Document

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 June 30, 2017

[ ] 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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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

Yes [ ] No [X]

There were 57,690,673 shares of the Company’s Common Stock, par value $0.50, outstanding as of June 30, 2017.



	TABLE OF CONTENTS
		Page No.
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited).

	Condensed Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2017 and 2016	4

	Condensed Consolidated Statements of Comprehensive Earnings for the Three and Six Months Ended June 30, 2017 and 2016	5

	Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	27

Item 4.	Controls and Procedures.	27

PART II	OTHER INFORMATION	27

Item 1.	Legal Proceedings.	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	28

Item 6.	Exhibits.	28

Signatures		29

EXHIBITS

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						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Net sales	$	2,615,269		$	2,563,668		$	5,156,398		$	5,070,206
Cost of merchandise sold	1,575,313			1,523,609			3,097,250			2,985,094
Gross profit	1,039,956			1,040,059			2,059,148			2,085,112
Warehousing, marketing and administrative expenses	807,891			734,470			1,531,595			1,462,431
Operating earnings	232,065			305,589			527,553			622,681
Other income (expense):
Interest income	465			162			658			327
Interest expense	(19,905		)	(16,806		)	(36,884		)	(30,531		)
Loss from equity method investment	(6,121		)	(5,427		)	(14,495		)	(11,815		)
Other non-operating income and (expense)	692			(538		)	1,037			(98		)
Total other expense	(24,869		)	(22,609		)	(49,684		)	(42,117		)
Earnings before income taxes	207,196			282,980			477,869			580,564
Income taxes	100,237			103,535			188,057			209,475
Net earnings	106,959			179,445			289,812			371,089
Less: Net earnings attributable to noncontrolling interest	9,038			6,769			17,147			11,700
Net earnings attributable to W.W. Grainger, Inc.	$	97,921		$	172,676		$	272,665		$	359,389
Earnings per share:
Basic	$	1.68		$	2.81		$	4.64		$	5.81
Diluted	$	1.67		$	2.79		$	4.61		$	5.77
Weighted average number of shares outstanding:
Basic	58,012,731			60,891,298			58,363,416			61,278,981
Diluted	58,287,312			61,301,545			58,741,262			61,699,603
Cash dividends paid per share	$	1.28		$	1.22		$	2.50		$	2.39

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands of dollars)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Net earnings	$	106,959		$	179,445		$	289,812		$	371,089
Other comprehensive earnings:
Foreign currency translation adjustments, net of reclassification (see Note 5)	46,543			(6,915		)	75,846			44,575
Postretirement benefit plan reclassification, net of tax benefit of $878, $631, and $1,757, $1,262, respectively	(1,400		)	(1,009		)	(2,798		)	(2,018		)
Other	—			352			(12		)	656
Comprehensive earnings, net of tax	152,102			171,873			362,848			414,302
Less: Comprehensive earnings attributable to noncontrolling interest
Net earnings	9,038			6,769			17,147			11,700
Foreign currency translation adjustments	(1,186		)	8,729			4,346			14,433
Comprehensive earnings attributable to W.W. Grainger, Inc.	$	144,250		$	156,375		$	341,355		$	388,169

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

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



	(Unaudited)
ASSETS	June 30, 2017		December 31, 2016
CURRENT ASSETS
Cash and cash equivalents	$	275,065	$	274,146
Accounts receivable (less allowances for doubtful
accounts of $32,174 and $26,690, respectively)	1,369,626		1,223,096
Inventories – net	1,397,804		1,406,470
Prepaid expenses and other assets	106,659		81,766
Prepaid income taxes	37,193		34,751
Total current assets	3,186,347		3,020,229
PROPERTY, BUILDINGS AND EQUIPMENT	3,410,237		3,411,502
Less: Accumulated depreciation and amortization	2,018,041		1,990,611
Property, buildings and equipment – net	1,392,196		1,420,891
DEFERRED INCOME TAXES	79,264		64,775
GOODWILL	536,580		527,150
INTANGIBLES - NET	592,473		586,126
OTHER ASSETS	75,021		75,136
TOTAL ASSETS	$	5,861,881	$	5,694,307

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	June 30, 2017			December 31, 2016
CURRENT LIABILITIES
Short-term debt	$	129,066		$	386,140
Current maturities of long-term debt	29,232			19,966
Trade accounts payable	692,689			650,092
Accrued compensation and benefits	197,073			212,525
Accrued contributions to employees’ profit sharing plans	48,905			54,948
Accrued expenses	291,226			290,207
Income taxes payable	22,387			15,059
Total current liabilities	1,410,578			1,628,937
LONG-TERM DEBT (less current maturities)	2,267,872			1,840,946
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES	135,270			126,101
EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES	199,965			192,555
SHAREHOLDERS' EQUITY
Cumulative Preferred Stock – $5 par value – 12,000,000 shares authorized; none issued or outstanding	—			—
Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued	54,830			54,830
Additional contributed capital	1,034,980			1,030,256
Retained earnings	7,239,159			7,113,559
Accumulated other comprehensive losses	(203,604		)	(272,294		)
Treasury stock, at cost – 51,968,546 and 50,854,905 shares, respectively	(6,402,037		)	(6,128,416		)
Total W.W. Grainger, Inc. shareholders’ equity	1,723,328			1,797,935
Noncontrolling interest	124,868			107,833
Total shareholders' equity	1,848,196			1,905,768
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	5,861,881		$	5,694,307

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

(Unaudited)



	Six Months Ended
	June 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	289,812		$	371,089
Provision for losses on accounts receivable	12,769			8,282
Deferred income taxes and tax uncertainties	(7,339		)	4,565
Depreciation and amortization	128,195			113,496
Net losses (gains) from sales of assets and non-cash charges	12,537			(15,564		)
Stock-based compensation	20,030			21,135
Losses from equity method investment	14,495			11,815
Change in operating assets and liabilities – net of business acquisitions:
Accounts receivable	(136,844		)	(98,394		)
Inventories	29,936			8,733
Prepaid expenses and other assets	(24,232		)	(6,143		)
Trade accounts payable	36,817			43,338
Other current liabilities	(18,989		)	(112,256		)
Current income taxes payable	6,360			(1,368		)
Accrued employment-related benefits cost	3,655			3,877
Other – net	4,976			(9,512		)
Net cash provided by operating activities	372,178			343,093
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment	(131,147		)	(105,717		)
Proceeds from sales of assets	69,758			43,119
Equity method investment	(13,300		)	(10,340		)
Other – net	(146		)	(597		)
Net cash used in investing activities	(74,835		)	(73,535		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in commercial paper	(269,841		)	19,888
Borrowings under lines of credit	30,374			18,501
Payments against lines of credit	(18,036		)	(19,306		)
Proceeds from issuance of long-term debt	415,672			393,284
Payments of long-term debt	(7,799		)	(129,981		)
Proceeds from stock options exercised	27,064			26,191
Payments for employee taxes withheld from stock awards	(16,719		)	(16,704		)
Excess tax benefits from stock-based compensation	—			9,770
Purchase of treasury stock	(313,562		)	(412,647		)
Cash dividends paid	(151,637		)	(147,480		)
Net cash used in financing activities	(304,484		)	(258,484		)
Exchange rate effect on cash and cash equivalents	8,060			14,787
NET CHANGE IN CASH AND CASH EQUIVALENTS	919			25,861
Cash and cash equivalents at beginning of year	274,146			290,136
Cash and cash equivalents at end of period	$	275,065		$	315,997

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

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION

W.W. Grainger, Inc. is a broad-line 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.

