UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2018
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 1-5684
W.W. Grainger, Inc.
(Exact name of registrant as specified in its charter)
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Illinois
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36-1150280
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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100 Grainger Parkway, Lake Forest, Illinois
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60045-5201
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(Address of principal executive offices)
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(Zip Code)
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(847) 535-1000
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(Registrant’s telephone number including area code)
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Not Applicable
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(Former name, former address and former fiscal year; if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]
Emerging growth company [ ]
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 [X]
There were
56,017,200
shares of the Company’s Common Stock, par value $0.50, outstanding as of
March 31, 2018
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TABLE OF CONTENTS
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Page No.
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PART I FINANCIAL INFORMATION
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Item 1:
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Financial Statements (Unaudited)
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Condensed Consolidated Statements of Earnings
for the Three Months Ended March 31, 2018 and 2017
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Condensed Consolidated Statements of Comprehensive
Earnings for the Three Months Ended March 31, 2018 and 2017
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Condensed Consolidated Balance Sheets
as of March 31, 2018 and December 31, 2017
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Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2018 and 2017
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Notes to Condensed Consolidated Financial Statements
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Item 2:
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Management's Discussion and Analysis of Financial
Condition and Results of Operations
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Item 3:
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Quantitative and Qualitative Disclosures About Market Risk
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Item 4:
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Controls and Procedures
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PART II OTHER INFORMATION
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Item 1:
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Legal Proceedings
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Item 2:
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Unregistered Sales of Equity Securities and Use of Proceeds
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Item 6:
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Exhibits
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Signatures
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EXHIBITS
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PART I – FINANCIAL INFORMATION
Item 1: Financial Statements
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except for share and per share amounts)
(Unaudited)
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Three Months Ended
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March 31,
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2018
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2017
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Net sales
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$
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2,766,401
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$
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2,541,129
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Cost of merchandise sold
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1,674,642
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1,521,937
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Gross profit
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1,091,759
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1,019,192
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Warehousing, marketing and administrative expenses
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756,929
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726,691
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Operating earnings
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334,830
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292,501
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Other income (expense):
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Interest income
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628
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193
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Interest expense
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(24,665
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)
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(18,713
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)
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Loss from equity method investment
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(11,497
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)
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(8,374
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)
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Other, net
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7,698
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5,066
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Total other expense, net
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(27,836
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)
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(21,828
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)
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Earnings before income taxes
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306,994
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270,673
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Income taxes
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66,209
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87,820
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Net earnings
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240,785
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182,853
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Less: Net earnings attributable to noncontrolling interest
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9,250
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8,109
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Net earnings attributable to W.W. Grainger, Inc.
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$
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231,535
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$
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174,744
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Earnings per share:
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Basic
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$
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4.09
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$
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2.95
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Diluted
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$
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4.07
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$
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2.93
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Weighted average number of shares outstanding:
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Basic
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56,062,607
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58,720,066
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Diluted
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56,403,246
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59,202,882
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Cash dividends paid per share
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$
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1.28
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$
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1.22
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The accompanying notes are an integral part of these financial statements.
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands of dollars)
(Unaudited)
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Three Months Ended
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March 31,
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2018
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2017
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Net earnings
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$
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240,785
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$
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182,853
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Other comprehensive earnings:
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Foreign currency translation adjustments
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23,116
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29,303
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Postretirement benefit plan reclassification, net of tax benefit of $825 and $879, respectively
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(2,439
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)
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(1,398
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)
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Other
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5
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(12
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Comprehensive earnings, net of tax
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261,467
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210,746
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Less: Comprehensive earnings attributable to noncontrolling interest
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Net earnings
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9,250
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8,109
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Foreign currency translation adjustments
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8,360
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5,532
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Comprehensive earnings attributable to W.W. Grainger, Inc.
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$
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243,857
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$
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197,105
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The accompanying notes are an integral part of these financial statements.
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except for share and per share amounts)
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(Unaudited)
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As of
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As of
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ASSETS
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March 31, 2018
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Dec 31, 2017
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CURRENT ASSETS
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Cash and cash equivalents
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$
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302,015
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$
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326,876
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Accounts receivable (less allowances for doubtful
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accounts of $30,148 and $29,267, respectively)
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1,428,233
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1,325,186
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Inventories – net
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1,434,609
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1,429,199
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Prepaid expenses and other assets
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116,318
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86,667
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Prepaid income taxes
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25,987
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38,061
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Total current assets
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3,307,162
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3,205,989
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PROPERTY, BUILDINGS AND EQUIPMENT
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3,439,914
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3,444,660
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Less: Accumulated depreciation and amortization
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2,069,843
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2,052,693
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Property, buildings and equipment – net
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1,370,071
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1,391,967
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DEFERRED INCOME TAXES
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33,300
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22,362
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GOODWILL
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549,418
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543,903
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INTANGIBLES - NET
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570,134
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569,115
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OTHER ASSETS
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72,726
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70,918
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TOTAL ASSETS
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$
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5,902,811
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$
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5,804,254
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
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Short-term debt
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$
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137,643
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$
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55,603
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Current maturities of long-term debt
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30,279
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38,709
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Trade accounts payable
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748,372
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731,582
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Accrued compensation and benefits
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181,055
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254,560
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Accrued contributions to employees' profit sharing plans
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29,890
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92,682
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Accrued expenses
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324,319
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313,766
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Income taxes payable
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52,774
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19,759
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Total current liabilities
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1,504,332
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1,506,661
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LONG-TERM DEBT (less current maturities)
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2,244,406
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2,248,036
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DEFERRED INCOME TAXES AND TAX UNCERTAINTIES
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121,767
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111,710
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EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES
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106,400
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110,114
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SHAREHOLDERS' EQUITY
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Cumulative Preferred Stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding
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—
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—
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Common Stock – $0.50 par value – 300,000,000 shares authorized;
109,659,219 shares issued
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54,830
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54,830
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Additional contributed capital
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1,065,326
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1,040,493
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Retained earnings
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7,564,319
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7,405,192
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Accumulated other comprehensive losses
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(122,353
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)
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(134,674
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Treasury stock, at cost – 53,642,019 and 53,330,356 shares, respectively
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(6,791,524
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(6,675,709
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Total W.W. Grainger, Inc. shareholders’ equity
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1,770,598
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1,690,132
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Noncontrolling interest
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155,308
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137,601
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Total shareholders' equity
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1,925,906
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1,827,733
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
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$
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5,902,811
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$
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5,804,254
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The accompanying notes are an integral part of these financial statements.
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
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Three Months Ended
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March 31,
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2018
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2017
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net earnings
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$
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240,785
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$
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182,853
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Provision for losses on accounts receivable
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3,552
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3,918
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Deferred income taxes and tax uncertainties
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(1,660
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)
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(7,632
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)
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Depreciation and amortization
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63,931
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62,249
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Gains from sales of assets, net of write-offs
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(5,714
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)
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(10,966
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)
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Stock-based compensation
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11,652
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6,757
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Losses from equity method investment
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11,497
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8,374
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Change in assets and liabilities:
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Accounts receivable
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(94,221
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)
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(95,419
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)
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Inventories
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3,136
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27,826
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Prepaid expenses and other assets
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(32,951
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)
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(25,943
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)
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Trade accounts payable
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13,244
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18,051
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Other current liabilities
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(102,664
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)
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(64,171
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)
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Current income taxes payable, net
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43,844
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73,227
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Accrued employment-related benefits cost
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(6,950
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)
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1,520
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Other – net
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(596
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)
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302
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Net cash provided by operating activities
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146,885
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180,946
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Additions to property, buildings and equipment and intangibles
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(49,149
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)
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(78,768
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)
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Proceeds from sales of assets
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25,987
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48,306
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Equity method investment
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(8,115
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)
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(7,067
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)
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Net cash used in investing activities
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(31,277
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)
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(37,529
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)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Net increase in commercial paper
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89,904
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34,946
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Borrowings under lines of credit
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10,185
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9,883
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Payments against lines of credit
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(19,923
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)
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(9,167
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)
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Proceeds from issuance of long-term debt
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103
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3,917
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Payments of long-term debt
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(25,288
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)
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(6,235
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)
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Proceeds from stock options exercised
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59,003
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26,345
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Payments for employee taxes withheld from stock awards
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(14,878
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)
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(11,625
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)
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Purchase of treasury stock
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(172,917
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)
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(159,146
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)
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Cash dividends paid
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(72,254
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)
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(72,118
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)
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Net cash used in financing activities
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(146,065
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)
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(183,200
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)
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Exchange rate effect on cash and cash equivalents
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5,596
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4,438
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NET CHANGE IN CASH AND CASH EQUIVALENTS
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(24,861
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)
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(35,345
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)
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Cash and cash equivalents at beginning of year
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326,876
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274,146
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Cash and cash equivalents at end of period
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$
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302,015
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$
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238,801
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The accompanying notes are an integral part of these financial statements.
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BACKGROUND AND BASIS OF PRESENTATION
W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) supplies, and other related products and services. W.W. Grainger, Inc.’s operations are primarily in the United States (U.S.) and Canada, with a presence in Europe, Asia and Latin America. In this report, the words “Company” or “Grainger” mean W.W. Grainger, Inc. and its subsidiaries, except where the context makes it clear that the reference is only to W.W. Grainger, Inc. itself and not its subsidiaries.
The Condensed Consolidated Financial Statements of the Company and the related notes are unaudited and should be read in conjunction with the consolidated financial statements and related notes for the year ended
December 31, 2017
included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 26, 2018.
The Condensed Consolidated Balance Sheet as of
December 31, 2017
has been derived from the audited consolidated financial statements at that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.
The unaudited financial information reflects all adjustments (primarily consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the statements contained herein.
2. NEW ACCOUNTING STANDARDS
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers (Topic 606)
as modified by subsequently issued ASUs 2015-14, 2016-08, 2016-10, 2016-12, 2016-20 and 2017-05. The core principle of these ASUs, among other changes, is that an entity should recognize revenue when it transfers promised products or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those products or services. The Company elected the modified retrospective method and adopted the new revenue guidance effective January 1, 2018, with no impact to the opening retained earnings.
Grainger assessed the impact of the new standard on the Company's process of evaluating customer contracts which primarily resulted in the reclassification of certain service-related costs from Warehousing, marketing and administrative expenses to Cost of merchandise sold to reflect certain Company customer contracts with dual performance obligations.
The new standard also expanded the Company's qualitative and quantitative disclosures related to revenue recognition. The timing of revenue recognition under the new revenue recognition standard was consistent with the Company’s prior revenue recognition model, whereby revenue is recognized primarily on the date products are shipped to, or picked up by the customer. See Note 3 to the Condensed Consolidated Financial Statements (Financial Statements).
Adoption of the new standard did not and is not expected to have an ongoing material impact on the Company's Financial Statements.
Other
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities
. This change to the financial instrument model primarily affects the accounting for equity investments, financial liabilities under the fair value options and the presentation and disclosure requirements for financial instruments. In February 2018, the FASB issued ASU 2018-03,
Technical Corrections and Improvements to Financial Instruments
. This ASU provides technical corrections and improvements intended to clarify certain aspects of recognizing and measuring financial assets and liabilities. The effective date of these ASUs was for fiscal years and interim periods beginning after December 15, 2017. The Company adopted these ASUs as of January 1, 2018, and they did not have a material impact on the Company's Financial Statements.
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In February 2016, the FASB issued ASU 2016-02,
Leases.
This ASU improves transparency and comparability related to the accounting and reporting of leasing arrangements, including balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months, among other changes. In January 2018, the FASB issued ASU 2018-01,
Leases: Land Easement Practical Expedient for Transition
. This ASU clarifies the accounting and reporting of land easements. The effective date of these ASUs is for fiscal years and interim periods beginning after December 15, 2018 and early adoption is permitted. The Company is evaluating the impact of these ASUs.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments.
This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of this ASU was for fiscal years and interim periods beginning after December 15, 2017. The Company adopted this ASU as of January 1, 2018, and it did not have a material impact on the Company's Financial Statements.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business.
This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The effective date of this ASU was for fiscal years and interim periods beginning after December 15, 2017. The Company adopted this ASU as of January 1, 2018, and it did not have a material impact on the Company's Financial Statements.
In March 2017, the FASB issued ASU 2017-07,
Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
This ASU improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The effective date of this ASU
was for fiscal years and interim periods beginning after December 15, 2017. The Company adopted this ASU as of January 1, 2018. This ASU was applied retrospectively for the presentation of the net periodic postretirement cost components in the Condensed Consolidated Statement of Earnings for the quarter ended March 31, 2017 and prospectively, after the effective date. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component will be applied prospectively. The impact of the ASU for the three months ended March 31, 2017 was an increase of $
3.0
million in Warehousing, marketing and administrative expense offset by a reduction in Total other expense, net of $
3.0
million related to the reclassification of interest cost, expected return on plan assets and amortization of unrecognized gains and prior service credits. See Note 7 to the Financial Statements.
In May 2017, the FASB issued ASU 2017-09,
Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.
This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this ASU were effective for public entities for fiscal years and interim periods beginning after December 15, 2017. The Company adopted this ASU as of January 1, 2018, and it did not have a material impact on the Company's Financial Statements.
In February 2018, the FASB issued ASU 2018-02,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. This ASU allows a reclassification from Accumulated other comprehensive earnings to Retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is evaluating the impact of this ASU.
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. REVENUE
Company revenue is primarily comprised of MRO product sales and related activities, such as freight and services.
Recognition
The Company recognizes revenue when a sales arrangement with a customer exists (e.g., contract, purchase orders, others), transaction price is fixed or determinable and the Company has satisfied its performance obligation per the sales arrangement. Company sales arrangements have standard payment terms that do not exceed a year.
The majority of Company revenue originates from contracts with a single performance obligation to deliver products, whereas the Company’s performance obligations are satisfied when control of the product is transferred to the customer per the arranged shipping terms. Some Company contracts contain a combination of product sales and services which are distinct and accounted for as separate performance obligations. The Company’s performance obligations for services are satisfied when the services are rendered within the arranged service period. Total service revenue is not material and accounted for approximately
1%
of total Company revenue for the three months ended
March 31, 2018
.
The Company records a contract asset when it has a right to payment from a customer that is conditioned on events other than the passage of time. The Company also records a contract liability when customers prepay but the Company has not yet satisfied its performance obligation. The Company did not have any material unsatisfied performance obligations, contract assets or liabilities as of
March 31, 2018
and
December 31, 2017
.
Measurement
The Company’s revenue is reported as Net sales and is measured as the determinable transaction price, net of any variable considerations (e.g., rights to return product, sales incentives, others) and any taxes collected from customers and subsequently remitted to governmental authorities. The Company considers shipping and handling as activities to fulfill its performance obligation. Billings for freight and shipping and handling costs are accounted for as Net sales and Cost of merchandise sold, respectively.
The Company offers customers rights to return product and sales incentives, which primarily consist of volume rebates. The Company’s rights of return and sales incentives generally do not exceed a year. The Company estimates sales returns and volume rebate accruals throughout the year based on various factors, including contract terms, historical experience and performance levels. Total accrued sales incentives were approximately $
49
million and $
55
million as of
March 31, 2018
and
December 31, 2017
, respectively, and are reported as part of Accrued expenses. Total accrued sales returns were approximately $
26
million and $
28
million as of
March 31, 2018
and
December 31, 2017
, respectively, and are reported as a reduction of Accounts receivable - net.
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Disaggregation of Revenues
Grainger serves a large number of customers in diverse industries, which are subject to different economic and industry factors. The Company's presentation of revenue by industry most reasonably depicts how the nature, amount, timing and uncertainty of Company revenue and cash flows are affected by economic and industry factors. The following table presents the Company's percentage of revenue by reportable segment and by major customer industry for the three months ended
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
United States
|
|
Canada
|
|
Total Company (2)
|
Government
|
17
|
%
|
|
7
|
%
|
|
13
|
%
|
Heavy Manufacturing
|
20
|
%
|
|
20
|
%
|
|
19
|
%
|
Light Manufacturing
|
13
|
%
|
|
5
|
%
|
|
11
|
%
|
Transportation
|
5
|
%
|
|
8
|
%
|
|
5
|
%
|
Commercial
|
16
|
%
|
|
10
|
%
|
|
13
|
%
|
Retail/Wholesale
|
8
|
%
|
|
4
|
%
|
|
7
|
%
|
Contractors
|
10
|
%
|
|
12
|
%
|
|
8
|
%
|
Natural Resources
|
3
|
%
|
|
31
|
%
|
|
4
|
%
|
Other (1)
|
8
|
%
|
|
3
|
%
|
|
20
|
%
|
Total net sales
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Percent of Total Company Revenue
|
72
|
%
|
|
7
|
%
|
|
100
|
%
|
(1) Other category primarily includes revenue from individual customers not aligned to any industry segment, including small business and consumers and intersegment net sales.
(2) Total Company includes other businesses which include the Company's single channel businesses and small operations in the U.S., Europe, Asia and Latin America and account for approximately
21%
of revenue.
Cost of Merchandise Sold
Cost of merchandise sold included products and product-related costs, vendor consideration, freight and handling costs and service costs.
4. GOODWILL AND INTANGIBLE ASSETS
Grainger had approximately
$1.1 billion
of goodwill and intangible assets as of March 31, 2018 and December 31, 2017, or
19%
of total assets. Grainger tests reporting units' goodwill and intangible assets for impairment annually during the fourth quarter and more frequently if impairment indicators exist. Accordingly, Grainger periodically performs qualitative assessments of significant events and circumstances such as reporting units' historical and current results, assumptions regarding future performance, strategic initiatives and overall economic factors to determine the existence of impairment indicators and assess if it is more likely than not that the fair value of reporting units or intangible assets is less than their carrying value and if a quantitative impairment test is necessary. In the quantitative test for goodwill and indefinite-lived intangible assets, Grainger compares the assets' carrying value with the fair value and records an impairment charge for any excess of carrying over fair value. For amortizable intangibles, an impairment loss is recognized when estimated undiscounted future cash flows resulting from use of the asset, including disposition, are less than the carrying value of the asset, and is measured as the amount by which the asset's carrying amount exceeds the fair value.
Grainger's qualitative assessment for the
three months ended March 31, 2018
did not indicate the presence of impairment triggering events. Changes in assumptions regarding discount rate and future performance, as well as the ability to execute on growth initiatives and productivity improvements, may have a significant impact on future cash flows. Likewise, unfavorable economic environment and changes in market conditions or other factors may result in future impairments of goodwill and intangible assets.
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. RESTRUCTURING
The Company continues its previously announced restructuring actions to reduce costs in the U.S. and Company level (Unallocated expense) and to streamline and focus on profitability in Canada and other businesses. Restructuring costs, net, for the
three months ended March 31, 2018 and 2017
are as follows (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Cost of merchandise sold
|
|
Warehousing, marketing and administrative expenses
|
|
Total
|
|
Warehousing, marketing and administrative expenses
|
|
Total
|
|
|
Involuntary employee termination costs
|
|
Other charges (gains)
|
|
|
Involuntary employee termination costs
|
|
Other charges (gains)
|
|
United States
|
$
|
—
|
|
|
$
|
2,994
|
|
|
$
|
(7,421
|
)
|
|
$
|
(4,427
|
)
|
|
$
|
3,183
|
|
|
$
|
(9,505
|
)
|
|
$
|
(6,322
|
)
|
Canada
|
(388
|
)
|
|
8,391
|
|
|
2,917
|
|
|
10,920
|
|
|
935
|
|
|
152
|
|
|
1,087
|
|
Other businesses
|
—
|
|
|
1,095
|
|
|
80
|
|
|
1,175
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Unallocated expense
|
—
|
|
|
—
|
|
|
370
|
|
|
370
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
(388
|
)
|
|
$
|
12,480
|
|
|
$
|
(4,054
|
)
|
|
$
|
8,038
|
|
|
$
|
4,118
|
|
|
$
|
(9,353
|
)
|
|
$
|
(5,235
|
)
|
Other charges (gains) primarily include asset impairment charges in Canada and other exit-related costs, net of gains from the sales of branches in the U.S. and Canada businesses.
