W.W. GRAINGER, INC. (Form: 10-Q, Received: 04/23/2020 16:32:07)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission file number 1-5684

W.W. Grainger, Inc.

(Exact name of registrant as specified in its charter)



Illinois				36-1150280
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

100 Grainger Parkway,	Lake Forest,	Illinois		60045-5201
(Address of principal executive offices)				(Zip Code)
		847	535-1000
(Registrant’s telephone number including area code)

Not Applicable
(Former name, former address and former fiscal year; if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock	GWW	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ 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 ☒

There were 53,467,936 shares of the Company’s Common Stock, par value $0.50, outstanding as of March 31, 2020.



	TABLE OF CONTENTS
		Page No.
	PART I FINANCIAL INFORMATION

Item 1:	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Earnings for the Three Months Ended March 31, 2020 and 2019	5

	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	7

	Condensed Consolidated Statements of Shareholders' Equity for the Three Months Ended March 31, 2020 and 2019	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4:	Controls and Procedures	28

	PART II OTHER INFORMATION	28

Item 1:	Legal Proceedings	28

Item 1A:	Risk Factors	28

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 6:	Exhibits	30

Signatures		31

EXHIBITS

PART I – FINANCIAL INFORMATION

Item 1: Financial Statements

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In millions of dollars, except for share and per share amounts)

(Unaudited)



	Three Months Ended
	March 31,
	2020			2019
Net sales	$	3,001		$	2,799
Cost of goods sold	1,880			1,704
Gross profit	1,121			1,095
Selling, general and administrative expenses	962			732
Operating earnings	159			363
Other (income) expense:
Interest expense, net	21			19
Other, net	(4		)	(7		)
Total other expense, net	17			12
Earnings before income taxes	142			351
Income tax (benefit) provision	(43		)	89
Net earnings	185			262
Less: Net earnings attributable to noncontrolling interest	12			9
Net earnings attributable to W.W. Grainger, Inc.	$	173		$	253
Earnings per share:
Basic	$	3.20		$	4.50
Diluted	$	3.19		$	4.48
Weighted average number of shares outstanding:
Basic	53.6			55.6
Diluted	53.8			55.9
Cash dividends paid per share	$	1.44		$	1.36

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In millions of dollars)

(Unaudited)



	Three Months Ended
	March 31,
	2020			2019
Net earnings	$	185		$	262
Other comprehensive earnings (losses):
Foreign currency translation adjustments, net of reclassification	(58		)	4
Postretirement benefit plan reclassification, net of tax benefit of $1 million and $1 million, respectively	(3		)	(3		)
Other	1			—
Total other comprehensive earnings (losses)	(60		)	1
Comprehensive earnings, net of tax	125			263
Less: Comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings	12			9
Foreign currency translation adjustments	3			(2		)
Total comprehensive earnings (losses) attributable to noncontrolling interest	15			7
Comprehensive earnings attributable to W.W. Grainger, Inc.	$	110		$	256

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions of dollars, except for share and per share amounts)



	As of
ASSETS	(Unaudited) March 31, 2020			December 31, 2019
CURRENT ASSETS
Cash and cash equivalents	$	1,492		$	360
Accounts receivable (less allowances for credit losses of $24 million and $21 million, respectively)	1,613			1,425
Inventories - net	1,615			1,655
Prepaid expenses and other current assets	129			104
Prepaid income taxes	65			11
Total current assets	4,914			3,555
PROPERTY, BUILDINGS AND EQUIPMENT - NET	1,357			1,400
DEFERRED INCOME TAXES	10			11
GOODWILL	361			429
INTANGIBLES - NET	226			304
OTHER ASSETS	309			306
TOTAL ASSETS	$	7,177		$	6,005

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt	$	17		$	55
Current maturities of long-term debt	21			246
Trade accounts payable	863			719
Accrued compensation and benefits	177			228
Accrued contributions to employees' profit sharing plans	19			85
Accrued expenses	384			318
Income taxes payable	19			27
Total current liabilities	1,500			1,678
LONG-TERM DEBT (less current maturities)	3,303			1,914
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES	99			106
OTHER NON-CURRENT LIABILITIES	245			247
SHAREHOLDERS' EQUITY
Cumulative preferred stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding	—			—
Common stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued	55			55
Additional contributed capital	1,192			1,182
Retained earnings	8,500			8,405
Accumulated other comprehensive losses	(217		)	(154		)
Treasury stock, at cost – 56,191,283 and 55,971,691 shares, respectively	(7,720		)	(7,633		)
Total W.W. Grainger, Inc. shareholders’ equity	1,810			1,855
Noncontrolling interest	220			205
Total shareholders' equity	2,030			2,060
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	7,177		$	6,005

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of dollars)

(Unaudited)



	Three Months Ended
	March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	185		$	262

Provision for credit losses	6			4
Deferred income taxes and tax uncertainties	(7		)	(4		)
Depreciation and amortization	45			57
Net losses (gains) from sales of assets and business divestitures	3			(2		)
Impairment of goodwill, intangibles and long-lived assets	177			—
Stock-based compensation	9			5
Subtotal	233			60
Change in operating assets and liabilities:
Accounts receivable	(217		)	(102		)
Inventories	19			20
Prepaid expenses and other assets	(26		)	(30		)
Trade accounts payable	155			64
Accrued liabilities	(36		)	(207		)
Income taxes - net	(62		)	64
Other non-current liabilities	(7		)	(4		)
Subtotal	(174		)	(195		)
Net cash provided by operating activities	244			127
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings, equipment and intangibles	(50		)	(60		)
Proceeds from sales of assets	—			6
Other	(2		)	2
Net cash used in investing activities	(52		)	(52		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit	9			10
Payments against lines of credit	(45		)	(7		)
Proceeds from long-term debt	1,500			—
Payments of long-term debt	(345		)	(14		)
Proceeds from stock options exercised	19			3
Payments for employee taxes withheld from stock awards	(5		)	(3		)
Purchases of treasury stock	(100		)	(135		)
Cash dividends paid	(78		)	(76		)
Other - net	—			1
Net cash provided by (used in) financing activities	955			(221		)
Exchange rate effect on cash and cash equivalents	(15		)	—
NET CHANGE IN CASH AND CASH EQUIVALENTS	1,132			(146		)
Cash and cash equivalents at beginning of year	360			538
Cash and cash equivalents at end of period	$	1,492		$	392

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In millions of dollars, except for per share amounts)

(Unaudited)



	Common Stock		Additional Contributed Capital		Retained Earnings			Accumulated Other Comprehensive Earnings (Losses)			Treasury Stock			Noncontrolling Interest			Total
Balance at January 1, 2019	$	55	$	1,134	$	7,869		$	(171	)	$	(6,966	)	$	172		$	2,093
Stock based compensation	—		3		—			—			3			—			6
Purchases of treasury stock	—		—		—			—			(135		)	—			(135		)
Net earnings	—		—		253			—			—			9			262
Other comprehensive earnings (losses)	—		—		—			3			—			(2		)	1
Capital contribution	—		—		—			—			—			2			2
Cash dividends paid ($1.36 per share)	—		—		(77		)	—			—			—			(77		)
Balance at March 31, 2019	$	55	$	1,137	$	8,045		$	(168	)	$	(7,098	)	$	181		$	2,152



	Common Stock		Additional Contributed Capital		Retained Earnings			Accumulated Other Comprehensive Earnings (Losses)			Treasury Stock			Noncontrolling Interest		Total
Balance at January 1, 2020	$	55	$	1,182	$	8,405		$	(154	)	$	(7,633	)	$	205	$	2,060
Stock based compensation	—		10		—			—			13			—		23
Purchases of treasury stock	—		—		—			—			(100		)	—		(100		)
Net earnings	—		—		173			—			—			12		185
Other comprehensive earnings (losses)	—		—		—			(63		)	—			3		(60		)
Cash dividends paid ($1.44 per share)	—		—		(78		)	—			—			—		(78		)
Balance at March 31, 2020	$	55	$	1,192	$	8,500		$	(217	)	$	(7,720	)	$	220	$	2,030

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) products and services with operations primarily in North America, Japan and Europe. 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 (Financial Statements) of the Company and the related notes are unaudited and should be read in conjunction with the consolidated financial statements and associated notes for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 20, 2020 (the 2019 Form 10-K). The Condensed Consolidated Balance Sheet as of December 31, 2019 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 (U.S.) 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 in this report.

2. UPDATE TO SIGNIFICANT ACCOUNTING POLICIES

Other than the recently implemented accounting policies related to the allowances for credit losses per the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-13 (see Notes 3 and 5 to the Financial Statements), change in depreciation estimates (see Note 6 to the Financial Statements) and accounting for derivative instruments (see Note 10 to the Financial Statements), there have been no material changes to the Company’s significant accounting policies disclosed in the 2019 Form 10-K, Part II, Item 8.

3. NEW ACCOUNTING STANDARDS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments as modified by subsequently issued ASUs 2018-19, 2019-04, 2019-05, 2019-11 and 2020-02. This ASU requires estimating all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Per the permitted effective dates, the Company adopted this ASU effective January 1, 2020. While the adoption of this ASU did not have a material impact on the Company's Financial Statements, it required changes to the Company’s process of estimating expected credit losses on trade receivables. See Note 5 for further information on the Company’s allowances for credit losses.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020. The Company is currently evaluating the potential impact of this ASU on the Financial Statements.

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), Clarifying the Interactions between Topic 321, Topic 323 and Topic 815. This ASU simplifies the understanding and application of the codification topics by eliminating inconsistencies and providing clarifications. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020. The Company is currently evaluating the potential impact of this ASU on the Financial Statements.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. The amendments in this update represent changes to clarify or improve the codification and correct unintended application. This ASU

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

was effective immediately upon issuance and its adoption did not have a material impact on the Company's Financial Statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this ASU on the Financial Statements.

4. REVENUE

Company revenue is primarily comprised of MRO product sales and related activities, such as freight and services. Total service revenue is not material and accounted for approximately 1% of the Company's revenue for the three months ended March 31, 2020 and 2019, respectively.

Grainger serves a large number of customers in diverse industries, which are subject to different economic and market specific factors. The Company's presentation of revenue by industry most reasonably depicts how the nature, amount, timing and uncertainty of Company revenue and cash flows are affected by economic and market specific factors. The following table presents the Company's percentage of revenue by reportable segment and by major customer industry:



	Three Months Ended March 31,
	2020						2019
	U.S.		Canada		Total Company (2)		U.S.		Canada		Total Company (2)
Government	18	%	9	%	14	%	17	%	6	%	13	%
Heavy Manufacturing	18	%	19	%	17	%	19	%	21	%	18	%
Light Manufacturing	13	%	6	%	11	%	13	%	6	%	11	%
Transportation	5	%	9	%	5	%	6	%	8	%	5	%
Healthcare	9	%	—	%	6	%	7	%	—	%	6	%
Commercial	9	%	9	%	8	%	10	%	9	%	8	%
Retail/Wholesale	9	%	4	%	7	%	8	%	4	%	7	%
Contractors	10	%	10	%	8	%	10	%	10	%	8	%
Natural Resources	3	%	29	%	3	%	3	%	32	%	4	%
Other (1)	6	%	5	%	21	%	7	%	4	%	20	%
Total	100	%	100	%	100	%	100	%	100	%	100	%
Percent of Total Company Revenue	73	%	4	%	100	%	72	%	5	%	100	%

(1) Other category primarily includes revenue from individual customers not aligned to major industry segment, including small businesses and consumers, and intersegment net sales.

