2017 Annual Report
For more information:
The Grainger Fact Book contains information about the company’s strategy, operations and business
units. The Fact Book can be found on the Grainger Investor Relations website at grainger.com/investor.
Grainger’s Corporate Social Responsibility commitments include operating responsibly, valuing its people,
sustaining the environment and serving its communities. To learn more about Grainger’s CSR efforts,
please visit graingercsr.com.
To Our Shareholders:
At Grainger, we strive to understand and solve the unique needs of maintenance, repair and operating (MRO)
professionals. This past year marked our 90th year of helping our customers keep their operations running and their
people safe. We worked hard to earn the trust of our customers and were honored to help them recover and rebuild
from devastating natural disasters. We were also there to support our communities during these challenging times.
In 2017, we took action to become more relevant to our customers and to compete more aggressively in the market
by investing in our digital platform, adjusting our pricing to be more competitive in the United States and resetting our
business model in Canada. We also launched a comprehensive effort to remove $150–$210 million of cost from the
business through 2019. We remain on track with our revenue, volume and expense management goals and have
fortified a solid foundation for growth.
Our 2017 highlights include:
• Company sales of $10.4 billion, up 3 percent from 2016.
• Volume growth of 8 percent versus 2016.
• Reported earnings per share of $10.02, up 2 percent from 2016. On an adjusted basis, earnings per share were
$11.46, down 1 percent versus 2016.
• Cash generated from operations of $1.1 billion with free cash flow of $940 million, up 3 percent from 2016.
• Cash returned to shareholders of $910 million in the form of approximately 3.0 million shares repurchased for
$605 million and $304 million in dividends paid.
Grainger competes in mature economies where we have a leading position. We leverage our scale in these markets
by competing with two distinct business models. The first, the multichannel model, is characterized by high-touch
solutions to meet complex customer needs. This includes a stocked assortment of high-quality, industrial products as
well as the support of Grainger sellers, branch associates and customer service agents all possessing strong technical
knowledge. The Grainger business in the United States, Acklands–Grainger in Canada and Cromwell in the United
Kingdom all compete with this model. The second, the single channel model, is characterized by a very broad assortment
of products across all categories, competitive pricing and a simple customer experience. Our MonotaRO business in
Japan and Zoro companies in the United States, Germany and the United Kingdom compete with this model.
In 2017, we took significant steps to create even more value for customers of the multichannel offer. In the United States,
we instituted competitive pricing that helped drive significant volume growth with both large and midsize customers
who previously saw pricing as a barrier to our value. We also improved our digital capabilities and executed our sales
and services model to create value for customers. In Canada, we launched a reset of the business to ensure its
long-term profitability and growth. At Cromwell, we added supply chain capacity and invested in improved digital
solutions for customers.
i
In the single channel model, we continued to see great growth and profitability expansion in 2017. These businesses
continue to focus on developing an “endless” assortment, acquiring new customers effectively and delivering a strong
customer experience at a low cost.
Grainger’s strong eCommerce capabilities, advantaged supply chain network and robust IT systems enable growth
with existing and new customers at the best cost across the multichannel and single channel models. We continued
to make investments in these areas in 2017, including the launch of Gamut, an innovative new website focused on
providing the absolute best product search capabilities in our space. We also broke ground on a new distribution
center in Louisville, Kentucky, scheduled to open in 2020.
Our 2018 priorities directly support our customers, team members and shareholders:
• Leverage our Gamut and Grainger.com capabilities to build the best digital solution in our market.
• Execute on our sales and services model to create unique value for our customers.
• Improve our industry-leading order transaction process to support customers and team members.
• Complete the reset of our Canadian business.
• Ensure each business in the international portfolio drives profitable growth.
• Continue to grow our single channel model while expanding margins.
• Execute on our cost reduction targets.
• Improve our team member experience and leader development to drive team member engagement.
By executing these priorities, we expect to generate attractive returns for our shareholders and deliver a great
experience for our customers and team members.
Every day, Grainger team members build relationships and expand our reputation as a trusted partner to the
hardworking people who keep the economy growing. Customers of different sizes and industries trust Grainger.
We will continue to work hard to earn that trust by delivering value and operating with the highest ethics and integrity.
I’m honored by the accolades and recognition we received in 2017 for such work, including our inclusion in the
Dow Jones Sustainability Index and our first-place category rank in Fortune’s “World’s Most Admired Companies”
for the fifth consecutive year.
I’m proud of what the Grainger team has accomplished and how our work in 2017 helped create a solid foundation for
us to create value and accelerate our growth in 2018. Our plan moving forward is to have consistent, steady execution
focused on those things that matter to our customers. That is how we achieve our goals and win in the marketplace.
D.G. Macpherson
Chairman and Chief Executive Officer
February 26, 2018
ii
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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
(State or other jurisdiction of incorporation or
organization)
100 Grainger Parkway, Lake Forest, Illinois
(Address of principal executive offices)
36-1150280
(I.R.S. Employer Identification No.)
60045-5201
(Zip Code)
(847) 535-1000
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock $0.50 par value
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes [ ] No [X]
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. Yes [X]
No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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.
1
Large accelerated filer [X] 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 Act). Yes [ ]
No [X]
The aggregate market value of the voting common equity held by nonaffiliates of the registrant was $9,747,864,843
as of the close of trading as reported on the New York Stock Exchange on June 30, 2017. The Company does not
have nonvoting common equity.
The registrant had 56,105,411 shares of the Company’s Common Stock outstanding as of January 31, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed in connection with the annual meeting of shareholders
to be held on April 25, 2018, are incorporated by reference into Part III hereof of this Form 10-K where indicated the
definitive 2018 proxy statement will be filed on or about March 15, 2018.
2
TABLE OF CONTENTS
Page(s)
PART I
Item 1:
Item 1A:
Item 1B:
Item 2:
Item 3:
Item 4:
Item 4A:
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
Item 5:
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 6:
Item 7:
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 7A:
Item 8:
Item 9:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9A:
Item 9B:
CONTROLS AND PROCEDURES
INFORMATION REQUIRED TO BE DISCLOSED IN A FORM 8-K
PART III
Item 10:
Item 11:
Item 12:
Item 13:
Item 14:
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
DIRECTORS AND EXECUTIVE OFFICERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
Item 15:
Signatures
4
8
12
12
12
12
13
14
16
17
32
32
32
33
33
34
34
34
34
34
35
77
3
Item 1: Business
The Company
PART I
W.W. Grainger, Inc., incorporated in the State of Illinois in 1928, is a broad line, business-to-business distributor of
maintenance, repair and operating (MRO) supplies and other related products and services. W.W. Grainger, Inc.'s
operations are primarily in the United States (U.S.) and Canada, with a presence in Europe, Asia and Latin America.
In this report, the words “Grainger” or “Company” mean W.W. Grainger, Inc. and its subsidiaries.
Grainger uses a combination of multichannel and single channel online business models to provide customers, primarily
businesses, with a range of options for finding and purchasing MRO products, utilizing sales representatives, contact
centers, catalogs, inventory management solutions and eCommerce technology. Grainger serves more than 3 million
customers worldwide through a network of highly integrated distribution centers, websites, branches and inventory
management solutions.
Products are regularly added to and removed from Grainger's product lines on the basis of customer demand, market
research, suppliers' recommendations, sales volumes and other factors.
Grainger's centralized business support functions provide coordination and guidance in the areas of supply chain,
product management, accounting and finance, strategy, communications and investor relations, human resources,
compensation and benefits, information systems, health and safety, procurement, risk management, internal audit,
legal, real estate, security, tax and treasury. These services are provided in varying degrees to all business units.
Grainger’s two reportable segments are the U.S. and Canada, and they are described further below. Other businesses
include the single channel online businesses Zoro Tools, Inc. (Zoro) in the U.S. and MonotaRO Co., Ltd. (MonotaRO)
in Japan and operations in Europe, Asia and Latin America. These businesses generate revenue through the distribution
of MRO supplies and products and related services. For segment and geographical information and consolidated net
sales and operating earnings, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and Note 16 to the Consolidated Financial Statements.
United States
The U.S. business offers a broad selection of MRO supplies and other related products and services through sales
representatives, catalogs, eCommerce and local branches. A combination of product breadth, local availability, speed
of delivery, detailed product information and competitively priced products and services is provided by this business.
Products offered include material handling equipment, safety and security supplies, lighting and electrical products,
power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies and metalworking tools.
Services offered primarily relate to inventory management solutions.
The majority of products sold by the U.S. business are nationally branded products. In addition, 22% of 2017 sales
were private label MRO items bearing Grainger’s registered trademarks, including DAYTON®, SPEEDAIRE®, AIR
HANDLER®, TOUGH GUY®, WESTWARD®, CONDOR® and LUMAPRO®. Grainger has taken steps to protect these
trademarks against infringement and believes that they will remain available for future use in its business. The U.S.
business purchases products for sale from more than 2,600 suppliers, most of which are manufacturers. Through a
global sourcing operation, the business procures competitively priced, high-quality products produced outside the U.S.
from approximately 400 suppliers. No single supplier comprised more than 5% of total purchases and no significant
barriers thus far exist with respect to sources of supply.
4
The U.S. business operates and fulfills orders in all 50 states and exports to a select number of countries through a
network of distribution centers (DCs), branches and contact centers. Customers range from small and mid-sized
businesses to large corporations, government entities and other institutions. They are primarily represented by
purchasing managers or employees in facilities maintenance departments and service shops across a wide range of
industries such as manufacturing, hospitality, transportation, government, retail, healthcare and natural resources.
Sales in 2017 were made to approximately 1 million customers averaging 113,000 daily transactions. No single customer
accounted for more than 4% of total sales.
Macro trends are changing the way Grainger's customers behave. Customers want highly tailored solutions with real-
time access to information and just-in-time delivery of products and services. Demands for transparency are also
increasing as access to information expands. These changes in behaviors are reflected in how customers do business
with the U.S. business as demonstrated in the following chart:
*CAGR is defined as compound annual growth rate.
Customers continue to migrate to web platforms and electronic purchasing platforms such as EDI, eProcurement and
KeepStock®, the electronic inventory management offering. Through Grainger.com and other branded websites, which
serve as prominent channels in the U.S. business, customers have access to approximately 2.4 million products.
Grainger.com provides real-time price and product availability and detailed product information and offers features
such as product search and compare capabilities. For customers with sophisticated electronic purchasing platforms,
the U.S. business utilizes technology that allows these systems to communicate directly with Grainger.com.
Inventory management services is another area where the U.S. business helps customers be more productive.
KeepStock® inventory solutions is a comprehensive program that includes vendor-managed inventory, customer-
managed inventory and onsite vending machines. The U.S. business KeepStock® program currently provides services
to nearly 20,000 customers and, in 2017, facilitated approximately 9,000 installations. As of December 31, 2017, there
were approximately 65,000 total installations.
As of December 31, 2017, the U.S. business had 284 branches (251 stand alone, 31 onsite and 2 will-call express
locations), 16 DCs, 3 national contact centers and 37 regional contact centers, which are located within branches.
DCs in the U.S. business range in size from approximately 45,000 square feet to 1.3 million square feet, the largest
of which can accommodate more than 500,000 in-stock products. Automated equipment and processes allow DCs
to handle the majority of the customer shipping for next-day product availability and replenish branches that provide
5
same-day availability. The DC network fulfills a large portion of customer orders, especially as customers migrate to
website and electronic purchasing.
Branches in the U.S. business serve the immediate needs of customers in their local markets by allowing them to
directly pick up items. In addition, branches support local KeepStock® operations. The branch network has
approximately 1,700 employees who primarily fulfill counter and will-call product purchases and provide customer
service. Branch network sales volume has continued to grow throughout 2017.
Grainger's contact center network in the U.S. business consists of approximately 1,900 employees who handle about
70,000 customer interactions per day including approximately 20,000 orders via phone, e-mail and fax. To enable
improved customer service, team member engagement and efficiencies, the 37 regional contact centers are currently
being consolidated to 3 national contact centers with expanded work-from-home arrangements.
The U.S. business has a sales force of approximately 3,500 professionals who help customers select the right products
to find immediate solutions to their needs and reduce costs by utilizing Grainger as a consistent source of supply. In
2017, the U.S. business continued to focus its outside sales force on facilitating growth with large customers who
typically have more complex purchasing requirements than small and mid-sized customers. The U.S. business primarily
utilizes a network of inside sellers and digital channels to meet the needs of small and mid-sized customers.
The Grainger catalog, most recently issued in February 2018, offers approximately 365,000 MRO products and is used
by customers to assist in product selection. The 2018 catalog includes almost 24,000 new items and approximately
1 million copies of the catalog were produced.
Grainger estimates the U.S. market for MRO products to be approximately $127 billion in 2017, of which the U.S.
business share is approximately 6%.
Canada
Acklands – Grainger Inc. and its subsidiaries (the Canada business) is Canada’s leading broad line MRO distributor.
This business provides a combination of product breadth, local availability, speed of delivery, detailed product
information and competitively priced products and services.
The Canada business serves customers through branches, sales and service representatives and DCs across
Canada. As of December 31, 2017, the Canada business had 91 branches and 6 DCs. Approximately 13,000
sales transactions are completed daily. Customers have access to more than 131,000 stocked products through
a comprehensive catalog. In addition, customers can purchase products through various fully bilingual websites.
Grainger estimates the 2017 Canada market for MRO products was approximately $11 billion, of which the
Canada business share is approximately 7%.
Other businesses
Other businesses include Zoro in the U.S., MonotaRO in Japan and operations in Europe, Asia and Latin America.
The businesses in this group with revenues of more than $100 million in 2017 are described below.
Zoro
Zoro is an online MRO distributor primarily serving U.S. customers through its website, Zoro.com. Zoro offers a broad
selection of more than 1 million products. Zoro has no branches or sales force, and customer orders are primarily
fulfilled through the U.S. business supply chain.
MonotaRO
Grainger operates in Japan and other Asian countries primarily through its majority interest in MonotaRO. MonotaRO
provides customers with MRO products primarily through its catalogs and websites. A majority of orders are conducted
through Monotaro.com, through which customers have access to approximately 13 million products. MonotaRO fulfills
the majority of orders from three DCs. Grainger estimates the Japanese market for MRO products was approximately
$42 billion in 2017, of which MonotaRO’s share is approximately 2%.
Cromwell
Cromwell is a broad line MRO distributor in the United Kingdom (U.K.) serving approximately 130,000 customers.
Headquartered in Leicester, England, as of December 31, 2017, Cromwell had 45 U.K. branches, 10 international
branches in 10 countries and one DC. Customers have access to approximately 170,000 MRO products through
a catalog and through Cromwell.co.uk. Grainger estimates the U.K. market for MRO products was approximately
$15 billion in 2017, of which Cromwell's share is approximately 2%. In November 2017, Cromwell launched a
new brand and website Zoro.co.uk and its customer orders are primarily fulfilled through the Cromwell business
supply chain.
6
Fabory
Fabory is a European specialty distributor of fasteners and MRO products. Fabory is headquartered in Tilburg, the
Netherlands. As of December 31, 2017, Fabory had 44 branches in 13 countries and two DCs. Customers have access
to more than 250,000 products through a catalog and Fabory.com. Grainger estimates the European market (in which
Fabory has its primary operations) for MRO products, including fasteners, was approximately $37 billion in 2017, of
which Fabory’s share is approximately 1%.
Grainger Mexico
Grainger’s operations in Mexico provide local businesses with MRO supplies and other related products primarily
from Mexico and the U.S. As of December 31, 2017, the business in Mexico distributes products through a
network of 19 branches and two DCs. Customers have access to approximately 330,000 products through a
Spanish-language catalog and through Grainger.com.mx. Grainger estimates the Mexican market for MRO
products was approximately $10 billion in 2017, of which Grainger Mexico’s share is approximately 1%.
Seasonality
Grainger’s business in general is not seasonal, however, there are some products that typically sell more often during
the winter or summer seasons. In any given month, unusual weather patterns, that is, unusually hot or cold weather,
could positively or negatively impact the sales volumes of these products.
Competition
Grainger faces competition in each market from manufacturers (including some of its own suppliers) that sell directly
to certain segments of the market, to wholesale distributors, catalog houses, retail enterprises and Internet-based
businesses. Grainger differentiates itself by providing local product availability, a broad product line, sales
representatives, competitive pricing, catalogs (which include product descriptions and, in certain cases, extensive
technical and application data) and electronic and eCommerce technology. Grainger also offers other services, such
as inventory management. Grainger has several large competitors and continues to be highly competitive against the
predominant number of small local and regional competitors.
Employees
As of December 31, 2017, Grainger had approximately 25,700 employees, of whom approximately 24,400 were full-
time and 1,300 were part-time or temporary. Grainger has never had a major work stoppage and considers employee
relations to be good.
Website Access to Company Reports
Grainger makes available free of charge, through its website, www.Grainger.com/investor, its Annual Report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports
if any, as soon as reasonably practicable after these materials are electronically filed with or furnished to the U.S.
Securities and Exchange Commission (SEC).
In addition, the public may read and copy any materials the Company files with the SEC at the SEC's Public Reference
Room at 100 F Street, NE, Washington D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at (800) SEC-0330. The SEC maintains a website that contains reports, proxy
and information statements and other information regarding issuers that file electronically with the SEC and the address
of that site is http://www.sec.gov.
7
Item 1A: Risk Factors
The following is a discussion of significant risk factors relevant to Grainger’s business that could adversely affect its
financial condition, results of operations and cash flows. The risk factors discussed in this section should be considered
together with information included elsewhere in this Annual Report on Form 10-K and should not be considered the
only risks to which the Company is exposed.
Weakness in the economy, market trends and other conditions affecting the profitability and financial stability
of Grainger’s customers could negatively impact Grainger’s sales growth and results of operations.
Economic and industry trends affect Grainger’s business environments. Grainger serves several industries in which
the demand for its products and services is sensitive to the production activity, capital spending and demand for
products and services of Grainger’s customers. Many of these customers operate in markets that are subject to cyclical
fluctuations resulting from market uncertainty, costs of goods sold, currency exchange rates, foreign competition,
offshoring of production, oil and natural gas prices, geopolitical developments and a variety of other factors beyond
Grainger’s control. Any of these factors could cause customers to idle or close facilities, delay purchases, reduce
production levels or experience reductions in the demand for their own products or services.
Any of these events could impair the ability of Grainger’s customers to make full and timely payments or reduce the
volume of products and services these customers purchase from Grainger and could cause increased pressure on
Grainger’s selling prices and terms of sale. Accordingly, a significant or prolonged slowdown in activity in the U.S.,
Canada or any other major world economy, or a segment of any such economy, could negatively impact Grainger’s
sales growth and results of operations.
The facilities maintenance industry is highly competitive, and changes in competition could result in decreased
demand for Grainger’s products and services.
There are several large competitors in the industry, although most of the market is served by small local and regional
competitors. Grainger faces competition in all markets it serves, from manufacturers (including some of its own
suppliers) that sell directly to certain segments of the market, wholesale distributors, catalog houses, retail enterprises
and online businesses that compete with price transparency.
To remain competitive, the Company must be willing and able to respond to market pressures, including pricing, whether
widely available or negotiated under a contract, delivery and services. These pressures, and the implementation, timing
and results of our strategic pricing and other responses, could have a material effect on Grainger's sales and profitability.
If the Company is unable to grow sales or reduce costs, among other actions, to wholly or partially offset the effect on
profitability of our pricing actions, the Company's results of operations and financial condition may be adversely affected.
The industry is also consolidating as customers are increasingly aware of the total costs of fulfillment and of the need
to have consistent sources of supply at multiple locations. This consolidation could cause the industry to become more
competitive as greater economies of scale are achieved by competitors, or as competitors with a new lower cost
business models are able to operate with lower prices.
Changes in inflation may adversely affect gross margins.
Inflation impacts the costs at which Grainger can procure product and the ability to increase prices to customers over
time. Prolonged periods of deflation could adversely affect the degree to which Grainger is able to increase sales
through price increases.
Volatility in commodity prices may adversely affect gross margins.
Some of Grainger’s products contain significant amounts of commodity-priced materials, such as steel, copper,
petroleum derivatives or rare earth minerals, and are subject to price changes based upon fluctuations in the
commodities market. Fluctuations in the price of fuel could affect transportation costs. Grainger’s ability to pass on
such increases in costs in a timely manner depends on market conditions. The inability to pass along cost increases
could result in lower gross margins. In addition, higher prices could impact demand for these products, resulting in
lower sales volumes.
8
Unexpected product shortages could negatively impact customer relationships, resulting in an adverse impact
on results of operations.
Grainger’s competitive strengths include product selection and availability. Products are purchased from approximately
5,200 suppliers located in various countries around the world, not one of which accounted for more than 5% of total
purchases. Historically, no significant difficulty has been encountered with respect to sources of supply; however,
disruptions could occur due to factors beyond Grainger’s control, including economic downturns, geopolitical unrest,
port slowdowns, trade issues and other factors, any of which could adversely affect a supplier’s ability to manufacture
or deliver products. As Grainger continues to source lower cost products from Asia and other areas of the world, the
risk for disruptions has increased due to the additional lead time required and distances involved. If Grainger was to
experience difficulty in obtaining products, there could be a short-term adverse effect on results of operations and a
longer-term adverse effect on customer relationships and Grainger’s reputation. In addition, Grainger has strategic
relationships with a number of vendors. In the event Grainger was unable to maintain those relations, there might be
a loss of competitive pricing advantages which could, in turn, adversely affect results of operations.
Changes in customer or product mix could cause the gross margin percentage to decline.
From time to time, Grainger experiences changes in customer and product mix that affect gross margin. Changes in
customer and product mix result primarily from business acquisitions, changes in customer demand, customer
acquisitions, selling and marketing activities and competition. If rapid growth with larger, lower margin customers
continues, Grainger will face pressure to maintain current gross margins, as these customers receive more discounted
pricing due to their higher sales volume. There can be no assurance that Grainger will be able to maintain historical
gross margins in the future.
Disruptions in Grainger’s supply chain could result in an adverse impact on results of operations.
A disruption within Grainger’s logistics or supply chain network, including damage, destruction, extreme weather and
other events, which could cause one or more of Grainger’s distribution centers to become non-operational, could
adversely affect Grainger’s ability to obtain or deliver inventory in a timely manner, impair Grainger’s ability to meet
customer demand for products and result in lost sales or damage to Grainger’s reputation. Grainger’s ability to provide
same-day shipping and next-day delivery is an integral component of Grainger’s business strategy and any such
disruption could adversely impact results of operations.
Interruptions in the proper functioning of information systems could disrupt operations and cause
unanticipated increases in costs and/or decreases in revenues.
The proper functioning of Grainger’s information systems is critical to the successful operation of its business. Grainger
continues to invest in software, hardware and network infrastructures in order to effectively manage its information
systems. Although Grainger’s information systems are protected with robust backup and security systems, including
physical and software safeguards and remote processing capabilities, information systems are still vulnerable to natural
disasters, power losses, computer viruses, telecommunication failures and other problems. If critical information
systems fail or otherwise become unavailable, among other things, Grainger’s ability to process orders, maintain proper
levels of inventories, collect accounts receivable and disburse funds could be adversely affected. Any such interruption
of Grainger’s information systems could also subject Grainger to additional costs.
Breaches of information systems security could damage Grainger’s reputation, disrupt operations, increase
costs and/or decrease revenues.
Through Grainger’s sales and eCommerce channels, Grainger collects and stores personally identifiable, confidential,
proprietary and other information from customers so that they may, among other things, purchase products or services,
enroll in promotional programs, register on Grainger’s websites or otherwise communicate or interact with the Company.
Moreover, Grainger’s operations routinely involve receiving, storing, processing and transmitting sensitive information
pertaining to its business, customers, suppliers and employees, and other sensitive matters.
While Grainger has instituted safeguards for the protection of such information, during the normal course of business,
Grainger has experienced and expects to continue to experience attempts to breach the Company’s information
systems, and Grainger may be unable to protect sensitive data and/or the integrity of the Company’s information
systems. A cybersecurity incident could be caused by malicious outsiders using sophisticated methods to circumvent
firewalls, encryption and other security defenses. Because techniques used to obtain unauthorized access or to
9
sabotage systems change frequently and generally are not recognized until they are launched against a target, Grainger
may be unable to anticipate these techniques or implement adequate preventative measures.
Moreover, from time to time, Grainger may share information with vendors and other third parties that assist with
certain aspects of the business. While Grainger requires assurances that these vendors and other parties will
protect confidential information, there is a risk that the confidentiality of data held or accessed by them may be
compromised. If successful, those attempting to penetrate Grainger’s or its vendors’ information systems may
misappropriate personally identifiable, credit card, confidential, proprietary or other sensitive customer, supplier,
employee or business information.
In addition, a Grainger employee, contractor or other third party with whom Grainger does business may attempt to
circumvent security measures in order to obtain such information or inadvertently cause a breach involving such
information. Further, Grainger’s systems are integrated with customer systems in certain cases, and a breach of the
Company’s information systems could be used to gain illicit access to customer systems and information.
