i
|
|
|
|
|
|
|
|
|
|
UNITED STATES SECURITIES AND EXCHANGE COMMISSION | ||||
Washington, D.C. 20549 | ||||
FORM
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
or
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number
|
|
(Exact name of registrant as specified in its charter) | |
|
|
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
|
(Address of principal executive offices) | (Zip Code) |
|
( |
(Registrant’s telephone number, including area code) |
|
|
| |
|
| ||
Securities registered pursuant to Section 12(b) of the Act: | None | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |
N/A | N/A | N/A | |
Securities registered pursuant to Section 12(g) of the Act: | |||
| 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 |
|
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 |
|
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 NO |
|
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 NO |
|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. |
|
|
Large accelerated filer | Accelerated filer |
Smaller reporting company | |
| Emerging growth company |
|
|
If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
|
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES NO |
|
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, 2021, was $ |
|
The number of shares of Common Stock outstanding at March 1, 2022 was |
|
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 2021 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, 2021
Table of Contents
|
|
|
|
| Page |
PART I | ||
Item 1. | 3 | |
Item 1A. | 6 | |
Item 1B. | 8 | |
Item 2. | 8 | |
Item 3. | 9 | |
Item 4. | 9 | |
Supplemental Item | 9 | |
|
|
|
PART II | ||
Item 5. | 10 | |
Item 6. | 10 | |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
Item 7A. | 17 | |
Item 8. | 18 | |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 49 |
Item 9A. | 49 | |
Item 9B. | 49 | |
Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 49 |
|
|
|
PART III | ||
Item 10. | 50 | |
Item 11. | 50 | |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 50 |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 50 |
Item 14. | 50 | |
|
|
|
PART IV | ||
Item 15. | 51 | |
|
|
|
| 53 | |
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, 2021, 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 (the “PSLRA”), Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes”, “projects”, “expects”, “anticipates”, “estimates”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will be”, “will continue”, “will likely result”, and other similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the PSLRA. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse impact on our operations and future prospects on a consolidated basis include, but are not limited to: general economic conditions, particularly in the residential, commercial, and industrial building construction industries; a sustained interruption in the operation of our information systems; the ongoing impact of the coronavirus (COVID-19) pandemic; volatility in the prices of industrial commodities; cyber-attacks; increased funding requirements and expenses related to our pension plan; disruptions in our sources of supply; the inability, or limitations on our ability to borrow under our existing credit facilities or any replacements thereof; adverse legal proceedings or other claims; compliance with changing governmental regulations; and the inability, or limitations on our ability to raise debt or equity capital. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by applicable securities law. Further information concerning our business, including additional factors that could materially impact our financial results, is included herein and in our other filings with the 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.
All dollar amounts in this Annual Report on Form 10-K are stated in millions except for share and 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, commercial, institutional and government ("CIG"), and industrial & 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 300 locations across the United States and Canada, we serve approximately 146,000 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 over one million products purchased from approximately 4,200 manufacturers and suppliers. In our primary role as third-party wholesale distributor, we neither manufacture nor contract to manufacture the products that we sell; however, one of our subsidiaries may contract to manufacture some of its private label lighting fixtures.
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.
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 common stock. There is no public trading market for our common stock.
Our internet address is www.graybar.com. Information on our website does not constitute a part of this Annual Report on Form 10-K.
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 & utility verticals in North America. 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, digitalization 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 directly to our customer base. 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.
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 of our sales in 2021. 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.
The other verticals we serve are CIG and industrial & utility. The CIG vertical includes a broad range of commercial office, warehouse, and retail facilities, federal, state, and local governmental agencies, and the education and health care sectors. The industrial & utility vertical includes customers and products for MRO, OEM, broadband utility and electrical transmission and distribution infrastructure.
Products and Suppliers
We distribute over one million products purchased from approximately 4,200 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 60% of customer orders from this on-hand inventory in 2021 and 2020.
Approximately 50% of the products we sold during 2021 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:
|
|
|
|
|
|
| • Building and Industrial Wire and Cable | • Data Cables and Data Cords |
| • Lighting Fixtures | • Fittings |
| • Distribution Equipment | • Wiring Devices |
| • Telecommunications Material | • Fasteners |
| • Communication Wire and Cable | • Enclosures |
| • Conduit and Tray | • LED, Incandescent and Fluorescent Lamps |
| • Data Connectivity | • Electronic Equipment |
| • Automation and Controls | • Miscellaneous MRO Products |
|
|
|
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 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 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 geographic districts have sales offices that do not carry inventory. In addition, we have twenty regional distribution centers containing inventories of both standard and specialized products. The 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.
Human Capital
Employees
As of December 31, 2021, Graybar had approximately 8,800 employees across the U.S., Canada, and Puerto Rico. Approximately 5,000 employees were employed in sales and service positions, 2,400 in supply chain positions, and the remainder in operations and other business functions. Approximately 1% of our employees are covered by collective bargaining agreements.
Culture and Values
Graybar’s culture is defined by the core values of integrity, a long-term view, employee ownership and customer focus. With these values as the foundation, Graybar strives to achieve profitable long-term growth, deliver an exceptional customer experience, and create a positive work environment that brings out the best in our employees.
Inclusion, Diversity, Equity, and Belonging
Consistent with Graybar’s core values, we welcome people from all backgrounds, cultures, and experiences into our company. We want each of our employees to know that they matter and to feel a sense of belonging, ownership, and inclusion at Graybar. We believe that everyone should be treated with dignity and respect, and we work to build a collaborative environment where our employees can grow, learn and make a difference, both as individuals and as part of the team.
We hold regular reviews of employee pay with a focus on equity and conduct quarterly employee surveys asking for feedback on the Company. Our women’s networking program is open to everyone and is designed to foster deeper connections and encourage professional development. We also encourage our employees to give back to their communities by providing community time off and matching employee donations to select charities. Additional information can be found in our Corporate Social Responsibility Report at https://graybar.widen.net/s/raae2vrc1c.
Safety
The safety of our employees is a top priority, and our locations follow consistent safety protocols to prevent injuries and accidents. Our safety program includes ongoing training, hazard communications and supplying personal protective equipment to employees. We also use technology in our fleet of vehicles to improve safety on the road.
Compensation and Benefits
Graybar’s comprehensive compensation and benefits programs are designed to attract, retain, and reward employees. We offer multiple benefit plan options for medical, prescription, and dental insurance. We also provide short and long-term disability benefits at no cost. The Company offers other benefits such as life insurance, well-being programs and resources, paid vacation and holidays, profit sharing and 401(k) plans, and employee discounts.
Talent Acquisition, Learning, and Development
Graybar has a long track record of hiring talented employees, investing in employee development, and providing opportunities for employees to advance within the company. All employees are assigned core training requirements based on their role and have access to a large library of online courses from which they can expand their knowledge. In addition to online learning, when health concerns and related considerations allow, we host training conferences for employees and offer development programs for interns, early-career employees, sales employees, managers, and leaders. We also offer tuition reimbursement and student loan repayment programs.
COVID-19 Impact
COVID-19 continues to impact our business and our employees. Graybar provides an Employee Assistance Program, along with training and mental health resources to support employees and managers. Company-wide and local communications help to keep employees informed and engaged.
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 146,000 customers, and our largest customer accounts for approximately 1% 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 daily activities are highly dependent on the uninterrupted operation of 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. We also rely on the information systems of third parties to achieve some of our business objectives. Nonetheless, our information systems and those of third parties, including cloud service providers, remain vulnerable to natural disasters, wide-area telecommunications or power utility outages, terrorist or cyber-attacks, or other major disruptions. A sustained interruption in the functioning of information systems, however unlikely, could lower operating income by negatively impacting sales, expenses, or both.
A pandemic, epidemic or other public health emergency, such as the ongoing outbreak of coronavirus disease 2019 (COVID-19) pandemic, could continue to have a material adverse effect on our business, results of operations, financial condition and cash flows. In 2021, the COVID-19 pandemic affected business activity, impacting, among others, our customers, suppliers, our workforce and the construction industry. The impacts relating to the potential effect of the COVID-19 pandemic on our business and the costs that we may incur as a result cannot be reasonably estimated, but could be material.
In recent months, we have seen increasing pressure on our supply chain due to several factors, including, but not limited to, global logistics, raw material and labor availability, that are in part due to the impact of COVID-19 on the global economy. Depending on the scope and duration of supply chain disruptions, we may experience further increases in product costs which we may not be able to pass on to our customers and loss of sales due to lack of product availability. There is no certainty as to when affected availability and related lead times will return to normalized levels.
If our customers are directly impacted by business curtailments or weak market conditions, this may result in lower net sales and higher than expected bad debt losses, which could impact our results of operations and our cash flows from operating activities. In the event that our operating performance or that of our suppliers were to decline, our vendor allowances could also be reduced, which could negatively impact our results of operations.
There continue to be uncertainties associated with the COVID-19 pandemic, including with respect to the course, duration and severity of the virus, future actions that may be taken by governmental authorities and private businesses to contain the COVID-19 pandemic or to mitigate its impact, and the effectiveness of such actions, and the widespread availability and ultimate effectiveness of vaccinations for COVID-19 and its variants. We continue to monitor the situation and assess further possible implications to our business. Even after the COVID-19 pandemic subsides, we could still experience long-term impacts on our operating costs, as a result of attempts to counteract future outbreaks of COVID-19 or other viruses. Moreover, the long-term economic effects of COVID-19 on our business are uncertain.
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"), or other industrial commodities that have been subject to price volatility during the past several years. Examples of such products include wire and cable, conduit, enclosures, and fittings. Our gross margin rate on these products is relatively constant over time, though not necessarily in the short term. Therefore, if the cost of these products to us declined, 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 cyber-attacks against our information systems, breaches of sensitive data or changes in regulations relating to obligations to protect systems, assets, and data from the threat of cyber-attacks. Cyber-attacks designed to gain access to sensitive information and/or compromise mission-critical systems of large organizations are constantly evolving. High profile cyber-security incidents leading to unauthorized release of confidential information or ransoming of information systems have occurred at a number of major U.S. companies, despite widespread recognition of the cyber-attack threat and generally improved cyber-security protections. While we have invested in the protection of our information technology and maintain what we believe are adequate security procedures and controls over information systems and financial and other sensitive data, the risks to our information systems and data are evolving rapidly. These risks are also applicable where we rely on outside vendors to provide services, which may operate in a cloud environment. We are dependent on these third-party vendors to operate secure and reliable systems. A breach in our systems or those of our third party providers that results in system compromise or the unauthorized release of sensitive data, including without limitation, personally identifiable information, could have a material adverse effect on our reputation and lead to financial losses from remedial actions, loss of business, or potential liability. A cyber-security incident resulting in the unauthorized release of sensitive data or compromise of our information systems or those of third parties 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 sensitive information, there is a risk that such data may be compromised. In addition, as the regulatory environment relating to a company’s obligation to protect information systems and sensitive data becomes more strict, a material failure on our part to comply with applicable regulations could subject us to fines, regulatory sanctions and lawsuits.
