-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XJp58agzqTTK3UpI/x2+KakahXCs13Ts59+H5OeXkDvrLeel7WeMpiJ6xsoppA0e boI9A1Df7xFLxyWNQ+XupA== 0000277135-94-000003.txt : 19940517 0000277135-94-000003.hdr.sgml : 19940517 ACCESSION NUMBER: 0000277135-94-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAINGER W W INC CENTRAL INDEX KEY: 0000277135 STANDARD INDUSTRIAL CLASSIFICATION: 5000 IRS NUMBER: 361150280 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05684 FILM NUMBER: 94526878 BUSINESS ADDRESS: STREET 1: 5500 W HOWARD ST CITY: SKOKIE STATE: IL ZIP: 60077 BUSINESS PHONE: 7089829000 10-Q 1 12 pages complete QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT ___________________ X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1994 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 W.W. Grainger, Inc. An Illinois Corporation I.R.S. Employer Identification Number 36-1150280 5500 W. Howard St. Skokie, IL 60077-2699 Telephone: (708) 982-9000 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: 50,726,364 shares of the Company's Common Stock were outstanding as of April 29, 1994. 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, 1994 1993 __________ __________ Net sales $ 706,369 $ 606,183 Cost of merchandise sold 450,743 377,811 _________ _________ Gross profit 255,626 228,372 Warehousing, marketing, and administrative expenses 185,433 172,372 _________ __________ Operating earnings 70,193 56,000 Other income or (deductions) Interest income 12 399 Interest expense (339) (346) Unclassified-net (288) 545 _________ __________ (615) 598 Earnings before income taxes 69,578 56,598 Income taxes 28,040 22,413 _________ __________ Net earnings before cumulative effect of accounting changes 41,538 34,185 Cumulative effect of accounting changes - (820) __________ __________ Net earnings $ 41,538 $ 33,365 ========== ========== Net earnings per common and common equivalent share before accounting changes $0.81 $0.65 Cumulative effect of accounting changes - (0.02) __________ _________ Net earnings per common and common equivalent share $0.81 $0.63 ========== ========= Average number of common and common equivalent shares outstanding 51,230,731 52,765,172 ========== ========== Cash dividends paid per share $0.18 $0.165 ========== ========== The accompanying notes are an integral part of these financial statements. 2 W.W. Grainger, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands of dollars) (Unaudited) ASSETS March 31, 1994 Dec. 31, 1993 ______ ______________ _____________ CURRENT ASSETS Cash and cash equivalents $14,162 $2,572 Accounts receivable, less allowance for doubtful accounts of $14,472 in 1994 and $13,573 in 1993 323,615 299,856 Inventories 481,552 466,214 Prepaid expenses 12,708 10,832 Deferred income tax benefits 44,823 44,408 _______ _______ Total current assets 876,860 823,882 PROPERTY, BUILDINGS, AND EQUIPMENT 734,936 716,755 Less accumulated depreciation and amortization 318,793 307,372 _______ _______ Property, buildings, and equipment-net 416,143 409,383 OTHER ASSETS 138,954 143,399 __________ __________ TOTAL ASSETS $1,431,957 $1,376,664 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ___________________________________ CURRENT LIABILITIES Short-term debt $ 37,856 $ 34,298 Current maturities of long-term debt 21,658 21,662 Trade accounts payable 201,110 178,114 Accrued liabilities 104,700 128,510 Income taxes 39,310 18,773 _______ _______ Total current liabilities 404,634 381,357 LONG-TERM DEBT (less current maturities) 6,018 6,214 DEFERRED INCOME TAXES 21,017 23,017 ACCRUED EMPLOYMENT RELATED BENEFITS COSTS 25,456 24,171 SHAREHOLDERS' EQUITY Cumulative Preferred Stock - $5.00 par value - authorized 6,000,000 shares, issued and outstanding, none - - Common Stock - $0.50 par value - authorized 150,000,000 shares, issued and outstanding, 50,723,865 shares in 1994 and 50,684,983 shares in 1993 25,362 25,342 Additional contributed capital 79,799 79,364 Unearned restricted stock compensation (132) (192) Retained earnings 869,803 837,391 _______ _______ Total shareholders' equity 974,832 941,905 __________ __________ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,431,957 $1,376,664 ========== ========== The accompanying notes are an integral part of these financial statements. 