10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

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

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission file number 1-5684

W.W. Grainger, Inc.

(Exact name of registrant as specified in its charter)

Illinois	36-1150280
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
100 Grainger Parkway, Lake Forest, Illinois	60045-5201
(Address of principal executive offices)	(Zip Code)
(847) 535-1000
(Registrant’s telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year; if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]  No [  ]

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

Large accelerated filer [X]  Accelerated filer [  ]   Non-accelerated filer [  ]   Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ]  No [X]

There were 58,405,698 shares of the Company’s Common Stock outstanding as of March 31, 2017.

1

	TABLE OF CONTENTS
		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited).
	Condensed Consolidated Statements of Earnings      for the Three Months Ended March 31, 2017 and 2016	3
	Condensed Consolidated Statements of Comprehensive     Earnings for the Three Months Ended March 31, 2017 and 2016	4
	Condensed Consolidated Balance Sheets     as of March 31, 2017 and December 31, 2016	5
	Condensed Consolidated Statements of Cash Flows     for the Three Months Ended March 31, 2017 and 2016	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial     Condition and Results of Operations.	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	21
Item 4.	Controls and Procedures.	21
PART II	OTHER INFORMATION	21
Item 1.	Legal Proceedings.	21
Item 1A.	Risk Factors.	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	22
Item 6.	Exhibits.	22
Signatures		23
EXHIBITS

2

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements.

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

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

(Unaudited)

	Three Months Ended
	March 31,
	2017			2016
Net sales	$	2,541,129		$	2,506,538
Cost of merchandise sold	1,521,937			1,461,485
Gross profit	1,019,192			1,045,053
Warehousing, marketing and administrative expenses	723,704			727,961
Operating earnings	295,488			317,092
Other income (expense):
Interest income	193			165
Interest expense	(16,979		)	(13,725		)
Loss from equity method investment	(8,374		)	(6,388		)
Other non-operating income	345			440
Total other expense, net	(24,815		)	(19,508		)
Earnings before income taxes	270,673			297,584
Income taxes	87,820			105,940
Net earnings	182,853			191,644
Less: Net earnings attributable to noncontrolling interest	8,109			4,931
Net earnings attributable to W.W. Grainger, Inc.	$	174,744		$	186,713
Earnings per share:
Basic	$	2.95		$	3.00
Diluted	$	2.93		$	2.98
Weighted average number of shares outstanding:
Basic	58,720,066			61,668,682
Diluted	59,202,882			62,099,801
Cash dividends paid per share	$	1.22		$	1.17

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

3

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands of dollars)

(Unaudited)

	Three Months Ended
	March 31,
	2017			2016
Net earnings	$	182,853		$	191,644
Other comprehensive earnings:
Foreign currency translation adjustments	29,303			51,490
Postretirement benefit plan reclassification, net of tax benefit of $879 and $631, respectively	(1,398		)	(1,009		)
Other	(12		)	304
Comprehensive earnings, net of tax	210,746			242,429
Less: Comprehensive earnings attributable to noncontrolling interest
Net earnings	8,109			4,931
Foreign currency translation adjustments	5,532			5,704
Comprehensive earnings attributable to W.W. Grainger, Inc.	$	197,105		$	231,794

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

4

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	(Unaudited)
ASSETS	March 31, 2017		Dec 31, 2016
CURRENT ASSETS
Cash and cash equivalents	$	238,801	$	274,146
Accounts receivable (less allowances for doubtful
accounts of $28,208 and $26,690, respectively)	1,325,218		1,223,096
Inventories – net	1,388,091		1,406,470
Prepaid expenses and other assets	110,427		81,766
Prepaid income taxes	33,646		34,751
Total current assets	3,096,183		3,020,229
PROPERTY, BUILDINGS AND EQUIPMENT	3,396,242		3,411,502
Less: Accumulated depreciation and amortization	1,985,930		1,990,611
Property, buildings and equipment – net	1,410,312		1,420,891
DEFERRED INCOME TAXES	79,664		64,775
GOODWILL	533,012		527,150
INTANGIBLES - NET	587,418		586,126
OTHER ASSETS	75,960		75,136
TOTAL ASSETS	$	5,782,549	$	5,694,307

5

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

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

	(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY	March 31, 2017			Dec 31, 2016
CURRENT LIABILITIES
Short-term debt	$	421,555		$	386,140
Current maturities of long-term debt	20,069			19,966
Trade accounts payable	672,471			650,092
Accrued compensation and benefits	145,037			212,525
Accrued contributions to employees’ profit sharing plans	23,181			54,948
Accrued expenses	317,243			290,207
Income taxes payable	88,874			15,059
Total current liabilities	1,688,430			1,628,937
LONG-TERM DEBT (less current maturities)	1,847,717			1,840,946
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES	133,984			126,101
EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES	195,895			192,555
SHAREHOLDERS' EQUITY
Cumulative Preferred Stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding	—			—
Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued	54,830			54,830
Additional contributed capital	1,031,926			1,030,256
Retained earnings	7,216,018			7,113,559
Accumulated other comprehensive losses	(249,933		)	(272,294		)
Treasury stock, at cost – 51,253,521 and 50,854,905 shares, respectively	(6,258,039		)	(6,128,416		)
Total W.W. Grainger, Inc. shareholders’ equity	1,794,802			1,797,935
Noncontrolling interest	121,721			107,833
Total shareholders' equity	1,916,523			1,905,768
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	5,782,549		$	5,694,307

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

6

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

(Unaudited)

	Three Months Ended
	March 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	182,853		$	191,644
Provision for losses on accounts receivable	3,918			3,454
Deferred income taxes and tax uncertainties	(7,632		)	21,035
Depreciation and amortization	62,249			56,294
Gains from sales of assets and write-offs	(10,966		)	(7,465		)
Stock-based compensation	6,757			7,456
Losses from equity method investment	8,374			6,388
Change in operating assets and liabilities – net of business    acquisitions:
Accounts receivable	(95,419		)	(84,435		)
Inventories	27,826			10,831
Prepaid expenses and other assets	(25,943		)	4,370
Trade accounts payable	18,051			30,827
Other current liabilities	(64,171		)	(104,552		)
Current income taxes payable	73,227			32,757
Accrued employment-related benefits cost	1,520			323
Other – net	302			(8,290		)
Net cash provided by operating activities	180,946			160,637
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment	(78,768		)	(51,797		)
Proceeds from sales of assets	48,306			13,817
Equity method investment	(7,067		)	(7,199		)
Other – net	—			(206		)
Net cash used in investing activities	(37,529		)	(45,385		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in commercial paper	34,946			214,645
Borrowings under lines of credit	9,883			12,028
Payments against lines of credit	(9,167		)	(11,060		)
Proceeds from issuance of long-term debt	3,917			245
Payments of long-term debt	(6,235		)	(125,014		)
Proceeds from stock options exercised	26,345			5,206
Excess tax benefits from stock-based compensation	—			17,287
Payment for employee taxes withheld from stock awards	(11,625		)	(6,906		)
Purchase of treasury stock	(159,146		)	(172,047		)
Cash dividends paid	(72,118		)	(72,632		)
Net cash used in financing activities	(183,200		)	(138,248		)
Exchange rate effect on cash and cash equivalents	4,438			12,766
NET CHANGE IN CASH AND CASH EQUIVALENTS	(35,345		)	(10,230		)
Cash and cash equivalents at beginning of year	274,146			290,136
Cash and cash equivalents at end of period	$	238,801		$	279,906

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

7

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    BACKGROUND AND BASIS OF PRESENTATION

W.W. Grainger, Inc. is a broad-line distributor of maintenance, repair and operating (MRO) supplies, and other related products and services used by businesses and institutions.  W.W. Grainger, Inc.’s operations are primarily in the United States (U.S.) and Canada, with a presence in Europe, Asia and Latin America.  In this report, the words “Company” or “Grainger” mean W.W. Grainger, Inc. and its subsidiaries.

The Condensed Consolidated Financial Statements of the Company and the related notes are unaudited and should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).

The Condensed Consolidated Balance Sheet as of December 31, 2016 has been derived from the audited consolidated financial statements at that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

The unaudited financial information reflects all adjustments (primarily consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the statements contained herein.

2.    NEW ACCOUNTING STANDARDS

In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Board (ASU) 2015-11, Simplifying the Measurement of Inventory, which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (NRV) test. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2016, and prospective adoption is required. As of January 1, 2017, the Company adopted the ASU and it did not have a material impact on the Company's Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities. This change to the financial instrument model primarily affects the accounting for equity investments, financial liabilities under fair value options and the presentation and disclosure requirements for financial instruments. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2017. Certain provisions of the new guidance can be adopted early. The Company is evaluating the impact of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU improves transparency and comparability related to the accounting and reporting of leasing arrangements. The guidance will require balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of this ASU.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting. This ASU eliminates the requirement to retroactively adjust the investment, results of operations and retained earnings when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The amendment requires that the investor add the cost of acquiring the additional interest to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The effective date of the standard is for fiscal years and interim periods within those years beginning after December 15, 2016. The amendment should be applied prospectively and early application is permitted. As of January 1, 2017, the Company adopted the ASU and it did not have a material impact on the Company's Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment Accounting. This ASU simplifies several aspects of the accounting for employee share-based payment

8

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

transactions, including accounting for income taxes, forfeitures and statutory tax withholdings requirements, as well as classification in the statement of cash flows. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2016. As of January 1, 2017, the Company adopted the ASU and it resulted in the following:

Topic	Method of Adoption	Impact on Consolidated Financial Statements
Recognize all excess tax benefits and tax deficiencies as income tax benefit or expense	Prospective	The Company recognized $7.6 million of excess tax benefits in income taxes in the three months ended March 31, 2017, contributing to the lower effective tax rate for the quarter.
Excess tax benefits on the statement of cash flows are classified as an operating activity	Prospective	The Company recognized $7.6 million of excess tax benefits in the three months ended March 31, 2017 as an operating activity. Prior to the adoption of the ASU 2016-09, the excess tax benefit in the three months ended March 31, 2016 was $17.3 million recognized as a financing activity.
Employee taxes paid when an employer withholds shares for tax-withholding purposes on the statement of cash flows are classified as a financing activity	Retrospective	The Company reclassified $6.9 million of employee taxes paid from cash flows from operating activities to cash flows from financing activities on the Consolidated Statements of Cash Flows in the three months ended March 31, 2016.
Accounting for forfeitures and tax withholding elections	Prospective	The company has not changed its accounting policy for forfeitures. There is no significant impact on Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory. This ASU eliminates the existing exception in U.S. GAAP that prohibits the recognition of income tax consequences for most intra-entity asset transfers. The effective date of this ASU is fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption and early adoption is permitted. As of January 1, 2017, the Company elected to early adopt the ASU and it had no impact on the opening balance of retained earnings as of the date of adoption.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The effective date of this ASU is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies how an entity is required to test goodwill for impairment. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and early adoption is permitted. The Company is evaluating the impact of this ASU.

9

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In February 2017, the FASB issued ASU 2017-05, Other Income - Gain and Losses from the Derecognition of Nonfinancial Assets. The FASB issued this ASU to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets.

Subtopic 610-20, which was issued in May 2014 as a part of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The amendments in this ASU are effective at the same time as the amendments in ASU 2014-09. Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is evaluating the impact of this ASU.

In March 2017, the FASB issued ASU 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The FASB issued this ASU primarily to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments in this ASU should be applied retrospectively for the presentation of the net periodic postretirement cost components in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company is evaluating the impact of this ASU.

REVENUE RECOGNITION STANDARDS

In July 2015, FASB announced a one-year delay in the effective date of ASU 2014-09, Revenue from Contracts with Customers. This ASU will now be effective for interim and annual periods beginning after December 15, 2017. The standard will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard permits adoption as early as the original effective date, which was for interim and annual periods beginning after December 15, 2016.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU is meant to reduce the potential for diversity in practice arising from inconsistent application of principal versus agent guidance as well as reduce the cost and complexity during the transition and on an ongoing basis.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. This ASU is meant to clarify the identification of performance obligations and the licensing implementation guidelines, while retaining the related principles of those areas.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This ASU includes technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to ASU 2014-09.

The effective dates of ASU 2016-08, ASU 2016-10 and ASU 2016-20 are consistent with ASU 2014-09. The Company has elected not to early adopt these ASUs. The standard permits the use of either the full retrospective or the modified retrospective adoption method. The Company is planning to elect the modified retrospective method and recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of equity as of January 1, 2018. These ASUs require expanded qualitative and quantitative disclosures of revenue and cash flows emerging from contracts with customers.

The Company has evaluated the provisions of the new standard and is in the process of assessing its impact on financial statements, information systems, business processes and financial statement disclosures. Based on initial reviews, the standard is not expected to have a material impact on the Company's Consolidated Financial Statements.

3.    DIVIDEND

10

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

On April 26, 2017, the Company’s Board of Directors declared a quarterly dividend of $1.28 per share, payable June 1, 2017, to shareholders of record on May 8, 2017.

4.    GOODWILL AND OTHER INTANGIBLE ASSETS

Grainger had approximately $1.1 billion of goodwill and intangible assets as of March 31, 2017 and December 31, 2016, respectively, or 19% and 20% of total assets.  Goodwill and intangible assets with indefinite lives are tested for impairment at least annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. To detect these events, Grainger periodically performs qualitative assessments of factors such as a reporting units' historical and current performance, overall economic factors and assumptions regarding future performance, to determine if it is more likely than not that the goodwill and intangible assets might be impaired and whether it is necessary to perform the two-step quantitative goodwill impairment test.

As previously reported, Grainger completed the annual goodwill and intangible assets impairment testing during the fourth quarter of 2016. The estimated fair values substantially exceeded the carrying values for all of the Company’s reporting units, except for Fabory, which resulted in a $47 million goodwill impairment charge per the two-step quantitative goodwill impairment test.

Grainger monitors the operating performance of its reporting units and the quarterly assessment did not indicate the presence of goodwill impairment triggering events as of March 31, 2017. Changes in assumptions regarding future performance, unfavorable economic environment and changes in market conditions or other factors may have a significant impact on reporting units' cash flows in the future and Grainger may be required to recognize an impairment for goodwill.

5.     RESTRUCTURING RESERVES

The Company recorded severance costs of approximately $4 million and $16 million in the three months ended March 31, 2017 and March 31, 2016, respectively, and is included in Warehousing, marketing and administrative expenses. The reserve balance as of March 31, 2017 and December 31, 2016 was approximately $19 million and $23 million, respectively, and is included in Accrued compensation and benefits. The majority of the reserve is expected to be paid through 2017.

6.    SHORT-TERM AND LONG-TERM DEBT

The following summarizes information concerning short-term debt (in thousands of dollars):

	March 31, 2017		December 31, 2016
Outstanding lines of credit	$	16,861	$	16,392
Outstanding commercial paper	404,694		369,748
	$	421,555	$	386,140

The increase in commercial paper from December 31, 2016 was used to fund general working capital needs and share repurchase.

Long-term debt consisted of the following (in thousands of dollars):

11

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

	March 31, 2017			December 31, 2016
4.60% senior notes due 2045	$	1,000,000		$	1,000,000
3.75% senior notes due 2046	400,000			400,000
British pound term loan and revolving credit facility	185,666			187,506
Euro term loan and revolving credit facility	122,463			120,900
Canadian dollar revolving credit facility	105,176			100,521
Other	73,309			71,109
	1,886,614			1,880,036
Less current maturities	(20,069		)	(19,966		)
Debt issuance costs and discounts	(18,828		)	(19,124		)
	$	1,847,717		$	1,840,946

The estimated fair value of the Company’s 3.75% Senior Notes due 2046 (3.75% Notes) and 4.60% Senior Notes due 2045 (4.60% 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 fair value of the 3.75% Notes was approximately $380 million and $371 million as of March 31, 2017 and December 31, 2016, respectively. The fair value of the 4.60% Notes was approximately $1.1 billion as of March 31, 2017 and December 31, 2016, respectively. The carrying value of other long-term debt approximates fair value due to their variable interest rates.

7.    EMPLOYEE BENEFITS - POSTRETIREMENT

The Company has a postretirement healthcare benefits plan that provides coverage for a majority of its U.S. employees hired prior to January 1, 2013, and their dependents should they elect to maintain such coverage upon retirement. Covered employees become eligible for participation when they qualify for retirement while working for the Company. Participation in the plan is voluntary and requires participants to make contributions toward the cost of the plan, as determined by the Company.

The net periodic benefit costs charged to operating expenses, which are valued at the measurement date of January 1 and recognized evenly throughout the year, consisted of the following components (in thousands of dollars):

	Three Months Ended March 31,
	2017			2016
Service cost	$	1,897		$	2,059
Interest cost	2,149			2,464
Expected return on assets	(2,857		)	(2,528		)
Amortization of unrecognized losses	(655		)	32
Amortization of prior service credits	(1,622		)	(1,672		)
Net periodic benefit costs	$	(1,088	)	$	355

The Company has established a Group Benefit Trust to fund the plan and process benefit payments. The funding of the trust is an estimated amount which is intended to allow the maximum deductible contribution under the Internal Revenue Code of 1986 (IRC), as amended.  There are zero minimum funding requirements and the Company intends to follow its practice of funding the maximum deductible contribution under the IRC. The Company did not make a contribution to the trust during the three months ended March 31, 2017.

8.    SEGMENT INFORMATION

The Company has two reportable segments: the U.S. and Canada. The U.S. operating segment reflects the results of the Company's U.S. business. The Canada operating segment primarily reflects the results for Acklands – Grainger Inc. (Acklands-Grainger), the Company’s Canadian business. Other businesses include MonotaRO in Japan, Zoro in the U.S. and operations in Europe, Asia and Latin America. These businesses individually do not meet the definition 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

	Three Months Ended March 31, 2017
	United States			Canada			Other Businesses			Total
Total net sales	$	1,953,444		$	186,141		$	497,407		$	2,636,992
Intersegment net sales	(95,073		)	(12		)	(778		)	(95,863		)
Net sales to external customers	$	1,858,371		$	186,129		$	496,629		$	2,541,129
Segment operating earnings	$	312,470		$	(16,729	)	$	31,507		$	327,248

	Three Months Ended March 31, 2016
	United States			Canada			Other Businesses			Total
Total net sales	$	1,966,267		$	178,771		$	445,333		$	2,590,371
Intersegment net sales	(82,499		)	(36		)	(1,298		)	(83,833		)
Net sales to external customers	$	1,883,768		$	178,735		$	444,035		$	2,506,538
Segment operating earnings	$	331,857		$	(12,347	)	$	21,783		$	341,293

	United States		Canada		Other Businesses		Total
Segment assets:
March 31, 2017	$	2,311,281	$	287,552	$	535,343	$	3,134,176
December 31, 2016	$	2,275,009	$	286,035	$	494,067	$	3,055,111

Following are reconciliations of segment information with the consolidated totals per the financial statements (in thousands of dollars):

	Three Months Ended March 31,
	2017			2016
Operating earnings:
Total operating earnings for operating segments	$	327,248		$	341,293
Unallocated expenses and eliminations	(31,760		)	(24,201		)
Total consolidated operating earnings	$	295,488		$	317,092

	March 31, 2017		Dec 31, 2016
Assets:
Total assets for operating segments	$	3,134,176	$	3,055,111
Other current and non-current assets	2,484,117		2,464,656
Unallocated assets	164,256		174,540
Total consolidated assets	$	5,782,549	$	5,694,307

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

Unallocated expenses and unallocated assets primarily relate to the Company headquarter's support services, which are not part of any business segment, as well as intercompany eliminations. Unallocated expenses include payroll and benefits, depreciation and other costs associated with headquarters-related support services. Unallocated assets

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

include non-operating cash and cash equivalents, certain prepaid expenses and property, buildings and equipment-net.