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.
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 products 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.
Our borrowing agreements contain financial covenants and certain other restrictions on our activities and those of our subsidiaries. Our amended revolving credit facility and private placement shelf agreements 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, as well as securitizations, factoring transactions, and transactions with sanctioned parties or in violation of certain U.S. or Canadian anti-corruption and anti-
money laundering laws. 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 amended revolving credit facility and private placement shelf agreements, 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 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, 2021, 3,300 individual cases and 61 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.
Compliance with changing government regulations may result in increased costs and risks to the company. Our public company and multi-national customers are increasingly subject to governmental regulation globally. Existing and future laws and regulations may impede our growth. These regulations and laws may cover, among other things, public health, taxation, privacy, data protection, pricing, content, copyrights, distribution, energy consumption, environmental regulation, electronic contracts, 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. These regulatory and 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.
The value to our shareholders of our common stock depends on 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 we exercise our option to purchase, appreciation in the value of an investment in our common stock is dependent primarily on our ability and our Board of Directors' willingness to declare 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. Facilities range in size from 800 to 136,000 square feet, with the average being approximately 30,000 square feet. We also have regional distribution centers ranging in size from 130,000 to 324,000 square feet. Our subsidiaries have sales and distribution facilities ranging in size from 1,000 to 89,000 square feet.
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.
Supplemental Item. Executive Officers of the Registrant
The following table lists the name, age as of March 1, 2022, position, offices and certain other information with respect to our executive officers. 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 | 51 | Senior Vice President and Chief Financial Officer, June 2019 to present; Senior Vice President - Supply Chain Management, February 2015 to May 2019. |
D. E. DeSousa | 63 | Senior Vice President, General Manager, August 2020 to present, Vice President, Western Region, May 2017 to July 2020, Vice President - Corporate Development, August 2014 to April 2017. |
M. W. Geekie | 60 | Senior Vice President, Secretary and General Counsel, August 2008 to present. |
W. P. Mansfield | 59 | Senior Vice President - Marketing, May 2017 to present; Senior Vice President - Sales and Marketing, April 2014 to April 2017. |
D. G. Maxwell | 63 | Senior Vice President - Sales, May 2017 to present; Regional Vice President, January 2015 to April 2017. |
K. M. Mazzarella | 61 | Chairman of the Board, January 2013 to present; President and Chief Executive Officer, June 2012 to present. |
B. L. Propst | 52 | Senior Vice President - Human Resources, June 2009 to present. |
On January 12, 2022, S. S. Clifford, Senior Vice President and Chief Financial Officer, announced his intention to retire as an officer on June 1, 2022. D. M. Meyer has been appointed as Mr. Clifford’s replacement effective April 1, 2022. Prior to the appointment, Mr. Meyer served the Company as Vice President and Chief Information Officer from 2015 to 2021 and as Vice President – North American Subsidiaries since January 1, 2022.
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. A new Voting Trust Agreement was established effective March 3, 2017, which expires by its terms on March 1, 2027. At December 31, 2021, approximately 83% of our outstanding common stock was held in the voting trust. The participation of shareholders in the voting trust is voluntary at the time the voting trust is created, but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record. Shareholders may elect to participate in the voting trust at any time during the term of the voting trust.
No holder of our common stock or voting trust interests representing our common stock ("common stock", "common shares", or "shares") may sell, transfer or otherwise dispose of any shares without first offering us the option to purchase those shares at the price at which they were issued. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any reason other than death or "retirement" (as defined in our amended restated certificate of incorporation), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $20.00 per share.
The following table sets forth information regarding purchases of common stock by the Company for the three months ended December 31, 2021, all of which were made pursuant to the foregoing provisions:
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities | |||
Period | Total Number of | Average | Total Number of Shares |
October 1 to October 31, 2021 | 39,247 | $20.00 | N/A |
November 1 to November 30, 2021 | 74,543 | $20.00 | N/A |
December 1 to December 31, 2021 | 53,108 | $20.00 | N/A |
Total | 166,898 | $20.00 | N/A |
|
|
|
|
|
|
|
|
Capital Stock at December 31, 2021 | |||
Title of Class | Number of |
| Number of Shares |
Voting Trust Interests issued with respect to Common Stock | 5,622 |
| 18,911,992 |
Common Stock | 1,598 |
| 3,921,241 |
Total | 7,220 |
| 22,833,233 |
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Data (in dollars per share) | Year Ended December 31, | ||||
Period |
| 2021 |
|
| 2020 |
First Quarter | $ | 0.30 |
| $ | 0.30 |
Second Quarter |
| 0.30 |
|
| 0.30 |
Third Quarter |
| 0.30 |
|
| 0.30 |
Fourth Quarter |
| 5.10 |
|
| 3.10 |
Total | $ | 6.00 |
| $ | 4.00 |
Item 6. Reserved
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 years ended December 31, 2021 and 2020. 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. For comparison of the results of operations relating to the years ended December 31, 2020 and 2019, refer to our Annual Report on Form 10-K for the year ended December 31, 2020, Part II., Item 7. filed with the SEC on March 10, 2021.
Business Overview
Our results for fiscal year ended December 31, 2021 set new records for net sales, income from operations, and net income. Several factors contributed to these results, including improving economic conditions, increased demand for our products and services, and price inflation. Net sales for the year ended December 31, 2021 increased $1,501.6 million, or 20.7%, to $8,767.3 million, compared to $7,265.7 million for the year ended December 31, 2020.
Gross margin increased $319.7 million, or 23.3%, to $1,689.2 million for the year ended December 31, 2021, compared to gross margin of $1,369.5 million for the same twelve-month period last year. Gross margin rate was 19.3% for the year ended December 31, 2021, compared to 18.8% for the same twelve month-period last year. Gross margin rate was positively impacted by higher warehouse sales, a favorable sales mix, and favorable vendor allowances.
Our income from operations for the year ended December 31, 2021 increased $185.6 million, or 82.6%, due to improved gross margin performance. This was partially offset by a $141.6 million, or 12.9%, increase in selling, general and administrative (“SG&A”) expenses that resulted from higher compensation and benefit-related expenses, higher outgoing freight expenses, and higher travel and entertainment expenses.
Our non-operating expenses for the years ended December 31, 2021 and 2020 contained non-cash pension settlement charges of $30.4 million and $27.7 million, respectively. These charges were recognized because the cost of all pension settlements during the respective year were greater than the sum of the service and interest cost components of the annual net periodic pension cost.
Net income attributable to Graybar Electric Company, Inc. for the year ended December 31, 2021 increased by $140.6 million to $262.4 million, compared to $121.8 million for the same twelve-month period last year.
Over the course of 2021, the economy showed substantial improvement, which contributed to our record results. Although the vertical markets we serve may continue to be affected by variables such as supply chain constraints, price inflation, labor issues, and the ongoing pandemic, our business operations are producing positive results and our financial condition is strong. We remain focused on providing an exceptional customer experience, achieving profitable growth, and maintaining a healthy financial position.
Consolidated Results of Operations
The following table sets forth certain information relating to our operations stated in millions of dollars and as a percentage of net sales for the years ended December 31, 2021, 2020, and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
| 2020 |
| 2019 | ||||||||||||
| Dollars |
| Percent |
| Dollars |
| Percent |
| Dollars |
| Percent | ||||||
Net Sales | $ | 8,767.3 |
| 100.0 | % |
| $ | 7,265.7 |
| 100.0 | % |
| $ | 7,523.9 |
| 100.0 | % |
Cost of merchandise sold |
| (7,078.1) |
| (80.7) |
|
|
| (5,896.2) |
| (81.2) |
|
|
| (6,094.9) |
| (81.0) |
|
Gross Margin |
| 1,689.2 |
| 19.3 |
|
|
| 1,369.5 |
| 18.8 |
|
|
| 1,429.0 |
| 19.0 |
|
Selling, general and administrative expenses |
| (1,240.5) |
| (14.1) |
|
|
| (1,098.9) |
| (15.1) |
|
|
| (1,159.9) |
| (15.4) |
|
Depreciation and amortization |
| (49.8) |
| (0.6) |
|
|
| (52.8) |
| (0.7) |
|
|
| (50.5) |
| (0.7) |
|
Other income, net |
| 11.5 |
| 0.1 |
|
|
| 7.0 |
| 0.1 |
|
|
| 5.0 |
| 0.1 |
|
Income from Operations |
| 410.4 |
| 4.7 |
|
|
| 224.8 |
| 3.1 |
|
|
| 223.6 |
| 3.0 |
|
Non-operating expenses |
| (59.5) |
| (0.7) |
|
|
| (58.5) |
| (0.8) |
|
|
| (23.7) |
| (0.3) |
|
Income before Provision for Income Taxes |
| 350.9 |
| 4.0 |
|
|
| 166.3 |
| 2.3 |
|
|
| 199.9 |
| 2.7 |
|
Provision for income taxes |
| (87.9) |
| (1.0) |
|
|
| (44.2) |
| (0.6) |
|
|
| (55.0) |
| (0.7) |
|
Net Income |
| 263.0 |
| 3.0 |
|
|
| 122.1 |
| 1.7 |
|
|
| 144.9 |
| 2.0 |
|
Net income attributable to noncontrolling interests |
| (0.6) |
| — |
|
|
| (0.3) |
| — |
|
|
| (0.4) |
| — |
|
Net Income attributable to | $ | 262.4 |
| 3.0 | % |
| $ | 121.8 |
| 1.7 | % |
| $ | 144.5 |
| 2.0 | % |
2021 Compared to 2020
Net sales totaled $8,767.3 million for the year ended December 31, 2021, compared to $7,265.7 million for the year ended December 31, 2020, an increase of $1,501.6 million, or 20.7%. For the year ended December 31, 2021, net sales in our construction, CIG, and industrial & utility verticals increased by 21.3%, 14.9%, and 28.3%, respectively, compared to the year ended December 31, 2020.
Gross margin increased $319.7 million, or 23.3%, to $1,689.2 million for the year ended December 31, 2021, from $1,369.5 million for the year ended December 31, 2020. The increase in gross margin was primarily due to increased net sales for the year ended December 31, 2021, compared to the year ended December 31, 2020. Our gross margin rate was 19.3% for the year ended December 31, 2021, compared to 18.8% for the year ended December 31, 2020. The increase in gross margin rate was primarily due to higher warehouse sales, a favorable sales mix, and increases in vendor allowances as a result of higher inventory purchases to meet our sales demand.
SG&A expenses increased $141.6 million, or 12.9%, to $1,240.5 million for the year ended December 31, 2021, compared to $1,098.9 million for the year ended December 31, 2020, mainly due to higher compensation and benefit-related expenses, higher outgoing freight expenses, and higher travel and entertainment expenses. SG&A expenses as a percentage of net sales were 14.1% for the year ended December 31, 2021, compared to 15.1% for the year ended December 31, 2020.
