3955 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,June 30, 2001
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)
100 Grainger Parkway
Lake Forest, Illinois 60045-5201
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: 94,958,46294,425,822 shares of the Company's Common Stock were outstanding as of April 30,July 31, 2001.
The Exhibit Index appears on page 1926 in the sequential numbering system.
1
Part I - FINANCIALI-FINANCIAL INFORMATION
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars except for per share amounts)
(Unaudited)
Three Months Ended March 31,June 30, Six Months Ended June 30,
---------------------------------- ---------------------------------
2001 2000 2001 2000
------------- ------------ ------------ ------------
Net sales ........................................................ $ 1,219,4201,225,040 $ 1,222,4491,271,651 $ 2,444,460 $ 2,494,100
Cost of merchandise sold ................ 824,509 840,001.......... 830,124 880,463 1,654,633 1,720,464
------------ ------------ ------------ ------------
Gross profit ......................... 394,911 382,448.................... 394,916 391,188 789,827 773,636
Warehousing, marketing, and
administrative expenses .............. 311,222 307,671......... 301,228 318,287 612,450 625,958
Restructuring charges ............. 40,000 -- 40,000 --
------------ ------------ ------------ ------------
Operating earnings ................... 83,689 74,777.............. 53,688 72,901 137,377 147,678
Other income or (deductions)
Interest income ...................... 545 497................. 555 440 1,100 937
Interest expense ..................... (4,001) (6,102)................ (2,967) (6,585) (6,968) (12,687)
Equity in loss of
unconsolidated entities ............................ (5,801) -....... (212) -- (6,013) --
Loss on liquidation of equity
in unconsolidated entity ...... (21,497) -- (21,497) --
Gain on investment securities ... -- 26,135 -- 26,135
Unclassified-net ..................... 373 91................ (6,405) 658 (6,032) 749
------------ ------------ (8,884) (5,514)------------ ------------
(30,526) 20,648 (39,410) 15,134
------------ ------------ ------------ ------------
Earnings before income taxes ............ 74,805 69,263.... 23,162 93,549 97,967 162,812
Income taxes ............................ 32,630 28,052...................... 8,342 37,887 40,972 65,939
------------ ------------ ------------ ------------
Net earnings ............................................. $ 42,17514,820 $ 41,21155,662 $ 56,995 $ 96,873
============ ============ ============ ============
Earnings per share:
Basic ........................................................... $ 0.450.16 $ 0.440.60 $ 0.61 $ 1.04
============ ============ ============ ============
Diluted ....................................................... $ 0.450.15 $ 0.440.59 $ 0.60 $ 1.03
============ ============ ============ ============
Weighted average number of shares
outstanding:
Basic ................................ 93,026,308 92,917,780........................... 93,757,352 93,054,100 93,391,830 92,985,940
============ ============ ============ ============
Diluted .............................. 94,297,365 94,416,374......................... 95,252,754 94,447,965 94,775,060 94,432,170
============ ============ ============ ============
Cash dividends paid per share ................ $ 0.175 $ 0.17 $ 0.160.345 $ 0.33
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
2
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands of dollars)
(Unaudited)
Three Months Ended March 31,
----------------------------------June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net Earnings .....................................earnings ........................... $ 42,17514,820 $ 41,21155,662 $ 56,995 $ 96,873
Other comprehensive
earnings (loss), net of tax:
Foreign currency translation
adjustments ....... (13,876) (1,090)...................... 10,079 (4,882) (3,797) (5,972)
Gain (loss) in investment
securities:
Unrealized holding
gain (loss) ..................... (4,376) (10,381)................. 5,299 (37,002) 923 (47,383)
Reclassification
adjustments for realized
gains included in net
earnings ..................... - -.................... -- (15,550) -- (15,550)
------------ ------------ ------------ ------------
Comprehensive earnings ...........................(loss) .......... $ 23,92330,198 $ 29,740(1,772) $ 54,121 $ 27,968
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
3
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
ASSETSMarch 31,June 30, 2001 Dec. 31, 2000 -------------------------------------------------------------- -------------- ------------------------------------------------------------------------------ ------------------ ------------------ CURRENT ASSETS Cash and cash equivalents...................................................................... $68,97466,281 $ 63,384 Accounts receivable, less allowance for doubtful accounts of$24,691$26,236 in 2001 and $23,436 in 2000......... 595,105............. 606,384 608,297 Inventories............................................... 685,823................................................... 665,156 704,071 Prepaid expenses.......................................... 55,706.............................................. 55,414 25,173 Deferred income tax benefits.............................. 82,915.................................. 98,204 82,077------------ ------------------------------ ------------------ Total current assets.................................... 1,488,523........................................ 1,491,439 1,483,002 PROPERTY, BUILDINGS, AND EQUIPMENT.......................... 1,321,621.............................. 1,343,702 1,308,027 Less accumulated depreciation and amortization............ 648,149................ 667,615 631,630------------ ------------------------------ ------------------ Property, buildings, and equipment-net.................... 673,472........................ 676,087 676,397 DEFERRED INCOME TAXES....................................... 7,348........................................... 5,052 8,820 INVESTMENTS IN UNCONSOLIDATED ENTITIES...................... 21,801.......................... 4,751 23,838 OTHER ASSETS................................................ 261,219.................................................... 260,491 267,544------------ ------------------------------ ------------------ TOTAL ASSETS.................................................................................................... $2,452,3632,437,820 $ 2,459,601============ ============================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY -------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Short-term debt.......................................................................................... $115,31096,548 $ 173,538 Current maturities of long-term debt................................................ 22,755 22,770 Trade accounts payable.................................... 255,664........................................ 299,331 220,924 Accrued expenses.......................................... 271,656.............................................. 279,950 300,740 Income taxes.............................................. 46,199.................................................. (6,125) 29,352------------ ------------------------------ ------------------ Total current liabilities............................... 711,584................................... 692,459 747,324 LONG-TERM DEBT (less current maturities).................... 119,355........................ 124,002 125,258 ACCRUED EMPLOYMENT RELATED BENEFITS COSTS................... 50,743....................... 52,215 49,537 MINORITY INTEREST........................................... 94............................................... 93 96 SHAREHOLDERS' EQUITY Cumulative PreferredStock - $5Stock-$5 parvalue - authorized,value-authorized, 12,000,000 shares, issued and outstanding, none.................... -- -- CommonStock - $0.50Stock-$0.50 parvalue - authorized,value-authorized, 300,000,000 shares; issued108,258,170108,397,365 shares, 2001 and 108,037,082 shares, 2000.............................. 54,129................................ 54,199 54,017 Additional contributed capital............................ 282,648................................ 287,020 276,819 Retained earnings......................................... 1,855,062............................................. 1,853,309 1,837,298 Unearned restricted stock compensation.................... (26,749)........................ (22,103) (22,720) Accumulated other comprehensive (loss).................... (37,084)........................ (21,706) (18,832) Treasury stock, atcost - 13,348,192cost-13,930,572 shares, 2001 and 14,104,212 shares, 2000............................... (557,419)................................. (581,668) (589,196)------------ ------------------------------ ------------------ Total shareholders' equity................................ 1,570,587...................................... 1,569,051 1,537,386------------ ------------------------------ ------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................... $2,452,3632,437,820 $ 2,459,601============ ============================== ==================
The accompanying notes are an integral part of these financial statements.
