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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.
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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 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.
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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.
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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.
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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
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.
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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.
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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%.
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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.
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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.
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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
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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: 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)
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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.
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