Depreciation and amortization for the year ended December 31, 2021 decreased $3.0 million, or 5.7%, to $49.8 million from $52.8 million for the year ended December 31, 2020, primarily due to lower software amortization expenses. Depreciation as a percentage of net sales totaled 0.6% for the year ended December 31, 2021, down from 0.7% for the year ended December 31, 2020.
Other income, net totaled $11.5 million for the year ended December 31, 2021, compared to $7.0 million for the year ended December 31, 2020. Other income, net consists primarily of gains or losses 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 gains on sales of property classified as assets held for sale.
Non-operating expenses increased $1.0 million, or 1.7%, to $59.5 million for the year ended December 31, 2021, from $58.5 million for the year ended December 31, 2020. The increase was due to an increase in the non-service cost components of the pension net periodic benefit costs of $4.2 million, partially offset by decreases in interest expense, net. The increase in non-service cost components of pension net periodic benefit costs was primarily due to a non-cash pension settlement charge of $30.4 million
recognized during the year ended December 31, 2021, compared to a non-cash pension settlement charge of $27.7 million recognized during the year ended December 31, 2020. The decrease in interest expense, net was due to lower levels of average outstanding short-term borrowings and lower interest rates for the year ended December 31, 2021, compared to the year ended December 31, 2020.
Income before provision for income taxes increased $184.6 million, or 111.0%, to $350.9 million for the year ended December 31, 2021, compared to $166.3 million for the year ended December 31, 2020. The increase was primarily due to our increase in gross margin partially offset by an increase in SG&A expenses.
Our provision for income taxes increased $43.7 million, or 98.9%, to $87.9 million for the year ended December 31, 2021 from $44.2 million for the year ended December 31, 2020. Our effective tax rate was 25.0% for the year ended December 31, 2021, down from 26.6% for the year ended December 31, 2020. The decrease in the effective tax rate is largely due to reductions in 2021 permanent adjustment limitations and reduced state expense.
Net income attributable to Graybar Electric Company, Inc. for the year ended December 31, 2021 increased $140.6 million, or 115.4%, to $262.4 million from $121.8 million for the year ended December 31, 2020.
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 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, if necessary. Capital expenditures have been financed primarily with cash from working capital management and short-term bank lines of credit.
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): |
| 2021 |
|
| 2020 |
|
| 2019 |
Operating Activities | $ | 127.5 |
| $ | 301.7 |
| $ | 249.4 |
Investing Activities |
| (149.7) |
|
| (50.4) |
|
| (39.4) |
Financing Activities |
| (60.5) |
|
| (180.9) |
|
| (208.1) |
Net (Decrease) Increase in Cash | $ | (82.7) |
| $ | 70.4 |
| $ | 1.9 |
Our cash and cash equivalents were $48.5 million at December 31, 2021, a decrease of $82.7 million, or 63.0%, from $131.2 million at December 31, 2020. The decrease in cash on hand at December 31, 2021 from December 31, 2020 is reflective of increases in trade accounts receivable, increased merchandise inventory levels, higher capital expenditures, and acquisitions made in 2021, partially offset by an increase in trade accounts payable. Short-term borrowings increased by $74.2 million to $124.2 million at December 31, 2021 from $50.0 million at December 31, 2020, primarily due to funding of the fourth quarter cash dividend payment as well as acquisitions made in 2021. Current assets exceeded current liabilities by $730.3 million at December 31, 2021, an increase of $82.9 million, or 12.8%, from $647.4 million at December 31, 2020.
Operating Activities
Cash flows provided by operating activities for the year ended December 31, 2021 was $127.5 million, compared to cash flows provided by operating activities of $301.7 million for the year ended December 31, 2020. Cash provided by operating activities for the year ended December 31, 2021 was attributable to net income of $263.0 million, adjusted for non-cash depreciation and amortization expenses of $49.8 million, non-cash operating lease expense of $34.9 million, non-cash pension settlement charge of $30.4 million, an increase in trade accounts payable of $157.9 million, and an increase in accrued payroll and benefit costs of $64.8 million, partially offset by an increase in trade receivables of $274.5 million and an increase in merchandise inventory levels of $187.6 million.
The average number of days of sales in trade receivables for the year ended December 31, 2021 improved significantly compared to the same twelve-month period in 2020. The days in inventory improved modestly for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Investing Activities
Net cash used by investing activities was $149.7 million for the year ended December 31, 2021, compared to $50.4 million for the year ended December 31, 2020, an increase of $99.3 million. Cash used by investing activities for the year ended December 31, 2021 was primarily a result of the 2021 acquisitions for a combined preliminary purchase price, net of cash acquired of $88.7 million and capital expenditures of $70.9 million, compared to the preliminary purchase price, net of cash acquired for the 2020 acquisition of $27.2 million and capital expenditures of $31.1 million for the year ended December 31, 2020. For further discussion of our acquisitions, refer to Note 17, “Acquisitions”, 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.
Financing Activities
Net cash used by financing activities totaled $60.5 million for the year ended December 31, 2021, compared to net cash used by financing activities of $180.9 million for the year ended December 31, 2020, a decrease in cash used of $120.4 million, or 66.6%. This was primarily due to an increase in short-term borrowings of $74.2 million during the year ended December 31, 2021, compared to net payments on short-term borrowings of $88.0 million during the year ended December 31, 2020, partially offset by an increase in dividends paid during the year ended December 31, 2021, compared to the same period in 2020. Cash dividends paid totaled $137.2 million, or $6.00 per share, for the year ended December 31, 2021, compared to $90.7 million, or $4.00 per share, for the year ended December 31, 2020.
Liquidity
Our cash and cash equivalents were $48.5 million at December 31, 2021, compared to $131.2 million at December 31, 2020. We also had a $750.0 million amended committed revolving credit facility (“Amended Credit Agreement”) with $625.4 million in available capacity at December 31, 2021, compared to available capacity of $699.6 million at December 31, 2020. We had short-term borrowings of $124.2 million and $50.0 million outstanding at December 31, 2021 and 2020, respectively.
At December 31, 2021 and 2020, we also had two uncommitted, unsecured private placement shelf agreements ("Shelf Agreements"). One of the Shelf Agreements is expected to allow us to issue senior promissory notes up to $100.0 million to PGIM, Inc., at fixed rate terms to be agreed upon at the time of any issuance during a three-year issuance period ending in August 2023. At December 31, 2021, our other Shelf Agreement is expected to allow us to issue senior promissory notes up to $150.0 million to MetLife Investment Management, LLC (formerly known as MetLife Investment Advisors, LLC), and MetLife Investment Management Limited (collectively, “MetLife”) and each other MetLife affiliate that becomes party to the agreement at fixed or floating rate economic terms to be agreed upon at the time of any issuance during a three-year issuance period ending in June 2024.
We have not issued any notes under the Shelf Agreements as of December 31, 2021 and 2020. For further discussion related to our Amended Credit Agreement and our Shelf Agreements, refer to Note 12, “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 total letters of credit of $6.1 million outstanding at December 31, 2021, of which $0.4 million were issued under our Amended Credit Agreement. We had total letters of credit of $6.3 million outstanding at December 31, 2020, of which $0.4 million were issued under the Revolving Credit Facility, as defined in Note 12, “Debt”, of the notes to the consolidated financial statements included in Item 8., “Financial Statements and Supplemental Data” of this Annual Report on Form 10-K. The letters of credit are issued primarily to support certain workers' compensation insurance policies.
Inflation
The industry experienced rising product costs associated primarily with commodities in 2021. In addition, given supply chain constraints, freight and shipping costs were elevated as well. Inflation impacted many of the products we purchase and transport. We were able to mitigate the adverse effects of higher costs on our gross margin rate in 2021 by increasing prices and consolidating shipments for the products and services we offer.
Contractual Obligations and Commitments
We had the following contractual obligations as of December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payments due by period | |||||||||||||
Contractual obligations |
| Total |
|
| 2022 |
|
| 2023 |
|
| 2025 |
|
| After |
Operating lease obligations | $ | 150.3 |
| $ | 37.0 |
| $ | 61.3 |
| $ | 32.7 |
| $ | 19.3 |
Purchase obligations |
| 2,326.5 |
|
| 2,318.4 |
|
| 8.1 |
|
| — |
|
| — |
Total | $ | 2,476.8 |
| $ | 2,355.4 |
| $ | 69.4 |
| $ | 32.7 |
| $ | 19.3 |
Operating 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 $161.2 million of accrued, unfunded pension obligations, and $83.7 million of accrued, unfunded employment-related benefit obligations, of which $75.1 million is related to our postretirement benefit plan.
We expect to make contributions totaling approximately $40.0 million to our defined benefit pension plan and fund $2.0 million for nonqualified pension benefits during 2022 that are not included in the table. We contributed $40.0 million to our defined benefit pension plan and funded $1.6 million for nonqualified benefits in 2021.
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.
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.
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, or more frequently when warranted, 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 | ||
| 2021 | 2020 |
| 2021 | 2020 |
Discount rate | 2.86% | 2.62% |
| 2.71% | 2.22% |
Expected return on plan assets | 5.00% | 5.50% |
| — | — |
To determine the long-term expected rate of return, we consider macroeconomic conditions, 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, 2021, was approximately 60% fixed income investments, 12% equity securities and 28% 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. Holding all other assumptions constant, we estimate that a one percentage point decrease in the expected return on plan assets would have increased our 2021 pension expense by approximately $6.3 million. Our expected long-term rate of return on plan assets assumption will remain at 5.00% for fiscal year 2022.
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 one percentage point decrease in the discount rate used to calculate both pension expense for 2021 and the pension liability as of December 31, 2021 would have increased pension expense by $19.4 million in 2021 and the pension liability by $104.8 million at December 31, 2021. Similarly, a one percentage point decrease in the discount rate would have increased postretirement benefits expense by $0.1 million in 2021 and the postretirement benefits liability by $5.3 million at December 31, 2021.
Merchandise Inventory
We value our inventories at the lower of cost (generally determined using the last-in, first-out (“LIFO”) cost method) or market. LIFO accounting is a method of accounting that, compared with other inventory accounting methods, generally provides better matching of current costs with current sales. 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 the years ended December 31, 2021, 2020 and 2019, there were no material differences between our estimated reserve levels and actual write-offs.
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. 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. We assess uncertainty regarding tax positions taken in previously filed returns and record reserves in accordance with the guidance under Accounting Standards Codification 740-10, "Accounting for Uncertainty in Income Taxes".
New Accounting Standards
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 wire and cable, conduit, enclosures, and fittings.
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.
