23 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, 1998
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: 97,702,187 shares of the
Company's Common Stock were outstanding as of July 31, 1998.
The Exhibit Index appears on page 15 in the sequential numbering system.
1
<PAGE>
<TABLE>
Part I - FINANCIAL INFORMATION
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars except for per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ........................... $ 1,118,970 $ 1,051,206 $ 2,176,077 $ 2,036,762
Cost of merchandise sold ............ 717,011 680,177 1,388,963 1,312,453
------------- ------------- ------------- -------------
Gross profit ...................... 401,959 371,029 787,114 724,309
Warehousing, marketing, and
administrative expenses ........... 301,193 273,044 588,757 534,349
------------- ------------- ------------- -------------
Operating earnings ................ 100,766 97,985 198,357 189,960
Other income or (deductions)
Interest income ................... 142 512 480 1,902
Interest expense .................. (1,614) (1,428) (3,297) (2,576)
Unclassified-net .................. 286 (332) 127 (769)
------------- ------------- ------------- -------------
(1,186) (1,248) (2,690) (1,443)
------------- ------------- ------------- -------------
Earnings before income taxes ........ 99,580 96,737 195,667 188,517
Income taxes ........................ 40,330 39,178 79,245 76,349
------------- ------------- ------------- -------------
Net earnings ...................... $ 59,250 $ 57,559 $ 116,422 $ 112,168
============= ============= ============= =============
Earnings per share:
Basic ............................. $ 0.61 $ 0.57 $ 1.20 $ 1.09
============= ============= ============= =============
Diluted ........................... $ 0.60 $ 0.56 $ 1.18 $ 1.08
============= ============= ============= =============
Average number of shares outstanding:
Basic ............................. 97,246,552 100,887,998 97,235,431 102,642,671
============= ============= ============= =============
Diluted ........................... 99,061,632 102,287,338 99,021,684 104,082,082
============= ============= ============= =============
Cash dividends paid per share ....... $ 0.15 $ 0.135 $ 0.285 $ 0.26
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands of dollars)
(Unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Earnings ........................... $ 59,250 $ 57,559 $ 116,422 $ 112,168
Other comprehensive earnings:
Foreign currency translation
adjustments .......................... (5,179) 713 (4,002) (1,557)
--------- --------- --------- ---------
Comprehensive earnings ................. $ 54,071 $ 58,272 $ 112,420 $ 110,611
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<CAPTION>
ASSETS June 30, 1998 Dec. 31, 1997
- ---------------------------------------------------------- ------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .............................. $ 48,989 $ 46,929
Accounts receivable, less allowance for doubtful
accounts of $17,542 for 1998 and $15,803 for 1997 .... 515,760 455,457
Inventories ............................................ 584,051 612,132
Prepaid expenses ....................................... 15,564 9,122
Deferred income tax benefits ........................... 59,934 59,348
----------- -----------
Total current assets ................................. 1,224,298 1,182,988
PROPERTY, BUILDINGS, AND EQUIPMENT ....................... 1,141,657 1,087,158
Less accumulated depreciation and amortization ....... 524,840 494,245
----------- -----------
Property, buildings, and equipment-net ............... 616,817 592,913
OTHER ASSETS ........................................... 230,493 221,920
----------- -----------
TOTAL ASSETS ........................................... $ 2,071,608 $ 1,997,821
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------
CURRENT LIABILITIES
Short-term debt ........................................ $ 6,024 $ 2,960
Current maturities of long-term debt ................... 22,834 23,834
Trade accounts payable ................................. 282,867 261,802
Accrued liabilities .................................... 196,846 210,383
Income taxes ........................................... 26,582 34,902
----------- -----------
Total current liabilities ............................ 535,153 533,881
LONG-TERM DEBT (less current maturities) ................. 127,955 131,201
DEFERRED INCOME TAXES .................................... 746 2,871
ACCRUED EMPLOYMENT RELATED BENEFITS COSTS ................ 38,128 35,207
SHAREHOLDERS' EQUITY
Cumulative Preferred Stock - $5 par value - authorized,
12,000,000 shares, issued and outstanding, none ...... -- --
Common Stock - $0.50 par value - authorized, 300,000,000
shares; issued, 107,201,960 shares, 1998, and
106,971,524 shares, 1997 ............................. 53,601 53,486
Additional contributed capital ......................... 246,426 242,289
Treasury stock, at cost - 9,500,172 shares, 1998, and
9,249,572 shares, 1997 .............................. (391,552) (378,899)
Unearned restricted stock compensation ................. (17,737) (16,528)
Cumulative translation adjustments ..................... (13,212) (9,210)
Retained earnings ...................................... 1,492,100 1,403,523
----------- -----------
Total shareholders' equity ............................. 1,369,626 1,294,661
