NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY BACKGROUND
W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, Japan and Europe. In this report, the words “Company” or “Grainger” mean W.W. Grainger, Inc. and its subsidiaries.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements (Financial Statements) include the accounts of the Company and its subsidiaries over which the Company exercises control. All significant intercompany transactions are eliminated from the consolidated financial statements. The Company has a controlling ownership interest in MonotaRO Co., Ltd. (MonotaRO), the endless assortment business in Japan, with the residual representing the noncontrolling interest.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions affecting reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the Company's reporting currency for all periods presented. The financial statements of the Company’s foreign operating subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of the Company’s foreign operating subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at average rates in effect during the period. Translation gains or losses are recorded as a separate component of other comprehensive earnings (losses).
REVENUE RECOGNITION
The Company recognizes revenue when a sales arrangement with a customer exists (e.g., contract, purchase orders, others), the transaction price is fixed or determinable and the Company has satisfied its performance obligation per the sales arrangement.
The majority of Company revenue originates from contracts with a single performance obligation to deliver products, whereby performance obligations are satisfied when control of the product is transferred to the customer per the arranged shipping terms. Some Company contracts contain a combination of product sales and services, which are distinct and accounted for as separate performance obligations, and are satisfied when the services are rendered. Total service revenue is not material and accounted for approximately 1% of total Company revenue for the twelve months ended December 31, 2019.
The Company’s revenue is measured at the determinable transaction price, net of any variable considerations granted to customers and any taxes collected from customers and subsequently remitted to governmental authorities. Variable considerations include rights to return product and sales incentives, which primarily consist of volume rebates. These variable considerations are estimated throughout the year based on various factors, including contract terms, historical experience and performance levels. Total accrued sales returns were approximately $25 million and $29 million as of December 31, 2019 and 2018, respectively, and are reported as a reduction of Accounts receivable, net. Total accrued sales incentives were approximately $57 million and $62 million as of December 31, 2019 and 2018, respectively, and are reported as part of Accrued expenses.
The Company records a contract asset when it has a right to payment from a customer that is conditioned on events other than the passage of time. The Company also records a contract liability when customers prepay but the Company has not yet satisfied its performance obligation. The Company did not have any material unsatisfied performance obligations, contract assets or liabilities as of December 31, 2019 and 2018.
COST OF GOODS SOLD (COGS)
COGS includes the purchase cost of goods sold, net of vendor considerations, in-bound shipping and handling costs and service costs. The Company receives vendor considerations, such as rebates to promote their products, which are generally recorded as a reduction to COGS. Rebates earned from vendors that are based on product purchases are capitalized into inventory and rebates earned based on products sold are credited directly to COGS.
ADVERTISING
Advertising costs, which includes online marketing, are generally expensed in the year the related advertisement is first presented or when incurred. Catalog expense is amortized over the life of the catalog, generally one year, beginning in the month of its distribution and is included in advertising expense. Total advertising expense was $316 million, $241 million and $187 million for 2019, 2018 and 2017, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Company SG&A is primarily comprised of compensation and benefit costs, indirect purchasing, supply chain and branch operations, technology, leases, restructuring, impairments, advertising and selling expenses, as well as other types of general and administrative costs.
STOCK INCENTIVE PLANS
The Company measures all share-based payments using fair-value-based methods and records compensation expense on a straight line basis over the vesting periods, net of estimated forfeitures.
INCOME TAXES
The Company recognizes the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. Also, the Company evaluates deferred income taxes to determine if valuation allowances are required using a “more likely than not” standard. This assessment considers the nature, frequency and amount of book and taxable income and losses, the duration of statutory carryback and forward periods, future reversals of existing taxable temporary differences and tax planning strategies, among other matters.
The Company recognizes tax benefits from uncertain tax positions only if (based on the technical merits of the position) it is more likely than not that the tax positions will be sustained on examination by the tax authority. The Company recognizes interest expense and penalties to its tax uncertainties in the provision for income taxes.
OTHER COMPREHENSIVE EARNINGS (LOSSES)
The Company's Other comprehensive earnings (losses) include foreign currency translation adjustments and unrecognized gains (losses) on postretirement and other employment-related benefit plans. Accumulated other comprehensive earnings (losses) (AOCE) are presented separately as part of shareholders' equity.
CASH AND CASH EQUIVALENTS
The Company considers investments in highly liquid debt instruments, purchased with an original maturity of 90 days or less, to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company places temporary cash investments with institutions of high credit quality and, by policy, limits the amount of credit exposure to any one institution. Also, the Company has a broad customer base representing many diverse industries across North America, Japan and Europe. Consequently, no significant concentration of credit risk is considered to exist.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at their estimated net realizable value. The Company establishes allowances for customer accounts that are potentially uncollectible and these are determined based on several factors, including the age of the receivables, historical collection trends, and economic conditions that may have an impact on a specific industry, group of customers or a specific customer.