Loss of customer, supplier, employee or other business information could disrupt operations, damage Grainger’s
reputation and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card
associations, employees and others, any of which could have a material adverse effect on Grainger, its financial
condition and results of operations.
Fluctuations in foreign currency have an effect on reported results of operations.
Grainger’s exposure to fluctuations in foreign currency rates results primarily from the translation exposure
associated with the preparation of the Consolidated Financial Statements, as well as from transaction exposure
associated with transactions in currencies other than an entity’s functional currency. While the Consolidated
Financial Statements are reported in U.S. dollars, the financial statements of Grainger’s subsidiaries outside the
U.S. are prepared using the local currency as the functional currency and translated into U.S. dollars. In addition,
Grainger is exposed to foreign currency exchange rate risk with respect to the U.S. dollar relative to the local
currencies of Grainger’s international subsidiaries, primarily the Canadian dollar, euro, pound sterling, Mexican
peso, renminbi and yen, arising from transactions in the normal course of business, such as sales and loans to
wholly owned subsidiaries, sales to third-party customers, purchases from suppliers and bank loans and lines of
credit denominated in foreign currencies. Grainger also has foreign currency exposure to the extent receipts and
expenditures are not denominated in the subsidiary’s functional currency and that could have an impact on sales,
costs and cash flows. These fluctuations in foreign currency exchange rates could affect Grainger’s results of
operations and impact reported net sales and net earnings.
Changes in Grainger’s credit ratings and outlook may reduce access to capital and increase borrowing costs.
Grainger’s credit ratings are based on a number of factors, including Grainger’s financial strength and factors outside
of Grainger’s control, such as conditions affecting Grainger’s industry generally or the introduction of new rating
practices and methodologies. Grainger cannot provide assurances that Grainger’s current credit ratings will remain in
effect or that the ratings will not be lowered, suspended or withdrawn entirely by the rating agencies. If rating agencies
lower, suspend or withdraw the ratings, the market price or marketability of Grainger’s securities may be adversely
affected. In addition, any change in ratings could make it more difficult for Grainger to raise capital on acceptable
terms, impact the ability to obtain adequate financing and result in higher interest costs for Grainger’s existing credit
facilities or on future financings.
Acquisitions, partnerships, joint ventures and other business combination transactions involve a number of
inherent risks, any of which could result in the benefits anticipated not being realized and could have an
adverse effect on results of operations.
Acquisitions, partnerships, joint ventures and other business combination transactions, both foreign and domestic,
involve various inherent risks, such as uncertainties in assessing value, strengths, weaknesses, liabilities and potential
profitability. There is also risk relating to Grainger’s ability to achieve identified operating and financial synergies
anticipated to result from the transactions. Additionally, problems could arise from the integration of acquired
businesses, including unanticipated changes in the business or industry or general economic conditions that affect
the assumptions underlying the acquisition. Any one or more of these factors could cause Grainger to not realize the
benefits anticipated or have a negative impact on the fair value of the reporting units. Accordingly, goodwill and intangible
assets recorded as a result of acquisitions could become impaired.
10
In order to compete, Grainger must attract, retain and motivate key employees, and the failure to do so could
have an adverse effect on results of operations.
In order to compete and have continued growth, Grainger must attract, retain and motivate executives and other key
employees, including those in managerial, technical, sales, marketing and support positions. Grainger competes to
hire employees and then must train them and develop their skills and competencies. Grainger’s results of operations
could be adversely affected by increased costs due to increased competition for employees, higher employee turnover
or increased employee benefit costs.
Grainger’s continued success is substantially dependent on positive perceptions of Grainger’s reputation.
One of the reasons why customers choose to do business with Grainger and why employees choose Grainger as a
place of employment is the reputation that Grainger has built over many years. To be successful in the future, Grainger
must continue to preserve, grow and leverage the value of Grainger’s brand. Reputational value is based in large part
on perceptions of subjective qualities. Even an isolated incident, or the aggregate effect of individually insignificant
incidents, can erode trust and confidence, particularly if they result in adverse publicity, governmental investigations
or litigation, and as a result, could tarnish Grainger’s brand and lead to adverse effects on Grainger’s business.
Grainger is subject to various domestic and foreign laws, regulations and standards. Failure to comply or
unforeseen developments in related contingencies such as litigation could adversely affect Grainger’s
financial condition, results of operations and cash flows.
Grainger’s business is subject to a wide array of laws, regulations and standards in every domestic and foreign
jurisdiction where it operates, including advertising and marketing regulations, anti-bribery and corruption laws, anti-
competition regulations, data protection (including payment card industry data security standards), data privacy
(including in the U.S. and the European Union, which has traditionally imposed strict obligations under data privacy
laws and regulations that vary from country to country) and cybersecurity requirements (including protection of
information and incident responses), environmental protection laws, foreign exchange controls and cash repatriation
restrictions, government business regulations applicable to Grainger as a government contractor selling to federal,
state and local government entities, health and safety laws, import and export requirements, intellectual property laws,
labor laws, product compliance laws, supplier regulations regarding the sources of supplies or products, tax laws
(including as to U.S. taxes on foreign subsidiaries), unclaimed property laws and laws, regulations and standards
applicable to other commercial matters. Moreover, Grainger is also subject to audits and inquiries in the normal course
of business.
Failure to comply with any of these laws, regulations and standards could result in civil, criminal, monetary and non-
monetary penalties as well as potential damage to the Company’s reputation. Changes in these laws, regulations and
standards, or in their interpretation, could increase the cost of doing business, including, among other factors, as a
result of increased investments in technology and the development of new operational processes. Furthermore, while
Grainger has implemented policies and procedures designed to facilitate compliance with these laws, regulations and
standards, there can be no assurance that employees, contractors or agents will not violate such laws, regulations
and standards or Grainger’s policies. Any such failure to comply or violation could individually or in the aggregate
materially adversely affect Grainger’s financial condition, results of operations and cash flows.
Grainger also is, and from time to time may become, party to a number of legal proceedings incidental to Grainger’s
business involving alleged damages or injuries arising out of the use of Grainger’s products and services or violations
of these laws, regulations or standards. The defense of these proceedings may require significant expenses and divert
management’s time and attention, and Grainger may be required to pay damages that could individually or in the
aggregate materially adversely affect its financial condition, results of operations and cash flows. In addition, any
insurance or indemnification rights that Grainger may have with respect to such matters may be insufficient or
unavailable to protect the Company against potential loss exposures.
Tax changes could affect Grainger’s effective tax rate and future profitability.
Grainger’s future results could be adversely affected by changes in the effective tax rate as a result of changes in
Grainger’s overall profitability and changes in the mix of earnings in countries with differing statutory tax rates, changes
in tax legislation, the results of the examination of previously filed tax returns and continuing assessment of the
Company’s tax exposures.
11
Item 1B: Unresolved Staff Comments
None.
Item 2: Properties
As of December 31, 2017, Grainger’s owned and leased facilities totaled approximately 28.2 million square feet. The
U.S. and Canada businesses accounted for the majority of the total square footage. Grainger believes that its properties
are generally in excellent condition, well maintained and suitable for the conduct of business.
A brief description of significant facilities follows:
Location
U.S. (1)
U.S. (2)
U.S. (3)
Canada (4)
Other businesses (5)
Chicago area (2)
Facility and Use (6)
284 U.S. branch locations
16 distribution centers
Other facilities
139 facilities
Other facilities
Headquarters and general offices
Total Square Feet
Size in Square
Feet (in 000s)
6,367
8,169
3,685
3,147
5,624
1,188
28,180
(1) Consists of 204 owned and 80 leased properties located throughout the U.S. ranging in size from approximately
(2)
(3)
500 to 109,000 square feet.
These facilities are primarily owned and range in size from approximately 45,000 square feet to 1.3 million
square feet.
These facilities include both owned and leased locations, primarily consisting of storage facilities, office space,
call centers and other properties.
(4) Consists of general offices, distribution centers and branches located throughout Canada, of which 58 are
owned and 81 leased.
(5)
These facilities include owned and leased locations in Europe, Asia, Latin America and other U.S. operations.
(6) Owned facilities are not subject to any mortgages.
Grainger continues to evaluate its physical footprint and announced throughout 2017 the intention to close
113 branches in the Canada business.
Item 3: Legal Proceedings
For a description of legal proceedings, see the disclosure contained in Note 17 to the Consolidated Financial Statements
included in "Part II, Item 8: Financial Statements and Supplementary Data" of this report, which is incorporated herein
by reference.
Item 4: Mine Safety Disclosures
Not applicable.
12
Item 4A: Executive Officers of the Registrant
Following is information about the Executive Officers of Grainger including age as of February 26, 2018. Executive
Officers of Grainger generally serve until the next annual election of officers, or until earlier resignation or removal.
Name and Age
Laura D. Brown (54)
Joseph C. High (63)
John L. Howard (60)
Ronald L. Jadin (57)
D.G. Macpherson (50)
Paige K. Robbins (49)
Eric R. Tapia (41)
Positions and Offices Held and Principal Occupation and Employment
During the Past Five Years
Senior Vice President, Communications and Investor Relations, a position
assumed in 2010 after serving as Vice President, Global Business
Communications, a position assumed in 2009 and Vice President, Investor
Relations, a position assumed in 2008.
Senior Vice President and Chief People Officer, a position assumed in June
2011. Prior to joining Grainger, Mr. High was the Senior Vice President of
Human Resources at Owens Corning in Toledo, Ohio, a position assumed
in 2004.
Senior Vice President and General Counsel, a position assumed in 2000.
Senior Vice President and Chief Financial Officer, a position assumed in 2008.
Previously, Mr. Jadin served as Vice President and Controller, a position
assumed in 2006 after serving as Vice President, Finance. On July 19, 2017,
Mr. Jadin announced that he planned to retire from the Company at the end
of 2017. Mr. Jadin has agreed to continue serving the Company in his current
position as Senior Vice President and Chief Financial Officer until the transition
to his successor is completed later in 2018.
Chairman of the Board, a position assumed in October 2017, and Chief
Executive Officer, a position assumed in October 2016 at which time he was
also appointed to the Board of Directors. Previously, Mr. Macpherson served
as Chief Operating Officer, a position assumed in 2015; Senior Vice President
and Group President, Global Supply Chain and International, a position
assumed in 2013; Senior Vice President and President, Global Supply Chain
and Corporate Strategy, a position assumed in 2012, and Senior Vice
President, Global Supply Chain, a position assumed in 2008.
Senior Vice President, Grainger Chief Digital Officer, a position assumed in
September 2017. Previously, Ms. Robbins served as Senior Vice President,
Global Supply Chain, Branch Network, Contact Centers and Corporate
Strategy, a position assumed in 2016. Since joining Grainger in September
2010, Ms. Robbins has held various positions as a Vice President, including
in the areas of Global Supply Chain and Logistics.
Vice President and Controller, a position assumed in 2016. Previously,
Mr. Tapia served as Vice President, Internal Audit from 2010 to 2016.
Mr. Tapia is a Certified Public Accountant (CPA) and before joining
Grainger in 2010 was an audit partner with KPMG.
13
PART II
Item 5: Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Market Information and Dividends
Grainger's common stock is listed and traded on the New York Stock Exchange, under the symbol GWW. The high
and low sales prices for the common stock and the dividends declared and paid per share for each calendar quarter
during 2017 and 2016 are shown below.
2017
2016
Quarters
First
Second
Third
Fourth
Year
First
Second
Third
Fourth
Year
Market Price Per Share
Low
High
Dividends
$
$
$
$
262.72
234.66
185.82
240.49
262.72
234.77
239.95
235.53
240.74
240.74
$
$
$
$
229.05
168.58
155.00
166.46
155.00
176.85
212.64
212.54
201.94
176.85
$
$
$
$
1.22
1.28
1.28
1.28
5.06
1.17
1.22
1.22
1.22
4.83
Grainger expects that its practice of paying quarterly dividends on its common stock will continue, although the payment
of future dividends is at the discretion of Grainger’s Board of Directors and will depend upon Grainger’s earnings,
capital requirements, financial condition and other factors.
Holders
The approximate number of shareholders of record of Grainger’s common stock as of February 7, 2018, was 688 with
approximately 150,934 additional shareholders holding stock through nominees.
Issuer Purchases of Equity Securities - Fourth Quarter
Total Number of
Shares
Purchased (A)
206,586
237,397
410,679
854,662
Average Price
Paid Per Share
(B)
$185.37
$199.91
$227.94
$209.86
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (C)
206,586
237,397
410,679
854,662
Maximum Number of
Shares That May Yet be
Purchased Under the
Plans or Programs
3,506,481 shares
3,269,084 shares
2,858,405 shares
Period
Oct. 1 – Oct. 31
Nov. 1 – Nov. 30
Dec. 1 – Dec. 31
Total
(A) 85 shares were 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.
This plan was announced on April 16, 2015, for 15 million shares with no expiration date. Activity is reported
on a trade date basis.
14
Company Performance
The following stock price performance graph compares the cumulative total return on an investment in Grainger
common stock with the cumulative total return of an investment in each of the Dow Jones US Industrial Suppliers Total
Stock Market Index and the S&P 500 Stock Index. It covers the period commencing December 31, 2012, and ending
December 31, 2017. The graph assumes that the value for the investment in Grainger common stock and in each
index was $100 on December 31, 2012, and that all dividends were reinvested.
W.W. Grainger, Inc.
Dow Jones US Industrial Suppliers Total Stock Market Index
S&P 500 Stock Index
December 31,
2012
2013
2014
2015
2016
2017
$ 100 $ 128 $ 130 $ 105 $ 124 $ 129
100
100
119
132
117
151
95
153
119
171
133
208
15
Item 6: Selected Financial Data
Net sales
Net earnings attributable to W.W.
Grainger, Inc. (herein referred to as
Net earnings)
Net earnings per basic share
Net earnings per diluted share
Total assets
Long-term debt (less current maturities)
and other long-term liabilities
Total shareholders' equity
Cash dividends paid per share
2017
2016
2015
2014
2013
(In thousands of dollars, except for per share amounts)
$ 10,424,858
$ 10,137,204 $ 9,973,384 $ 9,964,953 $ 9,437,758
585,730
10.07
10.02
5,804,254
605,928
768,996
801,729
797,036
9.94
11.69
11.59
11.31
9.87
5,694,307
11.58
5,857,755
11.45
5,283,049
11.13
5,266,328
2,469,860
$ 1,827,733
5.06
$
2,159,602
1,716,507
737,232
743,702
$ 1,905,768 $ 2,352,714 $ 3,284,101 $ 3,326,836
$
4.83 $
4.59 $
4.17 $
3.59
The items discussed below are considered to materially affect the comparability of the information reflected in the
selected financial data. For further information see “Part II, Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations” of this report, which is incorporated herein by reference.
Net earnings for 2017 included a net expense of $84 million primarily consisting of a net charge of $102 million related
to restructuring and other charges primarily consisting of branch closures in the U.S. and Canada businesses, net of
gains on sale of branch real estate in the U.S., the consolidation of the contact center network in the U.S. and the
wind-down of operations in Colombia, which is part of other businesses. This was partially offset by the net benefit of
$15 million related to U.S. tax legislation and other discrete tax items and a net benefit of $3 million related to General
Services Administrative (GSA) and unclaimed property reserves.
Net earnings for 2016 included a net expense of $105 million primarily consisting of the following:
•
Restructuring: A net charge of $26 million related to restructuring actions. These actions primarily included branch
closures, net of gains on sale of branch real estate in the U.S. and Canada businesses.
• Goodwill and intangible impairments: An impairment charge of $52 million related to goodwill and intangible
•
impairments in other businesses.
Unclaimed property contingency: A charge of $23 million related to an adjustment for unclaimed property in the
U.S. business primarily related to activity from 2008 through 2012.
•
• GSA contingency: A charge of $6 million to increase the U.S. business reserve for certain tax, freight and
miscellaneous billing issues in connection with the audit of government contracts with the GSA first entered
in 1999.
Inventory adjustment: A charge of $7 million related to an inventory adjustment in the Canada business to reflect
an updated reserve methodology and better visibility to inventory performance provided by the conversion to the
U.S. ERP system.
Discrete tax items: A net benefit of $9 million related to the conclusion of the federal income tax audit for the years
2009 through 2012 in the U.S. business and other discrete tax items.
•
Net earnings for 2015 included a net charge of $30 million primarily composed of a $25 million net charge related to
the reorganization in the U.S. and Canada businesses and a $5 million charge for restructuring in other businesses.
Net earnings for 2014 included a net charge of $56 million primarily composed of a $28 million charge related to closing
of the business in Brazil, a $10 million charge due to the retirement plan transition in Europe, a $10 million charge
related to restructuring of the business in Europe and a $8 million charge related to a goodwill impairment charge in
other businesses.
Net earnings for 2013 included a net charge of $28 million primarily composed of $21 million in impairment charges
in other businesses primarily for goodwill and a $7 million charge related to restructuring the businesses in Europe
and China.
Grainger completed several acquisitions in the years 2013 through 2015, all of which were immaterial individually
and in the aggregate. Operating results have included the results of each business acquired since the respective
acquisition dates.
16
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
W.W. Grainger, Inc. (Grainger) is a broad line, business-to-business distributor of maintenance, repair and operating
(MRO) supplies and other related products and services with operations primarily in the U.S. and Canada, with a
presence in Europe, Asia and Latin America. More than 3 million customers worldwide rely on Grainger for products
such as safety, gloves, ladders, motors and janitorial supplies, along with services like inventory management and
technical support. These customers represent a broad collection of industries including commercial, government,
healthcare and manufacturing. They place orders online, on mobile devices, through sales representatives, over the
phone and at local branches. Approximately 5,200 suppliers provide Grainger with approximately 1.7 million products
stocked in Grainger's distribution centers (DCs) and branches worldwide.
Grainger’s two reportable segments are the U.S. and Canada. The U.S. operating segment reflects the results of
Grainger’s U.S. businesses. The Canada operating segment reflects the results for Acklands – Grainger Inc. and its
subsidiaries. Other businesses include the single channel online businesses (Zoro in the U.S. and MonotaRO in Japan)
and operations in Europe, Asia and Latin America.
Business Environment
Given Grainger's large number of customers and the diverse industries it serves, several economic factors and industry
trends tend to shape Grainger’s business environment. The overall economy and leading economic indicators provide
general insight into projecting Grainger's growth. Grainger’s sales in the U.S. and Canada tend to positively correlate
with Business Investment, Business Inventory, Exports and Industrial Production. In the U.S., sales tend to positively
correlate with Gross Domestic Product (GDP). In Canada, sales tend to positively correlate with oil prices. The table
below provides these estimated indicators for 2017 and 2018:
Business Investment
Business Inventory
Exports
Industrial Production
GDP
Oil Prices
Source: Global Insight (January 2018)
U.S.
Canada
Estimated
2017
Forecasted
2018
Estimated
2017
Forecasted
2018
5.1%
0.8%
3.4%
1.9%
2.2%
—
7.9%
2.1%
5.3%
3.3%
2.7%
—
2.3%
—
1.1%
5.2%
3.0%
$51/barrel
3.5%
—
1.8%
0.1%
2.4%
$54/barrel
In the U.S., Business Investment and Exports are two major indicators of MRO spending. Per the Global Insight January
2018 forecast, Business Investment is likely to remain on a strong growth path during 2018, supported by expanding
global markets, lower capital costs and an improving regulatory climate. Additionally on December 22, 2017, the Tax
Cuts and Jobs Act was signed into law, which significantly lowered U.S. corporate income tax rates and introduced
accelerated expensing of qualified capital investments, among other changes. These changes to U.S. tax laws may
increase capital spending in the U.S. and attract incremental foreign capital to the U.S., which is expected to support
export growth.
Per the Global Insight January 2018 forecast, Canada's GDP and industrial production are forecast slow in 2018, while
exports and business nonresidental investment (a component of Business Investment) are expected to improve.
Outlook
Grainger’s portfolio consists of its U.S. business, its Canada business and other businesses. Grainger’s imperative to
create unique value is focused on: (i) continuing to grow its share of business with large and mid-size customers in
the U.S. by executing its high-value sales and service model, building an advantaged digital capability and completing
its pricing strategy; (ii) executing a complete business model reset in Canada; (iii) driving profitable growth in its
international portfolio and (iv) continuing the strong growth of its single channel businesses by expanding its assortment
and innovation around customer acquisition. Grainger is also focused on improving the end-to-end customer experience
by making investments in its eCommerce and digital capabilities and executing continuous improvement initiatives
within its supply chain, such that customers have a positive experience with Grainger from order to delivery. Grainger
intends to continue to reduce its cost base while ensuring that it delivers an effortless customer experience.
17
On January 24, 2018, Grainger updated its 2018 earnings per share guidance to reflect the 2017 actual results, lower
corporate tax rate, lower tax benefit from clean energy, incremental investment in digital and higher share repurchases.
The prior earnings per share guidance issued on November 10, 2017 for 2018 was $10.60 to $11.80. The Company
still expects 3 to 7 percent sales growth and now expects earnings per share of $12.95 to $14.15 for 2018.
Matters Affecting Comparability
There were 254 sales days in the full year 2017 and 255 sales days in the full years 2016 and 2015. Grainger completed
one divestiture in 2017 and one acquisition in 2015, which were immaterial individually and in the aggregate. Grainger’s
operating results have included the results of each business acquired since the respective acquisition dates.
Results of Operations
The following table is included as an aid to understanding changes in Grainger's Consolidated Statements of Earnings
(in millions of dollars):
Net sales
Cost of merchandise sold
Gross profit
Warehousing, marketing and administrative
expenses
Operating earnings
Other expense, net
Income taxes
Net earnings
Noncontrolling interest
For the Years Ended December 31,
Percent
Increase/
(Decrease)
from Prior
Year
As a Percent of Net
Sales
2017 (A)
2016 (A)
2017
2017
2016
$
10,425
$
10,137
3 % 100.0% 100.0%
6,327
4,098
3,049
1,049
113
313
622
37
6,023
4,115
2,995
1,119
100
386
633
27
606
5 %
— %
2 %
(6)%
13 %
(19)%
(2)%
36 %
(3)%
60.7
39.3
29.3
10.1
1.1
3.0
6.0
0.4
59.4
40.6
29.6
11.0
1.0
3.8
6.2
0.3
5.6%
6.0%
Net earnings attributable to W.W. Grainger, Inc.
$
586
$
(A) May not sum due to rounding
2017 Compared to 2016
Grainger's net sales were $10,425 million for 2017, an increase of 3%, when compared with net sales of
$10,137 million for the comparable 2016 period. On a daily basis, the 3% increase for the year consisted of
the following:
Volume
Divestiture
Price
Total
Percent Increase/
(Decrease)
8
(1)
(4)
3%
The increase in net sales was primarily driven by the single channel online businesses in the U.S. and Japan, as well
as volume increases in the U.S. business as a result of the pricing actions. The U.S. business pricing actions were
primarily implemented in the first and third quarters of 2017 and included adjusting list price and introducing new lower
web prices on the entire business assortment, which drove faster growth in 2017 through share gains with existing
customers and acquisition of new customers. Refer to the Segment Analysis below for further details.
In 2017, eCommerce sales for Grainger were $5,283 million, an increase of 11% over the prior year. Total eCommerce
sales represented 51% and 47% of total sales for 2017 and 2016, respectively. The increase was primarily driven by
Grainger.com and other electronic purchasing platforms in the U.S. and across all single channel online businesses.
18
If the Company included KeepStock®, total eCommerce and KeepStock® sales would represent 56% and 53% of
total sales for 2017 and 2016, respectively. Refer to the Segment Analysis below for further details.
Gross profit of $4,098 million for 2017 was down $17 million compared with $4,115 million for 2016. The gross profit
margin for 2017 was 39.3%, down 1.3 percentage points versus 2016, driven primarily by the pricing actions in the
U.S. business.
Operating expenses of $3,049 million for 2017 increased 2% from $2,995 million for 2016. Excluding restructuring
costs, gains on the sale of assets and other charges in both periods as noted below, operating expenses increased
3%, driven primarily by higher employee related costs.
Operating earnings of $1,049 million for 2017 decreased 6% from $1,119 million for 2016. Excluding restructuring
costs, gains on the sale of assets and other charges in both periods as noted below, operating earnings decreased
8% or $107 million, driven primarily by lower gross profit and higher operating expenses.
Other expense, net was $113 million in 2017 compared to $100 million of expense in 2016. The increase in
expense was primarily due to incremental interest expense on $400 million in long-term debt issued in May 2016
and $400 million in long-term debt issued in May 2017, as well as higher operating losses from the Company's
clean energy investments.
Income taxes of $313 million in 2017 decreased 19% compared with $386 million in 2016. Grainger's effective tax
rates were 33.5% and 37.9% in 2017 and 2016, respectively. The lower rate versus the prior year is due to discrete
tax items and U.S. tax legislation.