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............. $ 2,071,608 $ 1,997,821
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
<CAPTION>
Six Months Ended June 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ............................................. $ 116,422 $ 112,168
Provision for losses on accounts receivable .............. 6,482 6,033
Depreciation and amortization:
Property, buildings, and equipment ..................... 31,365 32,608
Intangibles and goodwill ............................... 8,052 8,259
Capitalized software ................................... 4,773 585
Change in operating assets and liabilities:
(Increase) in accounts receivable ...................... (66,785) (70,278)
Decrease in inventories ................................ 28,081 99,503
(Increase) in prepaid expenses ......................... (6,442) (5,849)
(Increase) decrease in deferred income taxes ........... (2,711) 699
Increase in trade accounts payable ..................... 21,065 2,337
(Decrease) in other current liabilities ................ (13,537) (23,338)
(Decrease) in current income taxes payable ............. (8,320) (442)
Increase in accrued employment related
benefits costs ....................................... 2,921 2,443
Other - net .............................................. 904 1,391
------------ ------------
Net cash provided by operating activities .................. 122,270 166,119
------------ ------------
Cash flows from investing activities:
Additions to property, buildings, and
equipment - net of dispositions ........................ (55,269) (43,134)
Expenditures for capitalized software .................... (25,378) (122)
Other - net .............................................. (3,170) 763
------------ ------------
Net cash (used in) investing activities .................... (83,817) (42,493)
------------ ------------
Cash flows from financing activities:
Net increase in short-term debt .......................... 3,064 73,853
Long-term debt payments .................................. (1,032) (982)
Stock incentive plan ..................................... 2,031 1,169
Purchase of treasury stock - net ......................... (12,611) (265,748)
Cash dividends paid ...................................... (27,845) (27,161)
------------ ------------
Net cash (used in) financing activities ................... (36,393) (218,869)
------------ ------------
Net increase (decrease) in cash and cash equivalents ....... 2,060 (95,243)
Cash and cash equivalents at beginning of year ............. 46,929 126,935
------------ ------------
Cash and cash equivalents at end of period ................. $ 48,989 $ 31,692
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
5
<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, 1997, 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.
The consolidated financial statements have been retroactively restated to
reflect the 2-for-1 stock split announced on April 29, 1998 effective at the
close of business on May 11, 1998, unless indicated otherwise. Computations of
basic and diluted earnings per share, average number of shares outstanding, and
cash dividends paid per share reflect this stock split.
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," effective January 1, 1998. As of June 30,
1998, there was no recorded tax effect associated with the foreign currency
translation adjustments as reported in the Consolidated Statements of
Comprehensive Earnings.
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 $42,194,000 and $54,218,000 were included in trade
accounts payable at June 30, 1998 and December 31, 1997, respectively.
2. DIVIDEND
On July 29, 1998, the Board of Directors declared a quarterly dividend of 15
cents per share, payable September 1, 1998 to shareholders of record on August
10, 1998.
6
<PAGE>
W.W. Grainger, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. SHARE REPURCHASE
On April 29, 1998, the Company's Board of Directors restored an existing share
repurchase authorization to its original level of ten million shares. Prior to
this authorization, less than four million shares remained available for
repurchase. The number of shares have been adjusted for the May 1998 2-for-1
stock split announced on April 29, 1998, and will automatically be adjusted for
any subsequent stock splits. Repurchases are expected to be made from time to
time in open market and privately negotiated transactions. The repurchased
shares will be retained in the Company's treasury and be available for general
corporate purposes.
4. EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS (SFAS
No. 132)
Statement of Financial Accounting Standards (SFAS) No. 132, "Employers'
disclosure about Pensions and Other Postretirement Benefits", is effective for
fiscal years beginning after December 15, 1997. SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans by
standardizing certain disclosure requirements. In accordance with the release,
the Company plans to adopt SFAS No. 132 for the year ended December 31, 1998.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1997:
Net Sales
Net sales of $1,118,970,000 for the 1998 second quarter increased 6.4% from net
sales of $1,051,206,000 for the comparable 1997 period. There were 64 sales days
in both the 1998 and 1997 second quarters. The year 1998 will have the same
number of sales days as did the year 1997 (255).
