-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ds3WEWsoiG3M+m0s/W9i4gDnpX7aR36UPuIDMmtZUeFjj6aHzMxKs9weOp+9Ehm3 m6eLdmJbZmYV/EqO03Fgtg== 0000950114-95-000169.txt : 19950905 0000950114-95-000169.hdr.sgml : 19950905 ACCESSION NUMBER: 0000950114-95-000169 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19950831 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAYBAR ELECTRIC CO INC CENTRAL INDEX KEY: 0000205402 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRICAL APPARATUS & EQUIPMENT, WIRING SUPPLIES [5063] IRS NUMBER: 130794380 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2 SEC ACT: 1933 Act SEC FILE NUMBER: 033-62269 FILM NUMBER: 95569421 BUSINESS ADDRESS: STREET 1: 34 N MERAMEC AVE CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3147273900 MAIL ADDRESS: STREET 1: P O BOX 7231 CITY: ST LOUIS STATE: MO ZIP: 63177 S-2 1 GRAYBAR ELECTRIC COMPANY FORM S-2 1 Registration No. 33- =============================================================================== SECURITIES AND EXCHANGE COMMISSION ------------------- FORM S-2 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------------- GRAYBAR ELECTRIC COMPANY, INC. (Exact name of registrant as specified in its charter) New York 13-0794380 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 34 North Meramec Avenue, St. Louis, Missouri 63105, (314) 512-9200 (Address, including zip code, and telephone number, including area code, of principal executive offices) G.S. TULLOCH, JR., Esq. Vice President, Secretary and General Counsel Graybar Electric Company, Inc. 34 North Meramec Avenue St. Louis, Missouri 63105 (314) 512-9200 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------- Copy to: JOHN H. DENNE, Esq. Whitman Breed Abbott & Morgan 200 Park Avenue New York, New York 10166 ------------------- Approximate date of commencement of proposed sale to the public: October 9, 1995. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box./ / If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box./ / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering./ / --------------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering./ / --------------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box./ / -------------------- CALCULATION OF REGISTRATION FEE ===================================================================================================================================
Proposed Maximum Aggregate Amount of Title of Securities to Offering Price Registration be Registered Fee - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock (par value $1 per share) . . . . . . . . . . . . $11,500,000 $3,966 - ------------------------------------------------------------------------------------------------------------------------------------ Voting Trust Certificates . . . . . . . . . . . . . . . . -- -- =================================================================================================================================== Representing the shares of Common Stock offered hereunder.
------------------- The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine. =============================================================================== 2 GRAYBAR ELECTRIC COMPANY, INC. -------------------- CROSS-REFERENCE SHEET
Item Number and Caption Prospectus Heading ----------------------- ------------------ 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus. . . . . . . . Cover page 2. Inside Front and Outside Back of Cover Pages of Prospectus.. . . . . . . . . . . . . . . . . Table of Contents; Available Information; Incorporation of Certain Documents by Reference 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges. . . . . . . . . . Prospectus Summary 4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . Purpose of Issue 5. Determination of Offering Price . . . . . . . . . . . . The Offering; Description of Common Stock 6. Dilution. . . . . . . . . . . . . . . . . . . . . . . . 7. Selling Security Holders. . . . . . . . . . . . . . . . 8. Plan of Distribution. . . . . . . . . . . . . . . . . . The Offering; Common Stock Purchase Plan; Subscription Agreement 9. Description of Securities to be Registered. . . . . . . Description of Common Stock; Summary of Certain Provisions of the Voting Trust Agreement 10. Interests of Named Experts and Counsel. . . . . . . . . Legal Matters; Experts 11. Information with Respect to the Registrant. . . . . . . Prospectus Summary; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Dividends; Business; Management; Information Concerning the Voting Trustees 12. Incorporation of Certain Information by Reference . . . . . . . . . . . . . . . . . . . . . . Incorporation of Certain Documents by Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities . . . . . . . . . . . . . . . . . . . . . - ------------------ Omitted because not applicable, or answer to Item is negative and is omitted from the Prospectus.
3 SUBJECT TO COMPLETION, DATED AUGUST 31, 1995 P R O S P E C T U S - ------------------- 575,000 SHARES GRAYBAR ELECTRIC COMPANY, INC. ---------------- Common Stock Par Value $1 Per Share offered to Employees of Graybar Electric Company, Inc. Pursuant to the COMMON STOCK PURCHASE PLAN Dated as of October 9, 1995 and Voting Trust Certificates in respect thereof ---------------- Shares of Common Stock, which eligible employees may subscribe for by execution of a Subscription Agreement in the form set forth in this Prospectus, will upon issuance pursuant to the terms of the Common Stock Purchase Plan be deposited in the Voting Trust established by the Voting Trust Agreement, dated as of April 15, 1987, pursuant to which approximately 95% of the presently outstanding shares of Common Stock of the Company are held, and Voting Trust Certificates will be issued in respect of shares so subscribed for and purchased, except that eligible employees who are shareholders and who have not elected to participate in the Voting Trust Agreement will receive stock certificates representing the shares for which they subscribed. The Voting Trust Agreement is more fully described in this Prospectus under the heading "Summary of Certain Provisions of the Voting Trust Agreement." All subscriptions will be irrevocable by their terms; however, the subscription of an employee whose employment terminates for any cause other than retirement on a pension (other than a deferred pension) will be canceled. The Company will have the option to repurchase, at $20 per share, shares of Common Stock purchased hereunder in the event the owner desires to sell, transfer or otherwise dispose of such shares or Voting Trust Certificates issued in respect thereof or in the event of death or termination of employment otherwise than by retirement on a pension (other than a deferred pension). See "The Offering," "Common Stock Purchase Plan" and "Description of Common Stock -- Repurchase Option." ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. =================================================================================================================================== Underwriting Discounts Proceeds to the Price to Public and Commissions Company - ------------------------------------------------------------------------------------------------------------------------------------ Per Unit . . . . . . . . . . . $20 None $20 - ------------------------------------------------------------------------------------------------------------------------------------ Total. . . . . . . . . . . . . $11,500,000 None $11,500,000 ==================================================================================================================================== Shares of Common Stock of the Company registered hereunder are to be offered pursuant to the Common Stock Purchase Plan set forth in this Prospectus to approximately 5,300 eligible employees of the Company. To the extent that subscription rights are not exercised, the proceeds to the Company will be reduced by $20 for each share not subscribed for and, to the extent that shares are purchased under the installment method, receipt by the Company of the proceeds will be deferred. See "The Offering." Before deducting expenses estimated at $70,000 payable by the Company.
---------------- The date of this Prospectus is October 9, 1995. 4 NO PERSON HAS BEEN AUTHORIZED BY THE COMPANY OR THE VOTING TRUSTEES TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE VOTING TRUSTEES. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION WITHIN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. ---------------------- TABLE OF CONTENTS
Page ---- Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Incorporation of Certain Documents by Reference. . . . . . . . . . . . . . . . . . . . . . 3 Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Common Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Subscription Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Purpose of Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . 15 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Description of Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Information Concerning the Voting Trustees . . . . . . . . . . . . . . . . . . . . . . . . 25 Summary of Certain Provisions of the Voting Trust Agreement. . . . . . . . . . . . . . . . 28 Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
-------------------- AVAILABLE INFORMATION Graybar Electric Company, Inc. (the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, information statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain regional offices of the Commission at the following addresses: 7 World Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. -2- 5 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission are incorporated in this Prospectus by reference: (a) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; and (b) the Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 1995 and June 30, 1995. The Company hereby undertakes to provide without charge to each person to whom a copy of this Prospectus is delivered, upon written or oral request, a copy of any of the documents that have been incorporated by reference in this Prospectus (not including exhibits to such documents unless such exhibits are specifically incorporated by reference). Requests for such copies should be directed to G. S. Tulloch, Jr., Esq., Vice President, Secretary and General Counsel, Graybar Electric Company, Inc., P.O. Box 7231, St. Louis, Missouri 63177, telephone number (314) 512-9200. PROSPECTUS SUMMARY The following is a summary of certain information in the Prospectus and is qualified in its entirety by such information. THE OFFERING (See pp. 5 to 12) The Company is offering to eligible employees the right to subscribe for up to 575,000 shares of the Company's common stock, par value $1 per share with a stated value of $20 per share (the "Common Stock"), at $20 per share. Pursuant to the Common Stock Purchase Plan, subscribers have the option of paying for and receiving all of the shares subscribed for by them in January 1996, paying for and receiving a portion of such shares in January 1996 and paying for and receiving the balance of such shares on an installment basis, or paying for and receiving all such shares on an installment basis. The proceeds from the offering will be added to working capital, in part to replenish amounts previously used to repurchase outstanding shares of Common Stock pursuant to the Company's repurchase option. To the extent that shares offered are not subscribed for by employees, the number of shares sold and the proceeds received will be correspondingly reduced. The number of shares which each employee will be entitled to purchase will be reduced on a pro rata basis in the event the aggregate number of shares subscribed for by all employees exceeds 575,000. THE COMPANY (See pp. 19 to 22) The Company, which is wholly owned by its present and former employees, was formed in 1925 and is engaged internationally in the distribution of electrical and communications equipment and supplies primarily to contractors, industrial plants, telephone companies, power utilities, and commercial users. The Company distributes more than 100,000 different products made by more than 1,000 manufacturers through 219 distributing houses located in 15 geographical districts throughout the United States. In addition, the Company maintains two (2) zone warehouses with special inventories so all locations can call upon them for additional items. The Company also has subsidiary operations with distribution facilities located in Puerto Rico, Mexico, Guam, Singapore and Canada. All products sold by the Company are purchased from others. The location and telephone number of the principal executive offices of the Company are 34 North Meramec Avenue, St. Louis, Missouri 63105 (314-512-9200), and the mailing address of the principal executive offices is P.O. Box 7231, St. Louis, Missouri 63177. -3- 6 THE VOTING TRUST AGREEMENT (See pp. 28 to 30) Approximately 95% of the outstanding shares of Common Stock of the Company are held in a Voting Trust pursuant to the terms of a Voting Trust Agreement which became effective on April 15, 1987. Shares subscribed for will be deposited upon issuance in the Voting Trust and Voting Trust Certificates will be issued in respect thereof, except that subscribers who are shareholders and who have not elected to participate in the Voting Trust will receive stock certificates representing the shares for which they subscribed. The Voting Trust Agreement will expire on April 14, 1997 unless sooner terminated as provided therein. The Voting Trustees are entitled in their discretion and using their best judgment to vote on the election of directors and the ratification, approval or disapproval of any other action or proposed action of the Company, except that the Voting Trustees may not, without the consent of the holders of Voting Trust Certificates representing at least 75% of the aggregate number of shares of Common Stock then deposited under the Voting Trust Agreement, vote on the merger or consolidation of the Company into another corporation, the sale of all or substantially all of the Company's assets or the liquidation or dissolution of the Company. Holders of Voting Trust Certificates will receive cash dividends paid on shares of Common Stock beneficially owned by them and held by the Voting Trustees. Shares of Common Stock paid as a stock dividend with respect to such shares will be deposited in the Voting Trust and Voting Trust Certificates relating thereto will be issued to the beneficial owner of the shares upon which the stock dividends are paid. SELECTED FINANCIAL INFORMATION (See pp. 14 to 18 and pp. F-1 to F-13)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ ---------------- 1990 1991 1992 1993 1994 1994 1995 ---- ---- ---- ---- ---- ---- ---- (In thousands, except for per share data) INCOME STATEMENT DATA: Net Sales. . . . . . . . . . . .$1,884,723 $1,735,374 $1,894,111 $2,033,167 $2,355,622 $1,097,372 $1,319,354 Income before cumulative effect of accounting change. . . . . . 11,985 9,515 10,232 14,745 18,702 10,246 16,141 Cumulative effect on prior years of change in accounting for post- retirement benefits. . . . . --- --- --- (45,000) --- ---- --- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss). . . . . . . . 11,985 9,515 10,232 (30,255) 18,702 10,246 16,141 Per share of common stock: Income before cumulative effect of accounting change . . . . . . . . . . . 2.43 1.97 2.20 3.09 4.03 2.19 3.54 Net income (loss) . . . . 2.43 1.97 2.20 (6.33) 4.03 2.19 3.54 Cash dividends . . . . . . . . 2.00 2.00 2.00 2.00 2.00 .60 .60 DECEMBER 31, JUNE 30, 1994 1995 ------------ -------- BALANCE SHEET DATA: (IN THOUSANDS) Working capital . . . . . . . . . . . . . . . . . . . . $136,134 $148,132 Total assets. . . . . . . . . . . . . . . . . . . . . . 719,786 820,156 Long-term debt. . . . . . . . . . . . . . . . . . . . . 90,212 94,674 Total liabilities . . . . . . . . . . . . . . . . . . . 570,643 658,970 Shareholders' Equity . . . . . . . . . . . . . . . . . 149,143 161,186 - ------------------ Adjusted for the declaration of 5.0% and 6.25% stock dividends in 1992 and 1994, respectively. Prior to adjusting for stock dividends, the average common shares outstanding for the years 1990, 1991, 1992 and 1993 were 4,420, 4,315, 4,157 and 4,498, respectively.
