10-K 1 a1231201510k.htm 10-K 10-K


 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K 
 x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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:
None
 
 
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Par Value $1.00 Per Share with a
 
Stated Value of $20.00
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ¨            NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES ¨           NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x           NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x           NO ¨
        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨  Accelerated filer¨
Non-accelerated filer x (Do not check if a smaller reporting company)         Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨            NO x
The aggregate stated value of the Common Stock beneficially owned with respect to rights of disposition by persons who are not affiliates (as defined in Rule 405 under the Securities Act of 1933) of the registrant on June 30, 2015, was $316,301,020.  Pursuant to a Voting Trust Agreement, dated as of March 16, 2007, approximately 83% of the outstanding shares of Common Stock was held of record by five Trustees who were each directors or officers of the registrant and who collectively exercised the voting rights with respect to such shares at such date.  The registrant is 100% owned by its active and retired employees, and there is no public trading market for the registrant’s Common Stock.  See Item 5 of this Annual Report on Form 10-K.
 
The number of shares of Common Stock outstanding at March 1, 2016 was 16,520,903.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the documents listed below have been incorporated by reference into the indicated Part of this Annual Report on Form 10-K:  Information Statement relating to the 2014 Annual Meeting of Shareholders – Part III, Items 10-14



Graybar Electric Company, Inc. and Subsidiaries
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2015

Table of Contents

 
 
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Supplemental Item
 
 
 
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
PART IV
Item 15.
 
 
 
Signatures
 
 
Index to Exhibits
 
 
Certifications
 
 
 

2


PART I

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

The following discussion should be read in conjunction with the accompanying audited consolidated financial statements of Graybar Electric Company, Inc. and its Subsidiaries (collectively referred to as “Graybar” or the “Company”) and sometimes referred to as "we", "our", or "us", the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2015, included in this Annual Report on Form 10-K.  The results shown herein are not necessarily indicative of the results to be expected in any future periods. 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements generally are identified by the words “believes”, “projects”, “expects”, “anticipates”, “estimates”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will be”, “will continue”, “will likely result”, and other similar expressions.  We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the PSLRA.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.  Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse impact on our operations and future prospects on a consolidated basis include, but are not limited to: general economic conditions, particularly in the residential, commercial, and industrial building construction industries, volatility in the prices of industrial commodities, cyber-attacks, a sustained interruption in the operation of our information systems, increased funding requirements and expenses related to our pension plan, 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, 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 United States Securities and Exchange Commission (the “SEC” or “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 this Annual Report on Form 10-K for the year ended December 31, 2015.

All dollar amounts are stated in thousands ($000s) except for per share data.

Item 1.  Business

The Company

Graybar is a leading North American distributor of electrical and communications and data networking products and is a provider of related supply chain management and logistics services. We primarily serve customers in the construction, and commercial, institutional and government ("CIG"), as well as the industrial and utility vertical markets ("vertical" or "verticals"), with products and services that support new construction, infrastructure updates, building renovation, facility maintenance, repair and operations ("MRO"), and original equipment manufacturers ("OEM").

Through a network of over 260 locations across the United States and Canada, our 8,300 employees serve more than 140,000 customers. Our business is primarily based in the United States ("U.S."). We also have subsidiary operations with distribution facilities in Canada and Puerto Rico.

We distribute approximately one million products purchased from more than 4,600 manufacturers and suppliers. We purchase all of the products we sell from others, and we neither manufacture nor contract to manufacture any products that we sell.

We generally finance our inventory through the collection of trade receivables and trade accounts payable terms with our suppliers.  We use short-term borrowing facilities to finance inventory purchases and other operating expenses when necessary, and we have not historically used long-term borrowings for this purpose. 


3


In addition to our extensive product offering, we provide a wide range of supply chain management services that when combined with our network of locations are designed to deliver convenience, cost savings and improved efficiency for our customers.

We were incorporated in 1925 under the laws of the State of New York. Our active and retired employees own 100% of our stock. There is no public trading market for our common stock. 

Our internet address is www.graybar.com.  Our periodic filings with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, and amendments to those reports, are available without charge on our website www.graybar.com/company/about/sec-filings, as soon as reasonably practicable after we file the reports with the SEC.  Additionally, a copy of our SEC filings can be obtained at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 on official business days or by calling the SEC at 1-800-SEC-0330.  A copy of our electronically filed materials can also be obtained at: http://www.sec.gov.

Competition

  Our industry is comprised of thousands of local and regional distributors, along with several large national and global distributors. Graybar is among the largest distributors of electrical and communications and data networking products to the construction, CIG, and industrial and utility verticals in the U.S. Our industry is highly competitive, and we estimate that the top five distributors account for approximately 30% of the total U.S. market. Some of our largest competitors have greater global geographic scope, which may provide them an advantage, particularly with certain multi-national customers.

Our industry is influenced by economic and regulatory factors that impact rates of new construction, as well as customers' or end users' decisions to invest in renovation and expansion of facilities and infrastructure. The industry is also affected by changes in technology, both in the products that are typically sold through distribution and in the ways customers choose to transact business with distributors. Driven by customers' omnichannel buying preferences and their desire to increase efficiency and productivity, e-commerce is becoming increasingly important to both manufacturers and distributors in our industry.

Our pricing reflects the value associated with the products and services that we provide. We consider our prices to be generally competitive. We believe that, while price is an important customer consideration, the services we provide distinguish us from many of our competitors, whether they are distributors or manufacturers selling direct.  We view our ability to quickly supply our customers with a broad range of products through conveniently located distribution facilities as a competitive advantage that customers value.  However, if a customer is not looking for one distributor to provide a wide range of products and does not require prompt delivery or other services, a competitor that does not provide this level of service may be in a position to offer a lower price.

Markets Served

Graybar serves a wide range of customers within certain primary verticals. The largest of these verticals is construction, which accounted for more than half our sales in 2015. Customers within this vertical include various types of contractors and installers that perform new construction and renovation of commercial and industrial facilities and utility infrastructure.

Our next largest vertical is CIG. This vertical includes a broad range of commercial office, warehouse, and retail facilities, federal, state, and local governmental agencies, education and health care.

We also serve the industrial and utility vertical with products for MRO, OEM, broadband utility and electrical transmission and distribution infrastructure.

The following table provides the approximate percentages of our net sales attributable to each of the verticals we serve:
Year Ended December 31,
2015
2014
2013
Construction
56.2%
54.7%
54.5%
Commercial, Institutional & Government
22.4%
22.1%
23.4%
Industrial & Utility
21.4%
21.7%
21.1%





4


Products and Suppliers

We distribute approximately one million products purchased from more than 4,600 manufacturers and suppliers. Approximately 110,000 of these products are stocked in our warehouses, allowing us in most cases to provide customers with convenient, local access to the items they need every day. When the specialized nature or size of a particular shipment warrants, we arrange to ship products directly from our suppliers; otherwise, orders are filled from our own on-hand inventory. On a dollar volume basis, we filled approximately 55% of customer orders from our inventory in both 2015 and 2014.

Approximately 50% of the products we sold during 2015 were purchased from our top 25 suppliers.  However, we generally have the ability to purchase from more than one supplier for any product type, which allows us to offer alternative sources of comparable products for nearly all products. The products we distribute can be generally identified as follows:
•
Distribution Equipment
•
Fittings
•
Building and Industrial Wire and Cable
•
Data Cables and Cords
•
LED and Incandescent Lighting
•
Wiring Devices
•
Telecommunications Product
•
Fasteners
•
Fluorescent Lighting
•
Automation and Controls
•
Communication Wire and Cable
•
LED, Incandescent and Fluorescent Lamps
•
Conduit and Tray
•
Enclosures
•
Data Connectivity
•
MRO Supplies
•
Electronic Equipment
 

These products may be sold into any of the verticals we target, depending on a customer's or end user's needs. Our salesforce is empowered to sell any of these products or related services to any customer, in some cases with the support of specialists who are trained in specific industries and/or new technologies.

Maintaining strong relationships with our suppliers is important to our business, and we enjoy longstanding relationships with several of our suppliers (or their predecessors). However, most of our supplier agreements are customarily nonexclusive national or regional distributorships, terminable upon 30 to 90 days' notice by either party.

Sales and Distribution

We sell products and services manufactured or provided by others primarily through a network of sales offices and distribution facilities located in thirteen geographical districts throughout the U.S. We operate multiple distribution facilities in each district, each of which carries an inventory of products and operates as a wholesale distributor for the territory in which it is located.  Some districts have sales offices that do not carry inventory.  In addition, we have seven national distribution centers and ten regional distribution centers containing inventories of both standard and specialized products.  Both the national distribution centers and regional distribution centers replenish inventories carried at our other U.S. distribution facilities and make shipments directly to customers.  We also have subsidiary operations with distribution facilities located in the U.S. and Canada and a single distribution facility in Puerto Rico.


5


The sales and distribution facilities operated by us at December 31, 2015 are shown below:
 
U.S. Locations
 
 
District
Number of Sales and
Distribution Facilities*
National
Distribution Centers
Atlanta
22
Austell, GA
Boston
13
Fresno, CA
California
22
Joliet, IL
Chicago
21
Richmond, VA
Dallas
19
Springfield, MO
Minneapolis
20
Stafford, TX
New York
13
Youngstown, OH
Phoenix
11
 
Pittsburgh
20
 
Richmond
18
 
Seattle
12
 
St. Louis
18
 
Tampa
19
 
*Includes Regional Distribution Centers
 
U.S. Subsidiaries
 
 
Advantage Industrial Automation, Inc.
2
 
Commonwealth Controls Corporation
1
 
International Locations
 
 
 
Number of
Distribution Facilities
 
Graybar Electric Canada, Ltd.
  Halifax, Nova Scotia, Canada
30
 
Graybar International, Inc.
  Carolina, Puerto Rico
1
 

At December 31, 2015, we employed approximately 3,600 people in sales capacities.  Approximately 2,000 of these sales personnel were inside and outside sales representatives working to generate sales with current and prospective customers.  The remainder provided support services to our customers and our salesforce and consisted of sales and marketing managers, customer service representatives, quotation, and counter personnel.

We had orders on hand totaling $869,810 and $856,192 on December 31, 2015 and 2014, respectively.  We expect that approximately 90% of the orders we had on hand at December 31, 2015 will be filled within the twelve-month period ending December 31, 2016.  Generally, orders placed by customers and accepted by us have resulted in sales.  However, customers from time to time request cancellation, and we have historically allowed such cancellations.

Foreign Sales

Sales to customers in foreign countries were made primarily by our subsidiaries in Canada and Puerto Rico and accounted for approximately 5% of consolidated sales in 2015 and 6% in 2014 and 2013.  Long-lived assets located outside the U.S. represented approximately 1% of our consolidated total assets at the end of 2015 and approximately 2% at the end of 2014, and 2013.  We do not have significant foreign currency exposure and, we do not believe there are any other significant risks attendant to our foreign operations.

Employees

At December 31, 2015, we employed approximately 8,300 people on a full-time basis.  Approximately 150 of these people were covered by union contracts.  We have not had a material work stoppage and consider our relations with our employees to be good.


6


Item 1A.  Risk Factors

Our liquidity, financial condition, and results of operations are subject to various risks, including, but not limited to, those discussed below.  The risks outlined below are those that we believe are currently the most significant, although additional risks not presently known to us or that we currently deem less significant may also impact our liquidity, financial condition, and results of operations.

Our sales fluctuate with general economic conditions, particularly in the residential, commercial, and industrial building construction industries.  Our operating locations are widely distributed geographically across the U.S. and, to a lesser extent, Canada.  Customers for our products and services are similarly diverse – we have approximately 140,000 customers, and our largest customer accounts for only 3% of our total sales.  While our geographic and customer concentrations are relatively low, our results of operations are nonetheless dependent on favorable conditions in both the general economy and the construction industry.  In addition, conditions in the construction industry are greatly influenced by the availability of project financing and the cost of borrowing. 

Our results of operations are impacted by changes in industrial commodity prices.  Many of the products we sell are subject to wide and frequent price fluctuations because they are composed primarily of copper, steel, or petroleum-based resins, including poly-vinyl chlorides ("PVC"), industrial commodities that have been subject to price volatility during the past several years.  Examples of such products include copper wire and cable and steel and PVC conduit, enclosures, and fittings.  Our gross margin rate on these products is relatively constant over time, though not necessarily in the short term.  Therefore, as the cost of these products to us declines, pricing to our customers may decrease.  This impacts our results of operations by lowering both overall sales and gross margin. 

Our business and our reputation could be adversely affected by the failure to protect sensitive customer, employee or vendor data or to comply with evolving regulations relating to our obligation to protect our systems, assets and data from the threat of cyber-attacks. Cyber-attacks designed to gain access to sensitive information by breaching mission critical systems of large organizations are constantly evolving, and high profile electronic security breaches leading to unauthorized release of confidential information have occurred recently at a number of major U.S. companies, despite widespread recognition of the cyber-attack threat and improved data protection methods.  While we have invested in the protection of our information technology and maintain what we believe are adequate security procedures and controls over financial and other individually identifiable customer, employee and vendor data provided to us, our business model is evolving rapidly and increasingly requires us to receive, retain and transmit certain information, including individually identifiable information, that our customers provide to purchase products or services, register on our websites, or otherwise communicate and interact with us. A breach in our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could have a material adverse effect on our reputation and lead to financial losses from remedial actions, loss of business or potential liability.  An electronic security breach resulting in the unauthorized release of sensitive data from our information systems could also materially increase the costs we already incur to protect against such risks.  While we also seek to obtain assurances that third parties we interact with will protect confidential information, there is a risk that the confidentiality of data held or accessed by third parties may be compromised. In addition, as the regulatory environment relating to a company’s obligation to protect such sensitive data becomes more strict, a material failure on our part to comply with applicable regulations could subject us to fines or other regulatory sanctions and potentially to lawsuits.
 
Our daily activities are highly dependent on the uninterrupted operation of our information systems.  We are a recognized industry leader for our use of information technology in all areas of our business – sales, customer service, inventory management, finance, accounting, and human resources.  We maintain redundant information systems as part of our disaster recovery program and, if necessary, are able to operate in many respects using a paper-based system to help mitigate a complete interruption in our information processing capabilities.  Nonetheless, our information systems remain vulnerable to natural disasters, wide-area telecommunications or power utility outages, terrorist or cyber-attack, or other major disruptions.  A sustained interruption in the functioning of our information systems, however unlikely, could lower operating income by negatively impacting sales, expenses, or both.

We may experience losses or be subject to increased funding and expenses related to our pension plan. A decline in the market value of plan assets or a change in the interest rates used to measure the required minimum funding levels and the pension obligation may increase the funding requirements of our defined benefit pension plan, the pension obligation itself, and pension expenses. Government regulations may accelerate the timing and amounts required to fund the plan. Demographic changes in our workforce, including longer life expectancies, increased numbers of retirements, and age at retirement may also cause funding requirements, pension expenses, and the pension obligation to be higher than expected. Any or all of these factors could have a negative impact on our liquidity, financial position, and/or our results of operations.



7




Our borrowing agreements contain financial covenants and certain other restrictions on our activities and those of our subsidiaries.  Our revolving credit facility and our private placement shelf agreement impose contractual limits on, among other things, indebtedness, liens, changes in the nature of business, investments, mergers and acquisitions, the issuance of equity securities, the disposition of assets and the dissolution of certain subsidiaries, transactions with affiliates, restricted payments (subject to incurrence tests, with certain exceptions), as well as securitizations and factoring transactions.  In addition, we are required to maintain acceptable financial ratios relating to debt leverage and interest coverage.  Our failure to comply with these obligations may cause an event of default and may trigger an acceleration of the debt owed to our creditors or limit our ability to obtain additional credit under these facilities.  While we expect to remain in compliance with the terms of our credit facility and our private placement shelf agreement, our failure to do so could have a negative impact on our ability to borrow funds and maintain acceptable levels of cash flow from financing activities.

