Exhibit 13 - ---------- 1 [GRAYBAR LOGO] ANNUALReport 2000 [PHOTO] 2 - ----------------------------------------------------------------------------- GRAYBAR DIRECTORS - ----------------------------------------------------------------------------- [PHOTO] STANDING (left to right): DENNIS E. DESOUSA Senior Vice President, Comm/Data Business ROBERT A. REYNOLDS, JR. President and Chief Executive Officer SEATED: JUANITA H. HINSHAW Senior Vice President and Chief Financial Officer CARL L. HALL Chairman of the Board CHARLES R. UDELL Senior Vice President, Electrical Business [PHOTO] STANDING (left to right): GOLDEN W. HARPER Vice President- Operations JACK F. VAN PELT Vice President- Human Resources SEATED: THOMAS S. GURGANOUS District Vice President- Richmond District THOMAS F. DOWD Vice President, Secretary and General Counsel [PHOTO] STANDING (left to right): GARY D. HODGES District Vice President- Phoenix District GERARD J. MCCREA District Vice President- Northeastern Comm/Data District SEATED: RICHARD D. OFFENBACHER District Vice President- Southeastern Comm/Data District JOHN C. LOFF District Vice President- Seattle District RICHARD A. COLE District Vice President- Chicago District 3 COMPANY'S BUSINESS Graybar Electric Company, Inc. is engaged internationally in the distribution of electrical and communications products and integrated supply services primarily to contractors, industrial plants, telephone companies, power utilities, and commercial users. All products sold by the Company are purchased by the Company from others. MARKETS SERVED Electrical Contractor Commercial & Industrial Voice & Data Communications Power Utility International - --------------------------------------------------------- CAPITAL STOCK DATA - --------------------------------------------------------- Number of Equity Security Holders as of December 31, 2000: - --------------------------------------------------------- Title of Class Number of Security Holders - --------------------------------------------------------- Preferred Stock 72 Common Stock 155 Voting Trust Certificates for Common Stock 5,270 - --------------------------------------------------------- - --------------------------------------------------------- DIVIDEND DATA - --------------------------------------------------------- Common Stock, par value $1; stated value $20. Dividends declared for year: 2000 1999 1998 - --------------------------------------------------------- First Quarter $ .30 $ .30 $ .30 Second Quarter .30 .30 .30 Third Quarter .30 .30 .30 Fourth Quarter $1.10 $1.10 $1.10 - --------------------------------------------------------- On December 13, 2000 a five percent stock dividend was declared to shareholders of record on January 15, 2001. Shares representing this dividend were issued on February 1, 2001. - --------------------------------------------------------- CONTENTS - --------------------------------------------------------- Graybar Officers and Directors Inside Front Cover Letter to Shareholders 2 Market Review 4 Operations Review 13 Financial Review 17 District Management 30 Locations 32 1 4 - ----------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - ----------------------------------------------------------------------------- Two thousand was an intriguing, exciting and memorable year. Graybar achieved another annual record with revenue growth of more than 21%, gaining market share as we reached a new sales milestone of $5.2 billion. Early in the year, Richard H. Haney, Senior Vice President of the Electrical Business, became ill and, upon his return, elected to retire. Shortly thereafter, Carl L. Hall stepped down as President and CEO for health reasons, but at the request of the Board, stayed on as Chairman. This led to significant changes within the management of the Company; however, our attention to succession planning and our management strength and depth enabled us to continue to move ahead despite these unfortunate circumstances. Consequently, Robert A. Reynolds, Jr. was elected President and CEO; Charles R. Udell was elected Senior Vice President of our Electrical Business and Dennis E. DeSousa was elected Senior Vice President of our Comm/Data Business. Chuck and Dennis were succeeded in their marketing assignments by Bruce C. Judkins as Vice President-Electrical Marketing, and Alan L. Eddings as Vice President-Comm/Data Marketing. John W. Wolf, Vice President and Treasurer, retired April 1. John was a valuable member of the Board of Directors, and we wish him well in his retirement. He was succeeded as Vice President and Treasurer by Jon N. Reed. In May, we were very pleased to announce the appointment of Juanita H. Hinshaw to the new position of Senior Vice President and Chief Financial Officer. Juanita comes to us most recently from Monsanto where she held the position of Vice President and Treasurer. Two District Vice Presidents, William L. King at Boston and Frank Mossa at New York, elected to retire in 2000. This prompted the appointments of Donald M. Block and Ronald P. Segraves as District Vice Presidents in these districts. Gary D. Hodges, District Vice President at Phoenix, was subsequently appointed to succeed Bill on the Board of Directors. Other significant senior management changes were: Dennis J. Grousosky appointed Vice President-Service at Corporate Headquarters. Michael W. Fowler named Vice President-Corporate Accounts and Integrated Supply. Rob R. Bezjak appointed District Vice President of the South Central Comm/Data District. John C. Mansfield named District Vice President of the new SPN District. John H. Hawfield appointed District Vice President of the new Houston District, and Ted M. Choate named District Vice President-Service at Houston. In the Tampa District, Robert C. Lyons appointed District Vice President, and Jerry D. Nichols named District Vice President-Service. Driven by our growth, 2000 was another year of planned investment in personnel and facilities, as well as in improved processes, training, information systems and e-business. In 2000, the Company added 1,411 new employees, increasing our sales force by 10% and our customer service personnel by 12%. One of our largest investments was in corporate accounts personnel. The centralized merchandise accounts payable project (MAPP) has had a positive effect on our headcount while providing processing efficiencies to the Company. We expect to see the same effect from our zones and central purchasing as we centralize and redeploy personnel to align with our strategic initiatives. Overall, we [SALES GRAPH] [NET INCOME GRAPH] 2 5 - ----------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - ----------------------------------------------------------------------------- continue to see gains in productivity as measured by sales and gross margin per employee and salaries as a percentage of sales. Our zone initiative continues to move forward with nine zones currently open and seven more to follow. The newest zones are opened with a Warehouse Management System (WMS) installed, and simultaneously we are retrofitting the existing zones with WMS. The impact of the zone warehouses has been significant. Today, approximately 30% of warehouse sales are flowing through these nine zones, which is equivalent to the warehouse sales of 240 locations just a few years ago. Late in the year, we realigned the districts around the zone clusters to improve our processes and the flow of product to our customers. This led to the reopening of the Houston District in October and the opening of the California District effective January 1, 2001. ============================================================================= "GRAYBAR ACHIEVED ANOTHER ANNUAL RECORD WITH REVENUE GROWTH OF MORE THAN 21%, GAINING MARKET SHARE AS WE REACHED A NEW SALES MILESTONE OF $5.2 BILLION." ============================================================================= We added five new facilities in 2000 with the acquisition of Ireland Electric in Augusta, Georgia, and Splane Electric in the Detroit area. In addition, we opened two customer-specific districts. Our SPN District supports Lucent Technologies with headquarters in Greensboro, North Carolina, and service facilities in Northborough, Massachusetts; Nashville, Tennessee; Oklahoma City, Oklahoma; and Fresno, California. Our Aurora District near Denver supports our business with Qwest, formerly U S WEST. These two significant customers require support and service that is unique and deserving of a dedicated offering. We stepped up our customer diversity initiatives in 2000 with an investment in "INNOV8," a minority company that provides customers with services not provided by traditional distribution. The knowledge and skills of our employees are key to our continued success, and we believe our investment in employee training is paying off. Beginning in 2000, all required training on product, management, personal skills and procedures was offered and tracked from a single source--the Graybar Virtual Campus. This simplified access to training in all formats--classroom, online, e-class, workbook, job aids and videos--for all employees and enhanced and simplified training progress reporting for supervisors. We continue to make progress in our information systems initiatives, our largest capital expenditure year over year. Late in the year, we purchased a mainframe upgrade for installation in early 2001. Our Strategic Planning Group is currently leading an initiative to assess our long-term systems needs. Graybar's e-business strategy is to continue to be "fast to follow." That means building the platform we need to move the direction e-business moves, while building the catalog to support our customers and the marketplaces our customers are requesting we support. We think this strategy is sound and aggressive, yet conservative enough to avoid costly investments in unproven ventures. Overall, Graybar is on solid ground. Plans are being implemented, management is sound and all of us are focused on the customer. We believe this formula for success will lead to further growth and bottom line profitability. /s/ ROBERT A. REYNOLDS, JR. Robert A. Reynolds, Jr. President and CEO /s/ CARL L. HALL Carl L. Hall Chairman of the Board St. Louis, Missouri March 2001 3 6 - ----------------------------------------------------------------------------- MARKET REVIEW - ----------------------------------------------------------------------------- Year 2000 ushered in unprecedented growth for Graybar as we further penetrated major markets and achieved double-digit sales increases in both the Electrical and Comm/Data Business Groups. It was a year of transition as we prepared for the realignment of districts around our regional zones on January 1, 2001. Implementing objectives established by our strategic planning initiative, we appointed directors at corporate headquarters to champion our efforts in specific markets. Graybar has more sales people in the marketplace than ever before. We continue to specialize our sales force by focusing and training along industry lines, positioning us for future growth in our targeted markets. Large multi-location companies remain focused on driving cost out of the supply chain, and Graybar offers the standard and specialized distribution services these customers are demanding. In addition, our business with national contractor operating companies continues to expand as these customers seek a distributor that can provide products and services nationwide. [MAP] 4 7 - ----------------------------------------------------------------------------- MARKET REVIEW - ----------------------------------------------------------------------------- Our strategy of putting more resources into developing and serving national accounts led to significant increases in this business over the previous year. In 2000, we further aligned our national accounts sales organization around markets with focused sales teams serving segments such as petrochemical, automotive, government and comm/data service providers and end-users. Based on our success with government agencies and national contractor operating companies, we assigned directors of corporate accounts to focus increased attention on these important customers. On the comm/data side, we appointed directors to lead the sales teams focusing on the Service Provider and End-User Markets. ============================================================================= "WE CONTINUE TO SPECIALIZE OUR SALES FORCE BY FOCUSING AND TRAINING ALONG INDUSTRY LINES, POSITIONING US FOR FUTURE GROWTH IN OUR TARGETED MARKETS." ============================================================================= To support this growth, we enhanced the corporate accounts services group, which now includes customer service, implementation, administration and finance. In addition, we increased the business and financial analysis function of the group. National accounts are a significant portion of the Company's total business. The combination of Graybar's value-added capabilities, local sales and service and corporate sales coverage differentiates us in the marketplace while enabling us to maximize our success with these valuable customers. Improved customer service and increased return on inventory investment are among the goals of our Category Management initiative, which was refined in 2000 in both business groups. With Category Management, we enhance our value to the customer by having the right products in sufficient quantities at the right price while reducing costs throughout the supply chain. The coordinated efforts of corporate marketing, purchasing and logistics advanced our development of this strategic initiative during 2000. Employee training remains a major focus throughout the Company. More than 232 instructor-led courses held during the year trained 3,897 employees on topics ranging from performance management to presentation skills. Live e-classes were used to coach employees on the value and benefits of tracking lost sales. Using the e-class online training method allows real time interaction between the instructor and large numbers of participants in our branch and district locations. Building and expanding product knowledge is an essential element of both online and instructor-led training, and participation in our supplier-sponsored factory training schools hit an all-time high in 2000. 