13 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 June 30, 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
I.R.S. Employer Identification Number 36-1150280
W.W. Grainger, Inc.
(an Illinois Corporation)
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
--- ---
Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: 50,744,001 shares of
the Company's Common Stock were outstanding as of July 29, 1994.
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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 6/30, Six Months Ended 6/30,
1994 1993 1994 1993
---------- ---------- ---------- ----------
Net sales $ 768,554 $ 660,407 $1,474,923 $1,266,590
Cost of merchandise sold 499,762 418,735 950,505 796,546
---------- ---------- ---------- ----------
Gross profit 268,792 241,672 524,418 470,044
Warehousing, marketing, and
administrative expenses 197,590 182,341 383,023 354,713
---------- ---------- ---------- ----------
Operating earnings 71,202 59,331 141,395 115,331
Other income or (deductions)
Interest income 2 79 14 478
Interest expense (671) (348) (1,010) (694)
Unclassified-net 361 (378) 73 167
---------- ---------- ---------- ----------
(308) (647) (923) (49)
---------- ---------- ---------- ----------
Earnings before income
taxes 70,894 58,684 140,472 115,282
Income taxes 28,570 23,239 56,610 45,652
---------- ---------- ---------- ----------
Net earnings before
cumulative effect of
accounting changes 42,324 35,445 83,862 69,630
Cumulative effect of accounting
changes - - - (820)
---------- ---------- ---------- ----------
Net earnings $ 42,324 $ 35,445 $ 83,862 $ 68,810
========== ========== ========== ==========
Net earnings per common and
common equivalent share before
accounting changes $ 0.83 $ 0.68 $ 1.64 $ 1.33
Cumulative effect of accounting
changes - - - (0.02)
---------- ---------- ---------- ----------
Net earnings per common and
common equivalent share $ 0.83 $ 0.68 $ 1.64 $ 1.31
========== ========== ========== ==========
Average number of common and
common equivalent shares
outstanding 51,260,049 52,241,820 51,245,390 52,503,496
========== ========== ========== ==========
Cash dividends paid per
share $ 0.20 $ 0.18 $ 0.38 $ 0.345
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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W.W. Grainger, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
ASSETS 06/30/94 12/31/93
--------- --------
CURRENT ASSETS
Cash and cash equivalents $ 12,457 $ 2,572
Accounts receivable, less allowance for doubtful
accounts of $15,120 in 1994 and $13,573 in 1993 372,772 299,856
Inventories 498,088 466,214
Prepaid expenses 9,653 10,832
Deferred income tax benefits 45,229 44,408
---------- ----------
Total current assets 938,199 823,882
PROPERTY, BUILDINGS, AND EQUIPMENT 757,536 716,755
Less accumulated depreciation and amortization 330,914 307,372
---------- ----------
Property, buildings, and equipment-net 426,622 409,383
OTHER ASSETS 134,481 143,399
---------- ----------
TOTAL ASSETS $1,499,302 $1,376,664
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 69,687 $ 34,298
Current maturities of long-term debt 21,574 21,662
Trade accounts payable 217,473 178,114
Accrued liabilities 119,235 128,510
Income taxes 12,155 18,773
---------- ----------
Total current liabilities 440,124 381,357
LONG-TERM DEBT (less current maturities) 5,987 6,214
DEFERRED INCOME TAXES 19,107 23,017
ACCRUED EMPLOYMENT RELATED BENEFITS COSTS 26,621 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,
50,741,790 shares in 1994 and 50,684,983 shares
in 1993 25,371 25,342
Additional contributed capital 80,222 79,364
Unearned restricted stock compensation (111) (192)
Retained earnings 901,981 837,391
---------- ----------
Total shareholders' equity 1,007,463 941,905
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,499,302 $1,376,664
========== ==========
The accompanying notes are an integral part of these financial statements.
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W.W. Grainger, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Six Months Ended June 30,
1994 1993
Cash flows from operations: --------- ---------
Net earnings $ 83,862 $ 68,810
Provision for losses on accounts receivable 5,530 4,428
Depreciation and amortization:
Property, buildings, and equipment 26,103 20,695
Intangibles and goodwill 8,906 10,080
Change in operating assets and liabilities:
(Increase) in accounts receivable (78,446) (48,946)
(Increase) in inventories (31,874) (980)
Decrease in prepaid expenses 1,179 4,053
Increase in trade accounts payable 39,359 35,607
(Decrease) in other current liabilities (9,275) (23,224)
(Decrease) in current income taxes payable (6,618) (6,307)
Increase in accrued employment related
benefits costs 2,450 7,074
(Decrease) in deferred income taxes (4,731) (9,404)
Other-net 8 457
-------- --------
Net cash provided by operating activities 36,453 62,343
-------- --------
Cash flows from investing activities:
Additions to property, buildings, and
equipment - net of dispositions (42,980) (38,654)
Other - net (277) 408
-------- --------
Net cash (used in) investing activities (43,257) (38,246)
-------- --------
Cash flows from financing activities:
Net proceeds from short-term debt 35,389 17,793
Proceeds from long-term debt - 700
Long-term debt payments (315) (1,382)
Stock incentive plan 887 1,106
Purchase of Company Common stock - (66,513)
Cash dividends paid (19,272) (17,949)
-------- --------
Net cash provided by (used in) financing
activities 16,689 (66,245)
-------- --------
Net increase (decrease) in cash and cash
equivalents 9,885 (42,148)
Cash and cash equivalents at beginning of year 2,572 44,809
-------- --------
Cash and cash equivalents at end of period $ 12,457 $ 2,661
======== ========
The accompanying notes are an integral part of these financial statements.
