UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
(Mark
One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2008
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
W.W.
Grainger, Inc.
(Exact name of
registrant as specified in its charter)
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)
|
(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)
|
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.
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer T
|
|
Accelerated
filer £
|
|
|
|
|
|
Non-accelerated
filer £
|
|
Smaller
reporting company £
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
There were
76,067,844 shares of the Company’s Common Stock outstanding as of
September 30, 2008.
TABLE OF CONTENTS
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Page No.
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PART I
|
FINANCIAL INFORMATION
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Item 1.
|
Financial Statements (Unaudited)
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3
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4
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5 - 6
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7 - 8
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9 - 17
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Item 2.
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18 – 29
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Item 3.
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30
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Item 4.
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30
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PART II
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Item 1.
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30
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Item 2.
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31
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Item 6.
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Exhibits
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31
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Signatures
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32
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EXHIBITS
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Exhibits 31 & 32
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Certifications
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|
Item
1. Financial Statements (Unaudited)
W.W.
Grainger, Inc. and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of
dollars, except for per share amounts)
(Unaudited)
|
|
Three Months
Ended
September
30,
|
|
|
Nine Months
Ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,839,475 |
|
|
$ |
1,658,592 |
|
|
$ |
5,257,377 |
|
|
$ |
4,806,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
merchandise sold
|
|
|
1,097,127 |
|
|
|
999,003 |
|
|
|
3,129,218 |
|
|
|
2,874,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
742,348 |
|
|
|
659,589 |
|
|
|
2,128,159 |
|
|
|
1,932,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing,
marketing and
administrative
expenses
|
|
|
510,891 |
|
|
|
485,257 |
|
|
|
1,526,044 |
|
|
|
1,428,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
231,457 |
|
|
|
174,332 |
|
|
|
602,115 |
|
|
|
503,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,602 |
|
|
|
3,144 |
|
|
|
3,642 |
|
|
|
11,182 |
|
Interest expense
|
|
|
(4,393 |
) |
|
|
(721 |
) |
|
|
(9,591 |
) |
|
|
(1,817 |
) |
Equity in net income (loss)
of
unconsolidated
entities
|
|
|
755 |
|
|
|
470 |
|
|
|
2,835 |
|
|
|
353 |
|
Unclassified – net
|
|
|
(731 |
) |
|
|
(41 |
) |
|
|
569 |
|
|
|
(53 |
) |
Total other income and
(expense)
|
|
|
(2,767 |
) |
|
|
2,852 |
|
|
|
(2,545 |
) |
|
|
9,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income
taxes
|
|
|
228,690 |
|
|
|
177,184 |
|
|
|
599,570 |
|
|
|
513,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
88,667 |
|
|
|
68,034 |
|
|
|
232,130 |
|
|
|
197,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
140,023 |
|
|
$ |
109,150 |
|
|
$ |
367,440 |
|
|
$ |
315,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.84 |
|
|
$ |
1.33 |
|
|
$ |
4.78 |
|
|
$ |
3.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
1.79 |
|
|
$ |
1.29 |
|
|
$ |
4.65 |
|
|
$ |
3.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Weighted
average number of shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
75,967,774 |
|
|
|
82,233,231 |
|
|
|
76,813,709 |
|
|
|
83,437,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted
|
|
|
78,279,422 |
|
|
|
84,864,258 |
|
|
|
79,085,640 |
|
|
|
86,119,670 |
|
|
|
|
|
|
|
|
|
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|
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|
Cash
dividends paid per share
|
|
$ |
0.40 |
|
|
$ |
0.35 |
|
|
$ |
0.40 |
|
|
$ |
0.99 |
|
The accompanying
notes are an integral part of these financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands of
dollars)
(Unaudited)
|
|
Three Months
Ended
September
30,
|
|
|
Nine Months
Ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
140,023 |
|
|
$ |
109,150 |
|
|
$ |
367,440 |
|
|
$ |
315,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive earnings (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments, net of tax benefit
(expense) of $2,534, $(4,181), $4,133, and $(9,229),
respectively
|
|
|
(18,636 |
) |
|
|
24,317 |
|
|
|
(26,075 |
) |
|
|
52,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
earnings
|
|
$ |
121,387 |
|
|
$ |
133,467 |
|
|
$ |
341,365 |
|
|
$ |
368,280 |
|
The accompanying
notes are an integral part of these financial statements.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands of
dollars, except for per share amounts)
(Unaudited)
ASSETS
|
|
Sept. 30,
2008
|
|
|
Dec. 31,
2007
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
364,417 |
|
|
$ |
113,437 |
|
Marketable securities at
cost,
|
|
|
|
|
|
|
|
|
which
approximates market value
|
|
|
– |
|
|
|
20,074 |
|
Accounts receivable (less allowances for
doubtful
|
|
|
|
|
|
|
|
|
accounts of $29,345 and $25,830,
respectively)
|
|
|
721,387 |
|
|
|
602,650 |
|
Inventories
|
|
|
961,094 |
|
|
|
946,327 |
|
Prepaid expenses and other
assets
|
|
|
63,028 |
|
|
|
61,666 |
|
Deferred income taxes
|
|
|
61,395 |
|
|
|
56,663 |
|
Total current assets
|
|
|
2,171,321 |
|
|
|
1,800,817 |
|
|
|
|
|
|
|
|
|
|
PROPERTY,
BUILDINGS AND EQUIPMENT
|
|
|
2,116,796 |
|
|
|
2,004,276 |
|
Less accumulated depreciation and
amortization
|
|
|
1,188,300 |
|
|
|
1,125,931 |
|
Property, buildings and equipment –
net
|
|
|
928,496 |
|
|
|
878,345 |
|
|
|
|
|
|
|
|
|
|
DEFERRED
INCOME TAXES
|
|
|
72,760 |
|
|
|
54,658 |
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN
UNCONSOLIDATED ENTITIES
|
|
|
23,089 |
|
|
|
14,759 |
|
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
231,945 |
|
|
|
233,028 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
AND INTANGIBLES – NET
|
|
|
108,830 |
|
|
|
112,421 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
3,536,441 |
|
|
$ |
3,094,028 |
|
W.W.
Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE
SHEETS (Continued)
(In thousands of
dollars, except for per share amounts)
(Unaudited)
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
Sept. 30,
2008
|
|
|
Dec. 31,
2007
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
Short-term debt
|
|
$ |
16,431 |
|
|
$ |
102,060 |
|
Current maturities of long-term
debt
|
|
|
12,923 |
|
|
|
4,590 |
|
Trade accounts payable
|
|
|
314,445 |
|
|
|
297,929 |
|
Accrued compensation and
benefits
|
|
|
164,524 |
|
|
|
182,275 |
|
Accrued contributions to
employees’
|
|
|
|
|
|
|
|
|
profit sharing plans
|
|
|
110,566 |
|
|
|
126,483 |
|
Accrued expenses
|
|
|
99,386 |
|
|
|
102,607 |
|
Income taxes payable
|
|
|
16,589 |
|
|
|
10,459 |
|
Total current liabilities
|
|
|
734,864 |
|
|
|
826,403 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT (less current maturities)
|
|
|
496,562 |
|
|
|
4,895 |
|
|
|
|
|
|
|
|
|
|
DEFERRED
INCOME TAXES AND TAX UNCERTAINTIES
|
|
|
23,531 |
|
|
|
20,727 |
|
|
|
|
|
|
|
|
|
|
ACCRUED
EMPLOYMENT-RELATED BENEFITS
|
|
|
153,393 |
|
|
|
143,895 |
|
|
|
|
|
|
|
|
|
|
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
|
|
|
555,410 |
|
|
|
475,350 |
|
Retained earnings
|
|
|
3,593,931 |
|
|
|
3,316,875 |
|
Accumulated other comprehensive
earnings
|
|
|
46,096 |
|
|
|
72,171 |
|
Treasury stock, at cost –
33,591,375 and 30,199,804 shares,
respectively
|
|
|
(2,122,176 |
) |
|
|
(1,821,118 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
2,128,091 |
|
|
|
2,098,108 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
$ |
3,536,441 |
|
|
$ |
3,094,028 |
|
The accompanying
notes are an integral part of these financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of
dollars)
(Unaudited)
|
|
Nine Months
Ended Sept. 30,
|
|
|
|
2008
|
|
|
2007
|
|
CASH FLOWS
FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net earnings
|
|
$ |
367,440 |
|
|
$ |
315,728 |
|
Provision for losses on accounts
receivable
|
|
|
11,867 |
|
|
|
7,824 |
|
Deferred income taxes and tax
uncertainties
|
|
|
(18,432 |
) |
|
|
(7,437 |
) |
Depreciation and
amortization:
|
|
|
|
|
|
|
|
|
Property, buildings and
equipment
|
|
|
81,507 |
|
|
|
75,113 |
|
Capitalized software and other
intangibles
|
|
|
19,258 |
|
|
|
18,486 |
|
Stock-based compensation
|
|
|
36,655 |
|
|
|
28,988 |
|
Tax benefit of stock incentive
plans
|
|
|
1,612 |
|
|
|
2,820 |
|
Net gains on sales of property, buildings
and equipment
|
|
|
(4,760 |
) |
|
|
(5,433 |
) |
(Income) losses from unconsolidated
entities – net
|
|
|
(2,835 |
) |
|
|
(353 |
) |
Change in operating assets and liabilities
– net of business acquisitions
|
|
|
|
|
|
|
|
|
(Increase) in accounts
receivable
|
|
|
(125,936 |
) |
|
|
(105,145 |
) |
(Increase) in inventories
|
|
|
(17,360 |
) |
|
|
(39,532 |
) |
Decrease in prepaid
expenses
|
|
|
645 |
|
|
|
7,410 |
|
Increase in trade accounts
payable
|
|
|
13,069 |
|
|
|
39,188 |
|
(Decrease) in other current
liabilities
|
|
|
(42,191 |
) |
|
|
(16,324 |
) |
Increase in current income taxes
payable
|
|
|
6,466 |
|
|
|
3,598 |
|
Increase in accrued employment-related
benefits cost
|
|
|
9,498 |
|
|
|
17,697 |
|
Other – net
|
|
|
(1,186 |
) |
|
|
(4,876 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
335,317 |
|
|
|
337,752 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS
FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Additions to property, buildings
and
equipment – net of
dispositions
|
|
|
(125,020 |
) |
|
|
(128,744 |
) |
Additions to capitalized
software
|
|
|
(6,570 |
) |
|
|
(5,726 |
) |
Cash paid for business
acquisitions
|
|
|
(33,995 |
) |
|
|
(4,684 |
) |
Proceeds from sale of marketable
securities
|
|
|
19,627 |
|
|
|
12,765 |
|
Purchases of marketable
securities
|
|
|
– |
|
|
|
(17,079 |
) |
Investments in unconsolidated
entities
|
|
|
(6,486 |
) |
|
|
– |
|
Other – net
|
|
|
(416 |
) |
|
|
(405 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
$ |
(152,860 |
) |
|
$ |
(143,873 |
) |
W.W.
Grainger, Inc. and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands of
dollars)
(Unaudited)
|
|
Nine Months
Ended Sept. 30,
|
|
|
|
2008
|
|
|
2007
|
|
CASH FLOWS
FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Net (decrease) in commercial
paper
|
|
$ |
(95,356 |
) |
|
$ |
– |
|
Net increase in short term
debt
|
|
|
– |
|
|
|
144,428 |
|
Borrowings under line of
credit
|
|
|
19,136 |
|
|
|
– |
|
Payments against line of
credit
|
|
|
(8,799 |
) |
|
|
– |
|
Proceeds from issuance of long-term
debt
|
|
|
500,000 |
|
|
|
– |
|
Stock options exercised
|
|
|
41,103 |
|
|
|
103,465 |
|
Excess tax benefits from stock-based
compensation
|
|
|
11,733 |
|
|
|
27,050 |
|
Purchase of treasury stock
|
|
|
(307,552 |
) |
|
|
(647,293 |
) |
Cash dividends paid
|
|
|
(90,384 |
) |
|
|
(84,766 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities
|
|
|
69,881 |
|
|
|
(457,116 |
) |
|
|
|
|
|
|
|
|
|
Exchange rate
effect on cash and cash equivalents
|
|
|
(1,358 |
) |
|
|
4,132 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
250,980 |
|
|
|
(259,105 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of year
|
|
|
113,437 |
|
|
|
348,471 |
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
|
$ |
364,417 |
|
|
$ |
89,366 |
|
The accompanying
notes are an integral part of these financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BACKGROUND
AND BASIS OF PRESENTATION
W.W. Grainger, Inc.
distributes facilities maintenance products and provides services and related
information used by businesses and institutions in North America. In
this report, the words “Company” or “Grainger” mean W.W. Grainger, Inc. and its
subsidiaries.
The Condensed
Consolidated Financial Statements of the Company and the related notes are
unaudited and should be read in conjunction with the consolidated financial
statements and related notes for the year ended December 31, 2007, included in
the Company’s Annual Report on Form 10-K filed
with the Securities and Exchange Commission (SEC).
The Condensed
Consolidated Balance Sheet as of December 31, 2007, has been derived from the
audited consolidated financial statements at that date, but does not include all
of the disclosures required by accounting principles generally accepted in the
United States of America for complete financial statements.
The unaudited
financial information reflects all adjustments (primarily consisting of normal
recurring adjustments) which, in the opinion of management, are necessary for a
fair presentation of the statements contained herein.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING
STANDARDS
In
March 2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133”
(SFAS No. 161). SFAS No. 161 amends and expands the disclosure
requirements related to derivative instruments and hedging activities which will
enable investors to better understand the effects on an entity’s financial
statements, financial position and cash flows. The statement is
effective for fiscal years beginning after November 15,
2008. The Company does not expect the adoption of SFAS No. 161
to have a material effect on its results of operations or financial
position.
In
April 2008, the FASB issued Staff Position FSP 142-3, “Determination of the
Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, “Goodwill and Other Intangible Assets.” FSP 142-3
is effective for fiscal years beginning after December 15,
2008. The Company does not expect the adoption of FSP 142-3 to have a
material effect on its results of operations or financial position.
W.W.
Grainger, Inc. and Subsidiaries
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In
May 2008, the FASB issued Statement of Financial Accounting Standards No. 162,
“The Hierarchy of Generally Accepted Accounting Principles” (SFAS No.
162). SFAS No. 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with US GAAP for nongovernmental entities. The FASB
believes that the GAAP hierarchy should be directed to entities because it
is the entity (not its auditor) that is responsible for selecting accounting
principles for financial statements that are presented in conformity with GAAP.
The Company does not expect the adoption of SFAS No. 162 to have a
material effect on its results of operations or financial position.
In
June 2008, the FASB issued Staff Position EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities” (FSP 03-6-1). FSP 03-6-1 states that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share pursuant to the two-class
method. Upon adoption, a company is required to retrospectively
adjust its earnings per share data presentation to conform with the FSP 03-6-1
provisions. FSP 03-6-1 is effective for fiscal years beginning
after December 15, 2008. The Company is currently evaluating
the impact that adoption may have on its results of operation and financial
position.