The following summarizes the restructuring activity for the
three months ended March 31, 2018
(in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
Current liabilities
|
|
|
|
Current asset write-downs
|
|
Fixed assets write-downs and disposals
|
|
Involuntary employee termination costs
|
|
Lease termination costs
|
|
Other costs
|
|
Total
|
Reserves as of December 31, 2017
|
$
|
13,101
|
|
|
$
|
741
|
|
|
$
|
50,289
|
|
|
4,893
|
|
|
$
|
12,764
|
|
|
$
|
81,788
|
|
Restructuring costs, net of (gains)
|
1,002
|
|
|
(6,090
|
)
|
|
12,480
|
|
|
819
|
|
|
(173
|
)
|
|
8,038
|
|
Cash (paid) received
|
(744
|
)
|
|
7,659
|
|
|
(15,940
|
)
|
|
(1,380
|
)
|
|
(1,237
|
)
|
|
(11,642
|
)
|
Non-cash, translation and others
|
(4,482
|
)
|
|
(1,973
|
)
|
|
(253
|
)
|
|
(1,498
|
)
|
|
(3,350
|
)
|
|
(11,556
|
)
|
Reserves as of March 31, 2018
|
$
|
8,877
|
|
|
$
|
337
|
|
|
$
|
46,576
|
|
|
$
|
2,834
|
|
|
$
|
8,004
|
|
|
$
|
66,628
|
|
The cumulative amounts incurred to date and expected through the end of 2018 (excluding results of sales of real estate) in connection with the Company's restructuring actions for active programs are as follows (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
Cumulative amount incurred to date
|
|
Additional amount expected
|
United States
|
$
|
57,971
|
|
|
$
|
1,701
|
|
Canada
|
69,388
|
|
|
11,939
|
|
Other businesses
|
61,891
|
|
|
1,428
|
|
Unallocated expense
|
19,910
|
|
|
—
|
|
Total
|
$
|
209,160
|
|
|
$
|
15,068
|
|
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. SHORT-TERM AND LONG-TERM DEBT
Short-term debt consisted of the following (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Lines of Credit
|
|
|
|
Outstanding lines of credit
|
$
|
47,757
|
|
|
$
|
55,603
|
|
Maximum month-end balance during the period
|
$
|
62,525
|
|
|
$
|
55,621
|
|
Weighted-average interest rate during the period
|
2.13
|
%
|
|
2.41
|
%
|
Weighted average interest rate
|
2.37
|
%
|
|
2.01
|
%
|
|
|
|
|
Commercial Paper
|
|
|
|
Outstanding commercial paper
|
$
|
89,886
|
|
|
$
|
—
|
|
Maximum month-end balance during the period
|
$
|
89,886
|
|
|
$
|
454,696
|
|
Weighted-average interest rate during the period
|
1.70
|
%
|
|
0.83
|
%
|
Weighted average interest rate
|
1.94
|
%
|
|
—
|
%
|
The increase in commercial paper from December 31, 2017 was primarily used to fund general working capital needs and share repurchases.
Long-term debt consisted of the following (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
As of December 31, 2017
|
|
Carrying Value
|
Fair Value
|
|
Carrying Value
|
Fair Value
|
4.60% senior notes due 2045
|
$
|
1,000,000
|
|
$
|
1,060,000
|
|
|
$
|
1,000,000
|
|
$
|
1,089,000
|
|
3.75% senior notes due 2046
|
400,000
|
|
371,096
|
|
|
400,000
|
|
384,200
|
|
4.20% senior notes due 2047
|
400,000
|
|
398,912
|
|
|
400,000
|
|
410,800
|
|
British pound term loan
|
196,210
|
|
196,210
|
|
|
194,574
|
|
194,574
|
|
Euro term loan
|
135,531
|
|
135,531
|
|
|
131,956
|
|
131,956
|
|
Canadian dollar revolving credit facility
|
96,967
|
|
96,967
|
|
|
99,388
|
|
99,388
|
|
Capital lease obligations and other
|
69,166
|
|
69,166
|
|
|
84,274
|
|
84,274
|
|
|
2,297,874
|
|
2,327,882
|
|
|
2,310,192
|
|
2,394,192
|
|
Less current maturities
|
(30,279
|
)
|
(30,279
|
)
|
|
(38,709
|
)
|
(38,709
|
)
|
Debt issuance costs and discounts
|
(23,189
|
)
|
(23,189
|
)
|
|
(23,447
|
)
|
(23,447
|
)
|
|
$
|
2,244,406
|
|
$
|
2,274,414
|
|
|
$
|
2,248,036
|
|
$
|
2,332,036
|
|
The estimated fair value of the Company’s
4.20%
Senior Notes due 2047,
3.75%
Senior Notes due 2046 and
4.60%
Senior Notes due 2045 was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as level 2 inputs within the fair value hierarchy. The carrying value of other long-term debt approximates fair value due to their variable interest rates.
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. EMPLOYEE BENEFITS
The Company has a postretirement healthcare benefits plan that provides coverage for a majority of its U.S. employees hired prior to January 1, 2013. Effective January 1, 2018, the Company implemented plan design changes for the post-65 age group. This plan change moves all post-65 Medicare eligible retirees to healthcare exchanges and provides them a subsidy, based on years of service, to purchase insurance.
The net periodic benefit costs for the Company's postretirement healthcare benefits plan which are valued at the measurement date of January 1 for each year and recognized evenly throughout the year, consisted of the following (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
Warehousing, marketing and administrative expenses
|
|
|
|
Service cost
|
$
|
1,629
|
|
|
$
|
1,897
|
|
Other income (expense)
|
|
|
|
Interest cost
|
1,712
|
|
|
2,149
|
|
Expected return on assets
|
(3,315
|
)
|
|
(2,857
|
)
|
Amortization of unrecognized gains
|
(840
|
)
|
|
(655
|
)
|
Amortization of prior service credits
|
(2,424
|
)
|
|
(1,622
|
)
|
Net periodic benefit
|
$
|
(3,238
|
)
|
|
$
|
(1,088
|
)
|
The Company has established a Group Benefit Trust (Trust) to fund postretirement healthcare plan obligations and process benefit payments. The Company has no minimum funding requirement and did not make a contribution to the Trust during the three months ended
March 31, 2018
.
8. INCOME TAXES
The Tax Cut and Jobs Act (the Tax Act) was enacted on December 22, 2017. The Company applied Staff Accounting Bulletin (SAB) 118 when accounting for the enactment-date effects of the Tax Act at December 31, 2017 and recorded estimates primarily related to the revaluation of deferred tax balances and the one-time transition tax. As of March 31, 2018, the Company has not completed the analysis for all of the tax effects of the Tax Act and has not recorded any additional adjustments to the amounts recorded at year-end.
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in thousands of dollars, except for share and per share amounts):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2018
|
|
2017
|
Net earnings attributable to W.W. Grainger, Inc. as reported
|
$
|
231,535
|
|
|
$
|
174,744
|
|
Distributed earnings available to participating securities
|
(612
|
)
|
|
(546
|
)
|
Undistributed earnings available to participating securities
|
(1,386
|
)
|
|
(932
|
)
|
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders
|
229,537
|
|
|
173,266
|
|
Undistributed earnings allocated to participating securities
|
1,386
|
|
|
932
|
|
Undistributed earnings reallocated to participating securities
|
(1,378
|
)
|
|
(924
|
)
|
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders
|
$
|
229,545
|
|
|
$
|
173,274
|
|
Denominator for basic earnings per share – weighted average shares
|
56,062,607
|
|
|
58,720,066
|
|
Effect of dilutive securities
|
340,639
|
|
|
482,816
|
|
Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities
|
56,403,246
|
|
|
59,202,882
|
|
Earnings per share two-class method
|
|
|
|
|
|
Basic
|
$
|
4.09
|
|
|
$
|
2.95
|
|
Diluted
|
$
|
4.07
|
|
|
$
|
2.93
|
|
10. DIVIDEND
On
April 25, 2018
, the Company’s Board of Directors declared a quarterly dividend of $
1.36
per share, payable
June 1, 2018
, to shareholders of record on
May 14, 2018
.
11. SEGMENT INFORMATION
Grainger's
two
reportable segments are the U.S. and Canada. These reportable segments reflect the results of the Company's businesses in those geographies, except for Zoro Tools, Inc. (Zoro) in the U.S. and other small businesses. Other businesses include the Company's single channel businesses (Zoro and MonotaRO in Japan) and small operations in the U.S., Europe, Asia and Latin America. These businesses individually do not meet the criteria of a reportable segment.
Following is a summary of segment results (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
United States
|
|
Canada
|
|
Other businesses
|
|
Total
|
Total net sales
|
$
|
2,107,686
|
|
|
$
|
181,764
|
|
|
$
|
588,092
|
|
|
$
|
2,877,542
|
|
Intersegment net sales
|
(110,181
|
)
|
|
(18
|
)
|
|
(942
|
)
|
|
(111,141
|
)
|
Net sales to external customers
|
$
|
1,997,505
|
|
|
$
|
181,746
|
|
|
$
|
587,150
|
|
|
$
|
2,766,401
|
|
Segment operating earnings
|
$
|
356,504
|
|
|
$
|
(20,157
|
)
|
|
$
|
36,422
|
|
|
$
|
372,769
|
|
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
United States
|
|
Canada
|
|
Other businesses
|
|
Total
|
Total net sales
|
$
|
1,953,444
|
|
|
$
|
186,141
|
|
|
$
|
497,407
|
|
|
$
|
2,636,992
|
|
Intersegment net sales
|
(95,073
|
)
|
|
(12
|
)
|
|
(778
|
)
|
|
(95,863
|
)
|
Net sales to external customers
|
$
|
1,858,371
|
|
|
$
|
186,129
|
|
|
$
|
496,629
|
|
|
$
|
2,541,129
|
|
Segment operating earnings
|
$
|
309,642
|
|
|
$
|
(16,729
|
)
|
|
$
|
31,507
|
|
|
$
|
324,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Canada
|
|
Other businesses
|
|
Total
|
Segment assets:
|
|
|
|
|
|
|
|
As of March 31, 2018
|
$
|
2,383,796
|
|
|
$
|
239,683
|
|
|
$
|
661,352
|
|
|
$
|
3,284,831
|
|
As of December 31, 2017
|
$
|
2,309,734
|
|
|
$
|
278,633
|
|
|
$
|
605,452
|
|
|
$
|
3,193,819
|
|
Following are reconciliations of segment information with the consolidated totals per the financial statements (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
Operating earnings:
|
|
Total operating earnings for reportable segments
|
$
|
372,769
|
|
|
$
|
324,420
|
|
Unallocated expenses and eliminations
|
(37,939
|
)
|
|
(31,919
|
)
|
Total consolidated operating earnings
|
$
|
334,830
|
|
|
$
|
292,501
|
|
|
|
|
As of
|
Assets:
|
March 31, 2018
|
|
December 31, 2017
|
Assets for reportable segments
|
3,284,831
|
|
|
$
|
3,193,819
|
|
Other current and non-current assets
|
2,494,329
|
|
|
2,428,074
|
|
Unallocated assets
|
123,651
|
|
|
182,361
|
|
Total consolidated assets
|
$
|
5,902,811
|
|
|
$
|
5,804,254
|
|
Unallocated expenses and assets primarily relate to intercompany eliminations and the Company's headquarters support services, which are not part of any reportable segment. Unallocated expenses are primarily comprised of employee compensation costs, depreciation and other administrative costs and unallocated assets are primarily comprised of non-operating cash and cash equivalents, property, buildings and equipment, net, and certain prepaid expenses.
Assets for reportable segments include net accounts receivable and first-in, first-out inventory which are reported to the Company's Chief Operating Decision Maker. Other current and non-current assets include all other assets of the reportable segments.
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
12. CONTINGENCIES AND LEGAL MATTERS
From time to time the Company is involved in various legal and administrative proceedings that are incidental to its business, including claims related to product liability, general negligence, contract disputes, cybersecurity incidents, privacy matters, environmental issues, wage and hour laws, intellectual property, employment practices, advertising laws, regulatory compliance, and other matters and actions brought by employees, customers, competitors, suppliers and governmental entities. As a government contractor selling to federal, state and local governmental entities, the Company is also subject to governmental or regulatory inquiries, audits and other proceedings, including those related to contract administration and pricing compliance. It is not expected that the ultimate resolution of any of these matters will have, either individually or in the aggregate, a material adverse effect on the Company's consolidated financial position or results of operations.
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
General
W.W. Grainger, Inc. (Grainger or Company) is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) supplies and other related products and services with operations primarily in the United States (U.S.) and Canada, with a presence in Europe, Asia and Latin America. More than
3
million customers worldwide rely on Grainger for products such as safety, gloves, ladders, motors and janitorial supplies, along with services like inventory management and technical support. These customers represent a broad collection of industries (see Note 3 in the Condensed Consolidated Financial Statements (Financial Statements)). They place orders online, on mobile devices, through sales representatives, over the phone and at local branches. Approximately 5,200 suppliers provide Grainger with approximately 1.7 million products stocked in Grainger's distribution centers (DCs) and branches worldwide.
Grainger's
two
reportable segments are the U.S. and Canada (Acklands - Grainger Inc. and its subsidiaries). These reportable segments reflect the results of the Company's businesses in those geographies, except for Zoro Tools, Inc. (Zoro) in the U.S. and other small businesses. Other businesses include the Company's single channel businesses (Zoro and MonotaRO in Japan) and small operations in the U.S., Europe, Asia and Latin America.
Business Environment
Given Grainger's large number of customers and the diverse industries it serves, several economic factors and industry trends tend to shape Grainger’s business environment. The overall economy and leading economic indicators provide general insight into projecting Grainger's growth. Grainger’s sales in the U.S. and Canada tend to positively correlate with Business Investment, Business Inventory, Exports and Industrial Production. In the U.S., sales tend to positively correlate with Gross Domestic Product (GDP). In Canada, sales tend to positively correlate with oil prices. The table below provides these estimated indicators for 2018:
|
|
|
|
|
|
|
|
U.S.
|
|
Canada
|
|
Estimated 2017
|
Forecasted 2018
|
|
Estimated 2017
|
Forecasted 2018
|
Business Investment
|
4.8%
|
7.9%
|
|
2.9%
|
5.0%
|
Business Inventory
|
0.7%
|
2.8%
|
|
—
|
—
|
Exports
|
3.4%
|
4.3%
|
|
0.9%
|
1.5%
|
Industrial Production
|
1.6%
|
3.9%
|
|
5.1%
|
0.2%
|
GDP
|
2.3%
|
2.7%
|
|
3.0%
|
2.4%
|
Oil Prices
|
—
|
—
|
|
$51/barrel
|
$60/barrel
|
Source: Global Insight U.S. (April 2018), Global Insight Canada (March 2018)
|
|
|
|
|
|
In the U.S., Business Investment and Exports are two major indicators of MRO spending. Business Investment is likely to remain strong during 2018, supported by expanding global markets, lower capital costs and an improving regulatory climate. Canada's GDP and Industrial Production are forecasted to slow in 2018, while Exports and business nonresidental investment (a component of Business Investment) are expected to improve.
Outlook
Grainger’s portfolio consists of its U.S. business, its Canada business and other businesses. Grainger’s imperative to create unique value is focused on: (i) continuing to grow its share of business with large and mid-size customers in the U.S. by executing its high-value sales and service model, building an advantaged digital capability and completing its pricing strategy; (ii) executing a complete business model reset in Canada; (iii) driving profitable growth in its international portfolio and (iv) continuing the strong growth of its single channel businesses by expanding its assortment and innovation around customer acquisition. Grainger is also focused on improving the end-to-end customer experience by making investments in its eCommerce and digital capabilities and executing continuous improvement initiatives within its supply chain, such that customers have a positive experience with Grainger from order to delivery. Grainger intends to continue to reduce its cost base while ensuring that it delivers an effortless customer experience.
On April 19, 2018, Grainger raised its 2018 sales and earnings per share guidance to reflect actual results for the three months ended March 31, 2018, including better than expected volume growth in the U.S. and improved gross profit. The Company’s previous 2018 guidance, communicated on January 24, 2018, was sales growth of 3 to 7 percent and
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
earnings per share of $12.95 to $14.15. The Company now expects sales growth of 5 to 8 percent and earnings per share of $14.30 to $15.30 for 2018.
Matters Affecting Comparability
There were 64 sales days in the
first quarter of 2018
and 2017.
Results of Operations –
Three Months Ended March 31, 2018
The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
Percent Increase/(Decrease)
|
|
As a Percent of Net Sales
|
|
2018 (A)
|
|
2017 (A)
|
|
2018
|
|
2017
|
Net sales
|
$
|
2,766
|
|
|
$
|
2,541
|
|
9
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of merchandise sold
|
1,675
|
|
|
1,522
|
|
10
|
%
|
|
60.5
|
|
|
59.9
|
|
Gross profit
|
1,092
|
|
|
1,019
|
|
7
|
%
|
|
39.5
|
|
|
40.1
|
|
Warehousing, marketing and administrative expenses
|
757
|
|
|
727
|
|
4
|
%
|
|
27.4
|
|
|
28.6
|
|
Operating earnings
|
335
|
|
|
293
|
|
14
|
%
|
|
12.1
|
|
|
11.5
|
|
Other expense, net
|
28
|
|
|
22
|
|
28
|
%
|
|
1.0
|
|
|
0.9
|
|
Income taxes
|
66
|
|
|
88
|
|
(25
|
)%
|
|
2.4
|
|
|
3.5
|
|
Net earnings
|
241
|
|
|
183
|
|
|
|
|
|
|
Noncontrolling interest
|
9
|
|
|
8
|
|
14
|
%
|
|
0.3
|
|
|
0.3
|
|
Net earnings attributable to W.W. Grainger, Inc.
|
$
|
232
|
|
|
$
|
175
|
|
32
|
%
|
|
8.4
|
%
|
|
6.9
|
%
|
(A) May not sum due to rounding
Grainger’s net sales of $
2,766 million
for the
first quarter of 2018
increased
9%
compared with sales of $
2,541 million
for the comparable
2017
quarter. Sales increased 9% for the quarter and consisted of the following:
|
|
|
|
Percent Increase/(Decrease)
|
Volume
|
8
|
Foreign exchange
|
2
|
Seasonal
|
1
|
Price
|
(1)
|
Divestiture
|
(1)
|
Total
|
9%
|
The increase in net sales was primarily driven by volume increases in the U.S. business due to market share gain and an improved demand environment, continued double digit growth in the single channel online businesses in the U.S. and Japan and improved sales growth in Europe and Latin American businesses, offset by lower sales in the Canada business. See Note 3 to the Financial Statements. Refer to the
Segment Analysis
below for further details.
In the three months ended March 31, 2018, eCommerce sales for Grainger were $1,469 million, an increase of 18% over the prior year. Total eCommerce sales represented 53% and 49% of total sales for the three months ended March 31, 2018 and 2017, respectively. The increase was primarily driven by Grainger.com and other electronic purchasing platforms in the U.S. and across all single channel online businesses. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 62% and 59% of total sales for the three months ended March 31, 2018 and 2017, respectively.
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross profit of $
1,092 million
for the
first quarter of 2018
increased
$73 million
, or
7%
compared to the same quarter in 2017. The gross profit margin of
39.5%
during the
first quarter of 2018
decreased
0.6
percentage points when compared to the same quarter in 2017, driven primarily by the strategic pricing actions in the U.S., partially offset by positive customer mix and improved performance in the Canada business.
Operating expenses of $
757 million
for the
first quarter of 2018
increased
4
% from $
727 million
for the comparable 2017 quarter. Excluding restructuring costs and net gains on the sale of branches in both periods as noted in the table below, operating expenses increased 2%, driven primarily by higher employee related costs.
Operating earnings for the
first quarter of 2018
were $
335 million
, an increase of
14%
compared to the
first quarter of 2017
. Excluding restructuring costs and net gains on the sale of branches in both periods as noted in the table below, operating earnings increased 19% or $56 million, driven primarily by higher sales and strong expense leverage.
Other expense, net was
$28 million
for the
first quarter of 2018
, an increase of
28%
compared to the
first quarter of 2017
. The increase in expense was primarily due to incremental interest expense on $400 million in long-term debt issued in May 2017 as well as higher operating losses from the Company's clean energy investments.
Income taxes of $
66 million
for the
first quarter of 2018
decreased $22 million or
25%
compared with $
88 million
for the comparable 2017 quarter. Grainger's effective tax rates were 21.6% and 32.4% for the
three months ended March 31, 2018 and 2017
, respectively. The lower effective tax rate versus the prior year is primarily due to the Tax Cut and Jobs Act (the Tax Act). The Company is currently projecting an effective tax rate of 23% to 26% for the year 2018. The first quarter tax rate was below the full year range primarily due to the benefit from stock based awards. Future tax benefits from stock based awards are not estimated in the full year projection.
The table below reconciles reported net earnings attributable to W.W. Grainger, Inc. determined in accordance with U.S. generally accepted accounting principles (GAAP) to adjusted net earnings, a non-GAAP measure. Management believes adjusted net earnings is an important indicator of operations because it excludes items that may not be indicative of core operating results. Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with other companies' non-GAAP financial measures having the same or similar names (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2018
|
|
2017
|
%
|
Net earnings reported
|
$
|
231,535
|
|
|
$
|
174,744
|
|
32
|
%
|
Restructuring (U.S.)
|
2,365
|
|
|
1,919
|
|
|
Branch gains (U.S.)
|
(5,741
|
)
|
|
(5,878
|
)
|
|
Restructuring (Canada)
|
8,330
|
|
|
803
|
|
|
Restructuring (Other businesses)
|
950
|
|
|
—
|
|
|
Restructuring (Unallocated expense)
|
282
|
|
|
—
|
|
|
Subtotal
|
6,186
|
|
|
(3,156
|
)
|
|
Net earnings adjusted
|
$
|
237,721
|
|
|
$
|
171,588
|
|
39
|
%
|
Net earnings attributable to W.W. Grainger, Inc. for the
first quarter of 2018
increased
32%
to $
232 million
from $
175 million
in the
first quarter of 2017
. The increase in net earnings primarily resulted from higher operating earnings and lower income taxes. Excluding restructuring costs and gains on the sale of branches primarily in the U.S. business from both periods mentioned above, net earnings increased 39%.
Diluted earnings per share of
$4.07
in the
first quarter of 2018
was up 39% versus the
$2.93
for the
first quarter of 2017
, due to higher earnings and lower average shares outstanding. Excluding restructuring costs and net gains on the sale of branches from both periods mentioned above, diluted earnings per share would have been $4.18 compared to $2.88 in 2017, an increase of 45%.
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Segment Analysis
The following comments at the segment and other businesses level include external and intersegment net sales and operating earnings. See Note 11 to the Financial Statements.
