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Form 10-Q GRAINGER W W INC For: Mar 31

April 28, 2016 3:02 PM EDT


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2016
OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to _______
 
Commission file number 1-5684

W.W. Grainger, Inc.
(Exact name of registrant as specified in its charter)

Illinois
 
36-1150280
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
100 Grainger Parkway, Lake Forest, Illinois
 
60045-5201
(Address of principal executive offices)
 
(Zip Code)
(847) 535-1000
(Registrant’s telephone number including area code)
 
Not Applicable
(Former name, former address and former fiscal year; if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [  ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [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 Exchange Act).
Yes [  ]  No [X]
 
There were 61,322,179 shares of the Company’s Common Stock outstanding as of March 31, 2016.

1




 
TABLE OF CONTENTS
 
 
 
Page No.
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (Unaudited).
 
 
 
 
 
Condensed Consolidated Statements of Earnings 
    for the Three Months Ended March 31, 2016 and 2015
 
 
 
 
Condensed Consolidated Statements of Comprehensive
    Earnings for the Three Months Ended March 31, 2016 and 2015
 
 
 
 
Condensed Consolidated Balance Sheets
    as of March 31, 2016 and December 31, 2015
 
 
 
 
Condensed Consolidated Statements of Cash Flows
    for the Three Months Ended March 31, 2016 and 2015
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial
    Condition and Results of Operations.
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 
 
 
Item 4.
Controls and Procedures.
 
 
 
PART II
OTHER INFORMATION
 
 
 
Item 1.
Legal Proceedings.
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
 
 
Item 6.
Exhibits.
 
 
 
Signatures
 
 
 
 
EXHIBITS
 
 


2



PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements.

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except for share and per share amounts)
(Unaudited)
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net sales
$
2,506,538

 
$
2,439,661

Cost of merchandise sold
1,461,485

 
1,345,918

Gross profit
1,045,053

 
1,093,743

Warehousing, marketing and administrative expenses
727,961

 
742,496

Operating earnings
317,092

 
351,247

Other income and (expense):
 

 
 

Interest income
165

 
192

Interest expense
(13,725
)
 
(1,636
)
Loss from equity method investment
(6,388
)
 

Other non-operating income
694

 
241

Other non-operating expense
(254
)
 
(2,405
)
Total other expense
(19,508
)
 
(3,608
)
Earnings before income taxes
297,584

 
347,639

Income taxes
105,940

 
133,493

Net earnings
191,644

 
214,146

Less: Net earnings attributable to noncontrolling interest
4,931

 
3,131

Net earnings attributable to W.W. Grainger, Inc.
$
186,713

 
$
211,015

Earnings per share:
 

 
 

Basic
$
3.00

 
$
3.11

Diluted
$
2.98

 
$
3.07

Weighted average number of shares outstanding:
 

 
 

Basic
61,668,682

 
67,229,653

Diluted
62,099,801

 
67,982,362

Cash dividends paid per share
$
1.17

 
$
1.08

 
The accompanying notes are an integral part of these financial statements.

3



W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands of dollars)
(Unaudited)
 
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net earnings
$
191,644

 
$
214,146

Other comprehensive earnings (losses):
 

 
 

Foreign currency translation adjustments:
 
 
 
Foreign currency translation adjustments, net of tax benefit of $0 and $0, respectively
51,490

 
(76,015
)
Defined postretirement benefit plan:
 
 
 
Reclassification adjustments related to amortization, net of tax expense of $631 and $509, respectively
(1,009
)
 
(813
)
Derivative instrument change in fair value of cash flow hedge
304

 
482

Comprehensive earnings, net of tax
242,429

 
137,800

Less: Comprehensive earnings (losses) attributable to noncontrolling interest
 
 
 
Net earnings
4,931

 
3,131

Foreign currency translation adjustments
5,704

 
(294
)
Comprehensive earnings attributable to W.W. Grainger, Inc.
$
231,794

 
$
134,963

 
 
The accompanying notes are an integral part of these financial statements.

4



W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except for share and per share amounts)
 
 
(Unaudited)
 
 
ASSETS
March 31, 2016
 
Dec 31, 2015
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
279,906

 
$
290,136

Accounts receivable (less allowances for doubtful
 

 
 

accounts of $23,874 and $22,288, respectively)
1,304,560

 
1,209,641

Inventories – net
1,420,897

 
1,414,177

Prepaid expenses and other assets
102,435

 
85,670

Prepaid income taxes
31,163

 
49,018

Total current assets
3,138,961

 
3,048,642

PROPERTY, BUILDINGS AND EQUIPMENT
3,407,770

 
3,370,313

Less: Accumulated depreciation and amortization
1,965,579

 
1,939,072

Property, buildings and equipment – net
1,442,191

 
1,431,241

DEFERRED INCOME TAXES
66,251

 
83,996

GOODWILL
595,487

 
582,336

INTANGIBLES - NET
458,230

 
463,294

OTHER ASSETS
263,719

 
248,246

TOTAL ASSETS
$
5,964,839

 
$
5,857,755


5




W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands of dollars, except for share and per share amounts)
 
 
(Unaudited)
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2016
 
Dec 31, 2015
CURRENT LIABILITIES
 
 
 
Short-term debt
$
569,367

 
$
353,072

Current maturities of long-term debt
135,834

 
247,346

Trade accounts payable
620,410

 
583,474

Accrued compensation and benefits
208,024

 
196,667

Accrued contributions to employees’ profit sharing plans
22,058

 
124,587

Accrued expenses
274,458

 
266,702

Income taxes payable
50,289

 
16,686

Total current liabilities
1,880,440

 
1,788,534

LONG-TERM DEBT (less current maturities)
1,387,124

 
1,388,414

DEFERRED INCOME TAXES AND TAX UNCERTAINTIES
158,238

 
154,352

EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES
174,837

 
173,741

SHAREHOLDERS' EQUITY
 

 
 

Cumulative Preferred Stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding

 

Common Stock – $0.50 par value – 300,000,000 shares authorized;
109,659,219 shares issued
54,830

 
54,830

Additional contributed capital
1,007,933

 
1,000,476

Retained earnings
6,916,043

 
6,802,130

Accumulated other comprehensive losses
(176,010
)
 
(221,091
)
Treasury stock, at cost – 48,337,040 and 47,630,511 shares, respectively
(5,535,497
)
 
(5,369,711
)
Total W.W. Grainger, Inc. shareholders’ equity
2,267,299

 
2,266,634

Noncontrolling interest
96,901

 
86,080

Total shareholders' equity
2,364,200

 
2,352,714

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
5,964,839

 
$
5,857,755

 
 
The accompanying notes are an integral part of these financial statements.

6



W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
 
Three Months Ended
 
March 31,
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net earnings
$
191,644

 
$
214,146

Provision for losses on accounts receivable
3,454

 
2,558

Deferred income taxes and tax uncertainties
21,035

 
1,732

Depreciation and amortization
56,294

 
52,411

(Gains) from non-cash charges and sales of assets
(7,465
)
 

Stock-based compensation
7,456

 
9,161

Losses from equity method investment
6,388

 

Change in operating assets and liabilities – net of business 
  acquisitions:
 

 
 

Accounts receivable
(84,435
)
 
(50,968
)
Inventories
10,831

 
(2,808
)
Prepaid expenses and other assets
4,370

 
34,433

Trade accounts payable
30,827

 
(7,326
)
Other current liabilities
(111,458
)
 
(160,239
)
Current income taxes payable
32,757

 
62,893

Accrued employment-related benefits cost
323

 
2,296

Other – net
(8,290
)
 
(2,080
)
Net cash provided by operating activities
153,731

 
156,209

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to property, buildings and equipment
(51,797
)
 
(99,489
)
Proceeds from sales of assets
13,817

 
7,333

Equity method investment
(7,199
)
 

Other – net
(206
)
 
(48
)
Net cash used in investing activities
(45,385
)
 
(92,204
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Net increase in commercial paper
214,645

 
190,000

Borrowings under lines of credit
12,028

 
14,380

Payments against lines of credit
(11,060
)
 
(28,333
)
Payments of long-term debt
(124,769
)
 
(1,860
)
Proceeds from stock options exercised
5,206

 
4,883

Excess tax benefits from stock-based compensation
17,287

 
4,319

Purchase of treasury stock
(172,047
)
 
(149,992
)
Cash dividends paid
(72,632
)
 
(73,393
)
Net cash used in financing activities
(131,342
)
 
(39,996
)
Exchange rate effect on cash and cash equivalents
12,766

 
(7,226
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(10,230
)
 
16,783

Cash and cash equivalents at beginning of year
290,136

 
226,644

Cash and cash equivalents at end of period
$
279,906

 
$
243,427

 
The accompanying notes are an integral part of these financial statements.

7



W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    BACKGROUND AND BASIS OF PRESENTATION
 
W.W. Grainger, Inc. is a broad-line distributor of maintenance, repair and operating supplies, and other related products and services used by businesses and institutions.  W.W. Grainger, Inc.’s operations are primarily in the United States 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.
 
The Condensed Consolidated Financial Statements of the Company and the related notes are unaudited and should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).
 
The Condensed Consolidated Balance Sheet as of December 31, 2015 has been derived from the audited consolidated financial statements at that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.
 
The unaudited financial information reflects all adjustments (primarily consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the statements contained herein.

2.    NEW ACCOUNTING STANDARDS

In July 2015, the Financial Accounting Standards Board (FASB) announced a one-year delay in the effective date of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. The standard will now be effective for interim and annual periods beginning after December 15, 2017. The standard also permits adoption as early as the original effective date, which was for interim and annual periods beginning after December 15, 2016. The Company is evaluating the impact of this ASU but does not expect it to have a material impact on the Company's consolidated financial statements.

In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (NRV) test. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal and transportation. This pronouncement is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2016, and prospective adoption is required. The Company is evaluating the impact of this ASU.

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 for the standard is for fiscal years and interim periods within those years beginning after December 15, 2017. Certain provisions for the new guidance can be adopted early. The Company is evaluating the impact of this ASU.
 
