Form 10-Q W.W. GRAINGER, INC. For: Jun 30
Tweet
Share
E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2022
OR
For the transition period from ______ to _______
Commission file number 1-5684
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
Registrant’s telephone number, including area code: (847 ) 535-1000
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
There were 50,871,195 shares of the Company’s Common Stock outstanding as of July 22, 2022.
1
| TABLE OF CONTENTS | ||||||||
| Page | ||||||||
| PART I - FINANCIAL INFORMATION | ||||||||
| Item 1: | Financial Statements (Unaudited) | |||||||
| Condensed Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2022 and 2021 | ||||||||
| Condensed Consolidated Statements of Comprehensive Earnings for the Three and Six Months Ended June 30, 2022 and 2021 | ||||||||
| Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 | ||||||||
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 | ||||||||
| Condensed Consolidated Statements of Shareholders' Equity for the Three and Six Months Ended June 30, 2022 and 2021 | ||||||||
| 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 1A: | Risk Factors | |||||||
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
| Item 6: | Exhibits | |||||||
| Signatures | ||||||||
2
PART I – FINANCIAL INFORMATION
Item 1: Financial Statements
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In millions of dollars and shares, except for per share amounts)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Operating earnings | |||||||||||||||||||||||
| Other (income) expense: | |||||||||||||||||||||||
| Interest expense – net | |||||||||||||||||||||||
| Other – net | ( | ( | ( | ( | |||||||||||||||||||
| Total other expense – net | |||||||||||||||||||||||
Earnings before income taxes | |||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||
| Less net earnings attributable to noncontrolling interest | |||||||||||||||||||||||
| Net earnings attributable to W.W. Grainger, Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
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 millions of dollars)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net earnings | $ | $ | $ | ||||||||||||||||||||
| Other comprehensive earnings (losses): | |||||||||||||||||||||||
| Foreign currency translation adjustments – net of reclassification to earnings | ( | ( | ( | ||||||||||||||||||||
Postretirement benefit plan losses and other – net of tax benefit of $ | ( | ( | ( | ( | |||||||||||||||||||
| Total other comprehensive earnings (losses) | ( | ( | ( | ||||||||||||||||||||
| Comprehensive earnings – net of tax | |||||||||||||||||||||||
| Less comprehensive earnings (losses) attributable to noncontrolling interest | |||||||||||||||||||||||
Net earnings | |||||||||||||||||||||||
Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Total comprehensive earnings attributable to noncontrolling interest | ( | ( | |||||||||||||||||||||
Comprehensive earnings attributable to W.W. Grainger, Inc. | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
4
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions of dollars, except for share and per share amounts)
| As of | |||||||||||
| Assets | (Unaudited) June 30, 2022 | December 31, 2021 | |||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable (less allowances for credit losses of $ | |||||||||||
| Inventories – net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, buildings and equipment – net | |||||||||||
| Goodwill | |||||||||||
| Intangibles – net | |||||||||||
| Operating lease right-of-use | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and shareholders' equity | |||||||||||
| Current liabilities | |||||||||||
| Current maturities of long-term debt | $ | $ | |||||||||
| Trade accounts payable | |||||||||||
| Accrued compensation and benefits | |||||||||||
| Operating lease liability | |||||||||||
| Accrued expenses | |||||||||||
| Income taxes payable | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt (less current maturities) | |||||||||||
| Long-term operating lease liability | |||||||||||
| Deferred income taxes and tax uncertainties | |||||||||||
| Other non-current liabilities | |||||||||||
| Shareholders' equity | |||||||||||
Cumulative preferred stock – $ | |||||||||||
Common Stock – $ | |||||||||||
| Additional contributed capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive losses | ( | ( | |||||||||
Treasury stock, at cost – | ( | ( | |||||||||
| Total W.W. Grainger, Inc. shareholders’ equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total shareholders' equity | |||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these financial statements.
5
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | $ | |||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Provision for credit losses | |||||||||||
| Deferred income taxes and tax uncertainties | ( | ||||||||||
| Depreciation and amortization | |||||||||||
| Net gains from sale or redemption of assets | ( | ||||||||||
| Stock-based compensation | |||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Trade accounts payable | |||||||||||
| Accrued liabilities | ( | ( | |||||||||
| Income taxes – net | ( | ||||||||||
| Other non-current liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to property, buildings, equipment and intangibles | ( | ( | |||||||||
| Proceeds from sale or redemption of assets | |||||||||||
| Other – net | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments of long-term debt | ( | ||||||||||
| Proceeds from stock options exercised | |||||||||||
| Payments for employee taxes withheld from stock awards | ( | ( | |||||||||
| Purchases of treasury stock | ( | ( | |||||||||
| Cash dividends paid | ( | ( | |||||||||
| Other – net | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Exchange rate effect on cash and cash equivalents | ( | ( | |||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of year | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these financial statements.
6
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In millions of dollars, except for per share amounts)
(Unaudited)
| Common Stock | Additional Contributed Capital | Retained Earnings | Accumulated Other Comprehensive Earnings (Losses) | Treasury Stock | Noncontrolling Interest | Total | |||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||
| Purchases of treasury stock | — | — | — | — | ( | — | ( | ||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||
| Other comprehensive earnings (losses) | — | — | — | ( | — | ( | ( | ||||||||||||||||
| Reclassification due to the adoption of ASU 2019-12 | — | — | — | — | — | ||||||||||||||||||
Cash dividends paid ($ | — | — | ( | — | — | — | ( | ||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||
| Stock-based compensation | — | ( | — | — | |||||||||||||||||||
| Purchases of treasury stock | — | — | — | — | ( | ( | ( | ||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||
| Other comprehensive earnings (losses) | — | — | — | — | — | ||||||||||||||||||
| Capital contribution | — | — | — | — | — | ||||||||||||||||||
Cash dividends paid ($ | — | — | ( | — | — | ( | ( | ||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
7
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In millions of dollars, except for per share amounts)
(Unaudited)
| Common Stock | Additional Contributed Capital | Retained Earnings | Accumulated Other Comprehensive Earnings (Losses) | Treasury Stock | Noncontrolling Interest | Total | |||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||
| Purchases of treasury stock | — | — | — | — | ( | — | ( | ||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||
| Other comprehensive earnings (losses) | — | — | — | ( | — | ( | ( | ||||||||||||||||
Cash dividends paid ($ | — | — | ( | — | — | — | ( | ||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||
| Purchases of treasury stock | — | — | — | — | ( | ( | ( | ||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||
| Other comprehensive earnings (losses) | — | — | — | ( | — | ( | ( | ||||||||||||||||
Cash dividends paid ($ | — | — | ( | — | — | ( | ( | ||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
8
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America (N.A.), Japan and the United Kingdom (U.K.). In this report, the words “Grainger” or “Company” mean W.W. Grainger, Inc. and its subsidiaries, except where the context makes it clear that the reference is only to W.W. Grainger, Inc. itself and not its subsidiaries.
Basis of Presentation
The Company's Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and therefore do not include all information and disclosures normally included in the annual Consolidated Financial Statements. The preparation of these Condensed Consolidated Financial Statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from these estimated amounts. In the opinion of the Company’s management, the Condensed Consolidated Financial Statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
The Condensed Consolidated Balance Sheet at December 31, 2021, has been derived from the audited Consolidated Financial Statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.
The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2022 (2021 Form 10-K).
There were no material changes to the Company’s significant accounting policies from those disclosed in Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data in the Company's 2021 Form 10-K.
New Accounting Standards
Accounting Pronouncements Recently Adopted
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update provides increased transparency of government assistance, including the disclosure of the types of assistance an entity receives, an entity's method of accounting for government assistance and the effect of the assistance on an entity's financial statements. The guidance is effective for annual periods beginning after December 15, 2021 and should be applied prospectively or retrospectively. Early adoption is permitted. The Company adopted this ASU on January 1, 2022 on a prospective basis and it did not have a material impact on the Consolidated Financial Statements and related disclosures.
Accounting Pronouncements Recently Issued
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting as modified by subsequently issued ASU 2021-01. This update provides optional expedients and exceptions for applying GAAP to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied prospectively to contract modifications made and hedging relationships entered or evaluated on or before December 31, 2022. The Company evaluated the impact of this ASU and it does not expect a material impact on the Consolidated Financial Statements.
9
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 2 - REVENUE
Company revenue is primarily comprised of MRO product sales and related activities, such as freight and services. Total service revenue accounted for approximately 1
Grainger serves a large number of customers in diverse industries, which are subject to different economic and market-specific factors. The Company's presentation of revenue by segment and industry most reasonably depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic and market-specific factors. In addition, the segments have unique underlying risks associated with customer purchasing behaviors. In the High-Touch Solutions N.A. segment, more than two-thirds of revenue is derived from customer contracts whereas in the Endless Assortment segment, a majority of revenue is derived from non-contractual purchases.
The following tables present the Company's percentage of revenue by reportable segment and by major customer industry:
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| High-Touch Solutions N.A. | Endless Assortment | Total Company (2) | High-Touch Solutions N.A. | Endless Assortment | Total Company (2) | ||||||||||||||||||||||||||||||
| Contractors | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Commercial | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Government | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Healthcare | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Manufacturing | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Retail/Wholesale | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Transportation | % | % | % | % | % | % | |||||||||||||||||||||||||||||
Other (1) | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Total net sales | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Percent of total company revenue | % | % | % | % | % | % | |||||||||||||||||||||||||||||
(1) Other primarily includes revenue from industries and customers that are not material individually, including agriculture, mining, natural resources and resellers not aligned to a major industry segment. | |||||||||||||||||||||||||||||||||||
(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately | |||||||||||||||||||||||||||||||||||
10
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| High-Touch Solutions N.A. | Endless Assortment | Total Company (2) | High-Touch Solutions N.A. | Endless Assortment | Total Company (2) | ||||||||||||||||||||||||||||||
| Contractors | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Commercial | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Government | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Healthcare | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Manufacturing | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Retail/Wholesale | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Transportation | % | % | % | % | % | % | |||||||||||||||||||||||||||||
Other (1) | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Total net sales | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Percent of total company revenue | % | % | % | % | % | % | |||||||||||||||||||||||||||||
(1) Other primarily includes revenue from industries and customers that are not material individually, including agriculture, mining, natural resources and resellers not aligned to a major industry segment. | |||||||||||||||||||||||||||||||||||
(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately | |||||||||||||||||||||||||||||||||||
Total accrued sales incentives were approximately $92 million and $73 million as of June 30, 2022 and December 31, 2021, and are reported as part of Accrued expenses.
The Company had no material unsatisfied performance obligations, contract assets or liabilities as of June 30, 2022 and December 31, 2021.
NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consisted of the following (in millions of dollars):
| As of | |||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||
| Land | $ | $ | |||||||||
| Building, structures and improvements | |||||||||||
| Furniture, fixtures, machinery and equipment | |||||||||||
| Property, buildings and equipment | $ | $ | |||||||||
| Less accumulated depreciation and amortization | |||||||||||
| Property, buildings and equipment – net | $ | $ | |||||||||
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
11
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
| High-Touch Solutions N.A. | Endless Assortment | Other | Total | |||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||
| Translation | ( | ( | ||||||||||||||||||||||||
| Balance at December 31, 2021 | ||||||||||||||||||||||||||
| Translation | ( | ( | ( | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
The cumulative goodwill impairments as of June 30, 2022, were $137 million and consisted of $32 million within High-Touch Solutions N.A. and $105 million in Other.
There were no
The balances in Intangible assets – net are as follows (in millions of dollars):
| As of | |||||||||||||||||||||||||||||||||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Weighted average life | Gross carrying amount | Accumulated amortization/impairment | Net carrying amount | Gross carrying amount | Accumulated amortization/impairment | Net carrying amount | |||||||||||||||||||||||||||||||||||
| Customer lists and relationships | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Trademarks, trade names and other | |||||||||||||||||||||||||||||||||||||||||
| Non-amortized trade names and other | Indefinite | ||||||||||||||||||||||||||||||||||||||||
| Capitalized software | |||||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
12
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 5 - DEBT
Long-term debt, including current maturities and debt issuance costs and discounts – net, consisted of the following (in millions of dollars):
| As of | |||||||||||||||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Japanese yen term loan | |||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| Subtotal | |||||||||||||||||||||||
| Less current maturities | ( | ( | |||||||||||||||||||||
Debt issuance costs and discounts – net of amortization | ( | ( | ( | ( | |||||||||||||||||||
| Long-term debt (less current maturities) | $ | $ | $ | $ | |||||||||||||||||||
Senior Notes
In the years 2015-2020, Grainger issued $2.3 billion in unsecured long-term debt (Senior Notes) primarily to provide flexibility in funding general working capital needs, share repurchases and long-term cash requirements. The Senior Notes require no principal payments until maturity and interest is paid semi-annually.
The Company incurred debt issuance costs related to its Senior Notes of approximately $29 million, representing underwriting fees and other expenses, that were recorded as a contra-liability within Long-term debt and are being amortized over the term of the Senior Notes using the straight-line method to Interest expense – net.
The Company uses interest rate swaps to manage the risks associated with its 1.85 % Senior Notes. These swaps were designated for hedge accounting treatment as fair value hedges. The resulting carrying value adjustments as of June 30, 2022 and December 31, 2021, are presented within Other in the table above. For further discussion on the Company's hedge accounting policies and derivative instruments, see Note 6.
Term Loan
In August 2020, MonotaRO entered into a ¥9 billion term loan agreement to fund technology investments and the expansion of its distribution center (DC) network. As of June 30, 2022 and December 31, 2021, the carrying amount of the term loan, including current maturities due within one year, was $67 million and $78 million, respectively. The term loan matures in 2024, payable over four equal semi-annual principal installments in 2023 and 2024 and bears an average interest of 0.05 %.
Fair Value
The estimated fair value of the Company’s Senior 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.
For further information on the Company’s debt instruments, see Note 6 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data in the Company’s 2021 Form 10-K.
NOTE 6 - DERIVATIVE INSTRUMENTS
13
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
currency-denominated intercompany borrowings. The Company did not enter into these agreements for trading or speculative purposes.
Cash Flow Hedges
The Company uses cash flow hedges primarily to hedge the exposure to variability in forecasted cash flows from foreign currency-denominated intercompany borrowings via cross-currency swaps. Gains or losses on the cross-currency swaps are reported as a component of Accumulated other comprehensive earnings (losses) (AOCE) and reclassified into earnings in the same period during which the hedged transaction affects earnings. The notional amount of the Company’s outstanding cash flow hedges as of June 30, 2022 and December 31, 2021 was approximately $34
The effect of the Company’s cash flow hedges on the Condensed Consolidated Statement of Earnings (Other – net) and AOCE for the three and six months ended June 30, 2022 and 2021 was not material.