United States
Net sales were $
2,108 million
for the
first quarter of 2018
, an increase of
$155 million
, or
8%
, when compared with $
1,953 million
for the same period in 2017. Sales increased 8% for the quarter and consisted of the following:
|
|
|
|
Percent Increase/(Decrease)
|
Volume
|
9
|
Seasonal
|
1
|
Intercompany to Zoro
|
1
|
Divestiture
|
(1)
|
Price
|
(2)
|
Total
|
8%
|
Sales to customers in the reseller and retail/wholesale end markets increased low double digits, heavy manufacturing , contractors and government increased high single digits and the remaining end markets increased low single digits. Overall, these revenue increases were primarily driven by market share gains and improved demand in all industries, partially offset by the U.S. business strategic pricing actions. See Note 3 to the Financial Statements.
In the three months ended March 31, 2018, eCommerce sales for the U.S. business were $1,073 million, an increase of 15% over the prior year. Total eCommerce sales represented 51% and 48% of total sales for the three months ended March 31, 2018 and 2017, respectively. The increase was primarily driven by Grainger.com and other electronic purchasing platforms. If the U.S. business included KeepStock®, total eCommerce and KeepStock® sales would represent 61% and 59% of total sales for the three months ended March 31, 2018 and 2017, respectively.
Gross profit of
$850 million
for the
first quarter of 2018
increased
$44 million
, or
5%
compared to the same quarter in 2017 driven by higher sales volume. The gross profit margin for the
first quarter of 2018
decreased
1.0
percentage points compared to the same period in 2017, primarily driven by the strategic pricing actions in the U.S. business, partially offset by positive customer mix. The lower gross profit margin includes a 0.6 percentage point decline from the adoption of the Financial Accounting Standards Board's (FASB) revenue recognition standard that reclassifies certain costs related to KeepStock® services from Warehousing, marketing and administrative expenses to Cost of merchandise sold.
Operating expenses of
$493 million
in the
first quarter of 2018
were down
$3 million
, or
1%
versus the
first quarter of 2017
. Excluding restructuring costs and branch gains in both periods as noted in the table above, operating expenses decreased 1%, driven primarily by professional service costs that did not repeat in the first quarter of 2018. See Note 5 to the Financial Statements.
Operating earnings of $
357 million
for the
first quarter of 2018
increased
15%
from $
310 million
for the
first quarter of 2017
. Excluding restructuring costs and branch gains in both periods as noted in the table above, operating earnings increased 16% or $49 million, driven primarily by higher sales and improved expense management.
Canada
Net sales were $
182 million
for the
first quarter of 2018
, a decrease of
$4 million
, or
2%
, when compared with $
186 million
for the same period in 2017. In local currency, sales decreased 6%. The 2% decrease consisted of the following:
|
|
|
|
Percent (Decrease)/Increase
|
Volume
|
(13)
|
Price
|
7
|
Foreign exchange
|
4
|
Total
|
(2)%
|
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In the three months ended March 31, 2018, eCommerce sales for the Canada business were $41 million, an increase of 30% over the prior year. Total eCommerce represented 22% and 17% of total sales for the three months ended March 31, 2018 and 2017, respectively. If the Canada business included KeepStock®, total eCommerce and KeepStock® sales would represent 38% and 29% of total sales for the three months ended March 2018 and 2017, respectively.
Gross profit of
$59 million
increased
$5 million
, or
9%
and gross profit margin increased
3.3
percentage points in the
first quarter of 2018
versus the
first quarter of 2017
, both primarily due to price increases that began in late 2017.
Operating expenses increased
$8 million
, or
12%
, in the
first quarter of 2018
versus the
first quarter of 2017
. Excluding restructuring costs in both periods as noted in the table above, operating expenses would have decreased 3%, primarily related to lower professional service fees that did not repeat in the first quarter of 2018.
Operating losses were
$20 million
for the
first quarter of 2018
versus losses of
$17 million
in the
first quarter of 2017
. Excluding restructuring costs in both periods as noted in the table above, operating losses would have been $9 million compared to $16 million in the prior first quarter.
Other businesses
Net sales for other businesses were $
588 million
for the
first quarter of 2018
, an increase of
$91 million
, or
18%
, when compared with $
497 million
for the same period in 2017. The net sales increase was primarily due to incremental sales for all businesses in Europe, Asia and Latin America. The increase consisted of the following:
|
|
|
|
Percent Increase
|
Price/volume
|
12
|
Foreign exchange
|
6
|
Total
|
18%
|
Foreign exchange has improved in the countries that the Company operates in, primarily the Euro, Pound and Yen.
Operating earnings of $
36 million
for the
first quarter of 2018
were up
$4 million
compared to the
first quarter of 2017
. Excluding restructuring costs in 2018, operating earnings increased $6 million or 19%, due to strong performance from the single channel online businesses.
Financial Condition
Cash Flow
Net cash provided by operating activities was $
147 million
and $
181 million
for the
three months ended March 31, 2018
and 2017, respectively. The decrease in cash provided by operating activities is primarily the result of higher payments related to employee variable compensation and benefits payable under annual incentive plans and higher direct purchases, partially offset by higher operating cash earnings when compared to the prior year.
Net cash used in investing activities was $
31 million
and $
38 million
for the
three months ended March 31, 2018
and 2017, respectively. The decrease in net cash used in investing activities was driven by lower additions to property, buildings and equipment compared to the prior year and lower proceeds from the sales of branches in the U.S. business when compared to the prior year.
Net cash used in financing activities was $
146 million
and $
183 million
in the three months ended March 31, 2018 and 2017, respectively. The decrease in net cash used in financing activities was primarily driven by higher proceeds from commercial paper and higher proceeds from the exercise of stock options, offset by higher stock repurchases and higher payments of long-term debt when compared to the prior year.
Working Capital
Internally generated funds are the primary source of working capital and funds used for growth initiatives and capital expenditures. Grainger's working capital is not impacted by significant seasonality trends throughout the year.
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Working capital consists of current assets (less non-operating cash) and current liabilities (less short-term debt and current maturities of long-term debt). Working capital at
March 31, 2018
, was $
1,889 million
,
an increase
of $
220 million
when compared to $
1,669 million
at December 31, 2017. This increase was primarily driven by an increase in operating cash earnings during the first quarter of 2018. At these dates, the ratio of current assets to current liabilities was
2.4
and
2.2
, 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 (short-term, current and long-term) as a percent of total capitalization was
55.6%
at
March 31, 2018
, and
56.2%
at
December 31, 2017
.
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.
Accounting estimates are considered critical when they require management to make subjective and complex judgments, estimates and assumptions about matters that have a material impact on the presentation of Grainger’s financial statements and accompanying notes. For a description of Grainger’s critical accounting estimates, see Grainger's Annual Report on Form 10-K for the fiscal year ended December 31,
2017
.
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of the Board of Directors and with the independent registered, public accounting firm.
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, Grainger makes forward-looking statements that are not historical in nature but concern forecasts of future results, business plans, analyses, prospects, strategies, objectives and other matters that may be deemed to be “forward-looking statements” under the federal securities laws. Such forward-looking statements are identified by words such as “anticipate,” “estimate,” “believe,” “expect,” “could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project” and similar terms and expressions.
Grainger cannot guarantee that any forward-looking statement will be realized, although Grainger does believe that its assumptions underlying its forward-looking statements are reasonable. Achievement of future results is subject to risks and uncertainties, many of which are beyond the Company's control, which could cause Grainger's results to differ materially from those that are presented.
Important factors that could cause actual results to differ materially from those presented or implied in a forward-looking statement include, without limitation: higher product costs or other expenses; a major loss of customers; loss or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new technologies or business strategies; the implementation, timing and results of the Company's strategic pricing actions and other responses to market pressures; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising, privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; disruption of information technology or data security systems; general industry or market conditions; general global economic conditions; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; natural and other catastrophes; unanticipated weather conditions; loss of key members of management; the Company's ability to operate, integrate and leverage acquired businesses; changes in credit ratings; changes in effective tax rates; and other factors identified under Item 1A: Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31,
2017
, as updated in the Company's Quarterly Reports on Form 10-Q.
Caution should be taken not to place undue reliance on Grainger's forward-looking statements and Grainger undertakes no obligation to publicly update any of its forward-looking statements, whether as a result of new information, future events or otherwise.
W.W. Grainger, Inc. and Subsidiaries
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
For quantitative and qualitative disclosures about market risk, see “Item 7A: Quantitative and Qualitative Disclosures About Market Risk” in Grainger's Annual Report on Form 10-K for the fiscal year ended
December 31, 2017
.
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Item 4.
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Controls and Procedures.
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Disclosure Controls and Procedures
Grainger carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of Grainger's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that Grainger’s disclosure controls and procedures were effective as of the end of the period covered by this report in (i) ensuring that information required to be disclosed by Grainger in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in Grainger's internal control over financial reporting for the quarter ended March 31, 2018, that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.
PART II – OTHER INFORMATION
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Item 1.
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Legal Proceedings.
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For a description of certain of the Company’s other legal proceedings, see Note 12 - Contingencies and Legal Matters - to the Condensed Consolidated Financial Statements included under Item 1 - Financial Statements, of Part I of this report.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds.
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Issuer Purchases of Equity Securities –
First quarter
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|
|
|
|
|
|
Period
|
Total Number of Shares Purchased (A)
|
Average Price Paid per Share (B)
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (C)
|
Maximum Number of
Shares That May Yet be Purchased Under the
Plans or Programs
|
Jan 1 - Jan 31
|
555,403
|
$233.83
|
555,403
|
2,303,002
|
Feb 1 - Feb 28
|
53,098
|
$263.51
|
53,098
|
2,249,904
|
Mar 1 - Mar 31
|
59,883
|
$267.71
|
59,883
|
2,190,021
|
Total
|
668,384
|
$239.22
|
668,384
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|
|
|
(A)
|
There were no shares withheld to satisfy tax withholding obligations.
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|
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(B)
|
Average price paid per share includes any commissions paid and includes only those amounts related to purchases as part of publicly announced plans or programs.
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|
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(C)
|
Purchases were made pursuant to a share repurchase program approved by Grainger’s Board of Directors on April 6, 2015, up to 15 million shares with no expiration date. Activity is reported on a trade date basis.
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W.W. Grainger, Inc. and Subsidiaries
Item 6. Exhibits.
A list of exhibits filed with this report on Form 10-Q is provided in the Exhibit Index on page 28 of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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W.W. GRAINGER, INC.
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Date:
|
April 27, 2018
|
By:
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/s/ Ronald L. Jadin
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|
|
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Ronald L. Jadin, Senior Vice President
and Chief Financial Officer
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|
(Principal Financial Officer)
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Date:
|
April 27, 2018
|
By:
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/s/ Eric R. Tapia
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Eric R. Tapia, Vice President
and Controller
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|
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|
(Principal Accounting Officer)
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EXHIBIT INDEX
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EXHIBIT NO.
|
|
DESCRIPTION
|
|
|
Separation Agreement and General Release by and between W.W. Grainger, Inc. and Ronald L. Jadin dated April 2, 2018.*
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Form of Separation Agreement and General Release by and between W.W. Grainger, Inc. and Joseph C. High.*
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Form of 2018 W.W. Grainger, Inc. 2015 Incentive Plan Stock Option Agreement between W.W. Grainger, Inc. and certain of its executive officers.*
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Form of 2018 W.W. Grainger, Inc. 2015 Incentive Plan Restricted Stock Unit Agreement between W.W. Grainger, Inc. and certain of its executive officers.*
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Form of 2018 W.W. Grainger, Inc. 2015 Incentive Plan Performance Restricted Stock Unit Agreement between W.W. Grainger, Inc. and certain of its executive officers.*
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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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.
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101.INS
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|
XBRL Instance Document.
|
101.SCH
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|
XBRL Taxonomy Extension Schema Document.
|
101.CAL
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|
XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
101.LAB
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|
XBRL Taxonomy Extension Label Linkbase Document.
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
(*) Management contract or compensatory plan or arrangement.
Exhibit 10.1
SEPARATION AGREEMENT AND GENERAL RELEASE
This Separation Agreement and General Release (“Agreement”) is made and entered into this 2
nd
day of April 2018, by and between W.W. Grainger, Inc. (“Grainger”) and Ronald Jadin (the “Officer”). The Officer understands and voluntarily enters into this Agreement with Grainger and, in consideration of the Separation Payments and benefit continuation described herein, agrees as follows:
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1.
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Resignation as Officer; Separation Date.
The Officer hereby acknowledges that he has voluntarily resigned effective May 2, 2018 (the “Resignation Date”) as an Officer of Grainger and of all corporations that are direct or indirect subsidiaries of or otherwise affiliated with Grainger (“Affiliates”), and as trustee, member or fiduciary of all trusts, committees or similar bodies of or otherwise affiliated with Grainger and the Affiliates. In an effort to provide for an orderly transition, the Officer has agreed to continue providing ongoing services to Grainger for purposes associated with role and activity transition.
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2.
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Separation Payments.
During the formal Compensation Continuation period beginning May 2, 2018 and extending through August 2, 2020, the Officer shall be paid by way of Grainger’s normal payroll process an amount representing the equivalent of eighteen months’ pay. Each payment shall be pro-rated and paid in bi-weekly installments less required deductions, beginning May 2, 2018 and thereafter running through August 2, 2020 (the “Termination Date”) in accordance with Grainger’s then existing payroll schedule. Upon reaching my Termination Date, Officer shall be considered a Profit Sharing Trust Retiree of the Company, and shall thereafter receive all benefits associated with that status. No Separation Payments shall be made to the Officer until at least the eight (8
th
) day following the day on which this Agreement is fully executed, and provided that the Agreement is not revoked by the Officer pursuant to Section 22 prior to that date.
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a.
|
Health, Dental, Life and Vision.
To the extent that the Officer currently participates, Grainger will continue to provide, through deductions from the Officer’s Compensation Continuation Payments at the same rate paid by employees, group health, dental and vision benefits and life insurance as currently maintained for the Officer, or as subsequently modified by Grainger, through the Termination Date. Group Dental and Group Life Insurance will terminate earlier, however, on the date that the Officer becomes eligible for benefit coverage through a subsequent employer. After the Officer’s Group Health benefit coverage ceases on August 2, 2020, the Officer may elect to continue group health and dental benefits under COBRA or retiree health coverage under Grainger’s Retiree Health Program.
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b.
|
Unemployment Benefits.
The Officer agrees that he will not apply for unemployment benefits while he continues to receive Compensation continuation Payments through the Officer’s Termination Date or at any time in the future that would otherwise be chargeable to Grainger’s unemployment insurance account. Any amounts of unemployment insurance benefits received by the Office during this same time period shall be offset against the Officer’s Separation Payments.
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c.
|
PTO Time.
The Officer understands that he will not be eligible for or accrue any additional PTO eligibility after the Separation Date. Payment for any earned but unused 2018 PTO will be paid to the Officer once calculated and as soon as practical, by way of Grainger’s normal payroll process, following the Officer’s Separation Date.
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d.
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Management Incentive Program (MIP).
As an additional Separation Payment to those provided for in Section 2 hereof, the Officer will participate, on a 4/12
th
pro-rata basis, in the 2018 MIP. For such periods, the Officer’s payment shall be based upon the Officer’s current salary, target percentage level and Company performance. This payment will be made to Officer during the first quarter of 2019 when 2018 MIP bonuses are paid. Officer will not be eligible for any MIP or other cash incentive award other than the above referenced amounts or for any other periods following the Separation Date.
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e.
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Career Continuation - Outplacement Assistance.
Upon Officer’s request, Officer shall be eligible to receive professional Career Continuation - Outplacement services. Officer shall have the opportunity to interview and then select a service provider from those designated firms made available to him for this purpose by Grainger.
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f.
|
Profit Sharing Contribution.
Officer shall be eligible to receive a Grainger Profit Sharing Contribution for the years 2018, 2019 and 2020 as well as a payout of any vested funds contained within Officer’s account pursuant to the provisions of the Plan then in effect. Additionally, Officer shall also be eligible to receive a fully vested 401-K contribution for any compensation continuation payments that are attributable to term of this Agreement.
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g.
|
Cessation of Benefits.
All other benefits and the Officer’s eligibility to participate in any other Grainger employee programs will cease as of the Separation Date, except as provided or referenced in this Agreement. The amounts and benefits payable to the Officer under this Agreement shall be in lieu of any amounts or benefits otherwise provided under any severance plan or policy of Grainger.
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h.
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Frozen Executive Death Benefit:
As a PST Retiree, Officer is eligible to receive a cash payout pursuant to the provisions of the previously frozen Executive Death Benefit Plan. Said payment shall be made to Officer on or about October 15, 2018.
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4.
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LTIP - Stock Options, Restricted Stock Units and Performance Shares.
By way of this Agreement and pursuant to the provisions of the applicable Plans, Officer shall be eligible to receive a payout of all vested LTIP awards to include his 2016 and 2017 Performance Share Awards at the time that Performance Shares are normally paid along with his 2015 RSU Award upon its vesting.
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5.
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General Release and Waiver of Claims.
In exchange and in consideration for the promises, obligations, and agreements undertaken by Grainger herein, which the Officer agrees and acknowledges are adequate and sufficient consideration, the Officer, on behalf of himself, his spouse, agents, representatives, attorneys, assigns, heirs, executors, administrators, and other personal representatives, releases and forever discharges Grainger, the Affiliates, and all of their officers, employees, directors, agents, attorneys, personal representatives, predecessors, successors, and assigns (hereinafter collectively referred to as the “Releasees”) from any and all claims of any kind which he has, or might have, as of the date of this Agreement; or which are based on any facts which exist or existed on or before the date of this Agreement. The claims the Officer is releasing include, but are not limited to, all claims relating in any way to his employment at Grainger or his separation from that employment; and all claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, 42 U.S.C. § 1981, the Equal Pay Act, the Employee Retirement Income Security Act, the Americans with Disabilities Act, the Federal Rehabilitation Act, the Age Discrimination in Employment Act (“ADEA”), the Older Worker Benefit Protection Act, the Equal Pay Act, as amended, the Illinois Fair Employment Practices Act, the Illinois Wage Payment and Collection Act, or any other federal, state or local law relating to employment, discrimination, retaliation, or wages, or under the common law of any state (including, without limitation, claims relating to contracts, wrongful discharge, retaliatory discharge, defamation, intentional or negligent infliction of emotional distress, and wrongful termination of benefits). The Officer also releases and forever discharges Grainger and all other Releasees from any and all other demands, claims, causes of action, obligations, agreements, promises, representations, damages, suits, and liabilities whatsoever, both known and unknown, in law or in equity, which he has or might have as of the date of this Agreement. The Officer understands that this Section 5 of this Agreement contains a complete and general release of any claim that he now has against Grainger and all other Releasees, or could ever have against Grainger and all other Releasees, based on any fact, event, or omission that has occurred up to the time at which he signs the Agreement.
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The Officer does not intend to nor is he waiving any rights or claims that may arise after the date that he signs this Agreement, or any right on the Officer’s part to challenge the knowing and voluntary nature of this release with respect to claims under ADEA. Notwithstanding the foregoing, the Officer does not waive any rights he may have to benefits available after termination under any company-sponsored employee benefit plan, or any rights he may have to insurance protection and/or indemnification for actions taken by the Officer while an employee and Officer of Grainger. The Officer acknowledges that this
is an individually negotiated agreement and he agrees that his termination of employment with Grainger is not pursuant to an employment termination program as that term is used in the ADEA.
Excluded from this General Release and Waiver are any claims or rights which Officer cannot waive by law, including workers’ compensation claims, as well as any claims for breach of this Agreement. Also excluded from this Agreement are Officer’s rights to file a charge with the Equal Employment Opportunity Commission or any other federal, state or local agency, and to participate in an agency investigation. Officer, however, waives all rights to recover money or other individual relief if any administrative agency or another person or entity pursues any claim on Officer’s behalf arising out of or related to Officer’s employment with Grainger. Officer represents that there is no lawsuit or other claim against Grainger pending in any federal, state, or municipal court or other tribunal which has not been addressed herein.
The Officer understands and agrees that this waiver and release is an essential and material term of this Agreement and that, without such provision, no agreement would have been reached by the parties.
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6.
|
Covenant Not to Sue.
The Officer agrees not to pursue or permit to be filed or pursued against Grainger or any Releasee, any claim or action before any federal, state, or local, administrative, legislative or judicial body based on any claim or liability described in the foregoing section, or otherwise related in any way to the Officer’s employment with Grainger, and understands that the purpose of this waiver and release is to dispose of, with finality, any claims that the Officer may have against Grainger and all other Releasees so that there will be no disputes or controversies concerning any matters following the Separation Date. The Officer has no such claim or lawsuit outstanding at this time, and the Officer does not know of any such potential claim or lawsuit that may be asserted by the Officer or any other person in connection with the Officer’s employment with Grainger. The Officer understands that the terms of this section do not apply to a challenge to the knowing and voluntary nature of this release with respect to claims under ADEA.