In February 2016, the FASB issued ASU 2016-02, Leases. The purpose of the standard is to improve 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 for the standard is for fiscal year and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of this ASU.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures; Simplifying the Transition to the Equity Method of Accounting. This update eliminates the requirement to retroactively adjust the investment, results of operations and retained earnings when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The amendment requires that the investor add the cost of acquiring the additional interest to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The effective date for the standard is for fiscal years and interim periods within those years beginning after

8

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


December 15, 2016. The amendment should be applied prospectively and early application is permitted. This ASU is not expected to have a material impact on the Company's consolidated financial statements.
    
In March 2016, the FASB issued ASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendment is meant to reduce the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance as well as reduce the cost and complexity during the transition and on an ongoing basis. The effective date for the amendment to the standard is consistent with ASU 2014-09, Revenue from Contracts with Customers, which is interim and annual periods beginning after December 15, 2017. The Company is evaluating the impact of the ASU.

In March 2016, the FASB issued ASU 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment Accounting. The standard simplifies several aspects of the accounting for employee share-based payment transactions, including accounting for income taxes, forfeitures and statutory tax withholdings requirements, as well as classification in the statement of cash flows. The effective date for the standard is for fiscal years and interim periods with those years beginning after December 15, 2016. Early adoption is permitted. If early adoption is elected, all amendments in the ASU that apply must be adopted in the same period. The Company is evaluating the impact of this ASU.

3.    DIVIDEND
 
On April 27, 2016, the Company’s Board of Directors declared a quarterly dividend of $1.22 per share, payable June 1, 2016, to shareholders of record on May 9, 2016.

4.    ACQUISITION

On September 1, 2015, the Company acquired all of the issued share capital of Cromwell Group (Holdings) Limited (Cromwell). With sales of approximately £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, serving more than 35,000 industrial and manufacturing customers worldwide. 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. Goodwill and intangibles recorded totaled approximately $357 million. The goodwill is not deductible for tax purposes. The purchase price allocation has not been finalized and is subject to change as the Company obtains additional information during the measurement period related to the valuation of the acquired assets and liabilities. Disclosure of pro forma results was not required.

5.     RESTRUCTURING RESERVES

The Company recorded one-time benefits with the majority expected to be paid in 2016 related to the reorganization of the business. Severance costs of approximately $16 million were recorded in the three months ended March 31, 2016 and are included in Warehousing, marketing and administrative expenses. The reserve balance as of March 31, 2016 and December 31, 2015 was approximately $37 million and $24 million, respectively, and is included in Accrued compensation and benefits.

6.    SHORT-TERM AND LONG-TERM DEBT
 
The following summarizes information concerning short-term debt (in thousands of dollars):
 
March 31, 2016

 
December 31, 2015

Outstanding lines of credit
$
24,722

 
$
23,072

Outstanding commercial paper
544,645

 
330,000


As of March 31, 2016 and December 31, 2015, there was $545 million and $330 million, respectively, of commercial paper outstanding. The increase in commercial paper from December 31, 2015 was used to fund the repayment of the Company's U.S. dollar term loan, the repurchase of treasury shares, as well as general working capital needs.



9

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Long-term debt consisted of the following (in thousands of dollars):
 
March 31, 2016

 
December 31, 2015

Senior notes
$
1,000,000

 
$
1,000,000

U.S. dollar term loan

 
114,614

British pound denominated term loan
223,984

 
235,808

Euro denominated term loan
116,624

 
114,030

Yen denominated term loans
53,305

 
49,875

Canadian dollar revolving credit facility
115,349

 
108,389

Other
26,253

 
25,991

Debt issuance costs
(12,557
)
 
(12,947
)
Less current maturities
(135,834
)
 
(247,346
)
 
1,387,124

 
$
1,388,414


On June 11, 2015, the Company issued $1 billion of unsecured 4.60% Senior Notes (Notes) that mature on June 15, 2045. The Notes require no principal payments until the maturity date and interest is payable semi-annually on June 15 and December 15, beginning on December 15, 2015. Prior to December 15, 2044, the Company may redeem the 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 US treasury security with a maturity comparable to the remaining term of the Notes plus 25 basis points, together with accrued and unpaid interest, if any, to the redemption date. On or after December 15, 2044, the Company may redeem the 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 of approximately $10 million associated with the issuance of the Notes, representing underwriting fees and other expenses, have been recorded as a contra-liability within Long-term debt and will be amortized to interest expense over the term of the Notes.

The approximate fair value of the Company's Notes is $1 billion as of March 31, 2016 and December 31, 2015 and approximates the carrying amount. The estimated fair value of the Company’s Notes was 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. The carrying value of other long-term debt approximates fair value due to the variable interest rates.

7.    DERIVATIVE INSTRUMENTS

The Company uses derivative instruments to manage a portion of exposures to fluctuations in interest rates and foreign currency exchange rates. The Company does not enter into derivative financial instruments for trading or speculative purposes. The fair values of these instruments are determined by using quoted market forward rates (level 2 inputs) and reflect the present value of the amount that the Company would pay for contracts involving the same notional amounts and maturity dates. These instruments qualify for hedge accounting and the changes in fair value are reported as a component of other comprehensive earnings (losses) net of tax effects.

The fair value of the Company's interest rate swap was $1 million as of March 31, 2016 and December 31, 2015 and was included on the balance sheet as a liability under Accrued expenses. The purpose of the interest rate swap is to partially hedge the future interest expense of the euro-denominated term loan entered into to fund a portion of the Fabory acquisition in 2011. The swap matures in August 2016. All remaining derivative instruments were immaterial individually and in the aggregate as of March 31, 2016 and December 31, 2015.



10

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


8.    EQUITY METHOD INVESTMENT

In addition to the investment made in 2015, in January 2016, the Company invested in a second limited liability company established to produce refined coal, which is then sold to a utility to produce electricity.  The production and sale of refined coal is eligible for renewable energy tax credits under Section 45 of the Internal Revenue Code.  Under the terms of the investment, effective control lies with a co-investor who manages the day-to-day operations of the entity. 

The Company will fund its share of operating expenses of the entity through February 2019 and receive tax credits in proportion to its equity investment. The investment will be accounted for under the equity method of accounting.  As of March 31, 2016, the balance of the combined refined coal investments was $9 million and is included on the balance sheet under Other assets. During the three months ended March 31, 2016, the Company recorded $6 million in equity losses and a total tax benefit of $10 million, including energy tax credits, as reflected in the Company’s effective tax rate. The investments contributed $4 million to net earnings for the three months ended March 31, 2016.

9.    EMPLOYEE BENEFITS - POSTRETIREMENT
 
The Company has a postretirement healthcare benefits plan that provides coverage for a majority of its United States 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.

The net periodic benefit costs charged to operating expenses, which are valued at the measurement date of January 1 and recognized evenly throughout the year, consisted of the following components (in thousands of dollars):
 
Three Months Ended March 31,
 
2016
 
2015
Service cost
$
2,059

 
$
2,532

Interest cost
2,464

 
2,412

Expected return on assets
(2,528
)
 
(2,594
)
Amortization of unrecognized losses
32

 
378

Amortization of prior service credits
(1,672
)
 
(1,700
)
Net periodic benefit costs
$
355

 
$
1,028

 
The Company has established a Group Benefit Trust to fund the plan and process benefit payments. The funding of the trust is an estimated amount which is intended to allow the maximum deductible contribution under the Internal Revenue Code of 1986 (IRC), as amended.  There are no minimum funding requirements and the Company intends to follow its practice of funding the maximum deductible contribution under the IRC. The Company did not make a contribution to the trust during the three months ended March 31, 2016.

11

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

10.    SEGMENT INFORMATION
 
The Company has two reportable segments: the United States and Canada. The United States operating segment reflects the results of the Company's U.S. business. The Canada operating segment reflects the results for Acklands – Grainger Inc. (Acklands-Grainger), the Company’s Canadian business. Other businesses include Zoro, the single channel business in the United States, and business units in Europe, Asia and Latin America. Other businesses do not meet the definition of a reportable segment. Operating segments generate revenue almost exclusively through the distribution of maintenance, repair and operating supplies, as service revenues account for less than 1% of total revenues for each operating segment. Following is a summary of segment results (in thousands of dollars):

 
Three Months Ended March 31, 2016
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
1,966,267

 
$
178,771

 
$
445,333

 
$
2,590,371

Intersegment net sales
(82,499
)
 
(36
)
 
(1,298
)
 
(83,833
)
Net sales to external customers
$
1,883,768

 
$
178,735

 
$
444,035

 
$
2,506,538

Segment operating earnings
$
331,857

 
$
(12,347
)
 
$
21,783

 
$
341,293

  
 
Three Months Ended March 31, 2015
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
1,971,455

 
$
234,530

 
$
297,800

 
$
2,503,785

Intersegment net sales
(63,191
)
 
(36
)
 
(897
)
 
(64,124
)
Net sales to external customers
$
1,908,264

 
$
234,494

 
$
296,903

 
$
2,439,661

Segment operating earnings
$
366,089

 
$
9,387

 
$
9,526

 
$
385,002


  


12

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
United States
 
Canada
 
Other Businesses
 
Total
Segment assets:
 
 
 
 
 
 
 
March 31, 2016
$
2,244,942

 
$
335,980

 
$
535,566

 
$
3,116,488

December 31, 2015
$
2,191,045

 
$
317,504

 
$
507,116

 
$
3,015,665



Following are reconciliations of segment information with the consolidated totals per the financial statements (in thousands of dollars):
 
Three Months Ended March 31,
 
2016
 
2015
Operating earnings:
 
Total operating earnings for operating segments
$
341,293

 
$
385,002

Unallocated expenses and eliminations
(24,201
)
 
(33,755
)
Total consolidated operating earnings
$
317,092

 
$
351,247

 
 
Mar 31, 2016
 
Dec 31, 2015
Assets:
 
Total assets for operating segments
$
3,116,488

 
$
3,015,665

Other current and non-current assets
2,718,224

 
2,624,966

Unallocated assets
130,127

 
217,124

Total consolidated assets
$
5,964,839

 
$
5,857,755


Assets for operating segments include net accounts receivable and first-in, first-out inventory which are reported to the Company's Chief Operating Decision Maker. Other current and non-current assets include all other asset balances for the operating segments.

Unallocated expenses and unallocated assets primarily relate to the Company headquarter's 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.

