-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P5SBrQQSzdJFZ1mf/Pmn0oCC9NE5ooW0S+OV5zNpapBx1MiRA2pwAbNv32TQ9lmc o8JHjdXW5wYz1bCr6iOQYQ== 0000950114-97-000165.txt : 19970328 0000950114-97-000165.hdr.sgml : 19970328 ACCESSION NUMBER: 0000950114-97-000165 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAYBAR ELECTRIC CO INC CENTRAL INDEX KEY: 0000205402 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRICAL APPARATUS & EQUIPMENT, WIRING SUPPLIES [5063] IRS NUMBER: 130794380 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-00255 FILM NUMBER: 97565003 BUSINESS ADDRESS: STREET 1: 34 N MERAMEC AVE CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3145129200 MAIL ADDRESS: STREET 1: P O BOX 7231 CITY: ST LOUIS STATE: MO ZIP: 63177 10-K405 1 GRAYBAR ELECTRIC CO., INC. 1996 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K COMMISSION FILE NUMBER 0-255 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996. ----------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . ------------------- ------------------- GRAYBAR ELECTRIC COMPANY, INC. -------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) NEW YORK 13-0794380 -------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 34 North Meramec Avenue, St. Louis, Missouri 63105 -------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Post Office Box 7231, St. Louis, Missouri 63177 -------------------------------------------------------------------------- (Mailing Address) (Zip Code) Registrant's telephone number, including area code: (314) 512-9200 ---------------------- Securities registered pursuant to Section 12(b) of the Act: None ---------- Securities registered pursuant to Section 12(g) of the Act: Preferred Stock - Par Value $20 Common Stock - Par Value $1 Per Share with a Stated Value of $20 Voting Trust Certificates relating to such Shares of Common Stock of the Registrant Common Stock outstanding at March 27, 1997 - 4,864,423 Shares 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, and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Paragraph 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate stated value of the Common Stock outstanding and, with respect to rights of disposition, beneficially owned by nonaffiliates (as defined in Rule 405 under the Securities Act of 1933) of the registrant on March 27, 1997, was approximately $97,288,460. Pursuant to a Voting Trust Agreement, dated as of April 15, 1987, approximately 95% of the outstanding shares of Common Stock are held of record by five Voting Trustees who are each directors of the registrant and who collectively exercise all voting rights with respect to such shares. The registrant is 100% owned by its active and retired employees, and there is no public trading market for the registrant's Common Stock. The registrant has the option to repurchase, at the price at which it was issued, each outstanding share of Common Stock in the event of the owner's death, termination of employment other than by retirement, or desire to dispose of such shares. Historically all shares of Common Stock have been issued for $20 per share, and the registrant has always exercised its repurchase option and expects to continue to do so. The documents listed below have been incorporated by reference into the indicated Part of this Annual Report on Form 10-K: (1) Annual Report to Shareholders Part II, Items 5-8 for the fiscal year ended December 31, 1996. (2) Information Statement relating Part III, Items 10-13 to the 1997 Annual Meeting of Shareholders. 2 PART I ------ Item 1. Business - ------- -------- Graybar Electric Company, Inc. (the "Company") is engaged internationally in the distribution of electrical and communications equipment and supplies primarily to contractors, industrial plants, telephone companies, power utilities, and commercial users. All products sold by the Company are purchased by the Company from others. The Company was incorporated under the laws of the State of New York on December 11, 1925 to take over the wholesale supply department of Western Electric Company, Incorporated. The location and telephone number of the principal executive offices of the Company are 34 North Meramec Avenue, St. Louis, Missouri (314) 512-9200, and the mailing address of the principal executive offices is P.O. Box 7231, St. Louis, Missouri 63177. Suppliers - --------- The Company acts as a distributor of the products of more than 1,000 manufacturers. The relationship of the Company with a number of its principal suppliers goes back many years. It is customarily a nonexclusive national or regional distributorship terminable upon 30 to 90 days notice by either party. During 1996, the Company purchased a significant portion of its products from its three largest suppliers. The termination by any of these companies, within a short period of time, of a significant number of their agreements with the Company might have an immediate material adverse effect on the business of the Company, but the Company believes that within a reasonable period of time it could find alternate sources of supply adequate to alleviate such adverse effect. 2 3 Products Distributed - -------------------- The Company distributes more than 100,000 different products and, therefore, is able to supply its customers with a wide variety of electrical and communications products. The products distributed by the Company consist primarily of wire, conduit, wiring devices, tools, motor controls, transformers, lamps, lighting fixtures and hardware, power transmission equipment, telephone station apparatus, key systems, PBXs, data products for local area networks or wide area networks, fiber optic products, and CATV products. These products are sold to customers such as contractors (both industrial and residential), industrial plants, telephone companies, private and public utilities, and commercial users. On December 31, 1996 and 1995, the Company had orders on hand which totaled approximately $195,002,000 and $192,721,000, respectively. The Company believes that the increase from 1995 to 1996 reflects the improvements in the market sectors of the economy in which the Company operates. The Company expects that approximately 85% of the orders on hand at December 31, 1996 will be filled within the twelve-month period ending December 31, 1997. Historically, orders on hand for the Company's products have been firm, but customers from time to time request cancellation and the Company has historically allowed such cancellations. Marketing - --------- The Company sells its products through a network of distributing houses located in 14 geographical districts throughout the United States. In each district the Company maintains a main distributing house and a number of branch distributing houses, each of which carries an inventory of supply materials and operates as a wholesale distributor for the territory in which it is located. The main distributing house in each district carries a substantially larger inventory than the branch houses so that the branch houses can call upon the main distributing house for additional items of inventory. In addition, the Company maintains two (2) zone warehouses with special inventories so all locations can call upon them for additional items. The Company also has subsidiary operations with distribution facilities located in Puerto Rico, Mexico, Singapore and Canada. 3 4 The distribution facilities operated by the Company are shown in the following table:
Location of Main Number of Distributing Number of Distributing House Houses in District Distributing Houses - ------------------ ---------------------- ------------------- Graybar International, Inc. Boston, MA 9 --------------------------- Cincinnati, OH 8 Puerto Rico 1 Dallas, TX 27 Glendale Heights, IL 15 Graybar Electric (Ontario) Ltd. Miami, FL 3 ------------------------------- Minneapolis, MN 18 Canada 5 New York, NY 15 Norcross, GA 18 Graybar Electric Ltd. Phoenix, AZ 26 --------------------- Pittsburgh, PA 12 Canada 18 Richmond, VA 17 Seattle, WA 21 Graybar de Mexico, S.A. de CV. St. Louis, MO 16 ------------------------------ Tampa, FL 23 Mexico City, Mexico 1 Zone Distributing Houses Graybar-P&M International PTE, Ltd. - ------------------------ ----------------------------------- Bethlehem, PA 1 Singapore 1 Peoria, IL 1
Where the specialized nature or size of a particular shipment warrants, the Company has products shipped directly from its suppliers to the place of use, while in other cases orders are filled from the Company's inventory. On a dollar volume basis, over sixty percent of the orders are filled from the Company's inventory and the remainder are shipped directly from the supplier to the place of use. The Company generally finances its inventory from internally generated funds and from long and short-term borrowings. 4 5 The Company distributes its products to more than 200,000 customers, which fall into five general classes. The following list shows the estimated percentage of the Company's total sales for each of the three years ended December 31, attributable to each of these classes:
CLASS OF CUSTOMERS PERCENTAGE OF SALES ------------------ ------------------- 1996 1995 1994 ---------- ---------- ---------- Electrical contractors 39.1% 39.1% 39.2% Industrial plants 29.8 30.6 30.9 Telecommunication companies 24.4 22.9 21.7 Private and public power utilities 5.0 5.6 6.3 Miscellaneous 1.7 1.8 1.9 ---------- ---------- ---------- 100.0% 100.0% 100.0% ========== ========== ==========
At December 31, 1996, the Company employed approximately 2,500 persons in sales capacities. Approximately 1,100 of these sales personnel were sales representatives who work in the field making sales to customers at the work site. The remainder of the sales personnel were sales and marketing managers, and telemarketing, advertising, quotation, counter and clerical personnel. Competition - ----------- The Company believes that it is the largest distributor of electrical products not affiliated with a manufacturing company, and one of the three largest distributors of such products in the United States. The field is highly competitive, and the Company estimates that the three largest distributors of electrical products account for only a small portion of the total market, with the balance of the market being accounted for by independent distributors and manufacturers operating on a local, state-wide or regional basis. The Company believes that its competitive position is primarily a result of its ability to supply its customers through a network of conveniently located distribution facilities with a broad range of electrical and telecommunications materials within a short period of time. Price is also important, particularly where the Company is asked to submit bids to contractors in connection with large construction jobs. 5 6 Employees - --------- At December 31, 1996, the Company employed approximately 6,600 persons on a full-time basis. Approximately 160 of these persons were covered by union contracts. The Company has not had a material work stoppage and considers its relations with its employees to be good. Item 2. Properties - ------- ---------- As of December 31, 1996, the Company operated offices and distribution facilities in 240 locations. Of these, 131 were owned by the Company, and the balance were leased. The leases are for varying terms, the majority having a duration of less than five years. The Company's distribution facilities consist primarily of warehouse space. A small portion of the space in each facility is used for offices. Distribution facilities vary in size from approximately 5,000 square feet to 141,000 square feet, the average being approximately 28,000 square feet. As of December 31, 1996, approximately $43.5 million in debt of the Company was secured by mortgages on twenty-eight buildings. Eighteen of these facilities are subject to a first mortgage securing a 12.25% note, of which $7.8 million in principal amount remains outstanding. Seven of these facilities are subject to a first mortgage securing a 9.23% note, of which $24.6 million in principal amount remains outstanding. A facility in Houston, Texas is subject to a first mortgage securing a 7.75% note, of which $3.3 million in principal remains outstanding, and a facility in St. Louis, Missouri is subject to a first mortgage securing a 7.74% note, of which $6.8 million in principal remains outstanding. A distribution house in Pinellas County, Florida is subject to a mortgage securing an Industrial Revenue Bond at an interest rate of 7.00% with one payment for $1.0 million due in 2004. Item 3. Legal Proceedings - ------- ----------------- The Company has been named, together with numerous other companies, as a co-defendant in actions by approximately 3,000 plaintiffs which have been filed in various federal and state courts in Arkansas, California, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, Ohio, Pennsylvania and West Virginia. The plaintiffs allege personal injuries due to exposure to asbestos products and seek substantial damages. The majority of the complaints do not identify any products containing asbestos allegedly sold by the Company. 6 7 However, since all products sold by the Company have been and are purchased from suppliers, if a plaintiff were to successfully establish an asbestos-related injury claim with respect to a product sold by the Company, the Company believes it would normally have a claim against its supplier. Furthermore, the Company believes it has product liability insurance coverage available to cover these claims. Accordingly, based on information now known to the Company, in the opinion of management the ultimate disposition of the asbestos-related claims against the Company will not have a materially adverse effect on the Company. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- No matter was submitted to a vote of shareholders during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K. PART II ------- Item 5. Market for the Registrant's Common Stock and Related Shareholder - ------- ---------------------------------------------------------------- Matters ------- The Company is wholly owned by its active and retired employees, and there is no public trading market for its Common Stock, par value $1 per share with a stated value of $20 per share. No shareholder may sell, transfer or otherwise dispose of shares of Common Stock without first offering the Company the option to purchase such shares at the price at which they were issued. The Company also has the option to purchase the Common Stock of any shareholder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension. In the past all shares issued by the Company have been issued at $20 per share, and the Company has always exercised its repurchase option, and expects to continue to do so. The information as to number of holders of Common Stock and frequency and amount of dividends, required to be included pursuant to this Item 5, is included under the captions "Capital Stock Data" and "Dividend Data" on page 1 of the Company's Annual Report to Shareholders for the year ended December 31, 1996, (the "1996 Annual Report") furnished to the Securities and Exchange Commission (the "Commission") pursuant to Rule 14c-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and such information is incorporated herein by reference. 