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 March 31, 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: 50,972,084 shares of the
Company's Common Stock were outstanding as of April 30, 1996.
10Q1st
<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,
1996 1995
---- ----
Net sales .................................. $ 842,647 $ 806,827
Cost of merchandise sold ................... 542,149 515,122
------------ ------------
Gross profit ............................. 300,498 291,705
Warehousing, marketing, and
administrative expenses.................... 216,471 213,530
------------ ------------
Operating earnings ...................... 84,027 78,175
Other income or (deductions)
Interest income .......................... 257 155
Interest expense ......................... (271) (83)
Unclassified-net ......................... (194) 130
------------ ------------
(208) 202
------------ ------------
Earnings before income taxes ............... 83,819 78,377
Income taxes ............................... 33,695 31,508
------------ ------------
Net earnings ............................. $ 50,124 $ 46,869
============ ============
Net earnings per common and common
equivalent share .......................... $ 0.98 $ 0.92
============ ============
Average number of common and common
equivalent shares outstanding ............. 51,380,696 51,216,696
============ ============
Cash dividends paid per share .............. $ 0.23 $ 0.20
============ ============
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, 1996 Dec. 31, 1995
- ----------------------------------------------- -------------- -------------
CURRENT ASSETS
Cash and cash equivalents ....................... $ 43,597 $ 11,460
Accounts receivable, less allowance for doubtful
accounts of $15,178 in 1996 and $14,229 in 1995. 388,629 369,576
Inventories ..................................... 558,968 602,639
Prepaid expenses ................................ 19,394 11,746
Deferred income tax benefits .................... 66,378 67,239
--------- ---------
Total current assets ......................... 1,076,966 1,062,660
PROPERTY, BUILDINGS, AND EQUIPMENT ................ 907,959 897,700
Less accumulated depreciation and amortization... 394,724 379,349
--------- ---------
Property, buildings, and equipment-net ......... 513,235 518,351
OTHER ASSETS ..................................... 84,278 88,232
---------- ---------
TOTAL ASSETS .................................... $1,674,479 $1,669,243
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------
CURRENT LIABILITIES
Short-term debt .............................. $ 2,998 $ 23,577
Current maturities of long-term debt ......... 23,267 23,241
Trade accounts payable ....................... 206,048 204,925
Accrued liabilities .......................... 124,543 168,928
Income taxes ................................. 54,338 23,465
--------- ---------
Total current liabilities ................. 411,194 444,136
LONG-TERM DEBT (less current maturities) ....... 8,202 8,713
DEFERRED INCOME TAXES .......................... 6,366 8,539
ACCRUED EMPLOYMENT RELATED BENEFITS COSTS ...... 29,725 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,
50,966,919 shares in 1996 and
50,894,629 shares in 1995 .................. 25,483 25,447
Additional contributed capital ................ 87,921 86,548
Unearned restricted stock compensation ........ (11) (19)
Retained earnings ............................. 1,105,599 1,067,133
------------- -------------
Total shareholders' equity ..................... 1,218,992 1,179,109
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 1,674,479 $ 1,669,243
============= =============
The accompanying notes are an integral part of these financial statements.
3
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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,
----------------------------
1996 1995
---- ----
Cash flows from operations:
Net earnings .......................................... $ 50,124 $ 46,869
Provision for losses on accounts receivable ........... 3,035 2,602
Depreciation and amortization:
Property, buildings, and equipment ................... 16,223 15,112
Intangibles and goodwill ............................. 3,568 3,349
Change in operating assets and liabilities:
(Increase) in accounts receivable .................... (22,088) (22,263)
Decrease (Increase) in inventories ................... 43,671 (15,573)
(Increase) in prepaid expenses ....................... (7,648) (539)
Increase in trade accounts payable ................... 1,123 3,241
(Decrease) in other current liabilities .............. (44,385) (46,305)
Increase in current income taxes payable ............. 30,873 21,022
Increase in accrued employment related
benefits costs ...................................... 979 964
(Decrease) in deferred income taxes .................. (1,312) (1,783)
Other-net ............................................ 634 516
-------- --------
Net cash provided by operating activities .............. 74,797 7,212
-------- --------
Cash flows from investing activities:
Additions to property, buildings, and
equipment - net of dispositions ..................... (11,279) (22,242)
Other - net .......................................... (7) (36)
-------- --------
Net cash (used in) investing activities ................ (11,286) (22,278)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in short-term debt ............ (20,579) 23,849
Long-term debt payments ............................... (485) (199)
Stock incentive plan .................................. 1,409 359
Cash dividends paid ................................... (11,719) (10,151)
-------- --------
Net cash (used in) provided by financing activities .... (31,374) 13,858
-------- --------
Net increase (decrease) in cash and cash equivalents .. 32,137 (1,208)
Cash and cash equivalents at beginning of year ......... 11,460 15,292
-------- --------
Cash and cash equivalents at end of period ............. $ 43,597 $ 14,084
======== ========
The accompanying notes are an integral part of these financial statements
4
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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, 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 $41,812,000 and $40,027,000 were included in trade
accounts payable at March 31, 1996 and December 31, 1995, respectively.
2. DIVIDEND
On April 24, 1996, the Board of Directors declared a quarterly dividend of 25
cents per share, payable June 1, 1996 to shareholders of record on May 6, 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 MARCH 31, 1996 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1995:
Net Sales
Net sales of $842,647,000 in the 1996 first quarter increased 4.4% from net
sales of $806,827,000 for the comparable 1995 period. There were 64 sales days
in both the 1996 and 1995 first quarter. The year 1996 will have two more sales
days than did the year 1995 (256 versus 254).