(2) Total Company includes other businesses, which include the Company's endless assortment businesses and operations in Europe and Mexico and accounts for approximately 23% of revenue for the three months ended March 31, 2020 and 2019.

Total accrued sales returns were approximately $26 million and $25 million as of March 31, 2020 and December 31, 2019, respectively and are reported as a reduction of Accounts receivable, net. Total accrued sales incentives were approximately $57 million as of March 31, 2020 and December 31, 2019, and are reported as part of Accrued expenses. The Company did not have any material unsatisfied performance obligations, contract assets or liabilities as of March 31, 2020 and December 31, 2019.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

5. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

The Company’s accounts receivable arise primarily from sales on credit to customers. The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the loss-rate method, which requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivables. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual customers.

6. PROPERTY, BUILDINGS AND EQUIPMENT

Property, buildings and equipment consisted of the following (in millions of dollars):



	As of
	March 31, 2020		December 31, 2019
Land	$	329	$	332
Building, structures and improvements	1,316		1,329
Furniture, fixtures, machinery and equipment	1,833		1,832
Property, buildings and equipment	$	3,478	$	3,493
Less: Accumulated depreciation and amortization and impairment	2,121		2,093
Property, buildings and equipment, net	$	1,357	$	1,400

Grainger has historically depreciated certain property, building, and equipment using both the declining balance and sum-of-the-years’ digits methods over estimated useful lives of approximately thirty years. In accordance with its policy, the Company periodically reviews information impacting the pattern of consumption for its capital assets and useful lives to ensure that estimates of depreciation expenses are appropriate. The Company’s investment in its supply chain infrastructure and technology triggered the review of these patterns of consumption. Pursuant to the review and effective January 1, 2020, the method of estimating depreciation for these assets was changed to the straight-line method and useful lives to forty and fifty years. The Company determined that these changes in depreciation method and useful lives were considered a change in accounting estimate effected by a change in accounting principle, and as such have been accounted for on a prospective basis. Grainger believes the changes to the straight-line method and useful lives are appropriate estimations of the Company's current patterns of economic consumption of its capital assets and appropriately match current revenues and costs over updated estimates of the assets' useful lives. The effect of these changes resulted in a decrease of $8 million to depreciation expense for the three months ended March 31, 2020.

During the three months ended March 31, 2020, the Company recorded approximately $44 million of impairment charges in Selling, General and Administrative Expenses (SG&A) in connection with the impairment of Fabory’s long-lived assets, including property, buildings and equipment for approximately $24 million and right-to-use (ROU) assets for approximately $20 million (presented in Other assets) due to the factors discussed in Note 7. There were no impairments of property, buildings and equipment during the three months ended March 31, 2019.

7. GOODWILL AND INTANGIBLE 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 performs quarterly 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, including the current global outbreak of the Coronavirus (COVID-19 pandemic) and macro-economic developments, to determine the existence of potential indicators of impairment 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. If indicators of impairment are identified a quantitative impairment test is performed.

Qualitative tests for the quarter indicated the existence of impairment indicators for Fabory (included in other businesses). Some of these indicators for Fabory included revenue slowdown in key markets, gross profit pressures and a flat-to-declining operating margin against a backdrop of industrial sector declines across Europe, which was further amplified by the long-term implications of the COVID-19 pandemic, among other factors. As a result, the

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Company concluded that Fabory’s goodwill and tradenames were fully impaired. Concurrently, consistent with the circumstances leading to the goodwill impairment, the Company performed a recoverability and fair value test of Fabory’s long-lived assets, including customer lists and relationships and concluded to impair those assets. The aggregate impairment charge for Fabory’s goodwill and intangible assets in the three months ended March 31, 2020 amounted to approximately $132 million and was recorded in SG&A. See Note 6 for further discussion of the impairment of Fabory's long-lived assets.

The balances and changes in the carrying amount of Goodwill by segment, including the Fabory impairment, are as follows (in millions of dollars):



	United States		Canada			Other businesses			Total
Balance at January 1, 2019	$	192	$	120		$	112		$	424
Translation	—		6			(1		)	5
Balance at December 31, 2019	192		126			111			429
Impairment	—		—			(58		)	(58		)
Translation	—		(10		)	—			(10		)
Balance at March 31, 2020	$	192	$	116		$	53		$	361



	United States		Canada		Other businesses		Total
Cumulative goodwill impairment charges, December 31, 2019	$	—	$	32	$	152	$	184
Impairment	—		—		58		58
Cumulative goodwill impairment charges, March 31, 2020	$	—	$	32	$	210	$	242

During the three months ended March 31, 2020, the Company recorded a $58 million goodwill impairment charge in SG&A in connection with an impairment of the Fabory business. There were no goodwill impairments during the three months ended March 31, 2019.

The balances in Intangible assets, net are as follows (in millions of dollars):



		March 31, 2020						December 31, 2019
	Weighted average life	Gross carrying amount		Accumulated amortization/impairment		Net carrying amount		Gross carrying amount		Accumulated amortization/impairment		Net carrying amount
Customer lists and relationships	14.1 years	$	287	$	229	$	58	$	401	$	301	$	100
Trademarks, trade names and other	14.2 years	34		20		14		36		20		16
Non-amortized trade names and other	Indefinite	61		34		27		100		38		62
Capitalized software	4.2 years	637		510		127		626		500		126
Total intangible assets	7.8 years	$	1,019	$	793	$	226	$	1,163	$	859	$	304

With the exception of Fabory, based on the operating results for the three months ended March 31, 2020 and other considerations, the Company believes that it is more likely than not that the enterprise value for each of its reporting units and the fair value of intangibles is still greater than their carrying values. Accordingly, no goodwill impairment indicators were present at March 31, 2020 that would necessitate an interim impairment assessment. The Company

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

will continue to monitor business plans throughout 2020 to determine if an interim goodwill evaluation should be conducted. Changes in assumptions regarding future business performance and macroeconomic conditions, particularly the COVID-19 pandemic and oil and gas prices in Canada, may have a significant impact on future cash flows and reporting unit or intangible valuations. A significant downturn in global economic growth, or recessionary conditions in the U.S., Canada and Japan for prolonged periods, may lead to reduced customer demand in Grainger’s major reporting units or material supply chain interruptions or product shortages. To the extent that such developing economic conditions negatively impact customer demand for the Company's products or product availability over a long period, the Company's businesses, results of operations and financial condition could be significantly and adversely affected, which could result in future impairments of goodwill and intangible assets.

8. RESTRUCTURING

The Company continues to evaluate performance and take restructuring actions across all businesses to reduce operating costs and streamline operations. In the three months ended March 31, 2020 and 2019, the Company recorded restructuring charges of approximately $7 million and $2 million, respectively. These charges primarily consisted of involuntary employee termination costs in the U.S. and Canada, which are all included in SG&A. The reserve balance as of March 31, 2020 and December 31, 2019 was approximately $13 million and $10 million, respectively, and is primarily included in Accrued compensation and benefits. The remaining reserves are expected to be paid through 2020.

9. SHORT-TERM AND LONG-TERM DEBT

During the three months ended March 31, 2020, the Company entered into several financing transactions:


•	In February 2020, the Company issued $500 million of unsecured 1.85% Senior Notes (1.85% Notes) and used the proceeds to repay the British pound term loan, Euro term loan and the Canadian dollar revolving credit facility, and to fund general working capital needs.


•	In connection with the 1.85% Notes, in February 2020, the Company entered into derivative instrument agreements to manage its risks associated with interest rates of the 1.85% Notes and foreign currency fluctuations related to the financing of international operations. See Note 10 for further discussion of these derivative instruments and the Company's hedge accounting policies.

•

In February 2020, the Company entered into a five-year unsecured credit agreement pursuant to which the Company may obtain loans in various currencies on a revolving basis in an aggregate amount not exceeding the U.S. Dollar equivalent of $1.25 billion ($1.25 billion credit facility), which may be increased from time to time up to $1.875 billion at the request of the Company, subject to obtaining additional commitments and other customary conditions. The $1.25 billion credit facility replaced the Company's former $750 million unsecured revolving credit facility, originated in October 2017, which was scheduled to mature in October 2022.


•	In March 2020, the Company received approximately $1 billion after drawing down on its $1.25 billion credit facility as a proactive measure to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic.

Short-term debt consisted of outstanding lines of credit of $17 million and $55 million as of March 31, 2020 and December 31, 2019, respectively.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Long-term debt, including current maturities and debt issuance costs and discounts, net, consisted of the following (in millions of dollars):



	As of March 31, 2020						As of December 31, 2019
	Carrying Value			Fair Value (3)			Carrying Value			Fair Value (3)
4.60% senior notes due 2045	$	1,000		$	1,167		$	1,000		$	1,194
3.75% senior notes due 2046	400			381			400			416
4.20% senior notes due 2047	400			433			400			449
1.85% senior notes due 2025 (1)	500			500			—			—
$1.25 billion credit facility (2)	1,000			1,000			—			—
British pound term loan	—			—			170			170
Euro term loan	—			—			123			123
Canadian dollar revolving credit facility	—			—			46			46
Other	51			51			42			42
Subtotal (4)	3,351			3,532			2,181			2,440
Less current maturities	(21		)	(21		)	(246		)	(246		)
Debt issuance costs and discounts, net of amortization	(27		)	(27		)	(21		)	(21		)
Long-term debt (less current maturities)	$	3,303		$	3,484		$	1,914		$	2,173

(1) The 1.85% Notes mature in February 2025 and they require no principal payments until the maturity date and interest is payable semi-annually on February 15 and August 15, beginning in August 2020. Prior to January 2025, the Company may redeem the 1.85% Notes in whole at any time or in part from time to time at a “make-whole” redemption price. This redemption price is calculated by reference to the then-current yield on a U.S. treasury security with a maturity comparable to the remaining term of the 1.85% Notes plus 10 basis points, together with accrued and unpaid interest, if any, at the redemption date. Additionally, if the Company experiences specific kinds of changes in control, it will be required to make an offer to purchase the 1.85% Notes at 101% of their principal amount plus accrued and unpaid interest, if any, at the date of purchase. On or after January 15, 2025, the Company may redeem the 1.85% Notes in whole at any time or in part from time to time at 100% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date. Costs and discounts of approximately $5 million associated with the issuance of the 1.85% Notes, representing underwriting fees and other expenses, have been recorded as a contra-liability within Long-term debt and is being amortized to interest expense, net over the term of the 1.85% Notes.

(2) The $1.25 billion credit facility matures in February 2025. Borrowings under the credit facility bear interest, at the Company’s option, either at (a) the Eurocurrency rate for specified interest periods plus a margin determined with reference to the rating on the Company’s non-credit-enhanced, senior unsecured long-term debt or (b) the base rate, which is the highest of (i) 1%, (ii) the Wall Street Journal prime rate, (iii) the higher of (A) the federal funds rate and (B) the Federal Reserve Bank of New York overnight rate, in each case plus 0.50% per annum or (iv) the Eurocurrency rate for a one month interest period plus 1.00% per annum, plus, in each case, a margin determined with reference to the rating on the Company’s non-credit-enhanced, senior unsecured long-term debt. No principal payments are required on the credit facility until the maturity date.

(3)The estimated fair value of the Company’s senior notes was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as level 2 inputs within the fair value hierarchy. The carrying value of other long-term debt approximates fair value due to their variable interest rates.

