09.30.12-10Q

10-Q 1 a093012-10q.htm FORM 10-Q 09302012 09.30.12-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



S	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012



£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-00255



GRAYBAR ELECTRIC COMPANY, INC.
(Exact name of registrant as specified in its charter)

New York	13-0794380
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

34 North Meramec Avenue, St. Louis, Missouri	63105
(Address of principal executive offices)	(Zip Code)

(314) 573 - 9200
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YESS NO£

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).
YESS NO£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer£ Accelerated filer£
Non-accelerated filerS (Do not check if a smaller reporting company) Smaller reporting company£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES£ NOS

Common Stock Outstanding at October 31, 2012: 12,950,481
(Number of Shares)

Graybar Electric Company, Inc. and Subsidiaries

Quarterly Report on Form 10-Q

For the Period Ended September 30, 2012

(Unaudited)

Table of Contents



PART I.	FINANCIAL INFORMATION			Page

	Item 1.	Financial Statements
			Condensed Consolidated Statements of Income	3
			Condensed Consolidated Statements of Comprehensive Income	4
			Condensed Consolidated Balance Sheets	5
			Condensed Consolidated Statements of Cash Flows	6
			Condensed Consolidated Statements of Changes in Shareholders’ Equity	7
			Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		20

	Item 4.	Controls and Procedures		20

PART II.	OTHER INFORMATION

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		22

	Item 6.	Exhibits		23

	Signatures			24

	Exhibit Index			25

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
	(Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
(Stated in thousands, except per share data)	2012			2011			2012			2011
Gross Sales	$	1,394,800		$	1,463,559		$	4,067,016		$	4,030,918
Cash discounts	(5,508		)	(5,588		)	(16,060		)	(14,809		)
Net Sales	1,389,292			1,457,971			4,050,956			4,016,109
Cost of merchandise sold	(1,133,046		)	(1,189,727		)	(3,289,222		)	(3,273,174		)
Gross Margin	256,246			268,244			761,734			742,935
Selling, general and administrative expenses	(213,396		)	(205,907		)	(635,618		)	(600,575		)
Depreciation and amortization	(8,059		)	(7,638		)	(24,013		)	(24,640		)
Other income, net	915			1,071			32,988			2,625
Income from Operations	35,706			55,770			135,091			120,345
Interest expense, net	(416		)	(1,624		)	(1,876		)	(5,286		)
Income before Provision for Income Taxes	35,290			54,146			133,215			115,059
Provision for income taxes	(15,210		)	(21,455		)	(53,849		)	(46,719		)
Net Income	20,080			32,691			79,366			68,340
Less: Net income attributable to noncontrolling interests	(68		)	(145		)	(211		)	(345		)
Net Income attributable to Graybar Electric Company, Inc.	$	20,012		$	32,546		$	79,155		$	67,995
Net Income per share of Common Stock (A)	$	1.54		$	2.53		$	6.09		$	5.28
Cash Dividends per share of Common Stock (B)	$	0.30		$	0.30		$	0.90		$	0.90
Average Common Shares Outstanding (A)	12,973			12,874			12,996			12,883


(A)	Adjusted for the declaration of a ten percent (10%) stock dividend in 2011, shares related to which were issued in February 2012. Prior to the adjustment, the average common shares outstanding were 11,704 and 11,712 for the three and nine months ended September 30, 2011, respectively.


(B)	Cash dividends declared were $3,896 and $3,519 for the three months ended September 30, 2012 and 2011, respectively. Cash dividends declared were $11,729 and $10,572 for the nine months ended September 30, 2012 and 2011, respectively.

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



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	(Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
(Stated in thousands)	2012			2011			2012			2011
Net Income	$	20,080		$	32,691		$	79,366		$	68,340
Other Comprehensive Income
Foreign currency translation	3,067			(3,891		)	2,842			(2,383		)
Unrealized gain from interest rate swap
(net of tax of $142 and $389, respectively)	—			223			—			612
Pension and postretirement benefits liability adjustment
(net of tax of $2,142, $1,488, $6,428 and $4,463, respectively)	3,365			2,337			10,097			7,010
Total Other Comprehensive Income (Loss)	6,432			(1,331		)	12,939			5,239
Comprehensive Income	$	26,512		$	31,360		$	92,305		$	73,579
Comprehensive (income) loss attributable to noncontrolling interests, net of tax	(166		)	2			(66		)	(266		)
Comprehensive Income attributable to
Graybar Electric Company, Inc.	$	26,346		$	31,362		$	92,239		$	73,313