Intersegment net sales for the U.S. segment increased by $19 million for the three months of 2016 compared to the prior year, driven by increased sales from the U.S. business to Zoro. The U.S. business' supply chain network is Zoro's primary source of inventory.



13

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

11.    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):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net earnings attributable to W.W. Grainger, Inc. as reported
$
186,713

 
$
211,015

Distributed earnings available to participating securities
(626
)
 
(768
)
Undistributed earnings available to participating securities
(1,121
)
 
(1,461
)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders
184,966

 
208,786

Undistributed earnings allocated to participating securities
1,121

 
1,461

Undistributed earnings reallocated to participating securities
(1,114
)
 
(1,445
)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders
$
184,973

 
$
208,802

Denominator for basic earnings per share – weighted average shares
61,668,682

 
67,229,653

Effect of dilutive securities
431,119

 
752,709

Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities
62,099,801

 
67,982,362

Earnings per share two-class method
 

 
 

Basic
$
3.00

 
$
3.11

Diluted
$
2.98

 
$
3.07



12.    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, 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 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.

TCPA Matter

On April 5, 2013, David Davies filed a putative class action lawsuit in the Circuit Court of Cook County, Illinois on behalf of all those who received faxes in connection with a 2009 marketing campaign. The complaint alleges, among other things, that the Company violated the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 (the “TCPA”), by sending fax advertisements that either were unsolicited and/or did not contain a valid opt-out notice. The TCPA provides for penalties of $500 to $1,500 for each non-compliant individual fax.


14

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


On May 13, 2013, the Company removed the case to the Federal District Court for the Northern District of Illinois (the “District Court”). On June 27, 2014, the District Court granted the Company’s motion for a determination that the court should not certify a class, finding that Davies was not an adequate class representative. On October 2, 2014, the United States Court of Appeals for the Seventh Circuit denied Davies’ petition for immediate review of the June 27, 2014 ruling. Davies may seek to pursue an appeal of the June 27, 2014 ruling at the conclusion of the District Court proceedings.

The Company subsequently moved to dismiss Davies’ individual claims based on the position that he had suffered no injury relating to his notice-related claims on account of the single fax he received, or otherwise. On April 4, 2016, the District Court issued an opinion denying the Company’s motion. The District Court set a status hearing for late May 2016.

We believe we have strong legal and factual defenses and intend to continue defending the Company vigorously in the pending lawsuit. While the Company is unable to predict the outcome of this proceeding, the Company believes that the ultimate outcome of this matter will not have a material adverse effect on the Company’s consolidated financial position or results of operations.


15

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

General
Grainger is a broad-line distributor of maintenance, repair and operating supplies, and other related products and services used by businesses and institutions. Grainger’s operations are primarily in the United States and Canada, with a presence in Europe, Asia and Latin America. Grainger uses a combination of multichannel and single channel business models to provide customers with a range of options for finding and purchasing products utilizing sales representatives, catalogs, direct marketing materials and eCommerce. Grainger serves approximately 3 million customers worldwide through a network of highly integrated branches, distribution centers and websites.

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 United States and Canada tend to positively correlate with Business Investment, Business Inventory, Exports and Industrial Production. In the United States, 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 2016:
 
2016 Forecasted Growth
 
United States
Canada
Business Investment
1.8%
(3.3)%
Business Inventory
1.8%
—%
Exports
1.4%
2.2%
Industrial Production
(0.8)%
(1.1)%
GDP
2.1%
1.3%
Oil Prices
$40/barrel
Source: Global Insight (March & April 2016)
 
 

In the United States, business investment and exports are two major indicators of MRO spending. Business investment is forecast to remain weak in 2016 primarily due to three factors: the decrease in the number of rigs active in the oil industry, manufacturing companies' exposure to exports or energy markets spending cuts, and companies scaling back due to lower than expected profits and a downgraded economic outlook for 2016. The stronger U.S. dollar had a negative impact on U.S. exports. The three month moving average for real exports was down 2.4% year over year in February. The rapid decline in exports has caused the real trade deficit to widen sharply over the past year. As a result, net exports cut GDP growth by about 0.3 percentage points in the third and fourth quarters of last year. Based on the most recent international trade release the first-quarter negative impact on GDP growth from net exports will be approximately 0.8%.
The most recent report on the Canadian economy showed a stronger than anticipated advance in industrial output in the first quarter. The 0.6% January 2016 over January 2015 increase was the strongest growth in several years. Solid advances in manufacturing and retail trade led to the increase in activity. However, the Canadian business is heavily dependent on the oil and gas industries and weakness in oil prices is expected to continue to suppress economic performance in 2016. The results for the business in Canada were not in line with the overall economy. GDP growth is forecasted to be 1.3% for the full year 2016.

Outlook
On April 18, 2016, Grainger revised the 2016 sales growth guidance from a range of -1 to 7 percent to a range of 0 to 6 percent and also revised the 2016 earnings per share guidance from a range of $10.80 to $13.00 to a range of $11.00 to $12.80. The narrowed sales and earnings per share guidance reflects increased gross profit pressure for the year and increased operating expense favorability, although not to the same extent as the first quarter, through improved pricing over the remainder of the year and the ongoing execution of cost savings initiatives.

Matters Affecting Comparability
There were 64 sales days in the first quarter of 2016 compared to 63 sales days in 2015. Grainger completed the Cromwell Group (Holdings) Limited acquisition in the third quarter of 2015 and operating results of Cromwell have been included in the results of the Company since the acquisition date.

16

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


Results of Operations – Three Months Ended March 31, 2016
The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings (in millions of dollars):
 
Three Months Ended March 31,
 
 
 
 
Percent Increase/(Decrease)
 
As a Percent of Net Sales
 
2016 (A)
 
2015 (A)
 
2016
 
2015
Net sales
$
2,507

 
$
2,440

3
 %
 
100.0
 %
 
100.0
 %
Cost of merchandise sold
1,461

 
1,346

9
 %
 
58.3

 
55.2

Gross profit
1,045

 
1,094

(4
)%
 
41.7

 
44.8

Operating expenses
728

 
742

(2
)%
 
29.0

 
30.4

Operating earnings
317

 
351

(10
)%
 
12.7

 
14.4

Other expense
(20
)
 
(4
)
NM

 
(0.8
)
 
(0.1
)
Income taxes
106

 
133

(21
)%
 
4.3

 
5.5

Noncontrolling interest
5

 
3

57
 %
 
0.2

 
0.1

Net earnings attributable to W.W. Grainger, Inc.
$
187

 
$
211

(12
)%
 
7.4
 %
 
8.7
 %

(A) May not sum due to rounding

Grainger’s net sales of $2,507 million for the first quarter of 2016 increased 3% compared with sales of $2,440 million for the comparable 2015 quarter. On a daily basis, sales increased 1%. The1% daily increase for the quarter consisted of the following:
 
Percent Increase/(Decrease)
Business acquisition
4
Volume
1
Foreign exchange
(1)
Price
(3)
Total
1%

The increase in net sales was primarily driven by the acquisition of Cromwell in September 2015 and single channel online businesses in the U.S. and Japan. Refer to the Segment Analysis below for further details.

In the three months ended March 31, 2016, eCommerce sales for Grainger were $1,124 million, as increase of 15% over the prior year and represented 45% of total sales. The increase was primarily driven by an increase in sales via EDI and electronic purchasing platforms in the United States.

Gross profit of $1,045 million for the first quarter of 2016 decreased 4%. The gross profit margin of 41.7% during the first quarter of 2016 decreased 3.1 percentage points when compared to the same period in 2015, primarily driven by price deflation greater than cost deflation, increased sales to lower margin customers and changes in the classification of trade show funding received from vendors.


17

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Operating expenses of $728 million for the first quarter of 2016 decreased 2% from $742 million for the comparable 2015 quarter. Operating expenses in 2016 included $16 million in costs associated with the anticipated closing of 55 branches in the United States and other restructuring costs. Excluding these charges, operating expenses decreased 4%, driven primarily by restructuring benefits, the timing of planned spending and a $7 million gain from the sale of a property in Canada.

Operating earnings for the first quarter of 2016 were $317 million, a decrease of 10% compared to the first quarter of 2015. Excluding the charges mentioned above, operating earnings decreased 5%, driven by lower gross profit margins, partially offset by lower operating expenses.

Net earnings attributed to W.W. Grainger, Inc. for the first quarter of 2016 decreased 12% to $187 million from $211 million in the first quarter of 2015. Diluted earnings per share of $2.98 in the first quarter of 2016 were down 3% versus the $3.07 for the first quarter of 2015, due to lower earnings, partially offset by lower average shares outstanding.

The table below reconciles reported diluted earnings per share determined in accordance with United States generally accepted accounting principles (GAAP) to adjusted diluted earnings per share, a non-GAAP measure. Management believes adjusted diluted earnings per share 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.
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
%
Diluted earnings per share reported
$2.98
 
$3.07
(3
)%
Restructuring (United States)
0.16
 
 
Restructuring (Canada)
0.04
 
 
Restructuring (Other Businesses)
 
0.03
 
Subtotal
$0.20
 
0.03
 
Diluted earnings per share adjusted
$3.18
 
$3.10
3
 %

Segment Analysis
Grainger’s two reportable segments are the United States and Canada. The United States operating segment reflects the results of Grainger’s U.S. business. The Canada operating segment reflects the results for Acklands – Grainger Inc., Grainger’s Canadian business. Other businesses include Zoro U.S. and business units in Europe, Asia and Latin America.

The following comments at the segment and business unit level include external and intersegment net sales and operating earnings. See Note 10 to the Condensed Consolidated Financial Statements.

United States
Net sales were $1,966 million for the first quarter of 2016, essentially flat when compared with net sales of $1,971 million for the same period in 2015. On a daily basis, sales decreased 2%. The 2% daily decrease for the quarter consisted of the following:
 
Percent Increase/(Decrease)
Intercompany sales to Zoro
1
Price
(3)
Total
(2)%

Sales to natural resource customers were down in the mid-teens and the reseller market was down in the low double digits. Contractor customers and heavy manufacturing end markets were down in the mid-single digits and commercial customers were down low single digits. Mid-single digit growth to government and low single digit growth in light

18

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

manufacturing and retail were offset by decreases across other customer end markets. Low oil prices negatively impacted the performance of the heavy manufacturing and natural resources customer end markets. Sales to Zoro continue to contribute to sales growth as the U.S. business' supply chain network is Zoro's primary source of inventory.