We purchase all of the products we sell to our customers from other parties.  As a wholesale distributor, our business and financial results are dependent on our ability to purchase products from manufacturers not controlled by us that we, in turn, sell to our customers.  Approximately 50% of our purchases are made from only 25 manufacturers.  A sustained disruption in our ability to source product from one or more of the largest of these vendors might have a material impact on our ability to fulfill customer orders, resulting in lost sales and, in rare cases, damages for late or non-delivery.

Compliance with increasing government regulations may result in increased costs and risks to the company. Our public company and multi-national customers are increasingly subject to government regulation globally. Existing and future laws and regulations may impede our growth. These regulations and laws may cover, among other things, taxation, privacy, data protection, pricing, content, copyrights, distribution, energy consumption, environmental regulation, electronic contracts and other communications and marketing, consumer protection, the design and operation of websites, and the characteristics and quality of products and services. Unfavorable regulations and laws could diminish the demand for our products and services and increase our cost of doing business. If we are not able to obtain for certain customers the information that they require in part as a result of these regulations, they may limit their business with us.

For example, in the U.S., as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has promulgated disclosure requirements for companies that manufacture or contract to manufacture goods regarding the inclusion and origin of certain minerals in those products. Some of our customers that purchase products from us for inclusion in the products that they sell wish to rely on us to provide critical data regarding the parts they purchase, including conflict mineral and other responsive information to these regulations. We sell over one million products from over 4,600 manufacturers and suppliers, and we may not be able to easily verify the origins for conflict or other minerals used in the products we sell. Our suppliers, and especially those suppliers which are not themselves subject to direct regulation, may not provide conflict mineral and other regulatory information in a useful and systematic manner, if at all. On the other hand, some customers may demand that the products they purchase be "DRC conflict-free". Additionally, other customers may demand that we provide additional information (for which we also must depend on the manufacturer) to assist them in their compliance obligations under the laws of countries where we do not do business. These customer-driven requirements may increase our operating costs, and, due to competitive pressures, we may not be able to increase our prices sufficiently to avoid a reduction in our income from operations.

We are subject to legal proceedings and other claims arising out of the conduct of our business.  These proceedings and claims relate to public and private sector transactions, product liability, contract performance, and employment matters.  On the basis of information currently available to us, we do not believe that existing proceedings and claims will have a material impact on our financial position or results of operations.  However, litigation is unpredictable, and we could incur judgments or enter into settlements for current or future claims that could adversely affect our financial position or our results of operations in a particular period.

More specifically, with respect to asbestos litigation, as of December 31, 2015, 3,124 individual cases and 66 multiple-plaintiff cases are pending that allege actual or potential asbestos-related injuries resulting from the use of or exposure to products allegedly sold by us.  Additional claims will likely be filed against us in the future.  Our insurance carriers have historically borne virtually all costs and liability with respect to this litigation and are continuing to do so.  Accordingly, our future liability with respect to pending and unasserted claims is dependent on the continued solvency of our insurance carriers.  Other factors that could impact this liability are: the number of future claims filed against us; the defense and settlement costs associated with these claims; changes in the litigation environment, including changes in federal or state law governing the compensation of asbestos claimants; adverse jury verdicts in excess of historic settlement amounts; and bankruptcies of other asbestos defendants.  Because any of these factors may change, our future exposure is unpredictable, and it is possible that we may incur costs that would have a material adverse impact on our liquidity, financial position, or results of operations in future periods.

8



The value of our common stock is dependent primarily upon the regular payment of dividends, which are paid at the discretion of our Board of Directors.  The purchase price for our common stock under our purchase option is the same as the issue price.  Accordingly, as long as Graybar exercises its option to purchase, appreciation in the value of an investment in our common stock is dependent solely on our ability and our Board of Directors' willingness to declare stock dividends.  Although cash dividends have been paid on the common stock each year since 1929, as with any corporation’s common stock, payment of dividends is subject to the discretion of our Board of Directors.
 
There is no public trading market for our common stock.  Our common stock is 100% owned by active and retired employees.  Common stock may not be sold by the holder thereof, except after first offering it to us.  We have always exercised this purchase option in the past and expect to continue to do so.  As a result, no public trading market for our common stock exists, nor is one expected to develop.  This lack of a public trading market for our common stock may limit our ability to raise large amounts of equity capital, which could constrain our long-term business growth.

Item 1B.  Unresolved Staff Comments

Not applicable.

Item 2.  Properties

We operate in thirteen geographical districts in the U.S., each of which maintains multiple distribution facilities that consist primarily of warehouse space.  A small portion of each distribution facility is used for offices.  Some districts have sales offices that do not carry an inventory of products. The number of facilities, excluding distribution centers, in a district varies from eleven to twenty-two and totals 218 for all districts.  The facilities range in size from 1,000 to 132,000 square feet, with the average being 31,000 square feet.  We own 115 of these facilities and lease 103 of them for varying terms, with the majority having a remaining lease term of less than five years.

We have seven national distribution centers ranging in size from 160,000 to 240,000 square feet.  Five of the national distribution centers are owned and two are leased.  The remaining lease terms on these two leased facilities are one and three years, respectively.
 
We also have ten regional distribution centers ranging in size from 130,000 to 240,000 square feet.  Five of the ten regional distribution centers are owned and the other five are leased.  The remaining lease terms on the leased regional distribution centers are between four and eight years.

We also have two U.S. subsidiaries with three leased distribution facilities. The leased facilities have a remaining lease term of less than five years. The facilities range in size from 7,000 to 26,000 square feet.

We maintain thirty distribution facilities in Canada, of which nineteen are owned and eleven are leased.  The majority of the leased facilities have a remaining lease term of less than five years.  The facilities range in size from 5,000 to 60,000 square feet.  We have a 22,000 square foot facility in Puerto Rico, the lease on which expires in 2019.

Our headquarters are located in St. Louis, Missouri in an 83,000 square foot building owned by us.  We also own a 200,000 square foot operations and administration center in St. Louis. 

Item 3.  Legal Proceedings

There are presently no pending legal proceedings that are expected to have a material impact on the Company or its subsidiaries.

Item 4.  Mine Safety Disclosures

Not applicable.


9


Supplemental Item.  Executive Officers of the Registrant

The following table lists the name, age as of March 1, 2016, position, offices and certain other information with respect to the executive officers of the Company.  The term of office of each executive officer will expire upon the appointment of his or her successor by the Board of Directors.

Name
Age
Business experience last five years
S. S. Clifford
45
Senior Vice President - Supply Chain Management, February 2015 to present; Vice President - Chief Information Officer, April 2010 to January 2015.
M. W. Geekie
54
Senior Vice President, Secretary and General Counsel, August 2008 to present.
R. R. Harwood
59
Senior Vice President and Chief Financial Officer, January 2013 to present; District Vice President – Dallas District, October 2004 to December 2012.
W. P. Mansfield
53
Senior Vice President - Sales and Marketing, April 2014 to present; Vice President - Marketing, April 2012 to March 2014; Vice President - Industrial and Commercial, January 2011 to March 2012.
K. M. Mazzarella
55
Chairman of the Board, January 2013 to present; President and Chief Executive Officer, June 2012 to present; Executive Vice President, Chief Operating Officer, December 2010 to May 2012.
B. L. Propst
46
Senior Vice President – Human Resources, June 2009 to present.
J. N. Reed
58
Vice President and Treasurer, April 2000 to present.
 

     





10


 PART II

Item 5.  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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.  The 2007 Voting Trust Agreement expires by its terms on March 15, 2017.  At December 31, 2015, approximately 83% of the common stock was held in this voting trust.  The participation of shareholders in the voting trust is voluntary at the time the voting trust is created, but is irrevocable during its term.  Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record.

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 is 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.  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 on a pension (except a deferred pension), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future.  All outstanding shares have been issued at $20.00 per share.

The following table sets forth information regarding purchases of common stock by the Company, all of which were made pursuant to the foregoing provisions:
Issuer Purchases of Equity Securities
Period
Total Number of
Shares Purchased
Average
Price Paid
Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
October 1 to October 31, 2015
86,769
$20.00
N/A
November 1 to November 30, 2015
32,832
$20.00
N/A
December 1 to December 31, 2015
65,890
$20.00
N/A
Total
185,491
$20.00
N/A
   
Capital Stock at December 31, 2015
Title of Class
Number of
Security
Holders
Number of Shares
Voting Trust Interests issued with respect to Common Stock
5,651

 
13,603,061

 
Common Stock
859

 
2,721,030

 
Total
6,510

 
16,324,091

 
  
Dividend Data (in dollars per share)
Year Ended 
December 31,
Period
2015

2014

First Quarter
$
0.30

$
0.30

Second Quarter
0.30

0.30

Third Quarter
0.30

0.30

Fourth Quarter
2.10

3.10

Total
$
3.00

$
4.00


On December 10, 2015, our Board of Directors declared a 2.5% stock dividend to shareholders of record on December 18, 2015.  Shares representing this dividend were issued on February 1, 2016.  

11


Item 6.  Selected Financial Data
 
This summary should be read in conjunction with the accompanying consolidated financial statements and the notes to the consolidated financial statements included in Item 8., “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.
 
Five Year Summary of Selected Consolidated Financial Data
(Stated in thousands, except for per share data)
For the Years Ended December 31,
2015
2014
2013
2012
2011
Gross Sales
$
6,136,343

$
6,004,179

$
5,682,084

$
5,434,509

$
5,395,239

Cash Discounts
(26,044
)
(25,318
)
(22,943
)
(21,228
)
(20,439
)
Net Sales
$
6,110,299

$
5,978,861

$
5,659,141

$
5,413,281

$
5,374,800

Gross Margin
$
1,154,745

$
1,118,547

$
1,044,156

$
1,018,362

$
995,259

Net Income attributable to
Graybar Electric Company, Inc.
$
91,068

$
87,428

$
81,063

$
86,291

$
81,425

Average common shares outstanding(A)
16,364

16,244

16,334

16,368

16,233

Net Income attributable to
Graybar Electric Company, Inc.
per share of Common Stock(A)
$
5.57

$
5.38

$
4.96

$
5.27

$
5.02

Cash Dividends per share of Common Stock
$
3.00

$
4.00

$
2.40

$
3.00

$
2.00

Total assets(B)
$
2,049,543

$
1,939,113

$
1,779,505

$
1,704,197

$
1,719,176

Total liabilities(B)
$
1,361,397

$
1,257,132

$
1,108,724

$
1,103,981

$
1,147,782

Shareholders’ equity
$
688,146

$
681,981

$
670,781

$
600,216

$
571,394

Working capital(C)
$
445,443

$
444,138

$
445,196

$
422,281

$
390,034

Long-term debt
$
10,272

$
11,595

$
2,731

$
1,990

$
10,345

(A)All periods adjusted for the declaration of a 2.5% stock dividend declared in December 2015, a 2.5% stock dividend declared in December 2013, a 20% stock dividend declared in December 2012, and a 10% stock dividend declared in December 2011.  Prior to these adjustments, the average common shares outstanding for the years ended December 31, 2014, 2013, 2012, and 2011 were 15,848, 15,936, 15,580, and 12,876, respectively.
(B) Reclassifications made to prior year financial statements to conform to December 31, 2015 financial statement presentation.
(C)Working capital is defined as total current assets less total current liabilities.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s Discussion and Analysis provides a narrative description of the Company’s results of operations, financial condition, liquidity, and cash flows for the three-year period ended December 31, 2015. This discussion should be read in conjunction with the accompanying consolidated financial statements and the notes to the consolidated financial statements included in Item 8., “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.
 
Business Overview
 
Our strategic investments over the last two years in new locations, expanding and developing our sales force, e-commerce and mobility along with our second quarter 2015 acquisition allowed us to overcome challenging economic conditions and declines in commodity prices. We grew our net sales to $6,110,299 for the year ended December 31, 2015, an increase of $131,438, or 2.2% over 2014 net sales of $5,978,861. Net sales in our CIG vertical market increased 3.3% while our construction vertical market increased by 2.6% over 2014, and our industrial and utility vertical finished 0.1% higher than 2014.

The gross margin rate for the year ended 2015 was 18.9%, which was an increase from 18.7% for the year ended December 31, 2014. Our enhanced gross margin rate for the year was the result of our organic gross margin improvement and product diversification initiatives. Gross margin increased $36,198, or 3.2%, to $1,154,745 for the year ended December 31, 2015, when compared to gross margin of $1,118,547 for the same period last year. 

As we expanded our workforce, infrastructure, and online presence to support our growing sales, we experienced an increase of $30,002, or 3.2%, in our selling, general, and administrative expenses for the year ended December 31, 2015. Our investment in new locations was the primary driver for the increase in depreciation and amortization expenses, which was $4,091, or 10.4% over prior year.  


12


Our increase in net sales and gross margin coupled with our focus on expense management resulted in us achieving the highest net income in our history. Net Income attributable to Graybar Electric Company, Inc. was $91,068 for the year ended December 31, 2015, surpassing our previous record set in 2014 by $3,640, or 4.2%.

While we are aware of an expected generalized slowdown across our industry and anticipate that our sales will grow slowly through the first half of 2016, we believe that our investments in expanding and developing our sales force, increasing our number of locations, and enhancing our e-commerce and mobility offerings have positioned us well for long-term growth.

Consolidated Results of Operations

The following table sets forth certain information relating to our operations stated in thousands of dollars and as a percentage of net sales for the years ended December 31, 2015, 2014, and 2013: 
 
2015
 
2014
 
2013
 
Dollars
Percent
 
Dollars
 
Percent
 
Dollars
 
Percent
Net Sales
$
6,110,299

100.0
 %
 
$
5,978,861

 
100.0
 %
 
$
5,659,141

 
100.0
 %
Cost of merchandise sold
(4,955,554
)
(81.1
)
 
(4,860,314
)
 
(81.3
)
 
(4,614,985
)
 
(81.5
)
Gross Margin
1,154,745

18.9

 
1,118,547

 
18.7

 
1,044,156

 
18.5

Selling, general and
     administrative expenses
(965,134
)
(15.8
)
 
(935,132
)
 
(15.6
)
 
(873,415
)
 
(15.4
)
Depreciation and amortization
(43,242
)
(0.7
)
 
(39,151
)
 
(0.7
)
 
(36,944
)
 
(0.7
)
Other income, net
8,199

0.1

 
3,918

 
0.1

 
2,495

 
—

Income from Operations
154,568

2.5

 
148,182

 
2.5

 
136,292

 
2.4

Interest expense, net
(2,227
)
—

 
(1,371
)
 
—

 
(1,341
)
 
—

Income before provision for income taxes
152,341

2.5

 
146,811

 
2.5

 
134,951

 
2.4

Provision for income taxes
(61,009
)
(1.0
)
 
(59,125
)
 
(1.0
)
 
(53,677
)
 
(1.0
)
Net Income
91,332

1.5

 
87,686

 
1.5

 
81,274

 
1.4

Net income attributable to noncontrolling interests
(264
)
—

 
(258
)
 
—

 
(211
)
 
—

Net Income attributable to
     Graybar Electric Company, Inc.
$
91,068

1.5
 %
 
$
87,428

 
1.5
 %
 
$
81,063

 
1.4
 %
  
2015 Compared to 2014

Net sales totaled $6,110,299 for the year ended December 31, 2015, compared to $5,978,861 for the year ended December 31, 2014, an increase of $131,438, or 2.2%.  Net sales in our CIG, construction, and industrial and utility verticals increased over 2014 by 3.3%, 2.6% and 0.1%, respectively.

Gross margin increased $36,198, or 3.2%, to $1,154,745 for the year ended December 31, 2015, from $1,118,547 for the year ended December 31, 2014. The increase resulted from a combination of improved gross margin rates on sales of merchandise and an increase in net sales for the year ended December 31, 2015, compared to the year ended December 31, 2014. Our gross margin rate was 18.9% for the year ended December 31, 2015, up from 18.7% in 2014.

