GRAYBAR ELECTRIC CO INC - FORM 10-Q

Attached files

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EX-31.2 - EXHIBIT 31.2 - GRAYBAR ELECTRIC CO INC	a033116-ex312.htm
EX-32.1 - EXHIBIT 32.1 - GRAYBAR ELECTRIC CO INC	a033116-ex321.htm
EX-31.1 - EXHIBIT 31.1 - GRAYBAR ELECTRIC CO INC	a033116-ex311.htm
EX-32.2 - EXHIBIT 32.2 - GRAYBAR ELECTRIC CO INC	a033116-ex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-00255



GRAYBAR ELECTRIC COMPANY, INC.
(Exact name of registrant as specified in its charter)

New York	13-0794380
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

34 North Meramec Avenue, St. Louis, Missouri	63105
(Address of principal executive offices)	(Zip Code)

(314) 573 - 9200
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).
YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨ Accelerated filer¨
Non-accelerated filerx (Do not check if a smaller reporting company) Smaller reporting company¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO x

Common Stock Outstanding at April 30, 2016: 16,543,234
(Number of Shares)

Graybar Electric Company, Inc. and Subsidiaries

Quarterly Report on Form 10-Q

For the Period Ended March 31, 2016

(Unaudited)

Table of Contents



PART I.	FINANCIAL INFORMATION			Page

	Item 1.	Financial Statements
			Condensed Consolidated Statements of Income	3
			Condensed Consolidated Statements of Comprehensive Income	4
			Condensed Consolidated Balance Sheets	5
			Condensed Consolidated Statements of Cash Flows	6
			Condensed Consolidated Statements of Changes in Shareholders’ Equity	7
			Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		20

	Item 4.	Controls and Procedures		20

PART II.	OTHER INFORMATION

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		22

	Item 6.	Exhibits		23

	Signatures			24

	Exhibit Index			25

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
	(Unaudited)
	Three Months Ended March 31,
(Stated in thousands, except per share data)	2016			2015
Gross Sales	$	1,471,694		$	1,399,863
Cash discounts	(6,214		)	(6,085		)
Net Sales	1,465,480			1,393,778
Cost of merchandise sold	(1,185,833		)	(1,134,752		)
Gross Margin	279,647			259,026
Selling, general and administrative expenses	(244,732		)	(232,067		)
Depreciation and amortization	(11,311		)	(10,309		)
Other income, net	2,292			4,342
Income from Operations	25,896			20,992
Interest expense, net	(657		)	(513		)
Income before Provision for Income Taxes	25,239			20,479
Provision for income taxes	(10,142		)	(7,985		)
Net Income	15,097			12,494
Less: Net income attributable to noncontrolling interests	(52		)	(34		)
Net Income attributable to Graybar Electric Company, Inc.	$	15,045		$	12,460
Net Income per share of Common Stock^(A)	$	0.91		$	0.76
Cash Dividends per share of Common Stock	$	0.30		$	0.30
Average Common Shares Outstanding^(A)	16,538			16,424

^(A)Adjusted for the declaration of a 2.5% stock dividend in 2015, shares related to which were issued in February 2016. Prior to the adjustment, the average common shares outstanding were 16,023 for the three months ended March 31, 2015.

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



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	(Unaudited)
	Three Months Ended March 31,
(Stated in thousands)	2016		2015
Net Income	$	15,097	$	12,494
Other Comprehensive Income
Foreign currency translation	5,104		(6,359		)
Pension and postretirement benefits liability adjustment (net of tax of $(1,828), and $(1,845), respectively)	2,872		2,898
Total Other Comprehensive Income (Loss)	7,976		(3,461		)
Comprehensive Income	$	23,073	$	9,033
Less: Comprehensive income (loss) attributable to noncontrolling interests, net of tax	293		(189		)
Comprehensive Income attributable to Graybar Electric Company, Inc.	$	22,780	$	9,222

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



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share data)					March 31, 2016			December 31, 2015
ASSETS					(Unaudited)
Current Assets
Cash and cash equivalents					$	91,073		$	37,931
Trade receivables (less allowances of $5,866 and $5,879, respectively)					901,150			928,276
Merchandise inventory					544,803			518,288
Other current assets					24,034			31,305
Total Current Assets					1,561,060			1,515,800
Property, at cost
Land					76,195			75,968
Buildings					444,302			443,137
Furniture and fixtures					275,432			271,605
Software					86,363			85,423
Capital leases					32,554			32,543
Total Property, at cost					914,846			908,676
Less – accumulated depreciation and amortization					(484,924		)	(474,810		)
Net Property					429,922			433,866
Other Non-current Assets					97,013			99,877
Total Assets					$	2,087,995		$	2,049,543
LIABILITIES
Current Liabilities
Short-term borrowings					$	142,339		$	104,978
Current portion of long-term debt					4,446			6,558
Trade accounts payable					768,089			766,089
Accrued payroll and benefit costs					92,168			111,069
Other accrued taxes					18,846			16,880
Other current liabilities					65,463			64,783
Total Current Liabilities					1,091,351			1,070,357
Postretirement Benefits Liability					70,069			70,303
Pension Liability					180,306			185,211
Long-term Debt					8,223			10,272
Other Non-current Liabilities					26,175			25,254
Total Liabilities					1,376,124			1,361,397
SHAREHOLDERS’ EQUITY
	Shares at
Capital Stock	March 31, 2016		December 31, 2015
Common, stated value $20.00 per share
Authorized	50,000,000		50,000,000
Issued to voting trustees	14,038,439		13,668,055
Issued to shareholders	2,752,320		2,721,926
In treasury, at cost	(198,253	)	(65,890	)
Outstanding Common Stock	16,592,506		16,324,091		331,850			326,482
Advance Payments on Subscriptions to Common Stock					508			—
Retained Earnings					558,842			548,780
Accumulated Other Comprehensive Loss					(182,700		)	(190,435		)
Total Graybar Electric Company, Inc. Shareholders’ Equity					708,500			684,827
Noncontrolling Interests					3,371			3,319
Total Shareholders’ Equity					711,871			688,146
Total Liabilities and Shareholders’ Equity					$	2,087,995		$	2,049,543