In the three months ended March 31, 2016, eCommerce sales for the United States business were $883 million, an increase of 13% over the prior year and represented 45% of total sales. The increase was primarily driven by an increase in sales via EDI and electronic purchasing platforms.

The gross profit margin for the first quarter of 2016 decreased 2.8 percentage points compared to the same period in 2015, primarily driven by unfavorable selling mix, price deflation outpacing cost deflation and changes in the classification of certain funding received from vendors related to the annual trade show. Such changes resulted in gross margin reduction of approximately 80 basis points. Excluding sales to Zoro, the gross profit margin decreased 2.4 percentage points versus prior year.

Operating expenses of $512 million in the first quarter of 2016 were down $22 million, or 4% versus the first quarter of 2015. Operating expenses in 2016 included $13 million in restructuring costs related to planned branch closures as well as a reorganization of the sales force. Excluding restructuring costs, operating expenses decreased 7 percent driven by lower payroll and benefit costs and timing of planned spending as well as $10 million of supplier funding for the trade show.

Operating earnings of $332 million for the first quarter of 2016 decreased 9% from $366 million for the first quarter of 2015. Excluding the restructuring charges mentioned above, operating earnings decreased 5%, driven primarily by lower gross profit margins.

Canada
Net sales were $179 million for the first quarter of 2016, a decrease of $56 million, or 24%, when compared with $235 million for the same period in 2015. In local currency, sales decreased 16%. On a daily sales basis, sales decreased 25% for the quarter and consisted of the following:
 
Percent Increase/(Decrease)
Price
3
SAP implementation
(6)
Foreign exchange
(8)
Volume
(14)
Total
(25)%

Sales performance in Canada continues to be affected by weak oil and gas prices and lower commodity prices, resulting in lower sales to all customer end markets. The Alberta region, which represents about one-third of the sales in the Canadian business, decreased 26% versus prior year, on a daily basis, as it was negatively impacted by lower oil prices. Sales growth for the remaining regions in aggregate was down 10% in local currency.

In the three months ended March 31, 2016, eCommerce sales in Canada were $23 million, a decrease of 17% over the prior year and represented 13% of total sales.

The gross profit margin decreased 6.7 percentage points in the first quarter of 2016 versus the first quarter of 2015 largely due to cost of goods inflation exceeding price inflation due to unfavorable foreign exchange and no supplier funding received from vendors due to not having a trade show in 2016.

Operating expenses decreased 14% in the first quarter of 2016 versus the first quarter of 2015, benefiting from a $7 million gain from the sale of a property, partially offset by $3 million in restructuring costs.

Operating losses were $12 million for the first quarter of 2016 versus operating earnings of $9 million in the first quarter of 2015. In local currency, operating earnings decreased $27 million. Excluding the restructuring costs mentioned above, the operating losses would have been $9 million driven by the sales decline, lower gross profit margin and negative expense leverage.

19

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


Other Businesses
Net sales for other businesses, which include Zoro U.S. and business units in Europe, Asia, Latin America, and the newly acquired Cromwell, were $445 million for the first quarter of 2016, an increase of $147 million, or 50%, when compared with net sales of $298 million for the same period in 2015. On a daily sales basis, sales were up 47%. The drivers of the increase in daily sales for the quarter consisted of the following:
 
Percent Increase/(Decrease)
Business acquisition
33
Price/volume
17
Foreign exchange
(3)
Total
47%

Operating earnings of $22 million for the first quarter of 2016 were up $12 million compared to the first quarter of 2015. The earnings performance for the quarter versus prior year was primarily driven by strong results from Zoro U.S. and the business in Japan as well as the acquisition of Cromwell, which reported modest profit as expected.

Other Income and Expense
Other income and expense was $20 million of expense in the first quarter of 2016 compared to $4 million of expense in the first quarter of 2015. The increase in expense was primarily due to interest expense from the $1 billion of debt the Company issued in 2015, as well as expected losses from the Company's investments in clean energy.

Income Taxes
Grainger’s tax rates were 35.6% and 38.4% for the three months ended March 31, 2016 and 2015, respectively. The decrease in the tax rate was primarily due to tax credits earned from the Company's clean energy investments.

Financial Condition

Cash Flow
Net cash provided by operating activities was $154 million and $156 million for the three months ended March 31, 2016 and 2015, respectively.

Net cash used in investing activities was $45 million and $92 million for the three months ended March 31, 2016 and 2015, respectively. The lower use of cash was driven by lower additions to property, buildings and equipment compared to the prior year, partially offset by higher proceeds from the sales of assets. Additionally, in 2015, Grainger made a new investment in a limited liability company established to produce clean energy. The investment provided Grainger with energy tax credits that lowered the tax effective rate and positively impacted net earnings and cash flow.

Net cash used in financing activities was $131 million and $230 million in the three months ended March 31, 2016 and 2015, respectively. Financing activity for the 2016 period was primarily driven by payments of long-term debt and an increase in the purchase of treasury stock, partially offset by increases in the amount of commercial paper.

Working Capital
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 at March 31, 2016, was $1,862 million, an increase of $68 million when compared to $1,794 million at December 31, 2015 primarily as a result of the annual cash contribution to the employees' profit sharing plan. The working capital assets to working capital liabilities ratio increased to 2.6 at March 31, 2016, from 2.5 at December 31, 2015.

Debt
Grainger maintains a debt ratio and liquidity position that provide flexibility in funding working capital needs and long-term cash requirements. In addition to internally generated funds, Grainger has various sources of financing available, including bank borrowings under lines of credit. Total debt as a percent of total capitalization was 46.9% at March 31, 2016, and 45.8% at December 31, 2015.

20

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



Critical Accounting Policies and Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements. Management bases its estimates on historical experience and other assumptions, which it believes are reasonable. If actual amounts are ultimately different from these estimates, the revisions are included in Grainger’s results of operations for the period in which the actual amounts become known.

Accounting policies are considered critical when they require management to make assumptions about matters that are highly uncertain at the time the estimates are made and when there are different estimates that management reasonably could have made, which would have a material impact on the presentation of Grainger’s financial condition, changes in financial condition or results of operations. For a description of Grainger’s critical accounting policies see Grainger's Annual Report on Form 10-K for the year ended December 31, 2015.

Forward-Looking Statements
From time to time, in this Quarterly Report on Form 10-Q, as well as in other written reports 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 which 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 outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, 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 and the factors identified in the Company's Annual Report on Form 10-K for the year-ended December 31, 2015 and other filings with the SEC.

Caution should be taken not to place undue reliance on Grainger's forward-looking statements and Grainger undertakes no obligation to publicly update the forward-looking statements, whether as a result of new information, future events or otherwise.


21


W.W. Grainger, Inc. and Subsidiaries


Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 
For quantitative and qualitative disclosures about market risk, see “Item 7A: Quantitative and Qualitative Disclosures About Market Risk” in Grainger's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Item 4.
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 Grainger's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the period covered by this report. 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 in (i) ensuring that information required to be disclosed by Grainger in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting
On February 1, 2016, the Company implemented a new SAP enterprise resource planning system at its Canadian subsidiary, Acklands-Grainger. While new to its Canadian operations, the SAP system is the same one currently utilized by the Company’s business in the United States. The Company has evaluated the impact of this change on its internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act), and has concluded that there were no changes in the Company’s internal controls over financial reporting for the quarter ended March 31, 2016, that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.


PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings.

Environmental Matters

On August 5, 2015, Environment Canada initiated a proceeding against the Company’s Canadian subsidiary, Acklands-Grainger, in the Provincial Court of Alberta. The proceeding seeks monetary sanctions and is based on allegations that Acklands-Grainger sold certain products containing an ozone-depleting substance in violation of the Canadian Environmental Protection Act, 1999 and prohibited by the Ozone-Depleting Substances Regulations, 1998. On January 19, 2016, Acklands-Grainger indicated to the Provincial Court that it would contest the charges. While the Company is unable to predict the outcome of this proceeding, it is believed that the ultimate outcome of this matter will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

Other Matters

For a description of other legal proceedings, see Note 12 - Contingencies and Legal Matters to the Condensed Consolidated Financial Statements included under Item 1 - Financial Statements of Part I of this report.




22


W.W. Grainger, Inc. and Subsidiaries


Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
Issuer Purchases of Equity Securities – First quarter
 
Period
Total Number of Shares Purchased (A)
Average Price Paid per Share (B)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (C)
Maximum Number of
Shares That May Yet be Purchased Under the
Plans or Programs
Jan 1 - Jan 31
323,101
$190.17
323,101
9,165,287
Feb 1 - Feb 29
233,246
$209.89
233,246
8,932,041
Mar 1 - Mar 31
336,757
$224.29
336,757
8,595,284
Total
893,104
$208.19
893,104
 
 
(A)
There were no shares withheld to satisfy tax withholding obligations.
(B)
Average price paid per share includes any commissions paid and includes only those amounts related to purchases as part of publicly announced plans or programs.
(C)
Purchases were made pursuant to a share repurchase program approved by Grainger’s Board of Directors on April 6, 2015. The program has no specified expiration date. Activity is reported on a trade date basis.


Item 6.        Exhibits.

A list of exhibits filed with this report on Form 10-Q is provided in the Exhibit Index on page 25 of this report.



23




SIGNATURES


 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
W.W. Grainger, Inc.
 
 
 
(Registrant)
Date:
April 28, 2016
 
 
 
By:
 
 
 
/s/ R. L. Jadin
 
 
 
R. L. Jadin, Senior Vice President
and Chief Financial Officer
Date:
April 28, 2016
 
 
 
By:
 
 
 
/s/ W. Lomax
 
 
 
W. Lomax, Vice President
and Controller



24




EXHIBIT INDEX

EXHIBIT NO.
 
DESCRIPTION
31.1
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
 
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.
101.INS
 
XBRL Instance Document.
101.SCH
 
XBRL Taxonomy Extension Schema Document.
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.