Intersegment net sales for the U.S. segment increased by $12 million for the three months of 2017 compared to the prior year, driven by increased sales from the U.S. business to Zoro. The U.S. business' supply chain network is Zoro's primary source of inventory.

9.    EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in thousands of dollars, except for share and per share amounts):

	Three Months Ended
	March 31,
	2017			2016
Net earnings attributable to W.W. Grainger, Inc. as reported	$	174,744		$	186,713
Distributed earnings available to participating securities	(546		)	(626		)
Undistributed earnings available to participating securities	(932		)	(1,121		)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders	173,266			184,966
Undistributed earnings allocated to participating securities	932			1,121
Undistributed earnings reallocated to participating securities	(924		)	(1,114		)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders	$	173,274		$	184,973
Denominator for basic earnings per share – weighted average shares	58,720,066			61,668,682
Effect of dilutive securities	482,816			431,119
Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities	59,202,882			62,099,801
Earnings per share two-class method
Basic	$	2.95		$	3.00
Diluted	$	2.93		$	2.98

10.    CONTINGENCIES AND LEGAL MATTERS

From time to time the Company is involved in various legal and administrative proceedings that are incidental to its business, including claims related to product liability, general negligence, contract disputes, environmental issues, wage and hour laws, intellectual property, employment practices, regulatory compliance or other matters and actions brought by employees, consumers, competitors, suppliers or governmental entities. As a government contractor selling to federal, state and local governmental entities, the Company is also subject to governmental or regulatory inquiries or audits or other proceedings, including those related to pricing compliance. It is not expected that the ultimate resolution of any of these matters will have, either individually or in the aggregate, a material adverse effect on the Company's consolidated financial position or results of operations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

General

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

Grainger’s two reportable segments are the U.S. and Canada. The U.S. operating segment reflects the results of Grainger’s U.S. business. The Canada operating segment reflects the results for Acklands - Grainger Inc., Grainger’s Canadian business. Other Businesses include single channel online businesses such as MonotaRO in Japan, Zoro in the U.S. and business units in Europe, Asia and Latin America.

Business Environment

Given Grainger's large number of customers and the diverse industries it serves, several economic factors and industry trends tend to shape Grainger’s business environment. The overall economy and leading economic indicators provide general insight into projecting Grainger's growth. Grainger’s sales in the U.S. and Canada tend to positively correlate with Business Investment, Business Inventory, Exports and Industrial Production. In the U.S., sales tend to positively correlate with Gross Domestic Product (GDP). In Canada, sales tend to positively correlate with oil prices. The table below provides these estimated indicators for 2017:

	2017 Forecasted Growth
	United States	Canada
Business Investment	4.4%	0.7%
Business Inventory	1.5%	—
Exports	3.0%	1.9%
Industrial Production	2.3%	2.3%
GDP	2.4%	2.3%
Oil Prices	—	$53/barrel
Source: Global Insight (April 2017)

In the U.S., Business Investment and Exports are two major indicators of MRO spending. Per the Global Insight April 2017 forecast, Business Investment is forecast to improve in 2017 through equipment-related spending as the influence from slow growth abroad and in the U.S. fades. Export growth has improved over the last 18 months, as exports have responded to improved economic growth among countries that the United States exports to.

Per the Global Insight April 2017 forecast, Canada economic growth as measured by GDP, is forecast to grow to 2.3% in 2017. The 2017 forecast assumes that oil prices will continue a slow but steady rise and that business nonresidental investment (a component of Business Investment) will begin to increase. The latest forecast for the Canadian dollar includes further downward adjustments and weakness over the next two years compared to the U.S. dollar.

Outlook

On April 18, 2017, Grainger lowered its 2017 sales growth guidance from a range of 2 to 6 percent to a range of 1 to 4 percent and also lowered the 2017 earnings per share guidance from a range of $11.30 to $12.40 to a range of $10.00 to $11.30. The new guidance incorporates the impact of pricing initiatives and a 1 percent reduction in sales from foreign exchange. The pricing actions establish more market competitive prices, including lower web pricing available to Grainger customers. The decision to accelerate the pricing actions is expected to enable faster growth through share gain with existing customers and acquisition of new customers.

Matters Affecting Comparability

There were 64 sales days in the first quarter of 2017 and 2016.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Results of Operations – Three Months Ended March 31, 2017

The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings (in millions of dollars):

	Three Months Ended March 31,
							Percent Increase/(Decrease)		As a Percent of Net Sales
	2017 (A)			2016 (A)					2017		2016
Net sales	$	2,541		$	2,507		1	%	100.0	%	100.0	%
Cost of merchandise sold	1,522			1,461			4	%	59.9		58.3
Gross profit	1,019			1,045			(2	)%	40.1		41.7
Operating expenses	724			728			(1	)%	28.5		29.0
Operating earnings	295			317			(7	)%	11.6		12.7
Other expense	(25		)	(20		)	NM		(1.0	)	(0.8	)
Income taxes	88			106			(17	)%	3.5		4.2
Noncontrolling interest	8			5			64	%	0.3		0.2
Net earnings attributable to W.W. Grainger, Inc.	$	175		$	187		(6	)%	6.9	%	7.4	%

(A) May not sum due to rounding

Grainger’s net sales of $2,541 million for the first quarter of 2017 increased 1% compared with sales of $2,507 million for the comparable 2016 quarter. Sales increased 1% for the quarter and consisted of the following:

	Percent Increase/(Decrease)
Volume	5
Seasonal	(1)
Price	(3)
Total	1%

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

In the three months ended March 31, 2017, eCommerce sales for Grainger were $1,293 million, an increase of 15% over the prior year. Total eCommerce sales represented 51% and 45% of total sales for the three months ended March 31, 2017 and 2016, respectively. The increase was primarily driven by an increase in sales via EDI and electronic purchasing platforms in the U.S. and Japan businesses. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 57% and 51% of total sales for the three months ended March 31, 2017 and 2016, respectively.

Gross profit of $1,019 million for the first quarter of 2017 decreased 2%. The gross profit margin of 40.1% during the first quarter of 2017 decreased 1.6 percentage points when compared to the same period in 2016, driven by the strategic price initiatives.

Operating expenses of $724 million for the first quarter of 2017 decreased 1% from $728 million for the comparable 2016 quarter. Operating expenses in 2017 included a $9 million benefit from the gain on sale of branches in the U.S. and $4 million of restructuring costs in the U.S. and Canada business. Excluding these items, operating expenses increased 2%, driven by the unfavorable comparison to the 2016 gain from the sale of the former Toronto distribution center.

Operating earnings for the first quarter of 2017 were $295 million, a decrease of 7% compared to the first quarter of 2016. Excluding restructuring costs and the gain on the sale of assets mentioned above in both periods, operating earnings decreased 14%, driven by primarily by lower gross profit from strategic pricing initiatives in the U.S. business.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Net earnings attributable to W.W. Grainger, Inc. for the first quarter of 2017 decreased 6% to $175 million from $187 million in the first quarter of 2016. Diluted earnings per share of $2.93 in the first quarter of 2017 were down 2% versus the $2.98 for the first quarter of 2016, due to lower earnings, partially offset by lower average shares outstanding. Also, included in the diluted earnings per share of $2.98 in the first quarter of 2017 was a $0.13 benefit due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standings Update (ASU) 2016-09, which recognizes the excess tax benefits of stock-based awards as a reduction to income tax expense instead of the previous methodology which recorded the benefit directly to equity.

The table below reconciles reported diluted earnings per share determined in accordance with U.S. generally accepted accounting principles (GAAP) to adjusted diluted earnings per share, a non-GAAP measure. Management believes adjusted diluted earnings per share is an important indicator of operations because it excludes items that may not be indicative of core operating results. Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with other companies' non-GAAP financial measures having the same or similar names.

	Three Months Ended
	March 31,
	2017	2016	%
Diluted earnings per share reported	$2.93	$2.98	(2	)%
Pretax adjustments:
Restructuring (United States)	(0.11)	0.26
Restructuring (Canada)	0.02	0.05
Total pretax adjustments	$(0.09)	0.31
Tax effect (1)	$0.04	(0.11)
Total, net of tax	(0.05)	0.20
Diluted earnings per share adjusted	$2.88	$3.18	(9	)%

(1) The tax impact of adjustments is calculated on the income tax rate in each applicable jurisdiction.

Segment Analysis

Grainger’s two reportable segments are the U.S. and Canada. The U.S. operating segment reflects the results of the Company's U.S. business. The Canada operating segment primarily reflects the results for Acklands – Grainger Inc. Other businesses include MonotaRO in Japan, Zoro in the U.S. and operations in Europe, Asia and Latin America.

The following comments at the segment and other businesses level include external and intersegment net sales and operating earnings. See Note 8 to the Condensed Consolidated Financial Statements.

United States

Net sales were $1,953 million for the first quarter of 2017, a decrease of $13 million, or 1%, when compared with $1,966 million for the same period in 2016. Sales decreased 1% for the quarter and consisted of the following:

	Percent Increase/(Decrease)
Volume	4
Seasonal	(1)
Price	(4)
Total	(1)%

Sales to customers in the government and heavy manufacturing end markets led the sales performance. Sales to Zoro continue to contribute to sales growth as the U.S. business' supply chain network is Zoro's primary source of inventory.

In the three months ended March 31, 2017, eCommerce sales for the U.S. business were $976 million, an increase of 11% over the prior year. Total eCommerce sales represented 50% and 45% of total sales for the three months ended March 31, 2017 and 2016, respectively. The increase was primarily driven by an increase in sales via EDI and electronic

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

purchasing platforms. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 56% and 52% of total sales for the three months ended March 31, 2017 and 2016, respectively.

The gross profit margin for the first quarter of 2017 decreased 1.7 percentage points compared to the same period in 2016, driven by the strategic price initiatives. Excluding sales to Zoro, the gross profit margin decreased 1.5 percentage points versus prior year.

Operating expenses of $494 million in the first quarter of 2017 were down $19 million, or 4% versus the first quarter of 2016. Operating expenses in 2017 included a $9 million benefit from the gain on sale of branches and $3 million of restructuring costs. Excluding restructuring costs and gain on the sale of assets for both quarters, operating expenses were flat.

Operating earnings of $312 million for the first quarter of 2017 decreased 6% from $332 million for the first quarter of 2016. Excluding the restructuring charges and gain on the sale of assets mentioned above, operating earnings decreased 12%, driven by the strategic price initiatives.

Canada

Net sales were $186 million for the first quarter of 2017, an increase of $7 million, or 4%, when compared with $179 million for the same period in 2016. In local currency, sales increased 1%. Sales increased 4% for the quarter and consisted of the following:

	Percent Increase/(Decrease)
Volume	4
Foreign exchange	3
Holiday timing	(1)
Price	(2)
Total	4%

The business in Canada continues to stabilize based on the improved economy and recovery from the implementation of the common ERP platform in North America system in 2016. The business also increased prices to offset foreign exchange-related costs of goods sold inflation in the first quarter, but most customers are under contract and will not experience price increases until later in the year.

In the three months ended March 31, 2017, eCommerce sales in Canada were $31 million, an increase of 38% over the prior year. Total eCommerce represented 17% and 13% of total sales for the three months ended March 31, 2017 and 2016, respectively. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 30% and 25% of total sales for the three months ended March 2017 and 2016, respectively.

The gross profit margin decreased 2.7 percentage points in the first quarter of 2017 versus the first quarter of 2016 largely due to price deflation versus cost inflation and higher freight costs from an increase in shipping directly to customers.

Operating expenses increased 3% in the first quarter of 2017 versus the first quarter of 2016, driven by the re-establishment of the annual national sales meeting and the unfavorable comparison to the 2016 gain from the sale of the former Toronto distribution center, partially offset by lower IT expenses.

Operating losses were $17 million for the first quarter of 2017 versus losses of $12 million in the first quarter of 2016. In local currency, operating losses increased $7 million. The increase in operating losses was primarily driven by a lower gross profit margin.

Other Businesses

Net sales for other businesses, which include MonotaRo in Japan, Zoro in the U.S. and business units in Europe, Asia and Latin America were $497 million for the first quarter of 2017, an increase of $52 million, or 12%, when compared

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

with $445 million for the same period in 2016. On a daily sales basis, sales were up 12%. The drivers of the increase in daily sales for the quarter consisted of the following:

	Percent Increase/(Decrease)
Price/volume	15
Foreign exchange	(3)
Total	12%

Operating earnings of $32 million for the first quarter of 2017 were up $10 million compared to the first quarter of 2016. The earnings performance for the quarter versus prior year was primarily driven by strong performance from the online businesses Zoro in the U.S. and MonotaRO in Japan.

Other Expense

Other expense was $25 million of expense in the first quarter of 2017 compared to $20 million of expense in the first quarter of 2016. The increase in expense was driven by higher interest expense from the additional $400 million in long-term debt issued in May 2016, as well as expected losses from the Company's investments in clean energy.

Income Taxes

Grainger’s tax rates were 32.4% and 35.6% for the three months ended March 31, 2017 and 2016, respectively. The decrease was primarily due to the adoption of ASU 2016-09, which recognizes the excess tax benefits of stock options as a reduction to income tax expense instead of the previous methodology which recorded the benefit directly to equity. The adoption of this standard generated a $0.13 benefit to earnings per share in the quarter.

Financial Condition

Cash Flow

Net cash provided by operating activities was $181 million and $161 million for the three months ended March 31, 2017 and 2016, respectively. Net cash provided had been reported as $154 million in the prior year. The $161 million is based on the adoption of ASU 2016-09, which retrospectively reclassified $7 million from operating activities to financing activities. The reclassification relates to employee taxes paid as part of the exercise of stock options. The increase in cash provided is the result of lower payments related to employee benefits and timing of tax payments.

Net cash used in investing activities was $38 million and $45 million for the three months ended March 31, 2017 and 2016, respectively. The lower use of cash was driven by the higher proceeds from the sales of assets net of higher additions to property, buildings and equipment compared to the prior year.

Net cash used in financing activities was $183 million and $138 million in the three months ended March 31, 2017 and 2016, respectively. The change in financing activities was primarily driven by a decrease in the net proceeds from commercial paper partially offset by a decrease in long-term debt payments and treasury stock repurchases.

Working Capital

Working capital consists of current assets (less non-operating cash) and current liabilities (less short-term debt and current maturities of long-term debt).

Working capital at March 31, 2017, was $1,795 million, an increase of $73 million when compared to $1,722 million at December 31, 2016, primarily the result of the annual cash contribution to the employees' profit sharing plan and annual incentive plan. The working capital assets to working capital liabilities ratio was 2.4 at March 31, 2017 and December 31, 2016, respectively.

Debt

Grainger maintains a debt ratio and liquidity position that provide flexibility in funding working capital needs and long-term cash requirements. In addition to internally generated funds, Grainger has various sources of financing available, including bank borrowings under lines of credit. Total debt as a percent of total capitalization was 54.4% at March 31, 2017, and 54.1% at December 31, 2016.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

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

Accounting policies are considered critical when they require management to make assumptions about matters that are highly uncertain at the time the estimates are made and when there are different estimates that management reasonably could have made, which would have a material impact on the presentation of Grainger’s financial condition, changes in financial condition or results of operations. For a description of Grainger’s critical accounting policies see Grainger's Annual Report on Form 10-K for the year ended December 31, 2016.

Forward-Looking Statements

From time to time, in this Quarterly Report on Form 10-Q, as well as in other written reports, communications and verbal statements, Grainger makes forward-looking statements that are not historical in nature but concern forecasts of future results, business plans, analyses, prospects, strategies, objectives and other matters that may be deemed to be “forward-looking statements” under the federal securities laws. Such forward-looking statements are identified by words such as “anticipate,” “estimate,” “believe,” “expect,” “could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project” and similar terms and expressions.

Grainger cannot guarantee that any forward-looking statement will be realized, although Grainger does believe that its assumptions underlying its forward-looking statements are reasonable. Achievement of future results is subject to risks and uncertainties, many of which are beyond the Company's control, which could cause Grainger's results to differ materially from those that are presented.

Important factors that could cause actual results to differ materially from those presented or implied in a forward-looking statement include, without limitation: higher product costs or other expenses; a major loss of customers; loss or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new technologies or business strategies; the implementation, timing and results of the Company's strategic pricing actions and other responses to market pressures; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising, privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; disruption of information technology or data security systems; general industry or market conditions; general global economic conditions; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; natural and other catastrophes; unanticipated weather conditions; loss of key members of management; the Company's ability to operate, integrate and leverage acquired businesses; changes in credit ratings; changes in effective tax rates; and other factors identified under Item 1A: Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, as updated in the Company's Quarterly Reports on Form 10-Q.

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

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W.W. Grainger, Inc. and Subsidiaries

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

For quantitative and qualitative disclosures about market risk, see “Item 7A: Quantitative and Qualitative Disclosures About Market Risk” in Grainger's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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, 2017, 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.

Other Matters

For a description of certain of the Company's legal proceedings, see below.

TCPA Matter

As previously disclosed, on April 5, 2013, David Davies filed a putative class action lawsuit in the Circuit Court of Cook County, Illinois under the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 (the “TCPA”), and sought certification of a class of persons who may have received one or more of approximately 400,000 faxes Grainger sent in connection with a 2009 marketing campaign. The TCPA provides for penalties of $500 to $1,500 for each noncompliant individual fax.

On May 13, 2013, the Company removed the case to the Federal District Court for the Northern District of Illinois (the “District Court”). On June 27, 2014, the District Court found that Davies was not an adequate class representative. The United States Court of Appeals for the Seventh Circuit denied Davies’ petition for immediate review of the ruling. Davies subsequently moved the District Court for reconsideration of its ruling and his motion was denied on September 28, 2016. Davies may seek to pursue an appeal of the ruling at the conclusion of the District Court proceeding.

On April 4, 2016, the District Court denied the Company’s motion to dismiss Davies’ individual claims and subsequently the parties filed cross-motions for summary judgment. The District Court entered judgment for Grainger on Davies’ common law claim for conversion while granting partial summary judgment for Grainger on Davies’ TCPA claim. On November 21, 2016, the District Court denied Grainger’s motion for summary judgment which argued that Davies lacks standing to bring his TCPA claim and held that the issue of whether Grainger’s opt-out notice is clear and conspicuous was a contested issue of fact to be resolved by a jury at trial. Trial is currently set for February 5, 2018.

