Annual Report (Form 10-K), fiscal year 1994

Item 1. Business - ------- --------
Graybar Electric Company, Inc. (the "Company") is engaged internationally in the distribution of electrical and communications equipment and supplies primarily to contractors, industrial plants, telephone companies, power utilities, and commercial users. All products sold by the Company are purchased by the Company from others.
The Company was incorporated under the laws of the State of New York on December 11, 1925 to take over the wholesale supply department of Western Electric Company, Incorporated. The location and telephone number of the principal executive offices of the Company are 34 North Meramec Avenue, St. Louis, Missouri (314) 727-3900, and the mailing address of the principal executive offices is P.O. Box 7231, St. Louis, Missouri 63177.
Suppliers - ---------
The Company acts as a distributor of the products of more than 1,000 manufacturers. The relationship of the Company with a number of its principal suppliers goes back many years. It is customarily a nonexclusive national or regional distributorship terminable upon 30 to 90 days notice by either party.
During 1994, the Company purchased a significant portion of its products from its three largest suppliers. The termination by any of these companies, within a short period of time, of a significant number of their agreements with the Company might have an immediate material adverse effect on the business of the Company, but the Company believes that within a reasonable period of time it could find alternate sources of supply adequate to alleviate such adverse effect.
Products Distributed - --------------------
The Company distributes more than 100,000 different products and, therefore, is able to supply its customers with a wide variety of electrical and communications products. The products distributed by the Company consist primarily of wire, conduit, wiring devices, tools, motor controls, transformers, lamps, lighting fixtures and hardware, power transmission equipment, telephone station apparatus, key systems, PBXs, data products for local area networks or wide area networks, fiber optic products, and CATV products. These products are sold to customers such as contractors (both industrial and residential), industrial plants, telephone companies, private and public utilities, and commercial users.
On December 31, 1994 and 1993, the Company had orders on hand which totalled approximately $189,349,000 and $174,928,000, respectively. The Company believes that the increase from 1993 to 1994 reflects the improvements in the market sectors of the economy in which the Company operates. The Company expects that approximately 85% of the orders on hand at December 31, 1994 will be filled within the twelve-month period ending December 31, 1995. 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 15 geographical districts throughout the United States. In each district the Company maintains a main distributing house and a number of branch distributing houses, each of which carries an inventory of supply materials and operates as a wholesale distributor for the territory in which it is located. The main distributing house in each district carries a substantially larger inventory than the branch houses so that the branch houses can call upon the main distributing house for additional items of inventory. In addition, the Company maintains two (2) zone warehouses with special inventories so all locations can call upon them for additional items. The Company also has subsidiary operations with distribution facilities located in Puerto Rico, Mexico, Panama, Guam, Singapore and Canada.
Where the specialized nature or size of a particular shipment warrants, the Company has products shipped directly from its suppliers to the place of use, while in other cases orders are filled from the Company's inventory. On a dollar volume basis, over one-half of the orders are filled from the Company's inventory and the remainder are shipped directly from the supplier to the place of use. The Company generally finances its inventory from internally generated funds and from long and short-term borrowings.
At December 31, 1994, the Company employed approximately 2,100 persons in sales capacities. Approximately 950 of these sales personnel were sales representatives who work in the field making sales to customers at the work site. The remainder of the sales personnel were sales and marketing managers, and telemarketing, advertising, quotation, counter and clerical personnel.
Competition - -----------
The Company believes that it is the largest distributor of electrical products not affiliated with a manufacturing company, and one of the three largest distributors of such products in the United States. The field is highly competitive, and the Company estimates that the three largest distributors of electrical products account for only a small portion of the total market, with the balance of the market being accounted for by independent distributors and manufacturers operating on a local, state-wide or regional basis.
The Company believes that its competitive position is primarily a result of its ability to supply its customers through a network of conveniently located distribution facilities with a broad range of electrical and telecommunications materials within a short period of time. Price is also important, particularly where the Company is asked to submit bids to contractors in connection with large construction jobs.
Employees - ---------
At December 31, 1994, the Company employed approximately 5,600 persons on a full-time basis. Approximately 140 of these persons were covered by union contracts. The Company has not had a material work stoppage and considers its relations with its employees to be good.
Item 2.



Item 2. Properties - ------- ----------
As of December 31, 1994 the Company operated offices and distribution facilities in 238 locations. Of these, 132 were owned by the Company, and the balance were leased. The leases are for varying terms, the majority having a duration of less than five years.
The Company's distribution facilities consist primarily of warehouse space. A small portion of the space in each facility is used for offices. Distribution facilities vary in size from approximately 2,400 square feet to 129,000 square feet, the average being approximately 29,000 square feet.
As of December 31, 1994, approximately $45.2 million in debt of the Company was secured by mortgages on thirty-three buildings. Twenty of these facilities are subject to a first mortgage securing a 12.25% note, of which approximately $12.5 million in principal amount remains outstanding. Seven of these facilities are subject to a first mortgage securing a 9.23% note, of which $30.0 million in principal amount remains outstanding.
Distribution houses in Salt Lake City, Utah; Pinellas County and Polk County, Florida; Tucson, Arizona; Beaumont, Texas and Glendale Heights, Illinois are subject to mortgages securing Industrial Revenue Bonds at variable interest rates with payments totaling $2.7 million due periodically to 2004.
Item 3.

