-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RAqD8QZyF35hk+sC0rpAuTwrZJEJs44sY+6bMgnVjGM75WmfyFQSYlPJpVvaF3aL CyTQ3po4hlXza4qahxKQgw== 0000277135-00-000007.txt : 20000512 0000277135-00-000007.hdr.sgml : 20000512 ACCESSION NUMBER: 0000277135-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAINGER W W INC CENTRAL INDEX KEY: 0000277135 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DURABLE GOODS [5000] IRS NUMBER: 361150280 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05684 FILM NUMBER: 626307 BUSINESS ADDRESS: STREET 1: 100 GRAINGER PARKWAY CITY: LAKE FOREST STATE: IL ZIP: 60045-5201 BUSINESS PHONE: 847-535-1000 10-Q 1 1ST QUARTER, 2000 FORM 10-Q 43 Pages Complete QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 2000 or [ ] 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 1-5684 I.R.S. Employer Identification Number 36-1150280 W.W. Grainger, Inc. (An Illinois Corporation) 100 Grainger Parkway Lake Forest, Illinois 60045-5201 Telephone: (847) 535-1000 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. Yes X No ------ ------ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 93,944,330 shares of the Company's Common Stock were outstanding as of April 28, 2000. The Exhibit Index appears on page 17 in the sequential numbering system. 1 Part I - FINANCIAL INFORMATION W.W. Grainger, Inc., and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (In thousands of dollars except for per share amounts) (Unaudited)
Three Months Ended March 31, ------------------------------ 2000 1999 ------------ ------------ Net sales .................................. $ 1,195,194 $ 1,090,843 Cost of merchandise sold ................... 773,647 687,981 ------------ ------------ Gross profit ............................ 421,547 402,862 Warehousing, marketing, and administrative expenses ................. 346,770 306,596 ------------ ------------ Operating earnings ...................... 74,777 96,266 Other income or (deductions) Interest income ......................... 497 410 Interest expense ........................ (6,102) (1,733) Unclassified-net ........................ 91 (384) ------------ ------------ (5,514) (1,707) ------------ ------------ Earnings before income taxes ............... 69,263 94,559 Income taxes ............................... 28,052 38,296 ------------ ------------ Net earnings ............................ $ 41,211 $ 56,263 ============ ============ Earnings per share: Basic ................................... $ 0.44 $ 0.61 ============ ============ Diluted .................................. $ 0.44 $ 0.60 ============ ============ Weighted average number of shares outstanding: Basic ................................... 92,917,780 92,833,727 ============ ============ Diluted ................................. 94,416,374 94,210,765 ============ ============ Cash dividends paid per share .............. $ 0.16 $ 0.15 ============ ============ The accompanying notes are an integral part of these financial statements.
2 W.W. Grainger, Inc., and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (In thousands of dollars) (Unaudited)
Three Months Ended March 31, ---------------------------- 2000 1999 -------- -------- Net Earnings ...................................... $ 41,211 $ 56,263 Other comprehensive earnings (loss): Foreign currency translation adjustments ....... (1,090) 2,537 Unrealized (loss) on investments, net of tax ... (10,381) - -------- -------- Comprehensive earnings ............................ $ 29,740 $ 58,800 ======== ======== The accompanying notes are an integral part of these financial statements.
3 W.W. Grainger, Inc., and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands of dollars) (Unaudited)
ASSETS March 31, 2000 Dec. 31, 1999 - ----------------------------------------------------------------- -------------- -------------- CURRENT ASSETS Cash and cash equivalents ..................................... $ 64,685 $ 62,683 Accounts receivable, less allowance for doubtful accounts of $19,203 in 2000 and $18,369 in 1999 ............. 600,974 561,786 Inventories ................................................... 773,214 762,495 Prepaid expenses .............................................. 37,235 18,387 Deferred income tax benefits .................................. 67,554 65,794 -------------- -------------- Total current assets ........................................ 1,543,662 1,471,145 PROPERTY, BUILDINGS, AND EQUIPMENT .............................. 1,301,776 1,302,029 Less accumulated depreciation and amortization ................ 613,772 604,278 -------------- -------------- Property, buildings, and equipment-net ........................ 688,004 697,751 OTHER ASSETS .................................................... 380,809 395,930 -------------- -------------- TOTAL ASSETS .................................................... $ 2,612,475 $ 2,564,826 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY - ----------------------------------------------------------------- CURRENT LIABILITIES Short-term debt ............................................... $ 283,519 $ 296,836 Current maturities of long-term debt .......................... 27,718 27,721 Trade accounts payable ........................................ 295,153 260,084 Accrued expenses .............................................. 263,479 285,507 Income taxes .................................................. 32,923 386 -------------- -------------- Total current liabilities ................................... 902,792 870,534 LONG-TERM DEBT (less current maturities) ........................ 124,457 124,928 DEFERRED INCOME TAXES ........................................... 41,419 48,117 ACCRUED EMPLOYMENT RELATED BENEFITS COSTS ....................... 41,425 40,718 SHAREHOLDERS' EQUITY Cumulative Preferred Stock - $5 par value - authorized, 12,000,000 shares, issued and outstanding, none ........... - - Common Stock - $0.50 par value - authorized, 300,000,000 shares; issued, 107,732,855 shares, 2000 and 107,460,978 shares, 1999 .................................. 53,866 53,730 Additional contributed capital ................................ 264,285 255,569 Retained earnings ............................................. 1,733,514 1,707,258 Unearned restricted stock compensation ........................ (18,019) (16,581) Accumulated other comprehensive earnings ...................... 57,320 68,791 Treasury stock, at cost - 14,086,892 shares, 2000 and 14,079,292 shares, 1999 .................................... (588,584) (588,238) -------------- -------------- Total shareholders' equity .................................... 1,502,382 1,480,529 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... $ 2,612,475 $ 2,564,826 ============== ============== The accompanying notes are an integral part of these financial statements.
4 W.W. Grainger, Inc., and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited)
Three Months Ended March 31, -------------------------------- 2000 1999 -------------- -------------- Cash flows from operating activities: Net earnings .................................................. $ 41,211 $ 56,263 Provision for losses on accounts receivable ................... 3,553 3,035 Depreciation and amortization: Property, buildings, and equipment .......................... 21,458 17,908 Intangibles and goodwill .................................... 4,002 3,965 Amortization of capitalized software ........................ 3,492 2,290 Change in operating assets and liabilities: (Increase) in accounts receivable ........................... (42,741) (47,738) (Increase) in inventories ................................... (10,719) (19,824) (Increase) in prepaid expenses .............................. (18,848) (16,650) (Increase) in deferred income taxes ......................... (1,594) (648) Increase in trade accounts payable .......................... 35,069 56,470 (Decrease) in other current liabilities ..................... (22,028) (77,095) Increase in current income taxes payable .................... 32,537 22,651 Increase in accrued employment related benefits costs ............................................ 707 741 Other - net ................................................... 481 270 -------------- -------------- Net cash provided by operating activities ....................... 46,580 1,638 -------------- -------------- Cash flows from investing activities: Additions to property, buildings, and equipment - net of dispositions ............................. (11,711) (37,966) Expenditures for capitalized software ......................... (9,635) (4,228) Other - net ................................................... (1,493) (274) -------------- -------------- Net cash (used in) investing activities ......................... (22,839) (42,468) -------------- -------------- Cash flows from financing activities: Net (decrease) increase in short-term debt .................... (13,317) 65,872 Long-term debt payments ....................................... (17) (16) Stock incentive plan .......................................... 6,896 852 Purchase of treasury stock-net ................................ (346) (13,212) Cash dividends paid ........................................... (14,955) (14,003) -------------- -------------- Net cash (used in) provided by financing activities ............. (21,739) 39,493 -------------- -------------- Net increase (decrease) in cash and cash equivalents ............ 2,002 (1,337) Cash and cash equivalents at beginning of year .................. 62,683 43,171 -------------- -------------- Cash and cash equivalents at end of period ...................... $ 64,685 $ 41,834 ============== ============== The accompanying notes are an integral part of these financial statements.
