[GraybaR logo]
INFORMATION STATEMENT
MAY 12, 2006
GRAYBAR ELECTRIC COMPANY, INC.
34 NORTH MERAMEC AVENUE
CLAYTON, MISSOURI 63105
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INFORMATION STATEMENT
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This Information Statement is furnished to each holder of record of
Common Stock of Graybar Electric Company, Inc. (the "Company") and each
holder of a Voting Trust Certificate issued under the Voting Trust Agreement
referred to below in connection with the Annual Meeting of Shareholders of
the Company to be held at 9:30 A.M. on June 8, 2006 at the Commerce Bank
Building, 8000 Forsyth Boulevard, Clayton, Missouri 63105.
The record holders of Common Stock outstanding at the close of
business on April 21, 2006 will be entitled to attend and to vote at the
meeting. On April 21, 2006, there were 5,868,319 outstanding shares of
Common Stock. Each share is entitled to one vote.
On April 21, 2006, 5,594,753 of the issued and outstanding shares
of Common Stock of the Company, constituting 95% of the total outstanding,
were held of record in the names of the Voting Trustees under the Voting
Trust Agreement referred to below under "Beneficial Ownership of More Than
5% of the Outstanding Common Stock". The Voting Trustees as a group possess
the voting power associated with the shares held of record under the Voting
Trust Agreement, and such voting power is sufficient to assure the election
of the persons nominated by the Board of Directors for election as directors
and approval of any other matters brought before the meeting.
The Voting Trustees have indicated as a group that they presently
intend to vote the shares of Common Stock held by them FOR the persons
nominated by the Board of Directors for election as directors. In addition,
the Voting Trustees are authorized to vote in their discretion with respect
to such other matters as may properly come before the meeting. The Voting
Trust Agreement terminates on March 31, 2007, unless sooner terminated by
the vote of a majority of the Voting Trustees or the vote of the holders of
Voting Trust Certificates representing at least seventy-five percent (75%)
of the number of shares of Common Stock deposited thereunder.
This Information Statement will be sent to holders of Common Stock
and holders of Voting Trust Certificates on or about May 12, 2006.
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WE ARE NOT ASKING YOU FOR A PROXY AND YOU
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- 1 -
BENEFICIAL OWNERSHIP OF MORE THAN 5%
OF THE OUTSTANDING COMMON STOCK
The following table sets forth certain information as of April 21,
2006, with respect to the beneficial ownership of the only person known to
the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock. Such beneficial ownership relates solely to voting
power because the Voting Trustees do not have any power to dispose of or
direct the disposition of such shares under the Voting Trust Agreement.
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
------------------------------------ ---------------- ----------------
D. E. DeSousa, L. R. Giglio, T. S. Gurganous, R. D.
Offenbacher and R. A. Reynolds, Jr. as Voting Trustees
under a Voting Trust Agreement dated as of April 1, 1997
34 North Meramec Avenue
Clayton, Missouri 63105 5,594,753 95%
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the
ownership of Voting Trust Certificates representing shares of Common Stock
as of April 21, 2006 by the persons nominated by the Board of Directors for
election as directors, all of whom are presently directors of the Company,
and by all executive officers and directors of the Company as a group. On
April 21, 2006, no single director or executive officer owned beneficially
more than 1% of the Voting Trust Certificates. No director or executive
officer owns shares of Common Stock of record. The Voting Trustees, when
acting in that capacity, as a group possess the voting power associated with
approximately 95% of the outstanding shares of Common Stock but possess no
power of disposition with respect to such shares as discussed under
"Beneficial Ownership of More Than 5% of the Outstanding Common Stock".