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



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share data)					September 30, 2012			December 31, 2011
ASSETS					(Unaudited)
Current Assets
Cash and cash equivalents					$	71,790		$	71,967
Trade receivables (less allowances of $7,277 and $7,764, respectively)					782,781			797,717
Merchandise inventory					454,862			396,124
Other current assets					20,152			23,507
Total Current Assets					1,329,585			1,289,315
Property, at cost
Land					64,035			64,691
Buildings					376,413			374,008
Furniture and fixtures					206,474			188,929
Software					76,906			76,906
Capital leases					11,166			12,546
Total Property, at cost					734,994			717,080
Less – accumulated depreciation and amortization					(397,811		)	(386,150		)
Net Property					337,183			330,930
Other Non-current Assets					80,200			84,494
Total Assets					$	1,746,968		$	1,704,739
LIABILITIES
Current Liabilities
Short-term borrowings					$	75,676		$	42,562
Current portion of long-term debt					13,852			41,490
Trade accounts payable					622,289			614,004
Accrued payroll and benefit costs					80,598			117,965
Other accrued taxes					8,826			15,329
Dividends payable					—			12,943
Other current liabilities					75,952			51,289
Total Current Liabilities					877,193			895,582
Postretirement Benefits Liability					71,629			71,699
Pension Liability					123,652			136,668
Long-term Debt					2,370			10,345
Other Non-current Liabilities					20,627			19,051
Total Liabilities					1,095,471			1,133,345
SHAREHOLDERS’ EQUITY
	Shares at
Capital Stock	September 30, 2012		December 31, 2011
Common, stated value $20.00 per share
Authorized	20,000,000		20,000,000
Issued to voting trustees	11,064,972		10,611,982
Issued to shareholders	2,337,551		2,285,255
In treasury, at cost	(421,674	)	(15,725	)
Outstanding Common Stock	12,980,849		12,881,512		259,617			257,630
Advance Payments on Subscriptions to Common Stock					395			—
Retained Earnings					525,565			458,139
Accumulated Other Comprehensive Loss					(137,280		)	(150,364		)
Total Graybar Electric Company, Inc. Shareholders’ Equity					648,297			565,405
Noncontrolling Interests					3,200			5,989
Total Shareholders’ Equity					651,497			571,394
Total Liabilities and Shareholders’ Equity					$	1,746,968		$	1,704,739

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



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	(Unaudited)
	Nine Months Ended September 30,
(Stated in thousands)	2012			2011
Cash Flows from Operations
Net Income	$	79,366		$	68,340
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	24,013			24,640
Deferred income taxes	3,000			5,360
Net gains on disposal of property	(30,732		)	(36		)
Loss on impairment of property	257			—
Net income attributable to noncontrolling interests	(211		)	(345		)
Changes in assets and liabilities:
Trade receivables	14,936			(170,094		)
Merchandise inventory	(58,738		)	(38,681		)
Other current assets	3,355			318
Other non-current assets	(2,135		)	2,811
Trade accounts payable	8,285			98,529
Accrued payroll and benefit costs	(37,367		)	(9,932		)
Other current liabilities	14,194			23,870
Other non-current liabilities	8,003			(7,808		)
Total adjustments to net income	(53,140		)	(71,368		)
Net cash provided (used) by operations	26,226			(3,028		)
Cash Flows from Investing Activities
Proceeds from disposal of property	33,577			495
Capital expenditures for property	(30,662		)	(52,093		)
Net cash provided (used) by investing activities	2,915			(51,598		)
Cash Flows from Financing Activities
Net increase in short-term borrowings	33,114			71,557
Repayment of long-term debt	(35,101		)	(25,432		)
Principal payments under capital leases	(2,186		)	(2,426		)
Sale of common stock	10,501			9,745
Purchases of common stock	(8,119		)	(7,340		)
Sales of noncontrolling interests’ common stock	—			512
Purchases of noncontrolling interests’ common stock	(2,855		)	(104		)
Dividends paid	(24,672		)	(22,258		)
Net cash (used) provided by financing activities	(29,318		)	24,254
Net Decrease in Cash	(177		)	(30,372		)
Cash, Beginning of Year	71,967			82,356
Cash, End of Period	$	71,790		$	51,984

Non-cash Investing and Financing Activities
Acquisitions of equipment under capital leases	$	1,674		$	1,976

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



Graybar Electric Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

	(Unaudited, stated in thousands)

	Graybar Electric Company, Inc. Shareholders’ Equity
	Common Stock			Common Stock Subscribed, Unissued		Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Shareholders’ Equity
December 31, 2010	$	232,400		$	—	$	423,602		$	(102,343	)	$	5,148		$	558,807
Net income						67,995						345			68,340
Other comprehensive
income									5,318			(79		)	5,239
Stock issued	9,366											512			9,878
Stock purchased	(7,340		)									(104		)	(7,444		)
Advance payments				379											379
Dividends declared						(10,572		)							(10,572		)
September 30, 2011	$	234,426		$	379	$	481,025		$	(97,025	)	$	5,822		$	624,627

	Graybar Electric Company, Inc. Shareholders’ Equity
	Common Stock			Common Stock Subscribed, Unissued		Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Shareholders’ Equity
December 31, 2011	$	257,630		$	—	$	458,139		$	(150,364	)	$	5,989		$	571,394
Net income						79,155						211			79,366
Other comprehensive
income									13,084			(145		)	12,939
Stock issued	10,106														10,106
Stock purchased	(8,119		)									(2,855		)	(10,974		)
Advance payments				395											395
Dividends declared						(11,729		)							(11,729		)
September 30, 2012	$	259,617		$	395	$	525,565		$	(137,280	)	$	3,200		$	651,497

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

Graybar Electric Company, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Stated in thousands, except share and per share data)

(Unaudited)


1.	Accounting Policies

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Graybar Electric Company, Inc. (“Graybar” or the “Company”), without audit, pursuant to the rules and regulations of the United States (“US”) Securities and Exchange Commission (the “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 US (“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 reported amounts. The Company’s condensed consolidated financial statements 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 2012 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, 2011, included in the Company’s latest Annual Report on Form 10-K.

In the opinion of management, 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.

Principles of Consolidation

The condensed 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.

Merchandise Inventory

The Company’s inventory is stated at the lower of cost (determined using the last-in, first-out (“LIFO”) cost method) or market. LIFO accounting is a method of accounting that, compared with other inventory accounting methods, generally provides better matching of current costs with current sales. 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.

