18 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, 1999
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)
(as of June 1, 1999)
455 Knightsbridge Parkway 100 Grainger Parkway
Lincolnshire, Illinois 60069-3620 Lake Forest, Illinois 60045-5201
Telephone: (847)793-9030 Telephone: (847)535-1000
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: 93,318,690 shares of the
Company's Common Stock were outstanding as of April 30, 1999.
The Exhibit Index appears on page 16 in the sequential numbering system.
1
<PAGE>
Part I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars except for per share amounts)
(Unaudited)
Three Months Ended March 31,
-------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Net sales .................................. $ 1,090,843 $ 1,057,107
Cost of merchandise sold ................... 687,981 671,952
------------ ------------
Gross profit ............................ 402,862 385,155
Warehousing, marketing, and
administrative expenses ................. 306,596 287,564
------------ ------------
Operating earnings ...................... 96,266 97,591
Other income or (deductions)
Interest income ......................... 410 338
Interest expense ........................ (1,733) (1,683)
Unclassified-net ........................ (384) (159)
------------ ------------
(1,707) (1,504)
------------ ------------
Earnings before income taxes ............... 94,559 96,087
Income Taxes ............................... 38,296 38,915
------------ ------------
Net earnings ............................ $ 56,263 $ 57,172
============ ============
Earnings per share:
Basic ................................... $ 0.61 $ 0.59
============ ============
Diluted .................................. $ 0.60 $ 0.58
============ ============
Average number of shares outstanding:
Basic: .................................. 92,833,727 97,224,310
============ ============
Diluted ................................. 94,210,765 98,981,736
============ ============
Cash dividends paid per share .............. $ 0.15 $ 0.135
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands of dollars)
(Unaudited)
Three Months Ended March 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net Earnings ................................ $ 56,263 $ 57,172
Other comprehensive earnings:
Foreign currency translation
adjustments ............................ 2,537 1,177
----------- -----------
Comprehensive earnings ...................... $ 58,800 $ 58,349
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
ASSETS March 31, 1999 Dec. 31, 1998
- --------------------------------------------------------------- -------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................... $ 36,859 $ 43,107
Accounts receivable, less allowance for doubtful
accounts of $16,624 in 1999 and $15,951 in 1998 ........... 508,080 463,377
Inventories ................................................. 646,555 626,731
Prepaid expenses ............................................ 28,600 11,950
Deferred income tax benefits ................................ 60,685 61,200
------------- -------------
Total current assets ...................................... 1,280,779 1,206,365
PROPERTY, BUILDINGS, AND EQUIPMENT ............................ 1,245,945 1,209,167
Less accumulated depreciation and amortization ............. 565,359 548,639
------------- -------------
Property, buildings, and equipment-net ...................... 680,586 660,528
DEFERRED INCOME TAXES ......................................... 4,350 3,187
OTHER ASSETS .................................................. 236,341 233,822
------------- -------------
TOTAL ASSETS .................................................. $ 2,202,056 $ 2,103,902
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------
CURRENT LIABILITIES
Short-term debt ............................................. $ 153,932 $ 88,060
Current maturities of long-term debt ........................ 22,833 22,831
Trade accounts payable ...................................... 307,432 287,055
Accrued expenses ............................................ 187,414 233,327
Income taxes ................................................ 55,871 33,220
------------- -------------
Total current liabilities ................................. 727,482 664,493
LONG-TERM DEBT (less current maturities) ...................... 124,553 122,883
ACCRUED EMPLOYMENT RELATED BENEFITS COSTS ..................... 38,526 37,785
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, 107,291,574 shares, 1999 and
107,233,771 shares, 1998 ................................ 53,648 53,617
Additional contributed capital .............................. 250,205 249,482
Treasury stock, at cost - 14,037,672 shares, 1999 and
13,728,672 shares, 1998 .................................. (586,112) (572,900)
Unearned restricted stock compensation ...................... (16,823) (17,238)