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was signed into law, which significantly revised
the U.S. corporate income tax system by lowering corporate income tax rates from 35% to 21% effective January 1,
2018, allowing accelerated expensing of qualified capital investments for a specific period, limiting net interest
expense deductions and transitioning U.S. international taxation from a worldwide to a territorial tax system,
among other changes. Grainger recognized a net provisional tax benefit of $3.2 million for the year ended
December 31, 2017, related to the estimated impact of the Tax Act. See Note 14 to the Consolidated Financial
Statements for additional information.
Grainger projects a tax rate of 23% to 26% for 2018, which includes the impact of the Tax Act.
The table below reconciles reported net earnings determined in accordance with U.S. generally accepted accounting
principles (GAAP) to adjusted net earnings, a non-GAAP measure. Management believes adjusted net earnings is
an important indicator of operations because it excludes items that may not be indicative of core operating results.
Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure
with other companies' non-GAAP financial measures having the same or similar names. (In thousands of dollars):
19
Net earnings reported
Restructuring (U.S.)
Branch gains (U.S.)
Other (gains) charges (U.S.)
Restructuring (Canada)
Inventory reserve adjustment (Canada)
Restructuring (Other businesses)
Other charges (Other businesses)
Restructuring (Unallocated expense)
U.S. tax legislation
Discrete tax items
Subtotal
Net earnings adjusted
Twelve Months Ended
December 31,
2017
2016
$ 585,730 $ 605,928
30,352
21,234
(20,620)
(11,421)
%
(3)%
(2,830)
30,390
—
55,324
—
6,647
(3,250)
28,531
11,085
7,278
—
52,318
5,603
—
(12,123)
(9,378)
83,890
105,250
$ 669,620 $ 711,178
(6)%
Net earnings attributable to W.W. Grainger, Inc. for 2017 decreased by 3% to $586 million from $606 million in 2016.
The decrease in net earnings primarily resulted from lower operating earnings, partially offset by lower income taxes.
Excluding the net charges from both years mentioned above and discrete tax items, net earnings decreased 6%.
Diluted earnings per share of $10.02 in 2017 were 2% higher than $9.87 for 2016, due to lower average shares
outstanding partially offset by lower earnings. Excluding the charges mentioned above, diluted earnings per share
would have been $11.46 compared to $11.58 in 2016, a decrease of 1%.
2016 Compared to 2015
The following table is included as an aid to understanding changes in Grainger's Consolidated Statements of Earnings
(in millions of dollars):
For the Years Ended December 31,
Percent
Increase/
(Decrease)
from Prior
Year
As a Percent of Net
Sales
2016 (A)
2015 (A)
2016
2016
2015
Net sales
Cost of merchandise sold
Gross profit
Warehousing, marketing and administrative
expenses
Operating earnings
Other expense, net
Income taxes
Net earnings
Noncontrolling interest
$
10,137
$
6,023
4,115
2,995
1,119
100
386
633
27
Net earnings attributable to W.W. Grainger, Inc. $
606
$
(A) May not sum due to rounding
9,973
5,742
4,231
2,931
1,300
50
466
785
16
769
2 %
5 %
(3)%
2 %
(14)%
102 %
(17)%
(19)%
66 %
(21)%
100.0% 100.0%
59.4
40.6
29.6
11.0
1.0
3.8
6.2
0.3
57.6
42.4
29.4
13.0
0.5
4.7
7.9
0.2
6.0%
7.7%
20
Grainger's net sales were $10,137 million for 2016, an increase of 2% when compared with net sales of $9,973 million
for the comparable 2015 period. The 2% increase for the year consisted of the following:
Cromwell acquisition
Volume
Price
Total
Percent Increase/
(Decrease)
3
1
(2)
2%
In the U.S. business, sales growth to government, retail and light manufacturing customers were offset by a decline
in sales to natural resource customers, resellers, contractors and heavy manufacturing customers. The increase in
sales in 2016 was also due to the acquisition of Cromwell on September 1, 2015.
In 2016, eCommerce sales for Grainger were $4,757 million, an increase of 15% over the prior year and represented
47% of total sales. The increase was primarily driven by an increase in sales via EDI and electronic purchasing platforms
in the U.S. and Japan businesses. If the Company included KeepStock®, total eCommerce and KeepStock® sales
would represent 53% of total sales. Refer to the Segment Analysis below for further details.
Gross profit of $4,115 million for 2016 decreased 3%. The gross profit margin for 2016 was 40.6%, down 1.8 percentage
points versus 2015, primarily due to price deflation exceeding cost deflation and unfavorable customer mix.
Operating expenses of $2,995 million for 2016 increased 2% from $2,931 million for 2015. Excluding the charges from
both years mentioned above, operating expenses decreased 1% primarily due to lower employee benefit costs.
Operating earnings of $1,119 million for 2016 decreased 14% from $1,300 million for 2015. The decrease in operating
earnings was driven by lower gross profit margin and higher restructuring costs and other charges. Operating earnings
included the charges noted above. Excluding these charges from both years, operating earnings decreased 6%.
Other expense, net was $100 million in 2016 compared to $50 million of expense in 2015. The following table
summarizes the components of other income and expense (in thousands of dollars):
Interest income (expense) - net
Loss from equity method investment
Other non-operating income
Other non-operating expense
Total
For the Years Ended December 31,
2016
2015
$
$
(65,615) $
(31,193)
1,300
(4,931)
(100,439) $
(32,405)
(11,740)
1,102
(6,572)
(49,615)
The increase in expense was driven by higher interest expense from the $1 billion in long-term debt issued in June
2015 and $400 million in long-term debt issued in May 2016, as well as higher operating losses from the Company's
clean energy investments.
Income taxes of $386 million in 2016 decreased 17% compared with $466 million in 2015. Grainger's effective tax
rates were 37.9% and 37.2% in 2016 and 2015, respectively. The year-over-year increase in the tax rate was primarily
due to a larger proportion of earnings from higher tax rate jurisdictions, partially offset by a higher benefit from the
Company’s clean energy investments. The twelve months ended December 31, 2016, included a benefit from the
conclusion of the federal income tax audit for the years 2009 through 2012 and other discrete items. Excluding the
discrete tax benefits and nondeductible intangible write-downs, the Company’s effective tax rate was 37.1%. The
Company's clean energy investment generated $0.15 per share of earnings for the year ended December 31, 2016.
The table below reconciles reported net earnings determined in accordance with U.S. generally accepted accounting
principles (GAAP) to adjusted net earnings, a non-GAAP measure. Management believes adjusted net earnings is an
important indicator of operations because it excludes items that may not be indicative of core operating results. Because
21
non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with
other companies' non-GAAP financial measures having the same or similar names. (In thousands of dollars):
Net earnings reported
Restructuring (U.S.)
Branch gains (U.S.)
Other charges (U.S.)
Restructuring (Canada)
Inventory reserve adjustment (Canada)
Restructuring (Other businesses)
Other charges (Other businesses)
Restructuring (Unallocated expense)
Discrete tax items
Subtotal
Net earnings adjusted
Twelve Months Ended
December 31,
2016
2015
$ 605,928 $ 768,996
%
(21)%
21,234
(11,421)
28,531
11,085
7,278
—
52,318
5,603
(9,378)
105,250
22,231
—
—
3,090
—
4,814
—
(24)
(5,984)
24,127
$ 711,178 $ 793,123
(10)%
Net earnings attributable to W.W. Grainger, Inc. for 2016 decreased by 21% to $606 million from $769 million in 2015.
The decrease in net earnings primarily resulted from lower operating earnings, partially offset by lower income taxes.
Excluding the charges from both years mentioned above and discrete tax items, net earnings decreased 10%.
Diluted earnings per share of $9.87 in 2016 were 15% lower than $11.58 for 2015, due to lower earnings, partially
offset by lower average shares outstanding as a result of share repurchases. Excluding the charges mentioned above,
diluted earnings per share would have been $11.58, compared to $11.94 in 2015, a decrease of 3%.
Segment Analysis - 2017 Compared to 2016
The following comments at the reportable segment and other business unit level include external and intersegment
net sales and operating earnings. See Note 16 to the Consolidated Financial Statements.
United States
Net sales were $7,960 million for 2017, an increase of $90 million, or 1% when compared with net sales of
$7,870 million for 2016. On a daily basis, the 2% increase consisted of the following:
Volume
Intercompany sales to Zoro
Divestiture
Price
Total
Percent Increase/
(Decrease)
7
1
(1)
(5)
2%
Sales to customers in natural resources, resellers and retail end markets increased mid-single digits, while heavy
manufacturing and government increased low single digits. The sales growth was partially offset by declines in
contractors and commercial services. Volume increased year over year, primarily driven by the pricing actions.
In 2017, eCommerce sales for the U.S. business were $3,909 million, an increase of 7% over the prior year. Total
eCommerce sales represented 49% and 46% of total sales for 2017 and 2016, respectively. The increase was primarily
driven by Grainger.com and other electronic purchasing platforms. If the U.S. business included KeepStock®, total
eCommerce and KeepStock® sales would represent 55% and 53% of total sales for 2017 and 2016, respectively.
22
Gross profit margin decreased 1.7 percentage points in 2017 compared to 2016, primarily driven by price deflation
exceeding higher volume in response to pricing actions.
Operating expenses of $1,994 were down 2% for 2017 versus 2016. Excluding restructuring costs, net gains on the
sale of assets and other charges in both periods mentioned above, operating expenses increased 1% or $19 million,
driven by higher employee related costs. See Note 6 to the Consolidated Financial Statements.
Operating earnings of $1,213 million for 2017 decreased 5% versus $1,275 million in 2016. Excluding restructuring
costs, gains on the sale of assets and other charges in both periods mentioned above, operating earnings decreased
9% or $116 million, driven primarily by price deflation. See Note 6 to the Consolidated Financial Statements.
Canada
Net sales were $753 million for 2017, an increase of $19 million, or 3%, when compared with $734 million for 2016.
On a daily basis, the 3% increase consisted of volume across all end segments.
In 2017, eCommerce sales for the Canada business were $135 million, an increase of 38% over the prior year. Total
eCommerce sales represented 18% and 13% of total sales for 2017 and 2016, respectively. If the Canada business
included KeepStock®, total eCommerce and KeepStock® sales would represent 32% and 26% of total sales for 2017
and 2016, respectively.
Gross profit margin increased 1.0 percentage point in 2017 versus 2016, primarily due to a favorable comparison to
an inventory adjustment in the second quarter of 2016 that did not repeat in 2017, partially offset by price deflation,
cost inflation and higher freight costs from an increase in shipping directly to customers in 2017.
Operating expenses decreased 9% in 2017 versus 2016. Excluding restructuring costs in both periods,
operating expenses would have increased 3%, primarily related to higher professional service fees related to
the business transformation.
Operating losses of $77 million for 2017 increased versus operating losses of $65 million in 2016. Excluding
the restructuring costs and the inventory adjustment, operating losses would have been $37 million compared
to $41 million in the prior year.
Other businesses
Net sales for other businesses were $2,120 million for 2017, an increase of $235 million, or 12%, when compared to
$1,885 million for 2016. The net sales increase was primarily due to incremental sales at Zoro and MonotaRO. On a
daily basis, the 13% increase consisted of the following:
Volume
Foreign exchange
Total
Percent Increase/
(Decrease)
15
(2)
13%
Operating earnings for other businesses were $56 million for 2017 compared to $41 million for 2016. Excluding
restructuring charges in 2017 and the goodwill and intangible impairment charges of $52 million in the Fabory and
Colombia businesses in the prior year, operating earnings increased $18 million or 19%, due to strong performance
from the single channel online businesses.
Segment Analysis - 2016 Compared to 2015
United States
Net sales were $7,870 million for 2016, a decrease of $93 million, or 1% when compared with net sales of
$7,963 million for 2015. The 1% decrease consisted of the following:
23
Intercompany sales to Zoro
Volume
Price
Total
Percent Increase/
(Decrease)
1
(1)
(1)
(1)%
Mid-single-digit sales growth to government and retail customers and low single-digit growth to light manufacturing
were offset by mid-teen declines in sales to natural resource and reseller customers and mid-single-digit declines to
heavy manufacturing customers and contractors.
In 2016, eCommerce sales for the U.S. business were $3,660 million, an increase of 12% over the prior year and
represented 46% of total sales. The increase was primarily driven by an increase in sales via EDI and electronic
purchasing platforms. If the U.S. business included KeepStock®, the electronic inventory management offering, total
eCommerce and KeepStock® sales would represent 53% of total sales.
Gross profit margin decreased 1.3 percentage points in 2016 compared to 2015, driven by price deflation exceeding
cost deflation and stronger sales growth to lower margin customers.
Operating expenses were down 2% for 2016 versus 2015. The decrease in operating expenses was driven by lower
employees benefit costs, partially offset by higher restructuring costs and other charges discussed above. Excluding
the restructuring and other charges in both periods, operating expenses would have been down 4%.
Operating earnings of $1,275 million for 2016 decreased 7% versus $1,372 million in 2015. The decline in operating
earnings for 2016 was primarily driven by lower sales and gross profit margin, partially offset by lower operating
expenses. Excluding the restructuring costs and other charges in both periods, operating earnings decreased 5%.
Canada
Net sales were $734 million for 2016, a decrease of $157 million, or 18%, when compared with $891 million for 2015.
In local currency, sales decreased 15% for 2015. The 18% decrease consisted of the following:
Volume
Foreign exchange
Price
ERP implementation
Wildfire impact
Total
Percent Decrease
(10)
(3)
(2)
(2)
(1)
(18)%
Sales performance in the Canada business was primarily driven by declines within the oil and gas sector in Alberta,
combined with declines in all other end markets across the country. The Alberta region, which represents about one-
third of the sales in the Canada business, decreased 23% versus prior year, as it was negatively impacted by oil prices.
Sales growth for the remaining regions in aggregate was down 10% in local currency. In addition, the Canada business
implemented the U.S. ERP system in February 2016, which negatively impacted sales as employees transitioned to
operating with the new system.
In 2016, eCommerce sales for the Canada business were $98 million, a decrease of 8% over the prior year and
represented 13% of total sales. The decrease was primarily driven by lower sales volume. If the Canada business
included KeepStock®, total eCommerce and KeepStock® sales would represent 26% of total sales.
Gross profit margin decreased 7.8 percentage points in 2016 versus 2015, due to an inventory adjustment of
$10 million in the second quarter of 2016, along with price deflation versus cost inflation and higher freight
costs from an increase in shipping directly to customers. As a result of service issues due to the ERP system
implementation, the business did not increase prices to customers during 2016.
24
Operating expenses decreased 8% in 2016 versus 2015. The decrease was due to the benefit of a $7 million gain
from the sale of the former Toronto DC in the first quarter of 2016 and lower ERP system project costs, partially offset
by higher restructuring costs. Excluding the restructuring costs from both periods, operating expenses decreased 11%.
Operating losses were $65 million for 2016 versus operating earnings of $27 million in 2015, a decrease of $92 million.
Excluding the restructuring costs mentioned above, the operating losses would have been $41 million due to lower
sales and gross profit margin and operating expenses declining at a slower rate than sales when compared to the
prior period.
Other businesses
Net sales for other businesses were $1,885 million for 2016, an increase of $479 million, or 34%, when compared to
$1,406 million for 2015. The net sales increase was primarily due to the September 1, 2015 Cromwell acquisition and
incremental sales at Zoro and MonotaRO. The 34% increase consisted of the following:
Cromwell acquisition
Volume
Foreign exchange
Total
Percent Increase
18
15
1
34%
Operating earnings for other businesses were $41 million for 2016 compared to $48 million for 2015. Excluding goodwill
and intangible impairment charges of $52 million in the Fabory and Colombia businesses and other restructuring
charges in the prior year, operating earnings for other business increased by $39 million driven by strong performance
from MonotaRO, Zoro and the earnings contribution from Cromwell.
Financial Condition
Grainger expects its strong working capital position, cash flows from operations and borrowing capacity to continue,
allowing it to fund its operations, growth initiatives and capital expenditures as well as pay cash dividends, repurchase
shares and repay its long-term debt obligations while maintaining an adequate credit rating.
Cash and Cash Equivalents
At December 31, 2017, 2016 and 2015, Grainger had cash and cash equivalents of $327 million, $274 million and
$290 million, respectively. Approximately 64%, 72% and 76% were outside the U.S. business as of December 31,
2017, 2016 and 2015, respectively. Grainger has no material limits or restrictions on its ability to use or access these
foreign liquid assets.
Cash Flow
2017 Compared to 2016
Net cash provided by operating activities was $1,057 million and $1,024 million for the twelve months ended December
31, 2017 and 2016, respectively. The increase in cash provided by operating activities is primarily the result of lower
payments related to employee benefits, partially offset by lower earnings and higher working capital.
Net cash used in investing activities was $146 million and $262 million for the twelve months ended December 31,
2017 and 2016, respectively. The decrease in net cash used in investing activities was driven by lower additions to
property, buildings and equipment compared to the prior year and higher proceeds primarily from the sales of branch
real estate assets in the U.S. and a U.S. business divestiture when compared to the prior year.
Net cash used in financing activities was $867 million and $776 million in the twelve months ended December 31,
2017 and 2016, respectively. The increase in net cash used in financing activities was primarily driven by lower proceeds
of long-term debt and higher net payments of commercial paper, offset by lower stock repurchases in 2017 compared
to 2016 and lower payments of long-term debt.
2016 Compared to 2015
Net cash provided by operating activities was $1,024 million and $1,036 million for the twelve months ended December
31, 2016 and 2015, respectively. Net cash provided had been reported as $1,003 million and $990 million in 2016 and
2015, respectively. The $1,024 million and $1,036 million reflects the adoption of ASU 2016-09, Stock Based
Compensation: Improvement to Employee Shared-Based Payment Accounting, which required retrospective
25
reclassification of $21 million and $46 million from operating activities to financing activities for 2016 and 2015,
respectively. The reclassification relates to employee taxes paid as part of the exercise of stock options.
Net cash used in investing activities was $262 million and $843 million for the twelve months ended December 31,
2016 and 2015, respectively. The higher use of cash in 2015 was driven by the Cromwell acquisition in September
2015. In 2016, lower additions to property, buildings and equipment compared to the prior year and higher proceeds
from the sale of branch real estate assets contributed to the reduction in cash used in investing activities.
Net cash used in financing activities was $776 million and $109 million in the twelve months ended December 31,
2016 and 2015, respectively. The change in financing activities was primarily driven by the issuance of $400 million
in Senior Notes in 2016 compared to the issuance of $1 billion in Senior Notes in 2015 and significantly lower stock
repurchases in 2016 compared to 2015.
Working Capital
Internally generated funds are the primary source of working capital and funds used for growth initiatives and capital
expenditures. Grainger's working capital is not impacted by significant seasonality trends throughout the year.
Working capital consists of current assets (less non-operating cash) and current liabilities (less short-term debt
and current maturities of long-term debt). Working capital was $1,669 million at December 31, 2017, compared
with $1,722 million at December 31, 2016, primarily due to an increase in accounts receivable offset by increases
in current liabilities. At these dates, the ratio of current assets to current liabilities was 2.2 and 2.4, respectively.
Capital Expenditures
In each of the past three years, a portion of the Company's net cash flows has been used for additions to property,
buildings, equipment and capitalized software (presented in Intangibles - net on the Consolidated Balance Sheet) as
summarized in the following table (in thousands of dollars):
For the Years Ended December 31,
2017
2016
2015
Land, buildings, structures and improvements
$
108,753
$
70,942 $
Furniture, fixtures, machinery and equipment
Subtotal
Capitalized software
Total
65,996
174,749
62,534
139,474
210,416
73,833
$
237,283
$
284,249 $
86,082
202,137
288,219
85,649
373,868
In 2017, the Company continued to invest in its worldwide distribution network (e.g. new or expanding existing facilities
and technology), digital platforms (e.g. eCommerce websites and inventory management solutions), capital
maintenance of its existing branch networks across the enterprise and other supporting information technology assets.
In 2016, the Company continued to invest in the North America distribution network, as well as the distribution network
in other businesses and sales productivity initiatives. Other significant investments in 2016 included the eCommerce
platform, sustaining capital investments in branches and distribution centers and other technology infrastructure.
In 2015, the Company invested in the North America distribution center network and the completion of the common
ERP platform for North America and made investments in support of sales initiatives. Other significant investments
included the eCommerce platform, sustaining capital investments for Grainger's branches and distribution centers and
other technology infrastructure.
In 2018, capital expenditures are expected to range from $290 million to $330 million. Projected spending includes
continued investments in the supply chain, eCommerce/digital and inventory management solutions. Grainger expects
to fund 2018 capital spending primarily from operating cash flows.
Debt
Grainger maintains a debt ratio and liquidity position that provides 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 bank borrowings under lines of credit. Total debt, which is defined as total interest-bearing
debt (short-term current and long-term) as a percent of total capitalization was 56.2% and 54.1%, as of
December 31, 2017 and 2016, respectively.
26
Over the last three years, Grainger issued $1.8 billion in long-term debt to partially fund the repurchase of $2.8 billion
in shares of the total $3 billion previously announced. The remaining amount was funded from internally generated
cash. Debt was issued as follows:
•
•
•
In June 2015, $1.0 billion payable in 30 years and carries a 4.60% interest rate, payable semiannually.
In May 2016, $400 million payable in 30 years and carries a 3.75% interest rate, payable semiannually.
In May 2017, $400 million payable in 30 years and carries a 4.20% interest rate, payable semiannually.
Refer to Note 7 and Note 8 to the Consolidated Financial Statements included in Item 8.
The Company ended 2017 with a Debt/EBITDA ratio of 1.8x EBITDA, which is defined as Earnings before Interest,
Taxes, Depreciation and Amortization, is a non-GAAP measure and may not be defined and calculated by other
companies in the same manner.
Commitments and Other Contractual Obligations
At December 31, 2017, Grainger's contractual obligations, including estimated payments due by period, are as follows
(in thousands of dollars):
Payments Due by Period
Total
Amounts
Committed
Less than 1
Year
1 - 3 Years
4 - 5 Years
More than 5
Years
Debt obligations
Interest on debt
$ 2,365,795
2,197,909
$
Operating lease obligations
196,544
94,312
83,002
63,625
$
334,930
$
136,553
$
1,800,000
161,853
82,594
156,604
34,446
1,796,450
15,879
Purchase obligations:
Uncompleted additions to
property, buildings and
equipment
Commitments to purchase
inventory
Other goods and services
Other liabilities
Total
68,806
68,287
541,834
141,883
130,256
$ 5,643,027
541,834
98,843
91,879
346
—
36,481
9,703
173
—
6,474
6,569
—
—
85
22,105
$ 1,041,782
$
625,907
$
340,819
$
3,634,519
See Notes 7, 8 and 10 to the Consolidated Financial Statements for further detail related to debt, interest on debt and
operating lease obligations.
Purchase obligations are made in the normal course of business to meet operating needs. While purchase orders for
both inventory purchases and non-inventory purchases are generally cancelable without penalty, certain vendor
agreements provide for cancellation fees or penalties depending on the terms of the contract.
Other liabilities represent future payments for profit sharing and other employee benefit plans.
The Company’s obligation for the postretirement healthcare benefits plan, as determined by actuarial projections, is
$208 million at December 31, 2017. The Company has established a Group Benefit Trust (Trust) to fund the plan
obligations. The Trust assets available for benefits payments are $189 million at December 31, 2017. The Company
has no minimum funding requirements and the timing and amounts of the Company’s additional contributions into the
Trust have not been determined. Other employment-related benefits obligations of $65 million have also not been
included in this table as the timing of benefit payments is not predictable. See Note 9 to the Consolidated Financial
Statements for further detail.
Grainger has recorded a noncurrent liability of approximately $45 million for tax uncertainties and interest at
December 31, 2017. This amount is excluded from the table above, as Grainger cannot predict the timing of these
cash payments by period. See Note 14 to the Consolidated Financial Statements.
27
Off-Balance Sheet Arrangements
Grainger does not have any material exposures to off-balance sheet arrangements. All significant contractual
obligations are recorded on the Company's Consolidated Balance Sheet or disclosed in the notes to Grainger's
Consolidated Financial Statements.
Critical Accounting Estimates
Note 1 to the Consolidated Financial Statements describes the significant accounting policies used in the preparation
of the Consolidated Financial Statements. As discussed in Note 1, the preparation of financial statements, in conformity
with Generally Accepted Accounting Principles (GAAP) in the United States of America, requires management to make
judgments, estimates and assumptions about future events that affect the amounts reported in the financial statements
and accompanying notes.
Accounting policies and estimates are considered critical when they require management to make subjective and
complex judgments, estimates and assumptions about matters that have a material impact on Grainger's financial
statements and accompanying notes.
The Company believes that the following discussion addresses Grainger’s most critical accounting policies
and estimates.