Item 3. Legal Proceedings - ------- -----------------
The Company has been named, together with numerous other companies, as a co-defendant in actions by approximately 1,000 plaintiffs which have been filed in various federal and state courts in Arkansas, Louisiana, Maryland, Minnesota, Mississippi, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Texas, Washington, and West Virginia. The plaintiffs allege personal injuries due to exposure to asbestos products and seek substantial damages. The majority of the complaints do not identify any products containing asbestos allegedly sold by the Company.
However, since all products sold by the Company have been and are purchased from suppliers, if a plaintiff were to successfully establish an asbestos-related injury claim with respect to a product sold by the Company, the Company believes it would normally have a claim against its supplier. Furthermore, the Company believes it has product liability insurance coverage available to cover these claims. Accordingly, based on information now known to the Company, in the opinion of management the ultimate disposition of the asbestos-related claims against the Company will not have a materially adverse effect on the Company.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders - ------- ---------------------------------------------------
No matter was submitted to a vote of shareholders during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
PART II -------
Item 5.

Item 5. Market for the Registrant's Common Stock and Related - ------- ---------------------------------------------------- Shareholder Matters -------------------
The Company is wholly owned by its active and retired employees, and there is no public trading market for its Common Stock, par value $1 per share with a stated value of $20 per share. No shareholder may sell, transfer or otherwise dispose of shares of Common Stock without first offering the Company the option to purchase such shares at the price at which they were issued. The Company also has the option to purchase the Common Stock of any shareholder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension. In the past all shares issued by the Company have been issued at $20 per share, and the Company has always exercised its repurchase option, and expects to continue to do so.
The information as to number of holders of Common Stock and frequency and amount of dividends, required to be included pursuant to this Item 5, is included under the captions "Capital Stock Data" and "Dividend Data" on page 1 of the Company's Annual Report to Shareholders for the year ended December 31, 1994, (the "1994 Annual Report") furnished to the Securities and Exchange Commission (the "Commission") pursuant to Rule 14c-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and such information is incorporated herein by reference.
In May, 1994, the Company entered into a ten-year note agreement that includes various covenants which limit the Company's ability to make investments, pay dividends, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreement.
Item 6.

Item 6. Selected Financial Data - ------- -----------------------
The selected financial data for the Company as of December 31, 1994 and for the five years then ended, which is required to be included pursuant to this Item 6, is included under the caption "Selected Consolidated Financial Data" on page 15 of the 1994 Annual Report and is incorporated herein by reference.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition - ------- ----------------------------------------------------------- and Results of Operations -------------------------
Management's discussion and analysis required to be included pursuant to this Item 7 is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 16 and 17 of the 1994 Annual Report and is incorporated herein by reference.
Item 8.


Item 8. Financial Statements and Supplementary Data - ------- -------------------------------------------
The financial statements required by this Item 8 are listed in Item 14(a)(1) of this Annual Report on Form 10-K under the caption "Index to Financial Statements."
Such financial statements specifically referenced from the 1994 Annual Report in such list are incorporated herein by reference. There is no supplementary financial information required by this item which is applicable to the Company.
Item 9.

Item 9. Disagreements on Accounting and Financial Disclosure - ------- ----------------------------------------------------
None.
PART III --------
Item 10.



Item 10. Directors and Executive Officers of the Registrant - -------- --------------------------------------------------
The information with respect to the directors and executive officers of the Company required to be included pursuant to this Item 10 will be included under the caption "Directors and Executive Officers -- Nominees for Election as Directors" in the Company's Information Statement relating to the 1995 Annual Meeting (the "Information Statement"), to be filed with the Commission pursuant to Rule 14c-5 under the Exchange Act, and is incorporated herein by reference.
Item 11.

Item 11. Executive Compensation - -------- ----------------------
The information with respect to executive compensation required to be included pursuant to this Item 11 will be included under the captions "Executive Compensation" and "Pension Plan" in the Information Statement and is incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- --------------------------------------------------------------
The information with respect to the security ownership of beneficial owners of more than 5% of the Common Stock, the directors of the Company and all directors and officers of the Company, which is required to be included pursuant to this Item 12, will be included in the introductory language and under the caption "Directors and Executive Officers -- Nominees for Election as Directors" in the Information Statement and is incorporated herein by reference.
Item 13.

