W.W. GRAINGER, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
For the First Quarter Ended March 31, 2003
(Unaudited)
| | Company Contacts: | |
| | W. D. Chapman | 847-535-0881 |
| | N. A. Hobor | 847-535-0065 |
| | | |
| | Issued: April 16, 2003 | |
| | | |
First Quarter Highlights
- Sales of $1.1 billion were up 1% versus 2002.
- Operating earnings for the quarter were $91.4 million, an increase of 2% versus prior year.
- Earnings per share for the quarter were $0.57 up 58% versus $0.36 in 2002. In 2002, results included a $0.25 per share expense related to the recognition of a non-cash goodwill impairment charge for the Canadian subsidiary. Excluding this item, earnings per share in 2002 would have been $0.61 per diluted share.
- The 2002 first quarter included $0.04 per share in non-operating gains related to the sale of investment securities.
Contents
| I. | EARNINGS REVIEW | 2 |
| II. | BALANCE SHEET DATA | 4 |
| III. | CASH FLOW DATA | 5 |
| IV. | BUSINESS SEGMENT RESULTS | 6 |
| EXHIBITS | |
| | A. Daily Sales Growth by Segment | 9 |
| B. Sales by Segment | 10 |
| | C. Operating Earnings by Segment | 11 |
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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I. EARNINGS REVIEW
Net Sales
---------
Three Months Ended
---------------------------------------------------
($ in millions)
03/31/03 03/31/02 Inc/(Dec)
-------------- -------------- ----------------
Net Sales $ 1,139 $ 1,125 1%
Sales Days 2003 2002
------------- -------------- --------------
First Quarter 63 63
Total Year 255 255
Sales in the first quarter of 2003 were up 1% reflecting the continued weakness in the North American economy.
Daily Sales Inc/(Dec) 2003 vs. 2002
----------------------------------------------------
Total Branch-based Lab Integrated
2003 Month Company Distribution Safety Supply
---------- ------- ------------ ------ ----------------
January 0.6% 1.2% (5.1)% (4.4)%
February 0.4 0.8 (2.9) (2.1)
March 2.7 2.7 2.0 6.8
First Quarter 1.2% 1.6% (2.0)% 0.1%
Operating Earnings
Three Months Ended
--------------------------------------------
($ in millions)
03/31/03 03/31/02 Inc/(Dec)
---------- ---------- ---------
Operating Earnings $91 $90 2%
Operating Margin 8.0% 8.0% - pp
ROIC* 20.0% 21.2% (1.2)pp
*See footnote, page 8.
The Company’s operating earnings of $91 million increased 2% for the first quarter of 2003 as compared with $90 million for the same 2002 period. The Branch-based Distribution segment reported improved operating earnings versus the 2002 quarter, while Lab Safety and Integrated Supply reported lower operating earnings. Also contributing to the improvement was a reduction in headquarters expenses.
The change in ROIC was primarily attributable to inventory infusion and capital expenditures, partially offset by a reduction in receivables.
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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Other Income and Expense
For the 2003 first quarter, “Other Income and Expense” was a net $3.4 million of expense versus a net $8.8 million of income for the 2002 quarter. This difference is primarily driven by a write-down of investment securities in 2003 of $1.6 million versus a $7.3 million gain on sale of investment securities in 2002. In addition, in 2002 there was a $2.8 million gain on the sale of a facility.
Income Taxes
The Company’s effective income tax rate was 40.5% for the first quarter of 2003 and 40.8% for the 2002 first quarter. Excluding the effect of equity losses in unconsolidated entities, which are recorded net of tax, the effective income tax rate was 40.0% for 2003 and 40.5% for 2002. This change in effective tax rate was primarily driven by lower non-deductible losses in Mexico and a lower tax rate in Canada.
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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II. BALANCE SHEET DATA
Selected Balance Sheet data as of March 31, 2003 (preliminary) and 2002 follows:
2003 2002
--------------- ---------------
ASSETS ($ in thousands)
------
Cash and Cash Equivalents $ 218,585 $ 221,590
Accounts Receivable-net (1) 454,981 484,085
Inventories (2) 706,016 649,472
Other Current Assets 150,734 141,480
--------------- ---------------
Total Current Assets 1,530,316 1,496,627
Property, Buildings, and Equipment-net (3) 738,666 687,960
Investments in Unconsolidated Entities 19,336 27,286
All Other Assets 204,425 195,504
--------------- ---------------
Total Assets $ 2,492,743 $ 2,407,377
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Short-Term Debt $ 2,793 $ 3,879
Current Maturities of Long-Term Debt 6,505 10,620
Trade Accounts Payable 301,276 342,855
Other Current Liabilities 269,411 246,627
--------------- ---------------
Total Current Liabilities 579,985 603,981
Long-Term Debt 127,564 117,956
All Other Liabilities 67,551 58,181
Shareholders' Equity (4) 1,717,643 1,627,259
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 2,492,743 $ 2,407,377
=============== ===============
(1) Accounts receivable-net decreased by $29 million, or 6%. This decrease is
attributable to lower days sales outstanding.
(2) Inventories increased by $57 million, or 9%. This increase occurred
primarily in the Branch-based Distribution segment, reflecting an infusion
of inventory during the second half of 2002 to improve service levels.
(3) Depreciation and amortization of property, buildings, and equipment
amounted to $20 million for both first quarters of 2003 and 2002.
Amortization of capitalized software was $5 million for the first quarter
of 2003 and $4 million for the 2002 period.
(4) Common stock outstanding as of March 31, 2003 was 91,575,666 shares as
compared with 93,671,807 shares at March 31, 2002. The Company repurchased
12,000 shares during the quarter. As of March 31, 2003, 10 million shares
of common stock remained under the current repurchase authorization.
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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CASH FLOW DATA
The following is a summarized cash flow statement for the three months ended March 31 (preliminary):
Three Months Ended
March 31,
----------------------
($ in thousands)
2003 2002
-------- --------
Cash Flows from Operating Activities:
Net Earnings $ 52,404 $ 34,537
Depreciation & Amortization 24,896 24,184
Gains on Sales of Investment Securities -- (7,308)
Write-Down of Investments 1,614 --
Losses on Unconsolidated Entities 1,055 720
Cumulative Effect of Accounting Change -- 23,921
Increase in Accounts Receivable - net (28,395) (33,444)
Decrease (Increase) in Inventories 21,737 (25,384)
Increase in Prepaid Expenses (16,089) (5,456)
Increase in Trade Accounts Payable 9,122 67,071
Other - net (16,752) (12,642)
-------- --------
Net Cash Provided by Operating Activities 49,592 66,199
Cash Flows from Investing Activities:
Additions to Property, Buildings,
and Equipment - net (19,800) (15,270)
Additions for Capitalized Software (2,079) (3,623)
Other - net (3,157) 14,088
-------- --------
Net Cash Used in Investing Activities (25,036) (4,805)
Cash Flows from Financing Activities:
Net Decrease in Short-term Debt (174) (647)
Cash Dividends Paid and Purchase of
Treasury Stock - net (17,006) (16,372)
Other - net 1,451 8,641
-------- --------
Net Cash Used in Financing Activities (15,729) (8,378)
-------- --------
Exchange Rate Effect on Cash and Cash Equivalents 1,230 (272)
-------- --------
Net Increase in Cash and Cash Equivalents from
Beginning of Year $ 10,057 $ 52,744
======== ========
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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III. BUSINESS SEGMENT RESULTS
BRANCH-BASED DISTRIBUTION
-------------------------
Three Months Ended
--------------------------------------------
($ in millions)
03/31/03 03/31/02 Inc/(Dec)
---------- ---------- ---------
Sales $ 1,015 $ 999 2%
Operating Earnings $ 91 $ 89 2%
Operating Margin 9.0% 8.9% 0.1pp
ROIC* 21.7% 22.8% (1.1)pp
North American Branch Network
Number of Branches
2003 First Quarter
---------------------------------------------
12/31/02 Opened Closed 03/31/03
---------- ---------- ---------- --------
United States 395 - - 395
Canada 176 - - 176
Mexico 5 - - 5
---------- ---------- ---------- --------
Total 576 - - 576
========== ========== ========== ========
Net Sales – Sales for this segment increased 2% for the quarter.
Sales in the United States were up 1% versus 2002, primarily driven by sales to government accounts, up 11%, and national accounts, up 4%. Sales through the grainger.com web site were $115 million, a 21% increase versus first quarter 2002 sales of $95 million.
Sales in Canada increased 11% for the quarter versus 2002 including the effect of a favorable Canadian exchange rate. In local currency, this business experienced a 5% increase due to higher sales to the government and increased sales to the petroleum industry.
