14 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, 1996
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)
455 Knightsbridge Parkway
Lincolnshire, Illinois 60069-3620
Telephone: (847)793-9030
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: 51,021,994 shares of the
Company's Common Stock were outstanding as of July 31, 1996.
(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 Six Months
Ended June 30, Ended June 30,
------------------- -----------------------
1996 1995 1996 1995
-------- -------- --------- ---------
Net sales .................... $888,624 $813,518 $1,731,271 $1,620,345
Cost of merchandise sold ..... 579,017 527,097 1,121,166 1,042,219
--------- -------- --------- ---------
Gross profit .............. 309,607 286,421 610,105 578,126
Warehousing, marketing, and
administrative expenses ...... 227,180 219,091 443,651 432,621
--------- -------- --------- ---------
Operating earnings ........ 82,427 67,330 166,454 145,505
Other income or (deductions)
Interest income ........... 743 2 1,000 157
Interest expense .......... (303) (1,080) (574) (1,163)
Unclassified-net .......... (12) (226) (206) (96)
---------- --------- ---------- ---------
428 (1,304) 220 (1,102)
---------- --------- ---------- ---------
Earnings before income taxes .. 82,855 66,026 166,674 144,403
Income taxes .................. 33,308 26,542 67,003 58,050
---------- --------- ---------- ---------
Net earnings .................. $ 49,547 $ 39,484 $ 99,671 $ 86,353
========== ========= ========== =========
Net earnings per common and
common equivalent share .. $ 0.96 $ 0.77 $ 1.94 $ 1.69
========== ========= ========== ==========
Average number of common
and common equivalent
shares outstanding ..... 51,418,428 51,219,169 51,399,562 51,217,933
========== ========== ========== ==========
Cash dividends paid per share $ 0.25 $ 0.23 $ 0.48 $ 0.43
========= ======== ========== ==========
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, 1996 Dec. 31, 1995
- -------------- -------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 94,399 $ 11,460
Accounts receivable, less allowance
for doubtful accounts of $15,694 in
1996 and $14,229 in 1995 432,167 369,576
Inventories 545,847 602,639
Prepaid expenses 17,719 11,746
Deferred income tax benefits 64,334 67,239
-------------- --------------
Total current assets 1,154,466 1,062,660
PROPERTY, BUILDINGS, AND EQUIPMENT 917,918 897,700
Less accumulated depreciation
and amortization 407,545 379,349
-------------- --------------
Property, buildings, and equipment-net 510,373 518,351
OTHER ASSETS 80,436 88,232
-------------- --------------
TOTAL ASSETS $ 1,745,275 $ 1,669,243
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 3,265 $ 23,577
Current maturities of long-term debt 24,704 23,241
Trade accounts payable 259,403 204,925
Accrued liabilities 134,800 168,928
Income taxes 24,219 23,465
-------------- ---------------
Total current liabilities 446,391 444,136
LONG-TERM DEBT (less current maturities) 7,209 8,713
DEFERRED INCOME TAXES 4,255 8,539
ACCRUED EMPLOYMENT RELATED BENEFITS COSTS 30,636 28,746
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, 51,013,829 shares in
1996 and 50,894,629 shares in 1995 25,492 25,447
Additional contributed capital 88,738 86,548
Unearned restricted stock compensation (3) (19)
Retained earnings 1,142,342 1,067,133
Foreign currency translation adjustment 215 -
-------------- -------------
Total shareholders' equity 1,256,784 1,179,109
-------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,745,275 $ 1,669,243
============== ==============
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,
1996 1995
Cash flows from operations:
Net earnings $ 99,671 $ 86,353
Provision for losses on accounts receivable 5,734 5,826
Depreciation and amortization:
Property, buildings, and equipment 31,650 29,885
Intangibles and goodwill 6,521 6,696
Change in operating assets and liabilities:
(Increase) in accounts receivable (68,325) (48,244)
Decrease (Increase) in inventories 56,792 (87,525)
(Increase) decrease in prepaid expenses (5,973) 353
Increase in trade accounts payable 54,478 22,698
(Decrease) in other current liabilities (34,128) (39,244)
Increase (decrease) in current income
taxes payable 754 (15,962)
Increase in accrued employment related
benefits costs 1,890 2,175
(Decrease) in deferred income taxes (1,379) (2,932)
Other-net 2,240 1,515
--------- ---------
Net cash provided by (used in)
operating activities 149,925 (38,406)
--------- ---------
Cash flows from investing activities:
Additions to property, buildings, and
equipment - net of dispositions (23,819) (52,647)
Other - net (587) (1,288)
--------- ---------
Net cash (used in) investing activities (24,406) (53,935)
--------- ---------
Cash flows from financing activities:
Net (decrease) increase in short-term debt (20,312) 114,216
Proceeds from long-term debt 1,500 -
Long-term debt payments (1,541) (230)
Stock incentive plan 2,235 1,140
Cash dividends paid (24,462) (21,838)
--------- ---------
Net cash (used in) provided by
financing activities (42,580) 93,288
--------- ---------
Net increase in cash and cash equivalents 82,939 947
Cash and cash equivalents at beginning of year 11,460 15,292
--------- ----------
Cash and cash equivalents at end of period $ 94,399 $ 16,239
========== =========
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, 1995, 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.
