15 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, 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
Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: 50,831,162 shares of
the Company's Common Stock were outstanding as of July 31, 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 June 30, Six Months Ended June 30,
1995 1994 1995 1994
Net sales $813,518 $768,554 $1,620,345 $1,474,923
Cost of merchandise
sold 527,097 499,762 1,042,219 950,505
-------- -------- --------- ----------
Gross profit 286,421 268,792 578,126 524,418
Warehousing, marketing,
and administrative
expenses 219,091 197,260 432,621 382,356
Restructuring charges - 330 - 667
------- ------- ------- -------
Total operating
expenses 219,091 197,590 432,621 383,023
------- ------- ------- -------
Operating earnings 67,330 71,202 145,505 141,395
Other income or
(deductions)
Interest income 2 2 157 14
Interest expense (1,080) (671) (1,163) (1,010)
Unclassified-net (226) 361 (96) 73
-------- ------- ------ -------
(1,304) (308) (1,102) (923)
-------- ------ ------ -------
Earnings before income
taxes 66,026 70,894 144,403 140,472
Income taxes 26,542 28,570 58,050 56,610
-------- ------ ------- -------
Net earnings $39,484 $42,324 $86,353 $83,862
======= ======= ======= =======
Net earnings per common
and common equivalent
share $0.77 $0.83 $1.69 $1.64
===== ===== ===== =====
Average number of common
and common equivalent
shares outstanding 51,219,169 51,260,049 51,217,933 51,245,390
========== ========== ========== ==========
Cash dividends paid
per share $0.23 $0.20 $0.43 $0.38
===== ===== ===== =====
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 June 30, 1995 Dec. 31, 1994
CURRENT ASSETS
Cash and cash equivalents $ 16,239 $ 15,292
Accounts receivable, less allowance for doubtful
accounts of $17,015 in 1995 and $15,333 in 1994 388,211 345,793
Inventories 607,491 519,966
Prepaid expenses 13,880 14,233
Deferred income tax benefits 67,773 68,362
--------- ---------
Total current assets 1,093,594 963,646
PROPERTY, BUILDINGS, AND EQUIPMENT 859,396 810,217
Less accumulated depreciation and amortization 367,802 341,075
--------- ---------
Property, buildings, and equipment-net 491,594 469,142
OTHER ASSETS 95,373 101,963
--------- ---------
TOTAL ASSETS $1,680,561 $1,534,751
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 125,350 $ 11,134
Current maturities of long-term debt 26,287 26,449
Trade accounts payable 249,157 226,459
Accrued liabilities 133,115 172,359
Income taxes 6,688 22,650
--------- ---------
Total current liabilities 540,597 459,051
LONG-TERM DEBT (less current maturities) 955 1,023
DEFERRED INCOME TAXES 11,656 15,177
ACCRUED EMPLOYMENT RELATED BENEFITS COSTS 28,870 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,
50,824,991 shares in 1995 and 50,749,681 shares
in 1994 25,412 25,375
Additional contributed capital 82,899 81,796
Unearned restricted stock compensation (38) (61)
Retained earnings 990,210 925,695
--------- ---------
Total shareholders' equity 1,098,483 1,032,805
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,680,561 $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)
Six Months Ended June 30,
1995 1994
Cash flows from operations:
Net earnings $86,353 $83,862
Provision for losses on accounts receivable 5,826 5,530
Depreciation and amortization:
Property, buildings, and equipment 29,885 26,103
Intangibles and goodwill 7,988 8,906
Restructuring charges - non cash _ 847
Change in operating assets and liabilities
net of effect of restructuring charges:
(Increase) in accounts receivable (48,244) (78,446)
(Increase) in inventories (87,525) (32,721)
Decrease in prepaid expenses 353 1,179
Increase in trade accounts payable 22,698 39,359
(Decrease) in other current liabilities (39,244) (9,275)
(Decrease) in current income taxes payable (15,962) (6,618)
Increase in accrued employment related
benefits costs 2,175 2,450
(Decrease) in deferred income taxes (2,932) (4,731)
Other-net 223 8
------- --------
Net cash (used in) provided by operating
activities (38,406) 36,453
------- ---------
Cash flows from investing activities:
Additions to property, buildings, and
equipment -net of dispositions (52,647) (42,980)
Other - net (1,288) (277)
------- -------
Net cash (used in) investing activities (53,935) (43,257)
------- -------
Cash flows from financing activities:
Net proceeds from short-term debt 114,216 35,389
Long-term debt payments (230) (315)
Stock incentive plan 1,140 887
Cash dividends paid (21,838) (19,272)
------- -------
Net cash provided by financing activities 93,288 16,689
------- -------
Net increase in cash and cash equivalents 947 9,885
Cash and cash equivalents at beginning of year 15,292 2,572
-------- --------
Cash and cash equivalents at end of period $ 16,239 $ 12,457
======== ========
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 $45,515,000 and $37,088,000 were included in
trade accounts payable at June 30, 1995 and December 31, 1994,
respectively.
