7 | 119,383 | 2.5 | |||||||||
| Provision for income taxes | (54,220 | ) | (1.1 | ) | (48,396 | ) | (1.0 | ) | |||||
| Net Income | 80,678 | 1.6 | 70,987 | 1.5 | |||||||||
| Less: Net income attributable to noncontrolling interests | (229 | ) | — | (178 | ) | — | |||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 80,449 | 1.6 | % | $ | 70,809 | 1.5 | % | |||||
Net sales increased to
Gross margin decreased $5.3 million, or 0.9%, to $568.9 million from $574.2 million for the three months ended September 30, 2017,2023, compared to the same three-month period of 2016 by 9.9% and 0.5%, respectively, while2022. Our gross margin as a percentage of net sales in our CIG vertical market declined by 7.8%.
SG&A expenses increased net sales$19.9 million, or 5.4%, to $389.6 million in the third quarter of 2017. Our gross margin as a percent of net sales was 18.9% for the
Depreciation and amortization for the three months ended September 30, 2023 increased $4.6 million, or 34.3%, to $18.0 million from $13.4 million, compared to the same period in 2022 primarily due to higher amortization expense of intangible assets.
Non-operating expenses for the
three months ended September 30,Income before provision for income taxes totaled
Our total provision for income taxes decreased $963,$1.6 million, or 4.6%3.7%, to $19,761$42.1 million for the three months ended September 30, 2017,2023, compared to $20,724$43.7 million for the same period of 2016. The2022. This decrease in our provision for income taxes iswas due to slightly lower pretax incomeincome. Our effective tax rate was 26.3% for the three months ended September 30, 2017 as2023, compared to the same period in 2016. Our effective tax rate was 40.1% for the three months ended September 30, 2017, compared to 40.7%25.7% for the same period of 2016.2022. The effective tax rate for the three months ended September 30, 2017 and 20162023 was higher than the 35.0%21.0% U.S. federal statutory rate primarily due to state, local and localforeign income taxes.
Net income attributable to Graybar Electric Company, Inc. for the
three months ended September 30,Nine Months Ended September 30, 20172023 Compared to Nine Months Ended September 30, 2016
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 nine months ended September 30, 2023 and 2022:
Nine Months Ended | Nine Months Ended | ||||||||||
Dollars | Percent | Dollars | Percent | ||||||||
Net Sales | $ | 8,317.3 | 100.0 | % | $ | 7,844.1 | 100.0 | % | |||
Cost of merchandise sold | (6,640.6) | (79.8) | (6,250.8) | (79.7) | |||||||
Gross Margin | 1,676.7 | 20.2 | 1,593.3 | 20.3 | |||||||
Selling, general and administrative expenses | (1,126.9) | (13.5) | (1,044.4) | (13.3) | |||||||
Depreciation and amortization | (47.6) | (0.6) | (39.6) | (0.5) | |||||||
Other income, net | 3.5 | — | 2.6 | — | |||||||
Income from Operations | 505.7 | 6.1 | 511.9 | 6.5 | |||||||
Non-operating expenses | (8.6) | (0.1) | (32.3) | (0.4) | |||||||
Income before Provision for Income Taxes | 497.1 | 6.0 | 479.6 | 6.1 | |||||||
Provision for income taxes | (129.6) | (1.6) | (123.1) | (1.6) | |||||||
Net Income | 367.5 | 4.4 | 356.5 | 4.5 | |||||||
Net income attributable to noncontrolling interests | (0.8) | — | (0.6) | — | |||||||
Net Income attributable to Graybar Electric Company, Inc. | $ | 366.7 | 4.4 | % | $ | 355.9 | 4.5 | % | |||
Net sales increased to $4,944,294$8,317.3 million for the nine-month periodnine months ended September 30, 2017,2023, compared to $4,785,620$7,844.1 million for the nine-month periodnine months ended September 30, 2016,2022, an increase of $158,674,$473.2 million, or 3.3%6.0%. Net sales in our construction and industrial & utility and construction vertical markets increased by 10.7%8.0%, and 3.9%10.7%, respectively, for the nine months ended September 30, 2017,2023, compared to the same
nine-month period of 2022. Net sales in our CIG vertical market decreased by 1.4% for the nine months ended September 30, 2023, compared to the same nine-month period of 2016, while net sales in our CIG vertical market declined by 5.7%.
Gross margin increased $40,702,$83.4 million, or 4.5%5.2%, to $944,706$1,676.7 million from $904,004 primarily due to pricing and product diversification initiatives and recent acquisitions, as well as increased net sales in the first nine months of 2017, compared to the same period of 2016. Our gross margin as a percent of net sales totaled 19.1%$1,593.3 million for the nine months ended September 30, 2017, up from 18.9%2023, compared to the same period of 2022. Our gross margin as a percentage of net sales was 20.2% for the nine months ended September 30, 2016.
