Illinois
|
36-1150280
|
|
(State or
other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
100
Grainger Parkway, Lake Forest, Illinois
|
60045-5201
|
|
(Address of
principal executive offices)
|
(Zip
Code)
|
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(847)
535-1000
|
||
(Registrant’s
telephone number including area code)
|
||
Not
Applicable
|
||
(Former name,
former address and former fiscal year; if changed since last
report)
|
Yes
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X
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No
|
Yes
|
No
|
Large
accelerated filer T
|
Accelerated
filer £
|
||
Non-accelerated
filer £
|
Smaller
reporting company £
|
Yes
|
No
|
X
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TABLE OF CONTENTS
|
|||
Page No.
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|||
PART I
|
FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements (Unaudited)
|
||
Condensed Consolidated Statements of Earnings
for the Three Months Ended March 31, 2009 and
March 31, 2008
|
3
|
||
Condensed Consolidated Statements of Comprehensive
Earnings for the Three Months Ended March 31, 2009
and March 31, 2008
|
4
|
||
Condensed Consolidated Balance Sheets
as of March
31, 2009 and December 31, 2008
|
5 - 6
|
||
Condensed Consolidated Statements of Cash Flows
for the Three
Months Ended March 31, 2009 and
March
31, 2008
|
7 - 8
|
||
Notes to Condensed Consolidated Financial Statements
|
9 - 15
|
||
Item 2.
|
Management’s Discussion and Analysis of Financial
|
||
Condition and Results of Operations
|
16 – 21
|
||
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
22
|
|
Item 4.
|
Controls and Procedures
|
22
|
|
PART II
|
OTHER INFORMATION
|
||
Item 1.
|
Legal Proceedings
|
22
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
23
|
|
Item
4.
|
Submission of
Matters to a Vote of Security Holders
|
23 –
24
|
|
Item 6.
|
Exhibits
|
24
|
|
Signatures
|
25
|
||
EXHIBITS
|
|||
Exhibits 31 & 32
|
Certifications
|
Three Months
Ended
March
31,
|
||||||||
2009
|
2008
|
|||||||
Net
sales
|
$ | 1,465,248 | $ | 1,661,046 | ||||
Cost of
merchandise sold
|
835,833 | 981,112 | ||||||
Gross profit
|
629,415 | 679,934 | ||||||
Warehousing,
marketing and administrative expenses
|
470,201 | 494,111 | ||||||
Operating earnings
|
159,214 | 185,823 | ||||||
Other income
and (expense):
|
||||||||
Interest income
|
401 | 804 | ||||||
Interest expense
|
(2,218 | ) | (1,433 | ) | ||||
Equity in net income of unconsolidated
entities
|
76 | 737 | ||||||
Unclassified – net
|
995 | 569 | ||||||
Total other income and
(expense)
|
(746 | ) | 677 | |||||
Earnings before income
taxes
|
158,468 | 186,500 | ||||||
Income
taxes
|
62,090 | 72,262 | ||||||
Net earnings
|
$ | 96,378 | $ | 114,238 | ||||
Earnings per
share:
|
||||||||
Basic
|
$ | 1.27 | $ | 1.44 | ||||
Diluted
|
$ | 1.25 | $ | 1.41 | ||||
Weighted
average number of shares outstanding:
|
||||||||
Basic
|
74,260,401 | 77,933,996 | ||||||
Diluted
|
75,142,460 | 79,245,391 | ||||||
Cash
dividends paid per share
|
$ | 0.40 | $ | 0.35 |
Three Months
Ended
March
31,
|
||||||||
2009
|
2008
|
|||||||
Net
earnings
|
$ | 96,378 | $ | 114,238 | ||||
Other
comprehensive earnings (losses):
|
||||||||
Foreign currency translation
adjustments, net of tax
benefit
(expense) of $1,784 and $2,008, respectively
|
(16,065 | ) | (9,898 | ) | ||||
Comprehensive
