W.W. Grainger, Inc. 2002 Annual Report (10-K) Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2002. W.W. Grainger, Inc. is the leading North American distributor of facility maintenance products, serving over 1.5 million customers through a multichannel model including branches, catalogs, and the Internet. The Company operates in three primary segments: Branch-based Distribution Businesses (including Industrial Supply, Acklands-Grainger in Canada, and FindMRO), Lab Safety, and Integrated Supply. The Digital segment was discontinued in April 2001.
Key Financial Metrics
Based on the "Computations of Earnings Per Share" exhibit included in the filing:
- Net Earnings (2002): $211,567,000 (includes a cumulative effect of accounting change of $(23,921,000)).
- Earnings Before Accounting Change (2002): $235,488,000.
- Earnings Per Share (Diluted): $2.24 (Net); $2.50 (Before accounting change).
- Weighted Average Shares Outstanding (Basic): 91,982,430.
- Total Assets (2002): $2,437 million.
- Employees (Dec 31, 2002): 15,236 (13,183 full-time).
- Facilities: 17,564,000 square feet of owned and leased space.
Note: The filing text provided incorporates by reference the Consolidated Statements of Earnings, Balance Sheets, and Cash Flows. Specific values for Revenue, Operating Profit, Cash Flow, Debt, and Liquidity ratios are not explicitly stated in the provided text segments, though Net Earnings and Total Assets are available.
Material Changes and Operational Highlights
- Accounting Change: A cumulative effect of an accounting change reduced 2002 net earnings by $23.9 million ($0.26 per share).
- Asset Base: Total assets increased to $2,437 million in 2002 from $2,331 million in 2001.
- Distribution Network: Industrial Supply is reconfiguring its network to remove a warehousing step, transforming zone and regional centers into automated Distribution Centers (DCs). Five new and four redesigned DCs are planned.
- Branch Activity: In 2002, Industrial Supply opened six new branches, relocated five, and closed one. Investment in plant and equipment for branches exceeded $4 million.
- Joint Venture: Finalized a joint venture in Canada (Acklands-Grainger) combining automotive aftermarket parts with Uni-Select Inc., in which Grainger holds a 50% stake.
- Internet Sales: Orders processed through grainger.com generated approximately $420 million in sales in 2002, up from $333 million in 2001.
Outlook, Risks, and Contingencies
- Legal Proceedings: The Company is a defendant in approximately 600 asbestos-related lawsuits involving 1,110 plaintiffs. Management believes a substantial portion is covered by insurance and that the ultimate resolution will not have a material adverse effect on financial position.
- Competition: Faces competition from manufacturers, wholesale distributors, catalog houses, and Internet-based businesses. Grainger competes on local stock availability, service, and pricing.
- Internal Controls: Management concluded that disclosure controls and procedures are effective as of the evaluation date. No significant changes in internal controls were reported subsequent to the evaluation.
- Guidance: The provided text does not contain specific forward-looking financial guidance or earnings projections for future periods.
Investor Verification Checklist
- Verify the full Consolidated Statements of Earnings (referenced on page 32 of the Annual Report) to confirm total Revenue and Operating Income figures not explicitly detailed in this text.
- Review the Consolidated Balance Sheets (referenced on pages 34-35) for specific Debt, Cash, and Liquidity positions.
- Examine the Notes to Financial Statements for details regarding the nature of the "cumulative effect of accounting change" that reduced 2002 earnings.
- Monitor the status of the asbestos litigation and insurance coverage discussions, as these represent a material contingency.
- Assess the progress and cost implications of the distribution network redesign (new automated DCs) mentioned in the Industrial Supply section.