Based on $124.2 million in variable-rate debt outstanding at December 31, 2021, a one percentage point increase in interest rates would increase our interest expense by $1.2 million 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, 2021 | ||||
Debt Instruments | 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| After 2027 |
|
| Total |
| Fair | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term, fixed-rate debt | $ | 1.9 |
|
| $ | 1.3 |
|
| $ | 1.2 |
|
| $ | 0.9 |
|
| $ | 0.2 |
|
| $ | 0.6 |
|
| $ | 6.1 |
| $ | 5.2 |
Weighted-average interest rate |
| 5.45 | % |
|
| 6.48 | % |
|
| 7.05 | % |
|
| 7.69 | % |
|
| 12.31 | % |
|
| 12.75 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term, variable-rate borrowings | $ | 124.2 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 124.2 |
| $ | 124.2 |
Weighted-average interest rate |
| 1.11 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 risk spread as of December 31, 2021.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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]
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Graybar Electric Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Graybar Electric Company, Inc. and Subsidiaries (the Company) as of December 31, 2021 and 2020, 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, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
|
|
|
|
| Defined Benefit Pension Obligation |
Description of the Matter |
| At December 31, 2021, the Company’s aggregate defined benefit pension obligation was $841.9 million and exceeded the fair value of pension plan assets of $680.7 million, resulting in an unfunded defined benefit pension obligation of $161.2 million. As discussed in Note 13 to the consolidated financial statements, the Company updates the estimates used to measure the defined benefit pension obligation and plan assets at December 31 or upon a remeasurement event. Auditing the defined benefit pension obligation was complex and required the involvement of actuarial specialists due to the judgmental nature of the actuarial assumptions (e.g., discount rate and expected return on plan assets) used in the Company’s measurement process. These assumptions have a significant effect on the projected benefit obligation. |
How We Addressed the Matter in Our Audit |
| To test the defined benefit pension obligation, we performed audit procedures that included, among others, evaluating the methodology used, the significant actuarial assumptions described above, and the underlying data used by the Company. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension obligation from the prior year, due to the change in service costs, interest costs, actuarial gains and losses, benefit payments, contributions and other activities. In addition, we involved a specialist to assist in evaluating management’s methodology for determining the actuarial assumptions used to measure the defined benefit pension obligation, including evaluating management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation. To evaluate the expected return on plan assets, we assessed whether management’s assumptions were consistent with a range of returns for a portfolio of comparative investments. We also tested the completeness and accuracy of the underlying data, including the participant data used in the actuarial calculations. |
/s/
We have served as the Company’s auditor since 1996.
March 10, 2022
Graybar Electric Company, Inc. and Subsidiaries
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
(Stated in millions, except per share data) |
| 2021 |
|
| 2020 |
|
| 2019 |
Net Sales | $ | |
| $ | |
| $ | |
Cost of merchandise sold |
| ( |
|
| ( |
|
| ( |
Gross Margin |
| |
|
| |
|
| |
Selling, general and administrative expenses |
| ( |
|
| ( |
|
| ( |
Depreciation and amortization |
| ( |
|
| ( |
|
| ( |
Other income, net |
| |
|
| |
|
| |
Income from Operations |
| |
|
| |
|
| |
Non-operating expenses |
| ( |
|
| ( |
|
| ( |
Income before Provision for Income Taxes |
| |
|
| |
|
| |
Provision for income taxes |
| ( |
|
| ( |
|
| ( |
Net Income |
| |
|
| |
|
| |
Net income attributable to noncontrolling interests |
| ( |
|
| ( |
|
| ( |
Net Income attributable to Graybar Electric Company, Inc. | $ | |
| $ | |
| $ | |
Net Income attributable to Graybar Electric Company, Inc. | $ | |
| $ | |
| $ | |
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
Graybar Electric Company, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
(Stated in millions) |
| 2021 |
|
| 2020 |
|
| 2019 |
Net Income | $ | |
| $ | |
| $ | |
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
Foreign currency translation |
| |
|
| |
|
| |
Pension and postretirement benefits liability adjustments |
| |
|
| |
|
| ( |
Total Other Comprehensive Income (Loss) |
| |
|
| |
|
| ( |
Comprehensive Income | $ | |
| $ | |
| $ | |
Less: comprehensive income attributable to noncontrolling |
| |
|
| |
|
| |
Comprehensive Income attributable to | $ | |
| $ | |
| $ | |
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
Graybar Electric Company, Inc. and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||
(Stated in millions, except share and per share data) |
|
|
|
| 2021 |
| 2020 | ||
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
| $ | |
| $ | |
Trade receivables (less allowances of $ |
|
|
|
| |
|
| | |
Merchandise inventory |
|
|
|
|
| |
|
| |
Other current assets |
|
|
|
|
| |
|
| |
Total Current Assets |
|
|
|
|
| |
|
| |
Property, at cost |
|
|
|
|
|
|
|
|
|
Land |
|
|
|
|
| |
|
| |
Buildings |
|
|
|
|
| |
|
| |
Furniture and fixtures |
|
|
|
|
| |
|
| |
Software |
|
|
|
|
| |
|
| |
Finance leases |
|
|
|
|
| |
|
| |
Total Property, at cost |
|
|
|
|
| |
|
| |
Accumulated depreciation and amortization |
|
|
|
|
| ( |
|
| ( |
Net Property |
|
|
|
|
| |
|
| |
Operating Lease Right-of-use Assets |
|
|
|
|
| |
|
| |
Other Non-current Assets |
|
|
|
|
| |
|
| |
Total Assets |
|
|
|
| $ | |
| $ | |
LIABILITIES |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
|
| $ | |
| $ | |
Current portion of long-term debt |
|
|
|
|
| |
|
| |
Trade accounts payable |
|
|
|
|
| |
|
| |
Accrued payroll and benefit costs |
|
|
|
|
| |
|
| |
Other accrued taxes |
|
|
|
|
| |
|
| |
Current operating lease liabilities |
|
|
|
|
| |
|
| |
Other current liabilities |
|
|
|
|
| |
|
| |
Total Current Liabilities |
|
|
|
|
| |
|
| |
Postretirement Benefits Liability |
|
|
|
|
| |
|
| |
Pension Liability |
|
|
|
|
| |
|
| |
Long-term Debt |
|
|
|
|
| |
|
| |
Non-current Operating Lease Liabilities |
|
|
|
|
| |
|
| |
Other Non-current Liabilities |
|
|
|
|
| |
|
| |
Total Liabilities |
|
|
|
|
| |
|
| |
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
| Shares at December 31, |
|
|
|
|
|
| ||
Capital Stock | 2021 | 2020 |
|
|
|
|
|
| |
Common, stated value $ |
|
|
|
|
|
|
|
|
|
Authorized | |
| |
|
|
|
|
|
|
Issued to voting trustees | |
| |
|
|
|
|
|
|
Issued to shareholders | |
| |
|
|
|
|
|
|
In treasury, at cost | ( |
| ( |
|
|
|
|
|
|
Outstanding Common Stock | |
| |
|
| |
|
| |
Common shares subscribed | |
| |
|
| |
|
| |
Less subscriptions receivable | ( |
| ( |
|
| ( |
|
| ( |
Retained Earnings |
|
|
|
|
| |
|
| |
Accumulated Other Comprehensive Loss |
|
|
|
|
| ( |
|
| ( |
Total Graybar Electric Company, Inc. Shareholders’ Equity |
|
|
|
| |
|
| | |
Noncontrolling Interests |
|
|
|
|
| |
|
| |
Total Shareholders’ Equity |
|
|
|
|
| |
|
| |
Total Liabilities and Shareholders’ Equity |
|
|
|
| $ | |
| $ | |
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
Graybar Electric Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
(Stated in millions) | 2021 |
| 2020 |
| 2019 | |||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net Income | $ | |
| $ | |
| $ | |
Adjustments to reconcile net income to cash provided |
|
|
|
|
|
|
|
|
Depreciation and amortization |
| |
|
| |
|
| |
Non-cash operating lease expense |
| |
|
| |
|
| |
Deferred income taxes |
| ( |
|
| ( |
|
| ( |
Net gains on disposal of assets |
| ( |
|
| ( |
|
| ( |
Losses on impairment of assets |
| — |
|
| |
|
| |
Non-cash pension settlement charge |
| |
|
| |
|
| — |
Net income attributable to noncontrolling interests |
| ( |
|
| ( |
|
| ( |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Trade receivables |
| ( |
|
| ( |
|
| |
Merchandise inventory |
| ( |
|
| |
|
| |
Other current assets |
| |
|
| ( |
|
| |
Other non-current assets |
| ( |
|
| ( |
|
| ( |
Trade accounts payable |
| |
|
| |
|
| ( |
Accrued payroll and benefit costs |
| |
|
| ( |
|
| ( |
Other current liabilities |
| |
|
| |
|
| |
Other non-current liabilities |
| ( |
|
| ( |
|
| ( |
Total adjustments to net income |
| ( |
|
| |
|
| |
Net cash provided by operating activities |
| |
|
| |
|
| |
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from disposal of property |
| |
|
| |
|
| |
Capital expenditures for property |
| ( |
|
| ( |
|
| ( |
Acquisition of businesses, net of cash acquired |
| ( |
|
| ( |
|
| — |
Net cash used by investing activities |
| ( |
|
| ( |
|
| ( |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term borrowings |
| |
|
| ( |
|
| ( |
Principal payments under finance arrangements |
| ( |
|
| ( |
|
| ( |
Payment of deferred financing fees |
| ( |
|
| — |
|
| — |
Proceeds from advance payments on common stock prior to issuance |
| |
|
| — |
|
| — |
Sales of common stock |
| |
|
| |
|
| |
Purchases of common stock |
| ( |
|
| ( |
|
| ( |
Sales of noncontrolling interests’ common stock |
| |
|
| — |
|
| |
Purchases of noncontrolling interests’ common stock |
| ( |
|
| ( |
|
| ( |
Dividends paid |
| ( |
|
| ( |
|
| ( |
Net cash used by financing activities |
| ( |
|
| ( |
|
| ( |
Net (Decrease) Increase in Cash |
| ( |
|
| |
|
| |
Cash, Beginning of Year |
| |
|
| |
|
| |
Cash, End of Year | $ | |
| $ | |
| $ | |
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
Acquisitions of equipment under finance leases | $ | |
| $ | |
| $ | |
Acquisitions of assets under operating leases | $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
Cash Paid During the Year for: |
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized | $ | |
| $ | |
| $ | |
Income taxes, net of refunds | $ | |
| $ | |
| $ | |
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements
Graybar Electric Company, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Graybar Electric Company, Inc. |
|
|
|
|
|
| ||||||||
| Shareholders’ Equity |
|
|
|
|
|
| ||||||||
(Stated in millions) | Common |
|
| Retained |
| Accumulated |
| Noncontrolling |
| Total | |||||
Balance, December 31, 2018 | $ | |
|
| $ | |
| $ | ( |
| $ | |
| $ | |
Net income |
|
|
|
| |
|
|
|
| |
|
| | ||
Other comprehensive (loss) income |
|
|
|
|
|
| ( |
|
| |
|
| ( | ||
Stock issued |
| |
|
|
|
|
|
|
| |
|
| | ||
Stock purchased |
| ( |
|
|
|
|
|
|
| ( |
|
| ( | ||
Dividends declared |
| |
|
|
| ( |
|
|
|
|
|
| ( | ||
Balance, December 31, 2019 | $ | |
|
| $ | |
| $ | ( |
| $ | |
| $ | |
Net income |
|
|
|
| |
|
|
|
| |
|
| | ||
Other comprehensive income |
|
|
|
|
|
| |
|
| |
|
| | ||
Stock issued |
| |
|
|
|
|
|
|
|
|
|
| | ||
Stock purchased |
| ( |
|
|
|
|
|
|
| ( |
|
| ( | ||
Dividends declared |
|
|
|
|
| ( |
|
|
|
|
|
| ( | ||
Balance, December 31, 2020 | $ | |
|
| $ | |
| $ | ( |
| $ | |
| $ | |
Net income |
|
|
|
| |
|
|
|
| |
|
| | ||
Other comprehensive income |
|
|
|
|
|
| |
|
|
|
|
| | ||
Stock issued |
| |
|
|
|
|
|
|
| |
|
| | ||
Stock purchased |
| ( |
|
|
|
|
|
|
| ( |
|
| ( | ||
Dividends declared |
|
|
|
|
| ( |
|
|
|
|
|
| ( | ||
Balance, December 31, 2021 | $ | |
|
| $ | |
| $ | ( |
| $ | |
| $ | |
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
Graybar Electric Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
as of December 31, 2021 and 2020 and
for the Years Ended December 31, 2021, 2020, and 2019
(Stated in millions, except share and per share data)
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.