Allowance for Doubtful Accounts
Grainger considers several factors to estimate the allowance for uncollectible accounts receivable including the age
of the receivables, the percent past due and the historical ratio of actual write-offs to the age of the receivables. The
analyses performed also take into consideration economic conditions that may have an impact on a specific industry,
group of customers or a specific customer.
Based on analysis of actual historical write-offs of uncollectible accounts receivable, Grainger's estimates and
assumptions have been materially accurate in regards to the valuation of its allowance for doubtful accounts.
However, write-offs could be materially different than the reserves established if business or economic conditions
change or actual results deviate from historical trends, and Grainger's estimates and assumptions may be
revised as appropriate to reflect these changes. For fiscal years 2017, 2016 and 2015, actual results did not vary
materially from estimated amounts.
Inventory Reserves
Grainger establishes inventory reserves for excess and obsolete inventory. Grainger regularly reviews inventory to
evaluate continued demand and identify any obsolete or excess quantities. Grainger records provisions for the
difference between excess and obsolete inventory cost and its estimated realizable value. Estimated realizable value
is based on anticipated future product demand, market conditions and liquidation values. As Grainger's inventory
consists of approximately 1.7 million stocked products, it is not practical to quantify the actual disposition of excess
and obsolete inventory against estimated amounts at a stock keeping unit (SKU) level and no individual SKU is
material. There were no material differences noted between reserve levels compared to the level of write-offs historically.
Grainger's methodology for estimating reserves is continually evaluated based on current experience and the
methodology provides for a materially accurate level of reserves at any reporting date. Actual results could differ
materially from projections and require changes to reserves that could have a material effect on Grainger's results of
operations, based on significant changes in product demand, market conditions or liquidation value. If business or
economic conditions change, Grainger's estimates and assumptions may be revised as appropriate. For fiscal years
2017, 2016 and 2015, actual results did not vary materially from estimated amounts.
Goodwill and Indefinite Lived Intangible Assets
Business acquisitions result in the recording of goodwill and identified intangible assets that affect the amount of
amortization expense and possible impairment write-downs that may occur in future periods. Grainger tests reporting
units’ goodwill and intangible assets for impairment annually during the fourth quarter and more frequently if impairment
indicators exist. Grainger periodically performs qualitative assessments of significant events and circumstances such
as reporting units' historical and current results, assumptions regarding future performance, strategic initiatives and
overall economic factors to determine the existence of impairment indicators and assess if it is more likely than not
that the fair value of the reporting unit or indefinite-lived intangible assets is less than its carrying value and if a
quantitative impairment test is necessary. In the quantitative test, Grainger compares the carrying value of the reporting
unit or an indefinite-lived intangible asset with its fair value. Any excess of the carrying value over fair value is recorded
as an impairment charge.
28
The fair value of reporting units is calculated primarily using the discounted cash flow (DCF) method and utilizing value
indicators from a market approach to evaluate the reasonableness of the resulting fair values. The DCF method
incorporates various assumptions including the amount and timing of future expected cash flows, including revenues,
gross margins, operating expenses, capital expenditures and working capital based on operational budgets, long-
range strategic plans and other estimates. The terminal value growth rate is used to calculate the value of cash flows
beyond the last projected period and reflects management’s best estimates for perpetual growth for the reporting units.
Estimates of market-participant risk-adjusted weighted average cost of capital are used as a basis for determining the
discount rates to apply to the reporting units’ future expected cash flows and terminal value.
Grainger’s indefinite-lived intangibles are primarily trade names. The fair value of trade names is calculated primarily
using the relief from royalty method, which estimates the expected royalty savings attributable to the ownership of the
trade name asset. The key assumptions when valuing a trade name are the revenue base, the royalty rate and the
discount rate.
The Company performed its annual tests of goodwill and indefinite-lived intangible assets for impairment, including
qualitative assessments of all of its reporting units’ goodwill and intangible assets with indefinite lives. Quantitative
tests of the Company’s reporting unit in Canada and the Cromwell reporting unit in other businesses were also performed
due to lower-than-expected operating performance and lowered short-term forecasts. Based on the results of the
quantitative tests performed, the fair values of these reporting units exceeded their carrying values by approximately
31 percent for the Canada reporting unit and 15 percent for the Cromwell reporting unit.
The Company performed sensitivity analyses on the reporting units’ fair values utilizing alternate assumptions that
reflect reasonably possible changes to future assumptions. Holding all other assumptions constant, the impact of a
100 basis point increase in discount rates or a 100 basis point decrease in terminal growth rates would have not
resulted in the reporting units failing the quantitative tests.
While the Company’s impairment test and respective sensitivity analyses supported no impairment of goodwill and
intangibles, the risk of potential failure of quantitative tests in future reporting periods is highly dependent upon key
assumptions included in the determination of reporting unit or intangible fair values. Changes in assumptions regarding
future performance and the ability to execute on growth initiatives and productivity improvements may have a significant
impact on future cash flows. Likewise, changes in terminal value and discount rate assumptions, unfavorable economic
environment or market conditions and other factors may result in future impairments of goodwill and intangible assets.
The Company will continue to monitor results and projected cash flows to assess whether goodwill or intangible
impairments may be necessary.
Postretirement Healthcare Benefits
The postretirement healthcare obligation and net periodic cost are dependent on assumptions and estimates used in
calculating such amounts. The assumptions used include, among others, discount rates, assumed rates of return on
plan assets and healthcare cost trend rates and certain employee-related factors, such as turnover, retirement age
and mortality rates. Changes in these and other assumptions (caused by conditions in equity markets or plan experience,
for example) could have a material effect on Grainger's postretirement benefit obligation and expense and could affect
its results of operations and financial condition. These changes in assumptions may also affect voluntary decisions to
make additional contributions to the trust established for funding the postretirement benefit obligation.
During the third quarter of 2017, the Company implemented plan design changes effective January 1, 2018, for the
post-65 age group. This plan change will move all post-65 Medicare eligible retirees to healthcare exchanges and
provide them a subsidy to purchase insurance. The amount of the subsidy will be based on years of service. The plan
obligation was remeasured as a result of this plan design change. The Company has elected to amortize the amount
of net unrecognized gains over a period equal to the average remaining service period for active plan participants
expected to retire and receive benefits. Grainger estimates that this plan change could increase 2018 pretax earnings
by approximately $5.3 million. However, other changes in assumptions may increase, decrease or eliminate this effect.
The discount rate assumptions used by management reflect the rates available on high-quality fixed income debt
instruments as of December 31, the measurement date, of each year. A higher discount rate reduces the
present value of benefit obligations and net periodic benefit costs. As of December 31, 2017, Grainger decreased
the discount rate used in the calculation of the postretirement plan obligation from 4.00% to 3.44% to reflect the
decrease in market interest rates. Grainger estimates that this decrease could decrease 2018 pretax earnings
by approximately $2.0 million. However, other changes in assumptions may increase, decrease or eliminate
this effect.
29
A 1 percentage point change in assumed healthcare cost trend rates would have had the following effects on
December 31, 2017 results (in thousands of dollars):
Effect on total of service and interest cost
Effect on postretirement benefit obligation
1 Percentage Point
Increase
(Decrease)
$
$
1,269
5,516
(1,053)
(5,095)
Grainger used Mortality Table RPH-2014 and changed the mortality improvement scale used to project mortality rates
into the future from Mortality Improvement Scale MP-2016 to Mortality Improvement Scale MP-2017 at December 31,
2017. Mortality Table RPH-2014 is a headcount-weighted table that is more appropriate for the measurement of other
postretirement employee benefit plans. Scale MP-2017, published by the Society of Actuaries, reflects the most recent
data for mortality improvement. Grainger estimates this change could increase 2018 pretax earnings by approximately
$0.2 million.
Grainger updated the 2017 census for involuntary terminations that occurred in 2017. Grainger estimates this change
could increase 2018 pretax earnings by approximately $0.9 million.
When assumptions are selected, expected results can vary from actual results. Grainger's expected results varied
from actual results for both expected return on plan assets and benefit payments. Grainger estimates this impact could
increase 2018 pretax earnings by approximately $2.9 million.
Grainger may terminate or modify the postretirement plan at any time, subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code, as amended. In the event the
postretirement plan is terminated, all assets of the Group Benefit Trust inure to the benefit of the participants. The
foregoing assumptions are based on the presumption that the postretirement plan will continue. Were the postretirement
plan to terminate, different actuarial assumptions and other factors might be applicable.
Grainger has used its best judgment in making assumptions and estimates and believes such assumptions and
estimates used are appropriate. Changes to the assumptions may be required in future years as a result of actual
experience or new trends or plan changes and, therefore, may affect Grainger's retirement plan obligations and future
expense. For additional information concerning postretirement healthcare benefits, see Note 9 to the Consolidated
Financial Statements.
Income Taxes
The tax balances and income tax expense recognized by Grainger are based on management's interpretations of the
tax laws of multiple jurisdictions. Income tax expense reflects Grainger's best estimates and assumptions regarding,
among other items, the level of future taxable income, interpretation of tax laws and tax planning opportunities, plans
for reinvestment of cash overseas and uncertain tax positions. On December 22, 2017, the Tax Cuts and Jobs Act
was signed into law, which significantly revised the U.S. corporate income tax system including lowering the corporate
income tax rates from 35% to 21% effective January 1, 2018. See Note 14 to the Consolidated Financial Statements
for additional information.
Future rulings by tax authorities and future changes in tax laws and their interpretation, changes in projected levels of
taxable income, changes in planned need for cash overseas and future tax planning strategies could impact the actual
effective tax rate and tax balances recorded by Grainger.
Contingent Liabilities
At any time, Grainger may be subject to investigations, legal proceedings or claims related to the ongoing operation
of its business, including claims both by and against Grainger. Such proceedings typically involve claims related to
product liability, general negligence, contract disputes, environmental issues, unclaimed property, wage and hour laws,
intellectual property, employment practices, regulatory compliance or other matters and actions brought by employees,
customers, competitors, suppliers or governmental entities. As a government contractor selling to federal, state and
local governmental entities, the Company is also subject to governmental or regulatory inquiries or audits or other
proceedings, including those related to contract administration or to pricing compliance. Grainger retains a significant
portion of the risk of certain losses related to workers' compensation, auto liability, general liability and property losses
through the utilization of high deductibles and self-insured retentions. Grainger routinely assesses the likelihood of
30
any adverse outcomes related to these matters on a case by case basis, as well as the potential ranges of losses and
fees. Grainger establishes accruals for its potential exposures, as appropriate, for claims against Grainger when losses
become probable and the financial impact of an adverse outcome is reasonably estimable. Legal fees are recognized
as incurred and are not included in accruals for contingencies. Where Grainger is able to reasonably estimate a range
of potential losses, Grainger records the amount within that range that constitutes Grainger's best estimate. Grainger
also discloses the nature of and range of loss for claims against Grainger when losses are reasonably possible and
the exposure is considered material to Grainger's Consolidated Financial Statements. These accruals and disclosures
are determined based on the facts and circumstances related to the individual cases and require estimates and
judgments regarding the interpretation of facts and laws, as well as the effectiveness of strategies or other factors
beyond Grainger's control. If the assessment of any of these factors changes, the estimates may change. Predicting
the outcome of claims and litigation, and estimating related costs and exposure, involves substantial uncertainties that
could cause actual costs to vary materially from estimates and accruals.
Other
Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed
above, are nevertheless important to an understanding of the financial statements. Policies such as revenue recognition,
depreciation, intangibles, long-lived assets, fair value measurements and valuations and warranties require judgments
on complex matters that are often subject to multiple external sources of authoritative guidance such as the Financial
Accounting Standards Board and the Securities and Exchange Commission. Possible changes in estimates or
assumptions associated with these policies are not expected to have a material effect on the financial condition or
results of operations of Grainger. More information on these additional accounting policies can be found in Note 1 to
the Consolidated Financial Statements.
Effects of Inflation and Changing Prices
Grainger is affected by inflation through increased product and operating costs, and the ability to pass on cost increases
to customers over time is dependent upon market conditions. The ability to achieve sales growth through increased
prices is also subject to inflation and normal competitive conditions. The predominant use of the last-in, first-out (LIFO)
method of accounting for inventories and accelerated depreciation methods for financial reporting and income tax
purposes result in a substantial recognition of the effects of inflation in the financial statements.
Some of Grainger's products contain significant amounts of commodity-priced materials, such as steel, copper,
petroleum derivatives or rare earth minerals, and are subject to price changes based upon fluctuations in the
commodities market.
Grainger believes the most positive means to combat inflation and advance the interests of investors lie in the continued
application of basic business principles, which include improving productivity, maintaining working capital turnover and
offering products and services that can command appropriate prices in the marketplace.
Forward-Looking Statements
From time to time, in this Annual Report on Form 10-K, as well as in other written reports, communications and verbal
statements, Grainger makes forward-looking statements that are not historical in nature but concern forecasts of
future results, business plans, analyses, prospects, strategies, objectives and other matters that may be deemed to
be “forward-looking statements” under the federal securities laws. Such forward-looking statements are identified by
words such as “anticipate,” “estimate,” “believe,” “expect,” “could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project”
and similar terms and 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, many of which are beyond the Company's control, which could cause Grainger's results
to differ materially from those that are presented.
Important 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; loss
or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new
technologies or business strategies; the implementation, timing and results of the Company's strategic pricing
initiatives and other responses to market pressures; the outcome of pending and future litigation or governmental or
regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental,
31
advertising, privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations;
disruption of information technology or data security systems; general industry or market conditions; general global
economic conditions; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages;
facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; natural and other
catastrophes; unanticipated weather conditions; loss of key members of management; the Company's ability to
operate, integrate and leverage acquired businesses; changes in credit ratings; changes in effective tax rates and
other factors identified under Item 1A: Risk Factors and elsewhere in this Form 10-K.
Caution should be taken not to place undue reliance on Grainger's forward-looking statements and Grainger
undertakes no obligation to publicly update any of its forward-looking statements, whether as a result of new
information, future events or otherwise.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Grainger may use financial instruments to reduce its exposure to adverse fluctuations in foreign currency
exchange rates and interest rates as part of its overall risk management strategy. The derivative positions reduce
risk by hedging certain underlying economic exposures. Because of the high correlation between the hedging
instrument and the underlying exposure, fluctuations in the value of the instruments are generally offset by
reciprocal changes in the value of the underlying exposure. Grainger does not enter into derivative financial
instruments for trading or speculative purposes.
Foreign Currency Exchange Rates
Grainger’s financial results, including the value of assets and liabilities, are exposed to foreign currency exchange rate
risk when the financial statements of the business units, as stated in their local currencies, are translated into U.S.
dollars. While it is difficult to quantify any particular impact of changes in exchange rates, a uniform 10% strengthening
in the U.S. dollar (whereby all other variables are held constant and unusual expense items described in "Item 7:
Management's Discussion and Analysis of Financial Condition and Results of Operations" are excluded) would have
resulted in an increase in net earnings of $1 million for the year ended December 31, 2017, and an increase in net
earnings of $2 million for the year ended December 31, 2016. Comparatively, a 10% weakening of the U.S. dollar
would have resulted in a decrease in net earnings of $2 million for the year ended December 31, 2017, and a decrease
in net earnings of $2 million for the year ended December 31, 2016. This sensitivity analysis of the effects of changes
in foreign currency exchange rates does not factor in future potential changes in sales levels or local currency prices
or costs.
Commodity Price Risk
Grainger has limited primary exposure to commodity price risk on certain products for resale, but does not purchase
commodities directly.
Item 8: Financial Statements and Supplementary Data
The financial statements and supplementary data are included on pages 37 to 77. See the Index to Financial Statements
and Supplementary Data on page 36.
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
32
Item 9A: Controls and Procedures
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.
Internal Control Over Financial Reporting
(A) Management's Annual Report on Internal Control Over Financial Reporting
Management's report on Grainger's internal control over financial reporting is included on page 37 of this Report
under the heading Management's Annual Report on Internal Control Over Financial Reporting.
(B) Attestation Report of the Registered Public Accounting Firm
The report from Ernst & Young LLP on its audit of the effectiveness of Grainger's internal control over financial
reporting as of December 31, 2017, is included on page 38 of this Report under the heading Report of Independent
Registered Public Accounting Firm.
(C) Changes in Internal Control Over Financial Reporting
There have been no changes in Grainger's internal control over financial reporting during the last fiscal quarter
that have materially affected, or are reasonably likely to materially affect, Grainger's internal control over financial
reporting.
Item 9B: Information Required to Be Disclosed in a Form 8-K
None.
33
Item 10: Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated by reference to Grainger's proxy statement relating to the annual
meeting of shareholders to be held April 25, 2018, under the captions “Directors,” “Board of Directors and Board
Committees” and “Section 16(a) Beneficial Ownership Reporting Compliance.” Information required by this item
regarding executive officers of Grainger is set forth below under the caption “Executive Officers.”
Grainger has adopted a code of ethics that applies to its principal executive officer, principal financial officer and
principal accounting officer and controller. This code of ethics is part of Grainger’s Business Conduct Guidelines for
directors, officers and employees, which is available free of charge through Grainger’s website at www.grainger.com/
investor. A copy of the Business Conduct Guidelines is also available in print without charge to any person upon request
to Grainger's Corporate Secretary. Grainger intends to disclose on its website any amendment to any provision of the
Business Conduct Guidelines that relates to any element of the definition of “code of ethics” enumerated in Item 406
(b) of Regulation S-K under the Exchange Act and any waiver from any such provision granted to Grainger’s principal
executive officer, principal financial officer, principal accounting officer and controller or persons performing similar
functions. Grainger has also adopted Operating Principles for the Board of Directors, which are available on its website
and are available in print to any person who requests them.
Item 11: Executive Compensation
The information required by this item is incorporated by reference to Grainger's proxy statement relating to the
annual meeting of shareholders to be held April 25, 2018, under the captions “Board of Directors and Board
the Board” and
Committees,” “Director Compensation,” “Report of
“Compensation Discussion and Analysis.”
the Compensation Committee of
Item 12: Directors and Executive Officers
The information required by this item is incorporated by reference to Grainger's proxy statement relating to the annual
meeting of shareholders to be held April 25, 2018, under the captions “Ownership of Grainger Stock” and “Equity
Compensation Plans.”
Item 13: Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to Grainger's proxy statement relating to the annual
meeting of shareholders to be held April 25, 2018, under the captions "Election of Directors" and "Transactions with
Related Persons."
Item 14: Principal Accountant Fees and Services
The information required by this item is incorporated by reference to Grainger's proxy statement relating to the annual
meeting of shareholders to be held April 25, 2018, under the caption “Audit Fees and Audit Committee Pre-Approval
Policies and Procedures.”
34
Item 15: Exhibits and Financial Statements Schedules
(a) Documents filed as part of the Form 10-K
PART IV
(1) Financial Statements: see "Item 8: Financial Statements and Supplementary Data," on page 36 hereof,
for a list of financial statements. Management's Annual Report on Internal Control Over Financial Reporting.
(2) Financial Statement Schedules: the schedules listed in Rule 5-04 of Regulation S-X have been omitted
because they are either not applicable or the required information is shown in the consolidated financial
statements or notes thereto.
(3) Exhibits Required by Item 601 of Regulation S-K: the information required by this Item 15(a)(3) of Form
10-K is set forth on the Exhibit Index that follows the Signatures page 77 of the Form 10-K.
35
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
December 31, 2017, 2016 and 2015
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
37
38
40
41
42
43
44
45
36
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of W.W. Grainger, Inc. (Grainger) is responsible for establishing and maintaining adequate internal
control over financial reporting. Grainger's internal control system was designed to provide reasonable assurance to
Grainger's management and Board of Directors regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting principles generally accepted in the United
States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements
under all potential conditions. Therefore, effective internal control over financial reporting provides only reasonable,
and not absolute, assurance with respect to the preparation and presentation of financial statements.
Grainger's management assessed the effectiveness of Grainger's internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based on its
assessment under that framework and the criteria established therein, Grainger's management concluded that
Grainger's internal control over financial reporting was effective as of December 31, 2017.
Ernst & Young LLP, an independent registered public accounting firm, has audited Grainger's internal control over
financial reporting as of December 31, 2017, as stated in their report, which is included herein.
37
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
W.W. Grainger, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of W.W. Grainger, Inc. and subsidiaries (the Company)
as of December 31, 2017 and 2016, the related consolidated statements of earnings, comprehensive earnings, and
shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related
notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and
2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated February 26, 2018 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2005.
Chicago, Illinois
February 26, 2018
38
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
W.W. Grainger, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited W.W. Grainger, Inc. and subsidiaries’ internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework) (the COSO Criteria). In our opinion, W.W Grainger,
Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, and the
related consolidated statements of earnings, comprehensive earnings, and shareholders’ equity and cash flows for
each of the three years in the period ended December 31, 2017 and the related notes and our report dated February
26, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of effectiveness of the internal control over financial reporting included in the accompanying
Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 26, 2018
39
W.W. Grainger, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except for share and per share amounts)
For the Years Ended December 31,
2016
2015
Net sales
Cost of merchandise sold
Gross profit
Warehousing, marketing and administrative expenses
Operating earnings
Other income and (expense):
Interest income
Interest expense
Loss from equity method investment
Other, net
Total other expense
Earnings before income taxes
Income taxes
Net earnings
2017
10,424,858 $
$
6,327,301
4,097,557
3,048,895
1,048,662
2,570
(80,458)
(37,771)
2,321
(113,338)
935,324
312,881
622,443
10,137,204 $
6,022,647
4,114,557
2,995,060
1,119,497
717
(66,332)
(31,193)
(3,631)
(100,439)
1,019,058
386,220
632,838
Less: Net earnings attributable to noncontrolling
interest
Net earnings attributable to W.W. Grainger, Inc.
Earnings per share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
$
$
$
36,713
26,910
585,730 $
605,928 $
10.07 $
10.02 $
9.94 $
9.87 $
11.69
11.58
57,674,977
57,983,167
60,430,892
60,839,930
65,156,864
65,765,121
9,973,384
5,741,956
4,231,428
2,931,108
1,300,320
1,166
(33,571)
(11,740)
(5,470)
(49,615)
1,250,705
465,531
785,174
16,178
768,996
The accompanying notes are an integral part of these consolidated financial statements.
40
W.W. Grainger, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands of dollars)
Net earnings
Other comprehensive earnings:
Foreign currency translation adjustments, net of
reclassification (see Note 6 and Note 13)
Postretirement benefit plan remeasurement, net of tax
expense $29,172 (see Note 9 and Note 13)
Postretirement benefit plan reclassification, net of tax
(expense) benefit of $(1,017), $6,991 and $(17,013)
Other
Comprehensive earnings, net of tax
Less: Comprehensive earnings attributable to
noncontrolling interest:
Net earnings
Foreign currency translation adjustments
For the Years Ended December 31,
2017
2016
2015
$
622,443
$
632,838
$
785,174
92,711
(38,729)
(154,096)
46,543
2,043
—
763,740
36,713
3,677
—
—
(12,453)
885
582,541
27,846
1,300
660,224
26,910
906
16,178
(532)
Comprehensive earnings attributable to W.W. Grainger, Inc. $
723,350
$
554,725
$
644,578
The accompanying notes are an integral part of these consolidated financial statements.
41
W.W. Grainger, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except for share and per share amounts)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable - net
Inventories – net
Prepaid expenses and other assets
Prepaid income taxes
Total current assets
PROPERTY, BUILDINGS AND EQUIPMENT
Less: Accumulated depreciation and amortization
Property, buildings and equipment – net
DEFERRED INCOME TAXES
GOODWILL
INTANGIBLES – NET
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt
Current maturities of long-term debt
Trade accounts payable
Accrued compensation and benefits
Accrued contributions to employees’ profit-sharing plans
Accrued expenses
Income taxes payable
Total current liabilities
LONG-TERM DEBT (less current maturities)
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES
EMPLOYMENT-RELATED AND OTHER NONCURRENT LIABILITIES
SHAREHOLDERS' EQUITY
Cumulative preferred stock – $5 par value – 12,000,000 shares authorized;
none issued or outstanding
Common stock – $0.50 par value – 300,000,000 shares authorized;
issued 109,659,219 shares
Additional contributed capital
Retained earnings
Accumulated other comprehensive losses
As of December 31,
2017
2016
$
326,876 $
274,146
1,325,186
1,429,199
86,667
38,061
3,205,989
3,444,660
2,052,693
1,391,967
22,362
543,903
569,115
70,918
1,223,096
1,406,470
81,766
34,751
3,020,229
3,411,502
1,990,611
1,420,891
64,775
527,150
586,126
75,136
$
5,804,254 $
5,694,307
$
55,603 $
386,140
38,709
731,582
254,560
92,682
313,766
19,759
1,506,661
2,248,036
111,710
110,114
19,966
650,092
212,525
54,948
290,207
15,059
1,628,937
1,840,946
126,101
192,555
—
—
54,830
1,040,493
7,405,192
54,830
1,030,256
7,113,559
(134,674)
(272,294)
Treasury stock, at cost – 53,330,356 and 50,854,905 shares, respectively
(6,675,709)
(6,128,416)
Total W.W. Grainger, Inc. shareholders’ equity
Noncontrolling interest
Total shareholders' equity
1,690,132
1,797,935
137,601
107,833
1,827,733
1,905,768
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
5,804,254 $
5,694,307
The accompanying notes are an integral part of these consolidated financial statements.