Selling, general and administrative expenses ("SG&A") increased $30,002, or 3.2%, to $965,134 for the year ended December 31, 2015 mainly due to higher compensation-related costs resulting from our sales force expansion initiative and normal compensation increases for our existing workforce. SG&A as a percentage of net sales for the year ended December 31, 2015 was 15.8% compared to 15.6% for the year ended December 31, 2014.

Depreciation and amortization expenses ("Depreciation") for the year ended December 31, 2015 increased $4,091, or 10.4%, to $43,242 from $39,151 for the year ended December 31, 2014.  This increase was due to an increase in property, at cost. Depreciation as a percentage of net sales remained consistent at 0.7% for the years ended December 31, 2015 and 2014.

Other income, net totaled $8,199 for the year ended December 31, 2015, compared to $3,918 for the year ended December 31, 2014.  Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to our business activities. The increase in other income, net was primarily due to an increase in net gains on the disposal of real and personal property, partially offset by a decrease in miscellaneous income items. Net gains on the disposal of real and personal property was $5,918 for the year ended December 31, 2015, compared to losses on the disposal of personal property of $24 for the year ended December 31, 2014.  

Interest expense, net increased $856, or 62.4%, to $2,227 for the year ended December 31, 2015, from $1,371 for the year ended December 31, 2014. The increase was primarily due to higher levels of average outstanding short-term borrowings.

13



Income before provision for income taxes totaled $152,341 for the year ended December 31, 2015, an increase of $5,530, or 3.8%, compared to $146,811 for the year ended December 31, 2014. The increase was generated by our growth in gross margin and an increase in other income, net and our ability to manage the impact of the growth in SG&A and Depreciation.
 
Our provision for income taxes increased $1,884, or 3.2%, to $61,009 for the year ended December 31, 2015 from $59,125 for the year ended December 31, 2014.  Our effective tax rate was 40.0% for the year ended December 31, 2015, down from 40.3% for the year ended December 31, 2014.  The decrease in the effective tax rate was attributable to the impact of agreed upon adjustments as a result of the Internal Revenue Service ("IRS") examination settlement with respect to all filed Federal tax returns that was recorded during the year ended December 31, 2014 which did not repeat in the twelve months ended December 31, 2015. The effective tax rate for the year ended December 31, 2015 was higher than the 35.0% U.S. federal statutory rate primarily due to state and local income taxes, while the effective tax rate for twelve months ended December 31, 2014 was higher due to the IRS audit and state and local income taxes.

Net income attributable to Graybar Electric Company, Inc. for the year ended December 31, 2015 increased $3,640, or 4.2%, to $91,068 from $87,428 for the year ended December 31, 2014.

2014 Compared to 2013

Net sales totaled $5,978,861 for the year ended December 31, 2014, compared to $5,659,141 for the year ended December 31, 2013, an increase of $319,720, or 5.6%.  Net sales in our construction and industrial and utility verticals increased over 2013 by 5.4% and 8.4%, respectively. Our CIG vertical decreased in net sales by 0.8% from 2013.

Gross margin increased $74,391, or 7.1%, to $1,118,547 for the year ended December 31, 2014, from $1,044,156 for the year ended December 31, 2013. The increase resulted from a combination of an improved gross margin as a percent of net sales and an increase in net sales for the year ended December 31, 2014, compared to the year ended December 31, 2013.  Our gross margin rate was 18.7% for the year ended December 31, 2014, up from 18.5% in 2013.

SG&A increased $61,717, or 7.1%, to $935,132 for the year ended December 31, 2014, compared to $873,415 for the year ended December 31, 2013, mainly due to higher compensation-related costs resulting from our sales force expansion initiative and normal compensation increases for our existing workforce.  SG&A as a percentage of net sales for the year ended December 31, 2014 was 15.6%, compared to 15.4% for the year ended December 31, 2013.

Depreciation for the year ended December 31, 2014 increased $2,207, or 6.0%, to $39,151 from $36,944 for the year ended December 31, 2013.  This increase was due to an increase in property, at cost.  Depreciation as a percentage of net sales remained consistent at 0.7% for the years ended December 31, 2014 and 2013.

Other income, net totaled $3,918 for the year ended December 31, 2014, compared to $2,495 for the year ended December 31, 2013.  Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to our business activities. 

Interest expense, net increased $30, or 2.2%, to $1,371 for the year ended December 31, 2014, from $1,341 for the year ended December 31, 2013.  Long-term debt outstanding, including current portion, was $17,836 at December 31, 2014, compared to $5,174 at December 31, 2013. The long-term debt outstanding, including current portion increase was primarily due to capital lease financing transactions.
 
Income before provision for income taxes totaled $146,811 for the year ended December 31, 2014, an increase of $11,860, or 8.8%, compared to $134,951 for the year ended December 31, 2013. The increase was generated by our ability to manage our growth in SG&A and Depreciation at levels that were less than our growth in gross margin.
 
Our provision for income taxes increased $5,448, or 10.1%, to $59,125 for the year ended December 31, 2014, from $53,677 for the year ended December 31, 2013, as a result of higher income before provision for income taxes and settlement of our IRS examination.  Our effective tax rate was 40.3% for the year ended December 31, 2014, up from 39.8% for the year ended December 31, 2013.  The effective tax rates for the years ended December 31, 2014 and 2013 were higher than the 35.0% U.S. federal statutory rate primarily due to state and local income taxes.

Net income attributable to Graybar Electric Company, Inc. for the year ended December 31, 2014 increased $6,365, or 7.9%, to $87,428 from $81,063 for the year ended December 31, 2013.


14


Financial Condition and Liquidity

Summary
 
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 enable our company to invest in strategic long-term growth plans.

We have historically funded our working capital requirements using cash flows generated by the collection of trade receivables and trade accounts payable terms with our suppliers, supplemented by short-term bank lines of credit.  Capital expenditures have been financed primarily by cash from working capital management, short-term bank lines of credit and long-term debt. 

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for each of the past three years:
Total cash provided by (used in):
2015
 
2014
 
2013
Operating Activities
$
96,853

 
$
135,749

 
$
90,888

Investing Activities
(76,571
)
 
(51,097
)
 
(57,776
)
Financing Activities
(16,109
)
 
(85,559
)
 
(36,121
)
Net Increase (Decrease) in Cash
$
4,173

 
$
(907
)
 
$
(3,009
)
 
Our cash was $37,931 at December 31, 2015, an increase of $4,173, or 12.4%, from $33,758 at December 31, 2014. Our short term borrowings increased significantly during the year to $104,978 at December 31, 2015 from $66,342 at December 31, 2014, in part, because we have strategically invested in expanding our service offering by adding new locations, expanding our sales force, acquiring a new company, as well as improving our working capital management. Current assets exceeded current liabilities by $445,443 at December 31, 2015, an increase of $1,305, or 0.3%, from $444,138 at December 31, 2014.

Operating Activities
       
Cash flows from operations for the year ended December 31, 2015 decreased by $38,896 or 28.7%, to $96,853 at December 31, 2015 when compared to $135,749 for the year ended December 31, 2014. Cash flows provided by operations for December 31, 2015 was negatively impacted as a result of increased inventory levels to support our sales growth during 2015 and anticipated sales growth in 2016.

Merchandise inventory turnover increased significantly for the year ended December 31, 2015 as a result of higher sales volume, partially offset by increased merchandise levels. In addition, our policy of continuing to manage working capital assets resulted in a modest increase in trade receivables as well as a significant increase in trade accounts payable.

Investing Activities

Net cash used by investing activities increased by $25,474 for the year ended December 31, 2015 when compared to the year ended December 31, 2014, due in part, to the addition of four new locations. In addition, in the first quarter of 2015, we purchased a new regional distribution center in southern California for $23,392, while disposing of a regional distribution center in northern California that had been classified as an asset held for sale and provided proceeds of $8,214. During the second quarter of 2015, we acquired Advantage Industrial Automation, Inc. for $18,093, net of cash acquired. For further discussion of the acquisition, refer to Note 15, "Acquisition", of the notes to the consolidated financial statements included in Item 8., "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. In the fourth quarter of 2015, we sold another property classified as held for sale that provided proceeds of $3,495.
 
Financing Activities
 
Net cash used by financing activities decreased by $69,450 for the year ended December 31, 2015, compared to the year ended December 31, 2014 primarily due to:

•
Increased short-term borrowings

15


•
Decreased dividend payments on common stock
•
Increased sales of common stock
•
Decreased treasury stock purchases
•
Greater proceeds from and decreased payments to noncontrolling interests' stock

The above factors were offset by the following:
•
Higher long-term debt payments
•
Higher payments on capital leases

Liquidity

We had a $550,000 revolving credit facility with $445,022 in available capacity at December 31, 2015, compared to $483,658 at December 31, 2014. At December 31, 2015 and 2014, we also had an uncommitted $100,000 private placement shelf agreement that allows us to issue senior promissory notes to affiliates of Prudential at fixed rate terms to be agreed upon at the time of any issuance during a three year issuance period ending in September 2017. No notes had been issued under the shelf agreement as of December 31, 2015 and 2014. For further discussion related to our revolving credit facility and our private placement shelf agreement, refer to Note 10, "Debt", of the notes to the consolidated financial statements located in Item 8., "Financial Statements and Supplementary Data", of this Annual Report on Form 10-K.

We had letters of credit of $4,994 and $5,725 outstanding, of which none were issued under the $550,000 revolving credit facility at December 31, 2015 and 2014.  The letters of credit are used primarily to support certain workers compensation insurance policies.

Contractual Obligations and Commitments
 
We had the following contractual obligations as of December 31, 2015:
 
 

 
Payments due by period
Contractual obligations
Total
 
2016
 
2017
and
2018
 
2019
and
2020
 
 After
2020
Long-term debt obligations
$
1,865

 
$
1,865

 
$
—

 
$
—

 
$
—

Capital lease obligations
18,008

 
5,421

 
6,136

 
2,027

 
4,424

Operating lease obligations
76,416

 
23,457

 
34,394

 
14,767

 
3,798

Purchase obligations
694,622

 
694,622

 
—

 
—

 
—

Total
$
790,911

 
$
725,365

 
$
40,530

 
$
16,794

 
$
8,222

 
Long-term debt and capital lease obligations consist of both principal and interest payments.

Purchase obligations consist of open purchase orders issued in the normal course of business.  Many of these purchase obligations may be cancelled with limited or no financial penalties.
 
The table above does not include $186,810 of accrued, unfunded pension obligations, $84,880 of accrued, unfunded employment-related benefit obligations, of which $75,937 is related to our postretirement benefit plan, and $2,247 in contingent payments for uncertain tax positions because it is not certain when these obligations will be settled or paid.
 
We also expect to make contributions totaling approximately $40,000 to our defined benefit pension plan and fund $1,635 for nonqualified benefits during 2016 that are not included in the table.  We contributed $40,000 to our defined benefit pension plan and funded $1,537 for nonqualified benefits in 2015.
 
Critical Accounting Estimates
 
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"). In connection with the preparation of our financial statements we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our estimates, assumptions and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, estimates, assumptions, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and assumptions, and such differences could be material.

16



Our significant accounting policies are discussed in Note 2, "Summary of Significant Accounting Policies", of the notes to the consolidated financial statements located in Item 8., “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.  We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board.
 
Income Taxes
 
We recognize deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the financial statements or tax returns.  Uncertainty exists regarding tax positions taken in previously filed tax returns still subject to examination and positions expected to be taken in future returns.  A deferred tax asset or liability results from the temporary difference between an item’s carrying value as reflected in the financial statements and its tax basis, and is calculated using enacted applicable tax rates.  We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, a valuation allowance is established.  Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the 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. 
 
Merchandise Inventory
 
We value our inventories at the lower of cost (determined using the last-in, first-out (“LIFO”) cost method) or market.  LIFO accounting is a method of accounting that, compared with other inventory accounting methods, generally provides better matching of current costs with current sales.  In assessing the ultimate realization of inventories, we make judgments as to our return rights to suppliers and future demand requirements and record an inventory reserve for obsolete inventory.  If actual future demand, market conditions, or supplier return provisions are less favorable than those projected by management, additional inventory write-downs may be required. For years ended December 31, 2015, 2014 and 2013 there were no material differences between our estimated reserve levels and actual write-offs.
 
Pension and Postretirement Benefits Plans
 
We account for our pension and postretirement benefit obligations in accordance with the accounting standards for defined benefit pension and other postretirement plans. These standards require the use of several important assumptions, including the discount rate and expected long-term rate of return on plan assets, among others, in determining our obligations and the annual cost of our pension and postretirement benefits. These assumptions are assessed annually in consultation with independent actuaries and investment advisors as of December 31 and adjustments are made as needed.

The following table presents key assumptions used to measure the pension and postretirement benefits obligations at December 31: 
 
Pension Benefits
    Postretirement Benefits
 
2015
2014
2015
2014
Discount rate
4.48%
4.08%
4.09%
3.77%
Expected return on plan assets
5.75%
6.25%
—
—
       
To determine the long-term rate of return, we consider the historical experience and expected future long-term performance of the plan assets, as well as the current and expected allocation of the plan assets. The pension plan’s asset allocation as of December 31, 2015, was approximately 65% fixed income investments, 23% equity securities and 12% other investments, in line with our policy ranges. We periodically evaluate the allocation of plan assets among the different investment classes to ensure that they are within policy guidelines and ranges. Although we do not currently expect to change the assumed rate of return in the near term, holding all other assumptions constant, we estimate that a 1% decrease in the expected return on plan assets would have increased our 2015 pension expense by approximately $4,700. Our expected rate of return on plan assets assumption will remain consistent for fiscal year 2016 at 5.75%.

In determining the discount rate, we use yields on high-quality fixed-income investments (including among other things, Moody’s Aa corporate bond yields) that match the duration and expected cash flows of the future pension obligations. To the extent the discount rate increases or decreases, our pension and postretirement obligations are decreased or increased accordingly. Holding all other assumptions constant, we estimate that a 1% decrease in the discount rate used to calculate both

17


pension expense for 2015 and the pension liability as of December 31, 2015 would have increased pension expense by $7,600 and the pension liability by $76,400.  Similarly, a 1% decrease in the discount rate would have increased postretirement benefits expense by $200 and the December 31, 2015 postretirement benefits liability by $6,500.  
 
New Accounting Standards
 
     Our adoption of new accounting standards are discussed in Note 2, "Summary of Significant Accounting Policies", of the notes to the consolidated financial statements located in Item 8., "Financial Statements and Supplementary Data", of this Annual Report on Form 10-K.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
 
Market risk is the risk of loss arising from adverse changes in market rates and prices, including commodity prices, foreign currency exchange rates, interest rates, and equity prices.  Our primary exposures to market risk are commodity price risk, foreign currency exchange rate risk, and interest rate risk associated with debt obligations.
 
Commodity Price Risk
 
We have exposure to commodity price risk on products we purchase for resale. Examples of such products include copper wire and cable, steel conduit, enclosures, fittings, and PVC products. 

 Foreign Currency Exchange Rate Risk
 
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 year-end and its income and expenses are translated using average exchange rates prevailing during the year.  Currency translation adjustments are included in accumulated other comprehensive loss.  Exposure to foreign currency exchange rate fluctuations is not material.

Interest Rate Risk
 
Our interest expense is sensitive to changes in the general level of market interest rates.  Changes in interest rates have different impacts on the fixed-rate and variable-rate portions of our debt portfolio.  A change in market interest rates on the fixed-rate portion of our debt portfolio impacts the fair value of the financial instrument, but has no impact on interest incurred or cash flows.  A change in market interest rates on the variable-rate portion of our debt portfolio impacts the interest incurred and cash flows, but does not impact the fair value of the financial instrument.  To mitigate the cash flow impact of interest rate fluctuations on the cost of financing our capital assets, we generally endeavor to maintain a significant portion of our long-term debt as fixed-rate in nature.
 
Based on $104,978 in variable-rate debt outstanding at December 31, 2015, a 1% increase in interest rates would increase our interest expense by $1,050 per year.
 