4
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
ThreeSix Months Ended March 31,
---------------------------June 30,
---------------------------------------------
2001 2000
------------ ------------------------------ ------------------
Cash flows from operating activities:
Net earnings ............................................................................................... $ 42,17556,995 $ 41,21196,873
Provision for losses on accounts receivable .............. 4,590 3,553................... 10,831 7,087
Depreciation and amortization:
Property, buildings, and equipment ..................... 19,577 21,458.......................... 39,712 42,270
Intangibles and goodwill ............................... 1,361 4,002.................................... 2,911 6,190
Amortization of capitalized software ................... 4,534 3,492........................ 8,635 7,450
(Gain) on sales of investment securities ...................... -- (26,135)
Non-cash restructuring charge ................................. 7,139 --
Asset write-downs ............................................. 6,000 --
Loss on unconsolidated entities .......................... 5,801............................... 23,926 --
Change in operating assets and liabilities -liabilities--
net of business acquisition:
Decrease (increase)acquisition and asset write-downs:
(Increase) in accounts receivable ............. 6,910 (42,898)........................... (8,351) (87,598)
Decrease (increase) in inventories ..................... 16,297 (11,088).......................... 40,178 (10,808)
(Increase) in prepaid expenses ......................... (30,024) (18,808)
Decrease (increase).............................. (29,627) (14,133)
(Increase) in deferred income taxes ........... 444 (1,548)......................... (14,592) (8,980)
Increase in trade accounts payable ..................... 34,763 35,150.......................... 77,290 75,475
(Decrease) in other current liabilities ................ (29,722) (21,939)
Increase..................... (22,004) (35,671)
(Decrease) increase in current income taxes payable ............... 15,552 32,534......... (36,814) 28,564
Increase in accrued employment related
benefits costs ....................................... 1,206 707............................................ 2,678 1,382
Other - net .............................................. 349 2,222
------------ ------------................................................... 4,190 3,337
------------------ ------------------
Net cash provided by operating activities .................. 93,813 48,048
------------ ------------....................... 169,097 85,303
------------------ ------------------
Cash flows from investing activities:
Additions to property, buildings, and
equipment - netequipment-net of dispositions ........................ (15,305) (12,103)............................... (36,827) (25,285)
Expenditures for capitalized software .................... (2,364) (9,635)......................... (4,061) (23,373)
Proceeds from sales of investment securities .................. -- 13,435
Purchases of investment securities ............................ -- (4,900)
Net cash paid for business acquisition ................... (13,250)........................ (14,407) --
Investments in unconsolidated entities ................... (3,764) --
Other - net .............................................. (1,669) (743)
------------ ------------........................ (4,547) (881)
Other-net ..................................................... 429 (2,706)
------------------ ------------------
Net cash (used in) investing activities .................... (36,352) (22,481)
------------ ------------......................... $ (59,413) $ (43,710)
------------------ ------------------
5
W.W. Grainger, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands of dollars)
(Unaudited)
Six Months Ended June 30,
---------------------------------------------
2001 2000
------------------ -------------------
Cash flows from financing activities:
Net (decrease) in short-term debt ........................ (58,228) (13,317)............................. $ (76,990) $ (20,698)
Long-term debt payments ......................................................................... (15) (17)(34)
Stock incentive plan ..................................... 1,139 5,155.......................................... 4,327 5,881
Proceeds from sale of treasury stock ............................................... 24,366 --
Purchase of treasury stock-net ........................... (1,072) (346)................................ (25,634) (458)
Cash dividends paid ...................................... (16,000) (14,955)
------------ ------------........................................... (32,573) (30,919)
------------------ ------------------
Net cash (used in) financing activities .................... (49,810) (23,480)
------------ ------------......................... (106,519) (46,228)
------------------ ------------------
Exchange rate effect on cash and cash equivalents .......... (2,061) (85)
------------ ------------............... (268) (909)
------------------ ------------------
Net increase (decrease) in cash and cash
equivalents .................. 5,590 2,002................................................... 2,897 (5,544)
Cash and cash equivalents at beginning of year ............................... 63,384 62,683
------------ ------------------------------ ------------------
Cash and cash equivalents at end of period ....................................... $ 68,97466,281 $ 64,685
============ ============57,139
================== ==================
The accompanying notes are an integral part of these financial statements.
56
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, 2000, 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.
2. DIVIDEND
On April 25,August 1, 2001, the Board of Directors declared a quarterly dividend of 17 1/2 cents$0.175 per share, payable JuneSeptember 1, 2001, to shareholders of record on May 7,August 13, 2001.