42
W.W. Grainger, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Provision for losses on accounts receivable
Deferred income taxes and tax uncertainties
Depreciation and amortization
Impairment of goodwill, intangible and other assets
Net (gains) losses from sales of assets and business divestitures
Stock-based compensation
Losses from equity method investment
Change in assets and liabilities – net of business acquisitions and
divestitures:
Accounts receivable
Inventories
Prepaid expenses and other assets
Trade accounts payable
Other current liabilities
Current income taxes payable
Accrued employment-related benefits cost
Other – net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment and intangibles
Proceeds from sales of assets and business divestitures
Equity method investment
Cash paid for business acquisitions
Other – net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in commercial paper
Borrowings under lines of credit
Payments against lines of credit
Proceeds from issuance of long-term debt
Payments of long-term debt
Proceeds from stock options exercised
Payments for employee taxes withheld from stock awards
Excess tax benefits from stock-based compensation
Purchase of treasury stock
Cash dividends paid
Net cash used in financing activities
Exchange rate effect on cash and cash equivalents
NET CHANGE IN CASH AND CASH EQUIVALENTS:
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Cash payments for interest (net of amounts capitalized)
Cash payments for income taxes
For the Years Ended December 31,
2015
2016
2017
$
$
622,443
16,376
(5,048)
264,064
28,186
(8,795)
32,661
37,771
$
632,838
16,216
(5,884)
248,857
52,318
(18,521)
35,735
31,193
785,174
10,181
4,076
227,967
—
2,765
46,861
11,740
(103,126)
(4,915)
(5,024)
72,332
112,445
3,967
(6,380)
(400)
1,056,557
(237,283)
120,228
(34,754)
—
5,726
(146,083)
(369,766)
73,781
(43,256)
401,764
(39,301)
47,418
(27,884)
—
(605,431)
(304,473)
(867,148)
9,404
52,730
274,146
326,876
78,043
334,647
$
$
$
$
$
$
(45,600)
(4,403)
18,641
72,882
(3,937)
(3,513)
7,542
(10,281)
1,024,083
(284,249)
55,023
(34,103)
(159)
1,224
(262,264)
39,748
36,055
(37,358)
515,985
(262,248)
34,125
(21,107)
11,905
(789,773)
(302,971)
(775,639)
(2,170)
(15,990)
290,136
274,146
(3,085)
(37,737)
15,788
23,130
(24,101)
6,943
(27,721)
(5,872)
1,036,109
(373,868)
14,857
(20,382)
(464,431)
466
(843,358)
325,000
54,770
(78,559)
1,307,183
(52,838)
60,885
(46,205)
27,553
(1,400,071)
(306,474)
(108,756)
(20,503)
63,492
226,644
290,136
$
63,143
359,506
$
$
31,591
442,486
The accompanying notes are an integral part of these consolidated financial statements.
43
W.W. Grainger, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of dollars, except for per share amounts)
Common
Stock
Additional
Contributed
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Earnings
(Losses)
Treasury
Stock
Noncontrolling
Interest
Balance at January 1, 2015
$ 54,830 $ 948,340 $6,335,990 $
(96,673) $ (4,032,615) $
74,229
Exercise, settlement and
vesting of stock based
compensation awards
Stock based compensation
expense
Tax benefits on stock-based
compensation awards
Purchase of treasury stock
Net earnings
Other comprehensive losses
Cash dividends paid ($4.59
per share)
Balance at December 31,
2015
Exercise, settlement and
vesting of stock based
compensation awards
Stock based compensation
expense
Tax benefits on stock-based
compensation awards
Purchase of treasury stock
Net earnings
Other comprehensive
(losses) earnings
Cash dividends paid ($4.83
per share)
Balance at December 31,
2016
Exercise, settlement and
vesting of stock based
compensation awards
Stock based compensation
expense
Purchase of treasury stock
Net earnings
Other comprehensive
(losses) earnings
Cash dividends paid ($5.06
per share)
Balance at December 31,
2017
(22,781)
42,643
31,614
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
62,835
—
—
— (1,399,931)
768,996
—
—
(124,418)
660
(302,856)
—
—
—
—
460
163
—
(140)
16,178
(532)
(4,278)
$ 54,830 $ 1,000,476 $6,802,130 $
(221,091) $ (5,369,711) $
86,080
—
—
—
—
—
—
—
(18,137)
34,915
12,284
—
—
—
—
—
—
—
605,928
—
—
—
—
—
—
(51,203)
718
(294,499)
—
41,307
—
—
(800,012)
—
—
—
58
441
—
(130)
26,910
3,664
(9,190)
$ 54,830 $ 1,030,256 $7,113,559 $
(272,294) $ (6,128,416) $
107,833
—
—
—
—
—
—
(22,906)
32,514
—
—
—
—
—
—
585,730
—
—
—
—
—
137,620
629
(294,097)
—
60,273
—
(607,566)
—
—
—
206
137
(114)
36,713
3,831
(11,005)
$ 54,830 $ 1,040,493 $7,405,192 $
(134,674) $ (6,675,709) $
137,601
The accompanying notes are an integral part of these consolidated financial statements.
44
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY BACKGROUND
W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO)
supplies and other related products and services. W.W. Grainger, Inc.'s operations are primarily in the United States
(U.S.) and Canada, with a presence in Europe, Asia and Latin America. In this report, the words “Company” or “Grainger”
mean W.W. Grainger, Inc. and its subsidiaries.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries over which the
Company exercises control. All significant intercompany transactions are eliminated from the consolidated financial
statements. The Company has a controlling ownership interest in MonotaRO Co., Ltd. (MonotaRO), the single channel
online business in Japan, with the residual representing the noncontrolling interest.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ from
those estimates.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the reporting currency for all periods presented. The financial statements of the Company’s foreign
operating subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of the
Company’s foreign operating subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance
sheet date. Revenues and expenses are translated at average rates in effect during the period. Net exchange gains
or losses resulting from the translation of financial statements of foreign operations and related long-term debt are
recorded as a separate component of other comprehensive earnings. See Note 13 to the Consolidated Financial
Statements. Foreign currency transaction gains and losses are included in the Consolidated Statement of Earnings.
RECLASSIFICATIONS
Certain amounts in the 2016 and 2015 financial statements, as previously reported, have been reclassified to conform
to the 2017 presentation. In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment
Accounting, which became effective January 1, 2017. As a result, the Company reclassified $21 million in 2016
and $46 million in 2015 of employee taxes paid from cash flows from operating activities to cash flows from
financing activities in the Consolidated Statements of Cash Flows. These changes did not have a material impact
on the Consolidated Financial Statements.
REVENUE RECOGNITION
Revenues recognized include product sales, billings for freight and handling charges and fees earned for services
provided. The Company recognizes product sales and billings for freight and handling charges primarily on the date
products are shipped to, or picked up by, the customer. In cases where the product is shipped directly to the customer,
the Company recognizes revenue at the time of shipment primarily on a gross basis. The Company's standard shipping
terms are FOB shipping point. On occasion, the Company will negotiate FOB destination terms. These sales are
recognized upon delivery to the customer. eCommerce revenues, which accounted for 51% of total 2017 revenues,
are recognized on the same terms as revenues through other channels. Service revenues, which accounted for
approximately 1% of total 2017 revenues, are recognized after services are completed, including related service costs.
Taxes collected from customers and remitted to governmental authorities are presented on a net basis and are not
included in revenue.
Grainger offers sales incentives to customers primarily consisting of volume rebates. Volume rebates are generally
based on annual targets and accruals are established throughout the year based on contract terms, Grainger’s
historical payout experience and estimations of customer participation and performance levels. Sales incentives are
primarily accounted for as a reduction of revenue. Contract terms for most of Grainger’s incentive arrangements do
not exceed a year. Total accrued sales incentives were $45 million and $36 million as of December 31, 2017 and
2016, respectively, and are reflected in Accrued expenses in the Consolidated Balance Sheet.
45
COST OF MERCHANDISE SOLD
Cost of merchandise sold includes product and product-related costs, vendor consideration, freight and handling costs.
The Company defines handling costs as those costs incurred to fulfill a shipped sales order.
VENDOR CONSIDERATION
The Company receives rebates and allowances from its vendors to promote their products. The Company utilizes
numerous advertising programs to promote its vendors' products, including catalogs and other printed media, Internet,
radio and other marketing programs. Most of these programs relate to multiple vendors, which makes supporting the
specific, identifiable and incremental criteria difficult, and would require numerous assumptions and judgments. Based
on the inexact nature of trying to track reimbursements to the advertising expenditure for each vendor, the Company
treats most vendor advertising allowances as a reduction to product purchase price and is reflected in Cost of
merchandise sold rather than a reduction of operating (advertising) expenses.
Vendor funds that are determined to be reimbursement of specific, incremental and identifiable costs incurred to
promote vendors' products are recorded as an offset to the related expenses in Warehouse, marketing and
administrative expenses.
Rebates earned from vendors that are based on product purchases are capitalized into inventory as part of product
purchase price. These rebates are credited to Cost of merchandise sold based on sales. Vendor rebates that are
earned based on products sold are credited directly to Cost of merchandise sold.
ADVERTISING
Advertising costs are expensed in the year the related advertisement is first presented. Advertising expense was
$187 million, $180 million and $180 million for 2017, 2016 and 2015, respectively. Most vendor-provided
allowances are classified as a reduction to product purchase price and are reflected in Cost of merchandise
sold. For additional information see VENDOR CONSIDERATION above.
Catalog expense is amortized equally over the life of the catalog, beginning in the month of its distribution. Advertising
costs for catalogs that have not been distributed by year-end are capitalized as Prepaid expenses. Amounts included
in Prepaid expenses at December 31, 2017 and 2016, were $10 million and $12 million, respectively.
WAREHOUSING, MARKETING AND ADMINISTRATIVE EXPENSES
Included in this category are purchasing, branch operations, information services and marketing and selling expenses,
as well as other types of general and administrative costs.
STOCK INCENTIVE PLANS
The Company measures all share-based payments using fair-value-based methods and records compensation
expense related to these payments over the vesting period. See Note 11 to the Consolidated Financial Statements.
INCOME TAXES
Income taxes are recognized during the year in which transactions enter into the determination of financial statement
income, with deferred taxes being provided for temporary differences between financial and tax reporting. The Company
recognizes in the financial statements a provision for tax uncertainties, resulting from application of complex tax
regulations in multiple tax jurisdictions. The Company evaluates deferred income taxes to determine if valuation
allowances are required using a “more likely than not” standard. This assessment considers the nature, frequency and
amount of book and taxable income and losses, the duration of statutory carryback and forward periods, future reversals
of existing taxable temporary differences and tax planning strategies, among other matters. On December 22, 2017,
The Tax Cuts and Jobs Act of 2017 was enacted. See Note 14 to the Consolidated Financial Statements.
OTHER COMPREHENSIVE EARNINGS (LOSSES)
The Company's Other comprehensive earnings (losses) include foreign currency translation adjustments, changes in
fair value of derivatives designated as hedges and unrecognized gains (losses) on postretirement and other
employment-related benefit plans. Accumulated other comprehensive earnings (losses) (AOCE) are presented
separately as part of shareholders' equity. See Note 13 to the Consolidated Financial Statements.
CASH AND CASH EQUIVALENTS
The Company considers investments in highly liquid debt instruments, purchased with an original maturity of 90 days
or less, to be cash equivalents.
46
CONCENTRATION OF CREDIT RISK
The Company places temporary cash investments with institutions of high credit quality and, by policy, limits the amount
of credit exposure to any one institution.
The Company has a broad customer base representing many diverse industries doing business in all regions of the
United States, Canada, Europe, Asia and Latin America. Consequently, no significant concentration of credit risk is
considered to exist.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at their estimated net realizable value. The Company establishes reserves for customer
accounts that are potentially uncollectible. The method used to estimate the allowances is based on several factors,
including the age of the receivables and the historical ratio of actual write-offs to the age of the receivables. These
analyses also take into consideration economic conditions that may have an impact on a specific industry, group of
customers or a specific customer. See Note 4 to the Consolidated Financial Statements.
INVENTORIES
Inventories are valued at the lower of cost or net realizable value. Cost is determined primarily by the last-in, first-out
(LIFO) method, which accounts for approximately 64% of total inventory. Grainger uses LIFO method to better match
inventory cost and revenue. For the remaining inventory, cost is determined by the first-in, first-out (FIFO) method.
Grainger regularly reviews inventory to evaluate continued demand and identify any obsolete or excess
quantities. Grainger records provisions for the difference between excess and obsolete inventory cost and its estimated
realizable value. See Note 5 of the Consolidated Financial Statements.
PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment are valued at cost. For financial statement purposes, depreciation and amortization
are recorded in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service
lives, principally on the declining-balance and sum-of-the-years-digits depreciation methods. The Company's
international businesses record depreciation expense primarily on a straight-line basis. The principal estimated useful
lives for determining depreciation are as follows:
Buildings, structures and improvements
Furniture, fixtures, machinery and equipment
10 to 30 years
3 to 10 years
Depreciation expense was $170 million, $166 million and $162 million for the years ended December 31, 2017, 2016
and 2015, respectively.
Improvements to leased property are amortized over the initial terms of the respective leases or the estimated service
lives of the improvements, whichever is shorter.
The Company capitalized interest costs of $2 million, $2 million and $4 million for the years ended December 31, 2017,
2016 and 2015, respectively.
LONG-LIVED ASSETS
The carrying value of long-lived assets, primarily property, buildings and equipment and amortizable intangibles, is
evaluated whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired.
An impairment loss is recognized when estimated undiscounted future cash flows resulting from use of the asset,
including disposition, are less than the carrying value of the asset. Impairment is measured as the amount by which
the asset's carrying amount exceeds the fair value.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and
liabilities assumed. Goodwill is not amortized, but rather tested for impairment on an annual basis and more often if
circumstances require. Impairment losses are recognized whenever the carrying value of a reporting unit exceeds its
fair value. See Note 3 to the Consolidated Financial Statements.
47
The Company recognizes an acquired intangible apart from goodwill whenever the intangible arises from contractual
or other legal rights, or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed,
rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles
are amortized over their estimated useful lives (approximately 7 to 22 years) unless the estimated useful life is
determined to be indefinite. The straight-line method of amortization is used as it has been determined to approximate
the use pattern of the asset. The Company also maintains intangible assets with indefinite lives that are not amortized.
These intangibles are tested for impairment on an annual basis and more often if circumstances require. An impairment
loss is recognized whenever the estimated fair value of the asset is less than its carrying value. See Note 3 to the
Consolidated Financial Statements.
The Company capitalizes certain costs related to the purchase and development of internal-use software. Amortization
of capitalized software is on a straight-line basis over three or five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to
the short-term nature of these financial instruments. See Note 8 to the Consolidated Financial Statements for fair value
of long-term debt.
WARRANTY RESERVES
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 expenses. For warranty expenses not covered by the
manufacturer, the Company provides a reserve for future costs based primarily on historical experience. Warranty
reserves were $2 million and $3 million at December 31, 2017 and 2016, respectively.
CONTINGENCIES
The Company accrues for costs relating to litigation claims and other contingent matters, when it is probable that a
liability has been incurred and the amount of the assessment can be reasonably estimated.
NEW ACCOUNTING STANDARDS
In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial
Assets and Financial Liabilities. This change to the financial instrument model primarily affects the accounting for equity
investments, financial liabilities under the fair value options and the presentation and disclosure requirements for
financial instruments. The effective date of this ASU is for fiscal years and interim periods beginning after December
15, 2017. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, Leases. This ASU improves transparency and comparability related
to the accounting and reporting of leasing arrangements. The guidance will require balance sheet recognition for assets
and liabilities associated with rights and obligations created by leases with terms greater than twelve months. The
effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2018 and early adoption
is permitted. The Company is evaluating the impact of this ASU.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts
and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing
diversity in practice. The effective date of this ASU is for fiscal years and interim periods beginning after December
15, 2017. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The
definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation.
The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2017. This ASU
should be applied prospectively on or after the effective date. No disclosures are required at transition. This ASU is
not expected to have a material impact on the Company's Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Test
for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the Step 2
procedure from the goodwill impairment test. Under ASU 2017-04, an entity should perform its annual or interim goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an
48
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the
loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments of
this ASU are effective for annual or any interim goodwill impairment tests beginning after December 15, 2019, and
early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company
early adopted this ASU during the third quarter of 2017 and there was no impact to the financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU improves the
presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this ASU
are effective for public entities for fiscal years and interim periods beginning after December 15, 2017. The amendments
in this ASU should be applied retrospectively for the presentation of the net periodic postretirement cost components
in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost
component of net periodic pension cost and net periodic postretirement benefit in assets. The Company is evaluating
the impact of this ASU.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification
Accounting. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when
applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a
share-based payment award. The amendments in this ASU are effective for public entities for fiscal years and interim
periods beginning after December 15, 2017. The ASU should be applied prospectively on and after the effective date.
This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.
REVENUE RECOGNITION STANDARDS
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as modified
by subsequently issued ASUs 2015-14, 2016-08, 2016-10, 2016-12 and 2016-20 (collectively “new revenue
standard”). The core principle of the ASU, among other changes, is that an entity should recognize revenue when
it transfers promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. The Company has elected the modified
retrospective method and will adopt the new revenue guidance effective January 1, 2018, with an immaterial
impact to the opening retained earnings.
The analysis of contracts with customers under the new revenue recognition standard was consistent with the
Company’s current revenue recognition model, whereby revenue is recognized primarily on the date products are
shipped to, or picked up by, the customer.
Adoption of the new standard will primarily result in reclassification of certain service related costs from Warehousing,
marketing and administrative expenses to Cost of merchandise sold. The ASU also requires expanded qualitative and
quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers, significant judgments and accounting policy.
Adoption of the new standard will not have an ongoing material impact on the Company's Consolidated
Financial Statements.
49
NOTE 2 - BUSINESS ACQUISITIONS
On September 1, 2015, the Company acquired all of the issued share capital of Cromwell Group (Holdings) Limited
(Cromwell). With sales of £285 million ($437 million) for fiscal year ending August 31, 2015, prior to the acquisition,
Cromwell was the largest independent MRO distributor in the United Kingdom. This acquisition brought together
Cromwell's product strength and customer relationships with Grainger's expertise in supply chain and eCommerce to
accelerate growth in the core and online Cromwell business. The Company paid £310 million ($464 million), subject
to customary adjustments, for the Cromwell acquisition. The acquisition was partially funded with newly issued debt
in the United Kingdom. The goodwill recorded in the acquisition totaled approximately $123 million. The goodwill is
not deductible for tax purposes. The intangibles recorded in the acquisition consisted primarily of trade name
(approximately $84 million) and customer relationships (approximately $132 million). The trade name is deemed to
have an indefinite life and the customer relationship are amortized over 15 years. The purchase price allocation was
finalized in 2016 and the impact to the consolidated financial statements was not material. Disclosure of pro forma
results was not required.
NOTE 3 - GOODWILL AND OTHER INTANGIBLE ASSETS
Grainger had approximately $1.1 billion of goodwill and intangible assets as of December 31, 2017 and 2016, or 19%
and 20% of total assets, respectively. Grainger tests reporting units’ goodwill and intangible assets for impairment
annually during the fourth quarter and more frequently if impairment indicators exist. Grainger periodically performs
qualitative assessments of significant events and circumstances such as reporting units' historical and current results,
assumptions regarding future performance, strategic initiatives and overall economic factors to determine the existence
of impairment indicators and assess if it is more likely than not that the fair value of the reporting unit or indefinite-lived
intangible assets is less than its carrying value and if a quantitative impairment test is necessary. In the quantitative
test, Grainger compares the carrying value of the reporting unit or an indefinite-lived intangible asset with its fair value.
Any excess of the carrying value over fair value is recorded as an impairment charge.
The fair value of reporting units is calculated primarily using the discounted cash flow (DCF) method and utilizing value
indicators from a market approach to evaluate the reasonableness of the resulting fair values. The DCF method
incorporates various assumptions including the amount and timing of future expected cash flows, including revenues,
gross margins, operating expenses, capital expenditures and working capital based on operational budgets, long-
range strategic plans and other estimates. The terminal value growth rate is used to calculate the value of cash flows
beyond the last projected period and reflects management’s best estimates for perpetual growth for the reporting units.
Estimates of market-participant risk-adjusted weighted average cost of capital are used as a basis for determining the
discount rates to apply to the reporting units’ future expected cash flows and terminal value.
Grainger’s indefinite-lived intangibles are primarily trade names. The fair value of trade names is calculated primarily
using the relief from royalty method, which estimates the expected royalty savings attributable to the ownership of the
trade name asset. The key assumptions when valuing a trade name are the revenue base, the royalty rate and the
discount rate.
During the quarter ended September 30, 2017, the Company performed qualitative assessments of its reporting units’
goodwill and intangible assets. Quantitative tests on two of its reporting units were performed due to lower than expected
operating performance and lowered short-term forecasts. Based on the results of the quantitative tests performed, the
Company concluded that there was no impairment of goodwill or indefinite-lived intangible assets for the two reporting
units as of September 30, 2017. The fair values of the reporting units exceeded their carrying values by approximately
31 percent for the Canada reporting unit and 15 percent for the Cromwell reporting unit included in other businesses.
Grainger completed its annual goodwill impairment testing in the fourth quarter. The testing included qualitative
assessment of each reporting units’ goodwill and intangible assets. The Company concluded that for each of its
reporting units, including the two reporting units for which quantitative tests were performed during the third
quarter, it was not more likely than not that the fair value of the reporting unit or indefinite-lived intangible assets
is less than their carrying value.
The risk of potential failure of future impairment tests is highly dependent upon a number of assumptions. Changes
in assumptions regarding discount rate and future performance, as well as the ability to execute on growth initiatives
and productivity improvements, may have a significant impact on future cash flows. Likewise, unfavorable economic
environment and changes in market conditions or other factors may result in future impairments of the goodwill and
intangible assets.
50
The balances and changes in the carrying amount of Goodwill by segment are as follows (in thousands of dollars):
Balance at January 1, 2016
$
202,020
$
118,529
$
261,787
$
582,336
United States
Canada
Other
businesses
Total
Purchase Price Adjustments
Impairment
Translation
Balance at December 31, 2016
Divestiture
Impairment
Translation
Balance at December 31, 2017
Cumulative goodwill impairment
charges, January 1, 2017
Impairment
Cumulative goodwill impairment
charges, December 31, 2017
$
$
$
—
—
—
202,020
(3,316)
(7,169)
—
191,535
17,038
7,169
$
$
—
—
3,611
122,140
—
—
8,282
130,422
32,265
—
$
$
8,362
(47,244)
(19,915)
202,990
—
—
18,956
221,946
70,299
—
$
$
8,362
(47,244)
(16,304)
527,150
(3,316)
(7,169)
27,238
543,903
119,602
7,169
24,207
$
32,265
$
70,299
$
126,771
The balances and changes in Intangible assets - net are as follows (in thousands of dollars):
As of December 31,
2017
2016
Weighted
average
life
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Customer lists
and
relationships
Trademarks,
trade names
and other
Non-amortized
trade names
and other
Capitalized
software
Total
intangible
assets
13.8 years
$ 430,026
$
195,842 $ 234,184
$ 424,405
$
175,112 $ 249,293
13.5 years
25,886
16,054
9,832
25,353
14,262
11,091
137,491
— 137,491
128,282
—
128,282
4.1 years
632,431
444,823
187,608
571,978
374,518
197,460
8.2 years
$ 1,225,834
$
656,719 $ 569,115
$ 1,150,018
$
563,892 $ 586,126
Amortization expense recognized on intangible assets was $89 million, $82 million and $65 million for the years ended
December 31, 2017, 2016 and 2015, respectively, and is included in Warehousing, marketing and administrative
expenses on the Consolidated Statement of Earnings.
51
Estimated amortization expense for future periods is as follows (in thousands of dollars):
Year
2018
2019
2020
2021
2022
Thereafter
$
Expense
91,178
73,995
52,409
40,315
28,468
145,259
NOTE 4 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following table shows the activity in the allowance for doubtful accounts (in thousands of dollars):
Balance at beginning of period
Provision for uncollectible accounts
Write-off of uncollectible accounts, net of recoveries
Foreign currency and other
Balance at end of period
NOTE 5 - INVENTORIES
For the Years Ended December 31,
2017
2016
$
$
26,690
16,376
(16,597)
2,798
29,267
$
$
22,288
16,216
(11,248)
(566)
26,690
Inventories primarily consist of merchandise purchased for resale. Inventories would have been $382 million higher
than reported at December 31, 2017 and December 31, 2016, if the FIFO method of inventory accounting had been
used for all the Company inventories. Net earnings would have decreased by $1 million, $3 million and $1 million for
the years ended December 31, 2017, 2016 and 2015, respectively, using the FIFO method of accounting. Inventory
values using the FIFO method of accounting approximate replacement cost. The Company records provisions for the
difference between excess and obsolete inventory cost and its estimated realizable value.
