36 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,
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: 97,744,570 shares (reflects the
2-for-1 stock split effective at the close of business on May 11, 1998) of the
Company's Common Stock were outstanding as of May 11, 1998.
The Exhibit Index appears on page 13 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 March 31,
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net sales ................................ $ 1,057,107 $ 985,556
Cost of merchandise sold ................. 671,952 632,276
------------- -------------
Gross profit .......................... 385,155 353,280
Warehousing, marketing, and
administrative expenses ............... 287,564 261,305
------------- -------------
Operating earnings .................... 97,591 91,975
Other income or (deductions)
Interest income ....................... 338 1,390
Interest expense ...................... (1,683) (1,148)
Unclassified-net ...................... (159) (437)
------------- -------------
(1,504) (195)
------------- -------------
Earnings before income taxes ............. 96,087 91,780
Income Taxes ............................. 38,915 37,171
------------- -------------
Net earnings .......................... $ 57,172 $ 54,609
============= =============
Earnings per share:
Basic ................................. $ 0.59 $ 0.52
============= =============
Diluted ............................... $ 0.58 $ 0.52
============= =============
Average number of shares outstanding:
Basic: ................................ 97,224,310 104,397,344
============= =============
Diluted ............................... 98,981,736 105,876,828
============= =============
Cash dividends paid per share ............ $ 0.135 $ 0.125
============= =============
<FN>
* Earnings per share, average number of shares outstanding, and cash dividends
paid per share reflect the 2-for-1 stock split effective at the close of
business on May 11, 1998.
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 March 31,
----------------------------
1998 1997
-------- --------
<S> <C> <C>
Net earnings .................................. $ 57,172 $ 54,609
Other comprehensive earnings:
Foreign currency translation
adjustment ................................. 1,177 (2,270)
-------- --------
Comprehensive earnings ........................ $ 58,349 $ 52,339
======== ========
<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 March 31, Dec. 31,
1998 1997
- ---------------------------------------------------------- ----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .............................. $ 36,032 $ 46,929
Accounts receivable, less allowance for doubtful
accounts of $16,490 in 1998 and $15,803 in 1997 ...... 482,500 455,457
Inventories ............................................ 606,174 612,132
Prepaid expenses ....................................... 13,845 9,122
Deferred income tax benefits ........................... 59,452 59,348
----------- -----------
Total current assets ................................. 1,198,003 1,182,988
PROPERTY, BUILDINGS, AND EQUIPMENT ....................... 1,111,483 1,087,158
Less accumulated depreciation and amortization ......... 509,589 494,245
----------- -----------
Property, buildings, and equipment-net ................. 601,894 592,913
OTHER ASSETS ............................................. 237,952 221,920
----------- -----------
TOTAL ASSETS ............................................. $ 2,037,849 $ 1,997,821
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------
CURRENT LIABILITIES
Short-term debt ........................................ $ 7,249 $ 2,960
Current maturities of long-term debt ................... 23,337 23,834
Trade accounts payable ................................. 274,852 261,802
Accrued liabilities .................................... 165,314 210,383
Income Taxes ........................................... 64,211 34,902
----------- -----------
Total current liabilities ............................ 534,963 533,881
LONG-TERM DEBT (less current maturities) ................. 132,145 131,201
DEFERRED INCOME TAXES .................................... 2,475 2,871
ACCRUED EMPLOYMENT RELATED BENEFITS COSTS ................ 36,476 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, 107,101,998 shares, 1998 and
106,971,524 shares, 1997 ........................... 53,551 53,486
Additional contributed capital ......................... 242,149 242,289
Treasury stock, at cost - 9,420,972 shares, 1998 and
9,249,572 shares, 1997 .............................. (387,328) (378,899)
Unearned restricted stock compensation ................. (16,061) (16,528)
Cumulative translation adjustments ..................... (8,033) (9,210)
Retained earnings ...................................... 1,447,512 1,403,523
----------- -----------
Total shareholders' equity ............................. 1,331,790 1,294,661
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............. $ 2,037,849 $ 1,997,821
=========== ===========
<FN>
*The shareholders' equity section of the balance sheet reflects the 2-for-1
stock split effective at the close of business on May 11, 1998.
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>
Three Months Ended March 31,
---------------------------
1998 1997
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ........................................ $ 57,172 $ 54,609
Provision for losses on accounts receivable ......... 3,145 2,993
Depreciation and amortization:
Property, buildings, and equipment ................ 15,777 16,757
Intangibles and goodwill .......................... 4,035 4,103
Change in operating assets and liabilities:
(Increase) in accounts receivable ................. (30,188) (35,255)
Decrease in inventories ........................... 5,958 59,213
(Increase) in prepaid expenses .................... (4,723) (5,758)
(Increase) in deferred income taxes ............... (500) (2,582)
Increase in trade accounts payable ................ 13,050 13,132
(Decrease) in other current liabilities ........... (45,069) (43,709)
Increase in current income taxes payable .......... 29,309 36,318
Increase in accrued employment related
benefits costs .................................. 1,269 1,064
Other - net ......................................... 981 649
-------- ---------
Net cash provided by operating activities ............. 50,216 101,534
-------- ---------
Cash flows from investing activities:
Additions to property, buildings, and
equipment - net of dispositions ................... (24,758) (17,859)
Expenditures for capitalized software - net ......... (19,387) 513
Other - net ......................................... 944 1,812
-------- ---------
Net cash (used in) investing activities ............... (43,201) (15,534)
-------- ---------
Cash flows from financing activities:
Net increase (decrease) in short-term debt .......... 4,289 (1,998)
Long-term debt payments ............................. (514) (488)
Stock incentive plan ................................ (74) 157
Purchase of treasury stock .......................... (8,429) (95,749)
Cash dividends paid ................................. (13,184) (13,193)
-------- ---------
Net cash (used in) financing activities ............... (17,912) (111,271)
-------- ---------
Net (decrease) in cash and cash equivalents ........... (10,897) (25,271)
Cash and cash equivalents at beginning of year ........ 46,929 126,935
-------- ---------
Cash and cash equivalents at end of period ............ $ 36,032 $ 101,664
======== =========
<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 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 shareholders' equity section of the balance sheet also
reflects the stock split.
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," effective January 1, 1998. As of March 31,
1998, there was no recorded tax effect associated with the foreign currency
translation adjustment 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 $32,731,000 and $54,218,000 were included in trade
accounts payable at March 31, 1998 and December 31, 1997, respectively.
2. STOCK SPLIT
On April 29, 1998, the Board of Directors declared a 2-for-1 stock split to
shareholders of record on May 11, 1998.
3. DIVIDEND
On April 29, 1998, the Board of Directors voted a cash dividend of 30 cents per
share on the pre-split shares, payable June 1, 1998 to shareholders of record
on May 11, 1998.
6
<PAGE>
W.W. Grainger, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. SHARE REPURCHASE
On April 29, 1998, the Company's Board of Directors restored an existing share
repurchase authorization to its original level of five million shares. Prior to
this authorization, less than two million shares remained available for
repurchase. The number of shares will be adjusted for the May 1998 2-for-1 stock
split announced on April 29, 1998, as well as 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.
5. 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 MARCH 31, 1998 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1997:
Net Sales
Net sales of $1,057,107,000 in the 1998 first quarter increased 7.3% from net
sales of $985,556,000 for the comparable 1997 period. There were 63 sales days
in both the 1998 and 1997 quarters. The year 1998 will have the same number of
sales days as did the year 1997 (255).
