-----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, MaSweWXanaCPiLjjMCyMu/posxUifHimXVILdOO6qZEs+0ooAhfq2ckPBfaWsGGY AChvAwkHMuRxBwr4ujNU2Q== 0000950114-00-000021.txt : 20000329 0000950114-00-000021.hdr.sgml : 20000329 ACCESSION NUMBER: 0000950114-00-000021 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 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: SEC FILE NUMBER: 000-00255 FILM NUMBER: 580649 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 COMPANY, INC. FORM 10-K 1 CONFORMED 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, 1999. ----------------- 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 incorporation (IRS Employer 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 28, 2000 - 5,864,858 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 28, 2000, was approximately $117,297,160. Pursuant to a Voting Trust Agreement, dated as of April 1, 1997, approximately 94% 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 for the fiscal year ended December 31, 1999 - Part II, Items 5-8. (2) Information Statement relating to the 2000 Annual Meeting of Shareholders - Part III, Items 10-13. 2 PART I ------ Item 1. Business - ------- -------- Graybar Electric Company, Inc. (the "Company") is engaged internationally in the distribution of electrical and communications products and integrated supply services 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 3,000 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 1999, the Company purchased a significant portion of its products from several major 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, cable, 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, 1999 and 1998, the Company had orders on hand which totaled approximately $471,557,000 and $252,052,000, respectively. The Company believes that the increase from 1998 to 1999 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, 1999 will be filled within the twelve-month period ending December 31, 2000. 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 nine (9) zone warehouses with both standard and specialized inventory products 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 12 Puerto Rico 1 Cincinnati, OH 9 Dallas, TX 29 Graybar Electric (Ontario) Ltd. Glendale Heights, IL 16 ------------------------------- Houston, TX 1 Canada 6 Minneapolis, MN 20 New York, NY 14 Graybar Electric Ltd. Norcross, GA 19 --------------------- Phoenix, AZ 28 Canada 18 Pittsburgh, PA 13 Richmond, VA 18 Graybar de Mexico, S.DE R.L. DE C.V. Seattle, WA 23 ------------------------------------ St. Louis, MO 17 Tampa, FL 22 Mexico City, Mexico 1 Graybar International PTE, Ltd. ------------------------------- Singapore 1 Zone Distributing Houses - ------------------------ Austell, GA 1 Bethlehem, PA 1 Cranbury, NJ 1 Dallas, TX 1 Fresno, CA 1 Joliet, IL 1 Peoria, IL 1 Stafford, TX 1 Taunton, MA 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 six 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 ------------------ ------------------- 1999 1998 1997 ------ ------ ------ Electrical Contractors 36.7% 38.2% 38.3% Industrial Plants 22.2 25.5 29.3 Telecommunication Companies 30.6 28.7 26.1 Private and Public Power Utilities 3.6 3.9 4.6 Integrated Supply 6.0 2.4 -- Miscellaneous .9 1.3 1.7 ------ ------ ------ 100.0% 100.0% 100.0% ====== ====== ======
At December 31, 1999, the Company employed approximately 3,200 persons in sales capacities. Approximately 1,500 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 one of the three largest distributors of electrical and comm/data products in the United States. The field is highly competitive, and the Company estimates that the three largest distributors 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, 1999, the Company employed approximately 8,900 persons on a full-time basis. Approximately 170 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, 1999, the Company operated offices and distribution facilities in 281 locations. Of these, 146 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 300,000 square feet, the average being approximately 34,000 square feet. As of December 31, 1999, approximately $25.0 million in debt of the Company was secured by mortgages on 17 buildings. Seven of these facilities are subject to a first mortgage securing a 9.23% note, of which $16.4 million in principal amount remains outstanding. Eight of these facilities are subject to first mortgages securing variable rate notes, of which $1.7 million in principal remains outstanding. A facility in Houston, Texas is subject to a first mortgage securing a 7.75% note, of which $2.2 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 $4.7 million in principal remains outstanding. Item 3. Legal Proceedings - ------- ----------------- There are presently no material pending legal proceedings which are expected to have a material impact on the Company or any one of its subsidiaries. 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. 6 7 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, 1999, (the "1999 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. Item 6. Selected Financial Data - ------- ----------------------- The selected financial data for the Company as of December 31, 1999 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 18 of the 1999 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 19 and 20 of the 1999 Annual Report and is incorporated herein by reference. 7 8 Item 7A. Quantitative and Qualitative Disclosures About Market Risk - -------- ---------------------------------------------------------- The Company's interest expense is sensitive to changes in the general level of interest rates. In this regard, changes in interest rates affect the interest paid on its debt. To mitigate the cash flow impact of interest rate fluctuations, the Company generally maintains a significant portion of its debt as fixed rate in nature by borrowing on a long-term basis. The following table provides information about financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted-average interest rates by expected maturity dates. Fair Market
Value 2000 2001 2002 2003 2004 Thereafter Total 12/31/99 ---- ---- ---- ---- ---- ---------- ----- ----------- Long-term debt principal payments by expected maturity dates, including current portion - Fixed rate debt 19,410 23,362 23,806 32,848 32,453 141,981 273,860 294,768 Average interest rate 6.92% 7.00% 6.98% 6.87% 6.91% 6.88% Variable rate debt 949 308 219 185 180 555 2,396 2,396 Average interest rate 8.43% 8.25% 8.18% 8.15% 8.11% 8.04% Notes payable to banks- Short-term notes 340,604 -- -- -- -- -- 340,604 340,604 Average interest rate 6.76%
The fair value of long-term debt is estimated by discounting cash flows using current borrowing rates available for debt of similar maturities. Fair value of the notes payable to banks approximates the carrying value due to the short-term maturity of the instruments. Foreign Exchange Rate Risk -------------------------- The Company conducts business in several foreign countries including Canada, Mexico, Puerto Rico and Singapore. Exposure from foreign currency exchange rate fluctuations is not material. 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 1999 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. 8 9 Item 9. Changes in and Disagreements with Accountants on Accounting and - ------- --------------------------------------------------------------- Financial Disclosure -------------------- None. 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 2000 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 1999 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, 1999 (page 21). (ii) Consolidated Balance Sheets, as of December 31, 1999 and December 31, 1998 (page 22). (iii) Consolidated Statements of Cash Flows for each of the three years ended December 31, 1999 (page 23). (iv) Consolidated Statements of Changes in Shareholders' Equity for each of the three years ended December 31, 1999 (page 24) (v) Notes to Consolidated Financial Statements (pages 25 to 28). (vi) Report of Independent Auditors (page 29). 2. Index to Financial Schedule --------------------------- The following schedule for each of the three years ended December 31, 1999, 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. 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, as amended, filed as Exhibit 4(i) to the Company's Registration Statement on Form S-1 (Registration No. 333-15761) and incorporated herein by reference. 10 11 (ii) By-laws as amended through September 9, 1999 filed as Exhibit 3(ii) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999 (Commission File No. 0-255) and incorporated herein by reference. (4)and(9) Voting Trust Agreements Voting Trust Agreement dated as of April 1, 1997, attached as Annex A to the Prospectus, dated January 21, 1997, constituting a part of the Company's Registration Statement on Form S-1 (Registration No. 333-15761) 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 1999 (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. (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, 1999. 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 28th day of March, 2000. 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 28, 2000. /S/ C. L. HALL Director and President ------------------------------------ (Principal Executive Officer (C. L. Hall) and Principal Financial Officer) /S/ R. A. COLE Director ------------------------------------ (R. A. Cole) /S/ T. F. DOWD Director ------------------------------------ (T. F. Dowd) /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/ W. L. KING Director ------------------------------------ (W. L. King) /S/ J. C. LOFF Director ------------------------------------ (J. C. Loff) /S/ G. J. McCREA Director ------------------------------------ (G. J. McCrea) 12 13 /S/ R. D. OFFENBACHER Director ------------------------------------ (R. D. Offenbacher) /S/ R. A. REYNOLDS, JR. Director ------------------------------------ (R. A. Reynolds, 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 Description of Period Income Deductions of Period ----------- --------- ---------- ---------- --------- FOR THE YEAR ENDED DECEMBER 31, 1999: Reserve deducted from assets to which it applies- Allowance for doubtful accounts $ 4,135,000 $ 4,090,000 $ 3,204,000 $ 5,021,000 Allowance for cash discounts 648,000 11,525,000 11,465,000 708,000 ----------- ----------- ----------- ----------- Total $ 4,783,000 $15,615,000 $14,669,000 $ 5,729,000 =========== =========== =========== =========== FOR THE YEAR ENDED DECEMBER 31, 1998: Reserve deducted from assets to which it applies- Allowance for doubtful accounts $ 3,962,000 $ 2,331,000 $ 2,158,000 $ 4,135,000 Allowance for cash discounts 665,000 11,855,000 11,872,000 648,000 ----------- ----------- ----------- ----------- Total $ 4,627,000 $14,186,000 $14,030,000 $ 4,783,000 =========== =========== =========== =========== FOR THE YEAR ENDED DECEMBER 31, 1997: Reserve deducted from assets to which it applies- Allowance for doubtful accounts $ 3,901,000 $ 2,196,000 $ 2,135,000 $ 3,962,000 Allowance for cash discounts 582,000 10,557,000 10,474,000 665,000 ----------- ----------- ----------- ----------- Total $ 4,483,000 $12,753,000 $12,609,000 $ 4,627,000 =========== =========== =========== =========== Amount of trade receivables written off against the reserve provided. Discounts allowed to customers.