(4) The Company's long-term debt instruments include affirmative and negative covenants that are usual and customary for companies with similar credit ratings and do not contain any financial performance covenants. The Company was in compliance with all debt covenants as of March 31, 2020.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10. DERIVATIVE INSTRUMENTS

The Company maintains various agreements with bank counterparties that permit the Company to enter into "over-the-counter" derivative instrument agreements to manage its risk associated with interest rates and foreign currency fluctuations. In February 2020, the Company entered into certain derivative instrument agreements to manage its risk associated with interest rates of its 1.85% Notes and foreign currency fluctuations in connection with its foreign currency-denominated intercompany borrowings. The Company did not enter into these agreements for trading or speculative purposes.

Accounting for derivative instruments

The Company recognizes all derivative instruments as assets or liabilities in the Condensed Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.

To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a derivative to be designated as a hedge, the risk management objective and strategy must be documented. Hedge documentation must identify the derivative hedging instrument, the asset or liability or forecasted transaction, type of risk to be hedged, and how the effectiveness of the derivative is assessed prospectively and retrospectively. To assess effectiveness, the Company uses statistical methods and qualitative comparisons of critical terms. The extent to which a derivative has been and is expected to continue to be, highly effective at offsetting changes in the fair value or cash flows of the hedged item is assessed and documented periodically. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.

For those derivative instruments that are designated and qualify as hedging instruments, the Company classifies them as fair value hedges or cash flow hedges.

Fair value hedges

The Company uses fair value hedges primarily to hedge a portion of its fixed-rate long-term debt via interest rate swaps. Changes in the fair value of the interest rate swap, along with the gain or loss on the hedged item, is recorded in earnings under the same line item, interest expense, net. The notional amount of the Company’s outstanding fair value hedges as of March 31, 2020 was $500 million.

Cash flow hedges

The Company uses cash flow hedges primarily to hedge the exposure to variability in forecasted cash flows from foreign currency-denominated intercompany borrowings via cross-currency swaps. Gains or losses on the cross-currency swaps are reported as a component of accumulated other comprehensive earnings (AOCE) and reclassified into earnings in the same period during which the hedged transaction affects earnings. The notional amount of the Company’s outstanding cash flow hedges as of March 31, 2020 was approximately $34 million.

The effect of the Company's fair value and cash flow hedges on the Company's Condensed Consolidated Statement of Earnings for the three months ended March 31, 2020 is as follows (in millions of dollars):



	Interest expense, net			Other, net
Gain or (loss) recognized in earnings
Fair value hedge:
Hedged item	$	(18	)	$	—
Interest rate swap designated as hedging instrument	$	18		$	—

Cash flow hedge:
Hedged item	$	—		$	(2	)
Cross-currency swap designated as hedging instrument	$	—		$	2

The effect of the Company’s fair value and cash flow hedges on AOCE for the three months ended March 31, 2020 was not material.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The fair value and carrying amounts of outstanding derivative instruments in the Condensed Consolidated Balance Sheets as of March 31, 2020 was as follows (in millions of dollars):



	Balance Sheet Classification	Fair Value and Carrying Amounts
Cross-currency swap	Prepaid expenses and other current assets	$	2
Interest rate swap	Other assets	$	18

The carrying amount of the liability hedged by the interest rate swap (long-term debt), including the cumulative amount of fair value hedging adjustments, as of March 31, 2020 amounted to $518 million.

The estimated fair values of the Company's derivative instruments were based on quoted market forward rates, which are classified as Level 2 (Level 2 inputs within the fair value hierarchy), and reflect the present value of the amount that the Company would pay for contracts involving the same notional amounts and maturity dates. No adjustments were required during the current period to reflect the counterparty’s’ credit risk and/or the Company’s own nonperformance risk.

11. INCOME TAXES

The reconciliations of income tax expense with federal income taxes at the statutory rate are as follows (in millions of dollars):



	Three Months Ended March 31,
	2020			2019
Federal income tax	$	30		$	74
States income taxes, net of federal benefit	(2		)	10
Foreign rate difference	2			5
Goodwill impairment	2			—
Tax benefit related to the Fabory business	(82		)	—
Change in tax contingencies	3			—
Change in valuation allowance	3			1
Investment in foreign subsidiary	3			—
Other, net	(2		)	(1		)
Income tax (benefit) expense	$	(43	)	$	89
Effective tax rate	(30.4		)%	25.4		%

The Company's effective tax rate for the three months ended March 31, 2020 was negative 30.4% compared to 25.4% in the three months ended March 31, 2019. The negative tax rate this quarter was primarily driven by a tax benefit from losses in the Company’s investment in the Fabory business.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. The CARES Act did not have a material impact on the Company's consolidated financial condition or results of operations as of and for the three months ended March 31, 2020. The Company plans to defer the timing of federal tax estimates and payroll taxes as permitted by the CARES Act.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12. SEGMENT INFORMATION

Grainger's two reportable segments are the U.S. and Canada. These reportable segments reflect the results of the Company's high-touch solutions businesses in those geographies. Other businesses include the endless assortment businesses, Zoro Tools, Inc. (Zoro) and MonotaRO Co. (MonotaRO), and smaller high-touch solutions businesses in Europe and Mexico. These businesses individually do not meet the criteria of a reportable segment. Operating segments generate revenue almost exclusively through the distribution of MRO supplies, as service revenues account for approximately 1% of total revenues for each operating segment.

Following is a summary of segment results (in millions of dollars):



	Three Months Ended March 31, 2020
	U.S.			Canada			Total Reportable Segments			Other businesses			Total
Total net sales	$	2,307		$	129		$	2,436		$	698		$	3,134
Intersegment net sales	(133		)	—			(133		)	—			(133		)
Net sales to external customers	$	2,174		$	129		$	2,303		$	698		$	3,001
Segment operating earnings	$	340		$	(3	)	$	337		$	(138	)	$	199



	Three Months Ended March 31, 2019
	U.S.			Canada			Total Reportable Segments			Other businesses			Total
Total net sales	$	2,149		$	136		$	2,285		$	633		$	2,918
Intersegment net sales	(118		)	—			(118		)	(1		)	(119		)
Net sales to external customers	$	2,031		$	136		$	2,167		$	632		$	2,799
Segment operating earnings	$	364		$	(5	)	$	359		$	30		$	389

Following are reconciliations of segment information with the consolidated totals per the Financial Statements (in millions of dollars):

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)



	Three Months Ended March 31,
	2020			2019
Operating earnings:
Total operating earnings for reportable segments	$	337		$	359
Other businesses	(138		)	30
Unallocated expenses	(40		)	(26		)
Total consolidated operating earnings	$	159		$	363

	As of
	March 31, 2020			December 31, 2019
Assets:
United States	$	2,845		$	2,668
Canada	167			173
Assets for reportable segments	3,012			2,841
Other current and noncurrent assets	2,767			3,003
Unallocated assets	1,398			161
Total consolidated assets	$	7,177		$	6,005

The Company is a broad-line distributor of MRO products and services. Products are regularly added and deleted from the Company's inventory. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed, and the dynamic nature of the inventory offered, including the evolving list of products stocked and additional products available online but not stocked.

Unallocated amounts include corporate-level support and administrative expenses, corporate-level assets consisting primarily of cash, property, buildings and equipment, intersegment eliminations and other adjustments. Unallocated expenses and assets are not included in any reportable segment.

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.

13. 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, safety or compliance, privacy and cybersecurity matters, general negligence, contract disputes, environmental issues, unclaimed property, wage and hour laws, intellectual property, advertising, consumer protection, pricing (including disaster or emergency declaration pricing statutes), employment practices, regulatory compliance, anti-bribery and corruption or other matters and actions brought by employees, consumers, competitors, suppliers, customers, governmental entities and other third parties. For example, beginning in the fourth quarter of 2019, Grainger has been named in several product liability-related lawsuits in the Harris County, Texas District Court relating to an explosion at a KMCO, LLC chemical refinery located in Harris County. The complaints seek recovery of compensatory and other damages and relief. Grainger is investigating the claims, which are at an early stage, and intends to contest these matters vigorously. Also, as a government contractor selling to federal, state and local governmental entities, the Company may be subject to governmental or regulatory inquiries or audits or other proceedings, including those related to contract administration or to pricing compliance. While the Company is unable to predict the outcome of any of these matters, 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 condition or results of operations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

From time to time, the Company has also been named, along with numerous other nonaffiliated companies, as a defendant in litigation in various states involving asbestos and/or silica. These lawsuits typically assert claims of personal injury arising from alleged exposure to asbestos and/or silica as a consequence of products manufactured by third parties purportedly distributed by the Company. While several lawsuits have been dismissed in the past based on the lack of product identification, if a specific product distributed by the Company is identified in any pending or future lawsuits, the Company will seek to exercise indemnification remedies against the product manufacturer to the extent available. In addition, the Company believes that a substantial number of these claims are covered by insurance. The Company has entered into agreements with its major insurance carriers relating to the scope and coverage and the costs of defense, of lawsuits involving claims of exposure to asbestos. The Company believes it has strong legal and factual defenses and intends to continue defending itself vigorously in these lawsuits. While the Company is unable to predict the outcome of these proceedings, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on the Company’s consolidated financial condition or results of operations.

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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 the Company) is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, Japan and Europe. More than 3.5 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 4 in the Condensed Consolidated Financial Statements (Financial Statements)). They place orders through digital channels, over the phone and at local branches. Approximately 5,000 suppliers provide Grainger with approximately 1.6 million products stocked in Grainger's distribution centers (DCs) and branches worldwide.

Grainger's two reportable segments are the U.S. and Canada (Grainger Canada and its subsidiaries). These reportable segments reflect the results of the Company's high-touch solutions businesses in those geographies. Other businesses include the endless assortment businesses, (Zoro in the U.S. and MonotaRO in Japan), and smaller high-touch solutions businesses in Europe and Mexico.

COVID-19 Pandemic Response

The Company’s strategic priorities for 2020 have not changed from those stated in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report for the year ended December 31, 2019 on Form 10-K (the 2019 Form 10-K), which are to relentlessly expand Grainger’s leadership position in the MRO space by being the go-to-partner for people who build and run safe, sustainable and productive operations. However, the respective business plans to achieve these strategic priorities, have and are expected to be affected by the Coronavirus (COVID-19 pandemic).

The Company has been and intends to continue supporting its employees, customers, suppliers and communities as they keep the world working while navigating these unprecedented events. The Company has a dedicated task force focused on the COVID-19 pandemic response to understand and implement guidance from government agencies and health officials and will adapt its efforts and plans as needed. As the COVID-19 pandemic continues to spread and significantly impact various markets and industries around the world, including North America, Japan and Europe, the Company’s efforts and business plans have focused on:


•	Serving as an essential business under virtually every state order, to continue supporting hospitals, governments, first responders, critical manufacturers, and the many other customers that are assisting in the pandemic response;


•	Supporting Company employees by providing a safe environment and jobs;


•	Serving customers and communities by providing safe, high-quality services;


•	Closely partnering with supplier and logistics partners to locate the products needed to replenish inventories, provide much needed products to customers and meet changing customer, community and supplier needs;


•	Continuing to be a trusted partner to customers and suppliers now and after the expected economic slowdown; and


•	Preserving a strong financial and liquidity position to execute business plans and remain positioned to succeed beyond this pandemic.

