-----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, RZjkDT37ng99grwOrLVj8TphhQjNHdvSdIUDBI5Ep5mxRelCtZ6MUCVLOgMT5Mz1 3KO/tQr5FYUCNzR7Y4iEFQ== 0000950114-02-000004.txt : 20020415 0000950114-02-000004.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950114-02-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAYBAR ELECTRIC CO INC CENTRAL INDEX KEY: 0000205402 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRICAL APPARATUS & EQUIPMENT, WIRING SUPPLIES [5063] IRS NUMBER: 130794380 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-00255 FILM NUMBER: 02586193 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 eograyk.txt GRAYBAR ELECTRIC COMPANT, 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, 2001. ----------------- 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) 573-9200 ---------------- 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 26, 2002 - 6,385,584 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 26, 2002, was approximately $127,711,680. Pursuant to a Voting Trust Agreement, dated as of April 1, 1997, approximately 95% of the outstanding shares of Common Stock are held of record by five Voting Trustees who are each directors of the registrant and who collectively exercise all voting rights with respect to such shares. The registrant is 100% owned by its active and retired employees, and there is no public trading market for the registrant's Common Stock. The registrant has the option to repurchase, at the price at which it was issued, each outstanding share of Common Stock in the event of the owner's death, termination of employment other than by retirement, or desire to dispose of such shares. Historically all shares of Common Stock have been issued for $20 per share, and the registrant has always exercised its repurchase option and expects to continue to do so. The documents listed below have been incorporated by reference into the indicated Part of this Annual Report on Form 10-K: (1) Annual Report to Shareholders for the fiscal year ended December 31, 2001 - Part II, Items 5-8. (2) Information Statement relating to the 2002 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) 573-9200, 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 4,000 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 2001, 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. Products Distributed - -------------------- The Company distributes more than 175,000 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 2 3 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, 2001 and 2000, the Company had orders on hand which totaled approximately $356,670,000 and $488,402,000, respectively. The Company believes that the decrease from 2000 to 2001 resulted from a generally depressed economy in the market sectors in which the Company operates. The Company expects that approximately 85% of the orders on hand at December 31, 2001 will be filled within the twelve-month period ending December 31, 2002. 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 distribution facilities located in 15 geographical districts throughout the United States. In each district the Company maintains a main distribution facility and a number of branch distribution facilities, 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 distribution facility in each district carries a substantially larger inventory than the branch facilities so that the branch facilities can call upon the main distribution facility for additional items of inventory. In addition, the Company maintains 13 zone warehouses with both standard and specialized inventory products. The zone warehouses replenish the inventories carried at the distribution facilities and also make shipments directly to customers. The Company also operates two special districts in order to serve the needs of specific customers. In addition, the Company has subsidiary operations with distribution facilities located in Puerto Rico, Mexico and Canada. 3 4 The distribution facilities operated by the Company at December 31, 2001 are shown in the following table:
Number of Branch Location of Main Distribution Number of Distribution Facility Facilities in District Zone Warehouses Locations - --------------------- ---------------------- --------------- --------- Boston, MA 12 Austell, GA 1 Cincinnati, OH 15 Charlotte, NC 1 City of Industry, CA 25 Cranbury, NJ 1 Dallas, TX 12 Dallas, TX 1 Glendale Heights, IL 20 Fresno, CA 1 Houston, TX 9 Hamilton, OH 1 Minneapolis, MN 19 Joliet, IL 1 New York, NY 16 Puyallup, WA 1 Norcross, GA 22 Rogers, MN 1 Phoenix, AZ 11 Springfield, MO 1 Pittsburgh, PA 12 Stafford, TX 1 Richmond, VA 18 Taunton, MA 1 Seattle, WA 11 Youngstown, OH 1 St. Louis, MO 12 Tampa, FL 20 Number of Special Customer-Specific Distribution Districts Facilities - ------------------------- ---------- Greensboro, NC 4 Graybar International, Inc. Aurora, CO 2 --------------------------- Puerto Rico 1 Graybar Electric Canada, Ltd. ----------------------------- Canada 24 Graybar de Mexico, S.de R.L. de C.V. ------------------------------------ Mexico City, Mexico 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, approximately sixty-seven 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. 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: 4 5
CLASS OF CUSTOMERS PERCENTAGE OF SALES ------------------ ------------------- 2001 2000 1999 -------- -------- -------- Electrical Contractors 38.6% 35.7% 36.7% Industrial Plants 21.5 20.9 22.2 Communication Companies 32.5 33.6 30.6 Private and Public Power Utilities 3.5 3.2 3.6 Integrated Supply 3.2 6.0 6.0 Miscellaneous .7 .6 .9 -------- -------- -------- 100.0% 100.0% 100.0% ======== ======== =========
At December 31, 2001, the Company employed approximately 3,400 persons in sales capacities. Approximately 1,600 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 communications products 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. Employees - --------- At December 31, 2001, the Company employed approximately 9,800 persons on a full-time basis. Approximately 200 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. 5 6 Item 2. Properties - ------- ---------- As of December 31, 2001, the Company operated offices and distribution facilities in 283 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 4,000 square feet to 300,000 square feet, the average being approximately 38,000 square feet. As of December 31, 2001, approximately $19.6 million in debt of the Company was secured by mortgages on 15 buildings. Six of these facilities are subject to a first mortgage securing a 9.23% note, of which $10.9 million in principal amount remains outstanding. Six of these facilities are subject to first mortgages securing variable rate notes, of which $1.0 million in principal remains outstanding. A facility in Kitchener, Ontario, Canada is subject to a first mortgage securing a 7.95% note, of which $3.1 million in principal remains outstanding; a facility in Houston, Texas is subject to a first mortgage securing a 7.75% note, of which $1.3 million in principal remains outstanding; and a facility in St. Louis, Missouri is subject to a first mortgage securing a 7.74% note, of which $3.3 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 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. Executive Officers of the Registrant - ------------------------------------ Certain information with respect to the executive officers of the Company is set forth in Item 10 of 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. Approximately 95% of this Common Stock is held in a Voting Trust. No shareholder may sell, transfer or otherwise dispose of shares of Common Stock (or the Voting Trust Certificates issued with respect thereto) without first offering the Company the option to purchase such shares (or Voting Trust Certificates) at the price at which they were issued. The Company also has the option to purchase the Common Stock (or Voting Trust Certificates) of any holder 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, 2001, (the "2001 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, 2001 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 16 of the 2001 Annual Report and is incorporated herein by reference. 7 8 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 17, 18 and 19 of the 2001 Annual Report and is incorporated herein by reference. 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. Changes in interest rates have different impacts on the fixed-rate and variable-rate portions of the Company's debt portfolio. A change in interest rates on the fixed-rate portion of the debt portfolio impacts the net financial instrument position but has no impact on interest incurred or cash flows. A change in interest rates on the variable-rate portion of the debt portfolio impacts the interest incurred and cash flows but does not impact the net financial instrument position. 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 There- Value 2002 2003 2004 2005 2006 after Total 12/31/01 ---- ---- ---- ---- ---- ----- ----- -------- Long-term debt principal payments by expected maturity dates, including current portion - Fixed-rate debt(A) 25,795 34,985 34,473 40,033 32,277 173,781 341,344 342,747 Average interest rate 7.01% 6.89% 6.95% 7.35% 7.17% 7.09% Short-term variable- rate borrowings(A) 98,737 98,737 98,737 Average interest rate 2.47% 2.47% (A) Dollars stated in thousands
8 9 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 short-term borrowings approximates the carrying value due to the short-term maturity of the instruments. In September 2000 the Company entered into a swap agreement to manage interest rates on amounts due under certain operating leases. The agreement, which expires in July 2013, is based on a notional amount of $28.7 million. The agreement calls for an exchange of interest payments with the Company receiving payments based on a London Interbank Offered Rate (LIBOR) floating rate, and making payments based on a fixed rate of 6.92%. There is no exchange of the notional amount upon which the payments are based. The fair value of the agreement at December 31, 2001 was approximately $(3,126,000). Foreign Exchange Rate Risk -------------------------- The Company conducts business in several foreign countries including Canada, Mexico and Puerto Rico. 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 2001 Annual Report in such list are incorporated herein by reference. Selected quarterly financial data for the years ended December 31, 2001 and 2000 required by Item 302(a) is included in Note 10 -- "Quarterly Financial Information (Unaudited)" to the consolidated financial statements on page 28 of the 2001 Annual Report and is incorporated herein by reference. There is no other supplementary financial information required by this item which is applicable to the Company. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------- --------------------------------------------------------------- Financial Disclosure -------------------- None. 9 10 PART III -------- Item 10. Directors and Executive Officers of the Registrant - -------- -------------------------------------------------- The information with respect to the directors of the Company required to be included pursuant to this Item 10 will be included under the caption "Directors -- Nominees for Election as Directors" in the Company's Information Statement relating to the 2002 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. The following directors are also executive officers of the Company: D. E. DeSousa, T. F. Dowd, G. W. Harper, J. H. Hinshaw, R. A. Reynolds, Jr., C. R. Udell and J. F. Van Pelt. Information regarding Mr. Harper (for whom no information will be included in the Information Statement because he is retiring on April 1, 2002), and the other executive officers appears below. All executive officers are elected annually.
Name Age Business experience last five years - ---- --- ----------------------------------- G. W. Harper 65 Employed by Company in 1957; Vice President-Operations 1990 to 2001; Senior Vice President-Operations November 2001 to present. J. H. Kipper 49 Employed by Company in 1974; Assistant Comptroller 1989 to 1999; Vice President and Comptroller 1999 to present. J. N. Reed 45 Employed by Company 1980; Assistant to Treasurer 1993 to 2000; Vice President and Treasurer 2000 to present.
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 -- Nominees for Election as Directors" in the Information Statement and is incorporated herein by reference. 10 11 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" in the Information Statement and is incorporated herein by reference. 11 12 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 2001 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, 2001 (page 20). (ii) Consolidated Balance Sheets, as of December 31, 2001 and December 31, 2000 (page 21). (iii) Consolidated Statements of Cash Flows for each of the three years ended December 31, 2001 (page 22). (iv) Consolidated Statements of Changes in Shareholders' Equity for each of the three years ended December 31, 2001 (page 23) (v) Notes to Consolidated Financial Statements (pages 24 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, 2001, 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 16). 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. 12 13 (ii) By-laws as amended through July 25, 2000 filed as Exhibit 3(ii) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2000 (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 2001 (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. (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, 2001. 13 14 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 26th day of March, 2002. GRAYBAR ELECTRIC COMPANY, INC. By /S/ R. A. REYNOLDS, JR. --------------------------------------- (R. A. Reynolds, Jr., Chairman of the Board and 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 26, 2002. /S/ R. A. REYNOLDS, JR. Director, Chairman of - ------------------------------------------ the Board and President (R. A. Reynolds, Jr.) (Principal Executive Officer) /S/ J. H. HINSHAW Director - ------------------------------------------ (Principal Financial Officer) (J. H. Hinshaw) /S/ R. A. COLE Director - ------------------------------------------ (R. A. Cole) /S/ D. E, DeSOUSA Director - ------------------------------------------ (D. E. DeSousa) /S/ T. F. DOWD Director - ------------------------------------------ (T. F. Dowd) /S/ T. S. GURGANOUS Director - ------------------------------------------ (T. S. Gurganous) /S/ G. W. HARPER Director - ------------------------------------------ (G. W. Harper) /S/ G. D. HODGES Director - ------------------------------------------ (G. D. Hodges) 14 15 /S/ J. C. LOFF Director - ------------------------------------------ (J. C. Loff) /S/ R. D. OFFENBACHER Director - ------------------------------------------ (R. D. Offenbacher) /S/ K. B. SPARKS Director - ------------------------------------------ (K. B. Sparks) /S/ C. R. UDELL Director - ------------------------------------------ (C. R. Udell) /S/ J. F. VAN PELT Director - ------------------------------------------ (J. F. Van Pelt) 15 16 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES ----------------------------------------------- SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS ---------------------------------------------
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Additions Balance Beginning Charged to at End of Period Income Deductions of Period --------- ---------- ---------- --------- Description ----------- FOR THE YEAR ENDED DECEMBER 31, 2001: Reserve deducted from assets to which it applies- Allowance for doubtful accounts $ 8,634,000 $ 5,486,000 $ 6,165,000 (1) $ 7,955,000 Allowance for cash discounts 777,000 13,282,000 13,380,000 (2) 679,000 ------------ ------------ ------------ ------------ Total $ 9,411,000 $ 18,768,000 $ 19,545,000 $ 8,634,000 ============ ============ ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2000: Reserve deducted from assets to which it applies- Allowance for doubtful accounts $ 5,021,000 $ 8,888,000 $ 5,275,000 (1) $ 8,634,000 Allowance for cash discounts 708,000 13,633,000 13,564,000 (2) 777,000 ------------ ------------ ------------ ------------ Total $ 5,729,000 $ 22,521,000 $ 18,839,000 $ 9,411,000 ============ ============ ============ ============ 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 (1) $ 5,021,000 Allowance for cash discounts 648,000 11,525,000 11,465,000 (2) 708,000 ------------ ------------ ------------ ------------ Total $ 4,783,000 $ 15,615,000 $ 14,669,000 $ 5,729,000 ============ ============ ============ ============ (1) Amount of trade receivables written off against the reserve provided. (2) Discounts allowed to customers.