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



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	(Unaudited)
	Three Months Ended March 31,
(Stated in thousands)	2016			2015
Cash Flows from Operations
Net Income	$	15,097		$	12,494
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	11,311			10,309
Deferred income taxes	(210		)	(1,283		)
Net gains on disposal of property	(1,653		)	(3,699		)
Net income attributable to noncontrolling interests	(52		)	(34		)
Changes in assets and liabilities:
Trade receivables	27,126			66,859
Merchandise inventory	(26,515		)	(38,644		)
Other current assets	7,271			11,659
Other non-current assets	1,065			4,167
Trade accounts payable	2,000			(25,022		)
Accrued payroll and benefit costs	(18,901		)	(23,364		)
Other current liabilities	6,522			807
Other non-current liabilities	482			3,423
Total adjustments to net income	8,446			5,178
Net cash provided by operations	23,543			17,672
Cash Flows from Investing Activities
Proceeds from disposal of property	1,823			8,312
Capital expenditures for property	(6,065		)	(34,706		)
Net cash used by investing activities	(4,242		)	(26,394		)
Cash Flows from Financing Activities
Net increase in short-term borrowings	37,361			29,478
Repayment of long-term debt	(1,853		)	(908		)
Principal payments under capital leases	(2,319		)	(2,202		)
Sale of common stock	8,523			7,833
Purchases of common stock	(2,647		)	(3,658		)
Purchases of noncontrolling interests’ common stock	(241		)	(90		)
Dividends paid	(4,983		)	(4,815		)
Net cash provided by financing activities	33,841			25,638
Net Increase in Cash	53,142			16,916
Cash, Beginning of Year	37,931			33,758
Cash, End of Period	$	91,073		$	50,674

Non-cash Investing and Financing Activities
Acquisitions of equipment under capital leases	$	11		$	4,758

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



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

	(Unaudited, stated in thousands)

	Graybar Electric Company, Inc. Shareholders’ Equity
	Common Stock			Common Stock Subscribed, Unissued		Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Shareholders’ Equity
December 31, 2014	$	317,199		$	—	$	513,672		$	(152,193	)	$	3,303		$	681,981
Net income						12,460						34			12,494
Other comprehensive loss									(3,238		)	(223		)	(3,461		)
Stock issued	7,365														7,365
Stock purchased	(3,658		)									(90		)	(3,748		)
Advance payments				468											468
Dividends declared						(4,815		)							(4,815		)
March 31, 2015	$	320,906		$	468	$	521,317		$	(155,431	)	$	3,024		$	690,284

	Graybar Electric Company, Inc. Shareholders’ Equity
	Common Stock			Common Stock Subscribed, Unissued		Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Shareholders’ Equity
December 31, 2015	$	326,482		$	—	$	548,780		$	(190,435	)	$	3,319		$	688,146
Net income						15,045						52			15,097
Other comprehensive income									7,735			241			7,976
Stock issued	8,015														8,015
Stock purchased	(2,647		)									(241		)	(2,888		)
Advance payments				508											508
Dividends declared						(4,983		)							(4,983		)
March 31, 2016	$	331,850		$	508	$	558,842		$	(182,700	)	$	3,371		$	711,871

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

Graybar Electric Company, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Stated in thousands, except share and per share data)

(Unaudited)

1. DESCRIPTION OF THE BUSINESS

Graybar Electric Company, Inc. (“Graybar”, “Company”, "we", "our", or "us") is a New York corporation, incorporated in 1925. We are engaged in the distribution of electrical and communications and data networking products and are a provider of related supply chain management and logistics services. We primarily serve customers in the construction, and commercial, institutional and government ("CIG"), as well as the industrial and utility vertical markets, with products and services that support new construction, infrastructure updates, building renovation, facility maintenance, repair and operations ("MRO"), and original equipment manufacturers ("OEM"). All products sold by us are purchased by us from others, and we neither manufacture nor contract to manufacture any products that we sell. Our business activity is primarily with customers in the United States (“U.S.”). We also have subsidiary operations with distribution facilities in Canada and Puerto Rico.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accounting policies conform to generally accepted accounting principles in the U.S. ("GAAP”) and are applied on a consistent basis among all years presented. Significant accounting policies are described below.

Basis of Presentation

The unaudited condensed consolidated financial statements included herein have been prepared by Graybar pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “Commission”) applicable to interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that our disclosures are adequate to make the information presented not misleading. The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect reported amounts. Our condensed consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates. Certain reclassifications were made to prior year amounts to conform to the 2016 presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2015, included in our latest Annual Report on Form 10-K.

In the opinion of management, this quarterly report includes all adjustments, consisting of normal recurring accruals and adjustments, necessary for the fair presentation of the financial statements presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.

Principles of Consolidation

The consolidated financial statements include the accounts of Graybar and its subsidiary companies. All material intercompany balances and transactions have been eliminated. The ownership interests that are held by owners other than the Company in subsidiaries consolidated by the Company are accounted for and reported as noncontrolling interests.

Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.

Subsequent Events

We have evaluated subsequent events through the time of the filing of this Quarterly Report on Form 10-Q with the Commission. No material subsequent events have occurred since March 31, 2016 that require recognition or disclosure in these financial statements.