Impact of the COVID-19 Pandemic to Grainger Businesses

The COVID-19 pandemic has resulted, and is likely to continue to result, in disruption to Grainger’s businesses and operations as well as the operations of its customers and suppliers. As of the date of this filing, the Company's major operational facilities and infrastructure (i.e., DCs, branches, e-commerce sites, logistic partners) continued to operate and have managed the incremental demand of pandemic-related product sales and related activities. However, the Company has experienced some disruption, including supply shortages of personal protective equipment (PPE), temporary facility shutdowns for cleaning and restrictions on the Company’s employees' ability to travel to visit customers and many employees' ability to work in offices or at facilities. Nonetheless, these disruptions did not have a material financial impact on the Company’s consolidated financial condition or results of operations for the first quarter of 2020. Additionally, the COVID-19 pandemic shifted demand towards lower-margin products and increased volume-related

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

operating costs in response to the pandemic, particularly during the second half of the first quarter of 2020, which negatively impacted Company quarter-to-date operating margins.

With respect to liquidity for the quarter, the Company took several actions to bolster its financial condition and has in place contingency plans to reduce costs while supporting business operations though the COVID-19 pandemic. Some of these actions included:


•	Drew down $1.0 billion from the Company's $1.25 billion unsecured revolving credit facility.


•	Paused the Company’s share repurchase program.

•

Implemented several initiatives to conserve cash and optimize profitability, including limiting discretionary spending, temporarily furloughing employees or reducing work hours, reducing short term executive pay, delaying salary increases, scaling back advertising spend, eliminating non-essential travel, delaying or reducing hiring activities and deferring certain discretionary capital expenditures.

The Company completed the quarter ended March 31, 2020 with over $1.7 billion in available liquidity, including $1.5 billion in cash.

2020 Outlook in Consideration of the COVID-19 Pandemic

Due to the speed with which the COVID-19 pandemic is developing and the uncertainties created, including the depth and duration of any disruptions to customers and suppliers, its future effect to the Company’s business, results of operations, and financial condition cannot be predicted. While the Company is unable to accurately foresee these future impacts, it believes that its financial resources and liquidity levels, along with various contingency plans to reduce costs are sufficient to manage the impact currently anticipated from the COVID-19 pandemic, which may include reduced sales, earnings and operating cash flows.

Because the COVID-19 pandemic is a rapidly evolving situation, the Company will continue to monitor the business impact and may take further actions that it deems appropriate in light of the circumstances.

Matters Affecting Comparability

There were 64 sales days in the three months ended March 31, 2020 and 63 sales days in the three months ended March 31, 2019. In addition, during the second half of the first quarter of 2020, the Company experienced a surge of COVID-19 pandemic related product sales (e.g., PPE and safety products) due to higher customer demand in response to the global outbreak. The incremental demand came primarily from customers in the front-lines of the pandemic, including hospitals, healthcare providers, governments, first responders and critical manufactures. Conversely, the Company experienced adverse gross margin impacts from COVID-19 pandemic-related product sales as well as incremental Selling, general and administrative (SG&A) expense in response to the COVID-19 pandemic and related activities.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Results of Operations – Three Months Ended March 31, 2020

The following table is included as an aid to understand 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
	2020			2019		Percent Increase/(Decrease)		2020		2019
Net sales	$	3,001		$	2,799	7.2	%	100.0	%	100.0	%
Cost of goods sold	1,880			1,704		10.3	%	62.6	%	60.9	%
Gross profit	1,121			1,095		2.4	%	37.4	%	39.1	%
Selling, general and administrative expenses	962			732		31.4	%	32.1	%	26.2	%
Operating earnings	159			363		(56.3	)%	5.3	%	13.0	%
Other expense, net	17			12		35.6	%	0.6	%	0.4	%
Income taxes	(43		)	89		(148.4	)%	(1.4	)%	3.2	%
Net earnings	185			262				6.2	%	9.4	%
Noncontrolling interest	12			9		34.7	%	0.4	%	0.3	%
Net earnings attributable to W.W. Grainger, Inc.	$	173		$	253	(31.5	)%	5.8	%	9.0	%

Grainger’s net sales of $3,001 million for the first quarter of 2020 increased $202 million, or 7.2% compared to the same period in 2019. On a daily basis, net sales increased 5.5%. The increase in net sales was primarily driven by approximately 7% from volume, partially offset by price and mix of approximately 2%. The Company estimates that COVID-19 pandemic-related product sales represented approximately half of the sales growth. See the Segment Analysis below for further details related to segment revenue.

Gross profit of $1,121 million for the first quarter of 2020 increased $26 million compared to the same quarter in 2019. The gross profit margin of 37.4% during the first quarter of 2020 decreased 1.8 percentage points when compared to the same quarter in 2019. This decrease was primarily driven by lower margins from COVID-19 pandemic-related products sales and business unit mix impact from higher growth in the lower margin endless assortment businesses. See the Segment Analysis below for further details related to segment gross profit.

SG&A of $962 million for the first quarter of 2020 increased $230 million, or 31% compared to the first quarter of 2019. Part of this increase is due to higher net restructuring charges in the U.S. and Canada businesses and impairment charges for the Fabory business (part of Other businesses) in the first quarter of 2020.

The table below reconciles reported SG&A, operating earnings, net earnings attributable to W.W. Grainger, Inc. and effective tax rate determined in accordance with U.S. generally accepted accounting principles (GAAP) to adjusted SG&A, operating earnings, net earnings attributable to W.W. Grainger, Inc. and effective tax rate, which are all considered non-GAAP measures. The Company believes that these non-GAAP measures provide meaningful information to assist investors in understanding financial results and assessing prospects for future performance as they provide a better baseline for analyzing the ongoing performance of its businesses by excluding 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 these measures with other companies' non-GAAP measures having the same or similar names. All tables below are in millions of dollars:

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



	Three Months Ended
	March 31, 2020
	2020		2019		%
SG&A reported	$	962	$	732	(31	)%
Restructuring, net of branch gains (U.S.)	6		—
Restructuring (Canada)	1		1
Fabory impairment charges (Other businesses)	177		—
Total restructuring, net and impairment charges	184		1
SG&A adjusted	$	778	$	731	(7	)%



	2020		2019		%
Operating earnings reported	$	159	$	363	(56	)%
Total restructuring, net, and impairment charges	184		2
Operating earnings adjusted	$	343	$	365	(6	)%



	2020		2019		%
Net earnings attributable to W.W. Grainger, Inc. reported	$	173	$	253	(32	)%
Total restructuring, net, and impairment charges, net of tax	57		2
Net earnings attributable to W.W. Grainger, Inc. adjusted	$	230	$	255	(9	)%

Excluding restructuring, net and impairment charges in both periods as noted in the table above, SG&A increased $47 million, or 7%. The increase in SG&A was primarily due to higher compensation costs from incremental headcount added in the second half of 2019, higher marketing costs and incremental operating costs to support the Company's response to the COVID-19 pandemic and related activities, including higher variable costs in connection with the increase in sales volume.

Operating earnings of $159 million for the first quarter of 2020 decreased $204 million, or 56% compared to the first quarter of 2019. Excluding restructuring, net and impairment charges in both periods as noted in the table above, operating earnings decreased $22 million or 6%, driven by higher SG&A partially offset by higher gross profit dollars.

Other expense, net was $17 million for the first quarter of 2020, an increase of $5 million, or 36% compared to the first quarter of 2019. The increase was primarily related to interest expense on the $500 million in senior notes issued in February 2020.

The Company recorded an income tax benefit, net of $43 million for the first quarter of 2020 compared to an income tax expense, net of $89 million in the first quarter of 2019. Grainger's effective tax rates were negative 30.4% and positive 25.4% for the three months ended March 31, 2020 and 2019, respectively. This change is primarily related to a tax benefit related to the Fabory business recorded in the first quarter of 2020. Excluding this tax benefit, as well as the restructuring, net and impairment charges in both periods as noted in the table above, the effective tax rates were 25.6% and 25.4% for the three months ended March 31, 2020 and 2019, respectively. The reconciliation of the effective tax rate is as follows:



	Three Months Ended March 31,
	2020		2019
Effective tax rate reported	(30.4	)%	25.4	%
Tax benefit related to the Fabory business	61.2		—
Tax impact of restructuring, net and impairment charges	(5.2	)	—
Effective tax rate adjusted	25.6	%	25.4	%

Net earnings attributable to W.W. Grainger, Inc. of $173 million for the first quarter of 2020 decreased $80 million or 32% compared to the first quarter of 2019. Excluding restructuring, net and impairment charges from both periods in the table above, net earnings decreased $25 million or 9%.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Segment Analysis

The following results at the U.S. and Canada reportable segments and other businesses include external and intersegment net sales and operating earnings. See Note 12 to the Financial Statements.

United States

Net sales were $2,307 million for the first quarter of 2020, an increase of $158 million, or 7.4% compared to the same period in 2019. On a daily basis, net sales increased 5.7% and consisted of the following:



	Percent Increase/(Decrease)
Volume	7.8%
Intersegment sales	0.3
Price and mix	(2.4)
Total	5.7%

Overall, revenue increases were primarily driven by COVID-19 pandemic-related sales, which accounted for approximately half of the sales growth. See Note 4 to the Financial Statements for information related to disaggregated revenue.

Gross profit margin for the first quarter of 2020 decreased 2.3 percentage points compared to the same period in 2019. The decrease was the result of pricing mix, customer mix and tariff cost-related increases that took effect later in 2019. The business also experienced margin declines from higher sales of lower margin COVID-19 pandemic-related products. The Company expects these mix-related decreases to continue during the pandemic and expects increased levels of safety and cleaning product sales to large healthcare, government and critical manufacturing customers.

SG&A of $541 million for the first quarter of 2020 increased $36 million, or 7% when compared to the first quarter of 2019. The increase in SG&A was primarily related to higher compensation costs from incremental headcount in the second half of 2019, higher marketing costs and incremental operating costs to support the U.S. business response to the COVID-19 pandemic and related activities, including higher variable costs in connection with the increase in sales volume.

Operating earnings of $340 million for the first quarter of 2020 decreased $24 million, or 7% from $364 million for the first quarter of 2019. This decrease was driven by higher SG&A partially offset by higher gross profit dollars.

Canada

Net sales were $129 million for the first quarter of 2020, a decrease of $7 million, or 4.6% compared to the same period in 2019. On a daily basis, net sales decreased 6.1% and consisted of the following:



	Percent Decrease
Volume	(4.4)%
Foreign exchange	(1.1)
Price	(0.6)
Total	(6.1)%

For the first quarter of 2020, overall sales volume was down 4.4 percentage points compared to the same period in 2019 primarily due to market share declines partially offset by COVID-19 pandemic-related product sales. During the month of March 2020, global oil and gas prices declined sharply as a result of market forces. More than a fifth of sales for the Canada business are derived from the oil industry or ancillary segments. This current low-oil price environment could further pressure demand for the business, which is already under pressure from the COVID-19 pandemic.

The gross profit margin increased 0.6 percentage points in the first quarter of 2020 versus the first quarter of 2019.

SG&A decreased 7% in the first quarter of 2020 compared to the first quarter of 2019, primarily due to lower variable costs from lower sales and cost management actions to improve SG&A leverage.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

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Operating losses were $3 million for the first quarter of 2020 compared to operating losses of $5 million in the first quarter of 2019.