2. DIVIDEND
On August 2, 1995, the Board of Directors declared a quarterly
dividend of 23 cents per share, payable September 1, 1995 to
shareholders of record on August 14, 1995.
(5)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 1994:
Net Sales
---------
Net sales of $813,518,000 in the 1995 second quarter increased 5.9% from
net sales of $768,554,000 for the comparable 1994 period. There were 64
sales days in both the 1995 and 1994 second quarter. The year 1995 will
have one less sales day than did the year 1994 (254 versus 255).
The sales increase for the 1995 second quarter compared with the 1994
second quarter was principally volume related. The rate of sales increase
for the second quarter of 1995 was significantly less than the rate of
increase for the first quarter of 1995. Contributing to this decline were
two factors:
1. A slowing in the growth of the general economy.
2. The sales of seasonal products having a larger negative effect in
the second quarter versus the first quarter.
The volume increase primarily represented the continuing effects of the
Company's market initiatives. These initiatives included new product
additions, the expansion of branch facilities, adding Zone Distribution
Centers (ZDCs), and the National Accounts program.
Daily sales to National Account customers within the Company's core
branch-based business increased about 19%, on a comparable basis, over the
1994 second quarter. Partially offsetting the sales increase was a
decline in the sales of seasonal products by the core business. The core
business experienced selling price increases of about 1.4% when comparing
the second quarters of 1995 and 1994.
(6)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
------------
Net earnings of $39,484,000, in the 1995 second quarter, decreased 8.2%,
when compared with 1994 second quarter net earnings of $43,033,000, which
excludes the effect of after tax restructuring charges of $709,000. When
considering the effect of the restructuring charges, net earnings for the
1995 second quarter decreased 6.7%. The net earnings decrease versus the
sales increase was due primarily to operating expenses increasing at a
faster rate than net sales, partially offset by slightly higher gross
profit margins.
The Company's gross profit margin increased by 0.24 percentage point for
the second quarter of 1995 as compared with the same 1994 period.
Contributing to the improvement were:
1. A favorable product mix primarily resulting from a decline in sales
of seasonal products. The sales of seasonal products have
historically had lower than average gross profit margins.
2. Cost of goods sold for the 1994 second quarter included $847,000 of
restructuring charges attributable to business unit integration.
Offsetting the above positive items was a negative effect from a change in
selling price category mix. This change primarily resulted from the
growth in sales to National Accounts.
Warehousing, marketing, and administrative (operating) expenses
increased 10.9% for the 1995 second quarter compared with the 1994
second quarter. This increase was greater than the sales increase
primarily due to the Company's continuing investment in the business
infrastructure to support its market initiatives and to the rapid decline
in the rate of sales growth experienced throughout the quarter. Of note
were the following factors relating to infrastructure investments:
1. Increased data processing expenses related to the ongoing
significant upgrade and replacement of the branch order entry, order
processing, and inventory management system. This initiative will
continue throughout 1995.
2. Increased systems development expenses designed to support Grainger
Integrated Supply Operations' role in managing transactions for the
Company and its best-in-class distribution partners.
3. Increased expenses related to the continuing enhancement and
reconfiguration of the Company's logistics network. The quarter
included expenses related to the ramp-up of three additional ZDCs.
Also included were expenses associated with converting the Niles,
Illinois Regional Distribution Center to a National Distribution
Center.
(7)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings (continued)
------------
Also contributing to operating expenses increasing faster than the sales
increase were:
1. Payroll and related benefits costs increasing somewhat faster than
the rate of sales. The Company was unable to balance its workforce
due to the sharp decline in the rate of sales growth, particularly
in the month of June.
2. Increased freight-out expenses resulting from several factors
including:
a. Proportionally more shipments qualifying for prepaid freight.
b. Proportionally more orders being transferred within the
ZDC/branch network. This resulted in orders being shipped
longer distances. These incremental expenses, by policy, were
not billed to customers.
Partially offsetting these unfavorable comparisons was lower amortization
of goodwill and other acquisition related costs associated with acquired
and start-up businesses.
Operating expenses for the 1994 second quarter included $330,000 of
restructuring charges in connection with the Company's previously
announced integration of its business units and its administrative support
functions.