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

21

Other Matters

For a description of certain of the Company’s other legal proceedings, see Note 10 - Contingencies and Legal Matters - to the Condensed Consolidated Financial Statements included under Item 1 - Financial Statements, of Part I of this report.

Item 1A.    Risk Factors.

The facilities maintenance industry is highly fragmented, and material changes in competition or our response to these changes could materially affect Grainger’s sales and profitability. 

There are several large competitors in the industry, although most of the market is served by small local and regional competitors. Grainger faces competition in all markets it serves, from manufacturers (including some of its own suppliers) that sell directly to certain segments of the market, wholesale distributors, catalog houses, retail enterprises and online businesses that compete with price transparency.

To remain competitive, the Company must be willing and able to respond to market pressures, including pricing, whether widely available or negotiated under a contract. These pressures, and the implementation, timing and results of our strategic pricing and other responses, could have a material effect on Grainger’s sales and profitability. If the Company is unable to grow sales or reduce costs, among other actions, to wholly or partially offset the effect on profitability of our pricing actions, the Company’s results of operations and financial condition may be adversely affected.

The industry is also consolidating as customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations. This consolidation could cause the industry to become more competitive as greater economies of scale are achieved by competitors, or as competitors with new lower cost business models are able to operate with lower prices.

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

Issuer Purchases of Equity Securities – First quarter

Period	Total Number of Shares Purchased (A)	Average Price Paid per Share (B)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (C)	Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs
Jan 1 - Jan 31	133,571	$237.45	133,571	5,725,136
Feb 1 - Feb 29	189,334	$251.93	189,334	5,535,802
Mar 1 - Mar 31	323,319	$243.52	323,319	5,212,483
Total	646,224	$244.73	646,224

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

(B) Average price paid per share includes any commissions paid and includes only those amounts related to purchases as part of publicly announced plans or programs.

(C) Purchases were made pursuant to a share repurchase program approved by Grainger’s Board of Directors on April 6, 2015. The program has no specified expiration date. Activity is reported on a trade date basis.

Item 6.        Exhibits.

A list of exhibits filed with this report on Form 10-Q is provided in the Exhibit Index on page 24 of this report.

22

SIGNATURES

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

			W.W. GRAINGER, INC.
Date:	April 27, 2017	By:	/s/ R. L. Jadin
			R. L. Jadin, Senior Vice President and Chief Financial Officer
Date:	April 27, 2017	By:	/s/ E. R. Tapia
			E. R. Tapia, Vice President and Controller

23

EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION
10.1	First Amendment to the W.W. Grainger, Inc. 2015 Incentive Plan.*
10.2	Form of Stock Option Award Agreement between W.W. Grainger, Inc. and certain of its executive officers.*
10.3	Form of Restricted Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its executive officers.*
10.4	Form of 2017 Performance Share Award 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.
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.

(*) Management contract or compensatory plan or arrangement.

24

EX-10.1

Exhibit 10.1

FIRST AMENDMENT

TO THE

W.W. GRAINGER, INC. 2015 INCENTIVE PLAN

This First Amendment (this “Amendment”) to the W.W. Grainger, Inc. 2015 Incentive Plan (the “2015 Plan”), is dated and effective as of April 25, 2017.

The Compensation Committee of the Board of Directors of W.W. Grainger, Inc. (the “Company”) and the Board of Directors of the Company have each determined that it is in the best interests of the Company and its shareholders to amend the 2015 Plan to provide that the Company may satisfy any tax withholding requirements related to equity awards granted under the 2015 Plan by withholding from such awards shares of common stock having a fair market value no greater than the maximum individual statutory tax rate.

1. The 2015 Plan is hereby amended by deleting Section 20.2 in its entirety and replacing it with the following as new Section 20.2:

“20.2Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock and Restricted Stock Units, or upon the achievement of performance goals related to Performance Shares, or any other taxable event arising as a result of an Award granted hereunder, Participants may elect, if offered by the Company, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined no greater than the maximum statutory total tax that could be imposed on the transaction. All such elections shall be irrevocable, made in writing or electronically, and signed or acknowledged electronically by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.”

2. Except as expressly amended hereby, the terms of the 2015 Plan shall be and remain unchanged and the 2015 Plan as amended hereby shall remain in full force and effect.

[Signature Page Follows]

IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized representative as of the date first written above.

W.W. GRAINGER, INC.

By:    /s/ Ronald L. Jadin

Name:    Ronald L. Jadin

Title:    Senior Vice President and

Chief Financial Officer

EX-10.2

Exhibit 10.2

W.W. GRAINGER, INC.

2015 Incentive Plan

Form of Stock Option Agreement

This Stock Option Agreement (this "Agreement"), dated as of , 20 (the "Grant Date"), is entered into between W.W. Grainger, Inc., an Illinois corporation (the "Company"), and you as the executive (the "Executive"), who is employed by the Company or a Subsidiary of the Company (the "Employer").

In consideration of the Executive's agreement to enter into an Unfair Competition Agreement with the Company concurrently with this Agreement on the Grant Date (the "Unfair Competition Agreement"), the Company desires to grant the Executive the right and option ("Option") to purchase shares of the Company's common stock ("Shares") pursuant to the W.W. Grainger, Inc. 2015 Incentive Plan (as may be amended from time to time, the "Plan") and the Executive desires to enter into the Unfair Competition Agreement and accept such Option on the terms and conditions set forth in this Agreement, the Plan and the Unfair Competition Agreement. Capitalized terms used but not defined in this Agreement have the meanings specified in the Plan.

In consideration of the mutual provisions set forth in this Agreement and in the Unfair Competition Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

Grants

1.1    Grants. Subject to the terms and conditions of this Agreement, the Plan and the Unfair Competition Agreement (the terms of which are hereby incorporated herein by reference) and effective on the Grant Date, the Company hereby grants to the Executive the Option to purchase all or a portion of the number of Shares specified in the , 20 award grant at the price per Share as specified in the grant notice posted to the Executive's electronic investment account maintained with the brokerage firm/third party service provider engaged by the Company in connection with the operation of the Plan (the "Administrator").

1.2    Term of Option. The Option shall expire ten (10) years from the Grant Date (i.e., a grant on , 20 would expire on , 20 ), subject to the terms and conditions set forth in this Agreement, the Plan and the Unfair Competition Agreement.

ARTICLE II

Provisions Relating to Option

2.1    Vesting of Option. If the Executive remains continuously employed by the Employer (or any other Subsidiary or Affiliate) until the vesting date specified in the grant notice (the "Option Vesting Date"), the Option shall become fully vested and exercisable on such date. The Option shall not vest before the Option Vesting Date unless otherwise provided or permitted by the Plan or this Agreement, and any portion of the Option that does not vest shall be forfeited in full and the Executive shall have no further rights with respect to such Option.

2.2    Effect of Termination of Employment. If the Executive's employment or service is terminated prior to the Option Vesting Date for any reason whatsoever other than the Executive's death or Disability (defined below), the Executive shall cease vesting in the Option as of the Executive's Termination Date (defined below) and the Option shall be forfeited in its entirety. In addition, the Executive shall have three (3) months from the Termination Date to exercise vested Options. If the Executive is a resident of, or employed in, the United States, "Termination Date" shall mean the effective date of termination of the Executive's employment. If the Executive is a resident of, or employed outside of, the United States, "Termination Date" shall mean the earliest of (i) the date on which notice of termination is provided to the Executive, (ii) the last day of the Executive's active service with the Employer or (iii) the last day on which the Executive is an employee of the Employer, as determined in each case without including any required advanced notice period and irrespective of the status of the termination under local labor or employment laws.

2.3    Effect of Death or Disability of the Executive.    If the Executive's employment or service is terminated prior to the Option Vesting Date due to the Executive's death or Disability, the Option immediately shall fully vest, become exercisable and will expire on the earlier of (i) six (6) years from the Termination Date or (ii) the original expiration date of the Option. For purposes of this Agreement, "Disability" shall have the same meaning as defined in the Plan, subject to modification as may be required to conform to the laws, rules and regulations (“Laws”) of the Executive's country of residence (and country of employment, if different).

2.4    Exercise of Option. The Executive may exercise the vested portion of the Option in accordance with such policies and procedures as shall be established by the Company and/or the Administrator from time to time.

2.5    Payment of Option Price. The Executive shall at the time of exercise of the Option (except in the case of a cashless exercise) tender to the Company the full Option Price. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the Option Price may be paid (i) in cash, (ii) in Shares already owned by the Executive for at least six (6) months and having a Fair Market Value on the date of exercise equal to the Option Price, (iii) through a combination of cash and Shares, or (iv) through a cashless exercise through a broker-dealer approved for this purpose by the Company. Notwithstanding anything to the contrary in this Agreement, if the Executive resides in a country where the local foreign exchange Laws either preclude the remittance of currency out of the country for purposes of paying the Option Price, or require the Company, the Employer and/or the Executive to secure any legal or regulatory approvals, complete any legal or regulatory filings, or undertake any additional steps for remitting currency out of the country, the Company may restrict the method of exercise to a form of cashless exercise or such other form(s) of exercise as it determines in its sole discretion.

ARTICLE III

Recoupment

3.1    Recoupment in Event of Misconduct. If the Board of Directors of the Company (the "Board") determines that the Executive has committed fraud against the Company or has engaged in any criminal conduct that involves or is related to the Company and such Executive is otherwise entitled to receive performance shares, stock options, restricted stock units or cash incentive compensation (collectively, "Incentive Compensation"), then the Company shall have the right to recover and the Executive shall be obligated to return such Incentive Compensation, in whole or in part, for any period of time, as it deems appropriate under the circumstances. The Board 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 recover from the Executive, and the Executive shall re-pay any Incentive Compensation received pursuant to the Plan and this Agreement, in whole or in part, for any period of time, as the Company deems appropriate under the circumstances.

3.2    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 Board 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 Board may, if it determines 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.

3.3    Implementation. For purposes of this Article III, the Executive expressly authorizes the Company to issue instructions, on behalf of the Executive, to the Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the Plan) to reconvey, transfer or otherwise return to the Company any Incentive Compensation subject to recoupment hereunder. Executive acknowledges and agrees that the Company's rights hereunder shall not be affected in any way by any subsequent change in the Executive’s status, including retirement or termination of employment.

3.4    Forfeiture. To the extent any of the events set forth in Sections 3.01 or 3.02occur before the Executive receives any Incentive Compensation due hereunder, any such Incentive Compensation shall be forfeited as determined by the Company in its sole discretion.

ARTICLE IV

Tax

4.1    Tax-Related Items. Regardless of any action the Company or the Employer takes with respect to any or all income tax (including U.S. federal, state and local taxes or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholding ("Tax-Related Items"), the Executive acknowledges and agrees that the ultimate liability for all Tax-Related Items legally due by the Executive is and remains the Executive's responsibility and that the Company and the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant of the Option, the vesting of the Option, the exercise of the Option, the subsequent sale of any Shares acquired pursuant to the Option and the receipt of any dividends and (ii) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Executive's liability for Tax-Related Items.

4.2    Tax Withholding Obligations. Prior to the delivery of Shares upon the exercise of the Option, if the Executive's country of residence (and country of employment, if different) requires withholding of Tax-Related Items, the Company shall withhold a sufficient number of whole Shares otherwise issuable upon exercise of the Option that have an aggregate Fair Market Value sufficient to pay the Tax-Related Items required to be withheld with respect to the Shares. Depending on the withholding method specified in the Plan, the Company may withhold or account for Tax-Related Items by considering applicable minimum 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 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 withholding in 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. In the event the withholding requirements are not satisfied through the withholding of Shares by the Company or through the withholding of cash from the Executive's regular salary and/or wages or other amounts payable to the Executive, no Shares will be issued to the Executive (or the Executive's estate) upon the exercise of the Option unless and until satisfactory arrangements (as determined by the Committee) have been made by the Executive with respect to the payment of any Tax-Related Items that the Company or the Employer determines, in its sole discretion, must be withheld or collected with respect to such Option. If the obligation for the Executive's Tax-Related Items is satisfied by withholding a number of Shares as described herein, the Executive shall be deemed to have been issued the full number of Shares issuable upon exercise, notwithstanding that a number of the Shares is held back solely for the purpose of paying the Tax-Related Items due as a result of the exercise or any other aspect of the Award.

The Executive will pay to the Company or the Employer any amount of Tax- Related Items that the Company or the Employer may be required to withhold as a result of the Executive's participation in the Plan or the Executive's acquisition of Shares that cannot be satisfied by the means described in this Article IV. The Company may refuse to deliver any Shares due upon exercise of the Option if the Executive fails to comply with his or her obligations in connection with the Tax-Related Items as described herein. If the Executive is subject to taxation in more than one jurisdiction, the Executive acknowledges that the Company, the Employer or one or more of their respective Subsidiaries may be required to withhold or account for Tax-Related Items in more than one jurisdiction. The Executive hereby consents to any action reasonably taken by the Company and the Employer to meet his or her obligation for Tax-Related Items. By accepting this grant of Option, the Executive expressly consents to the withholding of Shares and/or withholding from the Executive's regular salary and/or wages or other amounts payable to the Executive as provided for hereunder. All other Tax-Related Items related to the Option and any Shares delivered in payment thereof are the Executive's sole responsibility.

ARTICLE V

International Arrangements

5.1    Exchange Controls. As a condition to this grant of Options, the Executive agrees to comply with any applicable foreign exchange Laws and hereby consents to any necessary, appropriate or advisable actions taken by the Company, the Employer or any of their respective Subsidiaries as may be required to comply with any applicable Laws of the Executive's country of residence (and country of employment, if different).

5.2    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.

5.3    Country Specific Addendum. Notwithstanding any provisions of this Agreement to the contrary, the Option shall be subject to any special terms and conditions for the Executive's country of residence (and country of employment, if different) set forth in the addendum to this Agreement ("Addendum"). If the Executive transfers residence and/or employment to another country reflected in an Addendum at the time of transfer, the special terms and conditions for such country will apply to the Executive to the extent the Company determines, in its sole discretion, that the application of such special terms and conditions is necessary or advisable in order to comply with local Laws or to facilitate the operation and administration of the Option and the Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Executive's transfer). In all circumstances, any applicable Addendum shall constitute part of this Agreement.

5.4    Controlling Language. The Executive acknowledges and agrees that it is the Executive's express intent that this Agreement, the Plan, the Unfair Competition Agreement and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the Option be drawn up in English. If the Executive has received this Agreement, the Plan, the Unfair Competition Agreement or any other documents related to the Option translated into a language other than English and the meaning of any translated version is different than the English version, the English version will control.

ARTICLE VI

Miscellaneous

6.1    Restriction on Transferability. Except to the extent expressly provided in the Plan or this Agreement, the Option may not be sold, transferred, pledged, assigned, or otherwise alienated at any time other than by will or by the laws of descent and distribution. Any attempt to do so contrary to the provisions hereof shall be null and void.

6.2    Rights as Shareholder. The Executive shall not have voting or any other rights as a shareholder of the Company with respect to the Shares issuable upon exercise of the Option until the date of issuance of such Shares. Upon exercise of the Option the Executive will obtain, with respect to the Shares received in such exercise, full voting and other rights as a shareholder of the Company.

6.3    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.

6.4    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.

6.5    Nature of Grant. In accepting the grant hereunder, the Executive acknowledges and agrees that: (i) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended,

suspended or terminated by the Company at any time; (ii) the Executive has read the Plan and any Options granted under it shall be subject to all of the terms and conditions of the Plan, including but not limited to the power of the Committee to interpret and determine the terms and provisions of the Plan and this Agreement and to make all determinations necessary or advisable for the administration of the Plan, all of which interpretations and determinations shall be final and binding; (iii) the Option does not create any contractual or other right to receive future grants of Options, benefits in lieu of Options, or any other Plan benefits in the future; (iv) nothing contained in this Agreement is intended to create or enlarge any other contractual obligations between the Company or the Employer and the Executive; (v) any grant under the Plan, including any grant of Options, is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long service option, pension, or retirement benefits or similar payments; (vi) the Executive is voluntarily participating in the Plan; (vii) the future value of the Shares underlying the Option granted hereunder is unknown and cannot be predicted with certainty; and (viii) neither the Company, the Employer nor any of their respective Subsidiaries shall be liable for any change in value of the Option, the amount realized upon settlement of the Option or the amount realized upon a subsequent sale of any Shares acquired upon exercise of the Option, resulting from any fluctuation of the United States Dollar/local currency foreign exchange rate. Without limiting the generality of the foregoing, the Committee shall have the discretion to adjust the terms and conditions of any Option to correct for any windfalls or shortfalls in such Option which, in the Committee's determination, arise from factors beyond the Executive's control; provided, however, that the Committee's authority with respect to any Option to a "covered employee," as defined in Section 162(m)(3) of the Code, shall be limited to decreasing, and not increasing, such Option.

6.6    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 upon which the Shares are listed. If the Executive resides or is employed outside of the United States, the Executive agrees, as a condition of the grant of the Option, to repatriate all payments attributable to the Shares and/or cash acquired under the Plan (including, but not limited to, dividends and any proceeds derived from the sale of Shares acquired pursuant to the Option) if required by and in accordance with local Laws in the Executive’s country of residence (and country of employment, if different). In addition, the Executive also agrees to take any and all actions, and consent to any and all actions taken by the Company, its Subsidiaries and the Employer, as may be required to allow the Company, its Subsidiaries and the Employer to comply with local Laws in the Executive’s country of residence (and country of employment, if different). Finally, the Executive agrees to take any and all actions as may be required to comply with the Executive’s personal legal and tax obligations under local Laws in the Executive’s country of residence (and country of employment, if different).

6.7    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 adversely affecting 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.

6.8    Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to the Executive shall be addressed to the Executive at the address listed in the Employer's records or to the Executive's electronic investment account held at the Administrator. By a notice given pursuant to this Section 6.08, either party may designate a different address for notices. Any notice shall have been deemed given when actually delivered.

6.9    Severability. If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any provision of this Agreement (or part of such provision) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such provision (or part of such provision) to the fullest extent possible while remaining lawful and valid.

6.10    Construction. The Option is being issued pursuant to Article 6(Stock Option) of the Plan. The Option is subject to the terms of the Plan. The Executive acknowledges receipt of the Plan booklet which contains the entire Plan, and the Executive represents and warrants that the Executive has read the Plan. Additional copies of

the Plan are available upon request during normal business hours at the principal executive offices of the Company. To the extent that any provision of this Agreement violates or is inconsistent with an express provision of the Plan, the Plan provision shall govern and any inconsistent provision in this Agreement shall be of no force or effect. The words "including," "includes," or "include" are to be read as listing non-exclusive examples of the matters referred to, whether or not words such as "without limitation" or "but not limited to" are used in each instance.

6.11    Waiver of Right to Jury Trial. EACH OF THE PARTIES KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE OPTION, THE PLAN OR THIS AGREEMENT.