Revenue Recognition

Revenue is recognized when evidence of a customer arrangement exists, prices are fixed and determinable, product title, ownership and risk of loss transfers to the customer, and collectability is reasonably assured. Revenues recognized are primarily for product sales, but also include freight and handling charges. Our standard shipping terms are FOB shipping point, under which product title passes to the customer at the time of shipment. We also earn revenue for services provided to customers for supply chain management and logistics services. Service revenue is recognized when services are rendered and completed. Revenue is reported net of all taxes assessed by governmental authorities as a result of revenue-producing transactions, primarily sales tax.

Outgoing Freight Expenses

We record certain outgoing freight expenses as a component of selling, general and administrative expenses.

Cash and Cash Equivalents

We account for cash on hand, deposits in banks, and other short-term, highly liquid investments with an original maturity of three months or less as cash and cash equivalents.

Allowance for Doubtful Accounts

We perform ongoing credit evaluations of our customers, and a significant portion of our trade receivables is secured by mechanic’s lien or payment bond rights. We maintain allowances to reflect the expected uncollectability of trade receivables based on past collection history and specific risks identified in the receivables portfolio. Although actual credit losses have historically been within management’s expectations, additional allowances may be required if the financial condition of our customers were to deteriorate.

Merchandise Inventory

Our inventory is stated at the lower of cost (determined using the last-in, first-out (“LIFO”) cost method) or market. LIFO accounting is a method of accounting that, compared with other inventory accounting methods, generally provides better matching of current costs with current sales.

We make provisions for obsolete or excess inventories as necessary to reflect reductions in inventory value.

Vendor Allowances

Our agreements with many of our suppliers provide for us to earn volume incentives based on purchases during the agreement period. Based on the provisions of our vendor agreements, we develop vendor accrual rates by estimating the point at which we will have completed our performance under the agreement and the deferred amounts will be earned. We perform analyses and review historical trends to ensure the deferred amounts earned are appropriately recorded. Certain vendor agreements contain purchase volume incentives that provide for increased funding when graduated purchase volumes are met. Amounts accrued throughout the year are based on estimates of future activity levels, and could be materially impacted if actual purchase volumes differ. Changes in the estimated amount of incentives are treated as changes in estimate and are recognized in earnings in the period in which the change in estimate occurs. In the event that the operating performance of our suppliers were to decline, however, there can be no assurance that amounts earned would be paid or that the volume incentives would continue to be included in future agreements.

Property and Depreciation

Property, plant and equipment are recorded at cost. Depreciation is expensed on a straight-line basis over the estimated useful lives of the related assets. Interest costs incurred to finance expenditures for major long-term construction projects are capitalized as part of the asset's historical cost and included in property, plant and equipment, then depreciated over the useful life of the asset. Leasehold improvements are amortized over the term of the lease or the estimated useful life of the improvement, whichever is shorter. Expenditures for maintenance and repairs are charged to expense when incurred, while the costs of significant improvements, which extend the useful life of the underlying asset, are capitalized.

Credit Risk

Financial instruments that potentially expose us to concentrations of credit risk consist primarily of trade receivables. We perform ongoing credit evaluations of our customers, and a significant portion of our trade receivables may be protected by mechanic’s lien or payment bond rights. We maintain allowances for potential credit losses, and such losses historically have been within management’s expectations.

Fair Value

We endeavor to utilize the best available information in measuring fair value. GAAP has established a fair value hierarchy, which prioritizes the inputs used in measuring fair value. The tiers in the hierarchy include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own data inputs and assumptions. We have used fair value measurements to value our pension plan assets.

Foreign Currency Exchange Rate

The functional currency for our Canadian subsidiary is the Canadian dollar. Accordingly, its balance sheet amounts are translated at the exchange rates in effect at the end of each reporting period and its statements of income amounts are translated at the average rates of exchange prevailing during the current period. Currency translation adjustments are included in accumulated other comprehensive loss.

Goodwill

Our goodwill is not amortized, but rather tested annually for impairment. Goodwill is reviewed annually in the fourth quarter and/or when circumstances or other events might indicate that impairment may have occurred. We first perform a qualitative assessment of goodwill impairment. The qualitative assessment considers several factors including the excess fair value over carrying value as of the last quantitative impairment test, the length of time since the last fair value measurement, the current carrying value, market conditions, actual performance compared to forecasted performance, and the current business outlook. If the qualitative assessment indicates that it is more likely than not that goodwill is impaired, the reporting unit is then quantitatively tested for impairment. If a quantitative assessment is required, the fair value is determined using a variety of assumptions including estimated future cash flows of the reporting unit and applicable discount rates.

Definite Lived Intangible Assets

The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Customer relationships, trade names and other non-contractual intangible assets with determinable lives are amortized over periods generally ranging from 5 to 20 years. Intangible assets are tested for impairment if events or circumstances occur indicating that the respective asset might be impaired.

Income Taxes

We recognize deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the financial statements or tax returns. Uncertainty exists regarding tax positions taken in previously filed tax returns still subject to examination and positions expected to be taken in future returns. A deferred tax asset or liability results from the temporary difference between an item’s carrying value as reflected in the financial statements and its tax basis, and is calculated using enacted applicable tax rates. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the consolidated financial statements. We classify interest expense and penalties as part of our provision for income taxes based upon applicable federal and state interest/underpayment percentages.

Other Postretirement Benefits

We account for postretirement benefits other than pensions by accruing the costs of benefits to be provided over the employees’ periods of active service. These costs are determined on an actuarial basis. Our consolidated balance sheets reflect the funded status of postretirement benefits.