Fair Value Hedges
The Company uses fair value hedges primarily to hedge a portion of its fixed-rate long-term debt via interest rate swaps. Changes in the fair value of the interest rate swaps, along with the gain or loss on the hedged item, is recorded in earnings under the same line item, Interest expense – net. The notional amount of the Company’s outstanding fair value hedges as of June 30, 2022 and December 31, 2021 was $500
The effect of the Company's fair value hedges in Interest expense – net on the Condensed Consolidated Statement of Earnings for the three and six months ended June 30, 2022 and 2021, respectively, is as follows (in millions of dollars):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Gains (losses) | |||||||||||||||||||||||
| Interest rate swaps: | |||||||||||||||||||||||
| Hedged item | $ | $ | ( | $ | $ | ||||||||||||||||||
| Derivatives designated as hedging instrument | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
The fair value and carrying amounts of outstanding derivative instruments in the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, respectively, were as follows (in millions of dollars):
| As of | |||||||||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||||||||
| Balance Sheet Classification | Fair Value and Carrying Amounts | ||||||||||||||||
| Cross-currency swap | Accrued expenses | $ | $ | ||||||||||||||
| Other non-current liabilities | $ | $ | |||||||||||||||
| Interest rate swaps | Other assets | $ | $ | ||||||||||||||
| Other non-current liabilities | $ | $ | |||||||||||||||
The carrying amount of the liability hedged by the interest rate swaps (Long-term debt), including the cumulative amount of fair value hedging adjustments, as of June 30, 2022 and December 31, 2021 totaled $477 million and $501 million, respectively.
Fair Value
The estimated fair values of the Company's derivative instruments were based on quoted market forward rates, which are classified as Level 2 inputs within the fair value hierarchy and reflect the present value of the amount that the Company would pay for contracts involving the same notional amounts and maturity dates. No adjustments
14
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 7 - DIVIDEND
NOTE 8 - SEGMENT INFORMATION
Grainger's two reportable segments are High-Touch Solutions N.A. and Endless Assortment. The remaining international businesses, which include the Cromwell business, are classified as Other to reconcile to consolidated results. These businesses individually and in the aggregate do not meet the criteria of a reportable segment.
Corporate costs are allocated to each reportable segment based on benefits received. Additionally, intersegment sales transactions, which are sales between Grainger businesses in separate reportable segments, are eliminated within the segment to present only the impact of sales to external customers. Service fees for intersegment sales from the High-Touch Solutions N.A. segment to the Endless Assortment segment are included in each segment's Selling, general and administrative expenses (SG&A) and are eliminated in consolidation.
Following is a summary of segment results (in millions of dollars):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Net sales | Operating earnings (losses) | Net sales | Operating earnings (losses) | Net sales | Operating earnings (losses) | Net sales | Operating earnings (losses) | ||||||||||||||||||||||||||||||||||||||||
| High-Touch Solutions N.A. | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Endless Assortment | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Total Company | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
The Company is a broad line distributor of MRO products and services. Products are regularly added and removed from the Company's inventory assortment. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed, and the dynamic nature of the inventory offered, including the evolving list of products stocked and additional products available online but not stocked.
Assets for reportable segments are not disclosed. This information is not regularly reviewed by the Company's Chief Operating Decision Maker.
NOTE 9 - CONTINGENCIES AND LEGAL MATTERS
From time to time the Company is involved in various legal and administrative proceedings, including claims related to: product liability, safety or compliance; privacy and cybersecurity matters; negligence; contract disputes; environmental issues; unclaimed property; wage and hour laws; intellectual property; advertising and marketing; consumer protection; pricing (including disaster or emergency declaration pricing statutes); employment practices; regulatory compliance, including trade and export matters; anti-bribery and corruption; and other matters and actions brought by employees, consumers, competitors, suppliers, customers, governmental entities and other third parties.
As previously disclosed, beginning in the fourth quarter of 2019, Grainger, KMCO, LLC (KMCO) and other defendants have been named in several product liability-related lawsuits in the Harris County, Texas District Court relating to an explosion at a KMCO chemical refinery located in Crosby, Harris County, Texas on April 2, 2019. The complaints in which Grainger has been named, which to date encompass approximately 186 plaintiffs, seek recovery of compensatory and other damages and relief in relation to personal injury, including one death and various other alleged injuries. On May 8, 2020, KMCO filed a voluntary petition in the United States Bankruptcy Court for the Southern District of Texas for relief under Chapter 7 of Title 11 of the United States Bankruptcy Court in
15
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
the case KMCO, LLC, No. 20-60028. As a result of the Chapter 7 proceedings, the claims against KMCO in the Harris County lawsuits were stayed. Effective January 1, 2021, the Bankruptcy Court lifted the stay with respect to KMCO. In the product liability related cases, the Harris County District Court has decided to conduct bellwether trials involving a subset of plaintiffs the Court believes are representative of the parties' claims and defenses. The first such trial is scheduled for early 2023 and will include six plaintiffs. Additional trials may follow after the resolution of this initial trial.
On December 16, 2020, KMCO, the trustee of its estate and ORG Chemical Holdings, LLC, KMCO’s parent company (ORG), filed a property damage lawsuit relating to the KMCO chemical refinery incident against Grainger and another defendant in the Harris County, Texas District Court, which seeks unspecified damages (the KMCO Case). On April 1, 2021, 24 individual plaintiffs filed a petition in intervention seeking to be added as plaintiffs in the KMCO Case and seeking unspecified damages. On March 24, 2021, Indian Harbor Insurance Company, together with other insurance companies and underwriters, filed a property damage lawsuit relating to the KMCO chemical refinery incident against Grainger and another defendant in the Harris County, Texas District Court, seeking reimbursement of insurance payments made to or on behalf of KMCO and ORG, the insured parties under their respective policies, and other damages.
Grainger is investigating each of the various claims against the Company relating to the KMCO chemical refinery incident and intends to contest these matters vigorously.
Also, as a government contractor selling to federal, state and local governmental entities, the Company may be subject to governmental or regulatory inquiries or audits or other proceedings, including those related to contract administration, pricing and product compliance.
From time to time, the Company has also been named, along with numerous other nonaffiliated companies, as defendant in litigation in various states involving asbestos and/or silica. These lawsuits typically assert claims of personal injury arising from alleged exposure to asbestos and/or silica as a consequence of products manufactured by third parties purportedly distributed by the Company. While several lawsuits have been dismissed in the past based on the lack of product identification, if a specific product distributed by the Company is identified in any pending or future lawsuits, the Company will seek to exercise indemnification remedies against the product manufacturer to the extent available. In addition, the Company believes that a substantial number of these claims are covered by insurance. The Company has entered into agreements with its major insurance carriers relating to the scope, coverage and the costs of defense, of lawsuits involving claims of exposure to asbestos. The Company believes it has strong legal and factual defenses and intends to continue defending itself vigorously in these lawsuits.
While the Company is unable to predict the outcome of any of these proceedings and other matters, it believes that their ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on the Company’s consolidated financial condition or results of operations.
16
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
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of W.W. Grainger, Inc. (Grainger or Company) as it is viewed by the Company. The following discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2021 included in the Company's 2021 Form 10-K and the Condensed Consolidated Financial Statements and accompanying notes included in Part I, Item 1: Financial Statements of this Form 10-Q.
Percentage figures included in this section have not been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in the Company's Condensed Consolidated Financial Statements or in the associated text.
General
W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, Japan and the U.K. Grainger uses a combination of its high-touch solutions and endless assortment businesses to serve its customers worldwide, which rely on Grainger for products and services that enable them to run safe, sustainable and productive operations.
Strategic Priorities and Recent Events
The Company continues to adhere to its purpose to keep the world working while using its core principles as the framework for expanding Grainger’s leadership position and ensuring Grainger is the go-to-partner for building and running safe, sustainable and productive operations.
For a discussion of the Company’s strategic priorities for 2022, see Part 1, Item 1: Business and Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations (Overview) in the Company’s 2021 Form 10-K.
Russia’s Invasion of Ukraine
In February 2022, Russia invaded Ukraine. In response to the conflict, the United States (U.S.) and other countries have implemented economic and other sanctions. While Grainger has limited direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact on the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on global and regional economic conditions. The Company does not currently expect significant disruption to its overall business resulting from the conflict.
Inflationary Cost Environment
During fiscal 2021 and continuing into the first half of fiscal 2022, in combination with the economic recovery of the ongoing COVID-19 pandemic, the global economy continues to experience disruptions including to the commodity, labor and transportation markets. These disruptions have contributed to an inflationary environment which has affected, and may continue to affect, the price and availability of certain products and services necessary for the Company's operations. Such disruptions have impacted, and may continue to impact, the Company's business, financial condition and results of operations. As a result of continued inflation, the Company has implemented strategies designed to mitigate certain adverse effects of higher costs during the first half of fiscal 2022 while also remaining market price competitive.
For further discussion of the Company's risks and uncertainties, see Part II, Item 1A: Risk Factors of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022 and Part I, Item 1A: Risk Factors in the Company’s 2021 Form 10-K.
17
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations –Three Months Ended June 30, 2022
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 June 30, | |||||||||||||||||||||||||||||
Percent Increase from Prior Year | As a Percent of Net Sales | ||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
Net sales (1) | $ | 3,837 | $ | 3,207 | 19.6 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||
| Cost of goods sold | 2,396 | 2,083 | 15.0 | 62.4 | 65.0 | ||||||||||||||||||||||||
| Gross profit | 1,441 | 1,124 | 28.3 | 37.6 | 35.0 | ||||||||||||||||||||||||
| SG&A | 907 | 790 | 14.9 | 23.7 | 24.6 | ||||||||||||||||||||||||
| Operating earnings | 534 | 334 | 60.0 | 13.9 | 10.4 | ||||||||||||||||||||||||
| Other expense – net | 17 | 15 | 11.2 | 0.4 | 0.5 | ||||||||||||||||||||||||
| Income tax provision | 128 | 76 | 70.6 | 3.4 | 2.3 | ||||||||||||||||||||||||
| Net earnings | 389 | 243 | 59.8 | 10.1 | 7.6 | ||||||||||||||||||||||||
| Noncontrolling interest | 18 | 18 | 0.1 | 0.4 | 0.6 | ||||||||||||||||||||||||
| Net earnings attributable to W.W. Grainger, Inc. | $ | 371 | $ | 225 | 64.5 | 9.7 | 7.0 | ||||||||||||||||||||||
| Diluted earnings per share: | $ | 7.19 | $ | 4.27 | 68.4 | % | |||||||||||||||||||||||
(1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1: Financial Statements of this Form 10-Q. | |||||||||||||||||||||||||||||
The following table is included as an aid to understanding the changes in Grainger's total net sales and daily sales from the prior period to the most recent period (in millions of dollars):
| Three Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net sales | $ | 3,837 | $ | 3,207 | |||||||
| $ Change from prior-year period | 630 | 370 | |||||||||
| % Change from prior-year period | 19.6 | % | 13.1 | % | |||||||
Daily sales (1) | $ | 60.0 | $ | 50.1 | |||||||
| $ Change from prior-year period | 9.9 | 5.8 | |||||||||
| % Change from prior-year period | 19.6 | % | 13.1 | % | |||||||
| Daily sales impact of currency fluctuations | (2.4) | % | 0.9 | % | |||||||
(1) Daily sales are defined as the total net sales for the period divided by the number of U.S. selling days in the period. There were 64 sales days in both the three months ended June 30, 2022 and June 30, 2021. | |||||||||||
Net sales of $3,837 million for the three months ended June 30, 2022 increased $630 million, or 19.6%, compared to the same period in 2021. The increase in net sales was primarily due to growth in the High-Touch Solutions N.A. and Endless Assortment segments. For further discussion on the Company's net sales, see the Segment Analysis section below.
Gross profit of $1,441 million for the three months ended June 30, 2022 increased $317 million, or 28%, compared to the same period in 2021. Gross profit margin of 37.6% increased 2.6 percentage points. The increase was due to
18
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
lapping pandemic-related inventory adjustments in the second quarter of 2021 and improved product mix in the second quarter of 2022.
SG&A of $907 million for the three months ended June 30, 2022 increased $117 million, or 15%, compared to the same period in 2021. The increase was primarily due to higher marketing, payroll and variable compensation expenses.
Operating earnings of $534 million for the three months ended June 30, 2022 increased $200 million, or 60%, compared to the same period in 2021.
Income taxes of $128 million for the three months ended June 30, 2022 increased $52 million or 71%, compared to the same period in 2021. The increase was primarily driven by higher taxable operating earnings in the second quarter of 2022. Grainger's effective tax rates were 24.8% and 23.6% for the three months ended June 30, 2022 and 2021, respectively.
Net earnings of $371 million attributable to W.W. Grainger, Inc. for the three months ended June 30, 2022 increased $146 million, or 65%, compared to the same period in 2021.
Diluted earnings per share was $7.19 for the three months ended June 30, 2022, an increase of 68% compared to $4.27 for the same period in 2021.
Segment Analysis
For further segment information, see Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q.
High-Touch Solutions N.A.
The following table shows reported segment results (in millions of dollars):
| Three Months Ended June 30, | |||||||||||||||||
| 2022 | 2021 | Percent Increase | |||||||||||||||
| Net sales | $ | 3,053 | $ | 2,498 | 22.2 | % | |||||||||||
| Gross profit | $ | 1,211 | $ | 922 | 31.4 | % | |||||||||||
| SG&A | $ | 736 | $ | 640 | 15.0 | % | |||||||||||
| Operating earnings | $ | 475 | $ | 282 | 68.3 | % | |||||||||||
Net sales of $3,053 million for the three months ended June 30, 2022 increased $555 million, or 22.2%, compared to the same period in 2021. The increase in net sales was due to growth in all geographies and included increased volume, which includes product mix, of 11.8% and price, which includes customer mix, of 10.6%, partially offset by unfavorable foreign exchange of 0.2%.
Gross profit of $1,211 million for the three months ended June 30, 2022 increased $289 million, or 31%, compared to the same period in 2021. Gross profit margin of 39.7% increased 2.8 percentage points. The increase was due to lapping pandemic-related inventory adjustments in the second quarter of 2021 and improved product mix in the second quarter of 2022.
SG&A of $736 million for the three months ended June 30, 2022 increased $96 million, or 15%, compared to the same period in 2021. The increase was primarily due to higher marketing, payroll and variable compensation expenses. SG&A leverage improved by 1.5 percentage points.
Operating earnings of $475 million for the three months ended June 30, 2022 increased $193 million, or 68%, compared to the same period in 2021.
19
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Endless Assortment
The following table shows reported segment results (in millions of dollars):
| Three Months Ended June 30, | |||||||||||||||||
| 2022 | 2021 | Percent Increase | |||||||||||||||
| Net sales | $ | 719 | $ | 645 | 11.4 | % | |||||||||||
| Gross profit | $ | 209 | $ | 182 | 15.4 | % | |||||||||||
| SG&A | $ | 147 | $ | 124 | 18.9 | % | |||||||||||
| Operating earnings | $ | 62 | $ | 58 | 8.0 | % | |||||||||||
Net sales of $719 million for the three months ended June 30, 2022, increased $74 million, or 11.4%, compared to the same period in 2021. The increase was due to sales growth of 21.1%, driven by continued customer acquisition and repeat and enterprise customer growth at MonotaRO, partially offset by unfavorable foreign exchange of 9.7% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.
Gross profit of $209 million for the three months ended June 30, 2022 increased $27 million, or 15%, compared to the same period in 2021. Gross profit margin of 29.2% increased 1.0 percentage point compared to the same period in 2021. The increase was driven by freight efficiencies at Zoro and MonotaRO.
SG&A of $147 million for the three months ended June 30, 2022 increased $23 million, or 19%, compared to the same period in 2021. The increase was primarily driven by higher marketing, occupancy and payroll and benefits expenses in the second quarter of 2022. SG&A leverage decreased by 1.3 percentage points.