6.12    Waiver; No Third Party Beneficiaries. A waiver by the Company of a breach of any provision of this Agreement by the Executive shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Executive. This Agreement shall not be construed to create any third party beneficiary rights.

6.13    Data Privacy.

(i)Pursuant to applicable personal Data (defined below) protection laws, the collection, use, processing and transfer of the Executive's personal Data is necessary for the Company's administration of the Plan and the Executive's participation in the Plan. The Executive expressly and voluntarily (a) acknowledges, consents and agrees to the collection, use, processing and/or transfer of personal Data as described herein; (b) authorizes the Company, its Subsidiaries and the Employer to transfer Data, in electronic or other form, to each other and to any third parties, including the subsequent holding of Shares on the Executive's behalf to a broker or other third party with whom the Executive may elect to deposit any Shares acquired pursuant to the Plan, to assist the Company in the implementation, administration and management of the Plan. These recipients may be located throughout the world. For purposes of this Section 6.13, "Data" means certain personal information about the Executive including (but not limited to) the Executive's name, home address and telephone number, date of birth, social security number or other employee identification number, email address, salary, nationality, job title, any Share ownership and details of any Award or any other entitlement to Shares awarded, canceled, purchased, vested, unvested or outstanding in the Executive's favor for the purpose of managing and administering the Plan.

(ii)Data may be provided by the Executive or collected, where lawful, from third parties. The Company, its Subsidiaries, the Employer and any third party service providers will process the Data collected hereunder for the purpose of implementing, administering and managing the Executive's participation in the Plan. Data processing will take place through electronic and non-electronic means in accordance with applicable Law and the Company, its Subsidiaries and the Employer's policies and procedures as in effect from time to time. The Executive may, at any time, seek to exercise his or her rights provided under applicable personal Data protection laws by contacting his or her local human resources manager.

6.14    Private Placement. The grant of the Option is not intended to be a public offering of securities in the Executive's country of residence (and country of employment, if different). The Company has not submitted any registration statement, prospectus or other filing with the local securities authorities (unless otherwise required under local Laws).

6.15    No Advice Regarding Grant. Neither the Company nor the Employer is providing any tax, legal or financial advice, nor is the Company nor the Employer making any recommendations regarding the Option, the Executive's participation in the Plan or the Executive's acquisition or sale of the underlying Shares. The Executive is hereby advised to consult with the Executive's own personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan.

6.16    Securities Law Restrictions. The Executive acknowledges that, depending on the Executive's country of residence (and country of employment, if different), the Executive may be subject to insider trading restrictions and/or market abuse Laws, which may affect the Executive's ability to acquire or sell Shares or rights to Shares (e.g., the Option) under the Plan 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). Any restrictions under these Laws are separate from and in addition to any restrictions that may

be imposed under any applicable Company insider trading or other policy. The Executive solely is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on this matter.

6.17    Stock Ownership and Retention Guidelines. The exercise of any Options is subject to the Company's Stock Ownership and Retention Guidelines, as in effect from time to time, in all respects.

6.18    EU Age Discrimination Rules. If the Executive is a local national of and employed in a country that is a member of the European Union, the grant of the Option and the terms and conditions governing the Option are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the "Age Discrimination Rules"). To the extent that a court or tribunal of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make it valid and enforceable to the full extent permitted under local Laws.

6.19    Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the Option or other Awards granted to the Executive under the Plan by electronic means. The Executive hereby expressly consents to receive such documents by electronic delivery and agrees to participate in the Plan through an online or electronic system established and maintained by the Company or a third party designated by the Company.

6.20    Governing Law; Jurisdiction. This Agreement shall be exclusively governed by, and construed in accordance with, the Laws of the State of Illinois without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Illinois or of any other jurisdiction) that would cause the application of the laws of a jurisdiction other than the State of Illinois. All disputes and controversies arising between the parties are to be submitted for determination exclusively to the federal or state courts of the State of Illinois and by accepting the grant of the Option, the Executive expressly consents to the jurisdiction of such courts. Notwithstanding the foregoing, the Company may at its option seek interim and permanent injunctive relief before any competent court, tribunal or judicial forum, which in the absence of the foregoing provision, would have jurisdiction to grant the relief sought.

6.21    Entire Agreement. The Plan, this Agreement (including any applicable addendum) and the Unfair Competition Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede, in their entirety, all prior undertakings and agreements of the Company and the Executive with respect to the subject matter hereof.

[Signature Page Follows]

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer and the Executive acknowledges and agrees that by clicking on the box next to this Agreement in the section "Read and Acknowledge Award Documents" on the screen titled "Award Acceptance," the Executive expressly agrees to be bound by the terms and conditions of the Options, including Executive's electronic signature constituting the sole and exclusive means of executing this Agreement.

W.W. GRAINGER, INC.

By:

DG Macpherson

Chief Executive Officer

Date:

W.W. GRAINGER, INC.

2015 Incentive Plan

Form of Addendum to Form of Stock Option Agreement

In addition to the terms of the W.W. Grainger, Inc. 2015 Incentive Plan (the “Plan”) and the Stock Option Agreement (the “Agreement”), the Option is subject to the following additional terms and conditions as set forth in this addendum (this “Addendum”) to the extent the Executive resides or is employed in one of the countries addressed herein. All capitalized terms contained in this Addendum shall have the same meaning as set forth in the Plan and the Agreement unless otherwise defined. If the Executive transfers residence or employment to a country identified in this Addendum, the additional terms and conditions for such country as reflected in this Addendum will apply to the Executive to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable in order to comply with local laws, rules and regulations, or to facilitate the operation and administration of the Option and the Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Executive’s transfer).

Belgium

Name:Number of Shares:

Grant Date:Option Price:

Acceptance of Option

In order for the Option to be subject to taxation at the time of grant, the Executive must affirmatively accept the Option in writing within 60 days of the Grant Date specified above by signing below and returning this original executed Addendum to:

Attn: Treasury Department

100 Grainger Parkway, Lake Forest, IL 60045, USA

mary.geraci@grainger.com

The Executive hereby accepts the Option granted by the Company on the Grant Date. The Executive acknowledges that the Executive has been advised to discuss the acceptance of the Option and the applicable tax treatment with a financial and/or tax advisor, and that the Executive’s decision to accept the Option is made in full knowledge.

Executive Signature:            

Executive Printed Name:        

Date of Acceptance:            

If the Executive fails to affirmatively accept the Option in writing within 60 days of the Grant Date, the Option will not be subject to taxation at the time of grant but instead will be subject to taxation on the date the Executive exercises the Option (or such other treatment as may apply under Belgian tax law at the time of exercise).

Undertaking for Qualifying Option

If the Executive is accepting the Option in writing within 60 days of the Grant Date and wishes to have the Option subject to a lower valuation for Belgium tax purposes pursuant to article 43, §6 of the Belgian law of 26 March 1999, the Executive may agree and undertake to (a) not exercise the Option before December 31 of the third (3rd) calendar year following the calendar year in which the Grant Date falls, and (b) not transfer the Option under any circumstances (except upon rights the Executive’s heir might have in the Option upon the Executive’s death). If the Executive wishes to make this undertaking, the Executive must sign below and return this executed Addendum to the address listed above.

Executive Signature:            

Executive Printed Name:        

Payment of Exercise Price Limited to Cash Payment

Notwithstanding anything to the contrary in the Agreement or the Plan, the Executive shall be permitted to pay the Option Price only by means of a cash payment.

Foreign Asset Reporting Information

The Executive is required to report any security or bank account (including a brokerage account) opened and maintained outside Belgium on the Executive’s annual tax return. In a separate report, the Executive is required to provide the National Bank of Belgium with the account details of any such foreign accounts (including the account number, bank name and country in which any such account was opened). This report, as well as additional information on how to complete it, can be found on the website of the National Bank of Belgium, www.nbb.be, under the Kredietcentrales / Centrales des crédits caption.

Canada

Data Privacy Notice and Consent

This provision supplements Section 6.13 of the Agreement:

The Executive hereby authorizes the Company, its Subsidiaries and the Employer to discuss with and obtain all relevant information pertaining to the Executive from all personnel involved in the administration and operation of the Plan. The Executive further authorizes the Company, its Subsidiaries and the Employer to disclose and discuss the Executive's participation in the Plan with their advisors. The Executive further authorizes the Company, its Subsidiaries and the Employer to record any information pertaining to the Executive’s participation in the Plan and to keep such information in his or her employee file.

Accelerated Vesting upon Retirement

Notwithstanding anything in the Agreement or the Plan to the contrary, if the Executive’s employment or service is terminated by reason of retirement, the Option immediately shall fully vest, become exercisable and will expire on the earlier of (i) six (6) years from the Termination Date or (ii) the original expiration date of the Option. For purposes of the foregoing, “retirement” shall have the definition prescribed by local Laws.

No Exercise Using Previously Owned Shares

Notwithstanding any provision in the Agreement or the Plan to the contrary, the Executive may not pay the Option Price by tendering Shares already owned by the Executive.

Securities Law Information

The Executive is permitted to sell Shares acquired through the Plan through the designated broker appointed under the Plan, if any, provided that the resale of such Shares takes place outside of Canada through the facilities of a stock exchange on which the Shares are listed (i.e., the New York Stock Exchange).

Foreign Asset Reporting Information

Any foreign property (including Shares and Options acquired under the Plan) must be reported to the Canada Revenue Agency on form T1135 (Foreign Income Verification Statement) if the total cost of your foreign property exceeds C$100,000 at any time in the year. The Options must be reported - generally at a nil cost - if the C$100,000 cost threshold is exceeded because of other foreign property held. If Shares are acquired, their cost generally is the adjusted cost base (“ACB”) of the Shares. The ACB would normally equal the fair market value of the Shares at time of exercise, but if the Executive owns other Shares, this ACB may have to be averaged with the ACB of the other Shares. The form must be filed by April 30 of the following year. The Executive should consult with his or her personal tax advisor to determine the Executive’s reporting requirements.

Use of English Language

If the Executive is a resident of Quebec, by accepting the Option, the Executive acknowledges and agrees that it is the Executive’s wish that the Agreement, this Addendum, the Plan, as well as all other documents, notices and legal proceedings entered into, given or instituted pursuant to the Option, either directly or indirectly, be drawn up in English.

Utilisation de l’anglais.

Si l’exécutif est un résident du Québec, en acceptant le Option, l l’exécutif reconnaît et accepte que ce est le souhait du l’exécutif que l’Accord, le présent Addenda, ainsi que tous autres documents, avis et procédures judiciaires, exécutés, donnés ou intentés en vertu de le Option, liés directement ou indirectement, soient rédigés en anglais.

France

Use of English Language

By accepting the Award, you confirm having read and understood the Plan and the Agreement, which were provided in the English language. You accept the terms of those documents accordingly.

Utilisation de l’anglais.

En acceptant les Attributions, vous confirmez avoir lu et comprenez le Plan et ce contrat, incluant tous leurs termes et conditions, qui ont été transmis en langue anglaise. Vous acceptez les dispositions de ces documents en connaissance de cause.

Foreign Asset Reporting

French residents holding cash or Shares outside of France must declare all foreign bank and brokerage accounts (including any accounts that were opened or closed during the tax year) on an annual basis, together with their income tax return. Failure to complete this reporting triggers penalties for the resident.

Mexico

Accelerated Vesting upon Retirement

Notwithstanding anything in the Agreement or the Plan to the contrary, if the Executive’s employment or service is terminated by reason of retirement, the Option immediately shall fully vest, become exercisable and will expire on the earlier of (i) six (6) years from the Termination Date or (ii) the original expiration date of the Option. For purposes of the foregoing, “retirement” shall have the definition prescribed by local Laws.

Commercial Relationship

The Executive expressly recognizes that participation in the Plan and the Company’s grant of the Option does not constitute an employment relationship between the Executive and the Company. The Executive has been granted the Option as a consequence of the commercial relationship between the Company and the Employer, and the Employer is the Executive’s sole employer. Based on the foregoing, (a) the Executive expressly recognizes that the Plan and the benefits derived from participation in the Plan do not establish any rights between the Executive and the Company or the Employer, (b) the Plan and the benefits derived from participation in the Plan are not part of the employment conditions and/or benefits provided by the Company or the Employer, and (c) any modifications or amendments to the Plan by the Company, or a termination of the Plan by the Company, shall not constitute a change or impairment of the terms and conditions of the Executive’s employment with the Employer.

Extraordinary Item of Compensation

The Executive expressly acknowledges and agrees that participation in the Plan is a result of the discretionary and unilateral decision of the Company, as well as the Executive’s free and voluntary decision to participate in the Plan in accord with the terms and conditions of the Plan, the Agreement, the Unfair Competition Agreement and this Addendum. As such, the Executive acknowledges and agrees that the Company may, in its sole discretion, amend

and/or discontinue the Executive’s participation in the Plan at any time and without any liability. The value of the Option is an extraordinary item of compensation outside the scope of the employment contract, if any. The Option is not a part of the Executive’s regular or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits, or any similar payments, which are the exclusive obligations of the Employer.

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 Option granted to the Executive in connection with the Executive’s participation in the Plan are not granted as consideration for, or otherwise in connection with the service the Executive may provide as a director (“statutair bestuurder”) of a Subsidiary established under the laws of Netherlands or operating within the Netherlands.

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 Option shall not be taken into account in the calculation of such severance costs, to the extent permitted by applicable law.

Use of English Language

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

Uso da Língua Inglesa

Por meio do presente, o Executivo declara que Executivo possui pleno conhecimento da língua inglesa e que leu, compreendeu, e livremente aceita e concorda com os termos e condiçoes estabelecidas no Plano, o Acordo, o Acordo de Concorrência Desleal e este Adendo.

United Kingdom

Income Tax and Social Insurance Contribution Withholding

The following provision shall replace Article IV of the Agreement:

Regardless of any action the Company and the Employer take with respect to any or all income tax, primary and secondary Class 1 National Insurance contributions, payroll tax or other tax-related withholding attributable to or payable in connection with or pursuant to the grant, vesting, or exercise of the Option or the release or assignment of the Option for consideration, or the receipt of any other benefit in connection with the Option (“Tax-Related Items”), the Executive acknowledges that the ultimate liability for all Tax- Related Items legally due by the Executive is and remains the Executive’s responsibility and that the Company and the Employer: (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant of the Option, the vesting of the Option, the exercise of the Option and the sale of any Shares

acquired pursuant to the Option, and (ii) do not commit to structure the terms of the Option or any aspect of the Option to reduce or eliminate the Executive’s liability for Tax-Related Items.

As a condition to the settlement of the Option following the date of exercise, the Company and/or the Employer shall be entitled to withhold and the Executive agrees to pay, or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy, all obligations of the Company and/or the Employer to account to HM Revenue & Customs (“HMRC”) for any Tax-Related Items. In this regard, the Executive authorizes the Company or the Employer to withhold all applicable Tax-Related Items legally payable by the Executive from any wages/salary or other cash compensation payable to the Executive. Alternatively, or in addition, if permissible under applicable law, the Executive authorizes the Company, at its discretion and pursuant to such procedures as it may specify from time to time, to satisfy the obligations with regard to all Tax-Related Items legally payable by the Executive by one or a combination of the following: (i) withholding otherwise deliverable whole Shares; (ii) arranging for the sale of whole Shares otherwise deliverable to the Executive (on the Executive’s behalf and at the Executive’s direction pursuant to this authorization); or (iii) withholding from the proceeds of the sale of any Shares acquired upon the exercise of the Option. If the obligation for Tax-Related Items is satisfied by withholding a number of whole Shares as described herein, the Executive shall be deemed to have been issued the full number of whole Shares issued upon the exercise of the Option, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Option. If, by the date on which the event giving rise to the Tax-Related Items occurs (the “Chargeable Event”), the Executive has relocated to a country other than the United Kingdom (the “U.K.”), the Executive acknowledges that the Company or the Employer may be required to withhold or account for Tax- Related Items in more than one country, including the U.K. The Executive also agrees that the Company may determine the amount of Tax-Related Items to be withheld and accounted for by reference to the maximum applicable rates, without prejudice to any right which the Executive may have to recover any overpayment from the relevant tax authorities.

The Executive shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to account to HMRC with respect to the Chargeable Event that cannot be satisfied by the means previously described. If payment or withholding is not made within 90 days after the end of the

U.K. tax year in which the Chargeable Event occurs or such other period specified in section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003 (the “Due Date”), the Executive agrees that the amount of any uncollected Tax-Related Items shall (assuming the Executive is not a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), constitute a loan owed by the Executive to the Company or the Employer, as effective on the Due Date. The Executive agrees that the loan will bear interest at the then-current HMRC Official Rate and it will be immediately due and repayable, and the Company may recover it at any time thereafter by any of the means referred to above. If any of the foregoing methods of collection are not allowed under applicable laws or if the Executive fails to comply with the Executive’s obligations in connection with the Tax-Related Items as described in this Article IV, the Company may refuse to deliver any Shares otherwise payable upon the exercise of the Option.

Exclusion of Claim

The Executive acknowledges and agrees that the Executive will have no entitlement to compensation or damages, insofar as such entitlement arises or may arise from the Executive’s ceasing to have rights under or to be entitled to exercise the Option as a result of such termination (whether the termination is in breach of contract or otherwise), or from the loss or diminution in value of the Option. Upon the grant of the Option, the Executive shall be deemed to have irrevocably waived any such entitlement.

United States

Accelerated Vesting upon Retirement Eligibility

Notwithstanding anything in the Agreement or the Plan to the contrary, if the Executive’s employment or service is terminated prior to the Option Vesting Date due to the Executive’s retirement, the Option immediately shall fully vest, become exercisable and will expire on the earlier of (i) six (6) years from the Termination Date or (ii) the original expiration date of the Option. For purposes of the foregoing, “retirement” shall mean the Executive’s termination of service with (i) 25 years of service, (ii) 20 years of service and attainment of age 55, or (iii) attainment of age 60.

* * * * *

EX-10.3

Exhibit 10.3

W.W. GRAINGER, INC.

2015 Incentive Plan

Form of Restricted Stock Unit Agreement

This Restricted Stock Unit Agreement (this "Agreement"), dated as of , 20 (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 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 desires to enter into the Unfair Competition Agreement and accept such RSUs on the terms and conditions set forth in this Agreement, the Plan and the Unfair Competition Agreement.

Capitalized terms used but not defined in this Agreement have the meanings specified in the Plan.

In consideration of the mutual provisions set forth in this Agreement and in the Unfair Competition Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

Grants

1.01 Grants. Subject to the terms and conditions of this Agreement, the Plan and the Unfair Competition Agreement (the terms of which are hereby incorporated herein by reference) and effective on the Grant Date, the Company hereby grants to the Executive the number of RSUs as specified in the , 20 award grant notice posted to the Executive's electronic investment account maintained with the brokerage firm/third party service provider engaged by the Company in connection with the operation of the Plan (the "Administrator"). Each RSU represents a contractual right to receive one (1) Share upon the satisfaction of the terms and conditions of this Agreement.