SG&A expenses increased $25,869,$82.5 million, or 3.4%7.9%, to $776,135, for the nine-month period ended September 30, 2017, compared to $750,266 for the nine-month period ended September 30, 2016, due primarily to growth in headcount and normal compensation increases$1,126.9 million, for the nine months ended September 30, 2017. Selling, general2023, compared to $1,044.4 million for the nine months ended September 30, 2022, mainly due to higher compensation, rent, and administrativemaintenance expenses. SG&A expenses as a percentage of net sales were 15.7%13.5% for the nine months ended September 30, 2017 and 2016.
Depreciation and amortization expenses as a percentage of net sales remained constant at 0.7% for the nine months ended September 30, 2017 and 2016.
Non-operating expenses decreased $23.7 million, or 73.4%, to $8.6 million for the nine months ended September 30, 2016. Other income, net consists2023, compared to $32.3 million for the same period of 2022. This was primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to our business activities. The increase in other income, net was due to a favorable settlementdecreases in non-service cost components of a prior claimpension net periodic benefit costs of $25.0 million, partially offset by reducedan increase in interest expense, net gains on the disposal of real and personal property of $1,517$1.6 million for the nine months ended September 30, 2017,2023, compared to the same nine-month period in 2016.
Income before provision for income taxes totaled $497.1 million for the nine months ended September 30, 2017, compared to $2,635 for the same period2023, an increase of 2016. The increase was due to higher interest rates on our short-term borrowings$17.5 million, or 3.6%, from $479.6 million for the nine months ended September 30, 2017, compared2022. The increase was primarily due to the same nine-month periodour increase in 2016.
Our total provision for income taxes totaled $134,898increased $6.5 million, or 5.3%, to $129.6 million for the nine months ended September 30, 2017, an increase of $15,515, or 13.0%, from $119,383 for the nine months ended September 30, 2016. The increase was primarily due to our growth in gross margin and increase in other income, net partially offset by increases in SG&A and depreciation and amortization expenses.
Net income attributable to Graybar Electric Company, Inc. for the nine-month period ended September 30, 20172023 increased $9,640,$10.8 million, or 13.6%3.0%, to $80,449$366.7 million from $70,809$355.9 million for the nine months ended September 30, 2016.
Financial Condition and Liquidity
We manage our liquidity and capital levels so that we have the capacitycapability to invest in the growth of our business, meet debt service obligations, finance anticipated capital expenditures, pay dividends, make benefit payments, finance information technology needs, fund acquisitions and finance other miscellaneous cash outlays. We believe that maintaining a strong company financial condition enables us to competitively access multiple financing channels, maintain an optimal cost of capital and enable our company to invest in strategic long-term growth plans.
We have historically funded our working capital requirements using cash flows generated byfrom the collection of trade receivables and trade accounts payable terms with our suppliers, supplemented by short-term bank lines of credit.borrowings on our revolving credit facility, if necessary. Capital expenditures have been financed primarily bywith cash from working capital management and short-term bank lines ofborrowings on our revolving credit and long-term debt.
Our cash and cash equivalents at September 30, 20172023 were $51,806,$73.3 million, compared to $43,339$69.4 million at December 31, 2016,2022, an increase of $8,467,$3.9 million, or 19.5%5.6%. Our short-termShort-term borrowings increased significantly, $76,139, or 54.2% during the nine-month periodby $70.4 million to $216,604$102.0 million at September 30, 20172023, from $140,465$31.6 million at December 31, 2016, primarily due to higher2022. Cash on hand and low levels of short-term borrowings at September 30, 2023 are reflective of strong cash flows from operating activities as a result of effective working capital investment requiredmanagement and borrowings to support operating activities due to the growth in sales, funding of employee benefits, and additional voluntary pension contributions, all funded via short-term lines of credit.fund our business needs. Current assets exceeded current liabilities by $489,672$986.2 million at September 30, 2017, an increase2023, a decrease of $49,439,$45.3 million, or 11.2%4.4%, from $440,233$1,031.5 million at December 31, 2016.
Operating Activities
Net cash flows provided by operations for the nine months ended
or 151.2%. Net cash provided by operating activities for the nine months ended September 30, 2017,2023 was primarily attributable to net income of $367.5 million adjusted for non-cash depreciation and amortization expenses of $47.6 million, and a decrease in accrued payroll benefitsmerchandise inventory levels of $36,019,$162.9 million during the nine months ended September 30, 2023, partially offset by net incomedecreases in other non-current liabilities of $80,678$119.7 million and increases in trade accounts payableaccrued payroll and benefit costs of $83,768.