Operating earnings of $62 million for the three months ended June 30, 2022 increased $4 million, or 8%, compared to the same period in 2021.
Other
Net sales of $65 million for the three months ended June 30, 2022, increased $1 million, or 2.7%, compared to the same period in 2021. The increase was due to sales growth of 14.4%, partially offset by unfavorable foreign exchange of 11.7% due to changes in the exchange rate between the U.S. dollar and the British pound sterling.
Operating losses of $3 million for the three months ended June 30, 2022 improved $3 million, or 47.2%, compared to the same period in 2021.
20
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations – Six Months Ended June 30, 2022
The following table is included as an aid to understanding the changes in Grainger's total net sales and daily sales from the prior period to the most recent period (in millions of dollars):
Six Months Ended June 30, | |||||||||||||||||||||||||||||
Percent Increase from Prior Year | As a Percent of Net Sales | ||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
Net sales (1) | $ | 7,484 | $ | 6,291 | 19.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||
| Cost of goods sold | 4,660 | 4,074 | 14.4 | 62.3 | 64.8 | ||||||||||||||||||||||||
| Gross profit | 2,824 | 2,217 | 27.4 | 37.7 | 35.2 | ||||||||||||||||||||||||
| SG&A | 1,756 | 1,525 | 15.1 | 23.4 | 24.2 | ||||||||||||||||||||||||
| Operating earnings | 1,068 | 692 | 54.4 | 14.3 | 11.0 | ||||||||||||||||||||||||
| Other expense – net | 34 | 30 | 13.7 | 0.5 | 0.5 | ||||||||||||||||||||||||
| Income tax provision | 260 | 164 | 59.0 | 3.5 | 2.6 | ||||||||||||||||||||||||
| Net earnings | 774 | 498 | 55.4 | 10.3 | 7.9 | ||||||||||||||||||||||||
| Noncontrolling interest | 37 | 35 | 6.1 | 0.4 | 0.5 | ||||||||||||||||||||||||
| Net earnings attributable to W.W. Grainger, Inc. | $ | 737 | $ | 463 | 59.1 | 9.9 | 7.4 | ||||||||||||||||||||||
| Diluted earnings per share: | $ | 14.26 | $ | 8.76 | 62.8 | % | |||||||||||||||||||||||
(1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1: Financial Statements of this Form 10-Q. | |||||||||||||||||||||||||||||
The following table is included as an aid to understanding the changes in Grainger's total net sales and daily sales from the prior period to the most recent period (in millions of dollars):
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net sales | $ | 7,484 | $ | 6,291 | |||||||
| $ Change from prior-year period | 1,193 | 453 | |||||||||
| % Change from prior-year period | 19.0 | % | 7.8 | % | |||||||
Daily sales (1) | $ | 58.5 | $ | 49.5 | |||||||
| $ Change from prior-year period | 9.0 | 3.9 | |||||||||
| % Change from prior-year period | 18.0 | % | 8.6 | % | |||||||
| Daily sales impact of currency fluctuations | (2.0) | % | 1.0 | % | |||||||
(1) Daily sales are defined as the total net sales for the period divided by the number U.S. selling days in the period. There were 128 and 127 sales days in the six months ended June 30, 2022 and June 30, 2021, respectively. | |||||||||||
Net sales of $7,484 million for the six months ended June 30, 2022 increased $1,193 million, or 19.0%, and on a daily basis, net sales increased 18.0% compared to the same period in 2021. The increase in net sales was primarily due to sales growth in the High-Touch Solutions N.A. and Endless Assortment segments. For further discussion on the Company's net sales, see the Segment Analysis section below.
21
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross profit of $2,824 million for the six months ended June 30, 2022 increased $607 million, or 27%, compared to the same period in 2021. Gross profit margin of 37.7% increased 2.5 percentage points. The increase was due to lapping pandemic-related inventory adjustments in the first half of 2021 and improved product mix in the first half of 2022.
SG&A of $1,756 million for the six months ended June 30, 2022 increased $231 million, or 15%, compared to the same period in 2021. The increase was primarily due to higher marketing, payroll and variable compensation expenses.
Operating earnings of $1,068 million for the six months ended June 30, 2022 increased $376 million, or 54%, compared to the same period in 2021.
Income taxes of $260 million for the six months ended June 30, 2022 increased $96 million or 59%, compared to the same period in 2021. The increase was primarily driven by higher taxable operating earnings in the first half of 2022. Grainger's effective tax rates were 25.2% and 24.7% for the six months ended June 30, 2022 and June 30, 2021, respectively.
Net earnings of $737 million attributable to W.W. Grainger, Inc. for the six months ended June 30, 2022 increased $274 million, or 59%, compared to the same period in 2021.
Diluted earnings per share was $14.26 for the six months ended June 30, 2022, an increase of 63% compared to $8.76 for the same period in 2021.
Segment Analysis
For further segment information, see Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q.
High-Touch Solutions N.A.
The following table shows reported segment results (in millions of dollars):
| Six Months Ended June 30, | |||||||||||||||||
| 2022 | 2021 | Percent Increase | |||||||||||||||
| Net sales | $ | 5,931 | $ | 4,895 | 21.2 | % | |||||||||||
| Gross profit | $ | 2,375 | $ | 1,817 | 30.7 | % | |||||||||||
| SG&A | $ | 1,419 | $ | 1,229 | 15.4 | % | |||||||||||
| Operating earnings | $ | 956 | $ | 588 | 62.6 | % | |||||||||||
Net sales of $5,931 million for the six months ended June 30, 2022 increased $1,036 million, or 21.2%, compared to the same period in 2021. On a daily basis, net sales increased 20.2% due to increased volume, which includes product mix, of 10.9% and price, which includes customer mix, of 9.4%, driven by sales growth in all geographies, partially offset by unfavorable foreign exchange of 0.1%.
Gross profit of $2,375 million for the six months ended June 30, 2022 increased $558 million, or 31%, compared to the same period in 2021. Gross profit margin of 40.0% increased 2.9 percentage points. The increase was due to lapping pandemic-related inventory adjustments in the first half of 2021 and improved product mix in the first half of 2022.
SG&A of $1,419 million for the six months ended June 30, 2022 increased $190 million, or 15% compared to the same period in 2021. The increase was primarily due to higher marketing, payroll and variable compensation expenses. SG&A leverage improved by 1.2% percentage point.
Operating earnings of $956 million for the six months ended June 30, 2022 increased $368 million, or 63%, compared to the same period in 2021.
22
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Endless Assortment
The following table shows reported segment results (in millions of dollars):
| Six Months Ended June 30, | |||||||||||||||||
| 2022 | 2021 | Percent Increase | |||||||||||||||
| Net sales | $ | 1,416 | $ | 1,267 | 11.7 | % | |||||||||||
| Gross profit | $ | 406 | $ | 357 | 14.0 | % | |||||||||||
| SG&A | $ | 289 | $ | 244 | 18.6 | % | |||||||||||
| Operating earnings | $ | 117 | $ | 113 | 4.0 | % | |||||||||||
Net sales of $1,416 million for the six months ended June 30, 2022, increased $149 million, or 11.7%, compared to the same period in 2021. On a daily basis, net sales increased 10.9%. The increase was due to sales growth of 19.3%, driven by continued customer acquisition at Zoro and repeat customer growth at MonotaRO, partially offset by unfavorable foreign exchange of 8.4% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.
Gross profit of $406 million for the six months ended June 30, 2022 increased $49 million, or 14% compared to the same period in 2021. Gross profit margin of 28.7% increased 0.6 percentage point compared to the same period in 2021. The increase was driven by freight efficiencies at Zoro and MonotaRO.
SG&A of $289 million for the six months ended June 30, 2022 increased $45 million, or 19%, compared to the same period in 2021. The increase was primarily driven by higher occupancy expenses at MonotaRO due to the DC placed into service in the first quarter of 2022 and higher marketing and payroll and benefits expenses compared to the first half of 2021. SG&A leverage decreased by 1.2 percentage points.
Operating earnings of $117 million for the six months ended June 30, 2022 increased $4 million, or 4%, compared to the same period in 2021.
Other
Net sales of $137 million for the six months ended June 30, 2022 increased $8 million, or 6.2%, compared to the same period in 2021. On a daily basis, net sales increased 5.3%. The increase was due to sales growth of 12.6%, partially offset by unfavorable foreign exchange of 7.3% due to changes in the exchange rate between the U.S. dollar and the British pound sterling.
Operating losses of $5 million for the six months ended June 30, 2022 improved $4 million, or 42%, compared to the same period in 2021.
23
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Grainger believes its current balances of cash and cash equivalents, marketable securities and availability under its revolving credit facilities will be sufficient to meet its liquidity needs for the next twelve months. The Company expects to continue to invest in its business and return excess cash to shareholders through cash dividends and share repurchases, which it plans to fund through cash flows generated from operations. Grainger also maintains access to capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity.
Cash, Cash Equivalents and Liquidity
As of June 30, 2022 and December 31, 2021, Grainger's cash and cash equivalents were $262 million and $241 million, respectively. As of June 30, 2022, the Company had approximately $1.5 billion in available liquidity.
Cash Flows
Net cash provided by operating activities was $593 million and $563 million for the six months ended June 30, 2022 and 2021, respectively. The increase in cash provided by operating activities was primarily due to higher net earnings, partially offset by unfavorable working capital and increased tax payments compared to the same period in 2021.
Net cash used in investing activities was $172 million and $130 million for the six months ended June 30, 2022 and 2021, respectively. The change in net cash used in investing activities was primarily due to timing of Japanese supply chain investments.
Net cash used in financing activities was $388 million and $463 million for the six months ended June 30, 2022 and 2021, respectively. The decrease in net cash used in financing activities was due to lower volume of treasury stock repurchases in the first half of 2022.
Working Capital
Internally generated funds are the primary source of working capital and funds used for growth initiatives and capital expenditures. Working capital as of June 30, 2022, was $2,664 million, an increase of $209 million when compared to $2,455 million as of December 31, 2021. The increase was primarily driven by increased accounts receivable and inventory due to continued sales growth, partially offset by higher accounts payable. As of June 30, 2022 and December 31, 2021, the ratio of current assets to current liabilities was 2.6 and 2.7, respectively.
Debt
Grainger maintains a debt ratio and liquidity position that provides flexibility in funding working capital needs and long-term cash requirements. In addition to internally generated funds, Grainger has various sources of financing available, including bank borrowings under lines of credit.
Total debt, which is defined as total interest-bearing debt and lease liabilities as a percent of total capitalization, was 52.3% and 56.2% as of June 30, 2022 and December 31, 2021, respectively.
Grainger receives ratings from two independent credit rating agencies: Moody's Investor Service (Moody's) and Standard & Poor's (S&P). Both credit rating agencies currently rate the Company's corporate credit at investment grade.
The following table summarizes the Company's credit ratings at June 30, 2022:
| Corporate | Senior Unsecured | Short-term | |||||||||||||||
| Moody's | A3 | A3 | P2 | ||||||||||||||
| S&P | A+ | A+ | A1 | ||||||||||||||
24
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Commitments and Other Contractual Obligations
There were no material changes to the Company’s commitments and other contractual obligations from those disclosed in Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2021 Form 10-K.
Critical Accounting Estimates
The preparation of Grainger’s Condensed Consolidated Financial Statements and accompanying notes are in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make assumptions and estimates that affect the reported amounts. The Company considers an accounting policy to be a critical estimate if: (i) it involves assumptions that are uncertain when judgment was applied, and (ii) changes in the estimate assumptions, or selection of a different estimate methodology, could have a significant impact on Grainger’s consolidated financial position and results. While the Company believes the assumptions and estimates used are reasonable, the Company’s management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances.
Note 1 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q and in Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements of the Company's 2021 Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s Condensed Consolidated Financial Statements.
There were no material changes to the Company's critical accounting estimates from those disclosed in Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2021 Form 10-K.
25
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
From time to time in this Quarterly Report on Form 10-Q as well as in other written reports, communications and verbal statements, the Company 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. Forward-looking statements can generally be identified by their use of terms such as “anticipate,” “estimate,” “believe,” “expect,” “could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project,” “will” or “would” and similar terms and phrases, including references to assumptions.
The Company cannot guarantee that any forward-looking statement will be realized and achievement of future results is subject to risks and uncertainties, many of which are beyond the Company’s control, which could cause the Company’s results to differ materially from those that are presented.
Important factors that could cause actual results to differ materially from those presented or implied in the forward-looking statements include, without limitation: the unknown duration and health, economic, operational and financial impacts of the global outbreak of the coronavirus disease 2019 and its variants (COVID-19), as well as the impact of actions taken or contemplated by government authorities to mitigate the spread of COVID-19 (such as vaccine mandates for certain federal contractors, mask mandates, social distancing or other requirements) and to promote economic stability and recovery, on the Company’s businesses, its employees, customers and suppliers, including disruption to the Company’s operations resulting from employee illnesses, the development, availability and usage of effective treatment or vaccines, changes in customers’ product needs, the acquisition of excess inventory leading to additional inventory carrying costs and inventory obsolescence, raw material, inventory and labor shortages, continued strain on global supply chains, and diminished transportation availability and efficiency, disruption caused by business responses to the COVID-19 pandemic, including remote working arrangements, which may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, adaptions to the Company’s controls and procedures required by remote working arrangements, which could impact the design or operating effectiveness of such controls or procedures, and global or regional economic downturns or recessions, which could result in a decline in demand for the Company’s products; inflation, higher product costs or other expenses, including operational expenses; the impact of Russia's invasion of Ukraine on the global economy; a major loss of customers; loss or disruption of sources of supply; changes in customer or product mix; increased competitive pricing pressures; failure to enter into or sustain contractual arrangements on a satisfactory basis with group purchasing organizations; failure to develop, manage or implement new technology initiatives or business strategies; failure to adequately protect intellectual property or successfully defend against infringement claims; fluctuations or declines in the Company’s gross profit margin; the Company’s responses to market pressures; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising and marketing, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, compliance or safety, trade and export compliance, general commercial disputes, or privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and standards, including new or stricter environmental laws or regulations; government contract matters; disruption or breaches of information technology or data security systems involving the Company or third parties on which the Company depends; general industry, economic, market or political conditions; general global economic conditions including tariffs and trade issues and policies; currency exchange rate fluctuations; market volatility, including price and trading volume volatility or price declines of the Company’s common stock; commodity price volatility; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; geopolitical events, including war or acts of terrorism; other pandemic diseases or viral contagions; natural or human induced disasters, extreme weather and other catastrophes or conditions; effects of climate change; competition for, or failure to attract, retain, train, motivate and develop key employees; loss of key members of management or key employees; changes in effective tax rates; changes in credit ratings or outlook; the Company’s incurrence of indebtedness and other factors identified under Part I, Item 1A: Risk Factors in the Company's 2021 Form 10-K, as updated from time to time in the Company’s Quarterly Reports on Form 10-Q.
Caution should be taken not to place undue reliance on the Company’s forward-looking statements and the Company undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
26
W.W. Grainger, Inc. and Subsidiaries
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Grainger’s primary market risk exposures include changes in foreign currency exchange and interest rates.
There were no material changes to the Company’s market risk from those described in Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk in the Company's 2021 Form 10-K.
Item 4: Controls and Procedures
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated 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 quarterly 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 disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in Grainger's internal control over financial reporting for the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.