16 17 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 July 25, 2000 filed as Exhibit 3(ii) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2000 (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 2001 (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. ---------------- *Incorporated by reference in this Annual Report on Form 10-K. 17 EX-13 3 eoex13.txt EXHIBIT 13 - 2001 ANNUAL REPORT 1 EXHIBIT 13 [PHOTO] [GRAYBAR LOGO] ANNUAL REPORT 2001 2 [PHOTO] BOARD OF DIRECTORS Left to right: DENNIS E. DESOUSA Senior Vice President-Sales and Marketing GOLDEN W. HARPER Senior Vice President-Operations JUANITA H. HINSHAW Senior Vice President and Chief Financial Officer CHARLES R. UDELL Senior Vice President-Business Management ROBERT A. REYNOLDS, JR. Chairman, President and Chief Executive Officer Left to right: [PHOTO] GARY D. HODGES Group Vice President-California District JACK F. VAN PELT Vice President-Human Resources RICHARD D. OFFENBACHER Group Vice President-Atlanta and Tampa Districts JOHN C. LOFF Group Vice President-St. Louis, Dallas and Houston Districts [PHOTO] Left to right: THOMAS F. DOWD Vice President, Secretary and General Counsel KENNETH B. SPARKS Group Vice President-Seattle and Phoenix Districts RICHARD A. COLE Group Vice President-Minneapolis, Cincinnati and Chicago Districts THOMAS S. GURGANOUS Group Vice President-Pittsburgh and Richmond Districts 3 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 CAPITAL STOCK DATA Number of Equity Security Holders as of December 31, 2001: - ---------------------------------------------------------------
Title of Class Number of Security Holders - --------------------------------------------------------------- Preferred Stock 65 Common Stock 147 Voting Trust Certificates for Common Stock 4,940 - ---------------------------------------------------------------
DIVIDEND DATA Common Stock, par value $1; stated value $20.
Dividends declared for year: 2001 2000 1999 - --------------------------------------------------------------- First Quarter $ .30 $ .30 $ .30 Second Quarter. .30 .30 .30 Third Quarter .30 .30 .30 Fourth Quarter $1.10 $1.10 $1.10 - ---------------------------------------------------------------
CONTENTS Board of Directors Inside Front Cover Letter to Shareholders 2 Market Review 5 Operations Review 13 Financial Review 16 Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Consolidated Financial Statements 20 Report of Independent Auditors 29 Group and District Management 30 Locations 32 1 4 LETTER TO SHAREHOLDERS Graybar experienced another year of significant accomplishments in 2001 in the face of a marked decline in the general economy. Our sales volume, while lower than the preceding year, was at the second highest level in our history. Despite the fact that our profitability was also lower, we were able to repay a significant amount of debt during the year, and by year-end we had improved our credit profile and strengthened our balance sheet. As a result of our strong financial position and our profitable operating performance, we have the ability to make the improvements and investments that will enable us to continue our growth and improve our market share in difficult economic times. We will also be well positioned for continued success when economic growth resumes. During 2001, we took some important steps to help accomplish these goals. We completed several senior management changes, and we initiated a program of increased emphasis on expense control and better asset utilization. We put new focus on improving cash flow, and we began a multi-year project to upgrade our computer systems. These steps are discussed in more detail in the following paragraphs. Within the context of these internal initiatives and the year's external environment, our financial accomplishments were admirable. Comparing 2001 to 2000, sales were $4.8 billion versus $5.2 billion and net income was $31.7 million compared to $66.2 million. Cash flow from operations was $280.9 million versus $31.3 million, an increase of over $249 million. These impressive accomplishments reflect the dedication and strong efforts of Graybar's employees. In April, we accepted with regret the resignation of Carl L. Hall as Chairman of the Board of Directors. We thank him for his leadership during more than 41 years of service and wish him well in his retirement. In September, Kenneth B. Sparks was elected to the Board of Directors. He succeeds Gerard J. McCrea, who retired after 38 years of service. In November, we began the initial phase of a company-wide reorganization designed to drive improved customer focus, sales specialization and increased operational efficiency. Eight veteran executives were named to the new position of Group Vice President. They are responsible for net profitability and operations in geographical business groups consisting of multiple districts. Group Vice Presidents and the districts they are responsible for are: Donald M. Block, New York and Boston; Thomas S. Gurganous, Pittsburgh and Richmond; Richard D. Offenbacher, Atlanta and Tampa; Richard A. Cole, Chicago, Minneapolis and Cincinnati; John C. Loff, St. Louis, Dallas and Houston; Kenneth B. Sparks, Seattle and Phoenix; and Gary D. Hodges, California. In addition, John C. Mansfield, who heads Graybar's 2 5 specialty district serving Lucent Technologies, was promoted to Group Vice President. At the corporate level, three executives were named to new Senior Vice President positions. Charles R. Udell was appointed Senior Vice President-Business Management. He is responsible for the eight newly formed business groups and corporate accounts. Dennis E. DeSousa was named Senior Vice President-Sales and Marketing. He leads the sales and marketing strategies for both the electrical and comm/data businesses. Golden W. (Sonny) Harper, Vice President-Operations, was named Senior Vice President-Operations. Juanita H. Hinshaw continues in her role as Senior Vice President and Chief Financial Officer. With respect to our operating performance, the lower levels of activity experienced by virtually all of our customers affected our sales negatively and required a greater emphasis on controlling costs throughout Graybar. As a result, we instituted some layoffs and imposed restrictions on new hiring, profit sharing payments were not paid for the first time in 10 years, and incentive plan payments were dramatically lower than in previous years. In addition, we instituted a rigorous review of operating costs and capital expenditures. In terms of our financial performance, Graybar's tremendous growth in sales and income from 1991 through 2000 required major cash investments in new property, plant and equipment and additional working capital. The investment in additional inventories alone was in excess of $575 million. A portion of these cash investments was financed by additional borrowings. In addition to the emphasis that has been placed in recent years on increasing sales and income, starting in the first quarter of 2001, we began an intensive focus on cash flow to improve our management of working capital and our expenditures for property, plant and equipment. These efforts resulted in significant cash flow improvement during 2001, which enabled us to reduce our debt by over $228 million from the historically high level that had been reached by the end of 2000. Because Graybar is owned by its employees and retirees and not publicly traded, maintaining a sound financial structure is essential so we are able to borrow money at low cost to help finance Graybar's growth in future years. Our strong cash flow performance in 2001 contributed to the successful completion of the largest fixed rate debt financing in our history, a $100 million note issued in July and maturing in ten years. We used the proceeds from this financing to reduce our variable rate bank debt. During the year, we also initiated the first stages of our project to convert Graybar's existing computer system to an Enterprise Resource Planning platform. When completed, this conversion will enhance our business processes and provide substantial savings to Graybar, enabling us to improve productivity and profitability. "IN ADDITION TO THE EMPHASIS THAT HAS BEEN PLACED IN RECENT YEARS ON INCREASING SALES AND INCOME, STARTING IN THE FIRST QUARTER OF 2001, WE BEGAN AN INTENSIVE FOCUS ON CASH FLOW TO IMPROVE OUR MANAGEMENT OF WORKING CAPITAL AND OUR EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT." 3 6 The conversion will require a great deal of management time and effort, and a significant amount of money, over the next several years. We have established a separate management team to help implement this conversion. Our past success, our strong operating and financial position and our dedicated employees make us confident 2002 will be another year of significant progress. However, a successful future requires more than just a continuation of past accomplishments. We anticipate more challenges in 2002. We operate in an increasingly competitive environment, one in which change is constant and the pressure to find better ways to perform our jobs is always present. Because of this, there is an urgent need for increasingly effective leadership at every level within Graybar. In 2002, therefore, we will be placing a greater emphasis throughout the organization on the development of tomorrow's leaders, those Graybar people with the skills, dedication and determination to ensure that we continue to earn the respect and loyalty of our customers and our current and retired employees. As I look back on 2001 and forward to the balance of 2002, I am grateful for the many important contributions to our success that have come from Graybar employees. I am also grateful for the continuing encouragement and support that all of us receive from our retiree shareholders. Ours is a very special company with a unique culture. With your help, I am absolutely confident Graybar will continue its record of significant accomplishments for the benefit of all its employees and shareholders and that we will also continue the employee ownership structure that is so important to all of us. /s/ ROBERT A. REYNOLDS, JR. Robert A. Reynolds, Jr. Chairman, President and CEO St. Louis, Missouri March 2002 [PHOTO] Executives from SAP and Deloitte & Touche met with Graybar executives in St. Louis to discuss the project of converting Graybar's computer system to an Enterprise Resource Planning platform. (From left to right: Douglas McCracken, Chairman, Deloitte & Touche USA and CEO, Deloitte Consulting; Edward Carey, Deloitte Global Practice Director, Consumer Business; Wolfgang Kemna, President and CEO of SAP Americas; James Boler, SAP Senior Vice President, Consumer Products Sector; Robert A. Reynolds, Jr., Graybar Chairman, President and CEO; and Geraldine McBride, SAP Senior Vice President and General Manager, Consumer Products Sector. 4 7 MARKET REVIEW Following several years of unprecedented growth, Graybar responded to the economic slowdown with increased focus on sales specialization and continued implementation of the regional zone strategy while carefully monitoring inventory investment and expenses. Graybar's ongoing focus on specialization gives us better understanding of customers' needs and allows us to offer the cost-effective and efficient solutions that they demand. Our sales and support people remain among the best in the industry, confirmed by customers and suppliers, as well as by the noteworthy recognition in Selling Power magazine's list of 20 Best Service Companies to Sell For (October 2001). Attention to gross margin rate improvement throughout the year drove measurable dollars to the bottom line. Product managers and specialists worked with Graybar purchasing and logistics groups to adjust inventories around the sudden change in customer demand. Graybar's leading edge development of eLearning technology produced additional dividends in 2001. As travel and expense considerations reduced the number of classroom-based courses, the total number of electronically delivered courses increased significantly. The Graybar Virtual Campus and eClasses delivered cost-effective training courses to continue the development of Graybar employees as the best trained in our industry. Using the theme "out of slow times come better practices," Graybar Training is developing a new series of eClass courses to orient employees to new job responsibilities. "Performance Management Orientation" introduces new managers to the concepts of our traditional "Performance Management Training" course during two ninety-minute, instructor-led interactive online sessions. This approach, combined with pre-work, on-the-job exercises and a mastery test, requires little more than six hours of a new manager's time. Developing employees' skills early in a new job is a definite advantage that will continue to be a valuable asset in strong economic times. We further refined our corporate account strategy, combining the electrical and comm/data groups at corporate while retaining the sales specialization in our field organization. We set specific definitions for corporate account customers establishing three levels--strategic, key and national--based on specific criteria, and we outlined how sales and service will be managed for each level going forward. In 2002, we are applying those definitions to the more than 1,500 designated corporate accounts and beginning to transition many of these to local authority in our districts and branches. As a result, we have now developed a manageable list of meaningful customers based on actual sales, potential volume and strategic or tactical value. Increased focus on sales to federal, state and local governments over the last few years has produced favorable results. We now have programs with the Defense Logistics Agency (DLA) and U. S. Communities--the national public benefit corporation that helps state, county and municipal governments with their purchasing functions. In 2001, we applied to the General Services Administration (GSA) to sell lighting and technology products, and we expect to begin serving this business in 2002. "GRAYBAR'S ONGOING FOCUS ON SPECIALIZATION GIVES US BETTER UNDERSTANDING OF CUSTOMERS' NEEDS AND ALLOWS US TO OFFER THE COST- EFFECTIVE AND EFFICIENT SOLUTIONS THAT THEY DEMAND." 