The consolidated financial statements include the accounts of Graybar and our subsidiary companies. All material intercompany balances and transactions have been eliminated. The ownership interests that are held by owners other than the Company are in subsidiaries owned by the Company and are accounted for and reported as noncontrolling interests.
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.
Sales revenue is recognized when performance obligations are satisfied, which is typically upon delivery of the product to the customer. Sometimes product is purchased from the manufacturer and drop-shipped to the customer. We generally take control of the goods when shipped by the manufacturer and then recognize revenue when control of the product transfers to the customer. Revenues recognized are primarily for product sales, but may also include freight and handling charges. Our standard warehouse shipping terms are FOB shipping point, under which control passes to the customer at the time of shipment. We also earn revenue for professional services, general contracting services, and storage services. Such service revenue represented less than
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.
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 pooled on the aging of the receivables, specific risks identified in the receivables portfolio based on current conditions, and expected future economic conditions when necessary. Although actual credit losses have historically been within management’s expectations, additional allowances may be required if the financial condition of our customers were to deteriorate.
Our inventory, comprised entirely of finished goods, is stated at the lower of cost (generally determined using the last-in, first-out (“LIFO”) cost method) or market. 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.
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 our performance under the agreements and the amounts that will be earned. We perform analyses and review historical trends to ensure the deferred amounts earned are appropriately recorded. Certain vendor agreements contain purchase volume incentives that provide for increased funding when graduated purchase volumes are met. Amounts accrued throughout the year are based on estimates of future activity levels, and could be materially impacted if actual purchase volumes differ. Changes in the estimated amount of incentives are treated as changes in estimate and are recognized in income from operations 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 is 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, 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.
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.
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.
Our goodwill is not amortized, but rather tested annually for impairment. Goodwill is reviewed annually in the fourth quarter and when circumstances or other events might indicate that impairment may have occurred. We first perform a qualitative assessment of goodwill impairment. The qualitative assessment considers several factors including the excess fair value over carrying value as of the last quantitative impairment test, the length of time since the last fair value measurement, the current carrying value, market conditions, actual performance compared to forecasted performance, and the current business outlook. If the qualitative assessment
indicates that it is more likely than not that goodwill is impaired, the reporting unit is then quantitatively tested for impairment. If a quantitative assessment is required, the fair value is determined using a variety of assumptions including estimated future cash flows of the reporting unit using applicable discount rates.
The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed on a straight-line 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
We recognize deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the financial statements or tax returns. A deferred tax asset or liability results from the temporary difference between an item’s carrying value as reflected in the financial statements and its tax basis, and is calculated using enacted applicable tax rates. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the consolidated financial statements. We classify interest expense and penalties as part of our provision for income taxes based upon applicable federal and state interest/underpayment percentages. We assess uncertainty regarding tax positions taken in previously filed returns and record reserves in accordance with the guidance under Accounting Standards Codification ("ASC") 740-10, "Accounting for Uncertainty in Income Taxes".
We account for postretirement benefits other than pension benefits by accruing the costs of benefits to be provided over the eligible employees’ periods of active service. These costs are determined on an actuarial basis. Our consolidated balance sheets reflect the funded status of postretirement benefits.
We sponsor a noncontributory defined benefit pension plan accounted for by accruing the cost to provide the benefits over the eligible employees’ periods of active service. These costs are determined on an actuarial basis. Our consolidated balance sheets reflect the funded status of the defined benefit pension plan.
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and non-current operating lease liabilities on our consolidated balance sheets. Amounts related to finance leases are included in property, current portion of long-term debt, and long-term debt on our consolidated balance sheets. ROU assets and lease liabilities are recognized and measured on the date the underlying asset is made available to us.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. We use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU” or “Update”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” that provides temporary relief to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative rates. This Update is effective for all entities as of March 12, 2020 through December 31, 2022. The guidance on contract modifications, which is applicable to Graybar, can be applied prospectively from any date beginning March 12, 2020 and may also be applied to modifications of existing contracts made earlier in the interim period that includes March 12, 2020. We have evaluated the impact of the adoption of the Update on our contracts and our consolidated financial statements. We do not engage in hedging transactions and we have the option under our Amended Credit Agreement, as defined in Note 12, “Debt”, to continue to use LIBOR until June 30, 2023. As such, this Update does not have a material impact on our contracts and our consolidated financial statements.
The following table summarizes the percentages of our net sales attributable to each of our vertical markets for the years ended December 31, 2021, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
| 2021 |
|
| 2020 |
|
| 2019 |
|
Construction | | % |
| | % |
| | % |
CIG | |
|
| |
|
| |
|
Industrial & Utility | |
|
| |
|
| |
|
Total net sales | | % |
| | % |
| | % |
Certain reclassifications have been made to the vertical market assigned to customers in the prior years’ information to conform to the December 31, 2021 presentation.
We had material contract assets, contract liabilities, or deferred contract costs recorded on the consolidated balance sheet as of December 31, 2021 and 2020. In addition, for the years ended December 31, 2021, 2020 and 2019, revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period is not material.
The following table summarizes the activity in the allowances for cash discounts and credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning Balance |
| Provision (Charged to Expense) |
| Deductions |
| Ending Balance | ||||
For the Year Ended December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
Allowance for cash discounts | $ | |
| $ | |
| $ | ( |
| $ | |
Allowance for credit losses |
| |
|
| |
|
| ( |
|
| |
Total | $ | |
| $ | |
| $ | ( |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
Allowance for cash discounts | $ | |
| $ | |
| $ | ( |
| $ | |
Allowance for credit losses |
| |
|
| |
|
| ( |
|
| |
Total | $ | |
| $ | |
| $ | ( |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
Allowance for cash discounts | $ | |
| $ | |
| $ | ( |
| $ | |
Allowance for credit losses |
| |
|
| |
|
| ( |
|
| |
Total | $ | |
| $ | |
| $ | ( |
| $ | |
Our inventory, comprised entirely of finished goods, is stated at the lower of cost (generally determined using the LIFO cost method) or market. Inventories valued using the LIFO method comprised
Reserves for excess and obsolete inventories were $
We provide for depreciation and amortization using the straight-line method over the following estimated useful asset lives:
|
|
|
|
Classification | Estimated Useful Asset Life |
Buildings | |
Leasehold improvements | Over the shorter of the asset’s life or the lease term |
Furniture, fixtures, equipment and software | |
Assets held under finance leases | Over the shorter of the asset’s life or the lease term |
Depreciation expense was $
At the time property is retired or otherwise disposed, 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.
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. There were
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For assets classified as held and used, impairment may occur if projected undiscounted cash flows are not adequate to cover the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of the loss to be recognized. The impairment loss is calculated as the difference between the carrying amount of the asset and its estimated fair value. The analysis requires estimates of the amount and timing of projected cash flows and, where applicable, selection of an appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed necessary.
We have operating and finance leases for corporate offices, warehouse buildings, sales offices, branch locations, vehicles, and certain equipment. Our leases have remaining lease terms of to
The components of the lease expense for the years ended December 31, 2021, 2020, and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
|
| 2021 |
| 2020 | 2019 | ||||
Operating lease cost |
| $ | |
| $ | |
| $ | |
Finance lease cost: |
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
| |
|
| |
|
| |
Interest on lease liabilities |
|
| |
|
| |
|
| |
Total finance lease cost |
|
| |
|
| |
|
| |
Variable lease cost |
|
| |
|
| |
|
| |
Total lease cost |
| $ | |
| $ | |
| $ | |
Supplemental balance sheet information at December 31, 2021 and 2020 related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||||
|
| 2021 |
| 2020 | ||||
Operating leases: |
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
| $ | |
| $ | | ||
|
|
|
|
|
|
|
|
|
Current operating lease liabilities |
| $ | |
| $ | | ||
Non-current operating lease liabilities |
|
| |
|
| | ||
Total operating lease liabilities |
| $ | |
| $ | | ||
|
|
|
|
|
|
|
|
|
Finance leases: |
|
|
|
|
|
|
|
|
Property, at cost |
| $ | |
| $ | | ||
Accumulated depreciation and amortization |
|
| ( |
|
| ( | ||
Net property |
| $ | |
| $ | | ||
|
|
|
|
|
|
|
|
|
Current obligations of finance leases |
| $ | |
| $ | | ||
Finance leases, net of current obligations |
|
| |
|
| | ||
Total finance lease liabilities |
| $ | |
| $ | | ||
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
| ||||
Finance leases |
|
|
|
| ||||
Weighted average discount rate: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
| ||||
Finance leases |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
|
| 2021 |
| 2020 | 2019 | ||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | |
| $ | |
| $ | |
Operating cash flows from finance leases |
|
| |
|
| |
|
| |
Financing cash flows from finance leases |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating leases(A) |
| $ | |
| $ | |
| $ | |
Finance leases |
|
| |
|
| |
|
| |
Future minimum lease payments under non-cancellable leases as of December 31, 2021, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2021 | ||||
|
| Operating |
| Finance | ||
Future minimum lease payments |
|
|
|
|
|
|
2022 |
| $ | |
| $ | |
2023 |
|
| |
|
| |
2024 |
|
| |
|
| |
2025 |
|
| |
|
| |
2026 |
|
| |
|
| |
Thereafter |
|
| |
|
| |
Total future minimum lease payments |
| $ | |
| $ | |
Less: imputed interest |
|
| ( |
|
| ( |
Total lease obligation |
| $ | |
| $ | |
Less: current obligations |
|
| ( |
|
| ( |
Long-term lease obligation |
| $ | |
| $ | |
Goodwill and other intangible assets increased due to the acquisitions of businesses in 2021 and 2020. See Note 17, “Acquisitions”, for further information.