NAME NUMBER OF SHARES NAME NUMBER OF SHARES
- ---- ---------------- ---- ----------------
R. A. Cole.............................. 5,232 K. M. Mazzarella....................... 3,292
D. B. D'Alessandro...................... 3,508 R. D. Offenbacher...................... 8,402
D. E. DeSousa........................... 3,033 R. A. Reynolds, Jr..................... 12,675
T. F. Dowd.............................. 4,212 K. B. Sparks........................... 8,107
L. R. Giglio............................ 5,924
T. S. Gurganous......................... 6,890
G. D. Hodges............................ 9,055 Executive officers and directors
F. H. Hughes............................ 0 as a group (14 persons)................ 77,423 (1.5%)
- 2 -
DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
Twelve directors are to be elected to serve until the next Annual
Meeting of Shareholders and until their successors have been elected and
qualified. The persons nominated by the Board of Directors for election as
directors are named in the table below and all are presently employees and
directors of the Company or one of its subsidiaries. Accordingly, for
purposes of serving on the Board or any committee, none of the directors are
deemed to be independent within the meaning of the listing standards of the
New York Stock Exchange, which the Board has elected to use for purposes of
determining independence. Certain additional information concerning them is
set forth in the table.
YEAR IN
WHICH
BECAME A
NAME AGE BUSINESS EXPERIENCE LAST FIVE YEARS DIRECTOR
- ---- --- ----------------------------------- --------
R. A. Cole 56 Employed by Company in 1972; District Vice President, March 1995 1998
to November 2001; Group Vice President, November 2001 to July
2003; District Vice President, July 2003 to present.
D. B. D'Alessandro 45 Employed by Company in 1983; Director of Strategic Planning and 2004
Development, December 1998 to June 2001; Vice President, IT
Strategy Project, June 2001 to February 2003; Vice President and
Chief Information Officer, February 2003 to May 2005; Senior Vice
President and Chief Financial Officer, May 2005 to present.
D. E. DeSousa 47 Employed by Company in 1981; Senior Vice President, Comm/Data 2000
Business, July 2000 to November 2001; Senior Vice President,
Sales and Marketing, November 2001 to January 2003; Senior Vice
President, Comm/Data Business, January 2003 to June 2003; Senior
Vice President, Sales and Distribution, June 2003 to present.
T. F. Dowd 62 Employed by Company in 1997; Vice President, Secretary and General 1997
Counsel, September 1997 to December 2005; Senior Vice President,
Secretary and General Counsel, December 2005 to present.
L. R. Giglio 51 Employed by Company in 1978; District Vice President, March 1995 2002
to April 2001; Vice President, Investment and Inventory
Management, April 2001 to April 2002; Senior Vice President,
Operations, April 2002 to present.
T. S. Gurganous 56 Employed by Company in 1973; District Vice President, March 1995 1995
to November 2001; Group Vice President, November 2001 to July
2003; District Vice President, July 2003 to present.
- 3 -
YEAR IN
WHICH
BECAME A
NAME AGE BUSINESS EXPERIENCE LAST FIVE YEARS DIRECTOR
- ---- --- ----------------------------------- --------
G. D. Hodges (1) 63 Employed by Company in 1963; District Vice President, March 1995 2000
to November 2001; Group Vice President, November 2001 to July 2003;
District Vice President, July 2003 to present.
F. H. Hughes 59 Employed by Harris & Roome Supply Limited in 1972; President and 2004
Chief Executive Officer, Graybar Electric Canada Limited, and its
wholly owned subsidiary, Graybar Canada Limited, January 2001 to
present.
K. M. Mazzarella 46 Employed by Company in 1980; Vice President, Corporate Accounts, 2004
June 1999 to June 2001; Vice President, Strategic Planning, June
2001 to January 2004; Vice President, Human Resources and Strategic
Planning, January 2004 to December 2005; Senior Vice President,
Human Resources and Strategic Planning, December 2005 to present.
R. D. Offenbacher 55 Employed by Company in 1968; District Vice President, Comm/Data, 1994
January 2001 to November 2001; Group Vice President, November 2001
to June 2003; Senior Vice President, Comm/Data Business, June 2003
to February 2004; Senior Vice President, Sales and Marketing,
February 2004 to present.