5 8 - ----------------------------------------------------------------------------- MARKET REVIEW - ----------------------------------------------------------------------------- [PHOTO] GRAYBAR'S EXHIBIT AT THE NECA TRADE SHOW FEATURED THE "WHITE LIGHTNING II" ELECTRIC CAR AND DRIVER PAT RUMMERFIELD WITH THE THEME "EFFICIENCY=SPEED." CONSTRUCTION MARKET Graybar achieved a double-digit sales increase in the Construction Market in 2000 as robust growth in this market was fueled by a strong economy. Increased emphasis throughout the Company on being the leading provider of value-added construction services led to growth across all districts. Consolidation in the Construction Market continues to be a driving force in altering the landscape of electrical contractors. One of the most dynamic changes in this market is the use of the Internet to provide e-business solutions, including design/build drawings, estimating, accounting and material procurement. Graybar offers the industry's best services-- including e-business solutions--to meet our customers' demands. Our corporate accounts team has positioned Graybar to become the preferred distributor for national electrical contractors by helping develop a strategy to address the needs of these significant customers. Led by the Director, Corporate Accounts-Construction Market and supported by a team of corporate account managers and the corporate account services group, Graybar is positioned as the premier distributor to many national electrical contractors. In November, we finalized the strategy behind the 2001 Construction Market Plan, which emphasizes refining our value proposition for targeted customers. The plan includes the enhancement of Project Manager(SM), our proprietary project management software, and the development of project teams in designated national markets. ============================================================================= "INCREASED EMPHASIS THROUGHOUT THE COMPANY ON BEING THE LEADING PROVIDER OF VALUE-ADDED CONSTRUCTION SERVICES LED TO GROWTH ACROSS ALL DISTRICTS." ============================================================================= 6 9 - ----------------------------------------------------------------------------- MARKET REVIEW - ----------------------------------------------------------------------------- Graybar again attracted consistently large crowds at the National Electrical Contractors Association (NECA) Annual Trade Show. Powered by the theme, Graybar Construction Services--"efficiency = speed," we sent a compelling message to electrical contractors that Graybar is the one distributor that can provide proven capabilities to improve their performance, reduce their expenses and help them gain a competitive advantage. At the Independent Electrical Contractors (IEC) convention in San Antonio we emphasized our service capabilities to show that efficiency does equal speed. Graybar was a Platinum Partner sponsor of the convention, supporting numerous events including the IEC Apprentice Wire Off competition with our supplier partners. INDUSTRIAL MARKET Customers in the Industrial Market continue to look for ways to reduce total costs and increase profitability in an ever-demanding, competitive marketplace. Their strategy focuses on product and process standardization, improved productivity through technology and consolidation of the supply base to leverage size and scale. This relentless pursuit to reduce costs continues to boost Graybar's growth in the Industrial Market. Our Industrial Market sales increased at a double-digit rate for the fourth consecutive year in 2000. This success is attributed to the expansion in most industrial sectors of the economy and the increase in Graybar's ability to provide value to customers and suppliers. Graybar's emphasis on providing customers with skilled and well-trained industrial sales representatives, backed by leading product brands with inventory available through the branches and zones, contributed to our growth in this market. In January, we created the position of Director, Industrial Market at corporate headquarters. This position has responsibility for monitoring the changing needs of industrial customers and directing Graybar's response to our customers' product and service requirements. In November, we introduced the 2001 Industrial Market Plan, which targets specific segments of this fast-growing market. The plan provides for the development of additional value-added services, specialized sales and sales management and the development of an industrial training curriculum for new as well as experienced industrial sales personnel. [PHOTO] OUR TOOL TABLOID OFFERED CUSTOMERS A WIDE SELECTION OF HAND AND POWER TOOLS, METERS AND TESTERS. 7 10 - ----------------------------------------------------------------------------- MARKET REVIEW - ----------------------------------------------------------------------------- [PHOTO] COMM/DATA MARKETS Technological innovation has long been the driver of rapid growth in the Comm/Data Markets. In 2000, the dynamics of change resulted in even more radical events. Convergence, which previously applied primarily to new products and applications, became associated with the business imperatives of manufacturers and consumers, and computer power gave way to bandwidth demand. As a result, new companies sprang up around these opportunities, spin-offs were as significant as mergers and, in some cases, competitors found themselves partners. Distinctions between markets and channels were blurred. Data manufacturers began providing key system and PBX solutions, and vice versa. We saw electrical contractors acquiring skills and products in structured cabling. Factories integrated their electrical and networking systems. ============================================================================= "GRAYBAR'S SALES TO DATA CONTRACTORS GREW SIGNIFICANTLY DESPITE SOME MATURING IN THE STRUCTURED CABLING BUSINESS, WHICH HAS BEEN ROBUST OVER THE PAST SEVERAL YEARS." ============================================================================= The common denominator in all this change was clearly a heightened demand for service. Since Graybar's product is service, our comm/data business grew and developed ahead of the overall market. We focused on significant customers, and we added skilled support people and tools. We sold more than products; we bundled and kitted. We managed acquisition costs--for our customers and suppliers, and ourselves. In short, we took share. In January, Graybar divided the Central Comm/Data District, resulting in improved focus and direction in the territory. The Aurora District, and later in the year the SPN District, were organized around the specific needs of two strategic customers. We developed the structure for a sixth Comm/Data District, California, to further focus on that large market in 2001. ENTERPRISE MARKET Enterprise customers are the commercial/industrial end-users of comm/data products and services. Understandably, this Enterprise Market includes our largest group of customers--resellers. Our voice 8 11 - ----------------------------------------------------------------------------- MARKET REVIEW - ----------------------------------------------------------------------------- resellers (interconnects) and the manufacturers of voice products did not experience general growth in 2000. The sluggishness was attributed to Y2K hangovers and uncertainty over the pending impact of IP (Internet protocol) telephony. However, Graybar's sales of voice products grew due to new marketing programs, close attention to our inventory deployment and the efforts of our specialized sales force. Graybar introduced an award-winning, web-based customer incentive program called "epoint." Large numbers of voice dealers purchased a substantial volume of products under the program, earning valuable incentive points. In 2001, we will expand this successful program to cable and connectivity suppliers for our resellers. Graybar's sales to data contractors grew significantly despite some maturing in the structured cabling business, which has been robust over the past several years. We improved profitability by refining our pricing strategy as well as enjoying the advantages of several new regional zones. Collaboration between marketing, logistics, purchasing, information systems and the field organization resulted in better utilization of Graybar's resources. [PHOTO] A NEW BROCHURE INTRODUCED VIP2000, THE SECOND PHASE OF OUR INDEPENDENTLY VERIFIED STRUCTURED CABLING SOLUTION. The VIP(SM) (Verified Independently for Performance) program, which was introduced in the fall of 1999, positioned Graybar as a credible resource in the structured cabling industry. VIP1000 assured cabling system performance for dozens of end-user customers and put Graybar at the forefront of major Category 5E projects. VIP2000 was introduced in 2000 to address the proposed Category 6 standards, and all of our manufacturers have worked hard to assure our inventories are nothing short of the customers' requirements. We have the only independently verified structured cabling solution in the industry. The success of VIP(SM) led to the development of additional support for commercial and industrial customers and the community of consultants who determine many of the procurement choices. Sales and product training, in conjunction with more network system specialists, sales representatives and customer service representatives, accounted for significant growth and momentum throughout our Enterprise Market. Graybar has been careful to manage these aggressive strategies to reach consultants and end-users, while being mindful of the important role of our reseller customers and major manufacturers. 