Cumulative translation adjustments .......................... (17,027) (19,564)
Retained earnings ........................................... 1,627,604 1,585,344
------------- -------------
Total shareholders' equity .................................. 1,311,495 1,278,741
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................. $ 2,202,056 $ 2,103,902
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Three Months Ended March 31,
-----------------------------
1999 1998
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ......................................... $ 56,263 $ 57,172
Provision for losses on accounts receivable .......... 3,035 3,145
Depreciation and amortization:
Property, buildings, and equipment ................. 17,908 15,777
Intangibles and goodwill ........................... 3,965 4,035
Amortization of capitalized software ............... 2,290 2,172
Change in operating assets and liabilities:
(Increase) in accounts receivable .................. (47,738) (30,188)
(Increase) decrease in inventories ................. (19,824) 5,958
(Increase) in prepaid expenses ..................... (16,650) (4,723)
(Increase) in deferred income taxes ................ (648) (500)
Increase in trade accounts payable ................. 20,377 13,050
(Decrease) in other current liabilities ............ (45,913) (45,069)
Increase in current income taxes payable ........... 22,651 29,309
Increase in accrued employment related
benefits costs ................................... 741 1,269
Other - net .......................................... 270 432
----------- -----------
Net cash (used in) provided by operating activities .... (3,273) 51,839
----------- -----------
Cash flows from investing activities:
Additions to property, buildings, and
equipment - net of dispositions .................... (37,966) (24,758)
Expenditures for capitalized software ................ (4,228) (21,010)
Other - net .......................................... (274) 944
----------- -----------
Net cash (used in) investing activities ................ (42,468) (44,824)
----------- -----------
Cash flows from financing activities:
Net increase in short-term debt ...................... 65,872 4,289
Long-term debt payments .............................. (16) (514)
Stock incentive plan ................................. 852 (74)
Purchase of treasury stock ........................... (13,212) (8,429)
Cash dividends paid .................................. (14,003) (13,184)
----------- -----------
Net cash provided by (used in) financing activities .... 39,493 (17,912)
----------- -----------
Net (decrease) in cash and cash equivalents ............ (6,248) (10,897)
Cash and cash equivalents at beginning of year ......... 43,107 46,929
----------- -----------
Cash and cash equivalents at end of period ............. $ 36,859 $ 36,032
=========== ===========
<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, 1998, included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions are eliminated.
Inventories are valued at the lower of cost or market. Cost is determined
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 $42,441,000 and $74,183,000 were included in trade
accounts payable at March 31, 1999 and December 31, 1998, respectively.
2. DIVIDEND
On April 28 1999, the Board of Directors declared a quarterly dividend of 16
cents per share, payable June 1, 1999 to shareholders of record on May 10, 1999.
6
<PAGE>
W.W. Grainger, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. SEGMENT INFORMATION
The following segment disclosures are condensed and should be read in
conjunction with the consolidated financial statements and related notes for the
year ended December 31, 1998, included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Three Months ended March 31, 1999
(In thousands of dollars)
-------------------------------------------
Branch-based
Distribution Other Totals
------------- ------------ ------------
<S> <C> <C> <C>
Total net sales .................................. $ 963,268 $ 194,868 $ 1,158,136
Intersegment net sales ........................... 65,678 1,615 67,293
Net sales from external customers ................ 897,590 193,253 1,090,843
Segment operating earnings ....................... 105,236 701 105,937
<CAPTION>
Three Months ended March 31, 1998
(In thousands of dollars)
-------------------------------------------
Branch-based
Distribution Other Totals
------------- ------------ ------------
<S> <C> <C> <C>
Total net sales .................................. $ 939,576 $ 186,313 $ 1,125,889
Intersegment net sales ........................... 67,592 1,190 68,782
Net sales from external customers ................ 871,984 185,123 1,057,107
Segment operating earnings ....................... 98,303 8,414 106,717
</TABLE>
There has been no material change in segment assets from the amounts reported at
December 31, 1998 in the Company's Annual Report on Form 10-K.