7 8 In May, 1996, the Company entered into a fifteen-year note agreement that includes various covenants which limit the Company's ability to make investments, pay dividends, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreement. Item 6. Selected Financial Data - ------- ----------------------- The selected financial data for the Company as of December 31, 1996 and for the five years then ended, which is required to be included pursuant to this Item 6, is included under the caption "Selected Consolidated Financial Data" on page 13 of the 1996 Annual Report and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations --------------------- Management's discussion and analysis required to be included pursuant to this Item 7 is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 14 and 15 of the 1996 Annual Report and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- The financial statements and Report of Independent Auditors required by this Item 8 are listed in Item 14(a)(1) of this Annual Report on Form 10-K under the caption "Index to Financial Statements." Such financial statements specifically referenced from the 1996 Annual Report in such list are incorporated herein by reference. There is no supplementary financial information required by this item which is applicable to the Company. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------- --------------------------------------------------------------- Financial Disclosure -------------------- None. 8 9 PART III -------- Item 10. Directors and Executive Officers of the Registrant - -------- -------------------------------------------------- The information with respect to the directors and executive officers of the Company required to be included pursuant to this Item 10 will be included under the caption "Directors and Executive Officers -- Nominees for Election as Directors" in the Company's Information Statement relating to the 1997 Annual Meeting (the "Information Statement"), to be filed with the Commission pursuant to Rule 14c-5 under the Exchange Act, and is incorporated herein by reference. Item 11. Executive Compensation - -------- ---------------------- The information with respect to executive compensation required to be included pursuant to this Item 11 will be included under the captions "Executive Compensation" and "Pension Plan" in the Information Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- -------------------------------------------------------------- The information with respect to the security ownership of beneficial owners of more than 5% of the Common Stock, the directors of the Company and all directors and officers of the Company, which is required to be included pursuant to this Item 12, will be included in the introductory language and under the caption "Directors and Executive Officers -- Nominees for Election as Directors" in the Information Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- The information with respect to any reportable transactions, business relationships and indebtedness between the Company and the beneficial owners of more than 5% of the Common Stock, the directors or nominees for director of the Company, the executive officers of the Company or the members of the immediate families of such individuals, required to be included pursuant to this Item 13, will be included under the caption "Directors and Executive Officers" in the Information Statement and is incorporated herein by reference. 9 10 PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------- ---------------------------------------------------------------- (a) Documents filed as part of this report: -------------------------------------- The following financial statements and Report of Independent Auditors are included on the indicated pages in the 1996 Annual Report and are incorporated by reference in this Annual Report on Form 10-K: 1. Index to Financial Statements ----------------------------- (i) Consolidated Statements of Income and Retained Earnings for each of the three years ended December 31, 1996 (page 16). (ii) Consolidated Balance Sheets, as of December 31, 1996 and December 31, 1995 (page 17). (iii) Consolidated Statements of Cash Flows for each of the three years ended December 31, 1996 (page 18). (iv) Notes to Consolidated Financial Statements (pages 19 to 22). (v) Report of Independent Auditors (page 23). 2. Index to Financial Schedule --------------------------- The following schedule for each of the three years ended December 31, 1996, to the Financial Statements is included on the indicated page in this Annual Report on Form 10-K: (i) Schedule II. Valuation and Qualifying Accounts (page 14). All schedules other than those indicated above are omitted because of the absence of the conditions under which they are required or because the required information is set forth in the financial statements and the accompanying notes thereto. 10 11 3. Exhibits -------- The following exhibits required to be filed as part of this Annual Report on Form 10-K have been included: (3) Articles of incorporation and by-laws (i) Restated Certificate of Incorporation dated March 9, 1984 filed as exhibit 3(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1984 (Commission File No. 0-255) and incorporated herein by reference. (ii) By-laws as amended through August 1, 1991 filed as exhibit 6(a)(19) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991 (Commission File No. 0-255) and incorporated herein by reference. (4)and(9) Instruments defining the rights of security holders, including indentures and voting trust agreements. Voting Trust Agreement dated as of April 15, 1987, attached as Annex A to the Prospectus, dated January 20, 1987, constituting a part of the Registration Statement on Form S-13 (Registration No. 2-57861) and incorporated herein by reference. The Company hereby agrees to furnish to the Commission upon request a copy of each instrument omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. (10) Material contracts. (i) Management Incentive Plan, filed as Exhibit 4(a)(1) to the Annual Report on Form 10-K for the year ended December 31, 1972 (Commission File No. 0-255), as amended by the Amendment effective January 1, 1974, filed as Exhibit 13-c to the Registration Statement on Form S-1 (Registration No. 2-51832), the Amendment effective January 1, 1977, filed as Exhibit 13(d) to the Registration Statement on Form S-1 (Registration No. 2-59744), and the Amendment effective January 1, 1980, filed as Exhibit 5(f) to the Registration Statement on Form S-7 (Registration No. 2-68938) and incorporated herein by reference. (13) Annual Report to Shareholders for 1996 (except for those portions which are expressly incorporated by reference in this Annual Report on Form 10-K, this exhibit is furnished for the information of the Commission and is not deemed to be filed as part of this Annual Report on Form 10-K). (21) List of subsidiaries of the Company. (23) Independent Auditors' Consent of Ernst and Young LLP. (23A) Independent Accountants' Consent of Price Waterhouse LLP. (27) Financial Data Schedule (submitted in EDGAR format only). (b) Reports on Form 8-K: ------------------- No reports on Form 8-K were filed during the last quarter of the Company's fiscal year ended December 31, 1996. 11 12 SIGNATURES ---------- Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 27th day of March, 1997. GRAYBAR ELECTRIC COMPANY, INC. By /S/ C. L. HALL ----------------------------- (C. L. Hall, President) Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Company, in the capacities indicated, on March 27, 1997. /S/ C. L. HALL Director and President - ---------------------------------------- (Principal Executive Officer (C. L. Hall) and Principal Financial Officer) /S/ J. R. SEATON Director, Vice President - ---------------------------------------- and Comptroller (Principal (J. R. Seaton) Accounting Officer) /S/ A. A. BRZOSKI, JR Director - ---------------------------------------- (A. A. Brzoski, Jr.) /S/ T. S. GURGANOUS Director - ---------------------------------------- (T. S. Gurganous) /S/ R. H. HANEY Director (R. H. Haney) - ---------------------------------------- /S/ G. W. HARPER Director - ---------------------------------------- (G. W. Harper) /S/ G. J. McCREA Director - ---------------------------------------- (G. J. McCrea) /S/ R. L. MYGRANT Director - ---------------------------------------- (R. L. Mygrant) 12 13 /S/ R. D. OFFENBACHER Director - ---------------------------------------- (R. D. Offenbacher) /S/ I. ORLOFF Director - ---------------------------------------- (I. Orloff) /S/ R. A. REYNOLDS Director - ---------------------------------------- (R. A. Reynolds) /S/ G. S. TULLOCH, JR. Director - ---------------------------------------- (G. S. Tulloch, Jr.) /S/ C. R. UDELL Director - ---------------------------------------- (C. R. Udell) /S/ J. F. VAN PELT Director - ---------------------------------------- (J. F. Van Pelt) /S/ J. W. WOLF Director - ---------------------------------------- (J. W. Wolf) 13 14 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES ----------------------------------------------- SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS ---------------------------------------------
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Additions Balance Beginning Charged to at End of Period Income Deductions of Period Description --------- ---------- ---------- --------- ----------- FOR THE YEAR ENDED DECEMBER 31, 1996: Reserve deducted from assets to which it applies- Allowance for doubtful accounts $ 4,113,000 $ 2,004,000 $ 2,216,000 $ 3,901,000 Allowance for cash discounts 476,000 9,743,000 9,637,000 582,000 ----------- ----------- ----------- ----------- Total $ 4,589,000 $11,747,000 $11,853,000 $ 4,483,000 =========== =========== =========== =========== FOR THE YEAR ENDED DECEMBER 31, 1995: Reserve deducted from assets to which it applies- Allowance for doubtful accounts $ 3,801,000 $ 3,403,000 $ 3,091,000 $ 4,113,000 Allowance for cash discounts 495,000 9,559,000 9,578,000 476,000 ----------- ----------- ----------- ----------- Total $ 4,296,000 $12,962,000 $12,669,000 $ 4,589,000 =========== =========== =========== =========== FOR THE YEAR ENDED DECEMBER 31, 1994: Reserve deducted from assets to which it applies- Allowance for doubtful accounts $ 3,497,000 $ 2,287,000 $ 1,983,000 $ 3,801,000 Allowance for cash discounts 448,000 8,886,000 8,839,000 495,000 ----------- ----------- ----------- ----------- Total $ 3,945,000 $11,173,000 $10,822,000 $ 4,296,000 =========== =========== =========== =========== Amount of trade receivables written off against the reserve provided. Discounts allowed to customers.
14 15 INDEX TO EXHIBITS 16 INDEX TO EXHIBITS ----------------- Exhibits -------- (3) Articles of incorporation and by-laws. (i) Restated Certificate of Incorporation dated March 9, 1984................... (ii) By-laws as amended through August 1, 1991................................... (4)and(9) Instruments defining the rights of security holders, including indentures and voting trust agreements. Voting Trust Agreement dated as of April 15, l987, attached as Annex A to the Prospectus, dated January 20, 1987, constituting a part of the Registration Statement on Form S-13 (Registration No. 2-57861)................ (10) Material contracts. (i) Management Incentive Plan, filed as Exhibit 4(a)(1) to the Annual Report on Form 10-K for the year ended December 31, 1972 (Commission File No. 0-255), as amended by the Amendment effective January 1, 1974, filed as Exhibit 13-c to the Registration Statement on Form S-1 (Registration No. 2-51832), the Amendment effective January 1, 1977, filed as Exhibit 13(d) to the Registration Statement on Form S-1 (Registration No. 2-59744), and the Amendment effective January 1, 1980, filed as Exhibit 5(f) to the Registration Statement on Form S-7 (Registration No. 2-68938)..................... (13) Annual Report to Shareholders for 1996 (except for those portions which are expressly incorporated by reference in this Annual Report on Form 10-K, this exhibit is furnished for the information of the Commission and is not deemed to be filed as part of this Annual Report on Form 10-K) (21) List of subsidiaries of the Company. (23) Independent Auditors' Consent of Ernst and Young LLP. (23A) Independent Accountants' Consent of Price Waterhouse LLP. (27) Financial Data Schedule (submitted in EDGAR format only). -------------- Incorporated by reference in this Annual Report on Form 10-K.
15 EX-13 2 ANNUAL REPORT TO SHAREHOLDERS FOR 1996 1 EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS FOR 1996 2 GraybaR [LOGO] 1996 ANNUAL REPORT 3 [PHOTO] Graybar's Directors are shown in the warehouse of the new St. Louis District Headquarters facility in Bel Ridge, Missouri. Front row, from left to right: George S. Tulloch Vice President, Secretary, and General Counsel John W. Wolf Vice President and Treasurer Robert A. Reynolds, Jr. Senior Vice President, Comm/Data Business Carl L. Hall President and Chief Executive Officer Richard H. Haney Senior Vice President, Electrical Business Thomas S. Gurganous District Vice President--Richmond District Golden W. Harper Vice President--Operations Second row, from left to right: Jack F. Van Pelt Vice President--Human Resources Gerard J. McCrea District Vice President--Northeastern Comm/Data District Robert L. Mygrant District Vice President--Tampa District Anthony A. Brzoski Vice President--Comm/Data Marketing Charles R. Udell Vice President--Electrical Marketing John R. Seaton Vice President and Comptroller Irving Orloff District Vice President--St. Louis District Richard D. Offenbacher District Vice President--Southeastern Comm/Data District 4 Company's Business Graybar Electric Company, Inc. is engaged internationally in the distribution of electrical and communications equipment and supplies primarily to contractors, industrial plants, telephone companies, power utilities, and commercial users. All products sold by the Company are purchased by the Company from others. Markets Served Electrical Contractor Commercial & Industrial Voice & Data Communications Power Utility International Capital Stock Data Number of Equity Security Holders as of December 31, 1996:
- ----------------------------------------------------- Title of Class Number of Security Holders - ----------------------------------------------------- Preferred Stock 109 Common Stock 108 Voting Trust Certificates for Common Stock 4,817 - -----------------------------------------------------
Dividend Data Common Stock, par value $1; stated value $20.
Dividends declared for year: 1996 1995 1994 - ------------------------------------------------------------------ First Quarter $ .30 $ .30 $ .30 Second Quarter .30 .30 .30 Third Quarter .30 .30 .30 Fourth Quarter $1.10 $1.10 $1.10 - ------------------------------------------------------------------
On September 12, 1996 a five percent stock dividend was declared to shareholders of record on January 15, 1997. Shares representing this dividend were issued on February 3, 1997. On the Cover Graybar employees based in the new Bel Ridge Center in St. Louis served as models in photographs that were taken for advertising literature and for a new "Career Opportunities" brochure. In the top photo is David Parentin, Truck Driver. In the middle photo are Beth Fluesmeier, Lease Administrator; Melvin Owens, Sales Representative; and Paul Perry, Data Communications Technical Specialist. In the third photo is Steve Boschert, Sales Representative. Contents Graybar Officers and Directors Inside Front Cover President's Letter 2 Market Review 4 Operations Review 10 Financial Review 13 Selected Consolidated Financial Data 13 Management's Discussion & Analysis of Financial Condition and Results of Operations 14 Consolidated Financial Statements 16 Report of Independent Auditors 23 District Management 24 Locations 26 1 5 LETTER TO SHAREHOLDERS A healthy economy, along with increasing penetration of our markets, led Graybar to another year of solid growth in 1996. Sales increased by 8% while net profits grew by more than 20%, providing record returns on sales and investment. In addition, Graybar achieved unprecedented productivity gains in 1996 with gross profit production per employee at an all-time high. To support our strategy of accelerated growth, the Company made investments in personnel, facilities, and technology. Six new branches opened, ten others moved to new, larger locations, and eight were renovated. While we have made significant new expenditures in personnel and facilities, our largest capital expenditures in recent years consistently have been in technology. Noteworthy advances in 1996 include: * Completion of local area networks. * Expansion of "Hot Key," which gives us on-line access to a steadily increasing base of key suppliers. * Bar coding, which was completed at all of our counter locations in 1996. Bar coding enables us to improve service to our customers while virtually eliminating pricing errors and inventory differences. * Expanded network capabilities, including the installation of personal computers at all of our Customer Service Representative, Telemarketing, and Quotation assignments. Because we view technology as strategic to our success, in December we appointed Kendal J. Klindworth to the new position of Vice President and Chief Information Officer. As such, he is responsible for providing the strategic direction for information services. Ken, as former General Manager of Information Systems, brings with him a wealth of knowledge and will be an immeasurable help in charting our course for the future. Other significant personnel changes in 1996 included the election of two new Directors: Anthony A. Brzoski and Charles R. Udell, Vice Presidents of Comm/Data and Electrical Markets, respectively. With their wide experience, both Tony and Chuck are sure to make positive contributions to the Board. In 1996 Karen L. Burkart joined corporate headquarters as Manager, Minority and Women Business Enterprise Development. Prior to joining Graybar, Karen had extensive experience as an industry consultant on Minority and Women in Business issues. We look forward to pursuing the many opportunities for Graybar in this market area. Graybar's unprecedented growth in recent years precipitated many personnel changes in addition to a record number of new employees. The dramatic increase in personnel heightened the need for increased focus on employee training. In response, we are implementing a structure to coordinate, deliver, and track the training appropriate for each employee. A Training Guide has been developed by our Director of Training, in consultation with our National Training Group, that defines the skills required for each job assignment. We are committed to identifying and delivering comprehensive training to meet the need for specialized skills in all of our growing markets. Efforts in continuous improvement are implemented through our Director of Quality. The following initiatives, among others, were completed in 1996: * Fifteen additional Graybar branches earned ISO 9002 Certification in 1996. 2 6 * The Company achieved a notable reduction in billing adjustments as a percentage of total transactions -- representing a major productivity gain along with improved customer service. * The "DocuNet" intranet, Graybar's private communications network, was made available company-wide. "Docunet" provides immediate on-line access to procedural information such as Operating Manuals, General Instructions, and ISO documentation. The increasing demands of our customers and competitive pressures dictate that we continually strive toward more efficient warehousing and delivery services. Our goal is to complete a customer's order in one shipment - -- with no errors. To that end, we are currently conducting an intensive analysis of warehouse logistics. To ensure that we understand the service needs of both our customers and suppliers, we began with customer and supplier interviews, followed by a critical appraisal of our distribution center pilot facilities in Houston and Los Angeles. As a result, we identified methods to improve material flow, and have more clearly defined our service strategy. We expect to see significant benefits from this study in 1997 as we implement new warehouse procedures. These will make our Graybar distribution network even more valuable to our customers and suppliers alike. Our international presence is concentrated in North America and the Caribbean with locations in Canada, Mexico and Puerto Rico. We serve additional customers throughout the world through Graybar International and our subsidiary in Singapore. The Company's locations in Canada continued to produce positive results with satisfactory growth. In early 1997, we will become majority shareholders in Harris & Roome of Nova Scotia. Our pleasure in this noteworthy event is diminished, however, by the death of H. C. "Kip" Roberts, former President of Harris & Roome. Kip was a widely respected leader in the electrical industry and a valued friend. Graybar continued with satisfactory growth in 1996 in both Electrical and Comm/Data Markets. We have momentum on our side and plan to build on that momentum in the coming years. /s/ Carl L. Hall St. Louis, Missouri Carl L. Hall March 1997 President 3 7 MARKET REVIEW Construction Market The Construction (Contractor) Market continues as the Company's largest market, representing approximately 40% of our total sales. Graybar's 1996 sales growth outpaced the industry. Stock sales contributed significantly to this growth, in spite of a decline in copper wire pricing. We attribute this growth to our commitment to supplier selectivity -- providing our customers preferred brand-name products -- and a continuing commitment for improved service. All counters have been equipped with bar code scanners to provide faster and more efficient service for our customers. Our "Hot Key" capabilities provide on-line computer assistance for special customer requirements. This direct electronic linkage allows our Customer Service Representatives (CSRs) to access key suppliers' data bases to locate needed products from their regional warehouses. Graybar's ON-SITE material management services, developed for the Engineering Constructor Market during the early 1990s, continued to gain market recognition as a value-added construction service during 1996. Through the use of electronic commerce and the latest in bar code technology, Graybar project teams provided specialized material management services for major constructor projects. In 1996, these projects ranged from a fast-track computer chip manufacturing facility, to a petrochemical plant, to a commercial building. ON-SITE has helped increase sales to engineering constructors, who represent a large potential in the Contractor Market. To enhance our overall service capabilities, we continued our commitment to sales specialization and training. Twenty-eight corporate-sponsored training schools were conducted with nine key suppliers. More than 600 employees attended these classes. A total of 160 employees participated in four lamp and lighting conferences at General Electric's Nela Park Training Institute. Square D classes were held regionally. Graybar-specific lighting schools were conducted at Lithonia, Cooper, and Hubbell Lighting Training Centers. The Company exhibited at two major contractor conventions in 1996. The National Electrical Contractors Association Exposition in Boston featured a 3,000 square foot "Flagship" counter demonstration. The theme at the Independent Electrical Contractors Exposition in Portland, Oregon, was "Net Profits," which focused on ways to increase profitability through computer technology. We exhibited GraybarNet(R), the Company's on-line ordering system. After nearly a century of conducting business together, Graybar and Square D announced a new national agreement that expanded the range of Square D products available from all Graybar branches in the United States. Graybar now represents Square D as its only line of electrical distribution and control equipment. This new commitment will enhance both companies' ability to anticipate, meet, and exceed customer needs. [PHOTOS] Square D sponsors this NASCAR racing car, which has been displayed at Graybar locations around the country. In the driver's seat is Charlie Vingara, Manager,Counter Sales at Hamilton, New Jersey. The car was featured at the grand opening of the Company's new Hamilton location in July. 4 8 Graybar capabilities and products were promoted throughout the year in trade publication advertisements and in our new Electrical Products Catalog. Commercial & Industrial Markets In 1996, Graybar's growth in the Commercial and Industrial (C&I) Markets increased significantly compared to prior years. Investments in technological tools have helped us offer value-added services to our C&I customers. Our National Account Managers promoted Graybar's extensive capabilities in areas that affect the customers' bottom lines. Graybar can assist with cost containment, product standardization, inventory reduction, process improvement, documented cost savings, and commodity management. We offer these customers significant cost-saving alternatives to their current procurement processes. We are committed to building Graybar's presence in the C&I Markets, and we continue to dedicate resources to these markets. The Company plans to position additional National Account Managers in our branches. These Managers will be responsible for specific accounts, and will help position Graybar as the total low-cost provider of goods and services to these key customers. Integrated Supply Integrated Supply continues to be a subject of great interest to many of our major industrial accounts. In 1995, Graybar helped form the Solutions Providers Alliance to address our customers' Integrated Supply issues. The members of the Alliance, in addition to Graybar, are Vallen Corporation, a supplier of safety supplies; and Kaman Industrial Technologies, a supplier of bearings and power transmission products. The primary mission of the Alliance is to provide our industrial customers with one contact for their maintenance, repair, and operations materials. Integrated Supply continues to be of interest to several of our industrial customers. The Company has entered into integrated supply agreements with several companies, and we continue to pursue other opportunities. Minority and Women Business Enterprise In 1996, the Company established the new position of Manager, Minority and Women Business Enterprise Development. Graybar is committed to seeking opportunities to form mutually profitable relationships with qualified minority- and women-owned businesses. These relationships will be made available to our C&I customers. "ON-SITE" Services Many of our national industrial customers have benefited from Graybar's ON-SITE capabilities. Graybar ON-SITE was initially developed for the Engineering Constructor Market, and offered a means of reducing acquisition cost and managing bulk electrical materials on capital projects. The key to ON-SITE is the set-up and maintenance of a temporary stocking location by Graybar at a job site. This program gained momentum throughout 1996. National industrial accounts as well as engineering constructors recognize Graybar ON-SITE as a significant value-added service. In 1996, ON-SITE provided benefits to key multiple-location national accounts by using nationally negotiated agreements and promoting product standardization for their capital projects. [PHOTO] In 1996, Graybar celebrated 100 years of nationwide distribution of incandescent lamps. Stan Davis (left), Vice President-Sales and Marketing, GE Lamps, presents a Centennial anniversary plaque to Carl Hall, President and CEO. Site inventory management is a value-added Graybar service for construction customers. BE&K, a major construction firm based in Birmingham, Alabama, depended on Graybar during the construction of this paper board manufacturing plant in Stevenson, Alabama. 5 9 MARKET REVIEW We continue to promote this unique service to both our engineering constructors and industrial customers. Comm/Data Markets In 1996, Graybar completed the transition to a specialized sales and marketing organization. This followed the successful pilot of the Western Comm/Data District in 1995. Three additional districts were established in 1996 -- the Northeastern, Southeastern, and Central Comm/Data Districts. During the past year, the four Comm/Data Districts supported 36 managers. Thirty-one managers led sales and customer service teams to grow the business with "private network" customers -- commercial, industrial, and contractor accounts; and five managers focused on "public network" accounts - -- the Bell operating companies, independent telephone companies, and the cable television industry. Specialization of the sales/service teams contributed to record sales in an economic environment that was depressed by severe pressure on cable pricing. The cable shortages in 1995 led to overcapacity in 1996. Comm/Data Products Emerging technology continued to fuel the demand for comm/data products as customers addressed their needs for more information processing. Typical of this demand was the usage of the Internet and the resulting need to expand telephone networks to handle the traffic. Increased need for higher processing speeds and capacity also was driven by new applications of existing technology, such as video systems, voice messaging, and teleconferencing. From the educational institutions to the health care industry, more information is being requested for decision-making. The Company continues to develop the sales and technical expertise that enables us to understand the customers' applications and assist them with product solutions. In 1996, Graybar had 52 representatives who held the Registered Communications Distribution Design (RCDD) certification from Building Industries Consulting Services International. The RCDD designation is an important credential for communications professionals who design data cabling systems. Graybar also has on staff 16 network system specialists with expertise in electronic network components, and five technical support specialists who design and prepare schematics on complete systems. Private Networks Market Sales to interconnect contractors in 1996 increased in a flat market. The integration of computer and telephone technology has progressed at a pace below industry expectations. Sales to data contractors were brisk, followed closely by sales to commercial and industrial users. The addition of electronic data networking components also added to the Company's sales growth. New product offerings announced in the fourth quarter are expected to add significantly to market growth in 1997. Public Networks Market The announcements of the proposed consolidations of Bell Atlantic with NYNEX, and Pacific Bell with Southwestern Bell, came as the Bell operating companies were entering new market opportunities created by legislation changes in 1996. The same legislation allowed other service providers to compete against the Bell operating companies for local telephone service revenues. Many service providers, including AT&T and several large cable companies, already have announced plans to offer local telephone service. Development of Graybar's focused public network sales/service teams positioned the Company to take full advantage of the opportunities created by the emergence of new business ventures within the public network. To further Graybar's interests with the public network companies, the position of Director of 6 10 Public Network Sales was created to coordinate all our sales efforts in this market. Kathy M. Mazzarella, who was formerly a National Product Manager, was named to that position. Similar changes took place with the utility, CATV, and long-distance companies, enabling Graybar to attain record sales in the Public Networks Market. National Comm/Data Accounts Graybar's sales to companies with multiple locations across the country increased substantially in 1996. Our service processes, which provide consistently excellent customer service levels and pricing standards, were cost-savers for these accounts. In the coming years, additional National Account Managers will continue to coordinate our efforts with these very important customers. Power Utility Market The Power Utility Market continues to change due to the evolution brought about by deregulation. Deregulation of this industry has triggered an explosion of competition and new opportunities -- both for energy providers and for those channels that serve the industry. We are seeing the effects of deregulation, with utilities merging, placing more emphasis on long-term agreements with suppliers, and looking for ways to reduce costs. These changes have created new market opportunities for Graybar to help utilities reduce their operating costs and increase their profits. Power Utility Market opportunities for Graybar are present in both the generating side of the business as well as in the revenue/marketing side. New opportunities for Graybar in the generating side are with the Energy Service Companies (ESCOs). These ESCOs will offer retro-fit lighting, alarms, motor controls, and communications equipment services. They will offer these products and services to their existing customer base and to new customers outside utilities' traditional service areas. On the revenue and marketing side, Graybar continues to pursue value-added service agreements and those products and service opportunities that help utilities reduce their costs. As utilities continue to grow through mergers and acquisitions, their geographic customer base also grows. Graybar is well-positioned to serve these needs, both regionally and nationally. International Markets Graybar International continued to focus its efforts on supporting our national account initiatives, paying particular attention to accounts with international facilities and engineering contractors with international projects. North America Although the Canadian economy exhibited little overall growth, Graybar Ontario and Harris & Roome, the Company's Canadian operations, continued to profitably gain market share. Graybar de Mexico in Mexico City was reorganized in 1996 to become better positioned to operate within the framework of current economic conditions in Mexico. Results of the reorganization have been favorable and the Company anticipates improved performance in a slowly improving Mexican economy in 1997. [PHOTO] Graybar branches honor their customers and suppliers with open houses and trade shows. Shown here are Denver employees Barb Kershenstein, Supervisor Office Services, and Barb Guidi, Senior Customer Service Representative, helping with their branch's 10th Annual Octoberfest. 7 11 MARKET REVIEW Latin America/Caribbean Miami International continued its solid performance in South American markets throughout 1996. Our focus on national accounts resulted in successful project business in Ecuador, Argentina, and Chile. Graybar Puerto Rico experienced the best year in its history in 1996. The Company maintained a strong position in the Contractor Market, while improving its national account business and Comm/Data Market results. Asia/Pacific Business throughout the Pacific Rim remained strong in 1996, and San Francisco International ended the year with record-breaking sales results. Sales to Japanese contractors continued to grow, while sales to United States contractors increased dramatically. Graybar-P&M (Singapore) increased sales in 1996 while supporting San Francisco International in the electrical markets, and showed dramatic improvement in sales of comm/data products to national account customers. Middle East/Africa Houston International produced favorable results in 1996 despite the presence of an overall weak economy throughout the Middle East. Maintenance and repair operations business with national account customers was a significant factor in the continued growth of this operation. Marketing Support Advertising and Sales Promotion The Marketing Services Group continues its support of the Company's marketing objectives with catalogs, direct mail, trade advertising, promotions, Graybar Digest product publications, customized supplier catalogs, and brochures. Integrated marketing communications became the focus in 1996. This ensured that advertising and sales promotion initiatives carried the consistent theme that Graybar is the source for "real solutions." A highlight of the year was the introduction of the new 1,184-page Electrical Products Catalog No. 40. It features 40,000 products from 140 brand preference suppliers. The latest publication techniques, such as digitized imaging and electronic file storage, were used to create the new catalog. As a result, future updating will be easier and faster. New features include a supplier index, section indexes, and supplier prefixes on each page. The popular Comm/Data Graybar Digest continued in 1996 with issues on broadband/fiber optic products, voice products/ computer telephony integration, LAN/WAN products, and premises wiring. Customer requests for the Digest are on the increase with our average mailing at 66,000 copies per issue. [PHOTO] The Company promoted its products and services with advertising created by Graybar's own advertising professionals. Each of the ads shown here earned Electrical Construction and Maintenance magazine's "Unforgettable Award," which recognized the ads' level of recall among readers, overall effectiveness, and design. 8 12 A Wiring Systems Catalog was produced in early 1996 to update the sectionalized Comm/Data Catalog. Successful national sales promotions included industry leaders such as AMP, GE Lamp, Greenlee, Hubbell, Klein Tools, Lutron, 3M, Ortronics, Panduit, Square D, Thomas & Betts, and Wiremold. The redesigned Graybar wall calendar was distributed to approximately 85,000 customers. In 1996, more than 40,000 requests for literature were handled by our national toll-free inquiry service line. To reinforce Graybar's service and product capabilities, ads were placed in Electrical Contractor, EC&M, CEE News, Purchasing, Cabling Installation and Maintenance, Cabling Business, Lightwave, Communications Week, and Outside Plant. Graybar advertising received eight industry awards for outstanding advertising, including recognition for three ads that earned EC&M magazine's "10 Most Unforgettable Ads for the Year" award. Counter Business Graybar counter sales continued their strong performance in 1996, exceeding all previous sales records. New "Flagship" counters and self-serve locations contributed to this growth with the addition of 15 new or remodeled counter facilities. Merchandising and supplier selectivity played key roles in counter sales growth by promoting upgraded products, Graybar capabilities, and strategic suppliers. Graybar Financial Services (GFS) Graybar's equipment leasing and financing group enjoyed a record year. Pre-tax profit grew significantly in an environment of stable interest rates, acceptable collections, and a growing lease portfolio. GFS continued to expand its customer service and sales organization to better service its accounts. GFS employees are processing more than 3,500 inquiries monthly. In 1996, more than 5,000 end-user customers had GFS leases while hundreds of contractors and interconnects regularly used GFS. Suppliers such as GE Lighting and Lucent Technologies participated in joint marketing programs, including training and development of specialized literature addressing the advantages to customers of leasing or financing entire system upgrades. World Series of Golf The Company continued its sponsorship of the World Series of Golf at Firestone Country Club, Akron, Ohio. Our Electrical and Comm/Data Markets were represented. A large contingent of key customers, suppliers, and Graybar hosts participated in this annual event. [PHOTO] Graybar's total counter business in 1996 exceeded $590 million, the highest ever. Contributing to that success were Ralph Vega, Assistant Counter Supervisor, and John Staack, Manager, Counter Sales, shown in the new Flagship Counter at Anaheim. 9 13 OPERATIONS REVIEW Corporate Purchasing Group During 1996, the Company completed the centralization of replenishment planning for all of Graybar's Comm/Data merchandise. All comm/data products for all locations are now purchased by Corporate Purchasing in St. Louis. This Corporate Purchasing Group also purchases electrical products inventories for the Dallas and St. Louis Districts, and for the Zone Service Centers. New Purchasing Software In June 1996, buyers in the Corporate Purchasing Group began converting lines from the old purchasing system to the new E3TRIM(R) system. E3TRIM(R) is an inventory management software application designed to help us improve customer service while reducing excessive inventory. By December 1996, all comm/data supplier lines were being purchased through this new system. The electrical product lines in the Dallas and St. Louis Districts, as well as the Zone Service Centers, also are planned on E3TRIM(R). Buyers and supervisors were trained on the new planning system, which is an exciting approach to inventory management. It will help improve both Graybar's profitability and customer service capabilities. Supplier-Assisted Inventory Management Graybar's Supplier-Assisted Inventory Management program (SAIM) enjoyed substantial growth during 1996. SAIM is the automated process whereby Graybar electronically advises suppliers what has been sold - by item, by location - on a daily basis. The supplier reviews the merchandise demand and plans stock replenishment to maintain an agreed-upon service level. This partnership approach benefits Graybar, our suppliers, and our customers. Five of Graybar's largest suppliers are now involved in company-wide planning and replenishment of our inventory. Additional strategic suppliers are now in pilot or testing phases, in preparation for SAIM in 1997. Warehouse Management The design and development of the Warehouse Management System (WMS) continued throughout 1996. The heart of WMS is a comprehensive software package that uses technology to control the flow of material and information within the warehouse. A complete review of all warehouse operational processes and functions is underway. This will result in improved processing for all warehouses and assist in the integration of WMS software. The net result will be a more efficient operating system, reduced costs, and improved customer service. A pilot installation is scheduled for 1997. Safety In 1996 David W. Hughes joined the corporate staff as National Safety Manager. This new position, which reports to the Vice President-Operations, is responsible for developing and implementing company-wide safety procedures. These procedures are designed to reduce the Company's exposure to work-related injuries and accidents, and ensure compliance to regulations established by safety agencies such as the Occupational Safety and Health Administration, [PHOTO] Mike Smith, Material Handler at the St.Louis Main House, checks inventory using a bar code scanner. 10 14 Department of Transportation, and Environmental Protection Agency. During 1996 Graybar developed new safety programs for Department of Transportation compliance, warehouse safety, and defensive driving, among others. Corporate headquarters and each district established local safety councils. In addition to reducing personal pain and suffering resulting from injuries, our Graybar safety program will help us eliminate unnecessary operating costs associated with medical bills, lost productivity, and potential regulatory fines. Corporate Price/Cost Services In 1996, a new inquiry mode (CPI) was implemented for use by Branch Managers and sales personnel. This valuable new tool makes review and maintenance of Customer Price Authorizations (CPAs) an easier task by providing all catalog item information with CPA information on one screen. With the CPI mode, customer exception reports have decreased and more consistent customer pricing has been attained. Also in 1996, work continued on a new price/cost maintenance system that will allow Graybar to take information from Trade Service and outside suppliers and electronically update our national database. This new system is scheduled for completion in 1997. New Locations Opened in 1996: Chicago, Illinois (Downtown) Gainesville, Florida Hamilton, New Jersey Jericho, New York Hayward, California Neenah, Wisconsin [PHOTO] Among the Company's new buildings in 1996 was the Bel Ridge Center in suburban St. Louis. This structure is the home of St. Louis District Headquarters, the Corporate Purchasing Department, Marketing Technical Services Group, Graybar Financial Services, Price/Cost Services Group, and Graybar International. 11 15 OPERATIONS REVIEW Information Systems Our computer infrastructure saw many changes during 1996. The conversion to frame relay is providing improved response time with the ability to utilize faster transmission speeds to support a distributed system. LAN (local area network) servers are in place in all locations having 10 or more personal computer workstations. All other locations will have servers installed during 1997. A total of 3,500 workstations are linked via Novell LANs. We have upgraded our back-up system in Kansas City, providing greatly improved application testing ability. During 1997 we will be installing Groupwise(R), a new E-mail system, to improve our company-wide communication and simplify both remote access and Internet access. Graybar is currently managing inventories at more than 40 customer locations and job sites. To facilitate customers' interactions with our computer and the use of these inventories for maintenance, manufacturing or construction needs, IS designed and is supporting a number of processes, such as bar code scanning, automatic replenishment and electronic data interchange (EDI). We have expanded to the entire Company a process improving automated cost recovery with suppliers. The Pittsburgh District was instrumental in developing this process, which completely automates maintenance of Customer Price Authorizations and provides accurate recovery amounts as orders are entered. It verifies the amount of recovery received from a supplier with the amount expected on each customer order. A task force has established a pilot program with several key suppliers. We plan to expand this process to additional supplier partners. The ability to check order status is now a part of Hot Key, our on-line communication tool with our suppliers. When CSRs need to check the status of an order for material being shipped from a supplier, they can check by directly accessing the supplier's computer records. The order status information from the supplier is displayed to the CSR in our system. We enhanced customer EDI capabilities with the addition of EDI quote processing in the Customer Order Entry mode. This allows us to process requests for quotations on-line and send electronic responses to our customers. We initiated our first step toward computer/telephone integration (CTI) with a personal computer application piloted in Nashville. Customers are identified by their telephone number or other unique identifiers. About 65 server site locations have access to the Electronic Catalog. These servers connect more than 700 workstations with access to the catalog. The balance of locations will have access to the catalog during 1997. The implementation of counter bar code check-out scanning is now complete in all locations. In 1997, dedicated access to the Internet will be available, allowing authorized users access from their workstations. The components to protect Graybar's internal network and data are now in place. We expect to make Internet access available early in 1997, following testing and a pilot program. 12 16 FINANCIAL REVIEW Selected Consolidated Financial Data (Stated in thousands except for per share data)
1996 1995 1994 1993 1992 =================================================================================================================== Sales $ 3,001,049 $ 2,774,368 $ 2,364,461 $ 2,041,473 $ 1,902,354 Less--Cash discounts (9,637) (9,578) (8,839) (8,306) (8,243) - ------------------------------------------------------------------------------------------------------------------- Net Sales 2,991,412 2,764,790 2,355,622 2,033,167 1,894,111 - ------------------------------------------------------------------------------------------------------------------- Cost of Merchandise Sold (2,453,962) (2,267,186) (1,934,925) (1,668,007) (1,564,929) - ------------------------------------------------------------------------------------------------------------------- Interest Expense (16,687) (16,577) (12,003) (9,810) (10,054) - ------------------------------------------------------------------------------------------------------------------- Provision for Income Taxes Current (28,599) (23,426) (15,225) (10,016) (6,601) Deferred (1,722) (2,408) 1,251 763 (493) - ------------------------------------------------------------------------------------------------------------------- Total provision for income taxes (30,321) (25,834) (13,974) (9,253) (7,094) - ------------------------------------------------------------------------------------------------------------------- Income before Cumulative Effect of Accounting Change 44,533 36,718 18,702 14,745 10,232 - ------------------------------------------------------------------------------------------------------------------- Cumulative effect on prior years of change in accounting for postretirement benefits -- -- -- (45,000) -- - ------------------------------------------------------------------------------------------------------------------- Net Income (Loss) 44,533 36,718 18,702 (30,255) 10,232 - ------------------------------------------------------------------------------------------------------------------- Income (Loss) Applicable to Common Stock 44,526 36,710 18,694 (30,265) 10,222 - ------------------------------------------------------------------------------------------------------------------- Average Common Shares Outstanding 4,948 4,750 4,873 5,018 4,870 - ------------------------------------------------------------------------------------------------------------------- Income (Loss) per Share of Common Stock 9.00 7.73 3.84 (6.03) 2.10 - ------------------------------------------------------------------------------------------------------------------- Cash dividends per share 2.00 2.00 2.00 2.00 2.00 - ------------------------------------------------------------------------------------------------------------------- Retained Earnings Balance, beginning of year 84,801 57,081 52,486 91,733 93,837 Add--Net income (loss) 44,533 36,718 18,702 (30,255) 10,232 - ------------------------------------------------------------------------------------------------------------------- 129,334 93,799 71,188 61,478 104,069 - ------------------------------------------------------------------------------------------------------------------- Less dividends Preferred ($1.00 per share) (7) (8) (8) (10) (10) Common (in cash) (9,480) (8,990) (8,729) (8,982) (8,282) Common (in stock) (4,629) -- (5,370) -- (4,044) - ------------------------------------------------------------------------------------------------------------------- (14,116) (8,998) (14,107) (8,992) (12,336) - ------------------------------------------------------------------------------------------------------------------- Balance, end of year 115,218 84,801 57,081 52,486 91,733 Proceeds on stock subscriptions, shares unissued 52 -- 39 51 -- Stock Outstanding Preferred 143 150 164 183 197 Common 98,321 89,206 91,859 89,098 85,719 - ------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 213,734 174,157 149,143 141,818 177,649 - ------------------------------------------------------------------------------------------------------------------- Total Assets 881,636 823,280 719,786 610,512 557,036 Long-term Debt $ 151,659 $ 91,257 $ 90,212 $ 63,621 $ 64,655 - ------------------------------------------------------------------------------------------------------------------- Adjusted for the declaration of 5% stock dividends in 1996 and 1992 and a 6.25% stock dividend in 1994. Prior to adjusting for the stock dividends, the average common shares outstanding for 1995, 1994, 1993 and 1992 were 4,524, 4,368, 4,498 and 4,157, respectively. This summary should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this annual report. ===================================================================================================================
13 17 FINANCIAL REVIEW Management's Discussion and Analysis of Financial Condition and Results of Operations (Stated in thousands except for share and per share data) RESULTS OF OPERATIONS 1996 Compared to 1995 Net sales in 1996 were 8.2% higher than in 1995. The higher net sales resulted from improvements in the market sectors of the economy in which the Company operates. The impact of inflation on sales and cost of sales was not significant in 1996. Gross margin in 1996 increased $39,846 (8.0%) compared to 1995 primarily due to the increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in 1996 compared to 1995 occurred largely because of adjustments in personnel complement and adjustments in compensation and related expenses. Interest charges increased slightly in 1996 compared to 1995 primarily due to increased levels of borrowing incurred to finance higher aggregate levels of inventory and receivables. Interest rates on 1996 short-term borrowings were generally lower than for the same period in 1995. Other income includes gains on sale of property of $7,313 and $2,055 in 1996 and 1995, respectively. The combined effect of the increases in gross margin and other income, together with the increases in selling, general and administrative expenses, interest expense and depreciation and amortization, resulted in an increase in income before provision for income taxes of $12,302 in 1996 compared to 1995. 1995 Compared to 1994 Net sales in 1995 were 17.4% higher than in 1994. The higher net sales resulted from improvements in the market sectors of the economy in which the Company operates. The impact of inflation on sales and cost of sales was not significant in 1995. Gross margin in 1995 increased $76,907 (18.3%) compared to 1994 primarily due to the increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in 1995 compared to 1994 occurred largely because of adjustments in personnel complement and adjustments in compensation and related expenses. Interest charges increased in 1995 compared to 1994 primarily due to increased levels of borrowing incurred to finance higher levels of inventory and receivables. Interest rates on 1995 short-term borrowings were generally higher than for the same period in 1994. Other income includes gains on sale of property of $2,055 in 1995. The combined effect of the increases in gross margin and other income, together with the increases in selling, general and administrative expenses, interest charges and depreciation and amortization, resulted in an increase in income before provision for income taxes and cumulative effect of the accounting change of $29,876 in 1995 compared to 1994. 14 18 Management's Discussion and Analysis of Financial Condition and Results of Operations (Stated in thousands except for share and per share data) 1994 Compared to 1993 Net sales in 1994 were 15.9% higher than in 1993. The higher net sales resulted from improvements in the market sectors of the economy in which the Company operates. The impact of inflation on sales and cost of sales was not significant in 1994. Gross margin in 1994 increased $55,537 (15.2%) compared to 1993 primarily due to the increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in 1994 compared to 1993 occurred largely because of adjustments in personnel complement and adjustments in compensation and related expenses. Interest charges increased in 1994 compared to 1993 primarily due to increased levels of borrowing incurred to finance higher levels of inventory and receivables. Interest rates on 1994 short-term borrowing were generally higher than for the same period in 1993. The combined effect of the increase in gross margin and the decrease in other income, together with the increases in selling, general and administrative expenses, interest charges and depreciation and amortization, resulted in an increase in income before provision for income taxes and cumulative effect of the accounting change of $8,678 in 1994 compared to 1993. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," on January 1, 1993 on the immediate recognition basis. The after-tax impact of the accounting change decreased 1993 earnings $45,000, or $9.42 per share. FINANCIAL CONDITION AND LIQUIDITY The financial condition of the Company continues to be strong. At December 31, 1996, current assets exceeded current liabilities by $231,984, up $76,103 from December 31, 1995. The current assets at December 31, 1996 were sufficient to meet the cash needs required to pay current liabilities. The Company does not have any plans or commitments which would require significant amounts of additional working capital. At December 31, 1996, the Company had available to it unused lines of credit amounting to $266,000. These lines are available to meet short-term cash requirements of the Company. Bank borrowings outstanding during 1996 and 1995 varied from a minimum of $38,000 and $77,000 to a maximum of $168,000 and $158,000, respectively. The Company has a $125,000 Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate. The credit agreement, which expires in May, 2001, has various covenants which limit the Company's ability to make investments, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreement. The Company intends to utilize this credit line primarily as a secondary source of borrowing for short-term financing requirements. In April, 1996, the agreement was amended to increase the commitment to $125,000 from the $80,000 commitment in 1995. There have been no borrowings against this credit line through December 31, 1996. The Company has funded its capital requirements from operations, stock issuances to its employees and long-term debt. In May, 1996, the Company received the proceeds from a fifteen-year note for $65,000 at a fixed interest rate of 7.36% with principal payable in semiannual installments beginning in May, 2001. The note agreement has various covenants which limit the Company's ability to make investments, pay dividends, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreement. In July, 1996, the Company received the proceeds from a ten-year note for $7,000 at a fixed interest rate of 7.74% with principal payable in quarterly installments beginning in November, 1996. Cash provided by operations during 1996 amounted to $36,586 compared to $13,265 cash used by operations in 1995. Cash provided from the sale of common stock and proceeds received on stock subscriptions amounted to $8,002 and $328 in 1996 and 1995, respectively. Additional cash of approximately $549 will be provided in 1997 as a result of payments to be made for stock subscribed to by employees under the 1995 Common Stock Purchase Plan. 15 19 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Income and Retained Earnings (Stated in thousands except for share and per share data)