Other businesses

Net sales were $698 million for the first quarter of 2020, an increase of $65 million, or 10.2% when compared to the same period in 2019. On a daily basis, net sales increased 8.5%. The increase in net sales was driven by continued expansion in the endless assortment businesses, partially offset by lower performance in other international high-touch businesses. The endless assortments businesses benefited from COVID-19 pandemic-related sales and otherwise continued to see strong new customer acquisition during the quarter.

Gross profit margin decreased 0.6 percentage points in the first quarter of 2020 versus the first quarter of 2019, driven by business unit mix from the faster growing endless assortment businesses as well as deeper discounting and higher drop-ship activity at Zoro.

Operating losses of $138 million for the first quarter of 2020 were down $168 million compared to operating earnings $30 million for the first quarter of 2019. Excluding Fabory impairment charges as noted in the table above, operating earnings would have increased $9 million or 30%. This increase is primarily due to increased SG&A leverage in the endless assortment businesses.

Financial Condition

Cash, Cash Equivalents and Liquidity

As of March 31, 2020 and December 31, 2019, Grainger had cash and cash equivalents of $1,492 million and $360 million, respectively. This increase in cash is due primarily to the proceeds received on March 31, 2020 when the Company drew down $1 billion from its $1.25 billion credit facility. This action was a proactive measure to increase the Company’s cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic (See part II, Item A: “Risk Factors” for an update to the Company’s risk factors in connection with the COVID-19 pandemic).

Grainger believes that, assuming its operations are not significantly impacted by the COVID-19 pandemic for a prolonged period, its current level of cash and cash equivalents, marketable securities and availability under its revolving credit facilities will be sufficient to meet its liquidity needs. While the Company remains committed to returning excess capital to shareholders over time, the Company has temporarily paused its share repurchase program as it shifts to conserve capital.

Cash Flows

Net cash provided by operating activities was $244 million and $127 million for the three months ended March 31, 2020 and 2019, respectively. The increase in cash provided by operating activities is primarily the result of lower net payments related to employee variable compensation and benefits paid under annual incentive plans and changes in working capital driven by increased growth in March 2020.

Net cash used in investing activities was $52 million for the three months ended March 31, 2020 and 2019, respectively.

Net cash provided by financing activities was $955 million in the three months ended March 31, 2020 compared to net cash used in financing activities of $221 million in the three months ended March 31, 2019. The increase in net cash provided by financing activities was primarily driven by higher proceeds from the issuance of long-term debt, which included $1 billion from the Company's $1.25 billion credit facility and $500 million in unsecured senior notes, and lower treasury stock repurchases partially offset by debt redemption.

Working Capital

Internally generated funds are the primary source of working capital and funds used for growth initiatives and capital expenditures.

Working capital consists of current assets (less non-operating cash) and current liabilities (less short-term debt, current maturities of long-term debt and lease liabilities). Working capital as of March 31, 2020, was $2,239 million, an increase of $147 million when compared to $2,092 million as of December 31, 2019. The increase was primarily driven by an increase in accounts receivable and a decrease in accrued contributions to employees profit-sharing plans due to the

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

annual cash contribution. At these dates, the ratio of current assets to current liabilities was 2.6 for both March 31, 2020 and December 31, 2019.

Capital Expenditures

During the first quarter of 2020, the Company continued to invest in essential capital projects, namely the supply chain network, technology and inventory management solutions. Total capital spending for 2020 is expected to range from $150 million to $175 million.

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 revolving credit facilities. Total debt, which is defined as total interest-bearing debt (short-term, current maturities and long-term) and lease liabilities as a percent of total capitalization was 63.8% at March 31, 2020, and 54.3% at December 31, 2019.

Grainger receives ratings from two independent credit rating agencies: Moody's Investor Service (Moody's) and Standard & Poor's (S&P). Both credit rating agencies currently rate the Company's corporate credit at investment grade. The following table summarizes the Company's credit ratings at March 31, 2020:



	Corporate	Senior Unsecured	Short-term
Moody's	A3	A3	P2
S&P	A+	A+	A1

Commitments and Other Contractual Obligations

There were no material changes to the Company’s commitments and other contractual obligations from those disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2019 Form 10K.

Critical Accounting Estimates

The methods, assumptions, and estimates used in applying the Company’s accounting policies may require the application of judgments regarding matters that are inherently uncertain. The Company considers an accounting policy to be a critical estimate if: (1) it involves assumptions that are uncertain when judgment was applied, and (2) changes in the estimate assumptions, or selection of a different estimate methodology could have a significant impact on Grainger’s consolidated financial position and results. While the Company believes that estimates, assumptions, and judgments used are reasonable, they are based on information available when the estimate was made.

A description of the Company’s critical accounting estimates is described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2019 Form 10K. The following critical accounting policy is being added to the policies set forth in the 2019 Form 10K.

Allowance for Credit Losses

Pursuant to the January 1, 2020 implementation of the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, the Company establishes an allowance for credit losses using estimations of loss rates based upon historical loss experience and adjusted for factors that are relevant to determining the expected collectability of accounts receivables. These estimations and factors require assumptions and judgments regarding matters that are inherently uncertain, including the impact that the COVID-19 pandemic may have on the liquidity, credit and solvency status of customers or individual industries. For further discussion on the Company’s allowances for credit losses, see in Note 5 contained within Part I, Item 1, “Notes to Condensed Consolidated Financial Statements”.

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

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to be “forward-looking statements” under the federal securities laws. Forward-looking statements can generally be identified by their use of terms such as “anticipate,” “estimate,” “believe,” “expect,” “could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project,” “will” or “would” and similar terms and phrases, including references to assumptions.

Grainger cannot guarantee that any forward-looking statement will be realized and achievement of future results is subject to risks and uncertainties, many of which are beyond the Company's control, which could cause 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 the forward-looking statements include, without limitation: the unknown duration and economic, operational and financial impacts of the global outbreak of the Coronavirus (COVID-19 pandemic) and the actions taken or contemplated by governmental authorities or others in connection with the pandemic on the Company’s businesses, its employees, customers and suppliers, including the uncertain duration of mandated shut-downs for customers and suppliers, changes in customers' product needs, suppliers' inability to meet unprecedented demand for COVID-19 related products, the potential for government action to allocate or direct products to certain customers which may cause disruption in relationships with other customers, and disruption caused by business responses to the COVID-19 pandemic, including working remote arrangements, which may create increased vulnerability to cybersecurity incidents, including breaches of information systems security; higher product costs or other expenses; a major loss of customers; loss or disruption of sources of supply; increased competitive pricing pressures; failure to develop or implement new technology initiatives or business strategies; failure to adequately protect intellectual property or successfully defend against infringement claims; fluctuations or declines in the Company's gross profit percentage; the Company's responses to market pressures; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, safety or compliance, or privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and standards; government contract matters; disruption of information technology or data security systems involving the Company or third parties on which the Company depends; general industry, economic, market or political conditions; general global economic conditions including tariffs and trade issues and policies; currency exchange rate fluctuations; market volatility, including volatility or price declines of the Company's common stock; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; pandemic diseases or viral contagions; natural and other catastrophes; unanticipated and/or extreme weather conditions; loss of key members of management; the Company's ability to operate, integrate and leverage acquired businesses; changes in effective tax rates; changes in credit ratings or outlook; the Company's incurrence of indebtedness and other factors identified under Part II, Item 1A: “Risk Factors” in the Company’s 2019 Form 10-K, 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 update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

W.W. Grainger, Inc. and Subsidiaries


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

As disclosed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk” in the Company's 2019 Form 10-K, Grainger’s primary market risk exposures include changes in foreign currency exchange and interest rates. In February 2020, the Company entered into certain derivative instruments to manage portions of these risks. A discussion of the Company’s accounting policies for derivative instruments and further disclosures are provided in Note 10 contained within Part I, Item 1, "Notes to Condensed Consolidated Financial Statements”.

For a discussion of current market conditions resulting from the COVID-19 pandemic, refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations” and to Part II, Item 1A, "Risk Factors”.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

Grainger carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of Grainger's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that Grainger’s disclosure controls and procedures were effective as of the end of the period covered by this report in (i) ensuring that information required to be disclosed by Grainger in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in Grainger's internal control over financial reporting for the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.

PART II – OTHER INFORMATION


Item 1.	Legal Proceedings

For a description of the Company’s legal proceedings, see Note 13 - Contingencies and Legal Matters - to the Condensed Consolidated Financial Statements included under Part 1, Item 1, "Financial Statements".

Item 1A. Risk Factors

The Company’s business, results of operations, and financial condition are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in the Company’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 20, 2020 (the 2019 Form 10-K). The following risk factor is being provided to supplement and update the risk factors set forth in the 2019 Form 10-K.

Grainger’s business and operations may continue to be adversely affected by the global outbreak of the Coronavirus (COVID-19) or other global outbreaks of pandemic disease.

Any global outbreaks of pandemic disease, such as the COVID-19 pandemic, could have a material adverse effect on the Company’s business, results of operations, and financial condition, including liquidity, capital and financing resources.

The COVID-19 pandemic has disrupted and adversely affected the Company’s business to date. Some of the effects include restrictions on the Company’s employees' ability to travel, including to visit customers, and many employees' ability to work in offices or at facilities, and supply chain interruptions, as well as disruptions or temporary closures of the Company’s facilities, including distribution centers, branches, and support buildings. The effects of the COVID-19 pandemic also include disruptions or closures of customer and/or suppliers’ facilities and supply chains in China and other locations, which can materially impact the demand for the Company’s products, the ability for the Company to obtain or deliver inventory, and the ability for the Company to collect its accounts receivable as customers face higher

liquidity and solvency risks. The ultimate adverse impact on the Company and the duration of these disruptions or closures are currently unknown.

Moreover, the COVID-19 pandemic may materially adversely affect many of the Company's customers' and suppliers' ability to continue to operate as a going concern in the future or their ability to purchase Company products, may affect suppliers' ability to meet unprecedented demand for COVID-19-related products, may delay customers’ purchasing decisions, result in a shift to lower-priced products or away from discretionary products, result in longer payment terms or discounting, or affect customer loyalty or retention rates, and may affect customers’ and suppliers’ ability or willingness to attend Company events in the future all of which could materially adversely affect Company's future sales and results of operations.

Disruption caused by business responded to the COVID-19 pandemic, including working remote arrangements, may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage Grainger's reputation and commercial relationships, disrupt operations, increase costs and/or decrease revenues, and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card association, employees and others, any of which could have a material adverse effect on Grainger its financial condition and results of operations.

In addition, these global outbreaks may result in a widespread health crisis that could adversely affect the economies of many countries, resulting in a global or regional economic downturn or recession. Any such recession could result in a significant decline in demand for the Company's products, which could materially adversely affect the Company's business, results of operations and financial condition.

The extent to which the COVID-19 pandemic will continue to impact the Company’s business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted at this time. Such developments may include the geographic spread, severity and duration of the COVID-19 pandemic, the extent and duration of the impact on the U.S. or global economy, and the actions that have been and may be taken by various governmental authorities in response to the outbreak, including mandatory facility closures of non-essential businesses, stay in shelter or social distancing mandates, travel bans, import and export restrictions, pricing mandates, including disaster or emergency declaration pricing statutes, and mandatory directives that certain products be allocated or provided to certain customers which could disrupt the Company's relationship with other customers, among other actions. Furthermore, the extent any disruptions the COVID-19 pandemic has caused or may cause to the Company's customers or suppliers are not known and cannot be predicted.