9 12 - ----------------------------------------------------------------------------- MARKET REVIEW - ----------------------------------------------------------------------------- SERVICE PROVIDER MARKET For the second consecutive year, sales to service providers grew at the highest rate among all Comm/Data Markets. Customers demand higher speeds, more bandwidth, quicker turn-ups, lower costs, and enhanced services. Nowhere in the Comm/Data Market is the landscape changing more than with these companies who build and maintain the "pipes" carrying information vital to every business and consumer. It is apparent that distribution's value-added services are crucial to this success, regardless of the products in question. By partnering with Graybar, our service provider customers improved their time to market and decreased their overall costs. We integrated and leveraged resources across the entire company, made good fiscal decisions, introduced procurement and design solutions, aided with forecasting and purchasing, bundled/kitted/tested, staged and delivered. In 2000, Graybar invested in Innov8 Solutions, USA, LLC, a Tier-I minority-owned business capable of providing value-added services for strategic opportunities. Customers in the Service Provider Market often need partners to provide outsourcing and handling of tasks within the procurement cycle. When these opportunities are found, Graybar lends qualified help through Innov8, creating unique services when necessary. UTILITY MARKET Graybar's share in the Utility Market continues to grow in a time of change and uncertainty for this industry. As in previous years, the leading areas for growth were in the northeastern and southeastern regions of the country. Future opportunities for serving this market will expand as we enhance our service capabilities through our national logistics program. In addition to mega-mergers in 2000, the deregulated side of this industry continues to look for new revenue-generating opportunities. Some of the nation's largest electrical and communication contractors are either fully or partially owned by utility companies. These changes will provide new opportunities for Graybar as we continue to evaluate and augment our service offering for this market. INTERNATIONAL MARKETS Our international focus continues to be on servicing corporate account customers doing business internationally. In 2000, we increased penetration of this business by reorganizing our teams around this goal. NORTH AMERICA Harris & Roome (H&R) had record sales in 2000 and expanded its work force. H&R continued its work toward ISO registration, adding two branches to the quality standard during the year. Graybar Ontario experienced double-digit sales increases and added personnel in all locations. The six Graybar Ontario locations received their ISO9002 registration in 2000. In September, the Kitchener headquarters moved to a new, larger facility. During the year, plans were developed to combine the Canadian subsidiaries into one company, Graybar Canada, with headquarters in Halifax, Nova Scotia. Graybar de Mexico experienced slower than expected growth in 2000 due to economic instabilities in Mexico. However, plans were implemented to refocus efforts on large engineering contractors and corporate/national accounts with locations in Mexico. This refocus of strategy will enhance the strong comm/data business and allow Graybar de Mexico to participate in several new maintenance and repair operations (MRO) agreements. Graybar Puerto Rico continued to increase share in all markets--electrical, comm/data and industrial. 10 13 - ----------------------------------------------------------------------------- MARKET REVIEW - ----------------------------------------------------------------------------- During 2000, Graybar Puerto Rico moved to a state-of-the-art facility in Carolina, Puerto Rico. The move to Carolina strongly positions Graybar Puerto Rico to provide better service to our corporate accounts and support new initiatives in the pharmaceutical industry. ASIA/PACIFIC In 2000, the Asia/Pacific business climate did not rebound as anticipated. As a result, business plans were put into place to focus on multi-national corporate accounts. During the last quarter of 2000, a new operating system was installed for positioning our service offering to these corporate accounts. Meetings with key comm/data and electrical suppliers resulted in the local support necessary to improve market share in 2001. MARKETING SUPPORT GRAYBAR FINANCIAL SERVICES (GFS) Our equipment leasing and financing subsidiary enjoyed impressive growth over the previous year. The GFS sales team was again expanded and modified with the intent to place leasing sales representatives in key Graybar locations throughout the U.S. We now have a field presence in San Francisco, Los Angeles, Denver, St. Louis, Chicago, Atlanta, Tampa and Boston. Coupled with our national account manager and the St. Louis based sales and service team, this approach enabled us to improve and enhance the level of service that consistently exceeds our customers' expectations. Leading technology and systems continue to provide our lease administrators with the ability to relay credit decisions to our customers in minutes, generate documents electronically and conduct business over the Internet. ============================================================================= "BY PARTNERING WITH GRAYBAR, OUR SERVICE PROVIDER CUSTOMERS IMPROVED THEIR TIME TO MARKET AND DECREASED THEIR OVERALL COSTS." ============================================================================= In April, GFS was integrated into the Treasury Department. Over a four-month period, 280 financial department personnel underwent a comprehensive training program on how to sell the benefits of leasing with Graybar's customers. COUNTER MARKETING Graybar's counter marketing continued to build on the theme of targeting products and services to the professional installer. Our suppliers support our merchandising efforts by working with us to design effective planograms and packaging for their products. The Counter Marketing Department now manages nearly 200 corporate-approved planograms, representing more than 4,500 stockkeeping units. These planograms were used as guides to install 15 new flagship counters in 2000. We have updated 107 counters to flagship standards since the program began in 1993. This trend will continue, with 30 flagship counters targeted for completion in 2001. 11 14 - ----------------------------------------------------------------------------- MARKET REVIEW - ----------------------------------------------------------------------------- E-BUSINESS The vision of using web technologies to build applications and making those applications available over the Internet has fueled unprecedented growth in business-to-business (B2B) commerce. In 2000, many of Graybar's customers began implementing Internet-enabled procurement solutions (e-procurement) to decrease unauthorized purchasing, increase reporting capabilities across commodity groups and improve the overall procurement process. During the year, Graybar worked with more than 25 customers who began implementation of e-procurement systems using Commerce One or Ariba software. Customer-sponsored vertical e-marketplaces--Internet-based purchasing communities created by several companies in a particular industry--include Covisint (automotive), Petrocosm (petrochemical), and Pantellos (utilities). Graybar participates in some e-marketplaces, most notably Covisint and ICGC (an exchange focused on mid- to large-size industrial companies). Most of Graybar's business through e-procurement systems and e-marketplaces is with current customers. However, we have won additional business with a number of new customers due to our ability to provide the e-business solutions they require. In addition to the e-procurement and e-marketplace activity, we continued to work on our own Internet initiatives, including a new electronic catalog, which will be attached to GraybarNet(R) and our Graybar.com web site by April 2001. Containing a more extensive set of products than our current version, the new catalog will also provide improved search capabilities. Graybar continued to expand other e-commerce tools including Electronic Data Interchange (EDI), Hot Key and GraybarNet(R). In 2000, our EDI transactions continued to grow, as did the number of EDI trading partners. We are currently testing additional EDI functionality with our suppliers to automate our cost recovery process. Our sales through GraybarNet(R) increased as did the number of transactions that supported our customers' inquiries for availability, pricing and order status. The use of GraybarNet(R) as a customer service tool is a trend we expect to continue even after the release of the new Gweb application that is scheduled for completion later in 2001. During the year, Hot Key recorded over one million transactions including availability checks, order status checks and some referral transactions. Hot Key is a differentiator for Graybar, and we continue to add suppliers to this process. We expect the amount of business conducted electronically to continue to grow as Graybar, our suppliers and our customers strive to meet sales and profitability goals by automating as many transactions as possible. [PHOTO] THE GRAYBAR DIGEST REMAINED A KEY ELEMENT IN OUR DIRECT MAIL PROGRAM. ADVERTISING AND SALES PROMOTION Graybar's advertising initiatives continued to focus on building brand awareness of our electrical and comm/data service capabilities. This was accomplished through a coordinated series of print advertising, trade press editorials, direct mail and service-specific brochures. 12 15 - ----------------------------------------------------------------------------- OPERATIONS REVIEW - ----------------------------------------------------------------------------- Our print advertising showed favorable results, with a number of our ads winning awards for outstanding readership and ad recall in publications such as Purchasing, Upstart, Commercial Building and EC&M. An ad in Commercial Building achieved an unprecedented 100% recall score. Success in trade press editorials was evident, with many articles published about our service capabilities. From VIP(SM) and Project Manager(SM) to our logistics initiatives and Graybar Financial Services, we communicated the message. The highlights were cover stories in Communication News on our comm/data business and in Industrial Maintenance and Plant Operation on our electrical business. Continuing to keep our customers informed of our service and products solutions, Graybar's supplement to EC&M (Electrical Construction and Maintenance) magazine was introduced, and two issues were published. The Comm/Data Digest and the Electrical Tool Tabloid rounded out our direct mail efforts. MINORITY/WOMEN-OWNED BUSINESS ENTERPRISES (MWBE) In addition to the establishment of Innov8 Solutions, Graybar moved its MWBE initiative to the next level with new teaming agreements signed between MWBE companies and Graybar. A variety of Graybar customers benefited from these agreements through the procurement of traditional Graybar products and integrated supply initiatives. We continue to improve our MWBE reporting system. In 2000, we contracted with a company that will help us identify all the MWBE companies within our supplier database. ============================================================================= CUSTOMER SERVICE During 2000, the Company piloted the new Service Organization in the Tampa District. The goal of the pilot was to form a central services group to process orders and provide customer support to the electrical and comm/data sales groups, allowing them to focus on increasing sales and market share. ============================================================================= "DURING 2000, THE COMPANY PILOTED THE NEW SERVICE ORGANIZATION IN THE TAMPA DISTRICT." ============================================================================= Michael W. Fowler, Richard D. Offenbacher and Dennis J. Grousosky, District Vice Presidents of Electrical Sales, Comm/Data Sales and Service, respectively, collaborated on this project to ensure a smooth transition and a successful result. [PHOTO] THE ROGERS, MINNESOTA, REGIONAL ZONE IS THE NINTH SUCH FACILITY IN THE COMPANY'S LOGISTICS NETWORK. 