5 W.W. Grainger, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF STATEMENT PRESENTATION The financial statements and the related notes are condensed and should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 1999, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions are eliminated. Inventories are valued at the lower of cost or market. Cost is determined primarily by the last-in, first-out (LIFO) method. The unaudited financial information reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the statements contained herein. 2. DIVIDEND On April 26, 2000, the Board of Directors declared a quarterly dividend of 17 cents per share, payable June 1, 2000 to shareholders of record on May 8, 2000. 6 W.W. Grainger, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 3. SEGMENT INFORMATION (In thousands of dollars) The following segment disclosures are condensed and should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 1999, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Three Months Ended March 31, 2000 ---------------------------------------------------------------- Branch-based Distribution Digital Other Totals ------------ ------------ ------------ ------------ Total net sales ........................ $ 1,078,190 $ 6,280 $ 120,928 $ 1,205,398 Intersegment net sales ................. 2,654 6,080 1,470 10,204 Net sales from external customers ...... 1,075,536 200 119,458 1,195,194 Segment operating earnings ............. 84,508 (10,933) 11,502 85,077
Three Months Ended March 31, 1999 ---------------------------------------------------------------- Branch-based Distribution Digital Other Totals ------------ ------------ ------------ ------------ Total net sales ........................ $ 993,354 $ 663 $ 100,573 $ 1,094,590 Intersegment net sales ................. 2,614 388 745 3,747 Net sales from external customers ...... 990,740 275 99,828 1,090,843 Segment operating earnings ............. 103,708 (3,644) 6,195 106,259
Branch-based Distribution Digital Other Totals ------------ ------------ ------------ ------------ Segment Assets At March 31, 2000 ...................... $ 2,074,321 $ 10,584 $ 183,708 $ 2,268,613 ============ ============ ============ ============ At December 31, 1999 ................... $ 2,060,781 $ 3,615 $ 161,865 $ 2,226,261 ============ ============ ============ ============
7 W.W. Grainger, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 3. SEGMENT INFORMATION (In thousands of dollars) A reconciliation of segment information to consolidated information is as follows:
Three Months Ended March 31, ------------------------------ 2000 1999 ------------ ------------ Total operating earnings for reportable segments ........... $ 85,077 $ 106,259 Unallocated expenses ....................................... (10,300) (9,993) Elimination of intersegment profits ........................ - - ------------ ------------ Total consolidated operating earnings .................... $ 74,777 $ 96,266 ============ ============
March 31, December 31, 2000 1999 ------------ ------------ Assets: Total assets for reportable segments ....................... $ 2,268,613 $ 2,226,261 Unallocated assets ......................................... 343,862 338,565 ------------ ------------ Total consolidated assets ................................ $ 2,612,475 $ 2,564,826 ============ ============
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 1999: Company Net Sales ----------------- The Company's net sales of $1,195,194,000 in the 2000 first quarter increased 9.6% from net sales of $1,090,843,000 for the comparable 1999 period. This increase was primarily driven by volume growth in the branch-based businesses, especially in Canada and Mexico; continued strong growth in Internet transactions; and strong growth at Grainger Integrated Supply. There were 65 sales days in the 2000 quarter versus 63 sales days in the 1999 quarter. On a daily basis the Company's net sales increased 6.2%. The year 2000 will have one more sales day than did 1999 (255 vs. 254). Sales processed through the digital businesses plus the sales that originated through Grainger.com were $62 million for the first quarter of 2000 as compared with $10 million in the 1999 first quarter. Segment Net Sales The following comments at the segment level include external and intersegment net sales; those comments at the business unit level include external and inter- and intrasegment net sales. For segment information see Note 3 of the Notes to Consolidated Financial Statements included in this report. Branch-based Distribution Businesses - ------------------------------------ Net sales of $1,078,190,000 for the first quarter of 2000 increased 8.5% when compared with net sales of $993,354,000 in the first quarter of 1999. Average daily net sales increased 5% for the 2000 first quarter compared with the 1999 first quarter. Sales growth in the United States was tempered by a decline in sales to large accounts requiring customized services, lower pricing as a result of selected price decreases, and customer mix variations. Contributing to the 2000 first quarter growth in the United States were 22 branches opened during 1999 and increased sales to government accounts. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS (Continued) Acklands-Grainger Inc. experienced strong sales growth across most of Canada. The growth was driven by an improvement in the oil and gas and forestry sectors of the economy, gains in large customer account business, and the volume impact of 8 new branches opened during 1999. In Canadian dollars, average daily sales increased 14%. The Company is planning to open additional branches in Canada in 2000. The Mexican operation experienced strong sales growth reflecting the continued planned development of this business. A key driver was increased sales to customers located in Mexico's interior, which are served by the Company's facility in Monterrey. This growth in sales was attributable to market share expansion and account penetration. In January, the Company opened a storefront branch in Guadalajara. Net sales of the Branch-based Distribution Businesses were also favorably affected by continued momentum associated with the Company's Internet strategy. Sales orders processed through Grainger.com were $55 million, a 450% increase over first quarter 1999 sales of $10 million. Digital Businesses - ------------------ Net sales for the first quarter of 2000 were $6,280,000, an increase of 847.2% compared with $663,000 for the same period of 1999. Net sales for these businesses included product sales and service fee revenues for FindMRO.com and service fee revenue for Grainger Auction, OrderZone.com, and TotalMRO.com. FindMRO.com and Grainger Auction were officially launched in November 1999, whereas TotalMRO.com opened for business on March 31, 2000. TotalMRO.com is a utility that brings together a variety of distributors and key technology partners in an easily searchable site containing millions of maintenance, repair, and operating products and services. Other Businesses - ---------------- Net sales for the first quarter of 2000 were $120,928,000, an increase of 20.2% compared with $100,573,000 for the same period of 1999. Average daily sales for Grainger Integrated Supply increased 51% for the 2000 first quarter compared with the 1999 first quarter. Sales for this business unit include product sales and management fees. Growth was driven by new engagements, contract renewals, and scope expansions. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS (Continued) Average daily sales for Lab Safety Supply, the Company's direct marketing business, increased for the first quarter 2000 compared with the same period of 1999. The increase at Lab Safety Supply reflects the continued growth of industrial product sales and expanded market share attained through new customer accounts. Company Net Earnings -------------------- The Company's net earnings of $41,211,000 in the first quarter of 2000 decreased 26.8% when compared to the net earnings of $56,263,000 for the comparable 1999 period. This decline resulted from a decrease in operating earnings and an increase in other deductions. Operating earnings declined at the Branch-based Distribution Businesses and the loss at the Digital Businesses increased. Operating earnings improved at the Other Businesses. Segment Operating Earnings The following comments at the segment level include external and intersegment operating earnings; those comments at the business unit level include external and inter- and intrasegment operating earnings. For segment information see Note 3 of the Notes to Consolidated Financial Statements included in this report. Branch-based Distribution Businesses - ------------------------------------ Operating earnings of $84,508,000 declined 18.5% for the first quarter 2000 as compared with $103,708,000 for the 1999 period. The majority of the shortfall resulted from lower gross profit margins which decreased 1.65 percentage points from the comparable 1999 quarter. This decline was caused by the following factors: 1. An unfavorable change in selling price category mix, which was driven by faster growth in sales to large customers and lower selling prices on selected products coinciding with the issuance of the Grainger Industrial Supply Catalog in February 2000. 