5 8 [PHOTO] CONTRACTOR MARKET After beginning the year relatively strong, sales to the Contractor Market experienced a slowing trend throughout the second half of the year, tracking the slowdown in the general economy. Most of the sales growth in the first half was erased by year-end, and contractor sales finished down slightly from the previous year. Laying the foundation for strong future growth, we focused on several strategic initiatives including Project Teams and continued sales specialization that will strengthen Graybar's competitive position in the marketplace. Project Teams were established in 38 locations across the country to serve the largest potential growth segment in the Contractor Market--large electrical contractors with 50 or more employees. These teams consisted of Sales Managers, dedicated contractor Sales Representatives, Quotations Specialists and Project Specialists. Graybar's Project Teams--employing our proprietary Project Manager(SM) software--offer a wide range of value-added project management services including material tracking and reporting, billing summary and on-site services. Our Project Teams enable customers to entrust more of their business to Graybar with the assurance that even the small details will not be overlooked. As we earn the trust of customers as a result of our superior service offerings, we also earn a larger and more profitable share of their business. We continued our emphasis on sales specialization, and the majority of our electrical Sales Representatives are now focused on their core market. Specialization differentiates us from our competition and allows us to provide expertise in each market we serve. In October, Graybar participated in the National Electrical Contractors 6 9 Association (NECA) Annual Trade Show in Washington D.C., and the Independent Electrical Contractor (IEC) Convention in Las Vegas. Both shows featured the efficiency=speed campaign, which focused on Graybar's ability to meet everyday material requirements using our unique zone strategy and emphasized the wide range of project management services provided by our Project Teams. INDUSTRIAL MARKET After Graybar's four consecutive years of double-digit growth in the Industrial Market, the economic slowdown was very evident in most segments of this market. This slowdown drove industry strategies to increase productivity through right sizing and consolidation and to maintain profitability by reducing transaction and material costs. While MRO (maintenance and repair operations) and OEM (original equipment manufacturer) potential were down, these cost reduction strategies by our customers continued to create opportunities for Graybar to increase market share. For example, the broad and deep inventories Graybar maintains in its zone warehouses enable our industrial customers to rely on next-day delivery of their complete orders thereby reducing their investment in on-hand inventories. Although sales to the Industrial Market were flat, Graybar continued to provide value to our industrial customers with skilled and well-trained Sales Representatives backed by leading product brands. Increasing our value to industrial customers, all branches became authorized to sell Schneider/Square D automation products. A Product Manager added to the corporate staff now supports the automation initiative, and technical support is also being provided to the field from corporate headquarters. In April, the acquisition of Commonwealth Controls Corporation of Richmond, Virginia, a highly respected Schneider/Square D automation products distributor, gave Graybar a stronger footing in the automation market in the Southeast. In an effort to reach new customers and further align ourselves with our major suppliers--particularly with automation products--we displayed products and services at the 2001 Manufacturing Week Trade Show in Chicago. Advertisements in each month's issue of Purchasing magazine positioned Graybar as the premier solution provider with national distribution capabilities. A new Graybar Industrial Sales Training course was inaugurated to offer specialized training for new as well as experienced industrial sales personnel. Looking ahead, the strategic market initiatives of the Industrial Market Plan for 2002 target OEM customers and call for additional automation involvement. The industrial sales and product training initiated in 2001 will continue, and an electrical training conference modeled after Graybar's successful comm/data training conference will be held in the fall. COMM/DATA MARKETS Expectations for continued economic expansion, visibly linked with the aggressive growth in the technology sector during the past decade, peaked in 2000, and the sector could not sustain the double-digit growth in 2001. The results of the economic downturn had a significant impact on the comm/data industry, which supports the demand for more and faster services. For the first time since AT&T's divestiture of the Regional Bell Companies in 1984, Graybar's comm/ data sales finished below the prior year. [PHOTO] Trade magazine ads positioned Graybar as the premier solution provider with national distribution capabilities. "THE BROAD AND DEEP INVENTORIES GRAYBAR MAINTAINS IN ITS ZONE WAREHOUSES ENABLE OUR INDUSTRIAL CUSTOMERS TO RELY ON NEXT-DAY DELIVERY OF THEIR COMPLETE ORDERS THEREBY REDUCING THEIR INVESTMENT IN ON-HAND INVENTORIES." 7 10 [PHOTO] "GRAYBAR SIGNIFICANTLY INCREASED THE NUMBER OF JOB SPECIFICATIONS WRITTEN AROUND OUR VIP STANDARDS." A sound business plan allowed Graybar to finish the year with improved margin rates and market share in the Comm/Data Market. Marquee programs such as VIPSM (Verified Independently for Performance), ePoint and our GTS Solutions Guides raised the bar for distributor services provided to the industry. ENTERPRISE MARKET Sales of structured cabling solutions were substantially below all manufacturers' projections for the year. Nonetheless, Graybar significantly increased the number of job specifications written around our VIP standards. The results improved sales and profitability and drew more attention and support from suppliers and customers. VIP closely follows industry standards but offers higher performance and assurance for end-users and installers alike. In 2001, the Telecommunications Industry Association (TIA) replaced the old 568A standard with 568B, making Category 5 cable, our highest sales volume data cable for several years, non-standard for commercial buildings. Buying and selling cable as a result of the changes in product standards was extremely difficult. Graybar coupled the marketing success of VIP with close attention to our inventories to assure we maintained enough of the right products in the right places. Our ePoint program completed its first full year and was a marked success. ePoint is a web-based customer buying site, originally designed to offer voice resellers (interconnects) incentives to purchase select manufacturers' products from Graybar. While it was a difficult year for manufacturers, resellers and distributors of PBX, key system and voice peripheral products, Graybar's results exceeded industry results across the board. 8 11 SERVICE PROVIDER MARKET In 2001, annual global capital expenditures by telecommunications carriers decreased substantially. Graybar's sales followed the decrease in spending by service providers. Two of our largest customers accounted for a significant part of our growth between 1996 and 2000, and they both placed severe restrictions on their 2001 expenditures. However, Graybar remains their primary value-added distributor, working to ensure that we continue to provide them with solutions while closely watching our bottom line. Specialization is key to our service provider customers. We must commit more unique resources to provide the service offerings required to support these customers while being responsive to the commercial and technological changes in this industry. Graybar Technology Solutions (GTS) continues to evolve, and in 2001 we used this platform to develop and offer focused monthly product rollouts and customer surveys and programs. GTS staff provides critical manufacturer certification as well as competent technical support for Graybar personnel and customers. While we remain dedicated to our role of supporting resellers, contractors and installers, through GTS we can also provide value-added services that the ultimate end-user customer--the subscriber--demands throughout the supply chain. Thus, when the CLEC (competitive local exchange carrier) gave way to the ILEC (incumbent local exchange carrier) in 2001, Graybar was able to redirect efforts back to the traditional telephone companies and their contractors. UTILITY MARKET Utility Market sales continued to grow in 2001 presenting us with expanded opportunities. The business models for deregulation in some states have proven to be severely flawed, causing a slowdown of what was previously a fast-track trend toward deregulation. The Investor-Owned Utilities continue to search for identity and diversification in a time of re-regulation. We have been able to recapture some of our traditional business with these customers, and we also have benefited from the power generation boom and the diversification these companies have made into other unregulated endeavors. Our renewed efforts as a company have proven flexible enough to address many previously missed opportunities, and we expect that trend to continue in the near term. Little changed from 2000 in the Rural Electric Cooperative (REC) and Municipal (Muni) Markets as they continue expanding their service capabilities into CATV, satellite services and monitoring consumer demand via power line carrier systems. These service offerings present Graybar with more than the traditional transmission and distribution opportunities, and we plan to capitalize on them. Looking forward, 2002 is a very exciting time in the utility industry, and we are positioning ourselves to increase sales to Utility Market customers. INTERNATIONAL MARKETS Our international organization was significantly restructured during 2001 to optimize resources for increased productivity. An Export Department established in Houston, Texas, now handles most export activities, and another in Hayward, California, handles all Asia/Pacific business. The Asia/Pacific economic climate continued to decline, and at year-end, we closed our operation in Singapore. "WHILE WE REMAIN DEDICATED TO OUR ROLE OF SUPPORTING RESELLERS, CONTRACTORS AND INSTALLERS, THROUGH GTS WE CAN ALSO PROVIDE VALUE- ADDED SERVICES THAT THE ULTIMATE END- USER CUSTOMER-- THE SUBSCRIBER-- DEMANDS THROUGHOUT THE SUPPLY CHAIN." 9 12 [PHOTO] NORTH AMERICA Graybar Canada, which is comprised of Harris & Roome Supply in the Atlantic Provinces and Graybar Ontario, moved forward on several initiatives to create greater synergy and streamline operations. Both companies now operate using the same software, and a link allows users in all locations electronic access to information, including stock availability. In addition, Graybar Canada now has access to Graybar's intranet, and soon all employees will have access to this robust site for Company information. In November, a new stock purchase plan was presented to all Graybar Canada employees. This was the first time all employees were offered the opportunity to become shareholders in Graybar Canada. Graybar Ontario continues to expand its automation group and now has exclusive authorization for Schneider Electric high tech products in Central and Eastern Ontario. Recognizing that further penetration of the Comm/Data Market required a nationwide focus, Graybar Canada's comm/data division has developed a clear go-to-market strategy featuring a national identity. Graybar de Mexico experienced a difficult year due to an ongoing soft economy, the strong peso and highly competitive marketplace. In response, we continued to trim expenses, inventory investment and accounts receivable exposure, and we have placed strong focus on the Comm/Data Market. As the result of a new and focused business plan, Graybar Puerto Rico had its best year ever with record sales and profits. New contracts with pharmaceutical customers were implemented, and sales to electrical "UTILIZING A NEW WEB SITE, CUSTOMERS CAN NOW ACCESS DETAILED INFORMATION RELATED TO THE LEASES THEY HAVE SUBMITTED TO GFS." 10 13 Contractor Market customers improved significantly. Graybar Puerto Rico is well positioned for continued success in 2002. MARKETING SUPPORT GRAYBAR FINANCIAL SERVICES (GFS) Graybar Financial Services (GFS), Graybar's equipment leasing and financing subsidiary, provides alternative forms of financing for customers who source product through Graybar. By linking our GFS team with Graybar's sales and marketing personnel, our customers receive "one stop shopping" when offered the GFS financing solution. Technology continues to play a major role in allowing GFS to provide the level of service that our customers have grown to expect. Utilizing a new web site, customers can now access detailed information related to the leases they have submitted to GFS. Going forward, resellers will be able to provide their customers with proposals, input applications, generate lease documentation and quote end-of-term options by taking advantage of this value-added service. COUNTER MARKETING Graybar's counter marketing, which targets products and services to the professional installer, focused merchandising efforts on tools in 2001. We continue to evaluate our counter service offering in the framework of our zone network and our ever-shifting customer base. E-BUSINESS E-business spending declined in start-up ventures and new, unproven technologies; however, companies continued to invest in areas such as e-procurement, business-to-business integration and employee-based portals. Graybar continued to focus on improving the e-business solutions we have in place. Infolink, our employee intranet, was redesigned to improve navigation within the site, and we continued to add applications and information. Our web site, Graybar.com, was redesigned with added emphasis on making the home page more dynamic. Direct access to the electronic catalog was added on the home page as well as a link to GraybarNet(R), our electronic order entry system. GraybarNet was updated to accept credit card orders, and templates can now include standard quantities streamlining the order entry process. We also expanded our e-catalog content, added another supplier to Hot Key and added an EDI process to handle our Cost Recovery Program (CRP). Customers' demand for e-procurement capabilities (Internet enabled procurement) has been slow but continuous, and we are now supporting 10% of our top 100 customers, with another 10% either in testing or in discussion with us. We are participating, or will soon be participating, in several customer-sponsored marketplaces. Included in this group are Enporion, which focuses on utility companies; Exostar, serving the aerospace industry; Sitestuff, which concentrates on facility/site maintenance; and ICG Commerce, which serves mid to large industrial accounts. Looking forward, we will continue to update and expand our existing e-business platforms. Graybar will highlight manufacturers' online information and services within our online channels--GraybarNet, Graybar.com and Infolink. For example, GE Lamps' Sales Call Wizard was recently added to Infolink, and its Lighting Auditor will be added to Graybar.com for use by both employees and customers. To support our inventory [PHOTO] Profit opportunities in residential communications wiring were touted to contractors in Graybar's "The Internet Home" publication. 