earnings
|
$ | 80,313 | $ | 104,340 |
ASSETS
|
March 31,
2009
|
Dec. 31,
2008
|
||||||
CURRENT
ASSETS
|
||||||||
Cash and cash equivalents
|
$ | 257,570 | $ | 396,290 | ||||
Accounts receivable (less allowances for
doubtful
|
||||||||
accounts of $26,432 and $26,481,
respectively)
|
559,315 | 589,416 | ||||||
Inventories
|
956,565 | 1,009,932 | ||||||
Prepaid expenses and other
assets
|
76,241 | 73,359 | ||||||
Deferred income taxes
|
54,600 | 52,556 | ||||||
Prepaid income taxes
|
– | 22,556 | ||||||
Total current assets
|
1,904,291 | 2,144,109 | ||||||
PROPERTY,
BUILDINGS AND EQUIPMENT
|
2,150,461 | 2,131,863 | ||||||
Less accumulated depreciation and
amortization
|
1,222,787 | 1,201,552 | ||||||
Property, buildings and equipment –
net
|
927,674 | 930,311 | ||||||
DEFERRED
INCOME TAXES
|
105,674 | 97,442 | ||||||
INVESTMENT IN
UNCONSOLIDATED ENTITIES
|
19,181 | 20,830 | ||||||
GOODWILL
|
209,188 | 213,159 | ||||||
OTHER ASSETS
AND INTANGIBLES – NET
|
104,497 | 109,566 | ||||||
TOTAL
ASSETS
|
$ | 3,270,505 | $ | 3,515,417 |
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
March 31,
2009
|
Dec. 31,
2008
|
||||||
CURRENT
LIABILITIES
|
||||||||
Short-term debt
|
$ | 20,827 | $ | 19,960 | ||||
Current maturities of long-term
debt
|
29,590 | 21,257 | ||||||
Trade accounts payable
|
254,337 | 290,802 | ||||||
Accrued compensation and
benefits
|
117,912 | 162,380 | ||||||
Accrued contributions to employees’ profit
sharing plans
|
28,591 | 146,922 | ||||||
Accrued expenses
|
82,703 | 118,633 | ||||||
Income taxes payable
|
36,823 | 1,780 | ||||||
Total current liabilities
|
570,783 | 761,734 | ||||||
LONG-TERM
DEBT (less current maturities)
|
479,895 | 488,228 | ||||||
DEFERRED
INCOME TAXES AND TAX UNCERTAINTIES
|
33,971 | 33,219 | ||||||
ACCRUED
EMPLOYMENT-RELATED BENEFITS
|
198,975 | 198,431 | ||||||
SHAREHOLDERS'
EQUITY
|
||||||||
Cumulative Preferred Stock – $5 par value
–
12,000,000 shares authorized; none
issued
nor outstanding
|
– | – | ||||||
Common Stock – $0.50 par value
–
300,000,000 shares
authorized;
issued 109,659,219 shares
|
54,830 | 54,830 | ||||||
Additional contributed
capital
|
569,718 | 564,728 | ||||||
Retained earnings
|
3,736,490 | 3,670,726 | ||||||
Accumulated other comprehensive earnings
(losses)
|
(54,590 | ) | (38,525 | ) | ||||
Treasury stock, at cost –
36,447,735 and 34,878,190 shares,
respectively
|
(2,319,567 | ) | (2,217,954 | ) | ||||
Total shareholders' equity
|
1,986,881 | 2,033,805 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
|
$ | 3,270,505 | $ | 3,515,417 |
Three Months
Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
CASH FLOWS
FROM OPERATING ACTIVITIES:
|
||||||||
Net earnings
|
$ | 96,378 | $ | 114,238 | ||||
Provision for losses on accounts
receivable
|
4,082 | 4,706 | ||||||
Deferred income taxes and tax
uncertainties
|
(7,739 | ) | (6,370 | ) | ||||
Depreciation and
amortization:
|
||||||||
Property, buildings and
equipment
|
26,547 | 25,333 | ||||||
Capitalized software and other
intangibles
|
7,086 | 6,223 | ||||||
Stock-based compensation
|
9,207 | 8,084 | ||||||
Tax benefit of stock incentive
plans
|
301 | 54 | ||||||
Net gains on sales of property, buildings
and equipment
|
50 | (1,316 | ) | |||||
(Income) from unconsolidated entities –
net
|
(76 | ) | (737 | ) | ||||
Change in operating assets and liabilities
– net of business acquisitions
