Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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, 2025 and 2024. 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, 2024 and 2023, refer to our Annual Report on Form 10-K for the year ended December 31, 2024, Part II., Item 7., filed with the SEC on March 13, 2025.

Business Overview

Our net sales for the year ended December 31, 2025 totaled $12,875.6 million, compared to $11,645.5 million for the year ended December 31, 2024, an increase of $1,230.1 million, or 10.6%. Gross margin for the year ended December 31, 2025 increased $152.5 million, or 6.5%, to $2,488.7 million, compared to gross margin of $2,336.2 million for the same twelve-month period ended December 31, 2024. Our gross margin rate decreased to 19.3% for the years ended December 31, 2025, compared to 20.1% for the year ended December 31, 2024, primarily due to competitive pricing pressures.

Selling, general and administrative ("SG&A") expenses increased $132.6 million, or 7.8%, to $1,823.8 million for the twelve months ended December 31, 2025, from $1,691.2 million for the year ended December 31, 2024, primarily due to higher compensation, rent, and maintenance costs. SG&A expenses as a percentage of net sales decreased to 14.1% for the year ended December 31, 2025, compared to 14.6% for the same twelve-month period in 2024.

Income from operations increased $5.5 million, or 1.0%, to $581.7 million for the twelve months ended December 31, 2025, from $576.2 million for the same twelve-month period last year. Net income attributable to Graybar for the twelve months ended December 31, 2025 increased by $8.3 million, or 2.0%, to $431.4 million for the year ended December 31, 2025 compared to $423.1 million for the same twelve-month period last year.

We continue to see demand for our products and services, particularly in areas such as data centers, electrification, and industrial automation, even as economic uncertainty persists in the markets we serve. As an employee-owned company, we remain focused on serving our customers, managing our business wisely, and making disciplined investments that support our long-term strategy. We believe that the successful completion of our ERP system upgrade and the acceleration of our Graybar Connect business transformation program will support our profitable long-term growth, enhance the value we bring to our customers, and reinforce our position as an industry leader.

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, 2025, 2024, and 2023:

2025 Compared to 2024

Net sales totaled $12,875.6 million for the year ended December 31, 2025, compared to $11,645.5 million for the year ended December 31, 2024, an increase of $1,230.1 million, or 10.6%. For the year ended December 31, 2025, net sales in our construction, CIG, and industrial & utility verticals increased by 12.6%, 9.7%, and 4.9%, respectively, compared to the year ended December 31, 2024.

Gross margin increased $152.5 million, or 6.5%, to $2,488.7 million for the year ended December 31, 2025, from $2,336.2 million for the year ended December 31, 2024. Our gross margin rate decreased to 19.3% for the year ended December 31, 2025, compared to 20.1% for the year ended December 31, 2024, primarily due to competitive pricing pressures.

SG&A expenses increased $132.6 million, or 7.8%, to $1,823.8 million for the year ended December 31, 2025, compared to $1,691.2 million for the year ended December 31, 2024, mainly due to higher compensation, rent, and maintenance costs. SG&A expenses as a percentage of net sales were 14.1% for the year ended December 31, 2025, compared to 14.6% for the year ended December 31, 2024.

Depreciation and amortization for the year ended December 31, 2025 increased $5.7 million, or 7.1%, to $86.5 million from $80.8 million for the year ended December 31, 2024, primarily due to higher depreciation expense related to capital and leasehold improvements and higher amortization expense of intangible assets associated with our acquisitions.

Other operating income, net totaled $3.3 million for the year ended December 31, 2025, compared to $12.0 million for the year ended December 31, 2024. The decrease is primarily due to lower net gains on disposals of property of $5.1 million for the year ended December 31, 2025, compared to $10.9 million for the year ended December 31, 2024.

Income before provision for income taxes increased $6.5 million, or 1.1%, to $579.7 million for the year ended December 31, 2025, compared to $573.2 million for the year ended December 31, 2024. The increase was primarily due to our increase in gross margin, partially offset by our increase in SG&A expenses.

Our provision for income taxes decreased $1.8 million, or 1.2%, to $147.3 million for the year ended December 31, 2025 from $149.1 million for the year ended December 31, 2024. Our effective tax rate was 25.4% for the year ended December 31, 2025, down from 26.0% for the year ended December 31, 2024. The decrease in the effective tax rate is largely due to a decrease in state income tax expense and an increased federal tax credit benefit.

Net income attributable to Graybar Electric Company, Inc. for the year ended December 31, 2025 increased $8.3 million, or 2.0%, to $431.4 million from $423.1 million for the year ended December 31, 2024.

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, pay dividends, finance anticipated capital expenditures, finance information technology needs, make benefit payments, 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 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 borrowings on our revolving credit facility, if necessary. Acquisitions and capital expenditures have been financed primarily with cash from working capital management and short-term borrowings on our revolving credit facility.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for each of the past three years:

Our cash and cash equivalents were $273.1 million at December 31, 2025, an increase of $182.7 million, from $90.4 million at December 31, 2024. The increase in cash on hand at December 31, 2025 from December 31, 2024 is reflective of strong cash flows from operating activities as a result of increased net income and effective working capital management. We had no short-term borrowings outstanding at December 31, 2025, compared to short-term borrowings of $22.0 million at December 31, 2024. Current assets exceeded current liabilities by $1,275.3 million at December 31, 2025, an increase of $201.1 million, or 18.7%, from $1,074.2 million at December 31, 2024.