R. A. Reynolds, Jr. 57 Employed by Company in 1972; President and Chief Executive Officer, 1993
July 2000 to present; Chairman of the Board, April 2001 to present.
K. B. Sparks 60 Employed by Company in 1968; District Vice President, March 1995 2001
to November 2001; Group Vice President, November 2001 to July
2003; District Vice President, July 2003 to present.
<FN>
(1) Mr. Hodges has announced his intention to retire effective as of
July 1, 2006. The Company has no current intention to fill the
resulting vacancy on the Board of Directors.
TRANSACTIONS WITH DIRECTOR
F. H. Hughes, a director of the Company, is a director, officer and
more than 10% shareholder of a company that leases ten warehouse and office
facilities to the Company's Canadian subsidiary. The annual rent for these
facilities aggregated $1,290,000 (Canadian) in 2005. Under the terms of the
leases, the subsidiary is responsible for all taxes, insurance and
maintenance expenses related to the use of the facilities. T. F. Dowd and K.
M. Mazzarella, acting in their capacity as directors of the Canadian
subsidiary, have reviewed these transactions and concluded that the lease
terms are comparable to those that could have been obtained in arms-length
transactions with unaffiliated third parties based on a study done of market
rents of similar properties in each area and, as to the other terms, a
comparison to leases entered into by the Company generally.
- 4 -
COMMITTEES
The Board of Directors has designated an Executive Committee
consisting of Ms. Mazzarella and Messrs. D'Alessandro, DeSousa, Dowd,
Giglio, Offenbacher and Reynolds. Except as otherwise provided by law and
the Company's Certificate of Incorporation, the Executive Committee has all
the authority of the Board.
The Company has an Audit Committee, which met seven times in 2005.
Ms. Mazzarella and Messrs. Cole, Dowd, Gurganous, Hodges and Sparks are the
current members of the Audit Committee. The Audit Committee is governed by a
written charter approved by the Board of Directors, a copy of which is
attached as Exhibit A to this Information Statement. The Audit Committee and
the Board of Directors review and assess the adequacy of the charter at
least annually. None of the members of the Audit Committee is an audit
committee financial expert as that term is defined in the rules promulgated
by the Securities and Exchange Commission.
The Board of Directors has designated a Compensation Committee,
which met seven times in 2005. Ms. Mazzarella and Messrs. D'Alessandro,
DeSousa, Giglio and Offenbacher currently serve on the Compensation
Committee that, in consultation with independent compensation specialists,
reviews the Company's compensation policy and makes recommendations to the
President and the Board of Directors with respect to program changes.
The Company has no nominating committee. The Board of Directors has
determined that it is appropriate for the entire Board to participate in the
consideration of director nominees, all of whom historically have been
employees of the Company, or one of its subsidiaries, with a broad range of
management experience within the Company. When identifying an employee to
fill a vacancy or new position on the Board, the directors consider the
recommendation of the Chief Executive Officer, the background and reputation
of the candidate in terms of character, personal and professional integrity,
his or her business experience, including the positions held as an employee
of the Company, or one of its subsidiaries, and how the person would
complement the other directors in terms of expertise and experience. The
Board of Directors does not have a policy with regard to consideration of
potential candidates recommended for consideration by holders of Common
Stock and Voting Trust Certificates. The Board of Directors believes that
the procedure used traditionally, which has been for the Board to select
employees who have been promoted throughout their careers until they reach a
relatively senior management position either in the field or at corporate
headquarters, has served the Company and its employee-shareholders well.
BOARD AND COMMITTEE ATTENDANCE
The Board of Directors met six times in 2005. All incumbent
directors attended more than 75% of the total number of meetings of the
Board and all committees of which they were members. A meeting of the Board
of Directors is typically scheduled in conjunction with the annual meeting
of shareholders, and it is expected that all directors will attend the
annual meeting absent a schedule conflict or other valid reason. All of the
persons who were then directors attended the 2005 Annual Meeting.