Certain amounts in the Condensed Consolidated Statements of Cash Flows, as previously reported, have been reclassified to conform to the 2017 presentation. In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment Accounting, which became effective January 1, 2017. As a result, the Company reclassified $16.7 million of employee taxes paid from cash flows from operating activities to cash flows from financing activities in the Consolidated Statements of Cash Flows for the six months ended June 30, 2016.

2. NEW ACCOUNTING STANDARDS

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

In February 2016, the FASB issued ASU 2016-02, Leases. 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 of this ASU is for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of this ASU.

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

In January 2017, the FASB issued ASU 2017-01, 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 and interim periods beginning after December 15, 2017. The 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.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 this ASU is for fiscal years and interim periods beginning after December 15, 2019 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. This ASU 2017-05 clarifies 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 ASU is effective at the same time as ASU 2014-09. Therefore, for public entities, the amendments are effective for fiscal years and interim periods beginning after December 15, 2017. 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. This ASU improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. 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.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. The ASU should be applied prospectively on and after the effective date. 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 fiscal years 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.

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 reduces 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 clarifies 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.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

On July 26, 2017, the Company’s Board of Directors declared a quarterly dividend of $1.28 per share, payable September 1, 2017, to shareholders of record on August 14, 2017.

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Grainger had approximately $1.1 billion of goodwill and intangible assets as of June 30, 2017 and December 31, 2016, or 19% and 20% of total assets, respectively. 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 reporting units' historical and current performance, strategic initiatives and 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 impairment test.

Grainger’s quarterly qualitative assessment did not indicate the presence of impairment triggering events for goodwill and intangible assets as of June 30, 2017. The Company considered the restructuring actions discussed in Note 5 below to determine if it were more likely than not that the goodwill of its Canada reporting unit was impaired and concluded that the two-step quantitative impairment test was not necessary as of June 30, 2017. However, as Canada’s improvement plan evolves, volume growth, price increases and execution of market pricing programs and productivity initiatives may have a significant impact on the reporting unit’s cash flows.

Changes in assumptions regarding future performance of the Company’s reporting units and their ability to execute on growth initiatives and productivity improvements, along with cost increases outpacing price increases and operating margin declines, may have a significant impact on performance. Likewise, unfavorable economic environment or other factors and changes in market conditions may occur in key markets the Company’s reporting units operate and future impairments of the goodwill and intangible assets may result.

5. RESTRUCTURING RESERVES

The Company continues to evaluate performance and take restructuring actions to reduce costs in the U.S., and to streamline and focus on profitability in Canada and Other Businesses. Total restructuring and related charges for the Company were $62 million and $57 million in the three and six months ended June 30, 2017, respectively, net of gains on sale of branches of $13 million and $23 million for the same periods. Total restructuring and other charges for the Company were $17 million and $37 million in the three and six months ended June 30, 2016, respectively, net of gains on sale of branches of $15 million for the same periods. Approximately 80% and 50% of the charges in the six months ended June 30, 2017 and 2016, respectively, were non-cash. The total amount the Company expects to incur in connection with these restructuring activities is an additional $17 million, approximately, through 2018. The current year net charges are primarily comprised of the following:

U.S.

Through the first half of 2017, the Company continued initiatives to take cost out in the U.S., including contact centers consolidation and other actions resulting in $13 million and $17 million restructuring charges, primarily related to involuntary employee termination costs and asset write-down in the three and six months ended June 30, 2017, respectively. These restructuring activities are expected to be completed in 2018.

Canada

In May 2017, the Company announced the closures of 59 underperforming branches and other actions in Canada, resulting in $20 million of restructuring charges, primarily related to involuntary employee termination costs, facility closures and asset write-downs. The branch closures are expected to occur in 2017 through early 2018.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Other Businesses

In May 2017, the Company announced plans to wind-down its operations in Colombia, expected to be completed in 2018. As a result, the Company recorded total charges of $26 million related to involuntary employee termination costs, asset write-downs and other exit costs. In addition, $16 million of accumulated foreign currency translation losses from the consolidation of this business unit was reclassified from Accumulated other comprehensive earnings (losses) to the Consolidated Statement of Earnings and is reported in Warehousing, marketing and administrative expenses. The Company cannot recognize the tax benefit associated with the Colombia exit.

Company Involuntary Employee Termination Costs

The total of involuntary employee termination costs related to the restructuring in the U.S. and Canada are included in Warehousing, marketing and administrative expenses and were approximately $13 million and $17 million in the three and six months ended June 30, 2017, respectively, and approximately $9 million and $25 million in the three and six months ended June 30, 2016, respectively. The severance reserve balance as of June 30, 2017 and December 31, 2016 was approximately $26 million and $23 million, respectively, and is included in Accrued compensation and benefits, with the majority expected to be paid through 2017 and early 2018.

6. SHORT-TERM AND LONG-TERM DEBT

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



	June 30, 2017		December 31, 2016
Outstanding lines of credit	$	29,160	$	16,392
Outstanding commercial paper	99,906		369,748
	$	129,066	$	386,140

As of June 30, 2017 and December 31, 2016, there was $100 million and $370 million, respectively, of commercial paper outstanding. A portion of the proceeds from the May 2017 bond issuance (see below) were used to redeem outstanding commercial paper.

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



	June 30, 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
4.20% senior notes due 2047	400,000			—
British pound term loan and revolving credit facility	192,771			187,506
Euro term loan and revolving credit facility	131,364			120,900
Canadian dollar revolving credit facility	111,865			100,521
Other	85,373			71,109
	2,321,373			1,880,036
Less current maturities	(29,232		)	(19,966		)
Debt issuance costs and discounts	(24,269		)	(19,124		)
	$	2,267,872		$	1,840,946