6
W.W. Grainger, Inc., and SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Unaudited)
3. SEGMENT INFORMATION (In thousands of dollars)
Three Months Ended March 31, 2001 ---------------------------------------------------------------------------- Lab Branch-based Safety Distribution Digital Supply Other Totals ------------ ---------- --------- ---------- ---------- (In thousands of dollars) Total net sales ...................... $1,091,693 $ 17,303 $ 87,625 $ 42,156 $1,238,777 Intersegment net sales ............... 3,486 15,548 323 -- 19,357 Net sales to external customers ...... 1,088,207 1,755 87,302 42,156 1,219,420 Segment operating earnings (loss) .... 90,079 (10,157) 16,134 371 96,427 Three Months Ended March 31, 2000 ---------------------------------------------------------------------------- Lab Branch-based Safety Distribution Digital Supply Other Totals ------------ ---------- --------- ---------- ---------- (In thousands of dollars) Total net sales ...................... $1,098,623 $ 6,416 $ 86,865 $ 41,003 $1,232,907 Intersegment net sales ............... 2,654 6,209 223 1,372 10,458 Net sales to external customers ...... 1,095,969 207 86,642 39,631 1,222,449 Segment operating earnings (loss) .... 84,508 (10,933) 14,608 (3,106) 85,077 Lab Branch-based Safety Distribution Digital Supply Other Totals ------------ ---------- --------- ---------- ---------- (In thousands of dollars) Segment assets At March 31, 2001 .................... $1,994,517 $ 14,766 $ 143,712 $ 42,297 $2,195,292 ========== ========== ========== ========== ========== At December 31, 2000 ................. $2,016,220 $ 9,933 $ 111,961 $ 54,095 $2,192,209 ========== ========== ========== ========== ==========
7
W.W. Grainger, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. SEGMENT INFORMATION (In thousands of dollars)
Three Months Ended June 30, 2001
-------------------------------------------------------------------------
Lab
Branch-based Safety
Distribution Digital Supply Other Totals
---------------- ----------- ----------- ----------- --------------
(In thousands of dollars)
Total net sales ......................... $ 1,099,083 $ 12,676 $ 83,513 $ 46,171 $ 1,241,443
Intersegment net sales .................. 3,510 12,591 302 -- 16,403
Net sales to external customers ......... 1,095,573 85 83,211 46,171 1,225,040
Segment operating earnings (loss) ....... 93,856 (40,000) 12,577 470 66,903
Three Months Ended June 30, 2000
--------------------------------------------------------------------------
Lab
Branch-based Safety
Distribution Digital Supply Other Totals
---------------- ----------- ----------- ----------- --------------
(In thousands of dollars)
Total net sales ......................... $ 1,148,822 $ 14,182 $ 83,497 $ 44,471 $ 1,290,972
Intersegment net sales .................. 3,482 13,965 229 1,645 19,321
Net sales to external customers ......... 1,145,340 217 83,268 42,826 1,271,651
Segment operating earnings (loss) ....... 90,749 (16,221) 13,774 (3,216) 85,086
Six Months Ended June 30, 2001
--------------------------------------------------------------------------
Lab
Branch-based Safety
Distribution Digital Supply Other Totals
---------------- ----------- ----------- ----------- --------------
(In thousands of dollars)
Total net sales ......................... $ 2,190,776 $ 29,979 $171,138 $ 88,327 $ 2,480,220
Intersegment net sales .................. 6,996 28,139 625 -- 35,760
Net sales to external customers ......... 2,183,780 1,840 170,513 88,327 2,444,460
Segment operating earnings (loss) ....... 183,935 (50,157) 28,711 841 163,330
Six Months Ended June 30, 2000
--------------------------------------------------------------------------
Lab
Branch-based Safety
Distribution Digital Supply Other Totals
---------------- ----------- ----------- ----------- --------------
(In thousands of dollars)
Total net sales ........................ $ 2,247,445 $ 20,598 $170,362 $ 85,474 $ 2,523,879
Intersegment net sales ................. 6,136 20,174 452 3,017 29,779
Net sales to external customers ........ 2,241,309 424 169,910 82,457 2,494,100
Segment operating earnings (loss) ...... 175,257 (27,154) 28,382 (6,322) 170,163
8
W.W. Grainger, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Lab
Branch-based Safety
Distribution Digital Supply Other Totals
---------------- ------------ ----------- ----------- ------------
(In thousands of dollars)
Segment assets
At June 30, 2001 ........................ $ 2,004,373 $ -- $ 131,576 $ 42,059 $ 2,178,008
================ ============ =========== =========== ============
At December 31, 2000 .................... $ 2,016,220 $ 9,933 $ 111,961 $ 54,095 $ 2,192,209
================ ============ =========== =========== ============
A reconciliation of segment information to consolidated information is as follows:follows (In thousands of dollars):
Three Months Ended March 31,
-----------------------------June 30,
---------------------------------------------
2001 2000
---------- ---------------------------- ------------------
Total operating earnings for reportable segments ................ $ 96,42766,903 $ 85,07785,086
Unallocated expenses ........................... (12,738) (10,300)............................................ (13,215) (12,185)
Elimination of intersegment profits ......................................... -- --
---------- ---------------------------- ------------------
Total consolidated operating earnings ................................. $ 83,68953,688 $ 74,777
========== ==========
March72,901
================== ==================
Six Months Ended June 30,
---------------------------------------------
2001 2000
------------------ ------------------
Total operating earnings for reportable segments ................ $ 163,330 $ 170,163
Unallocated expenses ............................................ (25,953) (22,485)
Elimination of intersegment profits ............................. -- --
------------------ ------------------
Total consolidated operating earnings ......................... $ 137,377 $ 147,678
================== ==================
June 30, December 31,
2001 December 31, 2000
-------------- ----------------------------------- ------------------
Assets:
Total assets for reportable segments ....................................... $ 2,195,2922,178,008 $ 2,192,209
Unallocated assets ............................. 257,071.............................................. 259,812 267,392
-------------- ----------------------------------- ------------------
Total consolidated assets ......................................................... $ 2,452,3632,437,820 $ 2,459,601
============== =================================== ==================
9
W.W. Grainger, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. ADOPTION OF ACCOUNTING STANDARDS AND NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS No. 133), “Accounting"Accounting for Certain Derivative Instruments and Hedging Activities,”" effective January 1, 2001. The Company uses non-derivative financial instruments to help hedge its exposure for certain investments in foreign subsidiaries in which the net assets are exposed to currency exchange rate volatility. Adoption of SFAS No. 133 requires the Company to report the net amounts of gains and losses that arise from qualifying non-derivative hedging instruments in the cumulative translation adjustment during the reporting period. The Company’sCompany's accounting treatment of SFAS No. 133 is consistent with the method previously used under Statement of Financial Accounting Standards No. 52 (SFAS No. 52), “Foreign"Foreign Currency Translation.”"