DIRECTOR COMPENSATION
Directors are paid a meeting fee of $300.00 for each regular Board
meeting attended.
- 5 -
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting
process on behalf of the Board of Directors. Management has the primary
responsibility for the financial statements and the reporting process,
including the systems of internal control over financial reporting. In
fulfilling its oversight responsibilities, the Committee reviewed the
audited financial statements in the Annual Report with management, including
a discussion of the quality, not just the acceptability, of the accounting
principles used, the reasonableness of the significant judgments made and
the clarity of the disclosures contained in the financial statements.
The Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Committee by Statement on Auditing Standards No. 61, as amended by
Statement on Auditing Standards No. 90 (Communications with Audit
Committees). In addition, the Committee has discussed with the independent
auditors the auditors' independence from management and the Company,
including the matters in the written disclosures required by the
Independence Standards Board Standard No. 1, and has considered the
compatibility of non-audit services with the auditors' independence.
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The
Committee meets with the internal and independent auditors to discuss the
results of their examinations, their evaluations of the Company's internal
controls and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the year ended
December 31, 2005 for filing with the Securities and Exchange Commission.
The Board approved such inclusion.
T. S. Gurganous, Chair
R. A. Cole
T. F. Dowd
G. D. Hodges
K. M. Mazzarella
K. B. Sparks
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At December 31, 2005, the members of the Compensation Committee
were Ms. Mazzarella and Messrs. D'Alessandro, DeSousa, Giglio and
Offenbacher, all of whom were officers, directors and employees of the
Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee advises the Board of Directors
on matters related to compensation policy, incentive plans and other Human
Resources issues.
- 6 -
To carry out this responsibility, the Compensation Committee
regularly reviews salary and incentive plans, analyzes potential plan
changes, and makes recommendations to the Board on compensation issues. The
Compensation Committee is supported by the Human Resources staff and uses
the services of Towers Perrin, a nationally recognized firm of compensation
and benefit experts, to advise on matters of employee and executive
compensation.
Compensation Philosophy and Strategy
The Company's compensation philosophy is to offer base
pay, incentives and benefits to attract, retain and motivate
employees to help the Company achieve its financial and strategic
objectives. The Company emphasizes rewarding employees for
achieving Company, district and branch goals. Overall, the same
principles that direct the compensation of all employees also apply
to the compensation of the Company's executives.
The Compensation Committee uses the following guidelines
to evaluate and determine compensation:
o All employees, including executives, should have
market-competitive total compensation. (Total
compensation refers to base salary combined with
incentive payments and benefit plans.) In the case of
executives, the process of determining market
competitiveness includes a thorough and ongoing review
of executive compensation as compared to similar
companies.
o A significant and meaningful portion of executive
compensation should be at risk, tied to business
performance and each individual's contribution to that
performance.
Executive Compensation Elements
Using the guidelines above as a foundation, the
Compensation Committee has established a total compensation program
for executives that consists of three main elements: salary, bonus
(commonly known as the Management Incentive Plan or MIP), and other
compensation in the form of Profit Sharing.
Combined Salary and Bonus: A Towers Perrin study in
September 2005 reviewed the Company's 2004 executive base salaries
combined with the actual annual incentive payouts and concluded
that the Company's total cash compensation of the Company
executives named in the Summary Compensation Table was
significantly below median market benchmarks.
Salary: Executive salaries, including that of the Chief
Executive Officer, are determined based on a number of factors,
including the value given these positions in the relevant labor
markets, the relative difficulty of the position within the
Company, the position's effect on profitability, and the
executive's achievement of performance and development objectives.
The Compensation Committee reviews employee salaries, including
executive salaries, on a yearly basis with the help of its outside
compensation consultants and makes recommendations to the Board of
Directors regarding changes. In the 2005 study, Towers Perrin
determined that the Company's salaries of the executives named in
the Summary Compensation Table are significantly below competitive
market practices and, in the case of the Chief Executive Officer
and certain others, below the 25th percentile of the competitive
market.