2. Current recognition of certain product costs not fully recorded in 1999 until the fourth quarter physical inventory due to system installation issues. Partially offsetting the above factors was a favorable product mix related to new products added since the first quarter of 1999. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS (Continued) Also contributing to lower operating earnings were higher operating expenses, which increased 13% for the 2000 first quarter as compared with the 1999 period. This increase was a result of the following factors: o Continued spending to enhance and market Grainger.com. Grainger.com spending for the 2000 first quarter was $12.6 million compared with $2.5 million for the 1999 period. o Increased data processing and systems development expenses, as well as higher costs associated with the operation of the Enterprise Resource Planning (ERP) System. o Increased occupancy costs related to 8 new branches in Canada, 22 new branches in the United States, and the new Lake Forest office facility opened during 1999. o Higher freight-out expenses primarily driven by increased per shipment costs and increased shipments made directly to customers. Digital Businesses - ------------------ The Digital Businesses incurred operating losses of $10,933,000 compared with operating losses of $3,644,000 for the first quarter of 1999. These operating losses resulted from increased operating expenses incurred to launch, operate, and market these new digital businesses. Total Internet related operating expenses, as represented by this segment plus Grainger.com, (which is included in the Branch-based Distribution Businesses) were $25 million for the 2000 first quarter as compared with $7 million for the 1999 period. This increase for the quarter ended March 31, 2000 was primarily the result of incremental operating expenses incurred by the Company to develop, launch, operate, and market its portfolio of Web sites. The Company estimates that total Internet spending in the year 2000 will range between $110 and $120 million. Sales processed through the digital businesses plus Grainger.com were $62 million for the 2000 first quarter as compared with $10 million in the 1999 first quarter. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS (Continued) Other Businesses - ---------------- Grainger Integrated Supply experienced an operating loss in the first quarter of 2000 that was 27% less than the operating loss incurred during the first quarter of 1999. This improvement in operating performance reflects improved productivity, partially offset by lower gross profit margins. The decrease in gross profit margins related to product sales, which grew at a faster rate than related management fee income. Operating earnings at Lab Safety Supply increased at a faster rate than the growth in sales, reflecting positive operating leverage from this direct marketing business. Other Deductions Other deductions of $5,514,000 in the first quarter of 2000 increased 223% compared with $1,707,000 in the prior year's first quarter. Other deductions were higher principally due to an increase in interest expense. This increase resulted from higher average borrowings, higher average interest rates paid on all outstanding debt, and lower capitalized interest. Income Taxes The Company's effective tax rate was 40.5% for the first quarter of both 2000 and 1999. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS (Continued) Year 2000 --------- The Year 2000 issue is the result of computer programs using two digits rather than four to define the applicable year. Computer programs that have date sensitive software may recognize a date using "00" as the year 1900 versus the year 2000. This could result in systems failure or in miscalculation causing disruptions to operations. The Company's efforts in response to the Year 2000 issue included the review of information technology and non-information technology products and systems, the remediation or replacement, and testing, of affected information technology systems and facilities, the surveying of key suppliers of goods and services, and the creation of reasonable contingency plans to address potentially serious Year 2000 problems. Expenses associated with the Year 2000 project included both a reallocation of existing internal resources and the use of outside services. Year 2000 expenses from the inception of the project through 1999 year end are estimated to be $62,000,000. Year 2000 expenses after 1999 are expected to be minimal. The Company did not experience any material systems, product supply, or customer service disruptions as a result of Year 2000 problems. There can be no assurance, however, that such disruptions will not occur by reason of Year 2000 or other date-related problems yet to become manifest. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 2000, working capital increased by $40,259,000. The ratio of current assets to current liabilities was 1.7 at both March 31, 2000 and December 31, 1999. The Consolidated Statements of Cash Flows, included in this report, detail the sources and uses of cash and cash equivalents. The Company maintains a debt ratio and liquidity position that provides reasonable flexibility in funding working capital needs and long-term cash requirements. In addition to internally generated funds, the Company has various sources of financing available, including commercial paper sales and bank borrowings under lines of credit and otherwise. Total debt as a percent of Shareholders' Equity was 29% at March 31, 2000 and 30% at December 31, 1999. For the first three months of 2000, $12,186,000 was expended for property, buildings, and equipment, and $9,635,000 was expended for capitalized software, for a total of $21,821,000. FORWARD-LOOKING STATEMENTS Throughout this Form 10-Q are forward-looking statements about the Company's expected future financial results and business plans, strategies, and objectives. These forward-looking statements are often identified by qualifiers such as: "expects," "plans," " anticipates," "intends," or similar expressions. There are risks and uncertainties the outcome of which could cause the Company's results to differ materially from what is projected. Factors that may affect the forward-looking statements include the following: higher product costs or other expenses; a major loss of customers; increased competitive pricing pressure on the Company's businesses; failure to develop, implement, or commercialize successfully new Internet technologies or other business strategies; the outcome of pending and future litigation and governmental proceedings; changes in laws and regulations; facilities disruptions or shutdowns due to accidents, natural acts or governmental action; unanticipated weather conditions; and other difficulties in improving margins or financial performance. Trends and projections could also be affected by general industry and market conditions and growth rates, general economic conditions, including currency rate fluctuations and other factors. 15 W.W. Grainger, Inc., and Subsidiaries PART II - OTHER INFORMATION Items 1, 2, 3, and 5 not applicable. Item 4 Submission of Matters to a Vote of Security Holders. An annual meeting of shareholders of the Company was held on April 26, 2000. At that meeting: a) Management's nominees listed in the proxy statement pertaining to the meeting were elected directors for the ensuing year. Of the 83,327,034 shares present in person or represented by proxy at the meeting, the number of shares voted for and the number of shares as to which authority to vote in the election was withheld, were as follows with respect to each of the nominees:
Shares as to Which Voting Name Shares Voted for Election Authority Withheld --------------------- --------------------------- ----------------------------- B. P. Anderson 82,501,667 825,367 J. D. Fluno 82,482,271 844,763 W. H. Gantz 82,506,916 820,118 D. W. Grainger 82,498,556 828,478 R. L. Keyser 82,489,180 837,854 J. W. McCarter, Jr. 82,506,837 820,197 N. S. Novich 82,504,676 822,358 J. D. Slavik 82,501,669 825,365 H. B. Smith 82,503,937 823,097 F. L. Turner 82,503,060 823,974 J. S. Webb 74,143,981 9,183,053
b) A proposal to ratify the appointment of Grant Thornton, LLP as independent auditors of the Company for the year ended December 31, 2000 was approved. Of the 83,327,034 shares present or represented by proxy at the meeting, 82,988,724 shares were voted for the proposal, 102,592 shares were voted against the proposal, and 235,718 shares abstained from voting with respect to the proposal. 16 W.W. Grainger, Inc., and Subsidiaries PART II - OTHER INFORMATION
EXHIBIT INDEX ------------- Item 6 Exhibits (numbered in accordance with Item 601 of regulation S-K). a) Exhibits (3)(ii) By-laws, as amended 20-35 (10) Material Contracts (a) Supplemental Profit Sharing Plan, as amended 36-43 (11) Computation of Earnings per Common and Common Equivalent Share 19 (27) Financial Data Schedule b) Reports on Form 8-K - None
17 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. W.W. Grainger, Inc. -------------------------------------------- (Registrant) Date: May 11, 2000 By: /s/ P.O. Loux -------------------------------------------- P.O. Loux, Senior Vice President, Finance and Chief Financial Officer Date: May 11, 2000 By: /s/ R.D. Pappano -------------------------------------------- R.D. Pappano, Vice President, Financial Reporting 18 Exhibit 11 W.W. Grainger, Inc., and Subsidiaries COMPUTATIONS OF EARNINGS PER SHARE