14 15 INDEX TO EXHIBITS ----------------- Exhibits -------- (3) Articles of incorporation and by-laws. (i) Restated Certificate of Incorporation, as amended, filed as Exhibit 4(i) to the Company's Registration Statement on Form S-1 (Registration No. 333-15761). (ii) By-laws as amended through September 9, 1999 filed as Exhibit 3(ii) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999 (Commission File No. 0-255) (4)and(9) Voting Trust Agreements Voting Trust Agreement dated as of April 1, 1997, attached as Annex A to the Prospectus, dated January 21, 1997, constituting a part of the Company's Registration Statement on Form S-1 (Registration No. 333-15761) (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 1999 (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. (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 1999 1 [GRAYBAR LOGO] A N N U A L R E P O R T 1 9 9 9 [PHOTO] 2 GRAYBAR DIRECTORS - ------------------------------------------------------------------------------ [PHOTO] Standing (left to right): Gerard J. McCrea District Vice President--Northeastern Comm/Data District Carl L. Hall President and Chief Executive Officer Seated: Richard D. Offenbacher District Vice President--Southeastern Comm/Data District Charles R. Udell Vice President--Electrical Marketing Thomas S. Gurganous District Vice President--Richmond District [PHOTO] Standing (left to right): Jack F. Van Pelt Vice President--Human Resources Richard A. Cole District Vice President--Chicago District Seated: Thomas F. Dowd Vice President, General Counsel and Secretary Robert A. Reynolds, Jr. Senior Vice President, Comm/Data Business John C. Loff District Vice President--Seattle District [PHOTO] Standing: Richard H. Haney Senior Vice President, Electrical Business Seated: Golden W. Harper Vice President--Operations William L. King District Vice President--Boston District John W. Wolf Vice President and Treasurer 3 - ------------------------------------------------------------------------------ CAPITAL STOCK DATA Number of Equity Security Holders as of December 31, 1999:
- ------------------------------------------------------------------------------ Title of Class Number of Security Holders - ------------------------------------------------------------------------------ Preferred Stock 81 Common Stock 160 Voting Trust Certificates for Common Stock 5,634 - ------------------------------------------------------------------------------
DIVIDEND DATA Common Stock, par value $1; stated value $20.
Dividends declared for year: 1999 1998 1997 - ------------------------------------------------------------------------------ First Quarter $ .30 $ .30 $ .30 Second Quarter .30 .30 .30 Third Quarter .30 .30 .30 Fourth Quarter $1.10 $1.10 $1.10 - ------------------------------------------------------------------------------
On December 9, 1999 a five percent stock dividend was declared to shareholders of record on January 14, 2000. Shares representing this dividend were issued on February 1, 2000. CONTENTS Graybar Officers and Directors Inside Front Cover President's Letter 2 Market Review 4 Operations Review 13 Financial Review 17 District Management 30 Locations 32 COMPANY'S BUSINESS Graybar Electric Company, Inc. is engaged internationally in the distribution of electrical and communications products and integrated supply services 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 ON THE COVER Upper left: Anthony Pena, Selecting Supervisor, loads products onto a stock picker at the Fresno Regional and National Zone. Upper right: Claudia Davila, a Receiver at Fresno, uses bar code technology to receive products. Bottom: Dennis DeSousa, Vice President-Comm/Data Marketing, leads a briefing on the new VIPSM program. From left: Colin McCance, National Product Manager; Rob Bezjak, National Market Manager; DeSousa; and Kathy Mazzarella, Vice President-Corporate Accounts. 1 4 LETTER TO SHAREHOLDERS - ------------------------------------------------------------------------------ Graybar continued to outpace the industry in 1999 as sales reached beyond the $4 billion mark - doubling our annual figure of just six years ago. Record revenues and net income accompanied our 15% sales increase over the previous year. Orders on hand at year-end were nearly double the 1998 amount, indicating a positive start for the new year. We continue to invest in personnel and facilities to support our growth. In 1999, the Company added more than 1,000 employees, opened 12 new locations and continued the logistics rollout. The acquisition of three companies during the year augmented our expansion. Seven regional zone warehouses are now open, and six more are scheduled for the year 2000. The impact of the logistics initiative has been positive. With more inventory closer to our customers, we improve our percentage of first-time, one-pass order fill. The implementation of the logistics program also enables us to extend the life of our existing facilities and positions us for future growth. Training remains a high priority throughout Graybar. In addition to the online training available on our Virtual Campus, the Company provided 155 instructor-led classes during the year, with more than 2,600 employees participating. The Training Group also implemented "e-class," an instructor-led, online training method. This initiative, which allows "real time" interaction between participants and instructor, delivered training about our new Graybar Project Manager(TM) software to more than 2,000 Graybar employees. Year 2000 preparations progressed throughout the year. In addition to final checks of computer software and hardware, Y2K readiness included reviewing the equipment in our facilities, the products we sell and the Y2K viability of the companies with whom we do business. Consequently, the Company experienced no significant business disruption related to the Year 2000 rollover. The Company also computerized or upgraded a number of existing older systems, including the general ledger, pension and shareholder record systems. The Strategic Planning Group was very active in 1999. The group developed and presented to the Board of Directors a comprehensive strategic plan - identifying opportunities and the resources necessary to pursue those opportunities. Along with other activities, they were also involved in the identification, negotiation and acquisition of three companies. Late in the year, representatives of various departments, including Strategic Planning, met to develop a strategic direction for the Company's e-business. An aggressive plan was developed to enhance our present offering and to position Graybar to take advantage of emerging e-business opportunities. We persist in our ambition to be the leading electrical and comm/data distributor. Going forward, we will continue our focus on operational excellence, which not only leads to improved customer service, but also results in increased productivity and reduced costs. The most visible example of the Company's dedication to operational excellence is our new logistics program, but it is also evident in our on-going commitment to maintain our national ISO registration and in our efforts to create new valued-added programs and services such as Graybar Project Manager(TM) and VIP(SM) (Verified Independently for Performance). With the new proprietary Graybar Project Manager(TM) software, our personnel can track - electronically and on demand - large project jobs from inception to completion including approvals, release dates, change orders and billing status. Customers receive reports generated by Graybar Project Manager(TM) whenever they need them, making their project tracking easier and more efficient. The VIP(SM) program - introduced by our Comm/Data Business Group - is the only certification program in the industry that offers customers independent testing of complete cabling systems. Response to the VIP(SM) program has been very positive, with customers praising our efforts to bring independent channel testing to the market. "We continue to invest in personnel and facilities to support our growth." 2 5 LETTER TO SHAREHOLDERS - ------------------------------------------------------------------------------ Our international business remained focused on North America in 1999. In Canada, Harris & Roome closed another year of record sales and profits, while Graybar Ontario completed a profitable year well positioned for future growth. Puerto Rico and Mexico also had record sales and profits, increasing their market share. In Asia, Singapore enjoyed a year of record sales and profits. Early in the year, Konishi Electric, our authorized agent in Japan, became 10% owner of Graybar Singapore, positioning us for the expected increase in Japanese engineering constructor activity with our strategic customers in that marketplace. There were several significant changes in senior management in 1999: John R. Seaton, Vice President and Comptroller and Director, retired. John provided invaluable counsel in his role as a Director and Comptroller, and we were deeply saddened by his death in February. James H. Kipper was appointed Vice President and Comptroller succeeding Mr. Seaton. Dean A. DeSousa was appointed District Vice President of the new North Central Comm/Data District in a comm/data district realignment effective at the beginning of 2000. Frank H. Hughes was appointed Executive Vice President of Canada, and Ronald M. Radtke was appointed Vice President and General Manager of Graybar Ontario. Dennis J. Grousosky was appointed to the new position of Vice President-District Service Organization in Tampa. In January 2000, Tampa began piloting a new district organization that provides a channel of responsibility devoted exclusively to delivering service to our customers. Sales [GRAPH] Net Income [GRAPH] James R. Ford, Director of Electronic Commerce, announced his impending retirement, and Deborah L. Weis was appointed to fill that position and immediately begin work on the Company's e-business initiative. Continuing our efforts toward market specialization, Robert C. Lyons was appointed Director, Construction Market at Corporate Headquarters. This January, Peter J. Roettinger was named to a corresponding position as Director, Industrial Market. Pete Rodriguez was appointed to the new position of Director, Business Diversity at Corporate Headquarters. Pete is responsible for providing direction and focus for the Company's minority business program. Graybar marked its 70th year of employee-ownership in 1999. With the continued dedication of our employees and their active focus on our customers, management believes the Company will achieve its long-term objectives and is well positioned for further growth. /s/ C. L. Hall St. Louis, Missouri Carl L. Hall March 2000 President 3 6 MARKET REVIEW - ------------------------------------------------------------------------------ Sales and market specialization as well as excellent customer service are essential to Graybar's stated goal of being number one or two in every market we serve. The implementation of our logistics network and the consolidation of purchasing have enabled corporate marketing to take a more active role in analyzing and determining product offerings, while allowing branches to focus on meeting customer service needs. In 1999, we began to further refine our product marketing efforts and maximize our logistics strategy through enhanced supplier selectivity and by initiating category management, the practice of tracking and controlling products by stockkeeping units (SKU). [PHOTO] Corporate briefing introducing Graybar's new VIP(SM) program. The goals of category management include improved purchase costs, margin rates and service levels. Cross-functional category management teams, including representatives from Marketing, Logistics, Purchasing, Price/Cost, Information Systems and Districts, focus on improved service levels by managing the complete marketing mix - product, place, price and promotion. Our commitment to growing our business with large national customers continued with the development and implementation of Corporate Accounts organizations in both business groups. Corporate Accounts evolved from our successful National Account program, which provided uniform pricing and services to large multi-site customers. Part of their mission is to provide the appropriate coverage from corporate that promotes a high degree of interactivity between Graybar and these significant customers. Also during the year, a financial department was established at headquarters to provide centralized credit management services for Corporate Account customers. The introduction of new programs and software applications by our Electrical and Comm/Data Business Groups helped maintain Graybar's position in the forefront of our industry. These initiatives - Graybar Project Manager(TM) and VIP(SM) - are discussed in the Construction and Comm/Data Market sections. Along with these initiatives, the Company continues to lead our industry in providing market and product-specific training to employees. In 1999, in addition to upgrades and new modules on our own Virtual Campus online training program, we developed an Electrical Certificate Program to guide our employees through a series of product-focused training modules and factory schools. We also established a mentoring program to encourage interested employees to complete the Electrical Products Education Course (EPEC) sponsored by the National Association of Electrical Distributors (NAED). In addition, more than 1,500 employees received specialized product training at the 39 corporate-sponsored schools conducted with 11 key suppliers. At the seventh annual Graybar-only Comm/Data Training Conference, 300 delegates attended market and product-specific classes and viewed hands-on demonstrations presented by 81 participating suppliers. Graybar's single-line relationship with Square D continues to reward both companies with growth exceeding industry averages. We attribute much of this growth to our joint strategic planning efforts in areas such as electronic commerce, product training and merchandising. 