The average number of days of sales in trade receivables for the nine-month period ended September 30, 2017 decreased2023 increased modestly compared to the same nine-month period ended September 30, 2016. Merchandise2022. The days in inventory turnover improved modestlysignificantly for the nine months ended September 30, 2017,2023, compared to the nine months ended September 30, 2016.
Investing Activities
Net cash used by investing activities totaled $24,659$463.1 million for the nine months ended September 30, 2017,2023, compared to $81,465net cash used by investing activities of $59.3 million for the same nine-month period in 2016, a decrease2022, an increase of $56,806, or 69.7%. The decrease was due to the purchase of Cape Electric$403.8 million. Cash used by investing activities for $59,946 during the nine months ended September 30, 2016, partially offset by slightly higher2023 was primarily the result of acquisitions, net of cash acquired of $380.2 million, capital expenditures of $58.7 million, and an investment in an employee deferred compensation trust of $25.0 million. Cash used by investing activities for the nine months ended September 30, 2017, compared to2022 was primarily the nine months ended September 30, 2016. Proceeds on the disposal of property decreased during the nine months ended September 30, 2017, compared to 2016 primarily as a result of disposingcapital expenditures of a local distribution facility that provided proceeds$41.1 million and third quarter acquisitions, net of $1,686 in the first quartercash acquired of 2016.
Financing Activities
Net cash provided by financing activities for the
nine months ended September 30,Liquidity
Our cash and cash equivalents at September 30, 2016.
We have not issued any notes under the shelf agreementsShelf Agreements as of
We had total letters of credit of $
New Accounting Standards Updates
Our adoption of new accounting standards areis discussed in Note 2, "Summary of Significant Accounting Policies", of the notes to the condensed consolidated financial statements located in Item 1., "Financial Statements", of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the policies, procedures, controls, or risk profile from those provided in Item 7A., “Quantitative and Qualitative Disclosures About Market Risk”, of our Annual Report on Form 10-K for the year ended
December 31,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
September 30,During the nine months ended September 30, 2023, we completed two acquisitions which operated under their own set of systems and internal controls. Management is in process of evaluating and integrating the internal controls of the acquired businesses during the first year of the business combination into our internal controls framework.
(b) Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are likely to materially affect, our internal control over financial reporting.
PART II -– OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use Ofof Proceeds.
Our common stock is 100% owned by active and retired employees, and there is no public trading market for our common stock. Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable New York law, a voting trust may not have a term greater than ten years. Accordingly, aA new Voting Trust Agreement was established effective March 3, 2017, which expires by its terms on March 1, 2027.2027, because under applicable New York law, a voting trust may not have a term greater than ten years. 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. Additionally, a shareholder was entitled to any cash dividends, if any, accrued for the quarter in which the purchase offer is made, adjusted pro rata for the number of days such shares were held prior to the dividend record date. On June 8, 2017, the shareholders voted to remove this adjustment for accruing dividends on the common stock. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any cause other than death or "retirement" (as defined in our amended restated certificate of incorporation), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $20.00 per share.
The following table sets forth information regarding purchases of common stock by the Company, all of which were made pursuant to the foregoing provisions:
Issuer Purchases of Equity Securities
Period | Total Number of | Average | Total Number of Shares |
July 1 - July 31, 2023 | 62,491 | $20.00 | N/A |
August 1 - August 31, 2023 | 86,427 | $20.00 | N/A |
September 1 - September 30, 2023 | 72,706 | $20.00 | N/A |
Total | 221,624 | $20.00 | N/A |
Item 5. Other Information.
(c)None of the Company’s directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended September 30, 2023. Such arrangements would not apply to the Company because no holder of our shares may sell, transfer or otherwise dispose of our shares without first offering the Company the option to purchase those shares at the price at which they were issued.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | |||||
| July 1 - July 31, 2017 | 100,701 | $20.00 | N/A | |||||
| August 1 - August 31, 2017 | 97,188 | $20.00 | N/A | |||||
| September 1 - September 30, 2017 | 42,697 | $20.00 | N/A | |||||
| Total | 240,586 | $20.00 | N/A | |||||
Item 6. Exhibits.
3.1 | ||
3.2 | ||
4 | ||
9 | Voting Trust Agreement dated as of March 3, 2017, included at Exhibit | |
10.1 | ||
10.2 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | XBRL Instance Document – the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL 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) | |
*Compensation arrangement |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GRAYBAR ELECTRIC COMPANY, INC. | |||
October | /s/ | ||
| Kathleen M. Mazzarella | |||
Date | Kathleen M. Mazzarella | ||
President and Chief Executive Officer (Principal Executive Officer) | |||
October | /s/ | ||
Date | David M. Meyer | ||
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |