<PAGE> 1
Registration No.
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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)
T.F. DOWD, 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)
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Copy to:
JOHN H. DENNE, Esq.
Whitman Breed Abbott & Morgan
200 Park Avenue
New York, New York 10166
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Approximate date of commencement of proposed sale to the public:
October 12, 1998.
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, 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. / /
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<TABLE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Proposed
maximum maximum Amount of
Title of each class of securities to Amount to be offering price aggregate offering registration
be registered registered per Unit price fee
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (par value $1 per share) 1,000,000 shs. $20 $20,000,000 $5,900
- ------------------------------------------------------------------------------------------------------------------
Voting Trust Certificates <F1> -- -- -- --
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<FN>
<F1> Representing the shares of Common Stock offered hereunder.
</TABLE>
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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.
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<PAGE> 2
<TABLE>
GRAYBAR ELECTRIC COMPANY, INC.
--------------------
CROSS-REFERENCE SHEET
<CAPTION>
Item Number and Caption Prospectus Heading
----------------------- ------------------
<S> <C>
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 <F*>
7. Selling Security Holders <F*>
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 <F*>
<FN>
- ------------------
<F*> Omitted because not applicable, or answer to Item is negative and is
omitted from the Prospectus.
</TABLE>
<PAGE> 3
P R O S P E C T U S
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1,000,000 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 12, 1998
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 1, 1997, pursuant to which approximately
94% 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 currently 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.
<TABLE>
<CAPTION>
============================================================================================================
Underwriting Discounts Proceeds to the
Price to Public and Commissions Company<F1>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit $20 None $20
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Total $20,000,000 None $20,000,000<F2>
============================================================================================================
<FN>
<F1> Before deducting expenses estimated at $100,000 payable by the Company.
<F2> 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 6,800 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."
</TABLE>
----------------
The date of this Prospectus is October 12, 1998.
<PAGE> 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 REPRESENTATIONS 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>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
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 15
Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Dividends 20
Business 21
Management 24
Description of Common Stock 25
Information Concerning the Voting Trustees 27
Summary of Certain Provisions of the Voting Trust Agreement 30
Legal Matters 34
Experts 34
Index to Consolidated Financial Statements F-1
</TABLE>
----------------------
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 -
<PAGE> 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, 1997; and
(b) the Company's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1998 and June 30, 1998.
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 Thomas F. Dowd, 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 11)
The Company is offering to eligible employees the right to subscribe
for up to 1,000,000 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 1999, paying for and receiving a portion of such shares in January
1999 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 1,000,000.
THE COMPANY (See pp. 21 to 24)
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 a network of
distributing houses located in 14 geographical districts throughout the
United States. In addition, the Company maintains four (4) zone warehouses
with special inventories so all locations can call upon them for additional
items. The Company also has subsidiary operations with distribution
facilities located in Puerto Rico, Mexico, Singapore, Canada and Chile. 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 -
<PAGE> 6
THE VOTING TRUST AGREEMENT (See pp. 30 to 33)
Approximately 94% 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 1, 1997. 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
currently are shareholders and who have elected not to participate in the
Voting Trust will receive stock certificates representing the shares for which
they subscribed. The Voting Trust Agreement will expire on March 31, 2007
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 or with 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. 15 to 19 and pp. F-1 to F-14)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales $2,033,167 $2,355,622 $2,764,790 $2,991,412 $3,338,022 $1,577,493 $1,828,002
Income before
cumulative effect of
accounting change 14,745 18,702 36,718 44,533 52,963 23,529 29,664
Cumulative effect on
prior years of change
in accounting for post-
retirement benefits (45,000) --- --- --- --- --- ---
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) (30,255) 18,702 36,718 44,533 52,963 23,529 29,664
Per share of common
stock:
Income before
cumulative effect of
accounting change <FA> 2.67 3.49 7.03 8.18 10.02 4.41 5.80
Net Income (Loss) <FA> (5.48) 3.49 7.03 8.18 10.02 4.41 5.80
Cash dividends 2.00 2.00 2.00 2.00 2.00 .60 .60
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $ 242,398 $ 394,545
Total assets 1,051,821 1,160,247
Long-term debt 139,748 273,858
Total liabilities 798,690 883,641
Shareholders' Equity 253,131 276,606
<FN>
<FA> Adjusted for the declaration of 6.25%, 5% and 10% stock dividends in
1994, 1996 and 1997, respectively. Prior to adjusting for the stock
dividends, the average common shares outstanding for the years 1993,
1994, 1995 and 1996 were 4,498, 4,368, 4,524 and 4,712, respectively.
</TABLE>
- 4 -
<PAGE> 7
THE OFFERING
The Company is offering to eligible employees the right to subscribe
for an aggregate of up to 1,000,000 shares of Common Stock under the provisions
of the Company's Common Stock Purchase Plan dated as of October 12, 1998 (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 July
31, 1998, 5,023,660 shares of Common Stock were issued and outstanding and an
additional 192,239 shares of Common Stock had been acquired by the Company
and were held in the treasury. At such date, approximately 94% of the issued
and outstanding shares of Common Stock were held of record by C.L. Hall, R.H.
Haney, G.W. Harper, R.D. Offenbacher and R.A. Reynolds, Jr., as Voting
Trustees (the "Voting Trustees") under a Voting Trust Agreement dated as of
April 1, 1997 (the "Voting Trust Agreement") among the Voting Trustees, the
Company and the shareholders of the Company who have elected to participate
therein (the "Participating Shareholders"). Pursuant to the Voting Trust
Agreement, Participating Shareholders have deposited their certificates
representing shares of Common Stock with the Voting Trustees and have been
issued voting trust certificates (the "Voting Trust Certificates") 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 certain 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 of Common Stock as of the date hereof and who have
elected not to participate in the Voting Trust Agreement will receive
certificates representing the number of shares of Common Stock for which they
subscribe and pay. 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 2007 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 at or before 5:00 p.m. St. Louis
time on December 11, 1998, by mailing it to Graybar Electric Company, Inc.,
P.O. Box 7231, St. Louis, Missouri 63177, Attention: Secretary. No
subscriptions will be accepted after that date and time.
- 5 -
<PAGE> 8
Subscribers under the Plan may elect to make payments for (i) all
shares subscribed for prior to January 22, 1999, (ii) a portion of such
shares prior to January 22, 1999 and the balance in monthly installments
through payroll deductions (or in certain cases, where a subscriber is no
longer on the Company's payroll, through pension deductions or direct monthly
payments) over a 34-month period, or (iii) all of such shares pursuant to the
installment method. Shares will be issued and Voting Trust Certificates
delivered to a subscriber as of January 22, 1999, in the case of shares paid
for prior to January 22, 1999, 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 distribution of stock or other assets of the Company
to its shareholders (except the payment of cash dividends) shall be taken
after January 22, 1999 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 April 10, 1998 and by the
shareholders of the Company on June 11, 1998.
COMMON STOCK PURCHASE PLAN
DATED AS OF OCTOBER 12, 1998
RELATING TO SHARES OF COMMON STOCK OF
GRAYBAR ELECTRIC COMPANY, INC.
---------------------------
1. EMPLOYEES ENTITLED TO SUBSCRIBE.
Each person who on September 30, 1998 was an employee of Graybar
Electric Company, Inc. (the "Company") who had been employed by the Company
since March 31, 1998, and each person who on March 31, 1998 was an employee
of the Company and who retired on a pension (except a deferred pension) on or
after March 31, 1998 and prior to September 30, 1998, is entitled to
subscribe for the number of 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"),
determined pursuant to Section 3, 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 March 31, 1998 were employees
who retired on a pension (except a deferred pension) on or after March 31,
1998 and prior to September 30, 1998), 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 -
<PAGE> 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, at or before 5:00 p.m. St. Louis time on December 11, 1998, 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 5:00 p.m. St. Louis time on December 11, 1998.
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 Right 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 $350 of his or her annual salary rate in effect on
March 31, 1998; 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 March 31, 1998 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--125%;
3.2.4. Eligible Employees in Grade N--85%;
3.2.5. Eligible Employees in Grade 14 or below who are
covered either by the Management Incentive Plan or the Sales Incentive
Plan--75%;
3.2.6. Eligible Employees in Grades J, K, L and M--50%; and
3.2.7. All other Eligible Employees--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 1,000,000, 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 (but in no event more than the number to which such employee
is entitled to subscribe under this Section) by a fraction, the numerator of
which is 1,000,000 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 22, 1999 for
all or a portion of the shares subscribed for, in which case the shares paid
for will be issued as of January 22, 1999 to the Voting Trustees or
Non-Participating Shareholders (as such terms are defined in Section 5.2),
whichever is appropriate.
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 1999, 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, September and December of each year, beginning in
March 1999, a share certificate to the Voting Trustees or
- 7 -
<PAGE> 10
Non-Participating Shareholders, whichever is appropriate, 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 or her 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 1, 1997, relating
to shares of Common Stock of the Company, shall be issued to, and deposited
by the Company with, the Voting Trustees thereunder (the "Voting Trustees")
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 prior to such
subscription and who are not parties to the Voting Trust Agreement
("Non-Participating Shareholders") 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 of
- 8 -
<PAGE> 11
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 or
her 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, such subscription shall be canceled as to shares not then issued, and
the subscriber or subscriber's estate shall be entitled to receive the total
amount of the purchase price, if any, then held by the Company for his or her
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 or her 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 22, 1999 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.