4 7 MARKET REVIEW - ------------------------------------------------------------------------------ CONSTRUCTION MARKET Graybar maintained its leadership position in providing distribution services to the Construction Market as sales to this core customer group again outpaced the industry in 1999. We continued to implement our vision of being the "industry standard bearer" for project management services by introducing a new proprietary software program to manage direct ship project business. The Graybar Project Manager(TM) application was designed to recap, track, follow up, manage and report on the status of project jobs. This program was developed internally with considerable input from customers and our own field personnel. Graybar Project Manager(TM), along with our Interactive Quotations program and our Project Team concept, clearly demonstrates Graybar's commitment to being the industry leader in project management services. Consolidation in the Contractor Market continued in 1999. Contractor roll-up companies have acquired dozens of electrical contractors, as well as contractors in the HVAC, mechanical, janitorial and other building maintenance trades. Their business model is to provide Fortune 500 corporations and smaller firms with a one-stop source for the maintenance of all their building operations. Graybar is uniquely suited to serve these national roll-up customers who need a consistent service offering across both local and national market areas. Supporting our efforts to serve this type of contractor customer, we established a segment of our Corporate Accounts team focused specifically on the Construction Market. The Company promoted its capabilities and strengths at two major contractor conventions in 1999. At the National Electrical Contractors Association (NECA) Show, our exhibit theme was "Graybar - Providing Contractor Solutions for 130 Years." Graybar support at NECA also included our traditional "Fun Run" sponsorship, which we co-hosted with Square D. Graybar's theme at the Independent Electrical Contractors (IEC) Annual Convention was "Investing In Your Future - Through Education." Our booth included "Graybar Project Manager(TM) clearly demonstrates Graybar's commitment to being the industry leader in project management services." [PHOTO] Graybar Project Manager(TM) is being strongly supported with brochures and trade advertising. 5 8 MARKET REVIEW - ------------------------------------------------------------------------------ supplier presentations introducing new tools and laborsaving products. Graybar, GE Lighting and Square D co-sponsored the annual "Celebration `99" dinner during the convention. The Company entertained more than 300 contractor customers at the 1999 Carquest Autoparts 250 NASCAR race in St. Louis. Graybar, Cooper Bussmann and Panduit jointly sponsored a car in the July event at the Gateway International Raceway. This was the third annual Busch Grand National Series event in which Graybar has participated. COMMERCIAL AND INDUSTRIAL MARKETS The nature of the Commercial and Industrial (C&I) Markets at the turn of the century creates unprecedented opportunity for Graybar. The continued strategy by corporate America to leverage size, scale and purchasing power to impact profitability provides Graybar with a tremendous potential for sustainable growth with our C&I customers. Our double-digit growth in the C&I Markets in 1999 was the result of a continuing robust economy, our ability to outperform the competition, and our commitment to delivering the basic and value-added services required by our customers. Customers have many choices of where to place their business, but they look to Graybar and our supply chain partners to assist them with providing solutions to many of their problems. These opportunities require us to provide a growing array of value-added services, including integrated supply, on-site services, commodity management, cost reduction and inventory management programs. [PHOTO] With the "Premier Supplier of the Year Award" are (from left) Jeff Cook, Director of National Accounts; Ron Casbon, Bethlehem Steel; Richard Haney, Senior Vice President-Electrical Business; Bob Stein, Bethlehem Steel; and Bruce Judkins, Vice President, Corporate Accounts. In 1999, we continued our commitment to offering our industrial customers new products designed to improve the efficiency of their manufacturing locations. Products such as Square D's automation products, which include programmable logic controllers and variable frequency drives, are now being offered by more and more Graybar locations. Providing these products requires a high degree of technical expertise supported by the right amount of inventories located close to the customer. Our ability to implement our "Real Solutions" was best recognized in 1999 by Graybar receiving the Bethlehem Steel "Premier Supplier of the Year Award." This award cited Bethlehem Steel suppliers who have demonstrated their excellence in important areas such as quality, service and significant cost reduction. Among Bethlehem Steel's 7,500 suppliers, only 17 received this recognition. COMM/DATA MARKETS All Comm/Data Markets experienced significant sales increases in 1999, led by explosive growth in the public network sector. Companies continued to invest in their network infrastructures to support the demand for greater capacity and higher speeds of data and voice traffic. This trend is expected to continue for the near term, and Graybar is well positioned to provide the products and services customers will need to build the network infrastructure - - whether the customer is a reseller, end-user or service provider. The VIP(SM) (Verified Independently for Performance) program announced in August 1999 had an immediate impact on the entire industry. With VIP(SM), Graybar has clearly taken the lead in verifying 6 9 MARKET REVIEW - ------------------------------------------------------------------------------ that cabling systems perform as claimed by the manufacturers. VIP(SM) is the first and only program in the industry to offer independent testing of cabling systems by a neutral, third-party laboratory. VIP(SM) includes testing multiple combinations of cable and connector manufacturers, and it provides the option of independent verification that the cabling system performs as intended after it is installed. VIP1000, the first phase of the program, is designed to support gigabit transmissions. VIP2000, which was rolled out in early 2000, supports multiple gigabit signals plus video applications. With continued emphasis on specialized sales, marketing and service teams, we were successful in gaining share in each of our primary markets. Reseller Markets Resellers - voice interconnects and data contractors - represent the largest segment of our Comm/Data business, and our sales growth in 1999 was substantial. A renewed focus on voice interconnects in 1999, through redeployment of a dedicated interconnect sales force throughout the country, resulted in increased sales to these customers. This sales growth is expected to continue in the coming years as we build on the success of 1999. Sales to data contractors increased at a significant rate, despite an increase in the number of competitors entering the market. Graybar continues to be a leading distributor to data contractors by offering the best combination of products and services, the broadest and deepest inventory in the industry and a highly trained sales and service organization. End-User Markets Sales to commercial and industrial end-users increased in 1999, primarily due to the vertical alignment of our sales and service organization dedicated to supporting this market. This alignment "Graybar is well positioned to provide the products and services customers will need to build the network infrastructure." [PHOTO] Graybar's VIP(SM) program includes testing of complete cabling systems by a neutral third-party laboratory. 7 10 MARKET REVIEW - ------------------------------------------------------------------------------ allows our sales organization to concentrate on developing long-term relationships with end-user customers and positions Graybar to be the total solution provider for all their network infrastructure needs. In addition, our Network System Specialists (NSSs) offer a tremendous value to end-user customers because of their ability to design complete data networks, from the cabling system to the high-end hubs, routers and switches. This combination of the technical expertise of our NSSs and a specialized sales organization dedicated to end-users, resulted in a dramatic increase in project specifications in 1999. Through project specifications, Graybar influences the product selection of the end-user customer, strengthening our leadership position in the industry. Public Network/Service Provider Markets Sales to service providers increased at the highest rate of all our Comm/Data Markets in 1999. These customers represent the most growth potential for the next three to five years. Service providers are the companies that provide local access to voice, data and video services for business, government and residential customers. They have traditionally been the regional Bell operating companies, independent telcos, and cable television companies, but now also include competitive local exchange carriers, data local exchange carriers, internet service providers and interexchange carriers. With the Telecommunications Act of 1996, the number of new service provider companies is increasing at an unprecedented pace. With our specialized management, sales and service organization dedicated to this market, plus our nationwide logistics capabilities, Graybar has quickly become a leader in providing distribution services to this market. Our services include network design support, product kitting and bundling, testing services, inventory management and rack-and-stack. Service providers are requesting that Graybar perform these functions to allow them to concentrate on providing voice, data and video services to the market. POWER UTILITY MARKET With mergers and acquisitions reshaping the electric utility industry at an ever-increasing speed, the competitive drive toward improving service and reducing operating costs creates strong demand for leading edge distribution services. [PHOTO] Aaron Eaves, Supervisor, and Claudia Davila, Receiver, at the Fresno Regional Zone check the status of a shipment. 