Graybar Electric Company, Inc. and Subsidiaries

Form 10-Q

For the Quarterly Period Ended September 30, 2009

(Unaudited)

Table of Contents

PART 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

(A)Adjusted for the declaration of a twenty percent (20%) stock dividend in 2008, shares related to which were issued in February 2009.  Prior to the adjustment, the average common shares outstanding were 8,011 and 8,010 for the three and nine month periods ended September 30, 2008.

(B)Cash dividends declared were $2,910 and $2,417 for the three months ended September 30, 2009 and 2008, respectively.  Cash dividends declared were $8,750 and $7,246 for the nine months ended September 30, 2009 and 2008, respectively.

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.

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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.

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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.

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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.

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Graybar Electric Company, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Stated in thousands except per share data)

(Unaudited)

Note 1

      The condensed consolidated financial statements included herein have been prepared by Graybar Electric Company, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC” or “Commission”) applicable to interim financial reporting.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP)(“US GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that its disclosures are adequate to make the information presented not misleading.  The preparation of financial statements in accordance with US GAAP requires the use of estimates and assumptions that affect reportedreporte d amounts.  The Company’s condensed consolidated financial sta tementsstatements include amounts that are based on management’s best estimates and judgments.  Actual results could differ from those estimates.  Certain reclassifications were made to prior year amounts to conform to the 2009 presentation.  These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2008, included in the Company’s latest Annual Report on Form 10-K.

In the opinion of the Company, this quarterly report includes all adjustments, consisting of normal recurring accruals and adjustments, necessary for the fair presentation of the financial statements presented.  Such interim financial information is subject to year-end adjustments.  Results for interim periods are not necessarily indicative of results to be expected for the full year.

Note 2

      In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing two levels of US GAAP – authoritative and non-authoritative – and making the FASB Accounting Standards Codification (“ASC”) the source of authoritative US GAAP to be applied by non-governmental entities, except for rules and interpretative releases of the SEC.  This guidance was effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The adoption changed certain disclosure references to US GAAP, but did not have any other impact on the Company’s condensed consolidated financial statements.

Note 3

      The consolidated financial statements include the accounts of Graybar Electric Company, Inc. and its subsidiary companies.  All material intercompany balances and transactions have been eliminated.  The ownership interests that are held by owners other than the Company in subsidiaries consolidated by the Company are accounted for and reported as noncontrolling interests.

      In accordance with an accounting standard issued by the FASB in December 2007, effective January 1, 2009, the Company’s minority interests were recharacterized as noncontrolling interests and are reported as a separate component of shareholders’ equity.  Purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions.  Net income attributable to the noncontrolling interests is separately identified and included in net income in the income statement.

      The Company has reclassified its noncontrolling interests to shareholders’ equity for all periods presented.  The Company also adjusted its net income to include the net income attributable to the noncontrolling interests.  Consolidated comprehensive income was also adjusted to include the comprehensive income attributable to the noncontrolling interests.

Note 4

      The Company values its inventories at the lower of cost (determined using the last-in, first-out (LIFO)(“LIFO”) cost method) or market.  LIFO accounting is a method of accounting that, compared with other inventory accountingmethods, generally provides better matching of current costs with current revenues.  An actual valuation of inventory under the LIFO method can be made only at year-end based on the inventory levels and costs at that time.  Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation.

Note 35

 The Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS 160), on January 1, 2009. SFAS 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations. This statement also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of FASB Statement No. 141 (revised 2007), “Business Combinations”.

      SFAS 160 changes the accounting and reporting for minority interests. Upon adoption, the Company’s minority interests were recharacterized as noncontrolling interests and are reported as a separate component of shareholders’ equity. Purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interests is separately identified and included in net income in the income statement.

     The presentation and disclosure requirements of SFAS 160 are applied retrospectively for all periods presented. Therefore, upon adoption, the Company reclassified its noncontrolling interests to shareholders’ equity for all periods presented. The Company also adjusted its net income to include the net income attributable to the noncontrolling interests. Consolidated comprehensive income was also adjusted to include the comprehensive income attributable to the noncontrolling interests.

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Note 4

The Company adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161), on January 1, 2009. SFAS 161 amended SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), and requires expanded disclosures about the Company’s derivative instruments and hedging activities, but does not change the scope of SFAS 133. SFAS 133, as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities – an amendment of FASB Statement No. 133”, and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, requires the Company to recognize all derivative instruments on the balance sheet at fair value.