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a.
|
The Officer acknowledges that in connection with the performance of his duties for Grainger, he has either created, used or accessed confidential and trade secret information of Grainger and the Affiliates (as further described in Section 11 below). The Officer further acknowledges that his employment with or other work on behalf of a Competitor (defined in Section 7(b) and 7(c)below) would necessarily and inevitably lead to his unauthorized use or disclosure of such confidential and trade secret information. Accordingly, the Officer agrees that based upon the special consideration provided by way of this Agreement, and for a period beginning on the date hereof and continuing until the first anniversary of the Termination Date, and within one hundred (100) miles of any branch, office or distribution center of Grainger or an Affiliate to which he was assigned either physically or electronically within two years prior to ceasing active employment with the Company, as
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well as on behalf of any Competitor specifically identified on Exhibit A, anywhere in the United States (the “Restricted Area”), he will not directly or indirectly, whether as executive, officer, director, owner, shareholder, partner, associate, consultant, advisor, contractor, joint venturer, manager, agent, representative or otherwise, work for a Competitor at said location or within the above designated 100 mile radius in any capacity that would involve:
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i.
|
the same or substantially similar functions or responsibilities to those the Officer performed for Grainger within two years of the Separation Date; or
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ii.
|
supervision over the same or substantially similar responsibilities to those the Officer performed for Grainger within two years of the Separation Date; or
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iii.
|
assisting a Competitor in decisions that involve or affect the same or a substantially similar area of operations to those the Officer was involved in with Grainger within two years of the Separation Date.
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The Officer may not circumvent the purpose of this restriction by engaging in business within the Restricted Area through remote means such as telephone, correspondence, electronic or any other form of computerized communication.
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b.
|
A “Competitor” is any person or legal entity or branch, office or operation thereof (a “Firm”) that engages in business that is competitive with the business activities of Grainger through, but not limited to: (i) selling maintenance, repair and operating (MRO) supplies to North American businesses; (ii) providing indirect materials management services to North American businesses; (iii) aggregating information regarding indirect materials for the purpose of conducting business-to-business Internet commerce with North American businesses; or (iv) indirect materials procurement services to North American businesses. Without limiting the generality of the foregoing, each of the Firms identified on Exhibit A hereto constitutes a Competitor.
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c.
|
A Firm shall not be deemed a Competitor unless the aggregate revenue of such Firm for its most recently completed fiscal year that is attributable to the categories of products and services set forth in clauses (i) through (iv) of Section 7(b) above equals more than 5% of the aggregate amount of consolidated revenue that Grainger derived from such categories of products and services during its most recently completed fiscal year.
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d.
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The Officer may at any time, or from time to time, request Grainger to advise the Officer in writing whether or not Grainger considers a specified Firm to be a Competitor. Any such request shall be made by written notice to Grainger that includes: (i) the name of the specific business unit for which the Officer proposes to work; (ii) the name or names of any parent companies of such business unit; (iii) a description of the specific services which the Officer proposes to perform for such business unit; (iv) a
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statement as to why the Officer believes that the performance of such services will not adversely affect Grainger’s legitimate protectible interests; and (v) the requested date of Grainger’s response (which date shall be at least 14 days after the date of Grainger’s receipt of the Officer’s request).
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e.
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The Officer specifically recognizes and affirms that Section 7(a) is a material and important term of this Agreement. If any court of competent jurisdiction determines that the covenant set forth in Section 7(a), or any part thereof, would be unenforceable due to the stated duration or geographical scope of such covenant, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, as so reduced, such provision shall then be enforceable. If the court does not modify such provision as aforeseaid, or if the provision is otherwise held or found invalid or unenforceable for any reason whatsoever, then (without limiting any other remedies which may be available to Grainger under this Agreement or otherwise, including, without limitation, Section 13 hereof), Grainger shall be entitled to cease making payments and furnishing benefits to the Officer pursuant to this Agreement and shall be further entitled to receive from the Officer reimbursement of all Separation Payments and other payments and benefits theretofore furnished to the Employee pursuant to this Agreement.
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Pending such reimbursement, and without limiting Grainger’s rights under Section 13 hereof or any other rights and remedies of Grainger, Grainger shall have the right to offset the amount of such reimbursement against any amount or benefit otherwise payable to the Officer.
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8.
|
Non-Disparagement.
The Officer agrees to take no action in derogation or disparagement of Grainger or the Affiliates, or their respective businesses or strategic interests, or the Releasees. The Officer further agrees not to discuss or otherwise comment on Grainger or any Affiliate, or their respective businesses or strategic interests, or the Releasees, in public, for publication on electronic media (including but not limited to chat rooms, message boards, or the like), in similar public forums, or otherwise, other than communication of publicly available information. In turn, Grainger agrees that its Senior Corporate Officers will make no public statements nor sanction any action in derogation or disparagement of the Officer.
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9.
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Non-Interference with Business Relationships.
The Officer agrees not to interfere with the employment of any Grainger employee or otherwise with the business relationships of Grainger, and to the extent required to enforce this promise, agrees not to induce, directly or indirectly, any Grainger customer or supplier to breach any contract with Grainger, and further agrees not to solicit, attempt to hire, or hire, directly or indirectly, any Grainger employee, or request, induce or advise any such employee to leave the employment of Grainger at any time before the Termination Date and for one year thereafter. Should the Officer wish to hire a Grainger employee in contravention of this Section 9, or to perform work which is precluded by the Officer’s non-competition obligations set forth in Section 7 hereof, the Officer understands that he may request that Grainger agree that the Officer may perform such
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work or offer employment to such employee, and that with Grainger’s prior written agreement, which it may withhold at its sole discretion, the Officer may do so.
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10.
|
Return of Property: Business Expenses
. The Officer shall promptly account for and return to Grainger all Grainger property, including but not limited to proprietary information, which is in the Officer’s possession or control. This property includes (but is not limited to) Officer’s Grainger work computer along with related drives and peripherals, correspondence, financial materials, files, reports, minutes, plans, records, surveys, diagrams, computer print-outs, floppy disks, manuals, client/customer information and documentation, and any company research, goals, objectives, recommendations, proposals or other information relating to Grainger, its business, or its clients or customers, which is not generally known to the public, and which the Officer acquired in the course of his employment with Grainger. Notwithstanding, Officer shall be permitted to retain his Grainger cell phone along with his current telephone number. The Officer further agrees that all business expenses incurred prior to the Separation Date that are reimbursable in accordance with Grainger’s normal policies and procedures have been reimbursed to the Officer or submitted for reimbursement, and that other than as specifically provided in this Agreement, the Officer will not incur any additional business expenses after the Separation Date unless previously authorized and approved in writing by Grainger.
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11.
|
Confidential Information.
The Officer agrees to refrain from ever disclosing to anyone outside the employment of Grainger any confidential or trade secret information, whether in oral, written and/or electronic form, including but not limited to information that (a) relates to Grainger’s or the Affiliates’ past, present and future research, development, technical and non-technical data and designs, finances, marketing, products, services, customers, suppliers, and other business activities of any kind or (b) has been identified, either orally or in writing, as confidential by Grainger or any Affiliate; provided that this limitation shall not apply to information that is part of the public domain through no breach of this Agreement or is acquired from a third party not under similar nondisclosure obligations to Grainger or such Affiliate. The Officer acknowledges that his obligations under any confidentiality or nondisclosure or similar agreements or provisions that the Officer previously executed will remain in full force and effect. Further, through the Termination Date, the Officer agrees to fully comply with all policies of Grainger regarding confidential or trade secret information.
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12.
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Cooperation with Company.
The Officer agrees, during the term of this Agreement as well as during the 6 month period immediately thereafter, to both make himself available and to provide reasonable cooperation to Grainger or its attorneys to assist Grainger or serve as a witness in connection with any matter, litigation, potential litigation, or other business matter in which the Officer may have knowledge, information, or expertise. The Officer also agrees to provide Grainger or its designated representatives, upon request, with information and assistance about programs, processes,
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and projects related to the Officer’s job responsibilities while employed by Grainger; to answer any questions relating to the work to which the Officer was assigned; and to otherwise provide reasonable cooperation to Grainger regarding matters relating to this Agreement and the Officer’s employment with Grainger. Grainger will reimburse the Officer for any reasonable expenses he incurs in activities which he undertakes at Grainger’s request pursuant to this Section 12.
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13.
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Breach of Agreement; Misconduct.
The Officer understands and agrees that if, after receiving all or any part of the payments and benefits described herein, the Officer breaches this Agreement, or commits or is discovered to have committed any act of embezzlement, fraud or theft with respect to the property of Grainger, or deliberately causes or is discovered to have deliberately caused, any loss, damage, injury or other endangerment to Grainger’s property, reputation or past, present, or future directors, officers or employees, Grainger reserves the right to demand repayment of all such payments and benefits. Grainger shall further be released from any future payment then or thereafter otherwise due and shall discontinue any and all benefit coverage (other than retiree health coverage, vested benefits under the PST and SPSP, and COBRA coverage if otherwise available). To the extent permitted by law, the Officer further understands and agrees that Grainger reserves the right to pursue all other available remedies in an effort to preserve its legitimate business interests. The Officer also agrees to indemnify and hold harmless Grainger from any loss, cost, damage, or expense, including fees, which Grainger may incur because of the Officer’s violation of this Agreement. The Officer understands that this Section 13 does not apply to a challenge to the knowing and voluntary nature of this release with respect to claims under ADEA.
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14.
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Supersedes Other Agreements.
Other than any vested rights that the Officer may have under employee benefit plans subject to ERISA, the Officer understands that this Agreement supersedes any and all obligations (written or oral) which Grainger otherwise might have to the Officer for compensation or other expectations of remuneration or benefit on the Officer’s part. The Officer specifically acknowledges that all of Grainger’s obligations under the Change in Control Employment Agreement entered into between Grainger and the Officer (the “Change in Control Agreement”) shall become null and void as of the Separation Date. Notwithstanding the above and based upon the special consideration provided by way of this Agreement, all obligatory provisions relating to the Officer that are contained within any Grainger Non-Competition Agreement, Stock Option, Special RSU, or Performance Share Agreement entered into between the Officer and Grainger, or other Grainger Governance shall remain in full force and effect as originally executed and be incorporated by reference as being materials parts of this Agreement.
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15.
|
References.
At the Officer’s request, Grainger will provide appropriate neutral references to prospective future employers of the Officer. Those references will be provided by DG MacPherson or his designee on behalf of Grainger,
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with the specific content of such references to be mutually agreed between Grainger and the Officer in the future.
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16.
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Continuation After Death.
The Officer understands that in the event of the Officer’s death, Grainger’s obligations under this Agreement will extend to the Officer’s beneficiaries, heirs, executors, administrators, personal representatives and assigns.
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17.
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Agreement Not Assignable.
The Officer may not assign, and the Officer represents that he has not assigned, this Agreement or any rights or Grainger’s obligations under this Agreement to any other person.
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18.
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Entire Understanding.
The Officer understands and agrees that this Agreement, including Exhibit A hereto, contains the entire understanding between the parties and may not be amended except by mutual agreement in an amendment executed by both parties.
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19.
|
Severability.
The provisions of this Agreement are declared to be severable, which means that if any provision of this Agreement or the application thereof is found to be invalid, the invalidity shall not affect other provisions or applications of this Agreement, which will be given effect without the invalid provisions or applications. In the event that a court of competent jurisdiction concludes that any term, provision or section of this Agreement is invalid or unenforceable (and, in the case of Section 7(a) of this Agreement, such provision is not modified by the court to be enforceable as described in Section 7(e) hereof), then said term, provision, or section shall be deemed eliminated from this Agreement to the extent necessary and in order to permit the remaining portions of the Agreement to be enforced. Any such eliminations shall not affect Grainger’s entitlement, if any, to receive, pursuant to Sections 7(e) and 13 hereof, amounts paid and benefits provided to the Officer under this Agreement.
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20.
|
Confidentiality of Agreement.
The Officer represents and agrees, except as otherwise required by law, to keep the terms, amount and facts surround this Agreement completely confidential, save claims involving workplace harassment, and that the Officer will not disclose any information concerning this Agreement to anyone; provided, however, that this section will not prevent the Officer from disclosing information concerning this Agreement to the Officer’s spouse, attorneys, accountants, financial or tax advisors, a designated Grainger official, or as required by law or spouse. Notwithstanding, in accordance with U.S. Treasury Regulation 1.6011-4(b)(3)(iii), each party (and each employee, representative, or other agent of each party) to this Agreement may disclose to any and all persons, without limitation of any kind, the tax treatment, tax structure, and all materials of any kind provided to the other party relating to such tax treatment and tax structure. Nothing in this confidentiality provision prohibits Officer from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the
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whistleblower provisions of federal law or regulation. Officer does not need the prior authorization of the Company to make any such reports or disclosures and Officer is not required to notify the Company that Officer has made such reports or disclosures. Officer may disclose Trade Secrets in confidence, either directly or indirectly, to a Federal, State, or local government official, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Additionally, Officer may file a lawsuit, to include retaliation, in conjunction with reporting a suspected violation of law and may disclose related Trade Secrets to his attorney and use them in related court proceedings, as long as the individual files documents containing the Trade Secret under seal and does not otherwise disclose the Trade Secret except pursuant to Court Order.
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21.
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Jurisdiction and Governing Law.
The Officer acknowledges that for the purpose of this Agreement as well as his employment with Grainger, he is an Illinois employee. This Agreement shall in all respects be interpreted, enforced and governed by and under the laws of the State of Illinois, without regard to its conflicts of law principles.
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22.
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Voluntary Agreement.
The Officer acknowledges that the payments and benefits that Grainger is providing hereunder exceed the compensation and benefits otherwise payable to the Officer or on the Officer’s behalf and that such Separation Payments and benefits are provided by Grainger in exchange for execution of this Agreement. The Officer acknowledges that he was given twenty-one (21) days to consider the terms of this Agreement, that the Officer may revoke this Agreement at any time within seven (7) days after the date that the Officer signs it, and that he has been advised to and has had the opportunity to seek out counsel of his own choice. Any revocation must be communicated in writing, via personal delivery or overnight mail, to Henry F. Galatz, Labor Counsel, W.W. Grainger, Inc., 100 Grainger Parkway, Lake Forest, Illinois 60045. The Officer further understands that this Agreement does not take effect until after the expiration of the seven (7) day period for revocation. All referenced Separation Payments and applicable benefits identified in this Agreement will automatically cease on the 21
st
day should the Officer not return a fully executed copy of this Agreement to Grainger within the specified 21-day consideration period. The Officer has read this Agreement and understands all of its terms.
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I have read this Separation Agreement and General Release and I understand all of its terms. I voluntarily execute this Separation Agreement and General Release with full knowledge of its meaning, on this 2nd day of April 2018.
W.W. GRAINGER, INC.
/s/ Ronald L. Jadin
By:
/s/ John L. Howard
Ronald L. Jadin
Name: John L. Howard
Title: SVP, General Counsel
Exhibit 10.2
SEPARATION AGREEMENT AND GENERAL RELEASE
This Separation Agreement and General Release (“Agreement”) is made and entered into this 2
nd
day of April 2018, by and between W.W. Grainger, Inc. (“Grainger”) and Joseph High (the “Officer”). The Officer understands and voluntarily enters into this Agreement with Grainger and, in consideration of the Separation Payments and benefit continuation described herein, agrees as follows:
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1.
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Resignation as Officer; Separation Date.
The Officer hereby acknowledges that he has voluntarily resigned effective April 30, 2018 (the “Resignation Date”) as an Officer of Grainger and of all corporations that are direct or indirect subsidiaries of or otherwise affiliated with Grainger (“Affiliates”), and as trustee, member or fiduciary of all trusts, committees or similar bodies of or otherwise affiliated with Grainger and the Affiliates. In an effort to provide for an orderly transition, Officer has agreed to provide ongoing consultative services to Grainger for purposes associated with role and activity transition through August 31, 2018 (the “Separation Date”).
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2.
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Compensation Continuation Payments.
Thereafter, during the formal Compensation Continuation period beginning September 1, 2018 and extending through August 31, 2020, the Officer shall be paid by way of Grainger’s normal payroll process an amount representing the equivalent of eighteen months’ pay. Each payment shall be pro-rated and paid in bi-weekly installments less required deductions, beginning September 1, 2018 and thereafter running through August 31, 2020 (the “Termination Date”) in accordance with Grainger’s then existing payroll schedule. Upon reaching my Termination Date, Officer shall be considered a Profit Sharing Trust Retiree of the Company, and shall thereafter receive all benefits associated with that status. No Separation Payments shall be made to the Officer until at least the eight (8
th
) day following the day on which this Agreement is fully executed, and provided that the Agreement is not revoked by the Officer pursuant to Section 22 prior to that date.
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a.
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Health, Dental, Life and Vision.
To the extent that the Officer currently participates, Grainger will continue to provide, through deductions from the Officer’s Compensation Continuation Payments at the same rate paid by employees, group health, dental and vision benefits and life insurance as currently maintained for the Officer, or as subsequently modified by Grainger, through the Termination Date. Group Dental and Group Life Insurance will terminate earlier, however, on the date that the Officer becomes eligible for benefit coverage through a subsequent employer. After the Officer’s Group Health benefit coverage ceases on August 31, 2020, the Officer may elect to continue group health and dental benefits under COBRA.
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b.
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Unemployment Benefits.
The Officer agrees that he will not apply for unemployment benefits while he continues to receive Compensation
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continuation Payments through the Officer’s Termination Date or at any time in the future that would otherwise be chargeable to Grainger’s unemployment insurance account. Any amounts of unemployment insurance benefits received by the Office during this same time period shall be offset against the Officer’s Separation Payments.
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c.
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PTO Time.
The Officer understands that he will not be eligible for or accrue any additional PTO eligibility after the Separation Date. Payment for any earned but unused 2018 PTO will be paid to the Officer once calculated and as soon as practical, by way of Grainger’s normal payroll process, following the Officer’s Separation Date.
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d.
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Management Incentive Program (MIP).
As an additional Separation Payment to those provided for in Section 2 hereof, the Officer will participate, on an 8/12
th
pro-rata basis, in the 2018 MIP. For such periods, the Officer’s payment shall be based upon the Officer’s current salary, target percentage level and Company performance. This payment will be made to Officer during the first quarter of 2019 when 2018 MIP bonuses are paid. Officer will not be eligible for any MIP or other cash incentive award other than the above referenced amounts or for any other periods following the Separation Date.
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e.
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Career Continuation - Outplacement Assistance.
Upon Officer’s request, Officer shall be eligible to receive professional Career Continuation - Outplacement services. Officer shall have the opportunity to interview and then select a service provider from those designated firms made available to him for this purpose by Grainger. In the alternative, Officer shall be eligible to receive a cash equivalent, established by Grainger so as to afford Officer the opportunity to independently manage his own Career Continuation Outplacement activities.
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f.
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Profit Sharing Contribution.
Officer shall be eligible to receive a Grainger Profit Sharing Contribution for the years 2018, 2019 and 2020 as well as a payout of any vested funds contained within Officer’s account pursuant to the provisions of the Plan then in effect. Additionally, Officer shall also be eligible to receive a fully vested 401-K contribution for any compensation continuation payments that are attributable to term of this Agreement.
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g.
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Cessation of Benefits.
All other benefits and the Officer’s eligibility to participate in any other Grainger employee programs will cease as of the Separation Date, except as provided or referenced in this Agreement. The amounts and benefits payable to the Officer under this Agreement shall be in lieu of any amounts or benefits otherwise provided under any severance plan or policy of Grainger.
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4.
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LTIP - Stock Options, Restricted Stock Units and Restricted Performance Shares.
By way of this Agreement and pursuant to the provisions of the applicable Plans, Officer shall be eligible to receive a payout of all vested LTIP awards, as well as any vested portions of Performance Share Awards as described in the applicable Performance Share Award Agreement.
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5.
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General Release and Waiver of Claims.
In exchange and in consideration for the promises, obligations, and agreements undertaken by Grainger herein, which the Officer agrees and acknowledges are adequate and sufficient consideration, the Officer, on behalf of himself, his spouse, agents, representatives, attorneys, assigns, heirs, executors, administrators, and other personal representatives, releases and forever discharges Grainger, the Affiliates, and all of their officers, employees, directors, agents, attorneys, personal representatives, predecessors, successors, and assigns (hereinafter collectively referred to as the “Releasees”) from any and all claims of any kind which he has, or might have, as of the date of this Agreement; or which are based on any facts which exist or existed on or before the date of this Agreement. The claims the Officer is releasing include, but are not limited to, all claims relating in any way to his employment at Grainger or his separation from that employment; and all claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, 42 U.S.C. § 1981, the Equal Pay Act, the Employee Retirement Income Security Act, the Americans with Disabilities Act, the Federal Rehabilitation Act, the Age Discrimination in Employment Act (“ADEA”), the Older Worker Benefit Protection Act, the Equal Pay Act, as amended, the Illinois Fair Employment Practices Act, the Illinois Wage Payment and Collection Act, or any other federal, state or local law relating to employment, discrimination, retaliation, or wages, or under the common law of any state (including, without limitation, claims relating to contracts, wrongful discharge, retaliatory discharge, defamation, intentional or negligent infliction of emotional distress, and wrongful termination of benefits). The Officer also releases and forever discharges Grainger and all other Releasees from any and all other demands, claims, causes of action, obligations, agreements, promises, representations, damages, suits, and liabilities whatsoever, both known and unknown, in law or in equity, which he has or might have as of the date of this Agreement. The Officer understands that this Section 5 of this Agreement contains a complete and general release of any claim that he now has against Grainger and all other Releasees, or could ever have against Grainger and all other Releasees, based on any fact, event, or omission that has occurred up to the time at which he signs the Agreement.