Goodwill
The changes in the carrying amount of goodwill, included in other non-current assets in our consolidated balance sheets, for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
Beginning balance | $ | |
| $ | |
Goodwill acquired |
| |
|
| |
Ending balance | $ | |
| $ | |
As of December 31, 2021, we have completed our annual impairment test and concluded that there is no impairment of our goodwill.
Other Intangible Assets
Other intangible assets, included in other non-current assets in our consolidated balance sheets, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2021 | ||||||||||
| Asset Life | Weighted Average Life |
| Gross Carrying |
| Accumulated |
| Net Carrying | |||
Customer relationships |
| $ | |
| $ | ( |
| $ | | ||
Trade name |
|
| |
|
| ( |
|
| | ||
Non-compete agreements |
|
| |
|
| ( |
|
| | ||
Other intangible assets |
|
| |
|
| ( |
|
| — | ||
Total |
|
| $ | |
| $ | ( |
| $ | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2020 | ||||||||||
| Asset Life | Weighted Average Life |
| Gross Carrying |
| Accumulated |
| Net Carrying | |||
Customer relationships |
| $ | |
| $ | ( |
| $ | | ||
Trade name |
|
| |
|
| ( |
|
| | ||
Non-compete agreements |
|
| |
|
| ( |
|
| | ||
Other intangible assets |
|
| |
|
| ( |
|
| — | ||
Total |
|
| $ | |
| $ | ( |
| $ | | |
We did not incur impairment losses related to our other intangible assets during the year ended December 31, 2021 and 2020. Amortization expense for other intangible assets was $
Estimated future amortization expense related to our intangible assets for the years ending December 31 is as follows:
|
|
|
|
|
|
|
|
2022 | $ | |
|
2023 |
| |
|
2024 |
| |
|
2025 |
| |
|
2026 |
| |
|
After 2026 |
| |
|
| $ | |
|
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 December 31, | |||||||
Components of Income before Taxes |
| 2021 |
|
| 2020 |
|
| 2019 |
Domestic | $ | |
| $ | |
| $ | |
Foreign |
| |
|
| |
|
| |
Income before taxes | $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
Components of Income Tax Provision |
| 2021 |
|
| 2020 |
|
| 2019 |
Current expense |
|
|
|
|
|
|
|
|
U.S. Federal | $ | |
| $ | |
| $ | |
State |
| |
|
| |
|
| |
Foreign |
| |
|
| |
|
| |
Total current expense | $ | |
| $ | |
| $ | |
Deferred (benefit) expense |
|
|
|
|
|
|
|
|
U.S. Federal | $ | ( |
| $ | ( |
| $ | ( |
State |
| ( |
|
| ( |
|
| ( |
Foreign |
| — |
|
| ( |
|
| |
Total deferred benefit | $ | ( |
| $ | ( |
| $ | ( |
Total income tax provision | $ | |
| $ | |
| $ | |
A reconciliation between the statutory U.S. federal income tax rate and the effective tax rate in the consolidated statements of income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, | |||||||
| 2021 |
|
| 2020 |
|
| 2019 |
|
Statutory U.S. federal income tax rate | | % |
| | % |
| | % |
State and local income taxes, net of federal benefit | |
|
| |
|
| |
|
Nondeductible meals and entertainment | |
|
| |
|
| |
|
Other, net | |
|
| |
|
| |
|
Effective tax rate | % |
| % |
| % | |||
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. The following deferred tax assets (liabilities) were recorded at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities) |
| 2021 |
|
| 2020 |
Pension | $ | |
| $ | |
Operating lease liabilities |
| |
|
| |
Postretirement benefits |
| |
|
| |
Inventory |
| |
|
| |
Other deferred tax assets |
| |
|
| |
Payroll accruals |
| |
|
| |
Bad debt reserves |
| |
|
| |
Subtotal |
| |
|
| |
Less: valuation allowances |
| ( |
|
| ( |
Deferred tax assets |
| |
|
| |
Fixed assets |
| ( |
|
| ( |
Operating lease right-of-use assets |
| ( |
|
| ( |
Other deferred tax liabilities |
| ( |
|
| ( |
Computer software |
| ( |
|
| ( |
Deferred tax liabilities |
| ( |
|
| ( |
Net deferred tax assets | $ | |
| $ | |
Deferred income taxes included in non-current assets (liabilities) at December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
Deferred tax assets included in other non-current assets | $ | |
| $ | |
Deferred tax liabilities included in other non-current liabilities |
| ( |
|
| ( |
Total | $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
U.S. Federal(A) | $ | |
| $ | |
State(A) |
| |
|
| |
(A)Expire between 2024 and 2030
We have placed valuation allowances of $
We have no material undistributed earnings of non-U.S. subsidiaries as of December 31, 2021, due to the one-time transition tax and global intangible low-taxed income (“GILTI”) provisions enacted under the Tax Cuts and Jobs Act (“TCJA”). No additional
income taxes have been provided for any outside basis differences inherent in these foreign entities, as these amounts continue to be indefinitely reinvested in foreign operations. We have made an accounting policy election to treat GILTI as a period cost rather than accounting for it as part of deferred taxes. Due to the high-tax exception election made in 2020 and 2021, our GILTI period cost was immaterial in each year.
Our federal income tax returns for the tax years 2018 and forward are available for examination by the United States Internal Revenue Service (“IRS”). The statute of limitation for the 2018 federal return will expire on October 15, 2022, unless extended by consent. Our state income tax returns for 2017 through 2021 remain subject to examination by various state authorities with the latest period closing on December 31, 2026. We have not extended the statutes of limitations in any state jurisdictions with respect to years prior to 2017.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss utilization and carryback periods, modifications to net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property (QIP). On December 27, 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 was enacted as part of the Consolidated Appropriations Act, 2021, followed by the American Rescue Plan Act on March 1, 2021. These recent laws, among many other provisions, expand and extend the refundable employee retention tax credits previously made available under the CARES Act and allow a full deduction for certain business meals for the 2021 and 2022 tax years. The CARES Act and subsequent stimulus packages did not have a material impact on our income tax provision for 2020 or 2021.
Our unrecognized tax benefits of $
Our uncertain tax benefits, and changes thereto, during 2021, 2020, and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
|
| 2019 |
Balance at January 1, | $ | |
| $ | |
| $ | |
Additions based on tax positions related to current year |
|
|
|
| |
|
| |
Reductions for tax positions of prior years |
| ( |
|
| ( |
|
| ( |
Settlements |
|
|
|
| ( |
|
| ( |
Balance at December 31, | $ | |
| $ | |
| $ | |
Our common stock is
No holder of our common stock or voting trust interests representing our common stock ("common stock", "common shares", or "shares") may sell, transfer or otherwise dispose of any shares without first offering us the option to purchase those shares at the price at which they were issued. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any reason other than death or "retirement" (as defined in our amended restated certificate of incorporation), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $
During 2021, eligible employees and qualified retirees subscribed for
Common shares were delivered to subscribers as of January 14, 2022, in the case of shares paid for on or before January 14, 2022. 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 |
|
|
|
|
|
| 2021 | |
| |
|
|
|
|
|
| 2020 | |
| |
|
|
|
|
|
| 2019 | |
| |
|
|
|
We also have authorized
On December 12, 2019, our Board of Directors declared at
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
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||
Long-term Debt |
| 2021 |
|
| 2020 |
Finance arrangements, various maturities, with a weighted average interest rate of | $ | |
| $ | |
Less current portion |
| ( |
|
| ( |
Long-term Debt | $ | |
| $ | |
|
|
|
|
|
|
|
|
Long-term Debt matures as follows: |
|
|
|
2022 | $ | |
|
2023 |
| |
|
2024 |
| |
|
2025 |
| |
|
2026 |
| |
|
After 2026 |
| |
|
| $ | |
|
The carrying amount of our outstanding long-term, fixed-rate debt exceeded its fair value by $
Revolving Credit Facility
At December 31, 2020, we, along with Graybar Canada Limited, our Canadian operating subsidiary (“Graybar Canada”), had an unsecured, , $
On August 13, 2021, we, along with Graybar Canada, amended and extended the Revolving Credit Facility, pursuant to the terms and conditions of a Fourth Amendment to Credit Agreement, dated as of August 13, 2021 (the “Amended Credit Agreement”), by and among Graybar, as parent borrower and guarantor, Graybar Canada Limited, as a borrower, the lenders party thereto, Bank of America, N.A. as Domestic Administrative Agent, Domestic Swing Line Lender and Domestic L/C Issuer and Bank of America, N.A., acting through its Canada Branch, as Canadian Administrative Agent, Canadian Swing Line Lender and Canadian L/C Issuer, which includes a combined letter of credit sub-facility of up to $
Interest on our borrowings under the Revolving Credit Facility will be based on, at the borrower’s election, either (A) (i) the base rate (as defined in the agreement) or (ii) LIBOR (in the case U.S. dollar-denominated borrowings) or (B) (i) the base rate (as defined in the agreement) or (ii) CDOR (in the case of Graybar Canada as borrower with respect to Canadian dollar-denominated borrowings), in each case plus an applicable margin, as determined by the pricing grid set forth in the Amended Credit Agreement. The Amended Credit Agreement added LIBOR fallback language to address the announced future cessation of specified dollar LIBOR tenor settings. In connection with such a borrowing, the applicable borrower will also select the term of the loan from available tenors, up to six months, or automatically renew with the consent of the lenders. Swing line loans, which are daily loans, will 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 with respect to Canadian dollar-denominated borrowings). In addition to interest payments, there are certain fees and obligations associated with borrowings, swing-line loans, letters of credit and other administrative matters.
The five-year Amended Credit Agreement matures in August 2026. 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). 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.
The Amended Credit Agreement provides for a quarterly commitment fee ranging from
The Amended Credit Agreement contains updated customary affirmative and negative covenants for credit facilities of this type, including limitations on us and all but certain of our subsidiaries with respect to indebtedness (with specified, limited exceptions), liens, changes in the nature of our business, investments, mergers and acquisitions, issuance of equity securities, dispositions of assets and dissolution of certain subsidiaries, transactions with affiliates, as well as securitizations, factoring transactions, and transactions with sanctioned parties or in violation of certain US or Canadian anti-corruption and anti-money laundering laws. There are also maximum leverage ratio and minimum interest coverage ratio financial covenants to which we will be subject during the term of the Amended Credit Agreement.
The Amended Credit Agreement also provides for customary events of default, including a failure to pay principal, interest or fees when due, failure to comply with covenants, the fact that any representation or warranty made by any of the credit parties is materially incorrect, 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 the Employee Retirement Income Security Act of 1974 ("ERISA") and the occurrence of a change in control of any of the credit parties (subject to certain permitted transactions as described in the Amended 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 Amended Credit Agreement may be declared immediately due and payable.