25


CERTIFICATION
Exhibit 31.1
I, J. T. Ryan, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of W.W. Grainger, Inc.;
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: April 28, 2016
 
By:
/s/ J. T. Ryan                                                        
Name:
J. T. Ryan
Title:
Chairman, President and Chief Executive Officer





CERTIFICATION
Exhibit 31.2
I, R. L. Jadin, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of W.W. Grainger, Inc.;
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: April 28, 2016
 
By:
/s/ R. L. Jadin                                                       
Name:
R. L. Jadin
Title:
Senior Vice President and Chief Financial Officer





Exhibit 32
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Quarterly Report on Form 10-Q of W.W. Grainger, Inc. (“Grainger”) for the quarterly period ended March 31, 2016, (the “Report”), J. T. Ryan, as Chairman, President and Chief Executive Officer of Grainger, and R. L. Jadin, as Senior Vice President and 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/ J. T. Ryan
J. T. Ryan
Chairman, President and Chief Executive Officer
April 28, 2016
 
 
 
/s/ R. L. Jadin
R. L. Jadin
Senior Vice President and Chief Financial Officer
April 28, 2016



v3.4.0.3
DOCUMENT AND ENTITY INFORMATION
3 Months Ended
Mar. 31, 2016
shares
Document and Entity Information [Abstract]  
Entity Registrant Name GRAINGER W W INC
Entity Central Index Key 0000277135
Current Fiscal Year End Date --12-31
Entity Filer Category Large Accelerated Filer
Document Type 10-Q
Document Period End Date Mar. 31, 2016
Document Fiscal Year Focus 2016
Document Fiscal Period Focus Q1
Amendment Flag false
Entity Common Stock, Shares Outstanding 61,322,179
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Income Statement [Abstract]    
Net sales $ 2,506,538 $ 2,439,661
Cost of merchandise sold 1,461,485 1,345,918
Gross profit 1,045,053 1,093,743
Warehousing, marketing and administrative expenses 727,961 742,496
Operating earnings 317,092 351,247
Other income and (expense):    
Interest income 165 192
Interest expense (13,725) (1,636)
Loss from equity method investment (6,388) 0
Other non-operating income 694 241
Other non-operating expense (254) (2,405)
Total other expense (19,508) (3,608)
Earnings before income taxes 297,584 347,639
Income taxes 105,940 133,493
Net earnings 191,644 214,146
Less: Net earnings attributable to noncontrolling interest 4,931 3,131
Net earnings attributable to W.W. Grainger, Inc. $ 186,713 $ 211,015
Earnings per share:    
Basic (in dollars per share) $ 3.00 $ 3.11
Diluted (in dollars per share) $ 2.98 $ 3.07
Weighted average number of shares outstanding:    
Basic (in shares) 61,668,682 67,229,653
Diluted (in shares) 62,099,801 67,982,362
Cash dividends paid per share (in dollars per share) $ 1.17 $ 1.08
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Statement of Comprehensive Income [Abstract]    
Net earnings $ 191,644 $ 214,146
Foreign currency translation adjustments:    
Foreign currency translation adjustments, net of tax benefit of $0 and $0, respectively 51,490 (76,015)
Defined postretirement benefit plan:    
Reclassification adjustments related to amortization, net of tax expense of $631 and $509, respectively (1,009) (813)
Derivative instrument change in fair value of cash flow hedge 304 482
Comprehensive earnings, net of tax 242,429 137,800
Less: Comprehensive earnings (losses) attributable to noncontrolling interest    
Net earnings 4,931 3,131
Foreign currency translation adjustments 5,704 (294)
Comprehensive earnings attributable to W.W. Grainger, Inc. $ 231,794 $ 134,963
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (UNAUDITED) (PARENTHETICALS) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Statement of Comprehensive Income [Abstract]    
Foreign currency translation adjustments, tax benefit $ 0 $ 0
Tax benefit (expense) from defined postretirement benefit plan reclassification adjustment $ 631 $ 509
v3.4.0.3
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
CURRENT ASSETS    
Cash and cash equivalents $ 279,906 $ 290,136
Accounts receivable (less allowances for doubtful accounts of $23,874 and $22,288, respectively) 1,304,560 1,209,641
Inventories – net 1,420,897 1,414,177
Prepaid expenses and other assets 102,435 85,670
Prepaid income taxes 31,163 49,018
Total current assets 3,138,961 3,048,642
PROPERTY, BUILDINGS AND EQUIPMENT 3,407,770 3,370,313
Less: Accumulated depreciation and amortization 1,965,579 1,939,072
Property, buildings and equipment – net 1,442,191 1,431,241
DEFERRED INCOME TAXES 66,251 83,996
GOODWILL 595,487 582,336
INTANGIBLES - NET 458,230 463,294
OTHER ASSETS 263,719 248,246
TOTAL ASSETS 5,964,839 5,857,755
CURRENT LIABILITIES    
Short-term debt 569,367 353,072
Current maturities of long-term debt 135,834 247,346
Trade accounts payable 620,410 583,474
Accrued compensation and benefits 208,024 196,667
Accrued contributions to employees’ profit sharing plans 22,058 124,587
Accrued expenses 274,458 266,702
Income taxes payable 50,289 16,686
Total current liabilities 1,880,440 1,788,534
LONG-TERM DEBT (less current maturities) 1,387,124 1,388,414
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES 158,238 154,352
EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES 174,837 173,741
SHAREHOLDERS' EQUITY    
Cumulative Preferred Stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding 0 0
Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued 54,830 54,830
Additional contributed capital 1,007,933 1,000,476
Retained earnings 6,916,043 6,802,130
Accumulated other comprehensive losses (176,010) (221,091)
Treasury stock, at cost – 48,337,040 and 47,630,511 shares, respectively (5,535,497) (5,369,711)
Total W.W. Grainger, Inc. shareholders’ equity 2,267,299 2,266,634
Noncontrolling interest 96,901 86,080
Total shareholders' equity 2,364,200 2,352,714
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,964,839 $ 5,857,755
v3.4.0.3
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (PARENTHETICALS) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 23,874 $ 22,288
Cumulative preferred stock, par value (in dollars per share) $ 5 $ 5
Cumulative preferred stock, shares authorized 12,000,000 12,000,000
Cumulative preferred stock, shares issued 0 0
Cumulative preferred stock, shares outstanding 0 0
Common stock, par value (in dollars per share) $ 0.5 $ 0.5
Common stock, shares authorized 300,000,000 300,000,000
Common stock, shares issued 109,659,219 109,659,219
Treasury stock, shares at cost 48,337,040 47,630,511
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net earnings $ 191,644 $ 214,146
Provision for losses on accounts receivable 3,454 2,558
Deferred income taxes and tax uncertainties 21,035 1,732
Depreciation and amortization 56,294 52,411
(Gains) from non-cash charges and sales of assets (7,465) 0
Stock-based compensation 7,456 9,161
Losses from equity method investment 6,388 0
Change in operating assets and liabilities – net of business acquisitions:    
Accounts receivable (84,435) (50,968)
Inventories 10,831 (2,808)
Prepaid expenses and other assets 4,370 34,433
Trade accounts payable 30,827 (7,326)
Other current liabilities (111,458) (160,239)
Current income taxes payable 32,757 62,893
Accrued employment-related benefits cost 323 2,296
Other – net (8,290) (2,080)
Net cash provided by operating activities 153,731 156,209
CASH FLOWS FROM INVESTING ACTIVITIES:    
Additions to property, buildings and equipment (51,797) (99,489)
Proceeds from sales of assets 13,817 7,333
Equity method investment (7,199) 0
Other – net (206) (48)
Net cash used in investing activities (45,385) (92,204)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Net increase in commercial paper 214,645 190,000
Borrowings under lines of credit 12,028 14,380
Payments against lines of credit (11,060) (28,333)
Payments of long-term debt (124,769) (1,860)
Proceeds from stock options exercised 5,206 4,883
Excess tax benefits from stock-based compensation 17,287 4,319
Purchase of treasury stock (172,047) (149,992)
Cash dividends paid (72,632) (73,393)
Net cash used in financing activities (131,342) (39,996)
Exchange rate effect on cash and cash equivalents 12,766 (7,226)
NET CHANGE IN CASH AND CASH EQUIVALENTS (10,230) 16,783
Cash and cash equivalents at beginning of year 290,136 226,644
Cash and cash equivalents at end of period $ 279,906 $ 243,427
v3.4.0.3
BACKGROUND AND BASIS OF PRESENTATION
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND AND BASIS OF PRESENTATION
 
W.W. Grainger, Inc. is a broad-line distributor of maintenance, repair and operating supplies, and other related products and services used by businesses and institutions.  W.W. Grainger, Inc.’s operations are primarily in the United States 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.
 
The Condensed Consolidated Financial Statements of the Company and the related notes are unaudited and should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).
 
The Condensed Consolidated Balance Sheet as of December 31, 2015 has been derived from the audited consolidated financial statements at that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.
 
The unaudited financial information reflects all adjustments (primarily consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the statements contained herein.
v3.4.0.3
NEW ACCOUNTING STANDARDS
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
NEW ACCOUNTING STANDARDS
NEW ACCOUNTING STANDARDS

In July 2015, the Financial Accounting Standards Board (FASB) announced a one-year delay in the effective date of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. The standard will now be effective for interim and annual periods beginning after December 15, 2017. The standard also permits adoption as early as the original effective date, which was for interim and annual periods beginning after December 15, 2016. The Company is evaluating the impact of this ASU but does not expect it to have a material impact on the Company's consolidated financial statements.

In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (NRV) test. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal and transportation. This pronouncement is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2016, and prospective adoption is required. The Company is evaluating the impact of this ASU.

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 for the standard is for fiscal years and interim periods within those years beginning after December 15, 2017. Certain provisions for the new guidance can be adopted early. The Company is evaluating the impact of this ASU.
 
In February 2016, the FASB issued ASU 2016-02, Leases. The purpose of the standard is to improve 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 for the standard is for fiscal year and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of this ASU.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures; Simplifying the Transition to the Equity Method of Accounting. This update eliminates the requirement to retroactively adjust the investment, results of operations and retained earnings when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The amendment requires that the investor add the cost of acquiring the additional interest to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The effective date for the standard is for fiscal years and interim periods within those years beginning after

December 15, 2016. The amendment should be applied prospectively and early application is permitted. This ASU is not expected to have a material impact on the Company's consolidated financial statements.
    