The following table shows the activity in the reserves for excess and obsolete inventory (in thousands of dollars):
For the Years Ended December 31,
2017
2016
Balance at beginning of period
Provision for excess and obsolete inventory
Disposal of unsaleable inventory
Other
Balance at end of period
$
$
(191,514)
(24,829)
29,442
(6,547)
(193,448)
$
$
(168,105)
(58,485)
30,161
4,915
(191,514)
NOTE 6 - RESTRUCTURING RESERVES
The Company continues to evaluate performance and take restructuring actions such as the consolidation of the
contact center network in the U.S. business, branch closures in the U.S. and Canada businesses and disposition of
underperforming assets and businesses in the U.S., Canada and other businesses. The purpose of these initiatives
is to reduce costs in the U.S. business and at the Company level (unallocated expense) and streamline and focus on
profitability in the Canada and other businesses.
52
Restructuring costs, net of gains, for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands
of dollars):
Cost of
merchandise
sold
For the Year Ended December 31, 2017
Warehousing, marketing and
administrative expenses
Involuntary
employee
termination costs
Other charges
(gains)
Total
United States
Canada
Other businesses
Unallocated expense
$
1,379
$
32,134
$
(22,255) $
11,258
8,310
3,861
—
15,001
11,724
—
15,976
39,435
10,593
39,287
55,020
10,593
Total
$
13,550
$
58,859
$
43,749
$ 116,158
Cost of
merchandise
sold
For the Year Ended December 31, 2016
Warehousing, marketing and
administrative expenses
Involuntary
employee
termination costs
Other charges
(gains)
Total
United States
Canada
Unallocated expense
Total
$
$
3,100
$
21,151
$
(8,583) $
15,668
1,605
—
12,536
—
857
8,947
14,998
8,947
4,705
$
33,687
$
1,221
$
39,613
Cost of
merchandise
sold
For the Year Ended December 31, 2015
Warehousing, marketing and
administrative expenses
Involuntary
employee
termination costs
Other charges
(gains)
Total
$
$
1,194
$
21,524
$
12,754
$
35,472
—
—
4,183
—
—
5,696
4,183
5,696
1,194
$
25,707
$
18,450
$
45,351
United States
Canada
Other businesses
Total
Other charges (gains) for all three years primarily include asset impairments and write-down losses in the U.S.,
Canada and at the Company level (unallocated expense) and other exit-related costs. The charges in the U.S. and
Canada businesses are partially offset by gains from the sales of branches in those segments. Included in other
charges (gains) is also approximately $18 million of accumulated foreign currency translations losses reclassified from
Accumulated other comprehensive losses to earnings in other businesses primarily related to the wind-down of
Colombia during 2017.
53
Restructuring reserves are primarily recorded as part of Accrued compensation and benefits and Accrued
expenses. The following summarizes the restructuring reserve activity for the years ended December 31, 2017
and 2016 (in thousands of dollars):
Current
assets write-
downs
Fixed assets
write-downs
and
disposals
Involuntary
employee
termination
costs
Lease
termination
costs
Other costs
Total
Reserves as of January 1,
2016
$
— $
— $
29,516
$
5,070
$
— $
34,586
Restructuring costs, net of
(gains)
Cash (paid) received
Non-cash, translation and
others
Reserves as of December
31, 2016
Restructuring costs, net of
(gains)
Cash (paid) received
Non-cash, translation and
others
Reserves as of December
31, 2017
$
$
4,684
(2,933)
(9,289)
18,235
33,687
(38,193)
3,432
(5,377)
7,099
(5,710)
39,613
(33,978)
(1,584) $
(8,946) $
(469) $
— $
(878) $
(11,877)
167
$
— $
24,541
$
3,125
$
511
$
28,344
13,892
(898)
511
23,624
58,859
(34,066)
5,572
(3,770)
37,324
(7,639)
116,158
(22,749)
(60)
(23,394)
955
(34)
(17,432)
(39,965)
$
13,101
$
741
$
50,289
$
4,893
$
12,764
$
81,788
The cumulative amounts incurred to date and expected (excluding results of sales of real estate) in connection with
the Company's restructuring actions for active programs are as follows (in thousands of dollars):
Cumulative
amount incurred
to date
Additional
amount expected
United States
Canada
Other businesses
Unallocated expense
Total
$
$
62,398
$
58,468
60,716
19,540
201,122
$
5,075
11,428
135
—
16,638
54
NOTE 7 - SHORT-TERM DEBT
Short-term debt consisted of the following (in thousands of dollars):
Lines of Credit
Outstanding at December 31
Maximum month-end balance during the year
Weighted average interest rate during the year
Weighted average interest rate at December 31
Commercial Paper
Outstanding at December 31
Maximum month-end balance during the year
Weighted average interest rate during the year
Weighted average interest rate at December 31
As of December 31,
2017
2016
$
$
$
$
55,603
55,621
2.41%
2.01%
—
454,696
0.83%
—%
$
$
$
$
16,392
24,722
4.04%
5.13%
369,748
629,712
0.50%
0.69%
Lines of Credit
In October 2017, the Company replaced its U.S. $900 million unsecured revolving line of credit with a new five-year
$750 million unsecured revolving line of credit, with the option to extend the line to up to $1.1 billion. The terms of the
new line of credit are customary for transactions of this type and do not contain any financial performance covenants.
The primary purpose of this credit facility is to provide support to the Company's commercial paper program and for
general corporate purposes. There were no borrowings outstanding under these lines of credit as of December 31,
2017 and 2016. The Company paid a commitment fee of 0.06% and 0.07% in 2017 and 2016, respectively.
Foreign subsidiaries utilize lines of credit for working capital purposes and other operating needs, primarily British
Pound (£) and Euro (€) revolving credit facilities with £20 million and €12.5 million outstanding at December 31, 2017,
respectively, and no outstanding balance at December 31, 2016. The British Pound revolving credit facility bears
interest at London Interbank Offered Rate (LIBOR) plus a margin of 75 basis points (1.22% at December 31, 2017)
and a commitment fee of 0.26% as of December 31, 2017. The Euro revolving credit facility bears interest at Euro
Interbank Offered Rate (EURIBOR) plus a margin of 35 basis points (0.35% at December 31, 2017) and a commitment
fee of 0.12% as of December 31, 2017.
Uncommitted Lines of Credit
The Company had $71 million and $88 million of unc ommitted lines of credit at December 31, 2017 and
2016, respectively.
Commercial Paper
The Company issued commercial paper for general working capital needs. A portion of the proceeds from the May
2017 bond issuance (see Note 8 to the Consolidated Financial Statements) was used to pay outstanding commercial
paper. At December 31, 2017, there was none outstanding.
Letters of Credit
The Company's U.S. business had $33 million and $30 million of letters of credit at December 31, 2017 and 2016,
respectively, primarily related to the Company's insurance program. Letters of credit were also issued to facilitate
purchases of products. These issued amounts were $1 million and $5 million at December 31, 2017 and 2016,
respectively. Letters of credit issued by the Company's international businesses were immaterial.
55
NOTE 8 - LONG-TERM DEBT
Long-term debt consisted of the following (in thousands of dollars):
4.60% senior notes due 2045
3.75% senior notes due 2046
4.20% senior notes due 2047
British pound term loan
Euro term loan
Canadian dollar revolving credit facility
Capital lease obligations and other
Less current maturities
Debt issuance costs and discounts
As of December 31,
2017
2016
$
1,000,000
$
1,000,000
400,000
400,000
194,574
131,956
99,388
84,274
400,000
—
187,506
120,900
100,521
71,109
2,310,192
1,880,036
(38,709)
(23,447)
(19,966)
(19,124)
$
2,248,036
$
1,840,946
Senior Notes
In May 2017, the Company issued $400 million of unsecured 4.20%Senior Notes (4.20% Notes) that mature on May 15,
2047. The 4.20% Notes require no principal payments until the maturity date and interest is payable semi-annually on
May 15 and November 15, beginning on November 15, 2017. Prior to November 15, 2046, the Company may redeem
the 4.20% Notes in whole at any time or in part from time to time at a “make-whole” redemption price. This redemption
price is calculated by reference to the then-current yield on a U.S. treasury security with a maturity comparable to the
remaining term of the 4.20% Notes plus 20 basis points, together with accrued and unpaid interest, if any, at the
redemption date. Additionally, if the Company experiences specific kinds of changes in control, it will be required to
make an offer to purchase the 4.20% Notes at 101% of their principal amount plus accrued and unpaid interest, if any,
at the date of purchase. On or after November 15, 2046, the Company may redeem the 4.20% Notes in whole at any
time or in part from time to time at 100% of their principal amount, together with accrued and unpaid interest, if any,
to the redemption date. Costs and discounts of approximately $5.8 million associated with the issuance of the 4.20%
Notes, representing underwriting fees and other expenses, have been recorded as a contra-liability within Long-term
debt and is being amortized to interest expense over the term of the 4.20% Notes. The fair value of the 4.20% Notes
was approximately $411 million as of December 31, 2017.
In May 2016, the Company issued $400 million of unsecured 3.75% Senior Notes (3.75% Notes) that mature on
May 15, 2046. The 3.75% Notes require no principal payments until the maturity date and interest is payable semi-
annually on May 15 and November 15, beginning on November 15, 2016. Prior to November 15, 2045, the Company
may redeem the 3.75% Notes in whole at any time or in part from time to time at a “make-whole” redemption price.
This redemption price is calculated by reference to the then-current yield on a U.S. treasury security with a maturity
comparable to the remaining term of the 3.75% Notes plus 20 basis points, together with accrued and unpaid interest,
if any, to the redemption date. Additionally, if the Company experiences specific kinds of changes in control, it will be
required to make an offer to purchase the 3.75% Notes at 101% of their principal amount plus accrued and unpaid
interest, if any, to the date of purchase. On or after November 15, 2045, the Company may redeem the 3.75% Notes
in whole at any time or in part from time to time at 100% of their principal amount, together with accrued and unpaid
interest, if any, to the redemption date. Costs and discounts of approximately $7 million associated with the issuance
of the 3.75% Notes, representing underwriting fees and other expenses, have been recorded as a contra-liability within
Long-term debt and is being amortized to interest expense over the term of the 3.75% Notes. The fair value of the
3.75% Notes was approximately $384 million and $371 million as of December 31, 2017 and 2016, respectively.
In June 2015, the Company issued $1 billion of unsecured 4.60% Senior Notes (4.60% Notes) that mature on June 15,
2045. The 4.60% Notes require no principal payments until the maturity date and interest is payable semi-annually on
June 15 and December 15, beginning on December 31, 2015. Prior to December 15, 2044, the Company may redeem
the 4.60% Notes in whole at any time or in part from time to time at a “make-whole” redemption price. This redemption
price is calculated by reference to the then-current yield on a U.S. treasury security with a maturity comparable to the
remaining term of the 4.60% Notes plus 25 basis points, together with accrued and unpaid interest, if any, to the
56
redemption date. Additionally, if the Company experiences specific kinds of changes in control, it will be required to
make an offer to purchase the 4.60% Notes at 101% of their principal amount plus accrued and unpaid interest, if any,
to the date of purchase. On or after December 15, 2044, the Company may redeem the 4.60% Notes in whole at any
time or in part from time to time at 100% of their principal amount, together with accrued and unpaid interest, if any,
to the redemption date. Costs and discounts of approximately $11 million associated with the issuance of the 4.60%
Notes, representing underwriting fees and other expenses, have been recorded as a contra-liability within Long-term
debt and is beingamortized to interest expense over the term of the 4.60% Notes. The fair value of the 4.60% Notes
was approximately $1.1 billion as of December 31, 2017 and 2016.
The estimated fair values of the Company’s Senior Notes were based on available external pricing data and current
market rates for similar debt instruments, among other factors, which are classified as level 2 inputs within the fair
value hierarchy.
British Pound Term Loan
In August 2015, the Company entered into an unsecured credit facilities agreement providing for a five-year term loan
of £160 million and revolving credit facility of up to £20 million (see Note 7 to the Consolidated Financial Statements).
Proceeds of the term loan were used to partially fund the acquisition of Cromwell and to pay certain costs related to
the acquisition. Under the agreement, the principal amount of the term loan will be repaid semiannually in installments
of £4 million beginning February 2016 through February 2020 with the remaining outstanding amount due August
2020. At the election of the Company, the term loan bears interest at the LIBOR Rate plus a margin of 75 basis points,
as defined within the term loan agreement. At December 31, 2017, the Company had elected a one-month LIBOR
interest period. The weighted average interest rate was 1.04% and 1.17% for the years ended December 31, 2017
and 2016, respectively. The carrying value of the British Pound term loan approximates fair value due to the variable
interest rate.
Euro Term Loan
On August 31, 2016, the Company entered into an agreement for a five-year term loan of €110 million and a revolving
credit facility of up to €20 million (see Note 7 to the Consolidated Financial Statements). The proceeds from the term
loan were used to pay in full €102.5 million of a term loan that matured in August 2016. Under the agreement, no
principal amount of the loan will be required to be paid until the loan becomes due on August 31, 2021, at which time
the loan will be required to be paid in full. The Company, at its option, may prepay this term loan in whole or in part at
the end of any interest period without penalty. The loan bears interest at the EURIBOR plus a margin of 45 basis points,
as defined within the term loan agreement. If EURIBOR is less than zero, then EURIBOR will be deemed to be zero.
The interest rate at December 31, 2017, was 0.45%. The carrying value of the Euro term loan approximates fair value
due to the variable interest rate.
Canadian Dollar Revolving Credit Facility
In September 2014, the Company entered into an unsecured revolving credit facility with a maximum availability of
C$175 million. Pursuant to the credit agreement, there is a commitment fee of 0.07% as of December 31, 2017, and
the facility matures on September 24, 2019. The amounts outstanding were C$125 million and C$135 million as of
December 31, 2017 and 2016, respectively. The loan bears interest at the Canadian Dollar Offered Rate (CDOR) plus
a margin of 70 basis points, as defined within the loan agreement. The weighted average interest rate during the year
on this outstanding amount was 1.78%. No principal payments are required on the credit facility until the maturity date.
Accordingly, the amount outstanding is included in long-term debt as of December 31, 2017. The carrying value of the
Canadian Dollar revolving credit facility approximates fair value due to the variable interest rate.
The scheduled aggregate principal payments related to capital lease obligations and long-term debt, excluding debt
issuance costs, are due as follows (in thousands of dollars):
Year
2018
2019
2020
2021
2022
Thereafter
Total
Payment Amount
38,709
144,156
190,774
136,543
10
1,800,000
2,310,192
$
$
57
The Company's debt instruments include affirmative and negative covenants that are usual and customary for
companies with similar credit ratings. The Company was in compliance with all debt covenants as December 31, 2017.
NOTE 9 - EMPLOYEE BENEFITS
The Company provides various retirement benefits to eligible employees, including contributions to defined contribution
plans, pension benefits associated with defined benefit plans, postretirement medical benefits and other benefits.
Eligibility requirements and benefit levels vary depending on employee location. Various foreign benefit plans cover
employees in accordance with local legal requirements.
Defined Contribution Plans
A majority of the Company's U.S. employees are covered by a noncontributory profit-sharing plan. Effective January
1, 2016, the plan was amended to better align Company contributions to Company performance and now includes
two components, a variable annual contribution based on a rate of return on invested capital and an automatic
contribution equal to 3% of total eligible compensation. In addition, employees covered by the plan are also able to
make personal contributions. The total Company contribution will be maintained at a minimum of 8% and a maximum
of 18% of total eligible compensation paid to eligible employees. The total profit-sharing plan expense was $120 million,
$84 million and $121 million for 2017, 2016 and 2015, respectively.
The Company sponsors additional defined contribution plans available to certain U.S. and foreign employees for which
contributions are paid by the Company and participating employees. The expense associated with these defined
contribution plans totaled $18 million, $12 million and $11 million for 2017, 2016 and 2015, respectively.
Defined Benefit Plans and Other Retirement Plans
The Company sponsors defined benefit plans available to certain foreign employees. The cost of these programs is
not significant to the Company. In certain countries, pension contributions are made to government-sponsored social
security pension plans in accordance with local legal requirements. For these plans, the Company has no continuing
obligations other than the payment of contributions.
Postretirement Healthcare Benefits Plans
The Company has a postretirement healthcare benefits plan that provides coverage for a majority of its U.S. employees
hired prior to January 1, 2013, and their dependents should they elect to maintain such coverage upon retirement.
Covered employees become eligible for participation when they qualify for retirement while working for the Company.
Participation in the plan is voluntary and requires participants to make contributions toward the cost of the plan, as
determined by the Company.
During the third quarter of 2017, the Company implemented plan design changes effective January 1, 2018, for the
post-65 age group. This plan change will move all post-65 Medicare eligible retirees to healthcare exchanges and
provide them a subsidy to purchase insurance. The amount of the subsidy will be based on years of service. As of
August 31, 2017, as a result of the plan change, the plan obligation was remeasured. The remeasurement resulted in
a decrease in the postretirement benefit obligation of $75.7 million and a corresponding unrecognized gain recorded
in Other comprehensive earnings net of tax of $29.2 million.
The net periodic benefits costs charged to operating expenses, which were valued with a measurement date
of January 1 for each year and August 31, 2017 remeasurement date, consisted of the following components
(in thousands of dollars):
For the Years Ended December 31,
2016
2017
2015
Service cost
Interest cost
Expected return on assets
Amortization of prior service credit
Amortization of unrecognized (gains) losses
Net periodic (benefits) costs
7,423
8,103
(11,826)
(7,570)
(2,437)
(6,307)
$
$
8,238
9,855
(10,113)
(6,688)
129
1,421
$
$
10,128
9,649
(10,375)
(6,801)
1,512
4,113
$
$
58
Reconciliations of the beginning and ending balances of the postretirement benefit obligation, which is calculated as
of December 31 measurement date, the fair value of plan assets available for benefits and the funded status of the
benefit obligation follow (in thousands of dollars):
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Actuarial (gains) losses
Plan amendment
Benefits paid
Prescription drug rebates
Benefit obligation at end of year
Plan assets available for benefits at beginning of year
Actual returns on plan assets
Plan participants' contributions
Benefits paid
Prescription drug rebates
Plan assets available for benefits at end of year
Noncurrent postretirement benefit obligation
2017
2016
$
$
265,028
7,423
8,103
3,346
(34,236)
(34,182)
(8,631)
1,499
208,350
163,545
29,477
3,266
(8,295)
1,499
189,492
18,858
$
$
239,348
8,238
9,855
2,943
13,218
—
(9,439)
865
265,028
155,611
13,557
2,774
(9,262)
865
163,545
101,483
The amounts recognized in Accumulated other comprehensive earnings (AOCE) consisted of the following
(in thousands of dollars):
Prior service credit
Unrecognized gains (losses)
Deferred tax (liability)
Net accumulated gains
As of December 31,
2017
2016
$
$
80,426
36,794
(43,793)
73,427
$
$
53,814
(12,656)
(15,861)
25,297
The $49 million increase in unrecognized gain was primarily driven by the plan amendment and a change in census,
claims costs and other actuarial assumptions offset by a decrease in the discount rate.
The components of AOCE related to unrecognized gains that will be amortized into net periodic postretirement benefit
costs in 2018 are estimated as follows (in thousands of dollars):
Amortization of prior service credit
Amortization of unrecognized gains
Estimated amount to be amortized from AOCE into net periodic
postretirement benefit costs
2018
(9,696)
(2,787)
(12,483)
$
$
The Company has elected to amortize the amount of net unrecognized gains over a period equal to the average
remaining service period for active plan participants expected to retire and receive benefits of approximately 13.2 years
for 2017.
The benefit obligation was determined by applying the terms of the plan and actuarial models. These models
include various actuarial assumptions, including discount rates, long-term rates of return on plan assets,
healthcare cost trend rate and cost-sharing between the Company and the retirees. The Company evaluates its
actuarial assumptions on an annual basis and considers changes in these long-term factors based upon market
conditions and historical experience.
59
The following assumptions were used to determine net periodic benefit costs at January 1 of each year (excluding the
August 31, 2017 remeasurement date):
For the Years Ended December 31,
2017
2016
2015
Discount rate
Long-term rate of return on plan assets, net of tax
Initial healthcare cost trend rate - pre age 65
Initial healthcare cost trend rate - post age 65
Ultimate healthcare cost trend rate
Year ultimate healthcare cost trend rate reached
4.00%
7.13%
6.81%
9.36%
4.50%
2026
4.20%
6.65%
7.00%
7.00%
4.50%
2026
3.89%
6.65%
7.25%
7.25%
4.50%
2026
The following assumptions were used to determine benefit obligations at December 31:
Discount rate
Expected long-term rate of return on plan assets, net of tax
Initial healthcare cost trend rate - pre age 65
Initial healthcare cost trend rate - post age 65
Catastrophic drug benefit
Ultimate healthcare cost trend rate
Year ultimate healthcare cost trend rate reached
HRA credit inflation index for grandfathered retirees
2017
2016
2015
3.44%
7.13%
6.56%
N/A
12.50%
4.50%
2026
2.50%
4.00%
7.13%
6.81%
9.36%
N/A
4.50%
2026
N/A
4.20%
6.65%
7.00%
7.00%
N/A
4.50%
2026
N/A
The discount rate assumptions reflect the rates available on high-quality fixed income debt instruments as of December
31, the measurement date of each year. These rates have been selected due to their similarity to the duration of the
projected cash flows of the postretirement healthcare benefit plan. As of December 31, 2017, the Company decreased
the discount rate from 4.00% to 3.44% to reflect the decrease in the market interest rates, which offset the unrealized
actuarial gain at December 31, 2017. As of December 31, 2017, the Company changed the mortality improvement
table used to project mortality rates into the future from Mortality Table RPH-2014 with Mortality Improvement Scale
MP 2016 to Mortality Table RPH-2014 with Mortality Improvement Scale MP 2017, which was published by the Society
of Actuaries and reflects the most recent updates to life expectancies. RPH-2014 Table is a headcount weighted table,
which is also more appropriate for a postretirement healthcare benefit plan. The Company reviews external data and
its own historical trends for healthcare costs to determine the healthcare cost trend rates. As of December 31, 2016,
Grainger adopted a new healthcare trend rate to include a pre and post age 65 trend rates. Post age 65, prescription
drug costs, primarily specialty drugs, are expected to increase the cost of healthcare more significantly than medical
expenses. The alternative trend rates allow for a better estimate of expected costs for this plan. As of December 31,
2017, the initial healthcare cost trend rate was 6.56% for pre age 65. The healthcare costs trend rates decline each
year until reaching the ultimate trend rate of 4.50%. The plan amendment adopted in 2017 moves all post age 65
Medicare eligible retirees to an exchange and provides a subsidy to those retirees to purchase insurance. The amount
of the subsidy is based on years of service and is indexed at 2.50% for grandfathered employees. Assumed healthcare
cost trend rates have a significant effect on the amounts reported for the healthcare plans. A 1 percentage point change
in assumed healthcare cost trend rates would have the following effects on 2017 results (in thousands of dollars):
Effect on total service and interest cost
Effect on postretirement benefit obligation
1 Percentage Point
Increase
$
1,269
5,516
(Decrease)
$
(1,053)
(5,095)
The Company has established a Group Benefit Trust (Trust) to fund the plan obligations and process benefit payments.
All assets of the Trust are invested in equity funds designed to track to either the Standard & Poor's 500 Index (S&P
500) or the Total International Composite Index. The Total International Composite Index tracks non-U.S. stocks within
developed and emerging market economies. This investment strategy reflects the long-term nature of the plan obligation
and seeks to take advantage of the earnings potential of equity securities in the global markets and intends to reach
a balanced allocation between U.S. and non-U.S. equities. The plan's assets are stated at fair value, which represents
60
the net asset value of shares held by the plan in the registered investment companies at the quoted market prices
(Level 1 input). The plan assets available for benefits are net of Trust liabilities, primarily related to deferred income
taxes and taxes payable at December 31 (in thousands of dollars):
Registered investment companies:
Fidelity Spartan U.S. Equity Index Fund
Vanguard 500 Index Fund
Vanguard Total International Stock
Plan Assets
Trust liabilities
Plan assets available for benefits
2017
2016
$ 83,238
103,706
30,684
217,628
(28,136)
$ 189,492
$ 70,950
87,587
24,056
182,593
(19,048)
$ 163,545
The Company uses the long-term historical return on the plan assets and the historical performance of the S&P 500
and the Total International Composite Index to develop its expected return on plan assets. The after-tax expected long-
term rates of return on plan assets of 7.13% at December 31, 2017 is based on the historical average of long-term
rates of return and an estimated tax rate. The required use of an expected long-term rate of return on plan assets may
result in recognition of income that is greater or less than the actual return on plan assets in any given year. Over time,
however, the expected long-term returns are designed to approximate the actual long-term returns and, therefore,
result in a pattern of income recognition that more closely matches the pattern of the services provided by the employees.