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:
- 9 -
<PAGE> 12
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 12, 1998 of the Company
(the "Plan"). I agree to pay $20.00 for each such share as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<C> <S> <C>
Method A -- Payment in full on or before January 22, 1999
----------------
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
================
</TABLE>
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
1, 1997 (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.
4. This provision does not apply to subscribers who presently are
parties to the Voting Trust Agreement or to subscribers who presently 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 J. H. Kipper or C. B. Temple as my
attorney-in-fact, both with full power of substitution, 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.
- 10 -
<PAGE> 13
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 ----------------------, 1998
- 11 -
<PAGE> 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.
If fully subscribed, the net proceeds of the offering, after the
deduction of estimated expenses, will be approximately $19,900,000. The net
proceeds will be added to working capital, in part to replenish amounts that
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 -
<PAGE> 15
CAPITALIZATION
Set forth below is the capitalization of the Company as of July 31,
1998, 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.
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED
------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SHORT-TERM DEBT:
Notes payable to banks<F1> $ 67,897 $ 47,997
Current portion of long-term debt 17,958 17,958
LONG-TERM DEBT:
6.59% note, unsecured, due in semiannual installments of
$3,750 in each of the years 2003 through 2013 75,000 75,000
7.36% note, unsecured, maturing May, 2011, installments of
$3,095 due semiannually in each of the years 2001 through
2010 with final payment of $3,094 due in 2011 65,000 65,000
6.65% note, unsecured, due in annual installments of $3,636 in
each of the years 2003 through 2013 40,000 40,000
6.25% note, unsecured, maturing June, 2004, installments of
$7,000 due annually in each of the years 2000 through 2004 35,000 35,000
6.44% note, unsecured, due in quarterly installments of $892 in
each of the years 1998 through 2005 19,643 19,643
9.23% note, secured by a first mortgage on various properties,
maturing May, 2005, installments of $2,725 due annually in
each of the years 1995 through 2004 with final payment of
$2,750 due in 2005 16,375 16,375
4.78% to 8.75% capital equipment leases, various
maturities 10,017 10,017
7.74% note, secured by facility, due in quarterly installments
through August, 2006 5,075 5,075
7.75% note, secured by facility, due in quarterly installments
through March, 2005 2,300 2,300
7.67% note, unsecured, maturing April, 2000, installments of
$2,000 due annually in each of the years 1996 through 2000 2,000 2,000
Variable rate mortgages, secured by facilities, various
Maturities 1,788 1,788
Variable rate banker's acceptances, unsecured, various
Maturities 545 545
CAPITAL STOCK:
Preferred stock, $20 par value - authorized 300,000 shares;
outstanding 5,386 shares<F2> $ 108 $ 108
Common stock, $1 par value, $20 stated value - authorized
7,500,000 shares; outstanding 5,023,660 shares<F3> $ 100,473 $ 120,473
<FN>
- ------------------------
<F1> These notes evidence borrowings made under lines of credit in the
aggregate principal amount of $304,000 which the Company maintains with
approximately 14 banks. The borrowings at July 31, 1998 consisted of
demand notes in the
- 13 -
<PAGE> 16
amount of $67,897 bearing interest at the money market rate of the
lending banks as in effect from time to time (5.86% at July 31, 1998).
Pursuant to its arrangements with the banks, the Company maintains
compensating balances or has agreed to facility fee arrangements
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 $125,000 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 July 31, 1998. 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.
<F2> Does not include 623 shares of Preferred Stock acquired by the Company
and held in its treasury.
<F3> Does not include 192,239 shares of Common Stock represented by Voting
Trust Certificates and Common Stock Certificates acquired by the Company
and held in its treasury. Approximately 94% of the shares of Common
Stock outstanding are held subject to the Voting Trust Agreement
</TABLE>
- 14 -
<PAGE> 17
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
The following data, insofar as it relates to each of the years
1993-1997, has been derived from the Company's audited consolidated financial
statements, including the consolidated balance sheets at December 31, 1996
and 1997 and the related consolidated statements of income and of cash flows
for the three years ended December 31, 1997 and the notes thereto included
elsewhere in this Prospectus, which have been audited by Ernst & Young LLP
for the years 1996 and 1997 and PricewaterhouseCoopers LLP for the years 1993
to 1995. The data for the six months ended June 30, 1997 and 1998 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.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $2,041,473 $2,364,461 $2,774,368 $3,001,049 $3,348,496 $1,582,588 $1,833,561
Less-Cash discounts (8,306) (8,839) (9,578) (9,637) (10,474) (5,095) (5,559)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Sales 2,033,167 2,355,622 2,764,790 2,991,412 3,338,022 1,577,493 1,828,002
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cost of Merchandise Sold (1,668,007) (1,934,925) (2,267,186) (2,453,962) (2,726,147) (1,290,051) (1,498,260)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest Expense (9,810) (12,003) (16,577) (16,687) (19,713) (9,637) (11,996)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Provision for Income Taxes:
Current (10,016) (15,225) (23,426) (28,599) (29,750) (16,716) (20,278)
Deferred 763 (1,251) (2,408) (1,722) (6,820) 281 (528)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total provision for income taxes (9,253) (13,974) (25,834) (30,321) (36,570) (16,435) (20,806)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before Cumulative
Effect of Accounting Change 14,745 18,702 36,718 44,533 52,963 23,529 29,664
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative effect on prior years
of change in accounting for
postretirement benefits (45,000) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) (30,255) 18,702 36,718 44,533 52,963 23,529 29,664
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Applicable
to Common Stock (30,265) 18,694 36,710 44,526 52,957 23,526 29,661
---------- ---------- ---------- ---------- ---------- ---------- ----------
Average Common Shares
Outstanding <FA> 5,520 5,360 5,225 5,442 5,285 5,336 5,112
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) per share of
Common Stock <FA> (5.48) 3.49 7.03 8.18 10.02 4.41 5.80
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash dividends per share 2.00 2.00 2.00 2.00 2.00 .60 .60
---------- ---------- ---------- ---------- ---------- ---------- ----------
Retained Earnings:
Balance, beginning of period 91,733 52,486 57,081 84,801 115,218 115,218 149,226
Add-Net income (Loss) (30,255) 18,702 36,718 44,533 52,963 23,529 29,664
---------- ---------- ---------- ---------- ---------- ---------- ----------
61,478 71,188 93,799 129,334 168,181 138,747 178,890
---------- ---------- ---------- ---------- ---------- ---------- ----------
Less Dividends:
Preferred ($1.00 per share) (10) (8) (8) (7) (6) (3) (3)
Common (in cash) (8,982) (8,729) (8,990) (9,480) (9,576) (2,906) (3,055)
Common (in stock) -- (5,370) -- (4,629) (9,373) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
(8,992) (14,107) (8,998) (14,116) (18,955) (2,909) (3,058)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, end of period $ 52,486 $ 57,081 $ 84,801 $ 115,218 $ 149,226 $ 135,838 $ 175,832
Advance payments on subscription
to common stock 51 39 -- 52 37 44 35
Accumulated other comprehensive
income -- -- -- -- -- -- (520)
Stock Outstanding:
Preferred 183 164 150 143 119 131 108
Common 89,098 91,859 89,206 98,321 103,749 96,195 101,151
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Shareholders' Equity $ 141,818 $ 149,143 $ 174,157 $ 213,734 $ 253,131 $ 232,208 $ 276,606
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Assets $ 610,512 $ 719,786 $ 823,280 $ 881,636 $1,051,821 $1,027,280 $1,160,247
Long-term Debt $ 63,621 $ 90,212 $ 91,257 $ 151,659 $ 139,748 $ 145,006 $ 273,858
<FN>
- ----------------------
<FA> Adjusted for the declaration of 6.25%, 5% and 10% stock dividends in
1994, 1996 and 1997, respectively. Prior to adjusting for stock
dividends, the average common shares outstanding for the years 1993,
1994, 1995 and 1996 were 4,498, 4,368, 4,524 and 4,712, respectively.
</TABLE>
This summary should be read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
-15-
<PAGE> 18
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, 1998, current assets exceeded current liabilities by $394,545, up
$152,147 from December 31, 1997. The current assets at June 30, 1998 were
sufficient to meet the cash needs required to pay current liabilities. The
substantial increases in accounts receivable and merchandise inventory
resulted primarily from the growth in sales experienced by the Company. While
the average number of days of sales in accounts receivable has remained
relatively stable during 1996, 1997 and 1998, inventory turnover has decreased
slightly during that same period. The decrease in inventory turnover is due
largely to a companywide customer service and logistics project to redeploy
inventory into a system of national zones, regional zones and branch locations.