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The Officer does not intend to nor is he waiving any rights or claims that may arise after the date that he signs this Agreement, or any right on the Officer’s part to challenge the knowing and voluntary nature of this release with respect to claims under ADEA. Notwithstanding the foregoing, the Officer does not waive any rights he may have to benefits available after termination under any company-sponsored employee benefit plan, or any rights he may have to insurance protection and/or indemnification for actions taken by the Officer while an employee and or Officer of Grainger. The Officer acknowledges that this is an individually negotiated agreement and he agrees that his termination of employment with Grainger is not pursuant to an employment termination program as that term is used in the ADEA.
Excluded from this General Release and Waiver are any claims or rights which Officer cannot waive by law, including workers’ compensation claims, as well as
any claims for breach of this Agreement. Also excluded from this Agreement are Officer’s rights to file a charge with the Equal Employment Opportunity Commission or any other federal, state or local agency, and to participate in an agency investigation. Officer, however, waives all rights to recover money or other individual relief if any administrative agency or another person or entity pursues any claim on Officer’s behalf arising out of or related to Officer’s employment with Grainger. Officer represents that there is no lawsuit or other claim against Grainger pending in any federal, state, or municipal court or other tribunal which has not been addressed herein.
The Officer understands and agrees that this waiver and release is an essential and material term of this Agreement and that, without such provision, no agreement would have been reached by the parties.
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6.
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Covenants Not to Sue.
a) The Officer agrees not to pursue or permit to be filed or pursued against Grainger or any Releasee, any claim or action before any federal, state, or local, administrative, legislative or judicial body based on any claim or liability described in the foregoing section, or otherwise related in any way to the Officer’s employment with Grainger, and understands that the purpose of this waiver and release is to dispose of, with finality, any claims that the Officer may have against Grainger and all other Releasees so that there will be no disputes or controversies concerning any matters following the Separation Date. The Officer has no such claim or lawsuit outstanding at this time, and the Officer does not know of any such potential claim or lawsuit that may be asserted by the Officer or any other person in connection with the Officer’s employment with Grainger. The Officer understands that the terms of this section do not apply to a challenge to the knowing and voluntary nature of this release with respect to claims under ADEA. b) In turn, except as otherwise provided in Section 13 below, Grainger agrees not to pursue any claim or sue Officer for any action or conduct that may otherwise be attributable to Officer during the term of his active employment and through the date that he executes this Agreement.
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a.
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The Officer acknowledges that in connection with the performance of his duties for Grainger, he has either created, used or accessed confidential and trade secret information of Grainger and the Affiliates (as further described in Section 11 below). The Officer further acknowledges that his employment with or other work on behalf of a Competitor (defined in Section 7(b) and 7(c)below) would necessarily and inevitably lead to his unauthorized use or disclosure of such confidential and trade secret information. Accordingly, the Officer agrees that based upon the special consideration provided by way of this Agreement, and for a period beginning on the date hereof and continuing until the first anniversary of the Termination Date, and within one hundred (100) miles of any branch, office or distribution center of Grainger or an Affiliate to which he was assigned either physically or electronically within two years prior to ceasing active employment with the Company, as well as on behalf of any Competitor specifically identified on Exhibit A,
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anywhere in the United States (the “Restricted Area”), he will not directly or indirectly, whether as executive, officer, director, owner, shareholder, partner, associate, consultant, advisor, contractor, joint venturer, manager, agent, representative or otherwise, work for a Competitor at said location or within the above designated 100 mile radius in any capacity that would involve:
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i.
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the same or substantially similar functions or responsibilities to those the Officer performed for Grainger within two years of the Separation Date; or
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ii.
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supervision over the same or substantially similar responsibilities to those the Officer performed for Grainger within two years of the Separation Date; or
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iii.
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assisting a Competitor in decisions that involve or affect the same or a substantially similar area of operations to those the Officer was involved in with Grainger within two years of the Separation Date.
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The Officer may not circumvent the purpose of this restriction by engaging in business within the Restricted Area through remote means such as telephone, correspondence, electronic or any other form of computerized communication.
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b.
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A “Competitor” is any person or legal entity or branch, office or operation thereof (a “Firm”) that engages in business that is competitive with the business activities of Grainger through, but not limited to: (i) selling maintenance, repair and operating (MRO) supplies to North American businesses; (ii) providing indirect materials management services to North American businesses; (iii) aggregating information regarding indirect materials for the purpose of conducting business-to-business Internet commerce with North American businesses; or (iv) indirect materials procurement services to North American businesses. Without limiting the generality of the foregoing, each of the Firms identified on Exhibit A hereto constitutes a Competitor.
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c.
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A Firm shall not be deemed a Competitor unless the aggregate revenue of such Firm for its most recently completed fiscal year that is attributable to the categories of products and services set forth in clauses (i) through (iv) of Section 7(b) above equals more than 5% of the aggregate amount of consolidated revenue that Grainger derived from such categories of products and services during its most recently completed fiscal year.
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d.
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The Officer may at any time, or from time to time, request Grainger to advise the Officer in writing whether or not Grainger considers a specified Firm to be a Competitor. Any such request shall be made by written notice to Grainger that includes: (i) the name of the specific business unit for which the Officer proposes to work; (ii) the name or names of any parent companies of such business unit; (iii) a description of the specific services which the Officer proposes to perform for such business unit; (iv) a statement as to why the Officer believes that the performance of such
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services will not adversely affect Grainger’s legitimate protectible interests; and (v) the requested date of Grainger’s response (which date shall be at least 14 days after the date of Grainger’s receipt of the Officer’s request).
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e.
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The Officer specifically recognizes and affirms that Section 7(a) is a material and important term of this Agreement. If any court of competent jurisdiction determines that the covenant set forth in Section 7(a), or any part thereof, would be unenforceable due to the stated duration or geographical scope of such covenant, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, as so reduced, such provision shall then be enforceable. If the court does not modify such provision as aforeseaid, or if the provision is otherwise held or found invalid or unenforceable for any reason whatsoever, then (without limiting any other remedies which may be available to Grainger under this Agreement or otherwise, including, without limitation, Section 13 hereof), Grainger shall be entitled to cease making payments and furnishing benefits to the Officer pursuant to this Agreement and shall be further entitled to receive from the Officer reimbursement of all Compensation Continuation Payments and other payments and benefits theretofore furnished to the Employee pursuant to this Agreement.
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Pending such reimbursement, and without limiting Grainger’s rights under Section 13 hereof or any other rights and remedies of Grainger, Grainger shall have the right to offset the amount of such reimbursement against any amount or benefit otherwise payable to the Officer.
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8.
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Non-Disparagement.
The Officer agrees to take no action in derogation or disparagement of Grainger or the Affiliates, or their respective businesses or strategic interests, or the Releasees. The Officer further agrees not to discuss or otherwise comment on Grainger or any Affiliate, or their respective businesses or strategic interests, or the Releasees, in public, for publication on electronic media (including but not limited to chat rooms, message boards, or the like), in similar public forums, or otherwise, other than communication of publicly available information. In turn, Grainger agrees that its Senior Corporate Officers will make no public statements nor sanction any action in derogation or disparagement of the Officer.
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9.
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Non-Interference with Business Relationships.
The Officer agrees not to interfere with the employment of any Grainger employee or otherwise with the business relationships of Grainger, and to the extent required to enforce this promise, agrees not to induce, directly or indirectly, any Grainger customer or supplier to breach any contract with Grainger, and further agrees not to solicit, attempt to hire, or hire, directly or indirectly, any Grainger employee, or request, induce or advise any such employee to leave the employment of Grainger at any time before the Termination Date and for one year thereafter. Should the Officer wish to hire a Grainger employee in contravention of this Section 9, or to perform work which is precluded by the Officer’s non-competition obligations set forth in Section 7 hereof, the Officer understands that he may request that Grainger agree that the Officer may perform such
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work or offer employment to such employee, and that with Grainger’s prior written agreement, which it may withhold at its sole discretion, the Officer may do so.
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10.
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Return of Property: Business Expenses
. The Officer shall promptly account for and return to Grainger all Grainger property, including but not limited to proprietary information, which is in the Officer’s possession or control. This property includes (but is not limited to) Officer’s Grainger work computer along with related drives and peripherals, correspondence, financial materials, files, reports, minutes, plans, records, surveys, diagrams, computer print-outs, floppy disks, manuals, client/customer information and documentation, and any company research, goals, objectives, recommendations, proposals or other information relating to Grainger, its business, or its clients or customers, which is not generally known to the public, and which the Officer acquired in the course of his employment with Grainger. Notwithstanding, Officer shall be permitted to retain his Grainger cell phone along with his current telephone number. The Officer further agrees that all business expenses incurred prior to the Separation Date that are reimbursable in accordance with Grainger’s normal policies and procedures have been reimbursed to the Officer or submitted for reimbursement, and that other than as specifically provided in this Agreement, the Officer will not incur any additional business expenses after the Separation Date unless previously authorized and approved in writing by Grainger.
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11.
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Confidential Information.
The Officer agrees to refrain from ever disclosing to anyone outside the employment of Grainger any confidential or trade secret information, whether in oral, written and/or electronic form, including but not limited to information that (a) relates to Grainger’s or the Affiliates’ past, present and future research, development, technical and non-technical data and designs, finances, marketing, products, services, customers, suppliers, and other business activities of any kind or (b) has been identified, either orally or in writing, as confidential by Grainger or any Affiliate; provided that this limitation shall not apply to information that is part of the public domain through no breach of this Agreement or is acquired from a third party not under similar nondisclosure obligations to Grainger or such Affiliate. The Officer acknowledges that his obligations under any confidentiality or nondisclosure or similar agreements or provisions that the Officer previously executed will remain in full force and effect. Further, through the Termination Date, the Officer agrees to fully comply with all policies of Grainger regarding confidential or trade secret information.
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12.
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Cooperation with Company.
The Officer agrees, during the term of this Agreement as well as during the 6 month period immediately thereafter, to both make himself available and to provide reasonable cooperation to Grainger or its attorneys to assist Grainger or serve as a witness in connection with any matter, litigation, potential litigation, or other business matter in which the Officer may have knowledge, information, or expertise. The Officer also agrees to provide Grainger or its designated representatives, upon request, with information and assistance about programs, processes,
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and projects related to the Officer’s job responsibilities while employed by Grainger; to answer any questions relating to the work to which the Officer was assigned; and to otherwise provide reasonable cooperation to Grainger regarding matters relating to this Agreement and the Officer’s employment with Grainger. Grainger will reimburse the Officer for any reasonable expenses he incurs in activities which he undertakes at Grainger’s request pursuant to this Section 12.
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13.
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Breach of Agreement - Misconduct.
The Officer understands and agrees that if, after receiving all or any part of the payments and benefits described herein, the Officer breaches this Agreement, or commits or is discovered to have committed any act of misconduct including any violation of Company Policy, embezzlement, fraud or theft with respect to the property of Grainger, or causes or is discovered to have caused, any loss, damage, injury or other endangerment to Grainger’s property, reputation or past, present, or future directors, officers or employees, Grainger reserves the right to demand repayment of all such payments and benefits. Grainger shall further be released from any future payment then or thereafter otherwise due and shall discontinue any and all benefit coverage (other than vested benefits under the PST and SPSP, and COBRA coverage. To the extent permitted by law, the Officer further understands and agrees that Grainger reserves the right to pursue all other available remedies in an effort to preserve its legitimate business interests. The Officer also agrees to indemnify and hold harmless Grainger from any loss, cost, damage, or expense, including fees, which Grainger may incur because of the Officer’s violation of this Agreement. The Officer understands that this Section 13 does not apply to a challenge to the knowing and voluntary nature of this release with respect to claims under ADEA. Should a dispute arise relative to any claim associated with this Section that is not otherwise privately resolved between Grainger and the Officer, it is understood and agreed that such dispute shall then be submitted for arbitration with an arbitrator mutually selected through the American Arbitration Association’s panel selection process.
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14.
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Supersedes Other Agreements.
Other than any vested rights that the Officer may have under employee benefit plans subject to ERISA, the Officer understands that this Agreement supersedes any and all obligations (written or oral) which Grainger otherwise might have to the Officer for compensation or other expectations of remuneration or benefit on the Officer’s part. The Officer specifically acknowledges that all of Grainger’s obligations under the Change in Control Employment Agreement entered into between Grainger and the Officer (the “Change in Control Agreement”) shall become null and void as of the Separation Date. Notwithstanding the above and based upon the special consideration provided by way of this Agreement, all obligatory provisions relating to the Officer that are contained within any Grainger Non-Competition Agreement, Stock Option, Special RSU, or Performance Share Agreement entered into between the Officer and Grainger, or other Grainger Governance shall remain in full force and effect as originally executed and be incorporated by reference as being materials parts of this Agreement.
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15.
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References.
At the Officer’s request, Grainger will provide appropriate references to prospective future employers of the Officer. Those references will be provided by DG MacPherson or his designee on behalf of Grainger, with the specific content of such references to be mutually agreed between Grainger and the Officer in the future.
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16.
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Continuation After Death.
The Officer understands that in the event of the Officer’s death, Grainger’s obligations under this Agreement will extend to the Officer’s beneficiaries, heirs, executors, administrators, personal representatives and assigns.
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17.
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Agreement Not Assignable.
The Officer may not assign, and the Officer represents that he has not assigned, this Agreement or any rights or Grainger’s obligations under this Agreement to any other person.
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18.
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Entire Understanding.
The Officer understands and agrees that this Agreement, including Exhibit A hereto, contains the entire understanding between the parties and may not be amended except by mutual agreement in an amendment executed by both parties.
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19.
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Severability.
The provisions of this Agreement are declared to be severable, which means that if any provision of this Agreement or the application thereof is found to be invalid, the invalidity shall not affect other provisions or applications of this Agreement, which will be given effect without the invalid provisions or applications. In the event that a court of competent jurisdiction concludes that any term, provision or section of this Agreement is invalid or unenforceable (and, in the case of Section 7(a) of this Agreement, such provision is not modified by the court to be enforceable as described in Section 7(e) hereof), then said term, provision, or section shall be deemed eliminated from this Agreement to the extent necessary and in order to permit the remaining portions of the Agreement to be enforced. Any such eliminations shall not affect Grainger’s entitlement, if any, to receive, pursuant to Sections 7(e) and 13 hereof, amounts paid and benefits provided to the Officer under this Agreement.
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20.
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Confidentiality of Agreement.
The Officer represents and agrees, except as otherwise required by law, to keep the terms, amounts and facts surrounding this Agreement completely confidential, save claims involving workplace harassment, and that the Officer will not disclose any information concerning this Agreement to anyone; provided, however, that this section will not prevent the Officer from disclosing information concerning this Agreement to the Officer’s spouse, attorneys, accountants, financial or tax advisors, a designated Grainger official, or as required by law or spouse. Notwithstanding, in accordance with U.S. Treasury Regulation 1.6011-4(b)(3)(iii), each party (and each employee, representative, or other agent of each party) to this Agreement may disclose to any and all persons, without limitation of any kind, the tax treatment, tax structure, and all materials of any kind provided to the other party relating to such tax treatment and tax structure. Nothing in this confidentiality provision prohibits Officer from reporting possible violations of federal law or regulation to any governmental
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agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. Officer does not need the prior authorization of the Company to make any such reports or disclosures and Officer is not required to notify the Company that Officer has made such reports or disclosures. Officer may disclose Trade Secrets in confidence, either directly or indirectly, to a Federal, State, or local government official, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Additionally, Officer may file a lawsuit, to include retaliation, in conjunction with reporting a suspected violation of law and may disclose related Trade Secrets to his attorney and use them in related court proceedings, as long as the individual files documents containing the Trade Secret under seal and does not otherwise disclose the Trade Secret except pursuant to Court Order.
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21.
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Jurisdiction and Governing Law.
The Officer acknowledges that for the purpose of this Agreement as well as his employment with Grainger, he is an Illinois employee. This Agreement shall in all respects be interpreted, enforced and governed by and under the laws of the State of Illinois, without regard to its conflicts of law principles.
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22.
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Voluntary Agreement.
The Officer acknowledges that the payments and benefits that Grainger is providing hereunder exceed the compensation and benefits otherwise payable to the Officer or on the Officer’s behalf and that such Compensation Continuation Payments and benefits are provided by Grainger in exchange for execution of this Agreement. The Officer acknowledges that he was given twenty-one (21) days to consider the terms of this Agreement, that the Officer may revoke this Agreement at any time within seven (7) days after the date that the Officer signs it, and that he has been advised to and has had the opportunity to seek out counsel of his own choice. Any revocation must be communicated in writing, via personal delivery or overnight mail, to Henry F. Galatz, Labor Counsel, W.W. Grainger, Inc., 100 Grainger Parkway, Lake Forest, Illinois 60045. The Officer further understands that this Agreement does not take effect until after the expiration of the seven (7) day period for revocation. All referenced Separation Payments and applicable benefits identified in this Agreement will automatically cease on the 21
st
day should the Officer not return a fully executed copy of this Agreement to Grainger within the specified 21-day consideration period. The Officer has read this Agreement and understands all of its terms.
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I have read this Separation Agreement and General Release and I understand all of its terms. I voluntarily execute this Separation Agreement and General Release with full knowledge of its meaning, on this 2nd day of April 2018.
W.W. GRAINGER, INC.
By:
Joseph High
Name:
Title:
Exhibit 10.3
W.W. GRAINGER, INC.
2015 Incentive Plan
Stock Option Agreement
This Stock Option Agreement (this
"
Agreement
"
), dated as of April 2, 2018 (the
"
Grant Date
"
), is entered into between W.W. Grainger, Inc., an Illinois corporation (the
"
Company
"
), and you as the executive (the
"
Executive
"
), who is employed by the Company or a Subsidiary of the Company (the
"
Employer
"
).
In consideration of the Executive
'
s agreement to enter into an Unfair Competition Agreement with the Company concurrently with this Agreement on the Grant Date (the
"
Unfair Competition Agreement
"
), the Company desires to grant the Executive the right and option (
"
Option
"
) to purchase shares of the Company
'
s common stock (
"
Shares
"
) pursuant to the W.W. Grainger, Inc. 2015 Incentive Plan (as may be amended from time to time, the
"
Plan
"
) and the Executive agrees to enter into the Unfair Competition Agreement and accept such Option on the terms and conditions set forth in this Agreement, the Plan and the Unfair Competition Agreement. Capitalized terms used but not defined in this Agreement have the meanings specified in the Plan.
In consideration of the mutual provisions set forth in this 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
Grants
. Subject to the terms and conditions of this Agreement, the 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 Executive the Option to purchase all or a portion of the number of Shares specified in the April 2, 2018 award grant at the price per Share as specified in the grant notice posted to the Executive
'
s electronic investment account maintained with the brokerage firm/third party service provider engaged by the Company in connection with the administration of the Plan (the
"
Administrator
"
).
1.02
Term of Option
. The Option shall expire ten (10) years from the Grant Date (i.e., a grant on April 2, 2018 would expire on April 1, 2028), subject to the terms and conditions set forth in this Agreement, the Plan and the Unfair Competition Agreement.
ARTICLE II
Provisions Relating to Option
2.01
Vesting of Option
. If the Executive remains continuously employed by the Employer (or any other Subsidiary or Affiliate) until the vesting date specified in the grant notice (the
"
Option Vesting Date
"
), the Option shall become fully vested and exercisable on such date. The Option shall not vest before the Option Vesting Date unless otherwise provided or permitted by the Plan or this
Agreement, and any portion of the Option that does not vest shall be forfeited in full and the Executive shall have no further rights with respect to such Option.
2.02
Effect of Termination of Employment
. Except as otherwise stated in the Plan, if the Executive
'
s employment or service is terminated prior to the Option Vesting Date for any reason whatsoever other than the Executive
'
s death or Disability (defined below), the Executive’s unvested Options as of the Executive
'
s Termination Date (defined below) shall be forfeited in there entirety. However, the Executive shall have three (3) months from the Termination Date to exercise vested Options. If the Executive is a resident of, or employed in, the United States,
"
Termination Date
"
shall mean the effective date of termination of the Executive
'
s employment. If the Executive 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 Executive, (ii) the last day of the Executive
'
s active service with the Employer or (iii) the last day on which the Executive 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 Executive
. If the Executive
'
s employment or service is terminated prior to the Option Vesting Date due to the Executive
'
s death or Disability, the Option immediately shall fully vest, become exercisable and will expire on the earlier of (i) six (6) years from the Termination Date or (ii) the original expiration date of the Option. For purposes of this Agreement,
"
Disability
"
shall have the same meaning as defined in the Plan, subject to modification as may be required to conform to the laws, rules and regulations (“Laws”) of the Executive
'
s country of residence (and country of employment, if different).
2.04
Exercise of Option
. The Executive may exercise the vested portion of the Option in accordance with such policies and procedures as shall be established by the Company and/or the Administrator from time to time.
2.05
Payment of Option Price
. The Executive shall at the time of exercise of the Option (except in the case of a cashless exercise, which) tender to the Company the full Option Price. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the Option Price may be paid (i) in cash, (ii) in Shares already owned by the Executive for at least six (6) months and having a Fair Market Value on the date of exercise equal to the Option Price, (iii) through a combination of cash and Shares, or (iv) through a cashless exercise through a broker-dealer approved for this purpose by the Company. Notwithstanding anything to the contrary in this Agreement, if the Executive resides in a country where the local foreign exchange Laws either preclude the remittance of currency out of the country for purposes of paying the Option Price, or require the Company, the Employer and/or the Executive to secure any legal or regulatory approvals, complete any legal or regulatory filings, or undertake any additional steps for remitting currency out of the country, the Company may restrict the method of exercise to a form of cashless exercise or such other form(s) of exercise as it determines in its sole discretion.