The Company's investment policies include periodic reviews by management and trustees at least annually concerning:
(1) the allocation of assets among various asset classes (e.g., domestic stocks, international stocks, short-term bonds,
long-term bonds, etc.); (2) the investment performance of the assets, including performance comparisons with
appropriate benchmarks; (3) investment guidelines and other matters of investment policy and (4) the hiring, dismissal
or retention of investment managers.
The funding of the Trust is an estimated amount that 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.
The Company forecasts the following benefit payments related to postretirement (which include a projection for
expected future employee service) for the next ten years (in thousands of dollars):
Year
2018
2019
2020
2021
2022
2023-2027
Estimated Gross
Benefit
Payments
$
7,365
8,956
10,029
11,025
12,077
67,760
61
NOTE 10 - LEASES
The Company leases certain land, buildings, equipment and vehicles under noncancelable operating leases that expire
at various dates through 2036. Many of the building leases obligate the Company to pay real estate taxes, insurance
and certain maintenance costs and contain multiple renewal provisions, exercisable at the Company's option. Leases
that contain predetermined fixed escalations of the minimum rentals are recognized in rental expense on a straight-
line basis over the lease term. Cash or rent abatements received upon entering into certain operating leases are also
recognized on a straight-line basis over the lease term.
At December 31, 2017, the approximate future minimum lease payments for operating leases were as follows
(in thousands of dollars):
Year
2018
2019
2020
2021
2022
Thereafter
Total minimum payments required
Less amounts representing sublease income
Future Minimum
Lease Payments
63,625
$
50,610
31,984
20,891
13,555
15,879
196,544
(4,125)
192,419
$
The expected reduction of future minimum lease payments is the result of the decreasing branch network across the
U.S. and Canada business.
Rent expense was $76 million, $81 million and $77 million for 2017, 2016 and 2015, respectively. These amounts are
net of sublease income of $2 million for each 2017, 2016 and 2015.
Capital leases as of December 31, 2017 are not considered material. Capital lease obligations are reported in long-
term debt.
62
NOTE 11 - STOCK INCENTIVE PLANS
The Company maintains stock incentive plans under which the Company may grant a variety of incentive awards to
employees and directors. Non-qualified stock options, performance shares, restricted stock units and deferred stock
units have been granted and are outstanding under these plans. In 2015, the Company approved the 2015 Incentive
Plan, which replaced all prior active plans. As of December 31, 2017, there were 2.7 million shares available for grant
under the plans. When options are exercised, shares of the Company’s treasury stock are issued.
Pretax stock-based compensation expense was $31 million, $35 million and $43 million in 2017, 2016 and 2015,
respectively, and is included in Warehousing, marketing and administrative expenses. Related income tax benefits
recognized in earnings were $25 million, $11 million and $13 million in 2017, 2016 and 2015, respectively.
Options
The Company issues stock option grants to certain employees as part of their incentive compensation. Option awards
are granted with an exercise price equal to the closing market price of the Company's stock on the day of the grant.
The options generally vest over three years, although accelerated vesting is provided in certain circumstances. Awards
generally expire 10 years from the grant date. Transactions involving stock options are summarized as follows:
Outstanding at January 1, 2015
Granted
Exercised
Canceled or expired
Outstanding at December 31, 2015
Granted
Exercised
Canceled or expired
Outstanding at December 31, 2016
Granted
Exercised
Canceled or expired
Outstanding at December 31, 2017
Shares Subject
to Option
Weighted
Average
Price Per
Share
2,582,804
294,522
(587,441)
(63,599)
2,226,286
294,874
(317,110)
(80,014)
2,124,036
306,206
(409,269)
(87,260)
1,933,713
$
$
$
$
$
$
$
$
$
$
$
$
$
149.01
232.20
105.08
216.76
169.96
234.25
108.28
210.01
186.59
230.97
115.35
222.00
207.10
Options
Exercisable
1,647,903
1,411,460
1,346,707
1,375,844
At December 31, 2017, there was $8.9 million of total unrecognized compensation expense related to nonvested option
awards, which the Company expects to recognize over a weighted average period of 1.8 years.
The following table summarizes information about stock options (in thousands of dollars):
Fair value of options exercised
$
Total intrinsic value of options exercised
Fair value of options vested
Settlements of options exercised
For the years ended December 31,
2017
2016
2015
10,816
47,332
23,503
47,181
$
8,086
$
35,800
14,535
34,573
14,423
73,671
16,047
61,863
63
Information about stock options outstanding and exercisable as of December 31, 2017, is as follows:
Range of
Exercise
Prices
$72.14 -
$85.82
$102.26 -
$196.31
$204.01 -
$262.14
Options Outstanding
Weighted Average
Options Exercisable
Weighted Average
Remaining
Contractual
Life
Exercise
Price
Intrinsic
Value
(000s)
Number
Remaining
Contractual
Life
Exercise
Price
Intrinsic
Value
(000s)
Number
84,831
0.87 years
$ 80.11 $ 13,246
84,831
0.87 years
$ 80.11
$ 13,246
363,820
2.96 years
$ 133.79
37,275
362,677
2.94 years
$ 133.68
37,199
1,485,062
6.96 years
$ 232.31
5,853
928,336
6.16 years
$ 232.16
3,797
1,933,713
5.94 years
$ 207.10 $ 56,374
1,375,844
4.98 years
$ 196.83
$ 54,242
The Company uses a binomial lattice option pricing model for the valuation of stock options. The weighted average
fair value of options granted in 2017, 2016 and 2015 was $45.09, $44.94 and $46.67, respectively. The fair value of
options granted in 2017, 2016 and 2015 used the following assumptions:
Risk-free interest rate
Expected life
Expected volatility
Expected dividend yield
For the years ended December 31,
2017
2.0%
6 years
23.9%
2.1%
2016
1.4%
6 years
24.5%
2.0%
2015
1.5%
6 years
24.9%
1.9%
The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term
approximately equal to the expected term of the options being valued. The expected life selected for options granted
during each year presented represents the period of time that the options are expected to be outstanding based on
historical data of option holder exercise and termination behavior. Expected volatility is based upon implied and historical
volatility of the Company's closing stock price over a period equal to the expected life of each option grant. Historical
Company information is the primary basis for selection of expected dividend yield assumptions.
Performance Shares
The Company awards performance-based shares to certain executives. Receipt of Company stock is contingent upon
the Company meeting sales growth and/or return on invested capital (ROIC) goals. Each participant is granted a target
number of shares; however the number of shares actually awarded at the end of the performance period can fluctuate
from the target award, based upon achievement of the sales or ROIC goals.
Performance share value is based upon closing market prices on the last trading day preceding the date of award and
is charged to earnings on a ratable basis over the vesting period, primarily three, and up to seven years for certain
awards, based on the number of shares expected to vest. Holders of performance share awards are not entitled to
receive cash payments equivalent to cash dividends. If the performance shares vest, they will be settled by the
Company's issuance of common stock in exchange for the performance shares on a one-for-one basis.
64
The following table summarizes the transactions involving performance-based share awards:
2017
2016
2015
Weighted
Average
Price Per
Share
Shares
98,340
52,371
$
$
(66,579)
$
— $
203.91
216.99
201.84
—
Shares
73,160
60,414
(11,724)
(23,510)
Beginning nonvested
shares outstanding
Issued
Canceled
Vested
Ending nonvested shares
outstanding
84,132
$
213.69
98,340
Weighted
Average
Price Per
Share
232.72
191.38
241.41
242.65
$
$
$
$
$
Shares
57,236
47,264
(13,108)
(18,232)
Weighted
Average
Price Per
Share
$
$
$
$
$
220.00
227.26
215.01
191.36
232.72
203.91
73,160
At December 31, 2017, there was $11.4 million of total unrecognized compensation expense related to performance-
based share awards that the Company expects to recognize over a weighted average period of 2.7 years.
Restricted Stock Units (RSUs)
The Company awards restricted stock units (RSUs) to certain employees and executives. RSUs granted vest over
periods from three to seven years from issuance, although accelerated vesting is provided in certain instances. Holders
of RSUs are entitled to receive nonforfeitable cash payments equivalent to cash dividends and other distributions paid
with respect to common stock. RSUs are settled by the issuance of the Company's common stock on a one-for-one
basis. Compensation expense related to RSUs is based upon the closing market price on the last trading day preceding
the date of award and is charged to earnings on a straight-line basis over the vesting period. The following table
summarizes RSU activity:
2017
2016
2015
Weighted
Average
Price Per
Share
Weighted
Average
Price Per
Share
Shares
Weighted
Average
Price Per
Share
Shares
Shares
373,403 $
129,378 $
(47,488) $
(102,374) $
352,919 $
221.77
222.53
229.36
203.51
226.31
432,783 $ 213.45
560,351 $
182.40
113,909 $ 230.36
104,220 $
234.21
(62,869) $ 229.70
(38,124) $
219.74
(110,420) $ 193.51
(193,664) $
133.56
373,403 $ 221.77
432,783 $
213.45
Beginning nonvested units
Issued
Canceled
Vested
Ending nonvested units
Fair value of shares vested
$20,834
$21,367
$25,865
At December 31, 2017, there was $45 million of total unrecognized compensation expense related to nonvested RSUs
that the Company expects to recognize over a weighted average period of 3.0 years.
65
NOTE 12 - CAPITAL STOCK
The Company had no shares of preferred stock outstanding as of December 31, 2017 and 2016. The activity related
to outstanding common stock and common stock held in treasury was as follows:
2017
2016
2015
Outstanding
Common
Stock
Treasury
Stock
Outstanding
Common
Stock
Treasury
Stock
Outstanding
Common
Stock
Treasury
Stock
58,804,314 50,854,905
62,028,708 47,630,511
67,432,041 42,227,178
407,542
(407,542)
315,171
(315,171)
580,947
(580,947)
103,331
(103,331)
78,310
(78,310)
145,757
(145,757)
Balance at beginning of
period
Exercise of stock options
Settlement of restricted stock
units, net of 36,585,
41,128 and 73,496 shares
retained, respectively
Settlement of performance
share units, net of 9,334,
6,765 and 9,971 shares
retained, respectively
Purchase of treasury shares
(3,000,302)
13,978
(13,978)
3,000,302
11,806
(11,806)
15,956
(15,956)
(3,629,681)
3,629,681
(6,145,993)
6,145,993
Balance at end of period
56,328,863 53,330,356
58,804,314 50,854,905
62,028,708 47,630,511
66
NOTE 13 - ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSSES) (AOCE)
The components of AOCE consisted of the following (in thousands of dollars):
Foreign
Currency
Translation
Defined
Postretirement
Benefit Plan
Other
Employment-
related
Benefit Plans
Other
Total
Foreign
Currency
Translation
Attributable to
Noncontrolling
Interests
AOCE
Attributable
to W.W.
Grainger,
Inc.
$
(122,320) $
8,148 $
(3,302) $
(2,185) $ (119,659) $
(22,986) $
(96,673)
(154,096)
30,451
641
1,300
(121,704)
(532)
(121,172)
—
—
(5,289)
2,043
—
—
—
—
(5,289)
2,043
—
—
(5,289)
2,043
$
(154,096) $
27,205 $
641 $
1,300 $ (124,950) $
(532) $ (124,418)
Balance at January
1, 2015, net of tax
Other comprehensive
earnings (loss)
before
reclassifications,
net of tax
Amounts reclassified
to Warehousing,
marketing and
administrative
expenses
Amounts reclassified
to Income Taxes
Net current period
activity
Balance at December
31, 2015, net of tax $
Other comprehensive
(276,416) $
35,353 $
(2,661) $
(885) $ (244,609) $
(23,518) $ (221,091)
earnings (loss)
before
reclassifications,
net of tax
Amounts reclassified
to Warehousing,
marketing and
administrative
expenses
Amounts reclassified
to Income Taxes
Net current period
activity
Balance at December
(38,729)
(6,022)
(2,397)
885
(46,263)
906
(47,169)
—
—
(6,559)
2,525
—
—
—
—
(6,559)
2,525
—
—
(6,559)
2,525
$
(38,729) $
(10,056) $
(2,397) $
885 $ (50,297) $
906 $
(51,203)
31, 2016, net of tax $
(315,145) $
25,297 $
(5,058) $
— $ (294,906) $
(22,612) $ (272,294)
Other comprehensive
earnings (loss)
before
reclassifications,
net of tax
Amounts reclassified
to Warehousing,
marketing and
administrative
expenses
Amounts reclassified
to Income Taxes
Net current period
activity
Balance at December
75,193
86,069
456
— 161,718
3,677
158,041
17,518
(10,007)
—
(27,932)
92,711
48,130
—
—
456
—
—
7,511
(27,932)
—
—
7,511
(27,932)
— 141,297
3,677
137,620
31, 2017, net of tax $
(222,434) $
73,427 $
(4,602) $
— $ (153,609) $
(18,935) $ (134,674)
67
NOTE 14 - INCOME TAXES
Income tax expense (benefit) consisted of the following (in thousands of dollars):
For the Years Ended December 31,
2016
2015
2017
Current provision:
U.S. Federal
U.S. State
Foreign
Total current
Deferred tax provision (benefit)
Total provision
$
$
248,090
28,693
22,057
298,840
14,041
312,881
$
$
310,582
38,249
25,076
373,907
12,313
386,220
$
$
412,545
49,894
24,087
486,526
(20,995)
465,531
Earnings (losses) before income taxes by geographical area consisted of the following (in thousands of dollars):
U.S.
Foreign
For the Years Ended December 31,
2017
$
$
970,892
(35,568)
935,324
$
$
2016
1,073,879
(54,821)
1,019,058
$
$
2015
1,203,880
46,825
1,250,705
68
The income tax effects of temporary differences that gave rise to the net deferred tax (liability) asset as of December 31,
2017 and 2016 were (in thousands of dollars):
Deferred tax assets:
Inventory
Accrued expenses
Accrued employment-related benefits
Foreign operating loss carryforwards
Tax credit carryforward
Other
Deferred tax assets
Less valuation allowance
As of December 31,
2017
2016
$
$
13,641
43,889
63,029
72,197
20,201
8,350
221,307
(83,847)
30,030
70,021
124,556
67,350
8,625
13,631
314,213
(72,705)
Deferred tax assets, net of valuation allowance
$
137,460
$
241,508
Deferred tax liabilities:
Property, buildings and equipment
Intangibles
Software
Prepaids
Other
Deferred tax liabilities
Net deferred tax (liability) asset
The net deferred tax (liability) asset is classified as follows:
Noncurrent assets
Noncurrent liabilities (foreign)
Net deferred tax (liability) asset
(33,342)
(119,302)
(19,903)
(6,109)
(3,521)
(75,690)
(127,292)
(25,431)
(11,959)
(1,067)
(182,177)
(241,439)
(44,717)
$
69
22,362
(67,079)
(44,717)
$
$
64,775
(64,706)
69
$
$
$
At December 31, 2017, the Company had $285 million of net operating loss (NOLs) carryforwards related primarily to
foreign operations. Some of the operating loss carryforwards may expire at various dates through 2037. The Company
has recorded a valuation allowance, which represents a provision for uncertainty as to the realization of the tax benefits
of these carryforwards and deferred tax assets that may not be realized. The Company's valuation allowance changed
as follows (in thousands of dollars):
For the Years Ended December 31,
2017
2016
Balance at beginning of period
Increases primarily related to foreign NOLs
Releases related to foreign NOLs
Other changes, net
Increase related to U.S. foreign tax credits
Balance at end of period
$
$
72,705
$
12,861
(8,035)
(4,703)
11,019
83,847
$
62,333
12,174
(3,870)
(6,557)
8,625
72,705
69
A reconciliation of income tax expense with federal income taxes at the statutory rate follows (in thousands of dollars):
Federal income tax
State income taxes, net of federal income tax benefit
Clean energy credit
Foreign rate difference
U.S. tax legislation impact (see note below)
Other - net
Income tax expense
Effective tax rate
Clean Energy Credit
$
$
$
$
For the Years Ended December 31,
2016
356,670
25,993
(28,670)
21,077
—
11,150
386,220
2017
327,363
19,850
(37,138)
9,371
(3,164)
(3,401)
312,881
$
$
2015
437,746
29,507
(13,358)
12,041
—
(405)
465,531
33.5%
37.9%
37.2%
In 2015 and 2016, the Company acquired noncontrolling interests in limited liability companies established to produce
refined coal. The production and sale of refined coal that results in required emission reductions is eligible for tax
credits under Section 45 of the Internal Revenue Code. The Company receives tax credits in proportion to its equity
interest. The income tax credits from the investment resulted in a 4.0, 2.8 and a 1.0 percentage point reduction to the
overall effective tax rate for 2017, 2016 and 2015, respectively.
U.S. Tax Legislation
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was signed into law, which significantly revised the
U.S. corporate income tax system by lowering corporate income tax rates from 35% to 21% effective January 1, 2018,
allowing accelerated expensing of qualified capital investments for a specific period, limiting net interest expense
deductions and transitioning the U.S. international taxation from a worldwide to a territorial tax system that requires a
one-time transition tax on unremitted earnings of certain foreign subsidiaries that were previously tax deferred, among
other changes.
As of December 31, 2017, the Company has not fully completed the accounting for the impact from the Tax Act.
However, the Company determined a reasonable estimate of such impact per the guidance in Staff Accounting
Bulletin (SAB) 118 issued by the Securities and Exchange Commission (SEC) on December 22, 2017 and recognized
a net provisional benefit amount of $3.2 million included as a component of income tax expense for the year ended
December 31, 2017 and primarily related to deferred tax balances revaluations and one-time transition tax.
The Company remeasured deferred assets and liabilities based on the rates at which they are expected to reverse in
the future in consideration of the reduced income tax rates and recognized a net provisional benefit of $5.2 million for
the year ended December 31, 2017. Certain aspects of the Tax Act cannot be fully completed at this time, mainly the
full determination of assets placed in service in September 2017 or after for tax expensing purposes, the comprehensive
evaluation of executive compensation contracts for tax deductibility purposes and the understanding of state tax
implications. The Company expects to complete this analysis in 2018, which may potentially affect the remeasurement
of the related deferred tax amounts.
The Company estimated the one-time transition tax and recognized a net provisional expense of $2 million for the
year ended December 31, 2017. The one-time transition tax calculation includes a $47 million estimated tax obligation
related to the Company’s estimated total gross post-1986 earnings and profits (E&P) of $472 million that were previously
deferred from U.S. income taxes, net of estimated foreign tax credits of $45 million. As of December 31, 2017, the
Company has not completed its final calculation of the total post-1986 E&P for all foreign subsidiaries and any state
tax impact. The amounts may change when the Company finalizes these calculations in 2018.
Foreign Undistributed Earnings
Estimated gross undistributed earnings of foreign subsidiaries at December 31, 2017, amounted to $472 million. These
gross earnings are included in the U.S. one-time transition tax calculation in 2017 as aforementioned. The Company
considers these undistributed earnings permanently reinvested in its foreign operations and is not recording a deferred
tax liability for any foreign withholding taxes on such amounts. If at some future date the Company ceases to be
70
permanently reinvested in its foreign subsidiaries, the Company may be subject to foreign withholding and other taxes
on these undistributed earnings and may need to record a deferred tax liability for any outside basis difference in its
investments in its foreign subsidiaries.
Tax Uncertainties
The Company recognizes in the financial statements a provision for tax uncertainties, resulting from application of
complex tax regulations in multiple tax jurisdictions. The changes in the liability for tax uncertainties, excluding interest,
are as follows (in thousands of dollars):
Balance at beginning of year
Additions for tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Reductions due to statute lapse
Settlements, audit payments, refunds - net
Balance at end of year
For the Years Ended December 31,
2017
2016
2015
$
$
58,681
3,930
4,786
(12,417)
(5,098)
(5,215)
44,667
$
$
60,576
14,119
13,215
(14,774)
(1,527)
(12,928)
58,681
$
$
45,126
14,916
2,653
(1,616)
(402)
(101)
60,576
The Company classifies the liability for tax uncertainties in deferred income taxes and tax uncertainties. Included in
this amount are $21 million and $22 million at December 31, 2017 and 2016, respectively, of tax positions for which
the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Any
changes in the timing of deductibility of these items would not affect the annual effective tax rate but would accelerate
the payment of cash to the taxing authorities to an earlier period. Excluding the timing items, the remaining amounts
would affect the annual tax rate. The changes to tax positions of prior years in 2017 related generally to the impact of
expiring statutes, conclusion of audits and audit settlements. The changes to tax positions of prior years in 2016 related
generally to the impact of conclusion of audits and audit settlements.
The Company regularly undergoes examination of its federal income tax returns by the Internal Revenue Service
(IRS). In 2017, the Company settled the 2011 and 2012 federal audits with the IRS Appeals Office. The statute of
limitations expired for the Company's 2013 federal tax return. The tax years 2014 through 2017 are open. The Company
is also subject to audit by state, local and foreign taxing authorities. Tax years 2002-2017 remain subject to state and
local audits and 2006-2017 remain subject to foreign audits. The amount of liability associated with the Company's
tax uncertainties may change within the next 12 months due to the pending audit activity, expiring statutes or tax
payments. A reasonable estimate of such change cannot be made.
The Company recognizes interest expense and penalties related to its tax uncertainties in the provision for income
taxes. For the years ended December 31, 2017, 2016 and 2015, the Company recognized an expense of approximately
$1 million for each year. Total accrued interest and penalties related to tax uncertainties as of December 31, 2017,
2016 and 2015, were approximately $5 million, $4 million and $5 million, respectively.
71
NOTE 15 - EARNINGS PER SHARE
Certain of the Company’s stock incentive plans grant stock awards that contain nonforfeitable rights to dividends meet
the criteria of a participating security. Under the two-class method, earnings are allocated between common stock and
participating securities. The presentation of basic and diluted earnings per share is required only for each class of
common stock and not for participating securities. As such, the Company presents basic and diluted earnings per
share for its one class of common stock.
The two-class method includes an earnings allocation formula that determines earnings per share for each class of
common stock according to dividends declared and undistributed earnings for the period. The Company’s reported
net earnings are reduced by the amount allocated to participating securities to arrive at the earnings allocated to
common stock shareholders for purposes of calculating earnings per share.
The dilutive effect of participating securities is calculated using the more dilutive of the treasury stock or the two-class
method. The Company has determined the two-class method to be the more dilutive. As such, the earnings allocated
to common stock shareholders in the basic earnings per share calculation is adjusted for the reallocation of undistributed
earnings to participating securities to arrive at the earnings allocated to common stock shareholders for calculating
the diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings per share under the two-class method
(in thousands of dollars, except for share and per share amounts):
For the Years Ended December 31,
2017
2016
2015
Net earnings attributable to W.W. Grainger, Inc. as reported
$
585,730
$
605,928
$ 768,996
Distributed earnings available to participating securities
Undistributed earnings available to participating securities
(2,005)
(2,678)
(2,383)
(3,044)
(2,823)
(4,735)
Numerator for basic earnings per share - Undistributed and distributed
earnings available to common shareholders
Undistributed earnings allocated to participating securities
Undistributed earnings reallocated to participating securities
Numerator for diluted earnings per share - Undistributed and
distributed earnings available to common shareholders
581,047
600,501
761,438
2,678
(2,663)
3,044
(3,023)
4,735
(4,692)
$
581,062
$
600,522
$ 761,481
Denominator for basic earnings per share – weighted average shares
57,674,977
60,430,892
65,156,864
Effect of dilutive securities
308,190
409,038
608,257
Denominator for diluted earnings per share – weighted average shares
adjusted for dilutive securities
Earnings per share two-class method
Basic
Diluted
57,983,167
60,839,930
65,765,121
$
$
10.07
10.02
$
$
9.94
9.87
$
$
11.69
11.58
72
NOTE 16 - SEGMENT INFORMATION
Grainger’s two reportable segments are the U.S. and Canada. The U.S. operating segment reflects the results of
Grainger's U.S. businesses. The Canada operating segment reflects the results for Acklands – Grainger, Inc. and its
subsidiaries. Other businesses include Zoro Tools, Inc. (Zoro), the single channel online business in the U.S.,
MonotaRO Co. (MonotaRO) in Japan and operations in Europe, Asia and Latin America. These businesses
individually do not meet the criteria of a reportable segment. Operating segments generate revenue almost exclusively
through the distribution of MRO supplies, as service revenues account for approximately 1% of total revenues for each
operating segment.