The following table provides information about financial instruments that are sensitive to changes in interest rates.  The table presents principal payments on debt and related weighted-average interest rates by expected maturity dates:
 
 

 

 

 

 

 

December 31, 2015
 
Debt Instruments
2016
2017
2018
2019
2020
After 2020
Total

Fair
Value

 
 

 

 
 
 
 
 
 
Long-term, fixed-rate debt
$
6,558

3,824

1,357

745

642

3,704

$
16,830

$
15,587

Weighted-average interest rate
3.06
%
4.04
%
5.85
%
6.83
%
6.97
%
6.89
%
 
 
 
 

 

 

 

 

 

 

 

Short-term, variable-rate borrowings
$
104,978

—

—

—

—

—

$
104,978

$
104,978

Weighted-average interest rate
1.31
%










 
 
 
The fair value of long-term debt is estimated by calculating future cash flows at interpolated Treasury yields with similar maturities, plus an estimate of our credit spread as of December 31, 2015.  

18


CAUTION REGARDING FORWARD-LOOKING STATEMENTS:
 
For additional information related to risks associated with our future performance, see Part I, "Caution Regarding Forward-looking Statements" above and Item 1A. Risk Factors of this Form 10-K.

Item 8.  Financial Statements and Supplementary Data






[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK] 


19


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
The Board of Directors and Shareholders of
Graybar Electric Company, Inc.
 
We have audited the accompanying consolidated balance sheets of Graybar Electric Company, Inc. and Subsidiaries (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Company’s internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Graybar Electric Company, Inc. and Subsidiaries at December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
 
 
/s/ Ernst & Young LLP
 
 
St. Louis, Missouri
March 10, 2016
 
 

20


Graybar Electric Company, Inc. and Subsidiaries
Consolidated Statements of Income
 
 
For the Years Ended December 31,
(Stated in thousands, except per share data)
2015
2014
2013
Net Sales
$
6,110,299

$
5,978,861

$
5,659,141

Cost of merchandise sold
(4,955,554
)
(4,860,314
)
(4,614,985
)
Gross Margin
1,154,745

1,118,547

1,044,156

Selling, general and administrative expenses
(965,134
)
(935,132
)
(873,415
)
Depreciation and amortization
(43,242
)
(39,151
)
(36,944
)
Other income, net
8,199

3,918

2,495

Income from Operations
154,568

148,182

136,292

Interest expense, net
(2,227
)
(1,371
)
(1,341
)
Income before provision for income taxes
152,341

146,811

134,951

Provision for income taxes
(61,009
)
(59,125
)
(53,677
)
Net Income
91,332

87,686

81,274

Net income attributable to noncontrolling interests
(264
)
(258
)
(211
)
Net Income attributable to Graybar Electric Company, Inc.
$
91,068

$
87,428

$
81,063

Net Income attributable to Graybar Electric Company, Inc.
per share of Common Stock(A)
$
5.57

$
5.38

$
4.96

(A)Adjusted for the declaration of a 2.5% stock dividend in December 2015, shares related to which were issued in February 2016. Prior to the adjustment, the average common shares outstanding were 15,848 and 15,936 for the years ended December 31, 2014 and 2013, respectively.
 
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
 

21


Graybar Electric Company, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income

 
For the Years Ended December 31,
(Stated in thousands)
2015
 
2014
 
2013
Net Income
$
91,332

 
$
87,686

 
$
81,274

Other Comprehensive Income
 
 
 
 
 
Foreign currency translation
(13,240
)
 
(6,643
)
 
(5,553
)
Pension and postretirement benefits liability adjustment
 
 
 
 
 
(net of tax of $16,261, $3,477, and $(20,270), respectively)
(25,542
)
 
(5,461
)
 
31,838

Total Other Comprehensive (Loss) Income
(38,782
)
 
(12,104
)
 
26,285

Comprehensive Income
$
52,550

 
$
75,582

 
$
107,559

Less: comprehensive (loss) income attributable to noncontrolling
          interests, net of tax
(276
)
 
(16
)
 
45

Comprehensive Income attributable to
       Graybar Electric Company, Inc.
$
52,826

 
$
75,598

 
$
107,514


The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.


22


Graybar Electric Company, Inc. and Subsidiaries
Consolidated Balance Sheets
 
 
 
 
December 31,
(Stated in thousands, except share and per share data)
 
 
2015

2014

ASSETS
 
 
 

 

       Current Assets
 
 
 
 

Cash and cash equivalents
 
 
$
37,931

$
33,758

Trade receivables (less allowances of $5,879 and $7,073, respectively)
928,276

920,796

Merchandise inventory
 
 
518,288

461,139

Other current assets
 
 
31,305

41,934

Total Current Assets
 
 
1,515,800

1,457,627

       Property, at cost
 
 
 
 
Land
 
 
75,968

67,879

Buildings
 
 
443,137

429,406

Furniture and fixtures
 
 
271,605

253,918

Software
 
 
85,423

84,488

Capital leases
 
 
32,543

25,135

Total Property, at cost
 
 
908,676

860,826

Less – accumulated depreciation and amortization
(474,810
)
(452,163
)
Net Property
 
 
433,866

408,663

       Other Non-current Assets
 
 
99,877

72,823

Total Assets
 
 
$
2,049,543

$
1,939,113

LIABILITIES
 
 
 
 
       Current Liabilities
 
 
 
 
Short-term borrowings
 
 
$
104,978

$
66,342

Current portion of long-term debt
 
 
6,558

6,241

Trade accounts payable
 
 
766,089

726,632

Accrued payroll and benefit costs
 
 
111,069

127,191

Other accrued taxes
 
 
16,880

17,303

Other current liabilities
 
 
64,783

69,780

Total Current Liabilities
 
 
1,070,357

1,013,489

Postretirement Benefits Liability
 
 
70,303

69,565

Pension Liability
 
 
185,211

140,981

Long-term Debt
 
 
10,272

11,595

Other Non-current Liabilities
 
 
25,254

21,502

Total Liabilities
1,361,397

1,257,132

SHAREHOLDERS’ EQUITY
 
 
 

 

 
Shares at December 31,
 
 
 
Capital Stock
2015

2014

 
 
Common, stated value $20.00 per share
 
 
 

 
Authorized
50,000,000

50,000,000

 

 
Issued to voting trustees
13,668,055

13,159,559

 

 
Issued to shareholders
2,721,926

2,714,853

 

 
In treasury, at cost
(65,890
)
(14,482
)
 

 
Outstanding Common Stock
16,324,091

15,859,930

326,482

317,199

Common shares subscribed
878,608

806,811

17,572

16,136

Less subscriptions receivable
(878,608
)
(806,811
)
(17,572
)
(16,136
)
Retained Earnings
 
 
548,780

513,672

Accumulated Other Comprehensive Loss
 
 
(190,435
)
(152,193
)
Total Graybar Electric Company, Inc. Shareholders’ Equity
684,827

678,678

Noncontrolling Interests
 
 
3,319

3,303

Total Shareholders’ Equity
 
 
688,146

681,981

Total Liabilities and Shareholders’ Equity
$
2,049,543

$
1,939,113

 
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
 

23


Graybar Electric Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

 
For the Years Ended December 31,
(Stated in thousands)
2015
 
2014
 
2013
Cash Flows from Operations
 
 
 
 
 

Net Income
$
91,332

 
$
87,686

 
$
81,274

Adjustments to reconcile net income to cash provided
by operations:
 

 
 

 
 
Depreciation and amortization
43,242

 
39,151

 
36,944

Deferred income taxes
4,173

 
4,096

 
(3,441
)
Net (gains) losses on disposal of property
(5,918
)
 
24

 
418

Net income attributable to noncontrolling interests
(264
)
 
(258
)
 
(211
)
Changes in assets and liabilities:
 
 
 
 
 
Trade receivables
(3,409
)
 
(100,473
)
 
(52,813
)
Merchandise inventory
(54,080
)
 
(12,753
)
 
(31,633
)
Other current assets
10,698

 
(18,424
)
 
13,134

Other non-current assets
(149
)
 
(1,008
)
 
(1,653
)
Trade accounts payable
36,011

 
111,172

 
42,208

Accrued payroll and benefit costs
(16,783
)
 
33,929

 
(15,988
)
Other current liabilities
(14,596
)
 
(6,198
)
 
11,927

Other non-current liabilities
6,596

 
(1,195
)
 
10,722

Total adjustments to net income
5,521

 
48,063

 
9,614

Net cash provided by operations
96,853

 
135,749

 
90,888

Cash Flows from Investing Activities
 
 
 
 
 
Proceeds from disposal of property
15,701

 
1,398

 
447

Capital expenditures for property
(74,179
)
 
(52,495
)
 
(58,223
)
Acquisition of business, net of cash acquired
(18,093
)
 
—

 
—

Net cash used by investing activities
(76,571
)
 
(51,097
)
 
(57,776
)
Cash Flows from Financing Activities
 
 
 
 
 
Net increase (decrease) in short-term borrowings
38,636

 
(16,100
)
 
11,326

Repayment of long-term debt
(3,656
)
 
(1,800
)
 
(7,386
)
Principal payments under capital leases
(4,704
)
 
(3,277
)
 
(3,067
)
Sales of common stock
15,723

 
14,492

 
12,839

Purchases of treasury stock
(14,365
)
 
(15,060
)
 
(12,772
)
Sales of noncontrolling interests’ common stock
401

 
—

 
488

Purchases of noncontrolling interests’ common stock
(109
)
 
(318
)
 
(148
)
Dividends paid
(48,035
)
 
(63,496
)
 
(37,401
)
Net cash used by financing activities
(16,109
)
 
(85,559
)
 
(36,121
)
Net Increase (Decrease) in Cash
4,173

 
(907
)
 
(3,009
)
Cash, Beginning of Year
33,758

 
34,665

 
37,674

Cash, End of Year
$
37,931

 
$
33,758

 
$
34,665

Supplemental Cash Flow Information:
 

 
 

 
 

Non-cash Investing and Financing Activities:
 

 
 

 
 

Acquisitions of equipment under capital leases
$
7,354

 
$
10,430

 
$
3,632

Acquisition of software and maintenance under financing arrangement
$
—

 
7,309

 
—

Cash Paid During the Year for:
 

 
 

 
 

Interest, net of amounts capitalized
$
2,024

 
$
1,448

 
$
1,508

Income taxes, net of refunds
$
52,076

 
$
64,752

 
$
44,676

 
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
 

24


Graybar Electric Company, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
  
 
Graybar Electric Company, Inc.
Shareholders’ Equity
 
 
 
 
(Stated in thousands)
Common
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
 
Total
Shareholders’
Equity
Balance, December 31, 2012
$
310,008

 
$
453,770

 
$
(166,814
)
 
$
3,252

 
$
600,216

Net income
 

 
81,063

 
 

 
211

 
81,274

Other comprehensive income (loss)
 

 
 

 
26,451

 
(166
)
 
26,285

Stock issued
12,839

 
 

 
 

 
488

 
13,327

Stock purchased
(12,772
)
 
 

 
 

 
(148
)
 
(12,920
)
Dividends declared
7,692

 
(45,093
)
 
 

 
 

 
(37,401
)
Balance, December 31, 2013
$
317,767

 
$
489,740

 
$
(140,363
)
 
$
3,637

 
$
670,781

Net income
 

 
87,428

 
 

 
258

 
87,686

Other comprehensive loss
 

 
 

 
(11,830
)
 
(274
)
 
(12,104
)
Stock issued
14,492

 
 

 
 

 

 
14,492

Stock purchased
(15,060
)
 
 

 
 

 
(318
)
 
(15,378
)
Dividends declared


 
(63,496
)
 
 

 
 

 
(63,496
)
Balance, December 31, 2014
$
317,199

 
$
513,672

 
$
(152,193
)
 
$
3,303

 
$
681,981

Net income
 

 
91,068

 
 

 
264

 
91,332

Other comprehensive loss
 

 
 

 
(38,242
)
 
(540
)
 
(38,782
)
Stock issued
15,723

 
 

 
 

 
401

 
16,124

Stock purchased
(14,365
)
 
 

 
 

 
(109
)
 
(14,474
)
Dividends declared
7,925

 
(55,960
)
 
 

 
 

 
(48,035
)
Balance, December 31, 2015
$
326,482

 
$
548,780

 
$
(190,435
)
 
$
3,319

 
$
688,146

 
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
 

25


Graybar Electric Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
as of December 31, 2015 and 2014 and
for the Years Ended December 31, 2015, 2014, and 2013
(Stated in thousands, except share and per share data)
 

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, and commercial, institutional and government ("CIG"), as well as the industrial and 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, and we neither manufacture nor contract to manufacture any products that we sell.  Our business activity is primarily with customers 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.
 
Principles of Consolidation
 
The 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.

Reclassifications
 
Certain reclassifications have been made to prior years' financial information to conform to the December 31, 2015 presentation.

Subsequent Events
 
        We have evaluated subsequent events through the time of the filing of this Annual Report on Form 10-K with the Commission.  No material subsequent events have occurred since December 31, 2015 that require recognition or disclosure in our financial statements, other than the asset sale disclosed in Note 5, "Property and Depreciation".
 
Revenue Recognition
 
Revenue is recognized when evidence of a customer arrangement exists, prices are fixed and determinable, product title, ownership and risk of loss transfers to the customer, and collectability is reasonably assured.  Revenues recognized are primarily for product sales, but also include freight and handling charges.  Our standard shipping terms are FOB shipping point, under which product title passes to the customer at the time of shipment.  We also earn revenue for services provided to customers for supply chain management and logistics services.  Service revenue, which accounts for less than 1% of net sales, is recognized when services are rendered and completed.  Revenue is reported net of all taxes assessed by governmental authorities as a result of revenue-producing transactions, primarily sales tax.
 
Outgoing Freight Expenses                                                                                        
 
We record certain outgoing freight expenses as a component of selling, general and administrative expenses.  These costs totaled $51,100, $49,622, and $48,497 for the years ended December 31, 2015, 2014, and 2013, respectively.

26


  
Cash and Cash Equivalents
 
We account for cash on hand, deposits in banks, and other short-term, highly liquid investments with an original maturity of three months or less as cash and cash equivalents.
 
Allowance for Doubtful Accounts
 
We perform ongoing credit evaluations of our customers, and a significant portion of our trade receivables is secured by mechanic’s lien or payment bond rights.  We maintain allowances to reflect the expected uncollectability of trade receivables based on past collection history and specific risks identified in the receivables portfolio.  Although actual credit losses have historically been within management’s expectations, additional allowances may be required if the financial condition of our customers were to deteriorate.
 
Merchandise Inventory
 
Our inventory is stated at the lower of cost (determined using the last-in, first-out (“LIFO”) cost method) or market.  LIFO accounting is a method of accounting that, compared with other inventory accounting methods, generally provides better matching of current costs with current sales. 
 
We make provisions for obsolete or excess inventories as necessary to reflect reductions in inventory value. 
 
Vendor Allowances
 
Our agreements with many of our suppliers provide for us to earn volume incentives based on purchases during the agreement period.  Based on the provisions of our vendor agreements, we develop vendor accrual rates by estimating the point at which we will have completed our performance under the agreement and the deferred amounts will be earned. We perform analysis and review historical trends to ensure the deferred amounts earned are appropriately recorded. Certain vendor agreements contain purchase volume incentives that provide for increased funding when graduated purchase volumes are met. Amounts accrued throughout the year are based on estimates of future activity levels and could be materially impacted if actual purchase volumes differ. Changes in the estimated amount of incentives are treated as changes in estimate and are recognized in earnings in the period in which the change in estimate occurs.  In the event that the operating performance of our suppliers were to decline, however, there can be no assurance that amounts earned would be paid or that the volume incentives would continue to be included in future agreements.