Pension Plan

We sponsor a noncontributory defined benefit pension plan accounted for by accruing the cost to provide the benefits over the employees’ periods of active service. These costs are determined on an actuarial basis. Our consolidated balance sheets reflect the funded status of the defined benefit pension plan.

New Accounting Standards

No new accounting standards that were issued or became effective during 2016 have had or are expected to have a material impact on our consolidated financial statements except those noted below:

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU” or “Update”) 2016-02, “Leases (Topic 842)”. The core principle of Topic 842 requires that a lessee should recognize the assets and liabilities on the balance sheet and disclose key information about leasing arrangements. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. We are currently evaluating the impact the provisions will have on our consolidated financial statements and whether we will adopt the guidance early.

In April 2015, FASB issued ASU 2015-05, "Intangibles-Goodwill and Other-Internal-use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement". This Update provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract and expensed as services are received. The Update is effective for fiscal years beginning after December 15, 2015 and interim periods. We adopted this Update on January 1, 2016. The adoption of this standard did not have a material impact on our results of operation, financial position, or cash flows.

In February 2015, FASB issued ASU 2015-02, "Consolidation". The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. This ASU is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We adopted this Update on January 1, 2016. The adoption of this standard did not have a material impact on our results of operation, financial position, or cash flows.

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

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

In March 2016, FASB issued ASU 2016-08 "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)". The amendments in this Update do not change the core principle of the guidance stated in ASU 2014-09. Instead, the amendments in this ASU are intended to further clarify the implementation guidance on principal versus agent considerations. ASU 2016-08 will have the same effective date and transition requirements as the new revenue standard issued in ASU 2014-09.

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

3. INCOME TAXES

We determine our deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of our assets and liabilities, calculated using enacted applicable tax rates. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the condensed consolidated financial statements.

We classify interest expense and penalties as part of our provision for income taxes based upon applicable federal and state interest/underpayment percentages. We have accrued $937 and $907 in interest and penalties at March 31, 2016 and December 31, 2015, respectively. Interest was computed on the difference between the provision for income taxes recognized in accordance with GAAP and the amount of benefit previously taken or expected to be taken in our federal, state, and local income tax returns.

Our federal income tax returns for the tax years 2012 and forward are available for examination by the United States Internal Revenue Service (“IRS”). The statute of limitation for the 2012 federal return will expire on September 15, 2016, unless extended by consent. Our state income tax returns for 2011 through 2015 remain subject to examination by various state authorities with the latest period closing on December 31, 2020. We have not extended the statutes of limitations in any state jurisdictions with respect to years prior to 2011.

Our unrecognized tax benefits of $2,358 and $2,247 at March 31, 2016 and December 31, 2015, respectively, are uncertain tax positions that would impact our effective tax rate if recognized. We are periodically engaged in tax return examinations, reviews of statute of limitations periods, and settlements surrounding income taxes. We do not anticipate a material change in unrecognized tax benefits during the next twelve months.

4. CAPITAL STOCK

Our common stock is 100% owned by active and retired employees, and there is no public trading market for our common stock. Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable New York law, a voting trust may not have a term greater than ten years. At March 31, 2016, approximately 83% of the common stock was held in a voting trust that expires by its terms on March 15, 2017. The participation of shareholders in the voting trust is voluntary at the time the voting trust is created, but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record.

No holder of our common stock or voting trust interests representing our common stock ("common stock", "common shares", or "shares") may sell, transfer or otherwise dispose of any shares without first offering us the option to purchase those shares at the price at which they were issued. Additionally, a shareholder is entitled to any cash dividends, if any, accrued for the quarter in which the purchase offer is made, adjusted pro rata for the number of days such shares were held prior to the dividend record date. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any reason other than death or retirement on a pension (except a deferred pension), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $20.00 per share.

Cash dividends declared were $4,983 and $4,815 for the three months ended March 31, 2016 and 2015, respectively.

5. DEBT

Revolving Credit Facility

At March 31, 2016 and December 31, 2015, we along with Graybar Canada Limited, our Canadian operating subsidiary (“Graybar Canada”), had an unsecured, five-year, $550,000 revolving credit agreement maturing in June 2019 with Bank of America, N.A. and the other lenders named therein (the "Credit Agreement"), which includes a combined letter of credit sub-facility of up to $50,000, a U.S. swing line loan facility of up to $50,000, and a Canadian swing line loan facility of up to $20,000. The Credit Agreement includes a $100,000 sublimit (in U.S. or Canadian dollars) for borrowings by Graybar Canada and contains an accordion feature, which allows us to request increases to the aggregate borrowing commitments of up to $300,000.

The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations on us and our subsidiaries with respect to indebtedness, liens, changes in the nature of our business, investments, mergers and acquisitions, issuance of equity securities, dispositions of assets and dissolution of certain subsidiaries, transactions with affiliates, restricted payments (subject to incurrence tests, with certain exceptions), as well as securitizations, factoring transactions, and transactions with sanctioned parties or in violation of certain U.S. or Canadian anti-corruption laws. There are also maximum leverage ratio and minimum interest coverage ratio financial covenants that we are subject to during the term of the Credit Agreement. We were in compliance with all these covenants as of March 31, 2016 and December 31, 2015.

We had total letters of credit of $4,994 outstanding, of which none were issued under the Credit Agreement at March 31, 2016 and December 31, 2015. The letters of credit are used primarily to support certain workers' compensation insurance policies.

There were $142,339 and $104,978 in short-term borrowings outstanding under the Credit Agreement at March 31, 2016 and December 31, 2015, respectively.

Short-term borrowings outstanding during the three months ended March 31, 2016 and 2015 ranged from a minimum of $105,014 and $35,981 to a maximum of $159,596 and $130,878, respectively.