13 16 - ----------------------------------------------------------------------------- OPERATIONS REVIEW - ----------------------------------------------------------------------------- Many internal processes were revised to improve branch service performance including: * reengineering the receiving process to ensure accurate locator maintenance during put-away; * maintaining current status each day on shipping, receiving, put-away, cycle counting and locator maintenance; * creating a separately staffed will-call area to expedite the handling of called-in orders; * implementing a daily warehouse huddle and housekeeping schedule; * creating the "Sweep" method at the counter to provide better service during peak periods; * eliminating the use of customer service representatives for back-up at the counter to improve in-bound call handling within the office; * implementing customer tours of our operation, giving our front-line people the opportunity to demonstrate our order system and value-added services first-hand to our key accounts. After nine months of work, the Tampa group had demonstrated significant progress, and the Company moved forward with three additional Service Districts. On October 1, the new Houston District opened, using the Service Organization structure. On January 1, 2001, the new California District and the New York District were added as Service Districts. In all three cases, management of the zone warehouse shifted to the District Vice President of Service. We expect additional districts to be converted during 2001. Main house locations in each district are implementing the pilot's enhanced service procedures to prepare for future conversions. The Company is confident this new organizational structure will support our strategic growth goals for the coming years by improving service performance and allowing both sales groups to improve focus on key markets. ADMINISTRATIVE GROUP During 2000, the Administrative Group focused on identifying causes of rework and streamlining processes. MAPP--electronic processing and approval of merchandise invoices--was piloted in three districts in 1999. During 2000, users were trained and implementation completed at all remaining locations. New procedures were instituted to reduce the volume of billbacks between Graybar locations. Cost Recovery Program (CRP) set-ups were restructured to permit electronic filing of claims in 2001, and an interim electronic process was instituted with two suppliers. Sales tax exceptions were identified as a large contributor to rework issues for both administrative and accounting personnel. System changes, which limited access to the exception options in customers' files to the District Administrative Managers, resulted in a substantial reduction of tax exception errors. Supplier statements, billbacks and claims were given high priority in 2000. Old issues were resolved and relationships developed with all major suppliers, facilitating the prevention and reduction of future rework. In mid-year, we began a review of all General Instructions, procedural manuals and standard forms to ensure that they include current and correct information. This project will be completed in 2001. CORPORATE PURCHASING Zone openings, further implementation of MAPP, refinement of our training departmental reorganization were significant milestones for the Corporate Purchasing Group in 2000. Zone warehouse openings in Rogers, Minnesota, and Youngstown, Ohio, required substantial 14 17 - ----------------------------------------------------------------------------- OPERATIONS REVIEW - ----------------------------------------------------------------------------- coordination between the Corporate Purchasing, Marketing and Logistics Departments to determine appropriate inventory, place orders and coordinate shipments with suppliers. Departmental training focused on the basics as well as certification on our purchasing software. For many departmental positions, Corporate Purchasing created a syllabus outlining the required training activities beginning with the first day of employment. We are working toward finalizing syllabuses for all jobs. In the fall, Price Cost Services became part of the Corporate Purchasing Department. As part of this reorganization, we appointed Purchasing Managers specializing in electrical, comm/data, cost, price, training and quality, and data services. [PHOTO] ============================================================================= "ZONE WAREHOUSES OPENING IN ROGERS, MINNESOTA, AND YOUNGSTOWN, OHIO, REQUIRED SUBSTANTIAL COORDINATION BETWEEN THE CORPORATE PURCHASING, MARKETING AND LOGISTICS DEPARTMENTS." ============================================================================= SAFETY In 2000, the Company's rate of recordable, work-related injuries remained below the industry average. For the third consecutive year, the Cincinnati District was the recipient of the Graybar President's Safety Award for the lowest rate of recordable injuries per hours worked. The St. Louis District received the Graybar Fleet Safety Award for the fewest vehicle accidents as a percentage of fleet size. St. Louis has earned this award two of the past three years. The Richmond District was the runner-up for both awards. BUILDINGS AND PROPERTIES New locations opened in 2000: Rogers, Minnesota (Regional Zone) Youngstown, Ohio (National Zone) Wilkes-Barre, Pennsylvania Racine, Wisconsin Gurnee, Illinois Joliet, Illinois Augusta, Georgia Belleville, Michigan East Livonia, Michigan Madison Heights, Michigan Shelby Township, Michigan In addition, four new locations were opened in 2000 to support the new SPN District. The new SPN locations are warehouses in Fresno, California; Oklahoma City, Oklahoma; Smyrna, Tennessee; and an office location in Greensboro, North Carolina. 15 18 - ----------------------------------------------------------------------------- OPERATIONS REVIEW - ----------------------------------------------------------------------------- INFORMATION SYSTEMS Warehouse Management System (WMS) installation and refinements remained a major focus during 2000. Systems were installed in Regional Zones in Stafford, Texas; Rogers, Minnesota; and Youngstown, Ohio. During the first quarter of 2001, WMS will be installed in our zones in Fresno, California; Lewisville, Texas; and Seattle, Washington. In addition, several system modifications were made to our mortgaging routines in support of the logistics initiative. The Company's wide area network was restructured during the year. Asynchronous transfer mode (ATM) and fiber ring technologies were installed and T1 access provided for more than 100 locations. The redesign permits systems in each branch to operate independently in case of a network failure. To support our growing infrastructure, a mainframe upgrade purchased at year end will be installed in early 2001. Our computer infrastructure now supports more than 9,000 connected users. Year 2000 saw the completion of the company-wide conversion to the merchandise accounts payable system. Now, imaging and workflow technologies are used to centrally manage and process the entire Company's merchandise payables. An improved method developed to manage credit card reconciliation resulted in improved cash flow and reduced by 80% the time required for monthly bank reconciliation. ============================================================================= "TO SUPPORT OUR GROWING INFRASTRUCTURE, A MAINFRAME UPGRADE PURCHASED AT YEAR END WILL BE INSTALLED IN EARLY 2001." ============================================================================= A new, automated accounts receivable application will be piloted in 2001. This process permits customers to remit payments directly to our bank. Remittance details will be provided from the bank via the Internet. A major revision to Interactive Quote, our quotation software program, incorporated more than one hundred user suggestions. This upgrade resulted in a more user-friendly and better designed application to meet our business needs. Significant changes included adding the capability to convert a quote containing both stock and non-stock items into an order and the ability to ship the stock material from multiple locations. Applications provided in support of our major accounts during the year included bar coding changes, PC report capabilities, freight carrier interfaces and special billing processes. A major database restructure was completed with more than 4,500 changes made. With the growth of our business, the restructure was necessary to increase the field sizes to accommodate larger transactional values such as quantities, costs and report values. 16 19 FINANCIAL REVIEW TABLE OF CONTENTS SELECTED CONSOLIDATED FINANCIAL DATA 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19 CONSOLIDATED FINANCIAL STATEMENTS 21 REPORT OF INDEPENDENT AUDITORS 29 17 20 FINANCIAL REVIEW - --------------------------------------------------------------------------------------------------------------------- SELECTED CONSOLIDATED FINANCIAL DATA (Stated in thousands except for per share data) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- SALES $ 5,227,467 $ 4,311,405 $ 3,744,075 $ 3,348,496 $ 3,001,049 Less--Cash discounts (13,564) (11,465) (11,872) (10,474) (9,637) - --------------------------------------------------------------------------------------------------------------------- NET SALES 5,213,903 4,299,940 3,732,203 3,338,022 2,991,412 - --------------------------------------------------------------------------------------------------------------------- COST OF MERCHANDISE SOLD (4,268,764) (3,514,228) (3,042,176) (2,726,147) (2,453,962) - --------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE (46,681) (30,241) (23,998) (19,713) (16,687) - --------------------------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES Current (44,395) (43,899) (37,167) (29,750) (28,599) Deferred 1,196 (130) (4,919) (6,820) (1,722) - --------------------------------------------------------------------------------------------------------------------- Total provision for income taxes (43,199) (44,029) (42,086) (36,570) (30,321) - --------------------------------------------------------------------------------------------------------------------- NET INCOME 66,157 64,659 59,544 52,963 44,533 - --------------------------------------------------------------------------------------------------------------------- INCOME APPLICABLE TO COMMON STOCK 66,154 64,654 59,539 52,957 44,526 - --------------------------------------------------------------------------------------------------------------------- AVERAGE COMMON SHARES OUTSTANDING (A) 6,101 6,276 5,848 6,117 6,300 - --------------------------------------------------------------------------------------------------------------------- INCOME PER SHARE OF COMMON STOCK (A) 10.84 10.30 10.18 8.66 7.07 - --------------------------------------------------------------------------------------------------------------------- Cash dividends per share 2.00 2.00 2.00 2.00 2.00 - --------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS Balance, beginning of year 241,473 193,838 149,226 115,218 84,801 Add--Net income 66,157 64,659 59,544 52,963 44,533 - --------------------------------------------------------------------------------------------------------------------- 307,630 258,497 208,770 168,181 129,334 - --------------------------------------------------------------------------------------------------------------------- Less dividends Preferred ($1.00 per share) (3) (5) (5) (6) (7) Common (in cash) (11,583) (11,442) (10,031) (9,576) (9,480) Common (in stock) (5,639) (5,577) (4,896) (9,373) (4,629) - --------------------------------------------------------------------------------------------------------------------- (17,225) (17,024) (14,932) (18,955) (14,116) - --------------------------------------------------------------------------------------------------------------------- Balance, end of year 290,405 241,473 193,838 149,226 115,218 Proceeds on stock subscriptions, shares unissued 49 56 -- 37 52 STOCK OUTSTANDING Preferred 57 68 108 119 143 Common 119,828 118,270 103,690 103,749 98,321 - --------------------------------------------------------------------------------------------------------------------- $ 410,339 $ 359,867 $ 297,636 $ 253,131 $ 213,734 - --------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income (542) (204) (836) -- -- - --------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 409,797 $ 359,663 $ 296,800 $ 253,131 $ 213,734 - --------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS 1,843,438 1,698,544 1,167,847 1,051,821 881,636 LONG-TERM DEBT $ 238,349 $ 255,897 $ 269,570 $ 139,748 $ 151,659 - --------------------------------------------------------------------------------------------------------------------- <FN> (A) Adjusted for the declaration of 5% stock dividends in 2000, 1999, 1998 and 1996, and a 10% stock dividend in 1997. Prior to adjusting for the stock dividends, the average common shares outstanding for 1999, 1998, 1997 and 1996 were 5,692, 5,052, 4,805 and 4,712, respectively. </FN> This summary should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this annual report. 18 21 FINANCIAL REVIEW - ----------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Stated in thousands except for share and per share data) RESULTS OF OPERATIONS 2000 COMPARED TO 1999 Net sales in 2000 were 21.3% higher than in 1999. The higher net sales resulted from improvements in the market sectors of the economy in which the Company operates. The impact of inflation on sales and cost of sales was not significant in 2000. Gross margin in 2000 increased 20.3% compared to 1999 primarily due to the increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in 2000 compared to 1999 occurred largely because of growth in personnel complement and increases in compensation and related expenses. In addition, continued implementation of a company-wide customer service and logistics project resulted in higher selling, general and administrative expenses in 2000 compared to 1999 due to increases in the Company's number of facilities and related staffing and start-up expenses. The increased expenses were anticipated by management and are expected to provide future benefits to the Company's results of operations. Interest expense increased in 2000 compared to 1999 primarily due to increased levels of borrowing incurred to finance higher aggregate levels of inventory and receivables. Interest rates on 2000 short-term borrowings were higher than for the same period in 1999. Other income includes service charges for special services provided to one customer of $4,434 and $3,839 and gains on sale of property of $0 and $540 in 2000 and 1999, respectively. The combined effect of the increase in gross margin and the decrease in other income, together with the increases in selling, general and administrative expenses, interest expense and depreciation and amortization, resulted in an increase in income before provision for income taxes of $668 in 2000 compared to 1999. 