Currency exposure related to the Company’sCompany's investment in the net assets of its Canadian subsidiary, Acklands-Grainger Inc. (AGI), is managed primarilypartially mitigated by means of a foreign currency denominated debt obligation of the parent. Gains and losses associated with the debt obligation offset gains and losses in the net investment in AGI.
8
W.W. Grainger, Inc., and SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Unaudited)
For the six month period ended March 31,June 30, 2001, $5,903,000$1,256,000 of net gain related to the foreign currency denominated debt obligation and was included in the cumulative translation adjustment. For the same period of 2000, $457,000$2,980,000 of net gain related to the obligation and was included in the cumulative translation adjustment.
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No.141 (SFAS No. 141), "Business Combinations," and Statement of Financial Accounting Standards No. 142 (SFAS No. 142), "Goodwill and Intangible Assets." SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired between July 1, 2001, and the effective date of SFAS No. 142. Major provisions of these Statements and their effective dates for the Company are as follows:
| 1. | All business combinations initiated after June 30, 2001 must use the purchase method of accounting. The pooling of interest method of accounting is prohibited except for transactions initiated before July 1, 2001. | |
| 2. | Intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented, or exchanged, either individually or as part of a related contract, asset, or liability. |
10
W.W. Grainger, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
| 3. | Goodwill, as well as intangible assets with indefinite lives, acquired after June 30, 2001, will not be amortized. Effective January 1, 2002, all previously recognized goodwill and intangible assets with indefinite lives will no longer be subject to amortization. | |
| 4. | Effective January 1, 2002, goodwill and intangible assets with indefinite lives will be tested for impairment annually and whenever there is an impairment indicator. | |
| 5. | All acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting. |
Goodwill (using current exchange rates) is currently being amortized at approximately $5 million annually and is projected to have a net carrying value of approximately $157 million at the date of adoption of this standard. The Company is currently evaluating the provisions of SFAS No. 142 and has not yet determined the effect that adoption of this standard will have on its financial statements.
5. ACQUISITION
On February 26, 2001, Lab Safety Supply, Inc., the Company’s wholly owned subsidiary, acquired The Ben Meadows Co., Inc. (Ben Meadows), of Canton, Georgia, for approximately $13.3 million.$14.4 million, including costs associated with the acquisition. Ben Meadows, a privately held corporation with annual sales of more than $20,000,000, is a business-to-business direct marketer specializing in equipment for the environmental and forestry management markets. The acquisition was accounted for under the purchase method of accounting. Results for Ben Meadows are included in the Company’s results since the date of its acquisition. Given the size of the acquisition, no accretion or dilution of the Company’s earnings per share iswas projected.
6. EXECUTIVE STOCK PURCHASE PROGRAM
On March 26, 2001, a group of 83 executives bought approximately 787,000 treasury shares from the Company. Cash proceeds from the sale, which amounted to $24,366,000, will bewere used by the Company to repurchase shares of the Company’s stock on the open market. Executives who met a threshold purchase requirement of one times their annual base salary received a grant of restricted stock that will vest if they remain with the Company and hold their purchased shares for a minimum of two years. The total numbergrant totaled approximately 192,000 shares of restricted shares granted was approximately 192,000 shares.stock.
911
W.W. Grainger, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. SUBSEQUENT EVENTSNON-RECURRING CHARGES
On April 23, 2001, the Company announced it will discontinueits plans to shut down the operations of Material Logic and write down its investment in other digital activities. Material Logic was the digital unit the Company formed to seek other equity participants. As a result of this action, the Company willhas shut down all of Material Logic’s branded e-commerce sites except FindMRO.com, which will remain an integrated sourcing service for the Company’s customers.
The Company will provide a comprehensive separation package, including outplacement services, for the 178 Material Logic employees whose jobs will be eliminated.
In connection with the closing of Material Logic, the Company has taken a non-recurring, after-taxpre-tax charge of $40 million (after-tax $24 million, or $0.25 per share. million) in the second quarter of 2001. The charge included a provision for the planned elimination of approximately 178 jobs at Material Logic. The Company provided a comprehensive separation package, including outplacement services, to the employees whose jobs have been eliminated. As of June 30, 2001, approximately 163 employees have been severed. Severance payments for most terminated employees begin July 1, 2001.
In addition, the Company wrote down its investmentsinvestment in other digital enterprises and took an after-taxa pre-tax charge of $26.5 million (after-tax $14 million, or $0.15 per share.million). This included divestiture of the Company’s 40 percent investment in Works.com, Inc. The Company acquired its 40 percent interestownership in Works.com, Inc., an unrelated third party, on August 1, 2000, when OrderZone.com was combined with Works.com.
The total effect of both non-recurring charges amounted to an after-tax cost of $38 million, or $0.40 per share, in the 2001 second quarter.
12
W.W. Grainger, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The charges will be partially offset by eliminationfollowing table displays the activity and balance of the on-going losses relating to Material Logic restructuring reserve as of June 30, 2001:
(In thousands of dollars)
Original
Provision Deductions Balance
--------------------------------------------------
Restructuring Reserve (Operating expenses):
- --------------------------------------------------
Workforce reductions ............................. $ 17,300 $ (2,285) $ 15,015
Asset and the Company’s equity investment in Works.com, which losses were projected at $0.29 per share for the remainderequipment write-offs and disposals ..... 5,800 (3,000) 2,800
Contractual obligations .......................... 4,900 (2,288) 2,612
Other shut-down costs ............................ 12,000 (9,162) 2,838
------------- -------------- -------------
$ 40,000 $ (16,735) $ 23,265
============= =============== =============
Deductions reflect cash payments of 2001.$9,596,000 and non-cash utilization of $7,139,000.