If the Company is not able to respond to and manage the impact of these events, the Company's business and results of operations may continue to be adversely affected.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities – First Quarter



Period	Total Number of Shares Purchased (A)	Average Price Paid per Share (B)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (C)	Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs
January 1 - January 31	110,294	$331.91	110,294	2,968,299
February 1 - February 29	77,022	$282.92	77,022	2,891,277
March 1 - March 31	150,522	$279.10	148,722	2,742,555
Total	337,838 (D)		336,038


(A)	There were no shares withheld to satisfy tax withholding obligations.


(B)	Average price paid per share includes any commissions paid.


(C)	Purchases were made pursuant to a share repurchase program approved by Grainger’s Board of Directors and announced April 24, 2019 (2019 Program). The 2019 Program authorizes the repurchase of up to 5 million shares with no expiration date.


(D)	The difference of 1,800 shares between the Total Number of Shares Purchased and the Total Number of

Shares Purchased as Part of Publicly Announced Plans or Programs represents shares purchased by the

administrator and record keeper of the W.W. Grainger, Inc. Employees Profit Sharing Plan for the benefit

of the employees who participate in the plan.

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 32 of this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			W.W. GRAINGER, INC.
Date:	April 23, 2020	By:	/s/ Thomas B. Okray
			Thomas B. Okray, Senior Vice President and Chief Financial Officer
			(Principal Financial Officer)
Date:	April 23, 2020	By:	/s/ Eric R. Tapia
			Eric R. Tapia, Vice President and Controller
			(Principal Accounting Officer)

EXHIBIT INDEX



EXHIBIT NO.		DESCRIPTION
4.1		Fourth Supplemental Indenture, dated as of February 26, 2020, between W.W. Grainger, Inc., and U.S. Bank National Association, as trustee incorporated by reference to Exhibit 4.1 to W.W. Grainger, Inc.'s Current Report on Form 8-K dated February 21, 2020.
4.2		Form of 1.85% Senior Notes due 2025 (included in Exhibit 4.1), incorporated by reference to Exhibit 4.2 to W.W. Grainger, Inc.'s Current Report on Form 8-K dated February 21, 2020.
10.1		Form of 2020 W.W. Grainger, Inc. 2015 Incentive Plan Restricted Stock Unit Agreement between W.W. Grainger, Inc. and certain of its executive officers.*
10.2		Form of 2020 W.W. Grainger, Inc. 2015 Incentive Plan Performance Stock Unit Agreement between W.W. Grainger, Inc. and certain of its executive officers.*
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101),

(*) Management contract or compensatory plan or arrangement.

Exhibit 10.1

W.W. GRAINGER, INC.

2015 Incentive Plan

Restricted Stock Unit Agreement

This Restricted Stock Unit Agreement (this "Agreement"), dated as of April 1, 2020 (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

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(s) specified in the grant notice ("RSU Vesting Date"), the RSUs shall become 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 Stock Plan Administrator. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the 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 or engaged in misconduct against the Company or has engaged in any criminal conduct, including embezzlement, fraud or theft, that involves or is related to the Company, or any other conduct that violates Company policy, causes or is discovered to have caused, any loss, damage, injury or other endangerment to the Company's property or reputation, and such 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 acquired under the Plan, recapture any gain realized upon the sale of Shares 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 Recoupment in Event of Error. If the Executive receives any amount in excess of what the Executive should have received under the terms of this Agreement for any reason (including, without limitation, by reason of a mistake in calculations or administrative error), all as determined by the Committee, then the Company shall have the right to cancel the Incentive Compensation, require the return of Shares acquired under the Plan, recapture any gain realized

upon the sale of Shares acquired under the Plan or take any other action it deems appropriate under the circumstances with respect to recouping the Incentive Compensation.

3.04 Implementation. For purposes of this Article III, the Executive expressly authorizes the Company to issue instructions, on behalf of the Executive, to the Stock Plan Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the Plan) to re-convey, 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). The Executive expressly agrees to indemnify and hold the Company and the Employer harmless from any loss, cost, damage, or expense (including attorneys' fees) that the Company or the Employer may incur as a result of the Executive’s actions or in the Company and the Employer’s efforts to recover such previously made payments or value pursuant to Article III.

3.05 Forfeiture. To the extent any of the events set forth in this Article III 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.

3.06 Executive Consent. For purposes of the Company’s enforcement of this Article III, the Executive expressly and explicitly authorizes the Company to issue instructions, on the Executive’s behalf, to any brokerage firm and/or third party administrator engaged by the Company to hold any cash payments, Shares or other amounts acquired by the Executive under the Plan to re-convey, transfer or otherwise return such cash payments, Shares or other amounts to the Company.

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. 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. If the Executive is in a country where English is not an official language, the Executive acknowledges that the Executive is sufficiently proficient in English to understand the terms and conditions of the Agreement or has had the ability to consult with an advisor who is sufficiently proficient in the English 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.

Plan Administrator. By a notice given pursuant to this Section 6.08, either party may designate a different address for notices. Any notice shall have been deemed given when actually delivered.

6.09 Severability. If all or any part of this 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. The Company is located at 100 Grainger Parkway, Lake Forest, Illinois 60045, United States of America, and grants RSUs under the Plan to employees of the Company and its Subsidiaries in its sole discretion. In conjunction with the Company's grant of the RSUs under the Plan and its ongoing administration of such awards, the Company is providing the following information about its data collection, processing and transfer practices. In accepting the grant of the RSU, the Executive expressly and explicitly consents to the personal data activities as described herein.

i.Data Collection, Processing and Usage. The Company and the Employer will collect, process and use certain personal information about the Executive, specifically, the Executive’s name, home address, email address and telephone number, date of birth, social security or insurance number, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all RSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Executive’s favor (“Data”), for the purpose of implementing, administering and managing the Plan. The Company's legal basis for the collection, processing and use of the Executive's Data is the Executive's consent. The Executive's Data also may be disclosed to certain securities or other regulatory authorities where the Company’s securities are listed or traded or regulatory filings are made. The Company's legal basis for such disclosure of the Executive's Data is to comply with applicable laws, rules and regulations.

ii.Stock Plan Administration Service Providers. The Company and the Employer transfer the Executive's Data to the Stock Plan Administrator based in the United States of America, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different Stock Plan Administrator and share the Executive's Data with another company that serves in a similar manner. The Stock Plan Administrator will open an account for the Executive to receive and trade Shares acquired under the Plan. The Executive will be asked to agree to separate terms and data processing practices with the Stock Plan Administrator, which is a condition of the Executive's ability to participate in the Plan.

iii.International Data Transfers. The Company and the Stock Plan Administrator are based in the United States of America. The Executive should note that the Executive's country of residence may have enacted data privacy laws that are different from the United States of America. The Company's legal basis for the transfer of the Executive's Data to the United States of America is the Executive consent.

iv.Voluntariness and Consequences of Consent, Denial or Withdrawal. The Executive's participation in the Plan and the Executive's grant of consent hereunder is purely voluntary. The Executive may deny or withdraw his or her consent at any time. If the Executive does not consent, or if the Executive later withdraws his or her consent, the Executive may be unable to participate in the Plan. This would not affect the Executive's existing employment or

salary; instead, the Executive merely may forfeit the opportunities associated with participation in the Plan.

v.Data Retention. The Executive understands that the Executive's Data will be held only as long as is necessary to implement, administer and manage the Executive's RSU and participation in the Plan. When the Company no longer needs the Data, the Company will remove it from its systems. If the Company retains the Executive's Data longer, it would be to satisfy the Company's legal or regulatory obligations and the Company's legal basis would be for compliance with applicable laws, rules and regulations.

vi.Data Subject Rights. The Executive understands that the Executive may have the right under applicable law to (i) access or copy the Executive's Data that the Company possesses, (ii) rectify incorrect Data concerning the Executive, (iii) delete the Executive's Data, (iv) restrict processing of the Executive's Data, (vi) lodge complaints with the competent supervisory authorities in the Executive’s country of residence. To receive clarification regarding these rights or to exercise these rights, the Executive understands that the Executive can contact his or her local human resources representative.

6.14 Private Placement. The grant of the RSUs is not intended to be a public offering of securities in the 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 the United Kingdom or a country that is a member of the European Union, the grant of the RSUs and the terms and conditions governing the RSUs are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the "Age Discrimination Rules"). To the extent that a court or tribunal of competent jurisdiction determines that any provision of 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

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).

European Union ("EU") / European Economic Area ("EEA") / United Kingdom

The following provision replaces Section 6.13 to the extent the Executive is employed in the EU, EEA or the United Kingdom:

In conjunction with the Company's grant of the RSUs under the Plan and its ongoing administration of such awards, the Company is providing the following information about its data collection, processing and transfer practices, which the Executive should carefully review.

i. Data Collection, Processing and Usage. The Company and the Employer will collect, process and use certain personal information about the Executive, specifically, the Executive’s name, home address, email address and telephone number, date of birth, social security or insurance number, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all RSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Executive’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan. The Company collects, process and uses the Executive's Data pursuant to the Company's legitimate interest of administering the Executive's RSUs and generally managing the Plan, and to satisfy its contractual obligations under the Agreement. The Executive's Data also may be disclosed to certain securities or other regulatory authorities where the Company’s securities are listed or traded or regulatory filings are made. The Company's legal basis for such disclosure of the Executive's Data is to comply with applicable laws, rules and regulations.

ii. Stock Plan Administration Service Providers. The Company and the Employer transfer the Executive's Data to the Stock Plan Administrator based in the United States of America, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different Stock Plan Administrator and share the Executive's Data with another company that serves in a similar manner. The Stock Plan Administrator will open an account for the Executive to receive and trade Shares acquired under the Plan. The Executive will be asked to agree to separate terms and data processing practices with the Stock Plan Administrator, which is a condition of the Executive's ability to participate in the Plan.

iii. International Data Transfers. The Company and the Stock Plan Administrator are based in the United States of America. The Executive should note that the Executive's country of residence may have enacted data privacy laws that are different from the United States of America. The Company's legal basis for the transfer of the Executive's Data to the United States of America is to satisfy its contractual obligations under this Agreement.

iv. Data Retention. The Executive understands that the Executive's Data will be held only as long as is necessary to implement, administer and manage the Executive's RSU and participation in the Plan. When the Company no longer needs the Data, the Company will remove it from its systems. If the Company retains the Executive's Data longer, it would be to satisfy the Company's legal or regulatory obligations and the Company's legal basis would be for compliance with applicable laws, rules and regulations.

v. Data Subject Rights. The Executive understands that the Executive may have the right under applicable law to (i) access or copy the Executive's Data that the Company possesses, (ii) rectify incorrect Data concerning the Executive, (iii) delete the Executive's Data, (iv) restrict processing of the Executive's Data, (vi) lodge complaints with the competent supervisory authorities in the Executive’s country of residence. To receive clarification regarding these rights or to exercise these rights, the Executive understands that the Executive can contact his or her local human resources representative.

Belgium

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.

Canada

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:

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 le dirigeant est un résident du Québec, en acceptant le droit sur des actions assujettis à restrictions (« restricted stock units » ou « RSUs »), le dirigeant reconnaît et accepte avoir souhaité la rédaction en anglais du Contrat, du présent Addendum, ainsi que tous autres documents exécutés, avis donnés et procédures judiciaires intentées, en vertu des RSUs ou se rapportant directement ou indirectement aux RSUs.