Operating Activities

Net cash flows provided by operating activities for the year ended December 31, 2025 was $477.0 million, compared to net cash flows provided by operating activities of $379.7 million for the year ended December 31, 2024, an increase of $97.3 million. Cash provided by operating activities for the year ended December 31, 2025 was attributable to net income of $432.4 million, adjusted for non-cash depreciation and amortization expenses of $86.5 million, non-cash operating lease expense of $63.2 million, and increases in trade accounts payable of $268.7 million and other current liabilities of $95.1 million, partially offset by increases in trade receivables of $243.2 million and merchandise inventory levels of $134.9 million, and a decrease in other non-current liabilities of $87.6 million.

The average number of days of sales in trade receivables for the quarter ended December 31, 2025 increased modestly compared to the same three-month period in 2024. The days in inventory increased modestly for the quarter ended December 31, 2025 compared to the quarter ended December 31, 2024.

Investing Activities

Net cash used by investing activities was $49.0 million for the year ended December 31, 2025, compared to $182.6 million for the year ended December 31, 2024, a decrease in cash used of $133.6 million. Cash used by investing activities for the year ended December 31, 2025 was primarily the result of capital expenditures for property of $58.0 million, partially offset by insurance proceeds from a property claim of $10.4 million. Cash used by investing activities for the year ended December 31, 2024 was primarily the result of amounts attributable to acquisitions of $146.3 million, and capital expenditures for property of $58.5 million, partially offset by proceeds from disposals of property of $18.8 million. 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 $245.3 million for the year ended December 31, 2025, compared to net cash used by financing activities of $205.3 million for the year ended December 31, 2024, an increase in cash used of $40.0 million. Cash used for financing activities during the year ended December 31, 2025 was primarily due to dividends paid of $227.1 million and payments on short-term borrowings of $22.0 million. Cash used for financing activities during the year ended December 31, 2024, was primarily due to dividends paid of $225.3 million, partially offset by an increase in short-term borrowings of $22.0 million. Cash dividends paid totaled $7.00 per share, for both years ended December 31, 2025, and 2024.

Liquidity

Our cash and cash equivalents were $273.1 million at December 31, 2025, compared to $90.4 million at December 31, 2024. We had a $750.0 million amended, unsecured, committed revolving credit facility with $744.4 million in available capacity at December 31, 2025, compared to available capacity of $724.2 million at December 31, 2024 under the Credit Agreement, 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. We had no short-term borrowings at December 31, 2025. We had short-term borrowings of $22.0 million at December 31, 2024, of which all were issued under the Credit Agreement.

At December 31, 2025 and 2024, 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 $200.0 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 2026. Our other Shelf Agreement is expected to allow us to issue senior promissory notes up to $200.0 million to MetLife Investment Management, 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 2027, and thereafter, for successive three-year periods until either party notifies the other party at least 30 days prior to the then applicable stated period end date of its intent not to extend.

We have not issued any notes under the Shelf Agreements as of December 31, 2025 and 2024. 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 $10.6 million outstanding at December 31, 2025, of which $5.6 million were issued under the Amended Credit Agreement. We had total letters of credit of $9.6 million outstanding at December 31, 2024, of which $3.8 million were issued under the Credit Agreement. The letters of credit are issued primarily to support certain workers' compensation insurance policies and support performance under certain customer contracts.

Contractual Obligations and Commitments

As of December 31, 2025, we had contractual obligations consisting of $339.0 million in operating lease obligations and $3,043.8 million in purchase obligations. 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.

Additionally at December 31, 2025, we had $105.4 million of accrued, unfunded pension obligations, and $59.3 million of accrued, unfunded employment-related benefit obligations, of which $49.5 million is related to our postretirement benefit plan.

We expect to make contributions totaling $40.0 million to our qualified defined benefit pension plan during 2026; however, additional contributions may be made at our discretion. In addition, we expect to fund $1.2 million for nonqualified pension benefits during 2026. We contributed $43.6 million to our qualified defined benefit pension plan and funded $2.6 million for nonqualified benefits in 2025.

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:

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, 2025, was approximately 61% fixed income investments, 16% equity securities and 23% 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 2025 pension expense by approximately $6.0 million. Our expected long-term rate of return on plan assets assumption will increase to 6.25% for fiscal year 2026.

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 2025 and the pension liability as of December 31, 2025 would have increased pension expense by $6.1 million in 2025 and the pension liability by $60.1 million at December 31, 2025. Similarly, a one percentage point decrease in the discount rate would have decreased postretirement benefits expense by $0.3 million in 2025 and increased the postretirement benefits liability by $2.8 million at December 31, 2025.

Business Combinations and Related Goodwill and Intangible Assets

We allocate the purchase price of acquisitions to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, with the excess recorded to goodwill. We use our best estimates and assumptions to assign fair value to the assets acquired and liabilities assumed and determine the useful lives of the acquired intangible assets. We use various valuation techniques to determine the fair value of the intangible assets including the multi-period excess earnings and relief-from-royalty methods. Examples of critical estimates and significant inputs used in valuing the intangible assets include, but are not limited to, projected revenues and expected operating margins, customer attrition rates, discount rates, and royalty rates. We estimate the useful lives of each definite-lived intangible asset based on the expected period over which we anticipate generating economic benefit from the asset. The amounts and useful lives assigned to the intangible assets impact the amount and timing of future amortization expense.

While we use our best estimates and assumptions to determine fair value of the assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments.

Merchandise Inventory

We value most of our inventories at the lower of cost (generally determined using the last-in, first-out ("LIFO") cost method) or market. We value our remaining inventory at the lower of cost or market determined using average cost. 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, 2025, 2024, and 2023, 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 unable to reach the "more likely than not" standard, 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 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". We classify interest expense and penalties associated with taxes and uncertain tax positions as part of our provision for income taxes based upon applicable federal and state interest/underpayment percentages.

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.