Effective July 21,
2008 the Company acquired a 49.9% interest in Asia Pacific Brands India Ltd.
(Asia Pacific Brands) from its sole shareholder. Asia Pacific Brands,
one of India's largest industrial and electrical wholesale distributors, is
headquartered in Mumbai, India. With 27 locations and more than 6,200
dealer relationships across India, Asia Pacific Brands had revenue of US$47
million for its fiscal year ended March 31, 2008. The Company paid
$5.4 million for its ownership interest. In addition, the Company and
its joint venture partner each made a $1.1 million capital infusion which is
intended to help grow the business. The Company is using the equity
method to account for this investment.
On
July 10, 2008, Lab Safety Supply, a direct marketing subsidiary of the Company,
acquired substantially all of the assets of Highsmith Inc. (Highsmith), located
in Fort Atkinson, Wisconsin. Highsmith is a direct marketing leader
in the library equipment, furniture and supplies market and had sales of $64
million in 2007. The purchase price and costs of the acquisition were
$27.0 million in cash and $6.1 million in assumed liabilities. The
estimated goodwill recognized in the transaction amounted to $4.1 million and is
expected to be deductible for tax purposes. The integration of
Highsmith into existing operations should be completed by the end of the
year. As part of the integration Lab Safety is discontinuing the
contract sales group of Highsmith which represented approximately $19 million of
sales in 2007. The results of Highsmith are included in the Company’s
consolidated results from the date of acquisition. Due to the
immaterial nature of this transaction, disclosure of pro forma results were not
considered necessary.
W.W.
Grainger, Inc. and Subsidiaries
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On
June 6, 2008, Acklands - Grainger Inc., a wholly owned subsidiary of the
Company, acquired substantially all of the assets and assumed certain
liabilities of Excel F.I.G. Inc. (Excel). Excel, located in Granby,
Quebec, Canada, is a business-to-business broad line distributor of maintenance,
repair and operating supplies. In 2007, Excel had sales of
approximately US$12 million. The purchase price and costs of the
acquisition were US$6.9 million in cash and US$0.7 million in assumed
liabilities. The estimated goodwill recognized in the transaction
amounted to US$4.4 million and is expected to be partially deductible for tax
purposes. The results of Excel are included in the Company’s
consolidated results from the date of acquisition. Due to the
immaterial nature of this transaction, disclosure of pro forma results were not
considered necessary.
On
October 29, 2008, the Company’s Board of Directors declared a quarterly dividend
of 40 cents per share, payable December 1, 2008, to shareholders of record on
November 10, 2008.
The Company
generally warrants the products it sells against defects for one
year. For a significant portion of warranty claims, the manufacturer
of the product is responsible for the expenses associated with this warranty
program. For warranty expenses not covered by the manufacturer, the
Company provides a reserve for future costs based on historical
experience. The warranty reserve activity was as
follows:
|
|
Nine Months
Ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
(In thousands
of dollars)
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
3,442 |
|
|
$ |
4,651 |
|
Returns
|
|
|
(10,218 |
) |
|
|
(9,266 |
) |
Provision
|
|
|
10,495 |
|
|
|
8,630 |
|
Ending
balance
|
|
$ |
3,719 |
|
|
$ |
4,015 |
|
W.W.
Grainger, Inc. and Subsidiaries
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On
May 6, 2008, the Company entered into a four year term loan of $500
million. Proceeds were used to pay down short-term debt, fund
additional share repurchases and for general corporate purposes.
At
the election of the Company, the term loan shall bear interest at the Base Rate
plus the Applicable Margin or the LIBOR Rate plus the Applicable Margin as
defined within the contract. At September 30, 2008 the Company has
elected a one month LIBOR Interest Period. The weighted average
interest rate during the period outstanding was 3.26%.
The Company may
prepay the loan in whole or in part at its option. The scheduled loan
repayment of the outstanding principal amount is as follows:
Year
|
|
Payment
Amount
|
|
2009
|
|
$
|
16.7
|
million
|
|
2010
|
|
$
|
45.8
|
million
|
|
2011
|
|
$
|
50.0
|
million
|
|
2012
|
|
$
|
387.5
|
million
|
|
The Company’s debt
instruments include only standard affirmative and negative covenants that are
normal in debt instruments of similar amounts and structure. The
Company’s debt instruments do not contain financial or performance covenants
restrictive to the business of the Company. The Company is in
compliance with all debt covenants for the nine months ended September 30,
2008.
W.W.
Grainger, Inc. and Subsidiaries
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Retirement
Plans
A
majority of the Company’s employees are covered by a noncontributory profit
sharing plan. This plan provides for annual employer contributions
based upon a formula related primarily to earnings before federal income taxes,
limited to a percentage of total eligible compensation paid to all eligible
employees. Retroactive to January 1, 2008, the plan was amended on
July 30, 2008 to establish a minimum contribution of 8% and a maximum
contribution of 18% of total eligible compensation paid to all eligible
employees. Previously, there was no minimum percentage and the
maximum percentage was 25%.
Postretirement
Benefits
The Company has a
postretirement healthcare benefits plan that provides coverage for a majority of
its retired employees and their dependents should they elect to maintain such
coverage. Covered employees become eligible for participation when
they qualify for retirement. Participation in the plan is voluntary
and requires participants to make contributions, as determined by the Company,
toward the cost of the plan.
The net periodic
benefit costs charged to operating expenses, which are valued at the measurement
date of January 1 and recognized evenly throughout the year, consisted of the
following components:
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands
of dollars)
|
|
|
|
|
|
Service
cost
|
|
$ |
2,425 |
|
|
$ |
2,714 |
|
|
$ |
7,275 |
|
|
$ |
8,142 |
|
Interest
cost
|
|
|
2,373 |
|
|
|
2,243 |
|
|
|
7,118 |
|
|
|
6,730 |
|
Expected
return on assets
|
|
|
(1,117 |
) |
|
|
(1,012 |
) |
|
|
(3,349 |
) |
|
|
(3,037 |
) |
Amortization
of transition asset
|
|
|
(36 |
) |
|
|
(36 |
) |
|
|
(108 |
) |
|
|
(107 |
) |
Amortization
of unrecognized losses
|
|
|
328 |
|
|
|
523 |
|
|
|
984 |
|
|
|
1,570 |
|
Amortization
of prior service credits
|
|
|
(304 |
) |
|
|
(109 |
) |
|
|
(912 |
) |
|
|
(328 |
) |
Net periodic benefit costs
|
|
$ |
3,669 |
|
|
$ |
4,323 |
|
|
$ |
11,008 |
|
|
$ |
12,970 |
|
The Company has
established a Group Benefit Trust to fund the plan and process benefit
payments. The funding of the trust is an estimated amount, which is
intended to allow the maximum deductible contribution under the Internal Revenue
Code of 1986 (IRC), as amended. There are no minimum funding
requirements and the Company intends to follow its practice of funding the
maximum deductible contribution under the IRC. During the three and
nine months ended September 30, 2008, the Company contributed $1.0 million and
$3.1 million, respectively, to the trust.
W.W.
Grainger, Inc. and Subsidiaries
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The three
reportable segments are Grainger Branch-based, Acklands - Grainger Branch-based
(Acklands - Grainger) and Lab Safety Supply, Inc. (Lab
Safety). Grainger Branch-based is an aggregation including the
following: Grainger Industrial Supply, Grainger, S.A. de C.V. (Mexico), Grainger
Caribe Inc. (Puerto Rico), Grainger China LLC (China) and Grainger Panama S.A.