France

Use of English Language

The Executive hereby expressly declares that the Executive has full understanding and knowledge of the English language and has read, understands and fully accepts and agrees with the terms and conditions established in the Plan, the Agreement, the Unfair Competition Agreement and this Addendum.

Utilisation de l’anglais

Par la présente, le dirigeant déclare expressément comprendre et connaître parfaitement la langue anglaise et avoir lu, compris et accepté pleinement les termes et conditions établis dans le Plan, le Contrat, le Contrat sur la concurrence déloyale et le présent Addendum.

Tax Information

The RSUs are not intended to qualify for special tax and social security treatment in France under Section L. 225-197-1

to L. 225-197-6-1 of the French Commercial Code, as amended.

Mexico

Accelerated Vesting upon Retirement

Plan Document Acknowledgement

By accepting the RSUs, the Executive acknowledges that he or she has received a copy of the Plan, has reviewed the Plan and the Agreement in their entirety, and fully understands and accepts all provisions of the Plan and the Agreement. In addition, by accepting the RSUs, the Executive acknowledges that he or she has read and specifically and expressly approves the terms and conditions in Section 6.05 of the Agreement (“Nature of Grant”), in which the following is clearly described and established: (i) participation in the Plan does not constitute an acquired right; (ii) the Plan and participation in the Plan is offered by the Company on a wholly discretionary basis; (iii) participation in the Plan is voluntary; and (iv) neither the Company, the Employer nor any Subsidiary is responsible for any decrease in the value of the Shares underlying the RSUs.

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 are 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.

Netherlands

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.

Portugal

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 understanding knowledge of the English language and has read, understands and fully accepts and agrees 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.

United Kingdom

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 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 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 10.2

W.W. GRAINGER, INC.

2015 Incentive Plan

2020 Performance Stock Unit Agreement

This Performance Stock Unit Agreement (this “Agreement”), dated as of April 1, 2020 (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 stock units (the “PSUs”), 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 PSUs 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.

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 PSUs (the “Target PSUs”) as specified in the April 1, 2020 award grant notice posted to the Executive’s electronic investment account maintained with Morgan Stanley Smith Barney LLC, the brokerage firm/third party service provider engaged by the Company in connection with the administration of the Plan (the “Administrator”). Each PSU represents a contractual right to receive one (1) Share upon the satisfaction of the terms and conditions of this Agreement. The actual number of PSUs that may become vested and settled pursuant to this Agreement will depend on the Company’s achievement of the performance metrics defined and reflected in Exhibit I to this Agreement (the “Performance Metrics”) during the period of January 1, 2020 through December 31, 2022 (the “Measurement Period”), as shall be determined and certified by the Committee in its sole discretion. The Committee’s determination and certification shall be final and conclusive, and until the Committee has made such determination and certification, none of the Performance Metrics will be considered to have been satisfied. The Target PSUs will be equally apportioned to each Performance Metric (and reflected in Exhibit I to this Agreement).

ARTICLE II

Provisions Relating to PSUs

2.01 Vesting of PSUs. Subject to the terms and conditions set forth in the Plan and this Agreement, the Target PSUs shall vest as determined pursuant to the terms of Exhibit I, which is incorporated by reference herein and made a part of this Agreement; provided that (except as otherwise set forth in this Article II) the Target PSUs shall not vest unless the Executive remains continuously employed by the Employer (or any other Subsidiary or Affiliate) from the Grant Date through the third anniversary of the Grant Date (the “PSU Vesting Date”). Any PSUs that do not vest shall be forfeited, and the Executive shall have no further rights with respect to such PSUs. Each PSU that becomes vested as provided herein shall be settled in accordance with Section 2.06. No dividend equivalents will be paid on the shares of Common Stock underlying the PSUs.

2.02 Effect of Termination for Cause or Resignation. Except as otherwise stated in the Plan, if the Executive’s employment or service is terminated for Cause or if the Executive resigns employment or service (other than by reason of the Executive’s death, Disability or retirement) prior to the PSU Vesting Date, the Target PSUs shall be forfeited in their entirety as of the Executive’s Termination Date. 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. For purposes of this Agreement, “Cause” 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).

2.03 Effect of Involuntary Termination. If the Executive’s employment or service is involuntarily terminated prior to the PSU Vesting Date for reasons other than Cause, the Executive will become vested in a pro-rata portion of the Target PSUs based upon the Company’s achievement of the Performance Metrics. For purposes of the foregoing, the pro-ration shall be determined based upon a fraction, the numerator of which will be the number of full calendar months from the Grant Date to the Executive’s Termination Date, and the denominator shall equal the number of full calendar months in the Measurement Period. Each actual PSU that becomes vested as provided herein shall be settled in accordance with Section 2.06.

2.04 Effect of Termination due to Death or Disability. If the Executive’s employment or service is terminated prior to the PSU Vesting Date due to death or Disability, the Executive will immediately become vested in the number of PSUs equal to the Target PSUs. 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 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 PSU Vesting Date. Each actual PSU that becomes vested as provided herein shall be settled in accordance with Section 2.06.

2.05 Effect of Termination due to Retirement. If the Executive’s employment or service is terminated prior to the PSU Vesting Date due to the retirement of the Executive, the Executive will continue vesting in accordance with Section 2.01 as if the Executive had not been terminated. Each actual PSU 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 of Vested PSUs. Following the date on which the Committee certifies the Company’s achievement of the Performance Metrics and determines the actual number of PSUs that vest pursuant to the achievement of the Performance Metrics, the Company shall, as soon as practicable (but in no event later than 60 days following the PSU Vesting Date), settle the vested PSUs by registering Shares in the Executive’s name and delivering such Shares to the Executive’s electronic stock plan account maintained by the Stock Plan Administrator. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the Executive’s PSU may be settled in the form of: (i) cash, to the extent settlement in Shares (a) is prohibited under applicable Laws, (b) would require the 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 or engaged in misconduct against the Company or has engaged in any criminal conduct, including embezzlement, fraud or theft, that involves or is related to the Company, or any other conduct that violates Company policy, causes or is discovered to have caused, any loss, damage, injury or other endangerment to the Company’s property or reputation, and such 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 acquired under the Plan, recapture any gain realized upon the sale of Shares 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.

3.04 Implementation. For purposes of this Article III, the Executive expressly authorizes the Company to issue instructions, on behalf of the Executive, to the Stock Plan Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the Plan) to re-convey, 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). The Executive expressly agrees to indemnify and hold the Company and the Employer harmless from any loss, cost, damage, or expense (including attorneys’ fees) that the Company or the Employer may incur as a result of the Executive’s actions or in the Company and the Employer’s efforts to recover such previously made payments or value pursuant to Article III.

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 PSU, including the grant of the PSU, the vesting of the PSU, the subsequent sale of any Shares acquired pursuant to the PSU and the receipt of any dividends and (ii) do not commit to structure the terms of the grant or any aspect of the PSU to reduce or eliminate the 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 PSU, 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 PSU that have an aggregate Fair Market Value sufficient to pay the Tax-Related Items required to be withheld with respect to the Shares or the cash equivalent. 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 PSU 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 PSUs. 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 PSU.

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 PSU 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 PSU, 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 PSU 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 PSU 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 PSU 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 PSU 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 PSU 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 PSU 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 PSUs may not be sold, transferred, pledged, assigned, or otherwise alienated at any time other than by will or by the laws of descent and distribution. Any attempt to do so contrary to the provisions hereof shall be null and 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 PSUs until the date of issuance of such Shares. Upon settlement of the PSU, the Executive will obtain, with respect to the Shares received in such settlement, full voting and other rights as a shareholder of the Company.

6.04 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 PSUs 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 PSU does not create any contractual or other right to receive future grants of PSUs, benefits in lieu of PSUs, or any other Plan benefits in the future; (iv) nothing contained in this 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 PSUs, is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long service option, pension, or retirement benefits or similar payments; (vi) the Executive is voluntarily participating in the Plan; (vii) the future value of the Shares underlying the PSU 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 PSU, the amount realized upon settlement of the PSU or the amount realized upon a subsequent sale of any Shares acquired upon settlement of the PSU, 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 PSUs to correct for any windfalls or shortfalls in such PSU 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 PSU to a “covered employee,” as defined in Section 162(m)(3) of the Code, shall be limited to decreasing, and not increasing, such PSU.

6.06 Compliance with Law. The Company shall not be required to issue or deliver any Shares pursuant to this 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 PSUs, 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 PSUs) 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 effect 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 Stock Plan Administrator. By a notice given pursuant to this Section 6.08, either party may designate a different address for notices. Any notice shall have been deemed given when actually delivered.

6.10 Construction. The PSUs are being issued pursuant to Article 9 (Performance Shares/Performance Units) of the Plan. PSUs 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.

6.13 Data Privacy. The Company is located at 100 Grainger Parkway, Lake Forest, Illinois 60045, United States of America, and grants PSUs under the Plan to employees of the Company and its Subsidiaries in its sole discretion. In conjunction with the Company’s grant of the PSUs under the Plan and its ongoing administration of such awards, the Company is providing the following information about its data collection, processing and transfer practices. In accepting the grant of the PSU, the Executive expressly and explicitly consents to the personal data activities as described herein.

i.Data Collection, Processing and Usage. The Company and the Employer will collect, process and use certain personal information about the Executive, specifically, the Executive’s name, home address, email address and telephone number, date of birth, social security or insurance number, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all PSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Executive’s favor (“Data”), for the purpose of implementing, administering and managing the Plan. The Company’s legal basis for the collection, processing and use of the Executive’s Data is the Executive’s consent. The Executive’s Data also may be disclosed to certain securities or other regulatory authorities where the Company’s securities are listed or traded, or regulatory filings are made. The Company’s legal basis for such disclosure of the Executive’s Data is to comply with applicable laws, rules and regulations.

ii.Stock Plan Administration Service Providers. The Company and the Employer transfer the Executive’s Data to the Stock Plan Administrator based in the United States of America, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different Stock Plan Administrator and share the Executive’s Data with another company that serves in a similar manner. The Stock Plan Administrator will open an account for the Executive to receive and trade Shares acquired under the Plan. The Executive will be asked to agree to separate terms and data processing practices with the Stock Plan Administrator, which is a condition of the Executive’s ability to participate in the Plan.

iii.International Data Transfers. The Company and the Stock Plan Administrator are based in the United States of America. The Executive should note that the Executive’s country of residence may have enacted data privacy laws that are different from the United States of America. The Company’s legal basis for the transfer of the Executive’s Data to the United States of America is the Executive consent.

iv.Voluntariness and Consequences of Consent, Denial or Withdrawal. The Executive’s participation in the Plan and the Executive’s grant of consent hereunder is purely voluntary. The Executive may deny or withdraw his or her consent at any time. If the Executive does not consent, or if the Executive later withdraws his or her consent, the Executive may be unable to participate in the Plan. This would not affect the Executive’s existing employment or salary; instead, the Executive merely may forfeit the opportunities associated with participation in the Plan.

v.Data Retention. The Executive understands that the Executive’s Data will be held only as long as is necessary to implement, administer and manage the Executive’s PSU and participation in the Plan. When the Company no longer needs the Data, the Company will remove it from its systems.

vi.Data Subject Rights. The Executive understands that the Executive may have the right under applicable law to (i) access or copy the Executive’s Data that the Company possesses, (ii) rectify incorrect Data concerning the Executive, (iii) delete the Executive’s Data, (iv) restrict processing of the Executive’s Data, (vi) lodge complaints with the competent supervisory authorities in the Executive’s country of residence. To receive clarification regarding these rights or to exercise these rights, the Executive understands that the Executive can contact his or her local human resources representative.