A reconciliation of segment operating earnings to consolidated operating
earnings is as follows:
<TABLE>
<CAPTION>
Three Months ended March 31
(In thousands of dollars)
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Total operating earnings for reportable segments . $ 105,937 $ 106,717
Unallocated expenses ............................. (9,966) (9,100)
Elimination of intersegment profits .............. 295 (26)
------------ ------------
Total consolidated operating earnings .......... $ 96,266 $ 97,591
============ ============
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1998:
Net Sales
---------
The Company's net sales of $1,090,843,000 in the 1999 first quarter increased
3.2% from net sales of $1,057,107,000 for the comparable 1998 period. This
increase resulted from a 2.5% increase in the Branch-based Distribution segment
and a 4.6% increase in the Other Businesses of the Company (percentages consider
both external and intersegment sales). ( For additional segment information, see
Note 3 of the Notes to Consolidated Financial Statements included in this
report.) There were 63 sales days in both the 1999 and 1998 quarters. The year
1999 will have one less sales day than did the year 1998 (254 vs. 255).
Reflecting the Company's customer-focused strategy, sales growth for the first
quarter of 1999 was primarily volume-driven. The Company is beginning to
experience favorable effects from this strategy, as newly formed business units
focus on specific market segments. New marketing initiatives, which are expected
to be rolled out throughout 1999, also contributed to sales growth.
These sales results were achieved despite weakness in the industrial economy and
unfavorable Canadian exchange rates.
The overall sales increase reflects the Company's customer-focused strategic
initiatives, which are intended to match the Company's service capabilities with
specific customer needs. In addition, sales were positively influenced by strong
sales of seasonal products due to the colder weather experienced in many regions
of the country during January 1999. Sales of seasonal products increased
approximately 32% in the 1999 quarter compared to the same quarter in 1998.
Sales of all other products increased about 2% on an average daily basis.
Partially offsetting these factors, sales in the quarter were negatively
affected by continued weakness in Canada and the industrial sector of the U.S.
economy.
Segment Sales
Branch-based Distribution Businesses
- ------------------------------------
Grainger Industrial Supply - Average daily sales increased 3% for the 1999 first
quarter compared to the 1998 first quarter. The sales growth was primarily
volume-related and was driven by the Company's enhanced customer focus, new
product additions, strong seasonal sales, and new marketing programs. Sales
prices increased 0.5% as compared with the first quarter of 1998.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Acklands - Grainger Inc. (Canada) - Average daily sales decreased 7% for the
1999 first quarter compared to the 1998 first quarter. This decline in sales
primarily resulted from an unfavorable change in the Canadian exchange rate. In
Canadian dollars, average daily sales declined 1% resulting from continued
weakness in the mining, forestry, oil, exploration, and agriculture sectors of
Canada's Western economy. To stimulate future growth, the Company is continuing
its planned expansion in Eastern Canada.
Grainger, S.A. de C.V. (Mexico) - Average daily sales increased 9% for the 1999
first quarter compared to the 1998 first quarter. This sales growth reflects the
continuing planned development of this new business. Sales growth was led by
increased sales to customers located in Mexico's interior, who are served by the
Company's facility in Monterrey.
Other Businesses
- ----------------
Grainger Custom Solutions - Average daily sales declined 4% for the 1999 first
quarter compared to the 1998 first quarter. This decline was affected by the
following:
1. A strategic initiative to shed less profitable business;
2. Weakness in the industrial economy, and;
3. Focusing marketing efforts on transitioning customers to the new business
platform rather than on sales growth. The transition of customers from both
Grainger Industrial Supply and Grainger Integrated Supply is expected to
continue through the third quarter of 1999.
Stronger sales are anticipated in the future as this business completes the
transition of its customers and as large customers expand their business in
response to the Company's customized, lowest total cost solutions.
Grainger Integrated Supply - Average daily sales increased 25% for the 1999
first quarter compared to the 1998 first quarter. This sales growth reflects the
increasing demand for this new business, which provides fee-based, on-site
indirect materials management services to large businesses.
Lab Safety Supply - Average daily sales increased 8% for the 1999 first quarter
compared to the 1998 first quarter. This sales growth reflects the product line
expansion program and higher circulation of targeted catalogs.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Gross Profit Margin
-------------------
The Company's gross profit margin increased by 0.50 percentage point when
comparing the first quarters of 1999 and 1998. This increase in gross profit
margin was driven by improvements at Grainger Custom Solutions and, to a lesser
extent, the Branch-based Distribution segment.