At March 31, 2016, we had unused lines of credit under the Credit Agreement amounting to $407,661 available, compared to $445,022 at December 31, 2015. These lines are available to meet our short-term cash requirements and are subject to annual fees of up to 40 basis points (0.40%).

Private Placement Shelf Agreement

At March 31, 2016 and December 31, 2015, we had an uncommitted $100,000 private placement Shelf Agreement with Prudential Investment Management, Inc. (the "Shelf Agreement"). The Shelf Agreement allows us to issue senior promissory notes to affiliates of Prudential at fixed rate terms to be agreed upon at the time of any issuance during a three year issuance period ending in September 2017. No notes had been issued under the Shelf Agreement as of March 31, 2016 and December 31, 2015.

The Shelf Agreement contains various affirmative and negative covenants. We are also required to maintain certain financial ratios as defined in the agreement. We were in compliance with all covenants as of March 31, 2016 and December 31, 2015.

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

6. PENSION AND OTHER POSTRETIREMENT BENEFITS

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

Our plan funding policy is to make contributions, provided that the total annual contributions will not be less than ERISA and the Pension Protection Act of 2006 minimums or greater than the maximum tax-deductible amount, to review the contribution and funding strategy on a regular basis, and to allow discretionary contributions to be made by us from time to time. The assets of the defined benefit pension plan are invested primarily in fixed income investments and equity securities. We pay nonqualified pension benefits when they are due according to the terms of the supplemental benefit plan.

We provide certain postretirement health care and life insurance benefits to retired employees. Substantially all of our employees hired or rehired prior to 2014 may become eligible for postretirement medical benefits if they reach the age and service requirements of the retiree medical plan and retire on a service pension (except a deferred pension) under the defined benefit pension plan. Medical benefits are self-insured and claims are administered through an insurance company. The cost of coverage is determined based on the annual projected plan costs. The participant's premium or cost is determined based on Company guidelines. Postretirement life insurance benefits are insured through an insurance company. We fund

postretirement benefits as incurred, and accordingly, there were no assets held in the postretirement benefits plan at March 31, 2016 and December 31, 2015.

The net periodic benefit cost for the three months ended March 31, 2016 and 2015 included the following components:



	Pension Benefits						Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	Three Months Ended March 31,						Three Months Ended March 31,
Components of Net Periodic Benefit Cost	2016			2015			2016			2015
Service cost	$	6,375		$	6,500		$	575		$	675
Interest cost	7,125			6,350			775			750
Expected return on plan assets	(6,775		)	(7,025		)	—			—
Amortization of:
Net actuarial loss	4,950			4,924			200			251
Prior service cost (gain)	100			113			(550		)	(545		)
Net periodic benefit cost	$	11,775		$	10,862		$	1,000		$	1,131

We made qualified and nonqualified pension contributions totaling $11,631 and $11,532 during the three-month periods ended March 31, 2016 and 2015, respectively. Additional contributions totaling $70,005 are expected to be paid during the remainder of 2016.

7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table represents amounts reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2016 and 2015:



	Three Months Ended March 31, 2016									Three Months Ended March 31, 2015
	Amortization of Pension and Other Postretirement Benefits Items									Amortization of Pension and Other Postretirement Benefits Items
	Actuarial Losses Recognized			Prior Service Costs Recognized			Total			Actuarial Losses Recognized			Prior Service Costs Recognized			Total
Affected Line in Condensed Consolidated Statement of Income:
Selling, general and administrative expenses	$	5,150		$	(450	)	$	4,700		$	5,175		$	(432	)	$	4,743
Tax (benefit) expense	(2,003		)	175			(1,828		)	(2,013		)	168			(1,845		)
Total reclassifications for the period, net of tax	$	3,147		$	(275	)	$	2,872		$	3,162		$	(264	)	$	2,898

The following table represents the activity included in accumulated other comprehensive income (loss) for the three months ended March 31, 2016 and 2015:



	Three Months Ended March 31, 2016									Three Months Ended March 31, 2015
	Foreign Currency			Pension and Other Postretirement Benefits			Total			Foreign Currency			Pension and Other Postretirement Benefits			Total
Beginning balance January 1,	$	(12,416	)	$	(178,019	)	$	(190,435	)	$	284		$	(152,477	)	$	(152,193	)
Other comprehensive income (loss) before reclassifications	4,863			—			4,863			(6,136		)	—			(6,136		)
Amounts reclassified from accumulated other comprehensive income (net of tax $(1,828) and $(1,845))	—			2,872			2,872			—			2,898			2,898
Net current-period other comprehensive income (loss)	4,863			2,872			7,735			(6,136		)	2,898			(3,238		)
Ending balance March 31,	$	(7,553	)	$	(175,147	)	$	(182,700	)	$	(5,852	)	$	(149,579	)	$	(155,431	)

8. ASSETS HELD FOR SALE

We consider properties to be assets held for sale when all of the following criteria are met: (i) a formal commitment to a plan to sell a property has been made and exercised; (ii) the property is available for sale in its present condition; (iii) actions required to complete the sale of the property have been initiated; (iv) sale of the property is probable and we expect the sale will occur within one year; and (v) the property is being actively marketed for sale at a price that is reasonable given its current market value.

Upon designation as an asset held for sale, we record the carrying value of each property at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and depreciation of the property ceases. The net book value of assets held for sale was $58 at December 31, 2015. During the three months ended March 31, 2016, we designated a location as an asset held for sale with net book value of $464. Also, during the three months ended March 31, 2016, we sold assets classified as held for sale with net book values of $58, and recorded net gains on the assets held for sale of $1,627 in other income, net. The remaining net book value of assets still held for sale at March 31, 2016 is $464 and is recorded in net property in the condensed consolidated balance sheets.