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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 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 $23,404,000 and $16,521,000 were included in
trade accounts payable at June 30, 1994 and December 31, 1993,
respectively.
2. DIVIDEND
On August 3, 1994, the Board of Directors declared a quarterly
dividend of 20 cents per share, payable September 1, 1994 to
shareholders of record on August 15, 1994.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1994 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30,1993:
Net Sales
Net sales of $768,554,000 in the 1994 second quarter increased 16.4% from
net sales of $660,407,000 in the same 1993 period. There were 64 sales
days in both the 1994 and 1993 second quarter. The year 1994 will have
one more sales day than did the year 1993 (255 versus 254).
The sales increase of 16.4% for the 1994 second quarter compared with the
1993 second quarter was all volume related; the Company actually
experienced selling price deflation of about 0.6%. The volume increase
primarily represented the effects of Company market initiatives, the
accelerated growth in the national economy, and strong sales of seasonal
products. The Company's market initiatives included new product
additions, pricing actions (see Net Earnings discussion), the continuing
effect of expanding branch and adding Zone Distribution facilities, and
the continuing growth of the National Accounts program. The increase in
seasonal sales was related to hotter weather experienced by many regions
of the country during the 1994 quarter versus the 1993 quarter. Daily
sales to Grainger Division National Accounts increased 26% over the 1993
second quarter.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
Net earnings of $42,324,000 increased 19.4% when compared to $35,445,000,
for the 1993 period. 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 and a higher effective
income tax rate.
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. 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. In
addition, the Company incurred about $850,000 in non-recurring inventory
costs in connection with integrating its sanitary supply businesses during
the second quarter of 1994.
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. Non-recurring expenses of
about $300,000 have been incurred in connection with the continuing
integration of the Company's sanitary supply businesses. As of June 30,
1994, the Company has not incurred any significant expenses associated
with the integration of either Allied Safety or Bossert Industrial Supply
into the core business. Future expenses relating to these three
integrations, including any reevaluation of goodwill, will be charged to
operations as they become determinable.
The Company's effective income tax rate for the second 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%.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994 COMPARED WITH THE SIX MONTHS ENDED
JUNE 30, 1993:
Net Sales
Net sales of $1,474,923,000 in the first six months of 1994 increased
16.4% from net sales of $1,266,590,000 in the same 1993 period. There
were 128 sales days in the first six months of 1994 compared with 127 days
in the comparable 1993 period. The year 1994 will have one more sales day
than did the year 1993 (255 versus 254).
The sales increase for the first six months of 1994 compared with the same
1993 period was completely volume related; the Company actually
experienced selling price deflation of about 0.5%. The volume increase
primarily represented the effects of Company market initiatives, the
accelerated growth in the national economy, and strong sales of seasonal
products. The Company's market initiatives included new product
additions, pricing actions (see Net Earnings discussion), the continuing
effect of expanding branch and adding Zone Distribution facilities, and
the continuing growth of the National Accounts program.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
Net earnings before the cumulative effect of accounting changes of
$83,862,000 increased 20.4% when compared to $69,630,000 for the 1993
period. 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, and a higher effective
income tax rate. The Company gross profit margin decrease was primarily
the result of the factors discussed for the second quarter (see second
quarter Net Earnings discussion). The increase in operating expenses was
less than the sales increase and was the result of the same factors
discussed for the second quarter (see second quarter Net Earnings
discussion).
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 six months 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%.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1994, working capital increased
$55,550,000. The ratio of current assets to current liabilities was 2.1
at June 30, 1994 and 2.2 at 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 9.7% at June 30, 1994 and 6.6% at December 31,
1993. For the first six months of 1994, $37,520,000 was expended for
land, buildings, and facilities improvements, and $7,420,000 for data
processing, office, and other equipment; a total of $44,940,000.
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W.W. Grainger, Inc. and Subsidiaries
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, and 5 not applicable
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. 13
(b) Reports on Form 8-K - None
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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: August 12, 1994 By: /s/ J. D. Fluno
--------------------- -------------------------------------
J. D. Fluno, Vice Chairman
Date: August 12, 1994 By: /s/ P. J. Wallace
--------------------- -------------------------------------
P. J. Wallace, Vice President and
Controller
(Principal Accounting Officer)
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EXHIBIT 11
W.W. Grainger, Inc. and Subsidiaries
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
1994 1993
---------- ----------
Six Months ended June 30:
Average number of shares outstanding
during the period 50,719,059 51,957,162
Common equivalent shares:
Shares issuable under outstanding
options which are dilutive 1,440,889 1,380,549
Shares which could have been purchased
based upon the average market value for
the period 924,140 845,450
---------- ----------
516,749 525,099
Dilutive effect of exercised options
prior to being exercised 9,582 11,236
---------- ----------
526,331 546,335
---------- ----------
Weighted average number of common
and common equivalent shares outstanding 51,245,390 52,503,496
========== ==========
Net earnings before cumulative effect of
accounting changes $83,862,000 $69,630,000
Cumulative effect of accounting changes - (820,000)
----------- -----------
Net earnings $83,862,000 $68,810,000
=========== ===========
Net earnings per common and common equivalent
share before accounting changes $1.64 $1.33
Cumulative effect of accounting changes per
common and common equivalent share - (0.02)
----------- -----------
Net earnings per common and common equivalent
share $1.64 $1.31
=========== ===========
Three months ended June 30:
Six months ended June 30, from above $1.64 $1.31
Three months ended March 31, as previously
reported 0.81 0.63
----------- -----------
Net earnings per common and common equivalent
share for the three months ended June 30 $0.83 $0.68
=========== ===========
NOTE: The effect under a fully diluted computation is immaterial for both
periods.
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