11 14 [PHOTO] management initiatives, the e-business group will work on establishing an online method to sell DNO (Do Not Order) and excess material. MINORITY/WOMEN OWNED BUSINESS ENTERPRISE (MWBE) Together with our partners, we continued to build Innov8 Solutions USA, LLC for success. Graybar is one-third owner in this minority-owned company that provides value-added services not normally provided by distribution. Innov8 achieved ISO certification, and a new Enterprise Resource Planning (ERP) system and Electronic Data Interchange (EDI) software were implemented. In July, Innov8 assumed the kitting operations for the SPN District in Oklahoma City. This supply chain initiative between Graybar, Lucent and Innov8 has proven to be a strong business case for minority business development, cost reductions and value-added services. Our minority, women and small business reporting processes and data improved in 2001. We now have an extensive electronic database with more than 10,000 minority, women or small business vendors we can recommend to our customers and field personnel. "WMS UTILIZES BAR CODE SCANNING TO MANAGE AND MOVE PRODUCT WITHIN THE WAREHOUSE." 12 15 OPERATIONS REVIEW INVESTMENT/INVENTORY MANAGEMENT Special attention to inventory investment was required in the difficult economy of 2001; and early in the second quarter, a new Investment and Inventory Management Group was formed to guide this effort. This group consists of Corporate Purchasing and the Inventory Planning segment of Logistics under the direction of the Vice President, Investment and Inventory Management. As sales declined, we adjusted various purchasing parameters, developed improved procedures to move material to more suitable locations and returned slow moving inventory to our suppliers. As a result of this effort and cooperation across the organization, we reduced our total merchandise investment significantly while increasing the percentage of high demand merchandise on hand. We did this even though additional inventory was required for opening four new zone warehouses. A change was made to the mortgaging routine in May to support the logistics strategy and provide better focus on when the customer needs the merchandise. Process adjustments were made to account for new demand being placed on the zones as a result of the mortgage routine changes. The goal is a higher initial zone stock level and the ability to meet branch and customer expectations from day one of the zone opening. Additionally, zone/cluster review processes were amended to make them more frequent and meaningful. Supplier Assisted Inventory Management (SAIM) is still an important factor in our business. In 2001, we allowed one supplier to begin managing inventory for all locations, including zones, and we began the transition back to SAIM for several others. More frequent reviews are planned to quantify success. With new capabilities developed in 2001, we were able to improve our cost maintenance methods. Districts now have an opportunity to verify a potential change and make business plans based upon new costs received. Further enhancements are planned to make the task of cost management more accurate and effective. LOGISTICS Four new zone warehouses began operating in 2001: Seattle, Washington; Charlotte, North Carolina; Springfield, Missouri; and Cincinnati, Ohio. The zone in Dallas was relocated to a new state-of-the-art facility in Lewisville, Texas. The Fresno and Joliet National Zones were retrofitted with our Warehouse Management System (WMS). WMS utilizes bar code scanning to manage and move product within the warehouse. In early 2002, our Taunton Zone will convert from the current manual warehouse system to WMS followed by the conversion of our Cranbury facility. The 14th zone opened in Tampa in February 2002 with the WMS system in place. During 2002, the Company will look at further automation at the zones for improved productivity and bar coding of all SKUs (stock keeping units) to guarantee 100% accuracy for all shipments. CUSTOMER SERVICE Customer service during 2001 focused on two key initiatives: implementing the streamlined service procedures developed during the Tampa pilot the previous year and increasing branch utilization of our zone warehouse inventories. [PHOTO] [PHOTO] The Springfield Regional Zone, which is located in the Springfield Underground development, was one of four zone warehouses opened during the year. "WE REDUCED OUR TOTAL MERCHANDISE INVESTMENT SIGNIFICANTLY, WHILE INCREASING THE PERCENTAGE OF HIGH DEMAND MERCHANDISE ON HAND." 13 16 [PHOTO] To achieve the first target, each district was challenged with implementing our new service procedures first in the main house locations followed by rollout in the "A" and "B" locations. These procedures include re-engineering the receiving process; maintaining current status each day on shipping, receiving, put-away, cycle counting and locator maintenance; creating a separately-staffed will call area; creating the "sweep" method at the counter to provide better service during peak periods; and expediting the processes for receiving, return goods and resolving supplier shipping errors. Effective March 1, 2002, these processes will become standard procedure in all of the Company's branch locations. Implementing these new processes has enabled us to reduce stock discrepancies and customer backorders, expedite receipt of inbound supplier orders, improve will call service and increase on-time shipping performance. As we complete the implementation process across our network of branches, we are confident we will see increased productivity in our warehouse, counter, customer service and administrative activities. Our second primary objective of increasing utilization of zone inventories was partially achieved during 2001 and remains a high priority in 2002. We are seeing a steady transfer of shipping demand from branch warehouses to zones across all districts that have a supporting zone in their cluster. The branches are shipping directly from the zone to the customer whenever possible, reducing duplicate handling and the expense associated with local truck delivery. Our goal for 2002 is to continue to increase stock shipments from the zones "IMPLEMENTING THESE NEW PROCESSES HAS ENABLED US TO REDUCE STOCK DISCREPANCIES AND CUSTOMER BACKORDERS, EXPEDITE RECEIPT OF INBOUND SUPPLIER ORDERS, IMPROVE WILL CALL SERVICE AND INCREASE ON-TIME SHIPPING PERFORMANCE." 14 17 when appropriate to meet customer requirements, thus improving order fill rates while allowing Graybar to drive costs out of the supply chain. SAFETY Modest improvement in our safety performance brought OSHA recordable injuries and vehicle accident rates down slightly from the previous year. The Seattle District earned both the President's Safety Award for having the Company's best injury prevention record and the Graybar Fleet Safety Award for the fewest vehicle accidents as a percentage of overall fleet. BUILDINGS AND PROPERTIES The Company leased the 195,000 square foot Centerpoint building in the Westport area of St. Louis for use as an administrative center opening in early 2002. The building will house the Information Systems Department and provide additional office space, which will allow us to consolidate operations currently located in four separate facilities in the area. New locations were opened in Eau Claire, Wisconsin, and Freeport, Texas. Eighteen branch/sub-branch locations were closed during 2001. Renovations were completed in our facility in North Brunswick, New Jersey, and the New York District office was relocated there. INFORMATION SYSTEMS Electronic Data Interchange (EDI) continues to increase productivity while reducing errors in our transactions with suppliers. In 2001, the number of suppliers that accept EDI purchase orders from Graybar increased by 40%, and we are now transmitting 20,000 purchase orders each month via EDI. In addition, the number of suppliers invoicing Graybar electronically increased more than 35%, and now more than 100,000 supplier invoices are received and processed via EDI each month. Accurate point of sale (POS) reporting is a valuable tool for the Company and its suppliers. In 2001, we expanded the data and enhanced the accuracy of this sales information, strengthening the relationships we have with our supplier partners. POS reporting builds loyalty to Graybar and increases the sales effort made on our behalf. During the year, significant changes were made to the Customer Order Entry Mode (COE) to increase support for the logistics initiative. COE now automatically determines the best inventory location from which to fulfill an order. This decision is based on the customer's delivery requirements, as recorded by the Customer Service Representative at the beginning of the order entry process. In addition, system changes were made that allow dedicated inventory items to be protected for specific customers regardless of the locations carrying the inventory. This allows dedicated items to be inventoried at the zones as well as the branches. During the year, Graybar began the multi-year process of converting our computer systems to an Enterprise Resource Planning (ERP) platform. Three vendors are collaborating with Graybar's New Systems Group on the project. SAP is the selected software vendor. The implementation partner is Deloitte Consulting, and IBM has been selected as the hardware vendor. The six-month proof-of-concept stage was completed in December, and full implementation began in January 2002. The rollout of the new system will be done in phases with planned completion for all U. S. locations by late 2004. "DURING THE YEAR, GRAYBAR BEGAN THE MULTI-YEAR PROCESS OF CONVERTING OUR COMPUTER SYSTEMS TO AN ENTERPRISE RESOURCE PLANNING (ERP) PLATFORM." 15 18 FINANCIAL REVIEW - ----------------------------------------------------------------------------------------------------------------------- SELECTED CONSOLIDATED FINANCIAL DATA (Stated in thousands except for per share data) CAPTION> 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- SALES $ 4,828,549 $ 5,227,467 $ 4,311,405 $ 3,744,075 $ 3,348,496 Less--Cash discounts (13,380) (13,564) (11,465) (11,872) (10,474) - ----------------------------------------------------------------------------------------------------------------------- NET SALES 4,815,169 5,213,903 4,299,940 3,732,203 3,338,022 - ----------------------------------------------------------------------------------------------------------------------- COST OF MERCHANDISE SOLD (3,934,797) (4,268,764) (3,514,228) (3,042,176) (2,726,147) - ----------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE (39,073) (46,681) (30,241) (23,998) (19,713) - ----------------------------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES Current (22,915) (44,395) (43,899) (37,167) (29,750) Deferred 3,302 1,196 (130) (4,919) (6,820) - ----------------------------------------------------------------------------------------------------------------------- Total provision for income taxes (19,613) (43,199) (44,029) (42,086) (36,570) - ----------------------------------------------------------------------------------------------------------------------- NET INCOME 31,688 66,157 64,659 59,544 52,963 - ----------------------------------------------------------------------------------------------------------------------- INCOME APPLICABLE TO COMMON STOCK 31,685 66,154 64,654 59,539 52,957 - ----------------------------------------------------------------------------------------------------------------------- AVERAGE COMMON SHARES Outstanding (A) 5,846 6,101 6,276 5,848 6,117 - ----------------------------------------------------------------------------------------------------------------------- INCOME PER SHARE OF COMMON STOCK (A) 5.42 10.84 10.30 10.18 8.66 - ----------------------------------------------------------------------------------------------------------------------- Cash dividends per share 2.00 2.00 2.00 2.00 2.00 - ----------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS Balance, beginning of year 290,405 241,473 193,838 149,226 115,218 Add--Net income 31,688 66,157 64,659 59,544 52,963 - ----------------------------------------------------------------------------------------------------------------------- 322,093 307,630 258,497 208,770 168,181 - ----------------------------------------------------------------------------------------------------------------------- Less dividends Preferred ($1.00 per share) (3) (3) (5) (5) (6) Common (in cash) (11,569) (11,583) (11,442) (10,031) (9,576) Common (in stock) -- (5,639) (5,577) (4,896) (9,373) - ----------------------------------------------------------------------------------------------------------------------- (11,572) (17,225) (17,024) (14,932) (18,955) - ----------------------------------------------------------------------------------------------------------------------- Balance, end of year 310,521 290,405 241,473 193,838 149,226 Proceeds on stock subscriptions, shares unissued -- 49 56 -- 37 STOCK OUTSTANDING Preferred 51 57 68 108 119 Common 114,424 119,828 118,270 103,690 103,749 - ----------------------------------------------------------------------------------------------------------------------- $ 424,996 $ 410,339 $ 359,867 $ 297,636 $ 253,131 - ----------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income (loss) (17,504) (542) (204) (836) -- - ----------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 407,492 $ 409,797 $ 359,663 $ 296,800 $ 253,131 - ----------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS 1,535,998 1,843,438 1,698,544 1,167,847 1,051,821 LONG-TERM DEBT $ 315,549 $ 238,349 $ 255,897 $ 269,570 $ 139,748 - ----------------------------------------------------------------------------------------------------------------------- (A) Adjusted for the declaration of 5% stock dividends in 2000, 1999 and 1998, and a 10% stock dividend in 1997. Prior to adjusting for the stock dividends, the average common shares outstanding for 1999, 1998 and 1997 were 5,692, 5,052 and 4,805, respectively. This summary should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this annual report.