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

For assets held for sale, impairment occurs whenever the net book value of the property listed for sale exceeds the expected selling price less estimated selling expenses. There were no impairment charges recorded during the three-month periods ended March 31, 2016 and 2015.

9. COMMITMENTS AND CONTINGENCIES

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

We account for loss contingencies in accordance with GAAP. Estimated loss contingencies are accrued only if the loss is probable and the amount of the loss can be reasonably estimated. With respect to a particular loss contingency, it may be probable that a loss has occurred but the estimate of the loss is a wide range. If we deem an amount within the range to be a better estimate than any other amount within the range, that amount will be accrued. However, if no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued. While we believe that none of these

claims, disputes, administrative, and legal matters will have a material adverse effect on our financial position, these matters are uncertain and we cannot at this time determine whether the financial impact, if any, of these matters will be material to our results of operations in the period during which such matters are resolved or a better estimate becomes available.

10. ACQUISITION

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

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes thereto, and our audited consolidated financial statements, notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2015, included in our Annual Report on Form 10-K for such period as filed with the United States Securities and Exchange Commission (the “Commission”). The results shown herein are not necessarily indicative of the results to be expected in any future periods.

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes”, “projects”, “expects”, “anticipates”, “estimates”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will be”, “will continue”, “will likely result”, and other similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the PSLRA. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse impact on our operations and future prospects on a consolidated basis include, but are not limited to: general economic conditions, particularly in the residential, commercial, and industrial building construction industries; volatility in the prices of industrial commodities; cyber-attacks; a sustained interruption in the operation of our information systems; increased funding requirements and expenses related to our pension plan; the inability, or limitations on our ability to borrow under our existing credit facilities or any replacements thereof; disruptions in our sources of supply; compliance with increasing governmental regulations; adverse legal proceedings or other claims; and the inability, or limitations on our ability to raise debt or equity capital. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by applicable securities law. Further information concerning our business, including additional factors that could materially impact our financial results, is included herein and in our other filings with the Commission. Actual results and the timing of events could differ materially from the forward-looking statements as a result of certain factors, a number of which are outlined in Item 1A., “Risk Factors”, of our Annual Report on Form 10-K for the year ended December 31, 2015.

All dollar amounts, except per share data, are stated in thousands ($000s) in the following discussion and accompanying tables.

Background

Graybar Electric Company, Inc. (“Graybar”, “Company”, "we", "our", or "us") is a New York corporation, incorporated in 1925. We are engaged in the distribution of electrical and communications and data networking products and are a provider of related supply chain management and logistics services. We primarily serve customers in the construction, and commercial, institutional and government ("CIG"), as well as the industrial and utility vertical markets, with products and services that support new construction, infrastructure updates, building renovation, facility maintenance, repair and operations ("MRO"), and original equipment manufacturers ("OEMs"). All products sold by us are purchased by us from others, and we neither manufacture nor contract to manufacture any products we sell. Our business activity is primarily with customers in the United States ("U.S."). We also have subsidiary operations with distribution facilities in Canada and Puerto Rico.

Our common stock is 100% owned by active and retired employees, and there is no public trading market for our common stock. No holder of our common stock or voting trust interests representing our common stock (“common stock”, “common shares”, or “shares”) may sell, transfer, or otherwise dispose of any shares without first offering us the option to purchase those shares at the price at which they were issued. Additionally, a shareholder is entitled to any cash dividends, if any, accrued for the quarter in which the purchase offer is made, adjusted pro rata for the number of days such shares were held prior to the dividend record date. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any reason other than death or retirement on a pension (except a deferred pension), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $20.00 per share.

Business Overview

Net sales for the three months ended March 31, 2016 were $1,465,480, a record quarter for first quarter net sales. This was $71,702, or 5.1% higher than the previous record set in 2015. Sales in our construction vertical market increased 10.6%, while our commercial, institutional and government ("CIG") vertical market sales decreased 0.7%, and our industrial and utility sales decreased 2.4% for the quarter.

The gross margin rate for the three months ended March 31, 2016 was 19.1%, which was an increase from 18.6% for the same period last year. Our enhanced gross margin rate was the result of our organic gross margin improvement and product diversification initiatives. Gross margin increased $20,621, or 8.0%, to $279,647 for the three months ended March 31, 2016, when compared to gross margin of $259,026 for the same period last year.

Net income for the three months ended March 31, 2016 increased $2,585, or 20.7%, to $15,045 from $12,460 for the three months ended March 31, 2015. Our performance for the three months ended March 31, 2016 was the result, in part, of our sustained focus on achieving profitable growth and strengthening our position in the supply chain. In addition, over the last several years, we have invested in new and expanded facilities, training and developing our people, and enhancing our technology and service capabilities.

While we will continue to remain focused on organic growth, we will pursue new opportunities to drive our long-term success and expand our reach by adding new locations and exploring potential acquisitions.