For the Years Ended December 31, 1996 1995 1994 =========================================================================================== Sales, net of returns and allowances $ 3,001,049 $ 2,774,368 $ 2,364,461 Less--Cash discounts (9,637) (9,578) (8,839) - ------------------------------------------------------------------------------------------- Net Sales 2,991,412 2,764,790 2,355,622 - ------------------------------------------------------------------------------------------- Cost of Merchandise Sold (2,453,962) (2,267,186) (1,934,925) - ------------------------------------------------------------------------------------------- Gross Margin 537,450 497,604 420,697 Selling, General and Administrative expenses (409,259) (380,425) (339,557) Taxes, other than income taxes (26,922) (24,727) (21,952) Depreciation and amortization (19,862) (17,744) (15,999) - ------------------------------------------------------------------------------------------- Income from operations 81,407 74,708 43,189 Other Income, net 10,134 4,421 1,490 Interest Expense (16,687) (16,577) (12,003) - ------------------------------------------------------------------------------------------- Income Before Provision for Income Taxes 74,854 62,552 32,676 - ------------------------------------------------------------------------------------------- Provision for Income Taxes Current (28,599) (23,426) (15,225) Deferred (1,722) (2,408) 1,251 - ------------------------------------------------------------------------------------------- Total provision for income taxes (30,321) (25,834) (13,974) - ------------------------------------------------------------------------------------------- Net Income 44,533 36,718 18,702 - ------------------------------------------------------------------------------------------- Retained Earnings, beginning of year 84,801 57,081 52,486 Cash dividends- Preferred, $1.00 per share each year (7) (8) (8) Common, $2.00 per share each year (9,480) (8,990) (8,729) Common Stock dividend (4,629) -- (5,370) - ------------------------------------------------------------------------------------------- Retained Earnings, end of year $ 115,218 $ 84,801 $ 57,081 - ------------------------------------------------------------------------------------------- Net Income per share of Common Stock $ 9.00 $ 7.73 $ 3.84 - ------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements
16 20
Consolidated Balance Sheets December 31, (Stated in thousands except for share and per share data) 1996 1995 ========================================================================================================= ASSETS ========================================================================================================= Current Assets Cash $ 13,820 $ 21,033 Trade receivables (less allowances of $4,483 and $4,589, respectively) 342,323 344,232 Merchandise inventory 301,835 259,782 Other current assets 13,245 12,800 - --------------------------------------------------------------------------------------------------------- Total current assets 671,223 637,847 - --------------------------------------------------------------------------------------------------------- Property, at cost Land 21,894 19,921 Buildings 153,454 137,982 Furniture and fixtures 107,410 90,341 Capital equipment leases 26,138 22,732 - --------------------------------------------------------------------------------------------------------- 308,896 270,976 Less--Accumulated depreciation and amortization 122,444 110,843 - --------------------------------------------------------------------------------------------------------- 186,452 160,133 - --------------------------------------------------------------------------------------------------------- Deferred Income Taxes 11,793 14,354 - --------------------------------------------------------------------------------------------------------- Other Assets 12,168 10,946 - --------------------------------------------------------------------------------------------------------- $881,636 $823,280 - --------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------------------------------- Current Liabilities Notes payable to banks $ 68,282 $130,554 Current portion of long-term debt 15,075 13,479 Trade accounts payable 273,878 277,729 Accrued payroll and benefit costs 35,923 37,350 Other accrued taxes 9,164 8,957 Dividends payable 5,214 4,915 Other payables and accruals 31,703 8,982 - --------------------------------------------------------------------------------------------------------- Total current liabilities 439,239 481,966 - --------------------------------------------------------------------------------------------------------- Postretirement Benefits Liability 77,004 75,900 - --------------------------------------------------------------------------------------------------------- Long-term Debt 151,659 91,257 - --------------------------------------------------------------------------------------------------------- Shares at December 31, 1996 1995 - --------------------------------------------------------------------------------------------------------- Shareholders' Equity Capital stock- Preferred, par value $20 per share, authorized 300,000 shares-- Issued to shareholders 7,141 7,504 In treasury, at cost -- -- - --------------------------------------------------------------------------------------------------------- Outstanding 7,141 7,504 143 150 - --------------------------------------------------------------------------------------------------------- Common, stated value $20 per share, Authorized 7,500,000 7,500,000 Issued to voting trustees 4,684,709 4,228,414 Issued to shareholders 251,375 244,315 In treasury, at cost (20,035) (12,431) - --------------------------------------------------------------------------------------------------------- Outstanding 4,916,049 4,460,298 98,321 89,206 - --------------------------------------------------------------------------------------------------------- Common shares subscribed 1,110 9,008 Retained earnings 115,218 84,801 - --------------------------------------------------------------------------------------------------------- 214,792 183,165 Less--Subscriptions receivable 1,058 9,008 - --------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 213,734 174,157 - --------------------------------------------------------------------------------------------------------- $881,636 $823,280 - --------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements
17 21 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Cash Flows (Stated in thousands)
For the Years Ended December 31, 1996 1995 1994 ========================================================================================================== Cash Flows from Operations Net Income $ 44,533 $ 36,718 $ 18,702 ========================================================================================================== Adjustments to reconcile net income to cash provided (used) by operations - Depreciation and amortization 19,862 17,744 15,999 Deferred income taxes 1,722 2,408 (1,251) Gain on sale of property (7,313) (2,055) -- Changes in assets and liabilities: Trade receivables 1,909 (42,707) (44,891) Merchandise inventory (42,053) (48,300) (43,555) Other current assets (445) (527) (2,174) Other assets (1,222) (2,251) (1,556) Trade accounts payable (3,851) 19,073 64,813 Accrued payroll and benefit costs (1,427) 2,275 7,432 Other accrued liabilities 24,871 4,357 2,934 ========================================================================================================== (7,947) (49,983) (2,249) ========================================================================================================== Net cash flow provided (used) by operations 36,586 (13,265) 16,453 ========================================================================================================== Cash Flows From Investing Activities Proceeds from sale of property 10,497 4,136 415 Capital expenditures for property (44,865) (25,621) (26,963) ========================================================================================================== Net cash flow used by investing activities (34,368) (21,485) (26,548) ========================================================================================================== Cash Flows From Financing Activities Net increase (decrease) in notes payable to banks (62,272) 50,066 (1,706) Proceeds from long-term debt 72,000 14,000 35,000 Repayment of long-term debt (10,387) (10,862) (7,892) Principal payments under capital equipment leases (4,115) (2,975) (4,009) Sale of common stock 8,002 328 578 Purchases of treasury stock (3,471) (3,034) (3,218) Dividends paid (9,188) (8,884) (8,846) ========================================================================================================== Net cash flow provided (used) by financing activities (9,431) 38,639 9,907 ========================================================================================================== Net Increase (Decrease) in Cash (7,213) 3,889 (188) ========================================================================================================== Cash, Beginning of Year 21,033 17,144 17,332 - ---------------------------------------------------------------------------------------------------------- Cash, End of Year $ 13,820 $ 21,033 $ 17,144 - ---------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements
18 22 Notes to Consolidated Financial Statements for the Years Ended December 31, 1996, 1995 and 1994 (Stated in thousands except for share and per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Graybar Electric Company, Inc. and its subsidiary companies. All significant intercompany balances and transactions have been eliminated. Revenue Recognition Revenue from the sale of the Company's products is recognized upon shipment to the customer. Costs of the products are recorded as cost of merchandise sold when the related revenue is recognized. Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 those estimates. Merchandise Inventory Inventory is stated at the lower of cost (determined using the last-in, first-out (LIFO) cost method) or market. LIFO accounting is generally a conservative method of accounting that, compared with other inventory accounting methods, provides better matching of current costs with current revenues. Had the first-in, first-out (FIFO) method been used, inventory would have been approximately $30,644 and $32,583 greater than reported under the LIFO method at December 31, 1996 and 1995, respectively. Property and Depreciation The Company provides for depreciation and amortization using the straight-line method over the following estimated useful lives of the assets: - ------------------------------------------------------------ Buildings 42 years - ------------------------------------------------------------ Permanent fixtures-- Over the lives of the leased property respective leases - ------------------------------------------------------------ Furniture, fixtures and equipment 4 to 14 years - ------------------------------------------------------------ Capital equipment Over the lives of the leases respective leases - ------------------------------------------------------------ At the time property is retired, or otherwise disposed of, the asset and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to other income. Equipment under capital leases is recorded in property with the corresponding obligations carried in long-term debt. The amount capitalized is the present value at the beginning of the lease term of the aggregate future minimum lease payments. Maintenance and repairs are expensed as incurred. Major renewals and betterments that extend the life of the property are capitalized. The Company capitalizes interest expense on major construction and development projects while in progress. Description of Business and Credit Risk Graybar Electric Company, Inc. is engaged internationally in the distribution of electrical and communications equipment and supplies primarily to contractors, industrial plants, telephone companies, power utilities, and commercial users. All products sold by the Company are purchased by the Company from others. Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company's business activity is primarily with customers in the United States; however, the Company has limited sales activity in several international locations. The Company performs ongoing credit evaluations of its customers, and a significant portion of trade receivables is secured by lien or bond rights. In addition, export sales are usually guaranteed by letter of credit or advance payment arrangements. The Company maintains allowances for potential credit losses, and such losses historically have been within management's expectations. 2. INCOME TAXES The provision for income taxes recorded in the Consolidated Statements of Income and Retained Earnings is as follows:
Years Ended December 31: 1996 1995 1994 - ------------------------------------------------------------------- Federal income tax Current $25,057 $20,304 $13,335 Deferred 1,543 2,123 (951) State income tax Current 3,542 3,122 1,890 Deferred 179 285 (300) - ------------------------------------------------------------------- Financial statement income tax provision $30,321 $25,834 $13,974 - -------------------------------------------------------------------
19 23 CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes are provided based upon differences between the financial statement and tax bases of assets and liabilities. The following deferred tax assets (liabilities) are recorded at December 31:
Assets/(Liabilities) 1996 1995 - ------------------------------------------------------- Postretirement benefits $ 30,455 $ 30,018 Payroll accruals 5,792 5,074 Bad debt reserves 2,574 1,745 Inventory 1,973 1,692 Other deferred tax assets 7,232 4,664 Prepaid pension (4,086) (3,493) Fixed asset depreciation (12,639) (13,384) Fixed asset gains (5,362) (1,372) Other deferred tax liabilities (11,689) (8,972) - ------------------------------------------------------- $ 14,250 $ 15,972 - -------------------------------------------------------
Deferred tax assets included in Other Current Assets were $2,457 and $1,618 in 1996 and 1995, respectively. A reconciliation between the "statutory" federal income tax rate and the effective tax rate in the Consolidated Statements of Income and Retained Earnings is as follows:
Years Ended December 31: 1996 1995 1994 - ------------------------------------------------------------------- "Statutory" tax rate 35.0% 35.0% 35.0% State and local income taxes, net of federal benefit 3.3 3.3 3.4 Other, net 2.2 3.0 4.4 - ------------------------------------------------------------------- Effective tax rate 40.5% 41.3% 42.8% - -------------------------------------------------------------------
3. CAPITAL STOCK The Company's capital stock is owned by its employees and retirees. Neither common nor preferred stock may be sold by the holder thereof, except by first offering it to the Company. The Company may buy any common shares so offered at the price at which they were issued ($20) with appropriate adjustments for current dividends or may call all or part of the preferred stock at par plus accrued dividends. During 1995, the Company offered to eligible employees the right to subscribe to 575,000 shares of common stock at $20 per share in accordance with the provisions of the Company's Common Stock Purchase Plan dated October 9, 1995. This resulted in the subscription of 450,402 shares ($9,008). Subscribers under the Plan elected to make payments under one of the following options: (i) all shares subscribed for prior to January 19, 1996; (ii) a portion of such shares prior to January 19, 1996, and the balance in monthly installments through payroll deductions (or in certain cases where a subscriber is no longer on the Company's payroll, through pension deductions or direct monthly payments) over a 34-month period; or (iii) all shares pursuant to the installment method. Shares were issued and Voting Trust Certificates were delivered to subscribers as of January 19, 1996, in the case of shares paid for prior to January 19, 1996. Shares will be issued and Voting Trust Certificates will be delivered to subscribers on a quarterly basis, as of the tenth day of March, June, September and December to the extent full payments of shares are made in the case of subscriptions under the installment method. Shown below is a summary of shares reacquired and retired by the Company in the three years ended December 31:
Preferred Common Reacquired Retired Reacquired Retired - ------------------------------------------------------------ 1996 363 363 173,173 165,569 1995 684 744 151,009 144,286 1994 967 1,285 159,938 179,737 - ------------------------------------------------------------
4. LONG-TERM DEBT
December 31, Long-term debt was composed of: 1996 1995 - ------------------------------------------------------------------------ 7.36% note, unsecured, maturing May, 2011, installments of $3,095 due semiannually in each of the years 2001 through 2010 with final payment of $3,100 due in 2011 $ 65,000 $ - 6.25% note, unsecured, maturing June, 2004, installments of $7,000 due annually in each of the years 2000 through 2004 35,000 35,000 9.23% note secured by a first mortgage on various properties, maturing May, 2005, installments of $2,725 due annually in each of the years 1995 through 2004 with final payment of $2,750 due in 2005 21,825 24,550 4.78% to 8.75% capital equipment leases, various maturities 6,832 7,583 7.74% note, secured by facility, due in quarterly installments through August, 2006 6,125 - 7.67% note, unsecured, maturing April, 2000, installments of $2,000 due annually in each of the years 1996 through 2000 6,000 8,000 12.25% note secured by a first mortgage on various properties, due in monthly installments through June, 1999 4,977 7,824 7.75% note, secured by facility, due in quarterly installments through March, 2005 2,900 3,300 5.68% note, unsecured, maturing June, 1998, installments of $2,000 due annually in each of the years 1994 through 1998 2,000 4,000 7.00% Industrial Revenue Bond, secured by facility, maturing August, 2004, one installment due in 2004 1,000 1,000 - ----------------------------------------------------------------------- $151,659 $91,257 - -----------------------------------------------------------------------
20 24 Long-term debt matures as follows:
- ---------------------------------- 1998 $ 14,183 1999 10,684 2000 13,417 2001 17,016 2002-2011 96,359 - ---------------------------------- $151,659 - ----------------------------------
The present value of future minimum lease payments under capital leases as of December 31, 1996 was $11,236, of which $6,832 is included in long-term debt. The net book value of property securing various long-term debt instruments was $52,676 at December 31, 1996. Bank borrowings varied from a minimum of $38,000 and $77,000 to a maximum of $168,000 and $158,000 in 1996 and 1995, respectively. The average amount of bank borrowings outstanding during 1996 and 1995 amounted to approximately $98,000 and $122,000 at weighted average interest rates of 5.60% and 6.10%, respectively. The averages are based on the daily amounts outstanding during each year. In May, 1996, the Company received the proceeds from a fifteen-year note for $65,000 at a fixed interest rate of 7.36% with principal payable in semiannual installments beginning in May, 2001. The note agreement has various covenants which limit the Company's ability to make investments, pay dividends, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreement. In July, 1996, the Company received the proceeds from a ten-year note for $7,000 at a fixed interest rate of 7.74% with principal payable in quarterly installments beginning in November, 1996. The Company had unused lines of credit of approximately $266,000 as of December 31, 1996. Certain lines require maintenance of compensating balances of up to 5% of the available lines of credit. Included in these unused lines of credit is a $125,000 Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate. The credit agreement, which expires in May, 2001, has various covenants which limit the Company's ability to make investments, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreement. In April, 1996, the agreement was amended to increase the commitment to $125,000 from the $80,000 commitment in 1995. There have been no borrowings against this credit line through December 31, 1996. The carrying amounts of the Company's outstanding long-term debt and notes payable to banks approximate their fair values at December 31, 1996. 5. PENSION PLAN Pension and related expense was $6,940, $4,757 and $4,635 for each of the three years ended December 31, 1996, 1995 and 1994, respectively. The Company has a noncontributory defined benefit pension plan covering substantially all full-time employees. The plan provides retirement benefits based on an employee's final average earnings and years of service. Employees become 100% vested after five years of service, regardless of age. The Company's funding policy is to contribute the net periodic pension cost accrued each year, provided that the contribution will not be less than the ERISA minimum or greater than the maximum tax deductible amount. The actuarially computed components of the defined benefit pension plan expense for the three years ended December 31, are as follows:
1996 1995 1994 ------------------------------- Service cost - benefits earned during the year $ 5,263 $ 4,190 $ 4,249 Interest cost on projected benefit obligation 8,383 7,762 7,357 Actual return on plan assets (8,013) (16,200) 642 Net amortization of return on plan assets and unrecognized net asset 348 8,222 (8,660) ------- ------- ------- Total defined benefit plan expense $ 5,981 $ 3,974 $ 3,588 ======= ======= =======
The following table sets forth the plan's funded status for the two years ended December 31:
1996 1995 -------------------- Actuarial present value of benefit obligation: Vested benefits $ 74,800 $ 70,700 Nonvested benefits 15,300 14,000 -------- -------- Accumulated benefit obligation 90,100 84,700 -------- -------- Projected benefit obligation for service rendered to date 119,800 114,000 -------- -------- Plan assets at fair value, primarily common stocks and bonds 97,257 92,274 -------- -------- Projected benefit obligation in excess of plan assets (22,543) (21,726) -------- -------- Unrecognized prior service cost 4,375 5,370 Unrecognized net loss 34,689 33,116 Unrecognized net asset at January 1, 1987 (9,267) (10,426) -------- -------- Net pension asset recognized in the consolidated balance sheets $ 7,254 $ 6,334 ======== ========
The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.50% and 4.50%, and 7.25% and 4.25% in 1996 and 1995, respectively. The long-term rate of return on assets used in determining defined benefit plan expense was 9.50%, 9.25% and 9.75% in 1996, 21 25 1995 and 1994, respectively. The average remaining service lives of plan participants used to calculate the amortization of the unrecognized net asset at January 1, 1987 was 18 years. The Company also provides a defined contribution profit sharing and savings plan covering substantially all of its full-time employees. Annual contributions by the Company to the plan are at the discretion of management and are generally determined based on the profitability of the Company. Employees may also contribute to the plan subject to limitations imposed by federal tax law and ERISA. 6. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company and its subsidiaries provide certain health care and life insurance benefits for retired employees through the Retiree Welfare Plan (the Plan). Substantially all of the Company's employees may become eligible to participate in the Plan if they reach normal retirement age while working for the Company. Benefits are provided through insurance coverage with premiums based on the benefits paid during the year. The Company funds the Plan on a pay-as-you-go basis, and accordingly, the Plan has no assets at December 31, 1996 or 1995. Periodic postretirement benefit expense for the three years ended December 31 is as follows:
1996 1995 1994 ------------------------------ Service cost - benefits earned during the year $ 554 $ 443 $ 536 Interest cost on accumulated postretirement benefit obligation 6,105 6,398 6,149 Amortization of net loss from prior years 104 -- 122 ------ ------ ------ Net periodic postretirement benefit expense $6,763 $6,841 $6,807 ====== ====== ======
The following table sets forth the accumulated postretirement benefit obligation for the Company's postretirement benefit plans for the two years ended December 31:
1996 1995 ------------------- Retirees $64,700 $ 66,000 Fully eligible active plan participants 12,200 14,300 Other active plan participants 7,700 8,300 ------- -------- Accumulated postretirement benefit obligation 84,600 88,600 Unrecognized net loss (7,596) (12,700) ------- -------- Accrued postretirement benefit cost $77,004 $ 75,900
The discount rate used in determining net periodic postretirement benefit expense was 7.25%, 8.50% and 7.50% for 1996, 1995 and 1994, respectively. The discount rate used to determine the accumulated postretirement benefit obligation was 7.50% and 7.25% at December 31, 1996 and 1995, respectively. The health care cost trend rate used in determining net periodic postretirement benefit expense for all years was 6.50% for 1996 and 6.75% for 1995 and 1994. The health care cost trend rate used to determine the accumulated postretirement benefit obligation for all years was 6.75% and 6.50% at December 31, 1996 and 1995, respectively. A one percentage point increase in the health care cost trend rate would not have a material impact on the net periodic postretirement benefit expense or the accumulated postretirement benefit obligation. 7. NET INCOME PER SHARE OF COMMON STOCK The computation of net income per share of common stock is based on the weighted average number of common shares outstanding during each year. The average numbers of shares used in computing net income per share of common stock were 4,947,583, 4,750,519 and 4,873,048 in 1996, 1995 and 1994, respectively, adjusted for the declaration of a 5% stock dividend in 1996 and a 6.25% stock dividend in 1994. 8. COMMITMENTS Rental expense was $10,119, $8,819 and $8,420 in 1996, 1995 and 1994, respectively. Future minimum rental payments required under operating leases that have either initial or remaining noncancellable lease terms in excess of one year as of December 31, 1996 are as follows: Years ending December 31: - ------------------------------------------ 1997 $9,748 1998 8,466 1999 6,129 2000 3,883 2001 2,333 Subsequent to 2001 2,670 - ------------------------------------------