Although the project objective is to provide better customer service and reduce
overall costs, management expected some temporary inventory increase, unrelated
to sales volume, during the transition to the new system. This temporary
increase in inventory investment is largely offset by a corresponding increase
in trade accounts payable. The Company does not have any other plans or
commitments that would require significant amounts of additional working
capital.
At June 30, 1998, the Company had available to it unused lines of
credit amounting to $255,000. These lines are available to meet short-term
cash requirements of the Company. Bank borrowings outstanding during 1998
through June 30 ranged from a minimum of $38,000 to a maximum of $211,655.
The Company has funded its capital requirements from operations, stock
issuances to its employees and long-term debt. In May, 1996, the Company
received the proceeds from a fifteen-year note for $65,000 at a fixed
interest rate of 7.36% with principal payable in semiannual installments
beginning in May, 2001. In January, 1998, the Company received the proceeds
from a seven-year note for $25,000 at a fixed interest rate of 6.44% with
principal payable in quarterly installments beginning in April, 1998. In
April, 1998, the Company received the proceeds from a fifteen-year note for
$75,000 at a fixed interest rate of 6.59% with principal payable in
semiannual installments beginning in October, 2003. In June, 1998, the
Company received the proceeds from a fifteen-year note for $40,000 at a fixed
interest rate of 6.65% with principal payable in annual installments
beginning in June, 2003. All four note agreements have various covenants
which limit the Company's ability to make investments, pay dividends, incur
debt, dispose of property, and issue equity securities. The Company is also
required to maintain certain financial ratios as defined in the agreements.
In addition, in July, 1996, the Company received the proceeds from a ten-year
note for $7,000 at a fixed interest rate of 7.74% with principal payable in
quarterly installments beginning in November, 1996. During the first six
months of 1998, cash used by operations amounted to $5,654 compared to
$13,096 cash provided by operations in the first six months of 1997.
The Company has a $125,000 Revolving Credit Loan Agreement with a group
of banks at an interest rate based on the London Interbank Offered Rate. The
credit agreement, which expires in May, 2003, has various covenants that
limit the Company's ability to make investments, incur debt, dispose of
property, and issue equity securities. The Company is also required to
maintain certain financial ratios as defined in the agreement. The Company
intends to utilize this credit line primarily as a secondary source of
borrowing for short-term financing requirements. In April, 1996, the
agreement was amended to increase the commitment to $125,000 from the $80,000
commitment in 1995. There have been no borrowings against this credit line
through June 30, 1998.
Capital expenditures for property were $25,621, $44,865 and $27,342 for
the years ended December 31, 1995, 1996 and 1997, respectively. Capital
expenditures for the six-month periods ended June 30, 1997 and 1998 were
$11,261 and $14,168, respectively. Purchases of treasury stock were $3,034,
$3,471 and $4,859 for the years ended December 31, 1995, 1996 and 1997,
respectively. Purchases of treasury stock for the six-month periods ended
June 30, 1997 and 1998 were $2,733 and $2,796, respectively. Dividends paid
were $8,884, $9,188 and $9,550 for the years ended December 31, 1995, 1996
and 1997, respectively. Dividends paid for the six-month periods ended June
30, 1997 and 1998 were $8,123 and $8,304, respectively.
- 16 -
<PAGE> 19
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Net sales in the first six months of 1998 were 15.9% higher than in the
first six months of 1997. 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 1998 increased $42,300 (14.7%)
compared to the first six months of 1997 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 1998 compared to the first six months of 1997 occurred
largely because of adjustments in personnel complement and adjustments in
compensation and related expenses.
Interest expense increased in the first six months of 1998 compared to
the first six months of 1997 primarily due to increased levels of borrowing
incurred to finance higher aggregate levels of inventory and receivables.
Interest rates on 1998 short-term borrowings have been slightly higher than
for the same period in 1997.
Other income in the first six months of 1998 included gains on sale of
property of $554.
The combined effect of the increase in gross margin and the decrease in
other income, together with the increases in selling, general and
administrative expenses, interest expense and depreciation and amortization,
resulted in an increase in pretax earnings of $10,506 in the first six months
of 1998 compared to the same period in 1997.
1997 Compared to 1996
Net sales in 1997 were 11.6% higher than in 1996. 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 1997.
Gross margin in 1997 increased $74,425 (13.8%) compared to 1996
primarily due to the increased sales in the electrical and communications
markets.
The increase in selling, general and administrative expenses in 1997
compared to 1996 occurred largely because of adjustments in personnel
complement and adjustments in compensation and related expenses.
- 17 -
<PAGE> 20
Interest expense increased in 1997 compared to 1996 primarily due to
increased levels of borrowing incurred to finance higher aggregate levels of
inventory and receivables. Interest rates on 1997 short-term borrowings were
slightly higher than for the same period in 1996.
Other income included gains on sale of property of $2,280 and $7,313 in
1997 and 1996, respectively.
The combined effect of the increase in gross margin and the decrease in
other income, together with the increases in selling, general and
administrative expenses, interest expense and depreciation and amortization,
resulted in an increase in income before provision for income taxes of
$14,679 in 1997 compared to 1996.
1996 Compared to 1995
Net sales in 1996 were 8.2% higher than in 1995. The higher net sales
resulted from improvements in the market sectors of the economy in which the
Company operates. The impact of inflation on sales and cost of sales was not
significant in 1996.
Gross margin in 1996 increased $39,846 (8.0%) compared to 1995
primarily due to the increased sales in the electrical and communications
markets.
The increase in selling, general and administrative expenses in 1996
compared to 1995 occurred largely because of adjustments in personnel
complement and adjustments in compensation and related expenses.
Interest expense increased slightly in 1996 compared to 1995 primarily
due to increased levels of borrowing incurred to finance higher aggregate
levels of inventory and receivables. Interest rates on 1996 short-term
borrowings were generally lower than for the same period in 1995.
Other income included gains on sale of property of $7,313 and $2,055 in
1996 and 1995, respectively.
The combined effect of the increases in gross margin and other income,
together with the increases in selling, general and administrative expenses,
interest expense and depreciation and amortization, resulted in an increase
in income before provision for income taxes of $12,302 in 1996 compared to
1995.
1995 Compared to 1994
Net sales in 1995 were 17.4% higher than in 1994. The higher net sales
resulted from improvements in the market sectors of the economy in which the
Company operates. The impact of inflation on sales and cost of sales was not
significant in 1995.
Gross margin in 1995 increased $76,907 (18.3%) compared to 1994
primarily due to the increased sales in the electrical and communications
markets.
The increase in selling, general and administrative expenses in 1995
compared to 1994 occurred largely because of adjustments in personnel
complement and adjustments in compensation and related expenses.
Interest expense increased in 1995 compared to 1994 primarily due to
increased levels of borrowing incurred to finance higher levels of inventory
and receivables. Interest rates on 1995 short-term borrowings were generally
higher than for the same period in 1994.
Other income included gains on sale of property of $2,055 in 1995.
The combined effect of the increases in gross margin and other income,
together with the increases in selling, general and administrative expenses,
interest expense and depreciation and amortization, resulted in an increase
in income before provision for income taxes and cumulative effect of the
accounting change of $29,876 in 1995 compared to 1994.
- 18 -
<PAGE> 21
IMPACT OF YEAR 2000 ISSUE
In early 1996 the Company began its review and analysis of the Year
2000 Issue and the potential risks to our operations. Modifications to our
existing software began in 1996 and continue to be made. A full-time senior
manager of the Company was appointed in January 1998 to oversee all the
analytical and remedial projects connected with the Year 2000 Issue. In June
1998 the Company received a report based on a review by independent consultants
of our Year 2000 readiness. The consultants confirmed the appropriateness of
our approach and progress to date and made certain recommendations for future
actions.
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
problems for all of its sytems, including its information, warehouse, office
or administrative systems. However, if such modifications and conversions are
not made, or are not completed in a timely manner, the Year 2000 Issue could
have a material impact on the operations of the Company.
Communications have been initiated by the Company with all of its
significant suppliers and large customers to determine the extent to which
the interface between their systems and the Company's systems are vulnerable
to those parties' failure to remediate their own Year 2000 Issues. The
Company's total Year 2000 project schedule and cost estimates to complete
include the estimated costs and time associated with the impact of supplier
and customer Year 2000 Issues based on currently available information.
However, there can be no guarantee that the systems of these companies on
which the Company's systems rely will be converted in a timely manner so
there will not be an adverse effect on the Company's business. Contingency
plans will be developed on a case-by-case basis for suppliers or customers
where a problem is identified that cannot be remedied in time. Contingency
plans could involve an alternate means of communication for an electronic
data interchange customer or an alternate source of supply in the case of a
supplier.
The Company has and will continue to utilize both internal and external
resources to reprogram, or replace, and test the software for Year 2000
modifications. The Company anticipates completing the Year 2000 project no
later than December 31, 1998, although some testing will continue after that
date. The Year 2000 project will be funded through operating cash flows and
expensed as incurred. It has not and is not expected to have a material effect
on the results of operations.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability
and cost of personnel trained in this area, the ability to locate and correct
all relevant computer codes, and similar uncertainties.
- 19 -
<PAGE> 22
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.