-4- 7 THE OFFERING The Company is offering to eligible employees the right to subscribe for an aggregate of 575,000 shares of Common Stock under the provisions of the Company's Common Stock Purchase Plan dated as of October 9, 1995 (the "Plan") adopted by the Board of Directors and the shareholders of the Company. The Company is 100% owned by its active and retired employees. At August 18, 1995, 4,502,910 shares of Common Stock were issued and outstanding and an additional 105,836 shares of Common Stock had been acquired by the Company and were held in the treasury. At such date, approximately 95% of the issued and outstanding shares of Common Stock were held of record by C.L. Hall, J.R. Hade, G.W. Harper, R.L. Mygrant and R.D. Offenbacher, as Voting Trustees (the "Voting Trustees") under a Voting Trust Agreement dated as of April 15, 1987 (the "Voting Trust Agreement") among the Voting Trustees, the Company and the shareholders of the Company who have elected to participate therein (the "Partici- pating Shareholders"). Pursuant to the Voting Trust Agreement, Par- ticipating Shareholders have deposited their certificates representing shares of Common Stock with the Voting Trustees and voting trust certificates (the "Voting Trust Certificates") have been issued by the Voting Trustees in respect of such shares. The Voting Trust was established in order to permit the owners of shares of Common Stock to act together concerning the management of the Company and the voting on matters presented to the shareholders. Under the terms of the Plan, shares of Common Stock subscribed for will upon issuance be deposited in the Voting Trust and in exchange subscribers will receive Voting Trust Certificates, except that subscribers who are shareholders of record as of the date hereof and who have not elected to participate in the Voting Trust Agreement will receive certificates representing the number of shares of Common Stock for which they subscribed and paid. For information concerning the Voting Trustees and the Voting Trust Agreement, see "Information Concerning the Voting Trustees" and "Summary of Certain Provisions of the Voting Trust Agreement." A copy of the Voting Trust Agreement is being sent, together with this Prospectus, to each eligible employee who is not either a Participating Shareholder or a shareholder of record of Common Stock. LIMITATION ON TRANSFERABILITY The Plan and the Company's Restated Certificate of Incorporation, as amended, grant to the Company the option to repurchase the outstanding shares of Common Stock, including shares of Common Stock purchased under the Plan, at $20 per share in the event the owner desires to sell, transfer or otherwise dispose of such shares or the Voting Trust Certificates issued in exchange therefor, or in the event of the owner's death or termination of employment otherwise than by retirement on a pension (other than a deferred pension). The Company has in the past always exercised its option to repurchase shares and expects to continue to exercise such option in the future. As a result, no public trading market exists for the Common Stock or the Voting Trust Certificates. If the Company, at some point in the future, should decide not to exercise its option, no assurance can be given that a public trading market in the Common Stock would develop, in which case it might be difficult for a shareholder to sell his shares or Voting Trust Certificates. Shares deposited in the Voting Trust may not be withdrawn prior to the expiration in 1997 or earlier termination of the Voting Trust Agreement. See "Common Stock Purchase Plan," "Description of Common Stock -- Repurchase Option" and "Summary of Certain Provisions of the Voting Trust Agreement -- Restrictions on Transfer, and Right of the Company to Repurchase Voting Trust Certificates Under Certain Circumstances." SUBSCRIPTION AGREEMENT Any eligible employee desiring to subscribe for shares of Common Stock must sign a Subscription Agreement in the form set forth in this Prospectus and file it with the Secretary of the Company on or before December 8, 1995, by mailing it to Graybar Electric Company, Inc., P.O. Box 7231, St. Louis, Missouri 63177, Attention: Secretary. No sub- scriptions will be accepted after that date. -5- 8 Subscribers under the Plan may elect to make payments for (i) all shares subscribed for prior to January 19, 1996, (ii) a portion of such shares prior to January 19, 1996 and the balance in monthly installments through payroll deductions (or in certain cases, where a subscriber is no longer on the Company's payroll, through pension deductions or direct monthly payments) over a 34-month period, or (iii) all of such shares pursuant to the installment method. Shares will be issued and Voting Trust Certificates delivered to a subscriber as of January 19, 1996, in the case of shares paid for prior to January 19, 1996, and on a quarterly basis as of the tenth day of March, June, September and December to the extent full payment has been made for shares being purchased under the installment method. All subscriptions will be irrevocable by their terms; however, the subscription of an employee whose employment terminates for any cause other than for retirement on a pension (except a deferred pension) will be canceled. Refund of any balance due employees who terminate service shall be made in the quarter following termination. Except during the first ten days of March, June, September and December, subscribers paying for shares under the installment method may prepay the balance due on all or a portion of the shares being paid for under such method, and upon such prepayment the shares so purchased shall be issued. The Plan provides that no corporate action which will result in a dis- tribution of stock or other assets of the Company to its shareholders (except the payment of cash dividends) shall be taken after January 19, 1996 without the Company first giving notice of such proposed action to subscribers under the Plan who shall not then have paid in full for the shares of Common Stock for which they have subscribed. Such subscribers shall thereupon have a reasonable opportunity, not less than twenty days, to complete their payment on all shares subscribed for in order that they may obtain the benefits of such action. COMMON STOCK PURCHASE PLAN Set forth below is the text of the Common Stock Purchase Plan, approved by the Board of Directors of the Company on March 9, 1995 and by the shareholders of the Company on June 18, 1995. COMMON STOCK PURCHASE PLAN DATED AS OF OCTOBER 9, 1995 RELATING TO SHARES OF COMMON STOCK OF GRAYBAR ELECTRIC COMPANY, INC. --------------------------- 1. EMPLOYEES ENTITLED TO SUBSCRIBE. Each person who on September 30, 1995 was an employee of Graybar Electric Company, Inc. (the "Company") who had been employed by the Company since January 1, 1995, and each person who on June 30, 1995 was an employee of the Company and who retired on a pension (except a deferred pension) on or after June 30, 1995 and prior to September 30, 1995, is entitled to subscribe for shares of the Company's common stock, par value $1.00 per share with a stated value of $20.00 per share (the "Common Stock"), at the price of $20.00 per share. Such persons are sometimes referred to as "eligible employees" and after executing a Subscription Agreement are referred to as "subscribers"; provided, however, that the term "eligible employees" shall not be deemed to include: (a) those who receive pensions (other than persons who on June 30, 1995 were employees who retired on a pension (except a deferred pension) on or after June 30, 1995 and prior to September 30, 1995), or retainers, whether or not currently employed, (b) those who are employed solely on a contract basis or who by written agreement have released all stock subscription rights, or (c) those included in a collective bargaining unit represented by a labor organization where the agreement between the Company and the labor organization excludes such persons from subscribing for Common Stock of the Company. -6- 9 2. PERIOD FOR AND METHOD OF MAKING SUBSCRIPTION. Any eligible employee desiring to subscribe for shares of Common Stock shall sign a Subscription Agreement in the form approved for such purpose and file it, on or before December 8, 1995, with the Secretary at the executive offices of the Company, P.O. Box 7231, St. Louis, Missouri 63177. No subscription shall be effective and binding unless and until accepted by the Company at its executive offices. No subscription will be accepted after December 8, 1995. 3. DETERMINATION OF NUMBER OF SHARES FOR WHICH AN ELIGIBLE EMPLOYEE IS ENTITLED TO SUBSCRIBE. The maximum number of shares for which an eligible employee may subscribe shall be determined as hereinafter provided: 3.1. The subscription rights of each eligible employee, subject to increase as provided in Section 3.2 and reduction as provided in Section 3.3, shall be one share for each $400 of his annual salary rate in effect on June 30, 1995; fractional shares resulting from this computation shall be disregarded. 3.2. The number of shares determined in accordance with Section 3.1 shall, in the case of eligible employees who on June 30, 1995 were in the grade classifications listed below, be increased by the following percentages: 3.2.1. Eligible Employees in Grade 20 or above--200%; 3.2.2. Eligible Employees in Grades 17, 18 and 19--150%; 3.2.3. Eligible Employees in Grades 15 and 16--100%; 3.2.4. Eligible Employees in Grade 14 or below who are covered either by the Management Incentive Plan or the Sales Incentive Plan--50%; 3.2.5. Eligible Employees in Grade N--60%; and 3.2.6. Eligible Employees in Grades J, K, L and M--25%. Fractional shares resulting from the above computations shall be disregarded. 3.3 In the event the aggregate number of shares subscribed for by all eligible employees exceeds 575,000, the number of shares which each eligible employee will be entitled to purchase shall be reduced to a number determined by multiplying the number of shares such eligible employee has subscribed for by a fraction, the numerator of which is 575,000 and the denominator of which is the aggregate number of shares subscribed for by all eligible employees. Fractional shares resulting from such computation shall be disregarded. 4. PAYMENTS FOR ISSUANCE OF STOCK. Payments for shares subscribed for may be made pursuant to either or both of the following methods: 4.1. Method A--payment in full on or before January 19, 1996 for all or a portion of the shares subscribed for, in which case the shares paid for will be issued as of January 19, 1996. 4.2. Method B--payments in monthly installments, at the rate of $.59 for each share subscribed for and paid for under Method B in each of the 33 months commencing January 1996, and at the rate of $.53 for each such share in the 34th month, in which case the Company shall issue as of the tenth day of March, June, -7- 10 September and December of each year, beginning March 10, 1996, a share certificate for such number of full shares of Common Stock as have been fully paid for as of the last day of the preceding month. 4.2.1. Payments under Method B shall be made, in the case of a subscriber on the Company's payroll, through payroll deductions authorized by the subscriber and, in the case of a subscriber who is no longer on the Company's payroll but whose subscription has not been canceled in accordance with Section 5.4, through pension deductions authorized by the subscriber or monthly payments made directly by such person to the Treasurer of the Company on or before the last day of each month. Except as provided in Section 5.4, subscriptions made under Method B and the obligations of subscribers to make full payment for all shares subscribed for (including any authorization to the Company to make payroll deductions) shall be irrevocable. 4.2.2. No interest shall be paid on amounts deducted from a participant's salary or pension or paid directly to the Treasurer under Method B. 4.2.3. A subscriber under Method B, at his option exercised at any time except during the first ten days of March, June, September or December, may pay the balance due on all or any portion of the number of shares subscribed for pursuant to Method B, and upon such payment a share certificate shall be issued for the number of shares for which payment is so made. 5. CONDITIONS OF SUBSCRIPTION. Each subscription for shares of Common Stock hereunder is expressly conditioned, among other things, upon the following terms, to all of which every subscriber by executing a Subscription Agreement agrees: 5.1. Right to receive stock not transferable. No subscriber may sell, pledge or in any manner alienate or suffer to be alienated his right to receive Voting Trust Certificates or stock certificates representing the shares of Common Stock subscribed for by him. A violation of this provision shall constitute a withdrawal by the subscriber from his Subscription Agreement, in which event the only right of the subscriber or his assignee shall be to have the Company return to the person entitled thereto the total amount paid under said Subscription Agreement. Such return shall operate as a cancellation and satisfaction of all rights under the Subscription Agreement. 5.2. Issuance of stock certificates and Voting Trust Certificates. A stock certificate or certificates representing the shares subscribed for and purchased pursuant to this Plan by subscribers who are or who, upon executing a Subscription Agreement, become parties to the Voting Trust Agreement (the "Voting Trust Agreement") dated as of April 15, 1987, relating to shares of Common Stock of the Company, shall be issued to, and deposited by the Company with, the Voting Trustees thereunder in accordance with the provisions of Section 4.05 of the Voting Trust Agreement. The Voting Trustees will issue Voting Trust Certificates to such subscribers representing the number of shares subscribed for and purchased by them. Stock certificates representing the shares subscribed for and purchased pursuant to this Plan by subscribers who are shareholders and who are not parties to the Voting Trust Agreement shall be issued and delivered directly to such subscribers. 5.3. Subscribers bound by provisions in Restated Certificate of Incorporation, as amended. All shares of Common Stock subscribed for shall be issued and held subject to all the terms, provisions, restrictions and qualifications set forth in the Restated Certificate of Incorporation, as amended, of the Company, which provides, among other things, that the Company has the option to repurchase outstanding shares of Common Stock at the price at which such shares were issued with appropriate adjustment for current dividends in the event any shareholder shall desire to sell, transfer or otherwise dispose of any of his shares, or in the event -8- 11 of his death (in which case the option is exercisable beginning one year after the date of death) or in the event of termination of his employment other than by retirement on a pension. Eligibility for or entitlement to a deferred pension under the Company's "Plan for Employees' Pensions, Disability Benefits and Death Benefits" does not constitute a retirement on a pension for purposes of this Section 5.3 or for purposes of the Restated Certificate of Incorporation. The Voting Trust Certificates issued and to be issued under the Voting Trust Agreement provide, in substance, that every Voting Trust Certificate is issued and held upon and subject to the same terms and conditions upon which shares of Common Stock are issued and held. Each subscriber by executing a Subscription Agreement specifically agrees to be bound by all provisions of this Section 5.3 and agrees that all stock certificates or Voting Trust Certificates owned by such subscriber shall be subject to such provisions. 5.4. Cancellation of subscription on termination of employment. In the event of the death of a subscriber or the termination of his employment other than by retirement on a pension (except a deferred pension) before any or all of the shares of Common Stock subscribed for by him are issued, his subscription shall be canceled as to shares not then issued, and he or his estate shall be entitled to receive the total amount of the purchase price, if any, then held by the Company for his account for unissued shares under this Plan, without interest. Payment of such amount by the Company shall operate as a cancellation and satisfaction of all rights under his Subscription Agreement. Refund of any balance due employees who terminate service shall be made in the quarter following termination. Eligibility for or entitlement to a deferred pension under the Company's "Plan for Employees' Pensions, Disability Benefits and Death Benefits" does not constitute a retirement on a pension for purposes of this Section 5.4. 5.5. Determination of Board of Directors to control. The determination of the Board of Directors of the Company upon any question concerning the application or interpretation of any of the provisions of this Plan or of the Subscription Agreement shall be final, and no director shall incur any responsibility by reason of any error of fact or of law or of any matter or thing done or suffered or omitted to be done in connection with any such determination or interpretation or otherwise, except for his own willful misconduct. 6. CERTAIN CORPORATE ACTION NOT TO BE TAKEN WITHOUT NOTICE. The Company will not take any action after January 19, 1996 which would result in a distribution to its shareholders of shares of Common Stock or other assets (except the payment of cash dividends on shares of Common Stock or the issuance of shares of Common Stock pursuant to installment payments made under Section 4.2) without first giving notice of such proposed action to all subscribers who shall not then have paid their subscriptions in full and granting such subscribers an opportunity within such time (not to be less than 20 days) and in such manner as the Board of Directors may determine to be reasonable, to complete their payments on all shares subscribed for by them and thereby to become shareholders entitled to the benefit of and subject to such action. -9- 12 7. RIGHT OF THE COMPANY TO ISSUE AND SELL ADDITIONAL SHARES OF COMMON STOCK. Nothing in this Plan shall be construed to limit or restrict in any way the right of the Company from time to time hereafter to sell any of the shares offered pursuant to this Plan and not issued pursuant to subscriptions made hereunder or any shares that may now or hereafter be authorized or may now or hereafter be reacquired by the Company upon exercise of the repurchase option described in Section 5.3 or otherwise. Set forth below is the form of the Subscription Agreement approved for use in connection with the Plan: SUBSCRIPTION AGREEMENT 1. I hereby subscribe to purchase ---- shares of common stock, par value $1.00 per share with a stated value of $20.00 per share (the "Common Stock"), of Graybar Electric Company, Inc., a New York corporation (the "Company"), under and pursuant to the terms and conditions stated below and of the Common Stock Purchase Plan dated as of October 9, 1995 (the "Plan") of the Company, and agree to pay $20.00 for each such share as follows:
NUMBER OF SHARES ---------------- Method A -- Payment in full on or before January 19, 1996 . . . . . . . . . . . . . ------------- Method B -- Payment in monthly installments. Upon acceptance of this subscription, (i) I direct that, during such time as I shall be on the Company's payroll, periodic deductions shall be made from my salary in accordance with the Plan and applied to the purchase price of the shares subscribed for until such shares are fully paid for or until my subscription is canceled in accordance with Section 5.4 of the Plan; and (ii) I promise that during such time as I shall no longer be on the Company's payroll I will make monthly payments either through authorized pension deductions or directly to the Treasurer of the Company in accordance with the Plan, to be applied to the purchase price of the shares subscribed for by me, until such shares are fully paid for or until my subscription is canceled in accordance with Section 5.4 of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------- Total shares subscribed for . . . . . . . . . . . . . . . . . . . . . . =============
2. I understand that the number of shares I hereby subscribe for may be reduced as provided in Section 3.3 of the Plan. 3. If I am a party to the Voting Trust Agreement dated as of April 15, 1987 (the "Voting Trust Agreement") relating to shares of Common Stock of the Company, or if I become a party to the Voting Trust Agreement pursuant to Section 4 of this Subscription Agreement, I agree and direct that certificates for the shares of Common Stock purchased by me pursuant hereto, when issuable pursuant to the Plan, be issued to and deposited with the Voting Trustees under the Voting Trust Agreement who will issue Voting Trust Certificates in my name for the certificates so deposited. -10- 13 4. This provision does not apply to subscribers who presently are parties to the Voting Trust Agreement or to subscribers who are shareholders of record of Common Stock and are not parties to the Voting Trust Agreement. (a) I hereby represent and warrant that I have received a copy of the Voting Trust Agreement, that I am familiar with its terms and provisions and that I desire to become a party to the Voting Trust Agreement and be bound thereby. (b) I hereby authorize and direct J. H. Kipper or C. B. Temple as my attorney-in-fact, to execute and deliver the Voting Trust Agreement on my behalf. (c) I recognize that this power of attorney constitutes an election to participate in the Voting Trust Agreement, which is given in consideration of a similar election made by other employees of the Company and is therefore irrevocable. 5. I have read the Plan and, for the considerations stated therein and for the privilege of subscribing for such shares of Common Stock, I agree to be bound by all of the provisions of the Plan, including without limitation the provisions of Section 5 of the Plan. 6. I request and direct that any Voting Trust Certificates or stock certificates issued in my name pursuant to this subscription be issued as follows: -------------------------------------- (PLEASE PRINT OR TYPE FIRST NAME IN FULL, MIDDLE INITIAL AND SURNAME) -------------------------------------- SIGNATURE OF SUBSCRIBER Dated ----------------------, 1995 -11- 14 PURPOSE OF ISSUE This offering affords an opportunity to employees of the Company who are not presently shareholders, as well as present employee- shareholders of the Company, to purchase shares of Common Stock in accordance with the policy formulated in 1929 when the Company became an employee-owned company through acquisition by its then employees of all its Common Stock from Western Electric Company, Incorporated. The net proceeds of the offering, after the deduction of estimated expenses, will be approximately $11,430,000. The net proceeds will be added to working capital, in part to replenish amounts which were used to repurchase shares of Common Stock pursuant to the Company's repurchase option. See "The Offering" and "Description of Common Stock - -- Repurchase Option." Payments made under subscriptions will be applied to the repayment of any short-term indebtedness incurred for working capital purposes then outstanding and, to the extent not needed for such purpose, will be placed in the general funds of the Company or invested in short-term securities. The Company expects to continue to exercise its option to repurchase outstanding shares of Common Stock and to use working capital in making such purchases. To the extent shares offered are not subscribed for, the number of shares sold and the proceeds received will be correspondingly reduced and, to the extent subscribers elect to purchase shares on a monthly payment basis under the installment method, receipt by the Company of the proceeds of the offering will be deferred. -12- 15 CAPITALIZATION Set forth below is the capitalization of the Company as of August 18, 1995, and as adjusted as of such date to reflect the sale of Common Stock offered hereby and the application by the Company of the net proceeds thereof, assuming that all shares offered will be purchased. Because the Company is unable to estimate the number of shares which will be purchased under the installment method, the "As Adjusted" column assumes that no shares will be so purchased. A significant number of shares may be purchased under the installment method, however, and in that event the receipt by the Company of the proceeds from such purchases will be deferred.
AS ACTUAL ADJUSTED ------ -------- (DOLLARS IN THOUSANDS) SHORT-TERM DEBT: Notes payable to banks . . . . . . . . . . . . . . . . . . . . . . . . . . $140,000 $128,570 Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . 16,145 16,145 LONG-TERM DEBT: 6.25% note, unsecured, maturing June, 2004, installments of $7,000 due annually in each of the years 2000 through 2004. . . . . . . . . . . . . . . $ 35,000 $ 35,000 9.23% note secured by a first mortgage on various properties, maturing June, 2005, installments of $2,725 due annually in each of the years 1995 through 2004 with final payment of $2,750 due in 2005 . . . . . . . . . 24,550 24,550 12.25% note secured by a first mortgage on various properties, due in monthly installments through June, 1999. . . . . . . . . . . . . . . . . . . 8,698 8,698 5.68% to 9.23% capital equipment leases, various maturities 7,896 7,896 5.68% note, unsecured, maturing June, 1998, installments of $2,000 due annually in each of the years 1994 through 1998. . . . . . . . . . . . . . . 4,000 4,000 7.67% note, unsecured, maturing April, 2000, installments of $2,000 due annually in each of the years 1996 through 2000. . . . . . . . . . . . . . . 8,000 8,000 8.53% note, secured by facility, due in quarterly installments through March, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500 3,500 Variable rate, Industrial Revenue Bonds, secured by facilities, various maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000 CAPITAL STOCK: Preferred stock, $20 par value - authorized 300,000 shares; outstanding 7,964 shares . . . . . . . . . . . . . . . . . . . . . . . . $ 159 $ 159 Common stock, $1 par value, $20 stated value - authorized 7,500,000 shares; outstanding 4,502,910 shares . . . . . . . . . . . . . $ 90,058 $101,558 - -------------------- These notes evidence borrowings made under lines of credit in the aggregate principal amount of $241,000 which the Company maintains with approximately 12 banks. The borrowings at August 18, 1995 consisted of demand notes in the amount of $140,000 bearing interest at the money market rate of the lending banks as in effect from time to time (5.99% at August 18, 1995). Pursuant to its arrangements with the banks, the Company maintains com- pensating balances relating both to outstanding borrowings and the unused portion of certain of the lines of credit. See Note 4 of Notes to Consolidated Financial Statements for additional information regarding these compensating balance arrangements. Included in the principal amount of the aggregate lines of credit is a $80,000 Revolving Credit Loan Agreement with a group of banks with an interest rate based on the London Interbank Offered Rate (LIBOR). There have been no borrowings against this revolving credit line through August 18, 1995. Other lines of credit are typically reviewed by the banks on an annual basis and while certain of such lines may not be legally binding commitments, bank lines of credit traditionally have been honored by the banking community. Does not include 284 shares of Preferred Stock acquired by the Company and held in its treasury. Does not include 105,836 shares of Common Stock represented by Voting Trust Certificates acquired by the Company and held in its treasury. Approximately 95% of the shares of Common Stock outstanding are held subject to the Voting Trust Agreement.
-13- 16 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA The following data, insofar as it relates to each of the years 1990-1994, has been derived from the Company's audited consolidated financial statements, including the consolidated balance sheets at December 31, 1993 and 1994 and the related consolidated statements of income and of cash flows for the three years ended December 31, 1994 and the notes thereto included elsewhere in this Prospectus, which have been audited by Price Waterhouse LLP. The data for the six months ended June 30, 1994 and 1995 has been derived from unaudited consolidated financial statements also appearing elsewhere herein and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. Interim results are not necessarily indicative of results for a full year. The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Prospectus.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------- ----------------- 1990 1991 1992 1993 1994 1994 1995 ---- ---- ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Sales. . . . . . . . . . . . $ 1,894,626 $ 1,743,544 $ 1,902,354 $ 2,041,473 $ 2,364,461 $ 1,101,352 $1,323,980 Less-Cash discounts . . . (9,903) (8,170) (8,243) (8,306) (8,839) (3,980) (4,626) ----------- ----------- ----------- ----------- ---------- ----------- ---------- Net Sales. . . . . . . . . . 1,884,723 1,735,374 1,894,111 2,033,167 2,355,622 1,097,372 1,319,354 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Cost of Merchandise Sold . . (1,565,717) (1,431,255) (1,564,929) (1,668,007) (1,934,925) (897,950) (1,082,211) ----------- ----------- ----------- ----------- ---------- ----------- ---------- Interest Expense . . . . . . (13,962) (13,092) (10,054) (9,810) (12,003) (5,406) (8,116) ----------- ----------- ----------- ----------- ---------- ----------- ---------- Provision for Income Taxes: Current . . . . . . . . . (9,961) (6,356) (6,601) (10,016) (15,225) (8,186) (12,528) Deferred. . . . . . . . . 1,633 (534) (493) 763 1,251 455 314 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Total provision for income taxes . . . . . (8,328) (6,890) (7,094) (9,253) (13,974) (7,731) (12,214) ----------- ----------- ----------- ----------- ---------- ----------- ---------- Income Before Cumulative Effect of Accounting Change 11,985 9,515 10,232 14,745 18,702 10,246 16,141 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Cumulative effect on prior years of change in accounting postretirement benefits . . . . . . . . -- -- -- (45,000) -- -- -- ----------- ----------- ----------- ----------- ---------- ----------- ---------- Net Income (Loss). . . . . . 11,985 9,515 10,232 (30,255) 18,702 10,246 16,141 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Income (Loss) Applicable to Common Stock. . . . . . 11,973 9,504 10,222 (30,265) 18,694 10,242 16,137 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Average Common Shares Outstanding . . . . . 4,931 4,814 4,638 4,779 4,641 4,673 4,558 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Income (Loss) per share of Common Stock . . . . 2.43 1.97 2.20 (6.33) 4.03 2.19 3.54 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Cash dividends per share. 2.00 2.00 2.00 2.00 2.00 .60 .60 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Retained Earnings: Balance, beginning of period . . . . . . . . . 89,776 92,910 93,837 91,733 52,486 52,486 57,081 Add-Net income (Loss) . . 11,985 9,515 10,232 (30,255) 18,702 10,246 16,141 ----------- ----------- ----------- ----------- ---------- ----------- ---------- 101,761 102,425 104,069 61,478 71,188 62,732 73,222 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Less Dividends: Preferred ($1.00 per share). . . . . . . . (12) (11) (10) (10) (8) (4) (4) Common (in cash) . . . (8,839) (8,577) (8,282) (8,982) (8,729) (2,630) (2,729) Common (in stock). . . -- -- (4,044) -- (5,370) -- -- ----------- ----------- ----------- ----------- ---------- ----------- ---------- (8,851) (8,588) (12,336) (8,992) (14,107) (2,634) (2,733) ----------- ----------- ----------- ----------- ---------- ----------- ---------- Balance, end of period. . $ 92,910 $ 93,837 $ 91,733 $ 52,486 $ 57,081 $ 60,098 $ 70,489 Proceeds on stock subscriptions, shares unissued . . . . . . . 72 67 -- 51 39 46 39 Stock Outstanding: Preferred . . . . . . . . 223 219 197 183 164 168 160 Common. . . . . . . . . . 87,687 85,132 85,719 89,098 91,859 87,174 90,498 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Total Shareholders' Equity. . $ 180,892 $ 179,255 $ 177,649 $ 141,818 $ 149,143 $ 147,486 $ 161,186 ----------- ----------- ----------- ----------- ---------- ----------- ---------- Total Assets. . . . . . . . . $ 541,358 $ 518,480 $ 557,036 $ 610,512 $ 719,786 $ 706,147 $ 820,156 Long-term Debt. . . . . . . . $ 79,189 $ 70,338 $ 64,655 $ 63,621 $ 90,212 $ 94,715 $ 94,674 ----------- ----------- ----------- ----------- ---------- ----------- ---------- - ---------------------- Adjusted for the declaration of 5.00% and 6.25% stock dividends in 1992 and 1994, respectively. Prior to adjusting for stock dividends, the average common shares outstanding for the years 1990, 1991, 1992 and 1993 were 4,420, 4,315, 4,157 and 4,498, respectively.
This summary should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Prospectus. -14- 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars stated in thousands except for share and per share data) FINANCIAL CONDITION AND LIQUIDITY The financial condition of the Company continues to be strong. At June 30, 1995, current assets exceeded current liabilities by $148,132, up $11,998 from December 31, 1994. The current assets at June 30, 1995 were sufficient to meet the cash needs required to pay current liabilities. The Company does not have any plans or commitments which would require significant amounts of additional working capital. At June 30, 1995, the Company had available to it unused lines of credit amounting to $133,000. These lines are available to meet short- term cash requirements of the Company. Bank borrowings outstanding during 1995 through June 30 ranged from a minimum of $77,000 to a maximum of $151,000. In May, 1992, the Company entered into a $50,000 Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR). The credit agreement has various covenants which limit the Company's ability to make investments, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreement. The Company intends to utilize this credit line primarily as a secondary source of borrowing for short-term financing requirements. In May, 1995, the agreement was amended to increase the aggregate commitment to $80,000. There have been no borrowings against this credit line through June 30, 1995. The Company has funded its capital requirements from operations, stock issuances to its employees and long-term debt. In February, 1995, the Company received the proceeds from a ten-year note for $4,000 at a fixed interest rate of 8.53% with principal payable in quarterly installments beginning in June, 1995. In April, 1995, the Company received the proceeds from a five-year note for $10,000 at a fixed interest rate of 7.67% with principal payable in five equal annual installments beginning in April, 1996. During the first six months of 1995, cash used by operations amounted to $26,396 which was $31,864 less than the cash provided by operations in the first six months of 1994. Cash provided from the sale of common stock and proceeds received on stock subscriptions amounted to $201 in the first six months of 1995. Additional cash of approximately $246 will be provided in the remainder of 1995 as a result of payments to be made for stock subscribed to by employees under the 1992 Common Stock Purchase Plan. RESULTS OF OPERATIONS Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1994 Net sales in the first six months of 1995 were 20.2% higher than in the first six months of 1994. The higher net sales resulted from improvements in the market sectors of the economy in which the Company operates. Gross margin in the first six months of 1995 increased $37,721 (18.9%) compared to the first six months of 1994 primarily due to increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in the first six months of 1995 compared to the first six months of 1994 occurred largely because of adjustments in personnel complement and adjustments in compensation and related expenses. Interest charges increased in the first six months of 1995 compared to the first six months of 1994 primarily due to increased levels of borrowing incurred to finance higher aggregate levels of inventory and -15- 18 receivables. Interest rates on 1995 short-term borrowings have been generally higher than for the same period in 1994. The combined effect of the increases in gross margin and other income, together with the increases in selling, general and administrative expenses, interest charges and depreciation and amortization, resulted in an increase in pretax earnings of $10,378 in the first six months of 1995 compared to the same period in 1994. 1994 Compared to 1993 Net sales in 1994 were 15.9% higher than in 1993. The higher net sales resulted from improvements in the market sectors of the economy in which the Company operates. The impact of inflation on sales and cost of sales was not significant in 1994. Gross margin in 1994 increased $55,537 (15.2%) compared to 1993 primarily due to increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in 1994 compared to 1993 occurred largely because of adjustments in personnel complement and adjustments in compensation and related expenses. Interest charges increased in 1994 compared to 1993 primarily due to increased levels of borrowing incurred to finance higher levels of inventory and receivables. Interest rates on 1994 short-term borrowings have been generally higher than for the same period in 1993. The combined effect of the increase in gross margin and the decrease in other income, together with the increases in selling, general and administrative expenses, interest charges and depreciation and amortization, resulted in an increase in income before provision for income taxes and cumulative effect of the accounting change of $8,678 in 1994 compared to 1993. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," on January 1, 1993 on the immediate recognition basis. The after-tax impact of the accounting change decreased 1993 earnings $45,000, or $9.42 per share. 1993 Compared to 1992 Net sales in 1993 were 7.3% higher than 1992. 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 1993. Gross margin in 1993 increased $35,978 (10.9%) compared to 1992 primarily due to the increased sales in the electrical and communications markets together with a generally higher gross margin rate in those markets. The increase in selling, general and administrative expenses in 1993 compared to 1992 occurred largely because of adjustments in personnel complement and adjustments in compensation and related expenses. Interest charges decreased in 1993 compared to 1992 primarily due to lower interest rates on short-term borrowings. The combined effect of the increases in gross margin and other income and the decrease in interest charges, together with the increases in selling, general and administrative expenses and depreciation and amortization, resulted in an increase in income before provision for income taxes and cumulative effect of the accounting change of $6,672 in 1993 compared to 1992. -16- 19 The Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," on January 1, 1993. SFAS No. 106 requires current recognition of postretirement benefit costs as opposed to recognizing these costs on a cash basis. SFAS No. 106 was adopted by the Company on the immediate recognition basis. The after-tax impact of the accounting change decreased 1993 earnings $45,000, or $9.42 per share. While adoption of SFAS No. 106 had an adverse effect on the 1993 reported results of operations and shareholders' equity, cash flows were not affected. -17- 20 DIVIDENDS The Company has paid cash dividends on its Common Stock every year since 1929. The following table sets forth the cash dividends per share of Common Stock declared during the periods indicated.
Cash Dividends --------- 1990 - . . . . . . . . . . . . . . . . . . . . . . . $2.00 1991 - . . . . . . . . . . . . . . . . . . . . . . . 2.00 1992 - . . . . . . . . . . . . . . . . . . . . . . . 2.00 1993 - First Quarter. . . . . . . . . . . . . . . .30 Second Quarter . . . . . . . . . . . . . . .30 Third Quarter. . . . . . . . . . . . . . . .30 Fourth Quarter . . . . . . . . . . . . . . 1.10 1994 - First Quarter. . . . . . . . . . . . . . . .30 Second Quarter . . . . . . . . . . . . . . .30 Third Quarter. . . . . . . . . . . . . . . .30 Fourth Quarter . . . . . . . . . . . . . . 1.10 1995 - First Quarter. . . . . . . . . . . . . .30 Second Quarter . . . . . . . . . . . . . . .30 In September 1994, a 6.25% stock dividend was declared and shares representing this dividend were issued in January 1995.
-18- 21 BUSINESS 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 Company is engaged internationally in the distribution of electrical and communications equipment and supplies primarily to contractors, industrial plants, telephone companies, power utilities and commercial users. All products sold by the Company are purchased from others. SUPPLIERS The Company acts as a distributor of the products of more than 1,000 manufacturers. The relationship of the Company with a number of its principal suppliers goes back many years. It is customarily a nonexclusive national or regional distributorship terminable upon 30 to 90 days notice by either party. During 1994 and the period ended June 30, 1995, the Company purchased a significant portion of its products from its three largest suppliers. The termination by any of these companies, within a short period of time, of a significant number of their agreements with the Company might have an immediate material adverse effect on the business of the Company, but the Company believes that within a reasonable period of time it could find alternate sources of supply adequate to alleviate such adverse effect. PRODUCTS DISTRIBUTED The Company distributes more than 100,000 different products and, therefore, is able to supply its customers with a wide variety of electrical and communications products. The products distributed by the Company consist primarily of wire, conduit, wiring devices, tools, motor controls, transformers, lamps, lighting fixtures and hardware, power transmission equipment, telephone station apparatus, key systems, PBXs, data products for local area networks or wide area networks, fiber optic products, and CATV products. These products are sold to customers such as contractors (both industrial and residential), industrial plants, telephone companies, private and public utilities, and commercial users. On June 30, 1994 and 1995, the Company had orders on hand which totaled approximately $206,914,000 and $240,292,000, respectively. The Company believes that the increase from 1994 to 1995 reflects the improvements in the market sectors of the economy in which the Company operates. The Company expects that approximately 85% of the orders on hand at June 30, 1995 will be filled within the twelve-month period ending June 30, 1996. 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 219 distributing houses located in 15 geographical districts throughout the United States. In each district the Company maintains a main distributing house and a number of branch distributing houses, each of which carries an inventory of supply materials and operates as a wholesale distributor for the territory in which it is located. The main distributing house in each district carries a substantially larger inventory than the branch houses so that the branch houses can call upon the main distributing houses for additional items of inventory. In addition, the Company maintains two (2) zone warehouses with special inventories so all locations can call upon them for additional items. The Company also has subsidiary operations with distribution facilities located in Puerto Rico, Mexico, Guam, Singapore and Canada. -19- 22 The distribution facilities operated by the Company are shown in the following table:
No. of Distributing Location of Main Houses in Distributing House District - ------------------ ------------ Boston, MA . . . . . . . . 9 Cincinnati, OH . . . . . . 9 Dallas, TX . . . . . . . . 29 Glendale Heights, IL . . . 14 Miami, FL. . . . . . . . . 1 Minneapolis, MN. . . . . . 17 New York, NY . . . . . . . 12 Norcross, GA . . . . . . . 18 Philadelphia, PA . . . . . 7 Phoenix, AZ. . . . . . . . 24 Pittsburgh, PA . . . . . . 8 Richmond, VA . . . . . . . 13 Seattle, WA. . . . . . . . 20 St. Louis, MO. . . . . . . 14 Tampa, FL. . . . . . . . . 24 Zone Distributing Houses - ------------------------ Bethlehem, PA. . . . . . . 1 Peoria, IL . . . . . . . . 1 Number of Distributing Houses ------------ Graybar Holdings Limited - ------------------------ Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Graybar Electric (Ontario) Ltd. - ------------------------------- Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Graybar Electric Ltd. - --------------------- Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Graybar International, Inc. - --------------------------- Puerto Rico. . . . . . . . . . . . . . . . . . . . . . . . . . 1 Graybar de Mexico, S.A. de CV - ----------------------------- Juarez, Mexico . . . . . . . . . . . . . . . . . . . . . . . . 1 Mexico City, Mexico. . . . . . . . . . . . . . . . . . . . . . 1 Graybar International Guam, Inc. - -------------------------------- Tamuning, Guam . . . . . . . . . . . . . . . . . . . . . . . . 1 Graybar-P&M International PTE. Ltd. - ----------------------------------- Singapore. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Where the specialized nature or size of a particular shipment warrants, the Company has products shipped directly from its suppliers to the place of use, while in other cases orders are filled from the Company's inventory. On a dollar volume basis, over one-half 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. -20- 23 The Company distributes its products to more than 200,000 customers, which fall into five general classes. The following list shows the estimated percentage of the Company's total sales for each of the last three years ended December 31 and the six-month periods ended June 30, 1994 and 1995 attributable to each of these classes:
Six Months Ended Year Ended December 31, June 30, ---------------------------- ------------------ Class of Customers 1992 1993 1994 1994 1995 - ------------------ ---- ---- ---- ---- ---- Electrical contractors 42.4% 40.8% 39.2% 39.3% 38.9% Industrial plants 29.9 31.3 30.9 30.8 31.1 Telecommunication companies 17.3 18.7 21.7 21.5 22.5 Private and public power utilities 7.8 7.0 6.3 6.5 5.9 Miscellaneous 2.6 2.2 1.9 1.9 1.6 100.0% 100.0% 100.0% 100.0% 100.0%
At June 30, 1995 the Company employed approximately 2,200 persons in sales capacities. Approximately 1,000 of these sales personnel were sales representatives who work in the field making sales to customers at the work site. The remainder of the sales personnel were sales and marketing managers, and telemarketing, advertising, quotation, counter and clerical personnel. COMPETITION The Company believes that it is the largest distributor of electrical products not affiliated with a manufacturing company, and one of the three largest distributors of such products in the United States. The field is highly competitive, and the Company estimates that the three largest distributors of electrical products account for only a small portion of the total market, with the balance of the market being accounted for by independent distributors and manufacturers operating on a local, state-wide or regional basis. The Company believes that its competitive position is primarily a result of its ability to supply its customers through a network of conveniently located distribution facilities with a broad range of electrical and telecommunications materials within a short period of time. Price is also important, particularly where the Company is asked to submit bids to contractors in connection with large construction jobs. EMPLOYEES At June 30, 1995 the Company employed approximately 6,000 persons on a full-time basis. Approximately 150 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. -21- 24 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS
Name Office ---- ------ C.L. Hall. . . . . . Director and President T.S. Gurganous . . . . . Director and District Vice President J.R. Hade. . . . . . Director and Senior Vice President R.H. Haney . . . . . Director and Group Vice President G.W. Harper. . . . . Director and Vice President-Operations R.L. Mygrant . . . . . . Director and District Vice President R.D. Offenbacher . . . . Director and District Vice President I. Orloff. . . . . . . . Director and Vice President R.A. Reynolds. . . . Director and Group Vice President J.R. Seaton. . . . . Director, Vice President and Comptroller G.S. Tulloch, Jr.. . Director, Vice President, Secretary and General Counsel J.F. Van Pelt. . . . Director and Vice President-Human Resources J.W. Wolf. . . . . . Director, Vice President and Treasurer ------------------ Members of the Executive Committee of the Board of Directors.
-22- 25 DESCRIPTION OF COMMON STOCK The Company's authorized capitalization consists of (a) 300,000 shares of preferred stock, par value $20 per share (the "Preferred Stock"), and (b) 7,500,000 shares of Common Stock, par value $1 per share with a stated value of $20 per share. The number of equity security holders of the Company as of June 30, 1995 consisted of (a) Preferred Stock - 122, (b) Common Stock - 115 and (c) Voting Trust Certificates for Common Stock - 3,938. DIVIDEND RIGHTS Subject to the prior rights of the holders of Preferred Stock to receive dividends in cash at the rate of $1 per share per year (such dividends being non-cumulative except to the extent earned in each calendar year), dividends may be paid upon the Common Stock as and when declared by the Board of Directors. VOTING RIGHTS Except as otherwise required by law, the holders of shares of Common Stock have the exclusive right to vote for the election of directors and for all other purposes. Approximately 95% of the issued and outstanding shares of Common Stock are held pursuant to the Voting Trust Agreement, and the powers of the Voting Trustees to exercise the voting powers of the Common Stock are described under the heading "Summary of Certain Provisions of the Voting Trust Agreement." LIQUIDATION RIGHTS In the event of voluntary or involuntary dissolution, liquida- tion or winding-up of the Company, after payment in full of the amounts required to be paid to the holders of the Preferred Stock then outstanding, the holders of the Common Stock then outstanding shall be entitled to share ratably in all remaining assets of the Company. The holders of shares of Preferred Stock are entitled to receive, in the event of dissolution or liquidation of the Company, the par value of such shares plus an amount equal to any dividends accrued thereon to the extent earned but unpaid to the date of payment. MISCELLANEOUS The Common Stock has no conversion, preemptive or subscription rights and there are no sinking fund or redemption provisions applicable thereto. The outstanding shares of Common Stock are, and the shares to be sold by the Company hereunder will be, validly issued, fully paid and non-assessable. Under Section 630 of the New York Business Corporation Law the ten largest shareholders of the Company are liable under certain conditions for debts, wages or salaries due and not paid by the Company to any laborers, servants or employees, other than contractors, for services performed by them for the Company. REPURCHASE OPTION The following is a brief summary of the provisions of the Company's Restated Certificate of Incorporation, as amended, which place restrictions and limitations on the holding and sale, transfer or pledge of Common Stock. Such provisions are equally applicable to Voting Trust Certificates. No holder of Common Stock may sell, transfer or otherwise dispose of any shares of Common Stock without first offering the Company the option to purchase such shares within 30 days after said offer at the purchase price of $20 per share, with appropriate adjustment for regular dividends, if any, declared and paid at the end of the quarter in which such offer is made. The Company also has the option to purchase the Common -23- 26 Stock of any shareholder who ceases to be an employee of the Company for any reason other than death or retirement on a pension (except a deferred pension) at the same price at any time after termination of employment until 30 days after the holder makes an offer to sell said Common Stock to the Company. In the event of the death of any shareholder, the Company has the option to purchase all or any part of his Common Stock from his estate at the purchase price hereinabove referred to at any time after the expiration of one year from the date of death until 30 days after such Common Stock shall have been offered to the Company; provided, however, that the estate of such deceased shareholder may offer to sell said shares to the Company within such one-year period, in which event the Company's option terminates within 30 days from such offer. In the past, the Company has always exercised the options referred to above and expects to continue exercising such options. No shareholder may hypothecate or pledge any shares of Common Stock, except under an agreement of hypothecation or pledge containing provisions permitting the Company to exercise the options referred to above and to redeem the pledge of shares in the event of default upon payment of the lesser of the amount due on the pledge or the purchase price hereinabove referred to with suitable provisions for redemption by the shareholder or payment to him of any balance to which he may be entitled. -24- 27 INFORMATION CONCERNING THE VOTING TRUSTEES Approximately 95% of the issued and outstanding shares of Common Stock are held of record in the names of C.L. Hall, J.R. Hade, G.W. Harper, R.L. Mygrant and R.D. Offenbacher as Voting Trustees under the Voting Trust Agreement dated as of April 15, 1987. The Voting Trustees therefore share approximately 95% of the voting power with respect to election of directors and other matters requiring shareholder approval. Shares of Common Stock held of record by the Voting Trustees are so held for the benefit of holders of Voting Trust Certificates issued in respect thereof by the Voting Trustees. The Voting Trust Agreement became effective as of April 15, 1987 and will terminate on April 14, 1997 unless sooner terminated as provided therein. The names, positions with the Company and business addresses of the Voting Trustees are as follows:
Name and Position Business Address ----------------- ---------------- C.L. Hall, Director and President. . . . . . . . . . . . 34 North Meramec Avenue St. Louis, MO 63105 J.R. Hade, Director and Senior Vice President. . . . . . 34 North Meramec Avenue St. Louis, MO 63105 G.W. Harper, Director and Vice President-Operations. . . 34 North Meramec Avenue St. Louis, MO 63105 R.L. Mygrant, Director and District Vice President . . . 801 North Rome Avenue Tampa, FL 33606 R.D. Offenbacher, Director and District Vice President 600 South Taylor Avenue St. Louis, MO 63110
The sole occupation of each Voting Trustee is his employment with the Company. All communications to the Voting Trustees should be addressed to the Voting Trustees, c/o Graybar Electric Company, Inc., P.O. Box 7231, St. Louis, Missouri 63177. As of August 18, 1995, each of the Voting Trustees owned of record and beneficially for his account Voting Trust Certificates as follows:
Amount Percent of Name Owned Class Owned ---- --------- ----------- C.L. Hall . . . . . . . . 4,914 .12 J.R. Hade . . . . . . . . 6,678 .16 G.W. Harper . . . . . . . 4,260 .10 R.L. Mygrant. . . . . . . 4,140 .10 R.D. Offenbacher. . . . . 2,743 .06 ---------------- The number of shares of Common Stock to which such Voting Trust Certificates relate.
-25- 28 No person owns of record and beneficially Voting Trust Certificates representing more than 1% of the outstanding shares of Common Stock. As of August 18, 1995, all officers and directors of the Company as a group owned beneficially, directly and indirectly, Voting Trust Certificates representing 93,888 shares of Common Stock (representing approximately 2% of the outstanding shares) and no shares of Preferred Stock. None of the Voting Trustees has received or will receive remuneration for serving in such capacity. The table below sets forth the aggregate cash compensation of the Voting Trustees during the year ended December 31, 1994, in their capacities as officers and directors of the Company.
Cash Compensation ----------------- Salaries, Bonuses and All Name of Individual Capacities in Which Served Other Compensation - ------------------ -------------------------- ------------------------------- C.L.Hall . . . . . . . Director and President $245,599 J.R. Hade. . . . . . . Director and Senior Vice President 321,523 G.W. Harper. . . . . . Director and Vice President-Operations 265,315 R.L. Mygrant . . . . . Director and District Vice President 188,814 R.D. Offenbacher . . . Director and District Vice President 174,859 - ---------------- Includes amounts deferred pursuant to deferred compensation agreements with certain employees who were not eligible to participate in the employee contribution portion of the Profit Sharing and Savings Plan. These agreements provide for deferral of from 2% to 10% of compensation, together with an additional amount credited to the employee's deferred compensation account equal to the contribution to the Profit Sharing and Savings Plan that would have been made by the Company if such compensation had not been deferred. See (3) below. Payment of sums deferred will generally be made in five annual installments commencing on retirement or in a lump sum on termination of service other than by retirement. Interest is credited to sums deferred at the rate applicable to the fixed income account of the Profit Sharing and Savings Plan at the end of each calendar quarter. Bonus paid on March 15th of each year under the Company's Management Incentive Plan with respect to services rendered during the prior year. The Company's Management Incentive Plan covers all officers of the Company and other management employees. In accordance with this Plan, each participant has a guideline incentive, ranging from 20% to 80% of base salary. This guideline is subject to a year-end adjustment based on performance against Plan goals. The adjustments are based on objective measurements, such as sales and profits, but may be varied at the discretion of the president and district vice presidents. Participants may earn a maximum of 150% of the applicable guideline. Profit sharing contributions were made on December 31, 1994 for the year 1994. Contributions by the Company under the Profit Sharing and Savings Plan are made at the discretion of the Board of Directors for eligible employees and, subject to certain exceptions, are made in proportion to their annual earnings. Except as otherwise provided in the Deed of Trust, the moneys held in trust thereunder are paid to employees upon termination of employment for any reason including their retirement or, in the event of their death prior to the complete distribution of their interests, are paid to their estates or designated beneficiaries. In addition, the portion of the profit sharing payment earned by an employee in excess of the annual limitations imposed by Section 401 or 415 of the Internal Revenue Code was credited to his deferred -26- 29 compensation account or paid in cash. In 1994, $2,709 was credited to Mr. Hall's deferred compensation account in this regard. Similarly, $9,347 and $4,702 was credited to the deferred compensation accounts of Messrs. Hade and Harper, respectively.
The Company has a qualified defined benefit pension plan covering all eligible full-time employees. Employees become fully vested after 5 years of service. After December 31, 1992, employees may retire and begin receiving pensions at the age of 65, or earlier if they are at least age 60 with 20 years of credited service. Prior to January 1, 1993, employees could retire and begin receiving pensions at age 55 with 20 years or more of credited service, at age 50 with 25 years of credited service, or any age with 30 years of credited service under the plan. Employees who had completed 15 years of service on December 31, 1992 may still retire and receive their entire benefit under the pre-1993 rule, but employees who had not completed 15 years of service on December 31, 1992 can receive only the benefit accrued on December 31, 1992 under the old rule, and the benefit accrued after that date under the new rule. An employee's annual pension income is based on the employee's average earnings during the sixty consecutive months preceding retirement in which earnings were highest, multiplied by one percent for each year of credited service and offset by an amount which cannot exceed limitations imposed by the Internal Revenue Code. As of August 18, 1995, the years of credited service for the Voting Trustees were as follows: C.L. Hall - 36, G.W. Harper - 38, J.R. Hade - 37, R.L. Mygrant - 31 and R.D. Offenbacher - 27. To the extent that annual benefits exceed limitations imposed by the Internal Revenue Code of 1986, as amended, such benefits will be paid out of the general revenues of the Company by means of a supplemental benefits plan. The following table sets forth annual benefits which would become payable under the Company's pension plan or supplemental benefits plan based on certain assumptions as to earnings and years of credited service without giving effect to any applicable Social Security offset. PENSION PLAN TABLE
Years of Service -------------------------------------------------- Compensation 20 25 30 35 40 -- -- -- -- -- $200,000 . . . . . .$ 40,000 $ 50,000 $ 60,000 $ 70,000 $ 80,000 300,000 . . . . . . 60,000 75,000 90,000 105,000 120,000 400,000 . . . . . . 80,000 100,000 120,000 140,000 160,000 600,000 . . . . . . 120,000 150,000 180,000 210,000 240,000 800,000 . . . . . . 160,000 200,000 240,000 280,000 320,000
The Company anticipates that each of the Voting Trustees will acquire a beneficial interest in all or a part of the shares of Common Stock of the Company for which he will be entitled to subscribe pursuant to the Plan. The number of shares for which each of the Voting Trustees will be entitled to subscribe under the Plan will not exceed the following to any significant degree:
Name Number of Shares ---- ---------------- C.L. Hall 1,278 J.R. Hade 1,155 G.W. Harper 954 R.L. Mygrant 768 R.D. Offenbacher 693
-27- 30 SUMMARY OF CERTAIN PROVISIONS OF THE VOTING TRUST AGREEMENT The statements under this heading relating to the Voting Trust Agreement are summaries of certain of its provisions and do not purport to be complete. Such summaries are qualified in their entirety by reference to the Voting Trust Agreement, copies of which are on file at the principal executive office of the Company and with the Securities and Exchange Commission in Washington, D.C. All section references are to the Voting Trust Agreement. General. The Voting Trust Agreement provides for the deposit ------- thereunder only of Common Stock or voting stock of the Company or a successor corporation issued in respect of the Common Stock in connection with a recapitalization or reclassification of the Common Stock or merger or consolidation of the Company into another corporation. Such securities may not be withdrawn by the beneficial owners prior to the expiration or termination of the Voting Trust Agreement. The certificates representing shares of Common Stock deposited under the Voting Trust Agreement must be deposited, within a reasonable time after receipt thereof by the Voting Trustees, either in a safe deposit box rented by the Voting Trustees or with a depositary bank or trust company located in the Borough of Manhattan, City of New York. No such depositary has been appointed and the Voting Trustees have no present intention of making any such appointment. (Section 6.02) The Voting Trust was originally established in 1928 as a security device in connection with the purchase by the Company of the wholesale supply business of Western Electric Company, Incorporated. The Voting Trust arrangement has been continued since its inception by the periodic adoption, as permitted by applicable law, of successive Voting Trust Agreements by substantially all of the shareholders of the Company. In connection with the adoption of each new Voting Trust Agreement, management has recommended to shareholders that the Voting Trust arrangement be continued because it believed that the operation of the business of the Company had been successfully conducted under such arrangement and such arrangement was in the best interests of the Company. The Voting Trust Agreement is dated as of April 15, 1987 and will expire April 14, 1997 unless extended or sooner terminated as provided therein. The Voting Trust Agreement may be terminated at any time by a majority of the Voting Trustees or by the holders of Voting Trust Certificates representing at least 75% of the number of shares of Common Stock deposited under the Voting Trust Agreement. At any time within six months prior to the expiration of the Voting Trust Agreement, one or more holders of Voting Trust Certificates may, by agreement in writing with the Voting Trustees and the Company, extend the duration of the Voting Trust Agreement for an additional period not exceeding 10 years. Any such extension will be binding only upon holders of Voting Trust Certificates who consent thereto. (Section 6.04) The Voting Trust Agreement may be amended or modified at any time by a majority of the Voting Trustees, the Company and the holders of Voting Trust Certificates representing at least 75% of the number of shares of Common Stock deposited under the Voting Trust Agreement. Such amendment or modification, if made, could affect the rights of the then existing holders of Voting Trust Certificates. (Section 6.03) The Voting Trust Agreement is governed by the laws of the State of New York. Under the Business Corporation Law of the State of New York, holders of Voting Trust Certificates are given the right to inspect the books and records of the Company under certain circumstances. The Company intends to furnish copies of its Annual Report to holders of Voting Trust Certificates. (Section 6.08) Voting Trustees. Voting Trustees must be employees of the --------------- Company and any Voting Trustee who for any cause, including retirement on a pension, ceases to be an employee of the Company automatically ceases to be a Voting Trustee. Any Voting Trustee may at any time resign and may be removed by holders of Voting Trust Certificates representing at least 66 2/3% of the number of shares of Common Stock deposited under the Voting Trust Agreement. (Section 5.01) -28- 31 Vacancies in the office of Voting Trustee will be filled by a majority of the remaining Voting Trustees, unless there shall be less than three Voting Trustees in office, in which event the vacancies shall be filled by the Board of Directors of the Company. No Voting Trustee who has been previously removed from office may be redesignated or elected a Voting Trustee without the approval of holders of Voting Trust Certificates representing at least 66 2/3% of the number of shares of Common Stock deposited under the Voting Trust Agreement. (Section 5.01) The Voting Trust Agreement provides that the Voting Trustees, in exercising the rights and powers granted to them, shall exercise their best judgment in securing the election of suitable directors for the Company and in voting on or consenting to other matters. Voting Trustees may be, and may vote for themselves as, directors of the Company. No person is disqualified from acting as a Voting Trustee by reason of any personal interest in the Company and a Voting Trustee may deal with the Company as fully as if he did not hold such office. The Voting Trustees may execute any of the trusts or powers or perform any of the duties under the Voting Trust Agreement either directly or by or through agents or attorneys appointed by them. Any action required or permitted to be taken by the Voting Trustees may be taken by vote or written consent of a majority of the Voting Trustees. (Sections 5.02 and 5.03) As specified in the Voting Trust Agreement, Voting Trustees and their agents and attorneys are not liable to holders of Voting Trust Certificates or the Company except for their individual willful misconduct. The Company has agreed to indemnify each Voting Trustee and each agent or attorney of the Voting Trustees for, and to hold him harmless against, any tax, loss, liability or expense incurred for any reason, except his own individual willful misconduct, arising out of or in connection with the acceptance or administration of the Voting Trust and the performance of his duties and obligations and the exercise of his rights and powers thereunder. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to the Voting Trustees pursuant to the foregoing provisions, the Voting Trustees have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. The Company has also agreed to pay the reasonable expenses incurred by the Voting Trustees in connection with the performance of their duties and obligations under the Voting Trust Agreement. In consideration of the Voting Trustees having agreed to serve in that capacity for the benefit of the holders of Voting Trust Certificates, the Voting Trust Agreement provides that, in the event the Company fails or is unable to provide such indemnification or pay such expenses, the holders of Voting Trust Certificates will do so and the responsibility therefor will be allocated among them ratably in proportion to the number of shares of Common Stock represented by their respective Voting Trust Certificates. The obligations of the Company and the holders of Voting Trust Certificates are payable from any funds or other assets held by the Voting Trustees for their respective accounts. (Sections 5.03 and 5.04) No bond is to be posted by the Voting Trustees with respect to their performance under the Voting Trust Agreement. Voting. Except as set forth below, the Voting Trustees are ------ entitled in their discretion and using their best judgment to vote on or consent to the election of directors of the Company and the ratification, approval or disapproval of any other action or proposed action of the Company. The Voting Trustees, each of whom is currently a director of the Company, are specifically authorized to vote for themselves as directors of the Company under the terms of the Voting Trust Agreement. The Voting Trustees may not, without the consent of the holders of Voting Trust Certificates representing at least 75% of the aggregate number of shares of Common Stock then deposited under the Voting Trust Agreement, vote on or consent to the merger or consolidation of the Company into another corporation, the sale of all or substantially all of the Company's assets, or the liquidation and dissolution of the Company. (Sections 4.02 and 5.02) Dividends. All dividends payable with respect to shares of --------- Common Stock deposited under the Voting Trust Agreement are payable to the Voting Trustees as the owners of record of such shares. The Voting Trustees will retain, subject to the terms of the Voting Trust Agreement, any shares of Common Stock received as a stock -29- 32 dividend, and will deliver to each holder of a Voting Trust Certificate representing shares of Common Stock on which such stock dividend shall have been paid an additional Voting Trust Certificate for the number of shares received as a dividend with respect to such Common Stock. The Voting Trustees will pay or cause to be paid to the holders of Voting Trust Certificates an amount equal to any cash dividends and any distribution paid other than in cash or Common Stock. (Section 4.03) Subscription Offers and Employee Plans. Any shares of Common -------------------------------------- Stock subscribed for on behalf of, or acquired by, a holder of a Voting Trust Certificate pursuant to a subscription offer or employee plan or otherwise must be deposited with the Voting Trustees and will be held by them subject to the terms of the Voting Trust Agreement. The Voting Trustees will deliver to the holders of Voting Trust Certificates on whose behalf any such shares of Common Stock are deposited additional Voting Trust Certificates for such shares. (Sections 4.04 and 4.05) Recapitalization or Reclassification of Common Stock. In the ---------------------------------------------------- event of a recapitalization of the Company or reclassification of the Common Stock, the Voting Trustees will hold, subject to the terms of the Voting Trust Agreement, any shares of voting stock of the Company issued in respect of shares of Common Stock deposited under the Voting Trust Agreement. In such case, issued and outstanding Voting Trust Certificates may remain outstanding or the Voting Trustees may substitute new certificates in appropriate form. (Section 4.06) Reorganization of the Company. Depending on the terms of any ----------------------------- agreement pursuant to which the Company is merged or consolidated into another corporation, the Voting Trustees either will hold, subject to the terms of the Voting Trust Agreement, any shares of voting stock of the successor corporation issued to them in respect of the Common Stock deposited under the Voting Trust Agreement (in which case issued and outstanding Voting Trust Certificates may remain outstanding or the Voting Trustees may substitute new cer- tificates in appropriate form), or will distribute such shares to the holders of Voting Trust Certificates in accordance with the number of shares of Common Stock represented by their respective Voting Trust Certificates. In any event, any other consideration received as a result of such reorganization will be distributed ratably to the holders of Voting Trust Certificates. (Section 4.08) Dissolution of the Company. In the event of the dissolution -------------------------- and liquidation of the Company, the Voting Trustees will distribute any money, securities, rights or property received by them as the record owners of Common Stock ratably to the holders of Voting Trust Certificates. (Section 4.07) Restrictions on Transfer, and Right of the Company to ----------------------------------------------------- Repurchase Voting Trust Certificates Under Certain Circumstances. - ---------------------------------------------------------------- The Voting Trust Agreement provides that the Voting Trustees need not recognize any claim of a holder of a Voting Trust Certificate who has obtained such certificate in contravention of any of the provisions of the Restated Certificate of Incorporation, as amended, of the Company in effect at the time such Voting Trust Certificate was so obtained, and further provides that Voting Trust Certificates issued under the Voting Trust Agreement are held by each holder upon and subject to the same terms and conditions upon which shares of Common Stock are held pursuant to the provisions of the Restated Certificate of Incorporation, as amended, of the Company. (Sections 3.01 and 4.09) See "Description of Common Stock -- Repurchase Option." LEGAL MATTERS The legality of the Common Stock and the Voting Trust Certificates offered hereby will be passed upon by Whitman Breed Abbott & Morgan, 200 Park Avenue, New York, New York 10166, counsel for the Company and the Voting Trustees. -30- 33 EXPERTS The financial statements as of December 31, 1993 and 1994 and for each of the three years in the period ended December 31, 1994 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. -31- 34 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants. . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheets as of December 31, 1993 and 1994 (audited) and June 30, 1995 (unaudited) . . . . . . . . . . . . F-3 Consolidated Statements of Income and Retained Earnings -- years ended December 31, 1992, 1993 and 1994 (audited) and six-month periods ended June 30, 1994 and 1995 (unaudited). . . . . . . . F-4 Consolidated Statements of Cash Flows -- years ended December 31, 1992, 1993 and 1994 (audited) and six-month periods ended June 30, 1994 and 1995 (unaudited) . . . . . . . . . . . . . . . . . F-5 Notes to Consolidated Financial Statements . . . . . . . . . . . F-6
F-1 35 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Graybar Electric Company, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of Graybar Electric Company, Inc. and its subsidiaries (the Company) at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 6 to the financial statements, the Company changed its method of accounting for postretirement benefits other than pensions effective January 1, 1993. Price Waterhouse LLP St. Louis, Missouri February 17, 1995 F-2 36 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND 1994 (AUDITED) AND JUNE 30, 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA) ASSETS
JUNE 30, DECEMBER 31, 1995 1993 1994 (UNAUDITED) --------------------- ---------- Current Assets Cash $ 17,332 $ 17,144 $ 31,624 Trade receivables (less allowances of $3,945, $4,296 and $4,296, respectively) 256,634 301,525 327,635 Merchandise inventory 167,927 211,482 265,681 Other current assets 10,099 12,273 12,873 -------- -------- -------- Total current assets 451,992 542,424 637,813 -------- -------- -------- Property, at cost Land 16,812 19,297 19,609 Buildings 121,339 131,081 132,985 Furniture and fixtures 68,666 79,542 87,377 Capital equipment leases 29,612 32,235 22,428 -------- -------- -------- 236,429 262,155 262,399 Less - Accumulated depreciation 99,494 108,722 105,658 -------- -------- -------- 136,935 153,433 156,741 -------- -------- -------- Deferred Income Taxes 14,446 15,234 15,548 -------- -------- -------- Other Assets 7,139 8,695 10,054 -------- -------- -------- $610,512 $719,786 $820,156 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 82,194 $ 80,488 $135,268 Current portion of long-term debt 11,000 13,457 15,983 Trade accounts payable 193,843 258,656 283,849 Accrued payroll and benefit costs 27,643 35,075 22,018 Other accrued taxes 6,375 7,475 6,660 Dividends payable 4,910 4,801 -- Other payables and accruals 6,108 6,338 25,903 -------- ------- -------- Total current liabilities 332,073 406,290 489,681 -------- ------- -------- Postretirement Benefits Liability 73,000 74,141 74,615 -------- -------- -------- Long-term Debt 63,621 90,212 94,674 -------- -------- -------- SHARES AT SHARES AT DECEMBER 31, JUNE 30, ------------------- -------- Shareholders' Equity 1993 1994 1995 ---- ---- ---- Capital Stock- Preferred, par value $20 per share, authorized 300,000 shares- Issued to shareholders 9,533 8,248 8,248 In treasury, at cost (378) (60) (225) --------- --------- --------- Outstanding 9,155 8,188 8,023 183 164 160 --------- --------- --------- -------- -------- -------- Common, stated value $20 per share, authorized 7,500,000 shares-- Issued to voting trustees 4,239,403 4,347,757 4,357,677 Issued to shareholders 240,991 250,893 251,059 In treasury, at cost (25,507) (5,708) (83,849) --------- --------- --------- Outstanding 4,454,887 4,592,942 4,524,887 89,098 91,859 90,498 --------- --------- --------- -------- -------- -------- Common shares subscribed 1,088 486 285 Retained Earnings 52,486 57,081 70,489 -------- -------- -------- 142,855 149,590 161,432 Less - Subscriptions receivable 1,037 447 246 -------- -------- -------- Total Shareholders' Equity 141,818 149,143 161,186 -------- -------- -------- $610,512 $719,786 $820,156 ======== ======== ======== See accompanying Notes to Consolidated Financial Statements.
F-3 37 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, (UNAUDITED) -------------------------------------------- ---------------------------- 1992 1993 1994 1994 1995 ---- ---- ---- ---- ---- Sales, net of returns and allowances. . . . . $ 1,902,354 $ 2,041,473 $ 2,364,461 $ 1,101,352 $ 1,323,980 Less - Cash discounts . . . . . . . . . . . (8,243) (8,306) (8,839) (3,980) (4,626) ----------- ----------- ----------- ----------- ----------- Net Sales . . . . . . . . . . . . . . . . 1,894,111 2,033,167 2,355,622 1,097,372 1,319,354 ----------- ----------- ----------- ----------- ----------- Cost of Merchandise Sold. . . . . . . . . . . (1,564,929) (1,668,007) (1,934,925) (897,950) (1,082,211) ----------- ----------- ----------- ----------- ----------- Gross Margin. . . . . . . . . . . . . . . 329,182 365,160 420,697 199,422 237,143 Selling, General and Administrative Expenses. (271,615) (299,910) (339,557) (169,397) (193,176) Taxes, other than income taxes. . . . . . . . (18,361) (19,915) (21,952) --- --- Depreciation and amortization . . . . . . . . (13,729) (14,379) (15,999) (7,641) (8,685) ----------- ----------- ----------- ----------- ----------- Income from operations. . . . . . . . . . 25,477 30,956 43,189 22,384 35,282 Other Income, net . . . . . . . . . . . . . . 1,903 2,852 1,490 999 1,189 Interest Expense. . . . . . . . . . . . . . . (10,054) (9,810) (12,003) (5,406) (8,116) ----------- ----------- ----------- ----------- ----------- Income Before Provision for Income Taxes and Cumulative Effect of Accounting Change. . . 17,326 23,998 32,676 17,977 28,355 ----------- ----------- ----------- ----------- ----------- Provision for Income Taxes Current . . . . . . . . . . . . . . . . . . (6,601) (10,016) (15,225) (8,186) (12,528) Deferred. . . . . . . . . . . . . . . . . . (493) 763 1,251 455 314 ----------- ----------- ----------- ----------- ----------- Total provision for income taxes. . . . (7,094) (9,253) (13,974) (7,731) (12,214) ----------- ----------- ----------- ----------- ----------- Income before cumulative effect of accounting change. . . . . . . . . . . . 10,232 14,745 18,702 10,246 16,141 ----------- ----------- ----------- ----------- ----------- Cumulative effect on prior years of change in accounting for postretirement benefits, net of $28,000 tax benefit. . . . . . . . --- (45,000) --- --- --- Net Income (Loss) . . . . . . . . . . . . . . 10,232 (30,255) 18,702 10,246 16,141 ----------- ----------- ----------- ----------- ----------- Retained Earnings, beginning of period. . . . 93,837 91,733 52,486 52,486 57,081 Cash dividends -- . . . . . . . . . . . . . Preferred, $1.00 per share each year. . . (10) (10) (8) (4) (4) Common, $2.00 per share each year . . . . (8,282) (8,982) (8,729) (2,630) (2,729) Common Stock dividend . . . . . . . . . . . (4,044) --- (5,370) --- --- ----------- ----------- ----------- ----------- ----------- Retained Earnings, end of period. . . . . . . $ 91,733 $ 52,486 $ 57,081 $ 60,098 $ 70,489 =========== =========== =========== =========== =========== Income per Share of Common Stock Before Cumulative Effect of Accounting Change . . . . . . . . . . . . $ 2.20 $ 3.09 $ 4.03 $ 2.19 $ 3.54 ----------- ----------- ----------- ----------- ----------- Net Income (Loss) per share of Common Stock . $ 2.20 $ (6.33) $ 4.03 $ 2.19 $ 3.54 ----------- ----------- ----------- ----------- ----------- See accompanying Notes to Consolidated Financial Statements.
F-4 38 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS)
SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, (UNAUDITED) -------------------------------- -------------------- 1992 1993 1994 1994 1995 ---- ---- ---- ---- ---- CASH FLOWS FROM OPERATIONS Income before cumulative effect of accounting change $10,232 $14,745 $18,702 $10,246 $16,141 ------- ------- ------- ------- ------- Adjustments to reconcile income before cumulative effect of accounting change to cash provided (used) by operations-- Depreciation and amortization 13,729 14,379 15,999 7,641 8,685 Deferred income taxes 493 (763) (1,251) (455) (314) Changes in assets and liabilities: Trade receivables (36,287) (19,226) (44,891) (33,962) (26,110) Merchandise inventory (10,351) (5,524) (43,555) (39,781) (54,199) Other current assets (2,171) (1,556) (2,174) (898) (600) Other assets (285) 448 (1,556) (797) (1,359) Trade accounts payable 45,182 1,609 64,813 56,996 25,193 Accrued payroll and benefit costs 8,862 1,948 7,432 (8,308) (13,057) Other accrued liabilities (682) 240 2,934 14,786 19,224 ------- ------- ------- ------- ------- 18,490 (8,445) (2,249) (4,778) (42,537) ------- ------- ------- ------- ------- Net cash flow provided (used) by operations 28,722 6,300 16,453 5,468 (26,396) ------- ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property 1,131 277 415 103 239 Capital expenditures for property (9,626) (13,264) (26,963) (6,887) (11,632) ------- ------- ------- ------- ------- Net cash flow used by investing activities (8,495) (12,987) (26,548) (6,784) (11,393) ------- ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in notes payable to banks 3,998 12,196 (1,706) (1,774) 54,780 Proceeds from long-term debt --- 10,000 35,000 35,000 14,000 Repayment of long-term debt (6,909) (5,699) (7,892) (3,665) (6,498) Principal payments under capital equipment leases (2,467) (3,812) (4,009) (2,289) (1,114) Sale of common stock 562 6,288 578 265 201 Purchase of treasury stock (4,108) (2,872) (3,218) (2,209) (1,566) Dividends paid (8,444) (8,620) (8,846) (7,544) (7,534) ------- ------- ------- ------- ------- Net cash flow provided (used) by financing activities (17,368) 7,481 9,907 17,784 52,269 ------- ------- ------- ------- ------- Net (Decrease) Increase in Cash 2,859 794 (188) 16,468 14,480 Cash, Beginning of Period 13,679 16,538 17,332 17,332 17,144 ------- ------- ------- ------- ------- Cash, End of Period $16,538 $17,332 $17,144 $33,800 $31,624 ------- ------- ------- ------- ------- See accompanying Notes to Consolidated Financial Statements.