1013
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,JUNE 30, 2001 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,JUNE 30, 2000:
Company Net Sales
The Company’s net sales of $1,219,420,000$1,225,040,000 in the 2001 firstsecond quarter were essentially flatdown 4% compared with sales of $1,222,449,000$1,271,651,000 for the comparable 2000 period. Sales performance in the firstsecond quarter of 2001 was affected by relatively flat salesthe continuing general weakness in most of the Company’s businesses combined with the effect of 1 less selling day versus the first quarter of 2000. The sales decline was primarily the result of a progressively slowing economy and a difficult comparison with the 2000 first quarter.North American economy.
There were 64 sales days in both the 2001 first quarter versus 65 sales days in theand 2000 quarter. On a daily basis the Company’s net sales increased 1.3%.second quarters. The full year 2001 will have 255 sales days, the same number of sales days as the year 2000.
Sales processed through the Company’s digital businesses plus the sales that originated through Grainger.comCompany's Internet sites were $100$110 million, up more than 60%37% from the $62$80 million achieved in the firstsecond quarter of 2000.
Segment Net Sales
The following comments at the segment level include external and intersegment net sales; those comments at the business unit level include external and inter- and intrasegment net sales. For segment information see Note 3 to the Consolidated Financial Statements included in this report.
Branch-based Distribution Businesses
Net sales of $1,091,693,000$1,099,083,000 for the firstsecond quarter of 2001 decreased 0.6%4.3% when compared with net sales of $1,098,623,000$1,148,822,000 in the firstsecond quarter of 2000. Average daily net sales increased 0.9% for the 2001 first quarter compared with the 2000 first quarter.
Daily sales in the United States were relatively flat, tempered bydeclined approximately 4% primarily due to a slowdown in the U.S. economy and a difficult comparison with the 2000 first quarter.economy. Sales to national, government and to education accounts increased by the mid-single digits while sales to other customer categories declined. Sales were favorably affected by the Company’s Internet initiative. Salesprocessed through Grainger.com were $75$85 million, a 36%31% increase over firstsecond quarter 2000 sales of $55$65 million.
11Daily sales in Canada decreased 0.7% during the second quarter of 2001 due to an unfavorable Canadian exchange rate. In local currency, this business experienced an increase of 3.3% driven by the oil and gas and selected forestry sectors of the Canadian economy, along with improved sales to large accounts. This growth was partially offset by a continued slowdown in the manufacturing sector in Eastern Canada.
14
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Daily sales growth in Canada was in the low-single digits during the first quarter of 2001. Growth was driven by continued strength in the oil and gas, forestry, and mining sectors of the Canadian economy. This growth was partially offset by a slowdown in the manufacturing sector in Eastern Canada and an unfavorable change in the Canadian exchange rate.
The Mexican operation experienced a mid-single digitan 18% decline in net sales. TheThis decrease in sales was attributable to weakness in the automotive and electronics manufacturing industries.industries and a slowdown in the Mexican economy.
Digital Businesses
Net sales for the firstsecond quarter of 2001 were $17,303,000, an increase of 169.7%$12,676,000 compared with $6,416,000$14,182,000 for the same period in 2000. Net sales for this segment primarily represents product sales for FindMRO.com (through May 2001) and service fee revenues for the rest of Material Logic. The large increase in sales for this business segment is largely attributable to the intersegment sales from FindMRO.com to the Branch-based Distribution segment.
On January 26,April 23, 2001, the Company announced that it had consolidatedwould shut down the operations of Material Logic with the exception of FindMRO.com. In connection with this announcement, the Company took a pre-tax non-recurring charge of $40 million. FindMRO.com MROverstocks.com, and TotalMRO.com into one organization,was then established as an operating unit separate from Material Logic. Material Logic also includes related consulting, implementation, and content services. See Note 7Effective June 1, 2001, FindMRO.com was added to the Consolidated Financial Statements, “Subsequent Events,” for information concerningBranch-based Distribution Businesses. Beginning with the Company’s decision to shut down all of Material Logic’s branded e-commerce sites except FindMRO.com, which2001 third quarter, the Digital segment will remain an integrated sourcing service for the Company’s customers.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND THE RESULTS OF OPERATIONSRESULTS OF OPERATIONS (Continued)
cease operations.
Lab Safety Supply
NetSecond quarter 2001 net sales for Lab Safety Supply were $87,625,000, an increase of 0.9%$83,513,000, essentially flat compared with $86,865,000$83,497,000 for the same period in 2000. Net sales for the firstsecond quarter of 2001 includes net sales for Ben Meadows, Co., a direct marketer specializing in equipment for the environmental and forestry management markets, since its acquisitionacquired on February 26, 2001. Excluding these acquired sales, second quarter 2001 sales performance for Lab Safety Supply was relatively flat on a daily basis. This performance was the result of a small increase in the sales ofdecreased for both safety and industrial products, offset byprimarily as a decline inconsequence of the sales of safety products. Sales were affected by thecontinued slowing of the industrial economy of North America.economy.
Other Businesses
Net sales for the firstsecond quarter of 2001 were $42,156,000,$46,171,000, an increase of 2.8%3.8% compared with $41,003,000$44,471,000 for the same period ofin 2000. Sales growth for this segment is primarily attributable to increased sales at Grainger Integrated Supply. Sales for this business unit include product sales and management fees.
15
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Company Net Earnings
The Company’s net earnings of $42,175,000$14,820,000 in the firstsecond quarter of 2001 increased 2%decreased 73 percent compared with the net earnings of $41,211,000$55,662,000 for the comparable 2000 period. ThisThe second quarter of 2001 included previously announced, non-recurring, after-tax charges of $38 million, or $0.40 per share. The second quarter of 2000 included an after-tax gain related to sales of an investment security for $15.5 million or $0.16 per share. Excluding these unusual items from both the 2001 and 2000 second quarters, net earnings increased 32 percent to $52.8 million from $40.1 million and earnings per share increased 28 percent to $0.55 from $0.43. The increase in net earnings (excluding unusual items) resulted primarily from the elimination of losses of the Digital businesses, improved operating earnings at all of the Company’s business segmentsBranch-based Distribution Businesses and the Other Businesses, and from lower interest expense. Partially offsetting these improvements were higher losses from equity interests in unconsolidated entities.
