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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, 1995
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
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: 50,790,289 shares of
the Company's Common Stock were outstanding as of April 28, 1995.
(1)
<PAGE>
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,
1995 1994
-------- ---------
Net sales $806,827 $706,369
Cost of merchandise sold 515,122 450,743
------- --------
Gross profit 291,705 255,626
Warehousing, marketing, and
administrative expenses 213,530 185,096
Restructuring charges - 337
------- -------
Total operating expenses 213,530 185,433
------- -------
Operating earnings 78,175 70,193
Other income or (deductions)
Interest income 155 12
Interest expense (83) (339)
Unclassified-net 130 (288)
------- -------
202 (615)
Earnings before income taxes 78,377 69,578
Income taxes 31,508 28,040
Net earnings $ 46,869 $ 41,538
======== ========
Net earnings per common and common
equivalent share $0.92 $0.81
======== =======
Average number of common and
common equivalent shares outstanding 51,216,696 51,230,731
========== ==========
Cash dividends paid per share $0.20 $0.18
======== ========
The accompanying notes are an integral part of these financial statements.
(2)
<PAGE>
W.W. Grainger, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
ASSETS March 31, 1995 Dec. 31, 1994
------------------------------------- -------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 14,084 $ 15,292
Accounts receivable, less allowance for doubtful
accounts of $16,091 in 1995 and $15,333 in 1994 365,454 345,793
Inventories 535,539 519,966
Prepaid expenses 14,772 14,233
Deferred income tax benefits 68,163 68,362
Total current assets 998,012 963,646
PROPERTY, BUILDINGS, AND EQUIPMENT 830,492 810,217
Less accumulated depreciation and amortization 354,217 341,075
---------- ----------
Property, buildings, and equipment-net 476,275 469,142
OTHER ASSETS 98,142 101,963
---------- ----------
TOTAL ASSETS $1,572,429 $1,534,751
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------------
CURRENT LIABILITIES
Short-term debt $ 34,983 $ 11,134
Current maturities of long-term debt 26,284 26,449
Trade accounts payable 229,700 226,459
Accrued liabilities 126,054 172,359
Income taxes 43,672 22,650
---------- ----------
Total current liabilities 460,693 459,051
LONG-TERM DEBT (less current maturities) 989 1,023
DEFERRED INCOME TAXES 13,195 15,177
ACCRUED EMPLOYMENT RELATED BENEFITS COSTS 27,659 26,695
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,
50,782,505 shares in 1995 and 50,749,681 shares
in 1994 25,391 25,375
Additional contributed capital 82,139 81,796
Unearned restricted stock compensation (50) (61)
Retained earnings 962,413 925,695
--------- ---------
Total shareholders' equity 1,069,893 1,032,805
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,572,429 $1,534,751
========== ==========
The accompanying notes are an integral part of these financial statements.
(3)
<PAGE>
W.W. Grainger, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Three Months Ended March 31,
1995 1994
------- -------
Cash flows from operations:
Net earnings $46,869 $41,538
Provision for losses on accounts receivable 2,602 2,692
Depreciation and amortization:
Property, buildings and equipment 15,112 12,696
Intangibles and goodwill 3,961 4,472
Change in operating assets and liabilities:
(Increase) in accounts receivable (22,263) (26,451)
(Increase) in inventories (15,573) (15,338)
(Increase) in prepaid expenses (539) (1,876)
Increase in trade accounts payable 3,241 22,996
(Decrease) in other current liabilities (46,305) (23,810)
Increase in current income taxes payable 21,022 20,537
Increase in accrued employment related
benefits costs 964 1,285
(Decrease) in deferred income taxes (1,783) (2,415)
Other-net (96) (111)
------- -------
Net cash provided by operating activities 7,212 36,215
------- -------
Cash flows from investing activities:
Additions to property, buildings, and
equipment - net of dispositions (22,242) (19,104)
Other - net (36) (208)
------- -------
Net cash (used in) investing activities (22,278) (19,312)
------- -------
Cash flows from financing activities:
Net proceeds from short-term debt 23,849 3,558
Long-term debt payments (199) (200)
Stock incentive plan 359 455
Cash dividends paid (10,151) (9,126)
------- -------
Net cash provided by (used in) financing
activities 13,858 (5,313)
------- -------
Net (decrease) increase in cash and
cash equivalents (1,208) 11,590
Cash and cash equivalents at beginning of year 15,292 2,572
------- -------
Cash and cash equivalents at end of period $14,084 $14,162
======= =======
The accompanying notes are an integral part of these financial statements.
(4)
<PAGE>
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, 1994, 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 $37,159,000 and $37,088,000 were included in trade
accounts payable at March 31, 1995 and December 31, 1994, respectively.
2. DIVIDEND
On April 26, 1995, the Board of Directors declared a quarterly dividend of
23 cents per share, payable June 1, 1995 to shareholders of record on May
8, 1995.
(5)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1994:
Net Sales
Net sales of $806,827,000, in the 1995 first quarter, increased 14.2% from
net sales of $706,369,000 for the comparable 1994 period. There were 64
sales days in both the 1995 and 1994 first quarters. The year 1995 will
have one less sales day than did the year 1994 (254 versus 255).
The sales increase for the 1995 first quarter compared with the 1994 first
quarter was primarily volume related. The volume increase primarily
represented the effects of the Company's market initiatives and the growth
in the national economy. The Company's market initiatives included new
product additions, the continuing expansion of branch facilities, adding
Zone Distribution Centers (ZDC's), and the National Accounts program.