The Company has entered into an interest rate swap agreement that converts its floating rate interest payments on a leveraged lease agreement to a fixed-rate basis.  Changes in the cash flows of the interest rate swap are expected to be highly effective in offsetting the changes in cash flows attributable to fluctuations in the variable rate on the notional amount of the debt.  The Company’s interest rate swap agreement is designated as a cash flow hedge, with the changes in fair value, to the extent the swap agreement is effective, recorded in accumulated other comprehensive loss until the hedged interest expense is recognized in earnings.  The loss (net of tax) reclassified from accumulated other comprehensive loss to interest expense related to the effective portion of the interest rate swap was $190$213 and $355$568 during the three and sixnine month periods ended JuneSeptember 30, 2009, respectively.  The Com panyCompany recorded gainsa loss (net of tax) of $429 and $368$330 in accumulated other comprehensive loss related to the effective portionchange in fair value of the interest rate swap during the three and six month periodsperiod ended JuneSeptember 30, 2009, respectively.and recorded a gain (net of tax) of $38 in accumulated other comprehensive loss related to the change in fair value of the interest rate swap during the nine month period ended September 30, 2009.  The amount of loss (net of tax) expected to be reclassified from accumulated other comprehensive loss to interest expense over the next twelve months is $1,078.$1,145.  As of JuneSeptember 30, 2009 the Company has recorded a loss (net(net of tax) of $3,189$3,306 in accumulated other comprehensive loss related to the effective portion of the interest rate swap.

Note 5

 SFAS No. 157, “Fair Value Measurements” (SFAS 157) defines fair value, establishes a framework for measuring fair value under US GAAP, and expands disclosures about fair value measurements. SFAS 157 applies under accounting pronouncements that require or permit fair value measurements, but the standard does not require any new fair value measurements. In February 2008, the FASB amended SFAS 157

      The Company’s interest rate swap is required to exclude leasing transactions and to delay the effective date by one year for nonfinancial assets and liabilities that are recognized or disclosedbe measured at fair value in the financial statements on a nonrecurringrecurring basis.  The Company adoptedendeavors to utilize the provisions of SFAS 157 as of January 1, 2008.

     SFAS 157 establishesbest available information in measuring fair value.  US GAAP has established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  TheseThe tiers in the hierarchy include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own data inputs and assumptions.

 The Company’s interest rate swap is required to be measured at fair value on a recurring basis. The Company endeavors to utilize the best available information in measuring fair value.

      The interest rate swap is valued based on quoted data from the counterparty, corroborated with indirectly observable market data, which, combined, are deemed to be a Level 2 input in the fair value hierarchy.  The fair value of the swap at JuneSeptember 30, 2009 and December 31, 2008, was $(5,218)$(5,410) and $(6,402), respectively, and recorded in other current liabilities in the condensed consolidated balance sheet.  The effective portion of the related gains or losses on the swap are deferred in accumulated other comprehensive loss.  No ineffectiveness was recorded in the consolidated statements of income during three and sixnine month periods ended JuneSeptember 30, 2009 and 2008. Unrealized gains (net of tax) of $619 and $723 related to the swap were recorded in accumulated other comprehensive loss during the three and six months ended June 30, 2009. Unrealized gains (net of tax) of $886 and $138 related to the swap were recorded in accumulated other comprehensive loss during the three and six months ended June 30, 2008, respectively. These deferred gains and losses are recognized in income in the period in which the related interest payments being hedged are recognized in expense.

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Note 6

 The FASB issued SFAS No. 165, “Subsequent Events” (SFAS 165), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS 165 is effective for interim or annual periods ending after June 15, 2009. As such, the Company adopted SFAS 165 during the quarter ended June 30, 2009.

      The Company has evaluated subsequent events through the time of the filing of this Form 10-Q with the SEC. No material subsequent events have occurred since June 30, 2009 that require recognition or disclosure in these financial statements.

Note 7

     The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes” (SFAS 109). Under this standard, the Company determines its deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of its assets and liabilities using enacted applicable tax rates.  The Company then assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes that recovery is not likely, a valuation allowance is established.  Changes in the valuation allowance, when recorded, are included in the provision for (benefit from) income taxes in the consolidated financial statements.

 The Company also follows the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

      The Company’s unrecognized tax benefits of $4,582$3,996 and $3,874 at JuneSeptember 30, 2009 and December 31, 2008, respectively, are uncertain tax positions that would impact the Company’s effective tax rate if recognized.  The Company settled income tax - -relatedtax-related issues during the first quarter of 2008 and approximately $2,600 of unrecognized tax benefits related to uncertain tax positions were released.  This resulted in a significantly lower effective tax rate for the sixnine month period ended Juneended September 30, 2008, compared to the same period of 2009.