Consolidated Results of Operations

The following table sets forth certain information relating to our operations stated in thousands of dollars and as a percentage of net sales for the three months ended March 31, 2016 and 2015:



	Three Months Ended					Three Months Ended
	March 31, 2016					March 31, 2015
	Dollars			Percent		Dollars			Percent
Net Sales	$	1,465,480		100.0	%	$	1,393,778		100.0	%
Cost of merchandise sold	(1,185,833		)	(80.9	)	(1,134,752		)	(81.4	)
Gross Margin	279,647			19.1		259,026			18.6
Selling, general and administrative expenses	(244,732		)	(16.7	)	(232,067		)	(16.7	)
Depreciation and amortization	(11,311		)	(0.8	)	(10,309		)	(0.7	)
Other income, net	2,292			0.1		4,342			0.3
Income from Operations	25,896			1.7		20,992			1.5
Interest expense, net	(657		)	—		(513		)	—
Income before Provision for Income Taxes	25,239			1.7		20,479			1.5
Provision for income taxes	(10,142		)	(0.7	)	(7,985		)	(0.6	)
Net Income	15,097			1.0		12,494			0.9
Less: Net income attributable to noncontrolling interests	(52		)	—		(34		)	—
Net Income attributable to Graybar Electric Company, Inc.	$	15,045		1.0	%	$	12,460		0.9	%

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

Net sales totaled $1,465,480 for the quarter ended March 31, 2016, compared to $1,393,778 for the quarter ended March 31, 2015, an increase of $71,702, or 5.1%. Net sales in our construction vertical market increased for the three months ended March 31, 2016 compared to the same three-month period of 2015 by 10.6%, while net sales in our industrial and utility and CIG vertical markets declined by 2.4% and 0.7%, respectively .

Gross margin increased $20,621, or 8.0%, to $279,647 for the three months ended March 31, 2016, from $259,026 for the same period of 2015 primarily due to our focus on gross margin rate improvement initiatives as well as increased net sales in the first quarter of 2016, compared to the same period of 2015. Our gross margin as a percent of net sales totaled 19.1% for the three months ended March 31, 2016, up from 18.6% for the three months ended March 31, 2015.

Selling, general and administrative expenses ("SG&A") increased $12,665, or 5.5%, to $244,732 in the first quarter of 2016 from $232,067 in the first quarter of 2015, due primarily to an increase in self-insured employee benefit costs compared to the first quarter of 2015. In addition, we had higher compensation-related expenses associated with our sales force expansion initiative and normal compensation increases for our existing workforce for the three months ended March 31, 2016. Selling, general and administrative expenses as a percentage of net sales totaled 16.7% for the three months ended March 31, 2016 and 2015.

Depreciation and amortization expenses for the three months ended March 31, 2016 increased $1,002, or 9.7%, to $11,311 from $10,309 in the first quarter of 2015, due to an increase in capital spending. Total property, at cost, at March 31, 2016 was $914,846, an increase of $25,903, or 2.9%, when compared to total property, at cost, at March 31, 2015 of $888,943. As a result, depreciation and amortization expenses as a percentage of net sales totaled 0.8% for the three months ended March 31, 2016, up from 0.7% for the same period of 2015.

Other income, net totaled $2,292 for the three-month period ended March 31, 2016, compared to $4,342 for the three months ended March 31, 2015. Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to our business activities. The decrease in other income, net for the three months ended March 31, 2016 compared to the same three-month period in 2015 was primarily due to decreases in net gains on the disposal of real and personal property of $2,021.

Interest expense, net increased $144, or 28.1%, to $657 for the three months ended March 31, 2016 compared to $513 for the same period of 2015. The increase was primarily due to higher levels of average outstanding short-term borrowings.

Income before provision for income taxes totaled $25,239 for the three months ended March 31, 2016, an increase of $4,760, or 23.2%, from $20,479 for the three months ended March 31, 2015. The increase was primarily due to our growth in gross margin and our ability to manage SG&A.

Our total provision for income taxes increased $2,157, or 27.0%, to $10,142 for the three months ended March 31, 2016, compared to $7,985 for the same period of 2015. Our effective tax rate was 40.2% for the three months ended March 31, 2016, compared to 39.0% for the same period of 2015. The increase in the effective tax rate is largely attributable to discrete events recorded in 2016 as compared to the prior year. The effective tax rate for the three months ended March 31, 2016 was higher than the 35.0% U.S. federal statutory rate primarily due to state and local income taxes.

Net income attributable to Graybar Electric Company, Inc. for the three months ended March 31, 2016 increased $2,585, or 20.7%, to $15,045 from $12,460 for the three months ended March 31, 2015.

Financial Condition and Liquidity

We manage our liquidity and capital levels so that we have the capacity to invest in the growth of our business, meet debt service obligations, finance anticipated capital expenditures, pay dividends, make benefit payments, finance information technology needs, fund acquisitions and finance other miscellaneous cash outlays. We believe that maintaining a strong company financial condition enables us to competitively access multiple financing channels, maintain an optimal cost of capital and enable our company to invest in strategic long-term growth plans.

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

Our cash and cash equivalents at March 31, 2016 were $91,073, compared to $37,931 at December 31, 2015, an increase of $53,142, or 140.1%. Our short term borrowings increased significantly, $37,361, or 35.6% during the three-month period to $142,339 at March 31, 2016 from $104,978 at December 31, 2015. These increases were due, in part, to positive cash collections in the last week of the quarter and committed revolver loans spanning the quarter end, respectively. In addition, as previously discussed, we have strategically invested in expanding our service offering by adding new locations, expanding our sales force, and acquiring a new company. Finally, current assets exceeded current liabilities by $469,709 at March 31, 2016, an increase of $24,266, or 5.4%, from $445,443 at December 31, 2015.

Operating Activities

Cash provided by operations for the three months ended March 31, 2016 was $23,543, compared to $17,672 for the three months ended March 31, 2015, an increase of $5,871, or 33.2%. Cash flows provided by operations for March 31, 2016 was attributable to net income of $15,097 as well as increased collections of trade receivables of $27,126, for the three month period ended March 31, 2016, partially offset by increased inventory levels during the three months ended March 31, 2016 of $26,515 to support our expected growth of sales during 2016 and a decrease in accrued payroll benefits of $18,901.