Three Months Ended March 31, ----------------------------------- 2000 1999 --------------- --------------- BASIC: Weighted average number of shares outstanding during the year ................................................... 92,917,780 92,833,727 =============== =============== Net earnings ......................................................... $ 41,211,000 $ 56,263,000 =============== =============== Earnings per share ................................................... $ 0.44 $ 0.61 =============== =============== DILUTED: Weighted average number of shares outstanding during the year (basic) ........................................... 92,917,780 92,833,727 Potential Shares: Shares issuable under outstanding options ..................... 2,541,850 2,840,880 Shares which could have been purchased based on the average market value for the period .................. 1,737,022 2,044,197 --------------- --------------- 804,828 796,683 Dilutive effect of exercised options prior to being exercised ................................................... 77,266 37,855 --------------- --------------- Shares for the portion of the period that the options were outstanding ............................................ 882,094 834,538 Contingently issuable shares .................................. 616,500 542,500 --------------- --------------- 1,498,594 1,377,038 --------------- --------------- Adjusted weighted average number of shares outstanding during the year .................................................... 94,416,374 94,210,765 =============== =============== Net earnings ......................................................... $ 41,211,000 $ 56,263,000 =============== =============== Earnings per share ................................................... $ 0.44 $ 0.60 =============== ===============
19 EX-3.(II) 2 BY-LAWS AS AMENDED Exhibit 3(ii) to the quarterly report on Form 10-Q of W.W. Grainger, Inc. for the quarter ended March 31, 2000 As Amended April 26, 2000 BY-LAWS OF W.W. GRAINGER, INC. ARTICLE I --------- OFFICES ------- The principal office of the corporation shall be located in the State of Illinois. The corporation may have such other offices, either within or without the State of Illinois, as the business of the corporation may require from time to time. The registered office of the corporation required by the Illinois Business Corporation Act to be maintained in the State of Illinois may be, but need not be, identical with the principal office in the State of Illinois, and the address of the registered office may be changed from time to time by the board of directors. ARTICLE II ---------- SHAREHOLDERS ------------ SECTION 1. ANNUAL MEETING. (a) The annual meeting of the shareholders shall be held on the last Wednesday of April, in each year, or at such time as may be determined by the board of directors, for the purpose of electing directors and for the transaction of such other business as may properly come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. If the election of the directors shall not be held on the day designated herein for any annual meeting or adjournment thereof, the board of directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as conveniently may be. (b) At any annual meeting or adjournment thereof only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the board of directors or (ii) by any shareholder (x) who is entitled to vote at the time of giving notice provided for in this Section 1(b) and remains such until the meeting and (y) who complies with the procedures set forth in this Section 1(b). For business to be properly brought before an annual meeting or adjournment thereof by a shareholder, the shareholder must have given timely notice thereof in proper written form to the 20 secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal office of the corporation no less than thirty days nor more than sixty days prior to the meeting; provided, however, that in the event that less than forty days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. To be in proper written form, a shareholder's notice to the secretary shall set forth in writing as to each matter the shareholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the corporation's books, of the shareholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the shareholder and (iv) any material interest of the shareholder in such business. Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at any annual meeting or adjournment thereof except in accordance with the procedures set forth in this Section 1(b). The officer or other person presiding shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the procedures set forth in this Section 1(b), and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called by the chairman of the board, the board of directors or by the holders of not less than one-fifth of all the outstanding shares of the corporation, for the purpose or purposes for which the meeting is called. Unless otherwise stated in the notice of special meeting, no other business may be transacted at any such meeting. SECTION 3. PLACE OF MEETING. The board of directors may designate any place, either within or without the State of Illinois, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation in the State of Illinois. SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty days nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board or the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the records of the corporation, with postage thereon prepaid. SECTION 5. FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a 21 determination of shareholders for any other proper purpose, the board of directors of the corporation may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty days and, in case of a meeting of shareholders, not less than ten days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty days, prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or entitled to vote at a meeting of shareholders, or entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided above, such determination shall apply to any adjournment thereof. SECTION 6. VOTING LISTS. The officer or agent having charge of the transfer books for shares of the corporation shall make within twenty days after the record date for a meeting of shareholders, or ten days before such meeting of shareholders, whichever is earlier, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal office of the corporation in the State of Illinois and shall be subject to inspection by any shareholder at any time during usual business hours and to copying at the shareholder's expense. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in the State, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger, or transfer book or to vote at any meeting of shareholders. SECTION 7. QUORUM. A majority of the outstanding shares of the corporation, entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders; provided, that if less than a majority of the outstanding shares are represented at said meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. SECTION 8. PROXIES. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by delivering a valid appointment to the person so appointed or such person's agent; provided that no shareholder may name more than three persons as proxies to attend and to vote the shareholder's shares at any meeting of shareholders. Such appointment may be by any means, including means of electronic transmission, permitted by law. No proxy shall be valid after the expiration of eleven months from the date thereof unless otherwise provided in the proxy. SECTION 9. VOTING OF SHARES. Subject to the provisions of Section 11 of this Article, each outstanding share, regardless of class, shall be entitled to one vote upon each matter submitted to vote at a meeting of shareholders. 22 SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares standing in the name of a deceased person may be voted by his administrator or executor, either in person or by proxy. Shares standing in the name of a guardian, conservator, or trustee may be voted by such fiduciary, either in person or by proxy, but no guardian, conservator, or trustee shall be entitled, as such fiduciary, to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares of its own stock belonging to this corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but shares of its own stock held by it in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time. SECTION 11. CUMULATIVE VOTING. In all elections for directors, every shareholder shall have the right to vote, in person or by proxy, the number of shares owned by him, for as many persons as there are directors to be elected, or to cumulate said shares, and give one candidate as many votes as the number of directors multiplied by the number of his shares shall equal, or to distribute them on the same principle among as many candidates as he shall see fit. SECTION 12. VOTING BY BALLOT. Voting on any question or in any election may be by voice, unless the officer or other person presiding over the meeting shall order or any shareholder shall demand that voting be by ballot. ARTICLE III ----------- DIRECTORS --------- SECTION 1. GENERAL POWERS. The business and affairs of the corporation shall be managed under the direction of its board of directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall be not less than seven nor more than twelve. The