In March 2016, the FASB issued ASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendment is meant to reduce the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance as well as reduce the cost and complexity during the transition and on an ongoing basis. The effective date for the amendment to the standard is consistent with ASU 2014-09, Revenue from Contracts with Customers, which is interim and annual periods beginning after December 15, 2017. The Company is evaluating the impact of the ASU.

In March 2016, the FASB issued ASU 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment Accounting. The standard simplifies several aspects of the accounting for employee share-based payment transactions, including accounting for income taxes, forfeitures and statutory tax withholdings requirements, as well as classification in the statement of cash flows. The effective date for the standard is for fiscal years and interim periods with those years beginning after December 15, 2016. Early adoption is permitted. If early adoption is elected, all amendments in the ASU that apply must be adopted in the same period. The Company is evaluating the impact of this ASU.
v3.4.0.3
DIVIDEND
3 Months Ended
Mar. 31, 2016
Dividends [Abstract]  
DIVIDEND
DIVIDEND
 
On April 27, 2016, the Company’s Board of Directors declared a quarterly dividend of $1.22 per share, payable June 1, 2016, to shareholders of record on May 9, 2016.
v3.4.0.3
ACQUISITION
3 Months Ended
Mar. 31, 2016
Business Combinations [Abstract]  
ACQUISITION
ACQUISITION

On September 1, 2015, the Company acquired all of the issued share capital of Cromwell Group (Holdings) Limited (Cromwell). With sales of approximately £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, serving more than 35,000 industrial and manufacturing customers worldwide. 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. Goodwill and intangibles recorded totaled approximately $357 million. The goodwill is not deductible for tax purposes. The purchase price allocation has not been finalized and is subject to change as the Company obtains additional information during the measurement period related to the valuation of the acquired assets and liabilities. Disclosure of pro forma results was not required.
v3.4.0.3
RESTRUCTURING RESERVES
3 Months Ended
Mar. 31, 2016
Restructuring and Related Activities [Abstract]  
RESTRUCTURING RESERVES
RESTRUCTURING RESERVES

The Company recorded one-time benefits with the majority expected to be paid in 2016 related to the reorganization of the business. Severance costs of approximately $16 million were recorded in the three months ended March 31, 2016 and are included in Warehousing, marketing and administrative expenses. The reserve balance as of March 31, 2016 and December 31, 2015 was approximately $37 million and $24 million, respectively, and is included in Accrued compensation and benefits.
v3.4.0.3
SHORT-TERM AND LONG-TERM DEBT
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]
SHORT-TERM AND LONG-TERM DEBT
 
The following summarizes information concerning short-term debt (in thousands of dollars):
 
March 31, 2016

 
December 31, 2015

Outstanding lines of credit
$
24,722

 
$
23,072

Outstanding commercial paper
544,645

 
330,000



As of March 31, 2016 and December 31, 2015, there was $545 million and $330 million, respectively, of commercial paper outstanding. The increase in commercial paper from December 31, 2015 was used to fund the repayment of the Company's U.S. dollar term loan, the repurchase of treasury shares, as well as general working capital needs.


Long-term debt consisted of the following (in thousands of dollars):
 
March 31, 2016

 
December 31, 2015

Senior notes
$
1,000,000

 
$
1,000,000

U.S. dollar term loan

 
114,614

British pound denominated term loan
223,984

 
235,808

Euro denominated term loan
116,624

 
114,030

Yen denominated term loans
53,305

 
49,875

Canadian dollar revolving credit facility
115,349

 
108,389

Other
26,253

 
25,991

Debt issuance costs
(12,557
)
 
(12,947
)
Less current maturities
(135,834
)
 
(247,346
)
 
1,387,124

 
$
1,388,414



On June 11, 2015, the Company issued $1 billion of unsecured 4.60% Senior Notes (Notes) that mature on June 15, 2045. The Notes require no principal payments until the maturity date and interest is payable semi-annually on June 15 and December 15, beginning on December 15, 2015. Prior to December 15, 2044, the Company may redeem the 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 US treasury security with a maturity comparable to the remaining term of the Notes plus 25 basis points, together with accrued and unpaid interest, if any, to the redemption date. On or after December 15, 2044, the Company may redeem the 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 of approximately $10 million associated with the issuance of the Notes, representing underwriting fees and other expenses, have been recorded as a contra-liability within Long-term debt and will be amortized to interest expense over the term of the Notes.

The approximate fair value of the Company's Notes is $1 billion as of March 31, 2016 and December 31, 2015 and approximates the carrying amount. The estimated fair value of the Company’s Notes was 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. The carrying value of other long-term debt approximates fair value due to the variable interest rates.
v3.4.0.3
DERIVATIVE INSTRUMENTS
3 Months Ended
Mar. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS
DERIVATIVE INSTRUMENTS

The Company uses derivative instruments to manage a portion of exposures to fluctuations in interest rates and foreign currency exchange rates. The Company does not enter into derivative financial instruments for trading or speculative purposes. The fair values of these instruments are determined by using quoted market forward rates (level 2 inputs) and reflect the present value of the amount that the Company would pay for contracts involving the same notional amounts and maturity dates. These instruments qualify for hedge accounting and the changes in fair value are reported as a component of other comprehensive earnings (losses) net of tax effects.

The fair value of the Company's interest rate swap was $1 million as of March 31, 2016 and December 31, 2015 and was included on the balance sheet as a liability under Accrued expenses. The purpose of the interest rate swap is to partially hedge the future interest expense of the euro-denominated term loan entered into to fund a portion of the Fabory acquisition in 2011. The swap matures in August 2016. All remaining derivative instruments were immaterial individually and in the aggregate as of March 31, 2016 and December 31, 2015.
v3.4.0.3
EQUITY METHOD INVESTMENT
3 Months Ended
Mar. 31, 2016
Equity Method Investments and Joint Ventures [Abstract]  
EQUITY METHOD INVESTMENT
EQUITY METHOD INVESTMENT

In addition to the investment made in 2015, in January 2016, the Company invested in a second limited liability company established to produce refined coal, which is then sold to a utility to produce electricity.  The production and sale of refined coal is eligible for renewable energy tax credits under Section 45 of the Internal Revenue Code.  Under the terms of the investment, effective control lies with a co-investor who manages the day-to-day operations of the entity. 

The Company will fund its share of operating expenses of the entity through February 2019 and receive tax credits in proportion to its equity investment. The investment will be accounted for under the equity method of accounting.  As of March 31, 2016, the balance of the combined refined coal investments was $9 million and is included on the balance sheet under Other assets. During the three months ended March 31, 2016, the Company recorded $6 million in equity losses and a total tax benefit of $10 million, including energy tax credits, as reflected in the Company’s effective tax rate. The investments contributed $4 million to net earnings for the three months ended March 31, 2016.
v3.4.0.3
EMPLOYEE BENEFITS - POSTRETIREMENT
3 Months Ended
Mar. 31, 2016
Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract]  
EMPLOYEE BENEFITS - POSTRETIREMENT
EMPLOYEE BENEFITS - POSTRETIREMENT
 
The Company has a postretirement healthcare benefits plan that provides coverage for a majority of its United States 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.

The net periodic benefit costs charged to operating expenses, which are valued at the measurement date of January 1 and recognized evenly throughout the year, consisted of the following components (in thousands of dollars):
 
Three Months Ended March 31,
 
2016
 
2015
Service cost
$
2,059

 
$
2,532

Interest cost
2,464

 
2,412

Expected return on assets
(2,528
)
 
(2,594
)
Amortization of unrecognized losses
32

 
378

Amortization of prior service credits
(1,672
)
 
(1,700
)
Net periodic benefit costs
$
355

 
$
1,028


 
The Company has established a Group Benefit Trust to fund the plan and process benefit payments. The funding of the trust is an estimated amount which is intended to allow the maximum deductible contribution under the Internal Revenue Code of 1986 (IRC), as amended.  There are no minimum funding requirements and the Company intends to follow its practice of funding the maximum deductible contribution under the IRC. The Company did not make a contribution to the trust during the three months ended March 31, 2016.
v3.4.0.3
SEGMENT INFORMATION
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
SEGMENT INFORMATION
    SEGMENT INFORMATION
 
The Company has two reportable segments: the United States and Canada. The United States operating segment reflects the results of the Company's U.S. business. The Canada operating segment reflects the results for Acklands – Grainger Inc. (Acklands-Grainger), the Company’s Canadian business. Other businesses include Zoro, the single channel business in the United States, and business units in Europe, Asia and Latin America. Other businesses do not meet the definition of a reportable segment. Operating segments generate revenue almost exclusively through the distribution of maintenance, repair and operating supplies, as service revenues account for less than 1% of total revenues for each operating segment. Following is a summary of segment results (in thousands of dollars):

 
Three Months Ended March 31, 2016
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
1,966,267

 
$
178,771

 
$
445,333

 
$
2,590,371

Intersegment net sales
(82,499
)
 
(36
)
 
(1,298
)
 
(83,833
)
Net sales to external customers
$
1,883,768

 
$
178,735

 
$
444,035

 
$
2,506,538

Segment operating earnings
$
331,857

 
$
(12,347
)
 
$
21,783

 
$
341,293

  
 
Three Months Ended March 31, 2015
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
1,971,455

 
$
234,530

 
$
297,800

 
$
2,503,785

Intersegment net sales
(63,191
)
 
(36
)
 
(897
)
 
(64,124
)
Net sales to external customers
$
1,908,264

 
$
234,494

 
$
296,903

 
$
2,439,661

Segment operating earnings
$
366,089

 
$
9,387

 
$
9,526

 
$
385,002


  

 
United States
 
Canada
 
Other Businesses
 
Total
Segment assets:
 
 
 
 
 
 
 
March 31, 2016
$
2,244,942

 
$
335,980

 
$
535,566

 
$
3,116,488

December 31, 2015
$
2,191,045

 
$
317,504

 
$
507,116

 
$
3,015,665




Following are reconciliations of segment information with the consolidated totals per the financial statements (in thousands of dollars):
 
Three Months Ended March 31,
 
2016
 
2015
Operating earnings:
 
Total operating earnings for operating segments
$
341,293

 
$
385,002

Unallocated expenses and eliminations
(24,201
)
 
(33,755
)
Total consolidated operating earnings
$
317,092

 
$
351,247


 
 
Mar 31, 2016
 
Dec 31, 2015
Assets:
 
Total assets for operating segments
$
3,116,488

 
$
3,015,665

Other current and non-current assets
2,718,224

 
2,624,966

Unallocated assets
130,127

 
217,124

Total consolidated assets
$
5,964,839

 
$
5,857,755



Assets for operating segments include net accounts receivable and first-in, first-out inventory which are reported to the Company's Chief Operating Decision Maker. Other current and non-current assets include all other asset balances for the operating segments.