Segment Operating Earnings
The following comments at the segment level include external and intersegment operating earnings; those comments at the business unit level include external and inter- and intrasegment operating earnings. For segment information see Note 3 to the Consolidated Financial Statements included in this report.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND THE RESULTS OF OPERATIONSRESULTS OF OPERATIONS (Continued)
Branch-based Distribution Businesses
Operating earnings of $90,079,000$93,856,000 for the firstsecond quarter of 2001 increased 6.6%3.4% compared with operating earnings of $84,508,000$90,749,000 in the firstsecond quarter of 2000. This improvement resulted from higher gross profit margins partially offset by slightly higher operating expenses.
Gross profit margins increased 1.091.8 percentage points from the comparable quarter in 2000.2000 quarter. The improvement in gross profit margins was primarily attributable to selected pricing actions intended to recovercover freight and supplier cost increases. Partially offsetting this improvement werewas higher sales of sourced productsproduct (not inventoried) which, in general, carry lower than average gross profit margins.
Operating expenses increased 2%0.6% for the quarter versus a 1%4.3% decline in net sales. The increase in operating expenses was primarily related to employee benefits costs. Other operating expenses declined proportionately more than sales.approximately 1% versus the 2000 quarter.
Digital Businesses
The Digital Businesses incurred operating losses of $10,157,000 compared with operating losses of $10,933,000 for the first quarter of 2000. The decrease in the operating losses primarily relates to the elimination of OrderZone.com operating losses that were included in first quarter 2000 results.
On August 1, 2000, OrderZone.com was combined with Works.com, Inc., an unrelated third party. For its contribution, the Company received a 40% interest in Works.com. The Company recognizes its proportionate share of earnings or losses as part of Equity in Loss of Unconsolidated Entities.
Partially offsetting the above improvement were increased losses at Material Logic. On April 23, 2001, the Company announced it will discontinue the operations of Material Logic and took a charge relating to the divestiture of its investment in Works.com. For additional information, see Note 7 to the Consolidated Financial Statements included in this report.
1416
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Digital Businesses
The Digital Businesses incurred operating losses of $40,000,000 compared with operating losses of $16,221,000 for the second quarter of 2000. On April 23, 2001, the Company announced it would shut down the operations of Material Logic with the exception of FindMRO.com. In connection with this announcement, the Company took a non-recurring charge of $40 million. FindMRO.com was then established as an operating unit separate from Material Logic. Effective June 1, 2001, FindMRO.com was added to the Branch-based Distribution Businesses. Beginning with the 2001 third quarter, the Digital Businesses segment will cease operations. For additional information, see Note 7 to the Consolidated Financial Statements included in this report.
Lab Safety Supply
Lab Safety Supply had operating earnings of $16,134,000$12,577,000 for the firstsecond quarter of 2001, an increasea decrease of 10%8.7% compared with operating earnings of $14,608,000$13,774,000 for the firstsecond quarter of 2000. The increaseoperating earnings decline was primarily due to lower amortization of intangibles partially offset by otherhigher operating expenses growing at a faster rate than sales.including increased data processing and employee costs.
Other Businesses
Other Businesses had operating earnings of $371,000$470,000 in the firstsecond quarter of 2001 compared with operating losses of $3,106,000$3,216,000 in the comparable period of 2000. The significant improvement in operating earnings primarily relates to Grainger Integrated Supply, which has improved profitability by eliminating or restructuring unprofitable contracts and by reducing its cost structure.
17
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Other Income or (Deductions)
Other income and deductions includes the following non-recurring items:
| 1. | In 2001, a $26.5 million loss related to investments in digital enterprises. |
| 2. | In 2000, a gain of $26.1 million from the sale of an investment security. |
Excluding these unusual items from both periods, 2001 had a net deduction of $4.0 million versus a net deduction of $5.5 million in 2000.
Income Taxes
The Company’s effective income tax rate was 36.0% for the second quarter of 2001 and 40.5% for the same period in 2000. This rate decrease was due to the write-off of investments in unconsolidated entities, which resulted in tax benefits disproportionate to the loss incurred. Partially offsetting the rate reduction were two items:
| 1. | The loss on equity interests in unconsolidated entities, which is a net of tax number. |
| 2. | Capital losses primarily related to investments in other digital enterprises, which are not deductible in the absence of capital gains. |
Excluding the effect of these items, the effective tax rate was 40.5% for the second quarter 2001.
18
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2000:
Company Net Sales
The Company’s net sales of $2,444,460,000 in the first half of 2001 were down 2.0% compared with sales of $2,494,100,000 for the comparable 2000 period. Sales performance in the first half of 2001 was affected by the continuing general weakness in the North American economy and one less selling day versus 2000.
There were 128 sales days in the 2001 first half and 129 sales days in the first half of 2000. The full year 2001 will have 255 sales days, the same number of sales days as the year 2000.
Sales processed through the Company's Internet sites were $210 million, up 48% from the $142 million achieved in the first half of 2000.
Segment Net Sales
The following comments at the segment level include external and intersegment net sales; those comments at the business unit level include external and inter- and intrasegment net sales. For segment information see Note 3 to the Consolidated Financial Statements included in this report.
Branch-based Distribution Businesses
Net sales of $2,190,776,000 for the first six months of 2001 decreased 2.5% when compared with net sales of $2,247,445,000 in the first six months of 2000.
Daily sales in the United States declined approximately 2% primarily due to a slowdown in the U.S. economy. Daily sales to government and national accounts increased while sales to other customer categories declined. Sales processed through Grainger.com were $160 million, a 33% increase over the first six months of 2000 sales of $120 million.
19
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Daily sales growth in Canada increased 0.9% during the first half of 2001, which was impacted by an unfavorable Canadian exchange rate. In local currency, this business experienced an increase in daily sales of 5.5% driven by the oil and gas and selected forestry sectors of the Canadian economy, along with improved sales to large accounts. This growth was partially offset by a continued slowdown in the manufacturing sector in Eastern Canada.
The Mexican operation experienced a 12.2% decline in daily net sales. This decrease was attributable to weakness in the automotive and electronics manufacturing industries and a slowdown in the Mexican economy.