In assessing the ultimate realization of inventories, the Company makes judgments as to its return rights to suppliers and future demand requirements. If actual future demand, market conditions, or supplier return provisions are less favorable than those projected by management, additional inventory write-downs may be required.

New Accounting Standards Updates

In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU" or "Update") No. 2011-08, "Intangibles-Goodwill and Other: Testing Goodwill for Impairment". This ASU amends the guidance on testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. This Update does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. This guidance was adopted by Graybar for the annual period ended December 31, 2011

and all reporting periods thereafter.

In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income". This Update eliminates the option to present the components of comprehensive income as a part of the Statement of Changes in Shareholders' Equity and requires entities to present the components of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU does not change the items that are required to be reported in other comprehensive income. In December 2011, the FASB issued ASU 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05", which deferred the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income while the FASB further deliberates this aspect of the proposal. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments also do not affect how earnings per share is calculated or presented. This guidance, as amended, was adopted by Graybar for its annual reporting period ended December 31, 2011 and all reporting periods thereafter. Although adopting the guidance did not impact the Company's accounting for comprehensive income, it affected the presentation of components of comprehensive income by eliminating the Company's historical practice of showing these items within its Consolidated Statements of Changes in Shareholders' Equity.

In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS". This Update amends the guidance on fair value measurements to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with US GAAP and International Financial Reporting Standards ("IFRS"). This Update does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The Company adopted this Update as of January 1, 2012 and the adoption did not have a material impact on the Company's results of operations, financial position, or cash flows during the three or nine months ended September 30, 2012.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively the "Acts") were enacted by the US Congress in March 2010. The Acts have both short- and long-term implications for benefit plan standards. Implementation of this legislation is expected to occur in phases through 2018.

The Company's healthcare costs have increased due to the Acts' raising of the maximum eligible age for covered dependents to receive benefits. The Company anticipates that the elimination of the lifetime dollar limits per covered individual, restrictions on annual dollar limits on essential benefits per covered individual, as well as other standard requirements of the Acts, will cause its healthcare costs to increase in the future. The planned enactment of the excise tax on “high cost” healthcare plans in 2018 may also cause the Company's healthcare costs to increase further.

The Company continues to evaluate the impact, if any, the Acts will have on its financial statements as new regulations under the Acts are issued. The Company expects the general trend in healthcare costs to continue to rise and the effects of the Acts, and any future legislation, could materially impact the cost to provide healthcare benefits for many employers, including the Company.


2.	Income Taxes

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, calculated 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 income taxes in the condensed consolidated financial statements.

The Company’s unrecognized tax benefits of $4,172 and $3,746 at September 30, 2012 and December 31, 2011, respectively, are uncertain tax positions that would impact the Company’s effective tax rate if recognized. The Company is periodically engaged in tax return examinations, reviews of statute of limitations periods, and

settlements surrounding income taxes. The Company does not anticipate a material change in its unrecognized tax benefits during the next twelve months.

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 $1,404 and $1,239 in interest and penalties in its condensed consolidated balance sheets at September 30, 2012 and December 31, 2011, respectively. Interest was computed on the difference between the provision for income taxes recognized in accordance with US 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 2008 and forward are available for examination by the United States Internal Revenue Service (“IRS”). The Company's 2008 and 2009 federal income tax returns are currently under audit examination by the IRS. This examination commenced during June 2011 and is expected to be completed during 2013. Since the audit process has not yet concluded, the audit outcome cannot yet be evaluated. The Company has agreed to extend its federal statute of limitations for the 2008 tax year, which will expire on September 30, 2013, unless further extended. The Company's state income tax returns for 2007 through 2011 remain subject to examination by various state authorities, with the latest period closing on December 31, 2016. The Company has extended the statute of limitations in one state jurisdiction for the tax year 2006. The Company has not extended the statutes of limitations in any other state jurisdictions with respect to years prior to 2007. Such statutes of limitations will expire on or before November 15, 2012, unless extended.


3.	Capital Stock

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. Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable state law, a voting trust may not have a term greater than ten years. At September 30, 2012, approximately eighty-two percent (82%) of the common stock was held in a voting trust that expires by its terms on March 15, 2017. The participation of shareholders in the voting trust is voluntary at the time the voting trust is created, but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record.

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. 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.


4.	Revolving Credit Facility

On September 30, 2012 and December 31, 2011, the Company and Graybar Canada Limited, the Company's Canadian operating subsidiary (“Graybar Canada”), had an unsecured, five-year, $500,000 revolving credit agreement maturing in September 2016 with Bank of America, N.A. and other lenders named therein, which includes a combined letter of credit sub-facility of up to $50,000, a US swing line loan facility of up to $50,000, and a Canadian swing line loan facility of up to $20,000 (the "Credit Agreement"). The Credit Agreement also includes a $100,000 sublimit (in US or Canadian dollars) for borrowings by Graybar Canada and contains an accordion feature, which allows the Company to request increases in the aggregate borrowing commitments of up to $200,000.

There were $75,676 and $42,562 in short-term borrowings outstanding under the revolving credit facility at September 30, 2012 and December 31, 2011, respectively.


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 average earnings and years of service. Employees become one hundred percent (100%) vested after three years of service, regardless of age. The Company’s plan funding policy is to make contributions provided that the total annual contributions will not be less than the Employee Retirement Income Security Act ("ERISA") and the Pension Protection Act of 2006 minimums or greater than the maximum tax-deductible amount, to review contribution and funding strategy on a regular basis, and to allow discretionary contributions to be made by the Company from time to time. The assets of the defined benefit pension plan are invested primarily in fixed income and equity securities, money market funds, and other investments.