8 11 MARKET REVIEW - ------------------------------------------------------------------------------ In 1999, Graybar increased sales to utility companies substantially over the previous year, outpacing the industry's overall growth. Much of this growth results from selling Graybar's e-commerce capabilities to our utility customers and they, in turn, putting more value on Graybar services. We are currently piloting a Vendor Managed Inventory (VMI) program with one of our large utility customers. When fully implemented, the utility will be one of Graybar's first computer-to-computer VMI customers. Due to deregulation, investors in older, traditional power plants must reduce operational costs to meet the competitive challenges of the open market for power generation. Utilities are forming alliances with distributors that can help reduce product and service costs. Graybar was recently awarded the agreement to provide products to an alliance group with plants in eight states. Many utility companies are establishing energy service companies and acquiring electrical and mechanical contractors to help grow their business. These initiatives create excellent opportunities to sell the products and services offered by Graybar. INTERNATIONAL MARKETS Our international strategy of focusing on corporate accounts in strategic markets positioned Graybar to take full advantage of an improved overall global market in 1999. A reorganization of Graybar's export business consolidated our export personnel at the International Service Center in Houston, Texas. This gives us the flexibility to adjust quickly and to focus all of our personnel and assets on customers and markets that support our strategic goals, including our efforts to grow in the engineering constructor market. "Graybar increased sales to utility companies substantially over the previous year, outpacing the industry's overall growth." North America Harris & Roome (H&R) had another year of record sales and profits and increased their share in both the Electrical and Comm/Data Markets. H&R was awarded a Lucent franchise for Atlantic Canada. While Graybar Ontario faced a year of personnel changes in several key management positions, they finished the year profitably with a strong management team in place and well positioned for future growth. Graybar Ontario was awarded the Modicon High Tech franchise for all of eastern Ontario. Graybar Puerto Rico and Graybar de Mexico ended 1999 with record sales and profits, increasing their market share in electrical, comm/data and corporate accounts. 9 12 MARKET REVIEW - ------------------------------------------------------------------------------ Latin America/Caribbean The Latin America/Caribbean market remained flat in 1999. However, Graybar received contracts covering both MRO and construction projects for major refineries in El Salvador and Honduras. Our location in Chile was closed as the market there remained depressed and showed little promise of improvement in the near term. Business in Chile is now supported by the International Service Center in Houston. Europe/Middle East/Africa Business conditions in the Middle East remained slow as very few projects were resumed even as the price of oil increased and stabilized. Business from Europe remained flat due to the declining need to export U.S. products to this market. Graybar personnel assigned to these markets were refocused to support Singapore, and the results were immediate and impressive. Asia/Pacific The Asian market began a turnaround in mid-1999, and Singapore ended the year with record sales and profits. Throughout the year, Singapore and the International Service Center worked together to land several large orders for comm/data and fiber optic products. The International Service Center was successful in writing an MRO contract with a large customer in Shanghai, China. In addition, Singapore was awarded the Hubbell master distributor agreement for Southeast Asia. In February, Konishi Electric, our agent in Japan, became a 10% owner of Graybar Singapore. This alliance positions Singapore for the expected increase in Japanese engineering constructor activity with our strategic customers in that marketplace in 2000 and beyond. MARKETING SUPPORT Graybar Financial Services (GFS) Graybar's equipment leasing and financing subsidiary grew substantially over the previous year. The GFS sales team was expanded and restructured to improve field coverage. GFS now has eight field sales managers and a national account manager partnered with a team of sales representatives located in St. Louis. A customer survey conducted early in the year indicated that service was a key reason customers chose GFS over the competition. Unlike competitors, GFS assigns a dedicated lease administrator to each customer as their personal contact for all business conducted with GFS. Leading-edge technology enables our lease administrators to provide real time information to customers during the lease process. Credit decisions are now made within minutes and lease documents sent to customers electronically to expedite the process. An enhanced web site to be introduced in early 2000 will provide additional value-added capabilities for our reseller customers, strengthening our position as the preferred finance source and further differentiating Graybar in the marketplace. Counter Marketing Our counter marketing efforts in 1999 targeted medium to large electrical and comm/data customers and emphasized products that support the professional installer. Focusing on customers' preferred brands, counter displays created brand awareness and promoted local availability supported by inventory at our zone warehouses. Suppliers continue to show strong support for our counter marketing and worked with us to develop new plan-o-grams and packaging designs to enhance impulse sales. Plan-o-grams were made available on InfoLink, the Company's intranet, helping the counters establish a uniform image directed toward the professional installer. 10 13 MARKET REVIEW - ------------------------------------------------------------------------------ Our exclusive Graybar/supplier "Promotions In A Box" program continues to enhance customer loyalty at our counters. These pre-packaged kits introduce new products and maintain the focus on high-margin products from our key suppliers. We continue to analyze our counter service offering in the context of logistics and our ever-changing customer base. Electronic Commerce Significant enhancements were made to Graybar's core electronic commerce components in 1999. Electronic Data Interchange (EDI) continues to be an important productivity tool for customers and suppliers. We now use more than 20 ANSI X12 standard EDI transaction sets, which are fully integrated into our business application systems to achieve true computer-to-computer transmission of business transactions with customers and suppliers. GraybarNet(R), our order entry system, was completely Internet web enabled, and additional functions were added to improve the customer interface and streamline the order entry process. At the end of the year, we began a project to implement new technology designed to overcome the delays often inherent over the Internet and to further enhance the customer experience. Graybar's Electronic Catalog was expanded with new products in 1999. In addition to being fully integrated with GraybarNet(R) for order entry by established customers, a view-only version was placed on Graybar's web site to be available to anyone with Internet access. Our "Hot Key" capabilities were expanded to include 17 of Graybar's top suppliers. With "Hot Key," Graybar sales and service personnel have real time computer-to-computer access to these manufacturers' inventories for checking product availability. With several of these suppliers, "Hot Key" provides real time order status information. "A customer survey conducted early in the year indicated that service was a key reason customers chose GFS over the competition." [PHOTO] 11 14 MARKET REVIEW - ------------------------------------------------------------------------------ Graybar continues to take the lead in the industry, working with industry associations, manufacturers and customers to develop meaningful, standardized bar coding. Graybar bar codes shipments and documents, enabling customers to automate receiving, restocking, and accounts payable functions. We use manufacturer-applied bar codes that comply with commercial/industrial standards. In addition, when needed, we can label products to specific industry or customer specifications. Graybar also uses bar code technology for customer storeroom inventory management and replenishment. In December, the Company contracted with a leading e-business consulting group to help formulate our long-term electronic commerce business strategy. That group worked with Graybar managers to identify needs and opportunities. The Board of Directors and Officers reviewed the results of that effort, and the Company will begin to implement the strategy during the year 2000. Advertising and Sales Promotion Graybar's advertising efforts in 1999 were geared toward conveying a consistent service message and enhancing the awareness of our capabilities through a coordinated series of ads, trade press editorial, promotions and direct mail. Our advertising campaign targeting the MRO requirements of the Commercial and Industrial Markets has the theme, "Graybar. The Smart Way To Cut Hard Costs." This four-ad series focused on our supply chain management capabilities, while our Electrical Contractor Market initiatives continued with the "Real Solutions" campaign focused on brand-preferred suppliers and our service capabilities. The new VIP(SM) program was strongly supported with trade advertising and editorial directed at end-users. In addition, service and product messages targeting the reseller market were placed in market-focused publications. Trade press editorial continued as a major element of our marketing mix with significant electrical and comm/data articles covering various topics published throughout the year. Direct mail initiatives included two issues of the Graybar Digest featuring enhanced cabling systems and installer solutions and two editions of the Products Extra focused on commercial and industrial solutions and tools. NEC Invitational The NEC Invitational, successor to the World Golf Championships, provided an outstanding venue to host key customers in 1999. This tournament, held in August at Firestone Country Club in Akron, Ohio, featured 41 professional golfers from around the world. As a corporate sponsor, the Company entertained more than 400 guests during the event. Minority/Women-Owned Business Enterprises (MWBE) Graybar's signing of the "Telecommunications Industry Supplier Diversity Challenge" in 1999 highlighted our on-going commitment to minority and women-owned businesses. Partnerships and teaming agreements with MWBE businesses were developed and implemented during the year. In addition, we enhanced our tracking and reporting of MWBE customers and suppliers. [PHOTO] 12 15 OPERATIONS REVIEW - ------------------------------------------------------------------------------ Administrative Group The separation of administrative functions from customer service responsibilities continued in 1999 with the appointment of a National Administrative Manager reporting to the Vice President-Operations. This new position is responsible for the Company's administrative organization and the study and implementation of procedures to reduce expense and improve service. District Administrative Managers and Administrative Supervisors now lead the district and branch administrative staff. In 1999, the focus of Branch Administrators was redirected to relieve the Managers, Customer Service of all administrative tasks not directly related to improving customer service. These changes provide for more efficient operations as Managers, Customer Service concentrate exclusively on customer service and Branch Administrators have authority for more efficient paper flow and the identification and elimination of re-work issues. Corporate Purchasing The Corporate Purchasing Department grew dramatically in size and responsibility in 1999. All purchasing, with the exception of some locally managed commodity lines, was shifted to corporate, increasing the responsibility of the department from 500,000 to over 1,200,000 stockkeeping units and enabling the Company to plan our inventories from a national perspective. In addition, Corporate Purchasing bought inventory for the Company's new zone locations in Fresno, Joliet, Cranbury, Stafford and Taunton; and preparations were made for Youngstown, which is scheduled to open in early 2000. With our rapid growth, the need for a formal purchasing training program was clear. During the year, 59 buyers completed training on our E3TRIM(R) purchasing system, and 31 buyers received advanced level certification. "All purchasing, with the exception of some locally managed commodity lines, was shifted to corporate." [PHOTO] 13 16 OPERATIONS REVIEW - ------------------------------------------------------------------------------ Supplier Assisted Inventory Management (SAIM) SAIM has served us well during the last seven years as we worked with five key suppliers to manage inventory and streamline processes. Although we have continued to make progress, the Company is phasing out SAIM as we implement our zone warehouses. The process of creating a zone cluster involves revising branch demand history and projecting anticipated movement at the new support location. With our existing zones, we have demonstrated that we can efficiently maintain the required inventory using our E3TRIM(R) purchasing system. Price/Cost Services By the fourth quarter 1999, Price/Cost Services had assumed responsibility for maintaining local cost for all branch and zone locations, freeing branch personnel to concentrate on