The sales increase of 7.3% for the 1998 first quarter, as compared with the 1997
first 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 declined approximately 13% in the
1998 first quarter as compared with the same 1997 period. Many regions of the
country experienced milder weather during the quarter versus the comparable 1997
period. Sales of all other products for the Company increased approximately 9%
in the 1998 first quarter as compared with the same 1997 period.
The Company's Grainger branch-based business experienced selling price increases
of about 1.3% when comparing the first quarters of 1998 and 1997. Daily sales to
National Account customers within this branch-based business increased an
estimated 13%, on a comparable basis, over the 1997 first quarter.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings
Net earnings of $57,172,000 in the 1998 first quarter increased 4.7% when
compared to net earnings of $54,609,000 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 0.58 percentage point when
comparing the first 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 change in product mix was favorable as the sales of Lab Safety Supply
(generally higher than average gross profit margins) increased as a percent
of total sales and seasonal product sales (generally lower than average
gross profit margins) declined.
Partially offsetting the above factors were sales of sourced products (generally
lower than average gross profit margins) which increased as a percent of total
sales.
Operating expenses (warehousing, marketing, and administrative) for the Company
increased 10.0% for the 1998 first quarter as compared with the same 1997
period. This rate of increase was greater than the rate of increase in net
sales. Factors contributing to this rate of increase were the following:
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.
2. Operating expenses related to data processing were higher by an estimated
$9,000,000 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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings (continued)
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" in the Company's 1997 Form 10-K filed with the
Securities and Exchange Commission.
Interest income decreased $1,052,000 for the first quarter of 1998 as compared
with the same period in 1997. This decrease resulted from lower average daily
invested balances. Interest income was affected by the purchase of approximately
4,200,000 pre-split shares of the Company's common stock 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 $535,000 for the first quarter of 1998 as compared
with the same period in 1997. This increase resulted from higher average
interest rates paid on all outstanding debt. The increase was partially offset
by higher capitalized interest and slightly lower average borrowings.
The Company's effective income tax rate was 40.5% for the first quarters of both
1998 and 1997.
10
<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, 1998, working capital increased by
$13,933,000. The ratio of current assets to current liabilities was 2.2 at March
31, 1998 and 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 12.2% at March 31, 1998 and December 31,
1997. For the first three months of 1998, $19,157,000 was expended for land,
buildings, and facilities improvements, and $25,905,000 for data processing,
office and other equipment, and capitalized software, for a total of
$45,062,000.
11
<PAGE>
W.W. Grainger, Inc., and Subsidiaries
PART II - OTHER INFORMATION
Items 1, 3, and 5 not applicable.
Item 2 Changes in Securities
Effective at the close of business on May 11, 1998, the Company
amended its Restated Articles of Incorporation. Such amendment
resulted in a two-for-one stock split, pursuant to which (1) the
authorized common stock of the Company was changed from 150,000,000
shares of the par value of $0.50 each to 300,000,000 shares of the
same par value, (2) the authorized preferred stock of the Company was
changed from 6,000,000 shares of the par value of $5.00 each to
12,000,000 shares of the same value, and (3) each share of common
stock of the Company then issued was split into two shares of common
stock of the Company.
Item 4 Submission of Matters to a Vote of Security Holders.
An annual meeting of shareholders of the Company was held on April 29,
1998. At that meeting:
a) Management's nominees listed in the proxy statement pertaining to
the meeting were elected directors for the ensuing year. Of the
44,220,991 shares (pre-split basis) 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 Voted for Shares as to Which Voting
Name Election Authority Withheld
--------------------- --------------- ------------------------
G. R. Baker 43,950,860 270,131
R. E. Elberson 43,954,009 266,982
J. D. Fluno 43,956,844 264,147
W. H. Gantz 43,955,450 265,541
D. W. Grainger 43,957,041 263,950
R. L. Keyser 43,954,660 266,331
J. W. McCarter, Jr 43,956,169 264,822
J. D. Slavik 43,958,103 262,888
H. B. Smith 43,956,386 264,605
F. L. Turner 43,954,691 266,300
J. S. Webb 43,966,271 254,720
b) A proposal to ratify the appointment of Grant Thornton, LLP as
independent auditors of the Company for the year ended December
31, 1998 was approved. Of the 44,220,991 shares (pre-split basis)
present in person or represented by proxy at the meeting,
43,634,621 shares were voted for the proposal, 28,998 shares were
voted against the proposal, and 557,372 shares abstained from
voting with respect to the proposal.
12
<PAGE>
<TABLE>
W.W. Grainger, Inc., and Subsidiaries
PART II - OTHER INFORMATION
<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
(10) Material Contracts
(a) Copy of the Certificate of Adjustment provided pursuant
to the Rights Agreement dated as of April 26, 1989
between the Company and The First National Bank of
Boston, as Rights Agent, which Certificate relates to
the two-for-one stock split of the Company effective at
the close of business on May 11, 1998. 16
(b) Copy of the W.W. Grainger, Inc. 1990 Long-Term Stock
Incentive Plan, as amended. 17-26
(c) Copy of the W.W. Grainger, Inc. Director Stock Plan. 27-36
(11) Computation of Earnings per Common and Common Equivalent
Share 15
(27) Financial Data Schedule
(b) Reports on Form 8-K - None.
</TABLE>
13
<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 13, 1998 By: /s/ J.D. Fluno
- ------------------ ------------------------------------------------------
J.D. Fluno, Vice Chairman
Date: May 13, 1998 By: /s/ P.O. Loux
- ------------------ ------------------------------------------------------
P.O. Loux, Senior Vice President, Finance and Chief
Financial Officer
Date: May 13, 1998 By: /s/ R.D. Pappano
- ------------------ ------------------------------------------------------
R.D. Pappano, Vice President, Financial Reporting and
Investor Relations
14
<PAGE>
<TABLE>
Exhibit 11
W.W. Grainger, Inc., and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE*
<CAPTION>
Three Months Ended March 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Basic:
Average number of shares outstanding during the period 97,224,310 104,397,344
============ ============
Net earnings ......................................... $ 57,172,000 $ 54,609,000
============ ============
Earnings per share ................................... $ 0.59 $ 0.52
============ ============
Diluted:
Average number of shares outstanding
during the period (basic) ......................... 97,224,310 104,397,344
Common equivalents
Shares issuable under outstanding options ..... 3,058,280 2,939,376
Shares which could have been purchased based
on the average market value for the period .. 1,852,946 1,977,206
------------ ------------
1,205,334 962,170
Dilutive effect of exercised options prior to being
exercised ......................................... 62,092 26,314
------------ ------------
Shares for the portion of the period that the options
were outstanding .................................. 1,267,426 988,484
Contingently issuable shares ......................... 490,000 491,000
------------ ------------
1,757,426 1,479,484
Average number of shares outstanding during the period 98,981,736 105,876,828
============ ============
Net earnings ......................................... $ 57,172,000 $ 54,609,000
============ ============
Earnings per share ................................... $ 0.58 $ 0.52
============ ============
<FN>
* Earnings per share and average number of shares outstanding during the
period reflect the 2-for-1 stock split effective at the close of business
on May 11, 1998.
</FN>
</TABLE>
15
<PAGE>
Exhibit (10)(a)
W.W. GRAINGER, INC.