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 $46,943,000 and $40,027,000 were included in trade
accounts payable at June 30, 1996 and December 31, 1995, respectively.
2. DIVIDEND
On August 7, 1996, the Board of Directors declared a quarterly dividend of 25
cents per share, payable September 1, 1996 to shareholders of record on August
19, 1996.
3. ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123)
The Financial Accounting Standards Board's SFAS No. 123 "Accounting for
Stock-Based Compensation" is effective for the fiscal year 1996. This statement
requires the Company either to adopt SFAS No. 123 and recognize an expense for
stock compensation in the financial statements or to continue accounting under
Accounting Principles Board Opinion (APBO) No. 25 "Accounting for Stock Issued
to Employees" with additional proforma footnote disclosure regarding the impact
on Net earnings and Net earnings per share had the Company adopted SFAS No. 123.
The Company has elected to continue to account for stock compensation under APBO
No. 25 with additional footnote disclosure. The Company will provide the
additional footnote disclosure in its 1996 year end financial statements.
(5)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1995:
Net Sales
Net sales of $888,624,000 in the 1996 second quarter increased 9.2% from net
sales of $813,518,000 for the comparable 1995 period. There were 64 sales days
in both the 1996 and 1995 second quarter. The year 1996 will have two more sales
days than did the year 1995 (256 versus 254).
The sales increase for the 1996 second quarter compared with the 1995 second
quarter was principally volume related. The volume increase primarily
represented the effects of the Company's market initiatives which 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 2.1% quarter over quarter. Daily sales to National Account customers
within the core business increased an estimated 22%, on a comparable basis, over
the 1995 second quarter.
(6)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
Net earnings of $49,547,000 in the 1996 second quarter increased 25.5% when
compared to net earnings of $39,484,000 for the comparable 1995 period. The net
earnings increase was higher than the sales increase due to operating expenses
increasing at a slower rate than net sales, partially offset by lower gross
profit margins.
The Company's gross profit margin decreased by 0.37 percentage point for the
1996 second quarter as compared with the same 1995 period. This decrease was
principally related to a change in selling price category mix. Partially
offsetting this decrease was the effect of selling price increases exceeding the
level of cost increases.
Warehousing, marketing, and administrative (operating) expenses for the Company
increased 3.7% for the 1996 second quarter as compared with the 1995 second
quarter. The increase was lower than the increase in net sales.
Contributing to this favorable comparison were the following factors:
1. Payroll grew at a slower rate than net sales.
2. Freight-out expenses were lower.
Partially offsetting the above were the following factors:
1. Employee benefits costs were higher. These costs were related to an
increased allocation of profit sharing expenses due to a higher level
of Company earnings as compared with 1995.
2. Advertising expenses increased due to marketing initiatives.
3. Expenses related to business process improvement programs increased.
The Company's effective income tax rate was 40.2% for the second quarters of
both 1996 and 1995.
(7)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995:
Net Sales
Net sales of $1,731,271,000 in the first six months of 1996 increased 6.8% from
net sales of $1,620,345,000 for the comparable 1995 period. There were 128 sales
days in both six month periods. The year 1996 will have two more sales days than
did the year 1995 (256 versus 254).
The sales increase for the first six months of 1996 when compared with the same
1995 period was principally volume related. The volume increase primarily
represented the effects of the Company's market initiatives which 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 2.0% when comparing the first six months of each year. Daily sales to
National Account customers within the core business increased an estimated 20%,
on a comparable basis, over the same 1995 period.
It should be noted that sales in the 1996 first quarter were negatively affected
by the sluggish national economy and adverse weather experienced by much of the
East Coast during January. Due to January 1996 weather conditions, 53 branches
and one ZDC were closed one to two days. Additionally, some of the Company's
customers were affected for longer periods.
(8)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
Net earnings of $99,671,000 in the first six months of 1996 increased 15.4% when
compared to net earnings of $86,353,000 for the comparable 1995 period. The net
earnings increase was higher than the sales increase due to operating expenses
increasing at a slower rate than net sales, partially offset by lower gross
profit margins.
The Company's gross profit margin decreased by 0.44 percentage point for the
first six months of 1996 as compared with the same 1995 period. This change in
gross profit margin was primarily related to the same factors discussed in
comparing the second quarters of 1996 and 1995 (see Second Quarter Net Earnings
discussion).
Warehousing, marketing, and administrative (operating) expenses for the Company
increased 2.5% for the first six months of 1996 as compared with the same 1995
period. The increase was lower than the increase in net sales.