<TABLE>
<CAPTION>
Cash
Dividends
---------
<S> <C> <C>
1993 - $2.00
1994 - 2.00
1995* - 2.00
1996 - First Quarter .30
Second Quarter .30
Third Quarter .30
Fourth Quarter 1.10
1997 - First Quarter<F*> .30
Second Quarter .30
Third Quarter .30
Fourth Quarter 1.10
1998 - First Quarter<F*> .30
Second Quarter .30
<FN>
<F*> Stock dividends of 6.25%, 5% and 10% were declared in September
1994, 1996 and 1997, respectively. The shares representing these
dividends were issued in February 1995, 1997 and 1998, respectively.
</TABLE>
- 20 -
<PAGE> 23
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 1997 and the period ended June 30, 1998, the Company purchased a
significant portion of its products from several major suppliers. The
termination by any of these companies, within a short period of time, of a
significant number of their agreements with the Company might have an
immediate material adverse effect on the business of the Company, but the
Company believes that within a reasonable period of time it could find
alternate sources of supply adequate to alleviate such adverse effect.
PRODUCTS DISTRIBUTED
The Company distributes more than 100,000 different products and,
therefore, is able to supply its customers with a wide variety of electrical
and communications products. The products distributed by the Company consist
primarily of wire, cable, conduit, wiring devices, tools, motor controls,
transformers, lamps, lighting fixtures and hardware, power transmission
equipment, telephone station apparatus, key systems, PBXs, data products for
local area networks or wide area networks, fiber optic products, and CATV
products. These products are sold to customers such as contractors (both
industrial and residential), industrial plants, telephone companies, private
and public utilities and commercial users.
On June 30, 1997 and 1998, the Company had orders on hand which totaled
approximately $250,340,000 and $303,053,000, respectively. The Company
believes that the increase from 1997 to 1998 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, 1998 will be
filled within the twelve-month period ending June 30, 1999. Historically,
orders on hand for the Company's products have been firm, but customers from
time to time request cancellation and the Company has historically allowed
such cancellations.
MARKETING
The Company sells its products through a network of distributing houses
located in 14 geographical districts throughout the United States. In each
district, the Company maintains a main distributing house and a number of
branch distributing houses, each of which carries an inventory of supply
materials and operates as a wholesale distributor for the territory in which
it is located. The main distributing house in each district carries a
substantially larger inventory than the branch houses so that the branch
houses can call upon the main distributing house for additional items of
inventory. In addition, the Company maintains four zone warehouses with
special inventories so all locations can call upon them for additional items.
The Company also has subsidiary operations with distribution facilities
located in Puerto Rico, Mexico, Singapore, Canada and Chile.
- 21 -
<PAGE> 24
The distribution facilities operated by the Company are shown in the
following table:
<TABLE>
<CAPTION>
No. of
Distributing No. of
Location of Main Houses in Distributing
Distributing House District Houses
- ------------------ ------------ ------------
<S> <C> <C> <C>
Boston, MA 10 Graybar International, Inc.
Cincinnati, OH 8 ---------------------------
Dallas, TX 30 Puerto Rico 1
Glendale Heights, IL 16 Graybar Electric (Ontario) Ltd.
Miami, FL 3 -------------------------------
Minneapolis, MN 18 Canada 6
New York, NY 15 Graybar Electric Ltd.
Norcross, GA 19 ---------------------
Phoenix, AZ 26 Canada 18
Pittsburgh, PA 12 Graybar de Mexico, S.A. de CV
Richmond, VA 18 -----------------------------
Seattle, WA 22 Mexico City, Mexico 1
St. Louis, MO 16 Graybar-P&M International PTE, Ltd.
Tampa, FL 23 -----------------------------------
Singapore 1
Graybar International de Chile Limitada
Zone Distributing Houses ---------------------------------------
- ------------------------ Santiago 1
Bethlehem, PA 1
Peoria, IL 1
Dallas, TX 1
Atlanta, GA 1
</TABLE>
Where the specialized nature or size of a particular shipment warrants,
the Company has products shipped directly from its suppliers to the place of
use, while in other cases orders are filled from the Company's inventory. On
a dollar volume basis, over sixty percent of the orders are filled from the
Company's inventory, and the remainder are shipped directly from the supplier
to the place of use. The Company generally finances its inventory from
internally generated funds and from long and short-term borrowings.
- 22 -
<PAGE> 25
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, 1997 and 1998
attributable to each of these classes:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------- ----------------
Class of Customers 1995 1996 1997 1997 1998
- ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Electrical contractors 39.1% 39.1% 38.3% 37.9% 37.1%
Industrial plants 30.6 29.8 29.3 29.9 28.8
Telecommunication companies 22.9 24.4 26.1 25.8 28.7
Private and public power utilities 5.6 5.0 4.6 4.7 4.1
Miscellaneous 1.8 1.7 1.7 1.7 1.3
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
At June 30, 1998, the Company employed approximately 2,700 persons in
sales capacities. Approximately 1,200 of these sales personnel were sales
representatives who work in the field making sales to customers at the work
site. The remainder of the sales personnel were sales and marketing
managers, and telemarketing, advertising, quotation, counter and clerical
personnel.
COMPETITION
The Company believes that it is one of the three largest distributors
of electrical and comm/data products in the United States. The field is
highly competitive, and the Company estimates that the three largest
distributors account for only a small portion of the total market, with the
balance of the market being accounted for by independent distributors and
manufacturers operating on a local, state-wide or regional basis.
The Company believes that its competitive position is primarily a
result of its ability to supply its customers through a network of
conveniently located distribution facilities with a broad range of electrical
and telecommunications materials within a short period of time. Price is
also important, particularly where the Company is asked to submit bids to
contractors in connection with large construction jobs.
EMPLOYEES
At June 30, 1998 the Company employed approximately 7,300 persons on a
full-time basis. Approximately 170 of these persons were covered by union
contracts. The Company has not had a material work stoppage and considers
its relations with its employees to be good.
- 23 -
<PAGE> 26
<TABLE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<CAPTION>
Name Office
----- ------
<C> <S>
C.L. Hall<F*> Director and President
T.F. Dowd<F*> Director, Vice President, Secretary and General Counsel
T.S. Gurganous Director and District Vice President
R.H. Haney<F*> Director and Senior Vice President
G.W. Harper<F*> Director and Vice President-Operations
W.L. King Director and District Vice President
G.J. McCrea Director and District Vice President
R.D. Offenbacher Director and District Vice President
R.A. Reynolds, Jr.<F*> Director and Senior Vice President
J.R. Seaton<F*> Director, Vice President and Comptroller
C.R. Udell Director and Vice President
J.F. Van Pelt<F*> Director and Vice President-Human Resources
J.W. Wolf<F*> Director, Vice President and Treasurer
<FN>
------------------
<F*> Members of the Executive Committee of the Board of Directors.
</TABLE>
- 24 -
<PAGE> 27
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, 1998 consisted of (a) Preferred Stock - 88, (b) Common Stock - 172
and (c) Voting Trust Certificates for Common Stock - 4,333.
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 94% 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, liquidation 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
- 25 -
<PAGE> 28
end of the quarter in which such offer is made. The Company also has the
option to purchase the Common 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.
- 26 -
<PAGE> 29
INFORMATION CONCERNING THE VOTING TRUSTEES
Approximately 94% of the issued and outstanding shares of Common Stock
are held of record in the names of C.L. Hall, R.H. Haney, G.W. Harper, R.D.
Offenbacher and R.A. Reynolds, Jr. as Voting Trustees under the Voting Trust
Agreement dated as of April 1, 1997. The Voting Trustees therefore share
approximately 94% of the voting power with respect to election of directors
and certain 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 1, 1997 and
will terminate on March 31, 2007 unless sooner terminated as provided
therein.
The names, positions with the Company and business addresses of the
Voting Trustees are as follows:
<TABLE>
<CAPTION>
Name and Position Business Address
- ----------------- ----------------
<S> <C>
C.L. Hall, Director and President 34 North Meramec Avenue
St. Louis, MO 63105
R.H. Haney, 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.D. Offenbacher, Director and District Vice President 34 North Meramec Avenue
St. Louis, MO 63105
R.A. Reynolds, Jr., Director and Senior Vice President 34 North Meramec Avenue
St. Louis, MO 63105
</TABLE>
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 July 31, 1998, each of the Voting Trustees owned of record and
beneficially for his account Voting Trust Certificates as follows:
<TABLE>
<CAPTION>
Amount Percent of
Name Owned<Fa> Class Owned
- ---- --------- -----------
<S> <C> <C>
C.L. Hall 7,154 .15
R.H. Haney 5,614 .12
G.W. Harper 6,024 .13
R.D. Offenbacher 3,971 .08
R.A. Reynolds, Jr. 4,048 .09
<FN>
-------------------
<Fa> The number of shares of Common Stock to which such
Voting Trust Certificates relate.
</TABLE>
- 27 -
<PAGE> 30
No person owns of record and beneficially Voting Trust Certificates
representing more than 1% of the outstanding shares of Common Stock.
As of July 31, 1998, all officers and directors of the Company as a
group owned beneficially, directly and indirectly, Voting Trust Certificates
representing 124,863 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, 1997,
in their capacities as officers and directors of the Company.