F-5 39 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS 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. 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 $19,690, $25,360 and $26,910 greater than reported under the LIFO method at December 31, 1993 and 1994 and June 30, 1995, respectively. 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. PROPERTY AND DEPRECIATION The Company provides for depreciation using the straight-line method over the following estimated useful lives of the assets: Buildings. . . . . . . . . . . . . . . . . . 42 years Permanent fixtures--leased property. . . . . Over the lives of the respective leases Furniture, fixtures and equipment. . . . . . 4 to 14 years Capital equipment leases . . . . . . . . . . Over the lives of the 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 minimum lease payments. Maintenance and repairs are expensed as incurred. 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. CREDIT RISK Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company distributes its products to a large number of customers in the electrical contractor, industrial plant and communications markets. Most of the Company's business activity is with customers in the United States; however, the Company has limited sales activity in several international locations. The Company performs ongoing credit evaluations of its customers, and a significant portion of trade receivables is secured by lien or bond rights. In addition, export sales are usually guaranteed by letter of credit or advance payment arrangements. The Company maintains allowances for potential credit losses and such losses historically have been within management's expectations. F-6 40 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA) 1/SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) UNAUDITED DATA The data for the six months ended June 30, 1994 and 1995 has been derived from unaudited financial statements which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of the unaudited interim periods. Interim results are not necessarily indicative of results for a full year. 2/INCOME TAXES Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." No cumulative adjustment was required as a result of the adoption of SFAS No. 109 due to the Company's previous use of the liability method of accounting for income taxes. The provision for income taxes recorded in the Consolidated Statements of Income and Retained Earnings is as follows:
YEARS ENDED DECEMBER 31: Federal income tax 1992 1993 1994 ---- ---- ---- Current. . . . . . . . . . . . . . . . . . $5,896 $9,067 $13,335 Deferred . . . . . . . . . . . . . . . . . 471 (629) (951) State income tax . . . . . . . . . . . . . . Current. . . . . . . . . . . . . . . . . . 705 949 1,890 Deferred . . . . . . . . . . . . . . . . . 22 (134) (300) ------ ------ ------- Financial statement. . . . . . . . . . . . . income tax provision . . . . . . . . . . . $7,094 $9,253 $13,974 ====== ====== =======
Deferred income taxes are provided based upon differences between the financial statement and tax bases of assets and liabilities. The following deferred taxes are recorded at December 31:
1993 1994 ---- ---- Assets/(Liabilities) -------------------- Postretirement benefits. . . . . . . . . . . $28,872 $29,323 Payroll accruals . . . . . . . . . . . . . . 3,872 4,320 Bad debt reserves. . . . . . . . . . . . . . 1,383 1,673 Inventory. . . . . . . . . . . . . . . . . . 1,147 1,463 Other deferred tax assets. . . . . . . . . . 2,475 3,431 Prepaid pension. . . . . . . . . . . . . . . (2,294) (2,717) Fixed asset depreciation . . . . . . . . . . (13,523) (13,513) Fixed asset gains. . . . . . . . . . . . . . (624) (624) Other deferred tax liabilities . . . . . . . (4,179) (4,976) ------- ------- $17,129 $18,380 ======= =======
Deferred tax assets included in Other Current Assets were $2,683 and $3,146 in 1993 and 1994, respectively. F-7 41 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA) 2/INCOME TAXES (CONTINUED) 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: 1992 1993 1994 ---- ---- ---- "Statutory" tax rate . . . . . . . . . . . . 34.0% 35.0% 35.0% State and local income taxes, net of federal benefit . . . . . . . . . . 2.8 2.9 3.4 Other, net . . . . . . . . . . . . . . . . . 4.1 .7 4.4 ---- ---- ---- Effective tax rate . . . . . . . . . . . . . 40.9% 38.6% 42.8% ==== ==== ====
3/CAPITAL STOCK The Company's capital stock is owned by its employees and retirees. Neither common nor preferred stock may be sold by the holder thereof, except by first offering it to the Company. The Company may buy any common shares so offered at the price at which they were issued ($20) with appropriate adjustments for current dividends, or may call all or part of the preferred stock at par plus accrued dividends. During 1992, the Company offered to eligible employees the right to subscribe to 480,000 shares of common stock at $20 per share in accordance with the provisions of the Company's Common Stock Purchase Plan dated October 7, 1992. This resulted in the subscription of 363,681 shares ($7,274). Subscribers under the Plan elected to make payments under one of the following options: (i) all shares subscribed for prior to January 22, 1993; (ii) a portion of such shares prior to January 22, 1993, and the balance in monthly installments through payroll deductions (or in certain cases where a subscriber is no longer on the Company's payroll, through pension deductions or direct monthly payments) over a 34-month period; or (iii) all shares pursuant to the installment method. Shares were issued and Voting Trust Certificates were delivered to subscribers as of January 22, 1993, in the case of shares paid for prior to January 22, 1993. Shares will be issued and Voting Trust Certificates will be delivered to subscribers on a quarterly basis, as of the tenth day of March, June, September and December to the extent full payments of shares are made in the case of subscriptions under the installment method. Shown below is a summary of shares reacquired and retired by the Company in the three years ended December 31, 1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995:
PREFERRED COMMON REACQUIRED RETIRED REACQUIRED RETIRED --------------------- ------------------------- 1992 . . . . . . . . 1,082 907 204,303 208,797 1993 . . . . . . . . 717 514 142,889 128,633 1994 . . . . . . . . 967 1,285 159,938 179,737 June 30, 1994. . . . . 778 --- 109,676 --- June 30, 1995. . . . . 165 --- 78,141 ---
F-8 42 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
4/LONG-TERM DEBT DECEMBER 31 JUNE 30, ------------ -------- Long-term debt was composed of: 1993 1994 1995 ---- ---- ---- 6.25% note, unsecured, maturing June, 2004, installments of $7,000 due annually in each of the years 2000 through 2004. . . . . . . . . . $ --- $35,000 $35,000 9.23% note secured by a first mortgage on various properties, maturing June, 2005, installments of $2,725 due annually in each of the years 1995 through 2004 with final payment of $2,750 due in 2005 . . . . . . . . . . . . . . . . 30,000 27,275 24,550 12.25% note secured by a first mortgage on various properties, due in monthly installments through June, 1999 . . . . . . . . . 12,575 10,343 9,122 5.68% to 9.23% capital equipment leases, various maturities . . . . . 7,873 10,027 9,342 5.68% note, unsecured, maturing June, 1998, installments of $2,000 due annually in each of the years 1994 through 1998. . . . . . . . . . 8,000 6,000 4,000 8.75% note, unsecured, maturing November, 1995 . . . . . . . . . . . 2,500 --- --- 7.67% note, unsecured, maturing April, 2000, installments of $2,000 due annually in each of the years 1996 through 2000. . . . . . . . . . --- --- 8,000 8.53% note, secured by facility, due in quarterly installments through March, 2005. . . . . . . . . --- --- 3,500 Variable rate, Industrial Revenue Bonds, secured by facilities, various maturities . . . . . . . . . 2,673 1,567 1,160 ------- ------- ------- $63,621 $90,212 $94,674 ======= ======= =======
Long-term debt matures as follows:
DECEMBER 31, JUNE 30, 1994 1995 ------------ -------- 1996. . . . . . . . . . . . . . . . . . $10,906 $ 3,645 1997. . . . . . . . . . . . . . . . . . 10,882 13,399 1998. . . . . . . . . . . . . . . . . . 9,804 12,327 1999. . . . . . . . . . . . . . . . . . 6,245 8,773 2000-2005 . . . . . . . . . . . . . . . 52,375 56,530 ------- ------- $90,212 $94,674 ======= =======
F-9 43 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA) 4/LONG-TERM DEBT (CONTINUED) The present value of future minimum lease payments under capital leases as of June 30, 1995 was $12,407 of which $9,342 is included in long-term debt. Bank borrowings varied from a minimum of $46,000, $50,000 and $54,000 to a maximum of $90,000, $123,000 and $132,000 in 1992, 1993 and 1994, respectively. For the first six months of 1995 bank borrowings varied from a minimum of $77,000 to a maximum of $151,000. The average amount of bank borrowings outstanding during the years ended December 1992, 1993 and 1994 and six months ended June 30, 1994 and 1995 amounted to approximately $69,000, $85,000, $88,000, $79,000 and $129,000, respectively, at average interest rates of 3.80%, 3.30%, 4.40%, 3.80% and 6.20%, respectively. The averages are based on the daily amounts outstanding during each period. The Company had unused lines of credit of approximately $133,000 as of June 30, 1995 and $129,000 as of December 31, 1994. Certain lines require maintenance of compensating balances of up to 5% of the available lines of credit. In May, 1994, the Company received the proceeds from a ten- year note for $35,000 at a fixed interest rate of 6.25%. The note agreement has various covenants which limit the Company's ability to make investments, pay dividends, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreement. In May, 1992, the Company entered into a $50,000 Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR). The credit agreement has various covenants which limit the Company's ability to make investments, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreement. There have been no borrowings against this credit line through June 30, 1995. 5/PENSION PLAN Pension and related expense for the years ended December 31, 1992, 1993 and 1994 was $3,676, $3,556 and $4,635, respectively, and for the six months ended June 30, 1994 and 1995 was $2,177 and $2,382, respectively. The Company has a noncontributory defined benefit pension plan covering substantially all full-time employees. The plan provides retirement benefits based on an employee's final average earnings and years of service. Employees become 100% vested after 5 years of service, regardless of age. F-10 44 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA) 5/PENSION PLAN (CONTINUED) 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 nor greater than the maximum tax deductible amount. The actuarially computed components of the defined benefit pension plan expense for the three years ended December 31, are as follows:
1992 1993 1994 ---- ---- ---- Service cost-benefits earned during the year . . . . . . . . . . . . . . . $3,303 $3,383 $4,249 Interest cost on projected benefit. . . obligation . . . . . . . . . . . . . . 6,641 6,923 7,357 Actual return on plan assets. . . . . . (2,546) (9,472) 642 Net amortization of return on plan. . . assets and unrecognized net asset. . . (4,389) 1,958 (8,660) ------ ------ ------ Total defined benefit plan expense. . . $3,009 $2,792 $3,588 ====== ====== ======
The following table sets forth the plan's funded status for the two years ended December 31:
Actuarial present value of benefit obligation: 1993 1994 ---- ---- Vested benefits . . . . . . . . . . . . . . . . $61,765 $52,883 Nonvested benefits. . . . . . . . . . . . . . . 11,798 11,329 ------- ------- Accumulated benefit obligation. . . . . . . . 73,563 64,212 ------- ------- Projected benefit obligation for service rendered to date. . . . . . . . 98,753 92,514 ------- ------- Plan assets at fair value, primarily common stocks and bonds . . . . . . . . . . . . 88,464 80,738 ------- ------- Projected benefit obligation in excess of plan assets. . . . . . . . . . . . (10,289) (11,776) ------- ------- Unrecognized prior service cost . . . . . . . . . 6 (12) Unrecognized net loss . . . . . . . . . . . . . . 27,030 28,412 Unrecognized net asset at January 1, 1987 . . . . (12,743) (11,584) ------- ------- Net pension asset recognized in the consolidated balance sheet . . . . . . . . . $ 4,004 $ 5,040 ======= =======
The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.50% and 4.50%, and 8.50% and 5.50% in 1993 and 1994, respectively. The long-term rate of return on assets used in determining defined benefit plan expense was 9.00% in 1992 and 1993, and 9.75% in 1994. The average remaining service lives of plan participants used to calculate the amortization of the unrecognized net asset at January 1, 1987 was 18 years. The Company also provides a defined contribution profit sharing and savings plan covering substantially all of its full- time employees. Annual contributions by the Company to the plan are at the discretion of management and are generally determined based on the profitability of the Company. Employees may also contribute to the plan subject to limitations imposed by federal tax law and ERISA. F-11 45 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA) 6/POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company and its subsidiaries provide certain health care and life insurance benefits for retired employees through the Retiree Welfare Plan (the Plan). Substantially all of the Company's employees may become eligible to participate in the Plan if they reach normal retirement age while working for the Company. Benefits are provided through insurance coverage with premiums based on the benefits paid during the year. The Company funds the Plan on a pay-as-you-go basis and, accordingly, the Plan had no assets at December 31, 1993 or 1994. The Company elected to immediately recognize the cumulative effect of adoption of SFAS No. 106 pertaining to years prior to 1993 through a one-time adjustment which decreased 1993 net income by $45,000, net of a $28,000 income tax effect. Periodic postretirement benefit expense for the two years ended December 31, is as follows:
1993 1994 ---- ---- Service cost-benefits earned during the year. . . $ 401 $ 536 Interest cost on accumulated postretirement benefit obligation.. . . . . . . 6,111 6,149 Amortization of net loss from prior years . . . . --- 122 ------ ------ Net periodic postretirement benefit expense . . . $6,512 $6,807 ====== ======
The following table sets forth the accumulated postretirement benefit obligation for the Company's postretirement benefit plans for the two years ended December 31:
1993 1994 ---- ---- Retirees. . . . . . . . . . . . . . . . . . . . . $63,719 $60,743 Fully eligible active plan participants . . . . . 13,243 11,135 Other active plan participants. . . . . . . . . . 7,492 6,034 ------- ------- Accumulated postretirement benefit obligation . . . . . . . . . . . . . . . 84,454 77,912 Unrecognized net loss . . . . . . . . . . . . . . (11,454) (3,771) ------- ------- Accrued postretirement benefit cost . . . . . . . $73,000 $74,141 ======= =======
F-12 46 GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995 (UNAUDITED) (DOLLARS STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA) 6/POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE (CONTINUED) The discount rate used in determining net periodic postretirement benefit expense was 8.75% and 7.50% for 1993 and 1994, respectively. The discount rate used to determine the accumulated postretirement benefit obligation was 7.50% and 8.50% at December 31, 1993 and 1994, respectively. The health care cost trend rate used in determining net periodic postretirement benefit expense for all years was 8.00% and 6.75% for 1993 and 1994, respectively. The health care cost trend rate used to determine the accumulated postretirement benefit obligation for all years was 6.75% at December 31, 1993 and 1994. A one percentage point increase in the health care cost trend rate would not have a material impact on the net periodic postretirement benefit expense or the accumulated postretirement benefit obligation. 7/NET INCOME PER SHARE OF COMMON STOCK The computation of net income per share of common stock is based on the weighted average number of common shares outstanding during each year. The average numbers of shares used in computing net income per share of common stock were 4,638,056, 4,778,747 and 4,640,998 in 1992, 1993 and 1994, respectively, and 4,672,911 and 4,557,639 for the six months ended June 30, 1994 and 1995, respectively, adjusted for the declaration of a 5.00% stock dividend in 1992 and a 6.25% stock dividend in 1994. 8/COMMITMENTS Rental expense was $6,813, $6,941 and $8,420 in 1992, 1993 and 1994, respectively, and $4,210 and $4,100 for the six months ended June 30, 1994 and 1995, respectively. Future minimum rental payments required under operating leases that have either initial or remaining noncancellable lease terms in excess of one year as of December 31, 1994 are as follows:
Years ending December 31: 1995 . . . . . . . . . . . . . . . . . . . . . . $8,182 1996 . . . . . . . . . . . . . . . . . . . . . . 6,394 1997 . . . . . . . . . . . . . . . . . . . . . . 4,176 1998 . . . . . . . . . . . . . . . . . . . . . . 3,002 1999 . . . . . . . . . . . . . . . . . . . . . . 2,314 Subsequent to 1999. . . . . . . . . . . . . . . . 3,182
9/STATEMENTS OF CASH FLOWS During 1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995, income taxes paid totaled $6,166, $10,621, $16,783, $6,497 and $9,009; interest paid totaled $9,714, $10,158, $11,987, $5,083 and $7,564; and liabilities assumed in connection with capitalized leases totaled $5,607, $0, $5,949, $4,131 and $600, respectively. F-13 47 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. Other Expenses of Issuance and Distribution. -------------------------------------------
Securities and Exchange Commission registration fee. . . . . $ 3,966 Printing fees and expenses . . . . . . . . . . . . . . . . . 13,000 Legal fees and expenses. . . . . . . . . . . . . . . . . . . 37,000 Accounting fees and expenses . . . . . . . . . . . . . . . . 8,000 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 8,034 -------- $ 70,000 ======== - ----------------- Estimated.