The Company provides certain postretirement health care and life insurance benefits to retired employees. Substantially all of the Company’s employees may become eligible for postretirement medical benefits if they reach the age and service requirements of the retiree medical plan and retire on a service pension under the defined benefit pension plan. Benefits are provided through insurance coverage, with premiums based on the benefits paid during the year. The Company funds postretirement benefits on a pay-as-you-go basis, and accordingly, there were no assets held in the postretirement benefits plan at September 30, 2012 and 2011.

The net periodic benefit cost for the three and nine months ended September 30, 2012 and 2011 included the following components:



	Pension Benefits						Postretirement Benefits
	Three Months Ended September 30,						Three Months Ended September 30,
	Three Months Ended September 30,						Three Months Ended September 30,
Components of Net Periodic Benefit Cost	2012			2011			2012			2011
Service cost	$	5,554		$	4,123		$	584		$	535
Interest cost	6,224			5,671			838			920
Expected return on plan assets	(5,918		)	(5,471		)	—			—
Amortization of:
Net actuarial loss	5,279			3,526			430			493
Prior service cost (gain)	346			352			(546		)	(546		)
Net periodic benefit cost	$	11,485		$	8,201		$	1,306		$	1,402

	Pension Benefits						Postretirement Benefits
	Nine Months Ended September 30,						Nine Months Ended September 30,
	Nine Months Ended September 30,						Nine Months Ended September 30,
Components of Net Periodic Benefit Cost	2012			2011			2012			2011
Service cost	$	16,661		$	12,372		$	1,752		$	1,606
Interest cost	18,672			17,013			2,516			2,759
Expected return on plan assets	(17,753		)	(16,413		)	—			—
Amortization of:
Net actuarial loss	15,837			10,578			1,290			1,478
Prior service cost (gain)	1,036			1,054			(1,636		)	(1,636		)
Net periodic benefit cost	$	34,453		$	24,604		$	3,922		$	4,207

The Company made contributions to its defined benefit pension plan totaling $10,000 during each of the three-month periods ended September 30, 2012 and 2011. Contributions made during the nine-month periods ended September 30, 2012 and 2011 each totaled $30,000. Additional contributions totaling $11,300 are expected to be paid during the remainder of 2012.


6.	Variable Interest Entity

An entity is considered to be a variable interest entity ("VIE") if its total equity investment at risk is not sufficient

to permit the entity to finance its activities without additional subordinated financial support or if its equity investors,

as a group, lack the characteristics of having a controlling financial interest. A reporting company is required to

consolidate a VIE as its primary beneficiary when it has both the power to direct the activities of the VIE that most

significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive

benefits from the VIE that could potentially be significant to the VIE.

The Company had a lease agreement with an independent lessor that was considered to be a VIE. The agreement provided $28,720 of financing for five of the Company’s distribution facilities and carried a five-year term expiring in July 2013. The financing structure used with this lease qualified as a silo of a VIE. Graybar, as lessee, retained the power to direct the operational activities that most significantly impacted the economic performance of the VIE and had an obligation to absorb losses and the right to receive benefits from the sale of the real property held by the VIE lessor. Therefore, the Company was the primary beneficiary of this VIE, and in accordance with US GAAP, consolidated the silo in its financial statements. At December 31, 2011, the consolidated silo included in the Company’s consolidated financial statements had a net property balance of $15,118, current portion of 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 December 31, 2011.

In December 2011, the Company notified the independent lessor of its intent to prepay and terminate the variable-rate lease arrangement. As a result, the Company reclassified the $27,715 debt portion of the variable-rate lease arrangement from long-term debt to current portion of long-term debt as of December 31, 2011. In March 2012, the Company terminated the lease arrangement, prepaid the $27,715 balance owed on the debt portion of the lease arrangement, and purchased the $1,005 noncontrolling interest in the consolidated silo.

7. Assets Held For Sale

The Company considers properties to be assets held for sale when all of the following criteria are met: i) a formal commitment to a plan to sell a property has been made and exercised; ii) the property is available for sale in its present condition; iii) actions required to complete the sale of the property have been initiated; iv) sale of the property is probable and the Company expects the sale will occur within one year; and v) the property is being actively marketed for sale at a price that is reasonable given its current market value.

Upon designation as an asset held for sale, the Company records the carrying value of each property at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and depreciation of the property ceases. The net book value of assets held for sale was $6,074 at December 31, 2011. During the three and nine months ended September 30, 2012, the Company sold assets classified as held for sale for $247 and $33,486 respectively, and recorded net (losses) gains on the assets held for sale of $(26) and $30,738, respectively, in other income, net. The remaining net book value of assets still held for sale at September 30, 2012 is $3,843 and is recorded in net property in the condensed consolidated balance sheet.

The Company reviews long-lived assets held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For assets classified as held and used, impairment may occur if projected undiscounted cash flows are not adequate to cover the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of the loss to be recognized. The impairment loss is calculated as the difference between the carrying amount of the asset and its estimated fair value. The analysis requires estimates of the amount and timing of projected cash flows and, where applicable, selection of an appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed necessary.