number of directors may be fixed or changed from time to time, within the minimum and maximum, by the directors or the shareholders without amending these by-laws. Each 23 director shall hold office until the next annual meeting of shareholders or until his successor shall have been elected and qualified. Directors need not be residents of Illinois or shareholders of the corporation. SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors shall be held without other notice than this by-law, immediately after the annual meeting of shareholders. The board of directors may provide by resolution, the time and place, either within or without the State of Illinois, for the holding of additional regular meetings without other notice than such resolution. SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the chairman of the board or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or without the State of Illinois, as the place for holding any special meeting of the board of directors called by them. SECTION 5. NOTICE. Notice of any special meeting shall be given at least two days previously thereto by written notice delivered personally, sent by United States mail, sent by a third party entity that provides delivery services in the ordinary course of business and guarantees delivery in the particular case no later than the following day, or sent by electronic transmission. If mailed, such notice shall be deemed to be delivered 24 hours after deposited in the United States mail, next-day delivery guaranteed, addressed to the director at the director's business address, with postage thereon prepaid. If sent by delivery service, notice shall be deemed to be delivered 24 hours after delivery to the third party delivery service. If notice is sent by electronic transmission, such notice shall be deemed to be delivered upon transmission. For this purpose, "electronic transmission" may include, but shall not be limited to, a telex, wire or wireless equipment that transmits a facsimile of the notice and provides the transmitter with an electronically generated receipt, or other electronic means. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 6. QUORUM. A majority of the board of directors shall constitute a quorum for transaction of business at any meeting of the board of directors, provided, that if less than a majority of the directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. SECTION 8. VACANCIES. Any vacancy occurring in the board of directors and any directorship to be filled by reason of an increase in the number of directors may be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose; provided, however, vacancies arising between meetings of shareholders 24 by reason of an increase in the number of directors or otherwise may be filled by a majority of the board of directors then remaining. A director elected by the shareholders to fill a vacancy shall hold office for the balance of the term for which elected. A director appointed by the directors to fill a vacancy shall serve until the next meeting of shareholders at which directors are to be elected. SECTION 9. COMPENSATION. By resolution of the board of directors, the directors may be paid their expenses, if any, for attendance at each meeting of the board or of a committee thereof, and may be paid a fixed sum for attendance at meetings and/or a stated retainer as directors. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. SECTION 10. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 11. COMMITTEES. Committees of the board of directors shall consist of an audit committee, a compensation committee, a board affairs and nominating committee, and such other committees as the board of directors by resolution may create. Each committee shall have such number of members and shall exercise such authority and carry out such duties as are set forth in resolutions of the board of directors. Committee members shall be elected annually but shall serve at the discretion of the board of directors and may be removed by the board of directors. The board of directors may increase or decrease the number of members of any committee at any time and may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member or members at any meeting of the committee. A majority of members of a committee shall constitute a quorum and, unless otherwise set forth in resolutions of the board of directors, a majority of those members present at a meeting and not disqualified from voting shall constitute the acts of the committee. SECTION 12. INFORMAL ACTION BY DIRECTORS. (a) Any action required to be taken at a meeting of the board of directors of the corporation, or any other action which may be taken at a meeting of the board of directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof, or by all of the members of such committee, as the case may be. (b) The consent shall be evidenced by one or more written approvals, each of which sets forth the action taken and bears the signature of one or more directors. All the approvals evidencing the consent shall be delivered to the secretary to be filed in the corporate records. The action taken shall be effective when all the directors have approved the consent unless the consent specifies a different effective date. 25 (c) Any such consent signed by all the directors or all the members of a committee shall have the same effect as a unanimous vote, and may be stated as such in any document filed with the Secretary of State. SECTION 13. TELEPHONE ATTENDANCE. (a) Members of the board of directors or of any committee of the board of directors may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting shall constitute attendance and presence in person at the meeting of the person or persons so participating. (b) The board of directors or any committee may, at its option, provide for a tape recording of any such conference telephone portion of a meeting but the lack thereof shall not affect the validity of any actions taken at such meeting. SECTION 14. REMOVAL OF DIRECTORS. One or more of the directors may be removed, with or without cause, at a meeting of shareholders by the affirmative vote of the holders of a majority of the outstanding shares then entitled to vote at an election of directors, except that: (1) No director shall be removed at a meeting of shareholders unless the notice of such meeting shall state that a purpose of the meeting is to vote upon the removal of one or more directors named in the notice. Only the named director or directors may be removed at such meeting; (2) If less than the entire board is to be removed, no director may be removed, with or without cause, if the votes cast against his removal would be sufficient to elect him, if then cumulatively voted at an election of the entire board of directors; and (3) If a director is elected by a class or series of shares, he may be removed only by the shareholders of that class or series. SECTION 15. DIRECTOR CONFLICT OF INTEREST. If a transaction is fair to the corporation at the time it is authorized, approved or ratified, the fact that a director of the corporation is directly or indirectly a party to the transaction shall not be grounds for invalidating the transaction. SECTION 16. NOMINATIONS OF DIRECTORS. (a) Except for directors elected to fill vacancies pursuant to these by-laws, nominations for election for the board of directors may be made by the board of directors, or by the nominating committee of the board of directors and approved by the board of directors. Such nominations shall be submitted to a vote of the shareholders at the next annual meeting of shareholders or at a special meeting of shareholders called for such purpose. (b) Nominations for election to the board of directors may be made by any shareholder of any outstanding class of stock of the corporation entitled to vote for the election of directors provided that; (i) any such shareholder nominating a director shall, not later than the date with respect to submission of shareholders' proposals for the next 26 annual meeting as set forth in the corporation's proxy statement for the preceding annual meeting of shareholders, notify the chairman of the board of the corporation in writing of the intent to so nominate one or more persons and shall further set forth in such notice the names of all such nominees together with, with respect to each such nominee, his principal occupation, age, holdings of equity securities of the corporation and such other information as would be required under applicable laws, including the various securities laws, to be set forth by the corporation in its proxy statement and related materials if such person were a nominee of the board of directors; (ii) such shareholder so proposing to nominate a person remains a shareholder of the corporation through the date of the annual meeting at which such shareholder, or such shareholder's proxy, nominates such person for election as a director; and (iii) such shareholder delivers the consent of each such nominee to serve as director, or states in the notice that each such nominee, if elected, has consented to serve as director. ARTICLE IV ---------- OFFICERS -------- SECTION 1. NUMBER. The officers of the corporation shall be a chairman of the board, a senior chairman of the board, one or more presidents, one or more vice presidents, a treasurer, a secretary, and such other officers and such assistant or administrative