ITEM 15. Indemnification of Directors and Officers. ----------------------------------------- Sections 721 through 726 of the New York Business Corporation Law provide as follows: Section 721. NONEXCLUSIVITY OF STATUTORY PROVISIONS FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS. The indemnification and advancement of expenses granted pursuant to, or provided by, this article shall not be deemed exclusive of any other rights to which a director or officer seeking indemnification or advancement of expenses may be entitled, whether contained in the certificate of incorporation or the by-laws or, when authorized by such certificate of incorporation or by-laws, (i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an agreement providing for such indemnification, provided that no indemnification may be made to or on behalf of any director or officer if a judgment or other final adjudication adverse to the director or officer establishes that his acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled. Nothing contained in this article shall affect any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law. Section 722. AUTHORIZATION FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) A corporation may indemnify any person made, or threatened to be made, a party to an action or proceeding (other than one by or in the right of the corporation to procure a judgment in its favor), whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the corporation served in any capacity at the request of the corporation, by reason of the fact that he, his testator or intestate, was a director or officer of the corporation or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. II-1 48 (b) The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such director or officer did not act, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation or that he had reasonable cause to believe that his conduct was unlawful. (c) A corporation may indemnify any person made, or threatened to be made, a party to an action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of any other corporation of any type or kind, domestic or foreign, of any partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense or settlement of such action, or in connection with an appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to the best interests of the corporation, except that no indemnification under this paragraph shall be made in respect of (1) a threatened action, or a pending action which is settled or otherwise disposed of, or (2) any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action was brought, or, if no action was brought, any court of competent jurisdiction, determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper. (d) For the purpose of this section, a corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered fines; and action taken or omitted by a person with respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the corporation. Section 723. PAYMENT OF INDEMNIFICATION OTHER THAN BY COURT AWARD. (a) A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in section 722 shall be entitled to indemnification as authorized in such section. (b) Except as provided in paragraph (a), any indemnification under section 722 or otherwise permitted by section 721, unless ordered by a court under section 724 (Indemnification of directors and officers by a court), shall be made by the corporation, only if authorized in the specific case: (1) By the board acting by a quorum consisting of directors who are not parties to such action or proceeding upon a finding that the director or officer has met the standard of conduct set forth in section 722 or established pursuant to section 721, as the case may be, or, (2) If a quorum under subparagraph (1) is not obtainable or, even if obtainable, a quorum of disinterested directors so directs; II-2 49 (A) By the board upon the opinion in writing of independent legal counsel that indemnification is proper in the circumstances because the applicable standard of conduct set forth in such sections has been met by such director or officer, or (B) By the shareholders upon a finding that the director or officer has met the applicable standard of conduct set forth in such sections. (c) Expenses incurred in defending a civil or criminal action or proceeding may be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount as, and to the extent, required by paragraph (a) of section 725. Section 724. INDEMNIFICATION OF DIRECTORS AND OFFICERS BY A COURT. (a) Notwithstanding the failure of a corporation to provide indemnification, and despite any contrary resolution of the board or of the shareholders in the specific case under section 723 (Payment of indemnification other than by court award), indemnification shall be awarded by a court to the extent authorized under section 722 (Authorization for indemnification of directors and officers), and paragraph (a) of section 723. Application therefor may be made, in every case, either: (1) In the civil action or proceeding in which the expenses were incurred or other amounts were paid, or (2) To the supreme court in a separate proceeding, in which case the application shall set forth the disposition of any previous application made to any court for the same or similar relief and also reasonable cause for the failure to make application for such relief in the action or proceeding in which the expenses were incurred or other amounts were paid. (b) The application shall be made in such manner and form as may be required by the applicable rules of court or, in the absence thereof, by direction of a court to which it is made. Such application shall be upon notice to the corporation. The court may also direct that notice be given at the expense of the corporation to the shareholders and such other persons as it may designate in such manner as it may require. (c) Where indemnification is sought by judicial action, the court may allow a person such reasonable expenses, including attorneys' fees, during the pendency of the litigation as are necessary in connection with his defense therein, if the court shall find that the defendant has by his pleadings or during the course of the litigation raised genuine issues of fact or law. Section 725. OTHER PROVISIONS AFFECTING INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) All expenses incurred in defending a civil or criminal action or proceeding which are advanced by the corporation under paragraph (c) of section 723 (Payment of indemnification other than by court award) or allowed by a court under paragraph (c) of section 724 (Indemnification of directors and officers by a court) shall be repaid in case the person receiving such advancement or allowance is ultimately found, under the procedure set forth in this article, not to be entitled to indem- nification or, where indemnification is granted, to the extent the expenses so advanced by the corporation or allowed by the court exceed the indemnification to which he is entitled. (b) No indemnification, advancement or allowance shall be made under this article in any circumstance where it appears: II-3 50 (1) That the indemnification would be inconsistent with the law of the jurisdiction of incorporation of a foreign corporation which prohibits or otherwise limits such indemnification; (2) That the indemnification would be inconsistent with a provision of the certificate of incorporation, a by-law, a resolution of the board or of the shareholders, an agreement or other proper corporate action, in effect at the time of the accrual of the alleged cause of action asserted in the threatened or pending action or proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (3) If there has been a settlement approved by the court, that the indemnification would be inconsistent with any condition with respect to indemnification expressly imposed by the court in approving the settlement. (c) If any expenses or other amounts are paid by way of indemnification, otherwise than by court order or action by the shareholders, the corporation shall, not later than the next annual meeting of shareholders unless such meeting is held within three months from the date of such payment, and, in any event, within fifteen months from the date of such payment, mail to its shareholders of record at the time entitled to vote for the election of directors a statement specifying the persons paid, the amounts paid, and the nature and status at the time of such payment of the litigation or threatened litigation. (d) If any action with respect to indemnification of directors and officers is taken by way of amendment of the by-laws, resolution of directors, or by agreement, then the corporation shall, not later than the next annual meeting of shareholders, unless such meeting is held within three months from the date of such action, and, in any event, within fifteen months from the date of such action, mail to its shareholders of record at the time entitled to vote for the election of directors a statement specifying the action taken. (e) Any notification required to be made pursuant to the foregoing paragraph (c) or (d) of this section by any domestic mutual insurer shall be satisfied by compliance with the corresponding provisions of section one thousand two hundred sixteen of the insurance law. (f) The provisions of this article relating to indemnification of directors and officers and insurance therefor shall apply to domestic corporations and foreign corporations doing business in this state, except as provided in section 1320 (Exemption from certain provisions). Section 726. INSURANCE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) Subject to paragraph (b), a corporation shall have power to purchase and maintain insurance: (1) To indemnify the corporation for any obligation which it incurs as a result of the indemnification of directors and officers under the provisions of this article, and (2) To indemnify directors and officers in instances in which they may be indemnified by the corporation under the provisions of this article, and (3) To indemnify directors and officers in instances in which they may not otherwise be indemnified by the corporation under the provisions of this article provided the contract of insurance covering such directors and officers provides, in a manner acceptable to the superintendent of insurance, for a retention amount and for co-insurance. (b) No insurance under paragraph (a) may provide for any payment other than cost of defense, to or on behalf of any director or officer: II-4 51 (1) if a judgment or other final adjudication adverse to the insured director or officer establishes that his acts of active and deliberate dishonesty were material to the cause of action so adjudicated, or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled, or (2) in relation to any risk the insurance of which is prohibited under the insurance law of this state. (c) Insurance under any or all subparagraphs of paragraph (a) may be included in a single contract or supplement thereto. Retrospective rated contracts are prohibited. (d) The corporation shall, within the time and to the persons provided in paragraph (c) of section 725 (Other provisions affecting indemnification of directors or officers), mail a statement in respect of any insurance it has purchased or renewed under this section, specifying the insurance carrier, date of the contract, cost of the insurance, corporate positions insured, and a statement explaining all sums, not previously reported in a statement to shareholders, paid under any indemnification insurance contract. (e) This section is the public policy of this state to spread the risk of corporate management, notwithstanding any other general or special law of this state or of any other jurisdiction including the federal government. Article VIII of the Company's By-Laws provides: To the full extent authorized by law, the corporation shall and hereby does indemnify any person who shall at any time be made, or threatened to be made, a party in any civil or criminal action or proceeding by reason of the fact that he, his testator or his intestate is or was a director or officer of the corporation or served another corporation in any capacity at the request of the corporation. Section 5.03(c) of the Voting Trust Agreement provides: The Corporation covenants and agrees, and in the event the Corporation shall not do so for any reason whatsoever the Participating Shareholders in consideration of the Voting Trustees having agreed to serve in that capacity for the benefit of the Participating Shareholders covenant and agree ratably in accordance with the number of shares of Common Stock represented by their respective Voting Trust Certificates, to indemnify each Voting Trustee and each agent or attorney of the Voting Trustees (including, without limitation, Agents, transfer agents and registrars) for, and to hold him harmless against, any tax, loss, liability or expense incurred for any reason other than his own individual willful misconduct, arising out of or in connection with the acceptance or administration of the 1987 Voting Trust, and the performance of his duties and obligations hereunder and the exercise of his rights and powers hereunder, including the costs and expenses of defending himself against any claim of liability. The obligations under this Section 5.03(c) of the Corporation and the Participating Shareholders to indemnify the Voting Trustees and each agent or attorney of the Voting Trustees (including, without limitation, Agents, transfer agents and registrars) shall be payable from any funds or other assets held by the Voting Trustees hereunder for the account of the Corporation or the Participating Shareholders as the case may be. Effective October 1, 1994, the Company renewed insurance from the Federal Insurance Company (a member of the Chubb Group), a portion of which insures employees, including directors and officers, against liabilities imposed on them at an annual cost to the Company through September 30, 1995 of $67,318. II-5 52 ITEM 16. Exhibits. -------- 4. Instruments defining the rights of security holders, including -------------------------------------------------------------- indentures: - ---------- (i) Restated Certificate of Incorporation, as amended, dated March 9, 1984, filed as Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1984 (Commission File No. 0-255) and incorporated herein by reference. (ii) Voting Trust Agreement dated as of April 15, 1987, attached as Annex A to the Prospectus, dated January 20, 1987, constituting a part of the Registration Statement on Form S-1 (Registration No. 33- 10514) 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. 5. Opinion re legality ------------------- Opinion of Whitman Breed Abbott & Morgan. 10. Material Contracts ------------------ 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. 24. Consents -------- (a) Consent of Price Waterhouse LLP. (b) Consent of Whitman Breed Abbott & Morgan (contained in the opinion filed as Exhibit 5 and incorporated herein by reference). 25. Powers of attorney ------------------ Powers of attorney of certain directors and officers of the company (included on page II-8 of this registration statement). ITEM 17. Undertakings. ------------ (i) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company or the Voting Trustees pursuant to the foregoing provisions, or otherwise, the Company and the Voting Trustees have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company or the Voting Trustees of expenses incurred or paid by a director, officer or controlling person of the Company or the Voting Trustees in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company or the Voting Trustees will, unless in the opinion of its counsel the matter has been settled by II-6 53 controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it or them is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-7 54 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this Registration Statement on Form S-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of St. Louis, State of Missouri on the 31 day of August, 1995. GRAYBAR ELECTRIC COMPANY, INC. By: G.S. Tulloch, Jr. --------------------------------- POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints C. L. Hall and G. S. Tulloch, Jr., and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. II-8 55 Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-2 has been signed by the following persons in the capacities indicated on August 31, 1995.
Signature Title --------- ----- C.L. Hall - ----------------------------- Director and President (Principal Executive (C.L. Hall) Officer and Principal Financial Officer) J.R. Seaton - ----------------------------- Director, Vice President and Comptroller (J.R. Seaton) (Principal Accounting Officer) DIRECTORS: T.S. Gurganous I. Orloff - ----------------------------- ------------------------------- (T.S. Gurganous) (I. Orloff) J.R. Hade R.A. Reynolds - ----------------------------- ------------------------------- (J.R. Hade) (R.A. Reynolds) R.H. Haney G.S. Tulloch - ----------------------------- ------------------------------- (R.H. Haney) (G.S. Tulloch) G.W. Harper J.F. Van Pelt - ----------------------------- ------------------------------- (G.W. Harper) (J.F. Van Pelt) R.L. Mygrant J.W. Wolf - ----------------------------- ------------------------------- (R.L. Mygrant) (J.W. Wolf) R.D. Offenbacher - ----------------------------- (R.D. Offenbacher)
II-9 56 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-2 has been signed by the following persons, as Voting Trustees, on August 31, 1995. Signatures ---------- J.R. Hade C.L. Hall - ----------------------------- ------------------------------- (J.R. Hade) (C.L. Hall) G.W. Harper R.L. Mygrant - ----------------------------- ------------------------------- (G.W. Harper) (R.L. Mygrant) R.D. Offenbacher - ----------------------------- (R.D. Offenbacher) II-10 57 INDEX TO EXHIBITS EXHIBITS -------- 4. Instruments defining the rights of security holders, including indentures (i) Restated Certificate of Incorporation, as amended, dated March 9, 1984, filed as Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1984 (Commission File No. 0-255) and incorporated herein by reference. (ii) Voting Trust Agreement dated as of April 15, 1987, attached as Annex A to the Prospectus, dated January 20, 1987, constituting a part of the Registration Statement on Form S-1 (Registration No. 33-10514) and incorporated herein by reference. 5. Opinion re legality Opinion of Whitman Breed Abbott & Morgan 10. Material Contracts 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. 23. Consents (a) Consent of Price Waterhouse LLP (b) Consent of Whitman Breed Abbott & Morgan (contained in the opinion filed as Exhibit 5 and incorporated herein by reference). 24. Powers of attorney Powers of attorney of certain directors and officers of the Company (included on page II-8 of this registration statement). EX-5 2 OPINION RE LEGALITY 1 EXHIBIT 5 WHITMAN BREED ABBOTT & MORGAN 200 PARK AVENUE NEW YORK, NEW YORK 10166 (212) 351-3000 August 31, 1995 Graybar Electric Company, Inc. and C.L. Hall J.R. Hade G.W. Harper R.L. Mygrant R.D. Offenbacher As Voting Trustees under the Voting Trust Agreement, dated as of April 15, 1987 relating to the Common Stock of Graybar Electric Company, Inc. 34 North Meramec Avenue St. Louis, Missouri 63105 Dear Sirs: We refer to the Voting Trust Agreement, dated as of April 15, 1987 (the "Voting Trust Agreement"), relating to the common stock, par value $1 per share with a stated value of $20 per share (the "Common Stock"), of Graybar Electric Company, Inc., a New York corporation (the "Company"), and to the Registration Statement on Form S-2 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), to be filed with the Securities and Exchange Commission (the "Commission") on August 31, 1995 by the Company and the Voting Trustees (the "Voting Trustees") under the Voting Trust Agreement. The Registration Statement covers a maximum of 575,000 shares of Common Stock and Voting Trust Certificates to be issued pursuant to the Voting Trust Agreement and the Company's Common Stock Purchase Plan dated as of October 9, 1995 (the "Plan"). 2 Graybar Electric -2- August 31, 1995 Company, Inc. We have examined the Voting Trust Agreement and the Plan. We have also examined originals, or certified or photostatic copies, of such records of the Company and the Voting Trustees and such other documents as we have deemed relevant and necessary as the basis for the opinions set forth below. In such examination we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. Based upon our examination mentioned above, subject to the assumptions stated and relying upon the statements of fact contained in the documents that we have examined, we are of the following opinions: 1. The 575,000 shares of Common Stock to be offered by the Company, when issued and sold as contemplated by the Registration Statement and the Plan, will have been validly issued and will be fully paid and nonassessable, subject to Section 630 of the New York Business Corporation Law (which provides that the ten largest shareholders of the Company are liable under certain conditions for debts, wages or salaries due and not paid by the Company to any laborers, servants or employees, other than contractors, for services performed by them for the Company). 2. The Voting Trust Agreement is a valid and lawful agreement under the laws of the State of New York and the Voting Trust Certificates will be, when issued in accordance with the provisions of the Voting Trust Agreement, validly issued. We consent to the filing of this opinion letter as Exhibit 5 to the Registration Statement and to the reference to our firm appearing under the caption "Legal Matters" in the Prospectus that forms a part of the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the General Rules and Regulations of the Commission. Very truly yours, Whitman Breed Abbott & Morgan EX-23.(A) 3 CONSENT OF EXPERT 1 EXHIBIT 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-2 of our report dated February 17, 1995 relating to the financial statements of Graybar Electric Company, Inc., which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedules for the three years ended December 31, 1994 listed under Item 14(a) of Graybar Electric Company's Annual Report on Form 10-K for the year ended December 31, 1994 when such schedules are read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included these Financial Statement Schedules. We also consent to the references to us under the headings "Experts" and "Selected Consolidated Financial Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Consolidated Financial Data." PRICE WATERHOUSE LLP St. Louis, Missouri August 31, 1995 -----END PRIVACY-ENHANCED MESSAGE-----