Sales in Mexico were flat for the quarter versus 2002. This reflects the continuing softness of the Mexico economy.
*See footnote, page 8.
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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BRANCH-BASED DISTRIBUTION (continued)
-------------------------------------
Operating Earnings– Operating earnings increased 2% for the 2003 first quarter as compared with the 2002 period. This operating performance reflects improved results in Canada and Mexico, while the U.S. was down 1%.
The gross profit margin increased 0.71 percentage point from the comparable 2002 quarter. The improvement in gross profit margin was primarily attributable to selected pricing actions intended to recover freight and supplier cost increases, and to favorable product mix. Partially offsetting these improvements were higher freight costs related to the logistics project and increased fuel costs.
Operating expenses were up 4% for the quarter, primarily the result of incremental costs related to the logistics project and increases in other payroll and benefits costs including increased health care costs.
LAB SAFETY
----------
Three Months Ended
---------------------------------------
($ in millions)
03/31/03 03/31/02 Inc/(Dec)
-------- -------- ---------
Sales $ 71 $ 73 (2)%
Operating Earnings $ 11 $ 13 (16)%
Operating Margin 15.2% 17.8% (2.6)pp
ROIC* 48.6% 51.0% (2.4)pp
Net Sales– Sales decreased 2% for the quarter for Lab Safety, the Company’s direct marketing business. The continuing weakness in the manufacturing sector of the economy contributed to this decrease.
Operating Earnings – The 16% operating earnings decrease was the result of lower sales, lower gross profit margins and higher operating expenses. Gross profit margins were affected by higher freight costs and product mix. The operating expense increase was primarily due to increased health care costs and increases in distribution of catalog media.
*See footnote, page 8.
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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INTEGRATED SUPPLY
-----------------
Three Months Ended
----------------------------------------------
($ in millions)
03/31/03 03/31/02 Inc/(Dec)
-------- -------- --------
Sales $ 57.3 $ 57.2 - %
Operating Earnings $ 1.1 $ 1.6 (28)%
Operating Margin 2.0% 2.7% (0.7)pp
ROIC* 58.8% 51.2% 7.6pp
Net Sales – While overall sales were flat for the quarter, the fee revenue component was down due to fewer customer locations. Sales for this business unit include product sales and management fees.
Operating Earnings– The operating earnings decrease was due to lower gross profit margins, the result of lower fee revenue. Operating expenses were down slightly but not enough to offset the decline in fees.
| *Footnote: | The GAAP financial statements are the source for all amounts used in Return on Invested Capital (ROIC) calculation. ROIC is calculated using annualized operating earnings based on year-to-date operating earnings divided by a four point average for net working assets. Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (non-operating cash), deferred taxes, investments in unconsolidated entities plus the LIFO reserve. Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees’ profit sharing plans, and accrued expenses. |
| |
| Forward-Looking Statements |
| | This document may contain forward-looking statements under the federal securities laws. Any forward-looking statement relates to the Company’s expected future financial results and business plans, strategies and objectives are not historical facts. There are risks and uncertainties the outcome of which could cause the Company’s results to differ materially from what is projected. Any forward-looking statements should be read in conjunction with the Company’s most recent annual report, as well as the Company’s Form 10-K and other reports filed with the Securities and Exchange Commission, containing a discussion of the Company’s business and of various factors that may affect it. |
– End –
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
-8-
| EXHIBIT A |
| Daily Sales Growth |