The sales increase of 6.4% for the 1998 second quarter, as compared with the
1997 second quarter, was principally volume related. This increase primarily
represented the effects of the Company's market initiatives which included new
product additions, and the National Accounts, Integrated Supply, and Direct
Marketing programs.
Sales of seasonal products for the Company increased approximately 12% in the
1998 second quarter as compared with the same 1997 period. Many regions of the
country experienced warmer weather during the second quarter of 1998 versus the
comparable 1997 period. Sales of all other products for the Company increased
approximately 6% in the 1998 second quarter as compared with the same 1997
period.
The Company's growth in daily sales for the 1998 second quarter versus the same
1997 period was constrained by the following factors:
1. The overall effect that the General Motors Corp. strike had on the U.S.
economy during June 1998.
2. A decline in sales at Acklands - Grainger, Inc. (AGI), the Company's
Canadian subsidiary, which resulted from a slowdown in sales to customers
in the oil and other natural resources industries. An unfavorable change in
the Canadian exchange rate also contributed to this decline.
The Company's Grainger branch-based business experienced selling price increases
of about 0.7% when comparing the second quarters of 1998 and 1997. Daily sales
to National Account customers within the branch-based business increased an
estimated 9%, on a comparable basis, over the 1997 second quarter.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
Net earnings of $59,250,000 in the 1998 second quarter increased 2.9% when
compared to net earnings of $57,559,000 for the comparable 1997 period. The net
earnings increase was lower than the net sales increase due to operating
expenses (warehousing, marketing, and administration) increasing at a faster
rate than net sales, lower interest income, and higher interest expense,
partially offset by higher gross profit margins.
The Company's gross profit margin increased by 0.62 percentage point when
comparing the second quarters of 1998 and 1997. Of note are the following
favorable factors affecting the Company's gross profit margin:
1. Selling price increases exceeded the level of cost increases.
2. The net change in product mix was favorable. The sales of Lab Safety Supply
(generally higher than average gross profit margins) increased as a percent
of total sales. The sales of AGI (generally lower than average gross profit
margins) decreased as a percent of total sales. These favorable changes in
product mix were partially offset by the sales of seasonal products
(generally lower than average gross profit margins) which increased as a
percent of total sales.
Partially offsetting the above factors was an unfavorable change in selling
price category mix which was primarily related to sales promotions.
Operating expenses (warehousing, marketing, and administrative) for the Company
increased 10.3% for the 1998 second quarter as compared with the same 1997
period. This rate of increase was greater than the rate of increase in net
sales. The following factors contributed to this higher rate of increase:
1. Operating expenses were higher as a result of the following initiatives:
a. Continued expansion of the Company's integrated supply business;
b. Continued development of the Company's full service marketing
capabilities on the Internet;
c. Increased advertising expenses supporting the Company's marketing
initiatives; and
d. Expansion of the Company's telesales capability.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings (continued)
2. Operating expenses related to data processing were higher by an estimated
$6,000,000 compared with 1997, as adjusted for 1998 volume increases.
This was primarily due to incurring expenses related to Year 2000
compliance and the ongoing installation of the new business enterprise
system.
As disclosed in the Company's 1997 Form 10-K, due to the above two
projects, 1998 annual data processing expenses are estimated to be a net
$20,000,000 to $25,000,000 higher than 1997 annual data processing
expenses, as adjusted for volume related changes.
The estimated expenses for these projects are based on management's
current assessment and were derived utilizing numerous assumptions of
future events, including the continued availability of certain resources,
third-party modification plans, and other factors. However, there can be
no guarantee that these estimates will be achieved or that all components
of Year 2000 compliance will be addressed as planned. Uncertainties
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant
computer codes, and the sources and timeliness of various systems
replacements.
For a more detailed discussion of the Year 2000 issue, see "Item 7:
Management's Discussion and Analysis of Financial Condition and the
Results of Operations" included in the Company's 1997 Form 10-K filed
with the Securities and Exchange Commission.
Interest income decreased $370,000 for the second quarter of 1998 as compared
with the same period in 1997. This decrease resulted from lower average daily
invested balances and lower average interest rates earned.