- 7 -
Bonus (Management Incentive Plan): In 2005, approximately
1,600 persons participated in the Company's Management Incentive
Plan, including all officers. This Plan has been an integral part
of the Company's compensation program for many years. It is
structured in such a way that management employees at higher levels
of the organization have a greater percentage of their total
compensation at risk than managers at the lower end of the salary
scale. The bonus for each year is based on the Company's
performance against sales, gross margin and net income targets
established by the Board of Directors at the end of the prior year.
In accordance with this Plan, each participant has a
guideline incentive, ranging from 20% to 80% of base salary.
Participants may earn a maximum bonus of 150% of the applicable
guideline. This guideline is used to compute the amount to be paid
based on performance against Plan goals by multiplying the
guideline by an amount determined by the degree of attainment of
the respective goals. Branch MIP is based on the branch's
performance, district MIP on the performance of the district and
corporate MIP on the average MIP of the districts. The results
produced by the formula may be varied in the case of employees of a
district or branch at the discretion of the President or District
Vice President if it is determined that special considerations
warrant it. MIP payments made to participants for 2005 were lower
than in the preceding year because the Company's performance
against 2005 sales, gross margin and net income targets, which were
based on the 2005 district budgets, was not as strong as actual
performance against budgeted targets in the prior year.
In their 2005 study of the Company's executive
compensation, Towers Perrin found that the Company's target annual
incentives as a percent of salary are, for the most part, equal to
typical market incentive opportunities, except for the Chief
Executive Officer whose opportunity is less.
Other Compensation: The Company's executives, and all
other eligible employees, exempt and non-exempt, are included in
the Company's Profit Sharing and Savings Plan. Contributions by the
Company under the Profit Sharing and Savings Plan are made at the
discretion of the Board of Directors for eligible employees and,
subject to certain exceptions, are made in proportion to annual
compensation. Company contributions vary based on the performance
of the Company, and when profit sharing is paid, executives receive
the same contribution percentage as all other eligible employees.
Except as otherwise provided in the Profit Sharing and Savings Plan
and the related Trust Agreement, the monies held in trust
thereunder are paid to employees upon termination of employment for
any reason including their retirement or, in the event of their
death prior to the complete distribution of their interests, are
paid to their estates or designated beneficiaries. In addition, in
the years when a profit sharing contribution is made, payments are
made in cash or credited to the deferred compensation accounts of
certain executives as a result of the limitations on contributions
to the Profit Sharing and Savings Plan contained in Sections 401
and 415 of the Internal Revenue Code. Based on the Company's
performance, the Board of Directors declared a profit sharing
contribution for 2005, which was made on April 3, 2006. No profit
sharing contribution was made for 2003 or 2004.
K. M. Mazzarella, Chair
D. B. D'Alessandro
D. E. DeSousa
L. R. Giglio
R. D. Offenbacher
- 8 -
The following table summarizes the total compensation of the
Chairman of the Board, President and Chief Executive Officer and the four
other most highly compensated executive officers of the Company for fiscal
year 2005, as well as the total compensation paid to each such individual
for the Company's two previous fiscal years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND PRINCIPAL ------------------------------- ALL OTHER
POSITION YEAR SALARY(1) BONUS(1)(2) COMPENSATION(3)
- -------------------- ---- ------------------------------- ---------------
R. A. Reynolds, Jr. 2005 $509,308 $387,676 $50,670
Chairman of the Board, 2004 485,054 411,965 - 0 -
President and 2003 458,910 278,852 - 0 -
Chief Executive Officer
D. E. DeSousa 2005 $236,416 $146,258 $21,551
Senior Vice President, 2004 225,202 155,422 - 0 -
Sales and Distribution 2003 215,668 106,372 - 0 -
T. F. Dowd 2005 $216,938 $134,122 $19,881
Senior Vice President, 2004 209,516 144,535 - 0 -
Secretary and 2003 200,775 98,930 - 0 -
General Counsel
R. D. Offenbacher 2005 $214,162 $132,515 $19,429
Senior Vice President, 2004 201,278 139,089 - 0 -
Sales and Marketing 2003 173,633 89,592 - 0 -
L. R. Giglio 2005 $211,977 $131,115 $19,322
Senior Vice President, 2004 201,920 139,330 - 0 -
Operations 2003 190,974 94,161 - 0 -
<FN>
(1) Includes amounts accrued and deferred pursuant to deferred compensation
agreements with certain employees who were not eligible to participate
in the employee contribution portion of the Profit Sharing and Savings
Plan. These agreements provide for deferral of from 2% to 15% of salary
in 2003, 2004 and 2005 and 2% to 25% of bonus payments in 2003, 2004
and 2005. Payment of sums deferred will generally be made in five or
ten annual installments commencing on retirement or in a lump sum on
termination of service other than by retirement. Interest is compounded
and credited at the end of each calendar quarter based on the average
crediting rate for the prior calendar quarter under the Stable Value
(Fixed Income) Fund of the Profit Sharing and Savings Plan.