CERTIFICATE 0F ADJUSTMENT
This Certificate is given pursuant to Section 12 of the Rights Agreement
between the Company and The First National Bank of Boston dated as of April 26,
1989 (the "Rights Agreement"). Capitalized terms used but not defined herein
shall have the meaning ascribed to them in the Rights Agreement.
1. At the close of business on May 11, 1998 (the "Effective Date"), the
Company amended its Restated Articles of Incorporation. Such amendment
resulted in a two-for-one stock split (the "Stock Split"), pursuant to
which (a) the authorized common stock of the Company was changed from
150,000,000 shares of the par value of $0.50 each to 300,000,000 shares of
the same par value, (b) the authorized preferred stock of the Company was
changed from 6,000,000 shares of the par value of $5.00 each to 12,000,000
shares of the same par value, and (c) each share of common stock of the
Company then issued was split into two shares of common stock of the
Company.
2. The issuance of each share of common stock of the Company in connection
with the Stock Split resulted in the issuance of one (1.0) Right with
respect to such share, thereby increasing the number of Rights outstanding
by the number of shares of common stock of the Company issued in connection
with the Stock Split.
3. Section 11(n) of the Rights Agreement requires that from and after the
Effective Date, each outstanding Right is to be exercisable for one-quarter
of one-one hundredth (0.0025) of a Preferred Share.
IN WITNESS WHEREOF, I have hereunto signed this Certificate this 12th
day of May, 1998.
W.W. GRAINGER, INC.
By: /s/J. D. Fluno
----------------
J. D. Fluno
Vice Chairman
16
<PAGE>
Exhibit (10)(b)
W.W. GRAINGER, INC.
1990 LONG TERM STOCK INCENTIVE PLAN
AS AMENDED MARCH 4, 1998
Section 1. Objective.
The objective of the W.W. Grainger, Inc. 1990 Long Term Stock Incentive
Plan (the "Plan") is to attract and retain the best available executive
personnel and other key employees to be responsible for the management, growth
and success of the business, and to provide an incentive for such employees to
exert their best efforts on behalf of the Company and its shareholders.
Section 2. Definitions.
2.1. General Definitions. The following words and phrases, when used
herein, shall have the following meanings:
(a) "Act" - The Securities Exchange Act of 1934, as amended.
(b) "Agreement" - The document which evidences the grant of any Award
under the Plan and which sets forth the terms, conditions, and limitations
relating to such Award.
(c) "Award" - The grant of any stock option, stock appreciation right,
share of restricted stock, share of phantom stock, other stock-based award,
or any combination thereof.
(d) "Board" - The Board of Directors of W.W. Grainger, Inc.
(e) "Code" - The Internal Revenue Code of 1986, as amended, including
the regulations promulgated pursuant thereto.
(f) "Committee" - The Compensation Committee of the Board of Directors
of the Company, which shall consist of three or more members. The members
of the Committee shall be disinterested persons within the meaning of Rule
16b-3, as the same may be amended or supplemented from time to time, as
promulgated under the Act. No member of the Committee shall be eligible to
receive Awards under the Plan unless permitted by such Rule 16b-3.
(g) "Common Stock" - The present shares of common stock of the
Company, and any shares into which such shares are converted, changed or
reclassified.
(h) "Company" - W.W. Grainger, Inc., an Illinois corporation, and its
groups, divisions, and subsidiaries.
17
<PAGE>
(i) "Employee" - Any person employed by the Company as an employee.
(j) "Fair Market Value" or "FMV" - The fair market value of Common
Stock on a particular day shall be the closing price of the Common Stock on
the New York Stock Exchange, or any other national stock exchange on which
the Common Stock is traded, on the last preceding trading day on which such
Common Stock was traded.
(k) "Option" - The right to purchase Common Stock of the Company at a
stated price for a specified period of time. For purposes of the Plan, the
option is a Non-Qualified Stock Option.
(l) "Other Stock Based Award" - An award under Section 9 that is
valued in whole or in part by reference to, or is otherwise based on, the
Company's Common Stock.
(m) "Participant" - Any Employee designated by the Committee to
participate in the Plan.
(n) "Phantom Stock" - A right to receive payment from the Company in
cash, stock, or in combination thereof, in an amount determined by the Fair
Market Value.
(o) "Period of Restriction" - The period during which Shares of
Restricted Stock or Phantom Stock rights are subject to forfeiture or
restrictions on transfer pursuant to Section 8 of the Plan.
(p) "Restricted Stock" - Shares granted to a Participant which are
subject to restrictions on transferability pursuant to Section 8 of the
Plan.
(q) "Shares" - Shares of Common Stock.
(r) "Stock Appreciation Right" or "SAR" - The right to receive a
payment from the Company in cash, Common Stock, or in combination thereof,
equal to the excess of the Fair Market Value of a share of Common Stock on
the date of exercise over a specified price fixed by the Committee, but
subject to such maximum amounts as the Committee may impose.
2.2. Other Definitions. In addition to the above definitions, certain words
and phrases used in the Plan and any Agreement may be defined elsewhere in the
Plan or in such Agreement.
Section 3. Common Stock.
3.1. Number of Shares. Subject to the provisions of Section 3.3, the number
of Shares which may be issued or sold or for which Options or Stock Appreciation
Rights
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may be granted under the Plan may not exceed 8,056,828 Shares.* Notwithstanding
the foregoing, the total number of Shares with respect to which Options or Stock
Appreciation Rights may be granted to any Participant shall not exceed 800,000
Shares** (proportionately adjusted pursuant to Section 3.3) in any calendar
year.
3.2. Re-usage. If an Option or SAR expires or is terminated, surrendered,
or canceled without having been fully exercised, if Restricted Stock is
forfeited, or if any other grant results in any Shares not being issued, the
Shares covered by such Option, SAR, grant of Restricted Stock or other grant, as
the case may be, shall again be immediately available for Awards under the Plan.
3.3. Adjustments. In the event of any change in the outstanding Common
Stock by reason of a stock split, stock dividend, combination, reclassification
or exchange of Shares, recapitalization, merger, consolidation or other similar
event, the number of SARs and the number of Shares available for Options, grants
of Restricted Stock, and Other Stock Based Awards and the number of Shares
subject to outstanding Options, SARs, grants of Restricted Stock, and Other
Stock Based Awards, and the price thereof, and the Fair Market Value, as
applicable, shall be appropriately adjusted by the Committee in its sole
discretion and any such adjustment shall be binding and conclusive on all
parties. Any fractional Shares resulting from any such adjustment shall be
disregarded.
Section 4. Eligibility and Participation.
Participants in the Plan shall be those key employees selected by the
Committee to participate in the Plan who hold positions of responsibility and
whose participation in the Plan the Committee or management of the Company
determines to be in the best interests of the Company.
Section 5. Administration.
5.1. Committee. The Plan shall be administered by the Committee, which
shall consist of three or more members of the Board of Directors and who shall
not be eligible to participate in the Plan. The members of the Committee shall
be appointed by and shall serve at the pleasure of the Board, which may from
time to time change the Committee's membership.
5.2. Authority. The Committee shall have the sole and complete authority
to:
(a) determine the individuals to whom Awards are granted, the type and
amounts of awards to be granted and the time of all such grants;
- --------
* As adjusted to reflect (i) the number of shares remaining available for grants
under the Company's Restated 1975 Non-Qualified Stock Option Plan, (ii) the
Company's 1991 two-for-one stock split and (iii) the Company's 1998 two-for-one
stock split.