Interest expense increased $186,000 for the second quarter of 1998 as compared
with the same period in 1997. This increase resulted from higher average
interest rates paid on all outstanding debt and lower capitalized interest.
The increase was partially offset by lower average borrowings.
The Company's effective income tax rate was 40.5% for the second quarters of
both 1998 and 1997.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1997:
Net Sales
Net sales of $2,176,077,000 for the first six months of 1998 increased 6.8% from
net sales of $2,036,762,000 for the comparable 1997 period. There were 127 sales
days in both the first six months of 1998 and 1997. The year 1998 will have the
same number of sales days as did the year 1997 (255).
The sales increase of 6.8% for the first six months of 1998, as compared with
the same 1997 period, was principally volume related. This increase primarily
represented the effects of the Company's market initiatives which included new
product additions, and the National Accounts, Integrated Supply, and Direct
Marketing programs.
Sales of seasonal products for the Company increased approximately 4% in the
first six months of 1998 as compared with the same 1997 period. Sales of all
other products for the Company increased approximately 7% in the first six
months of 1998 as compared with the same 1997 period.
The Company's growth in daily sales for the first six months of 1998 versus the
same 1997 period was constrained by a decline in sales for AGI as discussed for
the second quarter of 1998. (See the Second Quarter Net Sales discussion.)
The Company's Grainger branch-based business experienced selling price increases
of about 1.0% when comparing the first six months of 1998 and 1997. Daily sales
to National Account customers within the branch-based business increased an
estimated 11%, on a comparable basis, over the same 1997 period.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
Net earnings of $116,422,000 for the first six months of 1998 increased 3.8%
when compared to net earnings of $112,168,000 for the comparable 1997 period.
The net earnings increase was lower than the sales increase primarily due to
operating expenses (warehousing, marketing, and administrative) increasing at a
faster rate than net sales, lower interest income, and higher interest expense,
partially offset by higher gross profit margins.
The Company's gross profit margin increased by 0.61 percentage point when
comparing the first six months of 1998 and 1997. Of note are the following
favorable factors affecting the Company's gross profit margins:
1. Selling price increases exceeded the level of cost increases.
2. The change in product mix was favorable. The sales of Lab Safety Supply
(generally higher than average gross profit margins) increased as a percent
of total sales. The sales of AGI (generally lower than average gross profit
margins) decreased as a percent of total sales. The sales of seasonal
products (generally lower than average gross profit margins) decreased as a
percent of total sales.
Partially offsetting the above factors were the following:
1. Sales of sourced products (generally lower than average gross profit
margins) increased as a percent of total sales.
2. The change in selling price category mix was unfavorable which primarily
related to sales promotions.
Operating expenses (warehousing, marketing, and administrative) for the Company
increased 10.2% for the first six months of 1998 as compared with the same 1997
period. This rate of increase was greater than the rate of increase in net
sales. The following factors contributed to this higher rate of increase:
1. Operating expenses were higher as a result of the following initiatives:
a. Continued expansion of the Company's integrated supply business;
b. Continued development of the Company's full service marketing
capabilities on the Internet;
c. Increased advertising expenses supporting the Company's marketing
initiatives; and
d. Expansion of the Company's telesales capability.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings (continued)
2. Operating expenses related to data processing were higher by an estimated
$15,000,000 compared with 1997, as adjusted for 1998 volume increases. This
was primarily due to incurring expenses related to Year 2000 compliance and
the ongoing installation of the new business enterprise system.
As disclosed in the Company's 1997 Form 10-K, due to the above two
projects, 1998 annual data processing expenses are estimated to be a net
$20,000,000 to $25,000,000 higher than 1997 annual data processing
expenses, as adjusted for volume related changes.
The estimated expenses for these projects are based on management's current
assessment and were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources,
third-party modification plans, and other factors. However, there can be no
guarantee that these estimates will be achieved or that all components of
Year 2000 compliance will be addressed as planned. Uncertainties include,
but are not limited to, the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer codes,
and the sources and timeliness of various systems replacements.
For a more detailed discussion of the Year 2000 issue, see "Item 7:
Management's Discussion and Analysis of Financial Condition and the Results
of Operations" included in the Company's 1997 Form 10-K filed with the
Securities and Exchange Commission.
Interest income decreased $1,422,000 for the first six months of 1998 as
compared with the same period in 1997. This decrease primarily resulted from
lower average daily invested balances. Interest income was affected by the
purchase of approximately 8,400,000 shares of the Company's common stock, on a
split adjusted basis, during the year 1997. These purchases contributed to lower
average daily invested balances. The decrease in interest income was partially
offset by higher average interest rates earned.