|
||||||||
(Increase) decrease in accounts
receivable
|
23,310 | (48,937 | ) | |||||
(Increase) decrease in
inventories
|
47,243 | (23,619 | ) | |||||
(Increase) decrease in prepaid income
taxes
|
22,556 | – | ||||||
(Increase) decrease in prepaid
expenses
|
(3,124 | ) | (5,355 | ) | ||||
Increase (decrease) in trade accounts
payable
|
(34,990 | ) | 41,468 | |||||
Increase (decrease) in other current
liabilities
|
(181,657 | ) | (162,485 | ) | ||||
Increase (decrease) in current income
taxes payable
|
35,054 | 60,932 | ||||||
Increase (decrease) in accrued
employment-related benefits cost
|
496 | 1,867 | ||||||
Other – net
|
(2,208 | ) | (778 | ) | ||||
Net cash provided by operating
activities
|
42,516 | 13,308 | ||||||
CASH FLOWS
FROM INVESTING ACTIVITIES:
|
||||||||
Additions to property, buildings and
equipment –
net of dispositions
|
(27,305 | ) | (31,062 | ) | ||||
Additions to capitalized
software
|
(1,102 | ) | (2,313 | ) | ||||
Proceeds from sale of marketable
securities
|
– | 19,848 | ||||||
Other – net
|
24 | 23 | ||||||
Net cash used in investing
activities
|
$ | (28,383 | ) | $ | (13,504 | ) |
Three Months
Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
CASH FLOWS
FROM FINANCING ACTIVITIES:
|
||||||||
Net increase in commercial
paper
|
$ | – | $ | 223,913 | ||||
Borrowings under line of
credit
|
1,707 | 3,921 | ||||||
Payments against line of
credit
|
(869 | ) | (54 | ) | ||||
Stock options exercised
|
5,689 | 3,559 | ||||||
Excess tax benefits from stock-based
compensation
|
797 | 907 | ||||||
Purchase of treasury stock
|
(127,696 | ) | (196,437 | ) | ||||
Cash dividends paid
|
(30,615 | ) | (28,064 | ) | ||||
Net cash (used in) provided by financing
activities
|
(150,987 | ) | 7,745 | |||||
Exchange rate
effect on cash and cash equivalents
|
(1,866 | ) | (3,557 | ) | ||||
NET INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
(138,720 | ) | 3,992 | |||||
Cash and cash
equivalents at beginning of year
|
396,290 | 113,437 | ||||||
Cash and cash
equivalents at end of period
|
$ | 257,570 | $ | 117,429 |
Three Months
Ended March
31,
|
||||||||
2009
|
2008
|
|||||||
Beginning
balance
|
$ | 3,218 | $ | 3,443 | ||||
Returns
|
(2,684 | ) | (3,308 | ) | ||||
Provision
|
2,643 | 3,112 | ||||||
Ending
balance
|
$ | 3,177 | $ | 3,247 |
Three Months
Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
Service
cost
|
$ | 3,076 | $ | 2,425 | ||||
Interest
cost
|
2,683 | 2,373 | ||||||
Expected
return on assets
|
(850 | ) | (1,116 | ) | ||||
Amortization
of transition asset
|
(36 | ) | (36 | ) | ||||
Amortization
of unrecognized losses
|
1,034 | 328 | ||||||
Amortization
of prior service credits
|
(289 | ) | (304 | ) | ||||
Net periodic benefit costs
|
$ | 5,618 | $ | 3,670 |
Three Months
Ended March 31, 2009
|
||||||||||||||||
United
States
|
Canada
|
Other
Businesses
|
Total
|
|||||||||||||
Total net
sales
|
$ | 1,308,737 | $ | 143,795 | $ | 22,532 | $ | 1,475,064 | ||||||||
Intersegment
net sales
|
(9,693 | ) | (12 | ) | (111 | ) | (9,816 | ) | ||||||||
Net sales to
external customers
|
$ | 1,299,044 | $ | 143,783 | $ | 22,421 | $ | 1,465,248 | ||||||||
Segment
operating earnings
|
$ | 173,185 | $ | 5,954 | $ | (2,934 | ) | $ | 176,205 | |||||||
Three Months
Ended March 31, 2008
|
||||||||||||||||
United
States
|
Canada
|
Other
Businesses
|
Total
|
|||||||||||||
Total net
sales
|