We were in compliance with all covenants under the Amended Credit Agreement and Revolving Credit Facility as of December 31, 2021 and 2020, respectively.
There were $
Short-term borrowings outstanding during the year ended December 31, 2021 ranged from a minimum of
At December 31, 2021, we had available unused committed lines of credit under the Amended Credit Agreement amounting to $
Interest expense, net was $
Private Placement Shelf Agreements
We have an uncommitted, unsecured $
We remain obligated under a most favored lender clause which is designed to ensure that any notes in the future under the Prudential Shelf Agreement and MetLife Shelf Agreement will continue to be of equal ranking with indebtedness under our Amended Credit Agreement.
Each shelf agreement contains representations and warranties of the Company and the applicable lender, events of default and affirmative and negative covenants, customary for agreements of this type. After the amendment and extension of the Amended Credit Agreement and related amendments to the Prudential Shelf Agreement and MetLife Shelf Agreement, these covenants are substantially similar to those contained in the Amended Credit Agreement, subject to a number of exceptions and qualifications set forth in the applicable shelf agreement. All outstanding obligations of Graybar under one or both of these agreements may be declared immediately due and payable upon the occurrence of an event of default.
We were in compliance with all covenants under the Prudential Shelf Agreement and the MetLife Shelf Agreements as of December 31, 2021 and 2020.
Letters of Credit
We had total letters of credit of $
were issued under the Revolving Credit Facility. The letters of credit are issued primarily to support certain workers' compensation insurance policies.
We have a noncontributory defined benefit pension plan (the "Pension Plan") covering substantially all employees first hired prior to July 1, 2015 after the completion of . The Pension Plan provides retirement benefits based on an employee’s final average earnings and years of service. A supplemental benefit plan provides nonqualified pension benefits for compensation in excess of the IRS compensation limits applicable to the Pension Plan and eligible compensation deferred by a participant.
Our funding policy is to make contributions to the Pension Plan, provided that the total annual contributions will not be less than ERISA and the Pension Protection Act of 2006 minimums or greater than the maximum tax-deductible amount, to review the contribution and funding strategy on a regular basis, and to allow discretionary contributions to be made by us from time to time. The assets of the Pension Plan are invested primarily in fixed income investments and equity securities. We pay nonqualified pension benefits when they are due according to the terms of the supplemental benefit plan.
We provide certain postretirement healthcare and life insurance benefits to retired employees. Substantially all of our employees hired or rehired prior to 2014 may become eligible for postretirement medical benefits if they reach the age and service requirements of the retiree medical plan and retire on a pension (except a deferred pension) under the Pension Plan. Medical benefits are self-insured and claims are administered through a third party administrator. The cost of coverage is determined based on the annual projected plan costs. The participant's premium or cost is determined based on Company guidelines. Postretirement life insurance benefits are insured through an insurance company. We fund postretirement benefits as incurred, and accordingly, there were no assets held in the postretirement benefits plan at December 31, 2021 and 2020.
The following table sets forth information regarding the funded status of our pension and other postretirement benefits as of December 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| Postretirement Benefits | ||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
Change in Benefit Obligation: |
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period | $ | |
| $ | |
| $ | |
| $ | |
Service cost |
| |
|
| |
|
| |
|
| |
Interest cost |
| |
|
| |
|
| |
|
| |
Actuarial (gain) loss |
| ( |
|
| |
|
| ( |
|
| |
Benefits paid from plan assets |
| ( |
|
| ( |
|
|
|
|
|
|
Benefits paid from Company assets |
| ( |
|
| ( |
|
| ( |
|
| ( |
Plan participants' contributions |
|
|
|
|
|
|
| |
|
| |
Administrative expenses paid |
| ( |
|
| ( |
|
|
|
|
|
|
Settlements |
| ( |
|
| ( |
|
|
|
|
|
|
Benefit Obligation at End of Period |
| |
|
| |
|
| |
|
| |
Change in Plan Assets: |
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period |
| |
|
| |
|
|
|
|
|
|
Actual return on plan assets |
| |
|
| |
|
|
|
|
|
|
Employer contributions(A) |
| |
|
| |
|
| |
|
| |
Plan participants' contributions |
|
|
|
|
|
|
| |
|
| |
Benefits paid(A) |
| ( |
|
| ( |
|
| ( |
|
| ( |
Administrative expenses paid |
| ( |
|
| ( |
|
|
|
|
|
|
Settlements |
| ( |
|
| ( |
|
|
|
|
|
|
Fair Value of Plan Assets at End of Period |
| |
|
| |
|
|
|
|
|
|
Unfunded Status | $ | |
| $ | |
| $ | |
| $ | |
(A) Includes $
The accumulated benefit obligation for our Pension Plan was $
Amounts recognized in the consolidated balance sheet for the years ended December 31 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| Postretirement Benefits | ||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
Current accrued benefit cost | $ | |
| $ | |
| $ | |
| $ | |
Non-current accrued benefit cost |
| |
|
| |
|
| |
|
| |
Net amount recognized | $ | |
| $ | |
| $ | |
| $ | |
Current accrued benefit cost for both pension benefits and postretirement benefits is included in other current liabilities in the consolidated balance sheets. Non-current accrued benefit cost for pension benefits and postretirement benefits are included in pension liability and postretirement benefits liability, respectively, in the consolidated balance sheets.
Amounts recognized in accumulated other comprehensive loss for the years ended December 31, net of tax, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| Postretirement Benefits | ||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
Net actuarial loss | $ | |
| $ | |
| $ | |
| $ | |
Prior service cost |
| — |
|
| — |
|
| |
|
| |
Accumulated other comprehensive loss | $ | |
| $ | |
| $ | |
| $ | |
The actuarial gain for the Pension Plan in 2021 was primarily related to increases in the discount rate compared to 2020. The actuarial loss for the Pension Plan in 2020 was primarily related to decreases in the discount rate and changes to the lump-sum interest rates used to measure the benefit obligations compared to 2019.
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 |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
Discount rate |
| | % |
| | % |
| | % |
| | % |
Rate of compensation increase |
| | % |
| | % |
| — |
|
| — |
|
Healthcare cost trend on covered charges |
| — |
|
| — |
|
| | % |
| | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| Postretirement Benefits | |||||||||||||
Components of Net Periodic Benefit Cost | 2021 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2019 | ||||||
Selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost | $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
Total selling, general and administrative expenses | $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
Non-operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Expected return on plan assets |
| ( |
|
| ( |
|
| ( |
|
| — |
|
| — |
|
| — |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Settlement charge |
| |
|
| |
|
| — |
|
| — |
|
| — |
|
| — |
Total non-operating expenses | $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
Net periodic benefit cost | $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
During 2021, we made lump-sum pension benefit distributions and purchased nonparticipating annuity contracts exceeding the cumulative amount of service and interest cost components of the net periodic pension cost for the year, which is the settlement accounting threshold. During 2020, we made lump-sum pension benefit distributions exceeding the settlement accounting threshold. Accordingly, we recorded a non-cash pension settlement charge of $
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
|
| Postretirement Benefits |
| ||||||||||||
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
Discount rate |
|
| % |
| % |
| % |
| % | ||||||||
Expected return on plan assets | % |
| % |
| % |
| — |
|
| — |
|
| — |
| |||
Rate of compensation increase | % |
| % |
| % |
| — |
|
| — |
|
| — |
| |||
Healthcare cost trend on covered charges | — |
|
| — |
|
| — |
|
| % |
| % |
| % | |||
A discount rate of
For measurement of the postretirement benefits net periodic cost, a
We expect to fund $
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 |
| Postretirement |
| ||
2022 | $ | |
| $ | |
|
2023 |
| |
|
| |
|
2024 |
| |
|
| |
|
2025 |
| |
|
| |
|
2026 |
| |
|
| |
|
2027 to 2031 |
| |
|
| |
|
The investment objective of our 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 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 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 long duration government, quasi-governmental and corporate fixed-income securities, as well as appropriate levels of equity and alternative investments designed to optimize the plan's liability hedge ratio. Derivatives may also be used on fixed-income investments to manage interest rate exposure, volatility, duration, credit exposures, and asset class allocation. Derivatives are not allowed if the position creates economic portfolio leverage beyond the portfolio’s investment objectives or if used
for speculative purposes. In practice, the value of an asset portfolio constructed primarily of fixed income securities is inversely correlated to changes in market interest rates, primarily 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 Pension Plan at December 31, 2021 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment | 2021 |
| 2021 | 2020 |
| 2020 |
Equity securities - U.S. | | % | | % | ||
Equity securities - International | | % | | % | ||
Fixed income investments | | % | | % | ||
Hedge funds | | % | | % | ||
Real assets | | % | | % | ||
Private equity | | % | | % | ||
Other investments | | % | | % | ||
Short-term investments | | % | | % | ||
Total | | % | | % |
Actual asset allocation may occasionally fall outside of the target allocation range until rebalancing occurs. Certain reclassifications have been made to the classes of plan assets in prior year to conform to the December 31, 2021 presentation due to a change in our investment policy in 2021.
The following is a description of the valuation methodologies used for assets held by the 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.
Equity securities – International
Equity securities - International consist of investments in international corporate stocks, publicly traded mutual funds, and a collective investment trust, and are primarily investments within developed and emerging markets. Investments other than the collective investment trust 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 collective investment trust 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. Audited financial statements are produced on an annual basis for the collective investment trust.
Fixed income investments
Fixed income investments consist of U.S. and international corporate bonds, government and government agency bonds, derivatives, as well as a collective trust that invests in U.S. government debt securities. U.S. and international corporate bonds and government and government agency bonds are valued by independent pricing services using market-based cash flow generators and pricing spread models on both primary and secondary market transactions. As the significant inputs used are observable market inputs, these investments are classified as Level 2. Derivatives could include, but are not limited to, instruments such as U.S. Treasury futures, total returns swaps, and credit default swaps. Derivatives are valued by independent pricing services using direct and observable market inputs and are thus classified as Level 2. The collective trust 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.
Hedge funds
Hedge funds consist 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. Audited financial statements are produced on an annual basis for the hedge funds.
Real assets
Real assets consist of a diversified mutual fund, and two limited partnerships (“LP”) that invest in real estate. The diversified mutual fund is valued using quoted prices in an active market, and is therefore classified as Level 1. The LP investments are 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. Audited financial statements are produced on an annual basis for the LP investments.
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 investments do not have an actively traded market with readily observable prices. The investments are limited partnerships and 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, other than a limited partnership 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. Audited financial statements are produced on an annual basis for the private equity investments.
Other investments
Other investments consist of investments in a private debt fund and a high-yield bond fund. The private debt fund is valued using unobservable inputs with limited trading activity, and is therefore classified as Level 3. The high-yield bond fund is valued using the NAV based on the fair value of the underlying investments held by the fund. The NAV, as provided by the Trustee, is used as a practical expedient to estimate fair value. Audited financial statements are produced on an annual basis for the private debt fund and the high-yield bond fund.