(2) Bonus payments under the Company's Management Incentive Plan are made
on or before March 15 of each year with respect to services rendered
during the prior year.
(3) Profit sharing contributions accrued for the year indicated. The profit
sharing contribution for 2005 was made on April 3, 2006, and the amount
includes payments made in cash or credited to the deferred compensation
accounts of the respective individuals as a result of limitations on
contributions to the Profit Sharing and Savings Plan contained in
Sections 401 and 415 of the Internal Revenue Code. There was no profit
sharing contribution for 2003 or 2004. See "Compensation Committee
Report on Executive Compensation - Other Compensation".
- 9 -
PENSION PLAN
The Company has a qualified defined benefit pension plan covering
all eligible employees. Employees become fully vested after five years of
service. Generally, employees may retire and begin receiving pensions at the
age of 65, or earlier under the following conditions: at age 55 with 20
years or more of Company service, at age 50 with 25 years of Company service
or any age with 30 years of Company service under the plan.
The following table sets forth annual benefits which would become
payable under the Company's pension plan or supplemental benefits plan based
on certain assumptions as to covered compensation and years of Company
service without giving effect to any applicable Social Security offset.
PENSION PLAN TABLE
YEARS OF SERVICE
COVERED -------------------------------------------------------------------------------------------
COMPENSATION 20 25 30 35 40 45
- ------------ -------- -------- -------- -------- -------- --------
$ 300,000 $ 60,000 $ 75,000 $ 90,000 $105,000 $120,000 $135,000
$ 400,000 $ 80,000 $100,000 $120,000 $140,000 $160,000 $180,000
$ 600,000 $120,000 $150,000 $180,000 $210,000 $240,000 $270,000
$ 800,000 $160,000 $200,000 $240,000 $280,000 $320,000 $360,000
$1,000,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000
$1,200,000 $240,000 $300,000 $360,000 $420,000 $480,000 $540,000
An employee's annual pension income is based on the employee's
average covered compensation during the sixty consecutive months preceding
retirement in which earnings were highest, multiplied by one percent for
each year of Company service and offset by an amount which cannot exceed
limitations imposed by the Internal Revenue Code. As of December 31, 2005,
the years of credited service for the executive officers named in the
Summary Compensation Table were as follows: R. A. Reynolds, Jr. (33), D. E.
DeSousa (24), T. F. Dowd (8), R. D. Offenbacher (38) and L. R. Giglio (27).
The amounts of salary and bonus in the Summary Compensation Table are
substantially equivalent to covered compensation under the plan. To the
extent that annual benefits exceed limitations imposed by the Internal
Revenue Code of 1986, as amended, such benefits will be paid out of the
general revenues of the Company by means of a supplemental benefits plan.