27
PART II – OTHER INFORMATION
Item 1: Legal Proceedings
For a description of the Company’s legal proceedings, see Note 9 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1: Financial Information of this Form 10-Q.
Item 1A: Risk Factors
There have been no material changes from the risk factors previously disclosed in Part II, Item 1A: Risk Factors in the Company's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2022 and Part 1, Item 1A: Risk Factors in the Company's 2021 Form 10-K.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities – Second Quarter 2022
| Period | Total Number of Shares Purchased (A) (B) | Average Price Paid per Share (C) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (D) | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs | |||||||||||||
| April 1 – April 30 | 78,309 | $510.71 | 78,309 | 3,656,983 | |||||||||||||
| May 1 – May 31 | 103,261 | $474.04 | 103,261 | 3,553,722 | |||||||||||||
| June 1 – June 30 | 60,354 | $468.97 | 60,280 | 3,493,442 | |||||||||||||
| Total | 241,924 | 241,850 | |||||||||||||||
(A)There were no shares withheld to satisfy tax withholding obligations.
(B)The difference of 74 shares between the Total Number of Shares Purchased and the Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs represents shares purchased by the administrator and record keeper of the W.W. Grainger, Inc. Retirement Savings Plan for the benefit of the employees who participate in the plan.
(C)Average price paid per share excludes commissions of $0.01 per share paid.
(D)Purchases were made pursuant to a share repurchase program approved by Grainger's Board of Directors and announced April 28, 2021 (2021 Program). The 2021 Program authorized the repurchase of up to 5 million shares with no expiration date.
28
W.W. Grainger, Inc. and Subsidiaries
Item 6: Exhibits
| EXHIBIT NO. | DESCRIPTION | |||||||
| 2022 Form of W.W. Grainger, Inc. 2022 Incentive Plan Restricted Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its executive officers.* | ||||||||
| 2022 Form of W.W. Grainger, Inc. 2022 Incentive Plan Performance Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its executive officers.* | ||||||||
| W.W. Grainger, Inc. 2022 Incentive Plan, incorporated by reference to Appendix C of the Company's Definitive Proxy Statement on Schedule 14A filed on March 17, 2022.* | ||||||||
| Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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. | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |||||||
(*) Management contract or compensatory plan or arrangement | ||||||||
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| W.W. GRAINGER, INC. | |||||||||||
| Date: | July 29, 2022 | By: | /s/ Deidra C. Merriwether | ||||||||
| Deidra C. Merriwether | |||||||||||
| Senior Vice President | |||||||||||
| and Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
| Date: | July 29, 2022 | By: | /s/ Laurie R. Thomson | ||||||||
| Laurie R. Thomson | |||||||||||
| Vice President and Controller | |||||||||||
| (Principal Accounting Officer) | |||||||||||
30
Exhibit 10.1
W.W. GRAINGER, INC.
2022 Incentive Plan
2022 Incentive Plan
2022 Form of Restricted Stock Unit Award Agreement
This Restricted Stock Unit Award Agreement (this "Award Agreement"), dated as of (the "Grant Date"), is entered into between W.W. Grainger, Inc., an Illinois corporation (the "Company"), and you (the "Participant") as an Employee of the Company or a Subsidiary (collectively, the "Employer").
In consideration of the Participant's agreement to enter into an Unfair Competition Agreement with the Company concurrently with this Award Agreement on the Grant Date (the "Unfair Competition Agreement"), the Company desires to grant the Participant an award of restricted stock units (the "RSUs"), providing for the issuance of shares of the Company's common stock ("Shares") pursuant to the W.W. Grainger, Inc. 2022 Incentive Plan (as may be amended from time to time, the "2022 Plan") and the Participant agrees to enter into the Unfair Competition Agreement and accept such RSUs on the terms and conditions set forth in this Award Agreement, the 2022 Plan and the Unfair Competition Agreement.
Capitalized terms used but not defined in this Award Agreement have the meanings specified in the 2022 Plan.
In consideration of the mutual provisions set forth in this Award Agreement and in the Unfair Competition Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Grants
Grants
1.01 Grant. Subject to the terms and conditions of this Award Agreement, the 2022 Plan and the Unfair Competition Agreement (the terms of which are hereby incorporated herein by reference) and effective on the Grant Date, the Company hereby grants to the Participant the number of RSUs as specified in the award grant notice posted to the Participant's electronic investment account maintained with Morgan Stanley Smith Barney LLC, the stock plan service provider engaged by the Company in connection with the administration of the 2022 Plan (the "Stock Plan Administrator"). Each RSU represents a contractual right to receive one (1) Share upon the satisfaction of the terms and conditions of this Award Agreement.
ARTICLE II
Provisions Relating to RSUs
2.01 Vesting of RSUs. If the Participant remains continuously employed by the Employer (or any other Subsidiary or Affiliate) until the vesting date(s) specified in the grant notice ("RSU Vesting Date"), the RSUs shall become vested on such date and the Participant shall be entitled to receive the underlying Shares as provided herein. The RSUs shall not vest before the RSU Vesting Date unless otherwise provided or permitted by the 2022 Plan or this Award Agreement, and any RSUs that do not vest
RSU22
shall be forfeited in full and the Participant shall have no further rights with respect to such RSUs. Each RSU that becomes vested as provided herein shall be settled in accordance with Section 2.04.
2.02 Effect of Termination of Employment. Except as otherwise stated in the 2022 Plan, if the Participant's employment or service is terminated prior to the RSU Vesting Date for any reason whatsoever other than the Participant's death, Disability or Retirement, the Participant shall cease vesting in the RSUs as of the Participant's Termination Date (defined below) and the RSUs shall be forfeited in their entirety. If the Participant is a resident of, or employed in, the United States, "Termination Date" shall mean the effective date of termination of the Participant's employment. If the Participant is a resident of, or employed outside of, the United States, "Termination Date" shall mean the earliest of (i) the date on which notice of termination is provided to the Participant, (ii) the last day of the Participant's active service with the Employer or (iii) the last day on which the Participant is an employee of the Employer, as determined in each case without including any required advanced notice period and irrespective of the status of the termination under local labor or employment laws.
2.03 Effect of Death or Disability of the Participant. If the Participant's employment or service is terminated prior to the RSU Vesting Date due to the Participant's death or Disability, the RSUs immediately shall fully vest. For purposes of this Award Agreement, "Disability" shall have the same meaning as defined in the 2022 Plan, subject to modification as may be required to conform to the laws, rules and regulations (“Laws”) of the Participant's country of residence (and country of employment, if different). For the sake of clarity, the date of the Participant’s death or Disability shall be a RSU Vesting Date. The RSUs that becomes vested as provided herein shall be settled in accordance with Section 2.05.
2.04 Effect of Retirement of the Participant. If the Participant's employment or service is terminated prior to the RSU Vesting Date due to the Participant's Retirement, the RSUs shall continue to vest and shall be settled in accordance with Section 2.01. For purposes of this Award Agreement, "Retirement" shall mean the Participant's retirement of employment with the Company and its Subsidiaries on or after the Participant's (i) completion of at least 25 years of service with the Company and its Subsidiaries, (ii) completion of at least 20 years of service with the Company and its Subsidiaries and attainment of age 55, or (iii) completion of at least five (5) years of service with the Company and its Subsidiaries and attainment of age 60. Further, if the Participant is employed in a country other than Canada, Mexico or the United States, the provisions of this Section 2.04 shall be inapplicable.
2.05 Settlement. Upon the RSU Vesting Date, the Company shall, as soon as practicable (but in no event later than 60 days following the applicable RSU Vesting Date), settle the RSUs by registering Shares in the Participant's name and delivering such Shares to the Participant's electronic stock plan account maintained by the Stock Plan Administrator. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the Participant's RSUs may be settled in the form of: (i) cash, to the extent settlement in Shares (a) is prohibited under applicable Laws, (b) would require the Participant, the Company or the Employer to obtain the approval of any governmental and/or regulatory body in the Participant's country of residence (and country of employment, if different), or (c) is administratively burdensome or (ii) Shares, but the Company may require the Participant to immediately sell such Shares if necessary to comply with applicable Laws (in which case, the Participant hereby expressly authorizes the Company to issue sales instructions in relation to such Shares on the Participant's behalf).
2
2.06 Dividend Equivalents. Prior to the RSU Vesting Date, the Participant shall be entitled to receive cash dividend payments equal to any cash dividends and other distributions paid with respect to a number of Shares underlying the RSUs held by the Participant. If the Company declares any dividends payable in Shares (rather than in cash), the Participant shall be entitled to additional RSUs equal to the Fair Market Value (as determined by the Committee) of such Share dividends; provided, such additional RSUs shall be subject to the same vesting, forfeiture and transferability requirements and restrictions that apply to the original RSUs with respect to which they relate, including the vesting provisions of Section 2.01 and the settlement provisions of Section 2.04.
ARTICLE III
Recoupment
3.01 Recoupment in Event of Misconduct. If the Company determines that the Participant has committed or engaged in misconduct against the Company or has engaged in any criminal conduct, including embezzlement, fraud or theft, that involves or is related to the Company, or any other conduct that violates Company policy, causes or is discovered to have caused, any loss, damage, injury or other endangerment to the Company's property or reputation, and such Participant has received or is entitled to receive performance stock units, performance restricted stock units, stock options, restricted stock units or cash incentive compensation (collectively, "Incentive Compensation"), then the Company shall have the right to cancel the Incentive Compensation, require the return of Shares acquired under the 2022 Plan, recapture any gain realized upon the sale of Shares acquired under the 2022 Plan or take any other action it deems appropriate under the circumstances with respect to recouping the Incentive Compensation. The Company shall have sole discretion in determining whether the Participant's conduct was in compliance with applicable Law or Company policy and the extent to which the Company will seek recovery of the Incentive Compensation notwithstanding any other remedies available to the Company. If the Participant engages in misconduct or is believed to have engaged in misconduct, including but not limited to any violation of any of Participant's obligations under the Unfair Competition Agreement, the Company shall be entitled to take the actions outlined above for recouping the Incentive Compensation, as the Company deems appropriate under the circumstances.
3.02 Recoupment in Event of Materially Inaccurate Financial Results. If the Company has publicly filed materially inaccurate financial results (the "Subject Financials"), whether or not they result in a restatement, the Company has the discretion to recover any Incentive Compensation that was paid or settled to the Participant during the period covered by the Subject Financials as set forth herein. If the payment or settlement of Incentive Compensation would have been lower had the achievement of applicable financial performance goals been calculated based on restated financial results with respect to the Subject Financials, the Company may, if it determines it appropriate in its sole discretion, recover the portion of the paid or settled Incentive Compensation in excess of the payment or settlement that would have been made based on restated financial results. The Company will not seek to recover Incentive Compensation received or settled more than three (3) years after the date of the initial filing that contained the Subject Financials.
3.03 Recoupment in Event of Error. If the Participant receives any amount in excess of what the Participant should have received under the terms of this Award Agreement for any reason (including, without limitation, by reason of a mistake in calculations or
3
administrative error), all as determined by the Committee, then the Company shall have the right to cancel the Incentive Compensation, require the return of Shares acquired under the 2022 Plan, recapture any gain realized upon the sale of Shares acquired under the 2022 Plan or take any other action it deems appropriate under the circumstances with respect to recouping the Incentive Compensation.
3.04 Implementation. For purposes of this Article III, the Participant expressly authorizes the Company to issue instructions, on behalf of the Participant, to the Stock Plan Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the 2022 Plan) to re-convey, transfer or otherwise return to the Company any Incentive Compensation (whether paid in the form of cash or Shares) subject to recoupment hereunder. Participant acknowledges and agrees that the Company's rights hereunder shall not be affected in any way by any subsequent change in the Participant’s status, including retirement or termination of employment (including due to death or Disability). The Participant expressly agrees to indemnify and hold the Company and the Employer harmless from any loss, cost, damage, or expense (including attorneys' fees) that the Company or the Employer may incur as a result of the Participant’s actions or in the Company and the Employer’s efforts to recover such previously made payments or value pursuant to this Article III.
3.05 Forfeiture. To the extent any of the events set forth in this Article III occur before the Participant receives any Incentive Compensation due hereunder, any such Incentive Compensation shall be forfeited as determined by the Company in its sole discretion.
ARTICLE IV
Tax
4.01 Tax-Related Items. Regardless of any action the Company or the Employer takes with respect to any or all income tax (including U.S. federal, state and local taxes or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholding ("Tax-Related Items"), the Participant acknowledges and agrees that the ultimate liability for all Tax-Related Items legally due by the Participant is and remains the Participant's responsibility and that the Company and the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including the grant of the RSUs, the vesting of the RSUs, the subsequent sale of any Shares acquired pursuant to the RSUs and the receipt of any dividends or dividend equivalents and (ii) do not commit to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate the Participant's liability for Tax-Related Items.
4.02 Tax Withholding Obligations. Prior to the delivery of Shares (or cash) upon the vesting of the RSUs, if the Participant's country of residence (and country of employment, if different) requires withholding of Tax-Related Items, the Company shall withhold a sufficient number of whole Shares otherwise issuable upon the vesting of the RSUs that have an aggregate Fair Market Value sufficient to pay the Tax-Related Items required to be withheld with respect to the Shares or the cash equivalent. The Company may withhold or account for Tax-Related Items by considering applicable statutory withholding rates or other applicable withholding rates, including maximum applicable rates. The cash equivalent of the Shares withheld will be used to settle the obligation to withhold the Tax-Related Items. In the event that the withholding of Shares is prohibited under applicable Law or otherwise may trigger adverse consequences to the Company or the Employer, the Company and the Employer may withhold the Tax-Related Items
4
required to be withheld with respect to the Shares in cash from the Participant's regular salary and/or wages or any other amounts payable to the Participant, or may require the Participant to personally make payment of the Tax-Related Items required to be withheld. In the event the withholding requirements are not satisfied through the withholding of Shares by the Company or through the withholding of cash from the Participant's regular salary and/or wages or other amounts payable to the Participant, no Shares will be issued to the Participant (or the Participant's estate) upon vesting of the RSUs unless and until satisfactory arrangements (as determined by the Committee) have been made by the Participant with respect to the payment of any Tax-Related Items that the Company or the Employer determines, in its sole discretion, must be withheld or collected with respect to such RSUs. If the obligation for the Participant's Tax-Related Items is satisfied by withholding a number of Shares as described herein, the Participant shall be deemed to have been issued the full number of Shares issuable upon vesting, notwithstanding that a number of the Shares is held back solely for the purpose of paying the Tax-Related Items due as a result of the vesting or any other aspect of the RSU.
The Participant will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of the Participant's participation in the 2022 Plan or the Participant's acquisition of Shares that cannot be satisfied by the means described in this Article IV. The Company may refuse to deliver any Shares due upon vesting of the RSUs if the Participant fails to comply with the Participant's obligations in connection with the Tax-Related Items as described herein. If the Participant is subject to taxation in more than one jurisdiction, the Participant acknowledges that the Company, the Employer or one or more of their respective Subsidiaries may be required to withhold or account for Tax-Related Items in more than one jurisdiction. The Participant hereby consents to any action reasonably taken by the Company and the Employer to meet the Participant's obligation for Tax-Related Items. By accepting this grant of RSUs, the Participant expressly consents to the withholding of Shares and/or withholding from the Participant's regular salary and/or wages or other amounts payable to the Participant as provided for hereunder. All other Tax-Related Items related to the RSUs and any Shares delivered in payment thereof are the Participant's sole responsibility.