The Company's core branch-based business experienced selling price
increases of about 0.7% quarter-over-quarter. Daily sales to National
Account customers within the Company's core business increased about 25%,
on a comparable basis, over the 1994 first quarter.
(6)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
Net earnings of $46,869,000, in the 1995 first quarter, increased 12.8%
when compared to net earnings of $41,538,000 for the comparable 1994
period. The net earnings increase was less than the sales increase due to
slightly lower gross profit margins and operating expenses increasing at a
faster rate than net sales.
The Company's gross profit margin was virtually the same when comparing
the first quarters of 1995 and 1994 (0.04 percentage point decline). Of
note are the following:
1. The change in selling price category mix had a negative impact on
gross margins. This change primarily resulted from the growth in sales to
core business National Accounts.
2. Offsetting the above was a favorable product mix partially resulting
from a slight decline in sales of seasonal products. The sales of
seasonal products historically have had lower than average gross profit
margins.
Warehousing, marketing, and administrative (operating) expenses for the
Company increased 15.2% for the 1995 first quarter compared with the 1994
first quarter. This increase was greater than the sales increase
primarily due to the following factors:
1. Increased data processing expenses related to the ongoing significant
upgrade and replacement of the branch order entry, order processing, and
inventory management systems. This initiative will continue throughout
1995.
2. Increased freight-out expenses related to expanding the number of
branches which were authorized to use the ZDC network for filling customer
orders. This resulted in orders being shipped longer distances. These
incremental expenses, by policy, were not billed to customers.
3. Increased systems development expenses designed to support Grainger
Integrated Supply Operations role in managing transactions for the Company
and its future best-in-class distribution partners.
Partially offsetting these unfavorable comparisons were the following:
1. The continued leveraging of payroll and related benefits costs, which
increased at a slower rate than sales.
2. Lower amortization of goodwill and other acquisition related costs
associated with acquired and start-up businesses.
The Company's effective income tax rate for the first quarter of 1995 was
40.2% versus 40.3% in the comparable 1994 period. The Company's effective
income tax rate for the full year 1994 would have been 40.4% without the
effects of the restructuring charges recorded during 1994.
(7)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1995, working capital increased by
$32,724,000. The ratio of current assets to current liabilities was 2.2
at March 31, 1995 and 2.1 at December 31, 1994. 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, and
capital expenditures. Total debt as a percent of shareholders' equity was
5.8% at March 31, 1995 and 3.7% at December 31, 1994. For the first three
months of 1995, $6,475,000 was expended for land, buildings, and
facilities improvements, and $16,414,000 for data processing, office, and
other equipment; a total of $22,889,000.
(8)
<PAGE>
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, 1995. 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 44,255,230
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 43,870,277 384,953
R. E. Elberson 43,871,438 383,792
J. D. Fluno 43,880,319 374,911
W. H. Gantz 43,876,978 378,252
D. W. Grainger 43,880,154 375,076
R. L. Keyser 43,881,640 373,590
J. W. McCarter, Jr. 43,876,496 378,734
J. D. Slavik 43,881,953 373,277
H. B. Smith 43,878,081 377,149
F. L. Turner 43,876,454 378,776
(b) A proposal to ratify the appointment of Grant Thornton as independent
auditors of the Company for the year ended December 31, 1995 was approved.
Of the 44,255,230 shares present in person or represented by proxy at the
meeting, 44,161,295 shares were voted for the proposal, 39,863 shares were
voted against the proposal, and 54,072 shares abstained from voting with
respect to the proposal.
(9)
<PAGE>
W.W. Grainger, Inc. and Subsidiaries
PART II - OTHER INFORMATION
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
(27) Financial Data Schedule 13
(b) Reports on Form 8-K.
(i) On January 13, 1995 the Company filed a Report on Form
8-K announcing that the Company would take a fourth
quarter pre-tax charge of $67,097,000, ($48,398,000 or
94 cents per share on an after tax basis) to recognize
the expected costs associated with integration efforts.
(ii) On March 2, 1995, the Company filed a Report on Form 8-K
announcing that the Board of Directors of the Company
elected Richard L. Keyser President and Chief Executive
Officer, effective March 1, 1995.
(10)
<PAGE>
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, 1995 By: /s/ J. D. Fluno
--------------------------------
J. D. Fluno, Vice Chairman
Date: May 10, 1995 By: /s/ P. O. Loux
----------------------------------
P. O. Loux, Vice President, Finance
Date: May 10, 1995 By: /s/ R. D. Pappano
-----------------------------------
R. D. Pappano, Vice President,
Financial Reporting and Investor
Relations
(11)
EXHIBIT 11
W.W. Grainger, Inc. and Subsidiaries
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Three Months Ended March 31,
1995 1994
---------- ---------
Average number of shares outstanding
during the period 50,759,894 50,707,011
Common equivalent shares:
Shares issuable under outstanding
options which are dilutive 1,263,532 1,353,024
Shares which could have been purchased
based upon the average market value for
the period 821,372 843,209
---------- ----------
442,160 509,815
Dilutive effect of exercised options
prior to being exercised 14,642 13,905
---------- ---------
456,802 523,720
---------- ---------
Weighted average number of common
and common equivalent shares outstanding 51,216,696 51,230,731
========== ==========
Net earnings $46,869,000 $41,538,000
=========== ===========
Net earnings per common and common
equivalent share $0.92 $0.81
=========== ===========
NOTE: The effect on earnings per common and common equivalent share,
under a fully diluted computation, is immaterial for both periods.
(12)
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