customer relationships and services. [PHOTO] A training program and manual were developed for the implementation of the District Pricing Coordinator (DPC) position. Each new DPC has participated in a two-day training program at corporate to provide detailed instruction on Customer Price Authorizations and Cost Recovery Programs as well as how to use automated reports to analyze margin rates and selling prices. The training provides a starting point and background information for the DPCs to begin analyzing and assisting sales personnel with pricing issues in their districts. Price/Cost Services continues to work with suppliers to update local and national costs via an electronic process. The latest initiative is the Industry Data Warehouse (IDW), a repository of pricing and product information from electrical suppliers that will allow us to extract information electronically and upload it directly into our database. This process will increase pricing accuracy and provide up-to-date product information as it becomes available from the suppliers. During the year, Price/Cost Services developed a database that provides the capability to review the effects of price changes before making the changes in the system. Using this review process helps prevent errors and provides additional inventory loss figures to marketing for loss recovery from suppliers. Cycle Counting of Inventory In 1999, the annual inventory physical count was replaced in all locations with cycle counting procedures. The cycle count method requires warehouse personnel to count a designated number of items each day. All items in the inventory were counted at least once during the year, while the fastest moving items were counted quarterly. Cycle counting results in improved customer service, allowing us to maintain more accurate inventories on a daily basis as well as eliminating the traditional business interruption associated with the annual physical inventory. 14 17 OPERATIONS REVIEW - ------------------------------------------------------------------------------ Customer Service In October, the Company recognized 13 outstanding Customer Service Representatives with the first annual "Excellence in Customer Service" awards. These National Customer Service Award winners were selected for their leadership and exemplary customer service over the course of the previous year. Safety Graybar's OSHA injury rate for 1999 was better than the industry average, and our vehicle accident rate inched down from the previous year. The Cincinnati District earned the Graybar President's Safety Award for the second consecutive year for achieving the Company's lowest injury rate. The Minneapolis District earned the Graybar Fleet Safety Award for the Company's lowest vehicle accident rate. Merchandise Investment The Company's merchandise investment increased in 1999 with the opening of five new regional zones. In addition, the Company invested in several large inventories for special customer projects. As we continue the rollout of the additional regional zones, we expect to aggressively redeploy merchandise investment to better serve our customers' requirements. "In 1999, the annual inventory physical count was replaced in all locations with cycle counting procedures." New Locations Opened in 1999 Northborough, Massachusetts Stevens Point, Wisconsin St. Cloud, Minnesota Phoenix (Mid-town), Arizona Collinsville, Illinois Monroe, North Carolina Hartford, Connecticut Ocala, Florida Huntington, West Virginia Aurora, Colorado Fresno, California (Regional Zone) Joliet, Illinois (Regional Zone) Cranbury, New Jersey (Regional Zone) Stafford, TX (Regional Zone) Taunton, Massachusetts (Regional Zone) [PHOTO] At 302,000 square feet, the Fresno Regional and National Zone is the Company's largest warehouse. 15 18 OPERATIONS REVIEW - ------------------------------------------------------------------------------ INFORMATION SYSTEMS The Company finalized Year 2000 preparations that began four years ago and moved its computer systems into the new year without incident. As part of the Y2K readiness, we upgraded or computerized several older systems, including the general ledger, pension and shareholder record systems. To support the Company's logistics network, a Warehouse Management System was introduced at our Austell location in June. This system employs radio frequency and bar code technology to automate warehouse processes. This technology will be rolled out to the regional zones beginning in early 2000. In addition, several system changes were made to support our logistics effort, including the redesign of system mortgaging and accommodations for a new national freight policy. Cycle counting was implemented, and cross docking (order consolidation) software was introduced to facilitate single customer shipments. A centralized accounts payables project introduced in July utilizes imaging, workflow and COLD (computer output to laser disk) technologies to capture, store and process supplier invoices online. Permanent records maintained on laser disk eliminate the need for paper media and provide online computer access to historical information. The St. Louis, Atlanta and Phoenix Districts currently use this application, and the remaining districts will be converted during 2000. "To support the Company's logistics network, a Warehouse Management System was introduced at our Austell location in June." In support of our e-business strategy, we began to build the infrastructure required to effectively process transactions via web technology. Our electronic catalog and GraybarNet(R) order entry will be incorporated into this project. Final testing was completed on a new data warehouse to replace our present decision support system. This system, which will be implemented in early 2000, will provide simplified user access and improved reporting tools. 16 19 FINANCIAL REVIEW - ------------------------------------------------------------------------------ TABLE OF CONTENTS Selected Consolidated Financial Data 18 Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Consolidated Financial Statements 21 Report of Independent Auditors 29 17 20 FINANCIAL REVIEW - ------------------------------------------------------------------------------------------------------------------ SELECTED CONSOLIDATED FINANCIAL DATA (Stated in thousands except for per share data)
1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------- SALES $ 4,311,405 $ 3,744,075 $ 3,348,496 $ 3,001,049 $ 2,774,368 Less--Cash discounts (11,465) (11,872) (10,474) (9,637) (9,578) - -------------------------------------------------------------------------------------------------------------------- NET SALES 4,299,940 3,732,203 3,338,022 2,991,412 2,764,790 - -------------------------------------------------------------------------------------------------------------------- COST OF MERCHANDISE SOLD (3,514,228) (3,042,176) (2,726,147) (2,453,962) (2,267,186) - -------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE (30,241) (23,998) (19,713) (16,687) (16,577) - -------------------------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES Current (43,899) (37,167) (29,750) (28,599) (23,426) Deferred (130) (4,919) (6,820) (1,722) (2,408) - -------------------------------------------------------------------------------------------------------------------- Total provision for income taxes (44,029) (42,086) (36,570) (30,321) (25,834) - -------------------------------------------------------------------------------------------------------------------- NET INCOME 64,659 59,544 52,963 44,533 36,718 - -------------------------------------------------------------------------------------------------------------------- INCOME APPLICABLE TO COMMON STOCK 64,654 59,539 52,957 44,526 36,710 - -------------------------------------------------------------------------------------------------------------------- AVERAGE COMMON SHARES OUTSTANDING 5,977 5,570 5,826 6,000 5,760 - -------------------------------------------------------------------------------------------------------------------- INCOME PER SHARE OF COMMON STOCK 10.82 10.69 9.09 7.42 6.37 - -------------------------------------------------------------------------------------------------------------------- Cash dividends per share 2.00 2.00 2.00 2.00 2.00 - -------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS Balance, beginning of year 193,838 149,226 115,218 84,801 57,081 Add--Net income 64,659 59,544 52,963 44,533 36,718 - -------------------------------------------------------------------------------------------------------------------- 258,497 208,770 168,181 129,334 93,799 - -------------------------------------------------------------------------------------------------------------------- Less dividends Preferred ($1.00 per share) (5) (5) (6) (7) (8) Common (in cash) (11,442) (10,031) (9,576) (9,480) (8,990) Common (in stock) (5,577) (4,896) (9,373) (4,629) -- - -------------------------------------------------------------------------------------------------------------------- (17,024) (14,932) (18,955) (14,116) (8,998) - -------------------------------------------------------------------------------------------------------------------- Balance, end of year 241,473 193,838 149,226 115,218 84,801 Proceeds on stock subscriptions, shares unissued 56 -- 37 52 -- STOCK OUTSTANDING Preferred 68 108 119 143 150 Common 118,270 103,690 103,749 98,321 89,206 - -------------------------------------------------------------------------------------------------------------------- $ 359,867 $ 297,636 $ 253,131 $ 213,734 $ 174,157 - -------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income (204) (836) -- -- -- - -------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 359,663 $ 296,800 $ 253,131 $ 213,734 $ 174,157 - -------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS 1,704,796 1,167,847 1,051,821 881,636 823,280 LONG-TERM DEBT $ 255,897 $ 269,570 $ 139,748 $ 151,659 $ 91,257 - -------------------------------------------------------------------------------------------------------------------- Adjusted for the declaration of 5%, 5%, 10% and 5% stock dividends in 1999, 1998, 1997 and 1996, respectively. Prior to adjusting for the stock dividends, the average common shares outstanding for 1998, 1997, 1996 and 1995 were 5,052, 4,805, 4,712 and 4,524, respectively.
This summary should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this annual report. 18 21 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 1999 COMPARED TO 1998 Net sales in 1999 were 15.2% higher than in 1998. 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 1999. Gross margin in 1999 increased $95,685 (13.9%) compared to 1998 primarily due to the increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in 1999 compared to 1998 occurred largely because of growth in personnel complement and increases in compensation and related expenses. In addition, continued implementation of a company-wide customer service and logistics project resulted in higher selling, general and administrative expenses in 1999 compared to 1998 due to increases in the Company's number of facilities and related staffing and start-up expenses. The increased expenses were anticipated by management and are expected to provide future benefits to the Company's results of operations. Interest expense increased in 1999 compared to 1998 primarily due to increased levels of borrowing incurred to finance higher aggregate levels of inventory and receivables. Interest rates on 1999 short-term borrowings were slightly higher than for the same period in 1998. Other income includes service charges for special services provided to one customer of $3,839 and $1,000 and gains on sale of property of $540 and $808 in 1999 and 1998, 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 $7,058 in 1999 compared to 1998. 1998 COMPARED TO 1997 Net sales in 1998 were 11.8% higher than in 1997. 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 1998. Gross margin in 1998 increased $78,152 (12.8%) compared to 1997 primarily due to the increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in 1998 compared to 1997 occurred largely because of growth in personnel complement and increases in compensation and related expenses. Interest expense increased in 1998 compared to 1997 primarily due to increased levels of borrowing incurred to finance higher aggregate levels of inventory and receivables. Interest rates on 1998 short-term borrowings were slightly lower than for the same period in 1997. Other income includes gains on sale of property of $808 and $2,280 in 1998 and 1997, 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 $12,097 in 1998 compared to 1997. 