ARTICLE III
Recoupment
3.01
Recoupment in Event of Misconduct
. If the Company determines that the Executive has committed fraud against the Company or has engaged in any criminal conduct that involves or is related to the Company, or any other conduct that violates Company policy, and such Executive has previously 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 of Common Stock acquired under the Plan, recapture any gain realized upon the sale of shares of Common Stock acquired under the 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 Executive
'
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 Executive engages in misconduct or is believed to have engaged in misconduct, including but not limited to any violation of any of Executive
'
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 Executive 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
Implementation
. For purposes of this
Article III
, the Executive expressly authorizes the Company to issue instructions, on behalf of the Executive, to the Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the Plan) to reconvey, transfer or otherwise return to the Company any Incentive Compensation subject to recoupment hereunder. Executive acknowledges and agrees that the Company
'
s rights hereunder shall not be affected in any way by any subsequent change in the Executive’s status, including retirement or termination of employment (including due to death or Disability).
3.04
Forfeiture
. To the extent any of the events set forth in
Article 3
occur before the Executive 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 Executive acknowledges and agrees that the ultimate liability for all Tax-Related Items legally due by the Executive is and remains the Executive
'
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 Option, including the grant of the Option, the vesting of the Option, the exercise of the Option, the subsequent sale of any Shares acquired pursuant to
the Option and the receipt of any dividends and (ii) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Executive
'
s liability for Tax-Related Items.
4.02
Tax Withholding Obligations
. Prior to the delivery of Shares (or cash) upon the exercise of the Option, if the Executive
'
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 exercise of the Option 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. Depending on the withholding method specified in the Plan, 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 Executive 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 Executive
'
s regular salary and/or wages or any other amounts payable to the Executive, or may require the Executive 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 Executive
'
s regular salary and/or wages or other amounts payable to the Executive, no Shares will be issued to the Executive (or the Executive
'
s estate) upon the exercise of the Option unless and until satisfactory arrangements (as determined by the Committee) have been made by the Executive 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 Option. If the obligation for the Executive
'
s Tax-Related Items is satisfied by withholding a number of Shares as described herein, the Executive shall be deemed to have been issued the full number of Shares issuable upon exercise, 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 exercise or any other aspect of the Award.
The Executive 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 Executive
'
s participation in the Plan or the Executive
'
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 exercise of the Option if the Executive fails to comply with his or her obligations in connection with the Tax-Related Items as described herein. If the Executive is subject to taxation in more than one jurisdiction, the Executive 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 Executive hereby consents to any action reasonably taken by the Company and the Employer to meet his or her obligation for Tax-Related Items. By accepting this grant of Option, the Executive expressly consents to the withholding of Shares and/or withholding from the Executive
'
s regular salary and/or wages or other amounts payable to the Executive as provided for hereunder. All other Tax-Related Items related to the Option and any Shares delivered in payment thereof are the Executive
'
s sole responsibility.
ARTICLE V
International Arrangements
5.01
Exchange Controls
. As a condition to this grant of Options, the Executive 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 Executive
'
s country of residence (and country of employment, if different).
5.02
Foreign Asset and Account Reporting Requirements
. The Executive acknowledges that there may be certain foreign asset and/or account reporting requirements, which may affect the Executive
'
s ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan (including from any dividends or dividend equivalent payments) in a brokerage or bank account outside the Executive
'
s country of residence (and country of employment, if different). The Executive may be required to report such accounts, assets or transactions to the tax or other authorities in the Executive
'
s country of residence (and country of employment, if different). The Executive acknowledges and agrees that it is his or her personal responsibility to be compliant with such Laws.
5.03
Country Specific Addendum
. Notwithstanding any provisions of this Agreement to the contrary, the Option shall be subject to any special terms and conditions for the Executive
'
s country of residence (and country of employment, if different) set forth in the addendum to this Agreement (
"
Addendum
"
). If the Executive transfers residence and/or employment to another country reflected in an Addendum at the time of transfer, the special terms and conditions for such country will apply to the Executive 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 Option and the Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Executive
'
s transfer). In all circumstances, any applicable Addendum shall constitute part of this Agreement.
5.04
Controlling Language
. The Executive acknowledges and agrees that it is the Executive
'
s express intent that this Agreement, the Plan, the Unfair Competition Agreement and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the Option be drawn up in English. If the Executive has received this Agreement, the Plan, the Unfair Competition Agreement or any other documents related to the Option 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 Plan or this Agreement, the Option 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.
6.02
Rights as Shareholder
. The Executive shall not have voting or any other rights as a shareholder of the Company with respect to the Shares issuable upon exercise of the Option until the date of issuance of such Shares. Upon exercise of the Option the Executive will obtain, with respect to the Shares received in such exercise, full voting and other rights as a shareholder of the Company.
6.03
Administration
. The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation, and application of the 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 Executive, 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 Plan or this Agreement.
6.04
No Employment Rights
. This Agreement and the Executive
'
s participation in the 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 Executive 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 Executive
'
s employment at any time.
6.05
Nature of Grant
. In accepting the grant hereunder, the Executive acknowledges and agrees that: (i) the 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 Executive has read the Plan and any Options granted under it shall be subject to all of the terms and conditions of the Plan, including but not limited to the power of the Committee to interpret and determine the terms and provisions of the Plan and this Agreement and to make all determinations necessary or advisable for the administration of the Plan, all of which interpretations and determinations shall be final and binding; (iii) the Option does not create any contractual or other right to receive future grants of Options, benefits in lieu of Options, or any other Plan benefits in the future; (iv) nothing contained in this Agreement is intended to create or enlarge any other contractual obligations between the Company or the Employer and the Executive; (v) any grant under the Plan, including any grant of Options, 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 Executive is voluntarily participating in the Plan; (vii) the future value of the Shares underlying the Option granted hereunder is unknown and cannot be predicted with certainty; and (viii) neither the Company, the Employer nor any of their respective Subsidiaries shall be liable for any change in value of the Option, the amount realized upon settlement of the Option or the amount realized upon a subsequent sale of any Shares acquired upon exercise of the Option, resulting from any fluctuation of the United States Dollar/local currency foreign exchange rate. Without limiting the generality of the foregoing, the Committee shall have the discretion to adjust the terms and conditions of any Option to correct for any windfalls or shortfalls in such Option which, in the Committee
'
s determination, arise from factors beyond the Executive
'
s control; provided, however, that the Committee
'
s authority with respect to any Option to a
"
covered employee,
"
as defined in Section 162(m)(3) of the Code, shall be limited to decreasing, and not increasing, such Option.
6.06
Compliance with Law
. The Company shall not be required to issue or deliver any Shares pursuant to this 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 Executive resides or is employed outside of the United States, the Executive agrees, as a condition of the grant of the Option, to repatriate all payments attributable to the Shares and/or cash acquired under the Plan (including, but not limited to, dividends and any proceeds derived from the sale of Shares acquired pursuant to the Option) if required by and in accordance with local Laws in the Executive’s country of residence (and country of employment, if different). In addition, the Executive 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 Executive’s country of residence (and country of employment, if different). Finally, the Executive agrees to take any and all actions as may be required to comply with the Executive’s personal legal and tax obligations under local Laws in the Executive’s country of residence (and country of employment, if different).
6.07
Amendment
. This Agreement may be amended by a writing which specifically states that it is amending this Agreement executed by (i) the Company and the Executive, (ii) the Company (at the discretion of the Committee), so long as a copy of such amendment is delivered to the Executive, and provided that no such amendment having a material adverse affect on the rights of the Executive hereunder may be made without the Executive
'
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 Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to the Executive shall be addressed to the Executive at the address listed in the Employer
'
s records or to the Executive
'
s electronic investment account held at the 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 Agreement or the 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 Agreement or the Plan not declared to be unlawful or invalid. Any provision of this 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 Option is being issued pursuant to
Article 6
(Stock Option) of the Plan. The Option is subject to the terms of the Plan. The Executive acknowledges receipt of the Plan booklet which contains the entire Plan, and the Executive represents and warrants that the Executive has read the Plan. Additional copies of the 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 Agreement violates or is inconsistent with an express provision of the Plan, the Plan provision shall govern and any inconsistent provision in this 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 OPTION, THE PLAN OR THIS AGREEMENT.
6.12
Waiver; No Third Party Beneficiaries
. A waiver by the Company of a breach of any provision of this Agreement by the Executive shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Executive. This Agreement shall not be construed to create any third party beneficiary rights.
6.13
Data Privacy
.
(i) Pursuant to applicable personal Data (defined below) protection laws, the collection, use, processing and transfer of the Executive
'
s personal Data is necessary for the Company
'
s administration of the Plan and the Executive
'
s participation in the Plan. The Executive expressly and voluntarily (a) acknowledges, consents and agrees to the collection, use, processing and/or transfer of personal Data as described herein; (b)
authorizes the Company, its Subsidiaries and the Employer to transfer Data, in electronic or other form, to each other and to any third parties, including the subsequent holding of Shares on the Executive
'
s behalf to a broker or other third party with whom the Executive may elect to deposit any Shares acquired pursuant to the Plan, to assist the Company in the implementation, administration and management of the Plan. These recipients may be located throughout the world. For purposes of this
Section 6.13
,
"
Data
"
means certain personal information about the Executive including (but not limited to) the Executive
'
s name, home address and telephone number, date of birth, social security number or other employee identification number, email address, salary, nationality, job title, any Share ownership and details of any Award or any other entitlement to Shares awarded, canceled, purchased, vested, unvested or outstanding in the Executive
'
s favor for the purpose of managing and administering the Plan.
(ii)
Data may be provided by the Executive or collected, where lawful, from third parties. The Company, its Subsidiaries, the Employer and any third party service providers will process the Data collected hereunder for the purpose of implementing, administering and managing the Executive
'
s participation in the Plan. Data processing will take place through electronic and non-electronic means in accordance with applicable Law and the Company, its Subsidiaries and the Employer
'
s policies and procedures as in effect from time to time. The Executive may, at any time, seek to exercise his or her rights provided under applicable personal Data protection laws by contacting his or her local human resources manager.
(iii)
Upon request of the Company or the Employer, the Executive agrees to provide an executed data privacy consent form (or any other agreements or consents that may be required by the Company and/or the Employer) that the Company and/or the Employer may deem necessary to obtain from the Executive for the purpose of administering the Executive's participation in the Plan in compliance with the data privacy laws the Executive’s country of residence (and country of employment, if different), either now or in the future. The Executive understands and agrees that the Executive will not be able to participate in the Plan if the Executive fails to provide any such consent or agreement requested by the Company and/or the Employer.
6.14
Private Placement
. The grant of the Option is not intended to be a public offering of securities in the Executive
'
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 Option, the Executive
'
s participation in the Plan or the Executive
'
s acquisition or sale of the underlying Shares. The Executive is hereby advised to consult with the Executive
'
s own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan or the Agreement.
6.16
Securities Law Restrictions
. The Executive acknowledges that, depending on the Executive's country of residence (and country of employment, if different) or where the Company
Shares are listed, the Executive shall be subject to insider trading restrictions and/or market abuse Laws, which may affect the Executive's ability to acquire, sell or otherwise dispose of Shares, rights to Shares (e.g., the Option) under the Plan or rights linked to the value of Shares during such times as the Executive is considered to have "inside information" regarding the Company or its business (as defined by the local Laws in the Executive's country of residence and/or employment). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Executive placed before the Executive possessed inside information. Furthermore, the Executive 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 Executive solely is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on this matter.
6.17
Stock Ownership and Retention Guidelines
. The exercise of any Options may be subject to the Company
'
s Stock Ownership and Retention Guidelines, as in effect from time to time, in all respects.
6.18
EU Age Discrimination Rules
. If the Executive is a local national of, and employed in, a country that is a member of the European Union, the grant of the Option and the terms and conditions governing the Option 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 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.
6.19
Electronic Delivery
. The Company may, in its sole discretion, deliver any documents related to the Option or other Awards granted to the Executive under the Plan by electronic means. The Executive hereby expressly consents to receive such documents by electronic delivery and agrees to participate in the Plan through an online or electronic system established and maintained by the Company or a third party designated by the Company.
6.20
Governing Law; Jurisdiction
. This 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 the Option, the Executive 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.
6.21
Entire Agreement
. The Plan, this 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 Executive with respect to the subject matter hereof.
[
Signature Page Follows
]
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer and the Executive acknowledges and agrees that by clicking on the box next to this Agreement in the section
"
Read and Acknowledge Award Documents
"
on the screen titled
"
Award Acceptance,
"
the Executive expressly agrees to be bound by the terms and conditions of the Options, including Executive
'
s electronic signature constituting the sole and exclusive means of executing this Agreement.
W.W. GRAINGER, INC.
By:
Name: DG Macpherson
Title: Chairman &Chief Executive Officer
By:
Executive Signature
Date: April 2, 2018
W.W. GRAINGER, INC.
2015 Incentive Plan
Addendum to Stock Option Agreement
In addition to the terms of the W.W. Grainger, Inc. 2015 Incentive Plan (as may be amended from time to time, the "Plan") and the Stock Option Agreement (the "Agreement"), the Option is subject to the following additional terms and conditions as set forth in this addendum (this "Addendum") to the extent the Executive resides or is employed in one of the countries addressed herein. All capitalized terms contained in this Addendum shall have the same meaning as set forth in the Plan and the Agreement unless otherwise defined. If the Executive transfers residence or employment to a country identified in this Addendum, the additional terms and conditions for such country as reflected in this Addendum will apply to the Executive 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 Option and the Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Executive’s transfer).
Name: ________________________ Number of Shares: _____________________
Grant Date: ____________________ Option Price: _______________________
Acceptance of Option
In order for the Option to be subject to taxation at the time of grant, the Executive must affirmatively accept the Option in writing within 60 days of the Grant Date specified above by signing below and returning this original executed Addendum to:
Attn: Treasury Department
100 Grainger Parkway, Lake Forest, IL 60045, USA
mary.geraci@grainger.com
The Executive hereby accepts the Option granted by the Company on the Grant Date. The Executive acknowledges that the Executive has been advised to discuss the acceptance of the Option and the applicable tax treatment with a financial and/or tax advisor, and that the Executive’s decision to accept the Option is made in full knowledge.
Executive Signature:
_______________________________
Executive Printed Name:
_______________________________
Date of Acceptance:
_______________________________
If the Executive fails to affirmatively accept the Option in writing within 60 days of the Grant Date, the Option will not be subject to taxation at the time of grant but instead will be subject to taxation on the date the Executive exercises the Option (or such other treatment as may apply under Belgian tax law at the time of exercise).
Undertaking for Qualifying Option
If the Executive is accepting the Option in writing within 60 days of the Grant Date and wishes to have the Option subject to a lower valuation for Belgium tax purposes pursuant to article 43, §6 of the Belgian law of 26 March 1999, the Executive may agree and undertake to (a) not exercise the Option before December 31 of the third (3
rd
) calendar year following the calendar year in which the Grant Date falls, and (b) not transfer the Option under any circumstances (except upon rights the Executive’s heir might have in the Option upon the Executive’s death). If the Executive wishes to make this undertaking, the Executive must sign below and return this executed Addendum to the address listed above.
Executive Signature:
_______________________________
Executive Printed Name:
_______________________________
Payment of Exercise Price Limited to Cash Payment
Notwithstanding anything to the contrary in the Agreement or the Plan, the Executive shall be permitted to pay the Option Price only by means of a cash payment.
Foreign Asset Reporting Information
The Executive is required to report any security or bank account (including a brokerage account) opened and maintained outside Belgium on the Executive’s annual tax return. In a separate report, the Executive is required to provide the National Bank of Belgium with the account details of any such foreign accounts (including the account number, bank name and country in which any such account was opened). This report, as well as additional information on how to complete it, can be found on the website of the National Bank of Belgium, www.nbb.be, under the Kredietcentrales / Centrales des crédits caption.
Accelerated Vesting upon Retirement
Notwithstanding anything in the Agreement or the Plan to the contrary, if the Executive’s employment or service is terminated by reason of retirement, the Option immediately shall fully vest, become exercisable and will expire on the earlier of (i) six (6) years from the Termination Date or (ii) the original expiration date of the Option. For purposes of the foregoing, "retirement" shall have the definition prescribed by local Laws.
No Exercise Using Previously Owned Shares
Notwithstanding any provision in the Agreement or the Plan to the contrary, the Executive may not pay the Option Price by tendering Shares already owned by the Executive.
Securities Law Information
The Executive is permitted to sell Shares acquired through the Plan through the designated broker appointed under the 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 Options acquired under the 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 Options 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 exercise, but if the Executive 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 Executive should consult with his or her personal tax advisor to determine the Executive’s reporting requirements.
The following provisions will apply if the Executive is a resident of Quebec
:
Data Privacy Notice and Consent
This provision supplements
Section 6.13
of the Agreement:
The Executive hereby authorizes the Company, its Subsidiaries and the Employer to discuss with and obtain all relevant information pertaining to the Executive from all personnel involved in the administration and operation of the Plan. The Executive further authorizes the Company, its Subsidiaries and the Employer to disclose and discuss the Executive's participation in the Plan with their advisors. The Executive further authorizes the Company, its Subsidiaries and the Employer to record any information pertaining to the Executive’s participation in the Plan and to keep such information in his or her employee file.
Use of English Language
If the Executive is a resident of Quebec, by accepting the Option, the Executive acknowledges and agrees that it is the Executive’s wish that the Agreement, this Addendum, the Plan, as well as all other documents, notices and legal proceedings entered into, given or instituted pursuant to the Option, either directly or indirectly, be drawn up in English.
Utilisation de l’anglais
Si
l’exécutif
est un résident du Québec, en acceptant le Option, l
l’exécutif
reconnaît et accepte que ce est le souhait du
l’exécutif
que
l’Accord
, le présent Addenda, ainsi que tous autres documents, avis et procédures judiciaires, exécutés, donnés ou intentés en vertu de le Option, liés directement ou indirectement, soient rédigés en anglais.
Use of English Language
By accepting the Award, you confirm having read and understood the Plan and the Agreement, which were provided in the English language. You accept the terms of those documents accordingly.
Utilisation de l’anglais
.
En acceptant les Attributions, vous confirmez avoir lu et comprenez le Plan et ce contrat, incluant tous leurs termes et conditions, qui ont été transmis en langue anglaise. Vous acceptez les dispositions de ces documents en connaissance de cause.
Foreign Asset Reporting
French residents holding cash or Shares outside of France must declare all foreign bank and brokerage accounts (including any accounts that were opened or closed during the tax year) on an annual basis, together with their income tax return. Failure to complete this reporting triggers penalties for the resident.
Accelerated Vesting upon Retirement
Notwithstanding anything in the Agreement or the Plan to the contrary, if the Executive’s employment or service is terminated by reason of retirement, the Option immediately shall fully vest, become exercisable and will expire on the earlier of (i) six (6) years from the Termination Date or (ii) the original expiration date of the Option. For purposes of the foregoing, "retirement" shall have the definition prescribed by local Laws.
Commercial Relationship
The Executive expressly recognizes that participation in the Plan and the Company’s grant of the Option does not constitute an employment relationship between the Executive and the Company. The Executive has been granted the Option as a consequence of the commercial relationship between the Company and the Employer, and the Employer is the Executive’s sole employer. Based on the foregoing, (a) the Executive expressly recognizes that the Plan and the benefits derived from participation in the Plan do not establish any rights between the Executive and the Company or the Employer, (b) the Plan and the benefits derived from participation in the 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 Plan by the Company, or a termination of the Plan by the Company, shall not constitute a change or impairment of the terms and conditions of the Executive’s employment with the Employer.
Extraordinary Item of Compensation
The Executive expressly acknowledges and agrees that participation in the Plan is a result of the discretionary and unilateral decision of the Company, as well as the Executive’s free and voluntary decision to participate in the Plan in accord with the terms and conditions of the Plan, the Agreement, the Unfair Competition Agreement and this Addendum. As such, the Executive acknowledges and agrees that the Company may, in its sole discretion, amend and/or discontinue the Executive’s
participation in the Plan at any time and without any liability. The value of the Option is an extraordinary item of compensation outside the scope of the employment contract, if any. The Option is not a part of the Executive’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.
Waiver of Termination Rights
The Executive waives any and all rights to compensation or damages as a result of any termination of employment for any reason whatsoever, insofar as those rights result or may result from (a) the loss or diminution in value of such rights or entitlements under the Plan or (b) the Executive ceasing to have rights under, or ceasing to be entitled to any Awards under the Plan as a result of such termination.
Dutch Subsidiary Director Notice
The Executive acknowledges and agree that the Option granted to the Executive in connection with the Executive’s participation in the Plan are not granted as consideration for, or otherwise in connection with the service the Executive may provide as a director ("statutair bestuurder") of a Subsidiary established under the laws of Netherlands or operating within the Netherlands.
Termination of Service
The following provision shall supplement
Section 2.02
of the Agreement:
In case of termination of service of the Executive triggering the payment of severance costs under applicable law, the Option shall not be taken into account in the calculation of such severance costs, to the extent permitted by applicable law.
Use of English Language
The Executive hereby expressly declares that the Executive has full knowledge of the English language and has read, understood and fully accepted and agreed with the terms and conditions established in the Plan, the Agreement, the Unfair Competition Agreement and this Addendum.