<TABLE>
<CAPTION> All Other
Compensation
Name of Individual Capacities in Which Served Salary<F1> Bonus <F1>,<F2> <F3>
- ------------------ -------------------------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
C.L. Hall Director and President 306,180 342,922 80,413
R.H. Haney Director and Senior Vice President 160,666 146,206 38,833
G.W. Harper Director and Vice President-Operations 143,428 130,519 34,919
R.D. Offenbacher Director and District Vice President 108,632 70,945 22,373
R.A. Reynolds, Jr. Director and Senior Vice President 160,666 146,206 38,833
<FN>
- ----------------
<F1> Includes amounts accrued and 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 15% of
salary and 2% to 25% of bonus payments. Payment of sums deferred will
generally be made in five or ten 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.
<F2> Bonus paid on March 15th 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.
<F3> Profit sharing contributions accrued for the years indicated. The
profit sharing contribution for 1997 was made on March 31, 1998.
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 compensation. Except as otherwise provided in the Profit
Sharing and Savings Plan and the related Trust Agreement, 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 column headed "All Other Compensation" also includes payments made
to the deferred compensation accounts of the respective individuals
based on contribution limitations contained in Section 401 and 415 of
the Internal Revenue Code. In 1997, $44,910 was credited to Mr. Hall's
deferred compensation account in this regard. Similarly, $11,408,
$9,827, $94 and $9,694 were credited to the deferred compensation
accounts of Messrs. Haney, Harper, Offenbacher and Reynolds,
respectively.
</TABLE>
- 28 -
<PAGE> 31
The Company has a qualified defined benefit pension plan covering all
eligible full-time employees. Employees become fully vested after 5 years of
service. Generally, 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
covered compensation 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 December 31, 1997, the years of
credited service for the Voting Trustees were as follows: C.L. Hall - 38,
R.H. Haney - 35, G.W. Harper - 40, R.D. Offenbacher - 29 and R.A. Reynolds,
Jr. - 25. The amounts of salary and bonus in the compensation table below
are substantially equivalent to covered compensation under the plan. 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.
<TABLE>
<CAPTION>
Years of Service
--------------------------------------------------------------------
Compensation 20 25 30 35 40
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$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
</TABLE>
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:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
C.L. Hall 2,748
R.H. Haney 1,536
G.W. Harper 1,290
R.D. Offenbacher 960
R.A. Reynolds 1,536
</TABLE>
- 29 -
<PAGE> 32
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 County of St. Louis, State
of Missouri. 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 1, 1997 and will expire
March 31, 2007 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 ten 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)
- 30 -
<PAGE> 33
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, subject to the exceptions described
below, 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, all shares of
Common Stock received as a stock
- 31 -
<PAGE> 34
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 received and any
distribution made to holders of Common Stock other than in cash or Common
Stock or as a result of recapitalization or reclassification of the Common
Stock or a reorganization of the Company. (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
certificates 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."
- 32 -
<PAGE> 35
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 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, in which case the
holder must surrender his shares or Voting Trust Certificates as a condition
to eligibility for and entitlement to such 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. No shareholder may transfer or place any
shares of Common Stock, or Voting Trust Certificates representing shares, into
a trust, except that the Company will, under certain circumstances, permit
such transfer or placement upon receipt of a written agreement from the
trustees and the shareholder in form satisfactory to the Company providing
that such shareholder retains the right to direct the action to be taken by
the trustees on any matter submitted to a vote by holders of shares of
Common Stock or Voting Trust Certificates and permitting the Company to
exercise the options referred to above and to redeem the shares, or Voting
Trust Certificates representing shares, if any party other than the holder or
the trustee shall claim or establish ownership of or interest in the shares,
or Voting Trust Certificates representing shares, and requiring the trustees
to comply with all provisions of the Restated Certificate of Incorporation,
as amended, relating transfers of shares.
- 33 -
<PAGE> 36
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.
EXPERTS
The consolidated financial statements of Graybar Electric Company, Inc.
at December 31, 1997 and 1996, and for each of the two years in the period
ended December 31, 1997, appearing or incorporated by reference in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, and for the year ended December 31, 1995, by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
respective reports thereon appearing and incorporated by reference elsewhere
herein, and are included or incorporated by reference herein in reliance upon
such reports given upon the authority of such firms as experts in accounting
and auditing.
- 34 -
<PAGE> 37
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors F-2
Report of Independent Accountants F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997 (audited) and June 30,
1998 (unaudited) F-4
Consolidated Statements of Income and Retained Earnings - years ended December 31,
1995, 1996 and 1997 (audited) and six-month periods ended June 30, 1997 and 1998
(unaudited) F-5
Consolidated Statements of Cash Flows - years ended December 31, 1995, 1996 and
1997 (audited) and six-month periods ended June 30, 1997 and 1998 (unaudited) F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 38
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and
the Board of Directors
Graybar Electric Company, Inc.
We have audited the accompanying consolidated balance sheets of Graybar
Electric Company, Inc. as of December 31, 1997 and 1996, and the related
statements of income and retained earnings and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The
consolidated financial statements of the Company for the year ended December
31, 1995, were audited by other auditors whose report dated February 16,
1996, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements referred to
above present fairly, in all material respects, the financial position of the
Company at December 31, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
February 20, 1998
F-2
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Graybar Electric Company, Inc.
February 16, 1996
In our opinion, the consolidated statements of income and retained earnings
and cash flows for the year ended December 31, 1995 present fairly, in all
material respects, the results of operations and cash flows of Graybar
Electric Company, Inc. and its subsidiaries for the year ended December 31,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit 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 audit provides a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Graybar Electric Company, Inc. for any period subsequent to
December 31, 1995.
PricewaterhouseCoopers LLP
St. Louis, Missouri
F-3
<PAGE> 40
<TABLE>
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 (AUDITED) AND JUNE 30, 1998 (UNAUDITED)
(STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
ASSETS
<CAPTION>
JUNE 30,
DECEMBER 31, 1998
1996 1997 (UNAUDITED)
-------------------------- -----------
<S> <C> <C> <C>
Current Assets
Cash $ 13,820 $ 18,523 $ 48,118
Trade receivables (less allowances of $4,483, $4,627 and $4,627, respectively) 342,323 402,455 453,049
Merchandise inventory 301,835 389,314 410,752
Other current assets 13,245 13,748 14,905
-------- ---------- ----------
Total current assets 671,223 824,040 926,824
-------- ---------- ----------
Property, at cost
Land 21,894 22,868 22,888
Buildings 153,454 167,654 170,593
Furniture and fixtures 107,410 113,854 121,824
Capital equipment leases 26,138 26,138 26,683
-------- ---------- ----------
308,896 330,514 341,988
Less - Accumulated depreciation and amortization 122,444 136,485 136,677
-------- ---------- ----------
186,452 194,029 205,311
-------- ---------- ----------
Deferred Income Taxes 11,793 9,639 9,111
-------- ---------- ----------
Other Assets 12,168 24,113 19,001
-------- ---------- ----------
$881,636 $1,051,821 $1,160,247
======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 68,282 $ 136,925 $ 69,044
Current portion of long-term debt 15,075 15,059 18,215
Trade accounts payable 273,878 326,969 363,817
Accrued payroll and benefit cost 35,923 41,924 25,992
Income taxes --- --- 6,720
Other accrued taxes 9,164 10,663 10,377
Dividends payable 5,214 5,246 ---
Other payables and accruals 31,703 44,856 38,114
-------- ---------- ----------
Total current liabilities 439,239 581,642 532,279
-------- ---------- ----------
Postretirement Benefits Liability 77,004 77,300 77,504
-------- ---------- ----------
Long-term Debt 151,659 139,748 273,858
-------- ---------- ----------
<CAPTION>
SHARES AT SHARES AT
DECEMBER 31, JUNE 30,
------------------------ ----------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shareholders' Equity
Capital Stock-
Preferred, par value $20 per share,
authorized 300,000 shares-
Issued to shareholders 7,141 6,009 6,009
In treasury, at cost -- (58) (623)
--------- --------- ---------
Outstanding 7,141 5,951 5,386 143 119 108
--------- --------- --------- -------- ---------- ----------
Common, stated value $20 per share,
Authorized 7,500,000 7,500,000 7,500,000
Issued to voting trustees 4,684,709 4,883,162 4,892,192
Issued to shareholders 251,375 323,434 323,707
In treasury, at cost (20,035) (19,124) (158,373)
--------- --------- ---------