- 10 -
COMPANY PERFORMANCE
The following graph shows a five-year comparison of cumulative
total returns for the Company, the Standard & Poor's 500 Composite Stock
Index and a Comparable Company Index of the companies selected by the
Company as being representative of the Company's line of business and used
for comparison purposes in prior years. The companies included in the
Comparable Company Index are Anixter International Inc., Applied Industrial
Technologies, Inc., Building Materials Holding Corporation, W. W. Grainger,
Inc., Hughes Supply, Inc., Noland Company, Owens & Minor, Inc., Park-Ohio
Holdings Corp., Watsco, Inc. and WESCO International, Inc. The market value
of the Company stock, in the absence of a public market, assumes
continuation of the Company's practice of repurchasing offered securities at
$20.00 per share.
[Total Shareholders' Returns graph]
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2000 2001 2002 2003 2004 2005
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Graybar Electric Company, Inc. $100.00 $110.58 $121.99 $134.58 $148.46 $163.78
-----------------------------------------------------------------------------------------------------------
S&P 500 Index $100.00 $ 88.12 $ 68.66 $ 88.34 $ 97.94 $102.74
-----------------------------------------------------------------------------------------------------------
Comparable Company Index $100.00 $127.49 $130.81 $146.99 $225.86 $270.20
-----------------------------------------------------------------------------------------------------------
Assumes $100.00 invested on December 31, 2000 and reinvestment of
dividends (including the $1.10 cash dividend paid by the Company on January 2,
2001).
- 11 -
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP audited the financial statements of the Company
and its subsidiaries in 2005 and will be considered for reappointment by the
Board of Directors in June 2006. Ernst & Young LLP has advised the Company
that neither the firm nor any of its members or associates has any direct
financial interest or any material indirect financial interest in the
Company or any of its affiliates other than as accountants. No
representative of Ernst & Young LLP is expected to attend the Annual Meeting
of Shareholders.
The fees billed to the Company by Ernst & Young LLP with respect to
the years 2005 and 2004 were as follows:
2005 2004
---- ----
Audit Fees $569,594 $617,398
Audit-Related Fees $ 32,490 $ 60,658
Tax Fees $706,894 $311,562
All Other Fees -- --
Audit Fees include amounts billed for the audit of the Company's
annual consolidated financial statements, the timely review of the financial
statements included in the Forms 10-Q filed by the Company during each year,
general consultations on accounting and disclosure matters, and
international statutory audits. Audit-Related Fees include audits of the
Company's employee benefit plans, advisory services related to the
management report on internal controls, and other audit-related services.
Tax Fees include services rendered for tax compliance, tax advice, and tax
planning. It is expected that Ernst & Young LLP will provide similar
non-audit services during the year 2006. In connection with its review and
evaluation of non-audit services, the Audit Committee has considered and
concluded that the provision of the non-audit services is compatible with
maintaining the independence of Ernst & Young LLP.
The Audit Committee has established procedures for the pre-approval
of all audit and non-audit services to be performed by the independent
auditor retained to audit the Company's financial statements. Under these
procedures, types of services and an estimated range of fees are established
and pre-approved annually. Invoices for pre-approved services that are
within the pre-approved range may be paid by the Senior Vice President and
Chief Financial Officer and the Vice President and Controller. If the fees
for any type of service are expected to exceed the pre-approved limit, a
request must be submitted to the Audit Committee Chair. Services other than
those included in the annual pre-approval must be considered and authorized
in advance by the Audit Committee on an engagement-by-engagement basis.
- 12 -
MISCELLANEOUS
Effective December 1, 2005, the Company renewed the insurance
covering directors and officers, along with the fiduciary liability which
covers certain other employees against liabilities imposed on them as a
result of their employment with the Company. This coverage is provided by
Federal Insurance Company (a member of the Chubb Group) and St. Paul
Insurance Company for a total premium of $234,606 through November 30, 2006.
Holders of Common Stock and Voting Trust Certificates may
communicate directly with the Board of Directors by mail at Graybar Board of
Directors, 34 North Meramec Avenue, Clayton, Missouri 63105. All such
communications will be received directly by the Chairman of the Board and
the Senior Vice President, Secretary and General Counsel and reviewed with
the other directors as they deem appropriate.