(Panama). Acklands - Grainger is the Company’s Canadian branch-based
distribution business. Lab Safety is a direct marketer of safety and
other industrial products. Following is a summary of segment results
(in thousands of dollars):
|
|
Three Months
Ended September 30, 2008
|
|
|
|
Grainger
Branch-based
|
|
|
Acklands -
Grainger Branch-based
|
|
|
Lab
Safety
|
|
|
Total
|
|
|
|
|
|
Total net
sales
|
|
$ |
1,523,543 |
|
|
$ |
190,754 |
|
|
$ |
127,321 |
|
|
$ |
1,841,618 |
|
Intersegment
net sales
|
|
|
(1,021 |
) |
|
|
(127 |
) |
|
|
(995 |
) |
|
|
(2,143 |
) |
Net sales to
external customers
|
|
$ |
1,522,522 |
|
|
$ |
190,627 |
|
|
$ |
126,326 |
|
|
$ |
1,839,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$ |
226,602 |
|
|
$ |
14,168 |
|
|
$ |
12,212 |
|
|
$ |
252,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30, 2007
|
|
|
|
Grainger
Branch-based
|
|
|
Acklands -
Grainger Branch-based
|
|
|
Lab
Safety
|
|
|
Total
|
|
|
|
|
|
Total net
sales
|
|
$ |
1,385,278 |
|
|
$ |
163,519 |
|
|
$ |
111,199 |
|
|
$ |
1,659,996 |
|
Intersegment
net sales
|
|
|
(487 |
) |
|
|
– |
|
|
|
(917 |
) |
|
|
(1,404 |
) |
Net sales to
external customers
|
|
$ |
1,384,791 |
|
|
$ |
163,519 |
|
|
$ |
110,282 |
|
|
$ |
1,658,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$ |
173,115 |
|
|
$ |
10,243 |
|
|
$ |
14,213 |
|
|
$ |
197,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W.W.
Grainger, Inc. and Subsidiaries
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
|
Nine Months
Ended September 30, 2008
|
|
|
|
Grainger
Branch-based
|
|
|
Acklands -
Grainger Branch-based
|
|
|
Lab
Safety
|
|
|
Total
|
|
|
|
|
|
Total net
sales
|
|
$ |
4,346,857 |
|
|
$ |
565,924 |
|
|
$ |
350,032 |
|
|
$ |
5,262,813 |
|
Intersegment
net sales
|
|
|
(2,330 |
) |
|
|
(127 |
) |
|
|
(2,979 |
) |
|
|
(5,436 |
) |
Net sales to
external customers
|
|
$ |
4,344,527 |
|
|
$ |
565,797 |
|
|
$ |
347,053 |
|
|
$ |
5,257,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$ |
596,411 |
|
|
$ |
41,856 |
|
|
$ |
40,596 |
|
|
$ |
678,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended September 30, 2007
|
|
|
|
Grainger
Branch-based
|
|
|
Acklands -
Grainger Branch-based
|
|
|
Lab
Safety
|
|
|
Total
|
|
|
|
|
|
Total net
sales
|
|
$ |
4,014,522 |
|
|
$ |
464,851 |
|
|
$ |
330,653 |
|
|
$ |
4,810,026 |
|
Intersegment
net sales
|
|
|
(1,211 |
) |
|
|
– |
|
|
|
(2,554 |
) |
|
|
(3,765 |
) |
Net sales to
external customers
|
|
$ |
4,013,311 |
|
|
$ |
464,851 |
|
|
$ |
328,099 |
|
|
$ |
4,806,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating earnings
|
|
$ |
505,027 |
|
|
$ |
29,710 |
|
|
$ |
43,191 |
|
|
$ |
577,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grainger
Branch-based
|
|
|
Acklands -
Grainger Branch-based
|
|
|
Lab
Safety
|
|
|
Total
|
|
|
|
|
|
Segment
assets:
|
|
|
|
September 30,
2008
|
|
$ |
2,225,971 |
|
|
$ |
506,897 |
|
|
$ |
240,572 |
|
|
$ |
2,973,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
$ |
2,107,408 |
|
|
$ |
502,414 |
|
|
$ |
212,627 |
|
|
$ |
2,822,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W.W.
Grainger, Inc. and Subsidiaries
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Following are
reconciliations of segment information with the consolidated totals per the
financial statements (in thousands of dollars):
|
|
Three Months
Ended
September
30,
|
|
|
Nine Months
Ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Operating
earnings:
|
|
|
|
Total
operating earnings for reportable
segments
|
|
$ |
252,982 |
|
|
$ |
197,571 |
|
|
$ |
678,863 |
|
|
$ |
577,928 |
|
Unallocated
expenses and eliminations
|
|
|
(21,525 |
) |
|
|
(23,239 |
) |
|
|
(76,748 |
) |
|
|
(74,436 |
) |
Total consolidated operating
earnings
|
|
$ |
231,457 |
|
|
$ |
174,332 |
|
|
$ |
602,115 |
|
|
$ |
503,492 |
|
|
|
Sept. 30,
2008
|
|
Dec. 31,
2007
|
Assets:
|
|
|
|
Total assets
for reportable segments
|
|
$ |
2,973,440 |
|
|
$ |
2,822,449 |
|
Elimination
of intersegment assets
|
|
|
(34,579 |
) |
|
|
(167 |
) |
Unallocated
assets
|
|
|
597,580 |
|
|
|
271,746 |
|
Total consolidated assets
|
|
$ |
3,536,441 |
|
|
$ |
3,094,028 |
|
Unallocated
expenses and unallocated assets primarily relate to the Company headquarters’
support services, which are not part of any business
segment. Unallocated expenses include payroll and benefits,
depreciation and other costs associated with headquarters-related support
services. Unallocated assets primarily include non-operating cash and
cash equivalents, certain prepaid expenses, deferred income taxes and
non-operating property, buildings and equipment – net.
The increase in
unallocated assets as of September 30, 2008 is primarily due to the Company’s
higher cash balance.
W.W.
Grainger, Inc. and Subsidiaries
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table
sets forth the computation of basic and diluted earnings per share:
|
|
Three Months
Ended Sept. 30,
|
|
|
Nine Months
Ended Sept. 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
140,023,000 |
|
|
$ |
109,150,000 |
|
|
$ |
367,440,000 |
|
|
$ |
315,728,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share –
weighted
average shares
|
|
|
75,967,774 |
|
|
|
82,233,231 |
|
|
|
76,813,709 |
|
|
|
83,437,184 |
|
Effect of
dilutive securities –
stock-based
compensation
|
|
|
2,311,648 |
|
|
|
2,631,027 |
|
|
|
2,271,931 |
|
|
|
2,682,486 |
|
Denominator
for diluted earnings per share –
weighted average
shares adjusted for
dilutive
securities
|
|
|
78,279,422 |
|
|
|
84,864,258 |
|
|
|
79,085,640 |
|
|
|
86,119,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
1.84 |
|
|
$ |
1.33 |
|
|
$ |
4.78 |
|
|
$ |
3.78 |
|
Diluted
earnings per common share
|
|
$ |
1.79 |
|
|
$ |
1.29 |
|
|
$ |
4.65 |
|
|
$ |
3.67 |
|
As
previously reported, the Company received a letter in December 2007 from the
Commercial Litigation Branch of the Civil Division of the Department of Justice
(the “DOJ”) regarding the Company’s contract with the United States General
Services Administration (the “GSA”). The letter suggested that the
Company had not complied with its disclosure obligations and the contract’s
pricing provisions, and had potentially overcharged government customers under
the contract.