Outstanding 4,916,049 5,187,472 5,057,526 98,321 103,749 101,151
--------- --------- --------- -------- ---------- ----------
Advance payments on subscriptions
to common stock 52 37 35
Retained Earnings 115,218 149,226 175,832
-------- ---------- ----------
Accumulated other comprehensive income --- --- (520)
-------- ---------- ----------
Total Shareholders' Equity 213,734 253,131 276,606
-------- ---------- ----------
$881,636 $1,051,821 $1,160,247
======== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
F-4
<PAGE> 41
<TABLE>
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED JUNE 30,
DECEMBER 31, (UNAUDITED)
----------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales, net of returns and allowances $2,774,368 $3,001,049 $3,348,496 $1,582,588 $1,833,561
Less - Cash discounts (9,578) (9,637) (10,474) (5,095) (5,559)
---------- ---------- ---------- ---------- ----------
Net Sales 2,764,790 2,991,412 3,338,022 1,577,493 1,828,002
---------- ---------- ---------- ---------- ----------
Cost of Merchandise Sold (2,267,186) (2,453,962) (2,726,147) (1,290,051) (1,498,260)
---------- ---------- ---------- ---------- ----------
Gross Margin 497,604 537,450 611,875 287,442 329,742
Selling, General and Administrative Expenses (380,425) (409,259) (456,686) (230,169) (258,296)
Taxes, other than income taxes (24,727) (26,922) (29,523) --- ---
Depreciation and amortization (17,744) (19,862) (22,285) (10,941) (11,973)
---------- ---------- ---------- ---------- ----------
Income from operations 74,708 81,407 103,381 46,332 59,473
Other Income, net 4,421 10,134 5,865 3,269 2,993
Interest Expense (16,577) (16,687) (19,713) (9,637) (11,996)
---------- ---------- ---------- ---------- ----------
Income Before Provision for Income Taxes 62,552 74,854 89,533 39,964 50,470
---------- ---------- ---------- ---------- ----------
Provision for Income Taxes
Current (23,426) (28,599) (29,750) (16,716) (20,278)
Deferred (2,408) (1,722) (6,820) 281 (528)
---------- ---------- ---------- ---------- ----------
Total provision for income taxes (25,834) (30,321) (36,570) (16,435) (20,806)
---------- ---------- ---------- ---------- ----------
Net Income 36,718 44,533 52,963 23,529 29,664
---------- ---------- ---------- ---------- ----------
Retained Earnings, beginning of period 57,081 84,801 115,218 115,218 149,226
Cash dividends
Preferred, $1.00 per share each year (8) (7) (6) (3) (3)
Common, $2.00 per share each year (8,990) (9,480) (9,576) (2,906) (3,055)
Common Stock dividend --- (4,629) (9,373) --- ---
---------- ---------- ---------- ---------- ----------
Retained Earnings, end of period $ 84,801 $ 115,218 $ 149,226 $ 135,838 $ 175,832
========== ========== ========== ========== ==========
Net Income per share of Common Stock $ 7.03 $ 8.18 $ 10.02 $ 4.41 $ 5.80
---------- ---------- ---------- ---------- ----------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
F-5
<PAGE> 42
<TABLE>
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(STATED IN THOUSANDS)
<CAPTION>
SIX MONTHS ENDED
FOR THE YEAR ENDED JUNE 30,
DECEMBER 31, (UNAUDITED)
---------------------------------- ---------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income $36,718 $44,533 $52,963 $23,529 $29,664
------- ------- ------- ------- -------
Adjustments to reconcile net income
to cash provided (used) by operations-
Depreciation and amortization 17,744 19,862 22,285 10,941 11,973
Deferred income taxes 2,408 1,722 6,820 (281) 528
Gain on sale of property (2,055) (7,313) (2,280) (1,340) (554)
Changes in assets and liabilities:
Trade receivables (42,707) 1,909 (50,117) (29,106) (50,594)
Merchandise inventory (48,300) (42,053) (80,186) (58,269) (21,438)
Other current assets (527) (445) (156) 231 (1,157)
Other assets (2,251) (1,222) (852) (3,094) 5,112
Trade accounts payable 19,073 (3,851) 48,832 80,002 36,848
Accrued payroll and benefit costs 2,275 (1,427) 6,001 (11,359) (15,932)
Other accrued liabilities 4,357 24,871 7,499 1,842 (104)
------- ------- ------- ------- -------
(49,983) (7,947) (42,154) (10,433) (35,318)
------- ------- ------- ------- -------
Net cash flow provided (used) by operations (13,265) 36,586 10,809 13,096 (5,654)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property 4,136 10,497 5,364 2,870 1,429
Capital expenditures for property (25,621) (44,865) (27,342) (11,261) (14,168)
Investment in joint venture --- --- (14,134) --- ---
Other --- --- (2,275) --- ---
------- ------- ------- ------- -------
Net cash flow used by investing activities (21,485) (34,368) (38,387) (8,391) (12,739)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in notes payable to banks 50,066 (62,272) 61,966 54,227 (67,881)
Proceeds from long-term debt 14,000 72,000 --- --- 140,000
Repayment of long-term debt (10,862) (10,387) (11,748) (8,451) (10,477)
Principal payments under capital equipment leases (2,975) (4,115) (4,403) (1,820) (2,219)
Sale of common stock 328 8,002 875 587 185
Purchases of treasury stock (3,034) (3,471) (4,859) (2,733) (2,796)
Dividends paid (8,884) (9,188) (9,550) (8,123) (8,304)
------- ------- ------- ------- -------
Net cash flow provided (used) by financing activities 38,639 (9,431) 32,281 33,687 48,508
------- ------- ------- ------- -------
Effect of currency translation adjustments on cash --- --- --- --- (520)
------- ------- ------- ------- -------
Net Increase (Decrease) in Cash 3,889 (7,213) 4,703 38,392 29,595
------- ------- ------- ------- -------
Cash, Beginning of Period 17,144 21,033 13,820 13,820 18,523
------- ------- ------- ------- -------
Cash, End of Period $21,033 $13,820 $18,523 $52,212 $48,118
------- ------- ------- ------- -------
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 43
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Graybar
Electric Company, Inc. and its subsidiary companies. All significant
intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION
Revenue from the sale of the Company's products is recognized upon
shipment to the customer. Costs of the products are recorded as cost of
merchandise sold when the related revenue is recognized.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
MERCHANDISE INVENTORY
Inventory is stated at the lower of cost (determined using the last-in,
first-out (LIFO) cost method) or market. LIFO accounting is generally a
conservative method of accounting that, compared with other inventory
accounting methods, provides better matching of current costs with current
revenues. Had the first-in, first-out (FIFO) method been used, inventory
would have been approximately $30,644, $28,993 and $28,993 greater than
reported under the LIFO method at December 31, 1996 and 1997 and June 30,
1998, respectively.
PROPERTY AND DEPRECIATION
The Company provides for depreciation and amortization using the
straight-line method over the following estimated useful lives of the assets:
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
At the time property is retired, or otherwise disposed of, the asset
and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is credited or charged to other income.
Equipment under capital leases is recorded in property with the
corresponding obligations carried in long-term debt. The amount capitalized
is the present value at the beginning of the lease term of the aggregate
future minimum lease payments.
Maintenance and repairs are expensed as incurred. Major renewals and
betterments that extend the life of the property are capitalized.
The Company capitalizes interest expense on major construction and
development projects while in progress.
DESCRIPTION OF BUSINESS AND CREDIT RISK
Graybar Electric Company, Inc. is engaged internationally in the
distribution of electrical and communications equipment and supplies
primarily to contractors, industrial plants, telephone companies, power
utilities, and commercial users. All products sold by the Company are
purchased by the Company from others.
F-7
<PAGE> 44
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF BUSINESS AND CREDIT RISK (CONTINUED)
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's business activity is primarily with customers in the United
States; however, the Company has limited sales activity in several
international locations. The Company performs ongoing credit evaluations of
its customers, and a significant portion of trade receivables is secured by
lien or bond rights. In addition, export sales are usually guaranteed by
letter of credit or advance payment arrangements. The Company maintains
allowances for potential credit losses, and such losses historically have
been within management's expectations.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". For
the years ended December 31, 1995, 1996 and 1997 and the six-month period
ended June 30, 1997, the Company's Total Comprehensive Income consisted of
its Net Income. For the six-month period ended June 30, 1998, Total
Comprehensive Income included Net Income in the amount of $29,664 and
Currency Translation Adjustments, net of tax in the amount of $(520).
UNAUDITED DATA
The data for the six months ended June 30, 1997 and 1998 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
The provision for income taxes recorded in the Consolidated Statements
of Income and Retained Earnings is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal income tax
Current $20,304 $25,057 $26,248
Deferred 2,123 1,543 5,669
State income tax
Current 3,122 3,542 3,502
Deferred 285 179 1,151
------- ------- -------
Financial statement
income tax provision $25,834 $30,321 $36,570
======= ======= =======
</TABLE>
Deferred income taxes are provided based upon differences between the
financial statement and tax bases of assets and liabilities. The following
deferred tax assets (liabilities) are recorded at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Assets/(Liabilities)
--------------------
Postretirement benefits $30,455 $30,572
Payroll accruals 5,792 6,416
Bad debt reserves 2,574 2,605
Other deferred tax assets 7,232 6,828
Inventory 1,973 (1,387)
Prepaid pension (4,086) (5,124)
Fixed asset depreciation (12,639) (13,209)
Fixed asset gains (5,362) (6,052)
Accounts receivable --- (2,892)
Other deferred tax liabilities (11,689) (10,622)
------- -------
$14,250 $ 7,135
======= =======
</TABLE>
Deferred tax assets in the amount of $2,457 were included in Other
Current Assets in 1996 while deferred tax liabilities in the amount of $2,504
were included in Other Payables and Accruals in 1997.