The management of the Company knows of no other matters to be
brought before the meeting.
By Order of the Board of Directors
THOMAS F. DOWD
Secretary
May 12, 2006
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION ON FORM 10-K FOR THE YEAR 2005 WILL BE MADE AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST ADDRESSED TO THE SECRETARY OF THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES. A COPY IS ALSO ACCESSIBLE AT
WWW.GRAYBAR.COM WITHIN THE "ABOUT US" PAGE UNDER "SEC FILINGS".
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EXHIBIT A
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the Audit Committee. The
Committee shall review and reassess the charter at least annually and obtain
the approval of the Board of Directors. The Committee shall be appointed by
the Board of Directors and comprised of at least four directors.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of
Directors in fulfilling its oversight responsibility to the shareholders and
others relating to the Company's financial statements and the financial
reporting process, the systems of internal accounting and financial
controls, the internal audit function, the annual independent audit of the
Company's financial statements, and the legal compliance and ethics programs
as established by management and the Board. In so doing, it is the
responsibility of the Committee to maintain free and open communication
between the Committee, independent auditors, the internal auditors and
management of the Company. In discharging its oversight role, the Committee
is empowered to investigate any matter brought to its attention with full
access to all books, records, facilities, and personnel of the Company.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and report the
results of its activities to the Board. Management is responsible for
preparing the Company's financial statements, and the independent auditors
are responsible for auditing those financial statements. The Committee, in
carrying out its responsibilities, believes its policies and procedures
should remain flexible, in order to best react to changing conditions and
circumstances. The Committee should take the appropriate actions to set the
overall corporate "tone" for quality financial reporting, sound business
risk practices, and ethical behavior.
The following shall be the principal recurring processes of the
Audit Committee in carrying out its oversight responsibilities. The
processes are set forth as a guide with the understanding that the Committee
may supplement or modify them as appropriate.
The Committee shall have a clear understanding with management and
the independent auditors that the independent auditors are ultimately
accountable to the Board and the Audit Committee, as representatives of the
Company's shareholders. The Committee shall have complete authority and
responsibility to evaluate and, where appropriate, recommend the replacement
of the independent auditors. The Committee shall discuss with the auditors
their independence from management and the Company including the matters in
the written disclosures required by the Independence Standards Board and
shall consider the compatibility of non-audit services with the auditors'
independence. Annually, the Committee shall review and recommend to the
Board the selection of the Company's independent auditors, subject to
shareholders' approval. The Committee shall pre-approve all audit and
non-audit services performed by the independent auditors and the related
fees.
A-1
The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective audits
including the adequacy of staffing and compensation. Also, the Committee
shall discuss with management, the internal auditors, and the independent
auditors the adequacy and effectiveness of the accounting and financial
controls, including the Company's system to monitor and manage business
risk, and legal and ethical compliance programs. Further, the Committee
shall meet separately with the internal auditors and the independent
auditors to discuss the results of their examinations.
The Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the Company's
Quarterly Report on Form 10-Q. Also, the Committee shall discuss the results
of the quarterly review and any other matters required to be communicated to
the Committee by the independent auditors under generally accepted auditing
standards. The chair of the Committee may represent the entire Committee for
the purposes of this review.
The Committee shall review with management and the independent
auditors the financial statements to be included in the Company's Annual
Report on Form 10-K (or the Annual Report to Shareholders if distributed
prior to the filing of Form 10-K), including their judgment about the
quality, not just acceptability, of accounting principles, the
reasonableness of significant judgments, and the clarity of the disclosures
in the financial statements. Also, the Committee shall discuss the results
of the annual audit and any other matters required to be communicated to the
Committee by the independent auditors under generally accepted auditing
standards.
A-2
APPENDIX
Page 11 of the information statement contains a Total Shareholders'
Returns Graph. The information contained within the graph is presented in a
tabular format immediately following the graph.