Digital Businesses
Net sales for the first half of 2001 were $29,979,000 compared with $20,598,000 for the same period in 2000. Net sales for this segment primarily represents product sales for FindMRO.com (through May 2001) and service fee revenues for the rest of Material Logic.
On April 23, 2001, the Company announced that it would shut down the operations of Material Logic with the exception of FindMRO.com. In connection with this announcement, the Company took a pre-tax, non-recurring charge of $40 million. FindMRO.com was then established as an operating unit separate from Material Logic. Effective June 1, 2001, FindMRO.com was added to the Branch-based Distribution Businesses. Beginning with the 2001 third quarter, the Digital segment will cease operations.
Lab Safety Supply
First half 2001 net sales for Lab Safety Supply were $171,138,000, an increase of 0.5% compared with $170,362,000 for the same period in 2000. Net sales for the six months ended June 30, 2001 includes net sales for Ben Meadows, a direct marketer specializing in equipment for the environmental and forestry management markets, since its acquisition on February 26, 2001. Excluding these acquired sales, first half 2001 sales performance for Lab Safety Supply decreased for both safety and industrial products. This performance was the result of the continued slowing of the industrial economy.
20
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Other Businesses
Net sales for the first half of 2001 were $88,327,000, an increase of 3.3% compared with $85,474,000 for the same period in 2000. Sales growth for this segment is primarily attributable to increased sales at Grainger Integrated Supply. Sales for this business unit include product sales and management fees.
Company Net Earnings
The Company’s net earnings of $56,995,000 in the first half of 2001 decreased 41 percent compared with the net earnings of $96,873,000 for the comparable 2000 period. The first half of 2001 included the previously announced non-recurring, after-tax charges of $38 million, or $0.40 per share. The first half of 2000 included an after-tax gain related to sales of an investment security of $15.5 million, or $0.16 per share. Excluding these unusual items from both periods, net earnings increased 17 percent to $95.0 million from $81.3 million and earnings per share increased 15 percent to $1.00 from $0.87. The increase in net earnings (excluding unusual items) resulted primarily from the elimination of losses of the Digital Businesses, improved operating earnings of the Branch-based Distribution Businesses and the Other Businesses, and from lower interest expense.
Segment Operating Earnings
The following comments at the segment level include external and intersegment operating earnings; those comments at the business unit level include external and inter- and intrasegment operating earnings. For segment information see Note 3 to the Consolidated Financial Statements included in this report.
Branch-based Distribution Businesses
Operating earnings of $183,935,000 for the first half of 2001 increased 5.0% compared with operating earnings of $175,257,000 in the first half of 2000. This improvement resulted from higher gross profit margins partially offset by slightly higher operating expenses.
21
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Gross profit margins increased 1.4 percentage points from the comparable 2000 period. The improvement in gross profit margins was primarily attributable to selected pricing actions intended to cover freight and supplier cost increases. Partially offsetting this improvement was higher sales of sourced product (not inventoried) which in general, carry lower gross profit margins.
Operating expenses increased 1.1% for the first half versus a 2.5% decline in net sales. The increase in operating expenses was primarily related to employee benefits costs. Other operating expenses declined approximately 2% versus the first half of 2000.
Digital Businesses
The Digital Businesses incurred operating losses of $50,157,000 compared with operating losses of $27,154,000 for the first half of 2000. On April 23, 2001, the Company announced it would shut down the operations of Material Logic with the exception of FindMRO.com. In connection with this announcement, the Company took a non-recurring, pre-tax charge of $40 million. FindMRO.com was then established as an operating unit separate from Material Logic. Effective June 1, 2001, FindMRO.com was added to the Branch-based Distribution Businesses. Beginning with the 2001 third quarter, the Digital Businesses segment will cease operations. For additional information, see Note 7 to the Consolidated Financial Statements included in this report.
Lab Safety Supply
Lab Safety Supply had operating earnings of $28,711,000 for the first half of 2001, an increase of 1.2% compared with operating earnings of $28,382,000 for the first half of 2000. The operating earnings improvement was primarily due to improved gross margins partially offset by higher operating expenses. Operating expenses increased faster than sales primarily due to increased data processing and employee costs partially offset by lower amortization of intangibles.
22
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Other Businesses
Other Businesses had operating earnings of $841,000 in the first half of 2001 compared with operating losses of $6,322,000 in the comparable period of 2000. The significant improvement in operating earnings primarily relates to Grainger Integrated Supply, which improved profitability by eliminating or restructuring unprofitable contracts and by reducing its cost structure.
Other Income or (Deductions)
The majorityOther income and deductions includes the following non-recurring items:
| 1. | In 2001, a $26.5 million loss related to investments in digital enterprises. |
| 2. | In 2000, a gain of $26.1 million from the sale of an investment security. |
Excluding these unusual items from both periods, the first half of 2001 had a net deduction of $12.9 million versus a net deduction of $11.0 million in the increase in other deductions is attributable to losses of unconsolidated entities accounted for on the equity method. These losses primarily related to the Company’s investment in Works.com, which was acquired during thecomparable 2000 third quarter. Partially offsetting the increase in other deductions was lower interest expense, which primarily resulted from lower average borrowings.period.
Income Taxes
The Company’s effective income tax rate was 43.6%41.8% for the first quarterhalf of 2001 and 40.5% for the first quartersame period in 2000. This rate increase was due primarily to the following two items:
| 1. | The loss on equity interests in unconsolidated entities, which is a net of tax number. |
| 2. | Capital losses primarily related to investments in other digital enterprises, which are not deductible in the absence of capital gains. |
Partially offsetting these items was the impact of 2000. The increasethe write-off of investments in the effective tax rate relates to losses of unconsolidated entities, accounted for onwhich resulted in tax benefits disproportionate to the equity method, which losses are net of tax. loss incurred.
1523
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
For the threesix months ended March 31,June 30, 2001, working capital increased by $41,261,000.$63,302,000. The ratio of current assets to current liabilities was 2.12.2 at March 31,June 30, 2001 and 2.0 at December 31, 2000. The Consolidated Statements of Cash Flows, included in this report, detail the sources and uses of cash and cash equivalents.