Interest expense increased $721,000 for the first six months of 1998 as compared
with the same period in 1997. The increase can be explained primarily by the
same factors discussed for the second quarter of 1998. (See the Second Quarter
Net Earnings discussion.)
The Company's effective income tax rate was 40.5% for the first six months of
both 1998 and 1997.
13
<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, 1998, working capital increased by
$40,038,000. The ratio of current assets to current liabilities was 2.3 at June
30, 1998 and 2.2 at December 31, 1997. 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 strong liquidity
position, which provides 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 11.4% at June 30, 1998 and 12.2% at
December 31, 1997. For the first six months of 1998, $39,277,000 were expended
for land, buildings, and facilities improvements; $15,964,000 were expended for
data processing, office, and other equipment; and $25,378,000 were expended for
capitalized software, for a total of $80,619,000.
14
<PAGE>
<TABLE>
W.W. Grainger, Inc., and Subsidiaries
PART II - OTHER INFORMATION
Items 1,2,3,4, and 5 not applicable.
<CAPTION>
EXHIBIT INDEX
-------------
<S> <C>
Item 6 Exhibits (numbered in accordance with Item 601 of
regulation S-K) and Reports on Form 8-K.
(a) Exhibits
(3)(i) Restated Articles of Incorporation filed
May 26, 1998. 19 - 23
(11) Computation of Earnings Per Share. 17 - 18
(27) Financial Data Schedule.
(b) Reports on Form 8-K - None.
</TABLE>
15
<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, 1998 By: /s/ J.D. Fluno
- --------------------- -----------------------------------------------------
J.D. Fluno, Vice Chairman
Date: August 12, 1998 By: /s/ P.O. Loux
- ------------------------- -----------------------------------------------------
P.O. Loux, Senior Vice President, Finance and Chief
Financial Officer
Date: August 12, 1998 By: /s/ R.D. Pappano
- ------------------------- -----------------------------------------------------
R.D. Pappano, Vice President, Financial Reporting and
Investor Relations
16
<PAGE>
<TABLE>
Exhibit 11.1
W.W. Grainger, Inc., and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Six Months Ended June 30,
-------------------------------
Basic: 1998 1997
-------------- --------------
<S> <C> <C>
Average number of shares outstanding during the period .... 97,235,431 102,642,671
============== ==============
Net Earnings .............................................. $ 116,422,000 $ 112,168,000
============== ==============
Earnings per share ........................................ $ 1.20 $ 1.09
============== ==============
Diluted:
Average number of shares outstanding
during the period (basic) .............................. 97,235,431 102,642,671
Common equivalents
Shares issuable under outstanding options .......... 3,435,210 3,190,238
Shares which could have been purchased based
on the average market value for the period ....... 2,192,246 2,267,596
-------------- --------------
1,242,964 922,642
Dilutive effect of exercised options prior to being
exercised .............................................. 39,956 25,769
-------------- --------------
Shares for the portion of the period that the options
were outstanding ....................................... 1,282,920 948,411
Contingently issuable shares .............................. 503,333 491,000
-------------- --------------
1,786,253 1,439,411
Average number of shares outstanding during the period .... 99,021,684 104,082,082
============== ==============
Net earnings .............................................. $ 116,422,000 $ 112,168,000
============== ==============
Earnings per share ........................................ $ 1.18 $ 1.08
============== ==============
</TABLE>
17
<PAGE>
<TABLE>
Exhibit 11.2
W.W. Grainger, Inc., and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Basic: 1998 1997
---------- ---------
<S> <C> <C>
Three months ended June 30:
Six months ended June 30, as reported in Exhibit 11.1 ......... $ 1.20 $ 1.09
Three months ended March 31, as previously reported ........... 0.59 0.52
---------- ----------
Earnings per share for the three months ended June 30 ......... $ 0.61 $ 0.57
========== ==========
Diluted:
Three months ended June 30:
Six months ended June 30, as reported in Exhibit 11.1 ......... $ 1.18 $ 1.08
Three months ended March 31, as previously reported ........... 0.58 0.52
---------- ----------
Earnings per share for the three months ended June 30 ......... $ 0.60 $ 0.56
========== ==========
</TABLE>
18
<PAGE>
Exhibit (3)(i)
RESTATED ARTICLES OF INCORPORATION
OF
W.W. GRAINGER, INC.