Discussions
relating to the Company’s compliance with its disclosure obligations and the
contract’s pricing provisions are ongoing. The timing and outcome of
these discussions are uncertain and could include settlement or civil litigation
by the DOJ to recover, among other amounts, treble damages and penalties under
the False Claims Act. While this matter is not expected to have a
material adverse effect on the Company’s financial position, an unfavorable
resolution could result in material payments by the Company. The
Company continues to believe that it has complied with the GSA contract in all
material respects.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Item
2.
Overview
General
Grainger is the
leading broad-line supplier of facilities maintenance and other related products
in North America. Grainger distributes a wide range of products used
by businesses and institutions to keep their facilities and equipment up and
running. Grainger uses a multichannel business model to provide
customers with a range of options for finding and purchasing products through a
network of branches, sales representatives, direct marketing including catalogs,
and a variety of electronic and Internet channels. Grainger serves
customers through a network of more than 600 branches, 18 distribution
centers and multiple Web sites.
Grainger’s three
reportable segments are Grainger Branch-based, Acklands - Grainger
Branch-based (Acklands - Grainger) and Lab Safety Supply, Inc. (Lab
Safety). Grainger Branch-based is an aggregation including the
following business units: Grainger Industrial Supply, Grainger, S.A.
de C.V. (Mexico), Grainger Caribe Inc. (Puerto Rico), Grainger China LLC (China)
and Grainger Panama S.A. (Panama). Acklands - Grainger is
the Company’s Canadian branch-based distribution business. Lab Safety
is a direct marketer of safety and other industrial products.
Business
Environment
Several economic
factors and industry trends shape Grainger’s business
environment. Historically, Grainger’s sales trends have tended to
correlate positively with industrial production growth, particularly
manufacturing output, as well as employment growth, particularly non-farm
payrolls. According to the Federal Reserve, overall industrial
production decreased 4.5% from September 2007 to September
2008. Manufacturing output decreased 4.8% from September 2007 to
September 2008, and manufacturing employment levels declined
3.2%. Non-farm employment was essentially flat from September 2007 to
September 2008. Grainger’s sales to manufacturing customers, as well
as to most other customer-end markets, continued to grow in the third quarter of
2008. This reflects the success of Grainger’s on-going market
expansion and product line expansion initiatives, as well as Grainger’s growing
diversification into markets other than manufacturing. Current
economic growth projections for 2008 industrial production and GDP are (0.4%)
and 1.4%, respectively.
For the first nine
months of 2008, the Company had $142.0 million of capital expenditures, of which
$35.3 million related to its U.S. market expansion program. The
Company is targeting completion of its investments in the U.S. market expansion
program in 2008.
Matters
Affecting Comparability
There were 64 sales
day in the third quarter of 2008 compared to 63 sales days in the third quarter
of 2007. There were 192 sales days in the first nine months of 2008
compared to 191 sales days in the first nine months of 2007.
Grainger’s
operating results for the first nine months of 2008 include the operating
results of the Highsmith acquisition made by Lab Safety in July
2008. Since the acquisition date, those results have been included in
the Lab Safety segment. See the Segment Analysis in the following
Management’s Discussion and Analysis.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Results
of Operations – Three Months Ended September 30, 2008
The following table
is included as an aid to understanding the changes in Grainger’s Condensed
Consolidated Statements of Earnings:
|
Three Months
Ended September 30,
|
|
|
Items in
Condensed Consolidated Statements of Earnings
|
|
|
|
|
|
|
|
|
|
|
|
As a Percent
of Net Sales
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Increase
(Decrease)
|
|
|
Net
sales
|
|
|
100.0
|
% |
|
|
100.0 |
% |
|
|
10.9 |
% |
|
Cost of
merchandise sold
|
|
|
59.6
|
|
|
|
60.2 |
|
|
|
9.8 |
|
|
Gross
profit
|
|
|
40.4 |
|
|
|
39.8 |
|
|
|
12.5 |
|
|
Operating
expenses
|
|
|
27.8 |
|
|
|
29.3 |
|
|
|
5.3 |
|
|
Operating
earnings
|
|
|
12.6 |
|
|
|
10.5 |
|
|
|
32.8 |
|
|
Other income
(expense)
|
|
|
(0.2
|
) |
|
|
0.2 |
|
|
|
(197.0 |
) |
|
Income
taxes
|
|
|
4.8 |
|
|
|
4.1 |
|
|
|
30.3 |
|
|
Net
earnings
|
|
|
7.6 |
% |
|
|
6.6 |
% |
|
|
28.3 |
% |
Grainger’s net
sales of $1,839.5 million for the third quarter of 2008 increased 10.9% compared
with sales of $1,658.6 million for the comparable 2007 quarter. Daily
sales were up 9.2%. An increase in net sales was realized in all
three segments of the business. The overall increase in net sales was
led by low double-digit growth in the government sector and high single-digit
growth in the reseller sector. Approximately 3 percentage points of
the sales growth came from Grainger’s ongoing strategic initiatives, market
expansion and product line expansion. For the quarter, sales were
positively affected by price increases of approximately 4 percentage points and
there was minimal effect from foreign exchange. Sales were negatively affected
by 1 percentage point due to a decline in the sales of seasonal
products. Prices were increased to offset cost
inflation. Refer to the Segment Analysis below for further detail of
sales and ongoing strategic initiatives.
Gross profit of
$742.3 million for the third quarter of 2008 increased 12.5%. The
gross profit margin during the third quarter of 2008 increased 0.6 percentage
point when compared to the same period in 2007, primarily due to positive
inflation recovery partially offset by unfavorable selling price category
mix.
Operating expenses
of $510.9 million for the third quarter of 2008 increased
5.3%. Operating expenses grew slower than the sales growth primarily
due to non-payroll operating expenses including lower advertising expenses, and
a lower provision for bad debts due to improved collection
effectiveness. Comparisons also benefited from one extra sales day
which increased the leverage on fixed costs.
Operating earnings
for the third quarter of 2008 totaled $231.5 million, an increase of 32.8% over
the third quarter of 2007. This earnings growth exceeded the sales
growth due to an improvement in gross profit margin and positive operating
expense leverage.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Net earnings for
the third quarter of 2008 increased by 28.3% to $140.0 million from $109.1
million in 2007. The growth in net earnings for the quarter primarily
resulted from the improvement in operating earnings, partially offset by lower
interest income, higher interest expense and a higher income tax rate versus
2007. Diluted earnings per share of $1.79 in the third quarter of
2008 were 38.8% higher than the $1.29 for the third quarter of
2007. This improvement was higher than the percentage increase for
net earnings due to lower shares outstanding primarily a result of the Company’s
share repurchase program.
Segment
Analysis
The following
comments at the segment level refer to external and intersegment net
sales. Comments at the business unit level include external and
inter- and intrasegment net sales. See Note 8 to the Condensed
Consolidated Financial Statements.
Grainger
Branch-based
Net sales were
$1,523.5 million for the third quarter of 2008, an increase of $138.2 million,
or 10.0%, when compared with net sales of $1,385.3 million for the same
period in 2007. Daily sales were up 8.3%.
Sales in the United
States were up 9.6%. Daily sales were up 7.9% with growth in all
customer end markets except retail, which was flat. The increase in
net sales was led by low double-digit growth in the government sector and high
single-digit growth in the reseller sector. Sales were negatively
affected by 1 percentage point due to a decline in the sales of seasonal
products. Market expansion and product line expansion added
approximately 3 percentage points to overall growth in the quarter.