ARTICLE II

Provisions Relating to RSUs

2.1    Vesting of RSUs. If the Executive remains continuously employed by the Employer (or any other Subsidiary or Affiliate) until the vesting date specified in the grant notice (the "RSU Vesting Date"), the RSUs shall become fully vested on such date and the Executive shall be entitled to receive the underlying Shares as provided herein. The RSUs shall not vest before the RSU Vesting Date unless otherwise provided or permitted by the Plan or this Agreement, and any RSUs that do not vest shall be forfeited in full and the Executive shall have no future rights with respect to such RSUs. Each RSU that becomes vested as provided herein shall be settled in accordance with Section 2.04.

2.2    Effect of Termination of Employment. 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.

2.3    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).

2.4    Settlement.    Upon the RSU Vesting Date, the Company shall, as soon as practicable, settle the RSUs by registering Shares in the Executive's name and delivering such Shares to the Executive's electronic stock plan account maintained by the Administrator. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the Executive's RSUs may be settled in the form of: (i) cash, to the extent settlement in Shares (a) is prohibited under applicable Laws, (b) would require the Executive, the Company or the Employer to obtain the approval of any governmental and/or regulatory body in the Executive's country of residence (and country of employment, if different), or (c) is administratively burdensome or (ii) Shares, but the Company may require the Executive to immediately sell such Shares if necessary to comply with applicable Laws (in which case, the Executive hereby expressly authorizes the Company to issue sales instructions in relation to such Shares on the Executive's behalf).

2.5    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

3.1    Recoupment in Event of Misconduct. If the Board of Directors of the Company (the "Board") determines that the Executive has committed fraud against the Company or has engaged in any criminal conduct that involves or is related to the Company and such Executive is otherwise entitled to receive performance shares, stock options, restricted stock units or cash incentive compensation (collectively, "Incentive Compensation"), then the Company shall have the right to recover and the Executive shall be obligated to return such Incentive Compensation, in whole or in part, for any period of time, as it deems appropriate under the circumstances. The Board shall have sole discretion in determining whether the Executive's conduct was in compliance with applicable Laws 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 recover from the Executive, and the Executive shall re-pay any Incentive Compensation received pursuant to the Plan and this Agreement, in whole or in part, for any period of time, as the Company deems appropriate under the circumstances.

3.2    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 Board 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 Board may, if it determines 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.

3.3    Implementation. For purposes of this Article III, the Executive expressly authorizes the Company to issue instructions, on behalf of the Executive, to the Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the Plan) to reconvey, transfer or otherwise return to the Company any Incentive Compensation subject to recoupment hereunder.

Executive acknowledges and agrees that the Company's rights hereunder shall not be affected in any way by any subsequent change in the Executive’s status, including retirement or termination of employment.

3.4    Forfeiture. To the extent any of the events set forth in Sections 3.01 or 3.02occur before the Executive receives any Incentive Compensation due hereunder, any such Incentive Compensation shall be forfeited as determined by the Company in its sole discretion.

ARTICLE IV

Tax

4.1    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.

4.2    Tax Withholding Obligations. Prior to the delivery of Shares 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. Depending on the withholding method specified in the Plan, the Company may withhold or account for Tax-Related Items by considering applicable minimum 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 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 withholding in Shares is prohibited under applicable Laws 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. 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 Award.

The Executive will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of the Executive's participation in the Plan or the Executive's acquisition of Shares that cannot be satisfied by the means described in this Article IV. The Company may refuse to deliver any Shares due upon 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

5.1    Exchange Controls. As a condition to this grant of RSUs, 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).

5.2    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.

5.3    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.

5.4    Controlling Language. The Executive acknowledges and agrees that it is the Executive's express intent that this Agreement, the Plan, the Unfair Competition Agreement and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the RSUs be drawn up in English. If the Executive has received this Agreement, the Plan, the Unfair Competition Agreement or any other documents related to the RSUs translated into a language other than English and the meaning of any translated version is different than the English version, the English version will control.

ARTICLE VI

Miscellaneous

6.1    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.

6.2    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.

6.3    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.

6.4    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.

6.5    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 Awards 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 Award does not create any contractual or other right to receive future grants of Awards, benefits in lieu of Awards, 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 Awards, 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 Award 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 Award, the amount realized upon settlement of the Award or the amount realized upon a subsequent sale of any Shares acquired upon settlement of the Award, 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 to correct for any windfalls or shortfalls in such Award 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 Award.

6.6    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 upon which the Shares are listed. 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).

6.7    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 adversely affecting 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.

6.8    Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to the Executive shall be addressed to the Executive at the address listed in the Employer's records or to the Executive's electronic investment account held at the Administrator. By a notice given pursuant to this Section 6.08, either party may designate a different address for notices. Any notice shall have been deemed given when actually delivered.

6.9    Severability. If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any provision of this Agreement (or part of such provision) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such provision (or part of such provision) to the fullest extent possible while remaining lawful and valid.

6.10    Construction. The RSUs are being issued pursuant to Article 8(Restricted Stock and Restricted Stock Units) of the Plan. The RSUs are subject to the terms of the Plan. The Executive acknowledges receipt of the Plan booklet which contains the entire Plan, and the Executive represents and warrants that the Executive has read the Plan. Additional copies of the Plan are available upon request during normal business hours at the principal executive offices of the Company. To the extent that any provision of this Agreement violates or is inconsistent with an express provision of the Plan, the Plan provision shall govern and any inconsistent provision in this Agreement shall be of no force or effect. The words "including," "includes," or "include" are to be read as listing non-exclusive examples of the matters referred to, whether or not words such as "without limitation" or "but not limited to" are used in each instance.

6.11    Waiver of Right to Jury Trial. EACH OF THE PARTIES KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE RSUS, THE PLAN OR THIS AGREEMENT.

6.12    Waiver; No Third Party Beneficiaries. A waiver by the Company of a breach of any provision of this Agreement by the Executive shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Executive. This Agreement shall not be construed to create any third party beneficiary rights.

6.13    Data Privacy.

(i)Pursuant to applicable personal Data (defined below) protection laws, the collection, use, processing and transfer of the Executive's personal Data is necessary for the Company's administration of the Plan and the Executive's participation in the Plan. The Executive expressly and voluntarily (a) acknowledges, consents and agrees to the collection, use, processing and/or transfer of personal Data as described herein;

(b) authorizes the Company, its Subsidiaries and the Employer to transfer Data, in electronic or other form, to each other and to any third parties, including the subsequent holding of Shares on the Executive's behalf to a broker or other third party with whom the Executive may elect to deposit any Shares acquired pursuant to the Plan, to assist the Company in the implementation, administration and management of the Plan. These recipients may be located throughout the world. For purposes of this Section 6.13, "Data" means certain personal information about the Executive including (but not limited to) the Executive's name, home address and telephone number, date of birth, social security number or other employee identification number, email address, salary, nationality, job title, any Share ownership and details of any Award or any other entitlement to Shares awarded, canceled, purchased, vested, unvested or outstanding in the Executive's favor for the purpose of managing and administering the Plan.

(ii)Data may be provided by the Executive or collected, where lawful, from third parties. The Company, its Subsidiaries, the Employer and any third party service providers will process the Data collected hereunder for the purpose of implementing, administering and managing the Executive's participation in the Plan. Data processing will take place through electronic and non-electronic means in accordance with applicable Laws and the Company, its Subsidiaries and the Employer's policies and procedures as in effect from time to time. The Executive may, at any time, seek to exercise his or her rights provided under applicable personal Data protection laws by contacting his or her local human resources manager.

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. Neither the Company nor the Employer is providing any tax, legal or financial advice, nor is the Company nor 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.

6.16    Securities Law Restrictions. The Executive acknowledges that, depending on the Executive's country of residence (and country of employment, if different), the Executive may be subject to insider trading restrictions

and/or market abuse Laws, which may affect the Executive's ability to acquire or sell Shares or rights to Shares (e.g., RSUs) under the Plan 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). Any restrictions under these Laws are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading or other policy. The Executive solely is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on this matter.

6.17    EU Age Discrimination Rules. If the Executive is a local national of and employed in a country that is a member of the European Union, the grant of the RSUs and the terms and conditions governing the RSUs are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the "Age Discrimination Rules"). To the extent that a court or tribunal of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make it valid and enforceable to the full extent permitted under local Laws.

6.18    Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the RSUs or other Awards granted to the Executive under the Plan by electronic means. The Executive hereby expressly consents to receive such documents by electronic delivery and agrees to participate in the Plan through an online or electronic system established and maintained by the Company or a third party designated by the Company.

6.19    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 Award Documents" on the screen titled "Award Acceptance, " the Executive expressly agrees to be bound by the terms and conditions of the Award, including Executive's electronic signature constituting the sole and exclusive means of executing this Agreement.

W.W. GRAINGER, INC.

By:    

Name:            DG Macpherson

Title:         Chief Executive Officer

Date:

W.W. GRAINGER, INC.

2015 Incentive Plan

Form of Addendum to Form of Restricted Stock Unit Agreement

In addition to the terms of the W.W. Grainger, Inc. 2015 Incentive Plan (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).

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

Data Privacy Notice and Consent

This provision supplements Section 6.13of the Agreement:

The Executive hereby authorizes the Company, its Subsidiaries and the Employer to discuss with and obtain all relevant information pertaining to the Executive from all personnel involved in the administration and operation of the Plan. The Executive further authorizes the Company, its Subsidiaries and the Employer to disclose and discuss the Executive's participation in the Plan with their advisors. The Executive further authorizes the Company, its Subsidiaries and the Employer to record any information pertaining to the Executive’s participation in the Plan and to keep such information in his or her employee file.

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.

Use of English Language

If the Executive is a resident of Quebec, by accepting the RSUs, the Executive acknowledges and agrees that it is the Executive’s wish that the Agreement, this Addendum, the Plan, as well as all other documents, notices and legal proceedings entered into, given or instituted pursuant to the RSUs, either directly or indirectly, be drawn up in English.

Utilisation de l’anglais

Si l’exécutif est un résident du Québec, en acceptant le RSUs, l l’exécutif reconnaît et accepte que ce est le souhait du l’exécutif que l’Accord, le present Addenda, ainsi que tous autres documents, avis et procédures judiciaires, exécutés, donnés ou intentés en vertu de le RSUs, liés directement ou indirectement, soient rédigés en anglais.

France

Use of English Language

By accepting the RSUs, you confirm having read and understood the Plan and the Agreement, which were provided in the English language. You accept the terms of those documents accordingly.

Utilisation de l’anglais

En acceptant cette attribution gratuite d’actions, vous confirmez avoir lu et comprenez le Plan et ce contrat, incluant tous leurs termes et conditions, qui ont été transmis en langue anglaise. Vous acceptez les dispositions de ces documents en connaissance de cause.

Foreign Asset Reporting

French residents holding cash or Shares outside of France must declare all foreign bank and brokerage accounts (including any accounts that were opened or closed during the tax year) on an annual basis, together with their income tax return. Failure to complete this reporting triggers penalties for the resident.

Mexico

Accelerated Vesting upon Retirement

Notwithstanding anything in the Agreement or the Plan to the contrary, if the Executive’s employment or service is terminated by reason of retirement, the RSUs immediately shall fully vest. For purposes of the foregoing, “retirement” shall have the definition prescribed by local Laws.

Commercial Relationship

The Executive expressly recognizes that participation in the Plan and the Company’s grant of the RSUs does not constitute an employment relationship between the Executive and the Company. The Executive has been granted RSUs as a consequence of the commercial relationship between the Company and the Employer, and the Employer is the Executive’s sole employer. Based on the foregoing, (a) the Executive expressly recognizes that the Plan and the benefits derived from participation in the Plan do not establish any rights between the Executive and the Company or the Employer, (b) the Plan and the benefits derived from participation in the Plan are not part of the employment conditions and/or benefits provided by the Company or the Employer, and (c) any modifications or

amendments to the Plan by the Company, or a termination of the Plan by the Company, shall not constitute a change or impairment of the terms and conditions of the Executive’s employment with the Employer.

Extraordinary Item of Compensation

The Executive expressly acknowledges and agrees that participation in the Plan is a result of the discretionary and unilateral decision of the Company, as well as the Executive’s free and voluntary decision to participate in the Plan in accord with the terms and conditions of the Plan, the Agreement, the Unfair Competition Agreement and this Addendum. As such, the Executive acknowledges and agrees that the Company may, in its sole discretion, amend and/or discontinue the Executive’s participation in the Plan at any time and without any liability. The value of the RSUs is an extraordinary item of compensation outside the scope of the employment contract, if any. The RSUs are not a part of the Executive’s regular or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits, or any similar payments, which are the exclusive obligations of the Employer.

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 2.02of the Agreement:

In case of termination of service of the Executive triggering the payment of severance costs under applicable law, the RSUs shall not be taken into account in the calculation of such severance costs, to the extent permitted by applicable law.

Use of English Language

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

Uso da Língua Inglesa

Por meio do presente, o Executivo declara que Executivo possui pleno conhecimento da língua inglesa e que leu, compreendeu, e livremente aceita e concorda com os termos e condiçoes estabelecidas no Plano,

o Acordo, o Acordo de Concorrência Desleal e este Adendo.

United Kingdom

Income Tax and Social Insurance Contribution Withholding

The following provision shall replace Article IVof the Agreement:

Regardless of any action the Company and the Employer take with respect to any or all income tax, primary and secondary Class 1 National Insurance contributions, payroll tax or other tax-related withholding attributable to or payable in connection with or pursuant to the grant, vesting, or the release or assignment of the RSUs for consideration, or the receipt of any other benefit in connection with the RSUs (“Tax-Related Items”), the Executive acknowledges 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, and the sale of any Shares acquired pursuant to the RSUs, and (ii) do not commit to structure the terms of the RSUs or any aspect of the RSUs to reduce or eliminate the Executive’s liability for Tax-Related Items.

As a condition to the settlement of the RSUs following the RSU Vesting Date, the Company and/or the Employer shall be entitled to withhold and the Executive agrees to pay, or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy, all obligations of the Company and/or the Employer to account to HM Revenue & Customs (“HMRC”) for any Tax-Related Items. In this regard, the Executive authorizes the Company or the Employer to withhold all applicable Tax-Related Items legally payable by the Executive from any wages/salary or other cash compensation payable to the Executive. Alternatively, or in addition, if permissible under applicable law, the Executive authorizes the Company, at its discretion and pursuant to such procedures as it may specify from time to time, to satisfy the obligations with regard to all Tax-Related Items legally payable by the Executive by one or a combination of the following: (i) withholding otherwise deliverable whole Shares; (ii) arranging for the sale of whole Shares otherwise deliverable to the Executive (on the Executive’s behalf and at the Executive’s direction pursuant to this authorization); or (iii) withholding from the proceeds of the sale of any Shares acquired upon the vesting of the RSUs. If the obligation for Tax-Related Items is satisfied by withholding a number of whole Shares as described herein, the Executive shall be deemed to have been issued the full number of whole Shares issued upon vesting of the RSUs, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the RSUs. If, by the date on which the event giving rise to the Tax-Related Items occurs (the “Chargeable Event”), the Executive has relocated to a country other than the United Kingdom (the “U.K.”), the Executive acknowledges that the Company or the Employer may be required to withhold or account for Tax- Related Items in more than one country, including the U.K. The Executive also agrees that the Company may determine the amount of Tax-Related Items to be withheld and accounted for by reference to the maximum applicable rates, without prejudice to any right which the Executive may have to recover any overpayment from the relevant tax authorities.

The Executive shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to account to HMRC with respect to the Chargeable Event that cannot be satisfied by the means previously described. If payment or withholding is not made within 90 days after the end of the U.K. tax year in which the Chargeable Event occurs or such other period specified in section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003 (the “Due Date”), the Executive agrees that the amount of any uncollected Tax-Related Items shall (assuming the Executive is not a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), constitute a loan owed by the Executive to the Company or the Employer, as effective on the Due Date. The Executive agrees that the loan will bear interest at the then-current HMRC Official Rate and it will be immediately due and repayable, and the Company may recover it at any time thereafter by any of the means referred to above. If any of the foregoing methods of collection are not allowed under applicable laws or if the Executive fails to comply with the Executive’s obligations in connection with the Tax-Related Items as described in this Article IV, the Company may refuse to deliver any Shares otherwise payable upon the vesting of the RSUs.

Exclusion of Claim

The Executive acknowledges and agrees that the Executive will have no entitlement to compensation or damages, insofar as such entitlement arises or may arise from the Executive’s ceasing to have rights under or to be entitled to

vest in the RSUs as a result of such termination (whether the termination is in breach of contract or otherwise), or from the loss or diminution in value of the RSUs. Upon the grant of the RSUs, the Executive shall be deemed to have irrevocably waived any such entitlement.

* * * * *

EX-10.4

Exhibit 10.4

W.W. GRAINGER, INC.

2015 Incentive Plan

Form of Performance Share Agreement

This Performance Share Agreement (this "Agreement"), dated as of , 20 (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 shares (the "Performance Shares" or "Award"), 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") based upon the Company's attainment of certain long-term performance goals and the Executive desires to enter into the Unfair Competition Agreement and accept such Award on the terms and conditions set forth in this Agreement, the Plan and the Unfair Competition Agreement. Capitalized terms used but not defined in this Agreement have the meanings specified in the Plan.

In consideration of the mutual provisions set forth in this Agreement and in the Unfair Competition Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

Grants

1.01 Grants. Subject to the terms and conditions of this Agreement, the Plan and the Unfair Competition Agreement (the terms of which are hereby incorporated herein by reference) and effective on the Grant Date, the Company hereby grants to the Executive the number of Performance Shares (the "Target Number") as specified in the , 20 award grant notice posted to the Executive's electronic investment account maintained with the brokerage firm/third party service provider engaged by the Company in connection with the operation of the Plan (the "Administrator"). The actual number of Performance Shares subject to this Agreement shall be determined based upon the Company's achievement of: (i) the net sales target for fiscal year 20 (the "Net Sales Target"); and (ii) the Company's average return on invested capital for fiscal years 20 , 20 and 20 (the "ROIC Target"), in each case, as further defined in Article II below. For purposes hereof, “Measuring Period” means the period encompassing the Company's fiscal years ended 20 , 20 and 20 . The Performance Share payout will range from 0% to 200%. Each Performance Share represents a contractual right to receive one (1) Share upon the Company's achievement of the Net Sales Target and the ROIC Target and the satisfaction of the terms and conditions of this Agreement.

ARTICLE II

Provisions Relating to Performance Shares

2.1    Net Sales Target. A portion of the actual number of Performance Shares subject to this Agreement shall be determined based upon the Company's achievement of the Net Sales Target as follows:

If the Company's Net Sales for fiscal year 2019 are:	Actual Number of Performance Shares:
< $ Billion	% of the Target Number
$ Billion	% of the Target Number
$> Billion	% of the Target Number

For purposes of the foregoing, the level of achievement of the Net Sales Target shall be determined by the Committee in its sole discretion. Further, the actual number of Performance Shares subject to this Agreement based upon the Company's achievement of the Net Sales Target shall be determined by applying straight-line interpolation rounded down to the nearest whole number of Performance Shares.