Property and Depreciation
 
Property, plant and equipment are recorded at cost. Depreciation is expensed on a straight-line basis over the estimated useful lives of the related assets. Interest costs incurred to finance expenditures for major long-term construction projects are capitalized as part of the asset's historical cost and included in property, plant and equipment, then depreciated over the useful life of the asset. Leasehold improvements are amortized over the term of the lease or the estimated useful life of the improvement, whichever is shorter. Expenditures for maintenance and repairs are charged to expense when incurred, while the costs of significant improvements, which extend the useful life of the underlying asset, are capitalized.
 
Credit Risk
 
Financial instruments that potentially expose us to concentrations of credit risk consist primarily of trade receivables.  We perform ongoing credit evaluations of our customers, and a significant portion of our trade receivables may be protected 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.
 

27



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/or 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 5 to 20 years. Intangible assets are tested for impairment if events or circumstances occur indicating that the respective asset might be impaired.
 
Income Taxes
 
We recognize deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the financial statements or tax returns.  Uncertainty exists regarding tax positions taken in previously filed tax returns still subject to examination and positions expected to be taken in future returns.  A deferred tax asset or liability results from the temporary difference between an item’s carrying value as reflected in the financial statements and its tax basis, and is calculated using enacted applicable tax rates.  We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, a valuation allowance is established.  Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the 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.
 
Other Postretirement Benefits
 
We account for postretirement benefits other than pensions by accruing the costs of benefits to be provided over the employees’ periods of active service.  These costs are determined on an actuarial basis.  Our 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 employees’ periods of active service.  These costs are determined on an actuarial basis.  Our consolidated balance sheets reflect the funded status of the defined benefit pension plan.
 
New Accounting Standards
 
No new accounting standards that were issued or became effective during 2015 have had or are expected to have a material impact on our consolidated financial statements except those noted below.

Subsequent to December 31, 2015 but prior to issuance of this report, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU” or “Update”) 2016-02, “Leases (Topic 842)”. The core principle of Topic 842 requires that a lessee should recognize the assets and liabilities on the balance sheet and disclose key information about leasing arrangements. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods

28


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 consolidated financial statements and whether we will adopt the guidance early.

In November 2015, FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes". The amendments in this Update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This update applies to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected. The ASU is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. We early adopted the ASU 2015-17, and disclose the quantitative information about the effects of the accounting change on prior periods in Note 7, "Income Taxes".

In April 2015, FASB issued ASU 2015-05, "Intangibles-Goodwill and Other-Internal-use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement". This Update provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract and expensed as services are received. The Update is effective for fiscal years beginning after December 15, 2015 and interim periods. We do not expect the adoption of this Update to have a material impact on our results of operations, financial position, or cash flows.

In February 2015, FASB issued ASU 2015-02, "Consolidation". The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. This ASU is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We do not expect the adoption of this Update to have a material impact on our results of operations, financial position, or cash flows.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which provides guidance on a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. In July 2015, the FASB deferred the effective date of the Update for one year. The Update will now be effective for public business entities for annual reporting periods, including interim reporting periods, beginning after December 15, 2017.

The new standard provides two alternative implementation methods. The first is to apply the new standard retrospectively to each prior reporting period presented. This method allows the use of certain practical expedients. The second method is to apply the new standard retrospectively in the year of initial adoption and record a cumulative effect adjustment for the impact of adjusting contracts open at the date of adoption. Under this transition method, we would apply this guidance retrospectively only to contracts that are not completed contracts at the date of initial application, which for us will be January 1, 2018. We would then recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. This method also requires us to disclose comparative information for the year of adoption.

We continue to determine which method we will use to implement the new standard and to assess the impact the new standard is expected to have on the consolidated financial statements or on other matters or aspects of our business.
 

29


3. CASH DISCOUNTS AND DOUBTFUL ACCOUNTS

The following table summarizes the activity in the allowances for cash discounts and doubtful accounts:
 
Beginning Balance
 
Provision (Charged to Expense)
 
Deductions
 
Ending Balance
For the Year Ended December 31, 2015
 
 
 
 
 
 
 
Allowance for cash discounts
$
1,764

 
$
26,044

 
$
(26,072
)
 
$
1,736

Allowance for doubtful accounts
5,309

 
2,545

 
(3,711
)
 
4,143

        Total
$
7,073

 
$
28,589

 
$
(29,783
)
 
$
5,879

 
 
 
 
 
 
 
 
For the Year Ended December 31, 2014
 
 
 
 
 
 
 
Allowance for cash discounts
$
1,560

 
$
25,318

 
$
(25,114
)
 
$
1,764

Allowance for doubtful accounts
5,277

 
3,769

 
(3,737
)
 
5,309

Total
$
6,837

 
$
29,087

 
$
(28,851
)
 
$
7,073

 
 
 
 
 
 
 
 
For the Year Ended December 31, 2013
 
 
 
 
 
 
 
Allowance for cash discounts
$
1,411

 
$
22,943

 
$
(22,794
)
 
$
1,560

Allowance for doubtful accounts
5,457

 
2,028

 
(2,208
)
 
5,277

Total
$
6,868

 
$
24,971

 
$
(25,002
)
 
$
6,837


4. INVENTORY

Our inventory is stated at the lower of cost (determined using the LIFO cost method) or market.  Inventories valued using the LIFO method comprised 93% and 92% of the total inventories at December 31, 2015 and 2014, respectively. Had the first-in, first-out (“FIFO”) method been used, merchandise inventory would have been $136,143 and $139,468 greater than reported under the LIFO method at December 31, 2015 and 2014, respectively.  We did not liquidate any portion of previously-created LIFO layers in 2015, 2014, and 2013. 
 
Reserves for excess and obsolete inventories were $4,912 and $4,417 at December 31, 2015 and 2014, respectively.  The change in the reserve for excess and obsolete inventories, included in cost of merchandise sold, was $495, $670, and $247 for the years ended December 31, 2015, 2014, and 2013, respectively.

5. PROPERTY AND DEPRECIATION

We provide for depreciation and amortization using the straight-line method over the following estimated useful asset lives:
Classification
Estimated Useful Asset Life
Buildings
42 years
Leasehold improvements
Over the shorter of the asset’s life or the lease term
Furniture, fixtures, equipment and software
3 to 14 years
Assets held under capital leases
Over the shorter of the asset’s life or the lease term
 
Depreciation expense was $38,588, $35,040, and $32,917 in 2015, 2014, and 2013, respectively.
 
At the time property is retired or otherwise disposed of, the asset and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to other income, net.
 
Assets held under capital leases, consisting primarily of information technology equipment, are recorded in property with the corresponding obligations carried in long-term debt.  The amount capitalized is the present value at the beginning of the lease term of the aggregate future minimum lease payments.  Assets held under leases which were capitalized during the year ended December 31, 2015 and 2014 were $7,354 and $10,430, respectively. 
 
We capitalize interest expense on major construction and development projects while in progress.  Interest capitalized in 2015, 2014, and 2013 was $225, $102, and $182, respectively.
 
We capitalize qualifying internal and external costs incurred to develop or obtain software for internal use during the application development stage.  Costs incurred during the pre-application development and post-implementation stages are

30


expensed as incurred.  We capitalized software and software development costs of $4,559 and $3,501 in 2015 and 2014, respectively, and the amounts are recorded in furniture and fixtures.
 
We consider properties to be assets held for sale when all of the following criteria are met: (i) a formal commitment to a plan to sell a property has been made and exercised; (ii) the property is available for sale in its present condition; (iii) actions required to complete the sale of the property have been initiated; (iv) sale of the property is probable and we expect the sale will occur within one year; and (v) the property is being actively marketed for sale at a price that is reasonable given its current market value.

Upon designation as an asset held for sale, we record the carrying value of each property at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and depreciation of the property ceases. The net book value of assets held for sale was $58 and $7,669 at December 31, 2015 and 2014, respectively, and is recorded in net property in the consolidated balance sheet. During 2015 and 2014, we sold assets classified as held for sale with net book values of $7,669 and $740, respectively, and recorded net gains on the assets held for sale of $4,691 and $85, respectively in other income, net.

Subsequent to December 31, 2015 but prior to issuance of this report, we sold the last location included as an asset held for sale. The location had a net book value of $58 and yielded a net gain of $1,627.

We review long-lived assets held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  For assets classified as to be held and used, impairment may occur if projected undiscounted cash flows are not adequate to cover the carrying value of the assets.  In such cases, additional analysis is conducted to determine the amount of the loss to be recognized.  The impairment loss is calculated as the difference between the carrying amount of the asset and its estimated fair value.  The analysis requires estimates of the amount and timing of projected cash flows and, where applicable, selection of an appropriate discount rate.  Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed necessary. 

For assets held for sale, impairment occurs whenever the net book value of the property listed for sale exceeds the expected selling price less estimated selling expenses. There were no impairment charges recorded during 2015 and 2014.   

6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

In 2015, goodwill increased due to the acquisition of Advantage Industrial Automation, Inc. ("Advantage"). See Note 15, "Acquisition", for further information on the acquisition.

The changes in the carrying amount of goodwill, included in other non-current assets in our consolidated balance sheets, for the year ended December 31, 2015 and 2014 were as follows:
 
2015
2014
Beginning Balance
$
6,680

$
6,680

Goodwill Acquired
7,057

—

Ending Balance
$
13,737

$
6,680


As of December 31, 2015, we have completed our annual impairment test and concluded that there is no impairment of our goodwill.

Other Intangible Assets

In 2015, other intangible assets were acquired in the acquisition of Advantage. See Note 15, "Acquisition", for further information on the acquisition.


31


Other intangible assets, included in other non-current assets in our consolidated balance sheets, consist of the following:
 
As of December 31, 2015
 
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Customer relationships
$
5,970

$
(393
)
$
5,577

Trade name
2,103

(99
)
2,004

Non-compete agreements
210

(30
)
180

Total
$
8,283

$
(522
)
$
7,761


Customer relationships, trade name, and non-compete agreements have weighted-average useful lives from the date of purchase of 10.8 years, 15.0 years, and 5.0 years, respectively.

Amortization expense for other intangible assets was $522 in 2015.

Estimated future amortization expense related to our intangible assets for the years ending December 31 are as follows:
2016
$
738

2017
738

2018
738

2019
738

2020
708

After 2020
4,101

 
$
7,761


We did not incur impairment losses related to our other intangible assets during the year ended December 31, 2015.

7. INCOME TAXES
 
We determine our deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of our assets and liabilities calculated using enacted applicable tax rates.  We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance.  Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the consolidated financial statements.
 
Our unrecognized tax benefits of $2,247, $3,104, and $3,419 as of December 31, 2015, 2014, and 2013, respectively, are uncertain tax positions that would impact our effective tax rate if recognized.  We are periodically engaged in tax return examinations, reviews of statute of limitations periods, and settlements surrounding income taxes.  We do not anticipate a material change in unrecognized tax benefits during the next twelve months.
 
Our uncertain tax benefits, and changes thereto, during 2015, 2014, and 2013 were as follows: 
 
2015
 
2014
 
2013
Balance at January 1,
$
3,104

 
$
3,419

 
$
3,530

Additions based on tax positions related to current year
464

 
490

 
516

Additions based on tax positions of prior years
—

 
—

 
—

Reductions for tax positions of prior years
(252
)
 
(477
)
 
(567
)
Settlements
(1,069
)
 
(328
)
 
(60
)
Balance at December 31,
$
2,247

 
$
3,104

 
$
3,419

 
We classify interest expense and penalties as part of our provision for income taxes based upon applicable federal and state interest/underpayment percentages.  We have accrued $907 and $1,065 in interest and penalties at December 31, 2015 and 2014, respectively.  Interest was computed on the difference between the provision for income taxes recognized in accordance with GAAP and the amount of benefit previously taken or expected to be taken in our federal, state, and local income tax returns. 
 
Our federal income tax returns for the tax years 2012 and forward are available for examination by the United States Internal Revenue Service (“IRS”).  The statute of limitation for the 2012 federal return will expire on September 15, 2016, unless extended by consent. Our state income tax returns for 2011 through 2015 remain subject to examination by various state

32


authorities with the latest period closing on December 31, 2020.  We have not extended the statutes of limitations in any state jurisdictions with respect to years prior to 2011.
 
The IRS concluded examinations of the Company's 2008-2011 federal income tax returns. In May 2014, we formalized settlement of the IRS audit for each of these four years. Collectively, including interest, we settled the assessments for $907. This closure has been recorded in our federal income tax expense for 2014.

A reconciliation between the “statutory” federal income tax rate and the effective tax rate in the consolidated statements of income is as follows: 
 
For the Years Ended December 31,
 
2015
 
2014
 
2013
“Statutory” federal tax rate
35.0
%
 
35.0
%
 
35.0
%
State and local income taxes, net of federal benefit
3.8

 
3.5

 
3.6

Other, net                 
1.2

 
1.8

 
1.2

Effective tax rate
40.0
%
 
40.3
%
 
39.8
%

The components of income before taxes and the provision for income taxes recorded in the consolidated statements of income are as follows: 
 
For the Years Ended
Components of Income before Taxes
2015
 
2014
 
2013
Domestic
$
143,144

 
$
136,656

 
$
127,858

Foreign
9,197

 
10,155

 
7,093

Income before taxes
$
152,341

 
$
146,811

 
$
134,951


 
For the Years Ended
Components of Income Tax Provision
2015
 
2014
 
2013
Current expense
 
 
 
 
 
U.S. Federal
$
46,174

 
$
44,713

 
$
47,790

State
7,996

 
7,266

 
7,066

Foreign
2,666

 
3,058

 
2,217

Total current expense
$
56,836

 
$
55,037

 
$
57,073

Deferred expense (benefit)
 
 
 
 
 
U.S. Federal
$
3,224

 
4,049

 
(2,983
)
State
958

 
47

 
(458
)
Foreign
(9
)
 
(8
)
 
45

Total deferred expense (benefit)
$
4,173

 
$
4,088

 
$
(3,396
)
Total income tax provision
$
61,009

 
$
59,125

 
$
53,677

 

33


Deferred income taxes are provided based upon differences between the financial statement and tax bases of assets and liabilities.  The following deferred tax assets (liabilities) were recorded at December 31: 
Assets (Liabilities)
2015
 
2014
Postretirement benefits
$
29,184

 
$
29,736

Payroll accruals
2,995

 
2,912

Bad debt reserves
1,653

 
2,106

Other deferred tax assets
9,438

 
8,623

Pension
60,645

 
42,836

Inventory
7,173

 
3,351

       Subtotal
111,088

 
89,564

Less: valuation allowances
(402
)
 
(393
)
       Deferred tax assets
110,686

 
89,171

Fixed assets
(40,086
)
 
(33,857
)
Computer software
(6,412
)
 
(3,904
)
Other deferred tax liabilities
(2,438
)
 
(1,974
)
Deferred tax liabilities
(48,936
)
 
(39,735
)
Net deferred tax assets
$
61,750

 
$
49,436


Deferred income taxes included in non-current assets (liabilities) at December 31 were: 
 
2015
 
2014
Deferred tax assets included in other non-current assets
$
62,047

 
$
49,801

Deferred tax liabilities included in other non-current liabilities
(297
)
 
(365
)

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current. Public business entities must implement the new guidance for annual reporting periods beginning after December 15, 2016. Earlier adoption is permitted and may be applied prospectively or retrospectively for all periods presented. Required netting of deferred tax assets and liabilities by tax jurisdiction is not affected by this Update.

We adopted ASU 2015-17 retrospectively for the annual period beginning January 1, 2015 resulting in a change in presentation of prior periods. Deferred tax assets included in other current assets decreased by $2,777 as of December 31, 2014 with a corresponding increase to deferred tax assets included in other non-current assets. Deferred tax liabilities included in other current liabilities of $365 as of December 31, 2014, were reclassified to deferred tax liabilities included in other non-current liabilities.