There were no tax positions for which the ultimate deductibility was highly certain, but for which there was uncertainty about the timing of such deductibility included in the balance sheet at JuneSeptember 30, 2009 and December 31, 2008.  Because of the impact of deferred tax accounting, other than interest and penalties, any disallowance of the shorter deductibility period would not affect the annual effective tax rate,, but would accelerate the payment of cash to the taxing authority to an earlier period.

      The Company classifies interest expense and penalties as part of its provision for income taxes based upon applicable federal and state interest/underpayment percentages.  The Company has accrued $1,143$1,196 and $1,115 in interest and penalties inon its balance sheet at JuneSeptember 30, 2009 and December 31, 2008, respectively.  Interest was computed on the difference between the provision for income taxes recognized in accordance with FIN 48US GAAP and the amount of benefit previously taken or expected to be taken in the Company’s federal, state, and local income tax returns.

The Company’s federal income tax returns for the tax years 20052006 and forward are available for examination by the United States Internal Revenue Service.  The Company is currently under audit examination by the Internal Revenue Service for its 2007 federal income tax return.  This examination commenced in December 2008 and is expected to be completed in 2009.  At this time, the Company does not anticipate that the result of the audit will have a material effect on its financial statements.

The Company has not agreed to extend its federal statute of limitations for the 20052006 tax year as of JuneSeptember 30, 2009.  The federal statute of limitations for the 20052006 tax year will expire on September 15, 2009.2010.  The Company’s state income tax returns for 20042005 through 2008 remain subject to examination by various state authorities with the latest period closing on October 15, 2013.  The Company has not extended the statutes of limitations for any state jurisdictions with respect to years prior to 2004.2005.  Such state statutes of limitations will expire on or before October 15, 20092010 unless extended.

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Note 87

      The Company’s capital stock is one hundred percent (100%) owned by its active and retired employees and there is no public trading market for its common stock.  No shareholder may sell, transfer, or otherwise dispose of shares of common stock or the voting trust interests issued with respect thereto (“common stock”, “common shares”, or “shares”) without first offering the Company the option to purchase such shares at the price at which the shares were issued.  The Company also has the option to purchase at the issue price the common stock of any holder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension.  All outstanding shares of the Company have been issued at $20.00 per share. The Company has always exercised its purchase option and expects to continue to do so.  All outstanding shares of the Company have been issued at $20.00 per share.

      Approximately eighty-one percent (81%) and eighty percent (80%) of the Company’s issued and outstanding shares of common stock was deposited with the Voting Trustees and held under the 2007 Voting Trust Agreement by their beneficial owners as of JuneSeptember 30, 2009 and December 31, 2008, respectively.

Note 98

      The Company has a revolving credit agreement with a group of thirteen banks at an interest rate based on the London Interbank Offered Rate (LIBOR)(“LIBOR”) that consists of an unsecured $200,000 five-year facility expiring in May 2012.  There were no amounts outstanding under the credit agreement at JuneSeptember 30, 2009 and December 31, 2008.

Note 109

At JuneSeptember 30, 2009, and December 31, 2008, the Company had a $215,000 trade receivable securitization program that was scheduled to expire in October 2009.  Prior to expiration, the Company amended the program agreement, effective October 9, 2009, to reduce the program to a $100,000 facility that expires in October 2009.2010.  The trade receivable securitization program provides for the sale of certain of the Company’s trade receivables on a revolving basis to Graybar Commerce Corporation (“GCC”), a wholly-owned, bankruptcy-remote, special-purpose subsidiary.  GCC sells an undivided interest in the trade receivables to an unrelated multi-seller commercial paper conduit.  In the event that a dislocation in the market for the conduit’s receivables-backed commercial paper develops and the conduit is unable to purchase the undivided interest offered by GCC, the agentage nt bank for the receivable securitization program is obligated to purchase the undivided interest in the trade receivables from GCC under the terms of the program.

      The Company accounts for the securitization as an on-balance sheet financing arrangement because the Company has maintained effective control of the trade receivables through a call option that gives GCC the unilateral right to repurchase the undivided interests.  Accordingly, the trade receivables and related debt are included in the accompanying consolidated balance sheets.  GCC has granted a security interest in its tradereceivables to the commercial paper conduit.  There were no borrowings outstanding under the trade receivable securitization program at JuneSeptember 30, 2009 and December 31, 2008, respectively.2008.

 The Company is currently negotiating to replace all or a portion of the debt financing available under the trade receivable securitization program with a new or amended credit facility prior to the expiration of the trade receivable securitization program in October 2009. It is expected that the cost of any replacement credit facility will exceed that of the current trade receivable securitization program and that the term of the replacement credit facility will likely be less than the current three-year trade receivable securitization program.