On May 22, 2017, the Company issued $400 million of unsecured 4.20% Senior Notes (4.20% Notes) that mature on May 15, 2047. The 4.20% Notes require no principal payments until the maturity date and interest is payable semi-annually on May 15 and November 15, beginning on November 15, 2017. Prior to November 15, 2046, the Company may redeem the 4.20% Notes in whole at any time or gradually at a “make-whole” redemption price. This redemption price is calculated by reference to the then-current yield on a U.S. treasury security with a maturity comparable to the remaining term of the 4.20% Notes plus 20 basis points, together with accrued and unpaid interest, if any, at the redemption date. Additionally, if the Company experiences specific kinds of changes in control, it will be required to make an offer to purchase the 4.20% Notes at 101% of their principal amount plus accrued and unpaid interest, if any, at the date of purchase. Costs and discounts of approximately $5.8 million associated with the issuance of the 4.20% Notes, representing underwriting fees and other expenses, have been recorded as a contra-liability within Long-term debt and will be amortized to interest expense over the term of the 4.20% Notes.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The estimated fair value of the Company’s 4.20% Notes, 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 4.20% Notes was approximately $410 million as of June 30, 2017. The fair value of the 3.75% Notes was approximately $384 million and $371 million as of June 30, 2017 and December 31, 2016, respectively. The fair value of the 4.60% Notes was approximately $1.1 billion as of June 30, 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 (and their dependents) hired prior to January 1, 2013, 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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Service cost	$	1,897		$	2,060		$	3,794		$	4,119
Interest cost	2,148			2,463			4,297			4,927
Expected return on assets	(2,857		)	(2,528		)	(5,714		)	(5,056		)
Amortization of unrecognized (gains) losses	(656		)	32			(1,311		)	64
Amortization of prior service credits	(1,622		)	(1,672		)	(3,244		)	(3,344		)
Net periodic (benefits) costs	$	(1,090	)	$	355		$	(2,178	)	$	710

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 did not make contributions to the trust during the six months ended June 30, 2017. The Company intends to follow its practice of funding the maximum deductible amounts under the IRC.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 reflects the results for Acklands – Grainger Inc. and its subsidiaries (Acklands-Grainger), the Company’s Canadian business. Other businesses include MonotaRO in Japan, Zoro in the U.S. and certain Company business operations in Europe, Asia and Latin America. Other businesses do not meet the definition of a reportable segment. Operating segments generate revenue almost exclusively through the distribution of maintenance, repair and operating supplies, as service revenues account for less than 1% of total revenues for each operating segment. Following is a summary of segment results (in thousands of dollars):



	Three Months Ended June 30, 2017
	United States			Canada			Other Businesses			Total
Total net sales	$	1,999,153		$	189,113		$	526,560		$	2,714,826
Intersegment net sales	(98,507		)	10			(1,060		)	(99,557		)
Net sales to external customers	$	1,900,646		$	189,123		$	525,500		$	2,615,269
Segment operating earnings (losses)	$	312,289		$	(27,727	)	$	(14,222	)	$	270,340



	Three Months Ended June 30, 2016
	United States			Canada			Other Businesses			Total
Total net sales	$	1,978,542		$	194,418		$	474,166		$	2,647,126
Intersegment net sales	(82,442		)	(50		)	(966		)	(83,458		)
Net sales to external customers	$	1,896,100		$	194,368		$	473,200		$	2,563,668
Segment operating earnings (losses)	$	348,938		$	(27,741	)	$	29,724		$	350,921



	Six Months Ended June 30, 2017
	United States			Canada			Other Businesses			Total
Total net sales	$	3,952,597		$	375,254		$	1,023,967		$	5,351,818
Intersegment net sales	(193,579		)	(3		)	(1,838		)	(195,420		)
Net sales to external customers	$	3,759,018		$	375,251		$	1,022,129		$	5,156,398
Segment operating earnings (losses)	$	624,759		$	(44,456	)	$	17,285		$	597,588



	Six Months Ended June 30, 2016
	United States			Canada			Other Businesses			Total
Total net sales	$	3,944,809		$	373,189		$	919,500		$	5,237,498
Intersegment net sales	(164,941		)	(86		)	(2,265		)	(167,292		)
Net sales to external customers	$	3,779,868		$	373,103		$	917,235		$	5,070,206
Segment operating earnings (losses)	$	680,795		$	(40,088	)	$	51,508		$	692,215

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)



	United States		Canada		Other Businesses		Total
Segment assets:
June 30, 2017	$	2,334,275	$	289,060	$	563,315	$	3,186,650
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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Operating earnings:
Total operating earnings for operating segments	$	270,340		$	350,921		$	597,588		$	692,215
Unallocated expenses and eliminations	(38,275		)	(45,332		)	(70,035		)	(69,534		)
Total consolidated operating earnings	$	232,065		$	305,589		$	527,553		$	622,681



	June 30, 2017		December 31, 2016
Assets:
Total assets for operating segments	$	3,186,650	$	3,055,111
Other current and non-current assets	2,509,003		2,464,656
Unallocated assets	166,228		174,540
Total consolidated assets	$	5,861,881	$	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 assets of 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 $16 million and $29 million for the three and six months ended June 30, 2017, respectively, compared to the prior year, driven by increased sales from the U.S. business to Zoro. Zoro's primary source of inventory is the U.S. business' supply chain network.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

9. EARNINGS PER SHARE

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



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Net earnings attributable to W.W. Grainger, Inc. as reported	$	97,921		$	172,676		$	272,665		$	359,389
Distributed earnings available to participating securities	(427		)	(576		)	(973		)	(1,202		)
Undistributed earnings available to participating securities	(217		)	(970		)	(1,159		)	(2,092		)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders	97,277			171,130			270,533			356,095
Undistributed earnings allocated to participating securities	217			970			1,159			2,092
Undistributed earnings reallocated to participating securities	(216		)	(964		)	(1,152		)	(2,078		)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders	$	97,278		$	171,136		$	270,540		$	356,109
Denominator for basic earnings per share – weighted average shares	58,012,731			60,891,298			58,363,416			61,278,981
Effect of dilutive securities	274,581			410,247			377,846			420,622
Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities	58,287,312			61,301,545			58,741,262			61,699,603
Earnings per share two-class method
Basic	$	1.68		$	2.81		$	4.64		$	5.81
Diluted	$	1.67		$	2.79		$	4.61		$	5.77

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.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

General

Grainger is a broad-line distributor of maintenance, repair and operating (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.

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:



	United States		Canada
	2017 Forecast (July)	2017 Forecast (April)	2017 Forecast (July)	2017 Forecast (April)
Business Investment	4.3%	4.4%	1.1%	0.7%
Business Inventory	0.6%	1.5%	—%	—
Exports	2.7%	3.0%	1.2%	1.9%
Industrial Production	2.0%	2.3%	3.9%	2.3%
GDP	2.3%	2.4%	2.5%	2.3%
Oil Prices	—	—	$49/barrel	$53/barrel
Source: Global Insight (April & July 2017)

In the U.S., Business Investment and Exports are two major indicators of MRO spending. Per the Global Insight July 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, as exports have responded to improved economic growth among countries that the U.S. exports to.

Per the Global Insight July 2017 forecast, Canada economic growth, as measured by GDP, is forecast to grow to 2.5% in 2017. The 2017 forecast assumes that oil prices will continue to grow and stabilize as compared to 2016 and that business nonresidental investment (a component of Business Investment) will begin to increase. The latest forecast is for the Canadian dollar to strengthen against the U.S. dollar over the next two years.