2.2    ROIC Target. A portion of the actual number of Performance Shares subject to this Agreement also shall be determined based upon the Company's achievement of the ROIC Target as follows:

If the Company's average ROIC during the Measuring Period is:	Actual Number of Performance Shares:
< %	% of the Target Number
%	% of the Target Number
> %	% of the Target Number

For purposes of the foregoing, the level of achievement of the ROIC Target shall be determined by the Committee in its sole discretion by calculating the Company's return on invested capital for each applicable fiscal year by dividing (i) the Company's operating earnings for the applicable fiscal year, by (ii) the Company's net working assets for the applicable fiscal year. Further, the actual number of Performance Shares subject to this Agreement based upon the Company's achievement of the ROIC Target shall be determined by applying straight-line interpolation rounded down to the nearest whole number of Performance Shares.

2.3    Vesting of Performance Shares. If the Executive remains continuously employed by the Employer (or any other Subsidiary or Affiliate) through the last day of the Measuring Period (the "Performance Share Vesting Date"), the actual number of Performance Shares as determined pursuant to Sections 2.01 and 2.02 shall become fully vested on such date and the Executive shall be entitled to receive the underlying Shares as provided herein. The Performance Shares shall not vest before the Performance Share Vesting Date unless otherwise provided or permitted by the Plan or this Agreement, and any Performance Shares that do not vest shall be forfeited in full and the Executive shall have no further rights with respect to such Performance Shares. Each Performance Share that becomes vested as provided herein shall be settled in accordance with Section 2.07.

2.4    Effect of Termination of Employment.    If the Executive's employment or service is terminated prior to the Performance Share Vesting Date for any reason whatsoever other than the Executive's death, retirement or Disability (defined below), the Performance Shares 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.

2.5    Effect of Death or Retirement of the Executive. If the Executive's employment or service is terminated prior to the Performance Share Vesting Date due to retirement of the Executive in accordance with the provisions of the applicable retirement plan or death, the Executive or the Executive's estate will become vested in the number of Performance Shares (on the Performance Share Vesting Date) equal to the product of (x) the number of Performance Shares, if any, which subsequently become deliverable under Sections 2.01 and 2.02 above, multiplied by (y) a fraction, the numerator of which is the number of months during the Measuring Period that the Executive was employed by the Employer and the denominator of which is the total number of months in the Measuring Period, i.e., 36 months. For purposes of the foregoing calculation, the Executive will be deemed to have been employed by the Employer during the month that his employment terminates if, and only if, such termination occurs on or after the fifteenth (15^th) calendar day of that month. Each Performance Share that becomes vested as provided herein shall be settled in accordance with Section 2.07.

2.6    Effect of Disability of the Executive. If the Executive's employment or service is terminated prior to the Performance Share Vesting Date due to the Executive's Disability, the Executive will become vested in the number of Performance Shares (on the Performance Share Vesting Date) calculated in the same manner prescribed by Section 2.05, provided, however, that if such termination of employment occurs during fiscal year 20 , then for purposes of such calculation the number of Performance Shares referred to in clause (x) of such calculation shall be determined as though the Company had met, but not exceeded, its sales growth target and one hundred percent (100%) of such Performance Shares had vested. Each Performance Share that becomes vested as provided herein shall be settled in accordance with Section 2.07. For purposes of this Agreement,

"Disability" shall have the same meaning as defined in the Plan, subject to modification as may be required to conform to the laws, rules and regulations (“Laws”) of the Executive's country of residence (and country of employment, if different).

2.7    Settlement. Upon the Performance Share Vesting Date, the Company shall, as soon as practicable, settle the Performance Shares by registering Shares in the Executive's name and delivering such Shares to the Executive's electronic stock plan account maintained by the Administrator. At the discretion of the Committee, and subject to such policies and procedures as it may adopt from time to time, the Executive's Performance Shares 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

3.1    Recoupment in Event of Misconduct. If the Board of Directors of the Company (the "Board") determines that the Executive has committed fraud against the Company or has engaged in any criminal conduct that involves or is related to the Company and such Executive is otherwise entitled to receive performance shares, stock options, restricted stock units or cash incentive compensation (collectively, "Incentive Compensation"), then the Company shall have the right to recover and the Executive shall be obligated to return such Incentive Compensation, in whole or in part, for any period of time, as it deems appropriate under the circumstances. The Board 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 recover from the Executive, and the Executive shall re-pay any Incentive Compensation received pursuant to the Plan and this Agreement, in whole or in part, for any period of time, as the Company deems appropriate under the circumstances.

3.2    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 Board 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 Board may, if it determines 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.

3.3    Implementation. For purposes of this Article III, the Executive expressly authorizes the Company to issue instructions, on behalf of the Executive, to the Administrator (and/or any other brokerage firm/third party service provider engaged by the Company to hold Shares and other amounts acquired under the Plan) to reconvey, transfer or otherwise return to the Company any Incentive Compensation subject to recoupment hereunder. Executive acknowledges and agrees that the Company's rights hereunder shall not be affected in any way by any subsequent change in the Executive’s status, including retirement or termination of employment.

3.4    Forfeiture. To the extent any of the events set forth in Sections 3.01 or 3.02 occur before the Executive receives any Incentive Compensation due hereunder, any such Incentive Compensation shall be forfeited as determined by the Company in its sole discretion.

ARTICLE IV

Tax

4.1    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 Award, including the grant of the Award, the vesting of the Award, the subsequent sale of any Shares acquired pursuant to the Award and the receipt of any dividends and (ii) do not commit to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Executive's liability for Tax-Related Items.

4.2    Tax Withholding Obligations. Prior to the delivery of Shares upon the vesting of the Award, 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 Award that have an aggregate Fair Market Value sufficient to pay the Tax-Related Items required to be withheld with respect to the Shares. Depending on the withholding method specified in the Plan, the Company may withhold or account for Tax-Related Items by considering applicable minimum 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 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 withholding in 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. 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 Award 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 Performance Shares. 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 Award.

The Executive will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of the Executive's participation in the Plan or the Executive's acquisition of Shares that cannot be satisfied by the means described in this Article IV. The Company may refuse to deliver any Shares due upon vesting of the Award 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 Award, 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 Award and any Shares delivered in payment thereof are the Executive's sole responsibility.

ARTICLE V

International Arrangements

5.1    Exchange Controls. As a condition to this grant 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).

5.2    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.

5.3    Country Specific Addendum. Notwithstanding any provisions of this Agreement to the contrary, the Award 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 Award 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.

5.4    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 Award 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 Award 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

6.1    Restriction on Transferability. Except to the extent expressly provided in the Plan or this Agreement, the Performance Shares 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.

6.2    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 Performance Shares until the date of issuance of such Shares. Upon settlement of the Award, the Executive will obtain, with respect to the Shares received in such settlement, full voting and other rights as a shareholder of the Company.

6.3    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.

6.4    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.

6.5    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 Awards 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 Award does not create any contractual or other right to receive future grants of Awards, benefits in lieu of Awards, 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 Performance Shares, 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 Award 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 Award, the amount realized upon settlement of the Award or the amount realized upon a subsequent sale of any Shares acquired upon settlement of the Award, 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 Performance Shares to correct for any windfalls or shortfalls in such Award 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 Award.

6.6    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 upon which the Shares are listed. If the Executive resides or is employed outside of the United States, the Executive agrees, as a condition of the grant of the Performance Shares, 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 Performance Shares) 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).

6.7    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 adversely affecting 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.

6.8    Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to the Executive shall be addressed to the Executive at the address listed in the Employer's records or to the Executive's electronic investment account held at the Administrator. By a notice given pursuant to this Section 6.08, either party may designate a different address for notices. Any notice shall have been deemed given when actually delivered.

6.9    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 Performance Shares are being issued pursuant to Article 9 of the Plan. Performance Shares 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 PERFORMANCE SHARES, THE PLAN OR THIS AGREEMENT.

6.12    Waiver; No Third Party Beneficiaries. A waiver by the Company of a breach of any provision of this Agreement by the Executive shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Executive. This Agreement shall not be construed to create any third party beneficiary rights.

6.13    Data Privacy.

(i)Pursuant to applicable personal Data (defined below) protection laws, the collection, use, processing and transfer of the Executive's personal Data is necessary for the Company's administration of the Plan and the Executive's participation in the Plan. The Executive expressly and voluntarily (a) acknowledges, consents and agrees to the collection, use, processing and/or transfer of personal Data as described herein; (b) authorizes the Company, its Subsidiaries and the Employer to transfer Data, in electronic or other form, to each other and to any third parties, including the subsequent holding of Shares on the Executive's behalf to a broker or other third party with whom the Executive may elect to deposit any Shares acquired pursuant to the Plan, to assist the Company in the implementation, administration and management of the Plan. These recipients may be located throughout the world. For purposes of this Section 6.13, "Data" means certain personal information about the Executive including (but not limited to) the Executive's name, home address and telephone number, date of birth, social security number or other employee identification number, email address, salary, nationality, job title, any Share ownership and details of any Award or any other entitlement to Shares awarded, canceled, purchased, vested, unvested or outstanding in the Executive's favor for the purpose of managing and administering the Plan.

(ii)Data may be provided by the Executive or collected, where lawful, from third parties. The Company, its Subsidiaries, the Employer and any third party service providers will process the Data collected hereunder for the purpose of implementing, administering and managing the Executive's participation in the Plan. Data processing will take place through electronic and non-electronic means in accordance with applicable Law and the Company, its Subsidiaries and the Employer's policies and procedures as in effect from time to time. The Executive may, at any time, seek to exercise his or her rights provided under applicable personal Data protection laws by contacting his or her local human resources manager.

6.14    Private Placement. The grant of the Performance Shares 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. Neither the Company nor the Employer is providing any tax, legal or financial advice, nor is the Company nor the Employer making any recommendations regarding the Award, 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.

6.16    Securities Law Restrictions. The Executive acknowledges that, depending on the Executive's country of residence (and country of employment, if different), the Executive may be subject to insider trading restrictions and/or market abuse Laws, which may affect the Executive's ability to acquire or sell Shares or rights to Shares (e.g., Performance Shares) under the Plan during such times as the Executive is considered to have "inside information" regarding the Company or its business (as defined by the Laws in the Executive's country of residence and/or employment). Any restrictions under these Laws are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading or other policy. The Executive solely is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on this matter.

6.17    EU Age Discrimination Rules. If the Executive is a local national of and employed in a country that is a member of the European Union, the grant of the Performance Shares and the terms and conditions governing the Performance Shares 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 Award 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 Performance Shares, 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 Award Documents" on the screen titled "Award Acceptance," the Executive expressly agrees to be bound by the terms and conditions of the Award, including Executive's electronic signature as the sole and exclusive means of executing this Agreement.

W.W. GRAINGER, INC.

By:    

DG Macpherson

Chief Executive Officer

Date:

W.W. GRAINGER, INC.

2015 Incentive Plan

Form of Addendum to Form of Performance Share Agreement

In addition to the terms of the W.W. Grainger, Inc. 2015 Incentive Plan (the “Plan”) and the Restricted Stock Unit Agreement (the “Agreement”), the Performance Shares 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 Performance Shares and the Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Executive’s transfer).

Canada

Data Privacy Notice and Consent

This provision supplements Section 6.13 of the Agreement:

The Executive hereby authorizes the Company, its Subsidiaries and the Employer to discuss with and obtain all relevant information pertaining to the Executive from all personnel involved in the administration and operation of the Plan. The Executive further authorizes the Company, its Subsidiaries and the Employer to disclose and discuss the Executive's participation in the Plan with their advisors. The Executive further authorizes the Company, its Subsidiaries and the Employer to record any information pertaining to the Executive’s participation in the Plan and to keep such information in his or her employee file.

Performance Shares Payable in Shares Only

Notwithstanding any provision in the Agreement or the Plan to the contrary, vested Performance Shares shall be payable in Shares only (and shall not be settled in cash).

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 Performance Shares 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 Performance Shares 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.

Use of English Language

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

Utilisation de l’anglais

Si l’exécutif est un résident du Québec, en acceptant le Performance Shares, l l’exécutif reconnaît et accepte que ce est le souhait du l’exécutif que l’Accord, le présent Addenda, ainsi que tous autres documents, avis et procédures judiciaires, exécutés, donnés ou intentés en vertu de le Performance Shares, liés directement ou indirectement, soient rédigés en anglais.

United Kingdom

Income Tax and Social Insurance Contribution Withholding

The following provision shall replace Article IV of the Agreement:

Regardless of any action the Company and the Employer take with respect to any or all income tax, primary and secondary Class 1 National Insurance contributions, payroll tax or other tax-related withholding attributable to or payable in connection with or pursuant to the grant, vesting, or the release or assignment of the Performance Shares for consideration, or the receipt of any other benefit in connection with the Performance Shares (“Tax-Related Items”), the Executive acknowledges 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 Performance Shares, including the grant of the Performance Shares, the vesting of the Performance Shares, and the sale of any Shares acquired pursuant to the Performance Shares, and (ii) do not commit to structure the terms of the Performance Shares or any aspect of the Performance Shares to reduce or eliminate the Executive’s liability for Tax-Related Items.

As a condition to the settlement of the Performance Shares following the Performance Share Vesting Date, the Company and/or the Employer shall be entitled to withhold and the Executive agrees to pay, or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy, all obligations of the Company and/or the Employer to account to HM Revenue & Customs (“HMRC”) for any Tax-Related Items. In this regard, the Executive authorizes the Company or the Employer to withhold all applicable Tax-Related Items legally payable by the Executive from any wages/salary or other cash compensation payable to the Executive. Alternatively, or in addition, if permissible under applicable law, the Executive authorizes the Company, at its discretion and pursuant to such procedures as it may specify from time to time, to satisfy the obligations with regard to all Tax-Related Items legally payable by the Executive by one or a combination of the following: (i) withholding otherwise deliverable whole Shares; (ii) arranging for the sale of whole Shares otherwise deliverable to the Executive (on the Executive’s behalf and at the Executive’s direction pursuant to this authorization); or (iii) withholding from the proceeds of the sale of any Shares acquired upon the vesting of the Performance Shares. If the obligation for Tax-Related Items is satisfied by withholding a number of whole Shares as described herein, the Executive shall be deemed to have been issued the full number of whole Shares issued upon vesting of the Performance Shares, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Performance Shares. If, by the date on which the event giving rise to the Tax-Related Items occurs (the “Chargeable Event”), the Executive has relocated to a country other than the United Kingdom (the “U.K.”), the Executive acknowledges that the Company or the Employer may be required to withhold or account for Tax-Related Items in more than one country, including the U.K. The Executive also agrees that the Company may determine the amount of Tax-Related Items to be withheld and accounted for by reference to the maximum applicable rates, without prejudice to any right which the Executive may have to recover any overpayment from the relevant tax authorities.

The Executive shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to account to HMRC with respect to the Chargeable Event that cannot be satisfied by the means previously described. If payment or withholding is not made within 90 days after the end of the U.K. tax year in which the Chargeable Event occurs or such other period specified in section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003 (the “Due Date”), the Executive agrees that the amount of any uncollected Tax-Related Items shall (assuming the Executive is not a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), constitute a loan owed by the Executive to the Company or the Employer, as effective on the Due Date. The Executive agrees that the loan will bear interest at the then-current HMRC Official Rate and it will be immediately due and repayable, and the Company may recover it at any time thereafter by any of the means referred to above. If any of the foregoing

methods of collection are not allowed under applicable laws or if the Executive fails to comply with the Executive’s obligations in connection with the Tax-Related Items as described in this Article IV, the Company may refuse to deliver any Shares otherwise payable upon the vesting of the Performance Shares.

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

* * * * *

EX-31.1

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 27, 2017

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

EX-31.2

CERTIFICATION

Exhibit 31.2

I, R. L. Jadin, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: April 27, 2017

By:	/s/ R. L. Jadin
Name:	R. L. Jadin
Title:	Senior Vice President and Chief Financial Officer

EX-32

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, 2017, (the “Report”), D.G. Macpherson, as Chief Executive Officer of Grainger, and R. L. Jadin, as Senior Vice President and Chief Financial Officer of Grainger, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ D.G. Macpherson

D.G. Macpherson

Chief Executive Officer

April 27, 2017

/s/ R. L. Jadin

R. L. Jadin

Senior Vice President and Chief Financial Officer

April 27, 2017

XML

DOCUMENT AND ENTITY INFORMATION	3 Months Ended
	Mar. 31, 2017 shares
Document and Entity Information [Abstract]
Entity Registrant Name	GRAINGER W W INC
Entity Central Index Key	0000277135
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding	58,405,698

XML

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Income Statement [Abstract]
Net sales	$ 2,541,129	$ 2,506,538
Cost of merchandise sold	1,521,937	1,461,485
Gross profit	1,019,192	1,045,053
Warehousing, marketing and administrative expenses	723,704	727,961
Operating earnings	295,488	317,092
Other income (expense):
Interest income	193	165
Interest expense	(16,979)	(13,725)
Loss from equity method investment	(8,374)	(6,388)
Other non-operating income	345	440
Total other expense, net	(24,815)	(19,508)
Earnings before income taxes	270,673	297,584
Income taxes	87,820	105,940
Net earnings	182,853	191,644
Less: Net earnings attributable to noncontrolling interest	8,109	4,931
Net earnings attributable to W.W. Grainger, Inc.	$ 174,744	$ 186,713
Earnings per share:
Basic (in dollars per share)	$ 2.95	$ 3.00
Diluted (in dollars per share)	$ 2.93	$ 2.98
Weighted average number of shares outstanding:
Basic (in shares)	58,720,066	61,668,682
Diluted (in shares)	59,202,882	62,099,801
Cash dividends paid per share (in dollars per share)	$ 1.22	$ 1.17

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Statement of Comprehensive Income [Abstract]
Net earnings	$ 182,853	$ 191,644
Other comprehensive earnings:
Foreign currency translation adjustments	29,303	51,490
Postretirement benefit plan reclassification, net of tax benefit of $879 and $631, respectively	(1,398)	(1,009)
Other	(12)	304
Comprehensive earnings, net of tax	210,746	242,429
Less: Comprehensive earnings attributable to noncontrolling interest
Net earnings	8,109	4,931
Foreign currency translation adjustments	5,532	5,704
Comprehensive earnings attributable to W.W. Grainger, Inc.	$ 197,105	$ 231,794

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (PARENTHETICAL) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Statement of Comprehensive Income [Abstract]
Postretirement benefit plan reclassification, tax benefit	$ 879	$ 631