6.14 Private Placement. The grant of the PSUs is not intended to be a public offering of securities in the 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 PSU, 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., PSUs) 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 the United Kingdom or a country that is a member of the European Union, the grant of the PSUs and the terms and conditions governing the PSUs are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive,

as implemented into local law (the “Age Discrimination Rules”). To the extent that a court or tribunal of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make it valid and enforceable to the full extent permitted under local Laws.

6.18 Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the PSUs granted to the 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 PSUs, 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.

[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 PSU Documents” on the screen titled “PSU Acceptance, “ the Executive expressly agrees to be bound by the terms and conditions of the PSU, 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

EXHIBIT I

Performance Metrics for April 1, 2020 Grant Date

Measurement Period: January 1, 2020 to December 31, 2022

The actual number of the Target PSUs that vest and which shall be settled pursuant to Section 2.06 of the Agreement shall be determined based upon the achievement of the following three (3) Performance Metrics, each of which shall be equally weighted (each 1/3) and which shall be determined and certified by the Committee in its sole discretion. For purposes of the foregoing, the aggregate payout percentage shall be computed as the aggregate of (A) the Share Gain Payout Percentage multiplied by 1/3, (B) the Endless Assortment Business Revenue Growth Payout Percentage multiplied by 1/3, and (C) the Operating Margin Payout Percentage multiplied by 1/3.

A. Performance Metric - Share Gain



Performance Metric	Share Gain
Manner of Calculation	“Share Gain” shall be determined by the Committee in its sole discretion for each calendar year in the Measurement Period by calculating the Company’s U.S. reportable segment’s sales growth attributable to the Company’s high touch solutions model for the particular calendar year over the U.S. maintenance, repair, and operations (“MRO”) market growth for the particular calendar year. The MRO market growth for the particular calendar year shall be based on the average of the monthly numbers for (i) the Manufacturing sub-component of the Industrial Production Index under the North American Industry Classification System of the Office of Management and Budget and (ii) the Final Demand - Private Capital sub-component of the Producer Price Index according to the U.S. Bureau of Labor Statistics. The Share Gain for each calendar year shall then be averaged based upon the total number of calendar years in the Measurement Period to determine the final achievement of the Performance Metric, which may be adjusted by the Committee in its sole discretion. The payout percentage for the Performance Metric will be determined based on a straight-line interpolation of the targets reflected below, rounded down to the nearest whole percentage point.
Targets for Performance Metric
Target	Share Gain Payout Percentage
0 basis points or less	0%
1 basis points to 149 basis points	1% to 79%
150 basis points to 249 basis points	80% to 99%
250 basis points to 350 basis points	100%
351 basis points to 449 basis points	101% to 120%
450 basis points to 799 basis points	121% to 199%
800 basis points or greater	200% (maximum)

B. Performance Metric - Endless Assortment Business Revenue Growth



Performance Metric	Endless Assortment Business Revenue Growth
Manner of Calculation	“Endless Assortment Business Revenue Growth” shall be determined by the Committee in its sole discretion for each calendar year in the Measurement Period by calculating year-over-year sales growth for Zoro Tools, Inc. and MonotaRO Co., Ltd., which are part of the endless assortment businesses. The Endless Assortment Business Revenue Growth for each calendar year shall then be averaged based upon the total number of calendar years in the Measurement Period to determine the final achievement of the Performance Metric. The payout percentage for the Performance Metric will be determined based on a straight-line interpolation of the targets reflected below, rounded down to the nearest whole percentage point.
Targets for Performance Metric
Target	Endless Assortment Business Revenue Growth Payout Percentage
0% or less	0%
1% to 9%	1% to 79%
10% to 14%	80% to 99%
15% to 20%	100%
21% to 25%	101% to 120%
26% to 39%	121% to 199%
40% or greater	200% (maximum)

C. Performance Metric - Operating Margin



Performance Metric	Operating Margin
Manner of Calculation	“Operating Margin” shall be determined by the Committee in its sole discretion for each calendar year in the Measurement Period by calculating the Company’s operating earnings over net sales on a consolidated basis for the particular calendar year. The Operating Margin for each calendar year shall then be averaged based upon the total number of calendar years in the Measurement Period to determine the final achievement of the Performance Metric. The payout percentage for the Performance Metric will be determined based on a straight-line interpolation of the targets reflected below, rounded down to the nearest whole percentage point.
Targets for Performance Metric
Target	Operating Margin Payout Percentage
-200 basis points or less	0%
-199 basis points to -61 basis points	1% to 79%
-60 basis points to -21 basis points	80% to 99%
-20 basis points to 20 basis points	100%
21 basis points to 60 basis points	101% to 120%
61 basis points to 199 basis points	121% to 199%
200 basis points or greater	200% (maximum)

******************************

W.W. GRAINGER, INC.

2015 Incentive Plan

Addendum to Performance 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 Performance Stock Unit Agreement (the "Agreement"), the PSUs 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 PSUs and the Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Executive’s transfer).

European Union ("EU") / European Economic Area ("EEA") / United Kingdom

The following provision replaces Section 6.13 to the extent the Executive is employed in the EU, EEA or the United Kingdom:

6.13 Data Privacy. The Company is located at 100 Grainger Parkway, Lake Forest, Illinois 60045, United States of America, and grants PSUs under the Plan to employees of the Company and its Subsidiaries in its sole discretion. In conjunction with the Company's grant of the PSUs under the Plan and its ongoing administration of such awards, the Company is providing the following information about its data collection, processing and transfer practices, which the Executive should carefully review.

i. Data Collection, Processing and Usage. The Company and the Employer will collect, process and use certain personal information about the Executive, specifically, the Executive’s name, home address, email address and telephone number, date of birth, social security or insurance number, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all PSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Executive’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan. The Company collects, process and uses the Executive's Data pursuant to the Company's legitimate interest of administering the Executive's PSUs and generally managing the Plan, and to satisfy its contractual obligations under the Agreement. The Executive's Data also may be disclosed to certain securities or other regulatory authorities where the Company’s securities are listed or traded or regulatory filings are made. The Company's legal basis for such disclosure of the Executive's Data is to comply with applicable laws, rules and regulations.

ii. Stock Plan Administration Service Providers. The Company and the Employer transfer the Executive's Data to the Stock Plan Administrator based in the United States of America, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different Stock Plan Administrator and share the Executive's Data with another company that serves in a similar manner. The Stock Plan Administrator will open an account for the Executive to receive and trade Shares acquired under the Plan. The Executive will be asked to agree to separate terms and data processing practices with the Stock Plan Administrator, which is a condition of the Executive's ability to participate in the Plan.

iii. International Data Transfers. The Company and the Stock Plan Administrator are based in the United States of America. The Executive should note that the Executive's country of residence may have enacted data privacy laws that are different from the United States of America. The Company's legal basis for the transfer of the Executive's Data to the United States of America is to satisfy its contractual obligations under this Agreement.

iv. Data Retention. The Executive understands that the Executive's Data will be held only as long as is necessary to implement, administer and manage the Executive's PSU and participation in the Plan. When the Company no longer needs the Data, the Company will remove it from its systems. If the Company retains the Executive's Data longer, it would be to satisfy the Company's legal or regulatory obligations and the Company's legal basis would be for compliance with applicable laws, rules and regulations.

Belgium

Foreign Asset Reporting Information

Canada

PSUs Payable in Shares Only

Notwithstanding any provision in the Agreement or the Plan to the contrary, vested PSUs 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 PSUs immediately shall fully vest. For purposes of the foregoing, "retirement" shall have the definition prescribed by local Laws.

Securities Law Information

Foreign Asset Reporting Information

Any foreign property (including Shares and PSUs 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 PSUs 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:

Use of English Language

If the Executive is a resident of Quebec, by accepting the PSUs, 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 PSUs, either directly or indirectly, be drawn up in English.

Utilisation de l’anglais

Si le dirigeant est un résident du Québec, en acceptant le droit sur des actions lié à la performance (« performance stock unit » ou « PSUs »), le dirigeant reconnaît et accepte qavoir souhaité la rédaction en anglais du Contrat, du présent Addendum, ainsi que tous autres documents exécutés, avis donnés et procédures judiciaires intentées en vertu des PSUs, ou se rapportant directement ou indirectement aux PSUs.

France

Use of English Language

Utilisation de l’anglais

The PSUs are not intended to qualify for special tax and social security treatment in France under Section L. 225-197-1 to L. 225-197-6-1 of the French Commercial Code, as amended.

Mexico

Accelerated Vesting upon Retirement

Plan Document Acknowledgement

By accepting the PSUs, the Executive acknowledges that he or she has received a copy of the Plan, has reviewed the Plan and the Agreement in their entirety, and fully understands and accepts all provisions of the Plan and the Agreement. In addition, by accepting the PSUs, the Executive acknowledges that he or she has read and specifically and expressly approves the terms and conditions in Section 6.05 of the Agreement (“Nature of Grant”), in which the following is clearly described and established: (i) participation in the Plan does not constitute an acquired right; (ii) the Plan and participation in the Plan is offered by the Company on a wholly discretionary basis; (iii) participation in the Plan is voluntary; and (iv) neither the Company, the Employer nor any Subsidiary is responsible for any decrease in the value of the Shares underlying the PSUs.

Commercial Relationship

The Executive expressly recognizes that participation in the Plan and the Company’s grant of the PSUs does not constitute an employment relationship between the Executive and the Company. The Executive has been granted PSUs 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 PSUs are an extraordinary item of compensation outside the scope of the employment contract, if any. The PSUs 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.

Netherlands

Waiver of Termination Rights

Dutch Subsidiary Director Notice

The Executive acknowledges and agree that the PSUs 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.

Portugal

Exchange Control Information

If the Executive receives Shares upon vesting and settlement of the PSUs, 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 PSUs shall not be taken into account in the calculation of such severance costs, to the extent permitted by applicable law.

Use of English Language

Uso da Língua Inglesa

United Kingdom

PSUs Payable in Shares Only

Notwithstanding any provision in the Agreement or the Plan to the contrary, vested PSUs 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:

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 PSUs 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 PSUs. Upon the grant of the PSUs, the Executive shall be deemed to have irrevocably waived any such entitlement.

* * * * *

CERTIFICATION

Exhibit 31.1

I, D.G. Macpherson, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of W.W. Grainger, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 23, 2020



By:	/s/ D.G. Macpherson
Name:	D.G. Macpherson
Title:	Chairman and Chief Executive Officer

CERTIFICATION

Exhibit 31.2

I, Thomas B. Okray, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of W.W. Grainger, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 23, 2020



By:	/s/ Thomas B. Okray
Name:	Thomas B. Okray
Title:	Senior Vice President and Chief Financial Officer

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of W.W. Grainger, Inc. (“Grainger”) for the quarterly period ended March 31, 2020, (the “Report”), D.G. Macpherson, as Chairman and Chief Executive Officer of Grainger, and Thomas B. Okray, as Senior Vice President and Chief Financial Officer of Grainger, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Grainger.

/s/ D.G. Macpherson

D.G. Macpherson

Chairman and Chief Executive Officer

April 23, 2020

/s/ Thomas B. Okray

Thomas B. Okray

Senior Vice President and Chief Financial Officer

April 23, 2020