ARTICLE V
International Arrangements
5.01 Exchange Controls. As a condition to this RSU award, the Participant agrees to comply with any applicable foreign exchange Laws and hereby consents to any necessary, appropriate or advisable actions taken by the Company, the Employer or any of their respective Subsidiaries as may be required to comply with any applicable Laws of the Participant's country of residence (and country of employment, if different).
5.02 Foreign Asset and Account Reporting Requirements. The Participant acknowledges that there may be certain foreign asset and/or account reporting requirements, which may affect the Participant's ability to acquire or hold Shares acquired under the 2022 Plan or cash received from participating in the 2022 Plan (including from any dividends or dividend equivalent payments) in a brokerage or bank account outside the Participant's country of residence (and country of employment, if different). The Participant may be required to report such accounts, assets or transactions to the tax or other authorities in the Participant's country of residence (and country of employment, if different). The Participant acknowledges and agrees that it is the Participant's personal responsibility to be compliant with such Laws.
5
5.03 Country Addendum. Notwithstanding any provisions of this Award Agreement to the contrary, the RSUs shall be subject to any special terms and conditions for the Participant's country of residence (and country of employment, if different) set forth in the addendum to this Award Agreement ("Country Addendum"). If the Participant transfers residence and/or employment to another country reflected in the Country Addendum at the time of transfer, the special terms and conditions for such country will apply to the Participant to the extent the Company determines, in its sole discretion, that the application of such special terms and conditions is necessary or advisable in order to comply with local Laws or to facilitate the operation and administration of the RSUs and the 2022 Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Participant's transfer). In all circumstances, the Country Addendum shall constitute part of this Award Agreement.
5.04 Controlling Language. If the Participant is in a country where English is not an official language, the Participant acknowledges that the Participant is sufficiently proficient in English to understand the terms and conditions of this Award Agreement or has had the ability to consult with an advisor who is sufficiently proficient in the English language. The Participant acknowledges and agrees that it is the Participant's express intent that this Award Agreement, the 2022 Plan, the Unfair Competition Agreement and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the RSUs be drawn up in English. If the Participant has received this Award Agreement, the 2022 Plan, the Unfair Competition Agreement or any other documents related to the RSUs translated into a language other than English and the meaning of any translated version is different than the English version, the English version will control.
ARTICLE VI
Miscellaneous
6.01 Restriction on Transferability. Except to the extent expressly provided in the 2022 Plan or this Award Agreement, the RSUs may not be sold, transferred, pledged, assigned, or otherwise alienated at any time other than by will or by the laws of descent and distribution. Any attempt to do so contrary to the provisions hereof shall be null and void. Notwithstanding the foregoing, the Committee may permit, in its sole discretion, the Participant to transfer the RSUs to a member of the Participant’s immediate family or trust, a partnership or other entity for the benefit of the Participant or the members of the Participant's immediate family; provided, however, that the Participant retains beneficial ownership of any such RSUs. For purposes hereof, “immediate family” has the meaning ascribed thereto in Rule 16(a)-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and “beneficial owner” has the meaning ascribed thereto in Rule 13d-3 of the Exchange Act.
6.02 Rights as Shareholder. The Participant shall not have voting or any other rights as a shareholder of the Company with respect to the Shares issuable upon the vesting of RSUs until the date of issuance of such Shares. Upon settlement of the RSUs, the Participant will obtain, with respect to the Shares received in such settlement, full voting and other rights as a shareholder of the Company.
6.03 Administration. The Committee shall have the power to interpret the 2022 Plan and this Award Agreement and to adopt such rules for the administration, interpretation, and application of the 2022 Plan as are consistent therewith and to interpret or revoke
6
any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Participant, the Company, and all other Persons. No member of the Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the 2022 Plan or this Award Agreement.
6.04 No Employment Rights. This Award Agreement and the Participant's participation in the 2022 Plan are not and shall not be interpreted to: (i) form an employment contract or relationship with the Company, the Employer or any of their respective Subsidiaries; (ii) confer upon the Participant any right to continue in the employ of the Company, the Employer or any of their respective Subsidiaries; or (iii) interfere with the ability of the Company, the Employer or any of their respective Subsidiaries to terminate the Participant's employment at any time.
6.05 Nature of Grant. In accepting the grant hereunder, the Participant acknowledges and agrees that: (i) the 2022 Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time; (ii) the Participant has read the 2022 Plan and any RSUs granted under it shall be subject to all of the terms and conditions of the 2022 Plan, including but not limited to the power of the Committee to interpret and determine the terms and provisions of the 2022 Plan and this Award Agreement and to make all determinations necessary or advisable for the administration of the 2022 Plan, all of which interpretations and determinations shall be final and binding; (iii) the RSU does not create any contractual or other right to receive future grants of RSUs, benefits in lieu of RSUs, or any other Plan benefits in the future; (iv) nothing contained in this Award Agreement is intended to create or enlarge any other contractual obligations between the Company or the Employer and the Participant; (v) any grant under the 2022 Plan, including any grant of RSUs, is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long service option, pension, or retirement benefits or similar payments; (vi) the Participant is voluntarily participating in the 2022 Plan; (vii) the future value of the Shares underlying the RSUs granted hereunder is unknown and cannot be predicted with certainty; (viii) neither the Company, the Employer nor any of their respective Subsidiaries shall be liable for any change in value of the RSUs, the amount realized upon settlement of the RSUs or the amount realized upon a subsequent sale of any Shares acquired upon settlement of the RSUs, resulting from any fluctuation of the United States Dollar/local currency foreign exchange rate, and (ix) the RSUs and the underlying Shares are not granted to the Participant for prior services rendered to the Company, the Employer or any Subsidiaries. Without limiting the generality of the foregoing, the Committee shall have the discretion to adjust the terms and conditions of any award of RSUs to correct for any windfalls or shortfalls in such RSUs which, in the Committee's determination, arise from factors beyond the Participant's control; provided, however, that the Committee's authority with respect to any Award to a "covered employee, " as defined in Section 162(m)(3) of the Code, shall be limited to decreasing, and not increasing, such RSU.
6.06 Compliance with Law. The Company shall not be required to issue or deliver any Shares pursuant to this Award Agreement pending compliance with all applicable Laws (including any registration requirements or tax withholding requirements) and compliance with the Laws and practices of any stock exchange or quotation system upon which the Shares are listed or quoted. If the Participant resides or is employed outside of the United States, the Participant agrees, as a condition of the grant of the RSUs, to repatriate all payments attributable to the Shares and/or cash acquired under the 2022 Plan (including, but not limited to, dividends and any proceeds derived from
7
the sale of Shares acquired pursuant to the RSUs) if required by and in accordance with local Laws in the Participant’s country of residence (and country of employment, if different). In addition, the Participant also agrees to take any and all actions, and consent to any and all actions taken by the Company, its Subsidiaries and the Employer, as may be required to allow the Company, its Subsidiaries and the Employer to comply with local Laws in the Participant’s country of residence (and country of employment, if different). Finally, the Participant agrees to take any and all actions as may be required to comply with the Participant’s personal legal and tax obligations under local Laws in the Participant’s country of residence (and country of employment, if different).
6.07 Amendment. This Award Agreement may be amended by a writing which specifically states that it is amending this Award Agreement executed by (i) the Company and the Participant, (ii) the Company (at the discretion of the Committee), so long as a copy of such amendment is delivered to the Participant, and provided that no such amendment having a material adverse effect on the rights of the Participant hereunder may be made without the Participant's written consent or (iii) the Company (at the discretion of the Committee) in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable Laws or any future Laws or judicial decisions.
6.08 Notices. Any notice to be given under the terms of this Award Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to the Participant shall be addressed to the Participant at the address listed in the Employer's records or to the Participant's electronic investment account held at the Stock Plan Administrator. By a notice given pursuant to this Section 6.08, either party may designate a different address for notices. Any notice shall have been deemed given when actually delivered.
6.09 Severability. If all or any part of this Award Agreement or the 2022 Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Award Agreement or the 2022 Plan not declared to be unlawful or invalid. Any provision of this Award Agreement (or part of such provision) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such provision (or part of such provision) to the fullest extent possible while remaining lawful and valid.
6.10 Construction. The RSUs are being issued pursuant to Article 8 (Restricted Stock and Restricted Stock Units) of the 2022 Plan. The RSUs are subject to the terms of the 2022 Plan. The Participant acknowledges receipt of the 2022 Plan booklet which contains the entire Plan, and the Participant represents and warrants that the Participant has read the 2022 Plan. Additional copies of the 2022 Plan are available upon request during normal business hours at the principal executive offices of the Company. To the extent that any provision of this Award Agreement violates or is inconsistent with an express provision of the 2022 Plan, the 2022 Plan provision shall govern and any inconsistent provision in this Award Agreement shall be of no force or effect. The words "including," "includes," or "include" are to be read as listing non-exclusive examples of the matters referred to, whether or not words such as "without limitation" or "but not limited to" are used in each instance.
6.11 Waiver of Right to Jury Trial. EACH OF THE PARTIES KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE RSUS, THE PLAN OR THIS AWARD AGREEMENT.
8
6.12 Waiver; No Third Party Beneficiaries. A waiver by the Company of a breach of any provision of this Award Agreement by the Participant shall not operate or be construed as a waiver of any other provision of this Award Agreement, or of any subsequent breach by the Participant. This Award Agreement shall not be construed to create any third party beneficiary rights.
6.13 Data Privacy. The Company is located at 100 Grainger Parkway, Lake Forest, Illinois 60045, United States of America, and grants RSUs under the 2022 Plan to employees of the Company and its Subsidiaries in its sole discretion. In conjunction with the Company's grant of the RSUs under the 2022 Plan and its ongoing administration of such awards, the Company is providing the following information about its data collection, processing and transfer practices. In accepting the grant of the RSU, the Participant expressly and explicitly consents to the personal data activities as described herein.
i.Data Collection, Processing and Usage. The Company and the Employer will collect, process and use certain personal information about the Participant, specifically, the Participant’s name, home address, email address and telephone number, date of birth, social security or insurance number, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all RSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor (“Data”), for the purpose of implementing, administering and managing the 2022 Plan. The Company's legal basis for the collection, processing and use of the Participant's Data is the Participant's consent. The Participant's Data also may be disclosed to certain securities or other regulatory authorities where the Company’s securities are listed or traded, or regulatory filings are made. The Company's legal basis for such disclosure of the Participant's Data is to comply with applicable laws, rules and regulations.
ii.Stock Plan Administration Service Providers. The Company and the Employer transfer the Participant's Data to the Stock Plan Administrator based in the United States of America, which assists the Company with the implementation, administration and management of the 2022 Plan. In the future, the Company may select a different Stock Plan Administrator and share the Participant's Data with another company that serves in a similar manner. The Stock Plan Administrator will open an account for the Participant to receive and trade Shares acquired under the 2022 Plan. The Participant will be asked to agree to separate terms and data processing practices with the Stock Plan Administrator, which is a condition of the Participant's ability to participate in the 2022 Plan.
iii.International Data Transfers. The Company and the Stock Plan Administrator are based in the United States of America. The Participant should note that the Participant's country of residence may have enacted data privacy laws that are different from the United States of America. The Company's legal basis for the transfer of the Participant's Data to the United States of America is the Participant’s consent.
iv.Voluntariness and Consequences of Consent, Denial or Withdrawal. The Participant's participation in the 2022 Plan and the Participant's grant of consent hereunder is purely voluntary. The Participant may deny or withdraw the Participant's consent at any time. If the Participant does not consent, or if the Participant later withdraws the Participant's consent, the Participant may be unable to participate in the 2022 Plan. This would not affect the Participant's existing employment or salary; instead, the Participant merely may forfeit the opportunities associated with participation in the 2022 Plan.
9
v.Data Retention. The Participant understands that the Participant's Data will be held only as long as is necessary to implement, administer and manage the Participant's RSU and participation in the 2022 Plan; provided that the Company may hold the Participant’s Data for longer periods of time consistent with its retention policies and practices with respect to employee data.
vi.Data Subject Rights. The Participant understands that the Participant may have the right under applicable law to (i) access or copy the Participant's Data that the Company possesses, (ii) rectify incorrect Data concerning the Participant, (iii) delete the Participant's Data, (iv) restrict processing of the Participant's Data, (vi) lodge complaints with the competent supervisory authorities in the Participant’s country of residence. To receive clarification regarding these rights or to exercise these rights, the Participant understands that the Participant can contact the Participant's local human resources representative.
6.14 Private Placement. The grant of the RSUs is not intended to be a public offering of securities in the Participant's country of residence (and country of employment, if different). The Company has not submitted any registration statement, prospectus or other filing with the local securities authorities (unless otherwise required under local Laws).
6.15 No Advice Regarding Grant. The Company and the Employer are not providing any tax, legal or financial advice, nor is the Company or the Employer making any recommendations regarding the RSUs, the Participant's participation in the 2022 Plan or the Participant's acquisition or sale of the underlying Shares. The Participant is hereby advised to consult with the Participant's own personal tax, legal and financial advisors regarding participation in the 2022 Plan before taking any action related to the 2022 Plan or this Award Agreement.
6.16 Securities Law Restrictions. The Participant acknowledges that, depending on the Participant's country of residence (and country of employment, if different) or where the Company Shares are listed, the Participant shall be subject to insider trading restrictions and/or market abuse Laws, which may affect the Participant's ability to acquire, sell or otherwise dispose of Shares, rights to Shares (e.g., RSUs) or rights linked to the value of Shares during such times as the Participant is considered to have "inside information" regarding the Company or its business (as defined by the local Laws in the Participant's country of residence and/or employment). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Participant placed before the Participant possessed inside information. Furthermore, the Participant could be prohibited from (i) disclosing the inside information to any third party (other than on a "need to know" basis) and (ii) "tipping" third parties (including other employees of the Company and its Subsidiaries) or causing them otherwise to buy or sell securities. Any restrictions under these Laws are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading or other policy. The Participant solely is responsible for ensuring compliance with any applicable restrictions and should consult with the Participant's personal legal advisor on this matter.
6.17 EU Age Discrimination Rules. If the Participant is a local national of and employed in the United Kingdom or a country that is a member of the European Union, the grant of the RSUs and the terms and conditions governing the RSUs are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the "Age Discrimination Rules"). To the extent that a court or tribunal of competent jurisdiction determines that any provision of
10
this Award Agreement is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make it valid and enforceable to the full extent permitted under local Laws.
6.18 Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the RSUs granted to the Participant under the 2022 Plan by electronic means. The Participant hereby expressly consents to receive such documents by electronic delivery and agrees to participate in the 2022 Plan through an online or electronic system established and maintained by the Company or a third party designated by the Company.
6.19 Governing Law; Jurisdiction. This Award Agreement shall be exclusively governed by, and construed in accordance with, the Laws of the State of Illinois without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Illinois or of any other jurisdiction) that would cause the application of the laws of a jurisdiction other than the State of Illinois. All disputes and controversies arising between the parties are to be submitted for determination exclusively to the federal or state courts of the State of Illinois and by accepting the grant of RSUs, the Participant expressly consents to the jurisdiction of such courts. Notwithstanding the foregoing, the Company may at its option seek interim and permanent injunctive relief before any competent court, tribunal or judicial forum, which in the absence of the foregoing provision, would have jurisdiction to grant the relief sought.