Operating loss carryforwards included in net deferred tax assets at December 31 were:
 
2015
 
2014
Foreign net operating losses(1)
$
349

 
$
363

State net operating losses(2)
563

 
759

(1)Expires in 2024
(2)Expire between 2016 and 2031

Due to uncertainties regarding the utilization of our foreign and state net operating losses, a partial valuation allowance has been applied against the deferred tax benefit at December 31, 2015.
 
We have undistributed earnings of non-U.S. subsidiaries of $72,488 and $66,297 as of December 31, 2015 and 2014, respectively. We have not made a provision for U.S. federal and state income taxes on these accumulated but undistributed earnings, as such earnings are considered to be indefinitely reinvested outside the U.S. 

8. CAPITAL STOCK
 
Our common stock is 100% owned by active and retired employees, and there is no public trading market for our common stock.  Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable New York law, a voting trust may not have a term greater than ten years. At December 31, 2015, approximately 83% of the common stock was held in a voting trust that expires by its terms on March 15, 2017. The participation of shareholders in the voting trust is voluntary at the time the voting trust is

34


created, but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record.

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 is 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. 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 on a pension (except a deferred pension), 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.
 
During 2015, eligible employees and qualified retirees subscribed for 878,608 shares totaling $17,572.  Subscribers under the Plan elected to make payments under one of the following options: (i) all shares subscribed for on or before January 8, 2016; or (ii) all shares subscribed for in installments paid through payroll deductions (or in certain cases where a subscriber is no longer on our payroll, through direct monthly payments) over an eleven-month period.
 
Common shares were delivered to subscribers as of January 8, 2016, in the case of shares paid for prior to January 8, 2016.  Shares will be issued and delivered to subscribers on a quarterly basis, as of the tenth day of March, June, September, and December, to the extent full payments for shares are made in the case of subscriptions under the installment method.
 
Shown below is a summary of shares purchased and retired by the Company during the three years ended December 31: 
 
Shares of Common Stock
 
 
Purchased

Retired

2015
718,269

666,861

2014
752,983

780,077

2013
638,647

681,637

 
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 December 31, 2015 and 2014.
 
On December 10, 2015, our Board of Directors declared a 2.5% common stock dividend. Each shareholder was entitled to one share of common stock for every forty shares held as of December 18, 2015. The stock was issued on February 1, 2016. There was no common stock dividend declared by our Board of Directors in 2014. On December 12, 2013, our Board of Directors declared a 2.5% common stock dividend.  Each shareholder was entitled to one share of common stock for every forty shares held as of January 2, 2014. The stock was issued on February 3, 2014.  

9. NET INCOME PER SHARE OF COMMON STOCK
 
  The computation of net income per share of common stock is based on the average number of common shares outstanding during each year, adjusted in all periods presented for the declaration of a 2.5% stock dividend declared in both 2015 and 2013.  There was no stock dividend declared in 2014. The average number of shares used in computing net income per share of common stock at December 31, 2015, 2014, and 2013 was 16,364,441, 16,243,882, and 16,334,145, respectively.
 

35


10. DEBT
 
 
December 31,
Long-term Debt
2015
2014
1.85% note, unsecured, due in quarterly installments of $798 beginning in July 2014
   through April 2016
$
1,586

$
4,714

1.43% note, unsecured, due in quarterly installments of $134 beginning in July 2014
   through April 2016
267

794

2.01% to 30.63% capital leases, various maturities
14,977

12,328

 
$
16,830

$
17,836

Less current portion
(6,558
)
(6,241
)
Long-term Debt
$
10,272

$
11,595

 
Long-term Debt matures as follows:
 
2016
$
6,558

2017
3,824

2018
1,357

2019
745

2020
642

After 2020
3,704

 
$
16,830


The carrying amount of our outstanding long-term, fixed-rate debt exceeded its fair value by $1,243 and $1,331 at December 31, 2015 and 2014, respectively.  The fair value of the long-term, fixed-rate debt is estimated by using yields obtained from independent pricing sources for similar types of borrowings.  The fair value of our variable-rate short- and long-term debt approximates its carrying value at December 31, 2015 and 2014, respectively.

Revolving Credit Facility

On December 31, 2015 and December 31, 2014, we along with Graybar Canada Limited, our Canadian operating subsidiary (“Graybar Canada”), had an unsecured, five-year, $550,000 revolving credit agreement maturing in June 2019 with Bank of America, N.A. and other lenders named therein (the "Credit Agreement"), which includes a combined letter of credit subfacility of up to $50,000, a U.S. swing line loan facility of up to $50,000, and a Canadian swing line loan facility of up to $20,000. The Credit Agreement includes a $100,000 sublimit (in U.S. or Canadian dollars) for borrowings by Graybar Canada and contains an accordion feature, which allows us to request increases in the aggregate borrowing commitments of up to $300,000.

Borrowings of Graybar Canada may be in U.S. dollars or Canadian dollars. The obligations of Graybar Canada are secured by the guaranty of Graybar and any material domestic subsidiaries of Graybar (as defined in the Credit Agreement). Under no circumstances will Graybar Canada use its borrowings to benefit Graybar or its operations, including without limitation to repay any of Graybar’s obligations under the facility.

Interest on our borrowings under the Credit Agreement are based on, at the borrower’s election, either (A) (i) the base rate (as defined in the Credit Agreement), or (ii) LIBOR (in the case of Graybar as borrower) or (B) (i) the base rate (as defined in the agreement) or (ii) CDOR (in the case of Graybar Canada as borrower), in each case plus an applicable margin, as determined by the pricing grid set forth in the Credit Agreement. In connection with such a borrowing, the applicable borrower also selects the term of the loan, up to six months. Swing line loans, which are daily loans, bear interest at a rate based on, at the borrower’s election, either (i) the base rate or (ii) the daily floating Eurodollar rate (or CDOR, in the case of Graybar Canada). In addition to interest payments, there are also certain fees and obligations associated with borrowings, swing line loans, letters of credit and other administrative matters.

The Credit Agreement provides for a quarterly commitment fee ranging from 0.25% to 0.40% per annum, subject to adjustment based upon the consolidated leverage ratio for a fiscal quarter, and letter of credit fees ranging from 1.00% to 1.60% per annum payable quarterly, subject to such adjustment. Borrowings can be either base rate loans plus a margin ranging from 0.00% to 0.60% or Eurodollar rate loans plus a margin ranging from 1.00% to 1.60%, subject to adjustment based upon our consolidated leverage ratio. Availability under the Credit Agreement is subject to the accuracy of representations and warranties and absence of a default and, in the case of Canadian borrowings denominated in Canadian dollars, the absence of a

36


material adverse change in the national or international financial markets, which would make it impracticable to lend Canadian dollars.

The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations on us and our subsidiaries with respect to indebtedness, liens, changes in the nature of our business, investments, mergers and acquisitions, issuance of equity securities, dispositions of assets and dissolution of certain subsidiaries, transactions with affiliates, restricted payments (subject to incurrence tests, with certain exceptions), as well as securitizations, factoring transactions, and transactions with sanctioned parties or in violation of certain U.S. or Canadian anti-corruption laws. There are also maximum leverage ratio and minimum interest coverage ratio financial covenants that we are subject to during the term of the Credit Agreement.

The Credit Agreement also provides for customary events of default, including a failure to pay principal, interest or fees when due, the fact that any representation or warranty made by any of the credit parties is materially incorrect, failure to comply with covenants, the occurrence of an event of default under certain other indebtedness by us and our subsidiaries, the commencement of certain insolvency or receivership events affecting any of the credit parties, certain actions under Employee Retirement Income Security Act ("ERISA") and the occurrence of a change in control of any of the credit parties (subject to certain permitted transactions as described in the Credit Agreement). Upon the occurrence of an event of default, the commitments of the lenders may be terminated and all outstanding obligations of the credit parties under the Credit Agreement may be declared immediately due and payable.

We had total letters of credit of $4,994 and $5,725 outstanding, of which none were issued under the $550,000 revolving credit facility at December 31, 2015 and December 31, 2014, respectively. The letters of credit are used primarily to support certain workers' compensation insurance policies.  

Short-term borrowings of $104,978 and $66,342 outstanding at December 31, 2015 and 2014, respectively, were drawn under the revolving credit facility.

Short-term borrowings outstanding during the years ended December 31, 2015 and 2014 ranged from a minimum of $35,981 and $25,550 to a maximum of $184,188 and $111,912, respectively.  The average daily amount of borrowings outstanding under short-term credit agreements during 2015 and 2014 amounted to approximately $119,000 and $67,000 at weighted-average interest rates of 1.31% and 1.52%, respectively.  The weighted-average interest rate for amounts outstanding at December 31, 2015 was 1.40%.

At December 31, 2015, we had available unused committed lines of credit amounting to $445,022, compared to $483,658 at December 31, 2014.  These lines are available to meet our short-term cash requirements, and certain committed lines of credit have annual fees of up to 40 basis points (0.40%) of the committed lines of credit as of December 31, 2015 and 2014.
 
The Credit Agreement contains various affirmative and negative covenants.  We are also required to maintain certain financial ratios as defined in the Credit Agreement.  We were in compliance with all covenants as of December 31, 2015 and 2014.

Private Placement Shelf Agreement

On December 31, 2015 and December 31, 2014, we had an uncommitted $100,000 private placement Shelf Agreement with Prudential Investment Management, Inc. (the "Shelf Agreement"). Subject to the terms and conditions set forth below, the Shelf Agreement allows us to issue senior promissory notes to affiliates of Prudential at fixed rate terms to be agreed upon at the time of any issuance during a three year issuance period ending in September 2017. At December 31, 2015 and 2014, no notes had been issued under the Shelf Agreement.
 
The term of each note issuance will be selected by us and will not exceed 12 years and will have such other particular terms as shall be set forth, in the case of any series of notes, in the Confirmation of Acceptance with respect to such series. Any notes issued under the Shelf Agreement will be guaranteed by our material domestic subsidiaries, if any, as described in the Shelf Agreement.  Any future proceeds of any issuance under the facilities will be used for general corporate purposes, including working capital and capital expenditures, to refinance existing indebtedness and/or to fund potential acquisitions.
 
The Shelf Agreement contains customary representations and warranties of the Company and Prudential.  The Shelf Agreement also contains customary events of default, including: a failure to pay principal, interest or fees when due; a failure to comply with covenants; the fact that any representation or warranty made by any of the credit parties is incorrect when given; the occurrence of an event of default under the Credit Agreement or certain other indebtedness of us and our subsidiaries; the commencement of certain insolvency or receivership events affecting any of the credit parties; certain actions under ERISA;

37


and the occurrence of a change in control of Graybar (subject to certain permitted transactions as described in the Credit Agreement).  Upon the occurrence of an event of default, all outstanding obligations of Graybar under the Shelf Agreement may be declared immediately due and payable.
 
The Shelf Agreement contains customary affirmative and negative covenants for facilities of this type, including limitations on us and our subsidiaries with respect to indebtedness, liens, changes in the nature of our business, investments, mergers and acquisitions, issuance of equity securities, dispositions of assets and dissolution of certain subsidiaries, transactions with affiliates, restricted payments (subject to incurrence tests, with certain exceptions), as well as securitizations, factoring transactions, and transactions with sanctioned parties or in violation of certain U.S. or Canadian anti-terrorism laws.  There are also maximum leverage ratio and minimum interest coverage ratio financial covenants that we are subject to during the term of the Shelf Agreement.  We were in compliance with all covenants as of December 31, 2015 and 2014.

In addition, we have agreed to a most favored lender clause which is designed to ensure that any notes issued under the Shelf Agreement in the future shall continue to be of equal ranking with our indebtedness under the Credit Agreement.

11. PENSION AND OTHER POSTRETIREMENT BENEFITS
 
We have a noncontributory defined benefit pension plan covering substantially all employees first hired prior to July 1, 2015 after the completion of one year of service and 1,000 hours of service.  The plan provides retirement benefits based on an employee’s average earnings and years of service.  These employees become 100% vested after three years of service, regardless of age.  A supplemental benefit plan provides nonqualified benefits for compensation in excess of the IRS compensation limits applicable to the plan.

Our plan funding policy is to make contributions provided that the total annual contributions will not be less than ERISA and the Pension Protection Act of 2006 minimums or greater than the maximum tax-deductible amount, to review the contribution and funding strategy on a regular basis, and to allow discretionary contributions to be made by us from time to time.  The assets of the defined benefit pension plan are invested primarily in fixed income investments and equity securities. We pay nonqualified pension benefits when they are due according to the terms of the supplemental benefit plan.
 
We provide certain postretirement health care and life insurance benefits to retired employees.  Substantially all of our employees hired or rehired prior to 2014 may become eligible for postretirement medical benefits if they reach the age and service requirements of the retiree medical plan and retire on a pension (except a deferred pension) under the defined benefit pension plan.  Medical benefits are self-insured and claims are administered through an insurance company. The cost of coverage is determined based on the annual projected plan costs. The participant's premium or cost is determined based on Company guidelines. Postretirement life insurance benefits are insured through an insurance company. We fund postretirement benefits as incurred, and accordingly, there were no assets held in the postretirement benefits plan at December 31, 2015 and 2014.


38


The following table sets forth information regarding the funded status of our pension and other postretirement benefits as of December 31, 2015 and 2014: 
 
Pension Benefits
Postretirement Benefits
 
2015
2014
2015
2014

Change in Benefit Obligation:
 
 
 
 
Benefit obligation at beginning of period
$
612,688

$
558,650

$
77,355

$
76,134

Service cost
25,607

22,205

2,505

2,454

Interest cost
25,203

26,817

2,925

3,338

Actuarial loss (gain)
21,731

56,333

(2,165
)
(102
)
Benefits paid from plan assets
(48,471
)
(47,420
)
—

—

Benefits paid from Company assets
(1,537
)
(1,392
)
(6,131
)
(6,057
)
Plan participants' contributions
—

—

1,448

1,588

Administrative expenses paid
(1,153
)
(1,032
)
—

—

Settlements(1)
—

(1,473
)
—

—

Benefit Obligation at End of Period
634,068

612,688

75,937

77,355

Change in Plan Assets:
 
 
 
 
Fair value of plan assets at beginning of period
470,165

423,167

—

—

Actual return on plan assets
(13,283
)
55,450

—

—

Employer contributions(2)
41,537

42,865

4,683

4,469

Plan participants' contributions
—

—

1,448

1,588

Benefits paid(2)
(50,008
)
(48,812
)
(6,131
)
(6,057
)
Administrative expenses paid
(1,153
)
(1,032
)
—

—

Settlements(1)(2)
—

(1,473
)
—

—

Fair Value of Plan Assets at End of Period
447,258

470,165

—

—

Unfunded Status
$
186,810

$
142,523

$
75,937

$
77,355

(1) We recorded a settlement loss that resulted from lump sum pension distributions.
(2) Includes $1,537 and $2,865 paid from our assets for unfunded nonqualified benefits in fiscal years 2015 and 2014, respectively.
 
The accumulated benefit obligation for our defined benefit pension plan was $551,662 and $517,857 at December 31, 2015 and 2014, respectively.

Amounts recognized in the consolidated balance sheet for the years ended December 31 consist of the following: 
 
Pension Benefits
Postretirement Benefits
 
2015
2014
2015
2014
Current accrued benefit cost
$
1,599

$
1,542

$
5,634

$
7,790

Non-current accrued benefit cost
185,211

140,981

70,303

69,565

Net amount recognized
$
186,810

$
142,523

$
75,937

$
77,355

 
Amounts recognized in accumulated other comprehensive loss for the years ended December 31, net of tax, consist of the following: 
 
Pension Benefits
Postretirement Benefits
 
2015
2014
2015
2014
Net actuarial loss
$
170,180

$
143,734

$
10,983

$
12,944

Prior service cost (gain)
716

992

(3,860
)
(5,193
)
Accumulated other comprehensive loss
$
170,896

$
144,726

$
7,123

$
7,751

 
Amounts estimated to be amortized from accumulated other comprehensive loss into net periodic benefit costs in 2016, net of tax, consist of the following: 
 
Pension Benefits
Postretirement Benefits
Net actuarial loss
$
12,088

$
481

Prior service cost (gain)
259

(1,333
)
Accumulated other comprehensive loss (income)
$
12,347

$
(852
)
 

39


Weighted-average assumptions used to determine the actuarial present value of the pension and postretirement benefit obligations as of December 31 are: 
 
Pension Benefits
 
Postretirement Benefits
 
2015
2014
 
2015
2014
Discount rate
4.48
%
4.08
%
 
4.09%
3.77%
Rate of compensation increase
4.44
%
4.47
%
 
—
—
Health care cost trend on covered charges
—

—

 
6.5% / 5%
7.5% / 5%
 
For measurement of the postretirement benefit obligation, a 6.5% annual rate of increase in the per capita cost of covered health care benefits was assumed at December 31, 2015.  This rate is assumed to decline to 5.0% at January 1, 2019 and remain at that level thereafter. A one percent increase or decrease in the assumed healthcare cost trend rate would not have had a material effect on the postretirement benefit obligations as of December 31, 2015 and 2014.