For assets held for sale, impairment occurs whenever the net book value of the property listed for sale

exceeds the expected selling price less estimated selling expenses. The Company recorded no impairment losses during the three-month period ending September 30, 2012 and impairment losses of $257 to account for the expected losses on two of the properties held for sale during the nine-month period ended September 30, 2012. The impairment losses are included in other income, net in the condensed consolidated statement of income for the nine months ended September 30, 2012. The Company did not record any impairment charges during the three and nine months ended September 30, 2011.


8.	Derivative Financial Instruments

The Company was party to an interest rate swap agreement that effectively converted its variable-rate interest

payments to a fixed-rate on amounts due under the lease arrangement discussed in Note 6. In December 2011, the Company settled the interest rate swap. The amount of loss recorded in interest expense was $3,257, of which $1,990 was recorded in accumulated other comprehensive loss at the settlement date.

Prior to settlement, the Company’s interest rate swap agreement had been designated as a cash flow hedge and was required to be measured at fair value on a recurring basis. The Company endeavored to utilize the best available information in measuring fair value. The interest rate swap was valued based on quoted data from the counterparty, corroborated with indirectly observable market data, which, combined, were deemed to be a Level 2 input in the fair value hierarchy.

Unrealized gains, net of tax, of $223 and $612 related to the swap were recorded in accumulated other comprehensive loss during the three and nine months ended September 30, 2011, respectively. The loss, net of tax, reclassified from accumulated other comprehensive loss to interest expense related to the effective portion of the interest swap was $301 and $884 during the three- and nine-month periods ended September 30, 2011, respectively. No ineffectiveness was recorded in the condensed consolidated statements of income during the three and nine months ended September 30, 2011.


9.	Commitments and Contingencies

The Company and its subsidiaries are subject to various claims, disputes, and 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 US GAAP. 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 of the range is accrued. While the Company believes that none of these claims, disputes, and 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 during which such matters are resolved or a better estimate becomes available.

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

The following discussion should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes thereto, and our 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, 2011, included in our Annual Report on Form 10-K for such period as filed with the United States ("US") Securities and Exchange Commission (the “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 (“PSLRA”), 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”, and similar expressions. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the PSLRA. 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: general economic conditions, particularly in the residential, commercial, and industrial building construction industries; volatility in the prices of industrial metal commodities; disruptions in the Company’s sources of supply; a sustained interruption in the operation of the Company’s information systems; adverse legal proceedings or other claims; and the inability, or limitations on the Company’s 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 Commission. 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 Annual Report on Form 10-K for the year ended December 31, 2011.

All dollar amounts, except per share data, are stated in thousands ($000s) in the following discussion and accompanying tables.

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, federal, state, and local governments, commercial users, telephone companies, 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 US. 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 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 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. All outstanding shares of the Company have been issued at $20.00 per share.

Business Overview

The economy in North America continues to grow slowly, although real gross domestic product in the US improved during the third quarter of 2012, compared to the second quarter. Slow economic growth is expected to continue through the end of the year, weighed down by turmoil in international financial markets and US political factors. The growth rate of consumer spending continues to be negatively impacted by high unemployment and household deleveraging. Nonresidential construction turned negative during the third quarter of 2012, particularly in the power and communications sectors, which declined 21.9% during the quarter, compared to the second quarter of 2012. Industrial production also declined at an annual rate of 0.4% on a sequential basis during the third quarter of 2012.

Graybar's net sales increased 0.9% during the nine months ended September 30, 2012, compared to the same period of 2011. Gross margin rose 2.5% during the nine months ended September 30, 2012, compared to the same period in 2011. Net sales declined 4.7% during the third quarter of 2012, compared to the third quarter of 2011, driven by a significant decrease in the comm/data market sector. The 14.0% decline in comm/data net sales during the third quarter of 2012, compared to the three months ended September 30, 2011, was mainly attributable to non-recurring project revenue from a single customer that was recognized during the third quarter of 2011, but did not repeat in 2012. Product costs remained fairly steady and price inflation had little impact on net sales growth during the nine months ended September 30, 2012, compared to the same period in 2011. This low level of product cost volatility contributed to an increase in gross margin as a percent of net sales to 18.8% during the nine months ended September 30, 2012, compared to 18.5% during the same period of 2011.

The Company expects its growth in net sales and gross margin to be modest for the full-year 2012, as weakness in the economy is expected to continue through the fourth quarter of 2012.

Consolidated Results of Operations

The following tables sets 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 nine months ended September 30, 2012 and 2011:



	Three Months Ended					Three Months Ended
	September 30, 2012					September 30, 2011
	Dollars			Percent		Dollars			Percent
Net Sales	$	1,389,292		100.0	%	$	1,457,971		100.0	%
Cost of merchandise sold	(1,133,046		)	(81.6	)	(1,189,727		)	(81.6	)
Gross Margin	256,246			18.4		268,244			18.4
Selling, general and administrative expenses	(213,396		)	(15.3	)	(205,907		)	(14.2	)
Depreciation and amortization	(8,059		)	(0.6	)	(7,638		)	(0.5	)
Other income, net	915			0.1		1,071			0.1
Income from Operations	35,706			2.6		55,770			3.8
Interest expense, net	(416		)	(0.1	)	(1,624		)	(0.1	)
Income before Provision for Income Taxes	35,290			2.5		54,146			3.7
Provision for income taxes	(15,210		)	(1.1	)	(21,455		)	(1.5	)
Net Income	20,080			1.4		32,691			2.2
Less: Net income attributable to noncontrolling interests	(68		)	—		(145		)	—
Net Income attributable to Graybar Electric Company, Inc.	$	20,012		1.4	%	$	32,546		2.2	%