Outlook

On July 19, 2017, Grainger reiterated 2017 sales growth guidance of 1 to 4 percent and the 2017 adjusted earnings per share guidance of the range of $10.00 to $11.30. The second quarter performance was as expected and the Company anticipates continued positive response to the U.S. pricing actions in the second half of the year.

Matters Affecting Comparability

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

Results of Operations – Three Months Ended June 30, 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):

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



	Three Months Ended June 30,
					Percent Increase/(Decrease)		As a Percent of Net Sales
	2017 (A)		2016 (A)		Percent Increase/(Decrease)		2017		2016
Net sales	$	2,615	$	2,564	2	%	100.0	%	100.0	%
Cost of merchandise sold	1,575		1,524		3	%	60.2		59.4
Gross profit	1,040		1,040		—	%	39.8		40.6
Operating expenses	808		734		10	%	30.9		28.7
Operating earnings	232		306		(24	)%	8.9		11.9
Other expense	25		23		10	%	1.0		0.9
Income taxes	100		104		(3	)%	3.8		4.0
Noncontrolling interest	9		7		34	%	0.3		0.3
Net earnings attributable to W.W. Grainger, Inc.	$	98	$	173	(43	)%	3.7	%	6.7	%

(A) May not sum due to rounding

Grainger’s net sales of $2,615 million for the second quarter of 2017 increased 2% compared with sales of $2,564 million for the comparable 2016 quarter. The 2% increase consisted of the following:



	Percent Increase/(Decrease)
Volume	7
Foreign exchange	(1)
Holiday timing	(1)
Price	(3)
Total	2%

The increase in net sales was primarily driven by single channel online businesses in the U.S. and Japan, as well as, volume increases in the U.S. as a result of the pricing actions. Refer to the Segment Analysis below for further details.

In the three months ended June 30, 2017, eCommerce sales for Grainger were $1,349 million, an increase of 14% over the prior year. Total eCommerce sales represented 52% and 46% of total sales for the three months ended June 30, 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 the online business in Japan. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 57% and 52% of total sales for the three months ended June 30, 2017 and 2016, respectively.

Gross profit of $1,040 million for the second quarter of 2017 was flat compared to the same quarter in 2016. The gross profit margin of 39.8% during the second quarter of 2017 decreased 0.8 percentage point when compared to the same period in 2016, driven by customer response to U.S. pricing actions.

Operating expenses of $808 million for the second quarter of 2017 increased 10% from $734 million for the comparable 2016 quarter. The increase was primarily due to the following:


•	$13 million in restructuring in the U.S., primarily related to contact centers and asset write-downs offset by $13 million in gains on the sales of branches.


•	$17 million in restructuring due to announced branch closures and asset write-downs in Canada.


•	$42 million in Other Businesses, primarily related to the wind-down of Colombia.

Excluding restructuring costs and the gain on sale of assets in both periods, operating expenses increased 3%, driven primarily by increased expense based on higher volume.

Operating earnings for the second quarter of 2017 were $232 million, a decrease of 24% compared to the second quarter of 2016. Excluding restructuring costs and the gain on the sale of assets in both periods mentioned above,

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

operating earnings decreased 9%, driven primarily by lower gross profit from the pricing actions in the U.S business and increased operating expense based on higher volume.

Net earnings attributable to W.W. Grainger, Inc. for the second quarter of 2017 decreased 43% to $98 million from $173 million in the second quarter of 2016. Excluding restructuring costs and gains on sales of assets in both periods mentioned above, net earnings decreased 10%, primarily related to higher operating expenses.

Diluted earnings per share of $1.67 in the second quarter of 2017 were down 40% versus the $2.79 for the second quarter of 2016, due to lower earnings, partially offset by lower average shares outstanding.

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



	Three Months Ended
	June 30,
	2017	2016	%
Operating earnings reported	$232,065	$305,589	(24	)%
Branch gains (United States)	(13,438)	(15,376)
Restructuring (United States)	13,541	6,024
Restructuring (Canada)	20,485	8,055
Inventory reserve adjustment (Canada)	—	9,847
Restructuring (Other Businesses)	41,510	—
Restructuring (Unallocated expense)	—	8,947
Subtotal	62,098	17,497
Operating earnings adjusted	$294,163	$323,086	(9	)%

Segment Analysis

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. 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 business unit level include external and intersegment net sales and operating earnings. See Note 8 to the Condensed Consolidated Financial Statements.

United States

Net sales were $1,999 million for the second quarter of 2017, an increase of 1% when compared with net sales of $1,979 million for the same period in 2016. The 1% increase consisted of the following:



	Percent Increase/(Decrease)
Volume	5
Intercompany sales to Zoro	1
Holiday timing	(1)
Price	(4)
Total	1%

Sales to customers in natural resources and retail end markets increased mid-single digits, while heavy manufacturing and resellers increased low single digits. Sales to commercial end markets and government were flat. The Company believes Government sales have slowed due to budgets not coming through and the funds not being released. Sales

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

to Zoro continue to contribute to sales growth as the U.S. business' supply chain network is Zoro's primary source of inventory, as well as volume increases in the U.S. as a result of the pricing actions.

In the three months ended June 30, 2017, eCommerce sales for the U.S. business were $1,009 million, an increase of 10% over the prior year. Total eCommerce sales represented 50% and 46% of total sales for the three months ended June 30, 2017 and 2016, respectively. The increase was primarily driven by an increase in sales via EDI and electronic purchasing platforms. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 57% and 53% of total sales for the three months ended June 30, 2017 and 2016, respectively.

The gross profit margin for the second quarter of 2017 decreased 1.3 percentage points compared to the same period in 2016 largely due to the pricing actions. Excluding sales to Zoro, the gross profit margin decreased 1.1 percentage points versus prior year.

Operating expenses of $507 million in the second quarter of 2017 increased $20 million, or 4% versus the second quarter of 2016. Operating expenses in 2017 included a $13 million benefit from the gain on sale of branches and $13 million of restructuring costs. Excluding restructuring costs and gain on sale of assets in both periods mentioned above, operating expenses increased 2% on 5% of volume growth.

Operating earnings of $312 million for the second quarter of 2017 decreased 11% from $349 million for the second quarter of 2016 . Excluding the restructuring charges and gain on the sale of assets in both periods mentioned above, operating earnings decreased 8%, driven primarily by the pricing actions.

Canada

Net sales were $189 million for the second quarter of 2017, a decrease of $5 million, or 3%, when compared with $194 million for the same period in 2016. In local currency, sales increased 2%. The 3% decrease consisted of the following:



	Percent Increase/(Decrease)
Wildfire impact	2
Volume	2
Price	(1)
Holiday timing	(1)
Foreign exchange	(5)
Total	(3)%

The business in Canada continues to stabilize based on the improved economy and recovery from the 2016 implementation of the Company's common North American ERP platform. 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 June 30, 2017, eCommerce sales in Canada were $32 million, an increase of 27% over the prior year. Total eCommerce sales represented 17% and 13% of total sales for the three months ended June 30, 2017 and 2016, respectively. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 31% and 24% of total sales for the three months ended June 30, 2017 and 2016, respectively.