6.20 Entire Agreement. The Plan, this Award Agreement (including any applicable addendum) and the Unfair Competition Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede, in their entirety, all prior undertakings and agreements of the Company and the Participant with respect to the subject matter hereof.
[Signature Page Follows]
11
IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed by a duly authorized officer and the Participant acknowledges and agrees that by clicking on the “Accept” box below this Award Agreement in the section "Your New Grant" on the screen titled "View Grant," the Participant expressly agrees to be bound by the terms and conditions of the RSU, including Participant's electronic signature constituting the sole and exclusive means of executing this Award Agreement.
W.W. GRAINGER, INC. By: Name: DG Macpherson Title: Chairman & Chief Executive Officer | |||||
2
W.W. GRAINGER, INC.
2022 Incentive Plan
2022 Incentive Plan
Addendum to Restricted Stock Unit Award Agreement
In addition to the terms of the W.W. Grainger, Inc. 2022 Incentive Plan (as may be amended from time to time, the "2022 Plan") and the Restricted Stock Unit Agreement (the "Award Agreement"), the RSUs are subject to the following additional terms and conditions as set forth in this addendum (this "Country Addendum") to the extent the Participant resides or is employed in one of the countries addressed herein. The Country Addendum is based upon the securities, tax, exchange control and other laws in effect in the respective countries as of April 2022. All capitalized terms contained in this Country Addendum shall have the same meaning as set forth in the 2022 Plan and this Award Agreement unless otherwise defined. If the Participant transfers residence or employment to a country identified in this Country Addendum, the additional terms and conditions for such country as reflected in this Country Addendum will apply to the Participant to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable in order to comply with local laws, rules and regulations, or to facilitate the operation and administration of the RSUs and the 2022 Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Participant’s transfer).
| European Union ("EU") / European Economic Area ("EEA") / United Kingdom | ||
The following provision replaces Section 6.13 to the extent the Participant is employed in the EU, EEA or the United Kingdom:
6.13 Data Privacy. The Company is located at 100 Grainger Parkway, Lake Forest, Illinois 60045, United States of America, and grants RSUs under the 2022 Plan to employees of the Company and its Subsidiaries in its sole discretion. In conjunction with the Company's grant of the RSUs under the 2022 Plan and its ongoing administration of such awards, the Company is providing the following information about its data collection, processing and transfer practices, which the Participant should carefully review.
i. Data Collection, Processing and Usage. The Company and the Employer will collect, process and use certain personal information about the Participant, specifically, the Participant’s name, home address, email address and telephone number, date of birth, social security or insurance number, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all RSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the 2022 Plan. The Company collects, process and uses the Participant's Data pursuant to the Company's
A-1
legitimate interest of administering the Participant's RSUs and generally managing the 2022 Plan, and to satisfy its contractual obligations under the Award Agreement. The Participant's Data also may be disclosed to certain securities or other regulatory authorities where the Company’s securities are listed or traded or regulatory filings are made. The Company's legal basis for such disclosure of the Participant's Data is to comply with applicable laws, rules and regulations.
ii. Stock Plan Administration Service Providers. The Company and the Employer transfer the Participant's Data to the Stock Plan Administrator based in the United States of America, which assists the Company with the implementation, administration and management of the 2022 Plan. In the future, the Company may select a different Stock Plan Administrator and share the Participant's Data with another company that serves in a similar manner. The Stock Plan Administrator will open an account for the Participant to receive and trade Shares acquired under the 2022 Plan. The Participant will be asked to agree to separate terms and data processing practices with the Stock Plan Administrator, which is a condition of the Participant's ability to participate in the 2022 Plan.
iii. International Data Transfers. The Company and the Stock Plan Administrator are based in the United States of America. The Participant should note that the Participant's country of residence may have enacted data privacy laws that are different from the United States of America. The Company's legal basis for the transfer of the Participant's Data to the United States of America is to satisfy its contractual obligations under the Award Agreement.
iv. Data Retention. The Participant understands that the Participant's Data will be held only as long as is necessary to implement, administer and manage the Participant's RSU and participation in the 2022 Plan. When the Company no longer needs the Data, the Company will remove it from its systems. If the Company retains the Participant's Data longer, it would be to satisfy the Company's legal or regulatory obligations and the Company's legal basis would be for compliance with applicable laws, rules and regulations.
v. Data Subject Rights. The Participant understands that the Participant may have the right under applicable law to (i) access or copy the Participant's Data that the Company possesses, (ii) rectify incorrect Data concerning the Participant, (iii) delete the Participant's Data, (iv) restrict processing of the Participant's Data, (vi) lodge complaints with the competent supervisory authorities in the Participant’s country of residence. To receive clarification regarding these rights or to exercise these rights, the Participant understands that the Participant can contact the Participant's local human resources representative.
| Canada | ||
RSUs Payable in Shares Only
2
Notwithstanding any provision in the Award Agreement or the 2022 Plan to the contrary, vested RSUs shall be payable in Shares only (and shall not be settled in cash).
Securities Law Information
The Participant is permitted to sell Shares acquired through the 2022 Plan through the designated broker appointed under the 2022 Plan, if any, provided that the resale of such Shares takes place outside of Canada through the facilities of a stock exchange on which the Shares are listed (i.e., the New York Stock Exchange).
Foreign Asset Reporting Information
Any foreign property (including Shares and RSUs acquired under the 2022 Plan) must be reported to the Canada Revenue Agency on form T1135 (Foreign Income Verification Statement) if the total cost of your foreign property exceeds C$100,000 at any time in the year. The RSUs must be reported - generally at a nil cost - if the C$100,000 cost threshold is exceeded because of other foreign property held. If Shares are acquired, their cost generally is the adjusted cost base ("ACB") of the Shares. The ACB would normally equal the fair market value of the Shares at time of vesting, but if the Participant owns other Shares, this ACB may have to be averaged with the ACB of the other Shares. The form must be filed by April 30 of the following year. The Participant should consult with the Participant's personal tax advisor to determine the Participant’s reporting requirements.
The following provisions will apply if the Participant is a resident of Quebec:
Use of English Language
If the Participant is a resident of Quebec, by accepting the RSUs, the Participant acknowledges and agrees that it is the Participant’s wish that the Award Agreement, this Addendum, the 2022 Plan, as well as all other documents, notices and legal proceedings entered into, given or instituted pursuant to the RSUs, either directly or indirectly, be drawn up in English.
Utilisation de l’anglais
Si le Participant est un résident du Québec, en acceptant les RSU, le Participant reconnaît et convient que c'est le souhait du Participant que l'Entente, le présent Avenant, le Plan 2022, ainsi que tous les autres documents, avis et procédures judiciaires engagés, donnés ou institués en vertu des RSU, directement ou indirectement, soient rédigés en anglais.
3
| Mexico | ||
Plan Document Acknowledgement
By accepting the RSUs, the Participant acknowledges that the Participant has received a copy of the 2022 Plan, has reviewed the 2022 Plan and the Award Agreement in their entirety, and fully understands and accepts all provisions of the 2022 Plan and the Award Agreement. In addition, by accepting the RSUs, the Participant acknowledges that the Participant has read and specifically and expressly approves the terms and conditions in Section 6.05 of the Award Agreement (“Nature of Grant”), in which the following is clearly described and established: (i) participation in the 2022 Plan does not constitute an acquired right; (ii) the 2022 Plan and participation in the 2022 Plan is offered by the Company on a wholly discretionary basis; (iii) participation in the 2022 Plan is voluntary; and (iv) neither the Company, the Employer nor any Subsidiary is responsible for any decrease in the value of the Shares underlying the RSUs.
Acuse de recibo del documento del Plan
Al aceptar las RSU, el Participante reconoce que ha recibido una copia del Plan 2022, ha revisado el Plan 2022 y el Acuerdo en su totalidad, y comprende y acepta completamente todas las disposiciones del Plan 2022 y el Acuerdo. Además, al aceptar las RSU, el Participante reconoce que el Participante ha leído y aprueba específica y expresamente los términos y condiciones de la Sección 6.05 del Acuerdo ("Naturaleza de la Subvención"), en la que se describe y establece claramente lo siguiente: ( i) la participación en el Plan 2022 no constituye un derecho adquirido; (ii) el Plan 2022 y la participación en el Plan 2022 son ofrecidos por la Compañía de forma totalmente discrecional; (iii) la participación en el Plan 2022 es voluntaria; y (iv) ni la Compañía, el Empleador ni ninguna Subsidiaria son responsables de ninguna disminución en el valor de las Acciones subyacentes a las RSU.
Commercial Relationship
The Participant expressly recognizes that participation in the 2022 Plan and the Company’s grant of the RSUs does not constitute an employment relationship between the Participant and the Company. The Participant has been granted RSUs as a consequence of the commercial relationship between the Company and the Employer, and the Employer is the Participant’s sole employer. Based on the foregoing, (a) the Participant expressly recognizes that the 2022 Plan and the benefits derived from participation in the 2022 Plan do not establish any rights between the Participant and the Company or the Employer, (b) the 2022 Plan and the benefits derived from participation in the 2022 Plan are not part of the employment conditions and/or benefits provided by the Company or the Employer, and (c) any modifications or amendments to the 2022 Plan by the Company, or a termination of the 2022 Plan by the Company, shall not constitute a change or impairment of the terms and conditions of the Participant’s employment with the Employer.
4
Relación Comercial
El Participante reconoce expresamente que la participación en el Plan 2022 y el otorgamiento de las RSU por parte de la Compañía no constituye una relación laboral entre el Participante y la Compañía. Al Participante se le han otorgado RSU como consecuencia de la relación comercial entre la Compañía y el Empleador, y el Empleador es el único empleador del Participante. Con base en lo anterior, (a) el Participante reconoce expresamente que el Plan 2022 y los beneficios derivados de la participación en el Plan 2022 no establecen ningún derecho entre el Participante y la Compañía o el Empleador, (b) el Plan 2022 y los beneficios derivados de la participación en el Plan 2022 no son parte de las condiciones de empleo y/o beneficios proporcionados por la Compañía o el Empleador, y (c) cualquier modificación o enmienda al Plan 2022 por parte de la Compañía, o una terminación del Plan 2022 por la Compañía, no constituirá un cambio o deterioro de los términos y condiciones del empleo del Participante con el Empleador.
Extraordinary Item of Compensation
The Participant expressly acknowledges and agrees that participation in the 2022 Plan is a result of the discretionary and unilateral decision of the Company, as well as the Participant’s free and voluntary decision to participate in the 2022 Plan in accord with the terms and conditions of the 2022 Plan, the Award Agreement, the Unfair Competition Agreement and this Addendum. As such, the Participant acknowledges and agrees that the Company may, in its sole discretion, amend and/or discontinue the Participant’s participation in the 2022 Plan at any time and without any liability. The value of the RSUs are an extraordinary item of compensation outside the scope of the employment contract, if any. The RSUs are not a part of the Participant’s regular or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits, or any similar payments, which are the exclusive obligations of the Employer.
Partida Extraordinaria de Compensación
El Ejecutivo reconoce y acepta expresamente que la participación en el Plan es el resultado de la decisión discrecional y unilateral de la Compañía, así como la decisión libre y voluntaria del Ejecutivo de participar en el Plan de acuerdo con los términos y condiciones del Plan, la Acuerdo, el Acuerdo de Competencia Desleal y este Addendum. Como tal, el Ejecutivo reconoce y acepta que la Compañía puede, a su exclusivo criterio, modificar y/o interrumpir la participación del Ejecutivo en el Plan en cualquier momento y sin responsabilidad alguna. El valor de las RSUs constituye una retribución extraordinaria fuera del ámbito del contrato de trabajo, si lo hubiere. Las RSU no forman parte de la compensación regular o esperada del Ejecutivo a los fines de calcular cualquier indemnización, renuncia, despido, pago por terminación del
5
servicio, bonificaciones, premios por servicio prolongado, pensión o beneficios de jubilación o cualquier pago similar, que son exclusivos obligaciones del Empleador.
| United Kingdom | ||
Income Tax and Social Insurance Contribution Withholding
The following provision shall supplement Article IV of the Award Agreement:
Without limitation to Article IV of the Award Agreement, the Participant agrees that the Participant is liable for all Tax-Related Items and hereby covenants to pay all such Tax-Related Items as and when requested by the Company or the Employer or by Her Majesty’s Revenue and Customs ("HMRC") (or any other tax authority or any other relevant authority). The Participant also agrees to indemnify and hold harmless the Company and the Employer against any taxes that they are required to pay or withhold or have paid or will pay to HMRC (or any other tax authority or any other relevant authority) on the Participant’s behalf.
Exclusion of Claim
The Participant acknowledges and agrees that the Participant will have no entitlement to compensation or damages, insofar as such entitlement arises or may arise from the Participant’s ceasing to have rights under or to be entitled to vest in the RSUs as a result of such termination (whether the termination is in breach of contract or otherwise), or from the loss or diminution in value of the RSUs. Upon the grant of the RSUs, the Participant shall be deemed to have irrevocably waived any such entitlement.
* * * * *
6
Exhibit 10.2
W.W. GRAINGER, INC.
2022 Incentive Plan
2022 Form of Performance Stock Unit Award Agreement
This Performance Stock Unit Agreement (this "Award Agreement"), dated as of (the "Grant Date"), is entered into between W.W. Grainger, Inc., an Illinois corporation (the "Company"), and you (the "Participant") as an Employee of the Company or a Subsidiary (the "Employer").
In consideration of the Participant's agreement to enter into an Unfair Competition Agreement with the Company concurrently with this Award Agreement on the Grant Date (the "Unfair Competition Agreement"), the Company desires to grant the Participant an award of performance stock units (the "PSUs"), providing for the issuance of shares of the Company's common stock ("Shares") pursuant to the W.W. Grainger, Inc. 2022 Incentive Plan (as may be amended from time to time, the "2022 Plan") subject to the Company's attainment of certain long-term performance goals and the Participant agrees to enter into the Unfair Competition Agreement and accept such PSUs on the terms and conditions set forth in this Award Agreement, the 2022 Plan and the Unfair Competition Agreement. Capitalized terms used but not defined in this Award Agreement have the meanings specified in the 2022 Plan.
In consideration of the mutual provisions set forth in this Award Agreement and in the Unfair Competition Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Grants
1.01 Grant. Subject to the terms and conditions of this Award Agreement, the 2022 Plan and the Unfair Competition Agreement (the terms of which are hereby incorporated herein by reference) and effective on the Grant Date, the Company hereby grants to the Participant the number of PSUs (the "Target PSUs") as specified in the award grant notice posted to the Participant's electronic investment account maintained with Morgan Stanley Smith Barney LLC, the stock plan service provider engaged by the Company in connection with the administration of the 2022 Plan (the "Stock Plan Administrator"). Each PSU represents a contractual right to receive one (1) Share upon the satisfaction of the terms and conditions of this Award Agreement. The actual number of PSUs that may become vested and settled pursuant to this Award Agreement will depend on the Company's achievement of the performance metrics defined and reflected in Exhibit I to this Award Agreement (the "Performance Metrics") during the period of through (the "Measurement Period"), as shall be determined and certified by the Committee in its sole discretion. The Committee’s determination and certification shall be final and conclusive, and until the Committee has made such determination and certification, none of the Performance Metrics will be considered to have been satisfied. The Target PSUs will be equally apportioned to each Performance Metric (and reflected in Exhibit I of this Award Agreement).