** As adjusted to reflect the Company's 1998 two-for-one stock split.
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(b) determine the terms, conditions and provisions of, and restrictions
relating to, each Award granted;
(c) interpret and construe the Plan and all Agreements;
(d) prescribe, amend and rescind rules and regulations relating to the
Plan;
(e) determine the content and form of all Agreements;
(f) determine all questions relating to Awards under the Plan;
(g) maintain accounts, records and ledgers relating to Awards;
(h) maintain records concerning its decisions and proceedings;
(i) employ agents, attorneys, accountants or other persons for such
purposes as the Committee considers necessary or desirable;
(j) do and perform all acts which it may deem necessary or appropriate for
the administration of the Plan and to carry out the objectives of the Plan.
5.3. Determinations. All determinations, interpretations, or other actions
made or taken by the Committee pursuant to the provisions of the Plan shall be
final, binding, and conclusive for all purposes and upon all persons.
5.4. Delegation. Except as required by Rule 16b-3 promulgated under the Act
(and any successor to such rule) with respect to the grant of Awards to
Participants who are subject to Section 16 of the Act, the Committee may
delegate to appropriate senior officers of the Company its duties under the Plan
pursuant to such conditions and limitations as the Committee may establish.
Section 6. Stock Options.
6.1. Type of Option. It is intended that only non-qualified stock options
may be granted by the Committee under this section of the Plan.
6.2. Grant of Option. An Option may be granted to Participants at such time
or times as shall be determined by the Committee. Each Option shall be evidenced
by an Option Agreement that shall specify the exercise price, the duration of
the Option, the number of Shares to which the Option applies, and such other
terms and conditions not inconsistent with the Plan as the Committee shall
determine.
6.3. Option Price. The per share option price shall be at least 100% of the
Fair Market Value at the time the Option is granted.
6.4. Exercise of Options. Options awarded under the Plan shall be
exercisable at such times and shall be subject to such restrictions and
conditions, including the
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performance of a minimum period of service after the grant, as the Committee may
impose, which need not be uniform for all participants; provided, however, that
no Option shall be exercisable for more than 10 years after the date on which it
is granted.
6.5. Payment. The Committee shall determine the procedures governing the
exercise of Options, and shall require that the per share option price be paid
in full at the time of exercise. The Committee may, in its discretion, permit a
Participant to make payment in cash, or in Shares already owned by the
Participant, valued at the Fair Market Value thereof, as partial or full payment
of the exercise price. As soon as practical after full payment of the exercise
price, the Company shall deliver to the Participant a certificate or
certificates representing the acquired Shares.
6.6. Rights as a Shareholder. Until the exercise of an Option and the
issuance of the Shares in respect thereof, a Participant shall have no rights as
a Shareholder with respect to the Shares covered by such Option.
Section 7. Stock Appreciation Rights.
7.1. Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted to Participants at such time or times as shall be determined by the
Committee and shall be subject to such terms and conditions as the Committee may
decide. A grant of an SAR shall be made pursuant to a written Agreement
containing such provisions not inconsistent with the Plan as the Committee shall
approve.
7.2. Exercise of SARs. SARs may be exercised at such times and subject to
such conditions, including the performance of a minimum period of service, as
the Committee shall impose. SARs which are granted in tandem with an Option may
only be exercised upon the surrender of the right to exercise an equivalent
number of Shares under the related Option and may be exercised only with respect
to the Shares for which the related Option is then exercisable. Notwithstanding
any other provision of the Plan, the Committee may impose conditions on the
exercise of an SAR, including, without limitation, the right of the Committee to
limit the time of exercise to specified periods, as may be required to satisfy
the applicable provisions of Rule 16b-3 as promulgated under the Act or any
successor rule.
7.3. Payment of SAR Amount. Upon exercise of an SAR, the Participant shall
be entitled to receive payment of an amount determined by multiplying:
(a) any increase in the Fair Market Value of a Share at the date of
exercise over the Fair Market Value of a Share at the date of grant, by
(b) the number of Shares with respect to which the SAR is exercised;
provided, however, that at the time of grant, the Committee may establish, in
its sole discretion, a maximum amount per Share which will be payable upon
exercise of an SAR.
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7.4. Method of Payment. Subject to the discretion of the Committee, which
may be exercised at the time of grant, the time of payment, or any other time,
payment of an SAR may be made in cash, Shares or any combination thereof.
Section 8. Restricted Stock or Phantom Stock.
8.1. Grant of Restricted Stock or Phantom Stock. The Committee may grant
Shares of Restricted Stock or Phantom Stock rights to such Participants at such
times and in such amounts, and subject to such other terms and conditions not
inconsistent with the Plan as it shall determine. Each grant of Restricted Stock
or Phantom Stock rights shall be evidenced by a written Agreement setting forth
the terms of such Award.
8.2. Restrictions on Transferability. Restricted Stock or Phantom Stock
rights may not be sold, transferred, pledged, assigned, or otherwise alienated
until such time, or until the satisfaction of such conditions as shall be
determined by the Committee (including without limitation, the satisfaction of
performance goals or the occurrence of such events as shall be determined by the
Committee). At the end of the period of restriction applicable to any Restricted
Stock, such Shares will be transferred to the Participant free of all
restrictions.
8.3. Rights as a Shareholder. Unless otherwise determined by the Committee
at the time of grant, Participants holding Restricted Stock granted hereunder
may exercise full voting rights and other rights as a Shareholder with respect
to those Shares during the period of restriction. Holders of Phantom Stock
rights shall not be deemed Shareholders and, except to the extent provided in
accordance with the Plan, shall have no rights related to any Shares.
8.4. Dividends and Other Distributions. Unless otherwise determined by the
Committee at the time of grant, Participants holding Restricted Stock shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares, provided that if any such dividends or distributions are paid in
shares of stock, such shares shall be subject to the same forfeiture
restrictions and restrictions on transferability as apply to the Restricted
Stock with respect to which they were paid. Unless otherwise determined by the
Committee at the time of grant, Participants holding Phantom Stock rights shall
be entitled to receive cash payments equal to any cash dividends and other
distributions paid with respect to a corresponding number of Shares.
8.5. Payment of Phantom Stock Rights. The Committee may, at the time of
grant, provide for other methods of payment in respect of Phantom Stock rights
in cash, Shares, partially in cash and partially in Shares, or in any other
manner not inconsistent with this Plan.
Section 9. Other Stock Based Awards and Other Benefits.
9.1. Other Stock Based Awards. The Committee shall have the right to grant
Other Stock Based Awards which may include, without limitation, the grant of
Shares based on certain conditions, the payment of cash based on the performance
of the Common
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<PAGE>
Stock, and the payment of Shares in lieu of cash under other Company incentive
bonus programs. Payment under or settlement of any such Awards shall be made in
such manner and at such times as the Committee may determine.
9.2. Other Benefits. The Committee shall have the right to provide types
of Awards under the Plan in addition to those specifically listed utilizing
shares of stock or cash, or a combination thereof, if the Committee believes
that such Awards would further the purposes for which the Plan was established.
Payment under or settlement of any such Awards shall be made in such manner and
at such times as the Committee may determine.
Section 10. Amendment, Modification, and Termination of Plan.