The gross profit margin increased 4.1 percentage points in the second quarter of 2017 versus the second quarter of 2016 due largely to a favorable comparison to an inventory adjustment in the prior year. During the quarter ended June 30, 2016, the Canadian business recorded an additional reserve of $10 million, as a result of additional visibility to inventory performance provided by the conversion to the North American ERP platform.

Operating expenses increased $6 million, or 8% in the second quarter of 2017 versus the second quarter of 2016. Excluding restructuring costs in both quarters mentioned above, operating expenses decreased 6%, primarily related to reductions in employee related costs.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Operating loss of $28 million for the second quarter of 2017, was flat versus a $28 million operating loss in the second quarter of 2016. Excluding restructuring costs in both quarters mentioned above, operating loss would have decreased $3 million, primarily related to reductions in employee related costs. Canada continues to manage expenses resulting in improved performance and a smaller loss than prior year.

Other Businesses

Net sales for other businesses, which include MonotaRO in Japan, Zoro in the U.S., and operations in Europe, Asia and Latin America, were $527 million for the second quarter of 2017, an increase of $52 million, or 11%, when compared with net sales of $474 million for the same period in 2016. Sales increased 11% for the quarter and consisted of the following:



	Percent Increase/(Decrease)
Price/volume	14
Foreign exchange	(3)
Total	11%

Operating loss of $14 million for the second quarter of 2017 was down $44 million compared to operating earnings of $30 million the second quarter of 2016. The operating loss included the $42 million in charges, primarily from the wind-down of the business in Colombia, partially offset by strong results from Zoro in the U.S. and MonotaRo in Japan.

Other Income and Expense

Other income and expense was $25 million of expense in the second quarter of 2017 compared to $23 million of expense in the second quarter of 2016. The increase in expense was primarily due to interest expense from the additional $400 million in long-term debt issued in May 2017, as well as expected losses from the Company's investments in clean energy.

Income Taxes

For the quarter, the effective tax rate in 2017 was 48.4% versus 36.6% in 2016. The increase is primarily due to the wind-down of the business in Colombia and the inability to realize the associated tax benefits.

Matters Affecting Comparability

There were 128 sales days in the six months ended June 30, 2017 and 2016.

Results of Operations – Six Months Ended June 30, 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):



	Six Months Ended June 30,
					Percent Increase/(Decrease)		As a Percent of Net Sales
	2017 (A)		2016 (A)		Percent Increase/(Decrease)		2017		2016
Net sales	$	5,156	$	5,070	2	%	100.0	%	100.0	%
Cost of merchandise sold	3,097		2,985		4	%	60.1		58.9
Gross profit	2,059		2,085		(1	)%	39.9		41.1
Operating expenses	1,532		1,462		5	%	29.7		28.8
Operating earnings	528		623		(15	)%	10.2		12.3
Other expense	50		42		18	%	1.0		0.8
Income taxes	188		209		(10	)%	3.6		4.1
Noncontrolling interest	17		12		47	%	0.3		0.2
Net earnings attributable to W.W. Grainger, Inc.	$	273	$	359	(24	)%	5.3	%	7.1	%

(A) May not sum due to rounding

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Grainger’s net sales of $5,156 million for the six months ended June 30, 2017 increased 2% compared with sales of $5,070 million for the comparable 2016 period. The 2% increase consisted of the following:



	Percent Increase/(Decrease)
Volume	6
Foreign exchange	(1)
Price	(3)
Total	2%

In the six months ended June 30, 2017, eCommerce sales for Grainger were $2,642 million, an increase of 14% over the prior year. Total eCommerce sales represented 51% and 46% of total sales for the six months ended June 30, 2017 and 2016, respectively. The increase was primarily driven by an increase in sales via EDI and electronic purchasing platforms in the U.S. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 57% and 52% of total sales for the six months ended June 30, 2017 and 2016, respectively.

Gross profit of $2,059 million for the six months ended June 30, 2017 decreased 1% compared with $2,085 million in the same period in 2016. The gross profit margin during the six months ended June 30, 2017 decreased 1.2 percentage points when compared to the same period in 2016, primarily due to the customer response to the U.S. pricing action.

Operating expenses of $1,532 million for the six months ended June 30, 2017 increased 5% compared with $1,462 million for the comparable 2016 period. The increase was primarily due to the following:


•	$17 million in restructuring in the U.S., primarily related to contact centers and asset write-downs offset by $23 million in gain on sales of branches.


•	$18 million in restructuring due to announced branch closures and asset write-downs in Canada.


•	$42 million in Other Businesses, primarily related to the wind-down of Colombia.

Excluding restructuring costs and the gain on sale of assets in both periods, operating expenses increased 3%, driven primarily by increased expense based on higher volume.

Operating earnings for the six months ended June 30, 2017 were $528 million, a decrease of $95 million or 15%, compared to the six months ended June 30, 2016. Excluding restructuring costs and the gain on sale of assets in both periods mentioned above, operating earnings decreased 11%, driven primarily by lower gross profit and higher operating expenses.

Net earnings attributable to W.W. Grainger, Inc. for the six months ended June 30, 2017 decreased 24% to $273 million from $359 million in the six months ended June 30, 2016.

Diluted earnings per share of $4.61 in the six months ended June 30, 2017 were 20% lower than the $5.77 for the six months ended June 30, 2016, due to lower earnings, partially offset by lower average shares outstanding.

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

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



	Six Months Ended
	June 30,
	2017	2016	%
Operating earnings reported	$527,553	$622,681	(15	)%
Branch gains (United States)	(22,826)	(15,380)
Restructuring (United States)	16,607	22,435
Restructuring (Canada)	21,572	11,132
Inventory reserve adjustment (Canada)	—	9,847
Restructuring (Other Businesses)	41,510	—
Restructuring (Unallocated expense)	—	8,947
Subtotal	56,863	36,981
Operating earnings adjusted	$584,416	$659,662	(11	)%

Segment Analysis

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

United States

Net sales were $3,953 million for the six months ended June 30, 2017, and were flat when compared with net sales of $3,945 million for the same period in 2016. Sales for the period consisted of the following:



	Percent Increase/(Decrease)
Volume	4
Intercompany sales to Zoro	1
Seasonal sales	(1)
Price	(4)
Total	0%

Sales to customers in retail end markets increased mid-single digits, while heavy manufacturing and natural resources increased low single digits. The sales growth was partially offset by declines in contractors and commercial services. Sales to Zoro continue to contribute to sales growth as the U.S. business' supply chain network is Zoro's primary source of inventory, as well as volume increases in the U.S. as a result of the pricing actions.

In the six months ended June 30 2017, eCommerce sales for the U.S. business were $1,985 million, an increase of 10% over the prior year. Total eCommerce sales represented 50% and 46% of total sales for the six months ended June 30, 2017 and 2016, respectively. The increase was primarily driven by an increase in sales via EDI and electronic purchasing platforms. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 57% and 52% of total sales for the six months ended June 30, 2017 and 2016, respectively.