Uso da Língua Inglesa
Por meio do presente, o Executivo declara que Executivo possui pleno conhecimento da língua inglesa e que leu, compreendeu, e livremente aceita e concorda com os termos e condiçoes estabelecidas no Plano, o Acordo, o Acordo de Concorrência Desleal e este Adendo.
Income Tax and Social Insurance Contribution Withholding
The following provision shall replace
Article IV
of the Agreement:
Without limitation to
Article IV
of the Agreement, the Executive agrees that the Executive 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 Executive 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 Executive’s behalf.
Exclusion of Claim
The Executive acknowledges and agrees that the Executive will have no entitlement to compensation or damages, insofar as such entitlement arises or may arise from the Executive’s ceasing to have rights under or to be entitled to exercise the Option 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 Option. Upon the grant of the Option, the Executive shall be deemed to have irrevocably waived any such entitlement.
Accelerated Vesting upon Retirement
Notwithstanding anything in the Agreement or the Plan to the contrary, if the Executive’s employment or service is terminated prior to the Option Vesting Date due to the Executive’s retirement, the Option immediately shall fully vest, become exercisable and will expire on the earlier of (i) six (6) years from the Termination Date or (ii) the original expiration date of the Option. For purposes of the foregoing, "retirement" shall mean the Executive’s termination of service with (i) 25 years of service, (ii) 20 years of service and attainment of age 55, or (iii) attainment of age 60.
* * * * *
Exhibit 10.4
W.W. GRAINGER, INC.
2015 Incentive Plan
Restricted Stock Unit Agreement
This Restricted Stock Unit Agreement (this
"
Agreement
"
), dated as of April 2, 2018 (the
"
Grant Date
"
), is entered into between W.W. Grainger, Inc., an Illinois corporation (the
"
Company
"
), and you as the executive (the
"
Executive
"
), who is employed by the Company or a Subsidiary of the Company (the
"
Employer
"
).
In consideration of the Executive
'
s agreement to enter into an Unfair Competition Agreement with the Company concurrently with this Agreement on the Grant Date (the
"
Unfair Competition Agreement
"
), the Company desires to grant the Executive 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. 2015 Incentive Plan (as may be amended from time to time, the
"
Plan
"
) and the Executive agrees to enter into the Unfair Competition Agreement and accept such RSUs on the terms and conditions set forth in this Agreement, the Plan and the Unfair Competition Agreement.
Capitalized terms used but not defined in this Agreement have the meanings specified in the Plan.
In consideration of the mutual provisions set forth in this 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 Agreement, the 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 Executive the number of RSUs as specified in the April 2, 2018 award grant notice posted to the Executive
'
s electronic investment account maintained with the brokerage firm/third party service provider engaged by the Company in connection with the administration of the Plan (the
"
Administrator
"
). Each RSU represents a contractual right to receive one (1) Share upon the satisfaction of the terms and conditions of this Agreement.
ARTICLE II
Provisions Relating to RSUs
2.01
Vesting of RSUs
. If the Executive remains continuously employed by the Employer (or any other Subsidiary or Affiliate) until the vesting date specified in the grant notice (the
"
RSU Vesting Date
"
), the RSUs shall become fully vested on such date and the Executive 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 Plan or this Agreement, and any RSUs that do not vest shall be forfeited in full and the Executive 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 Plan, if the Executive
'
s employment or service is terminated prior to the RSU Vesting Date for any reason whatsoever other than the Executive
'
s death or Disability (defined below), the Executive shall cease vesting in the RSUs as of the Executive
'
s Termination Date (defined below) and the RSUs shall be forfeited in their entirety. If the Executive is a resident of, or employed in, the United States,
"
Termination Date
"
shall mean the effective date of termination of the Executive
'
s employment. If the Executive 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 Executive, (ii) the last day of the Executive
'
s active service with the Employer or (iii) the last day on which the Executive 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 Executive
. If the Executive's employment or service is terminated prior to the RSU Vesting Date due to the Executive's death or Disability, the RSUs immediately shall fully vest. For purposes of this Agreement, "Disability" shall have the same meaning as defined in the Plan, subject to modification as may be required to conform to the laws, rules and regulations (“Laws”) of the Executive's country of residence (and country of employment, if different). For the sake of clarity, the date of the Executive’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 2.04
.
2.04
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 Executive
'
s name and delivering such Shares to the Executive
'
s electronic stock plan account maintained by the Administrator. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the Executive
'
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 Executive, the Company or the Employer to obtain the approval of any governmental and/or regulatory body in the Executive
'
s country of residence (and country of employment, if different), or (c) is administratively burdensome or (ii) Shares, but the Company may require the Executive to immediately sell such Shares if necessary to comply with applicable Laws (in which case, the Executive hereby expressly authorizes the Company to issue sales instructions in relation to such Shares on the Executive
'
s behalf).
2.05
Dividend Equivalents
. Prior to the RSU Vesting Date, the Executive 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 Executive. If the Company declares any dividends payable in Shares (rather than in cash), the Executive shall be entitled to additional RSUs equal to the Fair Market Value 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.
ARTICLE III
Recoupment
3.01
Recoupment in Event of Misconduct
. If the Company determines that the Executive has committed fraud against the Company or has engaged in any criminal conduct that involves or is related to the Company, or any other conduct that violates Company policy, and such Executive 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 of Common Stock acquired under the Plan, recapture any gain realized upon the sale of shares of Common Stock acquired under the 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 Executive
'
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 Executive engages in misconduct or is believed to have engaged in misconduct, including but not limited to any violation of any of Executive
'
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 Executive 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
Implementation
. For purposes of this
Article III
, the Executive expressly authorizes the Company to issue instructions, on behalf of the Executive, to the Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the Plan) to reconvey, transfer or otherwise return to the Company any Incentive Compensation subject to recoupment hereunder. Executive acknowledges and agrees that the Company
'
s rights hereunder shall not be affected in any way by any subsequent change in the Executive’s status, including retirement or termination of employment (including due to death or Disability).
3.04
Forfeiture
. To the extent any of the events set forth in
Article 3
occur before the Executive 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 Executive acknowledges and agrees that the ultimate liability for all Tax-Related Items legally due by the Executive is and remains the Executive
'
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 Executive
'
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 Executive
'
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. Depending on the withholding method specified in the Plan, 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 Executive 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 Executive
'
s regular salary and/or wages or any other amounts payable to the Executive, or may require the Executive 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 Executive
'
s regular salary and/or wages or other amounts payable to the Executive, no Shares will be issued to the Executive (or the Executive
'
s estate) upon vesting of the RSUs unless and until satisfactory arrangements (as determined by the Committee) have been made by the Executive 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 Executive
'
s Tax-Related Items is satisfied by withholding a number of Shares as described herein, the Executive 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 Executive 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 Executive
'
s participation in the Plan or the Executive
'
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 Executive fails to comply with his or her obligations in connection with the Tax-Related Items as described herein. If the Executive is subject to taxation in more than one jurisdiction, the Executive 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 Executive hereby consents to any action reasonably taken by the Company and the Employer to meet his or her obligation for Tax-Related Items. By accepting this grant of RSUs, the Executive expressly consents to the withholding of Shares and/or withholding from the Executive
'
s regular salary and/or wages or other amounts payable to the Executive as provided for hereunder. All other Tax-Related Items related to the RSUs and any Shares delivered in payment thereof are the Executive
'
s sole responsibility.
ARTICLE V
International Arrangements
5.01
Exchange Controls
. As a condition to this RSU award, the Executive 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 Executive
'
s country of residence (and country of employment, if different).
5.02
Foreign Asset and Account Reporting Requirements
. The Executive acknowledges that there may be certain foreign asset and/or account reporting requirements, which may affect the Executive
'
s ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan (including from any dividends or dividend equivalent payments) in a brokerage or bank account outside the Executive
'
s country of residence (and country of employment, if different). The Executive may be required to report such accounts, assets or transactions to the tax or other authorities in the Executive
'
s country of residence (and country of employment, if different). The Executive acknowledges and agrees that it is his or her personal responsibility to be compliant with such Laws.
5.03
Country Specific Addendum
. Notwithstanding any provisions of this Agreement to the contrary, the RSUs shall be subject to any special terms and conditions for the Executive
'
s country of residence (and country of employment, if different) set forth in the addendum to this Agreement (
"
Addendum
"
). If the Executive transfers residence and/or employment to another country reflected in an Addendum at the time of transfer, the special terms and conditions for such country will apply to the Executive 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 Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Executive
'
s transfer). In all circumstances, any applicable Addendum shall constitute part of this Agreement.
5.04
Controlling Language
. The Executive acknowledges and agrees that it is the Executive
'
s express intent that this Agreement, the 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 Executive has received this Agreement, the 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 Plan or this 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.
6.02
Rights as Shareholder
. The Executive 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 Executive 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 Plan and this Agreement
and to adopt such rules for the administration, interpretation, and application of the 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 Executive, 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 Plan or this Agreement.
6.04
No Employment Rights
. This Agreement and the Executive
'
s participation in the 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 Executive 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 Executive
'
s employment at any time.
6.05
Nature of Grant
. In accepting the grant hereunder, the Executive acknowledges and agrees that: (i) the 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 Executive has read the Plan and any RSUs granted under it shall be subject to all of the terms and conditions of the Plan, including but not limited to the power of the Committee to interpret and determine the terms and provisions of the Plan and this Agreement and to make all determinations necessary or advisable for the administration of the 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 Agreement is intended to create or enlarge any other contractual obligations between the Company or the Employer and the Executive; (v) any grant under the 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 Executive is voluntarily participating in the Plan; (vii) the future value of the Shares underlying the RSUs granted hereunder is unknown and cannot be predicted with certainty; and (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. 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 Executive
'
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 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 Executive resides or is employed outside of the United States, the Executive agrees, as a condition of the grant of the RSUs, to repatriate all payments attributable to the Shares and/or cash acquired under the Plan (including, but not limited to, dividends and any proceeds derived from the sale of Shares acquired pursuant to the RSUs) if required by and in accordance with local Laws in the Executive’s country of residence (and country of employment, if different). In addition, the Executive 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 Executive’s country of residence (and country of employment, if different). Finally, the Executive agrees to take any and all actions as may be required to comply with the Executive’s personal legal and tax obligations under local Laws in the Executive’s country of residence (and country of employment, if different).
6.07
Amendment
. This Agreement may be amended by a writing which specifically states that it is amending this Agreement executed by (i) the Company and the Executive, (ii) the Company (at the discretion of the Committee), so long as a copy of such amendment is delivered to the Executive, and provided that no such amendment having a material adverse affect on the rights of the Executive hereunder may be made without the Executive
'
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 Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to the Executive shall be addressed to the Executive at the address listed in the Employer
'
s records or to the Executive
'
s electronic investment account held at the 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 Agreement or the 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 Agreement or the Plan not declared to be unlawful or invalid. Any provision of this 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 Plan. The RSUs are subject to the terms of the Plan. The Executive acknowledges receipt of the Plan booklet which contains the entire Plan, and the Executive represents and warrants that the Executive has read the Plan. Additional copies of the 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 Agreement violates or is inconsistent with an express provision of the Plan, the Plan provision shall govern and any inconsistent provision in this 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 AGREEMENT.
6.12
Waiver; No Third Party Beneficiaries
. A waiver by the Company of a breach of any provision of this Agreement by the Executive shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Executive. This Agreement shall not be construed to create any third party beneficiary rights.
6.13
Data Privacy
.
(i) Pursuant to applicable personal Data (defined below) protection laws, the collection, use, processing and transfer of the Executive
'
s personal Data is necessary for the Company
'
s administration of the Plan and the Executive
'
s participation in the Plan. The Executive expressly and voluntarily (a) acknowledges, consents and agrees to the collection, use, processing and/or transfer of personal Data as described herein; (b)
authorizes the Company, its Subsidiaries and the Employer to transfer Data, in electronic or other form, to each other and to any third parties, including the subsequent holding of Shares on the Executive
'
s behalf to a broker or other third party with whom the Executive may elect to deposit any Shares acquired pursuant to the Plan, to assist the Company in the implementation, administration and management of the Plan. These recipients may be located throughout the world. For purposes of this
Section 6.13
,
"
Data
"
means certain personal information about the Executive including (but not limited to) the Executive
'
s name, home address and telephone number, date of birth, social security number or other employee identification number, email address, salary, nationality, job title, any Share ownership and details of any RSU or any other entitlement to Shares awarded, canceled, purchased, vested, unvested or outstanding in the Executive
'
s favor for the purpose of managing and administering the Plan.
(ii)
Data may be provided by the Executive or collected, where lawful, from third parties. The Company, its Subsidiaries, the Employer and any third party service providers will process the Data collected hereunder for the purpose of implementing, administering and managing the Executive
'
s participation in the Plan. Data processing will take place through electronic and non-electronic means in accordance with applicable Law and the Company, its Subsidiaries and the Employer
'
s policies and procedures as in effect from time to time. The Executive may, at any time, seek to exercise his or her rights provided under applicable personal Data protection laws by contacting his or her local human resources manager.
(iii) Upon request of the Company or the Employer, the Executive agrees to provide an executed data privacy consent form (or any other agreements or consents that may be required by the Company and/or the Employer) that the Company and/or the Employer may deem necessary to obtain from the Executive for the purpose of administering the Executive
'
s participation in the Plan in compliance with the data privacy laws in the Executive’s country of residence (and country of employment, if different), either now or in the future. The Executive understands and agrees that the Executive will not be able to participate in the Plan if the Executive fails to provide any such consent or agreement requested by the Company and/or the Employer.
6.14
Private Placement
. The grant of the RSUs is not intended to be a public offering of securities in the Executive
'
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 Executive
'
s participation in the Plan or the Executive
'
s acquisition or sale of the underlying Shares. The Executive is hereby advised to consult with the Executive
'
s own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan or the Agreement.
6.16
Securities Law Restrictions
. The Executive acknowledges that, depending on the Executive
'
s country of residence (and country of employment, if different) or where the Company
Shares are listed, the Executive shall be subject to insider trading restrictions and/or market abuse Laws, which may affect the Executive
'
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 Executive is considered to have
"
inside information
"
regarding the Company or its business (as defined by the local Laws in the Executive
'
s country of residence and/or employment). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Executive placed before the Executive possessed inside information. Furthermore, the Executive 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 Executive solely is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on this matter.
6.17
EU Age Discrimination Rules
. If the Executive is a local national of and employed in 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 this 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 Executive under the Plan by electronic means. The Executive hereby expressly consents to receive such documents by electronic delivery and agrees to participate in the 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 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 Executive 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 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 Executive with respect to the subject matter hereof.
[
Signature Page Follows
]
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a
duly authorized officer and the Executive acknowledges and agrees that by clicking on the box next to this Agreement in the section
"
Read and Acknowledge RSU Documents
"
on the screen titled
"
RSU Acceptance,
"
the Executive expressly agrees to be bound by the terms and conditions of the RSU, including Executive
'
s electronic signature constituting the sole and exclusive means of executing this Agreement.
W.W. GRAINGER, INC.
By:
Name: DG Macpherson
Title: Chairman & Chief Executive Officer
By:
Name:
Title:
Date: April 2, 2018
W.W. GRAINGER, INC.
2015 Incentive Plan
Addendum to Restricted Stock Unit Agreement
In addition to the terms of the W.W. Grainger, Inc. 2015 Incentive Plan (as may be amended from time to time, the "Plan") and the Restricted Stock Unit Agreement (the "Agreement"), the RSUs are subject to the following additional terms and conditions as set forth in this addendum (this "Addendum") to the extent the Executive resides or is employed in one of the countries addressed herein. All capitalized terms contained in this Addendum shall have the same meaning as set forth in the Plan and the Agreement unless otherwise defined. If the Executive transfers residence or employment to a country identified in this Addendum, the additional terms and conditions for such country as reflected in this Addendum will apply to the Executive 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 Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Executive’s transfer).
Foreign Asset Reporting Information
The Executive is required to report any security or bank account (including a brokerage account) opened and maintained outside Belgium on the Executive’s annual tax return. In a separate report, the Executive is required to provide the National Bank of Belgium with the account details of any such foreign accounts (including the account number, bank name and country in which any such account was opened). This report, as well as additional information on how to complete it, can be found on the website of the National Bank of Belgium, www.nbb.be, under the Kredietcentrales / Centrales des crédits caption.
RSUs Payable in Shares Only
Notwithstanding any provision in the Agreement or the Plan to the contrary, vested RSUs shall be payable in Shares only (and shall not be settled in cash).
Accelerated Vesting upon Retirement
Notwithstanding anything in the Agreement or the Plan to the contrary, if the Executive’s employment or service is terminated by reason of retirement, the RSUs immediately shall fully vest. For purposes of the foregoing, "retirement" shall have the definition prescribed by local Laws.
Securities Law Information
The Executive is permitted to sell Shares acquired through the Plan through the designated broker appointed under the 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 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 Executive 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 Executive should consult with his or her personal tax advisor to determine the Executive’s reporting requirements.
The following provisions will apply if the Executive is a resident of Quebec
:
Data Privacy Notice and Consent
This provision supplements
Section 6.13
of the Agreement:
The Executive hereby authorizes the Company, its Subsidiaries and the Employer to discuss with and obtain all relevant information pertaining to the Executive from all personnel involved in the administration and operation of the Plan. The Executive further authorizes the Company, its Subsidiaries and the Employer to disclose and discuss the Executive's participation in the Plan with their advisors. The Executive further authorizes the Company, its Subsidiaries and the Employer to record any information pertaining to the Executive’s participation in the Plan and to keep such information in his or her employee file.
Use of English Language
If the Executive is a resident of Quebec, by accepting the RSUs, the Executive acknowledges and agrees that it is the Executive’s wish that the Agreement, this Addendum, the 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
l’exécutif
est un résident du Québec, en acceptant le RSUs, l
l’exécutif
reconnaît et accepte que ce est le souhait du
l’exécutif
que
l’Accord
, le présent Addenda, ainsi que tous autres documents, avis et procédures judiciaires, exécutés, donnés ou intentés en vertu de le RSUs, liés directement ou indirectement, soient rédigés en anglais.
Use of English Language
By accepting the RSUs, you confirm having read and understood the Plan and the Agreement, which were provided in the English language. You accept the terms of those documents accordingly.
Utilisation de l’anglais
En acceptant cette attribution gratuite d’actions, vous confirmez avoir lu et comprenez le Plan et ce contrat, incluant tous leurs termes et conditions, qui ont été transmis en langue anglaise. Vous acceptez les dispositions de ces documents en connaissance de cause.
Foreign Asset Reporting
French residents holding cash or Shares outside of France must declare all foreign bank and brokerage accounts (including any accounts that were opened or closed during the tax year) on an annual basis, together with their income tax return. Failure to complete this reporting triggers penalties for the resident.
Accelerated Vesting upon Retirement
Notwithstanding anything in the Agreement or the Plan to the contrary, if the Executive’s employment or service is terminated by reason of retirement, the RSUs immediately shall fully vest. For purposes of the foregoing, "retirement" shall have the definition prescribed by local Laws.
Commercial Relationship
The Executive expressly recognizes that participation in the Plan and the Company’s grant of the RSUs does not constitute an employment relationship between the Executive and the Company. The Executive has been granted RSUs as a consequence of the commercial relationship between the Company and the Employer, and the Employer is the Executive’s sole employer. Based on the foregoing, (a) the Executive expressly recognizes that the Plan and the benefits derived from participation in the Plan do not establish any rights between the Executive and the Company or the Employer, (b) the Plan and the benefits derived from participation in the 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 Plan by the Company, or a termination of the Plan by the Company, shall not constitute a change or impairment of the terms and conditions of the Executive’s employment with the Employer.
Extraordinary Item of Compensation
The Executive expressly acknowledges and agrees that participation in the Plan is a result of the discretionary and unilateral decision of the Company, as well as the Executive’s free and voluntary decision to participate in the Plan in accord with the terms and conditions of the Plan, the Agreement, the Unfair Competition Agreement and this Addendum. As such, the Executive acknowledges and agrees that the Company may, in its sole discretion, amend and/or discontinue the Executive’s participation in the Plan at any time and without any liability. The value of the RSUs is an extraordinary item of compensation outside the scope of the employment contract, if any. The RSUs are not a part of the Executive’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.
Waiver of Termination Rights
The Executive waives any and all rights to compensation or damages as a result of any termination of employment for any reason whatsoever, insofar as those rights result or may result from (a) the loss or diminution in value of such rights or entitlements under the Plan or (b) the Executive ceasing to have rights under, or ceasing to be entitled to any Awards under the Plan as a result of such termination.
Dutch Subsidiary Director Notice
The Executive acknowledges and agree that the RSUs granted to the Executive in connection with the Executive’s participation in the Plan are not granted as consideration for, or otherwise in connection with the service the Executive may provide as a director ("statutair bestuurder") of a Subsidiary established under the laws of Netherlands or operating within the Netherlands.
Exchange Control Information
If the Executive receives Shares upon vesting and settlement of the RSUs, the acquisition of the Shares should be reported to the Banco de Portugal for statistical purposes. If the Shares are deposited with a commercial bank or financial intermediary in Portugal, such bank or financial intermediary will submit the report on the Executive’s behalf. If the Shares are not deposited with a commercial bank or financial intermediary in Portugal, the Executive is responsible for submitting the report to the Banco de Portugal.
Termination of Service
The following provision shall supplement
Section 2.02
of the Agreement:
In case of termination of service of the Executive triggering the payment of severance costs under applicable law, the RSUs shall not be taken into account in the calculation of such severance costs, to the extent permitted by applicable law.