     Given the continuing uncertainties in the market for asset-backed securities, there can be no assurance that an asset-backed commercial paper facility of the type employed by the Company will be available upon the expiration of the existing trade receivable securitization program in October 2009.

Note 1110

The Company has a lease agreement with an independent lessor, which provides $28,720 of financing for five of the Company’s distribution facilities.  The agreement carries a five-year term expiring July 2013.  The financing structure used with this lease qualifies as a silo of a variable interest entity and, therefore, is accounted for under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities – an interpretation of ARB No. 51” (FIN 46), andentity.   In accordance with US GAAP, the Company, as the primary beneficiary, consolidates the silo in its subsequent revision FIN 46R,“Consolidation of Variable Interest Entities (revised December 2003)—an interpretation of ARB No. 51”.financial statements.

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      As of JuneSeptember 30, 2009, the consolidated silo included in the Company’s consolidated financial statements had a net property balance of $16,496,$16,320, long-term debt of $27,715, and a noncontrolling interest of $1,005.  At December 31, 2008, the consolidated silo included in the Company’s consolidated financial statements had a net property balance of $16,862, long-term debt of $27,715, and a noncontrolling interest of $1,005.

Under the terms of the lease agreement, the amount guaranteed by the Company as the residual fair value of the property subject to the lease arrangement was $28,720 at JuneSeptember 30, 2009 and December 31, 2008.

Note 1211

      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 one hundred percent (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 Pension Protection Act of 2006 minimum or greater than the maximum tax-deductible amount.  The assets of the defined benefit plan are invested in fixed income and equity securities, money market funds, and other investments.

The Company made contributions to its qualified defined benefit pension plan totaling $8,500 and $16,000$24,500 during the three and sixnine month periods ended JuneSeptember 30, 2009, respectively.  Contributions made during the three and sixnine month periods ended JuneSeptember 30, 2008 totaled $8,800$6,200 and $18,800,$25,000, respectively.  Additional contributions totaling $18,500$10,000 are expected to be paid during the remainder of 2009.

Note 1312

      The Company and its subsidiaries are subject to various claims, disputes, administrative, and legal matters incidental to the Company’s past and current business activities.  As a result, contingencies may arise resulting from an existing condition, situation, or set of circumstances involving an uncertainty as to the realization of a possible loss.

The Company accounts for loss contingencies in accordance with the provisions of SFAS No. 5, “Accounting for Contingencies”. EstimatedCompany’s estimated loss contingencies are accrued only if the loss is probable and the amount of the loss can be reasonably estimated.  With respect to a particular loss contingency, it may be probable that a loss has occurred, but the estimate of the loss is a wide range.  If the Company deems some amount within the range to be a better estimate than any other amount within the range, that amount will be accrued.  However, if no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued.  While the Company believes that none of these claims, disputes, administrative, and legal matters will have a material adverse effect on its financial position, these matters are uncertain and the Company cannot, at this time, determine whether the financial impact, if any, of these matters will be material to its results of operations in the period in which such matters are resolved or a better estimate becomes available.

Note 1413

      Comprehensive income for the three months ended JuneSeptember 30, 2009 and 2008 was $14,060$14,521 and $31,537,$19,888, respectively.  Comprehensive income for the sixnine months ended JuneSeptember 30, 2009 and 2008 was $17,314$31,835 and $49,980,$69,868, respectively.  Comprehensive income is comprised of net income, foreign currency translation adjustments related to the Company’s operations outside of the United States, pension and postretirement liability adjustments, and changes in the fair value of the Company’s interest rate swap agreement.

Note 1514

 The FASB issued SFAS No. 168, “The FASB Accounting Standards Codification^TMand the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (Codification), in June 2009. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

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     The Codification replaces FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. The Codification will become the source of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities such as the Company. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. On its effective date, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will be considered non-authoritative.

      The FASB will not issue new standards inCompany has evaluated subsequent events through the formtime of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts after the Codification becomes effective. Instead, it will issue Accounting Standards Updates. The FASB will not consider Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates will serve only to updatefiling of this Form 10-Q with the Codification, provide background information aboutSEC.  Except for the guidance, and provide the bases for conclusions on the change(s)amendment to the Codification.trade receivable securitization program discussed in Note 9, no material subsequent events have occurred since September 30, 2009 that require recognition or disclosure in these financial statements.

