What drove the increase in net earnings despite flat sales?

The increase in net earnings was primarily driven by stronger operating earnings, up 5% year-over-year for the quarter, and the positive impact of adopting SFAS No. 142. This new accounting standard eliminated goodwill and intangible asset amortization, which had a favorable effect on reported net income. Additionally, a gain from the liquidation of branch facilities and other assets contributed to the improvement in 'Other Income and Expense'.

How did the adoption of SFAS No. 142 affect the financial statements?

The adoption of SFAS No. 142, effective January 1, 2002, resulted in the cessation of goodwill amortization. This led to a one-time, non-cash impairment charge of $32.3 million ($23.9 million after-tax, or $0.25 per diluted share) related to the goodwill of its Canadian subsidiary, Acklands-Grainger Inc. While this charge reduced net earnings for the nine-month period, eliminating amortization going forward benefited reported earnings.

What is the outlook for the different business segments?

The Branch-based Distribution Businesses showed resilience, with flat sales year-over-year for the quarter, despite a 1% daily sales decline in the U.S. and a 12% decline in Canada, partly due to the formation of a joint venture. Grainger Integrated Supply saw strong sales growth of 14%. However, Lab Safety Supply experienced a 5% sales decrease due to weakness in the manufacturing sector. The Digital segment has ceased operations.

How is the company managing its debt and liquidity?

The company maintains a strong liquidity position, with cash and cash equivalents increasing to $218.47 million as of September 30, 2002. The debt ratio remained low at 8% of total capitalization. In September 2002, the company issued $113.7 million in commercial paper to repay outstanding long-term debt and entered into a cross-currency swap to hedge its net investment in its Canadian subsidiary.

GWW 10-Q Quarterly Report Q3 FY2002 — Revenue, Net Income, EPS

Summary

W.W. Grainger, Inc. reported mixed financial results for the third quarter of 2002. Net sales were largely flat year-over-year, impacted by ongoing economic weakness. However, net earnings showed a solid increase of 7%, driven by improved operating earnings and the beneficial impact of adopting new accounting standards for goodwill and intangibles. The company also continued to see strong growth in its online sales channel, grainger.com. Operationally, the company is navigating a challenging economic environment. While the core Branch-based Distribution segment showed resilience, with improved gross margins and operating performance in the U.S. and Mexico, performance in Canada was weaker. The Digital segment has ceased operations following the wind-down of Material Logic, with its remaining functions integrated into the Branch-based segment. Significant changes in accounting for goodwill and intangibles, particularly the cessation of amortization, positively impacted reported net earnings. The company is also managing its capital structure and liquidity effectively.

Key Highlights

1Net sales for the third quarter of 2002 were $1,203.4 million, a slight increase compared to $1,199.4 million in the prior year's third quarter.
2Net earnings for the third quarter increased by 7% to $59.95 million ($0.65 per diluted share) from $56.02 million ($0.60 per diluted share) in the same period last year.
3Online sales through grainger.com saw significant growth, increasing 29% year-over-year for the third quarter.
4The company adopted new accounting standards (SFAS No. 142) for goodwill and other intangibles, which eliminated amortization expense and resulted in a one-time goodwill impairment charge of $32.3 million ($23.9 million after-tax) related to its Canadian subsidiary.
5Operating earnings increased by 5% for the third quarter to $100.19 million compared to $95.38 million in the prior year.
6Cash and cash equivalents increased by $49.6 million for the nine months ended September 30, 2002, ending the period at $218.47 million.
7The company experienced a decline in sales for its Lab Safety Supply segment, down 5% for the quarter, attributed to its customer base in the weak manufacturing sector.

W.W. GRAINGER, INC. Quarterly Report for Q3 Ended Sep 30, 2002

Summary

Key Highlights

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