Results for the
market expansion program were as follows:
|
|
2008 Third
Quarter
|
|
|
|
Sales
Increase
|
|
Percent
Complete
|
|
Phase 1
(Atlanta, Denver, Seattle)
|
|
11%
|
|
100%
|
|
Phase 2 (Four
markets in Southern California)
|
|
5%
|
|
100%
|
|
Phase 3
(Houston, St. Louis, Tampa)
|
|
10%
|
|
100%
|
|
Phase 4
(Baltimore, Cincinnati, Kansas City,
Miami, Philadelphia, Washington
D.C.)
|
|
4%
|
|
100%
|
|
Phase 5
(Dallas, Detroit, Greater New York, Phoenix)
|
|
5%
|
|
95%
|
|
Phase 6
(Chicago, Minneapolis, Pittsburgh,
San Francisco)
|
|
7%
|
|
95%
|
|
The Company is
targeting completion of phases 5 and 6 in 2008 and expects to see continued
incremental sales growth from the program for another five years.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The U.S.
branch-based business has added approximately 60,000 new products in 2008 which
will be featured in the February 2009 catalog but are currently for sale on
grainger.com. The 2008 catalog includes a total of 183,000
products.
Sales in Mexico
increased 16.8% in the third quarter of 2008 versus 2007. Daily sales
were up 15.0%. In local currency, daily sales were up 8.2% primarily driven by
increased market share coming from the ongoing branch expansion
program. Daily sales were led by growth to the natural resources
sector of the economy, partially offset by weakness in manufacturing and
hospitality.
The segment gross
profit margin increased 0.8 percentage point in the 2008 third quarter over the
comparable quarter of 2007, primarily due to positive inflation recovery
partially offset by unfavorable selling price category mix.
Operating expenses
in this segment were up 3.6% in the third quarter of 2008 versus the third
quarter of 2007. Operating expenses grew slower than the sales growth
primarily due to non-payroll operating expenses including lower advertising
expenses, and a lower provision for bad debts due to improved collection
effectiveness. Comparisons also benefited from one extra sales day
which increased the leverage on fixed costs.
For the segment,
operating earnings of $226.6 million for the third quarter of 2008
increased 30.9% over the $173.1 million for the third quarter of
2007. This earnings improvement exceeded the sales growth rate due to
improved gross profit margin and positive operating expense
leverage. Included in these results were lower profits in Mexico
primarily due to branch expansion related expenses, ongoing losses in China and
start up expenses related to the new branch in Panama.
Acklands - Grainger
Branch-based
Net sales at
Acklands - Grainger were $190.8 million for the third quarter of 2008, an
increase of $27.3 million, or 16.7%, when compared with $163.5 million for
the same period in 2007. On a daily basis sales increased
14.8%. There was minimal effect from foreign exchange as sales
increased 16.2% in local currency, or 14.4% on a daily basis. The
results benefited from continued strength from sales to oil sands, natural gas,
construction, government, mining, and agriculture customers, partially offset by
weakness in the forestry sector.
The gross profit
margin increased 0.7 percentage point in the 2008 third quarter versus the third
quarter of 2007, primarily due to positive inflation recovery, partially
offset by increased freight and handling costs.
Operating expenses
were up 14.9% in the third quarter of 2008. The segment achieved
positive operating expense leverage as operating expenses increased 14.4% in
local currency.
Operating earnings
of $14.2 million for the third quarter of 2008 were up $3.9 million, or
38.3%. The earnings improvement was primarily a result of an improved
gross profit margin and operating expenses which grew at a slower rate than
sales.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Lab
Safety
Net sales at Lab
Safety were $127.3 million for the third quarter of 2008, an increase of $16.1
million, or 14.5%, when compared with the same period in 2007. Daily
sales were up 12.7%.
Sales from the
Highsmith acquisition made in July 2008 contributed all of the sales growth for
the quarter. Excluding this acquisition sales growth for the
remainder of the business was down 4.6% on a daily basis.
The gross profit
margin decreased 1.7% in the third quarter of 2008 from the third quarter of
2007. Gross profit margin was down primarily due to product mix, as
the Highsmith acquisition negatively impacted margins due to lower margin rates,
and from a negative selling price category mix.
Operating expenses
were up 20.2% in the third quarter of 2008, primarily due to costs associated
with the Highsmith acquisition. Excluding Highsmith, operating
expenses were down 1.3% for the third quarter of 2008.
Operating earnings
of $12.2 million for the third quarter of 2008 decreased 14.1% over the same
period in 2007. Operating earnings decreased due to a decline in
gross profit margin and operating expenses which grew at a higher rate than
sales.
Other
Income and Expense
Other income and
expense was an expense of $2.8 million in the third quarter of 2008 compared
with $2.9 million of income in the third quarter of 2007. This
decrease was primarily attributable to lower interest income due to lower
interest rates and higher interest expense in 2008 due to increased
borrowings.
Income
Taxes
Grainger’s
effective income tax rates were 38.8% and 38.4% for the third quarter of 2008
and 2007, respectively. Excluding the effect of equity in net income
of unconsolidated entities, the effective income tax rate was 38.9% for the
third quarter of 2008 and 38.5% for the third quarter of 2007.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Results
of Operations – Nine Months Ended September 30, 2008
The following table
is included as an aid to understanding the changes in Grainger’s Condensed
Consolidated Statements of Earnings:
|
Nine Months
Ended September 30, |
|
|
Items in
Condensed Consolidated Statements of Earnings
|
|
|
|
|
|
|
|
|
|
|
|
As
a Percent of Net Sales
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Percent
Increase
(Decrease)
|
|
|
Net
sales
|
|
|
100.0
|
% |
|
|
100.0 |
% |
|
|
9.4 |
% |
|
Cost of
merchandise sold
|
|
|
59.5
|
|
|
|
59.8 |
|
|
|
8.9 |
|
|
Gross
profit
|
|
|
40.5 |
|
|
|
40.2 |
|
|
|
10.1 |
|
|
Operating
expenses
|
|
|
29.0 |
|
|
|
29.7 |
|
|
|
6.8 |
|
|
Operating
earnings
|
|
|
11.5 |
|
|
|
10.5 |
|
|
|
19.6 |
|
|
Other income
(expense)
|
|
|
(0.1
|
) |
|
|
0.2 |
|
|
|
(126.3 |
) |
|
Income
taxes
|
|
|
4.4 |
|
|
|
4.1 |
|
|
|
17.6 |
|
|
Net
earnings
|
|
|
7.0 |
% |
|
|
6.6 |
% |
|
|
16.4 |
% |
Grainger’s net
sales of $5,257.4 million for the first nine months of 2008 increased 9.4%
compared with sales of $4,806.3 million for the comparable 2007
period. Daily sales were up 8.8%. An increase in net sales
was realized in all three segments of the business. The increase in
net sales was led by low double-digit sales growth in the government sector and
mid single-digit growth in the light manufacturing, commercial and reseller
sectors. Approximately 3 percentage points of the sales growth came
from Grainger’s ongoing strategic initiatives, market expansion and product line
expansion, with another 1 percentage point from foreign exchange. For
the first nine months of 2008, sales were positively affected by price increases
of approximately 3 percentage points. Sales were negatively affected
by approximately 1 percentage point due to a decline in the sales of seasonal
products. Refer to the Segment Analysis below for further detail of
sales and ongoing strategic initiatives.
Gross profit of
$2,182.2 million for the first nine months of 2008 increased
10.1%. The gross profit margin during the first nine months of 2008
increased 0.3 percentage point when compared to the same period in 2007
primarily due to positive inflation recovery, partially offset by unfavorable
selling price category mix.
Operating expenses
of $1,526.0 million for the first nine months of 2008 increased
6.8%. Operating expenses grew at a slower rate than sales due
primarily to non-payroll operating expenses including advertising and
professional services. Comparisons also benefited from one extra
sales day which increased the leverage on fixed costs.