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 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 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, 2021 or 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 | ||||||||||||||
Investment | Investments |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Equity securities - U.S. | $ | |
| $ | |
| $ | — |
| $ | — |
| $ | |
Equity securities - International |
| |
|
| |
|
| — |
|
| — |
|
| |
Fixed income investments |
| |
|
| — |
|
| |
|
| — |
|
| |
Hedge funds |
| |
|
| — |
|
| — |
|
| — |
|
| |
Real assets |
| |
|
| |
|
| — |
|
| — |
|
| |
Private equity |
| |
|
| — |
|
| — |
|
| |
|
| |
Other investments |
| |
|
| — |
|
| — |
|
| |
|
| |
Short-term investments |
| |
|
| — |
|
| — |
|
| — |
|
| |
Total | $ | |
| $ | |
| $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 | ||||||||||||||
Investment | Investments |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Equity securities - U.S. | $ | |
| $ | |
| $ | — |
| $ | — |
| $ | |
Equity securities - International |
| |
|
| |
|
| — |
|
| — |
|
| |
Fixed income investments |
| |
|
| — |
|
| |
|
| — |
|
| |
Hedge funds |
| |
|
| — |
|
| — |
|
| — |
|
| |
Real assets |
| |
|
| |
|
| — |
|
| — |
|
| |
Private equity |
| |
|
| — |
|
| — |
|
| |
|
| |
Other investments |
| |
|
| — |
|
| — |
|
| |
|
| |
Short-term investments |
| |
|
| — |
|
| — |
|
| — |
|
| |
Total | $ | |
| $ | |
| $ | |
| $ | |
| $ | |
Certain reclassifications have been made to the fair value hierarchy in prior year to conform to the December 31, 2021 presentation.
The tables below set forth a summary of changes in the fair value of the Pension Plan's Level 3 assets for the years ended December 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 | ||||||||
| Private Equity |
| Other Investments |
| Total | |||
Balance, beginning of year | $ | |
| $ | |
| $ | |
Realized gains |
| |
|
| |
|
| |
Unrealized gains |
| |
|
| |
|
| |
Purchases |
| |
|
|
|
|
| |
Sales |
| ( |
|
| ( |
|
| ( |
Balance, end of year | $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 | ||||||||
| Private Equity |
| Other Investments |
| Total | |||
Balance, beginning of year | $ | |
| $ | |
| $ | |
Unrealized gains |
| |
|
| |
|
| |
Purchases |
| |
|
|
|
|
| |
Sales |
| ( |
|
| ( |
|
| ( |
Balance, end of year | $ | |
| $ | |
| $ | |
We provide a defined contribution profit sharing and savings plan (the "Plan") covering substantially all of our eligible employees with an individual account for each participant. Employees may make voluntary before-tax and/or after-tax contributions to the saving portion of the Plan, ranging from
Annual contributions made by us to the profit-sharing portion of the Plan are determined by the Board of Directors at its discretion, and are generally based on the profitability of the Company. Expense recognized by us under the profit-sharing portion of the Plan was $
Rental expense was $
We are subject to various claims, disputes, and administrative and legal matters incidental to our past and current business activities. As a result, contingencies can arise resulting from an existing condition, situation, or set of circumstances involving an uncertainty as to the realization of a possible loss.
Estimated loss contingencies are accrued only if the loss is probable and the amount of the loss can be reasonably estimated. With respect to a particular loss contingency, it may be probable that a loss has occurred but the estimate of the loss is a wide range. If we deem an amount within the range to be a better estimate than any other amount within the range, that amount will be accrued. However, if no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued.
While we believe that none of these claims, disputes or 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.
The components of accumulated other comprehensive loss as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
Currency translation | $ | ( |
| $ | ( |
Pension liability |
| ( |
|
| ( |
Postretirement benefits liability |
| ( |
|
| ( |
Accumulated other comprehensive loss | $ | ( |
| $ | ( |
|
|
|
|
|
|
|
|
| 2021 |
| 2020 | ||
|
| Amortization of Pension |
| Amortization of Pension | ||
|
| Actuarial Losses |
| Actuarial Losses | ||
Affected Line in Consolidated |
|
|
|
|
|
|
Non-operating expenses(A) |
| $ | |
| $ | |
Tax benefit |
|
| ( |
|
| ( |
Total reclassifications for the period, net of tax |
| $ | |
| $ | |
(A) Includes a pension settlement charge of $
The following table represents the activity included in accumulated other comprehensive loss for the years ended December 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
| 2020 | ||||||||||||||
| Foreign |
| Pension and |
| Total |
| Foreign |
| Pension and |
| Total | ||||||
Beginning balance January 1, | $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
Other comprehensive income before reclassifications |
| |
|
|
|
|
| |
|
| |
|
|
|
|
| |
Amounts reclassified from accumulated other comprehensive loss (net of tax $( |
|
|
|
| |
|
| |
|
|
|
|
| |
|
| |
Actuarial gain (loss), (net of tax $( |
|
|
|
| |
|
| |
|
|
|
|
| ( |
|
| ( |
Net current-period other comprehensive income |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Ending balance December 31, | $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
In 2021, we completed acquisitions of businesses for a combined preliminary purchase price of $
In 2020, we completed an acquisition of a business for a final purchase price of $
These acquisitions will help Graybar accelerate growth, diversify our business, extend our reach, and enhance our profitability. Since the date of acquisition, the acquired subsidiaries’ results are reflected in our consolidated financial statements. Pro forma results of the acquisitions were not material; therefore, they are not presented.
The following tables set forth selected quarterly financial data for the years ended December 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 | ||||||||||
For the Quarter Ended | March 31, |
| June 30, |
| September 30, |
| December 31, | ||||
Net sales | $ | |
| $ | |
| $ | |
| $ | |
Gross margin |
| |
|
| |
|
| |
|
| |
Net income attributable to the Company |
| |
|
| |
|
| |
|
| |
Net income attributable to the Company per share of common stock | $ | |
| $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2020 | ||||||||||
For the Quarter Ended | March 31, |
| June 30, |
| September 30, |
| December 31, | ||||
Net sales | $ | |
| $ | |
| $ | |
| $ | |
Gross margin |
| |
|
| |
|
| |
|
| |
Net income attributable to the Company |
| |
|
| |
|
| |
|
| |
Net income attributable to the Company | $ | |
| $ | |
| $ | |
| $ | |
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, 2021 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, 2021 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, 2021.
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
On March 9, 2022, the Board of Directors of the Company elected D. M. Meyer, Vice President - North American Subsidiaries, as a director to fill an existing vacancy on the Company’s Board of Directors, effective April 1, 2022.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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 2022 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 Definitive Information Statement relating to the 2022 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/store/en/gb/cm/company/legal 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 Accountant Fees and Services
The information with respect to principal accountant 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.
Our independent registered public accounting firm is Ernst & Young LLP (PCAOB ID:
PART IV
Item 15. Exhibits and Financial Statement Schedules
|
|
|
|
| |||
|
|
|
|
| |||
(a) | List of documents filed as part of this report: | ||||||
|
|
|
|
| |||
|
| 1. |
| Financial Statements | |||
|
|
|
| All Consolidated Financial Statements of the Company as set forth under Item 8 of this Annual Report on Form 10-K. | |||
|
|
|
|
| |||
|
| 2. |
| Financial Statement Schedule | |||
|
|
|
| None. | |||
|
|
|
|
| |||
|
| 3. |
| Exhibits | |||
|
| 3.1 |
| ||||
|
|
|
|
| |||
|
| 3.2 |
| ||||
|
|
|
|
| |||
|
| 4 |
| ||||
|
|
|
|
| |||
|
| 4.2 |
| ||||
|
|
|
|
| |||
|
| 9 |
| Voting Trust Agreement dated as of March 3, 2017, included at Exhibit 4.2 above. | |||
| |||||||
|
| 10.1 |
| ||||
|
|
|
|
| |||
|
| 10.2 |
| ||||
|
|
|
|
| |||
|
| 10.3 |
| Form of Deferral Agreement under Graybar Electric Company, Inc. Supplemental Benefit Plan* | |||
|
|
|
|
| |||
|
| 10.4 |
| ||||
|
|
|
|
| |||
|
| 10.5 |
| ||||
|
|
|
|
| |||
|
| 10.6 |
| ||||
|
|
|
|
| |||
|
| 10.7 |
| ||||
|
|
|
|
| |||
|
|
|
|
| |||
|
| 10.8 |
| ||||
|
|
|
|
| |||
|
| 10.9 |
| ||||
|
|
|
|
| |||
|
| 10.10 |
| ||||
|
|
|
|
| |||
|
| 10.11 |
| ||||
|
|
|
|
| |||
|
| 10.12 |
| ||||
|
|
|
|
| |||
|
| 21 |
| ||||
|
|
|
|
| |||
|
| 31.1 |
| ||||
|
|
|
|
| |||
|
| 31.2 |
| ||||
|
|
|
|
| |||
|
| 32.1 |
| ||||
|
|
|
|
| |||
|
| 32.2 |
| ||||
|
|
|
|
| |||
|
| 101.INS |
| XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |||
|
|
|
|
| |||
|
| 101.SCH |
| XBRL Taxonomy Extension Schema Document | |||
|
|
|
|
| |||
|
| 101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document | |||
|
|
|
|
| |||
|
| 101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document | |||
|
|
|
|
| |||
|
| 101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document | |||
|
|
|
|
| |||
|
| 101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document | |||
|
|
|
|
| |||
|
| 104 |
| Cover Page Interactive Data File (formatted in Inline XBRL contained in Exhibit 101) | |||
|
|
|
|
| |||
|
|
|
| * Compensation arrangement | |||
SIGNATURES
Pursuant to the requirements of 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 2022.
|
|
|
| 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, 2022.
|
|
|
/s/ K. M. Mazzarella |
| Director, Chairman of the Board, President and Chief Executive Officer |
(K. M. Mazzarella) |
| (Principal Executive Officer) |
|
|
|
/s/ S. S. Clifford |
| Director, Senior Vice President and Chief Financial Officer |
(S. S. Clifford) |
| (Principal Financial Officer and Principal Accounting Officer) |
|
|
|
/s/ D. A. Bender |
| Director |
(D. A. Bender) |
|
|
|
|
|
/s/ D. E. DeSousa |
| Director |
(D. E. DeSousa) |
|
|
|
|
|
/s/ M. W. Geekie |
| Director |
(M. W. Geekie) |
|
|
|
|
|
/s/ R. H. Harvey |
| Director |
(R. H. Harvey) |
|
|
|
|
|
/s/ W. P. Mansfield |
| Director |
(W. P. Mansfield) |
|
|
|
|
|
/s/ D. G. Maxwell |
| Director |
(D. G. Maxwell) |
|
|
|
|
|
/s/ B. L. Propst |
| Director |
(B. L. Propst) |
|
|