The Articles of Incorporation, as amended, of W.W. GRAINGER, INC. are
restated to read as follows:
ARTICLE ONE
The name of the corporation is:
W.W. GRAINGER, INC.
The corporation has not adopted any amendments changing the corporation's
name since its initial incorporation.
The date of incorporation is December 27, 1928.
ARTICLE TWO
The name of its registered agent in the State of Illinois is CT Corporation
System and the address of its registered office in the State of Illinois is c/o
CT Corporation System, 208 South La Salle Street, Chicago, Illinois 60604.
ARTICLE THREE
The duration of the corporation is perpetual.
ARTICLE FOUR
The purpose or purposes for which the corporation is organized are:
To transact any and all lawful businesses for which a corporation
may be incorporated under the Business Corporation Act,
including, without limitation, to acquire, own, lease, use,
develop, improve, manage, mortgage, convey and otherwise dispose
of and deal in real property, improvements thereon or appurtenant
thereto, or any interest therein.
19
<PAGE>
ARTICLE FIVE
Paragraph 1: The aggregate number of shares which the corporation is
authorized to issue is 312,000,000 divided into two classes. The designations of
each class, the number of shares of each class and the par value, if any, of the
shares of each class, or a statement that the shares of any class are without
par value, are as follows:
<TABLE>
<CAPTION>
Par value per share or
Series No. of statement that shares are
Class (if any) Shares without par value
- ---------- ------------------------- ----------- -------------------------
<S> <C> <C> <C>
Common None 300,000,000 $0.50
Preferred As determined by Board of 12,000,000 $5.00
Directors
</TABLE>
Paragraph 2: The preferences, qualifications, limitations, restrictions
and the special or relative rights in respect of the shares of each class are:
PREFERRED STOCK
(1) Authority is hereby vested in the Board of Directors (by adoption of a
resolution and filing and recording of a statement in accordance with the laws
of the State of Illinois) to divide any or all of the authorized 12,000,000
shares of Preferred Stock into series and, within the limitations provided by
law, to fix and determine:
(a) The rate per annum at which the holders of shares of any such
series shall be entitled to receive dividends out of any funds of
the corporation at that time legally available for such purpose
and as declared by the Board of Directors;
(b) The price or prices and other terms and conditions on which
shares of any such series of Preferred Stock shall be redeemable;
(c) The amount or amounts per share to which holders of shares of any
such series of Preferred Stock shall be entitled in the event of
any voluntary or involuntary dissolution, liquidation or winding
up of the corporation;
20
<PAGE>
(d) Sinking fund provisions for the redemption or purchase of shares
of any such series;
(e) The terms and conditions on which shares of any such series may
be converted into shares of another class, if the shares of any
such series are issued with the privilege of conversion; and
(f) The limitation or denial of voting rights, or the grant of
special voting rights for any such series.
(2) Any shares of Preferred Stock which are converted or redeemed shall
not be reissued but shall be canceled, and the corporation shall take
appropriate action to reduce the authorized number of shares
accordingly.
COMMON STOCK
------------
(1) The holders of shares of Common Stock of the corporation are entitled
to receive dividends when and as declared by the Board of Directors,
and after provision for all dividends on the Preferred Stock as
hereinabove set forth, provided no dividend shall be declared or paid
hereunder unless it is declared and paid at the same time and in the
same manner on all outstanding shares of the Common Stock.
(2) None of the shares of Common Stock of the corporation shall be subject
to mandatory redemption.
PREEMPTIVE RIGHTS
-----------------
Except for the conversion of shares of Preferred Stock as may be determined
by the Board of Directors, no holder of shares of any class of the corporation
shall have any preemptive right to subscribe for or acquire additional shares of
the corporation of the same or any other class, or any other securities
convertible into or evidencing or accompanied by any right to subscribe for,
purchase or acquire shares of stock of any class of the corporation, whether
such shares be hereby or hereafter authorized; all such additional shares may be
sold for such consideration, at such time, and to such person or persons as the
Board of Directors may from time to time determine, subject to the limitations
hereinabove set forth.
ARTICLE SIX
The corporation has issued 107,183,542 shares of common stock $0.50 par value
and its paid-in capital is $298,269,212.