F-8
<PAGE> 45
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
"Statutory" tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal benefit. 3.3 3.3 3.4
Other, net 3.0 2.2 2.4
---- ---- ----
Effective tax rate 41.3% 40.5% 40.8%
==== ==== ====
</TABLE>
3. CAPITAL STOCK
The Company's capital stock is owned by its employees and retirees.
Neither common nor preferred stock may be sold by the holder thereof, except
by first offering it to the Company. The Company may buy any common shares
so offered at the price at which they were issued ($20) with appropriate
adjustments for current dividends or may call all or part of the preferred
stock at par plus accrued dividends.
During 1995, the Company offered to eligible employees the right to
subscribe to 575,000 shares of common stock at $20 per share in accordance
with the provisions of the Company's Common Stock Purchase Plan dated October
9, 1995. This resulted in the subscription of 450,402 shares ($9,008).
Subscribers under the Plan elected to make payments under one of the following
options: (i) all shares subscribed for prior to January 19, 1996; (ii) a
portion of such shares prior to January 19, 1996, and the balance in monthly
installments through payroll deductions (or in certain cases where a
subscriber is no longer on the Company's payroll, through pension deductions
or direct monthly payments) over a 34-month period; or (iii) all shares
pursuant to the installment method. Shares were issued and Voting Trust
Certificates were delivered to subscribers as of January 19, 1996, in the
case of shares paid for prior to January 19, 1996. Shares will be issued and
Voting Trust Certificates will be delivered to subscribers on a quarterly
basis, as of the tenth day of March, June, September and December to the
extent full payments of shares are made in the case of subscriptions under
the installment method.
Shown below is a summary of shares reacquired and retired by the
Company in the three years ended December 31, 1995, 1996 and 1997 and the six
months ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
PREFERRED COMMON
REACQUIRED RETIRED REACQUIRED RETIRED
---------------------- ---------------------------
<S> <C> <C> <C> <C>
1995 684 744 151,009 144,286
1996 363 363 173,173 165,569
1997 1,190 1,132 241,764 242,675
June 30, 1997 576 --- 136,067 ---
June 30, 1998 565 --- 139,249 ---
</TABLE>
F-9
<PAGE> 46
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- --------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Long-Term debt was composed of:
6.59% note, unsecured, due in seminannual installments
of $3,750 in each of the years 2003 through 2013 $ 0 $ 0 $ 75,000
7.36% note, unsecured, maturing May, 2011,
installments of $3,095 due semiannually in each
of the years 2001 through 2010 with final payment
of $3,094 due in 2011 65,000 65,000 65,000
6.65% note, unsecured, due in annual installments
of $3,636 in each of the years 2003 through 2013 0 0 40,000
6.25% note, unsecured, maturing June, 2004, installments
of $7,000 due annually in each of the years 2000
through 2004 35,000 35,000 35,000
6.44% note, unsecured, due in quarterly installments
of $892 in each of the years 1998 through 2005 0 0 20,536
9.23% note, secured by a first mortgage on various
properties, maturing May, 2005, installments of
$2,725 due annually in each of the years 1995 through
2004 with final payment of $2,750 due in 2005 21,825 19,100 16,375
4.78% to 8.75% capital equipment leases,
various maturities 6,832 3,929 10,239
7.74% note, secured by facility, due in quarterly
installments through August, 2006 6,125 5,425 5,075
7.75% note, secured by facility, due in quarterly
installments through March, 2005 2,900 2,500 2,300
7.67% note, unsecured, maturing April, 2000,
installments of $2,000 due annually in each of the years
1996 through 2000 6,000 4,000 2,000
Variable rate mortgages, secured by facilities,
various maturities 1,000 1,914 1,788
Variable rate banker's acceptances, unsecured,
various maturities 0 1,119 545
12.25% note, secured by a first mortgage on various
properties, due in monthly installments through June, 1999 4,977 1,761 0
5.68% note, unsecured, maturing June, 1998, installments
of $2,000 due annually in each of the years 1994
through 1998 2,000 0 0
-------- -------- --------
$151,659 $139,748 $273,858
======== ======== ========
</TABLE>
Long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
<S> <C> <C>
1999 $11,619 $ 4,249
2000 14,281 19,198
2001 17,281 22,641
2002 17,221 22,761
2003-2014 79,346 205,009
-------- --------
$139,748 $273,858
======== ========
</TABLE>
F-10
<PAGE> 47
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(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, 1998 was $14,865, of which $10,239 is included in long-term
debt. The net book value of property securing various long-term debt
instruments was $54,754 at June 30, 1998.
Bank borrowings varied from a minimum of $38,000 and $65,000 to a
maximum of $168,000 and $181,000 in 1996 and 1997, respectively. For the
first six months of 1998 bank borrowings varied from a minimum of $38,000 to
a maximum of $211,655. The average amount of bank borrowings outstanding
during the years ended December 31, 1996 and 1997 and six months ended June
30, 1997 and 1998 amounted to approximately $98,000, $122,000, $110,000 and
$135,000, respectively, at weighted average interest rates of 5.60%, 5.70%,
5.65% and 5.77%, respectively. The averages are based on the daily amounts
outstanding during each period.
In May, 1996, the Company received the proceeds from a fifteen-year
note for $65,000 at a fixed interest rate of 7.36% with principal payable in
semiannual installments beginning in May, 2001. In January, 1998, the
Company received the proceeds from a seven-year note for $25,000 at a fixed
interest rate of 6.44% with principal payable in quarterly installments
beginning in April, 1998. In April, 1998, the Company received the proceeds
from a fifteen-year note for $75,000 at a fixed interest rate of 6.59% with
principal payable in semiannual installments beginning in October, 2003. In
June, 1998, the Company received the proceeds from a fifteen-year note for
$40,000 at a fixed interest rate of 6.65% with principal payable in annual
installments beginning in June, 2003. All four note agreements have various
covenants which limit the Company's ability to make investments, pay
dividends, incur debt, dispose of property, and issue equity securities. The
Company is also required to maintain certain financial ratios as defined in
the agreements. In addition, in July, 1996, the Company received the proceeds
from a ten-year note for $7,000 at a fixed interest rate of 7.74% with
principal payable in quarterly installments beginning in November, 1996.
The Company had unused lines of credit of approximately $210,000 as of
December 31, 1997 and $255,000 as of June 30, 1998. Certain lines require
maintenance of compensating balances of up to 5% of the available lines of
credit or quarterly fees of up to twenty five basis points of the committed
lines of credit. Included in these unused lines of credit is a $125,000
Revolving Credit Loan Agreement with a group of banks at an interest rate
based on the London Interbank Offered Rate. The credit agreement, which
expires in May, 2003, has various covenants which limit the Company's ability
to make investments, incur debt, dispose of property, and issue equity
securities. The Company is also required to maintain certain financial
ratios as defined in the agreement. In April, 1996, the agreement was
amended to increase the commitment to $125,000 from the $80,000 commitment in
1995. There have been no borrowings against this credit line through June
30, 1998.
The carrying amounts of the Company's outstanding long-term debt and
notes payable to banks approximate their fair values at June 30, 1998.
5. PENSION PLAN
Pension and related expense for the years ended December 31, 1995, 1996
and 1997 was $4,757, $6,940 and $7,040, respectively, and for the six months
ended June 30, 1997 and 1998 was $3,768 and $4,150, 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-11
<PAGE> 48
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(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 or greater than the maximum tax deductible amount. The
actuarially computed components of the defined benefit pension plan expense
for the three years ended December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during
the year $4,190 $5,263 $5,631
Interest cost on projected benefit
obligation 7,762 8,383 8,993
Actual return on plan assets (16,200) (8,013) (13,322)
Net amortization of return on plan
assets and unrecognized net asset 8,222 348 4,810
------ ------ ------
Total defined benefit plan expense $3,974 $5,981 $6,112
====== ====== ======
</TABLE>
The following table sets forth the plan's funded status for the two
years ended December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $ 74,800 $ 84,300
Nonvested benefits 15,300 17,200
-------- --------
Accumulated benefit obligation. 90,100 101,500
-------- --------
Projected benefit obligation
for service rendered to date 119,800 135,000
-------- --------
Plan assets at fair value, primarily
common stocks and bonds 97,257 110,251
-------- --------
Projected benefit obligation
in excess of plan assets (22,543) (24,749)
-------- --------
Unrecognized prior service cost 4,375 4,063
Unrecognized net loss 34,689 39,430
Unrecognized net asset at January 1, 1987 (9,267) (8,109)
-------- --------
Net pension asset recognized in
the consolidated balance sheets $ 7,254 $ 10,635
======== ========
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 4.25% and 7.25%, and 4.50% and 7.50% in 1996 and 1997,
respectively. The long-term rate of return on assets used in determining
defined benefit plan expense was 9.25% in 1995 and 9.50% in 1996 and 1997.
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-12
<PAGE> 49
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(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, 1996 or 1997.