Unallocated expenses and unallocated assets primarily relate to the Company headquarter's 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.

Intersegment net sales for the U.S. segment increased by $19 million for the three months of 2016 compared to the prior year, driven by increased sales from the U.S. business to Zoro. The U.S. business' supply chain network is Zoro's primary source of inventory.
v3.4.0.3
EARNINGS PER SHARE
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
EARNINGS PER SHARE
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):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net earnings attributable to W.W. Grainger, Inc. as reported
$
186,713

 
$
211,015

Distributed earnings available to participating securities
(626
)
 
(768
)
Undistributed earnings available to participating securities
(1,121
)
 
(1,461
)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders
184,966

 
208,786

Undistributed earnings allocated to participating securities
1,121

 
1,461

Undistributed earnings reallocated to participating securities
(1,114
)
 
(1,445
)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders
$
184,973

 
$
208,802

Denominator for basic earnings per share – weighted average shares
61,668,682

 
67,229,653

Effect of dilutive securities
431,119

 
752,709

Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities
62,099,801

 
67,982,362

Earnings per share two-class method
 

 
 

Basic
$
3.00

 
$
3.11

Diluted
$
2.98

 
$
3.07

v3.4.0.3
CONTINGENCIES AND LEGAL MATTERS
3 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
CONTINGENCIES AND LEGAL MATTERS
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, 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 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.

TCPA Matter

On April 5, 2013, David Davies filed a putative class action lawsuit in the Circuit Court of Cook County, Illinois on behalf of all those who received faxes in connection with a 2009 marketing campaign. The complaint alleges, among other things, that the Company violated the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 (the “TCPA”), by sending fax advertisements that either were unsolicited and/or did not contain a valid opt-out notice. The TCPA provides for penalties of $500 to $1,500 for each non-compliant individual fax.


On May 13, 2013, the Company removed the case to the Federal District Court for the Northern District of Illinois (the “District Court”). On June 27, 2014, the District Court granted the Company’s motion for a determination that the court should not certify a class, finding that Davies was not an adequate class representative. On October 2, 2014, the United States Court of Appeals for the Seventh Circuit denied Davies’ petition for immediate review of the June 27, 2014 ruling. Davies may seek to pursue an appeal of the June 27, 2014 ruling at the conclusion of the District Court proceedings.

The Company subsequently moved to dismiss Davies’ individual claims based on the position that he had suffered no injury relating to his notice-related claims on account of the single fax he received, or otherwise. On April 4, 2016, the District Court issued an opinion denying the Company’s motion. The District Court set a status hearing for late May 2016.

We believe we have strong legal and factual defenses and intend to continue defending the Company vigorously in the pending lawsuit. While the Company is unable to predict the outcome of this proceeding, the Company believes that the ultimate outcome of this matter will not have a material adverse effect on the Company’s consolidated financial position or results of operations.
v3.4.0.3
NEW ACCOUNTING STANDARDS (Policies)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
New Accounting Standards
In July 2015, the Financial Accounting Standards Board (FASB) announced a one-year delay in the effective date of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. The standard will now be effective for interim and annual periods beginning after December 15, 2017. The standard also permits adoption as early as the original effective date, which was for interim and annual periods beginning after December 15, 2016. The Company is evaluating the impact of this ASU but does not expect it to have a material impact on the Company's consolidated financial statements.

In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (NRV) test. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal and transportation. This pronouncement is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2016, and prospective adoption is required. The Company is evaluating the impact of this ASU.

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 for the standard is for fiscal years and interim periods within those years beginning after December 15, 2017. Certain provisions for the new guidance can be adopted early. The Company is evaluating the impact of this ASU.
 
In February 2016, the FASB issued ASU 2016-02, Leases. The purpose of the standard is to improve 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 for the standard is for fiscal year and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of this ASU.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures; Simplifying the Transition to the Equity Method of Accounting. This update eliminates the requirement to retroactively adjust the investment, results of operations and retained earnings when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The amendment requires that the investor add the cost of acquiring the additional interest to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The effective date for the standard is for fiscal years and interim periods within those years beginning after

December 15, 2016. The amendment should be applied prospectively and early application is permitted. This ASU is not expected to have a material impact on the Company's consolidated financial statements.
    
In March 2016, the FASB issued ASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendment is meant to reduce the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance as well as reduce the cost and complexity during the transition and on an ongoing basis. The effective date for the amendment to the standard is consistent with ASU 2014-09, Revenue from Contracts with Customers, which is interim and annual periods beginning after December 15, 2017. The Company is evaluating the impact of the ASU.

In March 2016, the FASB issued ASU 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment Accounting. The standard simplifies several aspects of the accounting for employee share-based payment transactions, including accounting for income taxes, forfeitures and statutory tax withholdings requirements, as well as classification in the statement of cash flows. The effective date for the standard is for fiscal years and interim periods with those years beginning after December 15, 2016. Early adoption is permitted. If early adoption is elected, all amendments in the ASU that apply must be adopted in the same period. The Company is evaluating the impact of this ASU.
v3.4.0.3
SHORT-TERM AND LONG-TERM DEBT (Tables)
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Schedule of Short-Term Debt Instruments
The following summarizes information concerning short-term debt (in thousands of dollars):
 
March 31, 2016

 
December 31, 2015

Outstanding lines of credit
$
24,722

 
$
23,072

Outstanding commercial paper
544,645

 
330,000

Schedule of Long-Term Debt Instruments
Long-term debt consisted of the following (in thousands of dollars):
 
March 31, 2016

 
December 31, 2015

Senior notes
$
1,000,000

 
$
1,000,000

U.S. dollar term loan

 
114,614

British pound denominated term loan
223,984

 
235,808

Euro denominated term loan
116,624

 
114,030

Yen denominated term loans
53,305

 
49,875

Canadian dollar revolving credit facility
115,349

 
108,389

Other
26,253

 
25,991

Debt issuance costs
(12,557
)
 
(12,947
)
Less current maturities
(135,834
)
 
(247,346
)
 
1,387,124

 
$
1,388,414

v3.4.0.3
EMPLOYEE BENEFITS - POSTRETIREMENT (Tables)
3 Months Ended
Mar. 31, 2016
Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract]  
Schedule of Net Periodic Benefit Costs Charged to Operating Expenses
The net periodic benefit costs charged to operating expenses, which are valued at the measurement date of January 1 and recognized evenly throughout the year, consisted of the following components (in thousands of dollars):
 
Three Months Ended March 31,
 
2016
 
2015
Service cost
$
2,059

 
$
2,532

Interest cost
2,464

 
2,412

Expected return on assets
(2,528
)
 
(2,594
)
Amortization of unrecognized losses
32

 
378

Amortization of prior service credits
(1,672
)
 
(1,700
)
Net periodic benefit costs
$
355

 
$
1,028

v3.4.0.3
SEGMENT INFORMATION (Tables)
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Summary of Segment Results
Following is a summary of segment results (in thousands of dollars):

 
Three Months Ended March 31, 2016
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
1,966,267

 
$
178,771

 
$
445,333

 
$
2,590,371

Intersegment net sales
(82,499
)
 
(36
)
 
(1,298
)
 
(83,833
)
Net sales to external customers
$
1,883,768

 
$
178,735

 
$
444,035

 
$
2,506,538

Segment operating earnings
$
331,857

 
$
(12,347
)
 
$
21,783

 
$
341,293

  
 
Three Months Ended March 31, 2015
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
1,971,455

 
$
234,530

 
$
297,800

 
$
2,503,785

Intersegment net sales
(63,191
)
 
(36
)
 
(897
)
 
(64,124
)
Net sales to external customers
$
1,908,264

 
$
234,494

 
$
296,903

 
$
2,439,661

Segment operating earnings
$
366,089

 
$
9,387

 
$
9,526

 
$
385,002


  

 
United States
 
Canada
 
Other Businesses
 
Total
Segment assets:
 
 
 
 
 
 
 
March 31, 2016
$
2,244,942

 
$
335,980

 
$
535,566

 
$
3,116,488

December 31, 2015
$
2,191,045

 
$
317,504

 
$
507,116

 
$
3,015,665

Schedule of Reconciliation of Operating Earnings from Segment to Consolidated
Following are reconciliations of segment information with the consolidated totals per the financial statements (in thousands of dollars):
 
Three Months Ended March 31,
 
2016
 
2015
Operating earnings:
 
Total operating earnings for operating segments
$
341,293

 
$
385,002

Unallocated expenses and eliminations
(24,201
)
 
(33,755
)
Total consolidated operating earnings
$
317,092

 
$
351,247

Schedule of Reconciliation of Assets from Segment to Consolidated
 
Mar 31, 2016
 
Dec 31, 2015
Assets:
 
Total assets for operating segments
$
3,116,488

 
$
3,015,665

Other current and non-current assets
2,718,224

 
2,624,966

Unallocated assets
130,127

 
217,124

Total consolidated assets
$
5,964,839

 
$
5,857,755

v3.4.0.3
EARNINGS PER SHARE (Tables)
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Schedule of Computation of Basic and Diluted Earnings per Share under Two-Class Method
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):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net earnings attributable to W.W. Grainger, Inc. as reported
$
186,713

 
$
211,015

Distributed earnings available to participating securities
(626
)
 
(768
)
Undistributed earnings available to participating securities
(1,121
)
 