$ | 1,469,355 | $ | 177,303 | $ | 24,545 | $ | 1,671,203 | ||||||||
Intersegment
net sales
|
(10,103 | ) | – | (54 | ) | (10,157 | ) | |||||||||
Net sales to
external customers
|
$ | 1,459,252 | $ | 177,303 | $ | 24,491 | $ | 1,661,046 | ||||||||
Segment
operating earnings
|
$ | 195,133 | $ | 11,675 | $ | (4,224 | ) | $ | 202,584 | |||||||
United
States
|
Canada
|
Other
Businesses
|
Total
|
|||||||||||||
Segment
assets:
|
||||||||||||||||
March 31,
2009
|
$ | 2,238,883 | $ | 418,865 | $ | 129,966 | $ | 2,787,714 | ||||||||
December 31,
2008
|
$ | 2,310,484 | $ | 448,660 | $ | 133,111 | $ | 2,892,255 | ||||||||
Three Months
Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
Operating
earnings:
|
||||||||
Total
operating earnings for reportable segments
|
$ | 176,205 | $ | 202,584 | ||||
Unallocated
expenses and eliminations
|
(16,991 | ) | (16,761 | ) | ||||
Total consolidated operating
earnings
|
$ | 159,214 | $ | 185,823 |
March 31,
2009
|
Dec. 31,
2008
|
|||||||
Assets:
|
||||||||
Total assets
for reportable segments
|
$ | 2,787,714 | $ | 2,892,255 | ||||
Elimination
of intersegment assets
|
(2,312 | ) | (2,095 | ) | ||||
Unallocated
assets
|
485,103 | 625,257 | ||||||
Total consolidated assets
|
$ | 3,270,505 | $ | 3,515,417 |
Three Months
Ended March
31,
|
||||||||
2009
|
2008
|
|||||||
Net earnings
as reported
|
$ | 96,378 | $ | 114,238 | ||||
Less:
Distributed earnings available to participating securities
|
(690 | ) | (517 | ) | ||||
Less:
Undistributed earnings available to participating
securities
|
(1,552 | ) | (1,791 | ) | ||||
Numerator for
basic earnings per share –
Undistributed
and distributed earnings available to
common shareholders
|
$ | 94,136 | $ | 111,930 | ||||
Add:
Undistributed earnings allocated to participating
securities
|
1,552 | 1,791 | ||||||
Less:
Undistributed earnings reallocated to participating
securities
|
(1,534 | ) | (1,762 | ) | ||||
Numerator for
diluted earnings per share –
Undistributed
and distributed earnings available to common shareholders
|
$ | 94,154 | $ | 111,959 | ||||
Denominator
for basic earnings per share – weighted average shares
|
74,260,401 | 77,933,996 | ||||||
Effect of
dilutive securities
|
882,059 | 1,311,395 | ||||||
Denominator
for diluted earnings per share – weighted average shares adjusted for
dilutive
securities
|
75,142,460 | 79,245,391 | ||||||
Earnings per
share Two-class method
|
||||||||
Basic
|
$ | 1.27 | $ | 1.44 | ||||
Diluted
|
$ | 1.25 | $ | 1.41 | ||||
|
|||||||||||||
|
Three Months
Ended March 31,
|
||||||||||||
Percent
|
|||||||||||||
As a Percent
of Net Sales
|
Increase
|
||||||||||||
2009
|
2008
|
(Decrease)
|
|||||||||||
Net
sales
|
100.0
|
% | 100.0 | % | (11.8 | )% | |||||||
Cost of
merchandise sold
|
57.0
|
59.1 | (14.8 | ) | |||||||||
Gross
profit
|
43.0 | 40.9 | (7.4 | ) | |||||||||
Operating
expenses
|
32.1 | 29.7 | (4.8 | ) | |||||||||
Operating
earnings
|
10.9 | 11.2 | (14.3 | ) | |||||||||
Other income
(expense)
|
(0.1
|
) | 0.0 | (210.2 | ) | ||||||||
Income
taxes
|
4.2 | 4.3 | (14.1 | ) | |||||||||
Net
earnings
|
6.6 | % | 6.9 | % | (15.6 | )% |
Period
|
Total Number
of Shares Purchased (A)
|
Average Price
Paid per Share (B)
|
Total Number
of Shares Purchased as Part of Publicly Announced Plans or Programs
(C)
|
Maximum
Number of
Shares that
May Yet be Purchased Under the Plans or
Programs
|
|
Jan. 1 – Jan.