ARTICLE II
1
PSU22
Provisions Relating to PSUs
2.01 Vesting of PSUs. Subject to the terms and conditions set forth in the 2022 Plan and this Award Agreement, the Target PSUs shall vest as determined pursuant to the terms of Exhibit I, which is incorporated by reference herein and made a part of this Award Agreement; provided that (except as otherwise set forth in this Article II) the Target PSUs shall not vest unless the Participant remains continuously employed by the Employer (or any other Subsidiary or Affiliate) from the Grant Date through the third anniversary of the Grant Date (the "PSU Vesting Date"). Any PSUs that do not vest shall be forfeited, and the Participant shall have no further rights with respect to such PSUs. Each PSU that becomes vested as provided herein shall be settled in accordance with Section 2.06.
2.02 Effect of Termination of Employment. Except as otherwise stated in the 2022 Plan, if the Participant's employment or service is terminated prior to the PSU Vesting Date for any reason whatsoever other than the Participant's involuntary termination without Cause or for the Participant's death, Disability or Retirement (defined below), the Target PSUs shall be forfeited in their entirety as of the Participant's Termination Date. If the Participant is a resident of, or employed in, the United States, "Termination Date" shall mean the effective date of termination of the Participant's employment. If the Participant is a resident of, or employed outside of, the United States, "Termination Date" shall mean the earliest of (i) the date on which notice of termination is provided to the Participant, (ii) the last day of the Participant's active service with the Employer or (iii) the last day on which the Participant is an employee of the Employer, as determined in each case without including any required advanced notice period and irrespective of the status of the termination under local labor or employment laws. For purposes of this Award Agreement, "Cause" shall have the same meaning as defined in the 2022 Plan, subject to modification as may be required to conform to the laws, rules and regulations ("Laws") of the Participant's country of residence (and country of employment, if different).
2.03 Effect of Involuntary Termination without Cause. If the Participant's employment or service is involuntarily terminated prior to the PSU Vesting Date for reasons other than Cause, the Participant will become vested in a pro-rata portion of the Target PSUs based upon the Company's achievement of the Performance Metrics. For purposes of the foregoing, the pro-ration shall be determined based upon a fraction, the numerator of which will be the number of full calendar months from the Grant Date to the Participant's Termination Date, and the denominator shall equal the number of full calendar months in the Measurement Period. Each actual PSU that becomes vested as provided herein shall be settled in accordance with Section 2.06.
2.04 Effect of Termination due to Death or Disability. If the Participant's employment or service is terminated prior to the PSU Vesting Date due to death or Disability, the Participant immediately will become vested in the number of PSUs equal to the Target PSUs. For purposes of this Award Agreement, "Disability" shall have the same meaning as defined in the 2022 Plan, subject to modification as may be required to conform to the Laws of the Participant's country of residence (and country of employment, if different). For the sake of clarity, the date of the Participant's death or Disability shall be a PSU Vesting Date. Each actual PSU that becomes vested as provided herein shall be settled in accordance with Section 2.06.
2.05 Effect of Retirement of the Participant. If the Participant's employment or service is terminated prior to the PSU Vesting Date due to the Participant's Retirement, the PSUs shall continue to vest and shall be settled in accordance with Section 2.01. For
2
purposes of this Award Agreement, "Retirement" shall mean the Participant's retirement of employment with the Company and its Subsidiaries on or after the Participant's (i) completion of at least 25 years of service with the Company and its Subsidiaries, (ii) completion of at least 20 years of service with the Company and its Subsidiaries and attainment of age 55, or (iii) completion of at least five (5) years of service with the Company and its Subsidiaries and attainment of age 60.
2.06 Settlement of Vested PSUs. Following the date on which the Committee certifies the Company's achievement of the Performance Metrics and determines the actual number of PSUs that vest pursuant to the achievement of the Performance Metrics, the Company shall, as soon as practicable (but in no event later than 60 days following the PSU Vesting Date), settle the vested PSUs by registering Shares in the Participant's name and delivering such Shares to the Participant's electronic stock plan account maintained by the Stock Plan Administrator. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the Participant's PSU may be settled in the form of: (i) cash, to the extent settlement in Shares (a) is prohibited under applicable Laws, (b) would require the Participant, the Company or the Employer to obtain the approval of any governmental and/or regulatory body in the Participant's country of residence (and country of employment, if different), or (c) is administratively burdensome or (ii) Shares, but the Company may require the Participant to immediately sell such Shares if necessary to comply with applicable Laws (in which case, the Participant hereby expressly authorizes the Company to issue sales instructions in relation to such Shares on the Participant's behalf).
2.07 Dividend Equivalents. No dividend equivalents will be paid on the Shares underlying the PSUs.
ARTICLE III
Recoupment
3.01 Recoupment in Event of Misconduct. If the Company determines that the Participant has committed or engaged in misconduct against the Company or has engaged in any criminal conduct, including embezzlement, fraud or theft, that involves or is related to the Company, or any other conduct that violates Company policy, causes or is discovered to have caused, any loss, damage, injury or other endangerment to the Company's property or reputation, and such Participant has received or is entitled to receive performance stock units, performance restricted stock units, stock options, restricted stock units or cash incentive compensation (collectively, "Incentive Compensation"), then the Company shall have the right to cancel the Incentive Compensation, require the return of Shares acquired under the 2022 Plan, recapture any gain realized upon the sale of Shares acquired under the 2022 Plan or take any other action it deems appropriate under the circumstances with respect to recouping the Incentive Compensation. The Company shall have sole discretion in determining whether the Participant's conduct was in compliance with applicable Law or Company policy and the extent to which the Company will seek recovery of the Incentive Compensation notwithstanding any other remedies available to the Company. If the Participant engages in misconduct or is believed to have engaged in misconduct, including but not limited to any violation of any of Participant's obligations under the Unfair Competition Agreement, the Company shall be entitled to take the actions outlined above for recouping the Incentive Compensation, as the Company deems appropriate under the circumstances.
3
3.02 Recoupment in Event of Materially Inaccurate Financial Results. If the Company has publicly filed materially inaccurate financial results (the "Subject Financials"), whether or not they result in a restatement, the Company has the discretion to recover any Incentive Compensation that was paid or settled to the Participant during the period covered by the Subject Financials as set forth herein. If the payment or settlement of Incentive Compensation would have been lower had the achievement of applicable financial performance goals been calculated based on restated financial results with respect to the Subject Financials, the Company may, if it determines it appropriate in its sole discretion, recover the portion of the paid or settled Incentive Compensation in excess of the payment or settlement that would have been made based on restated financial results. The Company will not seek to recover Incentive Compensation received or settled more than three (3) years after the date of the initial filing that contained the Subject Financials.
3.03 Recoupment in Event of Error. If the Participant receives any amount in excess of what the Participant should have received under the terms of this Award Agreement for any reason (including, without limitation, by reason of a mistake in calculations or administrative error), all as determined by the Committee, then the Company shall have the right to cancel the Incentive Compensation, require the return of Shares acquired under the 2022 Plan, recapture any gain realized upon the sale of Shares acquired under the 2022 Plan or take any other action it deems appropriate under the circumstances with respect to recouping the Incentive Compensation.
3.04 Implementation. For purposes of this Article III, the Participant expressly authorizes the Company to issue instructions, on behalf of the Participant, to the Stock Plan Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the 2022 Plan) to re-convey, transfer or otherwise return to the Company any Incentive Compensation (whether paid in the form of cash or Shares) subject to recoupment hereunder. Participant acknowledges and agrees that the Company's rights hereunder shall not be affected in any way by any subsequent change in the Participant's status, including retirement or termination of employment (including due to death or Disability). The Participant expressly agrees to indemnify and hold the Company and the Employer harmless from any loss, cost, damage, or expense (including attorneys’ fees) that the Company or the Employer may incur as a result of the Participant's actions or in the Company and the Employer’s efforts to recover such previously made payments or value pursuant to this Article III.
3.05 Forfeiture. To the extent any of the events set forth in this Article III occur before the Participant receives any Incentive Compensation due hereunder, any such Incentive Compensation shall be forfeited as determined by the Company in its sole discretion.
ARTICLE IV
Tax
4.01 Tax-Related Items. Regardless of any action the Company or the Employer takes with respect to any or all income tax (including U.S. federal, state and local taxes or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholding ("Tax-Related Items"), the Participant acknowledges and agrees that the ultimate liability for all Tax-Related Items legally due by the Participant is and remains the Participant's responsibility and that the Company and the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the PSU, including the grant of the PSU, the vesting of
4
the PSU, the subsequent sale of any Shares acquired pursuant to the PSU and the receipt of any dividends and (ii) do not commit to structure the terms of the grant or any aspect of the PSU to reduce or eliminate the Participant's liability for Tax-Related Items.
4.02 Tax Withholding Obligations. Prior to the delivery of Shares (or cash) upon the vesting of the PSU, if the Participant's country of residence (and country of employment, if different) requires withholding of Tax-Related Items, the Company shall withhold a sufficient number of whole Shares otherwise issuable upon the vesting of the PSU that have an aggregate Fair Market Value sufficient to pay the Tax-Related Items required to be withheld with respect to the Shares or the cash equivalent. The Company may withhold or account for Tax-Related Items by considering applicable statutory withholding rates or other applicable withholding rates, including maximum applicable rates, in which case the Company shall make a cash payment to the Participant equal to the over-withheld amount, if applicable, as soon as administratively practicable. The cash equivalent of the Shares withheld will be used to settle the obligation to withhold the Tax-Related Items. In the event that the withholding of Shares is prohibited under applicable Law or otherwise may trigger adverse consequences to the Company or the Employer, the Company and the Employer may withhold the Tax-Related Items required to be withheld with respect to the Shares in cash from the Participant's regular salary and/or wages or any other amounts payable to the Participant, or may require the Participant to personally make payment of the Tax-Related Items required to be withheld. In the event the withholding requirements are not satisfied through the withholding of Shares by the Company or through the withholding of cash from the Participant's regular salary and/or wages or other amounts payable to the Participant, no Shares will be issued to the Participant (or the Participant's estate) upon vesting of the PSU unless and until satisfactory arrangements (as determined by the Committee) have been made by the Participant with respect to the payment of any Tax-Related Items that the Company or the Employer determines, in its sole discretion, must be withheld or collected with respect to such PSUs. If the obligation for the Participant's Tax-Related Items is satisfied by withholding a number of Shares as described herein, the Participant shall be deemed to have been issued the full number of Shares issuable upon vesting, notwithstanding that a number of the Shares is held back solely for the purpose of paying the Tax-Related Items due as a result of the vesting or any other aspect of the PSU.
The Participant will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of the Participant's participation in the 2022 Plan or the Participant's acquisition of Shares that cannot be satisfied by the means described in this Article IV. The Company may refuse to deliver any Shares due upon vesting of the PSU if the Participant fails to comply with the Participant's obligations in connection with the Tax-Related Items as described herein. If the Participant is subject to taxation in more than one jurisdiction, the Participant acknowledges that the Company, the Employer or one or more of their respective Subsidiaries may be required to withhold or account for Tax-Related Items in more than one jurisdiction. The Participant hereby consents to any action reasonably taken by the Company and the Employer to meet the Participant's obligation for Tax-Related Items. By accepting this grant of the PSU, the Participant expressly consents to the withholding of Shares and/or withholding from the Participant's regular salary and/or wages or other amounts payable to the Participant as provided for hereunder. All other Tax-Related Items related to the PSU and any Shares delivered in payment thereof are the Participant's sole responsibility.
ARTICLE V
5
International Arrangements
5.01 Exchange Controls. As a condition to this PSU award, the Participant agrees to comply with any applicable foreign exchange Laws and hereby consents to any necessary, appropriate or advisable actions taken by the Company, the Employer or any of their respective Subsidiaries as may be required to comply with any applicable Laws of the Participant's country of residence (and country of employment, if different).
5.02 Foreign Asset and Account Reporting Requirements. The Participant acknowledges that there may be certain foreign asset and/or account reporting requirements, which may affect the Participant's ability to acquire or hold Shares acquired under the 2022 Plan or cash received from participating in the 2022 Plan (including from any dividends or dividend equivalent payments) in a brokerage or bank account outside the Participant's country of residence (and country of employment, if different). The Participant may be required to report such accounts, assets or transactions to the tax or other authorities in the Participant's country of residence (and country of employment, if different). The Participant acknowledges and agrees that it is the Participant's personal responsibility to be compliant with such Laws.
5.03 Country Specific Addendum. Notwithstanding any provisions of this Award Agreement to the contrary, the PSUs shall be subject to any special terms and conditions for the Participant's country of residence (and country of employment, if different) set forth in the addendum to this Award Agreement ("Country Addendum"). If the Participant transfers residence and/or employment to another country reflected in the Country Addendum at the time of transfer, the special terms and conditions for such country will apply to the Participant to the extent the Company determines, in its sole discretion, that the application of such special terms and conditions is necessary or advisable in order to comply with local Laws or to facilitate the operation and administration of the PSUs and the 2022 Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Participant's transfer). In all circumstances, the Country Addendum shall constitute part of this Award Agreement.
5.04 Controlling Language. If the Participant is in a country where English is not an official language, the Participant acknowledges that the Participant is sufficiently proficient in English to understand the terms and conditions of this Award Agreement or has had the ability to consult with an advisor who is sufficiently proficient in the English language. The Participant acknowledges and agrees that it is the Participant's express intent that this Award Agreement, the 2022 Plan, the Unfair Competition Agreement and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the PSUs be drawn up in English. If the Participant has received this Award Agreement, the 2022 Plan, the Unfair Competition Agreement or any other documents related to the PSUs translated into a language other than English and the meaning of any translated version is different than the English version, the English version will control.
ARTICLE VI
Miscellaneous
6.01 Restriction on Transferability. Except to the extent expressly provided in the 2022 Plan or this Award Agreement, the PSUs may not be sold, transferred, pledged, assigned, or otherwise alienated at any time other than by will or by the laws of descent and distribution. Any attempt to do so contrary to the provisions hereof shall be null and
6
void. Notwithstanding the foregoing, the Committee may permit, in its sole discretion, the Participant to transfer the PSUs to a member of the Participant’s immediate family or trust, a partnership or other entity for the benefit of the Participant or the members of the Participant's immediate family; provided, however, that the Participant retains beneficial ownership of any such PSUs. For purposes hereof, “immediate family” has the meaning ascribed thereto in Rule 16(a)-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and “beneficial owner” has the meaning ascribed thereto in Rule 13d-3 of the Exchange Act.
6.02 Rights as Shareholder. The Participant shall not have voting or any other rights as a shareholder of the Company with respect to the Shares issuable upon the vesting of PSUs until the date of issuance of such Shares. Upon settlement of the PSU, the Participant will obtain, with respect to the Shares received in such settlement, full voting and other rights as a shareholder of the Company.
6.03 Administration. The Committee shall have the power to interpret the 2022 Plan and this Award Agreement and to adopt such rules for the administration, interpretation, and application of the 2022 Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Participant, the Company, and all other Persons. No member of the Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the 2022 Plan or this Award Agreement.