(1,461
)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders
184,966

 
208,786

Undistributed earnings allocated to participating securities
1,121

 
1,461

Undistributed earnings reallocated to participating securities
(1,114
)
 
(1,445
)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders
$
184,973

 
$
208,802

Denominator for basic earnings per share – weighted average shares
61,668,682

 
67,229,653

Effect of dilutive securities
431,119

 
752,709

Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities
62,099,801

 
67,982,362

Earnings per share two-class method
 

 
 

Basic
$
3.00

 
$
3.11

Diluted
$
2.98

 
$
3.07

v3.4.0.3
DIVIDEND - Narrative (Details)
Jan. 27, 2016
$ / shares
Dividends [Abstract]  
Dividend declared (in dollars per share) $ 1.22
Dividend payable date paid Jun. 01, 2016
Dividends payable record date May 09, 2016
v3.4.0.3
ACQUISITION - Narrative (Details)
£ in Millions, $ in Millions
12 Months Ended
Sep. 01, 2015
GBP (£)
Sep. 01, 2015
USD ($)
Aug. 31, 2015
GBP (£)
Aug. 31, 2015
USD ($)
Mar. 31, 2016
USD ($)
Business Combinations [Abstract]          
Date of acquisition Sep. 01, 2015 Sep. 01, 2015      
Sales reported by acquired entity for last fiscal year     £ 285 $ 437  
Description of acquired entity prior to the acquisition, Cromwell was the largest independent MRO distributor in the United Kingdom, serving more than 35,000 industrial and manufacturing customers worldwide. prior to the acquisition, Cromwell was the largest independent MRO distributor in the United Kingdom, serving more than 35,000 industrial and manufacturing customers worldwide.      
Acquisition price £ 310 $ 464      
Goodwill and intangibles recorded         $ 357
v3.4.0.3
RESTRUCTURING RESERVES - Narrative (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Accrued compensation and benefits [Member]    
Restructuring Cost and Reserve [Line Items]    
Restructuring reserve $ 37 $ 24
Warehousing, marketing and administrative expense [Member]    
Restructuring Cost and Reserve [Line Items]    
Severance costs $ 16  
v3.4.0.3
SHORT-TERM AND LONG-TERM DEBT - Schedule of Short-Term Debt Instruments (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Short-term Debt [Line Items]    
Outstanding short-term debt $ 569,367 $ 353,072
Line of Credit [Member]    
Short-term Debt [Line Items]    
Outstanding short-term debt 24,722 23,072
Commercial Paper [Member]    
Short-term Debt [Line Items]    
Outstanding short-term debt $ 544,645 $ 330,000
v3.4.0.3
SHORT-TERM AND LONG-TERM DEBT - Schedule of Long-Term Debt Instruments (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Debt Instrument [Line Items]    
Other $ 26,253 $ 25,991
Debt issuance costs (12,557) (12,947)
Less current maturities (135,834) (247,346)
Long-term debt, excluding current maturities 1,387,124 1,388,414
Senior notes [Member]    
Debt Instrument [Line Items]    
Long-term debt 1,000,000 1,000,000
U.S. dollar term loan [Member]    
Debt Instrument [Line Items]    
Long-term debt 0 114,614
British pound denominated term loan [Member]    
Debt Instrument [Line Items]    
Long-term debt 223,984 235,808
Euro denominated term loan [Member]    
Debt Instrument [Line Items]    
Long-term debt 116,624 114,030
Yen denominated term loans [Member]    
Debt Instrument [Line Items]    
Long-term debt 53,305 49,875
Canadian dollar revolving credit facility [Member]    
Debt Instrument [Line Items]    
Long-term debt $ 115,349 $ 108,389
v3.4.0.3
SHORT-TERM AND LONG-TERM DEBT - Narrative (Details) - USD ($)
$ in Thousands
Jun. 11, 2015
Mar. 31, 2016
Dec. 31, 2015
Commercial Paper [Member]      
Debt Instrument [Line Items]      
Commercial paper outstanding   $ 545,000 $ 330,000
Senior Notes [Member] | Unsecured Senior Notes, 4.60% [Member]      
Debt Instrument [Line Items]      
Debt issuance date Jun. 11, 2015    
Face amount of debt $ 1,000,000    
Stated interest rate 4.60%    
Maturity date Jun. 15, 2045    
Debt redemption, description Prior to December 15, 2044, the Company may redeem the 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 US treasury security with a maturity comparable to the remaining term of the Notes plus 25 basis points, together with accrued and unpaid interest, if any, to the redemption date. On or after December 15, 2044, the Company may redeem the 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.    
Basis points 0.25%    
Debt redemption percent 100.00%    
Debt issuance cost $ 10,000    
Debt, fair value   $ 1,000,000 $ 1,000,000
v3.4.0.3
DERIVATIVE INSTRUMENTS - Narrative (Details) - Interest Rate Swap [Member] - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2011
Mar. 31, 2016
Dec. 31, 2015
Derivative [Line Items]      
Derivative instruments, liabilities   $ 1 $ 1
Maturity date Aug. 31, 2016    
v3.4.0.3
EQUITY METHOD INVESTMENT - Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Equity Method Investments and Joint Ventures [Abstract]    
Investment balance $ 9,000  
Pre-tax loss from equity method investment 6,388 $ 0
Income tax benefit 10,000  
After-tax income from equity method investment $ 4,000  
v3.4.0.3
EMPLOYEE BENEFITS - POSTRETIREMENT - Schedule of Net Periodic Benefit Costs Charged to Operating Expenses (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract]    
Service cost $ 2,059 $ 2,532
Interest cost 2,464 2,412
Expected return on assets (2,528) (2,594)
Amortization of unrecognized losses 32 378
Amortization of prior service credits (1,672) (1,700)
Net periodic benefit costs $ 355 $ 1,028
v3.4.0.3
SEGMENT INFORMATION - Narrative (Details)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
segment
Segment Reporting Information [Line Items]  
Number of reportable segments | segment 2
Service revenues, percent of total revenues 1.00%
United States [Member]  
Segment Reporting Information [Line Items]  
Intersegment sales increase | $ $ 19
v3.4.0.3
SEGMENT INFORMATION - Summary of Segment Results (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Summarized Information      
Net sales to external customers $ 2,506,538 $ 2,439,661  
Total consolidated operating earnings 317,092 351,247  
Total assets 5,964,839   $ 5,857,755
United States [Member]      
Summarized Information      
Net sales to external customers 1,883,768 1,908,264  
Total assets 2,244,942   2,191,045
Canada [Member]      
Summarized Information      
Net sales to external customers 178,735 234,494  
Total assets 335,980   317,504
Other Businesses [Member]      
Summarized Information      
Net sales to external customers 444,035 296,903  
Total assets 535,566   507,116
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member]      
Summarized Information      
Net sales to external customers 2,590,371 2,503,785  
Total consolidated operating earnings 341,293 385,002  
Total assets 3,116,488   $ 3,015,665
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member] | United States [Member]      
Summarized Information      
Net sales to external customers 1,966,267 1,971,455  
Total consolidated operating earnings 331,857 366,089  
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member] | Canada [Member]      
Summarized Information      
Net sales to external customers 178,771 234,530  
Total consolidated operating earnings (12,347) 9,387  
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member] | Other Businesses [Member]      
Summarized Information      
Net sales to external customers 445,333 297,800  
Total consolidated operating earnings 21,783 9,526  
Intersegment Eliminations [Member]      
Summarized Information      
Net sales to external customers (83,833) (64,124)  
Intersegment Eliminations [Member] | United States [Member]      
Summarized Information      
Net sales to external customers (82,499) (63,191)  
Intersegment Eliminations [Member] | Canada [Member]      
Summarized Information      
Net sales to external customers (36) (36)  
Intersegment Eliminations [Member] | Other Businesses [Member]      
Summarized Information      
Net sales to external customers $ (1,298) $ (897)  
v3.4.0.3
SEGMENT INFORMATION - Schedule of Reconciliation of Operating Earnings from Segment to Consolidated (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Segment Reporting Information [Line Items]    
Total consolidated operating earnings $ 317,092 $ 351,247
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member]    
Segment Reporting Information [Line Items]    
Total consolidated operating earnings 341,293 385,002
Eliminations and Unallocated in Consolidation [Member]    
Segment Reporting Information [Line Items]    
Total consolidated operating earnings $ (24,201) $ (33,755)
v3.4.0.3
SEGMENT INFORMATION - Schedule of Reconciliation of Assets from Segment to Consolidated (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Segment Reporting Information [Line Items]    
Total consolidated assets $ 5,964,839 $ 5,857,755
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member]    
Segment Reporting Information [Line Items]    
Total consolidated assets 3,116,488 3,015,665
Segment Reconciling Items [Member]    
Segment Reporting Information [Line Items]    
Total consolidated assets 2,718,224 2,624,966
Eliminations and Unallocated in Consolidation [Member]    
Segment Reporting Information [Line Items]    
Total consolidated assets $ 130,127 $ 217,124
v3.4.0.3
EARNINGS PER SHARE - Schedule of Computation of Basic and Diluted Earnings per Share under Two-Class Method (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Earnings Per Share [Abstract]    
Net earnings attributable to W.W. Grainger, Inc. as reported $ 186,713 $ 211,015
Distributed earnings available to participating securities (626) (768)
Undistributed earnings available to participating securities (1,121) (1,461)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders 184,966 208,786
Undistributed earnings allocated to participating securities 1,121 1,461
Undistributed earnings reallocated to participating securities (1,114) (1,445)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders $ 184,973 $ 208,802
Denominator for basic earnings per share - weighted average shares (in shares) 61,668,682 67,229,653
Effect of dilutive securities (in shares) 431,119 752,709
Denominator for diluted earnings per share - weighted average shares adjusted for dilutive securities (in shares) 62,099,801 67,982,362
Basic (in dollars per share) $ 3.00 $ 3.11
Diluted (in dollars per share) $ 2.98 $ 3.07
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/**
 * Rivet Software Inc.
 *
 * @copyright Copyright (c) 2006-2011 Rivet Software, Inc. All rights reserved.
 * Version 2.4.0.3
 *
 */

var Show = {};
Show.LastAR = null,

Show.hideAR = function(){	
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Show.showAR = function ( link, id, win ){
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