19 22 FINANCIAL REVIEW - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Stated in thousands except for share and per share data) FINANCIAL CONDITION AND LIQUIDITY The financial condition of the Company continues to be strong. At December 31, 1999 current assets exceeded current liabilities by $443,438, up $42,588 from December 31, 1998. The current assets at December 31, 1999 were sufficient to meet the cash needs required to pay current liabilities. The substantial increase in accounts receivable resulted primarily from the growth in sales experienced by the Company. The average number of days of sales in accounts receivable has increased slightly during 1999 and 1998. Merchandise inventory also increased significantly, in part because of the growth in sales, including specific inventory carried to support customer contract agreements. Inventory turnover decreased when comparing 1999 to 1998 due largely to a company-wide customer service and logistics project to redeploy inventory into a system of national zones, regional zones and branch locations. Although the project objective is to provide better customer service, reduce overall costs and reduce inventory as a percentage of sales, management expected a temporary increase in inventory,unrelated to sales volume, during the transition to the new system. This transition to the new customer service and logistics system is planned to be complete by mid-year 2001. This temporary increase in inventory investment is partially offset by a corresponding increase in trade accounts payable. The Company does not have any other plans or commitments that would require significant amounts of additional working capital. At December 31, 1999 the Company had available to it unused lines of credit amounting to $131,400. These lines are available to meet short-term cash requirements of the Company. Bank borrowings outstanding during 1999 and 1998 varied from a minimum of $14,000 and $19,000 to a maximum of $406,000 and $211,655, respectively. In July 1999 the Company entered into a $410,000 Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR). The credit agreement expires in July 2004. The Company intends to utilize the credit agreement as a primary source of short-term borrowings. The Company has funded its capital requirements from operations, stock issuances to its employees and long-term debt. In January 1998 the Company received the proceeds from a seven-year note for $25,000 at a fixed interest rate of 6.44% with principal payable in quarterly installments beginning in April 1998. In April 1998 the Company received the proceeds from a fifteen-year note for $75,000 at a fixed interest rate of 6.59% with principal payable in semiannual installments beginning in October 2003. In June 1998 the Company received the proceeds from a fifteen-year note for $40,000 at a fixed interest rate of 6.65% with principal payable in annual installments beginning in June 2003. The Revolving Credit Loan Agreement and certain other note agreements have 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 agreements. Cash used by operations during 1999 amounted to $258,944 compared to $2,749 cash provided by operations in 1998. Cash provided from the sale of common stock and proceeds received on stock subscriptions amounted to $14,413 and $300 in 1999 and 1998, respectively. Additional cash of approximately $590 will be provided in 2000 as a result of payments to be made for stock subscribed to by employees under the 1998 Common Stock Purchase Plan. Capital expenditures for property were $31,322, $28,977 and $27,342 for the years ended December 31, 1999, 1998 and 1997, respectively. Purchases of treasury stock were $5,394, $5,303 and $4,859 for the years ended December 31, 1999, 1998 and 1997, respectively. Dividends paid were $10,670, $9,802 and $9,550 for the years ended December 31, 1999, 1998 and 1997, respectively. IMPACT OF YEAR 2000 In prior years the Company discussed the nature and progress of its Year 2000 readiness efforts. In late 1999 the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The cost of remediating its systems did not have a material impact on the Company's results of operations in 1999. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems or the products and services of third parties with which it does business. The Company will continue to monitor its mission critical computer applications and those of its suppliers and customers throughout the year 2000. 20 23 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, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- SALES, NET OF RETURNS AND ALLOWANCES $ 4,311,405 $ 3,744,075 $ 3,348,496 Less--Cash discounts (11,465) (11,872) (10,474) - -------------------------------------------------------------------------------------------------------------------- Net Sales 4,299,940 3,732,203 3,338,022 - -------------------------------------------------------------------------------------------------------------------- COST OF MERCHANDISE SOLD (3,514,228) (3,042,176) (2,726,147) - -------------------------------------------------------------------------------------------------------------------- Gross Margin 785,712 690,027 611,875 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (593,236) (513,193) (456,686) TAXES, OTHER THAN INCOME TAXES (36,301) (32,415) (29,523) DEPRECIATION AND AMORTIZATION (27,176) (25,809) (22,285) - -------------------------------------------------------------------------------------------------------------------- Income from operations 128,999 118,610 103,381 OTHER INCOME, NET 9,930 7,018 5,865 INTEREST EXPENSE (30,241) (23,998) (19,713) - -------------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 108,688 101,630 89,533 - -------------------------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES Current (43,899) (37,167) (29,750) Deferred (130) (4,919) (6,820) - -------------------------------------------------------------------------------------------------------------------- Total provision for income taxes (44,029) (42,086) (36,570) - -------------------------------------------------------------------------------------------------------------------- NET INCOME 64,659 59,544 52,963 - -------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, BEGINNING OF YEAR 193,838 149,226 115,218 Cash dividends- Preferred, $1.00 per share each year (5) (5) (6) Common, $2.00 per share each year (11,442) (10,031) (9,576) Common Stock dividend (5,577) (4,896) (9,373) - -------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, END OF YEAR $ 241,473 $ 193,838 $ 149,226 - -------------------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE OF COMMON STOCK $ 10.82 $ 10.69 $ 9.09 - -------------------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements
21 24 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (Stated in thousands except for share and per share data)
December 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash $ 16,750 $ 20,252 Trade receivables (less allowances of $5,729 and $4,783, respectively) 588,631 460,016 Merchandise inventory 843,061 440,406 Other current assets 6,524 3,945 - ------------------------------------------------------------------------------------------------------------------- Total current assets 1,454,966 924,619 - ------------------------------------------------------------------------------------------------------------------- PROPERTY, AT COST Land 21,997 21,550 Buildings 184,765 174,736 Furniture and fixtures 136,567 123,044 Capital equipment leases 31,525 26,682 - ------------------------------------------------------------------------------------------------------------------- 374,854 346,012 Less--Accumulated depreciation and amortization 161,948 142,934 - ------------------------------------------------------------------------------------------------------------------- 212,906 203,078 - ------------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES 9,004 8,105 - ------------------------------------------------------------------------------------------------------------------- OTHER ASSETS 27,920 32,045 - ------------------------------------------------------------------------------------------------------------------- $1,704,796 $1,167,847 - ------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Notes payable to banks $ 340,604 $ 43,948 Current portion of long-term debt 20,359 16,475 Trade accounts payable 523,677 344,869 Accrued payroll and benefit costs 50,107 44,466 Other accrued taxes 13,552 12,439 Dividends payable 6,256 5,479 Other payables and accruals 56,973 56,093 - ------------------------------------------------------------------------------------------------------------------- Total current liabilities 1,011,528 523,769 - ------------------------------------------------------------------------------------------------------------------- POSTRETIREMENT BENEFITS LIABILITY 77,708 77,708 - ------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT 255,897 269,570 - ------------------------------------------------------------------------------------------------------------------- Shares at December 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Capital stock- Preferred, par value $20 per share, authorized 300,000 shares-- Issued to shareholders 3,412 5,386 In treasury, at cost -- -- - ------------------------------------------------------------------------------------------------------------------- Outstanding 3,412 5,386 68 108 - ------------------------------------------------------------------------------------------------------------------- Common, stated value $20 per share, Authorized 7,500,000 7,500,000 Issued to voting trustees 5,587,485 4,883,638 Issued to shareholders 337,757 326,586 In treasury, at cost (11,729) (25,706) - ------------------------------------------------------------------------------------------------------------------- Outstanding 5,913,513 5,184,518 118,270 103,690 - ------------------------------------------------------------------------------------------------------------------- Common shares subscribed 1,206 15,564 Retained earnings 241,473 193,838 Accumulated other comprehensive income (204) (836) - ------------------------------------------------------------------------------------------------------------------- 360,813 312,364 Less--Subscriptions receivable 1,150 15,564 - ------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 359,663 296,800 - ------------------------------------------------------------------------------------------------------------------- $1,704,796 $1,167,847 - ------------------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements
22 25 CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (Stated in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS Net Income $ 64,659 $ 59,544 $ 52,963 - -------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to cash provided (used) by operations - Depreciation and amortization 27,176 25,809 22,285 Deferred income taxes 130 4,919 6,820 Gain on sale of property (540) (808) (2,280) Changes in assets and liabilities: Trade receivables (128,615) (57,561) (50,117) Merchandise inventory (402,655) (51,092) (80,186) Other current assets (2,579) (972) 3,224 Other assets (2,565) (6,728) (4,232) Trade accounts payable 178,808 17,900 48,832 Accrued payroll and benefit costs 5,641 2,542 6,001 Other accrued liabilities 1,596 9,196 7,499 - -------------------------------------------------------------------------------------------------------------------- (323,603) (56,795) (42,154) - -------------------------------------------------------------------------------------------------------------------- Net cash flow provided (used) by operations (258,944) 2,749 10,809 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property 1,519 4,892 5,364 Capital expenditures for property (31,322) (28,977) (27,342) Investment in joint venture 6,690 9,571 (14,134) Other -- -- (2,275) - -------------------------------------------------------------------------------------------------------------------- Net cash flow used by investing activities (23,113) (14,514) (38,387) - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in notes payable to banks 296,656 (92,977) 61,966 Proceeds from long-term debt -- 140,000 -- Repayment of long-term debt (11,864) (14,664) (11,748) Principal payments under capital equipment leases (4,586) (4,060) (4,403) Sale of common stock 14,413 300 875 Purchases of treasury stock (5,394) (5,303) (4,859) Dividends paid (10,670) (9,802) (9,550) - -------------------------------------------------------------------------------------------------------------------- Net cash flow provided by financing activities 278,555 13,494 32,281 - -------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH (3,502) 1,729 4,703 - -------------------------------------------------------------------------------------------------------------------- CASH, BEGINNING OF YEAR 20,252 18,523 13,820 - -------------------------------------------------------------------------------------------------------------------- CASH, END OF YEAR $ 16,750 $ 20,252 $ 18,523 - -------------------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements
23 26 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Stated in thousands)
COMMON ACCUMULATED STOCK OTHER COMMON PREFERRED SUBSCRIBED, RETAINED COMPREHENSIVE STOCK STOCK UNISSUED EARNINGS INCOME TOTAL -------- --------- ----------- -------- ------------- --------- December 31, 1996 $ 98,321 $143 $ 52 $115,218 $ $213,734 Net income and comprehensive income 52,963 52,963 Stock issued 890 890 Stock redeemed (4,835) (24) (4,859) Advance payments (15) (15) Dividends declared 9,373 (18,955) (9,582) -------- ---- ---- -------- ----- -------- December 31, 1997 $103,749 $119 $ 37 $149,226 $ $253,131 ======== ==== ==== ======== ===== ======== Net income 59,544 59,544 Currency translation adjustments (836) (836) -------- Comprehensive income 58,708 -------- Stock issued 337 337 Stock redeemed (5,292) (11) (5,303) Advance payments (37) (37) Dividends declared 4,896 (14,932) (10,036) -------- ---- ---- -------- ----- -------- December 31, 1998 $103,690 $108 $ 0 $193,838 $(836) $296,800 ======== ==== ==== ======== ===== ======== Net income 64,659 64,659 Currency translation adjustments 632 632 -------- Comprehensive income 65,291 -------- Stock issued 14,357 14,357 Stock redeemed (5,354) (40) (5,394) Advance payments 56 56 Dividends declared 5,577 (17,024) (11,447) -------- ---- ---- -------- ----- -------- DECEMBER 31, 1999 $118,270 $ 68 $ 56 $241,473 $(204) $359,663 ======== ==== ==== ======== ===== ======== See accompanying Notes to Consolidated Financial Statements
24 27 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (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 $11,457 and $17,490 greater than reported under the LIFO method at December 31, 1999 and 1998, 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 products and integrated supply services 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. The Company maintains allowances for potential credit losses, and such losses historically have been within management's expectations. PENDING ACCOUNTING PRONOUNCEMENTS In June 1998 the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, which is required to be adopted in years beginning after June 15, 2000. Management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. 25 28 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 2. INCOME TAXES The provisions for income taxes recorded in the Consolidated Statements of Income and Retained Earnings are as follows:
Years Ended December 31: 1999 1998 1997 - ------------------------------------------------------------------------------ Federal income tax Current $39,126 $32,442 $26,248 Deferred 406 4,212 5,669 State income tax Current 4,773 4,725 3,502 Deferred (276) 707 1,151 - ------------------------------------------------------------------------------ Financial statement income tax provision $44,029 $42,086 $36,570 - ------------------------------------------------------------------------------
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) 1999 1998 - ----------------------------------------------------------------------------- Postretirement benefits $ 30,734 $ 30,734 Payroll accruals 7,443 6,929 Bad debt reserves 2,097 1,909 Other deferred tax assets 3,960 7,957 Inventory (1,889) (2,591) Prepaid pension (8,558) (7,061) Fixed asset depreciation (12,992) (12,861) Fixed asset gains (6,508) (6,287) Accounts receivable (1,446) (2,169) Other deferred tax liabilities (10,089) (14,348) - ----------------------------------------------------------------------------- $ 2,752 $ 2,212 - -----------------------------------------------------------------------------
Deferred tax liabilities included in Other Payables and Accruals were $6,252 and $5,893 in 1999 and 1998, 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: 1999 1998 1997 - ----------------------------------------------------------------------------- "Statutory" tax rate 35.0% 35.0% 35.0% State and local income taxes, net of federal benefit 3.0 3.4 3.4 Other, net 2.5 3.0 2.4 - ----------------------------------------------------------------------------- Effective tax rate 40.5% 41.4% 40.8% - -----------------------------------------------------------------------------
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 1998 the Company offered to eligible employees the right to subscribe to 1,000,000 shares of common stock at $20 per share in accordance with the provisions of the Company's Common Stock Purchase Plan dated October 12, 1998. This resulted in the subscription of 778,202 shares ($15,564). Subscribers under the Plan elected to make payments under one of the following options: (i) all shares subscribed for prior to January 22, 1999; (ii) a portion of such shares prior to January 22, 1999, 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 22, 1999, in the case of shares paid for prior to January 22, 1999. 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 - ------------------------------------------------------------------------------ 1999 1,974 1,974 267,736 281,713 1998 565 623 264,580 257,998 1997 1,190 1,132 241,764 242,675 - ------------------------------------------------------------------------------
26 29 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 4. LONG-TERM DEBT
DECEMBER 31, LONG-TERM DEBT WAS COMPOSED OF: 1999 1998 - ---------------------------------------------------------------------------- 6.59% note, unsecured, due in semiannual installments of $3,750 beginning in October 2003 through April 2013 $ 75,000 $ 75,000 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 $3,094 due in 2011 65,000 65,000 6.65% note, unsecured, due in annual installments of $3,636 in each of the years 2003 through 2013 40,000 40,000 6.25% note, unsecured, maturing June 2004, installments of $7,000 due annually in each of the years 2000 through 2004 28,000 35,000 6.44% note, unsecured, due in quarterly installments of $893 through January 2005 15,179 18,750 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 13,650 16,375 6.21% to 7.07% capital equipment leases, various maturities 11,921 8,448 7.74% note, secured by facility, due in quarterly installments through August 2006 4,025 4,725 7.75% note, secured by facility, due in quarterly installments through March 2005 1,700 2,100 7.67% note, unsecured, maturing April 2000, installments of $2,000 due annually in each of the years 1996 through 2000 0 2,000 Variable rate mortgages, secured by facilities, various maturities 1,422 1,649 Variable rate banker's acceptances, unsecured, various maturities 0 523 - ---------------------------------------------------------------------------- $255,897 $269,570 - ---------------------------------------------------------------------------- LONG-TERM DEBT MATURES AS FOLLOWS: - ---------------------------------------------------------------------------- 2001 $ 23,670 2002 24,025 2003 33,033 2004 32,633 2005-2013 142,536 - ---------------------------------------------------------------------------- $255,897 - ----------------------------------------------------------------------------
The present value of future minimum lease payments under capital leases as of December 31, 1999 was $14,910, of which $11,921 is included in long-term debt. The net book value of property securing various long-term debt instruments was $28,123 at December 31, 1999. Bank borrowings varied from a minimum of $14,000 and $19,000 to a maximum of $406,000 and $211,655 in 1999 and 1998, respectively. The average amount of bank borrowings outstanding during 1999 and 1998 amounted to approximately $175,000 and $98,000 at weighted average interest rates of 5.81% and 5.67%, respectively. The averages are based on the daily amounts outstanding during each year. In January 1998 the Company received the proceeds from a seven-year note for $25,000 at a fixed interest rate of 6.44% with principal payable in quarterly installments beginning in April 1998. In April 1998 the Company received the proceeds from a fifteen-year note for $75,000 at a fixed interest rate of 6.59% with principal payable in semiannual installments beginning in October 2003. In June 1998 the Company received the proceeds from a fifteen-year note for $40,000 at a fixed rate of 6.65% with principal payable in annual installments beginning in June 2003. The Company had unused lines of credit of approximately $131,400 as of December 31, 1999. Certain lines require maintenance of compensating balances of up to 5% of the available lines of credit or quarterly fees of up to thirty basis points of the committed lines of credit. In July 1999 the Company entered into a $410,000 Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR). The credit agreement expires in July 2004. The Company intends to utilize the credit agreement as a primary source of short-term borrowings. The Revolving Credit Loan Agreement and certain other note agreements have various convenants 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 agreements. The carrying amounts of the Company's outstanding long-term debt and notes payable to banks approximate their fair values at December 31, 1999. 5. PENSION AND OTHER POSTRETIREMENT BENEFITS 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 assets of the defined benefit pension plan are invested primarily in equity and fixed income securities and money market funds. 27 30 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 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, 1999 or 1998. The following table sets forth information regarding the Company's pension and other postretirement benefits as of December 31, 1999 and 1998:
Postretirement Pension Benefits Benefits -------------------- -------------------- 1999 1998 1999 1998 ---------------------------------------------- Accumulated benefit obligation $112,100 $116,000 $ 87,070 $ 90,000 -------- -------- -------- -------- Projected benefit obligation 157,700 151,300 -- -- Fair value of plan assets 144,015 122,133 -- -- -------- -------- -------- -------- Funded status (13,685) (29,167) (87,070) (90,000) -------- -------- -------- -------- Prepaid (accrued) benefit cost recognized in the balance sheet $ 18,360 $ 17,705 $(77,708) $(77,708)
Weighted average assumptions as of December 31 are:
Postretirement Pension Benefits Benefits ------------------- ---------------- 1999 1998 1999 1998 ------------------------------------------- Discount rate 8.00% 6.75% 8.00% 6.75% Expected return on plan assets 9.50% 9.50% -- -- Rate of compensation increase 5.00% 4.00% -- -- Health care cost trend on covered charges -- -- 7.25% 6.00%
The following presents information regarding the plans for the years ended December 31, 1999 and 1998:
Postretirement Pension Benefits Benefits -------------------- ---------------- 1999 1998 1999 1998 -------------------------------------------- Employer contributions $ 9,629 $ 13,953 $ 7,306 $ 7,211 Participant contributions -- -- 184 180 Benefits paid $(13,531) $(10,723) $(7,490) $(7,391) -------- -------- ------- -------