The gross profit margin for the six months ended June 30, 2017 decreased 1.5 percentage points compared to the same period in 2016, driven by pricing actions. Excluding sales to Zoro, gross profit margin decreased 1.3 percentage points versus the prior year.

Operating expenses were flat for the six months ended June 30, 2017 versus the six months ended June 30, 2016. Excluding restructuring costs and gain on the sale of assets in both periods mentioned above, operating expenses increased 1%.

Operating earnings of $625 million for the six months ended June 30, 2017 decreased 8% from $681 million for the six months ended June 30, 2016. Excluding restructuring costs and gain on the sale of assets in both periods mentioned above, operating earnings decrease 10%, driven primarily by pricing actions.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Canada

Net sales were $375 million for the six months ended June 30, 2017, increased 1% when compared with $373 million for the same period in 2016. In local currency, sales were also flat. The 1% increase consisted of the following:



	Percent Increase/(Decrease)
Volume	3
Wildfire impact	1
Foreign exchange	(1)
Price	(2)
Total	1%

In the six months ended June 30, 2017, eCommerce sales for Grainger were $64 million, an increase of 32% over the prior year. Total eCommerce sales represented 17% and 13% of total sales for the six months ended June 30, 2017 and 2016, respectively. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 31% and 25% of total sales for the six months ended June 30, 2017 and 2016, respectively.

The gross profit margin increased 0.9 percentage points in the six months ended June 30, 2017 versus the six months ended June 30, 2016, largely due to a favorable comparison to an inventory adjustment in the second quarter of 2016, offset by price deflation versus cost inflation and higher freight costs from an increase in shipping directly to customers.

Operating expenses in the six months ended June 30, 2017 were $154 million compared to $145 million for the six months ended June 30, 2016. Excluding restructuring costs in both periods mentioned above, operating expenses would have been flat.

Operating loss was $44 million for the six months ended June 30, 2017 versus operating loss of $40 million in the six months ended June 30, 2016. Excluding the restructuring costs and the inventory adjustment mentioned above, the operating loss would have been $23 million compared to a operating loss of $19 million in the prior year, primarily driven by improved gross profit and lower operating expenses.

Other Businesses

Net sales for other businesses, which include MonotaRO in Japan, Zoro in the U.S. and operations in Europe, Asia and Latin America, were $1,024 million for the six months ended June 30, 2017, an increase of $104 million, when compared with net sales of $920 million for the same period in 2016. Sale increased 11% for the period and consisted of the following:



	Percent Increase/(Decrease)
Volume	14
Foreign exchange	(3)
Total	11%

Operating earnings of $17 million in the six months ended June 30, 2017 decreased $35 million compared operating earnings of $52 million in the six months ended June 30, 2016. Operating earnings in 2017 included a $42 million charge primarily for the wind-down of the business in Colombia partially offset by strong performance from Zoro in the U.S. and MonotaRO in Japan. Excluding restructuring costs mentioned above, operating earnings would have increased 14%.

Other Income and Expense

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Other income and expense was $50 million of expense in the six months ended June 30, 2017 compared to $42 million of expense in the six months ended June 30, 2016. The increase in expense was primarily due to interest expense from the $400 million of additional long-term debt issued in May 2017, as well as expected losses from the Company's investments in clean energy.

Income Taxes

Grainger’s effective tax rates were 39.4% and 36.1% for the six months ended June 30, 2017 and 2016, respectively. The increase was primarily due to the wind-down of the business in Colombia and the inability to realize the associated tax benefits. Grainger is expecting an effective tax rate of approximately 35% to 36% for the full year 2017.

Financial Condition

Cash Flow

Net cash provided by operating activities was $372 million and $343 million for the six months ended June 30, 2017 and 2016, respectively. The increase in cash provided is primarily the result of lower payments related to employee benefits, offset by lower earnings. Net cash provided had been reported as $326 million in the prior year. The $343 million is based on the adoption of ASU 2016-09, which required retrospective reclassification of $17 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.

Net cash used in investing activities was $75 million and $74 million in the six months ended June 30, 2017 and 2016, respectively. The net cash used in investing activities was driven by higher additions to property, buildings and equipment compared to the prior year offset by higher proceeds from the sales of branch real estate assets when compared to the prior year.

Net cash used in financing activities was $304 million compared to $258 million in the six months ended June 30, 2016 and 2016, respectively. The increase in net cash used in financing activities of $46 million was primarily driven by net payments of commercial paper, offset by lower stock repurchases in 2017 compared to 2016.

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 June 30, 2017, was $1,862 million, an increase of $140 million when compared to $1,722 million at December 31, 2016, primarily due to an increase in accounts receivable. The working capital assets to working capital liabilities ratio increased to 2.5 at June 30, 2017, from 2.4 at December 31, 2016.

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 interest-bearing debt as a percent of total capitalization was 56.8% at June 30, 2017, and 54.1% at December 31, 2016.

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.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

From time to time, in this Quarterly Report on Form 10-Q, as well as in other written reports, communications and verbal statements, 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.

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 were no changes in Grainger's internal control over financial reporting that occurred during the second quarter 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

The disclosures contained in "Part I, Item 1. Financial Statements," of this report are incorporated herein by reference. In addition, please note the following matter:

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.

W.W. Grainger, Inc. and Subsidiaries


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

Issuer Purchases of Equity Securities – second 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
Apr. 1 – Apr. 30	346,244	$208.88	346,244	4,866,239
May 1 – May 31	262,722	$181.59	262,722	4,603,517
June 1 – June 30	171,242	$174.99	171,242	4,432,275
Total	780,208	$192.25	780,208


(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 30 of this report.

W.W. Grainger, Inc. and Subsidiaries

SIGNATURES

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



			W.W. Grainger, Inc.
			(Registrant)
Date:	July 27, 2017	By:	/s/ R. L. Jadin
			R. L. Jadin, Senior Vice President and Chief Financial Officer
Date:	July 27, 2017	By:	/s/ E. R. Tapia
			E. R. Tapia, Vice President and Controller

EXHIBIT INDEX



EXHIBIT NO.		DESCRIPTION
4.1		Third Supplemental Indenture, dated as of May 22, 2017, between W.W. Grainger, Inc., and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to W.W. Grainger, Inc's Current Report of Form 8-K on May 22, 2017, and incorporated herein by reference).
4.2		Form of 4.20% Senior Notes due 2047 (included in Exhibit 4.1) (filed as Exhibit 4.1 to W. W. Grainger, Inc's Current report on Form 8-K on May 22, 2017, and incorporated herein by reference).
10.1		Summary Description of the Company Management Incentive Program (updated).*
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.