The net periodic benefit cost for the years ended December 31, 2015, 2014, and 2013 included the following components: 
 
Pension Benefits
Postretirement Benefits
 
2015
2014
2013
2015
2014
2013
Service cost
$
25,607

$
22,205

$
24,119

$
2,505

$
2,454

$
2,644

Interest cost
25,203

26,817

23,914

2,925

3,338

2,873

Expected return on plan assets
(28,297
)
(26,624
)
(23,909
)
—

—

—

Amortization of:
 
 
 
 
 
 
Net actuarial loss
20,028

17,639

26,371

1,044

1,267

1,794

Prior service cost (gain)
452

952

1,375

(2,181
)
(2,181
)
(2,181
)
Settlement loss
—

789

—

—

—

—

Net periodic benefit cost
$
42,993

$
41,778

$
51,870

$
4,293

$
4,878

$
5,130

 
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31 were: 
 
Pension Benefits
Postretirement Benefits
 
2015
2014
2013
2015
2014
2013
Discount rate
4.08
%
4.87
%
3.95
%
3.77%
4.34%
3.51%
Expected return on plan assets
6.25
%
6.25
%
6.00
%
—
—
—
Rate of compensation increase
4.47
%
4.25
%
4.25
%
—
—
—
Health care cost trend on covered charges
—

—

—

7% / 5%
7.5% / 5%
8% / 5%
 
The expected return on plan assets assumption for the defined benefit pension plan is a long-term assumption and was determined after evaluating input from both the plan’s actuary and pension fund investment advisors, consideration of historical rates of return on plan assets, and anticipated current and long-term rates of return on the various classes of assets in which the plan invests. 
 
For measurement of the postretirement benefits net periodic cost, a 7.0% annual rate of increase in per capita cost of covered health care benefits was assumed for 2015.  The rate was assumed to decline to 5.0% in 2019 and to remain at that level thereafter. A one percent increase or decrease in the assumed healthcare cost trend rate would not have had a material effect on 2015, 2014 and 2013 net periodic benefit cost.
 
We expect to make contributions totaling $40,000 to our defined benefit pension plan and fund $1,635 for non-qualified benefits during 2016.
 

40


Estimated future defined benefit pension and other postretirement benefit plan payments to plan participants for the years ending December 31 are as follows: 
Year
Pension
Benefits
Postretirement
Benefits
2016
$
42,785

 
$
5,748

 
2017
41,056

 
6,240

 
2018
42,078

 
6,552

 
2019
44,673

 
6,729

 
2020
46,845

 
6,909

 
After 2020
245,255

 
34,598

 
 
The investment objective of our defined benefit pension plan is to ensure that there are sufficient assets to fund regular pension benefits payable to employees over the long-term life of the plan.  Our defined benefit pension plan seeks to allocate plan assets in a manner that is closely duration-matched with the actuarial projected cash flow liabilities, consistent with prudent standards for preservation of capital, tolerance of investment risk, and maintenance of liquidity. Assets of the qualified pension plan are held by Comerica Bank (the "Trustee").

Our defined benefit pension plan utilizes a liability-driven investment (“LDI”) approach to help meet these objectives. The LDI strategy employs a structured fixed-income portfolio designed to reduce volatility in the plan's future funding requirements and funding status. This is accomplished by using a blend of corporate fixed-income securities, long duration government, and quasi-governmental, as well as appropriate levels of equity and alternative investments designed to optimize the plan's liability hedge ratio. In practice, the value of an asset portfolio constructed primarily of fixed income securities is inversely correlated to changes in market interest rates, at least partially offsetting changes in the value of the pension benefit obligation caused by changes in the interest rate used to discount plan liabilities.
Asset allocation information for the defined benefit pension plan at December 31, 2015 and 2014 is as follows: 
Investment
2015
Actual Allocation
2015
Target Allocation Range
2014
Actual Allocation
2014
Target Allocation Range
Equity securities-U.S.
12
%
3-15%
9
%
3-15%
Equity securities-International
11
%
3-15%
9
%
3-15%
Fixed income investments-U.S.
59
%
35-75%
61
%
35-75%
Fixed income investments-International
6
%
3-10%
6
%
3-10%
Absolute return
7
%
5-15%
7
%
5-15%
Real assets
3
%
3-10%
5
%
3-10%
Private equity
1
%
0-3%
1
%
0-3%
Short-term investments
1
%
0-3%
2
%
0-3%
Total
100
%
100%
100
%
100%
 
The following is a description of the valuation methodologies used for assets held by the defined benefit pension plan measured at fair value: 
 
Equity securities - U.S.
Equity securities - U.S. consist of investments in U.S. corporate stocks and U.S. equity mutual funds. U.S. equity mutual funds include publicly traded mutual funds and a bank collective fund for ERISA plans. U.S. corporate stocks and U.S. equity mutual funds are primarily large-capitalization stocks (defined as companies with market capitalization of more than $10 billion). U.S. corporate stocks and publicly traded mutual funds are valued at the closing price reported on the active public market in which the individual securities are traded and are classified as Level 1. The bank collective fund for ERISA plans is valued at the net asset value ("NAV") of units of the fund. The NAV, as provided by the Trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund. While the underlying assets of the bank collective fund are publicly available, the fund is not; thus, the bank collective fund investment is classified as Level 2.

Equity securities - International
Equity securities - International consist of investments in international corporate stocks and publicly traded mutual funds and are both primarily investments within developed and emerging markets. Both are valued at the closing price reported on the active public market in which the individual securities are traded and are classified as Level 1.

41


Fixed income investments - U.S.
Fixed income investments - U.S. consist of U.S. corporate bonds, government and government agency bonds, as well as a publicly traded mutual fund and a commingled fund, both of which invest in corporate and government debt securities within the U.S. U.S. corporate bonds, government and government agency bonds, and the publicly traded mutual fund are valued at the closing price reported on the active market in which they are traded and thus are classified as Level 1. The commingled fund is valued at the NAV of units of the fund. The NAV, as provided by the Trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund. While the underlying assets of the commingled fund are publicly available, the fund is not; thus, the commingled fund is classified as Level 2.
 
Fixed income investments - International
Fixed income investments - International consist of international corporate bonds. International corporate bonds are valued at the closing price reported on the active market in which they are traded and thus are classified as Level 1.

Absolute return
Absolute return consists of investments in various hedge funds structured as fund-of-funds (defined as a single fund that invests in multiple funds). The hedge funds use various investment strategies in an attempt to generate non-correlated returns. A fund-of-funds is designed to help diversify and reduce the risk of the overall portfolio. The hedge funds are valued at the NAV of units of the fund. The NAV, as provided by the Trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund. The underlying assets of the hedge funds are not publicly available; thus they are classified as Level 3. Audited financial statements are produced on an annual basis for the hedge funds.
 
Real assets
Real assets consists of natural resource funds (oil, gas and forestry) and a real estate investment trust ("REIT"). The natural resource funds are comprised of a bank collective trust for ERISA plans and a limited partnership ("LP"). The bank collective fund for ERISA plans is valued at the NAV of units of the fund. The NAV, as provided by the Trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund. While the underlying assets of the bank collective fund are publicly available, the fund is not; thus, the fund is classified as Level 2. The LP is generally characterized as requiring a long-term commitment with limited liquidity. The value of the LP is not publicly available and thus, is classified as Level 3. The REIT is a commingled trust. The commingled trust is valued at the NAV of units of the trust. The NAV, as provided by the Trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund. The underlying assets of the commingled trust are not publicly available; thus they are classified as Level 3. Audited financial statements are produced on an annual basis for the LP and REIT.
 
Private equity
Private equity is an asset class that is generally characterized as requiring long-term commitments and where liquidity is typically limited. Private equity does not have an actively traded market with readily observables prices. The investments are limited partnerships structured as fund-of-funds. The investments are diversified across typical private equity strategies including: buyouts, co-investments, secondary offerings, venture capital, and special situations. Valuations are developed using a variety of proprietary model methodologies. Valuations may be derived from publicly available sources as well as information obtained from each fund's general partner based upon public market conditions and returns. All private equity investments are classified as Level 3. Audited financial statements are produced on an annual basis for the private equity investments.
 
Short-term investments
Short-term investments consist of cash and cash equivalents in a short-term fund which is valued at the NAV of units of the fund. The NAV, as provided by the Trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund. The short-term fund classifies the underlying assets as Level 2 within the short-term fund's financial statements; thus, the fund is classified as Level 2.

The methods described above may produce fair value calculations that may not be indicative of net realizable value or reflective of future fair values.  Furthermore, while we believe our defined benefit pension plan valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
 
There have been no changes in the methodologies for determining fair value at December 31, 2015 or 2014.
 

42


The following tables set forth, by level within the fair value hierarchy, the defined benefit pension plan assets measured at fair value as of December 31, 2015 and 2014: 
December 31, 2015
Investment
Quoted Prices in
Active Markets for
Identical Inputs
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable 
Inputs
(Level 3)
Total
Equity securities - U.S.
 

 

 

 

Corporate stocks
$
18,908

$
—

$
—

$
18,908

Mutual funds
24,652

9,206

—

33,858

Equity securities - International
 

 

 

 

Corporate stocks
1,410

—

—

1,410

Mutual funds
46,594

—

—

46,594

Fixed income investments - U.S.
 

 

 

 

Corporate debt
131,109

—

—

131,109

U.S. government debt
42,720

—

—

42,720

Mutual funds
22,393

70,949

—

93,342

Fixed income investments - International
26,044

—

—

26,044

Absolute return
—

—

32,383

32,383

Real assets
—

—

13,622

13,622

Private equity
—

—

2,704

2,704

Short-term investments
—

4,564

—

4,564

Total
$
313,830

$
84,719

$
48,709

$
447,258

 
December 31, 2014
Investment
Quoted Prices in
Active Markets for
Identical Inputs
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable 
Inputs
(Level 3)
Total
Equity securities - U.S.
 
 
 
 
Corporate stocks
$
17,092

$
—

$
—

$
17,092

Mutual funds
18,006

8,733

—

26,739

Equity securities - International
 
 
 
 
Corporate stocks
946

—

—

946

Mutual funds
43,710

—

—

43,710

Fixed income investments - U.S.
 
 
 
 
Corporate debt
128,033

—

—

128,033

U.S. government debt
52,674

—

—

52,674

Mutual funds
29,799

74,525

—

104,324

Fixed income investments - International
27,784

—

—

27,784

Absolute return
—

—

33,021

33,021

Real assets
—

7,598

16,518

24,116

Private equity
—

—

3,682

3,682

Short-term investments
—

8,044

—

8,044

Total
$
318,044

$
98,900

$
53,221

$
470,165

 

43


The tables below set forth a summary of changes in the fair value of the defined benefit pension plan's Level 3 assets for the years ended December 31, 2015 and 2014:
December 31, 2015
 
 
Absolute
Return
 
Real
Assets
 
Private Equity
 
 
Total
Balance, beginning of year
$
33,021

$
16,518

$
3,682

$
53,221

Realized gains
108

763

174

1,045

Unrealized gains (losses)
4

1,607

(92
)
1,519

Purchases
272

—

188

460

Sales
(1,022
)
(5,266
)
(1,248
)
(7,536
)
Balance, end of year
$
32,383

$
13,622

$
2,704

$
48,709

 
December 31, 2014
 
 
Absolute
Return
 
Real
Assets
 
Private Equity
 
 
Total
Balance, beginning of year
$
39,448

$
14,737

$
3,793

$
57,978

Realized gains
386

48

76

510

Unrealized gains
1,837

2,065

432

4,334

Purchases
—

48

359

407

Sales
(8,650
)
(380
)
(978
)
(10,008
)
Balance, end of year
$
33,021

$
16,518

$
3,682

$
53,221

 
12. PROFIT SHARING AND SAVINGS PLAN
 
We provide a defined contribution profit sharing and savings plan covering substantially all of our eligible employees with an individual account for each participant.  Employees may make voluntary before-tax/or after-tax contributions, ranging from 2% to 50% of pay, to the savings portion of the plan subject to limitations imposed by federal tax law, ERISA, and the Pension Protection Act of 2006. Effective July 1, 2015, all employees hired or rehired after July 1, 2015, will be eligible to receive a Company matching contribution beginning the first month after the completion of one year of service and 1,000 hours of service. The Company match is equal to 50% of an eligible employee's before-tax contribution, up to 6% of pay, with a maximum match of 3%.

Annual contributions made by us to the profit-sharing portion of the plan are at the discretion of our management and are generally based on the profitability of the Company.  Expense recognized by us under the profit-sharing portion of the plan was $40,020, $56,709, and $34,132 for the years ended December 31, 2015, 2014 and 2013, respectively. 
 
13. COMMITMENTS AND CONTINGENCIES
 
Rental expense was $22,685, $21,891, and $21,134 in 2015, 2014, and 2013, respectively.  Future minimum rental payments required under operating leases that have either initial or remaining noncancelable lease terms in excess of one year as of December 31, 2015 are as follows:
 
For the Years Ending December 31,
Minimum Rental Payments
2016
$
23,457

2017
19,678

2018
14,716

2019
10,193

2020
4,574

After 2020
3,798

 
Graybar and our subsidiaries are subject to various claims, disputes, and administrative and legal matters incidental to our past and current business activities.  As a result, contingencies arise resulting from an existing condition, situation, or set of circumstances involving an uncertainty as to the realization of a possible loss.
 

44


We account for loss contingencies in accordance with GAAP.  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.
 
14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
The components of accumulated other comprehensive income (loss) as of December 31 are as follows:
 
2015
2014
Currency translation
$
(12,416
)
$
284

Pension liability
(170,896
)
(144,726
)
Postretirement benefits liability
(7,123
)
(7,751
)
Accumulated other comprehensive loss
$
(190,435
)
$
(152,193
)

The following table represents amounts reclassified from accumulated other comprehensive income (loss) for the years ended December 31, 2015 and 2014:
 
 
2015
 
2014
 
 
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 Consolidated Statement of Income:
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
$
21,072

 
$
(1,729
)
 
$
19,343

 
$
19,695

 
$
(1,229
)
 
$
18,466

Tax (benefit) expense
 
(8,197
)
 
673

 
(7,524
)
 
(7,661
)
 
478

 
(7,183
)
Total reclassifications for the period, net of tax
 
$
12,875

 
$
(1,056
)
 
$
11,819

 
$
12,034

 
$
(751
)
 
$
11,283

  
The following table represents the activity included in accumulated other comprehensive income (loss) for the years ended December 31, 2015 and 2014:
 
 
2015
 
2014
 
 
Foreign Currency
 
Pension and Other Postretirement Benefits
 
Total
 
Foreign Currency
 
Pension and Other Postretirement Benefits
 
Total
Beginning balance January 1,
 
$
284

 
$
(152,477
)
 
$
(152,193
)
 
$
6,653

 
$
(147,016
)
 
$
(140,363
)
Other comprehensive loss before reclassifications
 
(12,700
)
 
—

 
(12,700
)
 
(6,369
)
 
—

 
(6,369
)
Amounts reclassified from accumulated other comprehensive income (net of tax $(7,524) and $(7,183))
 
—

 
11,819

 
11,819

 
—

 
11,283

 
11,283

Actuarial gain (loss), (net of tax $23,785 and $10,660)
 
—

 
(37,361
)
 
(37,361
)
 
—

 
(16,744
)
 
(16,744
)
Net current-period other comprehensive (loss) income
 
(12,700
)
 
(25,542
)
 
(38,242
)
 
(6,369
)
 
(5,461
)
 
(11,830
)
Ending balance December 31,
 
$
(12,416
)
 
$
(178,019
)
 
$
(190,435
)
 
$
284

 
$
(152,477
)
 
$
(152,193
)


45


15. ACQUISITION

In April 2015, we acquired 100% of the outstanding capital stock of Advantage, which provides control and automation solutions to industrial users, OEMs and system integrators, for $18,093 in cash, net of cash acquired. The purchase price allocation resulted in $7,057 and $8,283 of tax deductible goodwill and other intangible assets, respectively.