 In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46R” (SFAS 167), which amends the consolidation guidance applicable to variable interest entities (VIEs). The amendments to the consolidation guidance affect all entities currently within the scope of FIN 46R, as well as qualifying special-purpose entities (QSPEs) that are currently excluded from the scope of FIN 46R. SFAS 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. The Company does not expect the adoption SFAS 167 to have a significant impact on its financial statement because of the Company’s limited use of VIE’s.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with ourthe accompanying unaudited condensed consolidated financial statements and notes thereto of Graybar Electric Company, Inc. (“Graybar” or the “Company”), and ourthe audited consolidated financial statements, notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2008, included in our Annual Report on Form 10-K for such period as filed with the U.S. Securities and Exchange Commission (“SEC” or “Commission”).  The results shown herein are not necessarily indicative of the results to be expected in any future periods.

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  These forward-looking statements generally are identified by the words “believes”, “projects”, “expects”, “anticipates”, “estimates”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will be”, “will continue”, “will likely result”,result ”, and similar expressions.  The Compa nyCompany intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.  The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse impact on the Company’s operations and future prospects on a consolidated basis include, but are not limited to: continued financial market turmoil, the impact of financial market distress on our defined benefit pension plan, disruptions in our sources of supply, changes in general economic conditions, volatility in the prices of industrial metal commodities, a sustained interruption in theth e operation of our information systems, adverse legal proceedings or other claims, and the inability, or limitation on our ability, to raise debt or equity capital.  These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Further information concerning our business, including additional factors that could materially impact our financial results, is included herein and in our other filings with the SEC.  Actual results and the timing of events could differ materially from the forward-looking statements as a result of certain factors, a number of which are outlined in Item 1A., “Risk Factors”, of the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2008.

All dollar amounts are stated in thousands ($000s) in the following discussion and accompanying tables.  Certain reclassifications were made to prior year amounts to conform to the 2009 presentation.

Background

      Graybar Electric Company, Inc. (“Graybar” or the “Company”) is a New York corporation, incorporated in 1925.  The Company is engaged in the distribution of electrical, communications and data networking (“comm/data”) products, and the provision of related supply chain management and logistics services, primarily to electrical and comm/data contractors, industrial plants, telephone companies, federal, state, and local governments, commercial users, and power utilities in North America.  All products sold by the Company are purchased by the Company from others.  The Company’s business activity is primarily with customers in the United States.  Graybar also has subsidiary operations with distribution facilities in Canada and Puerto Rico.

The Company’s capital stock is one hundred percent (100%) owned by its active and retired employees and there is no public trading market for its common stock.  No shareholders may sell, transfer, or otherwise dispose of shares of common stock or the voting trust interests issued with respect thereto (“common stock”, “common shares”, or “shares”) without first offering the Company the option to purchase such shares at the price at which shares were issued.  The Company also has the option to purchase at the issue price the common stock of any holder who dies or ceases to be an employee of the Company for any cause other than retirement on a Company pension.  The Company has always exercised its purchase option and expects to continue to do so.  AllAll outstanding shares of the Company have been issued at $20.00$2 0.00 per share.

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Business Overview

      The credit and financial market crisis which began in September 2008 appears to have abated somewhat, particularly in the United States.  However, recessionary conditions persist and credit availability remains tight within the Company’s North American trading area.  Spending on new construction and capital expenditures on plant and equipment during the first halfnine months of 2009 was well below the level of a year ago and had a considerable negative impact on the Company’s results of operations for the three and sixnine month periods ended JuneSeptember 30, 2009.

      Net sales declined 19.4%20.5% and gross margin decreased 18.9%18.5% during the first half ofnine months ended September 30, 2009, compared to the same sixnine months ended JuneSeptember 30, 2008.  The Company believes that approximately fivefour percentage points (4%) of the net sales decline is attributable to product price deflation, though deflationary pressures eased somewhat during the second quarter of 2009, compared to the three months ended March 31, 2009.deflation.  Selling, general and administrative expenses also declined, but to a lesser extent than gross margin, resulting in a 68.8%62.8% decrease in income from operations during the sixnine months ended JuneSeptember 30, 2009, compared to the same period in 2008.

      The Company expects little, if any, improvement in the markets for products sold by the Company during the last halffourth quarter of 2009, although there are some indications that the downward trend of the overall economy may have reached a bottom.  As a result, the Company anticipates continued negative year-over-year comparisons of both net sales and gross margin for the balance of 2009.  Graybar believes, however, that its experienced management team, solid balance sheet, and continued positive, though lower, income from operations, will enable the Company to not only weather this severe downturn in the economy, but to emerge well-positioned for the return of economic growth.

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Consolidated Results of Operations

      The following table setstables set forth certain information relating to the operations of the Company stated in thousands of dollars and as a percentage of net sales for the three and sixnine months ended JuneSeptember 30, 2009 and 2008.