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

DOCUMENT AND ENTITY INFORMATION	6 Months Ended
DOCUMENT AND ENTITY INFORMATION	Jun. 30, 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	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding	57,690,673

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (PARENTHETICALS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Statement of Comprehensive Income [Abstract]
Tax benefit from postretirement benefit plan reclassification adjustment	$ 878	$ 631	$ 1,757	$ 1,262

CONDENSED CONSOLIDATED BALANCE SHEETS (PARENTHETICALS) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 32,174	$ 26,690
Cumulative preferred stock, par value (in dollars per share)	$ 5	$ 5
Cumulative preferred stock, shares authorized (in shares)	12,000,000	12,000,000
Cumulative preferred stock, shares issued (in shares)	0	0
Cumulative preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.50	$ 0.50
Common stock, shares authorized (in shares)	300,000,000	300,000,000
Common stock, shares issued (in shares)	109,659,219	109,659,219
Treasury stock, shares at cost (in shares)	51,968,546	50,854,905

BACKGROUND AND BASIS OF PRESENTATION	6 Months Ended
BACKGROUND AND BASIS OF PRESENTATION	Jun. 30, 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. Certain amounts in the Condensed Consolidated Statements of Cash Flows, as previously reported, have been reclassified to conform to the 2017 presentation. In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment Accounting, which became effective January 1, 2017. As a result, the Company reclassified $16.7 million of employee taxes paid from cash flows from operating activities to cash flows from financing activities in the Consolidated Statements of Cash Flows for the six months ended June 30, 2016.


•	Encourage decision-making focused on producing a favorable rate of ROIC and on growing the business rapidly, thus leading to improvements in shareholder value.


•	Influence participants to make decisions consistent with shareholders’ interests.


•	Attract and retain the talent required to achieve the Company’s objectives.



Sales Growth	=	Total Company Sales, Current Year Total Company Sales, Prior Year	-1


▪	Increasing volume (as measured by Cost Of Goods Sold, or COGS increase);


▪	Completing cost productivity plan and executing against that plan on time.


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


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.



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


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.

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
CURRENT ASSETS
Cash and cash equivalents	$ 275,065	$ 274,146
Accounts receivable (less allowances for doubtful accounts of $32,174 and $26,690 respectively)	1,369,626	1,223,096
Inventories – net	1,397,804	1,406,470
Prepaid expenses and other assets	106,659	81,766
Prepaid income taxes	37,193	34,751
Total current assets	3,186,347	3,020,229
PROPERTY, BUILDINGS AND EQUIPMENT	3,410,237	3,411,502
Less: Accumulated depreciation and amortization	2,018,041	1,990,611
Property, buildings and equipment – net	1,392,196	1,420,891
DEFERRED INCOME TAXES	79,264	64,775
GOODWILL	536,580	527,150
INTANGIBLES - NET	592,473	586,126
OTHER ASSETS	75,021	75,136
TOTAL ASSETS	5,861,881	5,694,307
CURRENT LIABILITIES
Short-term debt	129,066	386,140
Current maturities of long-term debt	29,232	19,966
Trade accounts payable	692,689	650,092
Accrued compensation and benefits	197,073	212,525
Accrued contributions to employees’ profit sharing plans	48,905	54,948
Accrued expenses	291,226	290,207
Income taxes payable	22,387	15,059
Total current liabilities	1,410,578	1,628,937
LONG-TERM DEBT (less current maturities)	2,267,872	1,840,946
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES	135,270	126,101
EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES	199,965	192,555
SHAREHOLDERS' EQUITY
Cumulative Preferred Stock – $5 par value – 12,000,000 shares authorized; none issued or 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	1,034,980	1,030,256
Retained earnings	7,239,159	7,113,559
Accumulated other comprehensive losses	(203,604)	(272,294)
Treasury stock, at cost – 51,968,546 and 50,854,905 shares, respectively	(6,402,037)	(6,128,416)
Total W.W. Grainger, Inc. shareholders’ equity	1,723,328	1,797,935
Noncontrolling interest	124,868	107,833
Total shareholders' equity	1,848,196	1,905,768
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 5,861,881	$ 5,694,307

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$ 289,812	$ 371,089
Provision for losses on accounts receivable	12,769	8,282
Deferred income taxes and tax uncertainties	(7,339)	4,565
Depreciation and amortization	128,195	113,496
Net losses (gains) from sales of assets and non-cash charges	12,537	(15,564)
Stock-based compensation	20,030	21,135
Losses from equity method investment	14,495	11,815
Change in operating assets and liabilities – net of business acquisitions:
Accounts receivable	(136,844)	(98,394)
Inventories	29,936	8,733
Prepaid expenses and other assets	(24,232)	(6,143)
Trade accounts payable	36,817	43,338
Other current liabilities	(18,989)	(112,256)
Current income taxes payable	6,360	(1,368)
Accrued employment-related benefits cost	3,655	3,877
Other – net	4,976	(9,512)
Net cash provided by operating activities	372,178	343,093
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment	(131,147)	(105,717)
Proceeds from sales of assets	69,758	43,119
Equity method investment	(13,300)	(10,340)
Other – net	(146)	(597)
Net cash used in investing activities	(74,835)	(73,535)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in commercial paper	(269,841)	19,888
Borrowings under lines of credit	30,374	18,501
Payments against lines of credit	(18,036)	(19,306)
Proceeds from issuance of long-term debt	415,672	393,284
Payments of long-term debt	(7,799)	(129,981)
Proceeds from stock options exercised	27,064	26,191
Payments for employee taxes withheld from stock awards	(16,719)	(16,704)
Excess tax benefits from stock-based compensation	0	9,770
Purchase of treasury stock	(313,562)	(412,647)
Cash dividends paid	(151,637)	(147,480)
Net cash used in financing activities	(304,484)	(258,484)
Exchange rate effect on cash and cash equivalents	8,060	14,787
NET CHANGE IN CASH AND CASH EQUIVALENTS	919	25,861
Cash and cash equivalents at beginning of year	274,146	290,136
Cash and cash equivalents at end of period	$ 275,065	$ 315,997

NEW ACCOUNTING STANDARDS	6 Months Ended
NEW ACCOUNTING STANDARDS	Jun. 30, 2017
Accounting Policies [Abstract]
NEW ACCOUNTING STANDARDS	NEW ACCOUNTING STANDARDS In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities. This change to the financial instrument model primarily affects the accounting for equity investments, financial liabilities under the fair value options and the presentation and disclosure requirements for financial instruments. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2017. Certain provisions for the new guidance can be adopted early. The Company is evaluating the impact of this ASU. In February 2016, the FASB issued ASU 2016-02, Leases. 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 of this ASU is for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of this ASU. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2017. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements. In January 2017, the FASB issued ASU 2017-01, 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 and interim periods beginning after December 15, 2017. The 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 this ASU is for fiscal years and interim periods beginning after December 15, 2019 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. This ASU 2017-05 clarifies 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 ASU is effective at the same time as ASU 2014-09. Therefore, for public entities, the amendments are effective for fiscal years and interim periods beginning after December 15, 2017. 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. This ASU improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. 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. In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. The ASU should be applied prospectively on and after the effective date. 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 fiscal years 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. 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 reduces 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 clarifies 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.