16 19 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 2001 COMPARED TO 2000 Net sales in 2001 were 7.6% lower than in 2000. The lower net sales resulted from a generally depressed economy in the market sectors in which the Company operates. The decrease in communications market sales when comparing 2001 to 2000 was significantly more than the decrease in sales in the electrical market. The impact of inflation on sales and cost of sales was not significant in 2001. Gross margin in 2001 decreased 6.9% compared to 2000 primarily due to the decreased sales in the electrical and communications markets. The decrease in selling, general and administrative expenses in 2001 compared to 2000 occurred largely because of adjustments in personnel complement and adjustments in compensation and related expenses, including a decrease in the Company's contribution to the profit sharing and savings plan. The decrease in these expenses was partially offset by the continued implementation of a company-wide customer service and logistics project, which resulted in increases in selling, general and administrative expenses in 2001 compared to 2000 due to increases in the Company's number of facilities and related staffing and start-up expenses. The increased expenses related to the logistics project implementation were anticipated by management and are expected to provide future benefits to the Company's results of operations. Interest expense decreased in 2001 compared to 2000 primarily due to lower interest rates on short-term borrowings and decreased levels of short-term borrowings required to finance lower levels of inventory and receivables. Other income includes service charges for special services provided to one customer of $4,229 and $4,434 and gains on sale of property of $2,677 and $0 in 2001 and 2000, respectively. The combined effect of the decrease in gross margin and the increase in other income, together with the increase in depreciation and amortization and decreases in selling, general and administrative expenses and interest expense, resulted in a decrease in pretax earnings of $58,055 in 2001 compared to 2000. 2000 COMPARED TO 1999 Net sales in 2000 were 21.3% higher than in 1999. 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 2000. Gross margin in 2000 increased 20.3% compared to 1999 primarily due to the increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in 2000 compared to 1999 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 2000 compared to 1999 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 2000 compared to 1999 primarily due to increased levels of borrowing incurred to finance higher aggregate levels of inventory and receivables. Interest rates on 2000 short-term borrowings were higher than for the same period in 1999. Other income includes service charges for special services provided to one customer of $4,434 and $3,839 and gains on sale of property of $0 and $540 in 2000 and 1999, respectively. The combined effect of the increase in gross margin and the decrease in other income, together with the increases in selling, general and administrative expenses, interest expense and depreciation and amortization, resulted in an increase in income before provision for income taxes of $668 in 2000 compared to 1999. 17 20 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 At December 31, 2001 current assets exceeded current liabilities by $513,946, up $64,689 from December 31, 2000. The current assets at December 31, 2001 were sufficient to meet the cash needs required to pay current liabilities. The reduction in accounts receivable from December 31, 2000 to December 31, 2001 resulted primarily from the decrease in sales experienced by the Company. The average number of days of sales in accounts receivable has remained relatively stable during 2001. Merchandise inventory levels were lower at December 31, 2001 when compared to December 31, 2000 inventory levels due largely to reductions in specific inventory carried to support customer contract agreements and improved inventory turnover. The Company does not have any other plans or commitments that would require significant amounts of additional working capital. The Company is going to convert its existing computer systems to an Enterprise Resource Planning (ERP) system over the course of the next several years. Although the initial stages of the project are currently under way, scheduled implementation dates have not been finalized. The costs to complete the project are expected to be approximately $90,000. The Company is actively pursuing special financing arrangements to fund the project. The Company expects that conversion to the ERP system will provide future benefits to its results of operations. At December 31, 2001 the Company had available to it unused lines of credit amounting to $578,263. These lines are available to meet short-term cash requirements of the Company. Short-term borrowings outstanding during 2001 and 2000 varied from a minimum of $86,000 and $304,000 to a maximum of $479,000 and $461,000, respectively. In July 1999 the Company entered into a Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR) consisting of a $205,000 364-day facility and a $205,000 five-year facility. The agreement was amended in July 2001 to reduce the 364-day facility commitment from $205,000 to $140,000. The credit agreement expires in July 2004. There were no amounts outstanding under the Revolving Credit Loan Agreement at December 31, 2001. The Company entered into an accounts receivable securitization program in June 2000 which provides for the sale of the Company's trade accounts receivables to a wholly owned, bankruptcy remote, special purpose subsidiary, Graybar Commerce Corporation. The trade accounts receivable purchases are financed through the issuance of commercial paper under a revolving liquidity facility. Under the securitization program, Graybar Commerce Corporation has granted a security interest in its trade accounts receivable. Borrowings outstanding under the securitization program at December 31, 2001 were $75 million. The Company has $200 million available for additional borrowing under the program at December 31, 2001. The program expires in June 2003. The Company has entered into two synthetic lease agreements with unrelated parties to fund real property projects. Under the terms of the agreements, the lessor, certain financial parties as lenders, and a bank as agent agreed to fund up to $73,720 for the acquisition and development of the Company's zone distribution facilities. Each of the agreements carries a five-year term. The Company has the option, with the consent of the lenders, to renew the leases for up to two additional five-year terms or to purchase the property for a price including the outstanding lease balance. If the Company elects not to renew the lease or purchase the property, or the lenders refuse to consent to a renewal, the Company may elect to remarket the property and arrange for its sale to a third party. Under the remarketing option, the Company has guaranteed a percentage of the total original cost as the residual fair value of the property. The Company has funded its capital requirements from operations, stock issuances to its employees and long-term debt. In July 2001 the Company received the proceeds from a ten-year note for $100,000 at a fixed interest rate of 7.49% with principal payable in annual installments beginning in July 2005. Net proceeds from the note were used to pay down outstanding short-term debt. The Revolving Credit Loan Agreement and certain other note agreements have various covenants that 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 provided by operations during 2001 amounted to $280,913 compared to $31,252 cash provided by operations in 2000. Cash provided from the sale of common stock and proceeds received on stock subscriptions amounted to $402 and $1,080 in 2001 and 2000, respectively. Capital expenditures for property were $53,985, $58,747 and $31,322 for the years ended December 31, 2001, 2000 and 1999, respectively. Purchases of treasury stock were $5,861, $5,179 and $5,394 for the years ended December 31, 2001, 2000 and 1999, respectively. Dividends paid were $11,616, $11,498 and $10,670 for the years ended December 31, 2001, 2000 and 1999, respectively. 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) CRITICAL ACCOUNTING POLICIES The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and assumptions (see Note 1 to the consolidated financial statements). The Company believes the following accounting policies have the potential to have a more significant impact on the financial statements either because of the significance of the financial statement item to which they relate or because they involve a higher degree of judgment and complexity. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company is required to estimate the collectability of its trade receivables. 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 to reflect the expected uncollectability of accounts receivable based on past collection history, the economic environment and specific risks identified in the receivables portfolio. Although actual credit losses have historically been within management's expectations, additional allowances may be required if the financial condition of the Company's customers were to deteriorate. INVENTORY The Company is required to state its inventories at the lower of cost or market. In assessing the ultimate realization of inventories, the Company makes judgments as to rights of return to suppliers and future demand requirements. If actual future demand, market conditions or supplier return provisions are less favorable than those projected by management, additional inventory write-downs may be required. DEBT COVENANTS Several of the Company's debt and short-term borrowing agreements require the Company to maintain certain financial ratios as discussed in Note 4 to the consolidated financial statements. The Company has complied with these covenants as of December 31, 2001 and expects to continue to do so absent any material negative event affecting the United States economy as a whole. If, however, the Company's projections of future operating performance are not achieved and its debt is placed in default, the Company would experience a material adverse impact on its reported financial position and results of operations. SUPPLIER VOLUME INCENTIVES The Company's agreements with many of its suppliers provide for the Company to earn incentives based on purchases during the agreement period. These agreements typically provide for the incentives to be paid in arrears, and the Company estimates amounts to be received from suppliers at the end of each reporting period. Amounts received have historically been within management's estimates. In the event that the operating performance of the Company's suppliers should decline, however, there can be no assurance that amounts earned will be paid or that the incentives will be included in future agreements. 19 22 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, 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------------- SALES, NET OF RETURNS AND ALLOWANCES $ 4,828,549 $ 5,227,467 $ 4,311,405 Less--Cash discounts (13,380) (13,564) (11,465) - ---------------------------------------------------------------------------------------------------------------- Net Sales 4,815,169 5,213,903 4,299,940 - ---------------------------------------------------------------------------------------------------------------- COST OF MERCHANDISE SOLD (3,934,797) (4,268,764) (3,514,228) - ---------------------------------------------------------------------------------------------------------------- Gross Margin 880,372 945,139 785,712 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (721,219) (724,325) (593,236) TAXES, OTHER THAN INCOME TAXES (46,950) (43,021) (36,301) DEPRECIATION AND AMORTIZATION (33,422) (29,220) (27,176) - ---------------------------------------------------------------------------------------------------------------- Income from operations 78,781 148,573 128,999 OTHER INCOME, NET 11,593 7,464 9,930 INTEREST EXPENSE (39,073) (46,681) (30,241) - ---------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 51,301 109,356 108,688 - ---------------------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES Current (22,915) (44,395) (43,899) Deferred 3,302 1,196 (130) - ---------------------------------------------------------------------------------------------------------------- Total provision for income taxes (19,613) (43,199) (44,029) - ---------------------------------------------------------------------------------------------------------------- NET INCOME 31,688 66,157 64,659 - ---------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, BEGINNING OF YEAR 290,405 241,473 193,838 Cash dividends- Preferred, $1.00 per share each year (3) (3) (5) Common, $2.00 per share each year (11,569) (11,583) (11,442) Common Stock dividend -- (5,639) (5,577) - ---------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, END OF YEAR $ 310,521 $ 290,405 $ 241,473 - ---------------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE OF COMMON STOCK $ 5.42 $ 10.84 $ 10.30 - ---------------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements
20 23 CONSOLIDATED FINANCIAL STATEMENTS - -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS December 31, (Stated in thousands except for share and per share data) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- ASSETS - ----------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash $ 10,079 $ 27,614 Trade receivables (less allowances of $8,634 and $9,411, respectively) 592,752 765,546 Merchandise inventory 612,976 748,754 Other current assets 14,442 25,444 - ----------------------------------------------------------------------------------------------------------------------- Total current assets 1,230,249 1,567,358 - ----------------------------------------------------------------------------------------------------------------------- PROPERTY, AT COST Land 25,402 24,178 Buildings 233,979 209,460 Furniture and fixtures 170,428 156,245 Capital equipment leases 24,159 20,380 - ----------------------------------------------------------------------------------------------------------------------- 453,968 410,263 Less--Accumulated depreciation and amortization 187,492 166,832 - ----------------------------------------------------------------------------------------------------------------------- 266,476 243,431 - ----------------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES 10,653 991 - ----------------------------------------------------------------------------------------------------------------------- OTHER ASSETS 28,620 31,658 - ----------------------------------------------------------------------------------------------------------------------- $1,535,998 $1,843,438 - ----------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Short-term borrowings $ 98,737 $ 406,199 Current portion of long-term debt 25,795 24,521 Trade accounts payable 495,143 533,138 Accrued payroll and benefit costs 26,816 58,196 Other accrued taxes 11,760 15,593 Dividends payable 6,299 6,343 Other payables and accruals 51,753 74,111 - ----------------------------------------------------------------------------------------------------------------------- Total current liabilities 716,303 1,118,101 - ----------------------------------------------------------------------------------------------------------------------- POSTRETIREMENT BENEFITS LIABILITY 77,431 77,191 - ----------------------------------------------------------------------------------------------------------------------- PENSION LIABILITY 19,223 -- - ----------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT 315,549 238,349 - ----------------------------------------------------------------------------------------------------------------------- Shares at December 31, 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Capital stock- Preferred, par value $20 per share, authorized 300,000 shares-- Issued to shareholders 2,593 2,990 In treasury, at cost (27) (125) - ----------------------------------------------------------------------------------------------------------------------- Outstanding 2,566 2,865 51 57 - ----------------------------------------------------------------------------------------------------------------------- Common, stated value $20 per share, Authorized 7,500,000 7,500,000 Issued to voting trustees 5,427,152 5,685,490 Issued to shareholders 305,754 335,340 In treasury, at cost (11,700) (29,440) - ----------------------------------------------------------------------------------------------------------------------- Outstanding 5,721,206 5,991,390 114,424 119,828 - ----------------------------------------------------------------------------------------------------------------------- Common shares subscribed 16,265 572 Retained earnings 310,521 290,405 Accumulated other comprehensive income (loss) (17,504) (542) - ----------------------------------------------------------------------------------------------------------------------- 423,757 410,320 Less--Subscriptions receivable 16,265 523 - ----------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 407,492 409,797 - ----------------------------------------------------------------------------------------------------------------------- $1,535,998 $1,843,438 - ----------------------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements
21 24 CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (Stated in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS Net Income $ 31,688 $ 66,157 $ 64,659 - ---------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to cash provided (used) by operations - Depreciation and amortization 33,422 29,220 27,176 Deferred income taxes (3,302) (1,196) 130 Gain on sale of property (2,677) -- (540) Changes in assets and liabilities: Trade receivables 172,794 (176,915) (128,615) Merchandise inventory 135,778 94,307 (402,655) Other current assets 11,002 (17,955) (3,544) Other assets 1,633 (6,483) (2,565) Trade accounts payable (37,995) 20,515 167,754 Accrued payroll and benefit costs (31,380) 8,089 5,641 Other accrued liabilities (30,050) 15,513 13,615 - ---------------------------------------------------------------------------------------------------------------- 249,225 (34,905) (323,603) - ---------------------------------------------------------------------------------------------------------------- Net cash flow provided (used) by operations 280,913 31,252 (258,944) - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property 3,974 2,756 1,519 Capital expenditures for property (53,985) (58,747) (31,322) Investment in joint venture 1,405 2,745 6,690 - ---------------------------------------------------------------------------------------------------------------- Net cash flow used by investing activities (48,606) (53,246) (23,113) - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings (307,462) 65,595 296,656 Proceeds from long-term debt 100,000 3,524 -- Repayment of long-term debt (21,439) (17,499) (11,864) Principal payments under capital equipment leases (3,866) (3,165) (4,586) Sale of common stock 402 1,080 14,413 Purchases of treasury stock (5,861) (5,179) (5,394) Dividends paid (11,616) (11,498) (10,670) - ---------------------------------------------------------------------------------------------------------------- Net cash flow provided (used) by financing activities (249,842) 32,858 278,555 - ---------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH (17,535) 10,864 (3,502) - ---------------------------------------------------------------------------------------------------------------- CASH, BEGINNING OF YEAR 27,614 16,750 20,252 - ---------------------------------------------------------------------------------------------------------------- CASH, END OF YEAR $ 10,079 $ 27,614 $ 16,750 - ---------------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements
22 25 CONSOLIDATED FINANCIAL STATEMENTS - ----------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Stated in thousands)
COMMON ACCUMULATED STOCK OTHER COMMON PREFERRED SUBSCRIBED, RETAINED COMPREHENSIVE STOCK STOCK UNISSUED EARNINGS INCOME (LOSS) TOTAL ------ --------- ----------- --------- ------------- --------- 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 ======== ======== ======== ======== ======== ======== Net income 66,157 66,157 Currency translation adjustments (338) (338) -------- Comprehensive income 65,819 -------- Stock issued 1,087 1,087 Stock redeemed (5,168) (11) (5,179) Advance payments (7) (7) Dividends declared 5,639 (17,225) (11,586) -------- -------- -------- -------- -------- -------- December 31, 2000 $119,828 $ 57 $ 49 $290,405 $ (542) $409,797 ======== ======== ======== ======== ======== ======== Net income 31,688 31,688 Currency translation adjustments (267) (267) Cumulative impact of adoption of SFAS 133 (net of tax of $877) (1,342) (1,342) Unrealized gain/(loss) from interest rate swap (net of tax of $317) (590) (590) Minimum pension liability (net of tax of $9,125) (14,763) (14,763) -------- Comprehensive income 14,726 -------- Stock issued 451 451 Stock redeemed (5,855) (6) (5,861) Advance payments (49) (49) Dividends declared (11,572) (11,572) -------- -------- -------- -------- -------- -------- DECEMBER 31, 2001 $114,424 $ 51 $ 0 $310,521 $(17,504) $407,492 ======== ======== ======== ======== ======== ======== See accompanying Notes to Consolidated Financial Statements
23 26 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (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. Shipping and handling costs are recorded as a component of cost of merchandise sold. 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. RECLASSIFICATIONS Certain reclassifications of prior year presentations have been made to conform to the 2001 presentation. 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 $0 and $8,912 greater than reported under the LIFO method at December 31, 2001 and 2000, respectively. The Company liquidated a portion of a previously created LIFO layer in 2001, resulting in an increase in cost of goods sold of $5,666. 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. DERIVATIVE FINANCIAL INSTRUMENTS On January 1, 2001 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, as amended by SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities." The statement requires the Company to recognize all derivative instruments on the balance sheet at fair value. The adoption of SFAS No. 133 impacts the accounting for the Company's interest rate swap agreement that effectively converts its floating rate payments to a fixed-rate basis. The Company manages interest rates on amounts due under certain operating leases through its swap agreement. The Company's interest rate swap agreement is designated as a cash flow hedge. Upon adoption of SFAS No. 133, the Company recorded a liability for the fair value of the interest rate swap of $2,219 in its consolidated balance sheet. On an ongoing basis, the Company reflects the current fair value of the interest rate swap on its balance sheet. The effective portion of the related gains or losses on the swap are deferred in 24 27 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ accumulated other comprehensive income. Because the swap is completely effective, no ineffectiveness was recorded in the consolidated statement of income during 2001. At January 1, 2001 the Company included unrealized net losses of $1,342 (net of tax) in accumulated other comprehensive income to record the cumulative transition adjustment as a result of adopting SFAS No. 133. During the twelve month period ended December 31, 2001 unrealized net losses of $590 (net of tax) related to the swap were recorded in accumulated other comprehensive income. These deferred gains and losses are recognized in income in the period in which the related interest payments being hedged are recognized in expense. PENDING ACCOUNTING PRONOUNCEMENTS In July 2001 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. Under SFAS 142, which was adopted by the Company effective January 1, 2002, goodwill and indefinite-lived intangible assets will no longer be amortized but rather will be tested annually for impairment. For the year ended December 31, 2001 the Company recorded goodwill amortization of $932. Management does not anticipate that the adoption of either of these new statements will have a significant impact on earnings or the financial position of the Company. 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: 2001 2000 1999 - ------------------------------------------------------------------------------ Federal income tax Current $21,804 $38,621 $39,126 Deferred (3,087) (1,118) 406 State income tax Current 1,111 5,774 4,773 Deferred (215) (78) (276) - ------------------------------------------------------------------------------ Financial statement income tax provision $19,613 $43,199 $44,029 - ------------------------------------------------------------------------------
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) 2001 2000 - ------------------------------------------------------------------------------ Postretirement benefits $ 30,121 $ 30,529 Payroll accruals 4,590 7,146 Bad debt reserves 3,257 3,417 Other deferred tax assets 8,216 5,994 Inventory 645 (3,000) Accrued (prepaid) pension 1,319 (9,469) Fixed asset depreciation (11,631) (13,193) Fixed asset gains (7,442) (6,502) Accounts receivable 264 (723) Other deferred tax liabilities (11,769) (10,251) - ------------------------------------------------------------------------------ $ 17,570 $ 3,948 - ------------------------------------------------------------------------------
Deferred tax assets included in Other Current Assets were $6,917 and $2,957 in 2001 and 2000, 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: 2001 2000 1999 - ------------------------------------------------------------------------------ "Statutory" tax rate 35.0% 35.0% 35.0% State and local income taxes, net of federal benefit (0.2) 3.0 3.0 Other, net 3.4 1.5 2.5 - ------------------------------------------------------------------------------ Effective tax rate 38.2% 39.5% 40.5% - ------------------------------------------------------------------------------
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 2001 the Company offered to eligible employees the right to subscribe to 1,300,000 shares of common stock at $20 per share in accordance with the provisions of the Company's Common Stock Purchase Plan dated October 8, 2001. This resulted in the subscription of 813,251 shares ($16,265). Subscribers under the Plan elected to make payments under one of the following options: (i) all shares subscribed for prior to January 18, 2002; (ii) a portion of such shares prior to January 18, 2002, 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 18, 2002, in the case of shares paid for prior to January 18, 2002. Shares will be issued and Voting Trust Certificates will be delivered to subscribers on a quarterly basis, as of the tenth day of 25 28 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------ 2001 299 397 292,732 310,472 2000 547 422 258,431 240,720 1999 1,974 1,974 267,736 281,713 - ------------------------------------------------------------------------------
4. LONG-TERM DEBT AND BORROWINGS UNDER SHORT-TERM CREDIT AGREEMENTS