	Nine Months Ended					Nine Months Ended
	September 30, 2012					September 30, 2011
	Dollars			Percent		Dollars			Percent
Net Sales	$	4,050,956		100.0	%	$	4,016,109		100.0	%
Cost of merchandise sold	(3,289,222		)	(81.2	)	(3,273,174		)	(81.5	)
Gross Margin	761,734			18.8		742,935			18.5
Selling, general and administrative expenses	(635,618		)	(15.7	)	(600,575		)	(15.0	)
Depreciation and amortization	(24,013		)	(0.6	)	(24,640		)	(0.6	)
Other income, net	32,988			0.8		2,625			0.1
Income from Operations	135,091			3.3		120,345			3.0
Interest expense, net	(1,876		)	—		(5,286		)	(0.1	)
Income before Provision for Income Taxes	133,215			3.3		115,059			2.9
Provision for income taxes	(53,849		)	(1.3	)	(46,719		)	(1.2	)
Net Income	79,366			2.0		68,340			1.7
Less: Net income attributable to noncontrolling interests	(211		)	—		(345		)	—
Net Income attributable to Graybar Electric Company, Inc.	$	79,155		2.0	%	$	67,995		1.7	%

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Net sales totaled $1,389,292 for the quarter ended September 30, 2012, compared to $1,457,971 for the quarter ended September 30, 2011, a decrease of $68,679, or 4.7%. Net sales to the electrical market sector for the three months ended September 30, 2012 were flat, while net sales to the comm/data market sector decreased 14.0%, compared to the same three-month period of 2011.

Gross margin decreased $11,998, or 4.5%, to $256,246 from $268,244 primarily due to lower net sales in the third quarter of 2012, compared to the same period of 2011. The Company’s gross margin as a percent of net sales totaled 18.4% for the three months ended September 30, 2012 and 2011.

Selling, general and administrative expenses increased $7,489, or 3.6%, to $213,396 in the third quarter of 2012 from $205,907 in the third quarter of 2011, mainly due to higher employment-related costs. Selling, general and administrative expenses as a percentage of net sales were 15.3% in the third quarter of 2012, up from 14.2% of net sales in the third quarter of 2011.

Depreciation and amortization expenses for the three months ended September 30, 2012 increased $421, or 5.5%, to $8,059 from $7,638 in the third quarter of 2011 due to an increase in property, at cost. Depreciation and amortization expenses as a percentage of net sales totaled 0.6% for the three months ended September 30, 2012, up from 0.5% of net sales in the third quarter of 2011.

Other income, net totaled $915 for the three months ended September 30, 2012, compared to $1,071 for the three months ended September 30, 2011. Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to the Company’s business activities. The decrease in other income, net was primarily due to lower trade receivable interest charges to customers during the three months ended September 30, 2012, compared to the same period in 2011.

Income from operations totaled $35,706 for the three months ended September 30, 2012, a decrease of $20,064, or 36.0%, from $55,770 for the three months ended September 30, 2011. The decrease was due to a decrease in gross margin, combined with increases in selling, general and administrative expenses and depreciation and amortization expenses.

Interest expense, net declined $1,208, or 74.4%, to $416 for the three months ended September 30, 2012 from $1,624 for the three months ended September 30, 2011. This reduction was due to a lower level of outstanding long-term debt in the third quarter of 2012, compared to the same period of 2011. Long-term debt outstanding, including the current portion, was $16,222 at September 30, 2012, compared to $70,699 at September 30, 2011.

The decrease in income from operations and lower interest expense, net resulted in income before provision for income taxes of $35,290 for the three months ended September 30, 2012, a decrease of $18,856, or 34.8%, compared to $54,146 for the three months ended September 30, 2011.

The Company’s total provision for income taxes decreased $6,245, or 29.1%, to $15,210 for the three months ended September 30, 2012, compared to $21,455 for the same period of 2011. The Company’s effective tax rate was 43.1% for the three months ended September 30, 2012, up from 39.6% for the same period of 2011. This increase was attributable to the decrease in pretax income and return to provision adjustments for the three months ended September 30, 2012, compared to the three months ended September 30, 2011.

Net income attributable to Graybar Electric Company, Inc. for the three months ended September 30, 2012 decreased $12,534, or 38.5%, to $20,012 from $32,546 for the three months ended September 30, 2011.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Net sales totaled $4,050,956 for the nine-month period ended September 30, 2012, compared to $4,016,109 for the nine-month period ended September 30, 2011, an increase of $34,847, or 0.9%. Net sales to the electrical market sector for the nine months ended September 30, 2012, increased 3.9%, while net sales to the comm/data sector decreased 5.5%, compared to the same nine-month period of 2011.

Gross margin increased $18,799, or 2.5%, to $761,734 from $742,935 primarily due to higher gross margin as a percent of net sales in the first nine months of 2012, compared to the same period of 2011. The Company’s gross margin as a percent of net sales increased to 18.8% for the nine months ended September 30, 2012 from 18.5% for the same period of 2011.

Selling, general and administrative expenses increased $35,043, or 5.8%, to $635,618, for the nine-month period ended September 30, 2012, compared to $600,575 for the nine-month period ended September 30, 2011, mainly due to higher employment-related costs. Selling, general and administrative expenses as a percentage of net sales for the nine-month period ended September 30, 2012 were 15.7%, up from 15.0% for the same nine-month period of 2011.