Merchandise inventory turnover increased significantly for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, as a result of higher sales volume, partially offset by increased merchandise inventory levels at March 31, 2016 compared to March 31, 2015. The average number of days of sales in trade receivables for the three-month period ended March 31, 2016 increased modestly compared to the same three-month period ended March 31, 2015.

Investing Activities

Net cash used by investing activities totaled $4,242 for the three months ended March 31, 2016, compared to $26,394 for the same three-month period in 2015, a decrease of $22,152, or 83.9%. The decrease was primarily due to lower capital expenditures in the three months ended March 31, 2016 as well as lower proceeds on the disposal of property. In the first quarter of 2015, we purchased a new regional distribution center in southern California for $23,392. In the first quarter of 2016 we disposed of a facility that provided proceeds of $1,686, compared to first quarter of 2015 when we disposed of a regional distribution center in northern California that provided proceeds of $8,214. Both facilities had been classified as an asset held for sale.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2016 totaled $33,841, compared to $25,638 for the three months ended March 31, 2015, an increase of $8,203, or 32.0%. The increase was primarily due to the increase in our short term borrowings for the three months ended March 31, 2016 to fund our operating and investing activities.

Liquidity

We had a $550,000 revolving credit facility with $407,661 in available capacity at March 31, 2016, compared to $445,022 at December 31, 2015. At March 31, 2016 and December 31, 2015, we also had an uncommitted $100,000 private placement shelf agreement that allows us to issue senior promissory notes to affiliates of Prudential at fixed rate terms to be agreed upon at the time of any issuance during a three year issuance period ending in September 2017. No notes had been issued under the shelf agreement as of March 31, 2016 and December 31, 2015. For further discussion related to our revolving credit facility and our private placement shelf agreement, refer to Note 5, "Debt", of the notes to the condensed consolidated financial statements located in Item 1.

We had total letters of credit of $4,994 outstanding, of which none were issued under the $550,000 revolving credit facility at March 31, 2016 and December 31, 2015. The letters of credit are used primarily to support certain workers' compensation insurance policies.

New Accounting Standards Updates

Our adoption of new accounting standards are discussed in Note 2, "Summary of Significant Accounting Policies", of the notes to the condensed consolidated financial statements located in Item 1., "Financial Statements", of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the policies, procedures, controls, or risk profile from those provided in Item 7A., “Quantitative and Qualitative Disclosures About Market Risk”, of our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2016, was performed under the supervision and with the participation of management. Based on that evaluation, our management, including the Principal Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds.

Our common stock is 100% owned by active and retired employees, and there is no public trading market for our common stock. Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable New York law, a voting trust may not have a term greater than ten years. The 2007 Voting Trust Agreement expires by its terms on March 15, 2017. At March 31, 2016, approximately 83% of the common stock was held in this voting trust. The participation of shareholders in the voting trust is voluntary at the time the voting trust is created, but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record.

No holder of our common stock or voting trust interests representing our common stock ("common stock", "common shares", or "shares") may sell, transfer, or otherwise dispose of any shares without first offering us the option to purchase those shares at the price at which they were issued. Additionally, a shareholder is entitled to any cash dividends, if any, accrued for the quarter in which the purchase offer is made, adjusted pro rata for the number of days such shares were held prior to the dividend record date. We also have the option to purchase at the issue price the common shares of any shareholder who ceases to be an employee for any cause other than death or retirement on a pension (except a deferred pension), and on the first anniversary of any holder's death. In the past, we have always exercised these purchase options, and we expect to continue to do so in the foreseeable future. However, we can make no assurance that we will continue to exercise our purchase option in the future. All outstanding shares have been issued at $20.00 per share.

The following table sets forth information regarding purchases of common stock by the Company, all of which were made pursuant to the foregoing provisions:

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
January 1 to January 31, 2016	38,914	$20.00	N/A
February 1 to February 29, 2016	58,186	$20.00	N/A
March 1 to March 31, 2016	35,263	$20.00	N/A
Total	132,363	$20.00	N/A

Item 6. Exhibits.



(a)	Exhibits furnished in accordance with provisions of Item 601 of Regulation S-K.

	(3)	(i)	Articles of Incorporation

			(a)	Restated Certificate of Incorporation, as amended, filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated June 13, 2013 (Commission File No. 000-00255) and incorporated herein by reference.

		(ii)	Bylaws

			(a)	By-laws as amended through March 12, 2015, filed as Exhibit 3(ii) to the Company's Current Report on Form 8-K dated March 12, 2015 (Commission File No. 000-00255) and incorporated herein by reference.

	(31)	Rule 13a-14(a)/15d-14(a) Certifications

		(31.1)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.

		(31.2)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.

	(32)	Section 1350 Certifications

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

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

	101.INS	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			GRAYBAR ELECTRIC COMPANY, INC.


	May 9, 2016		/s/ KATHLEEN M. MAZZARELLA
	Date		Kathleen M. Mazzarella
			President and Chief Executive Officer (Principal Executive Officer)

	May 9, 2016		/s/ RANDALL R. HARWOOD
	Date		Randall R. Harwood
			Senior Vice President and Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX

Exhibits



(3(i))		Articles of Incorporation

		(a)	Restated Certificate of Incorporation, as amended, filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated June 13, 2013 (Commission File No. 000-00255) and incorporated herein by reference.

(3(ii))		Bylaws

		(a)	By-laws as amended through March 12, 2015, filed as Exhibit 3(ii) to the Company's Current Report on Form 8-K dated March 12, 2015 (Commission File No. 000-00255) and incorporated herein by reference.

(31.1	)	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.

(31.2	)	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

GRAYBAR ELECTRIC CO INC - FORM 10-Q - May 9, 2016

Attached files

GRAYBAR ELECTRIC CO INC Reports