The accounting policies of the segments are the same as those described in the summary of significant accounting
policies. Intersegment transfer prices are established at external selling prices, less costs not incurred due to a related
party sale. The segment results include certain centrally incurred costs for shared services that are charged to the
segments based upon the relative level of service used by each operating segment.
Following is a summary of segment results (in thousands of dollars):
United States
Canada
Other businesses
Total
$
7,960,075 $
752,900 $
2,120,303 $
10,833,278
2017
Total net sales
Intersegment net sales
Net sales to external customers
Segment operating earnings
Segment assets
Depreciation and amortization
(403,824)
7,556,251
1,213,138
2,309,734
168,862
(35)
752,865
(76,538)
278,633
18,965
(4,561)
(408,420)
2,115,742
10,424,858
55,633
1,192,233
605,452
31,016
3,193,819
218,843
256,713
Additions to long-lived assets
$
187,384 $
7,594 $
61,735 $
2016
United States
Canada
Other businesses
Total
Total net sales
Intersegment net sales
Net sales to external customers
$
7,870,105 $
(347,468)
7,522,637
733,829 $
(110)
733,719
1,884,963 $
10,488,897
(4,115)
(351,693)
1,880,848
10,137,204
Segment operating earnings
1,274,851
(65,362)
40,684
1,250,173
Segment assets
Depreciation and amortization
2,275,009
159,334
Additions to long-lived assets
$
153,556 $
286,035
18,050
12,275 $
494,067
23,792
95,288 $
3,055,111
201,176
261,119
United States
Canada
Other businesses
Total
2015
Total net sales
Intersegment net sales
Net sales to external customers
Segment operating earnings
Segment assets
Depreciation and amortization
$
7,963,416 $
(282,305)
7,681,111
1,371,626
2,191,045
150,654
890,530 $
(105)
890,425
27,368
317,504
17,334
1,405,750 $
10,259,696
(3,902)
1,401,848
(286,312)
9,973,384
48,051
1,447,045
507,116
19,999
3,015,665
187,987
343,915
Additions to long-lived assets
$
302,316 $
20,464 $
21,135 $
73
Following are reconciliations of the segment information with the consolidated totals per the financial statements
(in thousands of dollars):
Operating earnings:
Total operating earnings for reportable segments
Unallocated expenses
Total consolidated operating earnings
Assets:
Assets for reportable segments
Other current and noncurrent assets
Unallocated assets
Total consolidated assets
2017
2016
2015
$
$
$
$
1,192,233
(143,571)
1,048,662
3,193,819
2,428,074
182,361
5,804,254
$
$
$
$
1,250,173
(130,676)
1,119,497
3,055,111
2,464,656
174,540
5,694,307
$
$
$
$
1,447,045
(146,725)
1,300,320
3,015,665
2,624,966
217,124
5,857,755
Other significant items:
Depreciation and amortization
Additions to long-lived assets
Geographic information:
United States
Canada
Other foreign countries
Other significant items:
Depreciation and amortization
Additions to long-lived assets
Geographic information:
United States
Canada
Other foreign countries
Segment
Totals
$
$
218,843
256,713
Segment
Totals
$
$
201,176
261,119
2017
Unallocated
21,819
5,283
Revenues
7,948,291
761,065
1,715,502
10,424,858
2016
Unallocated
21,469
10,542
Revenues
7,834,361
739,687
1,563,156
10,137,204
$
$
$
$
$
$
$
$
Consolidated
Total
240,662
261,996
Long-Lived
Assets
1,097,543
199,660
246,700
1,543,903
Consolidated
Total
222,645
271,661
Long-Lived
Assets
1,134,817
210,931
210,605
1,556,353
$
$
$
$
$
$
$
$
74
Other significant items:
Depreciation and amortization
Additions to long-lived assets
Geographic information:
United States
Canada
Other foreign countries
Segment
Totals
$
$
187,987
343,915
2015
Unallocated
$
$
$
$
18,854
16,912
Revenues
7,866,300
897,431
1,209,653
9,973,384
Consolidated
Total
206,841
360,827
Long-Lived
Assets
1,231,083
215,202
153,508
1,599,793
$
$
$
$
Revenues are attributed to countries based on the ship-to location of the customer.
Unallocated expenses and unallocated assets primarily relate to the Company headquarters' support services,
which are not part of any business segment, as well as intercompany eliminations. Unallocated expenses include
payroll and benefits, depreciation and other costs associated with headquarters-related support services.
Unallocated assets include non-operating cash and cash equivalents, certain prepaid expenses and property,
buildings and equipment-net.
Assets for reportable segments include net accounts receivable and first-in, first-out inventory, which are reported to
the Company's Chief Operating Decision Maker. Long-lived assets consist of property, buildings, equipment and
capitalized software.
Depreciation and amortization presented above includes depreciation of long-lived assets and amortization of
capitalized software.
NOTE 17 - CONTINGENCIES AND LEGAL MATTERS
From time to time the Company is involved in various legal and administrative proceedings that are incidental to its
business, including claims related to product liability, general negligence, contract disputes, environmental issues,
unclaimed property, wage and hour laws, intellectual property, employment practices, regulatory compliance or other
matters and actions brought by employees, consumers, competitors, suppliers or governmental entities. As a
government contractor selling to federal, state and local governmental entities, the Company is also subject to
governmental or regulatory inquiries or audits or other proceedings, including those related to contract administration
or to pricing compliance. It is not expected that the ultimate resolution of any of these matters will have, either
individually or in the aggregate, a material adverse effect on the Company's consolidated financial position or results
of operations.
From time to time, the Company has also been named, along with numerous other nonaffiliated companies, as a
defendant in litigation in various states involving asbestos and/or silica. These lawsuits typically assert claims of
personal injury arising from alleged exposure to asbestos and/or silica as a consequence of products manufactured
by third parties purportedly distributed by the Company. While several lawsuits have been dismissed in the past
based on the lack of product identification, if a specific product distributed by the Company is identified in any pending
or future lawsuits, the Company will seek to exercise indemnification remedies against the product manufacturer to
the extent available. In addition, the Company believes that a substantial number of these claims are covered by
insurance. The Company has entered into agreements with its major insurance carriers relating to the scope and
coverage, and the costs of defense, of lawsuits involving claims of exposure to asbestos.
The Company believes it has strong legal and factual defenses and intends to continue defending itself vigorously in
these lawsuits. While the Company is unable to predict the outcome of these proceedings, it believes that the
ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on the Company’s
consolidated financial position or results of operations.
75
NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected quarterly information for 2017 and 2016 is as follows (in thousands of dollars, except for per
share amounts):
Net sales
Cost of merchandise sold
Gross profit
Warehousing, marketing and
administrative expenses
Operating earnings
Net earnings attributable to
W.W. Grainger, Inc.
Earnings per share - basic
Earnings per share - diluted
Net sales
Cost of merchandise sold
Gross profit
Warehousing, marketing and
administrative expenses
Operating earnings
Net earnings attributable to
W.W. Grainger, Inc.
Earnings per share - basic
Earnings per share - diluted
$
March 31
$ 2,541,129
1,521,937
1,019,192
2017 Quarter Ended
June 30
September 30
December 31
Total
$ 2,615,269
$
2,635,999
$
2,632,461
$ 10,424,858
1,575,313
1,039,956
1,618,819
1,017,180
1,611,232
1,021,229
723,704
295,488
807,891
232,065
736,010
281,170
781,290
239,939
174,744
97,921
162,006
151,059
585,730
2.95
2.93
$
1.68
1.67
$
$
2.80
2.79
$
2.64
2.63
$
10.07
10.02
March 31
June 30
September 30
December 31
Total
2016 Quarter Ended
$ 2,563,668
$
2,596,288
$
2,470,710
$ 10,137,204
$ 2,506,538
1,461,485
1,045,053
1,523,609
1,040,059
1,556,536
1,039,752
1,481,017
989,693
6,327,301
4,097,557
3,048,895
1,048,662
6,022,647
4,114,557
2,995,060
1,119,497
727,961
317,092
734,470
305,589
717,165
322,587
815,464
174,229
186,713
172,676
185,873
60,666
605,928
3.00
2.98
$
2.81
2.79
$
3.07
3.05
$
1.02
1.01
$
9.94
9.87
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: February 26, 2018
W.W. GRAINGER, INC.
By:
/s/ D.G. Macpherson
D.G. Macpherson
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of Grainger on February 26, 2018, in the capacities indicated.
/s/ D.G. Macpherson
D.G. Macpherson
Chairman and Chief Executive Officer,
Director
(Principal Executive Officer)
/s/ Ronald L. Jadin
Ronald L. Jadin
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
/s/ Eric R. Tapia
Eric R. Tapia
Vice President and Controller
(Principal Accounting Officer)
/s/ Brian P. Anderson
Brian P. Anderson
Director
/s/ V. Ann Hailey
V. Ann Hailey
Director
/s/ Neil S. Novich
Neil S. Novich
Director
/s/ E. Scott Santi
E. Scott Santi
Director
/s/ Lucas E. Watson
Lucas E. Watson
Director
77
EXHIBIT NO.
1.1
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
EXHIBIT INDEX (1)
DESCRIPTION
Underwriting Agreement, dated as of May 15, 2017, among W.W. Grainger, Inc. and Morgan
Stanley & Co. LLC, J.P. Morgan Securities LLC and U.S. Bancorp Investments, Inc., as
representatives of the underwriters named therein, incorporated by reference to Exhibit 1.1 to
W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 22, 2017.
Share Purchase Agreement, dated as of July 30, 2015, by and among Grainger, GWW UK
Holdings Limited, Gregory Family Office Limited and Michael Gregory, incorporated by reference
to Exhibit 2.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated July 31, 2015.
Restated Articles of Incorporation, incorporated by reference to Exhibit 3(i) to
W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
By-laws, as amended on March 9, 2017, incorporated by reference to Exhibit 3.1.1 to
W.W. Grainger, Inc.’s Current Report on Form 8-K dated March 9, 2017.
No instruments which define the rights of holders of W.W. Grainger, Inc.’s Industrial
Development Revenue Bonds are filed herewith, pursuant to the exemption contained in
Regulation S-K, Item 601(b)(4)(iii). W.W. Grainger, Inc. hereby agrees to furnish to the
Securities and Exchange Commission, upon request, a copy of any such instrument.
Indenture, dated as of June 11, 2015, between W.W. Grainger, Inc. and U.S. Bank National
Association, as trustee, incorporated by reference to Exhibit 4.1 to W.W. Grainger, Inc.’s
Current Report on Form 8-K dated June 11, 2015.
First Supplemental Indenture, dated as of June 11, 2015, between W.W. Grainger, Inc. and
U.S. Bank National Association, as trustee, and Form of 4.60% Senior Notes due 2045,
incorporated by reference to Exhibit 4.2 to W.W. Grainger, Inc.’s Current Report on Form 8-K
dated June 11, 2015.
Second Supplemental Indenture, dated as of May 16, 2016, between W.W. Grainger, Inc., and
U.S. Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to
W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 16, 2016.
Third Supplemental Indenture, dated as of May 22, 2017, between W.W. Grainger, Inc., and
U.S. Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to
W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 22, 2017.
Form of 3.75% Senior Notes due 2046 (included in Exhibit 4.4), incorporated by reference to
Exhibit 4.2 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 16, 2016.
Form of 4.20% Senior Notes due 2047 (included in Exhibit 4.5), incorporated by reference to
Exhibit 4.2 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 22, 2017.
1990 Long-Term Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10(a)
to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.*
Form of Indemnification Agreement between W.W. Grainger, Inc. and each of its directors and
certain of its executive officers, incorporated by reference to Exhibit 10(b)(i) to
W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.*
Frozen Executive Death Benefit Plan, as amended, incorporated by reference to Exhibit 10(b)(v)
to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.*
First amendment to the Frozen Executive Death Benefit Plan, incorporated by reference to
Exhibit 10(b)(v)(1) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2008.*
Second amendment to the Frozen Executive Death Benefit Plan, incorporated by reference to
Exhibit 10(b)(iv)(2) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2009.*
Supplemental Profit Sharing Plan, as amended, incorporated by reference to Exhibit 10(viii) to
W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003.*
Supplemental Profit Sharing Plan II, as amended, incorporated by reference to Exhibit 10(b)(ix)
to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.*
Voluntary Salary and Incentive Deferral Plan, as amended, incorporated by reference to
Exhibit 10(b)(xi) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2007.*
Summary Description of the 2016 Directors Compensation Program incorporated by reference
to Exhibit 10.12 to W.W. Grainger, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2016.*
78
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
2005 Incentive Plan, as amended, incorporated by reference to Exhibit 10(d) to
W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.*
2010 Incentive Plan, incorporated by reference to Exhibit B of W.W. Grainger, Inc.’s Proxy
Statement dated March 12, 2010.*
Form of Stock Option Award Agreement between W.W. Grainger, Inc. and certain of its
executive officers, incorporated by reference to Exhibit 10(xiv) to W.W. Grainger, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2005.*
Form of Stock Option Award and Restricted Stock Unit Agreement between W.W. Grainger, Inc.
and certain of its executive officers, incorporated by reference to Exhibit 10(xv) to
W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005.*
Form of Stock Option Award Agreement between W.W. Grainger, Inc. and certain of its
executive officers, incorporated by reference to Exhibit 10(b)(xvi) to W.W. Grainger, Inc.’s
Annual Report on Form 10-K for the year ended December 31, 2009.*
Form of Stock Option Award and Restricted Stock Unit Agreement between W.W. Grainger, Inc.
and certain of its executive officers, incorporated by reference to Exhibit 10(b)(xvii) to
W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009.*
Form of Restricted Stock Unit Agreement between W.W. Grainger, Inc. and certain of its
executive officers, incorporated by reference to Exhibit 10(b)(xviii) to W.W. Grainger, Inc.’s
Annual Report on Form 10-K for the year ended December 31, 2010.*
Form of 2012 Performance Share Award Agreement between W.W. Grainger, Inc. and certain
of its executive officers, incorporated by reference to Exhibit 10(b)(xix) to W.W. Grainger, Inc.’s
Annual Report on Form 10-K for the year ended December 31, 2012.*
Summary Description of the 2018 Management Incentive Program.*
Incentive Program Recoupment Agreement, incorporated by reference to Exhibit 10(b)(xxv) to
W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009.*
Form of Change in Control Employment Agreement between W.W. Grainger, Inc. and certain of
its executive officers, incorporated by reference to Exhibit 10(b)(xxvii) to W.W. Grainger, Inc.’s
Annual Report on Form 10-K for the year ended December 31, 2010.*
Form of 2013 Performance Share Award Agreement between Grainger and certain of its
executive officers, incorporated by reference to Exhibit 10(b)(xxiii) to Grainger's Annual Report
on Form 10-K for the year ended December 31, 2013.*
Form of 2014 Performance Share Award Agreement between W.W. Grainger, Inc. and certain
of its executive officers, incorporated by reference to Exhibit 10(b)(xxiv) to Grainger's Annual
Report on Form 10-K for the year ended December 31, 2014.*
Form of 2015 Performance Share Award Agreement between W.W. Grainger, Inc. and certain
of its executive officers, incorporated by reference to Exhibit 10.28 to W.W. Grainger, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 2015.*
W.W. Grainger, Inc. 2015 Incentive Plan, incorporated by reference to Exhibit B of
W.W. Grainger, Inc.’s Proxy Statement dated March 13, 2015.*
First Amendment to the W.W. Grainger, Inc. 2015 Incentive Plan, incorporated by reference
to 10.1 of W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017.*
Separation Agreement and General Release by and between W.W. Grainger, Inc. and Court
Carruthers dated July 22, 2015, incorporated by reference to Exhibit 10(b)(i) to
W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.*
£180,000,000 Facilities Agreement, dated as of August 26, 2015, by and among GWW UK
Holdings Ltd, W.W. Grainger, Inc., the lender parties thereto, Lloyds Bank PLC and Lloyds
Securities Inc., as Arrangers, and Lloyds Bank PLC, as Agent, incorporated by reference to
W.W. Grainger, Inc.’s Current Report on Form 8-K dated September 1, 2015.
Form of Stock Option Award Agreement between W.W. Grainger, Inc. and certain of its
executive officers, incorporated by reference to Exhibit 10.1 to W.W. Grainger, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2016.*
Form of Restricted Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its
executive officers, incorporated by reference to Exhibit 10.2 to W.W. Grainger, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2016.*
Form of 2016 Performance Share Award Agreement between W.W. Grainger, Inc. and certain
of its executive officers, incorporated by reference to Exhibit 10.3 to W.W. Grainger, Inc.’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.*
Form of Stock Option Award Agreement between W.W. Grainger, Inc. and certain of its
executive officers, incorporated by reference to Exhibit 10.2 to W.W. Grainger, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2017.*
79
10.32
10.33
10.34
21
23
31.1
31.2
32
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Form of Restricted Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its
executive officers, incorporated by reference to Exhibit 10.3 to W.W. Grainger, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2017.*
Form of 2017 Performance Share Award Agreement between W.W. Grainger, Inc. and certain
of its executive officers, incorporated by reference to Exhibit 10.4 to W.W. Grainger, Inc.’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.*
Credit Agreement dated as of October 6, 2017, by and among W.W. Grainger, Inc., the lenders
parties thereto, and U.S. Bank National Association, as Administrative Agent, incorporated by
reference to Exhibit 10.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated
October 6, 2017.
Subsidiaries of Grainger.
Consent of Independent Registered Public Accounting Firm.
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
(*)
Management contract or compensatory plan or arrangement.
(1)
Certain instruments defining the rights of holders of long-term debt securities of the Registrant are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Registrant hereby undertakes to furnish to the
SEC, upon request, copies of any such instruments.
80
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Form S-8 No.'s 33-43902,
333-24215, 333-61980, 333-105185, 333-124356, 333-166345, 333-203715, Form S-4 No. 33-32091 and
Form S-3 No. 333-203444) for W.W. Grainger, Inc. and in the related prospectuses of our reports dated
February 26, 2018, with respect to the consolidated financial statements of W.W. Grainger, Inc. and the
effectiveness of internal control over financial reporting of W.W. Grainger, Inc., included in this Annual Report
(Form 10-K) for the year ended December 31, 2017.
/s/ Ernst & Young LLP
Chicago, Illinois
February 26, 2018
81
I, D.G. Macpherson, certify that:
CERTIFICATION
Exhibit 31.1
I have reviewed this Annual Report on Form 10-K of W.W. Grainger, Inc.;
1.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 26, 2018
By:
Name:
Title:
/s/ D.G. Macpherson
D.G. Macpherson
Chairman and Chief Executive Officer
82
I, R. L. Jadin, certify that:
CERTIFICATION
Exhibit 31.2
I have reviewed this Annual Report on Form 10-K of W.W. Grainger, Inc.;
1.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 26, 2018
By:
Name:
Title:
/s/ R. L. Jadin
R. L. Jadin
Senior Vice President and Chief Financial Officer
83
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report on Form 10-K of W.W. Grainger, Inc. (“Grainger”) for the annual period ended
December 31, 2017, (the “Report”), D.G. Macpherson, as Chief Executive Officer of Grainger, and R. L. Jadin, as Chief
Financial Officer of Grainger, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of Grainger.
/s/ D.G. Macpherson
D.G. Macpherson
Chairman and Chief Executive
Officer
February 26, 2018
/s/ R. L. Jadin
R. L. Jadin
Senior Vice President and
Chief Financial Officer
February 26, 2018
84
Board of Directors
Rodney C. Adkins
Former Senior Vice President of International
Business Machines Corporation, President of
3RAM Group LLC, Miami Beach, Fla.
(2, 3)
D.G. Macpherson
Chairman and Chief Executive Officer,
W.W. Grainger, Inc.
E. Scott Santi
Chairman and Chief Executive Officer,
Illinois Tool Works Inc., Glenview, Ill.
(1, 2)
Brian P. Anderson
Former Executive Vice President and
Chief Financial Officer, OfficeMax
Incorporated, Itasca, Ill.
Neil S. Novich
Former Chairman, President and
Chief Executive Officer, Ryerson Inc.,
Chicago, Ill.
James D. Slavik
Chairman, Mark IV Capital, Inc.,
Newport Beach, Calif.
(2, 3)
(1, 2)
(1, 2)
V. Ann Hailey
Former Executive Vice President and
Chief Financial Officer, L Brands (formerly
Limited Brands, Inc.), Columbus, Ohio
Beatriz R. Perez
Senior Vice President and Chief Public Affairs,
Communications and Sustainability Officer of
The Coca-Cola Company, Atlanta, Ga.
Lucas E. Watson
Executive Vice President and Chief
Marketing and Sales Officer of Intuit Inc.,
Mountain View, Calif.
(1, 2)
(2, 3)
(1, 2)
Stuart L. Levenick
Retired Group President, Caterpillar Inc.,
Peoria, Ill.
Michael J. Roberts
Former Global President and COO of
McDonalds Corporation, Chicago, Ill.
(2, 3, †)
(2, 3)
(1) Member of Audit Committee
(2) Member of Board Affairs and
Nominating Committee
(3) Member of Compensation Committee
† Lead Director
Grainger Leadership Team
D.G. Macpherson
Chairman and
Chief Executive Officer
Gregory J. Harman
Senior Vice President,
Chief Information Officer
Deidra C. Merriwether
Senior Vice President and President,
U.S. Direct Sales and Strategic Initiatives
Laura D. Brown
Senior Vice President,
Communications and Investor Relations
Joseph C. High
Senior Vice President and
Chief People Officer
Fred Costello
Senior Vice President and President,
Grainger International
John L. Howard
Senior Vice President and
General Counsel
Debra S. Oler
Senior Vice President and President,
North American Sales and Services
David L. Rawlinson II
Senior Vice President and President,
Online Business
Barry I. Greenhouse
Senior Vice President, Global Supply Chain
Ronald L. Jadin
Senior Vice President and
Chief Financial Officer
Paige K. Robbins
Senior Vice President,
Chief Digital Officer
85
Shareholder and Media Information
Company Headquarters
W.W. Grainger, Inc.
100 Grainger Parkway
Lake Forest, Illinois 60045-5201
847.535.1000
Annual Meeting
The 2018 Annual Meeting of Shareholders will be held
at the company’s headquarters in Lake Forest, Illinois,
at 10:00 a.m. CDT on Wednesday, April 25, 2018.
Auditors
Ernst & Young LLP
155 North Wacker Drive
Chicago, Illinois 60606-1787
Investor Relations Contacts
Laura D. Brown
Senior Vice President, Communications and Investor Relations
847.535.0409
Irene Holman
Senior Director, Investor Relations
847.535.0809
Michael P. Ferreter
Senior Manager, Investor Relations
847.535.1439
Monica D. Gupta
Manager, Financial Communications
847.535.0099
Common Stock Listing
The company’s common stock is listed on the New York Stock
Exchange under the trading symbol GWW.
Upon written request to Investor Relations, we will
provide a copy of our Form 10-K for the fiscal year ended
December 31, 2017.
Grainger’s Annual Report, Form 10-K, Forms 10-Q, Forms
8-K, proxy statement and other filings with the Securities and
Exchange Commission, as well as the Fact Book and news
releases including quarterly earnings and monthly sales, can be
accessed free of charge at the Investor Relations section of the
company’s website at www.grainger.com/investor. For more
information, contact Investor Relations at 847.535.1000.
Requests for other company-related information should be
made to Hugo Dubovoy, Jr., Vice President, Corporate Secretary,
at the company’s headquarters.
Media Relations Contact
Joseph Micucci
Senior Director, External Affairs
847.535.0879
Transfer Agent, Registrar and Dividend Disbursing Agent
Instructions and inquiries regarding transfers, certificates,
changes of title or address, lost or missing dividend checks,
consolidation of accounts and elimination of multiple mailings
should be directed to:
First Class/Registered/Certified Mail:
Computershare Investor Services
PO BOX 505000
Louisville, KY 40233-5000
800.446.2617
Courier Services:
Computershare Investor Services
462 South 4th Street Suite 1600
Louisville, KY 40202
Dividend Direct Deposit
Shareholders of record have the opportunity to have their quarterly
dividends electronically deposited directly into their checking,
money market or savings accounts at financial institutions that
participate in the automated clearinghouse system.
Shareholders who are interested in taking advantage of this
service or would like more information on the program should
contact Computershare.
86
Forward-Looking Statements
From time to time, in this Annual Report on Form 10-K, as well as in other written reports, communications and verbal statements,
Grainger makes forward-looking statements that are not historical in nature but concern forecasts of future results, business plans,
analyses, prospects, strategies, objectives and other matters that may be deemed to be “forward-looking statements” under the
federal securities laws. Such forward-looking statements are identified by words such as “anticipate,” “estimate,” “believe,” “expect,”
“could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project” and similar terms and expressions.
For a list of factors that could cause Grainger’s results to differ materially from those that are presented, please see
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations, other factors identified
under Item 1A: Risk Factors and elsewhere in Grainger’s Annual Report on Form 10-K.
Recyclable. Please recycle.
002CSN8B86
© 2018 W.W. Grainger, Inc.