DIVIDEND	6 Months Ended
DIVIDEND	Jun. 30, 2017
Dividends [Abstract]
DIVIDEND	DIVIDEND On July 26, 2017, the Company’s Board of Directors declared a quarterly dividend of $1.28 per share, payable September 1, 2017, to shareholders of record on August 14, 2017.

GOODWILL AND OTHER INTANGIBLE ASSETS (Notes)	6 Months Ended
GOODWILL AND OTHER INTANGIBLE ASSETS (Notes)	Jun. 30, 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 June 30, 2017 and December 31, 2016, or 19% and 20% of total assets, respectively. 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 reporting units' historical and current performance, strategic initiatives and 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 impairment test. Grainger’s quarterly qualitative assessment did not indicate the presence of impairment triggering events for goodwill and intangible assets as of June 30, 2017. The Company considered the restructuring actions discussed in Note 5 below to determine if it were more likely than not that the goodwill of its Canada reporting unit was impaired and concluded that the two-step quantitative impairment test was not necessary as of June 30, 2017. However, as Canada’s improvement plan evolves, volume growth, price increases and execution of market pricing programs and productivity initiatives may have a significant impact on the reporting unit’s cash flows. Changes in assumptions regarding future performance of the Company’s reporting units and their ability to execute on growth initiatives and productivity improvements, along with cost increases outpacing price increases and operating margin declines, may have a significant impact on performance. Likewise, unfavorable economic environment or other factors and changes in market conditions may occur in key markets the Company’s reporting units operate and future impairments of the goodwill and intangible assets may result.

RESTRUCTURING RESERVES	6 Months Ended
RESTRUCTURING RESERVES	Jun. 30, 2017
Restructuring and Related Activities [Abstract]
RESTRUCTURING RESERVES	RESTRUCTURING RESERVES The Company continues to evaluate performance and take restructuring actions to reduce costs in the U.S., and to streamline and focus on profitability in Canada and Other Businesses. Total restructuring and related charges for the Company were $62 million and $57 million in the three and six months ended June 30, 2017, respectively, net of gains on sale of branches of $13 million and $23 million for the same periods. Total restructuring and other charges for the Company were $17 million and $37 million in the three and six months ended June 30, 2016, respectively, net of gains on sale of branches of $15 million for the same periods. Approximately 80% and 50% of the charges in the six months ended June 30, 2017 and 2016, respectively, were non-cash. The total amount the Company expects to incur in connection with these restructuring activities is an additional $17 million, approximately, through 2018. The current year net charges are primarily comprised of the following: U.S. Through the first half of 2017, the Company continued initiatives to take cost out in the U.S., including contact centers consolidation and other actions resulting in $13 million and $17 million restructuring charges, primarily related to involuntary employee termination costs and asset write-down in the three and six months ended June 30, 2017, respectively. These restructuring activities are expected to be completed in 2018. Canada In May 2017, the Company announced the closures of 59 underperforming branches and other actions in Canada, resulting in $20 million of restructuring charges, primarily related to involuntary employee termination costs, facility closures and asset write-downs. The branch closures are expected to occur in 2017 through early 2018. Other Businesses In May 2017, the Company announced plans to wind-down its operations in Colombia, expected to be completed in 2018. As a result, the Company recorded total charges of $26 million related to involuntary employee termination costs, asset write-downs and other exit costs. In addition, $16 million of accumulated foreign currency translation losses from the consolidation of this business unit was reclassified from Accumulated other comprehensive earnings (losses) to the Consolidated Statement of Earnings and is reported in Warehousing, marketing and administrative expenses. The Company cannot recognize the tax benefit associated with the Colombia exit. Company Involuntary Employee Termination Costs The total of involuntary employee termination costs related to the restructuring in the U.S. and Canada are included in Warehousing, marketing and administrative expenses and were approximately $13 million and $17 million in the three and six months ended June 30, 2017, respectively, and approximately $9 million and $25 million in the three and six months ended June 30, 2016, respectively. The severance reserve balance as of June 30, 2017 and December 31, 2016 was approximately $26 million and $23 million, respectively, and is included in Accrued compensation and benefits, with the majority expected to be paid through 2017 and early 2018.

CONTINGENCIES AND LEGAL MATTERS	6 Months Ended
CONTINGENCIES AND LEGAL MATTERS	Jun. 30, 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.

NEW ACCOUNTING STANDARDS (Policies)	6 Months Ended
NEW ACCOUNTING STANDARDS (Policies)	Jun. 30, 2017
Accounting Policies [Abstract]
New Accounting Standards, Policy	In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities. This change to the financial instrument model primarily affects the accounting for equity investments, financial liabilities under the fair value options and the presentation and disclosure requirements for financial instruments. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2017. Certain provisions for the new guidance can be adopted early. The Company is evaluating the impact of this ASU. In February 2016, the FASB issued ASU 2016-02, Leases. 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 of this ASU is for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of this ASU. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2017. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements. In January 2017, the FASB issued ASU 2017-01, 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 and interim periods beginning after December 15, 2017. The 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 this ASU is for fiscal years and interim periods beginning after December 15, 2019 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. This ASU 2017-05 clarifies 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 ASU is effective at the same time as ASU 2014-09. Therefore, for public entities, the amendments are effective for fiscal years and interim periods beginning after December 15, 2017. 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. This ASU improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. 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. In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. The ASU should be applied prospectively on and after the effective date. 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 fiscal years 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. 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 reduces 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 clarifies 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.

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

GOODWILL AND OTHER INTANGIBLE ASSETS - Narrative (Details) - USD ($) $ in Billions	Jun. 30, 2017	Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill and intangible assets	$ 1.1	$ 1.1
Goodwill and intangible assets, percent of total assets	19.00%	20.00%

RESTRUCTURING RESERVES - Narrative (Details) $ in Millions	1 Months Ended	3 Months Ended		6 Months Ended
RESTRUCTURING RESERVES - Narrative (Details) $ in Millions	May 31, 2017 USD ($) branches	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)
Restructuring Cost and Reserve [Line Items]
Restructuring charges		$ 62	$ 17	$ 57	$ 37
Gain on sale of branches		13	15	$ 23	$ 15
Percentage of restructuring charges, settled without cash				80.00%	50.00%
Expected restructuring costs through 2018		17		$ 17
Accrued compensation and benefits [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring reserve		26		26		$ 23
Warehousing, marketing and administrative expense [Member]
Restructuring Cost and Reserve [Line Items]
Severance costs		13	$ 9	17	$ 25
Restatement Adjustment [Member]
Restructuring Cost and Reserve [Line Items]
Reclassified out of accumulated foreign currency translation losses	$ (16)
UNITED STATES
Restructuring Cost and Reserve [Line Items]
Restructuring charges		$ 13		$ 17
CANADA
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 20
Number of branches closed \| branches	59
COLOMBIA
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 26