DECEMBER 31, LONG-TERM DEBT WAS COMPOSED OF: 2001 2000 - ------------------------------------------------------------------------------ 7.49% note, unsecured, due in annual installments of $14,286 in each of the years 2005 through 2011 $100,000 $ 0 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 58,809 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 21,000 28,000 6.21% to 8.30% capital equipment leases, various maturities 15,346 15,478 6.44% note, unsecured, due in quarterly installments of $893 through January 2005 11,607 15,178 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 10,925 13,650 Variable rate mortgages, secured by facilities, various maturities 4,032 4,839 7.74% note, secured by facility, due in quarterly installments through August 2006 3,325 4,025 7.75% note, secured by facility, due in quarterly installments through March 2005 1,300 1,700 - ------------------------------------------------------------------------------ $341,344 $262,870 Less current portion 25,795 24,521 - ------------------------------------------------------------------------------ $315,549 $238,349 - ------------------------------------------------------------------------------
LONG-TERM DEBT MATURES AS FOLLOWS: - ----------------------------------------------------------- 2003 $ 34,985 2004 34,473 2005 40,033 2006 32,277 2007-2013 173,781 - ----------------------------------------------------------- $315,549 - -----------------------------------------------------------
The net book value of property securing various long-term debt instruments was $32,659 at December 31, 2001. The Company's borrowings under short-term credit agreements consist of issuances of commercial paper and borrowings under revolving credit agreements and bank lines of credit. In July 1999 the Company entered into a Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR) consisting of a $205,000 364-day facility and a $205,000 five-year facility. The agreement was amended in July 2001 to reduce the 364-day facility commitment from $205,000 to $140,000. The credit agreement expires in July 2004. There were no amounts outstanding under the Revolving Credit Loan Agreement at December 31, 2001. The Company entered into an accounts receivable securitization program in June 2000 which provides for the sale of the Company's trade accounts receivables to a wholly owned, bankruptcy remote, special purpose subsidiary, Graybar Commerce Corporation. The trade accounts receivable purchases are financed through the issuance of commercial paper under a revolving liquidity facility. Under the securitization program, Graybar Commerce Corporation has granted a security interest in its trade accounts receivable. Borrowings outstanding under the securitization program at December 31, 2001 were $75 million. The Company has $200 million available for additional borrowing under the program at December 31, 2001. The program expires in June 2003. Borrowings under short-term credit agreements varied from a minimum of $86,000 and $304,000 to a maximum of $479,000 and $461,000 in 2001 and 2000, respectively. The average amount of borrowings outstanding under short-term credit agreements during 2001 and 2000 amounted to approximately $305,000 and $389,000 at weighted average interest rates of 4.86% and 6.92%, respectively. The averages are based on the daily amounts outstanding during each year. The weighted average interest rate for amounts outstanding at December 31, 2001 and 2000 was 2.47% and 7.14%, respectively. In July 2001 the Company received the proceeds from a ten-year note for $100,000 at a fixed interest rate of 7.49% with principal payable in annual installments beginning in July 2005. The Company had unused lines of credit of approximately $578,263 as of December 31, 2001. Certain lines require maintenance of compensating balances of up to 5% of the available lines of credit or annual fees of up to twenty-five basis points of the committed lines of credit. 26 29 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 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. The carrying amounts of the Company's outstanding long-term debt and short-term borrowings approximate their fair values at December 31, 2001. 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. 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, 2001 or 2000. The following table sets forth information regarding the Company's pension and other postretirement benefits as of December 31, 2001 and 2000:
Postretirement Pension Benefits Benefits ---------------- -------------- 2001 2000 2001 2000 ----------------------------------------------------- Accumulated benefit obligation $148,696 $125,400 $ 96,070 $ 103,270 -------- -------- -------- --------- Projected benefit obligation 201,600 176,000 -- -- Fair value of plan assets 129,473 143,375 -- -- -------- -------- -------- --------- Funded status $(72,127) $(32,625) $(96,070) $(103,270) -------- -------- -------- ---------
Amounts recognized in the balance sheet at December 31, 2001 consist of the following:
Postretirement Pension Benefits Benefits ---------------- -------------- 2001 2000 2001 2000 ----------------------------------------------------- Prepaid (accrued) benefit cost $(19,223) $ 23,760 $(77,431) $(77,191) Intangible asset 17,380 -- -- -- Accumulated other comprehensive loss 14,763 -- -- -- -------- -------- -------- --------- Net amount recognized $ 12,920 $ 23,760 $(77,431) $(77,191) -------- -------- -------- ---------
Weighted average assumptions as of December 31 are:
Postretirement Pension Benefits Benefits ---------------- -------------- 2001 2000 2001 2000 ----------------------------------------------------- Discount rate 7.25% 7.50% 7.25% 7.50% Expected return on plan assets 9.50% 9.50% -- -- Rate of compensation increase 4.25% 4.50% -- -- Health care cost trend on covered charges -- -- 6.75% 6.75%
The following presents information regarding the plans for the years ended December 31, 2001 and 2000:
Postretirement Pension Benefits Benefits ---------------- -------------- 2001 2000 2001 2000 ----------------------------------------------------- < C> Employer contributions $ 9,852 $ 14,932 $ 8,494 $ 8,111 Participant contributions -- -- 245 229 Benefits paid $(12,855) $(15,140) $(8,739) $(8,340) -------- -------- ------- -------
The net periodic cost recognized for the defined benefit pension plan was $11,707, $9,532 and $8,973 for each of the three years ended December 31, 2001, 2000 and 1999, respectively. The net periodic cost recognized for the postretirement benefit plan was $8,719, $7,594 and $7,252 for each of the three years ended December 31, 2001, 2000 and 1999, respectively. For measurement of the net periodic postretirement benefit cost, a 6.75% annual rate of increase in per capita cost of covered health care benefits was assumed for 2001 with the rate assumed to remain at that level. 27 30 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 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 5,845,840, 6,101,310 and 6,276,161 in 2001, 2000 and 1999, respectively, adjusted for the declaration of 5% stock dividends in 2000 and 1999. 7. COMMITMENTS The Company leases various facilities and other property under noncancelable long-term leases. Certain of these leases include renewal options. Rental expense was $34,989, $28,576 and $24,559 in 2001, 2000 and 1999, respectively. Future minimum rental payments required under operating leases that have either initial or remaining noncancelable lease terms in excess of one year as of December 31, 2001 are as follows:
YEARS ENDING DECEMBER 31: - ----------------------------------------------------------- 2002 $38,277 2003 32,646 2004 24,775 2005 16,791 2006 11,224 Subsequent to 2006 52,493 - -----------------------------------------------------------
In September 2000 the Company entered into a swap agreement to manage interest rates on amounts due under certain operating leases. The agreement, which expires in July 2013, is based on a notional amount of $28.7 million. The agreement calls for an exchange of interest payments with the Company receiving payments based on a London Interbank Offered Rate (LIBOR) floating rate, and making payments based on a fixed rate of 6.92%. There is no exchange of the notional amount upon which the payments are based. The fair value of the swap was $(3,126) at December 31, 2001 and is recorded in other payables and accruals in the balance sheet. 8. STATEMENTS OF CASH FLOWS During 2001, 2000 and 1999 income taxes paid totaled $8,526, $55,241 and $44,030; interest paid totaled $38,764, $48,610 and $26,976; and liabilities assumed in connection with capitalized leases totaled $3,779, $3,754 and $6,661, respectively. 9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The components of accumulated other comprehensive income (loss) as of December 31, 2001 and 2000 are as follows:
2001 2000 - ------------------------------------------------------------------------------ Currency translation adjustments $ (809) $ (542) Unrealized gain/(loss) from interest rate swap (1,932) -- Minimum pension liability (14,763) -- - ------------------------------------------------------------------------------ $(17,504) $ (542) - ------------------------------------------------------------------------------
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial data for 2001 and 2000 is as follows:
FOR THE QUARTERS ENDED, 2001 3/31 6/30 9/30 12/31 - ---------------------------------------------------------------------------------------- Net sales $1,263,068 $1,284,667 $1,195,318 $1,072,116 Gross margin 229,300 227,331 211,095 212,646 Net income 5,988 7,430 10,654 7,616 Net income per share of common stock $ 1.01 $ 1.26 $ 1.83 $ 1.33 - ---------------------------------------------------------------------------------------- FOR THE QUARTERS ENDED, 2000 3/31 6/30 9/30 12/31 - ---------------------------------------------------------------------------------------- Net sales $1,245,309 $1,292,394 $1,340,654 $1,335,546 Gross margin 220,317 233,183 246,145 245,494 Net income 20,585 17,270 19,371 8,931 Net income per share of common stock(A) $ 3.33 $ 2.82 $ 3.19 $ 1.48 - ---------------------------------------------------------------------------------------- (A)Restated for the declaration of a 5% stock dividend in 2000.
28 31 REPORT OF INDEPENDENT AUDITORS - ------------------------------------------------------------------------------ (Letterhead Ernst & Young) Report of Independent Auditors 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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivatives and hedging activities effective January 1, 2001. /s/ Ernst & Young LLP February 21, 2002 29 32 GROUP AND DISTRICT MANAGEMENT AS OF DECEMBER 31, 2001 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ NEW YORK, BOSTON AND NORTHEASTERN COMM/DATA DISTRICTS - ------------------------------------------------------------------------------ [PHOTO] Donald M. Block Group Vice President Joseph M. Sabatino Vice President-Service Joseph P. Peduto Director of Accounting and Finance NEW YORK DISTRICT - ---------------------------------------------------------------- Ronald P. Segraves Vice President-Electrical Sales John N. DeRosa Operating Manager Brian R. Buchholz Financial Manager BOSTON DISTRICT - ---------------------------------------------------------------- Peter R. Elkas Vice President-Electrical Sales Gerald G. Pollick Operating Manager NORTHEASTERN COMM/DATA DISTRICT - ---------------------------------------------------------------- Stephen E. Thomas Vice President-Comm/Data Sales - ------------------------------------------------------------------------------ PITTSBURGH, RICHMOND AND EASTERN COMM/DATA DISTRICTS - ------------------------------------------------------------------------------ [PHOTO] Thomas S. Gurganous Group Vice President T. N. (Nick) Fleming Vice President-Service Sharon L. Enman Director of Accounting and Finance PITTSBURGH DISTRICT - ---------------------------------------------------------------- Steven M. Schooley Vice President-Electrical Sales C. Robert Smith Operating Manager Peter M. Wingrove Financial Manager RICHMOND DISTRICT - ---------------------------------------------------------------- Wallace H. Hancock Vice President-Electrical Sales David K. Ange Operating Manager Ronald J. Grabar Financial Manager EASTERN COMM/DATA DISTRICT - ---------------------------------------------------------------- Thomas R. Moore Vice President-Comm/Data Sales - ------------------------------------------------------------------------------ ATLANTA, TAMPA AND SOUTHEASTERN COMM/DATA DISTRICTS - ------------------------------------------------------------------------------ [PHOTO] Richard D. Offenbacher Group Vice President Keith E. (Kip) Davis Vice President-Service Richard C. Hird Director of Accounting and Finance ATLANTA DISTRICT - ---------------------------------------------------------------- D. Steven Smith Vice President-Electrical Sales Bertie M. Wilson Operating Manager Stephen C. Beckmann Financial Manager TAMPA DISTRICT - ---------------------------------------------------------------- Robert C. Lyons Vice President-Electrical Sales Jerry D. Nichols District Vice President-Service SOUTHEASTERN COMM/DATA DISTRICT - ---------------------------------------------------------------- Jeffrey W. Craig Vice President-Comm/Data Sales - ------------------------------------------------------------------------------ MINNEAPOLIS, CINCINNATI, CHICAGO AND NORTH CENTRAL COMM/DATA DISTRICTS - ------------------------------------------------------------------------------ [PHOTO] Richard A. Cole Group Vice President John T. Roney Vice President-Service Timothy E. Carpenter Director of Accounting and Finance MINNEAPOLIS DISTRICT - ---------------------------------------------------------------- Robert L. Nowak Vice President-Electrical Sales Paul D. Wise Operating Manager CINCINNATI DISTRICT - ---------------------------------------------------------------- Kenneth L. Netherton Vice President-Electrical Sales J. William Grindle Operating Manager Thomas G. Karrenbauer Financial Manager CHICAGO DISTRICT - ---------------------------------------------------------------- Michael N. Wall Vice President-Electrical Sales Martin A. Aske Operating Manager Steven R. Bourbeau Financial Manager NORTH CENTRAL COMM/DATA DISTRICT - ---------------------------------------------------------------- Richard H. Harvey Vice President-Comm/Data Sales 30 33 GROUP AND DISTRICT MANAGEMENT