9. STATEMENTS OF CASH FLOWS During 1996, 1995 and 1994 income taxes paid totaled $31,468, $22,943 and $16,783; interest paid totaled $16,252, $16,222 and $11,987; and liabilities assumed in connection with capitalized leases totaled $4,500, $904 and $5,949, respectively. 22 26 REPORT OF INDEPENDENT AUDITORS ERNST & YOUNG LLP / / Gateway One / / Phone: 314 259 1000 [LOGO] Suite 1400 701 Market Street St. Louis, Missouri 63101 Report of Independent Auditors To the Shareholders and the Board of Directors Graybar Electric Company, Inc. We have audited the accompanying consolidated balance sheet of Graybar Electric Company, Inc. as of December 31, 1996, and the related statements of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of the Company, as of December 31, 1995, and for each of the two years in the period then ended were audited by other auditors whose report dated February 16, 1996, expressed an unqualifed opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1996 financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. February 18, 1997 /s/ Ernst & Young LLP 23 27 DISTRICT MANAGEMENT AS OF JANUARY 1, 1997 ============================================== New York District ============================================== Frank Mossa Keith E. Davis Vice President Operating Manager [PHOTO] James (Chip) Bateman Financial Manager ============================================== Boston District ============================================== William L. King Donald M. Block Vice President Sales Manager [PHOTO] Gerald G. Pollick Operating Manager Joseph P. Peduto Financial Manager ============================================== Pittsburgh District ============================================== Steven M. Schooley Wade V. Leidecker Vice President Sales Manager [PHOTO] C. Robert Smith Operating Manager Peter M. Wingrove Financial Manager ============================================== Cincinnati District ============================================== Kenneth L. Netherton James D. Hooper Vice President Sales Manager [PHOTO] David L. Mitchell Operating Manager Stephen C. Beckmann Financial Manager ============================================== Atlanta District ============================================== H. Bennett Wall D. Steven Smith Vice President Sales Manager [PHOTO] Danny R. Battles Operating Manager Darrel D. Schilling Financial Manager ============================================== Richmond District ============================================== Thomas S. Gurganous J. Wayne Andrews Vice President Sales Manager [PHOTO] Wallace H. Hancock Sales Manager Ernest L. Chappell, Jr. Operating Manager David E. Metz Financial Manager ============================================== Tampa District ============================================== Robert L. Mygrant Bruce E. Neilson Vice President Sales Manager [PHOTO] Robert C. Lyons Sales Manager Robert D. Wombacher Operating Manager Richard C. Hird Financial Manager ============================================== Chicago District ============================================== Richard A. Cole Thomas E. Walsh Vice President Sales Manager [PHOTO] John C. Fischer Operating Manager Martin J. Beagen Financial Manager ============================================== Minneapolis District ============================================== Robert L. Nowak Terrence J. Innes Vice President Sales Manager [PHOTO] Christopher O. Olsen Operating Manager Thomas E. Kinate Financial Manager 24 28 ============================================== St. Louis District ============================================== Irving Orloff Michael W. Fowler Vice President Sales Manager [PHOTO] John P. Mills Operating Manager D. Beatty D `Alessandro Financial Manager ============================================== Dallas District ============================================== Lawrence R. Giglio Peter J. Roettinger Vice President Sales Manager [PHOTO] Francis B. Roderick Sales Manager Thomas T. Townsend Operating Manager George D. Zackey Financial Manager ============================================== Seattle District ============================================== John C. Loff Larry T. Christensen Vice President Sales Manager [PHOTO] T. Peter Girard, Jr. Operating Manager Randall R. Harwood Financial Manager ============================================== Phoenix District ============================================== Gary D. Hodges Richard A. Mitchell Vice President Sales Manager [PHOTO] Jerry D. Nichols Operating Manager Ronald J. Grabar Financial Manager ============================================== Northeastern Comm/Data District ============================================== Gerard J. McCrea Vice President [PHOTO] ============================================== Southeastern Comm/Data District ============================================== Richard D. Offenbacher Vice President [PHOTO] ============================================== Central Comm/Data District ============================================== Alan L. Eddings Vice President [PHOTO] ============================================== Western Comm/Data District ============================================== Kenneth B. Sparks Vice President [PHOTO] 25 29 LOCATIONS AS OF JANUARY 1, 1997 CORPORATE OFFICE 34 North Meramec Avenue St. Louis, Missouri 63105 314 512-9200 ============================== New York District ============================== 21-15 Queens Plaza North Long Island City, New York 11101 718 392-2000 BRANCHES New York: Manhattan, Rochester, Albany, Syracuse, Hauppauge, Buffalo, Jericho New Jersey: Newark, North Brunswick, Teterboro, Hackettstown, Parsippany, Wanamassa, Hamilton INFORMATION SYSTEMS 11828 Lackland Road St. Louis, Missouri 63146 314 569-0006 ============================== Pittsburgh District ============================== 900 Ridge Avenue Pittsburgh, Pennsylvania 15212 412 323-5200 BRANCHES Ohio: Youngstown, Cleveland, Akron, Canton, Mansfield Pennsylvania: Greensburg Harrisburg, Allentown, Philadelphia West Virginia: Wheeling, Delaware: New Castle MID-ATLANTIC ZONE SERVICE CENTER 2124 Avenue C Bethlehem, Pennsylvania 18017 610 266-0220 ============================== Atlanta District ============================== 2050 Nancy Hanks Drive Norcross, Georgia 30071 770 441-5580 BRANCHES Georgia: Atlanta Midtown, Marietta, Riverdale, Savannah, Cartersville Alabama: Birmingham, Huntsville, Mobile South Carolina: Columbia, Greenville, Spartanburg, Hilton Head, Beaufort Tennessee: Knoxville, Chattanooga Florida: Pensacola Mississippi: Jackson MIDWEST ZONE SERVICE CENTER 2424 A North Main Street East Peoria, Illinois 61611 309 694-2341 ============================== Tampa District ============================== 801 North Rome Avenue Tampa, Florida 33606 813 253-8881 BRANCHES Florida: Sarasota, Lakeland, Orlando, Largo, Melbourne, North Tampa, Jacksonville, South Jacksonville, Tallahassee, Daytona Beach, Perrine, Miami, West Palm Beach, Tampa Utility, Florida City, Fort Myers, Fort Pierce, Naples, Pompano Beach, Gainesville Georgia: Kingsland ============================== Boston District ============================== 345 Harrison Avenue Boston, Massachusetts 02118 617 482-9320 BRANCHES Rhode Island: Cranston Massachusetts: Worcester, Springfield, Somerville Maine: Portland New Hampshire: Manchester Vermont: Rutland Connecticut: Hamden ============================== Cincinnati District ============================== 1022 West Eighth Street Cincinnati, Ohio 45203 513 621-0600 BRANCHES West Virginia: Charleston Ohio: Columbus, Dayton, Lima Kentucky: Lexington, Louisville Tennessee: Nashville ============================== Richmond District ============================== 1510 Tomlynn Street Richmond, Virginia 23230 804 354-1300 BRANCHES Virginia: Norfolk, Roanoke, Hampton, Chantilly North Carolina: Asheville, Raleigh, Winston-Salem, Charlotte, Greensboro, Wilmington South Carolina: Rock Hill Tennessee: Bristol, Johnson City Maryland: Baltimore, Lanham ============================== Chicago District ============================== 900 Regency Drive Glendale Heights, Illinois 60139 630 893-3600 BRANCHES Illinois: Naperville, Chicago Downtown Indiana: Fort Wayne, South Bend, Hammond, Indianapolis Michigan: Flint, Lansing, Grand Rapids, Kalamazoo, Auburn Hills, Kentwood, Livonia Ohio: Toledo 26 30 Northeastern Comm/Data District 1550 South Warfield Street Philadelphia, Pennsylvania 19146 215 336-2211 ============================== Minneapolis District ============================== 2300 East 25th Street Minneapolis, Minnesota 55406 612 721-3545 BRANCHES Minnesota: St. Paul, Duluth, Brooklyn Park, Burnsville, Plymouth, Rochester, Mankato Montana: Billings North Dakota: Fargo South Dakota: Sioux Falls, Brookings Wisconsin: Green Bay, Milwaukee, Marinette, Manitowoc, Madison, Neenah Southeastern Comm/Data District 2050 Nancy Hanks Drive Norcross, Georgia 30071 770 441-5580 ============================== Dallas District ============================== 4601 Cambridge Road Ft. Worth, Texas 76155 817 213-1200 BRANCHES Texas: San Antonio, Fort Worth Counter, Amarillo, Austin, Abilene, Cypress, Beaumont, Corpus Christi, Houston, Houston (Counter) North Dallas, Sherman, Lubbock, Kilgore, LaMarque, Dallas (Royal Lane), Texas Instruments, Houston Distribution Center, Tellepsen Counter, Oklahoma: Oklahoma City, Tulsa Arkansas: Little Rock, Conway Louisiana: Shreveport, Baton Rouge, Lake Charles, Harahan Central Comm/Data District 8170 Lackland Road Bel Ridge, Missouri 63114 314 512-0100 ============================== Phoenix District ============================== 3350 West Earll Drive Phoenix, Arizona 85017 602 269-2131 BRANCHES Arizona: Mesa, Tucson, Scottsdale Colorado: Colorado Springs, Denver, Englewood New Mexico: Albuquerque Texas: El Paso Nevada: Las Vegas, Henderson Utah: Salt Lake City, Orem California: Los Angeles, Anaheim, Costa Mesa, Long Beach, San Bernardino, San Diego, Santa Barbara, Van Nuys, Bakersfield, San Marcos, Santa Maria, San Diego (Downtown) Los Angeles Distribution Center Western Comm/Data District 1919 Sixth Avenue South Seattle, Washington 98124 206 292-4848 ============================== St. Louis District ============================== 8170 Lackland Road Bel Ridge, Missouri 63114 314 512-0100 BRANCHES Iowa: Davenport, Des Moines, Cedar Rapids Illinois: East Peoria, Springfield Missouri: Jefferson City, Kansas City, Springfield, St. Louis Counter Indiana: Evansville Kansas: Olathe, Wichita Nebraska: Omaha Tennessee: Memphis, Jackson ============================== Seattle District ============================== 1919 Sixth Avenue South Seattle, Washington 98134 206 292-4848 BRANCHES Washington: Spokane, Tacoma, Everett, Bellevue Oregon: Portland, Beaverton Idaho: Boise Alaska: Anchorage California: Oakland Counter, Fresno, Modesto, Sacramento, San Jose, Martinez, Hayward, San Francisco Downtown, Visalia, San Carlos (Counter) Nevada: Reno Hawaii: Aiea ============================== International ============================== 8170 Lackland Road Bel Ridge, Missouri 63114 314 512-0100 Miami International 10500 Southwest 186th Street Perrine, Florida 33157 305 252-0400 San Francisco International 2368 Lincoln Avenue Hayward, California 94545 510 259-0122 Houston International 6161 Bingle Road Houston, Texas 77293 713 507-9200 LOCATIONS Halifax, Nova Scotia Toronto, Canada San Juan, Puerto Rico Singapore Mexico City, Mexico Kitchener, Ontario Hamilton, Ontario Guelph, Ontario Windsor, Ontario 27 31 QUALITY *GraybaR [LOGO] SERVICE 32 Graybar Electric Company, Inc. 34 North Meramec Avenue St. Louis, Missouri 63105 EX-21 3 LIST OF SUBSIDIARIES OF THE COMPANY 1 LIST OF SUBSIDIARIES 2 EXHIBIT 21 ---------- GRAYBAR ELECTRIC COMPANY, INC. LIST OF SUBSIDIARIES -------------------- Graybar Foreign Sales Corporation, a Barbados corporation. Graybar International, Inc., a Missouri corporation doing business in the territory of Puerto Rico. Graybar Financial Services, Inc., a Missouri corporation. Graybar Electric de Mexico, S.A. de C.V., a Mexican corporation. Graybar Electric Limited, a Canadian corporation. Graybar Foundation, Inc., a Missouri corporation. Graybar Services, Inc., an Illinois corporation. Cognitive Training Corporation, a Missouri corporation. Distribution Associates, Inc., a Missouri corporation. Graybar Electric (Ontario) Limited, a Canadian corporation Graybar Holdings Limited, a Canadian corporation. Graybar-P&M International PTE LTD, a Singapore corporation. Duran Industries, Inc., a Texas corporation. EX-23 4 INDEPENDENT AUDITORS' CONSENT 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT OF ERNST AND YOUNG LLP 2 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Graybar Electric Company, Inc. of our report dated February 18, 1997, included in the 1996 Annual Report to Shareholders of Graybar Electric Company, Inc. Our audit also included the financial statements schedule of Graybar Electric Company, Inc. listed in Item 14(a) for the year ended December 31, 1996. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP St. Louis, Missouri February 18, 1997 EX-23.(A) 5 INDEPENDENT ACCOUNTANTS' CONSENT 1 EXHIBIT 23(A) INDEPENDENT ACCOUNTANTS' CONSENT OF PRICE WATERHOUSE LLP 2 800 Market Street Telephone 314 206 8500 St. Louis, MO 63101 Price Waterhouse LLP [LOGO] February 16, 1996 To the Board of Directors Graybar Electric Company, Inc. In our opinion, the consolidated balance sheet and the related consolidated statements of income and retained earnings and cash flows as of and for each of the two years in the period ended December 31, 1995 (appearing on pages 16 through 18 of the Graybar Electric Company, Inc. 1996 Annual Report to Shareholders which has been incorporated by reference in this Form 10-K Annual Report) present fairly, in all material respects, the financial position, results of operations and cash flows of Graybar Electric Company, Inc. and its subsidiaries as of and for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Graybar Electric Company, Inc. for any period subsequent to December 31, 1995. /s/ Price Waterhouse LLP Price Waterhouse LLP St. Louis, Missouri EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 13,820 0 342,323 3,901 301,835 671,223 308,896 122,444 881,636 439,239 151,659 98,321 0 143 115,270 881,636 2,991,412 2,991,412 2,453,962 2,453,962 456,043 (212) 16,687 74,854 30,321 44,533 0 0 0 44,533 9.00 9.00
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