Segment Gross Profit Margin
Branch-based Distribution Businesses
- ------------------------------------
Gross profit margin improvement in this segment was primarily attributable to
Grainger Industrial Supply. This improvement related to ongoing programs to
reduce product costs, a favorable product mix, and to selling price increases of
0.5%. The favorable product mix was due to net new products added to the Catalog
partially offset by the effect of increased sales of seasonal products
(generally lower than average gross profit margins). The selling price increases
during the quarter were the result of favorable pricing in January 1999
partially offset by lower pricing in February and March 1999. This lower pricing
was the result of pricing actions taken with the issuance of the Catalog in
February 1999.
These improvements in the gross profit margin were partially offset by a less
favorable selling price category mix.
Other Businesses
- ----------------
The gross profit margin improved at Grainger Custom Solutions primarily due to
the elimination of less profitable business and to lower pricing received from
suppliers.
Operating Expenses
------------------
The Company's operating expenses (warehousing, marketing, and administrative
expenses) increased 6.6% for the 1999 first quarter compared with the 1998 first
quarter. The increase included data processing expenses which were higher in the
1999 quarter by an estimated $2,000,000, as adjusted for 1999 volume increases.
The higher data processing expenses primarily related to Year 2000 compliance
initiatives, Internet commerce activities, and to the ongoing installation of
new business enterprise systems.
As disclosed in the Company's 1998 Form 10-K, 1999 annual data processing
expenses are estimated to be a net $10,000,000 to $12,000,000 higher than 1998
annual data processing expenses, as adjusted for volume related changes.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Segment Operating Expenses
Branch-based Distribution Businesses
- ------------------------------------
Operating expenses for the Branch-based Distribution Businesses increased about
2% for the 1999 first quarter versus the comparable 1998 period. Of note in this
regard were the following:
1. Increased expenses relating to the development of the business in Mexico;
2. Increased data processing expenses, as described on page 10 of this report;
3. Continued expense control initiatives, and;
4. Decreased advertising expenses at Grainger Industrial Supply resulting from
increased funding from suppliers.
Other Businesses
- ----------------
Operating expenses grew faster than net sales, reflecting continuing investments
to better meet the diverse needs of customers, to improve accountability within
the Company, and to take advantage of growth opportunities. These investments
included:
1. Continued development of the Grainger Custom Solutions business;
2. Continued development of the Company's full service marketing capabilities
on the Internet (concerning which expenses related to Internet initiatives,
including data processing expenses, totaled $6.0 million in the first
quarter of 1999 versus $2.6 million in the first quarter of 1998);
3. Expanded marketing programs at Lab Safety Supply, and;
4. Increased data processing expenses, as described on page 10 of this report.
Grainger Integrated Supply reduced its operating expenses by about 5% while
achieving sales growth of 25%.
Operating Earnings
------------------
Company operating earnings decreased 1.4% for the first quarter of 1999 compared
to the same quarter in 1998. (For segment operating earnings, see Note 3 of the
Notes to Consolidated Financial Statements included in this report.).
The decline in the Company's operating earnings was due to the continuing
investment in new ventures to take advantage of growth opportunities. The
Company believes these investments will enable the Company to protect its
industry leadership position.
The decline in operating earnings for the Other Businesses was primarily related
to the results of Internet Commerce and Grainger Custom Solutions.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Internet Commerce results reflected the continuing development of OrderZone.com,
the Company's one-stop, on-line, business-to-business service. Also, Internet
Commerce continued to enhance Grainger.com, its award-winning Web site. (Sales
processed through Grainger.com are recognized in Grainger Industrial Supply's
sales.) OrderZone is expected to be operational in the second quarter of 1999.
The 1999 results at Grainger Custom Solutions reflected increased investments
for developing the infrastructure for this business and the effect of
eliminating some less profitable business. The infrastructure investments are,
in some cases, redundant in that the majority of customers are still being
served through the Grainger Industrial Supply platform. It is anticipated that
the majority of this infrastructure redundancy will be eliminated as soon as
feasible.
Progress being made in these new business ventures is in line with expectations.
Sales growth for these operations is consistent with management's overall
strategy.