AS OF DECEMBER 31, 2001 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ ST. LOUIS, DALLAS, HOUSTON AND MIDWEST COMM/DATA DISTRICTS - ------------------------------------------------------------------------------ [PHOTO] John C. Loff Group Vice President Thomas T. Townsend Vice President-Service Thomas E. Kinate Director of Accounting and Finance ST. LOUIS DISTRICT - ---------------------------------------------------------------- Thomas F. Williams Vice President-Electrical Sales Cindy J. Johnson Operating Manager Reiders L. Abel Financial Manager DALLAS DISTRICT - ---------------------------------------------------------------- Lindsey G. Darnell Vice President-Electrical Sales Scott B. Neubauer Operating Manager Darryl B. Bain Financial Manager HOUSTON DISTRICT - ---------------------------------------------------------------- John H. Hawfield Vice President-Electrical Sales Dennis P. Brown Operating Manager Timothy D. Birky Financial Manager MIDWEST COMM/DATA DISTRICT - ---------------------------------------------------------------- William P. Mansfield Vice President-Comm/Data Sales - ------------------------------------------------------------------------------ SEATTLE, PHOENIX, WESTERN COMM/DATA AND AURORA DISTRICTS - ------------------------------------------------------------------------------ [PHOTO] Kenneth B. Sparks Group Vice President John C. Fischer Vice President-Service Randall R. Harwood Director of Accounting and Finance SEATTLE DISTRICT - ---------------------------------------------------------------- Kirk A. Snure Vice President-Electrical Sales Kevin L. Moehring Operating Manager Paul A. Hansen Financial Manager PHOENIX DISTRICT - ---------------------------------------------------------------- Mick K. Upchurch Vice President-Electrical Sales Michael D. Gaines Operating Manager James (Chip) Bateman Financial Manager WESTERN COMM/DATA DISTRICT - ---------------------------------------------------------------- David G. Maxwell Vice President-Comm/Data Sales AURORA DISTRICT - ---------------------------------------------------------------- James A. Grimshaw Director, Strategic Accounts - ------------------------------------------------------------------------------ CALIFORNIA ELECTRICAL AND CALIFORNIA COMM/DATA DISTRICTS - ------------------------------------------------------------------------------ [PHOTO] Gary D. Hodges Group Vice President Christopher O. Olsen Vice President-Service CALIFORNIA ELECTRICAL DISTRICT - ---------------------------------------------------------------- Scott A. Stromberg Vice President-Electrical Sales Kathy L. Edwards Operating Manager Richard T. Birkett Financial Manager CALIFORNIA COMM/DATA DISTRICT - ---------------------------------------------------------------- Jon D. Umene Vice President-Comm/Data Sales - ------------------------------------------------------------------------------ SPN DISTRICT - ------------------------------------------------------------------------------ [PHOTO] John C. Mansfield Group Vice President 31 34 LOCATIONS AS OF DECEMBER 31, 2001 - ------------------------------------------------------------------------------ CORPORATE OFFICE 34 North Meramec Avenue St. Louis, Missouri 63105 314 573-9200 - ------------------------------------------------------------------------------ NEW YORK DISTRICT - ------------------------------------------------------------------------------ 1300 Livingston Avenue North Brunswick, New Jersey 08902 732 568-2500 BRANCHES New York: Albany, Hauppauge, Jericho, Long Island City New Jersey: Newark, North Brunswick, Teterboro, Hackettstown, Parsippany, Wanamassa, Hamilton Pennsylvania: Philadelphia, Harrisburg, Allentown, Wilkes-Barre Delaware: New Castle - ------------------------------------------------------------------------------ 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, Erie, West Virginia: Wheeling New York: Buffalo, Rochester, Syracuse INFORMATION SYSTEMS 11828 Lackland Road St. Louis, Missouri 63146 314 573-5700 - ------------------------------------------------------------------------------ CINCINNATI DISTRICT - ------------------------------------------------------------------------------ 1022 West Eighth Street Cincinnati, Ohio 45203 513 621-0600 BRANCHES West Virginia: Charleston, Huntington Ohio: Columbus, Dayton, Lima, Toledo Kentucky: Lexington, Louisville Indiana: Evansville, Fort Wayne, Indianapolis Michigan: Belleville, Auburn Hills, Livonia, Flint - ------------------------------------------------------------------------------ ATLANTA DISTRICT - ------------------------------------------------------------------------------ 2050 Nancy Hanks Drive Norcross, Georgia 30071 770 441-5580 BRANCHES Georgia: Atlanta Midtown, Marietta, Fayetteville, Savannah, Cartersville, Augusta Alabama: Birmingham, Huntsville, Mobile South Carolina: Columbia, Greenville, Spartanburg, Hilton Head, Beaufort Tennessee: Knoxville, Chattanooga, Nashville Florida: Pensacola Mississippi: Jackson - ------------------------------------------------------------------------------ RICHMOND DISTRICT - ------------------------------------------------------------------------------ 1510 Tomlynn Street Richmond, Virginia 23230 804 354-1300 BRANCHES Virginia: Norfolk, Roanoke, Hampton, Chantilly, Commonwealth Controls-Richmond North Carolina: Asheville, Raleigh, Winston-Salem, Charlotte, Greensboro, Wilmington, Monroe South Carolina: Rock Hill Tennessee: Bristol, Johnson City Maryland: Baltimore, Lanham - ------------------------------------------------------------------------------ TAMPA DISTRICT - ------------------------------------------------------------------------------ 801 North Rome Avenue Tampa, Florida 33606 813 253-8881 BRANCHES Florida: Sarasota, Lakeland, Orlando, Pinellas, Melbourne, North Tampa, Tallahassee, Jacksonville, Daytona Beach, Perrine, Miami, West Palm Beach, Florida City, Fort Myers, Fort Pierce, Naples, Pompano Beach, Gainesville - ------------------------------------------------------------------------------ CHICAGO DISTRICT - ------------------------------------------------------------------------------ 900 Regency Drive Glendale Heights, Illinois 60139 630 893-3600 BRANCHES Illinois: Naperville, Chicago Downtown, Morton Grove, Joliet, Gurnee, Peoria, Springfield Indiana: South Bend, Hammond Michigan: Lansing, Grand Rapids, Kalamazoo Iowa: Davenport, Cedar Rapids Wisconsin: West Allis, Racine, Madison - ------------------------------------------------------------------------------ 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 North Dakota: Fargo South Dakota: Sioux Falls, Brookings Wisconsin: Green Bay, Marinette, Manitowoc, Neenah, Stevens Point, Eau Claire Iowa: Des Moines - ------------------------------------------------------------------------------ ST. LOUIS DISTRICT - ------------------------------------------------------------------------------ 8170 Lackland Road Bel Ridge, Missouri 63114 314 573-2000 BRANCHES Illinois: Collinsville Missouri: Jefferson City, Kansas City, Springfield Kansas: Olathe, Wichita Nebraska: Omaha Tennessee: Memphis, Jackson Arkansas: Little Rock, Springdale, Conway - ------------------------------------------------------------------------------ DALLAS DISTRICT - ------------------------------------------------------------------------------ 4601 Cambridge Road Ft. Worth, Texas 76155 817 213-1200 BRANCHES Texas: Amarillo, Austin, Abilene, Sherman, Kilgore, Dallas (Royal Lane Counter) Oklahoma: Oklahoma City, Tulsa Louisiana: Shreveport - ------------------------------------------------------------------------------ HOUSTON DISTRICT - ------------------------------------------------------------------------------ 6161 Bingle Road Houston, Texas 77092 713 423-3200 BRANCHES Texas: La Marque, Beaumont, San Antonio, Corpus Christi, Clute Louisiana: Harahan, Baton Rouge, Lake Charles 32 35 LOCATIONS AS OF DECEMBER 31, 2001 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SEATTLE DISTRICT - ------------------------------------------------------------------------------ 1919 Sixth Avenue South Seattle, Washington 98134 206 292-4848 BRANCHES Washington: Spokane, Tacoma, Everett, Bellevue Oregon: Portland, Eugene Idaho: Boise Alaska: Anchorage, Fairbanks Montana: Billings - ------------------------------------------------------------------------------ PHOENIX DISTRICT - ------------------------------------------------------------------------------ 3350 West Earll Drive Phoenix, Arizona 85017 602 269-2131 BRANCHES Arizona: Mesa, Tucson, Scottsdale Colorado: Colorado Springs, Denver, Englewood New Mexico: Albuquerque Texas: El Paso Nevada: Las Vegas Utah: Salt Lake City - ------------------------------------------------------------------------------ CALIFORNIA DISTRICT - ------------------------------------------------------------------------------ 383 South Cheryl Lane City of Industry, California 91789 909 451-4000 BRANCHES California: Anaheim, Long Beach, Van Nuys, Costa Mesa, Los Angeles (Counter), San Bernardino, Hayward, San Francisco (Downtown), Oakland(Counter), Martinez, San Jose, Sacramento, Roseville, San Diego, San Diego (Downtown), San Marcos, Santa Barbara, Santa Maria, Bakersfield, Fresno, Visalia, Modesto Nevada: Sparks Hawaii: Honolulu COMM/DATA DISTRICTS - ------------------------------------------------------------------------------ MIDWEST COMM/DATA DISTRICT - ------------------------------------------------------------------------------ 8170 Lackland Road Bel Ridge, Missouri 63114 314 573-2000 - ------------------------------------------------------------------------------ NORTH CENTRAL COMM/DATA DISTRICT - ------------------------------------------------------------------------------ 900 Regency Drive Glendale Heights, Illinois 60139 630 893-3600 - ------------------------------------------------------------------------------ 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 425 468-5500 - ------------------------------------------------------------------------------ EASTERN COMM/DATA DISTRICT - ------------------------------------------------------------------------------ 2500 Wilkinson Blvd. Charlotte, North Carolina 28208 704 392-1804 - ------------------------------------------------------------------------------ CALIFORNIA COMM/DATA DISTRICT - ------------------------------------------------------------------------------ 2368 Lincoln Avenue Hayward, California 94545 510 259-0122 REGIONAL ZONES - ------------------------------------------------------------------------------ ATLANTA REGIONAL AND NATIONAL ZONE - ------------------------------------------------------------------------------ Woodlands Business Park Building 100 8180 Troon Circle Austell, Georgia 30168 678 945-9970 - ------------------------------------------------------------------------------ CHARLOTTE REGIONAL ZONE - ------------------------------------------------------------------------------ 1700 West Pointe Drive, Suite A Charlotte, North Carolina 28214 704 602-7000 - ------------------------------------------------------------------------------ CINCINNATI REGIONAL ZONE - ------------------------------------------------------------------------------ 8814 Trade Port Drive Hamilton, Ohio 45011 513 874-8814 - ------------------------------------------------------------------------------ CRANBURY REGIONAL ZONE - ------------------------------------------------------------------------------ 4 Aurora Drive Suite 401 Cranbury, New Jersey 08512 609 409-8100 - ------------------------------------------------------------------------------ DALLAS REGIONAL ZONE - ------------------------------------------------------------------------------ 1991 Lakepointe Drive Lewisville, Texas 75057 972 459-5575 - ------------------------------------------------------------------------------ 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 60431 815 741-4660 - ------------------------------------------------------------------------------ ROGERS REGIONAL ZONE - ------------------------------------------------------------------------------ 13251 George Weber Drive Rogers, Minnesota 55374 612 428-1545 - ------------------------------------------------------------------------------ SEATTLE REGIONAL ZONE - ------------------------------------------------------------------------------ 1101 North Levee Road Puyallup, Washington 98371 253 848-3305 - ------------------------------------------------------------------------------ SPRINGFIELD REGIONAL ZONE - ------------------------------------------------------------------------------ 1904 N. LeCompte, Building #12 Springfield, Missouri 65802 417 864-4955 - ------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------ YOUNGSTOWN REGIONAL AND NATIONAL ZONE - ------------------------------------------------------------------------------ 1100 Ohio Works Drive Youngstown, Ohio 44510 330 799-3220 INTERNATIONAL - ------------------------------------------------------------------------------ 34 North Meramec Avenue St. Louis, Missouri 63105 314 573-9211 LOCATIONS Carolina, Puerto Rico 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 33 36 GRAYBAR ELECTRIC COMPANY, INC. 34 NORTH MERAMEC AVENUE ST. LOUIS, MISSOURI 63105 WWW.GRAYBAR.COM EX-21 4 eoex21.txt EXHIBIT 21 - LIST OF SUBSIDIARIES 1 EXHIBIT 21 GRAYBAR ELECTRIC COMPANY, INC. LIST OF SUBSIDIARIES -------------------- Graybar Electric Company FSC, Inc., 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 Canada 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 Business Services, Inc., a Missouri corporation Graybar Electric Canada Limited, a Nova Scotia corporation Graybar Commerce Corporation, a Delaware corporation Commonwealth Controls Corporation EX-23 5 eoex23.txt EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 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 21, 2002, included in the 2001 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 on the financial statement schedule 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 21, 2002 -----END PRIVACY-ENHANCED MESSAGE-----