6.04 No Employment Rights. This Award Agreement and the Participant's participation in the 2022 Plan are not and shall not be interpreted to: (i) form an employment contract or relationship with the Company, the Employer or any of their respective Subsidiaries; (ii) confer upon the Participant any right to continue in the employ of the Company, the Employer or any of their respective Subsidiaries; or (iii) interfere with the ability of the Company, the Employer or any of their respective Subsidiaries to terminate the Participant's employment at any time.
6.05 Nature of Grant. In accepting the grant hereunder, the Participant acknowledges and agrees that: (i) the 2022 Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time; (ii) the Participant has read the 2022 Plan and any PSUs granted under it shall be subject to all of the terms and conditions of the 2022 Plan, including but not limited to the power of the Committee to interpret and determine the terms and provisions of the 2022 Plan and this Award Agreement and to make all determinations necessary or advisable for the administration of the 2022 Plan, all of which interpretations and determinations shall be final and binding; (iii) the PSU does not create any contractual or other right to receive future grants of PSUs, benefits in lieu of PSUs, or any other Plan benefits in the future; (iv) nothing contained in this Award Agreement is intended to create or enlarge any other contractual obligations between the Company or the Employer and the Participant; (v) any grant under the 2022 Plan, including any grant of PSUs, is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long service option, pension, or retirement benefits or similar payments; (vi) the Participant is voluntarily participating in the 2022 Plan; (vii) the future value of the Shares underlying the PSUs granted hereunder is unknown and cannot be predicted with certainty; (viii) neither the Company, the Employer nor any of their respective Subsidiaries shall be liable for any change in value of the PSUs, the amount realized upon settlement of the PSUs or the amount realized upon a subsequent sale of any Shares acquired upon settlement of the PSUs, resulting from any fluctuation of the
7
United States Dollar/local currency foreign exchange rate, and (ix) the PSUs and the underlying Shares are not granted to the Participant for prior services rendered to the Company, the Employer or any Subsidiaries. Without limiting the generality of the foregoing, the Committee shall have the discretion to adjust the terms and conditions of any award of PSUs to correct for any windfalls or shortfalls in such PSUs which, in the Committee's determination, arise from factors beyond the Participant's control; provided, however, that the Committee's authority with respect to any Award to a "covered employee, " as defined in Section 162(m)(3) of the Code, shall be limited to decreasing, and not increasing, such PSU.
6.06 Compliance with Law. The Company shall not be required to issue or deliver any Shares pursuant to this Award Agreement pending compliance with all applicable Laws (including any registration requirements or tax withholding requirements) and compliance with the Laws and practices of any stock exchange or quotation system upon which the Shares are listed or quoted. If the Participant resides or is employed outside of the United States, the Participant agrees, as a condition of the grant of the PSUs, to repatriate all payments attributable to the Shares and/or cash acquired under the 2022 Plan (including, but not limited to, dividends and any proceeds derived from the sale of Shares acquired pursuant to the PSUs) if required by and in accordance with local Laws in the Participant's country of residence (and country of employment, if different). In addition, the Participant also agrees to take any and all actions, and consent to any and all actions taken by the Company, its Subsidiaries and the Employer, as may be required to allow the Company, its Subsidiaries and the Employer to comply with local Laws in the Participant's country of residence (and country of employment, if different). Finally, the Participant agrees to take any and all actions as may be required to comply with the Participant's personal legal and tax obligations under local Laws in the Participant's country of residence (and country of employment, if different).
6.07 Amendment. This Award Agreement may be amended by a writing which specifically states that it is amending this Award Agreement executed by (i) the Company and the Participant, (ii) the Company (at the discretion of the Committee), so long as a copy of such amendment is delivered to the Participant, and provided that no such amendment having a material adverse effect on the rights of the Participant hereunder may be made without the Participant's written consent or (iii) the Company (at the discretion of the Committee) in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable Laws or any future Laws or judicial decisions.
6.08 Notices. Any notice to be given under the terms of this Award Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to the Participant shall be addressed to the Participant at the address listed in the Employer’s records or to the Participant's electronic investment account held at the Stock Plan Administrator. By a notice given pursuant to this Section 6.08, either party may designate a different address for notices. Any notice shall have been deemed given when actually delivered.
6.09 Severability. If all or any part of this Award Agreement or the 2022 Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Award Agreement or the 2022 Plan not declared to be unlawful or invalid. Any provision of this Award Agreement (or part of such provision) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such provision (or part of such provision) to the fullest extent possible while remaining lawful and valid.
8
6.10 Construction. The PSUs are being issued pursuant to Article 9 (Performance Shares/Performance Units) of the 2022 Plan. PSUs are subject to the terms of the 2022 Plan. The Participant acknowledges receipt of the 2022 Plan booklet which contains the entire Plan, and the Participant represents and warrants that the Participant has read the 2022 Plan. Additional copies of the 2022 Plan are available upon request during normal business hours at the principal executive offices of the Company. To the extent that any provision of this Award Agreement violates or is inconsistent with an express provision of the 2022 Plan, the 2022 Plan provision shall govern and any inconsistent provision in this Award Agreement shall be of no force or effect. The words "including," "includes," or "include" are to be read as listing non-exclusive examples of the matters referred to, whether or not words such as "without limitation" or "but not limited to" are used in each instance.
6.11 Waiver of Right to Jury Trial. EACH OF THE PARTIES KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE PSUs, THE PLAN OR THIS AWARD AGREEMENT.
6.12 Waiver; No Third Party Beneficiaries. A waiver by the Company of a breach of any provision of this Award Agreement by the Participant shall not operate or be construed as a waiver of any other provision of this Award Agreement, or of any subsequent breach by the Participant. This Award Agreement shall not be construed to create any third party beneficiary rights.
6.13 Data Privacy. The Company is located at 100 Grainger Parkway, Lake Forest, Illinois 60045, United States of America, and grants PSUs under the 2022 Plan to employees of the Company and its Subsidiaries in its sole discretion. In conjunction with the Company's grant of the PSUs under the 2022 Plan and its ongoing administration of such awards, the Company is providing the following information about its data collection, processing and transfer practices. In accepting the grant of the PSU, the Participant expressly and explicitly consents to the personal data activities as described herein.
i.Data Collection, Processing and Usage. The Company and the Employer will collect, process and use certain personal information about the Participant, specifically, the Participant's name, home address, email address and telephone number, date of birth, social security or insurance number, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all PSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant's favor ("Data"), for the purpose of implementing, administering and managing the 2022 Plan. The Company's legal basis for the collection, processing and use of the Participant's Data is the Participant's consent. The Participant's Data also may be disclosed to certain securities or other regulatory authorities where the Company's securities are listed or traded, or regulatory filings are made. The Company's legal basis for such disclosure of the Participant's Data is to comply with applicable laws, rules and regulations.
ii.Stock Plan Administration Service Providers. The Company and the Employer transfer the Participant's Data to the Stock Plan Administrator based in the United States of America, which assists the Company with the implementation, administration and management of the 2022 Plan. In the future, the Company may select a different Stock Plan Administrator and share the Participant's Data with another company that serves in a similar manner. The Stock Plan Administrator will open an
9
account for the Participant to receive and trade Shares acquired under the 2022 Plan. The Participant will be asked to agree to separate terms and data processing practices with the Stock Plan Administrator, which is a condition of the Participant's ability to participate in the 2022 Plan.
iii.International Data Transfers. The Company and the Stock Plan Administrator are based in the United States of America. The Participant should note that the Participant's country of residence may have enacted data privacy laws that are different from the United States of America. The Company's legal basis for the transfer of the Participant's Data to the United States of America is the Participant consent.
iv.Voluntariness and Consequences of Consent, Denial or Withdrawal. The Participant's participation in the 2022 Plan and the Participant's grant of consent hereunder is purely voluntary. The Participant may deny or withdraw the Participant's consent at any time. If the Participant does not consent, or if the Participant later withdraws the Participant's consent, the Participant may be unable to participate in the 2022 Plan. This would not affect the Participant's existing employment or salary; instead, the Participant merely may forfeit the opportunities associated with participation in the 2022 Plan.
v.Data Retention. The Participant understands that the Participant's Data will be held only as long as is necessary to implement, administer and manage the Participant's PSU and participation in the 2022 Plan; provided that the Company may hold the Participant's Data for longer periods of time consistent with its retention policies and practices with respect to employee data.
vi.Data Subject Rights. The Participant understands that the Participant may have the right under applicable law to (i) access or copy the Participant's Data that the Company possesses, (ii) rectify incorrect Data concerning the Participant, (iii) delete the Participant's Data, (iv) restrict processing of the Participant's Data, (vi) lodge complaints with the competent supervisory authorities in the Participant's country of residence. To receive clarification regarding these rights or to exercise these rights, the Participant understands that the Participant can contact the Participant's local human resources representative.
6.14 Private Placement. The grant of the PSUs is not intended to be a public offering of securities in the Participant's country of residence (and country of employment, if different). The Company has not submitted any registration statement, prospectus or other filing with the local securities authorities (unless otherwise required under local Laws).
6.15 No Advice Regarding Grant. The Company and the Employer are not providing any tax, legal or financial advice, nor is the Company or the Employer making any recommendations regarding the PSU, the Participant's participation in the 2022 Plan or the Participant's acquisition or sale of the underlying Shares. The Participant is hereby advised to consult with the Participant's own personal tax, legal and financial advisors regarding participation in the 2022 Plan before taking any action related to the 2022 Plan or this Award Agreement.
6.16 Securities Law Restrictions. The Participant acknowledges that, depending on the Participant's country of residence (and country of employment, if different) or where the Company Shares are listed, the Participant shall be subject to insider trading restrictions and/or market abuse Laws, which may affect the Participant's ability to acquire, sell or otherwise dispose of Shares, rights to Shares (e.g., PSUs) or rights
10
linked to the value of Shares during such times as the Participant is considered to have "inside information" regarding the Company or its business (as defined by the local Laws in the Participant's country of residence and/or employment). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Participant placed before the Participant possessed inside information. Furthermore, the Participant could be prohibited from (i) disclosing the inside information to any third party (other than on a "need to know" basis) and (ii) "tipping" third parties (including other employees of the Company and its Subsidiaries) or causing them otherwise to buy or sell securities. Any restrictions under these Laws are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading or other policy. The Participant solely is responsible for ensuring compliance with any applicable restrictions and should consult with the Participant's personal legal advisor on this matter.
6.17 EU Age Discrimination Rules. If the Participant is a local national of and employed in the United Kingdom or a country that is a member of the European Union, the grant of the PSUs and the terms and conditions governing the PSUs are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the "Age Discrimination Rules"). To the extent that a court or tribunal of competent jurisdiction determines that any provision of this Award Agreement is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make it valid and enforceable to the full extent permitted under local Laws.
6.18 Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the PSUs granted to the Participant under the 2022 Plan by electronic means. The Participant hereby expressly consents to receive such documents by electronic delivery and agrees to participate in the 2022 Plan through an online or electronic system established and maintained by the Company or a third party designated by the Company.
6.19 Governing Law; Jurisdiction. This Award Agreement shall be exclusively governed by, and construed in accordance with, the Laws of the State of Illinois without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Illinois or of any other jurisdiction) that would cause the application of the laws of a jurisdiction other than the State of Illinois. All disputes and controversies arising between the parties are to be submitted for determination exclusively to the federal or state courts of the State of Illinois and by accepting the grant of PSUs, the Participant expressly consents to the jurisdiction of such courts. Notwithstanding the foregoing, the Company may at its option seek interim and permanent injunctive relief before any competent court, tribunal or judicial forum, which in the absence of the foregoing provision, would have jurisdiction to grant the relief sought.
6.20 Entire Agreement. The Plan, this Award Agreement (including any applicable addendum) and the Unfair Competition Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede, in their entirety, all prior undertakings and agreements of the Company and the Participant with respect to the subject matter hereof.
[Signature Page Follows]
11
IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed by a duly authorized officer and the Participant acknowledges and agrees that by clicking on the "Accept" box below this Award Agreement in the section "Your New Grant" on the screen titled "View Grant," the Participant expressly agrees to be bound by the terms and conditions of the PSU, including Participant's electronic signature constituting the sole and exclusive means of executing this Award Agreement.
W.W. GRAINGER, INC. By: Name: DG Macpherson Title: Chairman & Chief Executive Officer | |||||
2
EXHIBIT I
Performance Metrics for Grant Date
Measurement Period: to
The actual number of the Target PSUs that vest and which shall be settled pursuant to Section 2.06 of this Award Agreement shall be determined based upon the achievement of the following three (3) Performance Metrics, each of which shall be ___ weighted and which shall be determined and certified by the Committee in its sole discretion.
For purposes of the foregoing, the aggregate payout percentage shall be computed as the aggregate of (A) the Share Gain Payout Percentage multiplied by , (B) the Endless Assortment Business Revenue Growth Payout Percentage multiplied by , and (C) the Operating Margin Payout Percentage multiplied by .
1
A. Performance Metric - Share Gain
| Targets for Performance Metric | |||||
| Target | Share Gain Payout Percentage | ||||
| 0 basis points or less | 0% | ||||
basis points to basis points | % to % | ||||
basis points to basis points | % to % | ||||
basis points to basis points | % | ||||
basis points to basis points | % to % | ||||
basis points to basis points | % to % | ||||
basis points or greater | % (maximum) | ||||
B. Performance Metric - Endless Assortment Business Revenue Growth
2
| Targets for Performance Metric | |||||
| Target | Endless Assortment Segment Revenue Growth Payout Percentage | ||||
| 0% or less | 0% | ||||
% to % | % to % | ||||
% to % | % to % | ||||
% to % | % | ||||
% to % | % to % | ||||
% to % | % to % | ||||
% or greater | % (maximum) | ||||
C. Performance Metric - Operating Margin
| Targets for Performance Metric | |||||
| Target | Operating Margin Payout Percentage | ||||
basis points or less | 0% | ||||
basis points to basis points | % to % | ||||
basis points to basis points | % to % | ||||
basis points to basis points | % | ||||
basis points to basis points | % to % | ||||
basis points to basis points | % to % | ||||
basis points or greater | % (maximum) | ||||
3
CERTIFICATION
Exhibit 31.1
I, D.G. Macpherson, 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: July 29, 2022
| By: | /s/ D.G. Macpherson | ||||
| Name: | D.G. Macpherson | ||||
| Title: | Chairman and Chief Executive Officer | ||||
CERTIFICATION
Exhibit 31.2
I, Deidra C. Merriwether, 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: July 29, 2022
| By: | /s/ Deidra C. Merriwether | ||||
| Name: | Deidra C. Merriwether | ||||
| 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 June 30, 2022, (the “Report”), D.G. Macpherson, as Chairman and Chief Executive Officer of Grainger, and Deidra C. Merriwether, 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/ D.G. Macpherson | ||
| D.G. Macpherson | ||
| Chairman and Chief Executive Officer | ||
| July 29, 2022 | ||
| /s/ Deidra C. Merriwether | ||
| Deidra C. Merriwether | ||
| Senior Vice President and Chief Financial Officer | ||
| July 29, 2022 | ||
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Grainger (GWW) Tops Q1 EPS by 2c, provides guidance
- Alphabet stock surges 11% to record high on Q1 earnings beat, first-ever dividend
- GRAINGER INCREASES QUARTERLY DIVIDEND BY 10%; REFRESHES SHARE REPURCHASE AUTHORIZATION
Create E-mail Alert Related Categories
SEC FilingsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