Operating earnings
for the first nine months of 2008 totaled $602.1 million, an increase of 19.6%
over the first nine months of 2007. This earnings growth exceeded the
sales growth due to an improvement in gross profit margin and positive operating
expense leverage.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Net earnings for
the first nine months of 2008 increased 16.4% to $367.4 million from $315.7
million in 2007. The growth in net earnings for the first nine months
primarily resulted from the improvement in operating earnings, partially offset
by lower interest income, higher interest expense and a higher income tax rate
versus 2007. Diluted earnings per share of $4.65 in the first nine
months of 2008 were 26.7% higher than the $3.67 for the first nine months of
2007. This improvement was higher than the percentage increase for
net earnings due to lower shares outstanding primarily a result of the Company’s
share repurchase program.
Segment
Analysis
The following
comments at the segment level refer to external and intersegment net
sales. Comments at the business unit level include external and
inter- and intrasegment net sales. See Note 8 to the Condensed
Consolidated Financial Statements.
Grainger
Branch-based
Net sales were
$4,346.9 million for the first nine months of 2008, an increase of $332.4
million, or 8.3%, when compared with net sales of $4,014.5 million for the
same period in 2007. Daily sales were up 7.7%.
Sales in the United
States were up 8.0%. Daily sales were up 7.5% with growth in all
customer end markets, except the retail customer market, which was
flat. The increase in net sales was led by low double-digit sales
growth in the government sector, and mid single-digit growth in the light
manufacturing, commercial and reseller sectors. Sales were negatively
affected by approximately 1 percentage point due to a decline in the sales
of seasonal products. Market expansion and product line expansion
added approximately 4 percentage points to overall growth for the first nine
months of 2008.
Results for the
market expansion program were as follows:
|
|
2008
Year-to-Date
|
|
|
|
Sales
Increase
|
|
Percent
Complete
|
|
Phase 1
(Atlanta, Denver, Seattle)
|
|
11%
|
|
100%
|
|
Phase 2 (Four
markets in Southern California)
|
|
8%
|
|
100%
|
|
Phase 3
(Houston, St. Louis, Tampa)
|
|
12%
|
|
100%
|
|
Phase 4
(Baltimore, Cincinnati, Kansas City,
Miami, Philadelphia, Washington
D.C.)
|
|
4%
|
|
100%
|
|
Phase 5
(Dallas, Detroit, Greater New York, Phoenix)
|
|
6%
|
|
95%
|
|
Phase 6
(Chicago, Minneapolis, Pittsburgh,
San Francisco)
|
|
8%
|
|
95%
|
|
The Company is
targeting completion of phases 5 and 6 in 2008 and expects to see continued
incremental sales growth from the program for another five years.
The U.S.
branch-based business has added approximately 60,000 new products in 2008 which
will be featured in the February 2009 catalog but are currently for sale on
grainger.com. The 2008 catalog includes a total of 183,000
products.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Sales in Mexico
increased 19.8% in the first nine months of 2008 versus 2007. Daily
sales were up 19.2%. In local currency, daily sales were up 14.3%
primarily driven by increased market share coming from the ongoing branch
expansion program.
The segment gross
profit margin increased 0.4 percentage point in the first nine months of 2008
over the comparable 2007 period, primarily driven by positive inflation
recovery, partially offset by unfavorable selling price category mix and
increased freight and handling costs.
Operating expenses
in this segment were up 5.3% in the first nine months of
2008. Operating expenses grew at a slower rate than sales due
primarily to non-payroll operating expenses including advertising and
professional services. Comparisons also benefited from one extra
sales day which increased the leverage on fixed costs.
For the segment,
operating earnings of $596.4 million for the first nine months of 2008 increased
18.1% over the $505.0 million for the first nine months of 2007. This
earnings improvement exceeded the sales growth rate due to an improved gross
profit margin and positive operating expense leverage. Included in
these results were lower profits in Mexico primarily due to branch expansion
related expenses, ongoing losses in China and start up expenses related to the
new branch in Panama.
Acklands - Grainger
Branch-based
Net sales at
Acklands - Grainger were $565.9 million for the first nine months of 2008, an
increase of $101.0 million, or 21.7%, when compared with $464.9 million for the
same period in 2007. Daily sales were up 21.1%. In local
currency, daily sales increased 12.0% The results benefited
from continued strength from sales to government, construction, oil sands,
natural gas, mining and agriculture customers, partially offset by weakness in
the forestry sector.
The gross profit
margin increased 0.4 percentage point in the first nine months of 2008 over the
first nine months of 2007. The increase was primarily driven by
positive inflation recovery.
Operating expenses
were up 19.3% in the first nine months of 2008. The segment achieved
positive operating expense leverage as operating expenses increased 10.3% in
local currency. The increase in operating expenses was primarily due
to payroll and benefits as a result of increased headcount and merit increases,
and other operating expenses.
Operating earnings
of $41.9 million for the first nine months of 2008 were up $12.1 million, or
40.9%. This earnings improvement exceeded the sales growth rate
primarily due to an improved gross profit margin and positive operating expense
leverage.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Lab
Safety
Net sales at Lab
Safety were $350.0 million for the first nine months of 2008, an increase of
$19.3 million, or 5.9%, when compared with $330.7 million for the same
period in 2007. Daily sales were up 5.3%. Excluding sales
from the Highsmith acquisition, sales growth for the remainder of the business
was down approximately 1%.
The gross profit
margin decreased 0.5 percentage point in the first nine months of 2008 from the
first nine months of 2007. Gross profit margin was down as a result
of unfavorable selling price category mix and product mix partially offset by
positive inflation recovery.
Operating expenses
were up 9.2% in the first nine months of 2008. Expenses grew at a
faster rate than sales primarily due to the costs associated with the Highsmith
acquisition. Excluding Highsmith, operating expenses were up
approximately 2% for the first nine months of 2008.
Operating earnings
of $40.6 million for the first nine months of 2008 decreased 6.0% versus the
same period in 2007. Operating earnings decreased due to a decline in
gross profit margin and operating expenses which grew at a higher rate than
sales.
Other
Income and Expense
Other income and
expense was an expense of $2.5 million in the first nine months of 2008 compared
with income of $9.7 million in the first nine months of 2007. This
decrease was primarily attributable to lower interest income due to lower
interest rates and lower average cash balances and higher interest expense in
2008 due to increased borrowings.
Income
Taxes
Grainger’s
effective income tax rates were 38.7% and 38.5% for the first nine months of
2008 and 2007, respectively. Excluding the effect of equity in net
income of unconsolidated entities, the effective income tax rate was 38.9% for
the first nine months of 2008 and 38.5% for the first nine months of
2007.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Financial
Condition
For the nine months
ended September 30, 2008, working capital of $1,436.5 million increased by
$462.1 million when compared to $974.4 million at December 31,
2007. The increase in working capital primarily relates to increases
in cash and receivables and the replacement of short-term borrowings with
long-term debt. The ratio of current assets to current liabilities
was 3.0 at September 30, 2008, versus 2.2 at December 31,
2007.
Net cash provided
by operating activities was $335.3 million and $337.8 million for the nine
months ended September 30, 2008 and 2007, respectively. Net cash
flows from operating activities serve as Grainger’s primary source to fund its
growth initiatives. Contributing to cash flows from operations were
net earnings in the first nine months ended September 30, 2008 of $367.4 million
and the effect of non-cash expenses such as stock-based compensation, and
depreciation and amortization. Partially offsetting these amounts
were changes in operating assets and liabilities, which resulted in a net use of
cash of $155.8 million for the first nine months of 2008. The
principal operating uses of cash were increases in accounts receivable and
inventory, as well as a reduction of other current liabilities. The
increase in receivables was due to a higher sales volume. The
increase in inventories was due to the product line expansion initiative and
higher inventories to improve customer service through better product
availability. Other current liabilities declined primarily due to annual cash
payments for profit sharing and bonuses. Partially offsetting these
uses in cash was an increase in trade accounts payable.