Depreciation and amortization expenses for the nine months ended September 30, 2012 decreased $627, or 2.5%, to $24,013 from $24,640 for the same nine-month period in 2011 due to a reduction in software amortization. Depreciation and amortization expenses as a percentage of net sales totaled to 0.6% for the nine months ended September 30, 2012 and 2011.

Other income, net totaled $32,988 for the nine-month period ended September 30, 2012, compared to $2,625 for the nine months ended September 30, 2011. Other income, net consists primarily of gains on the disposal of property, trade receivable interest charges to customers, and other miscellaneous income items related to the Company’s business activities. The increase in other income, net for the nine months ended September 30, 2012 was due to a substantial increase in net gains on the disposal of property of $30,732, partially offset by impairment losses of $(257) recorded on a property held for sale, compared to gains on the disposal of property of $36 for the same period of 2011. There were no impairment losses recorded during the nine months ended September 30, 2011.

Income from operations totaled $135,091 for the nine-month period ended September 30, 2012, an increase of $14,746, or 12.3%, from $120,345 for the nine-month period ended September 30, 2011. The increase was due to substantially higher other income, net and an increase in gross margin, which combined, outpaced the increases in selling, general and administrative expenses.

Interest expense, net declined $3,410, or 64.5%, to $1,876 for the nine-month period ended September 30, 2012 from $5,286 for the nine months ended September 30, 2011. This reduction was due to a lower level of outstanding long-term debt during the nine months ended September 30, 2012, compared to the same period of 2011. Long-term debt outstanding, including the current portion, was $16,222 at September 30, 2012, compared to $70,699 at September 30, 2011.

The increase in income from operations and lower interest expense, net resulted in income before provision for income taxes of $133,215 for the nine-month period ended September 30, 2012, an increase of $18,156, or 15.8%, compared to $115,059 for the nine-month period ended September 30, 2011.

The Company’s total provision for income taxes increased $7,130, or 15.3%, to $53,849 for the nine months ended September 30, 2012, compared to $46,719 for the same period in 2011. The Company’s effective tax rate was 40.4% for the nine months ended September 30, 2012, down from 40.6% for the same period in 2011. This decrease was attributable to increases in pretax income and reductions in permanent tax differences for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011.

Net income attributable to Graybar Electric Company, Inc. for the nine-month period ended September 30, 2012 increased $11,160, or 16.4%, to $79,155 from $67,995 for the nine months ended September 30, 2011.

Financial Condition and Liquidity

The Company generally funds its working capital requirements using cash flows generated by the collection of trade receivables and trade accounts payable terms with its suppliers, supplemented by short-term bank lines of credit. Capital assets have historically been financed by common stock sales to the Company’s employees and long-term debt.

Operating Activities

Net cash provided by operations was $26,226 for the nine-month period ended September 30, 2012, compared to $3,028 used by operations during the nine months ended September 30, 2011. Positive cash flows from operations for the nine months ended September 30, 2012 were primarily due to net income of $79,366 and a decrease in trade receivables of $14,936, partially offset by an increase in merchandise inventory of $58,738 and a decrease in accrued payroll and benefit costs of $37,367.

The average number of days of sales in trade receivables for the three-month period ended September 30, 2012 improved moderately compared to the same three-month period ended September 30, 2011. Merchandise inventory turnover declined significantly for the three months ended September 30, 2012, compared to the three months ended September 30, 2011, due to a decline in net sales.

Current assets exceeded current liabilities by $452,392 at September 30, 2012, an increase of $58,659, or 14.9%, from $393,733 at December 31, 2011.

Investing Activities

Net cash provided by investing activities totaled $2,915 for the nine months ended September 30, 2012, compared to net cash used by investing activities of $51,598 for the same period of 2011. Capital expenditures for property were $30,662 and $52,093, and proceeds from the disposal of property were $33,577 and $495, for the nine months ended September 30, 2012 and 2011, respectively. The proceeds received for the nine months ended September 30, 2012 were primarily from the sale of real property. Proceeds received during the nine months ended September 30, 2011 were primarily from the sale of personal property.

Financing Activities

Net cash used by financing activities totaled $29,318 for the nine months ended September 30, 2012, compared to net cash provided by financing activities of $24,254 for the nine months ended September 30, 2011.

Cash provided by short-term borrowings was $33,114 for the nine months ended September 30, 2012, compared to $71,557 for the nine months ended September 30, 2011. The Company made payments on long-term debt of $35,101 and capital lease obligations of $2,186 during the nine months ended September 30, 2012. During the nine months ended September 30, 2011, the Company made payments on long-term debt of $25,432 and capital lease obligations of $2,426.

Cash provided by the sale of common stock amounted to $10,501 and $9,745, and purchases of stock to be held in treasury were $8,119 and $7,340, for the nine months ended September 30, 2012 and 2011, respectively. Cash dividends paid were $24,672 and $22,258 for the nine months ended September 30, 2012 and 2011, respectively.

Cash paid for noncontrolling interests' common stock totaled $2,855 during the nine months ended

September 30, 2012, and included the $1,005 equity interest in the variable-rate lease arrangement discussed in Note 6. An additional $1,850 noncontrolling interest, substantially all of which was owned by a retiring director of the Company and his affiliated investment company, was purchased by our Canadian subsidiary under the standard terms of The Graybar Electric Canada Limited Employee Share Purchase Plan, which applies to employee stock ownership for employees of our Canadian subsidiary. Cash paid for noncontrolling interests' common stock totaled $104 during the nine months ended September 30, 2011. There were no sales of noncontrolling interests' common stock for the nine months ended September 30, 2012. Cash provided by the sale of noncontrolling interests' common stock was $512 for the nine months ended September 30, 2011.