The net periodic cost recognized for the defined benefit pension plan was $8,973, $6,883 and $6,112 for each of the three years ended December 31, 1999, 1998 and 1997, respectively. The net periodic cost recognized for the postretirement benefit plan was $7,252, $6,811 and $6,817 for each of the three years ended December 31, 1999, 1998 and 1997, respectively. For measurement of the net periodic postretirement benefit cost, a 6.0% annual rate of increase in per capita cost of covered health care benefits was assumed for 1999 with the rate assumed to remain at that level. 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. 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 5,977,296, 5,569,878 and 5,826,791 in 1999, 1998 and 1997, respectively, adjusted for the declaration of 5%, 5% and 10% stock dividends in 1999, 1998 and 1997, respectively. 7. COMMITMENTS Rental expense was $24,559, $16,372 and $12,673 in 1999, 1998 and 1997, 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, 1999 are as follows: YEARS ENDING DECEMBER 31: - ---------------------------------------------------------------------------- 2000 $26,059 2001 22,075 2002 17,363 2003 13,255 2004 9,437 Subsequent to 2004 24,780 - ---------------------------------------------------------------------------- 8. STATEMENTS OF CASH FLOWS During 1999, 1998 and 1997 income taxes paid totaled $44,030, $36,602 and $26,773; interest paid totaled $26,976, $22,349 and $19,834; and liabilities assumed in connection with capitalized leases totaled $6,661, $9,962 and $0, respectively. The 1997 statement of cash flows includes the effect of the Company's majority ownership position in Harris & Roome Supply Limited as a result of additional shares purchased in May 1997. 28 31 [ERNST & YOUNG LETTERHEAD] Report of Independent Auditors To the Shareholders and the Board of Directors Graybar Electric Company, Inc. We have audited the accompanying consolidated balance sheets of Graybar Electric Company, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of income and retained earnings, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Graybar Electric Company, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP February 22, 2000 29 32 DISTRICT MANAGEMENT AS OF DECEMBER 31, 1999 - ------------------------------------------------------------------------------ - ---------------------------------- NEW YORK DISTRICT - ---------------------------------- Frank Mossa Vice President [PHOTO] Keith E. Davis Operating Manager James (Chip) Bateman Financial Manager - ---------------------------------- BOSTON DISTRICT - ---------------------------------- William L. King Vice President [PHOTO] Donald M. Block Sales Manager Gerald G. Pollick Operating Manager Joseph P. Peduto Financial Manager - ---------------------------------- PITTSBURGH DISTRICT - ---------------------------------- Steven M. Schooley Vice President [PHOTO] Wade V. Leidecker Sales Manager C. Robert Smith Operating Manager Peter M. Wingrove Financial Manager - ---------------------------------- CINCINNATI DISTRICT - ---------------------------------- Kenneth L. Netherton Vice President [PHOTO] James D. Hooper Sales Manager J. William Grindle Operating Manager Stephen C. Beckmann Financial Manager - ---------------------------------- ATLANTA DISTRICT - ---------------------------------- D. Steven Smith Vice President [PHOTO] John H. Hawfield Sales Manager Bertie M. Wilson Operating Manager Darrel D. Schilling Financial Manager - ---------------------------------- RICHMOND DISTRICT - ---------------------------------- Thomas S. Gurganous Vice President [PHOTO] J. Wayne Andrews Sales Manager Wallace H. Hancock Sales Manager T. N. (Nick) Fleming Operating Manager David E. Metz Financial Manager - ---------------------------------- TAMPA DISTRICT - ---------------------------------- Michael W. Fowler Vice President [PHOTO] Robert D. Wombacher Operating Manager Richard C. Hird Financial Manager - ---------------------------------- CHICAGO DISTRICT - ---------------------------------- Richard A. Cole Vice President [PHOTO] Thomas E. Walsh Sales Manager John C. Fischer Operating Manager Martin J. Beagen Financial Manager - ---------------------------------- MINNEAPOLIS DISTRICT - ---------------------------------- Robert L. Nowak Vice President [PHOTO] Christopher O. Olsen Operating Manager Thomas E. Kinate Financial Manager 30 33 DISTRICT MANAGEMENT AS OF DECEMBER 31, 1999 - ------------------------------------------------------------------------------ - ---------------------------------- ST. LOUIS DISTRICT - ---------------------------------- Thomas F. Williams Vice President [PHOTO] Cindy J. Johnson Operating Manager Reiders L. Abel Financial Manager - ---------------------------------- DALLAS DISTRICT - ---------------------------------- Lawrence R. Giglio Vice President [PHOTO] Thomas T. Townsend Operating Manager George D. Zackey Financial Manager - ---------------------------------- SEATTLE DISTRICT - ---------------------------------- John C. Loff Vice President [PHOTO] Larry T. Christensen Sales Manager Kevin L. Moehring Operating Manager Randall R. Harwood Financial Manager - ---------------------------------- PHOENIX DISTRICT - ---------------------------------- Gary D. Hodges Vice President [PHOTO] Richard A. Mitchell Sales Manager Michael D. Gaines 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] 31 34 LOCATIONS AS OF DECEMBER 31, 1999 - ------------------------------------------------------------------------------ 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: Rochester, Albany, Syracuse, Hauppauge, Buffalo, Jericho New Jersey: Newark, North Brunswick, Teterboro, Hackettstown, Parsippany, Wanamassa, Hamilton - ---------------------------------- 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, Williston Connecticut: Hamden, Hartford - ---------------------------------- PITTSBURGH DISTRICT - ---------------------------------- 900 Ridge Avenue Pittsburgh, Pennsylvania 15212 412 323-5200 BRANCHES Ohio: Youngstown, Cleveland, Akron, Canton, Mansfield Pennsylvania: Greensburg, Harrisburg, Allentown, Philadelphia, Erie West Virginia: Wheeling Delaware: New Castle INFORMATION SYSTEMS 11828 Lackland Road St. Louis, Missouri 63146 314 692-5700 - ---------------------------------- CINCINNATI DISTRICT - ---------------------------------- 1022 West Eighth Street Cincinnati, Ohio 45203 513 621-0600 BRANCHES West Virginia: Charleston, Huntington Ohio: Columbus, Dayton, Lima Kentucky: Lexington, Louisville Tennessee: Nashville - ---------------------------------- ATLANTA DISTRICT - ---------------------------------- 2050 Nancy Hanks Drive Norcross, Georgia 30071 770 441-5580 BRANCHES Georgia: Atlanta Midtown, Marietta, Fayetteville, Savannah, Cartersville Alabama: Birmingham, Huntsville, Mobile South Carolina: Columbia, Greenville, Spartanburg, Hilton Head, Beaufort Tennessee: Knoxville, Chattanooga Florida: Pensacola Mississippi: Jackson - ---------------------------------- 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, Monroe South Carolina: Rock Hill Tennessee: Bristol, Johnson City Maryland: Baltimore, Lanham MID-ATLANTIC ZONE SERVICE CENTER 2124 Avenue "C" Bethlehem, Pennsylvania 18017 610 266-0220 - ---------------------------------- TAMPA DISTRICT - ---------------------------------- 801 North Rome Avenue Tampa, Florida 33606 813 253-8881 BRANCHES Florida: Sarasota, Lakeland, Orlando, Pinellas, Melbourne, North Tampa, Tallahassee, Jacksonville, South Jacksonville, Daytona Beach, Perrine, Miami, West Palm Beach, Florida City, Fort Myers, Fort Pierce, Naples, Pompano Beach, Gainesville, Ocala - ---------------------------------- CHICAGO DISTRICT - ---------------------------------- 900 Regency Drive Glendale Heights, Illinois 60139 630 893-3600 BRANCHES Illinois: Naperville, Chicago Downtown, Morton Grove Indiana: Fort Wayne, South Bend, Hammond, Indianapolis Michigan: Flint, Lansing, Grand Rapids, Kalamazoo, Auburn Hills, Kentwood, Livonia Ohio: Toledo - ---------------------------------- MINNEAPOLIS DISTRICT - ---------------------------------- 2300 East 25th Street Minneapolis, Minnesota 55406 612 721-3545 BRANCHES Minnesota: St. Paul, Duluth, Brooklyn Park, Burnsville, Plymouth, Rochester, Mankato, St. Cloud Montana: Billings North Dakota: Fargo South Dakota: Sioux Falls, Brookings Wisconsin: Green Bay, West Allis, Marinette, Manitowoc, Madison, Neenah, Stevens Point MIDWEST ZONE SERVICE CENTER 2424 A North Main Street East Peoria, Illinois 61611 309 694-2341 - ---------------------------------- ST. LOUIS DISTRICT - ---------------------------------- 8170 Lackland Road Bel Ridge, Missouri 63114 314 512-0100 BRANCHES Iowa: Davenport, Des Moines, Cedar Rapids Illinois: East Peoria, Springfield, Collinsville Missouri: Jefferson City, Kansas City, Springfield, St. Louis (Counter) Indiana: Evansville Kansas: Olathe, Wichita Nebraska: Omaha Tennessee: Memphis, Jackson - ---------------------------------- 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), Sherman, Lubbock, Kilgore, LaMarque, Dallas (Royal Lane Counter), Houston (Tellepsen), Dallas Major Metro Oklahoma: Oklahoma City, Tulsa Arkansas: Little Rock, Conway, Springdale Louisiana: Shreveport, Baton Rouge, Lake Charles, Harahan 32 35 LOCATIONS AS OF DECEMBER 31, 1999 - ------------------------------------------------------------------------------ - ---------------------------------- SEATTLE DISTRICT - ---------------------------------- 1919 Sixth Avenue South Seattle, Washington 98134 206 292-4848 BRANCHES Washington: Spokane, Tacoma, Everett, Bellevue Oregon: Portland, Beaverton, Eugene Idaho: Boise Alaska: Anchorage, Fairbanks California: Oakland Counter, Fresno, Modesto, Sacramento, San Jose, Martinez, Hayward, San Francisco Downtown, Visalia, San Carlos (Counter) Nevada: Sparks Hawaii: Aiea - ---------------------------------- PHOENIX DISTRICT - ---------------------------------- 3350 West Earll Drive Phoenix, Arizona 85017 602 269-2131 BRANCHES Arizona: Mesa, Tucson, Scottsdale, Phoenix Midtown 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 Warehouse COMM/DATA DISTRICTS - ---------------------------------- CENTRAL COMM/DATA DISTRICT - ---------------------------------- 8170 Lackland Road Bel Ridge, Missouri 63114 314 512-0100 - ---------------------------------- NORTHEASTERN COMM/DATA DISTRICT - ---------------------------------- 1550 South Warfield Street Philadelphia, Pennsylvania 19146 215 336-2211 - ---------------------------------- SOUTHEASTERN COMM/DATA DISTRICT - ---------------------------------- 2050 Nancy Hanks Drive Norcross, Georgia 30071 770 441-5580 - ---------------------------------- WESTERN COMM/DATA DISTRICT - ---------------------------------- 1600 132nd Avenue, Northeast Bellevue, Washington 98005 425 468-5548 REGIONAL ZONES - ---------------------------------- ATLANTA REGIONAL AND NATIONAL ZONE - ---------------------------------- Woodlands Business Park Building 100 8180 Troon Circle Austell, Georgia 30168 678 945-9970 - ------------------------------------ CRANBURY REGIONAL AND NATIONAL ZONE - ------------------------------------ 4 Aurora Drive Suite 401 Cranbury, New Jersey 08512 609 409-8100 - ---------------------------------- DALLAS REGIONAL ZONE - ---------------------------------- 4601 Cambridge Road Fort Worth, Texas 76155 817 213-1450 - ---------------------------------- FRESNO REGIONAL AND NATIONAL ZONE - ---------------------------------- 4401 E. Central Avenue Fresno, California 93725 559 264-2393 - ---------------------------------- JOLIET REGIONAL AND NATIONAL ZONE - ---------------------------------- 1700 Crossroad Drive Joliet, Illinois 60432 815 741-4660 - ------------------------------------ STAFFORD REGIONAL AND NATIONAL ZONE - ------------------------------------ 13131 North Promenade Boulevard Stafford, Texas 77477 281 340-5500 - ---------------------------------- TAUNTON REGIONAL ZONE - ---------------------------------- 305 John Hancock Road Taunton, Massachusetts 02780 508 821-3838 INTERNATIONAL - ---------------------------------- 34 North Meramec Avenue St. Louis, Missouri 63105 314 512-9211 Miami International (Sales Office) 10500 Southwest 186th St. Perrine, Florida 33157 305 252-0400 San Francisco International (Sales Office) 2368 Lincoln Avenue Hayward, California 94545 510 259-0122 International Service Center 6161 Bingle Road Houston, Texas 77092 713 970-9450 LOCATIONS San Juan, Puerto Rico Singapore Mexico City, Mexico Kitchener, Ontario Hamilton, Ontario Guelph, Ontario Mississauga, Ontario Niagara Falls, Ontario Windsor, Ontario Halifax, Nova Scotia Dartmouth, Nova Scotia Bridgewater, Nova Scotia Kentville, Nova Scotia New Glasgow, Nova Scotia Sydney, Nova Scotia Truro, Nova Scotia Yarmouth, Nova Scotia Charlottetown, Prince Edward Island Bathurst, New Brunswick Florenceville, New Brunswick Fredericton, New Brunswick Moncton, New Brunswick Saint John, New Brunswick Corner Brook, Newfoundland Grand Falls-Windsor, Newfoundland St. John's, Newfoundland Wabush, Newfoundland 36 Graybar Electric Company, Inc. 34 North Meramec Avenue St. Louis, Missouri 63105 www.graybar.com EX-21 3 LIST OF SUBSIDIARIES 1 GRAYBAR ELECTRIC COMPANY, INC. LIST OF SUBSIDIARIES -------------------- Graybar Foreign Sales Corporation, a Barbados corporation. Graybar International, Inc., a Missouri corporation. Graybar Financial Services, Inc., a Missouri corporation. Graybar Electric de Mexico, S. DE R.L. DE C.V., a Mexican corporation. Graybar Electric Limited, a Nova Scotia corporation. Graybar Foundation, Inc., a Missouri corporation. Graybar Services, Inc., an Illinois corporation. Distribution Associates, Inc., a Missouri corporation. Graybar Electric (Ontario) Limited, an Ontario corporation. Graybar International PTE LTD, a Singapore corporation. Graybar Business Services, Inc., a Missouri corporation. Graybar International de Chile Limitada, a Chile limited liability partnership. EX-23 4 CONSENT OF EXPERT 1 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 22, 2000, included in the 1999 Annual Report to Shareholders of Graybar Electric Company, Inc. Our audits also included the financial statement schedule of Graybar Electric Company, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. 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 22, 2000 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 16,750 0 588,631 5,021 843,061 1,454,966 374,854 161,948 1,704,796 1,011,528 255,897 118,270 0 68 241,325 1,704,796 4,299,940 4,299,940 3,514,228 3,514,228 656,713 886 30,241 108,688 44,029 64,659 0 0 0 64,659 10.82 10.82
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