| by Segment |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | 2003 vs. 2002 | | 2002 vs. 2001 |
| |
| |
|
| | | Branch-based | Lab | Integrated | | | Branch-based | Lab | Integrated |
| Month | Company | Distribution | Safety | Supply | | Company | Distribution | Safety | Supply |
| | | | | | | | | | |
| January | 0.6% | 1.2% | -5.1% | -4.4% | | -7.2% | -7.7% | -14.3% | 26.6% |
| February | 0.4% | 0.8% | -2.9% | -2.1% | | -4.4% | -5.7% | -12.0% | 53.9% |
| March | 2.7% | 2.7% | 2.0% | 6.8% | | -7.0% | -7.5% | -19.2% | 35.8% |
| First Quarter | 1.2% | 1.6% | -2.0% | 0.1% | | -6.3% | -7.0% | -15.4% | 37.9% |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| April | | | | | | -0.8% | -1.3% | -14.9% | 43.7% |
| May | | | | | | -4.9% | -5.7% | -9.7% | 26.9% |
| June | | | | | | -1.3% | -1.3% | -9.6% | 13.2% |
| Second Quarter | | | | | | -2.5% | -3.0% | -11.4% | 27.1% |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| July | | | | | | -1.6% | -1.5% | -9.6% | 9.3% |
| August | | | | | | -2.8% | -3.1% | -7.1% | 10.8% |
| September | | | | | | 1.0% | 0.6% | -2.8% | 17.4% |
| Third Quarter | | | | | | -1.2% | -1.5% | -6.6% | 12.5% |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| October | | | | | | 0.3% | 1.6% | -15.1% | 1.0% |
| November | | | | | | 3.0% | 3.6% | -4.8% | 3.7% |
| December | | | | | | -0.1% | 1.3% | -18.4% | -2.1% |
| Fourth Quarter | | | | | | 0.9% | 2.0% | -13.0% | 0.8% |
| | | | | | | | | | |
| Full year | | | | | | -2.3% | -2.4% | -11.7% | 18.4% |
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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| EXHIBIT B |
| Sales by Segment |
| ($000's) |
| | | | | | | | | |
| 1st Quarter | | | | | | | | |
|
| | | Three Months ended March 31, 2003 |
| |
|
| | | Branch-based | | Lab | | Integrated | | |
| | | Distribution | | Safety | | Supply | | Totals |
| |
| |
| |
| |
|
| Total net sales | | 1,014,872 | | 71,489 | | 57,272 | | 1,143,633 |
| Intersegment net sales | | (3,929) | | (435) | | - | | (4,364) |
| |
| |
| |
| |
|
| Net sales to external customers | | 1,010,943 | | 71,054 | | 57,272 | | 1,139,269 |
| |
| |
| |
| |
|
| | | | | | | | | |
| | |
| | | Three Months ended March 31, 2002 |
| | |
|
| | | Branch-based | | Lab | | Integrated | | |
| | | Distribution | | Safety | | Supply | | Totals |
| |
| |
| |
| |
|
| Total net sales | | 999,311 | | 72,932 | | 57,214 | | 1,129,457 |
| Intersegment net sales | | (3,851) | | (341) | | - | | (4,192) |
| |
| |
| |
| |
|
| Net sales to external customers | | 995,460 | | 72,591 | | 57,214 | | 1,125,265 |
| |
| |
| |
| |
|
| | | | | | | | | |
| 2003 vs. 2002 | | | | | | | | |
| Total net sales | | 1.6% | | -2.0% | | 0.1% | | 1.3% |
| Intersegment net sales | | 2.0% | | 27.6% | | - | | 4.1% |
| Net sales to external customers | | 1.6% | | -2.1% | | 0.1% | | 1.2% |
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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| EXHIBIT C |
| Operating Earnings by Segment |
| ($000's) |
| | | | | | | | | |
| | | | | | | | | |
| 1st Quarter | | | | | | | | |
|
| | | Three Months ended March 31, 2003 |
| | |
|
| | | Branch-based | | Lab | | Integrated | | |
| | | Distribution | | Safety | | Supply | | Totals |
| | |
| |
| |
| |
|
| Total operating earnings | | 91,025 | | 10,853 | | 1,134 | | 103,012 |
| Unallocated expenses | | - | | - | | - | | (11,605) |
| Elimination of intersegment profits | | - | | - | | - | | - |
| | |
| |
| |
| |
|
| Total consolidated operating earnings | | 91,025 | | 10,853 | | 1,134 | | 91,407 |
| |
| |
| |
| |
|
| | | | | | | | | |
| | | Three Months ended March 31, 2002 |
| | |
|
| | | Branch-based | | Lab | | Integrated | | |
| | | Distribution | | Safety | | Supply | | Totals |
| | |
| |
| |
| |
|
| Total operating earnings | | 89,235 | | 12,979 | | 1,567 | | 103,781 |
| Unallocated expenses | | - | | - | | - | | (13,815) |
| Elimination of intersegment profits | | - | | - | | - | | (6) |
| | |
| |
| |
| |
|
| Total consolidated operating earnings | | 89,235 | | 12,979 | | 1,567 | | 89,960 |
| |
| |
| |
| |
|
| | | | | | | | | |
| 2003 vs. 2002 | | 2.0% | | -16.4% | | -27.6% | | 1.6% |
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2003
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