Cash and cash equivalents were $71,790 at September 30, 2012, compared to $71,967 at December 31, 2011, a decrease of $177, or 0.2%.

Liquidity

At September 30, 2012, the Company had unused lines of credit amounting to $424,324 available, compared to $457,438 at December 31, 2011. These lines are available to meet the short-term cash requirements of the Company and certain committed lines of credit had annual fees of up to 35 basis points (0.35%) of the committed lines of credit.

Short-term borrowings outstanding during the nine months ended September 30, 2012 and 2011 ranged from a minimum of $35,105 and $13,800 to a maximum of $111,032 and $91,252, respectively.

The Company had a lease agreement with an independent lessor, which provided $28,720 of financing for five of the Company’s distribution facilities. The agreement carried a five-year term expiring in July 2013. The financing structure used with this lease qualified as a silo of a variable interest entity. In accordance with accounting principles generally accepted in the US ("US GAAP"), the Company, as the primary beneficiary, consolidated the silo in its financial statements. At December 31, 2011, the consolidated silo included in the Company’s consolidated financial statements had a net property balance of $15,118, current portion of 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 December 31, 2011.

The revolving credit facility and certain other note agreements contain various affirmative and negative covenants. The Company is also required to maintain certain financial ratios as defined in the agreements. The Company was in compliance with all covenants under these agreements as of September 30, 2012 and December 31, 2011.

New Accounting Standards Updates

than not less than the carrying amount, the two-step impairment test would be required. This Update does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. This guidance was adopted by Graybar for the annual period ended December 31, 2011 and all reporting periods thereafter.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010

The Company's healthcare costs have increased due to the Acts' raising of the maximum eligible age for covered dependents to receive benefits. The Company anticipates that the elimination of the lifetime dollar limits per covered individual, restrictions on annual dollar limits on essential benefits per covered individual, as well as other standard requirements of the Acts will cause its healthcare costs to increase in the future. The planned enactment of the excise tax on “high cost” healthcare plans in 2018 may also cause the Company's healthcare costs to increase further.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the policies, procedures, controls, or risk profile from those provided in Item 7A., “Quantitative and Qualitative Disclosures About Market Risk”, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2012, was performed under the supervision and with the participation of the Company’s management. Based on that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Changes in internal control over financial reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds.

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. Since 1928, substantially all of the issued and outstanding shares of common stock have been held of record by voting trustees under successive voting trust agreements. Under applicable state law, a voting trust may not have a term greater than ten years. The 2007 Voting Trust Agreement expires by its terms on March 15, 2017. At September 30, 2012, approximately eighty-two percent (82%) of the common stock was held in this voting trust. The participation of shareholders in the voting trust is voluntary at the time the voting trust is created, but is irrevocable during its term. Shareholders who elect not to participate in the voting trust hold their common stock as shareholders of record.

The following table sets forth information regarding purchases of common stock by the Company pursuant to the foregoing provisions:

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
July 1 to July 31, 2012	56,978	$20.00	N/A
August 1 to August 31, 2012	69,972	$20.00	N/A
September 1 to September 30, 2012	42,209	$20.00	N/A
Total	169,159	$20.00	N/A

Item 6. Exhibits.



(a)	Exhibits furnished in accordance with provisions of Item 601 of Regulation S-K.

	(3)	(i)	Articles of Incorporation

			(a)	Restated Certificate of Incorporation, as amended, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 9, 2011 (Commission File No. 000-00255) and incorporated herein by reference.

		(ii)	Bylaws

			(a)	By-laws as amended through June 9, 2011, filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K dated June 9, 2011 (Commission File No. 000-00255) and incorporated herein by reference.

	(31)	Rule 13a-14(a)/15d-14(a) Certifications

		(31.1)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.

		(31.2)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.

	(32)	Section 1350 Certifications

		(32.1)		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.

		(32.2)		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.

	101.INS*	XBRL Instance Document

	101.SCH*	XBRL Taxonomy Extension Schema Document

	101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB*	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

		* In accordance with Rule 406T of Regulation S-T promulgated by the Securities and Exchange Commission, Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			GRAYBAR ELECTRIC COMPANY, INC.


	November 8, 2012		/s/ KATHLEEN M. MAZZARELLA
	Date		Kathleen M. Mazzarella
			President and Chief Executive Officer (Principal Executive Officer)

	November 8, 2012		/s/ D. BEATTY D’ALESSANDRO
	Date		D. Beatty D’Alessandro
			Senior Vice President and Chief Financial Officer (Principal Financial Officer)

	November 8, 2012		/s/ DALE R. SHEFF
	Date		Dale R. Sheff
			Assistant Controller (Principal Accounting Officer)

EXHIBIT INDEX

Exhibits



(3(i))		Articles of Incorporation

		(a)	Restated Certificate of Incorporation, as amended, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 9, 2011 (Commission File No. 000-00255) and incorporated herein by reference.

(3(ii))		Bylaws

		(a)	By-laws as amended through June 9, 2011, filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K dated June 9, 2011 (Commission File No. 000-00255) and incorporated herein by reference.

(31.1	)	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.

(31.2	)	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.

(32.1	)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer.

(32.2	)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

		* In accordance with Rule 406T of Regulation S-T promulgated by the Securities and Exchange Commission, Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under those sections.