The sales increase for the 1996 first quarter compared with the 1995 first
quarter was principally volume related. The volume increase primarily
represented the continuing effects of the Company's market initiatives which
included new product additions, the 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 1.9% quarter over quarter. Daily sales to National Account customers
within the core business increased an estimated 17%, on a comparable basis, over
the 1995 first quarter.
Sales in the 1996 first quarter were negatively affected by the sluggish
national economy and adverse weather experienced by much of the East Coast in
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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
Net earnings of $50,124,000 in the 1996 first quarter increased 6.9% when
compared to net earnings of $46,869,000 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 0.49 percentage point for the
1996 first quarter as compared with the same 1995 period. This decrease was
principally related to the following two factors:
1. An unfavorable change in selling price category mix, which primarily
resulted from the growth in sales to National Account customers.
2. Cost increases exceeding the level of selling price increases.
Warehousing, marketing, and administrative (operating) expenses for the Company
increased 1.4% for the 1996 first quarter as compared with the 1995 first
quarter. The increase was lower than the increase in net sales. Contributing to
this favorable comparison were the following factors:
1. Overall the Company incurred lower data processing expenses. The Company is
continuing to upgrade its branch order entry, order processing, and
inventory management system. However, the expenses related to this upgrade
were less on a comparable basis than those incurred in the 1995 first
quarter.
2. Freight-out expenses were lower in the 1996 quarter as compared with the
1995 quarter.
3. Payroll grew at a slower rate than net sales.
Partially offsetting the above were the following factors:
1. The Company incurred higher employee benefits costs. These increased costs
primarily related to higher health care costs and to an increased
allocation of profit sharing expenses due to a higher level of Company
earnings as compared with the 1995 first quarter.
2. The Company incurred increased expenses related to the continuing
enhancement and reconfiguration of its logistics network. The quarter
included expenses related to the ongoing ramp-up of the ZDCs.
The Company's effective income tax rate was 40.2% for the first quarters of both
1996 and 1995.
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, 1996, working capital increased by
$47,248,000. The ratio of current assets to current liabilities was 2.6 at March
31, 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 March 31, 1996 and 4.7% at December 31, 1995. For the first three months of
1996, $6,312,000 was expended for land, buildings, and facilities improvements,
and $7,983,000 for data processing, office, and other equipment; for a total of
$14,295,000.
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 24,
1996. 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 40,399,276 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 40,208,516 190,760
R. E. Elberson 40,219,991 179,285
J. D. Fluno 40,232,643 166,633
W. H. Gantz 40,229,639 169,637
D. W. Grainger 40,226,644 172,632
R. L. Keyser 40,224,245 175,031
J. W. McCarter, Jr. 40,232,775 166,501
J. D. Slavik 40,234,994 164,282
H. B. Smith 40,234,557 164,719
F. L. Turner 40,232,927 166,349
J. S. Webb 40,219,357 179,919
(b) A proposal to ratify the appointment of Grant Thornton as
independent auditors of the Company for the year ended
December 31, 1996 was approved. Of the 40,399,276 shares
present in person or represented by proxy at the meeting,
40,295,901 shares were voted for the proposal, 35,498 shares
were voted against the proposal, and 67,877 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 - None.
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, 1996 By: /s/ J. D. Fluno
- ------------------ -----------------------------
J. D. Fluno, Vice Chairman
Date: May 10, 1996 By: /s/ P. O. Loux
- ------------------ -----------------------------
P. O. Loux, Vice President, Finance
Date: May 10, 1996 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,
----------------------------
1996 1995
---- ----
Average number of shares outstanding
during the period 50,941,982 50,759,894
Common equivalent shares:
Shares issuable under outstanding options
which are dilutive 1,402,351 1,263,532
Shares which could have been purchased
based upon the average market value for
the period 980,255 821,372
----------- -----------
422,096 442,160
Dilutive effect of exercised options
prior to being exercised 16,618 14,642
----------- -----------
438,714 456,802
----------- -----------
Weighted average number of common
and common equivalent shares outstanding 51,380,696 51,216,696
=========== ===========
Net earnings $50,124,000 $46,869,000
=========== ===========
Net earnings per common and common
equivalent share $ 0.98 $ 0.92
=========== ===========
NOTE:The effect on earnings per common and common equivalent share, under a
fully diluted computation, is immaterial for both periods.
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 43,597
<SECURITIES> 0
<RECEIVABLES> 403,807
<ALLOWANCES> 15,178
<INVENTORY> 558,968
<CURRENT-ASSETS> 1,076,966
<PP&E> 907,959
<DEPRECIATION> 394,724
<TOTAL-ASSETS> 1,674,479
<CURRENT-LIABILITIES> 411,194
<BONDS> 26,206
0
0
<COMMON> 25,483
<OTHER-SE> 1,193,509
<TOTAL-LIABILITY-AND-EQUITY> 1,674,479
<SALES> 842,647
<TOTAL-REVENUES> 842,647
<CGS> 542,149
<TOTAL-COSTS> 542,149
<OTHER-EXPENSES> 213,373
<LOSS-PROVISION> 3,035
<INTEREST-EXPENSE> 271
<INCOME-PRETAX> 83,819
<INCOME-TAX> 33,695
<INCOME-CONTINUING> 50,124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,124
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0
</TABLE>