Item 13. Certain Relationships and Related Transactions - -------- ----------------------------------------------
The information with respect to any reportable transactions, business relationships and indebtedness between the Company and the beneficial owners of more than 5% of the Common Stock, the directors or nominees for director of the Company, the executive officers of the Company or the members of the immediate families of such individuals, required to be included pursuant to this Item 13, will be included under the caption "Directors and Executive Officers" in the Information Statement and is incorporated herein by reference.
PART IV -------
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------- ----------------------------------------------------------------
(a) Documents filed as part of this report: --------------------------------------
The following financial statements and Report of Independent Accountants are included on the indicated pages in the 1994 Annual Report and are incorporated by reference in this Annual Report on Form 10-K:
1. Index to Financial Statements -----------------------------
(i) Consolidated Statements of Income and Retained Earnings for each of the three years ended December 31, 1994 (page 18).
(ii) Consolidated Balance Sheets, as of December 31, 1994 and December 31, 1993 (page 19).
(iii) Consolidated Statements of Cash Flows for each of the three years ended December 31, 1994 (page 20).
(iv) Notes to Consolidated Financial Statements (pages 21 to 24).
(v) Report of Independent Accountants relating to above mentioned financial statements and notes for each of the three years ended December 31, 1994 (page 25).
2. Index to Financial Schedules ----------------------------
The following schedules for each of the three years ended December 31, 1994, to the Financial Statements and Report of Independent Accountants thereon is included on the indicated pages in this Annual Report on Form 10-K:
(i) Schedule IX. Reserves (page 15).
(ii) Report of Independent Accountants on Financial Statement Schedules (page 14).
All schedules other than those indicated above are omitted because of the absence of the conditions under which they are required or because the required information is set forth in the financial statements and the accompanying notes thereto.
3. Exhibits --------
The following exhibits required to be filed as part of this Annual Report on Form 10-K have been included:
(3) Articles of incorporation and by-laws
(i) Restated Certificate of Incorporation dated March 9, 1984 filed as exhibit 3(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1984 (Commission File No. 0-255) and incorporated herein by reference.
(ii) By-laws as amended through August 1, 1991 filed as exhibit 6(a)(19) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991 (Commission File No. 0-255) and incorporated herein by reference.
(4)and(9) Instruments defining the rights of security holders, including indentures and voting trust agreements.
Voting Trust Agreement dated as of April 15, 1987, attached as Annex A to the Prospectus, dated January 20, 1987, constituting a part of the Registration Statement on Form S-13 (Registration No. 2-57861) and incorporated herein by reference.
The Company hereby agrees to furnish to the Commission upon request a copy of each instrument omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
(10) Material contracts.
(i) Management Incentive Plan, filed as Exhibit 4(a)(1) to the Annual Report on Form 10-K for the year ended December 31, 1972 (Commission File No. 0-255), as amended by the Amendment effective January 1, 1974, filed as Exhibit 13-c to the Registration Statement on Form S-1 (Registration No. 2-51832), the Amendment effective January 1, 1977, filed as Exhibit 13(d) to the Registration Statement on Form S-1 (Registration No. 2-59744), and the Amendment effective January 1, 1980, filed as Exhibit 5(f) to the Registration Statement on Form S-7 (Registration No. 2-68938) and incorporated herein by reference.
(13) Annual Report to Shareholders for 1994 (except for those portions which are expressly incorporated by reference in this Annual Report on Form 10-K, this exhibit is furnished for the information of the Commission and is not deemed to be filed as part of this Annual Report on Form 10-K).
(21) List of subsidiaries of the Company.
(b) Reports on Form 8-K: --------------------
No reports on Form 8-K were filed during the last quarter of the Company's fiscal year ended December 31, 1994.
SIGNATURES ----------
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 27th day of March, 1995.
GRAYBAR ELECTRIC COMPANY, INC.
By /s/ E. A. McGrath ----------------------------------------- (E. A. McGRATH, President)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Company, in the capacities indicated, on March 27, 1995.
/s/ E. A. McGrath - --------------------------------------- Director and President (E. A. McGrath) (Principal Executive Officer and Principal Financial Officer) /s/ J. R. Seaton - --------------------------------------- Director, Vice President (J. R. Seaton) and Comptroller (Principal Accounting Officer)
/s/ J. R. Hade - --------------------------------------- Director (J. R. Hade)
/s/ C. L. Hall - --------------------------------------- Director (C. L. Hall)
/s/ R. H. Haney - --------------------------------------- Director (R. H. Haney)
/s/ G. W. Harper - --------------------------------------- Director (G. W. Harper)
/s/ R. L. Mygrant - --------------------------------------- Director (R. L. Mygrant)
/s/ R. D. Offenbacher - --------------------------------------- Director (R. D. Offenbacher)
/s/ I. Orloff - --------------------------------------- Director (I. Orloff)
/s/ R. A. Reynolds - --------------------------------------- Director (R. A. Reynolds)
/s/ A. A. Thompson - --------------------------------------- Director (A. A. Thompson)
/s/ G. S. Tulloch, Jr. - --------------------------------------- Director (G. S. Tulloch, Jr.)
/s/ J. F. Van Pelt - --------------------------------------- Director (J. F. Van Pelt)
/s/ J. W. Wolf - --------------------------------------- Director (J. W. Wolf)
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To The Board of Directors of Graybar Electric Company, Inc.
Our audits of the consolidated financial statements referred to in our report dated February 17, 1995 appearing on page 25 of the 1994 Annual Report to Shareholders of Graybar Electric Company, Inc., (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
St. Louis, Missouri February 17, 1995
INDEX TO EXHIBITS
INDEX TO EXHIBITS -----------------