The Board of Directors at any time may terminate or suspend the Plan, and
from time to time may amend or modify the Plan. No amendment, modification, or
termination of the Plan shall in any manner adversely affect any Award
theretofore granted under the Plan without the consent of the Participant.
Section 11. Termination of Employment.
11.1. Termination of Employment Due to Retirement. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant's
employment terminates by reason of retirement, any Option or SAR granted to such
Participant which is then outstanding may be exercised at any time prior to the
expiration of the term of the Option or SAR or within six (6) years following
the Participant's termination of employment, whichever period is shorter, and
any Restricted Stock, Phantom Stock rights, or other Award then outstanding for
which any restriction has not lapsed prior to the effective date of retirement
shall be forfeited.
11.2. Termination of Employment Due to Death or Disability. Unless
otherwise determined by the Committee at the time of grant, in the event a
Participant's employment is terminated by reason of death or disability, any
Option or SAR granted to such Participant which is then outstanding may be
exercised by the Participant or the Participant's legal representative at any
time prior to the expiration date of the term of the Option or SAR or within six
(6) years following the Participant's termination of employment, whichever
period is shorter, and any Restricted Stock, Phantom Stock rights, or other
Award then outstanding shall become nonforfeitable and shall become transferable
or payable, as the case may be, as though any restriction had expired.
11.3. Termination of Employment for Any Other Reason. Unless otherwise
determined by the Committee at the time of grant, in the event the employment of
the Participant shall terminate for any reason other than misconduct or one
described in Section 11.1 or 11.2, any Option or SAR granted to such Participant
which is then outstanding may be exercised by the Participant at any time prior
to the expiration date of the term of the Option or SAR or within three (3)
months following the Participant's termination of employment, whichever period
is shorter; any Restricted Stock, Phantom Stock rights, or other Award then
outstanding for which any restriction has not lapsed
23
<PAGE>
prior to the date of termination of employment shall be forfeited upon
termination of employment. If the employment of a Participant is terminated by
the Company by reason of the Participant's misconduct, any outstanding Option or
SAR shall cease to be exercisable on the date of the Participant's termination
of employment; any Restricted Stock, Phantom Stock rights, or other Award then
outstanding for which any restriction has not lapsed prior to the date of
termination of employment shall be forfeited upon termination of employment. As
used herein, "misconduct" means that the Participant has engaged, or intends to
engage, in competition with the Company, has induced any customer of the Company
to breach any contract with the Company, has made any unauthorized disclosure of
any of the secrets or confidential information of the Company, has committed an
act of embezzlement, fraud, or theft with respect to the property of the
Company, or has deliberately disregarded the rules of the Company in such a
manner as to cause any loss, damage, or injury to, or otherwise endanger the
property, reputation, or employees of the Company. The Committee shall determine
whether a Participant's employment is terminated by reason of misconduct.
11.4. Accrual of Right at Date of Termination. The Participant shall have
the right to exercise an Option or SAR as indicated in Sections 11.1, 11.2, and
11.3 only to the extent the Participant's right to exercise such Option or SAR
had accrued at the date of termination of employment pursuant to the terms of
the Option or SAR Agreement and had not previously been exercised.
Section 12. Miscellaneous Provisions.
12.1. Non-transferability of Awards. Unless otherwise determined by the
Committee at the time of grant, and except as provided in Section 11, no Awards
granted under the Plan shall be assignable, transferable, or payable to or
exercisable by anyone other than the Participant to whom it was granted.
12.2. No Guarantee of Employment or Participation. Nothing in the Plan
shall interfere with or limit in any way the right of the Company to terminate
any Participant's employment at any time, nor confer upon any Participant any
right to continue in the employment of the Company. No employee shall have a
right to be selected as a Participant, or, having been so selected, to receive
any future awards.
12.3. Tax Withholding. The Company shall have the authority to withhold,
or require a Participant to remit to the Company, an amount sufficient to
satisfy Federal, state, and local withholding tax requirements on any Award
under the Plan, and the Company may defer payment of cash or issuance of Shares
until such requirements are satisfied. The Committee may, in its discretion,
permit a Participant to elect, subject to such conditions as the Committee shall
require, to have Shares otherwise issuable under the Plan withheld by the
Company and having a Fair Market Value sufficient to satisfy all or part of the
Participant's estimated total Federal, state, and local tax obligation
associated with the transaction.
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12.4. Governing Law. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Code or Act,
shall be governed by the law of the State of Illinois and construed in
accordance therewith.
12.5. Effective Date. The Plan shall be submitted to the Shareholders of
the Company for approval at the 1990 Annual Meeting of Shareholders of the
Company scheduled to be held on April 25, 1990, and shall be effective
immediately upon such approval by the Shareholders of the Company; provided,
however, that no Award requiring the issuance of Shares shall be exercised or
paid out unless at the time of such exercise or payout (i) such Shares are
covered by a currently effective registration statement filed under the
Securities Act of 1933, as amended, if one is then required, or in the sole
opinion of the Company and its counsel such issuance of Shares is otherwise
exempt from the registration requirements of such act, and (ii) such Shares are
listed on any securities exchange upon which the Common Stock of the Company is
listed.
12.6. Termination of the 1975 Plan. The Company's Restated 1975
Non-Qualified Stock Option Plan shall be terminated as of the date of
Shareholder approval of this Plan, provided, however, that such termination
shall not affect any Options or Stock Appreciation Rights outstanding
thereunder, all of which shall remain subject to and be governed by such plan.
12.7. Unfunded Plan. Insofar as the Plan provides for Awards of cash,
Shares, rights or a combination thereof, the Plan shall be unfunded. The Company
may maintain bookkeeping accounts with respect to Participants who are entitled
to Awards under the Plan, but such accounts shall be used merely for bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by interests in Awards nor shall the Plan be
construed as providing for any such segregation. None of the Committee, the
Company or its Board of Directors shall be deemed to be a trustee of any cash,
Shares or rights to Awards granted under the Plan. Any liability of the Company
to any Participant with respect to an Award or any rights thereunder shall be
based solely upon any contractual obligations that may be created by the Plan
and any Agreement, and no obligation of the Company under the Plan shall be
deemed to be secured by any pledge or other encumbrance on any property of the
Company.
12.8. Provisions Relating to Section 16 Persons. Notwithstanding any other
provision herein, any Award granted hereunder to an Employee who is then subject
to Section 16 of the Act is subject to the following limitations:
(a) The Award may provide for the issuance of Shares as a stock bonus
for no consideration other than services rendered or to be rendered. In the
event that the Awardprovides for the issuance of Shares for any other type
of consideration, the amount of such consideration shall either (i) be
equal to the amount (such as the par value of such Shares) required to be
received by the Company in order to assure compliance with applicable state
law or (ii) be equal to or greater than 50% of the Fair Market Value of
such Shares on the date of grant of such Award.
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(b) Any Option or similar right (including an SAR) granted to such
Employee pursuant to the Plan shall not be transferable other than by will or
the laws of descent and distribution and shall be exercisable during the
Employee's lifetime only by him or by his guardian or legal representative.
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Exhibit (10)(c)
W.W. GRAINGER, INC.
DIRECTOR STOCK PLAN
Article 1. Establishment, Objectives, and Duration.
1.1. Establishment of the Plan. W.W. Grainger, Inc., an Illinois
corporation (the "Company"), hereby establishes its Director Stock Plan (the
"Plan").