The Company maintains a debt ratio and liquidity position that 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 16% at March 31,June 30, 2001 and 21% at December 31, 2000. For the first threesix months of 2001, $21,175,000$42,905,000 was expended for property, buildings, and equipment, and $2,364,000$4,061,000 was expended for capitalized software, for a total of $23,539,000.$46,966,000.
On February 26, 2001, Lab Safety Supply, Inc., the Company's wholly owned subsidiary, acquired The Ben Meadows Co., Inc. for approximately $13.3$14.4 million. See Note 5, "Acquisition," toin the Notes to Consolidated Financial Statements for additional information.
On March 26, 2001, a group of 83 executives bought $24,366,000 in shares of common stock from the Company. The proceeds will bewere used to repurchase shares on the open market. See Note 6, “Executive Stock Purchase Program,” toin the Notes to Consolidated Financial Statements for additional information.
1624
W.W. Grainger, Inc., and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Throughout this Form 10-Q are forward-looking statements, i.e., not historical facts, about the Company’s expected future financial results and business plans, strategies, and objectives. These forward-looking statements are often identified by qualifiers such as: “will seek to,“expects,” “expects,“will,” “plans,” “anticipates,“estimates,” “intends,” or similar expressions. There are risks and uncertainties the outcome of which could cause the Company’s results to differ materially from what is projected.
Factors that may affect forward-looking statements include the following: higher product costs or other expenses; a major loss of customers; increased competitive pricing pressure on the Company’s businesses; failure to develop or implement or commercialize successfully new Internet technologies or other business strategies; the outcome of pending and future litigation and governmental proceedings; changes in laws and regulations; facilities disruptions or shutdowns due to accidents, natural acts or governmental action; unanticipated weather conditions; and other difficulties in improving margins or financial performance.
Trends and projections could also be affected by general industry and market conditions, gross domestic product growth rates, general economic conditions, including interest rate and currency rate fluctuations, and other factors.
1725
W.W. Grainger, Inc., and Subsidiaries
PART II - OTHERII-OTHER INFORMATION
Items 1, 2, 3, 4, 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 25, 2001. At that meeting:
Shares as to Which Voting Name Shares Voted for Election Authority Withheld ------------------------ ------------------------- ------------------------- B. P. Anderson 81,127,369 241,442 W. H. Gantz 81,125,020 243,791 D. W. Grainger 81,033,863 334,948 R. L. Keyser 81,120,750 248,061 J. W. McCarter, Jr. 81,134,053 234,758 N. S. Novich 81,129,667 239,144 J. D. Slavik 81,135,401 233,410 H. B. Smith 81,131,188 237,623 F. L. Turner 81,126,200 242,611 J. S. Webb 81,137,000 231,811
18
W.W. Grainger, Inc., and SubsidiariesPART II - OTHER INFORMATION
| Item 6 | Exhibits (numbered in accordance with Item 601 of regulation S-K). | EXHIBIT INDEX | ||||
| a) Exhibits | ||||||
| Bylaws, as amended | ||||||
| (10) | Agreement and Release dated July 1, 2001 by and among the Company, Donald E. Bielinski, and Laura A. Bielinski | 48-55 | ||||
| (11) | Computations of Earnings per | |||||
| b) Reports on Form 8-K - None | ||||||
1926
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: | By: | /s/ P.O. Loux P.O. Loux, Senior Vice President, Finance and Chief Financial Officer |
2027
Exhibit 1111.1
W.W. Grainger, Inc., and Subsidiaries
COMPUTATIONS OF EARNINGS PER SHARE
ThreeSix Months Ended March 31,
--------------------------------June 30,
---------------------------------------
BASIC: 2001 2000
------------ ---------------------------- ---------------
Weighted average number of shares outstanding
during the year ................................................ 93,026,308 92,917,780
============ ============................................................... 93,391,830 92,985,940
=============== ===============
Net earnings ............................................................................................................... $ 42,175,00056,995,000 $ 41,211,000
============ ============96,873,000
=============== ===============
Earnings per share ................................................................................................... $ 0.450.61 $ 0.44
============ ============1.04
=============== ===============
DILUTED:
Weighted average number of shares outstanding
during the year (basic) ........................................ 93,026,308 92,917,780........................................... 93,391,830 92,985,940
Potential Shares:
Shares issuable under outstanding options .................. 1,615,030 2,541,850..................... 2,924,035 2,415,545
Shares which could have been purchased based
on the average market value for the period ............... 1,379,518 1,737,022
------------ ------------
235,512 804,828.................. (2,580,324) (1,742,716)
--------------- ---------------
343,711 672,829
Dilutive effect of exercised options prior to being
exercised ................................................ 10,270 77,266
------------ ------------................................................... 15,994 40,401
--------------- ---------------
Shares for the portion of the period that the options
were outstanding ......................................... 245,782 882,094............................................ 359,705 713,230
Contingently issuable shares ............................... 1,025,275 616,500
------------ ------------
1,271,057 1,498,594
------------ ------------.................................. 1,023,525 733,000
--------------- ---------------
1,383,230 1,446,230
--------------- ---------------
Adjusted weighted average number of shares outstanding
during the year ................................................. 94,297,365 94,416,374
============ ============.................................................... 94,775,060 94,432,170
=============== ===============
Net earnings ............................................................................................................... $ 42,175,00056,995,000 $ 41,211,000
============ ============96,873,000
=============== ===============
Earnings per share ................................................................................................... $ 0.60 $ 1.03
=============== ===============
28
Exhibit 11.2
W.W. Grainger, Inc., and Subsidiaries
COMPUTATIONS OF EARNINGS PER SHARE
Basic: 2001 2000
--------------- --------------
Three months ended June 30:
Six months ended June 30, as reported in Exhibit 11.1 ............. $ 0.61 $ 1.04
Three months ended March 31, as previously reported ............... 0.45 0.44
-------------- --------------
Earnings per share for the three months ended June 30 ............. $ 0.16 $ 0.60
=============== ==============
Diluted:
Three months ended June 30:
Six months ended June 30, as reported in Exhibit 11.1 ............. $ 0.60 $ 1.03
Three months ended March 31, as previously reported ............... 0.45 0.44
============ ============--------------- ------------
Earnings per share for the three months ended June 30 ............. $ 0.15 $ 0.59
=============== =============
2129