31
|
–
|
–
|
–
|
7,401,826
|
shares
|
Feb. 1 – Feb.
28
|
670,970
|
$67.37
|
662,098
|
6,739,728
|
shares
|
Mar. 1 – Mar.
31
|
1,056,148
|
$62.73
|
1,056,148
|
5,683,580
|
shares
|
Total
|
1,727,118
|
$64.52
|
1,718,246
|
(A)
|
There were
8,872 shares withheld to satisfy tax withholding obligations in connection
with the vesting of employee restricted stock
awards.
|
(B)
|
Average price
paid per share includes any commissions paid and includes only those
amounts related to purchases as part of publicly announced plans or
programs.
|
(C)
|
Purchases
were made pursuant to a share repurchase program approved by Grainger’s
Board of Directors on April 30, 2008. The Board of Directors
granted authority to repurchase up to 10 million shares. The
program has no specified expiration date. No share repurchase
plan or program expired or was terminated during the period covered by
this report. Activity is reported on a trade date
basis. In January 2009, 225,100 shares were settled that had
initially been traded in late 2008.
|
Name
|
Shares Voted
for Election
|
Shares as to
Which Voting Authority Withheld
|
||||||
B. P.
Anderson
|
65,109,711 | 379,505 | ||||||
W. H.
Gantz
|
64,674,259 | 814,957 | ||||||
V. A.
Hailey
|
65,142,420 | 346,796 | ||||||
W. K.
Hall
|
64,203,572 | 1,285,644 | ||||||
R. L.
Keyser
|
64,825,670 | 663,546 | ||||||
S. L.
Levenick
|
65,212,857 | 276,359 | ||||||
J. W.
McCarter, Jr.
|
64,007,421 | 1,481,795 | ||||||
N. S.
Novich
|
65,222,980 | 266,236 | ||||||
M. J.
Roberts
|
65,203,323 | 285,893 | ||||||
G. L.
Rogers
|
65,220,546 | 268,670 | ||||||
J. T.
Ryan
|
65,065,802 | 423,414 | ||||||
J. D.
Slavik
|
64,782,411 | 706,805 | ||||||
H. B.
Smith
|
63,993,711 | 1,495,505 |
|
(a) Exhibits
(numbered in accordance with Item 601 of Regulation
S-K)
|
||
(31)
|
Rule 13a – 14(a)/15d – 14(a) Certifications
|
||
(a) Chief
Executive Officer certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|||
(b) Chief
Financial Officer certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|||
(32)
|
Section 1350 Certifications
|
||
(a) Chief
Executive Officer certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|||
(b) Chief
Financial Officer certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
(10)
|
Material
Contracts
|
||
(b) Compensatory
Plans or Agreements
(i) Form of Indemnification Agreement between Grainger and each of
its directors and certain of its officers.
(ii)
Separation Agreement and General Release dated May 1, 2009, by and
between Grainger and Larry J. Loizzo (who previously served as Vice
President; President, Lab Safety Supply,
Inc.).
|
W.W.
Grainger, Inc.
|
||
(Registrant)
|
||
Date: May 1,
2009
|
By:
|
/s/ R. L.
Jadin
|
R. L. Jadin,
Senior Vice President
and Chief
Financial Officer
|
||
Date: May 1,
2009
|
By:
|
/s/ G. S.
Irving
|
G. S. Irving,
Vice President
and
Controller
|