Other Income Statement Data
---------------------------
Interest income increased $72,000 for the first quarter of 1999 compared with
the same period in 1998. This increase resulted from higher average daily
invested balances partially offset by lower average interest rates earned.
Interest expense increased $50,000 for the first quarter of 1999 as compared
with the same period in 1998. This increase resulted from higher average
interest rates paid on all outstanding debt and from higher average borrowings.
The increase was partially offset by higher capitalized interest.
The Company's effective income tax rate was 40.5% for the first quarter of both
1999 and 1998.
Net Earnings
------------
The Company's net earnings of $56,263,000 in the 1999 first quarter decreased
1.6% when compared to net earnings of $57,172,000 for the comparable 1998
period. The net earnings decrease was due to operating expenses increasing at a
faster rate than net sales, partially offset by higher gross profit margins.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Year 2000
---------
The Company is using a standard methodology with three phases for the Year 2000
project. Phase I includes conducting a complete inventory of potentially
affected areas of the business (including information technology and
non-information technology), assessing and prioritizing the information
collected during the inventory, and completing detailed project plans to address
all key areas of the project. Phase II includes the remediation and testing of
all mission critical areas of the project, surveying suppliers of goods and
services with whom the Company does business, and the creation of contingency
plans to address potential Year 2000 related problems. Phase III includes the
remediation and testing of non-mission critical areas of the project, and the
implementation of contingency plans as may be deemed appropriate. The Company
completed Phase I. Phase II and Phase III are in process. Year 2000 work for
mission critical and most non-mission critical systems and testing of system
revisions is planned to be completed in the third quarter of 1999.
The estimated 1999 annual data processing expenses and the dates by which the
Company will complete the Year 2000 work 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 1998 Form 10-K filed with the Securities and Exchange Commission.
13
<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, 1999, working capital increased by
$11,425,000. The ratio of current assets to current liabilities was 1.8 at March
31, 1999 and December 31, 1998. The Consolidated Statements of Cash Flows,
included in this report, detail the sources and uses of cash and cash
equivalents.
The Company maintains a modest 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 23.0% at March 31, 1999 and 18.3% at December 31, 1998.
For the first three months of 1999, $38,170,000 was expended for property,
buildings, and equipment, and $4,228,000 for capitalized software, for a total
of $42,398,000.
RISK FACTORS
This document contains statements that are not historical facts and are
forward-looking. The forward-looking statements are based on the Company's
current expectations and some of them are subject to risks and uncertainties the
outcome of which could result in actual future performance being materially
different from the performance indicated. Among the factors that could affect
indicated future performance are changes in, and the extent of implementation
and effectiveness of, Company strategies, market initiatives, business
development plans, and programs. Risk factors relating to the Company's Year
2000 compliance efforts are described elsewhere in this document. The
forward-looking statements should be read in conjunction with the discussion of
the Company's business and various factors that may affect it contained in the
Company's most recent annual report on Form 10-K, as well as in other Company
reports filed with the Securities and Exchange Commission.
14
<PAGE>
W.W. Grainger, Inc., and Subsidiaries
PART II - OTHER INFORMATION
Items 1, 2, 3, and 5 not applicable.
Item 4 Submission of Matters to a Vote of Security Holders.
An annual meeting of shareholders of the Company was held on April
28, 1999. 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 76,651,783 shares present in person or represented by proxy
at the meeting, the number of shares voted for and the number of
shares as to which authority to vote in the election was
withheld, were as follows with respect to each of the nominees:
<TABLE>
<CAPTION>
Shares as to Which Voting
Name Shares Voted for Election Authority Withheld
----------------------------- --------------------------- ----------------------------
<S> <C> <C>
B. P. Anderson 76,198,032 453,751
G. R. Baker 76,177,554 474,229
J. D. Fluno 76,201,637 450,146
W. H. Gantz 76,204,001 447,782
D. W. Grainger 76,203,694 448,089
R. L. Keyser 76,187,994 463,789
J. W. McCarter, Jr. 76,206,181 445,602
N. S. Novich 76,194,467 457,316
J. D. Slavik 76,194,336 457,447
H. B. Smith 76,185,721 466,062
F. L. Turner 76,183,842 467,941
J. S. Webb 76,211,730 440,053
</TABLE>
b) A proposal to ratify the appointment of Grant Thornton, LLP as
independent auditors of the Company for the year ending December
31, 1999 was approved. Of the 76,651,783 shares present in
person or represented by proxy at the meeting, 76,386,782 shares
were voted for the proposal, 57,824 shares were voted against
the proposal, and 207,177 shares abstained from voting with
respect to the proposal.