Periodic postretirement benefit expense for the three years ended
December 31 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 443 $ 554 $ 570
Interest cost on accumulated
postretirement benefit obligation 6,398 6,105 6,238
Amortization of net loss from prior years --- 104 9
------ ------ ------
Net periodic postretirement benefit expense $6,841 $6,763 $6,817
====== ====== ======
</TABLE>
The following table sets forth the accumulated postretirement benefit
obligation for the Company's postretirement benefit plans for the two years
ended December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Retirees $64,700 $ 69,100
Fully eligible active plan participants 12,200 11,100
Other active plan participants 7,700 7,600
------- --------
Accumulated postretirement
benefit obligation 84,600 87,800
Unrecognized net loss (7,596) (10,500)
------- --------
Accrued postretirement benefit cost $77,004 $ 77,300
======= ========
</TABLE>
The discount rate used in determining net periodic postretirement
benefit expense was 8.50%, 7.25% and 7.50% for 1995, 1996 and 1997,
respectively. The discount rate used to determine the accumulated
postretirement benefit obligation was 7.50% and 7.25% at December 31, 1996
and 1997, respectively. The health care cost trend rate used in determining
net periodic postretirement benefit expense for all years was 6.75%, 6.50%
and 6.75% for 1995, 1996 and 1997, respectively. The health care cost trend
rate used to determine the accumulated postretirement benefit obligation for
all years was 6.75% and 6.50% at December 31, 1996 and 1997, respectively. A
one percentage point increase in the health care cost trend rate would not
have a material impact on the net periodic postretirement benefit expense or
the accumulated postretirement benefit obligation.
F-13
<PAGE> 50
GRAYBAR ELECTRIC COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (AUDITED) AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(STATED IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
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 5,225,571, 5,442,341 and 5,285,071 in 1995, 1996 and 1997,
respectively, and 5,335,855 and 5,112,130 for the six months ended June 30,
1997 and 1998, respectively, adjusted for the declaration of a 5% stock
dividend in 1996 and a 10% stock dividend in 1997.
8. COMMITMENTS
Rental expense was $8,819, $10,119 and $12,673 in 1995, 1996 and 1997,
respectively, and $6,336 and $6,757 for the six months ended June 30, 1997
and 1998, 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, 1997 are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1998 $13,514
1999 10,766
2000 7,115
2001 4,339
2002 2,279
Subsequent to 2002 7,054
</TABLE>
9. STATEMENTS OF CASH FLOWS
During 1995, 1996 and 1997 and the six months ended June 30, 1997 and
1998, income taxes paid totaled $22,943, $31,468, $26,773, $9,919 and
$10,166; interest paid totaled $16,222, $16,252, $19,834, $9,448 and $10,487;
and liabilities assumed in connection with capitalized leases totaled $904,
$4,500, $0, $0 and $9,962, respectively.
The 1997 statement of cash flows includes the effect of the Company's
majority ownership position in Harris & Roome Supply Limited as a result of
additional shares purchased in May, 1997.
F-14
<PAGE> 51
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
-------------------------------------------
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee 5,900
Printing fees and expenses 18,000<F*>
Legal fees and expenses 50,000<F*>
Accounting fees and expenses 12,000<F*>
Miscellaneous 14,100<F*>
$100,000<F*>
========
<FN>
- -----------------
<F*> Estimated.
</TABLE>
ITEM 15. Indemnification of Directors and Officers.
-----------------------------------------
Sections 721 through 726 of the New York Business Corporation Law provide as
follows:
Sec. 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.
Sec. 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
<PAGE> 52
(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.
Sec. 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;
(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
II-2
<PAGE> 53
(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.
Sec. 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.
II-3
<PAGE> 54
Sec. 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 indemnification 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:
(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).
II-4
<PAGE> 55
Sec. 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:
(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.
II-5
<PAGE> 56
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 1997 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, 1997, 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 as a result of their employment with the Company at an annual
cost to the Company through September 30, 1998 of $69,388.
ITEM 16. Exhibits.
--------
4. Instruments defining the rights of security holders, including indentures:
-------------------------------------------------------------------------
(i) Restated Certificate of Incorporation, as amended, filed as
Exhibit 4(i) to the Company's Registration Statement on Form S-1
(Registration No. 333-15761) and incorporated herein by reference.
(ii) Voting Trust Agreement dated as of April 1, 1997, attached as
Annex A to the Prospectus, dated January 8, 1997, constituting a part of the
Registration Statement on Form S-1 (Registration No. 333-15761) and
incorporated herein by reference.
The Company hereby agrees to furnish to the Commission upon request a
copy of each instrument omitted pursuant to Item 601(b)(4)(iii)(A) of
Regulation S-K.
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.
II-6
<PAGE> 57
23. Consents
--------
(a) Consent of Ernst & Young LLP.
(b) Consent of PricewaterhouseCoopers LLP
(c) 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).
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 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
<PAGE> 58
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 31st day of August, 1998.
GRAYBAR ELECTRIC COMPANY, INC.
By: /s/ T.F. Dowd
--------------------------------------
T.F. Dowd, Vice President, General
Counsel and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints C. L. Hall and T.F. Dowd, 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
<PAGE> 59
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, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ C.L. Hall Director and President (Principal Executive
- ---------------------------------- Officer and Principal Financial Officer)
(C.L. Hall)
/s/ J.R. Seaton Director, Vice President and Comptroller
- ---------------------------------- (Principal Accounting Officer)
(J.R. Seaton)
DIRECTORS:
/s/ T.F. Dowd /s/ R.D. Offenbacher
- ---------------------------------- -----------------------------
(T.F. Dowd) (R.D. Offenbacher)
/s/ T.S. Gurganous /s/ R.A. Reynolds, Jr
- ---------------------------------- -----------------------------
(T.S. Gurganous) (R.A. Reynolds, Jr.)
/s/ R.H. Haney /s/ C.R. Udell
- ---------------------------------- -----------------------------
(R.H. Haney) (C.R. Udell)
/s/ G.W. Harper /s/ J.F. Van Pelt
- ---------------------------------- -----------------------------
(G.W. Harper) (J.F. Van Pelt)
/s/ W.L. King /s/ J.W. Wolf
- ---------------------------------- -----------------------------
(W.L. King) (J.W. Wolf)
/s/ G.J. McCrea
- ----------------------------------
(G.J. McCrea)
</TABLE>
II-9
<PAGE> 60
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, 1998.
Signatures
/s/ C.L. Hall
---------------------------
(C.L. Hall)
/s/ R.H. Haney
---------------------------
(R.H. Haney)
/s/ G.W. Harper
---------------------------
(G.W. Harper)
/s/ R.D. Offenbacher
---------------------------
(R.D. Offenbacher)
/s/ R.A. Reynolds, Jr
---------------------------
(R.A. Reynolds, Jr.)
II-10
<PAGE> 61
INDEX TO EXHIBITS
EXHIBITS
--------
4. Instruments defining the rights of security holders, including indentures
(i) Restated Certificate of Incorporation, as amended, filed as
Exhibit 4(i) to the Company's Registration Statement on Form S-1
(Registration No. 333-15761) and incorporated herein by reference.
(ii) Voting Trust Agreement dated as of April 1, 1997, attached
as Annex A to the Prospectus, dated January 8, 1997, constituting a
part of the Company's Registration Statement on Form S-1 (Registration
No. 333-15761) 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 Ernst & Young LLP
(b) Consent of PricewaterhouseCoopers LLP
(c) 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).
<PAGE> 1
EXHIBIT 5
WHITMAN BREED ABBOTT & MORGAN
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 351-3000
August 31, 1998
Graybar Electric Company, Inc.
and
C.L. Hall
R.H. Haney
G.W. Harper
R.D. Offenbacher
R.A. Reynolds, Jr.
As Voting Trustees under the
Voting Trust Agreement, dated
as of April 1, 1997 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 1, 1997
(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") by the
Company and the Voting Trustees (the "Voting Trustees") under the Voting
Trust Agreement. The Registration Statement covers a maximum of 1,000,000
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 12, 1998 (the "Plan").
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
<PAGE> 2
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 1,000,000 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
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 20, 1998, in the Registration Statement (Form S-2) and related
Prospectus of Graybar Electric Company, Inc. for the registration of
1,000,000 shares of its common stock.
We also consent to the incorporation by reference therein of our report
dated February 20, 1998, with respect to the consolidated financial statements
of Graybar Electric Company, Inc. incorporated by reference in its Annual
Report (Form 10-K) for the year ended December 31, 1997 and the related
financial statement schedule included therein, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
St. Louis, Missouri
August 28, 1998
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Graybar Electric Company, Inc.
August 28, 1998
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-2 of our report dated February 16, 1996
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 Schedule for the year ended December
31, 1995 listed under Item 14(a) of Graybar Electric Company, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997 when such schedule
is read in conjunction with the financial statements referred to in our
report. The audit referred to in such report also included this Financial
Statement Schedule. 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 PricewaterhouseCoopers LLP has not prepared
or certified such "Selected Consolidated Financial Data."
PricewaterhouseCoopers LLP
St. Louis, Missouri