1999 COMPARED TO 1998 Net sales in 1999 were 15.2% higher than in 1998. The higher net sales resulted from improvements in the market sectors of the economy in which the Company operates. The impact of inflation on sales and cost of sales was not significant in 1999. Gross margin in 1999 increased 13.9% compared to 1998 primarily due to the increased sales in the electrical and communications markets. The increase in selling, general and administrative expenses in 1999 compared to 1998 occurred largely because of growth in personnel complement and increases in compensation and related expenses. In addition, continued implementation of a company-wide customer service and logistics project resulted in higher selling, general and administrative expenses in 1999 compared to 1998 due to increases in the Company's number of facilities and related staffing and start-up expenses. The increased expenses were anticipated by management and are expected to provide future benefits to the Company's results of operations. Interest expense increased in 1999 compared to 1998 primarily due to increased levels of borrowing incurred to finance higher aggregate levels of inventory and receivables. Interest rates on 1999 short-term borrowings were slightly higher than for the same period in 1998. Other income includes service charges for special services provided to one customer of $3,839 and $1,000 and gains on sale of property of $540 and $808 in 1999 and 1998, respectively. The combined effect of the increases in gross margin and other income, together with the increases in selling, general and administrative expenses, interest expense and depreciation and amortization, resulted in an increase in income before provision for income taxes of $7,058 in 1999 compared to 1998. 19 22 FINANCIAL REVIEW - ----------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Stated in thousands except for share and per share data) FINANCIAL CONDITION AND LIQUIDITY The financial condition of the Company continues to be strong. At December 31, 2000 current assets exceeded current liabilities by $449,257, down $1,398 from December 31, 1999. The current assets at December 31, 2000 were sufficient to meet the cash needs required to pay current liabilities. Although the average number of days of sales in accounts receivable has increased during 2000 and 1999, the substantial increase in accounts receivable resulted primarily from the growth in sales experienced by the Company. Merchandise inventory levels were lower at December 31, 2000 when compared to December 31, 1999 primarily due to a decrease in specific inventory carried to support customer contract agreements. Inventory turnover decreased during 2000 and 1999 due largely to the continued implementation of a company-wide customer service and logistics project to redeploy inventory into a system of national zones, regional zones and branch locations. Although the project objective is to provide better customer service, reduce overall costs and reduce inventory as a percentage of sales, management expected a temporary increase in inventory, unrelated to sales volume, during the transition to the new system. This transition to the new customer service and logistics system is planned to be complete by early 2002. The Company does not have any other plans or commitments that would require significant amounts of additional working capital. At December 31, 2000 the Company had available to it unused lines of credit amounting to $258,000. These lines are available to meet short-term cash requirements of the Company. Bank borrowings outstanding during 2000 and 1999 varied from a minimum of $304,000 and $14,000 to a maximum of $461,000 and $406,000, respectively. In July 1999 the Company entered into a $410,000 Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR). The credit agreement expires in July 2004. Amounts outstanding under the Revolving Credit Loan Agreement totaled $180,000 at December 31, 2000. The Company entered into an accounts receivable securitization program in June 2000 which provides for the sale of the Company's trade accounts receivables to a wholly owned, bankruptcy remote, special purpose subsidiary, Graybar Commerce Corporation. The trade accounts receivable purchases are financed through the issuance of commercial paper under a revolving liquidity facility. Under the securitization program, Graybar Commerce Corporation has granted a security interest in its trade accounts receivable. Borrowings outstanding under the securitization program at December 31, 2000 were $200 million, the maximum available under the program. The program expires in June 2003. The Revolving Credit Loan Agreement and certain other note agreements have various covenants that limit the Company's ability to make investments, pay dividends, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreements. The Company has funded its capital requirements from operations, stock issuances to its employees and long-term debt. Cash provided by operations during 2000 amounted to $31,252 compared to $258,944 cash used by operations in 1999. Cash provided from the sale of common stock and proceeds received on stock subscriptions amounted to $1,080 and $14,413 in 2000 and 1999, respectively. Additional cash of approximately $400 will be provided in 2001 as a result of payments to be made for stock subscribed to by employees under the 1998 Common Stock Purchase Plan. Capital expenditures for property were $58,747, $31,322 and $28,977 for the years ended December 31, 2000, 1999 and 1998, respectively. Purchases of treasury stock were $5,179, $5,394 and $5,303 for the years ended December 31, 2000, 1999 and 1998, respectively. Dividends paid were $11,498, $10,670 and $9,802 for the years ended December 31, 2000, 1999 and 1998, respectively. 20 23 CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Stated in thousands except for share and per share data) FOR THE YEARS ENDED DECEMBER 31, 2000 1999 1998 - --------------------------------------------------------------------------------------------------- SALES, NET OF RETURNS AND ALLOWANCES $5,227,467 $4,311,405 $3,744,075 Less--Cash discounts (13,564) (11,465) (11,872) - --------------------------------------------------------------------------------------------------- Net Sales 5,213,903 4,299,940 3,732,203 - --------------------------------------------------------------------------------------------------- COST OF MERCHANDISE SOLD (4,268,764) (3,514,228) (3,042,176) - --------------------------------------------------------------------------------------------------- Gross Margin 945,139 785,712 690,027 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (724,325) (593,236) (513,193) TAXES, OTHER THAN INCOME TAXES (43,021) (36,301) (32,415) DEPRECIATION AND AMORTIZATION (29,220) (27,176) (25,809) - --------------------------------------------------------------------------------------------------- Income from operations 148,573 128,999 118,610 OTHER INCOME, NET 7,464 9,930 7,018 INTEREST EXPENSE (46,681) (30,241) (23,998) - --------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 109,356 108,688 101,630 - --------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES Current (44,395) (43,899) (37,167) Deferred 1,196 (130) (4,919) - --------------------------------------------------------------------------------------------------- Total provision for income taxes (43,199) (44,029) (42,086) - --------------------------------------------------------------------------------------------------- NET INCOME 66,157 64,659 59,544 - --------------------------------------------------------------------------------------------------- RETAINED EARNINGS, BEGINNING OF YEAR 241,473 193,838 149,226 Cash dividends- Preferred, $1.00 per share each year (3) (5) (5) Common, $2.00 per share each year (11,583) (11,442) (10,031) Common Stock dividend (5,639) (5,577) (4,896) - --------------------------------------------------------------------------------------------------- RETAINED EARNINGS, END OF YEAR $ 290,405 $ 241,473 $ 193,838 - --------------------------------------------------------------------------------------------------- NET INCOME PER SHARE OF COMMON STOCK $ 10.84 $ 10.30 $ 10.18 - --------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements 21 24 CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS December 31, (Stated in thousands except for share and per share data) 2000 1999 - --------------------------------------------------------------------------------------------------------------------- ASSETS - --------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash $ 27,614 $ 16,750 Trade receivables (less allowances of $9,411 and $5,729, respectively) 765,546 588,631 Merchandise inventory 748,754 843,061 Other current assets 25,444 7,489 - --------------------------------------------------------------------------------------------------------------------- Total current assets 1,567,358 1,455,931 - --------------------------------------------------------------------------------------------------------------------- PROPERTY, AT COST Land 24,178 21,997 Buildings 209,460 184,765 Furniture and fixtures 156,245 136,567 Capital equipment leases 20,380 31,525 - --------------------------------------------------------------------------------------------------------------------- 410,263 374,854 Less--Accumulated depreciation and amortization 166,832 161,948 - --------------------------------------------------------------------------------------------------------------------- 243,431 212,906 - --------------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES 991 1,787 - --------------------------------------------------------------------------------------------------------------------- OTHER ASSETS 31,658 27,920 - --------------------------------------------------------------------------------------------------------------------- $1,843,438 $1,698,544 - --------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Short-term borrowings $ 406,199 $ 340,604 Current portion of long-term debt 24,521 20,359 Trade accounts payable 533,138 512,623 Accrued payroll and benefit costs 58,196 50,107 Other accrued taxes 15,593 13,552 Dividends payable 6,343 6,256 Other payables and accruals 74,111 61,775 - --------------------------------------------------------------------------------------------------------------------- Total current liabilities 1,118,101 1,005,276 - --------------------------------------------------------------------------------------------------------------------- POSTRETIREMENT BENEFITS LIABILITY 77,191 77,708 - --------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT 238,349 255,897 - --------------------------------------------------------------------------------------------------------------------- Shares at December 31, 2000 1999 - --------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Capital stock- Preferred, par value $20 per share, authorized 300,000 shares-- Issued to shareholders 2,990 3,412 In treasury, at cost (125) -- - --------------------------------------------------------------------------------------------------------------------- Outstanding 2,865 3,412 57 68 - --------------------------------------------------------------------------------------------------------------------- Common, stated value $20 per share, Authorized 7,500,000 7,500,000 Issued to voting trustees 5,685,490 5,587,485 Issued to shareholders 335,340 337,757 In treasury, at cost (29,440) (11,729) - --------------------------------------------------------------------------------------------------------------------- Outstanding 5,991,390 5,913,513 119,828 118,270 - --------------------------------------------------------------------------------------------------------------------- Common shares subscribed 572 1,206 Retained earnings 290,405 241,473 Accumulated other comprehensive income (542) (204) - --------------------------------------------------------------------------------------------------------------------- 410,320 360,813 Less--Subscriptions receivable 523 1,150 - --------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 409,797 359,663 - --------------------------------------------------------------------------------------------------------------------- $1,843,438 $1,698,544 - --------------------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements 22 25 CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (Stated in thousands) FOR THE YEARS ENDED DECEMBER 31, 2000 1999 1998 - -------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS Net Income $66,157 $64,659 $59,544 - -------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to cash provided (used) by operations - Depreciation and amortization 29,220 27,176 25,809 Deferred income taxes (1,196) 130 4,919 Gain on sale of property -- (540) (808) Changes in assets and liabilities: Trade receivables (176,915) (128,615) (57,561) Merchandise inventory 94,307 (402,655) (51,092) Other current assets (17,955) (3,544) (972) Other assets (6,483) (2,565) (6,728) Trade accounts payable 20,515 167,754 17,900 Accrued payroll and benefit costs 8,089 5,641 2,542 Other accrued liabilities 15,513 13,615 9,196 - -------------------------------------------------------------------------------------------------------- (34,905) (323,603) (56,795) - -------------------------------------------------------------------------------------------------------- Net cash flow provided (used) by operations 31,252 (258,944) 2,749 - -------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property 2,756 1,519 4,892 Capital expenditures for property (58,747) (31,322) (28,977) Investment in joint venture 2,745 6,690 9,571 - -------------------------------------------------------------------------------------------------------- Net cash flow used by investing activities (53,246) (23,113) (14,514) - -------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings 65,595 296,656 (92,977) Proceeds from long-term debt 3,524 -- 140,000 Repayment of long-term debt (17,499) (11,864) (14,664) Principal payments under capital equipment leases (3,165) (4,586) (4,060) Sale of common stock 1,080 14,413 300 Purchases of treasury stock (5,179) (5,394) (5,303) Dividends paid (11,498) (10,670) (9,802) - -------------------------------------------------------------------------------------------------------- Net cash flow provided by financing activities 32,858 278,555 13,494 - -------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH 10,864 (3,502) 1,729 - -------------------------------------------------------------------------------------------------------- CASH, BEGINNING OF YEAR 16,750 20,252 18,523 - -------------------------------------------------------------------------------------------------------- CASH, END OF YEAR $27,614 $16,750 $20,252 - -------------------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements 23 26 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Stated in thousands) COMMON ACCUMULATED STOCK OTHER COMMON PREFERRED SUBSCRIBED, RETAINED COMPREHENSIVE STOCK STOCK UNISSUED EARNINGS INCOME TOTAL -------- --------- ----------- --------- ------------- -------- December 31, 1997 $103,749 $ 119 $ 37 $ 149,226 $ $253,131 Net income 59,544 59,544 Currency translation adjustments (836) (836) -------- Comprehensive income 58,708 -------- Stock issued 337 337 Stock redeemed (5,292) (11) (5,303) Advance payments (37) (37) Dividends declared 4,896 (14,932) (10,036) -------- ------- ------- --------- ------- -------- December 31, 1998 $103,690 $ 108 $ 0 $ 193,838 $ (836) $296,800 ======== ======= ======= ========= ======= ======== Net income 64,659 64,659 Currency translation adjustments 632 632 -------- Comprehensive income 65,291 -------- Stock issued 14,357 14,357 Stock redeemed (5,354) (40) (5,394) Advance payments 56 56 Dividends declared 5,577 (17,024) (11,447) -------- ------- ------- --------- ------- -------- December 31, 1999 $118,270 $ 68 $ 56 $ 241,473 $ (204) $359,663 ======== ======= ======= ========= ======= ======== Net income 66,157 66,157 Currency translation adjustments (338) (338) -------- Comprehensive income 65,819 -------- Stock issued 1,087 1,087 Stock redeemed (5,168) (11) (5,179) Advance payments (7) (7) Dividends declared 5,639 (17,225) (11,586) -------- ------- ------- --------- ------- -------- DECEMBER 31, 2000 $119,828 $ 57 $ 49 $ 290,405 $ (542) $409,797 ======== ======= ======= ========= ======= ======== See accompanying Notes to Consolidated Financial Statements 24 27 CONSOLIDATED FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (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. RECLASSIFICATIONS Certain reclassifications of prior year presentations have been made to conform to the 2000 presentation. MERCHANDISE INVENTORY Inventory is stated at the lower of cost (determined using the last-in, first-out (LIFO) cost method) or market. LIFO accounting is generally a conservative method of accounting that, compared with other inventory accounting methods, provides better matching of current costs with current revenues. Had the first-in, first-out (FIFO) method been used, inventory would have been approximately $8,912 and $11,457 greater than reported under the LIFO method at December 31, 2000 and 1999, respectively. PROPERTY AND DEPRECIATION The Company provides for depreciation and amortization using the straight-line method over the following estimated useful lives of the assets: - ----------------------------------------------------------------------------- Buildings 42 years - ----------------------------------------------------------------------------- Permanent fixtures - Over the lives of the leased property respective leases - ----------------------------------------------------------------------------- Furniture, fixtures and equipment 4 to 14 years - ----------------------------------------------------------------------------- Capital equipment Over the lives of the leases respective leases - ----------------------------------------------------------------------------- At the time property is retired, or otherwise disposed of, the asset and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to other income. Equipment under capital leases is recorded in property with the corresponding obligations carried in long-term debt. The amount capitalized is the present value at the beginning of the lease term of the aggregate future minimum lease payments. Maintenance and repairs are expensed as incurred. Major renewals and betterments that extend the life of the property are capitalized. The Company capitalizes interest expense on major construction and development projects while in progress. DESCRIPTION OF BUSINESS AND CREDIT RISK Graybar Electric Company, Inc. is engaged internationally in the distribution of electrical and communications products and integrated supply services primarily to contractors, industrial plants, telephone companies, power utilities, and commercial users. All products sold by the Company are purchased by the Company from others. Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company's business activity is primarily with customers in the United States; however, the Company has limited sales activity in several international locations. The Company performs ongoing credit evaluations of its customers, and a significant portion of trade receivables is secured by lien or bond rights. The Company maintains allowances for potential credit losses, and such losses historically have been within management's expectations. PENDING ACCOUNTING PRONOUNCEMENTS In June 1998 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, as amended by SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities", which is required to be adopted by the Company effective January 1, 2001. The statement requires the Company to recognize all derivatives on the balance sheet at fair value. Based on the Company's derivative positions at January 1, 2001, the Company recorded a liability for the fair value of existing derivatives of approximately $2 million and a corresponding decrease in other comprehensive income. 25 28 CONSOLIDATED FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- 2. INCOME TAXES The provisions for income taxes recorded in the Consolidated Statements of Income and Retained Earnings are as follows: Years Ended December 31: 2000 1999 1998 - ----------------------------------------------------------------------------- Federal income tax Current $38,621 $39,126 $32,442 Deferred (1,118) 406 4,212 State income tax Current 5,774 4,773 4,725 Deferred (78) (276) 707 - ----------------------------------------------------------------------------- Financial statement income tax provision $43,199 $44,029 $42,086 - ----------------------------------------------------------------------------- Deferred income taxes are provided based upon differences between the financial statement and tax bases of assets and liabilities. The following deferred tax assets (liabilities) are recorded at December 31: Assets/(Liabilities) 2000 1999 - ----------------------------------------------------------------------------- Postretirement benefits $ 30,529 $ 30,734 Payroll accruals 7,146 7,443 Bad debt reserves 3,417 2,097 Other deferred tax assets 5,994 3,960 Inventory (3,000) (1,889) Prepaid pension (9,469) (8,558) Fixed asset depreciation (13,193) (12,992) Fixed asset gains (6,502) (6,508) Accounts receivable (723) (1,446) Other deferred tax liabilities (10,251) (10,089) - ----------------------------------------------------------------------------- $ 3,948 $ 2,752 - ----------------------------------------------------------------------------- Deferred tax assets included in Other Current Assets were $2,957 and $965 in 2000 and 1999, respectively. A reconciliation between the "statutory" federal income tax rate and the effective tax rate in the Consolidated Statements of Income and Retained Earnings is as follows: Years Ended December 31: 2000 1999 1998 - ----------------------------------------------------------------------------- "Statutory" tax rate 35.0% 35.0% 35.0% State and local income taxes, net of federal benefit 3.0 3.0 3.4 Other, net 1.5 2.5 3.0 - ----------------------------------------------------------------------------- Effective tax rate 39.5% 40.5% 41.4% - ----------------------------------------------------------------------------- 3. CAPITAL STOCK The Company's capital stock is owned by its employees and retirees. Neither common nor preferred stock may be sold by the holder thereof, except by first offering it to the Company. The Company may buy any common shares so offered at the price at which they were issued ($20) with appropriate adjustments for current dividends or may call all or part of the preferred stock at par plus accrued dividends. During 1998 the Company offered to eligible employees the right to subscribe to 1,000,000 shares of common stock at $20 per share in accordance with the provisions of the Company's Common Stock Purchase Plan dated October 12, 1998. This resulted in the subscription of 778,202 shares ($15,564). Subscribers under the Plan elected to make payments under one of the following options: (i) all shares subscribed for prior to January 22, 1999; (ii) a portion of such shares prior to January 22, 1999, and the balance in monthly installments through payroll deductions (or in certain cases where a subscriber is no longer on the Company's payroll, through pension deductions or direct monthly payments) over a 34-month period; or (iii) all shares pursuant to the installment method. Shares were issued and Voting Trust Certificates were delivered to subscribers as of January 22, 1999, in the case of shares paid for prior to January 22, 1999. Shares will be issued and Voting Trust Certificates will be delivered to subscribers on a quarterly basis, as of the tenth day of March, June, September and December to the extent full payments of shares are made in the case of subscriptions under the installment method. Shown below is a summary of shares reacquired and retired by the Company in the three years ended December 31: PREFERRED COMMON REACQUIRED RETIRED REACQUIRED RETIRED - ----------------------------------------------------------------------------- 2000 547 422 258,431 240,720 1999 1,974 1,974 267,736 281,713 1998 565 623 264,580 257,998 - ----------------------------------------------------------------------------- 26 29 CONSOLIDATED FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- 4. LONG-TERM DEBT AND BORROWINGS UNDER SHORT-TERM CREDIT AGREEMENTS DECEMBER 31, LONG-TERM DEBT WAS COMPOSED OF: 2000 1999 - ----------------------------------------------------------------------------- 6.59% note, unsecured, due in semiannual installments of $3,750 beginning in October 2003 through April 2013 $ 75,000 $ 75,000 7.36% note, unsecured, maturing May 2011, installments of $3,095 due semiannually in each of the years 2001 through 2010 with final payment of $3,094 due in 2011 65,000 65,000 6.65% note, unsecured, due in annual installments of $3,636 in each of the years 2003 through 2013 40,000 40,000 6.25% note, unsecured, maturing June 2004, installments of $7,000 due annually in each of the years 2000 through 2004 28,000 35,000 6.21% to 8.30% capital equipment leases, various maturities 15,478 14,909 6.44% note, unsecured, due in quarterly installments of $893 through January 2005 15,178 18,750 9.23% note secured by a first mortgage on various properties, maturing May 2005, installments of $2,725 due annually in each of the years 1995 through 2004 with final payment of $2,750 due in 2005 13,650 16,375 Variable rate mortgages, secured by facilities, various maturities 4,839 1,743 7.74% note, secured by facility, due in quarterly installments through August 2006 4,025 4,725 7.75% note, secured by facility, due in quarterly installments through March 2005 1,700 2,200 Other notes 0 2,554 - ----------------------------------------------------------------------------- $262,870 $276,256 Less current portion 24,521 20,359 - ----------------------------------------------------------------------------- $238,349 $255,897 LONG-TERM DEBT MATURES AS FOLLOWS: - ----------------------------------------------------------------------------- 2002 $ 24,834 2003 33,899 2004 33,898 2005 25,463 2006-2013 120,255 - ----------------------------------------------------------------------------- $238,349 - ----------------------------------------------------------------------------- The net book value of property securing various long-term debt instruments was $30,829 at December 31, 2000. The Company's borrowings under short-term credit agreements consist of issuances of commercial paper and borrowings under revolving credit agreements and bank lines of credit. In July 1999 the Company entered into a $410,000 Revolving Credit Loan Agreement with a group of banks at an interest rate based on the London Interbank Offered Rate (LIBOR). The credit agreement expires in July 2004. Amounts outstanding under the Revolving Credit Loan Agreement totaled $180,000 at December 31, 2000. The Company entered into an accounts receivable securitization program in June 2000 which provides for the sale of the Company's trade accounts receivables to a wholly owned, bankruptcy remote, special purpose subsidiary, Graybar Commerce Corporation. The trade accounts receivable purchases are financed through the issuance of commercial paper under a revolving liquidity facility. Under the securitization program, Graybar Commerce Corporation has granted a security interest in its trade accounts receivable. Borrowings outstanding under the securitization program at December 31, 2000 were $200 million, the maximum available under the program. The program expires in June 2003. Borrowings under short-term credit agreements varied from a minimum of $304,000 and $14,000 to a maximum of $461,000 and $406,000 in 2000 and 1999, respectively. The average amount of borrowings outstanding under short-term credit agreements during 2000 and 1999 amounted to approximately $389,000 and $175,000 at weighted average interest rates of 6.92% and 5.81%, respectively. The averages are based on the daily amounts outstanding during each year. The weighted average interest rate for amounts outstanding at December 31, 2000 and 1999 was 7.14% and 6.76%, respectively. The Company had unused lines of credit of approximately $258,000 as of December 31, 2000. Certain lines require maintenance of compensating balances of up to 5% of the available lines of credit or annual fees of up to twenty-five basis points of the committed lines of credit. The Revolving Credit Loan Agreement and certain other note agreements have various covenants which limit the Company's ability to make investments, pay dividends, incur debt, dispose of property, and issue equity securities. The Company is also required to maintain certain financial ratios as defined in the agreements. The carrying amounts of the Company's outstanding long-term debt and short-term borrowings approximate their fair values at December 31, 2000. 5. PENSION AND OTHER POSTRETIREMENT BENEFITS The Company has a noncontributory defined benefit pension plan covering substantially all full-time employees. The plan provides retirement benefits based on an employee's final average earnings and years of service. Employees become 100% vested after five years of service, regardless of age. The Company's funding policy is to contribute the net periodic pension cost accrued each year, provided that the contribution will not be less than the ERISA minimum or greater than the maximum tax deductible amount. The assets of the defined benefit pension plan are invested primarily in equity and fixed income securities and money market funds. The Company and its subsidiaries provide certain health care and life insurance benefits for retired employees through the Retiree Welfare Plan (the Plan). Substantially all of the Company's employees may become eligible to participate in the Plan if they reach normal retirement age while working for the Company. 27 30 CONSOLIDATED FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- Benefits are provided through insurance coverage with premiums based on the benefits paid during the year. The Company funds the Plan on a pay-as-you-go basis, and accordingly, the Plan has no assets at December 31, 2000 or 1999. The following table sets forth information regarding the Company's pension and other postretirement benefits as of December 31, 2000 and 1999: Postretirement Pension Benefits Benefits ----------------- ------------------ 2000 1999 2000 1999 -------------------------------------------------- Accumulated benefit obligation $125,400 $112,100 $103,270 $ 87,070 -------- -------- -------- -------- Projected benefit obligation 176,000 157,700 -- -- Fair value of plan assets 143,375 144,015 -- -- -------- -------- -------- -------- Funded status (32,625) (13,685) (103,270) (87,070) -------- -------- -------- -------- Prepaid (accrued) benefit cost recognized in the balance sheet $ 23,760 $ 18,360 $(77,191) $(77,708) Weighted average assumptions as of December 31 are: Postretirement Pension Benefits Benefits ----------------- ------------------ 2000 1999 2000 1999 ----------------------------------------------- Discount rate 7.50% 8.00% 7.50% 8.00% Expected return on plan assets 9.50% 9.50% -- -- Rate of compensation increase 4.50% 5.00% -- -- Health care cost trend on covered charges -- -- 6.75% 7.25% The following presents information regarding the plans for the years ended December 31, 2000 and 1999: Postretirement Pension Benefits Benefits ----------------- ------------------ 2000 1999 2000 1999 --------------------------------------------------- Employer contributions $ 14,932 $ 9,629 $ 8,111 $ 7,306 Participant contributions -- -- 229 184 Benefits paid $(15,140) $(13,531) $(8,340) $(7,490) -------- -------- -------- -------- The net periodic cost recognized for the defined benefit pension plan was $9,532, $8,973 and $6,883 for each of the three years ended December 31, 2000, 1999 and 1998, respectively. The net periodic cost recognized for the postretirement benefit plan was $7,594, $7,252 and $6,811 for each of the three years ended December 31, 2000, 1999 and 1998, respectively. For measurement of the net periodic postretirement benefit cost, a 7.25% annual rate of increase in per capita cost of covered health care benefits was assumed for 2000 with the rate assumed to remain at that level. The Company also provides a defined contribution profit sharing and savings plan covering substantially all of its full-time employees. Annual contributions by the Company to the plan are at the discretion of management and are generally determined based on the profitability of the Company. Employees may also contribute to the plan subject to limitations imposed by federal tax law and ERISA. 6. NET INCOME PER SHARE OF COMMON STOCK The computation of net income per share of common stock is based on the weighted average number of common shares outstanding during each year. The average numbers of shares used in computing net income per share of common stock were 6,101,310, 6,276,161 and 5,848,372 in 2000, 1999 and 1998, respectively, adjusted for the declaration of 5% stock dividends in each of those years. 7. COMMITMENTS Rental expense was $28,576, $24,559 and $16,372 in 2000, 1999 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, 2000 are as follows: YEARS ENDING DECEMBER 31: - ----------------------------------------------------------------------------- 2001 $32,806 2002 27,998 2003 22,052 2004 15,717 2005 10,126 Subsequent to 2005 20,398 - ----------------------------------------------------------------------------- In September 2000 the Company entered into a swap agreement to manage interest rates on amounts due under certain operating leases. The agreement, which expires in July 2013, is based on a notional amount of $28.7 million. The agreement calls for an exchange of interest payments with the Company receiving payments based on a London Interbank Offered Rate (LIBOR) floating rate, and making payments based on a fixed rate of 6.92%. There is no exchange of the notional amount upon which the payments are based. The differential paid on the swap agreement in 2000 was recorded as interest expense and was not material to the Company's results of operations. The fair value of the agreement is not recognized in the financial statements at December 31, 2000. 8. STATEMENTS OF CASH FLOWS During 2000, 1999 and 1998 income taxes paid totaled $55,241, $44,030 and $36,602; interest paid totaled $48,610, $26,976 and $22,349; and liabilities assumed in connection with capitalized leases totaled $3,754, $6,661 and $9,962, respectively. 28 31 REPORT OF INDEPENDENT AUDITORS - ------------------------------------------------------------------------------ (Letterhead Ernst & Young) 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, 2000 and 1999, and the related consolidated statements of income and retained earnings, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Graybar Electric Company, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP February, 20, 2001 29 32 DISTRICT MANAGEMENT AS OF DECEMBER 31, 2000 - ----------------------------------------------------------------------------- - ------------------------------------------------ NEW YORK DISTRICT - ------------------------------------------------ Ronald P. Segraves Vice President [PHOTO] Keith E. Davis Operating Manager Brian R. Buchholz Financial Manager - ------------------------------------------------ BOSTON DISTRICT - ------------------------------------------------ Donald M. Block Vice President [PHOTO] Gerald G. Pollick Operating Manager Joseph P. Peduto Financial Manager - ------------------------------------------------ PITTSBURGH DISTRICT - ------------------------------------------------ Steven M. Schooley Vice President [PHOTO] Wade V. Leidecker Sales Manager C. Robert Smith Operating Manager Peter M. Wingrove Financial Manager - ------------------------------------------------ CINCINNATI DISTRICT - ------------------------------------------------ Kenneth L. Netherton Vice President [PHOTO] J. William Grindle Operating Manager Stephen C. Beckmann Financial Manager - ------------------------------------------------ ATLANTA DISTRICT - ------------------------------------------------ D. Steven Smith Vice President [PHOTO] Bertie M. Wilson Operating Manager Darrel D. Schilling Financial Manager - ------------------------------------------------ RICHMOND DISTRICT - ------------------------------------------------ Thomas S. Gurganous Vice President [PHOTO] J. Wayne Andrews Sales Manager Wallace H. Hancock Sales Manager T. N. (Nick) Fleming Operating Manager Ronald J. Grabar Financial Manager - ------------------------------------------------ TAMPA DISTRICT - ------------------------------------------------ Robert C. Lyons Vice President [PHOTO] Jerry D. Nichols Vice President-Service Richard C. Hird Financial Manager - ------------------------------------------------ CHICAGO DISTRICT - ------------------------------------------------ Richard A. Cole Vice President [PHOTO] Thomas E. Walsh Sales Manager John C. Fischer Operating Manager Timothy E. Carpenter Financial Manager - ------------------------------------------------ MINNEAPOLIS DISTRICT - ------------------------------------------------ Robert L. Nowak Vice President [PHOTO] Christopher O. Olsen Operating Manager Thomas E. Kinate Financial Manager - ------------------------------------------------ ST. LOUIS DISTRICT - ------------------------------------------------ Thomas F. Williams Vice President [PHOTO] Cindy J. Johnson Operating Manager Reiders L. Abel Financial Manager 30 33 DISTRICT MANAGEMENT AS OF DECEMBER 31, 2000 - ----------------------------------------------------------------------------- - ------------------------------------------------ DALLAS DISTRICT - ------------------------------------------------ Lawrence R. Giglio Vice President [PHOTO] Thomas T. Townsend Operating Manager George D. Zackey Financial Manager - ------------------------------------------------ HOUSTON DISTRICT - ------------------------------------------------ John H. Hawfield Vice President [PHOTO] Ted M. Choate Vice President-Service Timothy D. Birky Financial Manager - ------------------------------------------------ SEATTLE DISTRICT - ------------------------------------------------ John C. Loff Vice President [PHOTO] Larry T. Christensen Sales Manager Kevin L. Moehring Operating Manager Randall R. Harwood Financial Manager - ------------------------------------------------ PHOENIX DISTRICT - ------------------------------------------------ Gary D. Hodges Vice President [PHOTO] Richard A. Mitchell Sales Manager Michael D. Gaines Operating Manager James (Chip) Bateman Financial Manager - ------------------------------------------------ SPN DISTRICT - ------------------------------------------------ John C. Mansfield Vice President [PHOTO] - ------------------------------------------------ NORTHEASTERN COMM/DATA DISTRICT - ------------------------------------------------ Gerard J. McCrea Vice President [PHOTO] - ------------------------------------------------ SOUTHEASTERN COMM/DATA DISTRICT - ------------------------------------------------ Richard D. Offenbacher Vice President [PHOTO] - ------------------------------------------------ NORTH CENTRAL COMM/DATA DISTRICT - ------------------------------------------------ Dean A. DeSousa Vice President [PHOTO] - ------------------------------------------------ SOUTH CENTRAL COMM/DATA DISTRICT - ------------------------------------------------ Rob R. Bezjak Vice President [PHOTO] - ------------------------------------------------ WESTERN COMM/DATA DISTRICT AND AURORA DISTRICT - ------------------------------------------------ Kenneth B. Sparks Vice President [PHOTO] 31 34 LOCATIONS AS OF DECEMBER 31, 2000 - ----------------------------------------------------------------------------- CORPORATE OFFICE 34 North Meramec Avenue St. Louis, Missouri 63105 314 512-9200 - ------------------------------------------------ NEW YORK DISTRICT - ------------------------------------------------ 21-15 Queens Plaza North Long Island City, New York 11101 718 392-2000 BRANCHES New York: Rochester, Albany, Syracuse, Hauppauge, Buffalo, Jericho New Jersey: Newark, North Brunswick, Teterboro, Hackettstown, Parsippany, Wanamassa, Hamilton - ------------------------------------------------ BOSTON DISTRICT - ------------------------------------------------ 345 Harrison Avenue Boston, Massachusetts 02118 617 482-9320 BRANCHES Rhode Island: Cranston Massachusetts: Worcester, Springfield, Somerville Maine: Portland New Hampshire: Manchester Vermont: Rutland, Williston Connecticut: Hamden, Hartford - ------------------------------------------------ PITTSBURGH DISTRICT - ------------------------------------------------ 900 Ridge Avenue Pittsburgh, Pennsylvania 15212 412 323-5200 BRANCHES Ohio: Youngstown, Cleveland, Akron, Canton, Mansfield Pennsylvania: Greensburg, Harrisburg, Allentown, Philadelphia, Erie, Wilkes-Barre West Virginia: Wheeling Delaware: New Castle INFORMATION SYSTEMS 11828 Lackland Road St. Louis, Missouri 63146 314 692-5700 - ------------------------------------------------ CINCINNATI DISTRICT - ------------------------------------------------ 1022 West Eighth Street Cincinnati, Ohio 45203 513 621-0600 BRANCHES West Virginia: Charleston, Huntington Ohio: Columbus, Dayton, Lima Kentucky: Lexington, Louisville Tennessee: Nashville - ------------------------------------------------ ATLANTA DISTRICT - ------------------------------------------------ 2050 Nancy Hanks Drive Norcross, Georgia 30071 770 441-5580 BRANCHES Georgia: Atlanta Midtown, Marietta, Fayetteville, Savannah, Cartersville, Augusta Alabama: Birmingham, Huntsville, Mobile South Carolina: Columbia, Greenville, Spartanburg, Hilton Head, Beaufort Tennessee: Knoxville, Chattanooga Florida: Pensacola Mississippi: Jackson - ------------------------------------------------ RICHMOND DISTRICT - ------------------------------------------------ 1510 Tomlynn Street Richmond, Virginia 23230 804 354-1300 BRANCHES Virginia: Norfolk, Roanoke, Hampton, Chantilly North Carolina: Asheville, Raleigh, Winston-Salem, Charlotte, Greensboro, Wilmington, Monroe South Carolina: Rock Hill Tennessee: Bristol, Johnson City Maryland: Baltimore, Lanham - ------------------------------------------------ TAMPA DISTRICT - ------------------------------------------------ 801 North Rome Avenue Tampa, Florida 33606 813 253-8881 BRANCHES Florida: Sarasota, Lakeland, Orlando, Pinellas, Melbourne, North Tampa, Tallahassee, Jacksonville, South Jacksonville, Daytona Beach, Perrine, Miami, West Palm Beach, Florida City, Fort Myers, Fort Pierce, Naples, Pompano Beach, Gainesville, Ocala - ------------------------------------------------ CHICAGO DISTRICT - ------------------------------------------------ 900 Regency Drive Glendale Heights, Illinois 60139 630 893-3600 BRANCHES Illinois: Naperville, Chicago Downtown, Morton Grove, Joliet, Gurnee Indiana: Fort Wayne, South Bend, Hammond, Indianapolis Michigan: Flint, Lansing, Grand Rapids, Kalamazoo, Auburn Hills, Kentwood, Livonia, Belleville, Madison Heights, Shelby Township Ohio: Toledo - ------------------------------------------------ MINNEAPOLIS DISTRICT - ------------------------------------------------ 2300 East 25th Street Minneapolis, Minnesota 55406 612 721-3545 BRANCHES Minnesota: St. Paul, Duluth, Brooklyn Park, Burnsville, Plymouth, Rochester, Mankato, St. Cloud Montana: Billings North Dakota: Fargo South Dakota: Sioux Falls, Brookings Wisconsin: Green Bay, West Allis, Marinette, Manitowoc, Madison Neenah, Stevens Point, Racine - ------------------------------------------------ ST. LOUIS DISTRICT - ------------------------------------------------ 8170 Lackland Road Bel Ridge, Missouri 63114 314 512-0100 BRANCHES Iowa: Davenport, Des Moines, Cedar Rapids Illinois: East Peoria, Springfield, Collinsville Missouri: Jefferson City, Kansas City, Springfield, St. Louis (Counter) Indiana: Evansville Kansas: Olathe, Wichita Nebraska: Omaha Tennessee: Memphis, Jackson - ------------------------------------------------ DALLAS DISTRICT - ------------------------------------------------ 4601 Cambridge Road Ft. Worth, Texas 76155 817 213-1200 BRANCHES Texas: Fort Worth Counter, Amarillo, Austin, Abilene, Sherman, Lubbock, Kilgore, Dallas (Royal Lane Counter), Dallas Major Metro Oklahoma: Oklahoma City, Tulsa Arkansas: Little Rock, Conway, Springdale Louisiana: Shreveport - ------------------------------------------------ HOUSTON DISTRICT - ------------------------------------------------ 6161 Bingle Road Houston, Texas 77092 713 423-3200 BRANCHES Texas: Cypress, LaMarque, Beaumont, San Antonio, Corpus Christi Louisiana: Harahan, Baton Rouge, Lake Charles 32 35 LOCATIONS AS OF DECEMBER 31, 2000 - ----------------------------------------------------------------------------- - ------------------------------------------------ SEATTLE DISTRICT - ------------------------------------------------ 1919 Sixth Avenue South Seattle, Washington 98134 206 292-4848 BRANCHES Washington: Spokane, Tacoma, Everett, Bellevue Oregon: Portland, Beaverton, Eugene Idaho: Boise Alaska: Anchorage, Fairbanks California: Oakland Counter, Fresno, Modesto, Sacramento, San Jose, Martinez, Hayward, San Francisco Downtown, Visalia, San Carlos (Counter), Roseville Nevada: Sparks Hawaii: Honolulu - ------------------------------------------------ PHOENIX DISTRICT - ------------------------------------------------ 3350 West Earll Drive Phoenix, Arizona 85017 602 269-2131 BRANCHES Arizona: Mesa, Tucson, Scottsdale, Phoenix Midtown Colorado: Colorado Springs, Denver, Englewood New Mexico: Albuquerque Texas: El Paso Nevada: Las Vegas, Henderson Utah: Salt Lake City, Orem California: Los Angeles, Anaheim, Costa Mesa, Long Beach, San Bernardino, San Diego, Santa Barbara, Van Nuys, Bakersfield, San Marcos, Santa Maria, San Diego Downtown, Los Angeles Warehouse COMM/DATA DISTRICTS - ------------------------------------------------ SOUTH CENTRAL COMM/DATA DISTRICT - ------------------------------------------------ 8170 Lackland Road Bel Ridge, Missouri 63114 314 512-0100 - ------------------------------------------------ NORTH CENTRAL COMM/DATA DISTRICT - ------------------------------------------------ 900 Regency Drive Glendale Heights, Illinois 60139 630 893-3600 - ------------------------------------------------ NORTHEASTERN COMM/DATA DISTRICT - ------------------------------------------------ 1550 South Warfield Street Philadelphia, Pennsylvania 19146 215 336-2211 - ------------------------------------------------ SOUTHEASTERN COMM/DATA DISTRICT - ------------------------------------------------ 2050 Nancy Hanks Drive Norcross, Georgia 30071 770 441-5580 - ------------------------------------------------ WESTERN COMM/DATA DISTRICT - ------------------------------------------------ 1600 132nd Avenue, Northeast Bellevue, Washington 98005 425 468-5548 REGIONAL ZONES - ------------------------------------------------ ATLANTA REGIONAL AND NATIONAL ZONE - ------------------------------------------------ Woodlands Business Park Building 100 8180 Troon Circle Austell, Georgia 30168 678 945-9970 - ------------------------------------------------ CRANBURY REGIONAL ZONE - ------------------------------------------------ 4 Aurora Drive Suite 401 Cranbury, New Jersey 08512 609 409-8100 - ------------------------------------------------ DALLAS REGIONAL ZONE - ------------------------------------------------ 4601 Cambridge Road Fort Worth, Texas 76155 817 213-1450 - ------------------------------------------------ FRESNO REGIONAL AND NATIONAL ZONE - ------------------------------------------------ 4401 E. Central Avenue Fresno, California 93725 559 264-2393 - ------------------------------------------------ JOLIET REGIONAL AND NATIONAL ZONE - ------------------------------------------------ 1700 Crossroad Drive Joliet, Illinois 60432 815 741-4660 - ------------------------------------------------ ROGERS REGIONAL ZONE - ------------------------------------------------ 13251 George Weber Drive Rogers, Minnesota 55374 612 428-1545 - ------------------------------------------------ STAFFORD REGIONAL AND NATIONAL ZONE - ------------------------------------------------ 13131 North Promenade Boulevard Stafford, Texas 77477 281 340-5500 - ------------------------------------------------ TAUNTON REGIONAL ZONE - ------------------------------------------------ 305 John Hancock Road Taunton, Massachusetts 02780 508 821-3838 - ------------------------------------------------ YOUNGSTOWN REGIONAL AND NATIONAL ZONE - ------------------------------------------------ 1100 Ohio Works Drive Youngstown, Ohio 44510 330 799-3220 - ------------------------------------------------ INTERNATIONAL - ------------------------------------------------ 34 North Meramec Avenue St. Louis, Missouri 63105 314 512-9211 Miami International (Sales Office) 10500 Southwest 186th St. Perrine, Florida 33157 305 252-0400 San Francisco International (Sales Office) 2368 Lincoln Avenue Hayward, California 94545 510 259-0122 International Service Center 6161 Bingle Road Houston, Texas 77092 713 970-9450 LOCATIONS San Juan, Puerto Rico Singapore Mexico City, Mexico Kitchener, Ontario Hamilton, Ontario Guelph, Ontario Mississauga, Ontario Niagara Falls, Ontario Windsor, Ontario Halifax, Nova Scotia Dartmouth, Nova Scotia Bridgewater, Nova Scotia Kentville, Nova Scotia New Glasgow, Nova Scotia Sydney, Nova Scotia Truro, Nova Scotia Yarmouth, Nova Scotia Charlottetown, Prince Edward Island Bathurst, New Brunswick Florenceville, New Brunswick Fredericton, New Brunswick Moncton, New Brunswick Saint John, New Brunswick Corner Brook, Newfoundland Grand Falls-Windsor, Newfoundland St. John's, Newfoundland Wabush, Newfoundland 36 Graybar Electric Company, Inc. 34 North Meramec Avenue St. Louis, Missouri 63105 www.graybar.com