The Company's effective income tax rate for the second quarter of 1995 was
40.2% versus 40.3% in the comparable 1994 period.
(8)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH THE SIX MONTHS ENDED
JUNE 30, 1994:
Net Sales
---------
Net sales of $1,620,345,000 in the first six months of 1995 increased 9.9%
from net sales of $1,474,923,000 in the same 1994 period. There were 128
sales days in both six month periods. The year 1995 will have one less
sales day than did the year 1994 (254 versus 255).
The sales increase for the first six months of 1995 when compared with the
same 1994 period was principally volume related. The volume increase can
be explained primarily by the same factors discussed for the second
quarter (see Second Quarter Net Sales discussion). Daily sales to
National Account customers within the Company's core branch-based business
increased about 22%, on a comparable basis, over the same 1994 period.
The core business experienced selling price increases of about 1.0% when
comparing the first six month period for each year.
(9)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
------------
Net earnings for the 1995 first half increased 1.9% to $86,353,000
compared with 1994 net earnings of $84,774,000, which excludes the effect
of after tax restructuring charges of $912,000. When considering the
effect of the restructuring charges, net earnings for the 1995 first half
increased 3.0%. The earnings increase was less than the sales increase
due primarily to operating expenses increasing at a faster rate than net
sales, partially offset by slightly higher gross profit margins.
The Company's gross profit margin was virtually the same when comparing
the first six months of 1995 and 1994 (0.12 percentage point improvement).
This change in gross profit margin was primarily the result of the factors
discussed for the second quarter (see Second Quarter Net Earnings
discussion).
Warehousing, marketing, and administrative (operating) expenses
increased 12.9% for the first six months of 1995 as compared with
the same 1994 period. This increase was greater than the increase in net
sales due primarily to the factors discussed for the second quarter (see
Second Quarter Net Earnings discussion). Operating expenses for the first
six months of 1994 included $667,000 of restructuring charges in
connection with the Company's previously announced integration of its
business units and its administrative support functions.
The Company's effective income tax rate for the six months 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.
(10)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1995, working capital increased
$48,402,000. The ratio of current assets to current liabilities was 2.0
at June 30, 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,
capital expenditures, and business acquisitions. Total debt as a percent
of shareholders' equity was 13.9% at June 30, 1995 and 3.7% at December
31, 1994. For the first six months of 1995, $16,894,000 was expended for
land, buildings, and facilities improvements, and $35,593,000 for data
processing, office, and other equipment; a total of $52,487,000.
(11)
<PAGE>
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 14
(27) Financial Data Schedule 15
(b) Reports on Form 8-K - None.
(12)
<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: August 10, 1995 By: /s/ J. D. Fluno
-----------------------------------
J. D. Fluno, Vice Chairman
Date: August 10, 1995 By: /s/ P. O. Loux
-----------------------------------
P. O. Loux, Vice President, Finance
Date: August 10, 1995 By: /s/ R. D. Pappano
-----------------------------------
R. D. Pappano, Vice President,
Financial Reporting and Investor Relations
(13)
EXHIBIT 11
W.W. Grainger, Inc. and Subsidiaries
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
1995 1994
---- ----
Six months ended June 30:
Average number of shares outstanding
during the period 50,783,718 50,719,059
Common equivalent shares:
Shares issuable under outstanding
options which are dilutive 1,235,530 1,440,889
Shares which could have been purchased
based upon the average market value for
the period 813,114 924,140
---------- ---------
422,416 516,749
Dilutive effect of exercised options
prior to being exercised 11,799 9,582
---------- ---------
434,215 526,331
---------- ---------
Weighted average number of common
and common equivalent shares outstanding 51,217,933 51,245,390
========== ==========
Net earnings $86,353,000 $83,862,000
=========== ===========
Net earnings per common and common
equivalent share $1.69 $1.64
===== =====
Three months ended June 30:
Six months ended June 30, from above $1.69 $1.64
Three months ended March 31, as previously reported 0.92 0.81
----- -----
Net earnings per common and common equivalent
share for the three months ended June 30 $0.77 $0.83
===== =====
(14)
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<PERIOD-END> JUN-30-1995
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<CASH> 16239
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<RECEIVABLES> 405226
<ALLOWANCES> 17015
<INVENTORY> 607491
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<PP&E> 859396
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<CURRENT-LIABILITIES> 540597
<BONDS> 26215
0
0
<COMMON> 25412
<OTHER-SE> 1073071
<TOTAL-LIABILITY-AND-EQUITY> 1680561
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<OTHER-EXPENSES> 426734
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