Since the date of acquisition, Advantage's results are reflected in our Consolidated Financial Statements. Pro forma results of this acquisition were not material; therefore, they are not presented.

16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
The following tables set forth selected quarterly financial data for the years ended December 31, 2015 and 2014:
 
2015
For the Quarter Ended
March 31,
 
June 30,
 
September 30,
 
December 31,
Net sales
$
1,393,778

 
$
1,570,008

 
$
1,583,886

 
$
1,562,627

Gross margin
$
259,026

 
$
293,345

 
$
302,958

 
$
299,416

Net income attributable to the Company
$
12,460

 
$
25,088

 
$
28,311

 
$
25,209

Net income attributable to the Company 
per share of common stock(A)
$
0.76

 
$
1.53

 
$
1.73

 
$
1.55

(A)All periods adjusted for a 2.5% stock dividend declared in December 2015.  Prior to these adjustments, the average common shares outstanding for the first, second, third, and fourth quarters of 2015 were 16,023,053, 15,986,695, 15,942,178, and 15,927,663, respectively.
 
 
2014
For the Quarter Ended
March 31,
 
June 30,
 
September 30,
 
December 31,
Net sales
$
1,312,800

 
$
1,517,375

 
$
1,569,757

 
$
1,578,929

Gross margin
$
249,457

 
$
281,942

 
$
294,535

 
$
292,613

Net income attributable to the Company
$
11,321

 
$
29,044

 
$
30,464

 
$
16,599

Net income attributable to the Company 
per share of common stock(A)
$
0.69

 
$
1.79

 
$
1.88

 
$
1.02

(A)All periods adjusted for a 2.5% stock dividend declared in December 2015.  Prior to these adjustments, the average common shares outstanding for the first, second, third, and fourth quarters of 2014 were 15,969,254, 15,841,788, 15,798,638, and 15,802,792, respectively.


46


Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
None.

Item 9A.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed in the reports that we file and submit under the Exchange Act is accumulated and communicated to Company management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2015 was performed under the supervision and with the participation of management.  Based on that evaluation, our management, including the Principal Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2015 to ensure that information required to be disclosed in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
 
Management of the Company, including its Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls will prevent or detect all errors.  A control system, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the control system’s objective will be met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, have been detected.  These inherent limitations include the realities that disclosure requirements may be misinterpreted and judgments in decision-making may be inexact.
 
Management’s Report on Internal Control Over Financial Reporting
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Management of the Company conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) issued in May 2013.  Based on that evaluation, management of the Company concluded that our internal control over financial reporting was effective as of December 31, 2015.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting that have occurred during our last fiscal quarter that have materially affected, or are likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information
 
None.

47


PART III

Item 10.  Directors, Executive Officers and Corporate Governance
 
The information with respect to the directors of the Company who are nominees for election at the 2016 annual meeting of shareholders that is required to be included pursuant to this Item 10 will be included under the caption “Proposal 1: Nominees for Election as Directors” and “Information About the Board of Directors and Corporate Governance Matters” in the Company’s Information Statement relating to the 2016 Annual Meeting (the “Information Statement”) to be filed with the SEC pursuant to Rule 14c-5 under the Exchange Act, and is incorporated herein by reference.
 
The information with respect to our audit committee and audit committee financial expert, and nominating committee required to be included pursuant to this Item 10 will be included under the caption “Information About the Board of Directors and Corporate Governance Matters” in our Information Statement and is incorporated herein by reference.
 
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and principal accounting officer (collectively “Covered Officers”).  This code of ethics is appended to our business conduct guidelines for all employees.  The business conduct guidelines and specific code for Covered Officers may be accessed at: www.graybar.com/company/corporate-responsibility/code-of-ethics and is also available in print without charge upon written request addressed to the Secretary of the Company at our principal executive offices.
 
Item 11.  Executive Compensation
 
The information with respect to executive compensation, our advisory compensation committee, and the compensation committee interlocks and insider participation required to be included pursuant to this Item 11 will be included under the captions “Information About the Board of Directors and Corporate Governance Matters” and “Compensation Discussion and Analysis” in the Information Statement and is incorporated herein by reference.
 
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information with respect to the security ownership of beneficial owners of more than 5% of the Common Stock and of directors and executive officers of the Company required to be included pursuant to this Item 12, will be included under the captions “Beneficial Ownership of More Than 5% of the Outstanding Common Stock” and “Beneficial Ownership of Management” in the Information Statement and is incorporated herein by reference.
 
Item 13.  Certain Relationships and Related Transactions, and Director Independence
 
At the date of this report, there are no reportable transactions, business relationships or indebtedness of the type required to be included pursuant to this Item 13 between the Company and any beneficial owner of more than 5% of the Common Stock, the directors or nominees for director of the Company, the executive officers of the Company or the members of the immediate families of such individuals. If there is any change in that regard prior to the filing of the Information Statement, such information will be included under the caption “Transactions with Related Persons” in the Information Statement and shall be incorporated herein by reference.

The information with respect to director independence and to corporate governance required to be included pursuant to this Item 13 will be included under the captions “Proposal 1: Nominees for Election as Directors” and “Information about the Board of Directors and Corporate Governance Matters” in the Information Statement and is incorporated herein by reference.

Item 14.  Principal Accounting Fees and Services
 
The information with respect to principal accounting fees and services required to be included pursuant to this Item 14 will be included under the caption “Relationship with Independent Registered Public Accounting Firm” in our Information Statement and is incorporated herein by reference.

48


 PART IV
 
Item 15.  Exhibits, Financial Statement Schedules

(a)
Documents filed as part of this report:
 
 
 
The following financial statements and Report of Independent Registered Public Accounting Firm are included on the indicated pages in this 2015 Annual Report on Form 10-K.
 
 
 
 
1.
Index to Financial Statements
 
 
 
 
 
 
(i)
Consolidated Statements of Income for each of the three years ended December 31, 2015 (page 21).
 
 
 
 
 
 
(ii)
Consolidated Statements of Comprehensive Income for each of the three years ended December 31, 2015 (page 22).
 
 
 
 
 
 
(iii)
Consolidated Balance Sheets, as of December 31, 2015 and 2014 (page 23).
 
 
 
 
 
 
(iv)
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2015 (page 24).
 
 
 
 
 
 
(v)
Consolidated Statements of Changes in Shareholders' Equity for each of three years ended December 31, 2015 (page 25).
 
 
 
 
 
 
(vi)
Notes to Consolidated Financial Statements (pages 26 to 46).
 
 
 
 
 
 
(vii)
Report of Independent Registered Public Accounting Firm (page 20).
 
 
 
 
 
2.
Index to Financial Schedules
 
 
 
 
 
All schedules are omitted because of the absence of the conditions under which they are required or because the required information is set forth in the financial statements and the accompanying notes thereto.
 
 
 
 
3.
Exhibits
 
 
The following exhibits required to be filed as part of this Annual Report on Form 10-K have been included:
 
 
 
 
 
(3)
(i)
Articles of Incorporation
 
 
 
 
 
 
 
Restated Certificate of Incorporation, as amended, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 13, 2013 (Commission File No.000-00255) and incorporated herein by reference.
 
 
 
 
 
 
(ii)
Bylaws
 
 
 
 
 
 
 
By-laws as amended through March 12, 2015, filed as Exhibit 3(ii) to the Company’s Current Report on Form 8-K dated March 12, 2015 (Commission File No. 000-00255) and incorporated herein by reference.
 
 
 
 
 
(4) and (9)
Voting Trust Agreement
 
 
 
 
 
Voting Trust Agreement dated as of March 16, 2007, a form of which is attached as Annex A to the Prospectus dated January 18, 2007, constituting a part of the Company’s Registration Statement on Form S-1 (Registration No. 333-139992), and incorporated herein by reference.
 
 
 
 
 
The Company hereby agrees to furnish to the Commission upon request a copy of each instrument omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
 
 
 
 
 
(10)
Material Contracts
 
 
 
 
 
 
(i)
Management Incentive Plan.*
 
 
 
 

49


 
 
(ii)
Graybar Electric Company, Inc. Supplemental Benefit Plan, amended and restated, entered into between the Company and certain employees effective January 1, 2014, filed as Exhibit 10(ii) to the Company’s Current Report on Form 8-K dated September 12, 2013 (Commission File No. 000-00255) and incorporated herein by reference.*
 
 
 
 
 
 
(iii)
Form of Deferral Agreement under Graybar Electric Company, Inc. Supplemental Benefit Plan, filed as Exhibit 10(ii) to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2013 (Commission File No. 000-00255) and incorporated herein by reference.*
 
 
 
 
 
 
(iv)
Credit Agreement, dated as of September 28, 2011 among the Company, as parent borrower and a guarantor, Graybar Canada Limited, as a borrower, certain domestic subsidiaries of the parent borrower, as the subsidiary guarantors, and 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 Canadian branch, as Canadian administrative agent, Canadian swing line lender and Canadian L/C issuer, and the other lenders party thereto, filed as Exhibit 10 to the Company's Current Report on Form 8-K dated September 28, 2011 (Commission File No. 000-00255) and incorporated herein by reference.
 
 
 
 
 
 
(v)
First Amendment to Credit Agreement, dated as of May 29, 2013, filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2013 (Commission File No. 000-00255) and incorporated herein by reference.
 
 
 
 
 
 
(vi)
Second amendment to Credit Agreement, dated as of June 6, 2014, among the Company, as parent borrower and a guarantor, Graybar Canada Limited, as a borrower, certain domestic subsidiaries of the parent borrower, as the subsidiary guarantors, and 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 Canadian branch, as Canadian administrative agent, Canadian swing line lender and Canadian L/C issuer, and the other lenders party thereto, filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014 (Commission File No. 000-00255) and incorporated herein by reference.
 
 
 
 
 
 
(vii)
Private Shelf Agreement, dated September 22, 2014, filed as Exhibit 10.7 to the Company’s Report on Form 8-K dated September 22, 2014 (Commission File No. 000-00255) and incorporated herein by reference.

 
 
 
 
 
(21)
List of subsidiaries of the Company
 
 
 
 
(31.1)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.
 
 
 
 
(31.2)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.
 
 
 
 
(32.1)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.
 
 
 
 
(32.2)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.
 
 
 
 
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
 
 
 
 
 
* Compensation arrangement
 
 
 
 

50


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 10th day of March 2016.
 
 
GRAYBAR ELECTRIC COMPANY, INC.
 
 
 
 
 
By
/s/ K. M. MAZZARELLA
 
 
(K. M. Mazzarella, Chairman of the Board, President and Chief Executive Officer)
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities indicated, on March 10, 2016.

/s/ K. M. MAZZARELLA
 
Director, Chairman of the Board, President and Chief Executive Officer
(K. M. Mazzarella)
 
(Principal Executive Officer)
 
 
 
/s/ R. R. HARWOOD
 
Director, Senior Vice President and Chief Financial Officer
(R. R. Harwood)
 
(Principal Financial Officer and Principal Accounting Officer)
 
 
 
/s/ D. A. BENDER
 
Director
(D. A. Bender)
 
 
 
 
 
/s/ S. S. CLIFFORD
 
Director
(S. S. Clifford)
 
 
 
 
 
/s/ M. W. GEEKIE
 
Director
(M. W. Geekie)
 
 
 
 
 
/s/ R. C. LYONS
 
Director
(R. C. Lyons)
 
 
 
 
 
/s/ W. P. MANSFIELD
 
Director
(W. P. Mansfield)
 
 
 
 
 
/s/ D. G. MAXWELL
 
Director
(D. G. Maxwell)
 
 
 
 
 
/s/ B. L. PROPST
 
Director
(B. L. Propst)
 
 



51


Index of Exhibits
(3)
(i)
Articles of Incorporation
 
 
 
 
 
Restated Certificate of Incorporation, as amended, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 31, 2013 (Commission File No.000-00255) and incorporated herein by reference.
 
 
 
 
(ii)
Bylaws
 
 
 
 
 
By-laws as amended through March 12, 2015, filed as Exhibit 3(ii) to the Company’s Current Report on Form 8-K dated March 12, 2015 (Commission File No. 000-00255) and incorporated herein by reference.
 
 
 
(4) and (9)
Voting Trust Agreement
 
 
 
Voting Trust Agreement dated as of March 16, 2007, a form of which is attached as Annex A to the Prospectus dated January 18, 2007, constituting a part of the Company’s Registration Statement on Form S-1 (Registration No. 333-139992), and incorporated herein by reference.
 
 
 
The Company hereby agrees to furnish to the Commission upon request a copy of each instrument omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
 
 
 
(10)
Material Contracts
 
 
 
 
(i)
Management Incentive Plan.*
 
 
 
 
(ii)
Graybar Electric Company, Inc. Supplemental Benefit Plan, amended and restated, entered into between the Company and certain employees effective January 1, 2014, filed as Exhibit 10(ii) to the Company’s Current Report on Form 8-K dated September 12, 2013 (Commission File No. 000-00255) and incorporated herein by reference.*
 
 
 
 
(iii)
Form of Deferral Agreement under Graybar Electric Company, Inc. Supplemental Benefit Plan, filed as Exhibit 10(ii) to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2013 (Commission File No. 000-00255) and incorporated herein by reference.*
 
 
 
 
(iv)
Credit Agreement, dated as of September 28, 2011 among the Company, as parent borrower and a guarantor, Graybar Canada Limited, as a borrower, certain domestic subsidiaries of the parent borrower, as the subsidiary guarantors, and 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 Canadian branch, as Canadian administrative agent, Canadian swing line lender and Canadian L/C issuer, and the other lenders party thereto, filed as Exhibit 10 to the Company's Current Report on Form 8-K dated September 28, 2011 (Commission File No. 000-00255) and incorporated herein by reference.
 
 
 
 
(v)
First Amendment to Credit Agreement, dated as of May 29, 2013, filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2013 (Commission File No. 000-00255) and incorporated herein by reference.
 
 
 
 
(vi)
Second amendment to Credit Agreement, dated as of June 6, 2014, among the Company, as parent borrower and a guarantor, Graybar Canada Limited, as a borrower, certain domestic subsidiaries of the parent borrower, as the subsidiary guarantors, and 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 Canadian branch, as Canadian administrative agent, Canadian swing line lender and Canadian L/C issuer, and the other lenders party thereto, filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014 (Commission File No. 000-00255) and incorporated herein by reference.
 
 
 
 
(vii)
Private Shelf Agreement, dated September 22, 2014, filed as Exhibit 10.7 to the Company’s Report on Form 8-K dated September 22, 2014 (Commission File No. 000-00255) and incorporated herein by reference.
 
 
 
(21)
List of subsidiaries of the Company
 
 
(31.1)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.
 
 
(31.2)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.
 
 

52


(32.1)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.
 
 
(32.2)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.
 
 
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
 
 
 
 
* Compensation arrangement
 
 
 


53