Net cash used in
investing activities was $152.9 million and $143.9 million for the nine months
ended September 30, 2008 and 2007, respectively. Cash expended
for additions to property, buildings, equipment and capitalized software was
$140.5 million in the first nine months of 2008 versus $143.5 million in
the first nine months of 2007. Capital expenditures included the
continued funding of the market expansion initiatives in the United States and
Mexico. Cash expended for business acquisitions was $34.0 million for
the first nine months of 2008 versus $4.7 million in the first nine months of
2007.
Net cash provided
by financing activities was $69.9 million for the nine months ended September
30, 2008, versus net cash used of $457.1 million for the nine months ended
September 30, 2007. For the nine months ended September 30, 2008,
cash provided by financing activities included proceeds from long-term
borrowings of $500 million, and proceeds and excess tax benefits realized from
stock options exercised of $52.8 million in 2008 versus $130.5 million in
2007. Amounts used in financing activities included treasury stock
purchases of $307.6 million for the first nine months of 2008 versus $647.3
million for the first nine months of 2007. Grainger repurchased 4.3
million shares compared to 7.1 million shares in the first nine months of
2007. As of September 30, 2008, approximately 8.8 million shares
of common stock remained available under Grainger’s repurchase
authorization. Grainger also used cash in financing activities to pay
dividends to shareholders of $90.4 million and $84.8 million for the first
nine months of 2008 and 2007, respectively, and paid off $85.0 million of
short-term borrowings in the first nine months of 2008 versus an increase of
$144.4 million in the first nine months of 2007.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Grainger maintains
a debt ratio and liquidity position that provide flexibility in funding working
capital needs and long-term cash requirements. In addition to
internally generated funds, Grainger has various sources of financing available,
including commercial paper sales and bank borrowings under lines of
credit. Total debt as a percent of total capitalization was 19.8% at
September 30, 2008, and 5.0% at
December 31, 2007. The increase in total debt as a percent
of total capitalization was primarily the result of long-term
borrowings. See Note 6 to the Condensed Consolidated Financial
Statements for additional borrowings detail.
Critical
Accounting Policies and Estimates
The preparation of
financial statements, in conformity with accounting principles generally
accepted in the United States of America, requires management to make judgments,
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses in the financial
statements. Management bases its estimates on historical experience
and other assumptions, which it believes are reasonable. If actual
amounts are ultimately different from these estimates, the revisions are
included in Grainger’s results of operations for the period in which the actual
amounts become known.
Accounting policies
are considered critical when they require management to make assumptions about
matters that are uncertain at the time the estimate is made and when different
estimates than those management reasonably could have made have a material
impact on the presentation of Grainger’s financial condition, changes in
financial condition or results of operations. For a description of
Grainger’s critical accounting policies see the Company’s Annual Report on Form
10-K for the year ended December 31, 2007.
W.W.
Grainger, Inc. and Subsidiaries
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking
Statements
This Form 10-Q
contains statements that are not historical in nature but concern future results
and business plans, strategies and objectives and other matters that may be
deemed to be “forward-looking statements” under the federal securities
laws. Grainger has generally identified such forward-looking
statements by using words such as "continued incremental sales growth, continues
to believe it complies, could, expect, expected, expects, intended, intends, is
targeting, may, percent complete, projections, should be completed, timing and
outcome are uncertain, and will" or similar expressions.
Grainger cannot
guarantee that any forward-looking statement will be realized although Grainger
does believe that its assumptions underlying its forward-looking statements are
reasonable. Achievement of future results is subject to risks and uncertainties
which could cause Grainger’s results to differ materially from those which are
presented.
Factors that could
cause actual results to differ materially from those presented or implied in a
forward-looking statement include, without limitation: higher product costs or
other expenses; a major loss of customers; increased competitive pricing
pressures; failure to develop or implement new technologies or business
strategies; the outcome of pending and future litigation or governmental or
regulatory proceedings; changes in laws and regulations; disruption of
information technology or data security systems; general industry or market
conditions; general economic conditions; labor shortages; facilities disruptions
or shutdowns; higher fuel costs or disruptions in transportation services;
natural and other catastrophes; and unanticipated weather
conditions.
Caution should be
taken not to place undue reliance on Grainger’s forward-looking statements and
Grainger undertakes no obligation to publicly update the forward-looking
statements, whether as a result of new information, future events or
otherwise.
PART
I – FINANCIAL INFORMATION
Item
3. Quantitative and Qualitative
Disclosures About Market Risk
For quantitative
and qualitative disclosures about market risk, see “Item 7A: Quantitative and
Qualitative Disclosures About Market Risk” in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2007.
Disclosure Controls and
Procedures
Grainger carried
out an evaluation, under the supervision and with the participation of its
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of Grainger’s
disclosure controls and procedures pursuant to Exchange Act Rule
13a-15. Based upon that evaluation, the Chief Executive Officer and
the Chief Financial Officer concluded that Grainger’s disclosure controls and
procedures were effective as of the end of the period covered by this
report.
Changes in Internal Control
Over Financial Reporting
There were no
changes in Grainger’s internal control over financial reporting that occurred
during the third quarter, that have materially affected, or are reasonably
likely to materially affect, Grainger’s internal control over financial
reporting.
Items 1A, 3, 4 and
5 not applicable.
As
previously reported, the Company received a letter in December 2007 from the
Commercial Litigation Branch of the Civil Division of the Department of Justice
(the “DOJ”) regarding the Company’s contract with the United States General
Services Administration (the “GSA”). The letter suggested that the Company had
not complied with its disclosure obligations and the contract’s pricing
provisions, and had potentially overcharged government customers under the
contract.
Discussions
relating to the Company’s compliance with its disclosure obligations and the
contract’s pricing provisions are ongoing. The timing and outcome of
these discussions are uncertain and could include settlement or civil litigation
by the DOJ to recover, among other amounts, treble damages and penalties under
the False Claims Act. While this matter is not expected to have a
material adverse effect on the Company’s financial position, an unfavorable
resolution could result in material payments by the Company. The
Company continues to believe that it has complied with the GSA contract in all
material respects.
Item
2. Unregistered Sales of Equity Securities
and Use of Proceeds
Issuer
Purchases of Equity Securities – Third Quarter
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
|
|
|
|
|
|
|
July 1 – July
31
|
350,000
|
$83.38
|
350,000
|
8,811,100
|
shares
|
|
|
|
|
|
|
August 1 –
August 31
|
3,375
|
$89.15
|
–
|
8,811,100
|
shares
|
|
|
|
|
|
|
Sept. 1 –
Sept. 30
|
–
|
–
|
–
|
8,811,100
|
shares
|
|
|
|
|
|
|
Total
|
353,375
|
$83.44
|
350,000
|
|
|
(A)
|
There were
3,375 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. Activity is reported on a trade date
basis.
|
(C)
|
Purchases
were made pursuant to a share repurchase program approved by Grainger’s
Board of Directors. On April 30, 2008, Grainger announced that
its 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.
|
Item
6.
|
Exhibits
|
|
|
|
|
(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.
|
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: October
30, 2008
|
By:
|
/s/ R. L.
Jadin
|
|
|
R. L. Jadin,
Senior Vice President
and Chief
Financial Officer
|
Date: October
30, 2008
|
By:
|
/s/ G. S.
Irving
|
|
|
G. S. Irving,
Vice President
and
Controller
|