1.2. Objectives of the Plan. The objectives of the Plan are to enhance
the ability of the Company to attract and retain the best-qualified directors,
to increase the identity of interest between directors and the Company's
shareholders, and to provide additional incentives for directors to maximize the
long-term success of the Company's business.
1.3. Duration of the Plan. The Plan shall become effective on the date
of its approval by the shareholders of the Company (the "Effective Date").
Subject to the right of the Board to amend or terminate the Plan pursuant to
Article 14, (i) Awards may be granted from time to time on or after the
Effective Date so long as Shares reserved for delivery under Section 4.1 remain
available and (ii) Compensation earned by the Outside Directors from time to
time after the Effective Date may be deferred.
Article 2. Definitions.
2.1. "Account": see Section 8.1.
2.2. "Award" means, individually or collectively, a grant by the
Committee under this Plan of Options, Restricted Stock, Stock, and Stock Units,
whether formula-based or otherwise.
2.3. "Annual Meeting" means an annual meeting of the shareholders of
the Company.
2.4. "Award Agreement" means an agreement between the Company and an
Outside Director setting forth the terms applicable to an Award. Except as
otherwise provided in the Plan, the terms of an Award Agreement need not be the
same for each Outside Director, nor for each grant, and may reflect distinctions
based on the reasons for termination of Service.
2.5. "Board" means the Board of Directors of the Company.
2.6. "Committee" means the Compensation Committee of the Board, which
shall be comprised entirely of Outside Directors.
2.7. "Company": see Section 1.1.
2.8. "Compensation" means all retainer, meeting, committee, and chair
fees payable in cash to an Outside Director for Service.
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2.9. "Deferral Election": see Section 10.2.
2.10. "Director" means any member of the Board.
2.11. "Distribution Election": see Section 8.6.
2.12. "Effective Date": see Section 1.3.
2.13. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.14. "Expiration Date": see Section 5.4.
2.15. "Fair Market Value" means, as of any specified date, the closing
price of the Shares on the New York Stock Exchange, or any other national stock
exchange or national market system on which the Shares are then traded, on the
last preceding trading day on which the Shares were traded.
2.16. "Option" means an option to purchase Shares granted under
Article 5.
2.17. "Option Price" means the price at which a Share may be purchased
under an Option.
2.18. "Outside Director" means a Director who is not an employee of the
Company or a Subsidiary.
2.19. "Period of Restriction" means the period established by the
Committee in its discretion during which the transfer of Restricted Stock is
limited in some manner, and the Shares are subject to a substantial risk of
forfeiture, all as provided in Article 6.
2.20. "Restricted Stock" means an Award granted under Article 6.
2.21. "Rule 16b-3" means Rule 16b-3 (or a successor rule) of the
Securities and Exchange Commission under the Exchange Act, as such Rule may be
amended from time to time.
2.22. "Service" means an Outside Director's service on the Board or any
Board committee.
2.23. "Shares" means shares of common stock of the Company.
2.24. "Stock" means an Award of Shares granted under Article 7.
2.25. "Stock Units" means the units in which an Account is denominated.
A Stock Unit is an unsecured obligation of the Company that is intended, subject
to the terms of Article 8, to represent the economic equivalent of one Share.
2.26. "Subsidiary" means any corporation, partnership, joint venture,
limited liability company, or other entity in which the Company owns securities
representing a majority of the aggregate voting power.
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Article 3. Administration.
3.1. General. The Plan shall be administered by the Committee. Except
as may be limited by law, the articles of incorporation or By-laws of the
Company, or the Plan, the Committee shall have full power and discretion to
determine the amounts, types and terms of Awards; to determine the terms of any
Award Agreement; to construe and interpret the Plan and any Award Agreement; to
establish, amend, or waive rules for the Plan's administration; to make all
other determinations which may be necessary or advisable for the administration
of the Plan; and (subject to Section 14.3) to amend the terms of any outstanding
Award. To the extent permitted by law, the Committee shall have the authority to
delegate administrative duties to officers or Directors of the Company.
3.2. Decisions Binding. All determinations and decisions made by the
Committee under the Plan shall be final, conclusive, and binding on all persons,
including the Company, its shareholders, Outside Directors, and their respective
estates and beneficiaries.
Article 4. Shares Subject to Plan.
4.1. Shares Available for Grants. Subject to adjustment as provided in
Section 4.2, the number of Shares reserved for delivery under the Plan is
500,000.* If any Shares subject to any Award are forfeited or such Award
otherwise terminates without the delivery of such Shares, the Shares subject to
such Award, to the extent of any such forfeiture or termination, shall again be
available for delivery under the Plan. Shares delivered pursuant to the Plan may
be treasury stock or newly-issued Shares.
4.2. Adjustments in Authorized Shares. In the event of any change in
corporate capitalization (such as a stock split, stock dividend, spin-off, or
other distribution of stock or property of the Company), or any merger,
consolidation, separation, reorganization (whether or not tax-free) or any
partial or complete liquidation of the Company, the Committee may make such
adjustment in the number and class of Shares which may be delivered under
Section 4.1 as it may determine in its discretion to be appropriate.
- -----------------
*As adjusted to reflect the Company's 1998 two-for-one stock split.
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Article 5. Options.
5.1. Award of Options. Subject to the terms of the Plan, Options may be
awarded to Outside Directors in such number, upon such terms, and at such time
or times as the Committee shall determine in its discretion.
5.2. Award Agreement. Each Option shall be evidenced by an Award
Agreement that shall specify the Option Price, the Expiration Date of the
Option, the number of Shares subject to the Option, and such other provisions as
the Committee may determine.
5.3. Option Price. The Option Price for each grant of an Option shall
be at least 100% of the Fair Market Value of a Share on the date the Option is
granted.
5.4. Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant (the "Expiration Date"), but in
no event after the tenth anniversary of the date of such grant.
5.5. Exercise of Options. Each Option shall be exercisable at such
times prior to the Expiration Date and be subject to such restrictions and
conditions as the Committee shall determine in its discretion, including,
without limitation, restrictions on the Shares acquired pursuant to the exercise
of such Option.
5.6. Payment. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised, and accompanied by full payment
for the Shares. Upon the exercise of any Option, the exercise price shall be
payable by any one or combination of the following means:
(i) cash or its equivalent,
(ii) with the prior approval of the Committee, delivery of
Shares already owned by the Outside Director and valued at the Fair
Market Value thereof at the time of exercise,
(iii) with the prior approval of the Committee, a cashless
exercise through a broker-dealer approved for this purpose by the
Company.
5.7. Termination of Service. Each Award Agreement shall set forth the
extent to which the Outside Director shall have the right to exercise an Option
after termination of Service, but in no event shall any Option be exercised
after its Expiration Date.
5.8. Nontransferability of Options. Except as may otherwise be
specified by the Committee in its discretion, no Option may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than (i) by will, (ii) by the laws of descent and distribution, or (iii)
pursuant to a beneficiary designation in accordance with Article 11.
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Article 6. Restricted Stock.
6.1. Award of Restricted Stock. Subject to the terms of the Plan,
Restricted Stock may be awarded to Outside Directors in such number of Shares,
upon such terms, and at such time or times as the Committee shall determine in
its discretion.
6.2. Restricted Stock Agreement. Each Restricted Stock Award shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares of Restricted Stock granted, and such other provisions as
the Committee may determine.