officers as may be elected or appointed as hereinafter provided. Any two or more offices may be held by the same person. SECTION 2. ELECTION, APPOINTMENT AND TERM OF OFFICE. Officers of the corporation shall be elected or appointed annually by the board of directors, although vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer elected or appointed by the board of directors shall hold office until the next annual election or appointment of officers by the board of directors, or until his earlier death, resignation or removal. Officers and assistant or administrative officers of the corporation may also be appointed from time to time by the chairman of the board, to serve as such at his pleasure. SECTION 3. REMOVAL. Any officer or assistant or administrative officer of the corporation elected or appointed by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby. Any officer or assistant or administrative officer of the corporation appointed by the chairman of the board may be removed by the chairman of the board whenever in his judgment the best interests of the corporation would be served thereby. Any removal provided for in this Section 3 shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or assistant or administrative officer of the corporation shall not itself create contract rights. SECTION 4. CHAIRMAN OF THE BOARD. The chairman of the board shall be the chief executive officer. He shall preside at all meetings of the shareholders and the board of directors. He shall be primarily responsible for carrying out the policies established by and the directions of the board of directors and shall perform such other duties as may be prescribed from time to time by the board of directors. He may from 27 time to time, to the extent not delegated by the board of directors, delegate and re-delegate any part of any of the responsibilities and authority set forth herein to the senior chairman of the board, to any other member of the board of directors and/or to a president. The chairman of the board must be a director of the corporation. The chairman of the board may sign deeds, mortgages, bonds, contracts or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these by-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed. The chairman of the board may delegate signing authority to other persons within the corporation as shall be deemed necessary. SECTION 5. SENIOR CHAIRMAN OF THE BOARD. The senior chairman of the board shall, in the absence of the chairman of the board, or another director to whom the responsibilities have been delegated, preside at all meetings of the shareholders and the board of directors. He shall advise the chairman of the board on matters of long- and short-term strategic planning and policy and other significant matters affecting the corporation, and shall perform such other duties as may from time to time be prescribed by the board of directors, or delegated to him by the chairman of the board. The senior chairman of the board must be a director of the corporation. SECTION 6. PRESIDENTS. The president or, if there be more than one, the presidents shall oversee and direct such operations, shall be responsible for such day-to-day activities, and shall do and perform such other duties as from time to time may be assigned by the board of directors or the chairman of the board. If there be more than one president, the board of directors may designate one or more of them as group president or use a similar descriptive designation. SECTION 7. VICE PRESIDENTS. Each of the vice presidents shall be responsible for those activities and shall perform those duties as from time to time may be assigned by the board of directors, the chairman of the board, or a president. The board of directors may designate one or more of the vice presidents as executive, group or senior vice presidents or use a similar descriptive designation. SECTION 8. TREASURER. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors shall determine. He shall (a) have charge and custody of and be responsible for all funds and securities of the corporation, (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article V of these by-laws and (c) in general perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the board of directors, the chairman of the board, or the chief financial officer. SECTION 9. SECRETARY. The secretary shall (a) keep the minutes of the shareholders' and of the board of directors' meetings in one or more books provided for that purpose, (b) see that all notices are duly given in accordance with the provisions of 28 these by-laws or as required by law, (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all certificates for shares prior to the issue thereof and to all documents, the execution of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these by-laws, (d) keep, or cause the transfer agent to keep, a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder, (e) sign with the chairman of the board certificates for shares of the corporation, the issue of which shall have been authorized by resolution of the board of directors, (f) have general charge of the stock transfer books of the corporation and (g) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the board of directors or the chairman of the board. SECTION 10. SALARIES. The salaries of the officers elected or appointed by the board of directors shall be fixed from time to time by the board of directors and no such officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V --------- CONTRACTS, LOANS, CHECKS AND DEPOSITS ------------------------------------- SECTION 1. CONTRACTS. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositaries as the board of directors may select. 29 ARTICLE VI ---------- CERTIFICATES FOR SHARES AND THEIR TRANSFER ---------------------- SECTION 1. CERTIFICATES FOR SHARES. The issued shares of the corporation shall be represented by certificates, except as and to the extent determined by, or pursuant to, resolution adopted by the board of directors. Certificates representing shares of the corporation shall be in such form as may be determined by the board of directors. Such certificates shall be signed by the chairman of the board and by the secretary or an assistant secretary, and shall be sealed with the seal of corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered in the books of the corporation, as shall similar information with respect to shares that are uncertificated. All certificates surrendered to the corporation for transfer shall be canceled. No new certificate shall be issued until the former certificate for a like number of shares, unless the shares are uncertificated, shall have been surrendered and canceled except that in the case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe. SECTION 2. TRANSFERS OF SHARES. Transfers of shares of the corporation shall be made either on the books of the corporation or on the books of the duly authorized and appointed agent or agents of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation or proper officer of the transfer agent and, unless such shares are uncertificated, on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation or its duly authorized and appointed transfer agent or agents shall be deemed the owner thereof for all purposes as regards the corporation. ARTICLE VII ----------- FISCAL YEAR ----------- The fiscal year of the corporation shall begin on the first day of January in each year and end on the last day of December in each year. 30 ARTICLE VIII ------------ DIVIDENDS --------- The board of directors may from time to time, declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its articles of incorporation. ARTICLE IX ---------- SEAL ---- The board of directors shall provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words, "Corporate Seal, Illinois". ARTICLE X --------- WAIVER OF NOTICE ---------------- Whenever any notice whatever is required to be given under the provisions of these by-laws or under the provisions of the articles of incorporation or under the provisions of the Illinois Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein shall be deemed equivalent to the giving of such notice. ARTICLE XI ---------- AMENDMENTS ---------- These by-laws may be altered, amended or repealed and new by-laws may be adopted at any meeting of the board of directors of the corporation by a majority vote of the directors present at the meeting. ARTICLE XII ----------- INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- SECTION 1. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines 31 and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. The corporation shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to the best interests of the corporation, and except that no indemnification shall be made with respect to any claim, issue or matter as to which such person has been finally adjudged to have been liable to the corporation, unless, and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. SECTION 3. Any indemnification under Sections 1 or 2 (unless ordered by a court) shall be made only as authorized in the specific case, upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 or 2. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable (or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel in a written opinion, or (3) by the shareholders. In any event, to the extent that a director or officer of the corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Sections 1 or 2 or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including reasonable attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 4. (a) Reasonable expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding, upon receipt of (i) a statement signed by such director or officer to the effect that such director or officer acted in good faith and in a manner which he believed to be in, or not opposed to the best interests of the corporation and (ii) an undertaking by or on behalf of the director or officer to repay such amount, if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article. 32 (b) The board of directors may, by separate resolution adopted under and referring to this Article of the by-laws, provide for securing the payment of authorized advances by the creation of escrow accounts, the establishment of letters of credit or such other means as the board deems appropriate and with such restrictions, limitations and qualifications with respect thereto as the board deems appropriate in the circumstances. SECTION 5. (a) The indemnification and advancement of expenses provided by or granted under other subsections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. (b) The provisions of this ARTICLE XII shall be deemed to be a contract between the corporation and each director and officer who serves in such capacity at anytime while this ARTICLE XII is in effect and any indemnification provided under this ARTICLE XII to a person shall continue after such person ceases to be an officer, director, agent or employee of the corporation as to all facts, circumstances and events occurring while such person was such officer, director, agent or employee, and shall not be decreased or diminished in scope without such person's consent, regardless of the repeal or modification of this Article or any repeal or modification of the Illinois Business Corporation Act or any other applicable law. If the scope of indemnity provided by this ARTICLE XII or any replacement article, or pursuant to the Illinois Business Corporation Act or any modification or replacement thereof is increased, then such person shall be entitled to such increased indemnification as is in existence at the time indemnity is provided to such person, it being the intent, subject to Section 10 of this ARTICLE XII, to indemnify persons under this ARTICLE XII to the fullest extent permitted by law. SECTION 6. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. SECTION 7. Subject to Section 10 of this Article, if a claim under this Article is not promptly paid in full by the corporation after a written claim has been received by the corporation or if expenses pursuant to Section 4 of this Article have not been promptly advanced after a written request for such advancement accompanied by the statement and undertaking required by Section 4 of this Article has been received by the corporation, the director or officer may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim or the advancement of expenses. If successful, in whole or in part, in such suit, such director or officer shall also be entitled to be paid the reasonable expense thereof, including attorneys' fees. It shall be 33 a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the director or officer has not met the standards of conduct which make it permissible under the Illinois Business Corporation Act for the corporation to indemnify the director or officer for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its shareholders) to have made a determination, if required, prior to the commencement of such action that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct required under the Illinois Business Corporation Act, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its shareholders) that the director or officer had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the director or officer had not met the applicable standard of conduct. SECTION 8. For purposes of this Article, references to "the corporation" shall include, in addition to the surviving corporation, any merging corporation (including any corporation having merged with a merging corporation) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers and employees or agents, so that any person who was a director or officer of such merging corporation, or was serving at the request of such merging corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the surviving corporation as such person would have with respect to such merging corporation if its separate existence had continued. SECTION 9. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and references to "officers" shall include elected and appointed officers. A person who acted in good faith and in a manner he reasonably believed to be in the best interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the corporation" as referred to in this Article. SECTION 10. Anything herein to the contrary notwithstanding, if the corporation purchases insurance in accordance with Section 6 of this ARTICLE XII, the corporation shall not be required to, but may (if the board of directors so determines in accordance with this ARTICLE XII) reimburse any party instituting any action, suit or proceeding if a result of the institution thereof is the denial of or limitation of payment of losses under such insurance when such losses would have been paid thereunder if a non-insured third party had instituted such action, suit or proceedings. 34 ARTICLE XIII ------------ INDEMNIFICATION OF EMPLOYEES AND AGENTS --------------------------------------- The corporation may indemnify any agent or employee of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (including, but not limited to any such proceeding by or in the right of the corporation) whether civil, criminal, administrative or investigative, by reason of the fact that he is or was serving the corporation at its request and in the course and scope of his duties and acting in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, against expenses (including reasonable attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding. The standards of conduct, the provisions for payment and advances, and the terms and conditions contained in Article XII, Sections 1, 2, 3, 4, 5(a), 6, 8, 9 and 10 shall apply to any indemnification hereunder. 35 EX-10.1 3 SUPPLEMENTAL PROFIT SHARING PLAN Exhibit 10(a) to the quarterly report on Form 10-Q of W.W. Grainger, Inc. for the quarter ended March 31, 2000 W. W. Grainger, Inc. SUPPLEMENTAL PROFIT SHARING PLAN -------------------------------- (As Amended and Restated Effective January 1, 1992) (Conformed Copy as of April 26, 2000, Including First through Fifth Amendments) ARTICLE ONE. PURPOSE AND EFFECTIVE DATE --------------------------------------- 1.1 Purpose of Plan. The purpose of this W.W. Grainger, Inc. Supplemental Profit Sharing Plan is to provide key executives with profit sharing and retirement benefits commensurate with their current compensation unaffected by limitations imposed by the Internal Revenue Code on qualified retirement plans. The Plan is intended to constitute an excess benefit plan, as defined in Section 3(36) of ERISA, and a "top hat" plan, as defined in Section 201(2) of ERISA. 1.2 Effective Date. This Plan was originally established effective as of January 1, 1983. It was subsequently amended and restated by action of the Board of Directors on April 29, 1992. The effective date of the Plan as amended and restated herein is January 1, 1992. ARTICLE TWO. DEFINITIONS ------------------------ 2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below and, when intended, such terms shall be capitalized. (a) "Retirement" shall have the same meaning as defined in Section 1.36 of the Profit Sharing Plan. 36 (b) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (c) "Committee" shall mean the Profit Sharing Trust Committee. (d) "Company" shall mean W.W. Grainger, Inc., a corporation organized under the laws of the State of Illinois, and subsidiaries thereof. (e) "Disability" shall have the same meaning as defined in Section 1.14 of the Profit Sharing Plan. (f) "Employee" shall mean any person who is employed by the Company. (g) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. (h) "Participant" shall mean any Employee selected by the Committee to participate in this Plan pursuant to Article Four. (I) "Plan" shall mean this W.W. Granger, Inc. Supplemental Profit Sharing Plan. (j) "Profit Sharing Plan" shall mean the W.W. Grainger, Inc. Employees Profit Sharing Plan as amended form time to time. 2.2 Gender and Number. Except when otherwise indicated by the context, any masculine term used in this plan also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 37 ARTICLE THREE. ADMINISTRATION ----------------------------- 3.1 Administration by Committee. The Plan shall be administered by the Committee, which is appointed by the Board of Directors of the Company to administer this Plan and the Profit Sharing Plan. 3.2 Authority of Committee. The Committee shall have the authority to interpret the Plan, to establish and revise rules and regulations relating to the Plan, to designate Participants, and to make all determinations that it deems necessary or advisable for the administration of the Plan. ARTICLE FOUR. ELIGIBILITY ------------------------- 4.1 Participants. The Committee shall select the Employee or Employees who shall participate in this Plan, subject to the limitations set forth in Section 4.2. Once an Employee is designated a Participant, he shall remain a Participant for the purposes specified in Section 5.1 and/or Section 5.2 until the earlier of his death, retirement, disability, or termination of employment. 