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
CURRENT ASSETS
Cash and cash equivalents	$ 238,801	$ 274,146
Accounts receivable (less allowances for doubtful accounts of $28,208 and $26,690, respectively)	1,325,218	1,223,096
Inventories – net	1,388,091	1,406,470
Prepaid expenses and other assets	110,427	81,766
Prepaid income taxes	33,646	34,751
Total current assets	3,096,183	3,020,229
PROPERTY, BUILDINGS AND EQUIPMENT	3,396,242	3,411,502
Less: Accumulated depreciation and amortization	1,985,930	1,990,611
Property, buildings and equipment – net	1,410,312	1,420,891
DEFERRED INCOME TAXES	79,664	64,775
GOODWILL	533,012	527,150
INTANGIBLES - NET	587,418	586,126
OTHER ASSETS	75,960	75,136
TOTAL ASSETS	5,782,549	5,694,307
CURRENT LIABILITIES
Short-term debt	421,555	386,140
Current maturities of long-term debt	20,069	19,966
Trade accounts payable	672,471	650,092
Accrued compensation and benefits	145,037	212,525
Accrued contributions to employees’ profit sharing plans	23,181	54,948
Accrued expenses	317,243	290,207
Income taxes payable	88,874	15,059
Total current liabilities	1,688,430	1,628,937
LONG-TERM DEBT (less current maturities)	1,847,717	1,840,946
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES	133,984	126,101
EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES	195,895	192,555
SHAREHOLDERS' EQUITY
Cumulative Preferred Stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding	0	0
Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued	54,830	54,830
Additional contributed capital	1,031,926	1,030,256
Retained earnings	7,216,018	7,113,559
Accumulated other comprehensive losses	(249,933)	(272,294)
Treasury stock, at cost – 51,253,521 and 50,854,905 shares, respectively	(6,258,039)	(6,128,416)
Total W.W. Grainger, Inc. shareholders’ equity	1,794,802	1,797,935
Noncontrolling interest	121,721	107,833
Total shareholders' equity	1,916,523	1,905,768
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 5,782,549	$ 5,694,307

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 28,208	$ 26,690
Cumulative preferred stock, par value (in dollars per share)	$ 5	$ 5
Cumulative preferred stock, shares authorized	12,000,000	12,000,000
Cumulative preferred stock, shares issued	0	0
Cumulative preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.5	$ 0.5
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	109,659,219	109,659,219
Treasury stock, shares at cost	51,253,521	50,854,905

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$ 182,853	$ 191,644
Provision for losses on accounts receivable	3,918	3,454
Deferred income taxes and tax uncertainties	(7,632)	21,035
Depreciation and amortization	62,249	56,294
Gains from sales of assets and write-offs	(10,966)	(7,465)
Stock-based compensation	6,757	7,456
Losses from equity method investment	8,374	6,388
Change in operating assets and liabilities – net of business acquisitions:
Accounts receivable	(95,419)	(84,435)
Inventories	27,826	10,831
Prepaid expenses and other assets	(25,943)	4,370
Trade accounts payable	18,051	30,827
Other current liabilities	(64,171)	(104,552)
Current income taxes payable	73,227	32,757
Accrued employment-related benefits cost	1,520	323
Other – net	302	(8,290)
Net cash provided by operating activities	180,946	160,637
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment	(78,768)	(51,797)
Proceeds from sales of assets	48,306	13,817
Equity method investment	(7,067)	(7,199)
Other – net	0	(206)
Net cash used in investing activities	(37,529)	(45,385)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in commercial paper	34,946	214,645
Borrowings under lines of credit	9,883	12,028
Payments against lines of credit	(9,167)	(11,060)
Proceeds from issuance of long-term debt	3,917	245
Payments of long-term debt	(6,235)	(125,014)
Proceeds from stock options exercised	26,345	5,206
Excess tax benefits from stock-based compensation	0	17,287
Payment for employee taxes withheld from stock awards	(11,625)	(6,906)
Purchase of treasury stock	(159,146)	(172,047)
Cash dividends paid	(72,118)	(72,632)
Net cash used in financing activities	(183,200)	(138,248)
Exchange rate effect on cash and cash equivalents	4,438	12,766
NET CHANGE IN CASH AND CASH EQUIVALENTS	(35,345)	(10,230)
Cash and cash equivalents at beginning of year	274,146	290,136
Cash and cash equivalents at end of period	$ 238,801	$ 279,906

XML

BACKGROUND AND BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BACKGROUND AND BASIS OF PRESENTATION

BACKGROUND AND BASIS OF PRESENTATION

W.W. Grainger, Inc. is a broad-line distributor of maintenance, repair and operating (MRO) supplies, and other related products and services used by businesses and institutions.  W.W. Grainger, Inc.’s operations are primarily in the United States (U.S.) and Canada, with a presence in Europe, Asia and Latin America.  In this report, the words “Company” or “Grainger” mean W.W. Grainger, Inc. and its subsidiaries.

The Condensed Consolidated Financial Statements of the Company and the related notes are unaudited and should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).

The Condensed Consolidated Balance Sheet as of December 31, 2016 has been derived from the audited consolidated financial statements at that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

The unaudited financial information reflects all adjustments (primarily consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the statements contained herein.

XML

NEW ACCOUNTING STANDARDS

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

NEW ACCOUNTING STANDARDS

NEW ACCOUNTING STANDARDS

In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Board (ASU) 2015-11, Simplifying the Measurement of Inventory, which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (NRV) test. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2016, and prospective adoption is required. As of January 1, 2017, the Company adopted the ASU and it did not have a material impact on the Company's Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities. This change to the financial instrument model primarily affects the accounting for equity investments, financial liabilities under fair value options and the presentation and disclosure requirements for financial instruments. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2017. Certain provisions of the new guidance can be adopted early. The Company is evaluating the impact of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU improves transparency and comparability related to the accounting and reporting of leasing arrangements. The guidance will require balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of this ASU.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting. This ASU eliminates the requirement to retroactively adjust the investment, results of operations and retained earnings when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The amendment requires that the investor add the cost of acquiring the additional interest to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The effective date of the standard is for fiscal years and interim periods within those years beginning after December 15, 2016. The amendment should be applied prospectively and early application is permitted. As of January 1, 2017, the Company adopted the ASU and it did not have a material impact on the Company's Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment Accounting. This ASU simplifies several aspects of the accounting for employee share-based payment

transactions, including accounting for income taxes, forfeitures and statutory tax withholdings requirements, as well as classification in the statement of cash flows. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2016. As of January 1, 2017, the Company adopted the ASU and it resulted in the following:

Topic	Method of Adoption	Impact on Consolidated Financial Statements
Recognize all excess tax benefits and tax deficiencies as income tax benefit or expense	Prospective	The Company recognized $7.6 million of excess tax benefits in income taxes in the three months ended March 31, 2017, contributing to the lower effective tax rate for the quarter.
Excess tax benefits on the statement of cash flows are classified as an operating activity	Prospective	The Company recognized $7.6 million of excess tax benefits in the three months ended March 31, 2017 as an operating activity. Prior to the adoption of the ASU 2016-09, the excess tax benefit in the three months ended March 31, 2016 was $17.3 million recognized as a financing activity.
Employee taxes paid when an employer withholds shares for tax-withholding purposes on the statement of cash flows are classified as a financing activity	Retrospective	The Company reclassified $6.9 million of employee taxes paid from cash flows from operating activities to cash flows from financing activities on the Consolidated Statements of Cash Flows in the three months ended March 31, 2016.
Accounting for forfeitures and tax withholding elections	Prospective	The company has not changed its accounting policy for forfeitures. There is no significant impact on Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory. This ASU eliminates the existing exception in U.S. GAAP that prohibits the recognition of income tax consequences for most intra-entity asset transfers. The effective date of this ASU is fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption and early adoption is permitted. As of January 1, 2017, the Company elected to early adopt the ASU and it had no impact on the opening balance of retained earnings as of the date of adoption.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The effective date of this ASU is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies how an entity is required to test goodwill for impairment. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and early adoption is permitted. The Company is evaluating the impact of this ASU.

In February 2017, the FASB issued ASU 2017-05, Other Income - Gain and Losses from the Derecognition of Nonfinancial Assets. The FASB issued this ASU to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets.

Subtopic 610-20, which was issued in May 2014 as a part of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The amendments in this ASU are effective at the same time as the amendments in ASU 2014-09. Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is evaluating the impact of this ASU.

In March 2017, the FASB issued ASU 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The FASB issued this ASU primarily to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments in this ASU should be applied retrospectively for the presentation of the net periodic postretirement cost components in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company is evaluating the impact of this ASU.

REVENUE RECOGNITION STANDARDS

In July 2015, FASB announced a one-year delay in the effective date of ASU 2014-09, Revenue from Contracts with Customers. This ASU will now be effective for interim and annual periods beginning after December 15, 2017. The standard will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard permits adoption as early as the original effective date, which was for interim and annual periods beginning after December 15, 2016.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU is meant to reduce the potential for diversity in practice arising from inconsistent application of principal versus agent guidance as well as reduce the cost and complexity during the transition and on an ongoing basis.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. This ASU is meant to clarify the identification of performance obligations and the licensing implementation guidelines, while retaining the related principles of those areas.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This ASU includes technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to ASU 2014-09.

The effective dates of ASU 2016-08, ASU 2016-10 and ASU 2016-20 are consistent with ASU 2014-09. The Company has elected not to early adopt these ASUs. The standard permits the use of either the full retrospective or the modified retrospective adoption method. The Company is planning to elect the modified retrospective method and recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of equity as of January 1, 2018. These ASUs require expanded qualitative and quantitative disclosures of revenue and cash flows emerging from contracts with customers.

The Company has evaluated the provisions of the new standard and is in the process of assessing its impact on financial statements, information systems, business processes and financial statement disclosures. Based on initial reviews, the standard is not expected to have a material impact on the Company's Consolidated Financial Statements.

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DIVIDEND

3 Months Ended

Mar. 31, 2017

Dividends [Abstract]

DIVIDEND

DIVIDEND

On April 26, 2017, the Company’s Board of Directors declared a quarterly dividend of $1.28 per share, payable June 1, 2017, to shareholders of record on May 8, 2017.

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GOODWILL AND OTHER INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

Grainger had approximately $1.1 billion of goodwill and intangible assets as of March 31, 2017 and December 31, 2016, respectively, or 19% and 20% of total assets.  Goodwill and intangible assets with indefinite lives are tested for impairment at least annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. To detect these events, Grainger periodically performs qualitative assessments of factors such as a reporting units' historical and current performance, overall economic factors and assumptions regarding future performance, to determine if it is more likely than not that the goodwill and intangible assets might be impaired and whether it is necessary to perform the two-step quantitative goodwill impairment test.

As previously reported, Grainger completed the annual goodwill and intangible assets impairment testing during the fourth quarter of 2016. The estimated fair values substantially exceeded the carrying values for all of the Company’s reporting units, except for Fabory, which resulted in a $47 million goodwill impairment charge per the two-step quantitative goodwill impairment test.

Grainger monitors the operating performance of its reporting units and the quarterly assessment did not indicate the presence of goodwill impairment triggering events as of March 31, 2017. Changes in assumptions regarding future performance, unfavorable economic environment and changes in market conditions or other factors may have a significant impact on reporting units' cash flows in the future and Grainger may be required to recognize an impairment for goodwill.

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RESTRUCTURING RESERVES

3 Months Ended

Mar. 31, 2017

Restructuring and Related Activities [Abstract]

RESTRUCTURING RESERVES

RESTRUCTURING RESERVES

The Company recorded severance costs of approximately $4 million and $16 million in the three months ended March 31, 2017 and March 31, 2016, respectively, and is included in Warehousing, marketing and administrative expenses. The reserve balance as of March 31, 2017 and December 31, 2016 was approximately $19 million and $23 million, respectively, and is included in Accrued compensation and benefits. The majority of the reserve is expected to be paid through 2017.

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SHORT-TERM AND LONG-TERM DEBT

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

SHORT-TERM AND LONG-TERM DEBT

SHORT-TERM AND LONG-TERM DEBT

The following summarizes information concerning short-term debt (in thousands of dollars):

	March 31, 2017		December 31, 2016
Outstanding lines of credit	$	16,861	$	16,392
Outstanding commercial paper	404,694		369,748
	$	421,555	$	386,140

The increase in commercial paper from December 31, 2016 was used to fund general working capital needs and share repurchase.

Long-term debt consisted of the following (in thousands of dollars):

	March 31, 2017			December 31, 2016
4.60% senior notes due 2045	$	1,000,000		$	1,000,000
3.75% senior notes due 2046	400,000			400,000
British pound term loan and revolving credit facility	185,666			187,506
Euro term loan and revolving credit facility	122,463			120,900
Canadian dollar revolving credit facility	105,176			100,521
Other	73,309			71,109
	1,886,614			1,880,036
Less current maturities	(20,069		)	(19,966		)
Debt issuance costs and discounts	(18,828		)	(19,124		)
	$	1,847,717		$	1,840,946

The estimated fair value of the Company’s 3.75% Senior Notes due 2046 (3.75% Notes) and 4.60% Senior Notes due 2045 (4.60% 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 fair value of the 3.75% Notes was approximately $380 million and $371 million as of March 31, 2017 and December 31, 2016, respectively. The fair value of the 4.60% Notes was approximately $1.1 billion as of March 31, 2017 and December 31, 2016, respectively. The carrying value of other long-term debt approximates fair value due to their variable interest rates.

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EMPLOYEE BENEFITS - POSTRETIREMENT

3 Months Ended

Mar. 31, 2017

Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract]

EMPLOYEE BENEFITS - POSTRETIREMENT

EMPLOYEE BENEFITS - POSTRETIREMENT

The Company has a postretirement healthcare benefits plan that provides coverage for a majority of its U.S. employees hired prior to January 1, 2013, and their dependents should they elect to maintain such coverage upon retirement. Covered employees become eligible for participation when they qualify for retirement while working for the Company. Participation in the plan is voluntary and requires participants to make contributions toward the cost of the plan, as determined by the Company.

The net periodic benefit costs charged to operating expenses, which are valued at the measurement date of January 1 and recognized evenly throughout the year, consisted of the following components (in thousands of dollars):

	Three Months Ended March 31,
	2017			2016
Service cost	$	1,897		$	2,059
Interest cost	2,149			2,464
Expected return on assets	(2,857		)	(2,528		)
Amortization of unrecognized losses	(655		)	32
Amortization of prior service credits	(1,622		)	(1,672		)
Net periodic benefit costs	$	(1,088	)	$	355

The Company has established a Group Benefit Trust to fund the plan and process benefit payments. The funding of the trust is an estimated amount which is intended to allow the maximum deductible contribution under the Internal Revenue Code of 1986 (IRC), as amended.  There are zero minimum funding requirements and the Company intends to follow its practice of funding the maximum deductible contribution under the IRC. The Company did not make a contribution to the trust during the three months ended March 31, 2017.

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SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

SEGMENT INFORMATION

    SEGMENT INFORMATION

The Company has two reportable segments: the U.S. and Canada. The U.S. operating segment reflects the results of the Company's U.S. business. The Canada operating segment primarily reflects the results for Acklands – Grainger Inc. (Acklands-Grainger), the Company’s Canadian business. Other businesses include MonotaRO in Japan, Zoro in the U.S. and operations in Europe, Asia and Latin America. These businesses individually do not meet the definition 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 thousands of dollars):

	Three Months Ended March 31, 2017
	United States			Canada			Other Businesses			Total
Total net sales	$	1,953,444		$	186,141		$	497,407		$	2,636,992
Intersegment net sales	(95,073		)	(12		)	(778		)	(95,863		)
Net sales to external customers	$	1,858,371		$	186,129		$	496,629		$	2,541,129
Segment operating earnings	$	312,470		$	(16,729	)	$	31,507		$	327,248

	Three Months Ended March 31, 2016
	United States			Canada			Other Businesses			Total
Total net sales	$	1,966,267		$	178,771		$	445,333		$	2,590,371
Intersegment net sales	(82,499		)	(36		)	(1,298		)	(83,833		)
Net sales to external customers	$	1,883,768		$	178,735		$	444,035		$	2,506,538
Segment operating earnings	$	331,857		$	(12,347	)	$	21,783		$	341,293

	United States		Canada		Other Businesses		Total
Segment assets:
March 31, 2017	$	2,311,281	$	287,552	$	535,343	$	3,134,176
December 31, 2016	$	2,275,009	$	286,035	$	494,067	$	3,055,111

Following are reconciliations of segment information with the consolidated totals per the financial statements (in thousands of dollars):

	Three Months Ended March 31,
	2017			2016
Operating earnings:
Total operating earnings for operating segments	$	327,248		$	341,293
Unallocated expenses and eliminations	(31,760		)	(24,201		)
Total consolidated operating earnings	$	295,488		$	317,092

	March 31, 2017		Dec 31, 2016
Assets:
Total assets for operating segments	$	3,134,176	$	3,055,111
Other current and non-current assets	2,484,117		2,464,656
Unallocated assets	164,256		174,540
Total consolidated assets	$	5,782,549	$	5,694,307

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

Unallocated expenses and unallocated assets primarily relate to the Company headquarter's support services, which are not part of any business segment, as well as intercompany eliminations. Unallocated expenses include payroll and benefits, depreciation and other costs associated with headquarters-related support services. Unallocated assets include non-operating cash and cash equivalents, certain prepaid expenses and property, buildings and equipment-net.

Intersegment net sales for the U.S. segment increased by $12 million for the three months of 2017 compared to the prior year, driven by increased sales from the U.S. business to Zoro. The U.S. business' supply chain network is Zoro's primary source of inventory.

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in thousands of dollars, except for share and per share amounts):

	Three Months Ended
	March 31,
	2017			2016
Net earnings attributable to W.W. Grainger, Inc. as reported	$	174,744		$	186,713
Distributed earnings available to participating securities	(546		)	(626		)
Undistributed earnings available to participating securities	(932		)	(1,121		)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders	173,266			184,966
Undistributed earnings allocated to participating securities	932			1,121
Undistributed earnings reallocated to participating securities	(924		)	(1,114		)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders	$	173,274		$	184,973
Denominator for basic earnings per share – weighted average shares	58,720,066			61,668,682
Effect of dilutive securities	482,816			431,119
Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities	59,202,882			62,099,801
Earnings per share two-class method
Basic	$	2.95		$	3.00
Diluted	$	2.93		$	2.98

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CONTINGENCIES AND LEGAL MATTERS

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES AND LEGAL MATTERS

CONTINGENCIES AND LEGAL MATTERS

From time to time the Company is involved in various legal and administrative proceedings that are incidental to its business, including claims related to product liability, general negligence, contract disputes, environmental issues, wage and hour laws, intellectual property, employment practices, regulatory compliance or other matters and actions brought by employees, consumers, competitors, suppliers or governmental entities. As a government contractor selling to federal, state and local governmental entities, the Company is also subject to governmental or regulatory inquiries or audits or other proceedings, including those related to pricing compliance. It is not expected that the ultimate resolution of any of these matters will have, either individually or in the aggregate, a material adverse effect on the Company's consolidated financial position or results of operations.