6.3. Nontransferability. Except as may otherwise be specified by the
Committee in its discretion, Restricted Stock may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated until after the end of
the applicable Period of Restriction. Shares of Restricted Stock shall vest and
become freely transferable after the end of the applicable Period of
Restriction.
6.4. Other Restrictions. The Committee may impose such other conditions
and/or restrictions on any Restricted Stock as it deems advisable, including
without limitation a stipulated purchase price for any Share of Restricted
Stock. The Company may retain possession of the certificates representing Shares
of Restricted Stock until all conditions and/or restrictions applicable to such
Shares have been satisfied.
6.5. Voting Rights. Shares of Restricted Stock shall have the same
voting rights as unrestricted Shares.
6.6. Dividends and Other Distributions. Shares of Restricted Stock
shall have the same dividend rights as unrestricted Shares; provided, however,
that (i) the Committee may in its discretion provide that dividends shall be
reinvested in additional Shares of Restricted Stock based on the Fair Market
Value of the Shares on the applicable dividend payment date and on such other
terms as may be determined by the Committee in its discretion and (ii) the
Committee may impose any restrictions it deems appropriate on dividends payable
in any form other than cash.
6.7. Termination of Service. The extent, if any, to which the Outside
Director shall have the right to receive unvested Shares of Restricted Stock
following termination of the Outside Director's Service shall be set forth in
each Restricted Stock Award Agreement and, subject to Section 14.3, may
subsequently be modified by the Committee in its discretion.
Article 7. Stock.
7.1. Award of Stock. Subject to the provisions of the Plan, Shares of
Stock may be awarded to Outside Directors in such number, upon such terms, and
at such time or times as the Committee shall determine in its discretion.
7.2. Award Agreement. Each Stock Award may, but need not, be evidenced
by an Award Agreement that shall specify the number of Shares to which the Award
pertains, the purchase price (if any), and such other provisions as the
Committee shall determine.
31
<PAGE>
Article 8. Stock Units and Accounts.
8.1. Accounts. One or more accounts (each, an "Account") shall be
created and maintained on the books of the Company for each Outside Director to
which shall be credited all Stock Units that may be attributed to such Outside
Director from time to time in connection with (i) Awards of Stock Units by the
Committee pursuant to Article 9, (ii) deferrals of Compensation by such Outside
Director pursuant to Article 10, or (iii) the automatic reinvestment of dividend
equivalents pursuant to Section 8.3. Accounts shall be maintained solely for
accounting purposes and shall not require a segregation of any assets of the
Company.
8.2. Vesting. Stock Units awarded by the Committee pursuant to Article
9 shall become vested and nonforfeitable upon such terms as the Committee may
determine. Stock Units credited to an Outside Director's Account by reason of
his or her election to defer Compensation pursuant to Article 10 shall at all
times be fully vested and nonforfeitable. Any additional Stock Units resulting
from the crediting of dividend equivalents to an Outside Director's Account or
Accounts pursuant to Section 8.3 shall be vested and nonforfeitable to the same
extent and at the same time or times as the underlying Stock Units giving rise
to such dividend equivalents.
8.3. Dividend Equivalents. Dividend equivalents shall be earned on
Stock Units and credited to an Outside Director's Account as of any date (a
"Dividend Payment Date") on which the Company pays any dividend on the
outstanding Shares (a "Dividend"). Such dividend equivalents shall be expressed
as a number of Stock Units equal to:
(i) the number of Stock Units credited to an Outside
Director's Account as of the record date for such Dividend multiplied
by the value of the per Share amount of such Dividend (as determined by
the Committee in the case of dividends paid other than in cash),
divided by:
(ii) the Fair Market Value of a Share as of the Dividend
Payment Date.
8.4. Amount of Payment. The amount of value payable to an Outside
Director on account of a Stock Unit as of the date of any payment determined in
accordance with Section 8.5 shall equal the Fair Market Value of a Share on such
date.
8.5. Timing and Method of Payment. The value of vested Stock Units
shall be paid to an Outside Director in a lump sum as soon as administratively
possible following the termination of such Outside Director's service as a
Director, except that (i) the Committee may otherwise provide in an Award
Agreement, (ii) an Outside Director may otherwise provide in a Distribution
Election, or (iii) the Company may defer such payment on account of any or all
Stock Units for up to six months after the date of such termination of such
service to the extent necessary to ensure the availability of an exemption under
Rule 16b-3. All payments on account of Stock Units shall be made in cash unless
the Committee determines in its discretion to make a payment or payments in
Shares; provided that any fractional Shares shall be paid in cash based on the
Fair Market Value of a Share on the date of such payment.
32
<PAGE>
8.6. Distribution Elections. The Committee may in its discretion permit
the Outside Director to specify in a written notice delivered to the Secretary
of the Company (a "Distribution Election") such Outside Director's election with
respect to (i) when payment to such Outside Director in respect of Stock Units
(whether resulting from an Award under Article 9 or from deferrals pursuant to
Article 10) shall commence, and (ii) whether such payment shall be in a lump sum
or in such number of annual installments as the Outside Director may designate,
subject to a maximum number of installments that the Committee shall determine
from time to time, but not in excess of ten (10). To the extent the Committee
permits Distribution Elections, an Outside Director may make or change such a
Distribution Election as to the entire balance of his or her Account at any time
or from time to time, but only by a Distribution Election filed with the Company
no later than December 31 of the year next preceding such Outside Director's
termination of service as a Director. Any Distribution Election that is not made
or changed timely shall be disregarded.
8.7. Nontransferability of Stock Units. Except as may otherwise be
specified by the Committee in its discretion, no Stock Unit may be transferred
in any manner other than (i) by will, (ii) by the laws of descent and
distribution, or (iii) pursuant to a beneficiary designation in accordance with
Article 11.
8.8. Unsecured Obligation. An Outside Director shall be a general
unsecured creditor of the Company with respect to all Stock Units credited to
his or her Account or Accounts. The Committee may, but is not required to,
establish a so-called "rabbi" trust or similar mechanism to fund the Company's
obligations under this Plan; provided, however, that any funds contained therein
shall remain subject to the claims of the Company's general creditors.
Article 9. Award of Stock Units by the Committee.
9.1. Award of Stock Units. Subject to the terms of the Plan, Stock
Units may be awarded to Outside Directors in such number, upon such terms, and
at such time or times as the Committee shall determine in its discretion. Stock
Units may be awarded in substitution for, or replacement of, the rights or
interests (whether vested or unvested) of Outside Directors under other plans of
the Company.
9.2. Award Agreement. Each Stock Unit Award shall be evidenced by an
Award Agreement that shall specify the number of Stock Units to which the Award
pertains, the vesting of such Stock Units, the extent (if any) to which a
payment is to be made in respect of Stock Units that are unvested upon the
termination of an Outside Director's Service, and such other provisions as the
Committee shall determine.
Article 10. Deferrals by Outside Directors.
10.1. Deferral Election. An Outside Director may elect to defer receipt
of all or any specified portion of any Compensation payable to him or her, and
to have such amounts credited to his or her Account in accordance with Section
10.3; provided, however, that the Committee may in its discretion (i) provide
that any such election shall be subject to the prior approval of the Committee
or (ii) suspend the right of all Outside Directors to defer receipt of
Compensation to be received after the date of such suspension.