Contributing to this favorable comparison were the following factors:
1. Data processing expenses were lower. The Company continues the upgrade
of its branch order entry, order processing, and inventory management
system. However, the expenses related to this upgrade were less on a
comparable basis with the first six months of 1995.
2. Payroll grew at a slower rate than net sales.
3. Freight-out expenses were lower.
Partially offsetting the above were the following factors:
1. Employee benefits costs were higher. These costs were related to an
increased allocation of profit sharing expenses due to a higher level
of Company earnings as compared with 1995.
2. Expenses related to the continuing enhancement and reconfiguration of
the Company's logistics network increased. The first six months of 1996
included incremental expenses related to the ongoing ramp-up of the
ZDCs.
3. Expenses related to business process improvement programs increased.
The Company's effective income tax rate was 40.2% for the first six months of
both 1996 and 1995.
(9)
<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, 1996, working capital increased by
$89,551,000. The ratio of current assets to current liabilities was 2.6 at June
30, 1996 and 2.4 at December 31, 1995. The Consolidated Statements of Cash
Flows, included in this report, detail the sources and uses of cash and cash
equivalents.
The Company's low debt ratio and liquidity position provide flexibility in
funding working capital needs and long-term cash requirements. In addition to
internally generated funds, the Company has various sources of financing
available, including commercial paper sales and bank borrowings under lines of
credit and otherwise. Total debt as a percent of Shareholders' Equity was 2.8%
at June 30, 1996 and 4.7% at December 31, 1995. For the first six months of
1996, $13,697,000 was expended for land, buildings, and facilities improvements,
and $13,840,000 for data processing, office, and other equipment, for a total of
$27,537,000.
(10)
<PAGE>
W.W. Grainger, Inc. and Subsidiaries
PART II - OTHER INFORMATION
EXHIBIT INDEX
-------------
Items 1, 2, 3, 4, and 5 not applicable.
Item 6 Exhibits (numbered in accordance with Item 601 of regulation S-K)
and Reports on Form 8-K.
(a) Exhibits
(11) Computation of Earnings per Common and
Common Equivalent Share 13
(27) Financial Data Schedule 14
(b) Reports on Form 8-K - None.
(11)
<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 12, 1996 By: /s/ J. D. Fluno
- --------------------- -------------------------------------
J. D. Fluno, Vice Chairman
Date: August 12, 1996 By: /s/ P.O. Loux
- --------------------- -------------------------------------
P. O. Loux, Vice President, Finance
Date: August 12, 1996 By: /s/ R.D. Pappano
- --------------------- -------------------------------------
R. D. Pappano, Vice President,
Financial Reporting and Investor Relations
(12)
Exhibit 11
W.W. Grainger, Inc. and Subsidiaries
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Six Months Ended June 30,
1996 1995
---- ----
Average number of shares outstanding
during the period 50,960,103 50,783,718
Common equivalent shares:
Shares issuable under outstanding
options which are dilutive 1,507,567 1,235,530
Shares which could have been purchased
based upon the average market value for
the period 1,087,814 813,114
------------- ------------
419,753 422,416
Dilutive effect of exercised options
prior to being exercised 19,706 11,799
------------- ------------
439,459 434,215
------------- ------------
Weighted average number of common
and common equivalent shares outstanding 51,399,562 51,217,933
============= ============
Net earnings $99,671,000 $86,353,000
============= ============
Net earnings per common and common
equivalent share $ 1.94 $ 1.69
============= ============
Three months ended June 30:
Six months ended June 30, from above $ 1.94 $ 1.69
Three months ended March 31,
as previously reported 0.98 0.92
-------------- ------------
Net earnings per common and common
equivalent share for the three
months ended June 30 $ 0.96 $ 0.77
============== ============
(13)
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> $94,399
<SECURITIES> 0
<RECEIVABLES> $447,861
<ALLOWANCES> $15,694
<INVENTORY> $545,847
<CURRENT-ASSETS> $1,154,466
<PP&E> $917,918
<DEPRECIATION> $407,545
<TOTAL-ASSETS> $1,745,275
<CURRENT-LIABILITIES> $466,391
<BONDS> $26,215
0
0
<COMMON> $25,492
<OTHER-SE> $1,231,292
<TOTAL-LIABILITY-AND-EQUITY> $1,745,275
<SALES> $1,731,271
<TOTAL-REVENUES> $1,731,271
<CGS> $1,121,166
<TOTAL-COSTS> $1,121,166
<OTHER-EXPENSES> $437,123
<LOSS-PROVISION> $5,734
<INTEREST-EXPENSE> $574
<INCOME-PRETAX> $166,674
<INCOME-TAX> $67,003
<INCOME-CONTINUING> $99,671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $99,671
<EPS-PRIMARY> $1.94
<EPS-DILUTED> 0
</TABLE>