4.2 Limitations on Eligibility. The Committee may select as Participants in this Plan only those Employees who are "Eligible Employees" in the Profit Sharing Plan (as defined therein) and whose share of contribution are forfeitures under the Profit Sharing Plan are limited by: (a) Section 415 of the Code; or (b) Any other provision of the Code or ERISA, provided that the Employee is among "a select group of management or highly compensated Employees" of the Company, within the meaning of Sections 201, 301, and 401 of ERISA, such that the Plan with respect to benefits attributable to this subsection (b) qualifies for a "top hat" exemption from 38 most of the substantive requirements of Title I of ERISA. ARTICLE FIVE. BENEFITS AND ACCOUNTS ----------------------------------- 5.1 Accounts. An account shall be established for each Participant. Each year there shall be credited to each Participant's account the difference between (a) the aggregate amount of Company contributions and forfeitures which would have been allocated to the account of the Participant in the Profit Sharing Plan without regard to the contribution limitations described in Section 4.2 hereof; and (b) the amount of Company contribution and forfeitures actually allocated to the account of the Participant in the Profit Sharing Plan. 5.2 Earnings Factor. In addition to the credit under Section 5.1, if any, an earnings factor shall be credited to each Participant's account at the end of each calendar quarter. Such earnings factor shall be equal to the rate of return that the Participant's account earned under the Profit Sharing Plan for that calendar quarter; provided that the rate of return for a Participant who no longer has a Profit Sharing Plan account shall be based upon the Participant's Profit Sharing Plan investment allocation immediately prior to final distribution of his Profit Sharing Plan account. Notwithstanding the foregoing, a Participant may elect to receive after termination of employment an earnings factor equal to the rate of return in any one of the investment funds (exclusive of the Grainger Stock Fund) available under the Profit Sharing Plan. Such election shall be made on a form approved by the Committee, shall not be given effect unless it is submitted to the Committee or its designee at least 12 months prior to the Participant's termination of employment, and shall remain in effect until the Participant's vested account balance under this Plan has been distributed. 5.3 Distribution Upon Termination of Employment. In the event of a Participant's termination of employment for any reason other than death, the Participant's vested account balance under this Plan shall become payable to the Participant in the form of five annual installments, provided that a vested account balance less than $100,000 shall be paid in a lump sum within ninety (90) days after the end of the calendar quarter in which termination occurs. 39 Notwithstanding, a Participant whose vested account balance is $100,000 or greater may elect, on a form approved by the Committee, to receive distribution of his or her vested account balance in the form of a lump sum payment or in the form of annual installments paid over a period not to exceed the lesser of 15 years or the Participant's remaining life expectancy. Such election shall not be given effect unless it is submitted to the Committee or its designee at least 12 months prior to the Participant's termination of employment. Life expectancy shall be calculated as of the end of the calendar year during which the Participant's employment is terminated, and shall not thereafter be recalculated. The first annual installment, or a lump sum payment, if properly elected, shall be paid to the Participant within ninety (90) days after the end of the calendar quarter in which termination of employment occurs. The remaining installments shall be paid in the first calendar quarter of each subsequent year. The amount of each annual installment shall be equal to the quotient obtained by dividing the value of the Participant's vested account balance on the effective date of the related employment termination (and on the date of each subsequent installment, as appropriate) by the number of years remaining in the distribution period including that installment. The Participant's vested account balance shall continue to accrue earnings, as specified in Section 5.2, until the entire vested account balance has been paid. 5.4 Death Benefit. In the event of a Participant's death, the Participant's entire remaining account balance shall be paid in a lump sum, within ninety (90) days after the end of the calendar quarter in which such death occurs, to the Participant's beneficiary, as such beneficiary was designated by the Participant in accordance with the Company's beneficiary designation procedures. In the event a Participant dies without having designated a beneficiary, or with no surviving beneficiary, the Participant's account balance shall be paid in a lump sum to the Participant's estate within ninety (90) days after the end of the calendar quarter in which death occurs. 40 5.5 Alternative Payment Form. Notwithstanding the terms and conditions of Section 5.3, a Participant may at any time on or after his termination of employment petition the Committee to request that payment of his remaining vested account balance be made in a lump sum due to circumstances of compelling personal hardship. The Committee, at its sole discretion, shall make a binding determination as to whether such alternative form of payment will be allowed. ARTICLE SIX. VESTING -------------------- Vesting. Subject to Section 8.1, each Participant shall become vested in his account balance under this Plan at the same rate and at the same time as he becomes vested in his account balance in the Profit Sharing Plan. ARTICLE SEVEN. AMENDMENT AND TERMINATION ---------------------------------------- 7.1 Amendment. The Company shall have the power at any time and from time to time to amend this Plan by resolution of its Board of Directors, provided that no amendment shall be adopted the effect of which would be to deprive any Participant of his vested interest in his account under this Plan. 7.2 Termination. The Company reserves the right to terminate this Plan at any time by resolution of its Board of Directors. Subject to Section 8.1, upon termination of this Plan, each Participant shall become fully vested in his account balance and such account balance shall become payable at the same time and in the same manner as provided in Article Five. 41 ARTICLE EIGHT. MISCELLANEOUS ---------------------------- 8.1 Funding. This Plan shall be unfunded. No contributions shall be made to any separate funding vehicle. The Company may set up reserves on its books of account evidencing the liability under this Plan. To the extent that any person acquires an account balance hereunder or a right to receive payments from the Company, such right shall be no greater than the right of a general unsecured creditor. 8.2 Limitation of Rights. Nothing in the Plan shall be construed to: (a) Give any Employee any right to participate in the Plan except in accordance with the provisions of the Plan; (b) Limit in any way the right of the Company to terminate an Employee's employment; or (c) Evidence any agreement or understanding, express or implied, that the Company will employ an Employee in any particular position or at any particular rate of remuneration. 8.3 Nonalienation. No benefits under this Plan shall be pledged, assigned, transferred, sold or in any manner whatsoever anticipated, charged, or encumbered by an Employee, former Employee, or their beneficiaries, or in any manner be liable for the debts, contracts, obligations, or engagements of any person having a possible interest in the Plan, voluntary or involuntary, or for any claims, legal or equitable, against any such person, including claims for alimony or the support of any spouse. 8.4 Controlling Law. This Plan shall be construed in accordance with the laws of the State of Illinois in every respect, including without limitation, validity, interpretation, and performance. 42 8.5 Text Controls. Article headings are included in the Plan for convenience of reference only, and the Plan is to be construed without any reference to such headings. If there is any conflict between such headings and the text of the Plan, the text shall control. IN WITNESS WHEREOF, the Company has caused this Plan, as amended and restated herein, to be signed and attested by its duly qualified officers and caused its corporate seal to be hereunto affixed on this 29th day of April, 1992. W.W. Grainger, Inc. By: [D.W. Grainger ] ---------------- Chairman Attest: [J.M. Baisley] - -------------- Secretary 43 EX-27 4 MARCH 31, 2000 FINANCIAL DATA SCHEDULE
5 1,000 3-mos DEC-31-2000 MAR-31-2000 64,685 0 620,177 19,203 773,214 1,543,662 1,301,776 613,772 2,612,475 902,792 124,457 0 0 53,866 1,448,516 2,612,475 1,195,194 1,195,194 773,647 773,647 346,770 3,553 6,102 69,263 28,052 41,211 0 0 0 41,211 0.44 0.44
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