33
<PAGE>
10.2. Timing of Deferral Election. A deferral election shall be made by
written notice (a "Deferral Election") filed with the Secretary of the Company:
(i) on or before the Effective Date (covering Compensation to
be earned after the Effective Date),
(ii) no more than 30 days after an Outside Director is first
elected or appointed to the Board (covering Compensation to be earned
at any time after the filing of such election),
(iii) on or before the date of any Annual Meeting (covering
Compensation to be earned after such Annual Meeting), or
(iv) on or before such other date or dates as may be approved
in advance by the Committee (covering Compensation earned for such
period or periods commencing after such other date as may be specified
by the Committee).
Subject to Section 8.6, a Deferral Election may be accompanied by a
Distribution Election. Subject to Section 10.1, any Deferral Election shall
continue in effect (including with respect to the Compensation relating to
subsequent periods) unless and until revoked or modified by a new Deferral
Election filed with the Secretary of the Company. Amounts credited to an Outside
Director's Account prior to the effective date of any such revocation or
modification of a Deferral Election shall not be affected by such revocation or
modification. An Outside Director who has revoked a Deferral Election may file a
new Deferral Election to defer Compensation relating exclusively to services to
be rendered during the calendar year following the year in which such new
Deferral Election is filed with the Company.
10.3. Deferrals Credited to Account. Any Compensation deferred by an
Outside Director pursuant to this Article 10 shall be allocated to his or her
Account and deemed to be invested in a number of Stock Units equal to (i) the
amount of such Compensation divided by (ii) the Fair Market Value of a Share on
the date Compensation would otherwise have been paid.
Article 11. Beneficiary Designation.
Unless the Committee in its discretion determines otherwise, each
Outside Director may from time to time name any beneficiary or beneficiaries
(who may be named contingently or successively) to whom any benefit under the
Plan is to be paid in the event of such Outside Director's death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by such Outside Director, shall be in a form prescribed by
the Company, and will be effective only when filed by the Outside Director in
writing with the Company during the Outside Director's lifetime. In the absence
of any such designation, benefits remaining unpaid at the Outside Director's
death shall be paid to his or her estate.
Article 12. Tax Withholding.
If any federal, state, and local tax withholding may be required in
respect of the grant, vesting or exercise of any Award or the settlement of any
Stock Unit (any such event, "Taxable Event"), the Company shall have the
authority to withhold, or require an Outside
34
<PAGE>
Director to remit to the Company, an amount sufficient to satisfy such tax
withholding. The Company may defer the payment of cash or delivery of Shares in
connection with a Taxable Event until such withholding requirements have been
satisfied. The Committee may, in its discretion, permit an Outside Director to
elect, subject to such conditions as the Committee may require, to have the
Company withhold Shares otherwise deliverable pursuant to the Plan and having a
Fair Market Value sufficient to satisfy all or part of any Outside Director's
estimated total federal, state, and local tax obligation associated with a
Taxable Event.
Article 13. Rights of Directors.
Nothing in the Plan shall interfere with or limit in any way the right
of the Company's shareholders to terminate any Outside Director's Service at any
time, nor confer upon any Outside Director any right to continue in Service.
Article 14. Amendment, Modifications, and Termination.
14.1. Amendment, Modification, and Termination. Subject to the terms of
the Plan, the Board may at any time and from time to time, alter, amend, suspend
or terminate the Plan in whole or in part without the approval of the Company's
shareholders, except that no such amendment shall increase the number of Shares
available for delivery under the Plan, change the minimum Option Price or
maximum term of an option, or change the requirements relating to the
composition of the Committee.
14.2. Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. In connection with any unusual or nonrecurring events
(including, without limitation, the events described in Section 4.2) affecting
the Company or of changes in applicable laws, regulations, or accounting
principles, the Committee may in its discretion adjust:
(i) the terms of Options, Restricted Stock, Stock and Stock
Units (including, without limitation, in the number, class and/or price
of Shares or Stock Units subject to, or to be distributed in connection
with, outstanding Awards or Stock Units) and
(ii) the criteria specified in the Award Agreements related to
outstanding Awards,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits intended to be made available
under the Plan.
14.3. Awards Previously Granted. Notwithstanding any other provision of
the Plan to the contrary, no termination, amendment, or modification of the Plan
shall adversely affect in any material way any previously granted Award, without
the written consent of the Outside Director holding such Award.
Article 15. Nonalienability.
Except as may otherwise be specified by the Committee in its
discretion, no Award, Stock Unit, nor any right to a payment of Stock Units
pursuant to Section 8.5 shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance,
35
<PAGE>
attachment, or garnishment by creditors of the Outside Director or the Outside
Director's beneficiary, other than (i) by will, (ii) by the laws of descent and
distribution, or (iii) pursuant to a beneficiary designation in accordance with
Article 11.
Article 16. Successors.
All obligations of the Company under the Plan shall be binding on any
successor to the Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company. The Company and
such successor shall be jointly and severally liable for all of the Company's
obligations under the Plan.
Article 17. Legal Construction.
17.1. Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
17.2. Articles and Sections. Except where otherwise indicated by the
context, any reference to an "Article" or "Section" shall be to an Article or
Section of this Plan.
17.3. Severability. If any part of the Plan is declared to be unlawful
or invalid, such unlawfulness or invalidity shall not invalidate any other part
of the Plan. Any part of the Plan so declared to be unlawful or invalid shall,
if possible, be construed in a manner which will give effect to the terms of
such part to the fullest extent possible while remaining lawful and valid.
17.4. Legal Compliance. If the Company determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to, any Award or Deferral
Election would violate any applicable provision of (i) federal or state
securities laws or (ii) the listing requirements of any national securities
exchange or national market system on which are then listed any of the Company's
equity securities, then the Company may postpone any such exercise,
nonforfeitability or delivery, as applicable, but the Company shall use all
reasonable efforts to cause such exercise, nonforfeitability or delivery to
comply with all such provisions at the earliest practicable date. If the Company
deems necessary to comply with any applicable securities law, the Company may
require a written investment intent representation by an Outside Director and
may require that a restrictive legend be affixed to certificates for Shares
delivered pursuant to the Plan.
17.5. Governing Law. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Illinois,
without regard to the conflict of laws principles thereof.
36
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 36,032
<SECURITIES> 0
<RECEIVABLES> 498,990
<ALLOWANCES> 16,490
<INVENTORY> 606,174
<CURRENT-ASSETS> 1,198,003
<PP&E> 1,111,483
<DEPRECIATION> 509,589
<TOTAL-ASSETS> 2,037,849
<CURRENT-LIABILITIES> 534,963
<BONDS> 132,145
0
0
<COMMON> 53,551
<OTHER-SE> 1,278,239
<TOTAL-LIABILITY-AND-EQUITY> 2,037,849
<SALES> 1,057,107
<TOTAL-REVENUES> 1,057,107
<CGS> 671,952
<TOTAL-COSTS> 671,952
<OTHER-EXPENSES> 287,564
<LOSS-PROVISION> 3,145
<INTEREST-EXPENSE> 1,683
<INCOME-PRETAX> 96,087
<INCOME-TAX> 38,915
<INCOME-CONTINUING> 57,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,172
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.58
<FN>
Earnings per share data reflect the 2-for-1 stock split effective at the close
of business on May 11, 1998. Prior Financial Data Schedules have not been
restated.
</FN>
</TABLE>