21
<PAGE>
ARTICLE SEVEN
Any action of the shareholders of the corporation shall be taken only
at an annual or special meeting of the shareholders of the corporation.
ARTICLE EIGHT
Any amendment or restatement of the Articles of Incorporation of the
corporation which must be approved by the shareholders of the corporation
pursuant to the Business Corporation Act, and any plan of merger of the
corporation into a wholly-owned subsidiary (provided that the articles of
incorporation of the surviving corporation in such merger require at least the
minimum voting requirements set forth in this Article Eight) which must be
approved by the shareholders of the corporation pursuant to the Business
Corporation Act, shall be adopted in the following manner:
(1) The Board of Directors shall adopt a resolution setting forth the
proposed amendment or plan of merger and directing that it be submitted to a
vote at a meeting of shareholders, which may be either an annual or a special
meeting;
(2) Written notice setting forth the proposed amendment, or plan of merger
or a summary thereof shall be given to each shareholder of record within the
time and in the manner provided in the Business Corporation Act for the giving
of notice of meetings of shareholders;
(3) At such meeting a vote of the shareholders entitled to vote on the
proposed amendment or plan of merger shall be taken. The proposed amendment or
plan of merger shall be adopted upon receiving the affirmative vote of at least
a majority of the outstanding shares entitled to vote on such amendment or plan
of merger, unless any class of shares is entitled to vote as a class in respect
thereof, in which event the proposed amendment or plan of merger shall be
adopted upon receiving the affirmative vote of the holders of at least a
majority of the outstanding shares of each class of shares entitled to vote as a
class in respect thereof and of the total outstanding shares entitled to vote on
such amendment or plan of merger.
(4) Any number of amendments may be submitted to the shareholders, and
voted upon by them, at one meeting.
Anything herein to the contrary notwithstanding, this Article shall not
affect the vote required by the Business Corporation Act, for the approval of
any (i) merger other than a merger with a wholly-owned subsidiary; (ii)
consolidation; (iii) share exchange as described in present Section 11.10 of the
Business Corporation Act; (iv) dissolution; or (v) sale, lease or exchange of
all or substantially all of the assets of the corporation. Any amendment of the
corporation's Articles of Incorporation effecting any decrease in the voting
requirements for approval of the actions set forth in clauses (i) through (v) of
this paragraph shall be approved upon the affirmative vote of that percentage of
shareholders required for approval of the action itself.
22
<PAGE>
ARTICLE NINE
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 8.65 of the Business Corporation Act or
any successor provision thereto, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Business Corporation Act
is hereafter amended to permit further elimination or limitation of the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Business
Corporation Act as so amended. Any repeal or modification of this Article by the
shareholders of the corporation or otherwise shall not apply to or have any
effect on the liability or alleged liability of any director of the corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
The undersigned corporation has caused these Restated Articles of Incorporation
to be signed by its duly authorized officers, each of whom affirms, under
penalties of perjury, that the facts stated herein are true and that these
Restated Articles of Incorporation were adopted by a majority of the Board of
Directors, in accordance with Section 10.15 of the Business Corporation Act,
shares having been issued but shareholder action not being required for
adoption.
Dated: May 12, 1998. W.W. GRAINGER, INC.
Attested by /s/K. S. Kirsner by /s/J. D. Fluno
------------------------ --------------------------
K. S. Kirsner J. D. Fluno
Assistant Secretary Vice Chairman*
*Authorized to sign this document.
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 48,989
<SECURITIES> 0
<RECEIVABLES> 533,302
<ALLOWANCES> 17,542
<INVENTORY> 584,051
<CURRENT-ASSETS> 1,224,298
<PP&E> 1,141,657
<DEPRECIATION> 524,840
<TOTAL-ASSETS> 2,071,608
<CURRENT-LIABILITIES> 535,153
<BONDS> 127,955
0
0
<COMMON> 53,601
<OTHER-SE> 1,316,025
<TOTAL-LIABILITY-AND-EQUITY> 2,071,608
<SALES> 2,176,077
<TOTAL-REVENUES> 2,176,077
<CGS> 1,388,963
<TOTAL-COSTS> 1,388,963
<OTHER-EXPENSES> 588,757
<LOSS-PROVISION> 6,482
<INTEREST-EXPENSE> 3,297
<INCOME-PRETAX> 195,667
<INCOME-TAX> 79,245
<INCOME-CONTINUING> 116,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,422
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.18
</TABLE>