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NEW ACCOUNTING STANDARDS (Policies)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

New Accounting Standards

In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Board (ASU) 2015-11, Simplifying the Measurement of Inventory, which simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost or net realizable value (NRV) test. NRV is calculated as the estimated selling price less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2016, and prospective adoption is required. As of January 1, 2017, the Company adopted the ASU and it did not have a material impact on the Company's Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities. This change to the financial instrument model primarily affects the accounting for equity investments, financial liabilities under fair value options and the presentation and disclosure requirements for financial instruments. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2017. Certain provisions of the new guidance can be adopted early. The Company is evaluating the impact of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU improves transparency and comparability related to the accounting and reporting of leasing arrangements. The guidance will require balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of this ASU.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting. This ASU eliminates the requirement to retroactively adjust the investment, results of operations and retained earnings when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The amendment requires that the investor add the cost of acquiring the additional interest to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The effective date of the standard is for fiscal years and interim periods within those years beginning after December 15, 2016. The amendment should be applied prospectively and early application is permitted. As of January 1, 2017, the Company adopted the ASU and it did not have a material impact on the Company's Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment Accounting. This ASU simplifies several aspects of the accounting for employee share-based payment

transactions, including accounting for income taxes, forfeitures and statutory tax withholdings requirements, as well as classification in the statement of cash flows. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2016. As of January 1, 2017, the Company adopted the ASU and it resulted in the following:

Topic	Method of Adoption	Impact on Consolidated Financial Statements
Recognize all excess tax benefits and tax deficiencies as income tax benefit or expense	Prospective	The Company recognized $7.6 million of excess tax benefits in income taxes in the three months ended March 31, 2017, contributing to the lower effective tax rate for the quarter.
Excess tax benefits on the statement of cash flows are classified as an operating activity	Prospective	The Company recognized $7.6 million of excess tax benefits in the three months ended March 31, 2017 as an operating activity. Prior to the adoption of the ASU 2016-09, the excess tax benefit in the three months ended March 31, 2016 was $17.3 million recognized as a financing activity.
Employee taxes paid when an employer withholds shares for tax-withholding purposes on the statement of cash flows are classified as a financing activity	Retrospective	The Company reclassified $6.9 million of employee taxes paid from cash flows from operating activities to cash flows from financing activities on the Consolidated Statements of Cash Flows in the three months ended March 31, 2016.
Accounting for forfeitures and tax withholding elections	Prospective	The company has not changed its accounting policy for forfeitures. There is no significant impact on Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory. This ASU eliminates the existing exception in U.S. GAAP that prohibits the recognition of income tax consequences for most intra-entity asset transfers. The effective date of this ASU is fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption and early adoption is permitted. As of January 1, 2017, the Company elected to early adopt the ASU and it had no impact on the opening balance of retained earnings as of the date of adoption.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The effective date of this ASU is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies how an entity is required to test goodwill for impairment. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and early adoption is permitted. The Company is evaluating the impact of this ASU.

In February 2017, the FASB issued ASU 2017-05, Other Income - Gain and Losses from the Derecognition of Nonfinancial Assets. The FASB issued this ASU to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets.

Subtopic 610-20, which was issued in May 2014 as a part of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The amendments in this ASU are effective at the same time as the amendments in ASU 2014-09. Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is evaluating the impact of this ASU.

In March 2017, the FASB issued ASU 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The FASB issued this ASU primarily to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments in this ASU should be applied retrospectively for the presentation of the net periodic postretirement cost components in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company is evaluating the impact of this ASU.

REVENUE RECOGNITION STANDARDS

In July 2015, FASB announced a one-year delay in the effective date of ASU 2014-09, Revenue from Contracts with Customers. This ASU will now be effective for interim and annual periods beginning after December 15, 2017. The standard will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard permits adoption as early as the original effective date, which was for interim and annual periods beginning after December 15, 2016.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU is meant to reduce the potential for diversity in practice arising from inconsistent application of principal versus agent guidance as well as reduce the cost and complexity during the transition and on an ongoing basis.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. This ASU is meant to clarify the identification of performance obligations and the licensing implementation guidelines, while retaining the related principles of those areas.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This ASU includes technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to ASU 2014-09.

The effective dates of ASU 2016-08, ASU 2016-10 and ASU 2016-20 are consistent with ASU 2014-09. The Company has elected not to early adopt these ASUs. The standard permits the use of either the full retrospective or the modified retrospective adoption method. The Company is planning to elect the modified retrospective method and recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of equity as of January 1, 2018. These ASUs require expanded qualitative and quantitative disclosures of revenue and cash flows emerging from contracts with customers.

The Company has evaluated the provisions of the new standard and is in the process of assessing its impact on financial statements, information systems, business processes and financial statement disclosures. Based on initial reviews, the standard is not expected to have a material impact on the Company's Consolidated Financial Statements.

Goodwill

Goodwill and intangible assets with indefinite lives are tested for impairment at least annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. To detect these events, Grainger periodically performs qualitative assessments of factors such as a reporting units' historical and current performance, overall economic factors and assumptions regarding future performance, to determine if it is more likely than not that the goodwill and intangible assets might be impaired and whether it is necessary to perform the two-step quantitative goodwill impairment test.

As previously reported, Grainger completed the annual goodwill and intangible assets impairment testing during the fourth quarter of 2016. The estimated fair values substantially exceeded the carrying values for all of the Company’s reporting units, except for Fabory, which resulted in a $47 million goodwill impairment charge per the two-step quantitative goodwill impairment test.

Grainger monitors the operating performance of its reporting units and the quarterly assessment did not indicate the presence of goodwill impairment triggering events as of March 31, 2017. Changes in assumptions regarding future performance, unfavorable economic environment and changes in market conditions or other factors may have a significant impact on reporting units' cash flows in the future and Grainger may be required to recognize an impairment for goodwill.

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NEW ACCOUNTING STANDARDS (Tables)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Schedule of Impact of ASU 2016-09 Adoption on Consolidated Financial Statements

As of January 1, 2017, the Company adopted the ASU and it resulted in the following:

Topic	Method of Adoption	Impact on Consolidated Financial Statements
Recognize all excess tax benefits and tax deficiencies as income tax benefit or expense	Prospective	The Company recognized $7.6 million of excess tax benefits in income taxes in the three months ended March 31, 2017, contributing to the lower effective tax rate for the quarter.
Excess tax benefits on the statement of cash flows are classified as an operating activity	Prospective	The Company recognized $7.6 million of excess tax benefits in the three months ended March 31, 2017 as an operating activity. Prior to the adoption of the ASU 2016-09, the excess tax benefit in the three months ended March 31, 2016 was $17.3 million recognized as a financing activity.
Employee taxes paid when an employer withholds shares for tax-withholding purposes on the statement of cash flows are classified as a financing activity	Retrospective	The Company reclassified $6.9 million of employee taxes paid from cash flows from operating activities to cash flows from financing activities on the Consolidated Statements of Cash Flows in the three months ended March 31, 2016.
Accounting for forfeitures and tax withholding elections	Prospective	The company has not changed its accounting policy for forfeitures. There is no significant impact on Consolidated Financial Statements.

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SHORT-TERM AND LONG-TERM DEBT (Tables)

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Schedule of Short-Term Debt Instruments

The following summarizes information concerning short-term debt (in thousands of dollars):

	March 31, 2017		December 31, 2016
Outstanding lines of credit	$	16,861	$	16,392
Outstanding commercial paper	404,694		369,748
	$	421,555	$	386,140

Schedule of Long-Term Debt Instruments

Long-term debt consisted of the following (in thousands of dollars):

	March 31, 2017			December 31, 2016
4.60% senior notes due 2045	$	1,000,000		$	1,000,000
3.75% senior notes due 2046	400,000			400,000
British pound term loan and revolving credit facility	185,666			187,506
Euro term loan and revolving credit facility	122,463			120,900
Canadian dollar revolving credit facility	105,176			100,521
Other	73,309			71,109
	1,886,614			1,880,036
Less current maturities	(20,069		)	(19,966		)
Debt issuance costs and discounts	(18,828		)	(19,124		)
	$	1,847,717		$	1,840,946

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EMPLOYEE BENEFITS - POSTRETIREMENT (Tables)

3 Months Ended

Mar. 31, 2017

Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract]

Schedule of Net Periodic Benefit Costs Charged to Operating Expenses

The net periodic benefit costs charged to operating expenses, which are valued at the measurement date of January 1 and recognized evenly throughout the year, consisted of the following components (in thousands of dollars):

	Three Months Ended March 31,
	2017			2016
Service cost	$	1,897		$	2,059
Interest cost	2,149			2,464
Expected return on assets	(2,857		)	(2,528		)
Amortization of unrecognized losses	(655		)	32
Amortization of prior service credits	(1,622		)	(1,672		)
Net periodic benefit costs	$	(1,088	)	$	355

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SEGMENT INFORMATION (Tables)

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

Summary of Segment Results

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

	Three Months Ended March 31, 2017
	United States			Canada			Other Businesses			Total
Total net sales	$	1,953,444		$	186,141		$	497,407		$	2,636,992
Intersegment net sales	(95,073		)	(12		)	(778		)	(95,863		)
Net sales to external customers	$	1,858,371		$	186,129		$	496,629		$	2,541,129
Segment operating earnings	$	312,470		$	(16,729	)	$	31,507		$	327,248

	Three Months Ended March 31, 2016
	United States			Canada			Other Businesses			Total
Total net sales	$	1,966,267		$	178,771		$	445,333		$	2,590,371
Intersegment net sales	(82,499		)	(36		)	(1,298		)	(83,833		)
Net sales to external customers	$	1,883,768		$	178,735		$	444,035		$	2,506,538
Segment operating earnings	$	331,857		$	(12,347	)	$	21,783		$	341,293

	United States		Canada		Other Businesses		Total
Segment assets:
March 31, 2017	$	2,311,281	$	287,552	$	535,343	$	3,134,176
December 31, 2016	$	2,275,009	$	286,035	$	494,067	$	3,055,111

Schedule of Reconciliation of Operating Earnings from Segment to Consolidated

Following are reconciliations of segment information with the consolidated totals per the financial statements (in thousands of dollars):

	Three Months Ended March 31,
	2017			2016
Operating earnings:
Total operating earnings for operating segments	$	327,248		$	341,293
Unallocated expenses and eliminations	(31,760		)	(24,201		)
Total consolidated operating earnings	$	295,488		$	317,092

Schedule of Reconciliation of Assets from Segment to Consolidated

	March 31, 2017		Dec 31, 2016
Assets:
Total assets for operating segments	$	3,134,176	$	3,055,111
Other current and non-current assets	2,484,117		2,464,656
Unallocated assets	164,256		174,540
Total consolidated assets	$	5,782,549	$	5,694,307

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EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Schedule of Computation of Basic and Diluted Earnings per Share under Two-Class Method

The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in thousands of dollars, except for share and per share amounts):

	Three Months Ended
	March 31,
	2017			2016
Net earnings attributable to W.W. Grainger, Inc. as reported	$	174,744		$	186,713
Distributed earnings available to participating securities	(546		)	(626		)
Undistributed earnings available to participating securities	(932		)	(1,121		)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders	173,266			184,966
Undistributed earnings allocated to participating securities	932			1,121
Undistributed earnings reallocated to participating securities	(924		)	(1,114		)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders	$	173,274		$	184,973
Denominator for basic earnings per share – weighted average shares	58,720,066			61,668,682
Effect of dilutive securities	482,816			431,119
Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities	59,202,882			62,099,801
Earnings per share two-class method
Basic	$	2.95		$	3.00
Diluted	$	2.93		$	2.98

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NEW ACCOUNTING STANDARDS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Effective income tax rate reconciliation, stock based compensation, excess tax benefit	$ 7,600
Net cash provided by operating activities	180,946	$ 160,637
Excess tax benefits from stock-based compensation	0	17,287
Net cash used in financing activities	183,200	138,248
ASU 2016-09, excess tax benefit component [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Net cash provided by operating activities	$ 7,600
ASU 2016-09, tax withholding component [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Net cash provided by operating activities		6,900
Net cash used in financing activities		$ 6,900

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DIVIDEND - Narrative (Details)	Apr. 26, 2017 $ / shares
Subsequent event
Subsequent Event [Line Items]
Dividend declared (in dollars per share)	$ 1.28

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Millions	3 Months Ended
	Dec. 31, 2016	Mar. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill and intangible assets	$ 1,100	$ 1,100
Goodwill and intangible assets, percent of total assets	20.00%	19.00%
Fabory [Member]
Segment Reporting Information [Line Items]
Goodwill impairment charge	$ 47

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RESTRUCTURING RESERVES - Narrative (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Accrued compensation and benefits [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring reserve	$ 19		$ 23
Warehousing, marketing and administrative expense [Member]
Restructuring Cost and Reserve [Line Items]
Severance costs	$ 4	$ 16

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SHORT-TERM AND LONG-TERM DEBT - Schedule of Short-Term Debt Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Short-term Debt [Line Items]
Outstanding short-term debt	$ 421,555	$ 386,140
Line of Credit [Member]
Short-term Debt [Line Items]
Outstanding short-term debt	16,861	16,392
Commercial Paper [Member]
Short-term Debt [Line Items]
Outstanding short-term debt	$ 404,694	$ 369,748

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SHORT-TERM AND LONG-TERM DEBT - Schedule of Long-Term Debt Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Long-term debt	$ 1,886,614	$ 1,880,036
Other	73,309	71,109
Less current maturities	(20,069)	(19,966)
Debt issuance costs and discounts	(18,828)	(19,124)
Long-term debt, excluding current maturities	1,847,717	1,840,946
British pound denominated term loan and revolving credit facility [Member]
Debt Instrument [Line Items]
Long-term debt	185,666	187,506
Euro denominated term loan and revolving credit facility [Member]
Debt Instrument [Line Items]
Long-term debt	122,463	120,900
Canadian dollar revolving credit facility [Member]
Debt Instrument [Line Items]
Long-term debt	105,176	100,521
Senior Notes, 4.60% due 2045 [Member] | Senior notes [Member]
Debt Instrument [Line Items]
Long-term debt	$ 1,000,000	$ 1,000,000
Stated interest rate	4.60%	4.60%
Senior Notes, 3.75% due 2046 [Member] | Senior notes [Member]
Debt Instrument [Line Items]
Long-term debt	$ 400,000	$ 400,000
Stated interest rate	3.75%	3.75%

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SHORT-TERM AND LONG-TERM DEBT - Narrative (Details) - Senior Notes [Member] - USD ($) $ in Millions	Mar. 31, 2017	Dec. 31, 2016
Senior Notes, 3.75% due 2046 [Member]
Debt Instrument [Line Items]
Stated interest rate	3.75%	3.75%
Debt, fair value	$ 380	$ 371
Senior Notes, 4.60% due 2045 [Member]
Debt Instrument [Line Items]
Stated interest rate	4.60%	4.60%
Debt, fair value	$ 1,100	$ 1,100

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EMPLOYEE BENEFITS - POSTRETIREMENT - Schedule of Net Periodic Benefit Costs Charged to Operating Expenses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract]
Service cost	$ 1,897	$ 2,059
Interest cost	2,149	2,464
Expected return on assets	(2,857)	(2,528)
Amortization of unrecognized losses	(655)	32
Amortization of prior service credits	(1,622)	(1,672)
Net periodic benefit costs	$ (1,088)	$ 355

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SEGMENT INFORMATION - Narrative (Details) $ in Millions	3 Months Ended
	Mar. 31, 2017 USD ($) segment
Segment Reporting Information [Line Items]
Number of reportable segments | segment	2
Service revenues, percent of total revenues	1.00%
United States [Member]
Segment Reporting Information [Line Items]
Intersegment sales increase | $	$ 12

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SEGMENT INFORMATION - Summary of Segment Results (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Summarized Information
Net sales to external customers	$ 2,541,129	$ 2,506,538
Total consolidated operating earnings	295,488	317,092
Total assets	5,782,549		$ 5,694,307
United States [Member]
Summarized Information
Net sales to external customers	1,858,371	1,883,768
Total assets	2,311,281		2,275,009
Canada [Member]
Summarized Information
Net sales to external customers	186,129	178,735
Total assets	287,552		286,035
Other Businesses [Member]
Summarized Information
Net sales to external customers	496,629	444,035
Total assets	535,343		494,067
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member]
Summarized Information
Net sales to external customers	2,636,992	2,590,371
Total consolidated operating earnings	327,248	341,293
Total assets	3,134,176		$ 3,055,111
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member] | United States [Member]
Summarized Information
Net sales to external customers	1,953,444	1,966,267
Total consolidated operating earnings	312,470	331,857
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member] | Canada [Member]
Summarized Information
Net sales to external customers	186,141	178,771
Total consolidated operating earnings	(16,729)	(12,347)
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member] | Other Businesses [Member]
Summarized Information
Net sales to external customers	497,407	445,333
Total consolidated operating earnings	31,507	21,783
Intersegment Eliminations [Member]
Summarized Information
Net sales to external customers	(95,863)	(83,833)
Intersegment Eliminations [Member] | United States [Member]
Summarized Information
Net sales to external customers	(95,073)	(82,499)
Intersegment Eliminations [Member] | Canada [Member]
Summarized Information
Net sales to external customers	(12)	(36)
Intersegment Eliminations [Member] | Other Businesses [Member]
Summarized Information
Net sales to external customers	$ (778)	$ (1,298)

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SEGMENT INFORMATION - Schedule of Reconciliation of Operating Earnings from Segment to Consolidated (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Segment Reporting Information [Line Items]
Total consolidated operating earnings	$ 295,488	$ 317,092
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member]
Segment Reporting Information [Line Items]
Total consolidated operating earnings	327,248	341,293
Eliminations and Unallocated in Consolidation [Member]
Segment Reporting Information [Line Items]
Total consolidated operating earnings	$ (31,760)	$ (24,201)

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SEGMENT INFORMATION - Schedule of Reconciliation of Assets from Segment to Consolidated (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Segment Reporting Information [Line Items]
Total consolidated assets	$ 5,782,549	$ 5,694,307
Segment Balances Before Intersegment Eliminations and Consolidation Reconciling Items [Member]
Segment Reporting Information [Line Items]
Total consolidated assets	3,134,176	3,055,111
Segment Reconciling Items [Member]
Segment Reporting Information [Line Items]
Total consolidated assets	2,484,117	2,464,656
Eliminations and Unallocated in Consolidation [Member]
Segment Reporting Information [Line Items]
Total consolidated assets	$ 164,256	$ 174,540

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EARNINGS PER SHARE - Schedule of Computation of Basic and Diluted Earnings per Share under Two-Class Method (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Earnings Per Share [Abstract]
Net earnings attributable to W.W. Grainger, Inc. as reported	$ 174,744	$ 186,713
Distributed earnings available to participating securities	(546)	(626)
Undistributed earnings available to participating securities	(932)	(1,121)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders	173,266	184,966
Undistributed earnings allocated to participating securities	932	1,121
Undistributed earnings reallocated to participating securities	(924)	(1,114)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders	$ 173,274	$ 184,973
Denominator for basic earnings per share - weighted average shares (in shares)	58,720,066	61,668,682
Effect of dilutive securities (in shares)	482,816	431,119
Denominator for diluted earnings per share - weighted average shares adjusted for dilutive securities (in shares)	59,202,882	62,099,801
Basic (in dollars per share)	$ 2.95	$ 3.00
Diluted (in dollars per share)	$ 2.93	$ 2.98