15
<PAGE>
<TABLE>
<CAPTION>
W.W. Grainger, Inc., and Subsidiaries
PART II - OTHER INFORMATION
<S> <C>
EXHIBIT INDEX
--------------
Item 6 Exhibits (numbered in accordance with Item 601 of regulation S-K) and
Reports on Form 8-K.
a) Exhibits
(11) Computation of Earnings per Common and
Common Equivalent Share 18
(27) Financial Data Schedule
b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated April 28,1999,
reporting under Item 5 thereof, the declaration of a dividend
of preferred share purchase rights under a new Shareholder
Rights Plan, which will replace the 1989 Shareholder Rights
Plan expiring in May 1999.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
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.
<S> <C>
W.W. Grainger, Inc.
----------------------------------------------------------
(Registrant)
Date: May 12, 1999 By: /s/ J.D. Fluno
- ------------------------------- ----------------------------------------------------------
J.D. Fluno, Vice Chairman
Date: May 12, 1999 By: /s/ P.O. Loux
- ------------------------------- ----------------------------------------------------------
P.O. Loux, Senior Vice President, Finance, and Chief
Financial Officer
Date: May 12, 1999 By: /s/ R.D. Pappano
- ------------------------------- ----------------------------------------------------------
R.D. Pappano, Vice President,
Financial Reporting and Investor Relations
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
W.W. Grainger, Inc., and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31,
---------------------------
Basic: 1999 1998
- ---------------------------------------------------------- ------------ ------------
<S> <C> <C>
Average number of shares outstanding during the year ..... 92,833,727 97,224,310
============ ============
Net earnings ............................................. $ 56,263,000 $ 57,172,000
============ ============
Earnings per share ....................................... $ 0.61 $ 0.59
============ ============
Diluted:
Average number of shares outstanding
during the year (basic) ............................... 92,833,727 97,224,310
Common equivalents
Shares issuable under outstanding options ......... 2,840,880 3,058,280
Shares which could have been purchased based
on the average market value for the period ...... 2,044,197 1,852,946
------------ ------------
796,683 1,205,334
Dilutive effect of exercised options prior to being
exercised ............................................. 37,855 62,092
------------ ------------
Shares for the portion of the period that the options
were outstanding ...................................... 834,538 1,267,426
Contingently issuable shares ............................. 542,500 490,000
------------ ------------
1,377,038 1,757,426
Average number of shares outstanding during the year ..... 94,210,765 98,981,736
============ ============
Net earnings ............................................. $ 56,263,000 $ 57,172,000
============ ============
Earnings per share ....................................... $ 0.60 $ 0.58
============ ============
</TABLE>
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 36,859
<SECURITIES> 0
<RECEIVABLES> 524,704
<ALLOWANCES> 16,624
<INVENTORY> 646,555
<CURRENT-ASSETS> 1,280,779
<PP&E> 1,245,945
<DEPRECIATION> 565,359
<TOTAL-ASSETS> 2,202,056
<CURRENT-LIABILITIES> 727,482
<BONDS> 124,553
0
0
<COMMON> 53,648
<OTHER-SE> 1,257,847
<TOTAL-LIABILITY-AND-EQUITY> 2,202,056
<SALES> 1,090,843
<TOTAL-REVENUES> 1,090,843
<CGS> 687,981
<TOTAL-COSTS> 687,981
<OTHER-EXPENSES> 306,596
<LOSS-PROVISION> 3,035
<INTEREST-EXPENSE> 1,733
<INCOME-PRETAX> 94,559
<INCOME-TAX> 38,296
<INCOME-CONTINUING> 56,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,263
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.60
</TABLE>