Use of English Language
The Executive hereby expressly declares that the Executive has full knowledge of the English language and has read, understood and fully accepted and agreed with the terms and conditions established in the Plan, the Agreement, the Unfair Competition Agreement and this Addendum.
Uso da Língua Inglesa
Por meio do presente, o Executivo declara que Executivo possui pleno conhecimento da língua inglesa e que leu, compreendeu, e livremente aceita e concorda com os termos e condiçoes estabelecidas no Plano, o Acordo, o Acordo de Concorrência Desleal e este Adendo.
RSUs Payable in Shares Only
Notwithstanding any provision in the Agreement or the Plan to the contrary, vested RSUs shall be payable in Shares only (and shall not be settled in cash).
Income Tax and Social Insurance Contribution Withholding
The following provision shall replace
Article IV
of the Agreement:
Without limitation to
Article IV
of the Agreement, the Executive agrees that the Executive 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 Executive also agrees to indemnify and hold harmless the Company and the Employer against any taxes that each is 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 Executive’s behalf.
Exclusion of Claim
The Executive acknowledges and agrees that the Executive will have no entitlement to compensation or damages, insofar as such entitlement arises or may arise from the Executive’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 Executive shall be deemed to have irrevocably waived any such entitlement.
* * * * *
Exhibit 10.5
W.W. GRAINGER, INC.
2015 Incentive Plan
Performance Restricted Stock Unit Agreement
This Performance Restricted Stock Unit Agreement (this
"
Agreement
"
), dated as of April 2, 2018 (the
"
Grant Date
"
), is entered into between W.W. Grainger, Inc., an Illinois corporation (the
"
Company
"
), and you as the executive (the
"
Executive
"
), who is employed by the Company or a Subsidiary of the Company (the
"
Employer
"
).
In consideration of the Executive
'
s agreement to enter into an Unfair Competition Agreement with the Company concurrently with this Agreement on the Grant Date (the
"
Unfair Competition Agreement
"
), the Company desires to grant the Executive an award of performance restricted stock units (the
"
PRSUs
"
), providing for the issuance of shares of the Company
'
s common stock (
"
Shares
"
) pursuant to the W.W. Grainger, Inc. 2015 Incentive Plan (as may be amended from time to time, the
"
Plan
"
) subject to the Company
'
s attainment of certain long-term performance goals and the Executive agrees to enter into the Unfair Competition Agreement and accept such PRSUs on the terms and conditions set forth in this Agreement, the Plan and the Unfair Competition Agreement. Capitalized terms used but not defined in this Agreement have the meanings specified in the Plan.
In consideration of the mutual provisions set forth in this 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 Agreement, the 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 Executive the number of PRSUs (the
"
Target PRSUs
"
) as specified in the April 2, 2018 award grant notice posted to the Executive
'
s electronic investment account maintained with the brokerage firm/third party service provider engaged by the Company in connection with the administration of the Plan (the
"
Administrator
"
). Each PRSU represents a contractual right to receive one (1) Share upon the satisfaction of the terms and conditions of this Agreement. The actual number of PRSUs that may become vested and settled pursuant to this Agreement will depend on the Company’s average return on invested capital (
"
ROIC
"
) during the period of January 1, 2018 through December 31, 2020 (the
"
Measurement Period
"
). For this purpose, ROIC means the Company’s operating earnings divided by its net working assets, as determined by the Committee in its sole discretion. The actual number of vested PRSUs will be determined in accordance with Section 2 below.
ARTICLE II
Provisions Relating to PRSUs
2.01
ROIC Target
.
The actual number of PRSUs subject to this Agreement shall be determined based upon the Company
'
s achievement of the ROIC Target as follows (“Actual PRSUs”):
|
|
|
If the Company
'
s average ROIC
during the Measurement Period is:
|
Actual PRSUs:
|
Less than 18%
|
0% of the Target PRSUs
|
18% or more
|
100% of the Target PRSUs
|
For purposes of the foregoing, the level of achievement of the ROIC Target shall be determined by the Committee in its sole discretion by calculating the Company's return on invested capital for each applicable fiscal year by dividing (i) the Company's operating earnings for the applicable fiscal year, by (ii) the Company's net working assets for the applicable fiscal year. Further, the actual number of PRSUs subject to this Agreement based upon the Company's achievement of the ROIC Target shall be determined by applying straight-line interpolation rounded down to the nearest whole number of PRSUs. If the PRSUs vest, then in settlement of the PRSUs, the Executive will receive a number of shares of Common Stock equal to the number of PRSUs determined under this
Section 2.01
, subject, however, to the withholding provisions below. If the PRSUs do not vest, then they will be forfeited in full and the Executive shall have no further rights with respect to the award hereunder.
2.02
Vesting of PSUs
. If the Executive remains continuously employed by the Employer (or any other Subsidiary or Affiliate) through the third anniversary of the Grant Date (the "PRSUS Vesting Date"), the actual number of PRSUs as determined pursuant to
Section 2.01
shall become fully vested on such date and the Executive shall be entitled to receive the underlying Shares as provided herein. The PRSUs shall not vest before the PRSU Vesting Date unless otherwise provided or permitted by the Plan or this Agreement, and any PRSUs that do not vest shall be forfeited in full and the Executive shall have no further rights with respect to such PRSUs. Each PRSU that becomes vested as provided herein shall be settled in accordance with
Section 2.06
. No dividend equivalents will be paid on the shares of Common Stock underlying the PRSUs.
2.03
Effect of Termination of Employment
. Except as otherwise stated in the Plan, if the Executive's employment or service is terminated prior to the PRSU Vesting Date for any reason whatsoever other than the Executive's death, Disability (defined below) or retirement, the PRSU shall be forfeited in their entirety. If the Executive is a resident of, or employed in, the United States, "Termination Date" shall mean the effective date of termination of the Executive's employment. If the Executive 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 Executive, (ii) the last day of the Executive's active service with the Employer or (iii) the last day on which the Executive 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.
2.04
Effect of Death, Disability or Retirement of the Executive
. If the Executive’s employment or service is terminated prior to the PRSU Vesting Date due to death or Disability, the Executive will immediately become vested in the number of Actual PRSUs equal to 100% of the Target PRSUs. For purposes of this Agreement, "Disability" shall have the same meaning as defined in the Plan,
subject to modification as may be required to conform to the laws, rules and regulations ("Laws") of the Executive's country of residence (and country of employment, if different). For the sake of clarity, the date of the Executive’s death or Disability shall be a PRSU Vesting Date. Each Actual PRSU that becomes vested as provided herein shall be settled in accordance with
Section 2.06
.
2.05
Effect of Retirement of the Executive
. If the Executive’s employment or service is terminated prior to the PRSU Vesting Date due to the retirement of the Executive, the Executive will continue vesting in accordance with
Section 2.02
as if the Executive had not been terminated. Each Actual PRSU that becomes vested as provided herein shall be settled in accordance with
Section 2.06
. For purposes of this Agreement, "retirement" shall mean the Executive’s termination of service with (i) 25 years of service, (ii) 20 years of service and attainment of age 55, or (iii) attainment of age 60.
2.06
Settlement
. Upon the PRSU Vesting Date, the Company shall, as soon as practicable (but in no event later than 60 days following the applicable PRSU Vesting Date), settle the PRSU by registering Shares in the Executive's name and delivering such Shares to the Executive's electronic stock plan account maintained by the Administrator. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the Executive's PRSU 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 Executive, the Company or the Employer to obtain the approval of any governmental and/or regulatory body in the Executive's country of residence (and country of employment, if different), or (c) is administratively burdensome or (ii) Shares, but the Company may require the Executive to immediately sell such Shares if necessary to comply with applicable Laws (in which case, the Executive hereby expressly authorizes the Company to issue sales instructions in relation to such Shares on the Executive's behalf).
ARTICLE III
Recoupment
3.01
Recoupment in Event of Misconduct
. If the Company determines that the Executive has committed fraud against the Company or has engaged in any criminal conduct that involves or is related to the Company, or any other conduct that violates Company policy, and such Executive 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 of Common Stock acquired under the Plan, recapture any gain realized upon the sale of shares of Common Stock acquired under the 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 Executive'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 Executive engages in misconduct or is believed to have engaged in misconduct, including but not limited to any violation of any of Executive'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 Executive 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
Implementation
. For purposes of this
Article III
, the Executive expressly authorizes the Company to issue instructions, on behalf of the Executive, to the Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the Plan) to reconvey, transfer or otherwise return to the Company any Incentive Compensation subject to recoupment hereunder. Executive acknowledges and agrees that the Company's rights hereunder shall not be affected in any way by any subsequent change in the Executive’s status, including retirement or termination of employment (including due to death or Disability).
3.04
Forfeiture
. To the extent any of the events set forth in
Article 3
occur before the Executive 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 Executive acknowledges and agrees that the ultimate liability for all Tax-Related Items legally due by the Executive is and remains the Executive'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 PRSU, including the grant of the PRSU, the vesting of the PRSU, the subsequent sale of any Shares acquired pursuant to the PRSU and the receipt of any dividends and (ii) do not commit to structure the terms of the grant or any aspect of the PRSU to reduce or eliminate the Executive's liability for Tax-Related Items.
4.02
Tax Withholding Obligations
. Prior to the delivery of Shares (or cash) upon the vesting of the PRSU, if the Executive'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 PRSU 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. Depending on the withholding method specified in the Plan, 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 Executive 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 Executive's regular salary and/or wages
or any other amounts payable to the Executive, or may require the Executive 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 Executive's regular salary and/or wages or other amounts payable to the Executive, no Shares will be issued to the Executive (or the Executive's estate) upon vesting of the PRSU unless and until satisfactory arrangements (as determined by the Committee) have been made by the Executive 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 PRSUs. If the obligation for the Executive's Tax-Related Items is satisfied by withholding a number of Shares as described herein, the Executive 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 PRSU.
The Executive 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 Executive's participation in the Plan or the Executive'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 PRSU if the Executive fails to comply with his or her obligations in connection with the Tax-Related Items as described herein. If the Executive is subject to taxation in more than one jurisdiction, the Executive 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 Executive hereby consents to any action reasonably taken by the Company and the Employer to meet his or her obligation for Tax-Related Items. By accepting this grant of the PRSU, the Executive expressly consents to the withholding of Shares and/or withholding from the Executive's regular salary and/or wages or other amounts payable to the Executive as provided for hereunder. All other Tax-Related Items related to the PRSU and any Shares delivered in payment thereof are the Executive's sole responsibility.
ARTICLE V
International Arrangements
5.01
Exchange Controls
. As a condition to this PRSU award, the Executive 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 Executive's country of residence (and country of employment, if different).
5.02
Foreign Asset and Account Reporting Requirements
. The Executive acknowledges that there may be certain foreign asset and/or account reporting requirements, which may affect the Executive's ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan (including from any dividends or dividend equivalent payments) in a brokerage or bank account outside the Executive's country of residence (and country of employment, if different). The Executive may be required to report such accounts, assets or transactions to the tax or other authorities in the Executive's country of residence (and country of employment, if different). The Executive acknowledges and agrees that it is his or her personal responsibility to be compliant with such Laws.
5.03
Country Specific Addendum
. Notwithstanding any provisions of this Agreement to the contrary, the PRSU shall be subject to any special terms and conditions for the Executive's country of residence (and country of employment, if different) set forth in the addendum to this Agreement ("Addendum"). If the Executive transfers residence and/or employment to another country reflected in an Addendum at the time of transfer, the special terms and conditions for such country will apply to the Executive 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 PRSU and the Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Executive's transfer). In all circumstances, any applicable Addendum shall constitute part of this Agreement.
5.04
Controlling Language
. The Executive acknowledges and agrees that it is the Executive's express intent that this Agreement, the Plan, the Unfair Competition Agreement and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the PRSU be drawn up in English. If the Executive has received this Agreement, the Plan, the Unfair Competition Agreement or any other documents related to the PRSU 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 Plan or this Agreement, the PRSUs 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.
6.02
Rights as Shareholder
. The Executive shall not have voting or any other rights as a shareholder of the Company with respect to the Shares issuable upon the vesting of PRSUs until the date of issuance of such Shares. Upon settlement of the PRSU, the Executive 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 Plan and this Agreement and to adopt such rules for the administration, interpretation, and application of the 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 Executive, 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 Plan or this Agreement.
6.04
No Employment Rights
. This Agreement and the Executive's participation in the 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 Executive 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 Executive's employment at any time.
6.05
Nature of Grant
. In accepting the grant hereunder, the Executive acknowledges and agrees that: (i) the 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 Executive has read the Plan and any PRSUs granted under it shall be subject to all of the terms and conditions of the Plan, including but not limited to the power of the Committee to interpret and determine the terms and provisions of the Plan and this Agreement and to make all determinations necessary or advisable for the administration of the Plan, all of which interpretations and determinations shall be final and binding; (iii) the PRSU does not create any contractual or other right to receive future grants of PRSUs, benefits in lieu of PRSUs, or any other Plan benefits in the future; (iv) nothing contained in this Agreement is intended to create or enlarge any other contractual obligations between the Company or the Employer and the Executive; (v) any grant under the Plan, including any grant of PRSUs, 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 Executive is voluntarily participating in the Plan; (vii) the future value of the Shares underlying the PRSU granted hereunder is unknown and cannot be predicted with certainty; and (viii) neither the Company, the Employer nor any of their respective Subsidiaries shall be liable for any change in value of the PRSU, the amount realized upon settlement of the PRSU or the amount realized upon a subsequent sale of any Shares acquired upon settlement of the PRSU, resulting from any fluctuation of the United States Dollar/local currency foreign exchange rate. Without limiting the generality of the foregoing, the Committee shall have the discretion to adjust the terms and conditions of any award of PRSUs to correct for any windfalls or shortfalls in such PRSU which, in the Committee's determination, arise from factors beyond the Executive's control; provided, however, that the Committee's authority with respect to any PRSU to a "covered employee," as defined in Section 162(m)(3) of the Code, shall be limited to decreasing, and not increasing, such PRSU.
6.06
Compliance with Law
. The Company shall not be required to issue or deliver any Shares pursuant to this 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 Executive resides or is employed outside of the United States, the Executive agrees, as a condition of the grant of the PRSUs, to repatriate all payments attributable to the Shares and/or cash acquired under the Plan (including, but not limited to, dividends and any proceeds derived from the sale of Shares acquired pursuant to the PRSUs) if required by and in accordance with local Laws in the Executive’s country of residence (and country of employment, if different). In addition, the Executive 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 Executive’s country of residence (and country of employment, if different). Finally, the Executive agrees to take any and all actions as may be required to comply with the Executive’s personal legal and tax obligations under local Laws in the Executive’s country of residence (and country of employment, if different).
6.07
Amendment
. This Agreement may be amended by a writing which specifically states that it is amending this Agreement executed by (i) the Company and the Executive, (ii) the Company (at the discretion of the Committee), so long as a copy of such amendment is delivered to the Executive, and provided that no such amendment having a material adverse affect on the rights of the Executive hereunder may be made without the Executive'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 Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to the Executive shall be addressed to the Executive at the address listed in the Employer's records or to the Executive's electronic investment account held at the 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 Agreement or the 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 Agreement or the Plan not declared to be unlawful or invalid. Any provision of this 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 PRSUs are being issued pursuant to
Article 9
(Performance Shares/Performance Units) of the Plan. PRSUs are subject to the terms of the Plan. The Executive acknowledges receipt of the Plan booklet which contains the entire Plan, and the Executive represents and warrants that the Executive has read the Plan. Additional copies of the 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 Agreement violates or is inconsistent with an express provision of the Plan, the Plan provision shall govern and any inconsistent provision in this 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 PRSUs, THE PLAN OR THIS AGREEMENT.
6.12
Waiver; No Third Party Beneficiaries
. A waiver by the Company of a breach of any provision of this Agreement by the Executive shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Executive. This Agreement shall not be construed to create any third party beneficiary rights.
6.13
Data Privacy
.
(i) Pursuant to applicable personal Data (defined below) protection laws, the collection, use, processing and transfer of the Executive's personal Data is necessary for the Company's administration of the Plan and the Executive's participation in the Plan. The Executive expressly and voluntarily (a) acknowledges, consents and agrees to the collection, use, processing and/or transfer of personal Data as described herein; (b) authorizes the Company, its Subsidiaries and the Employer to transfer Data, in electronic or other form, to each other and to any third parties, including the subsequent holding of Shares on the Executive's behalf to a broker or other third party with whom the Executive may elect to deposit any Shares acquired pursuant to the Plan, to assist the Company in the implementation, administration and management of the Plan. These recipients may be located throughout the world. For purposes of this
Section 6.13
, "Data" means certain personal information about the Executive including (but not limited to) the Executive's name, home address and telephone number, date of birth, social security number or other employee identification number, email address, salary, nationality, job title, any Share ownership and details
of any PRSU or any other entitlement to Shares awarded, canceled, purchased, vested, unvested or outstanding in the Executive's favor for the purpose of managing and administering the Plan.
(ii) Data may be provided by the Executive or collected, where lawful, from third parties. The Company, its Subsidiaries, the Employer and any third party service providers will process the Data collected hereunder for the purpose of implementing, administering and managing the Executive's participation in the Plan. Data processing will take place through electronic and non-electronic means in accordance with applicable Law and the Company, its Subsidiaries and the Employer's policies and procedures as in effect from time to time. The Executive may, at any time, seek to exercise his or her rights provided under applicable personal Data protection laws by contacting his or her local human resources manager.
(iii) Upon request of the Company or the Employer, the Executive agrees to provide an executed data privacy consent form (or any other agreements or consents that may be required by the Company and/or the Employer) that the Company and/or the Employer may deem necessary to obtain from the Executive for the purpose of administering the Executive's participation in the Plan in compliance with the data privacy laws in the Executive’s country of residence (and country of employment, if different), either now or in the future. The Executive understands and agrees that the Executive will not be able to participate in the Plan if the Executive fails to provide any such consent or agreement requested by the Company and/or the Employer.
6.14
Private Placement
. The grant of the PRSUs is not intended to be a public offering of securities in the Executive'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 PRSU, the Executive's participation in the Plan or the Executive's acquisition or sale of the underlying Shares. The Executive is hereby advised to consult with the Executive's own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan or the Agreement.
6.16
Securities Law Restrictions
. The Executive acknowledges that, depending on the Executive's country of residence (and country of employment, if different) or where the Company Shares are listed, the Executive shall be subject to insider trading restrictions and/or market abuse Laws, which may affect the Executive's ability to acquire, sell or otherwise dispose of Shares, rights to Shares (e.g., PRSUs) or rights linked to the value of Shares during such times as the Executive is considered to have "inside information" regarding the Company or its business (as defined by the local Laws in the Executive's country of residence and/or employment). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Executive placed before the Executive possessed inside information. Furthermore, the Executive 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 Executive solely is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on this matter.
6.17
EU Age Discrimination Rules
. If the Executive is a local national of and employed in a country that is a member of the European Union, the grant of the PRSUs and the terms and conditions governing the PRSUs 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 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 PRSUs granted to the Executive under the Plan by electronic means. The Executive hereby expressly consents to receive such documents by electronic delivery and agrees to participate in the 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 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 PRSUs, the Executive 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 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 Executive with respect to the subject matter hereof.
[
Signature Page Follows
]
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer and the Executive acknowledges and agrees that by clicking on the box next to this Agreement in the section "Read and Acknowledge PRSU Documents" on the screen titled "PRSU Acceptance, " the Executive expressly agrees to be bound by the terms and conditions of the PRSU, including Executive's electronic signature constituting the sole and exclusive means of executing this Agreement.
W.W. GRAINGER, INC.
By:
Name: DG Macpherson
Title: Chairman & Chief Executive Officer
By:
Executive Signature
Date: April 2, 2018
CERTIFICATION
Exhibit 31.1
I, D.G. Macpherson, certify that:
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1.
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I have reviewed this Quarterly Report on Form 10-Q of W.W. Grainger, Inc.;
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2.
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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;
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3.
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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;
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4.
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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:
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a)
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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;
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b)
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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;
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c)
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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
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d)
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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
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5.
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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):
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a)
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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
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b)
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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.
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Date:
April 27, 2018
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By:
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/
s/ D.G. Macpherson
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Name:
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D.G. Macpherson
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Title:
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Chairman and Chief Executive Officer
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CERTIFICATION
Exhibit 31.2
I, R. L. Jadin, certify that:
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1.
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I have reviewed this Quarterly Report on Form 10-Q of W.W. Grainger, Inc.;
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2.
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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;
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3.
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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;
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4.
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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:
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a)
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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;
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b)
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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;
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c)
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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
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d)
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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
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5.
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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):
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a)
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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
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b)
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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.
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Date:
April 27, 2018
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By:
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/
s/ R. L. Jadin
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Name:
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R. L. Jadin
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Title:
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Senior Vice President and Chief Financial Officer
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Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of W.W. Grainger, Inc. (“Grainger”) for the quarterly period ended
March 31, 2018
, (the “Report”), D.G. Macpherson, as Chairman and Chief Executive Officer of Grainger, and R. L. Jadin, as Senior Vice President and Chief Financial Officer of Grainger, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Grainger.
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/s/ D.G. Macpherson
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D.G. Macpherson
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Chairman and Chief Executive Officer
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April 27, 2018
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/s/ R. L. Jadin
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R. L. Jadin
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Senior Vice President and Chief Financial Officer
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April 27, 2018
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