3 W.W. Grainger, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited) Three Months Ended March 31, 1994 1993 _________ __________ Cash flows from operations: Net earnings $41,538 $33,365 Provision for losses on accounts receivable 2,692 2,688 Depreciation and amortization: Property, buildings and equipment 12,696 10,364 Intangibles and goodwill 4,472 5,585 Change in operating assets and liabilities: (Increase) in accounts receivable (26,451) (11,116) (Increase) decrease in inventories (15,338) 12,611 (Increase) in prepaid expenses (1,876) (133) Increase in trade accounts payable 22,996 8,488 (Decrease) in other current liabilities (23,810) (34,074) Increase in current income taxes payable 20,537 13,700 Increase in accrued employment related benefits costs 1,285 6,509 (Decrease) in deferred income taxes (2,415) (6,548) Other-net (111) 205 _______ _______ Net cash provided by operating activities 36,215 41,644 Cash flows from investing activities: Additions to property, buildings, and equipment - net of dispositions (19,104) (14,587) Other - net (208) (261) _______ _______ Net cash (used in) investing activities (19,312) (14,848) _______ _______ Cash flows from financing activities: Net proceeds from short-term debt 3,558 - Proceeds from long-term debt - 700 Long-term debt payments (200) (501) Stock incentive plan 455 941 Purchase of Company Common stock - (27,699) Cash dividends paid (9,126) (8,631) _______ _______ Net cash (used in) financing activities (5,313) (35,190) Net increase (decrease) in cash and cash equivalents 11,590 (8,394) Cash and cash equivalents at beginning of year 2,572 44,809 _______ _______ Cash and cash equivalents at end of period $14,162 $36,415 ======= ======= The accompanying notes are an integral part of these financial statements. 4 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, 1993, 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 from the consolidated financial statements. 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. Checks outstanding of $23,457,000 and $16,521,000 were included in trade accounts payable at March 31, 1994 and December 31, 1993, respectively. 2. DIVIDEND On April 27, 1994, the Board of Directors declared a quarterly dividend of 20 cents per share, payable June 1, 1994 to shareholders of record on May 9, 1994. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1994 COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 1993: Net Sales Net sales of $706,369,000 in the 1994 first quarter increased 16.5% from net sales of $606,183,000 in the same 1993 period. There were 64 sales days in the 1994 first quarter compared with 63 days in the 1993 first quarter. The year 1994 will have one more sales day than did the year 1993 (255 versus 254). The sales increase for the 1994 first quarter compared with the 1993 first quarter was completely volume related; the Company actually experienced selling price deflation of about 0.4%. The volume increase primarily represented the effects of Company market initiatives and the accelerated growth in the national economy. The Company's market initiatives included new product additions, pricing actions, the continuing effect of expanding branch facilities, and the growth of the National Accounts program. Daily sales to Grainger Division National Accounts increased approximately 27% over the 1993 first quarter. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net Earnings Operating earnings of $70,193,000 increased 25.3% when compared to the 1993 period amount of $56,000,000. Net earnings before the cumulative effect of accounting changes of $41,538,000 increased 21.5% when compared to the 1993 period amount of $34,185,000. The earnings increase was greater than the sales increase due to operating expenses increasing at a slower rate than sales, partially offset by lower gross profit margins. The Company gross profit margin decreased primarily due to a change in selling price category mix and the level of cost increases exceeding the level of selling price increases (see net sales discussion). Seasonal sales, which historically have a lower than average gross profit margin, had a minor impact. The change in the selling price category mix resulted from a shift in the mix of sales toward lower gross profit margin categories. This change resulted from a strategic repricing applicable to the contractor customer segment, as well as from the growth in sales to Grainger Division National Accounts. The level of cost increases, exceeding the level of selling price increases was related to: strategic restructuring of pricing within certain product lines including portable heating and air conditioning, controls, air treatment, other HVAC products, and lighting; and holding certain pricing firm in other categories. These actions were based on market research focused at increasing market share in selected areas. The increase in operating expenses was less than the sales increase. This pattern occurred across most expense categories primarily due to the strong sales growth experienced in the quarter. Of note are the following factors: the continued leveraging of payroll and related benefits costs which increased at a slower rate than sales; lower amortization of goodwill and other acquisition costs associated with acquired and start-up businesses; and lower advertising expenses. Effective January 1, 1993, the Company adopted three Statements of Financial Accounting Standards resulting in a charge to 1993 first quarter net earnings of $820,000. The Company's effective income tax rate for the first quarter of 1994 was 40.3% versus 39.6% in the comparable 1993 period. This increase was primarily related to the effect of the Omnibus Budget Reconciliation Act of 1993 which was enacted during the third quarter of 1993. The Company's effective income tax rate for the 1993 year was 40.3%. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 1994, working capital increased $29,701,000. The ratio of current assets to current liabilities was 2.2 at March 31, 1994 and December 31, 1993. The Consolidated Statements of Cash Flows, included in this report, detail the sources and uses of cash and cash equivalents. The Company continues to maintain a low debt ratio and a strong liquidity position, which provide flexibility in funding working capital needs, capital expenditures, and business acquisitions. Total debt as a percent of shareholders' equity was 6.7% at March 31, 1994 and 6.6% at December 31, 1993. For the first three months of 1994, $15,587,000 was expended for land, buildings, and facilities improvements, and $4,658,000 for data processing, office, and other equipment; a total of $20,245,000. 8 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 27, 1994. 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 45,249,806 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 Shares Voted Voting Authority Name for Election Withheld _____________________ ____________ __________________ G. R. Baker 44,331,411 918,395 R. E. Elberson 44,614,584 635,222 J. D. Fluno 44,624,798 625,008 W. H. Gantz 44,637,526 612,280 D. W. Grainger 44,653,225 596,581 R. L. Keyser 44,624,795 625,011 J. W. McCarter, Jr. 44,639,774 610,032 J. D. Slavik 44,650,610 599,196 H. B. Smith 44,651,174 598,632 F. L. Turner 44,653,109 596,697 (b) A proposal to ratify the appointment of Grant Thornton as independent auditors of the Company for the year ended December 31, 1994 was approved. Of the 45,249,806 shares present in person or represented by proxy at the meeting, 44,658,757 shares were voted for the proposal, 147,991 shares were voted against the proposal, and 443,058 shares abstained from voting with respect to the proposal. (c) A proposal to amend the Articles of Incorporation concerning directors' liability was approved. Of the 45,249,806 shares present in person or represented by proxy at the meeting, 42,716,687 shares (being 84.23% of the outstanding shares) were voted for the proposal, 2,295,155 shares were voted against the proposal, and 237,964 shares abstained from voting with respect to the proposal. The amendment became effective on April 27, 1994. 9 W.W. Grainger, Inc. and Subsidiaries PART II - OTHER INFORMATION (d) A shareholder proposal requesting a report on affirmative action policies and programs was not approved. Of the 45,249,806 shares present in person or represented by proxy at the meeting, 4,534,110 shares were voted for the proposal, 36,976,393 shares were voted against the proposal, 1,426,859 shares abstained from voting with respect to the proposal, and 2,312,444 shares were broker nonvotes with respect to the proposal. EXHIBIT INDEX Item 6 Exhibits and Reports on Form 8-K (numbered in accordance with Item 601 of regulation S-K). (a) Exhibits (11) Computation of Earnings per Common and Common Equivalent Share. 12 (b) Reports on Form 8-K - None 10 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 10, 1994 By: /s/ J. D. Fluno __________________________________ J. D. Fluno, Vice Chairman Date: May 10, 1994 By: /s/ P. J. Wallace __________________________________ P. J. Wallace, Vice President and Controller (Principal Accounting Officer) 11 EXHIBIT 11 W.W. Grainger, Inc. and Subsidiaries COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Three Months Ended March 31, 1994 1993 __________ __________ Average number of shares outstanding during the period 50,707,011 52,234,861 Common equivalent shares: Shares issuable under outstanding options which are dilutive 1,353,024 1,332,064 Shares which could have been purchased based upon the average market value for the period 843,209 807,766 __________ _________ 509,815 524,298 Dilutive effect of exercised options prior to being exercised 13,905 6,013 523,720 530,311 Weighted average number of common and common equivalent shares outstanding 51,230,731 52,765,172 ========== ========== Net earnings before cumulative effect of accounting changes $41,538,000 $34,185,000 Cumulative effect of accounting changes - (820,000) ___________ ___________ Net earnings $41,538,000 $33,365,000 =========== =========== Net earnings per common and common equivalent share before accounting changes $0.81 $0.65 Cumulative effect of accounting changes per common and common equivalent share - (0.02) ___________ __________ Net earnings per common and common equivalent share $0.81 $0.63 ========== ========= NOTE: Earnings per common share assuming full dilution is the same as set forth above. 12 -----END PRIVACY-ENHANCED MESSAGE-----