INVENTORIES
Company inventories primarily consist of merchandise purchased for resale, and they are valued at the lower of cost or net realizable value. The Company uses the last-in, first-out (LIFO) method to account for approximately 70% of total inventory and the first-in, first-out (FIFO) method for the remaining inventory. The Company regularly reviews inventory to evaluate continued demand and records provisions for the difference between excess and obsolete inventories and net realizable value. Estimated realizable value consider various variables, including product demand, aging and shelf life, market conditions, and liquidation or disposition history and values.
If FIFO had been used for all of the Company’s inventories, they would have been $426 million and $394 million higher than reported at December 31, 2019 and December 31, 2018, respectively. Concurrently, net earnings would have increased by $24 million and $8 million, and decreased by $1 million for the years ended December 31, 2019, 2018 and 2017, respectively.
PROPERTY, BUILDINGS AND EQUIPMENT
Company property, buildings and equipment are valued at cost. Depreciation is estimated using the declining-balance, sum-of-the-years-digits and straight-line depreciation methods over the assets' useful lives as follows:
|
|
|
Buildings, structures and improvements
|
10 to 30 years
|
Furniture, fixtures, machinery and equipment
|
3 to 10 years
|
Depreciation expense was $150 million, $162 million and $170 million for the years ended December 31, 2019, 2018 and 2017, respectively.
The Company capitalized interest costs of $9 million, $10 million and $2 million for the years ended December 31, 2019, 2018 and 2017, respectively.
LEASES
The Company leases certain properties and buildings (including branches, warehouses, distribution centers and office space) and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists mainly of operating leases which expire at various dates through 2036.
Many of the property and building lease agreements obligate the Company to pay real estate taxes, insurance and certain maintenance costs (hereinafter referred to as non-lease components). Certain of the Company’s lease arrangements contain renewal provisions from 1 to 30 years, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet with right of use (ROU) assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease.
ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in SG&A.
GOODWILL AND OTHER INTANGIBLE ASSETS
In a business acquisition, the Company recognizes goodwill as the excess purchase price of an acquired reporting unit over the net amount assigned to assets acquired including intangible assets, and liabilities assumed. Acquired intangibles include both: assets with indefinite lives and assets that are subject to amortization, which are amortized straight line over their estimated useful lives.
The Company tests goodwill and indefinite-lived intangibles for impairment annually during the fourth quarter and more frequently if impairment indicators exist. The Company performs qualitative assessments of significant events and circumstances, such as reporting units' historical and current results, assumptions regarding future performance, strategic initiatives and overall economic factors to determine the existence of impairment indicators and assess if it is more likely than not that the fair value of the reporting unit or indefinite-lived intangible asset is less than its carrying value and if a quantitative impairment test is necessary. In the quantitative test, Grainger compares the carrying value of the reporting unit or an indefinite-lived intangible asset with its fair value. Any excess of the carrying value over fair value is recorded as an impairment charge, presented as part of SG&A.
The fair value of reporting units is calculated primarily using the discounted cash flow method and utilizing value indicators from a market approach to evaluate the reasonableness of the resulting fair values. Estimates of market-
participant risk-adjusted weighted average cost of capital are used as a basis for determining the discount rates to apply to the reporting units’ future expected cash flows and terminal value.
The Company’s indefinite-lived intangibles are primarily trade names. The fair value of trade names is calculated primarily using the relief-from-royalty method, which estimates the expected royalty savings attributable to the ownership of the trade name asset. The key assumptions when valuing a trade name are the revenue base, the royalty rate, and the discount rate.
Additionally, the Company capitalizes certain costs related to the purchase and development of internal-use software, which are presented as intangible assets. Amortization of capitalized software is on a straight-line basis over three or five years.
LONG-LIVED ASSETS
The carrying value of long-lived assets, primarily property, buildings and equipment and amortizable intangibles, is evaluated whenever events or changes in circumstances indicate that the carrying value of the asset group may be impaired. An impairment loss is recognized when estimated undiscounted future cash flows resulting from use of the asset group, including disposition, are less than their carrying value. Impairment is measured as the amount by which the asset group's carrying amount exceeds the fair value.
CONTINGENCIES
The Company accrues for costs relating to litigation claims and other contingent matters, when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
NEW ACCOUNTING STANDARDS
In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections - Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates (SEC Update). This ASU clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning with the SEC's regulations, thereby eliminating redundancies and making the codification easier to apply. This ASU was
effective immediately upon issuance and did not have a material impact on the Company's Financial Statements and related disclosures.
On January 1, 2019, the Company adopted ASU 2016-02, Leases as modified subsequently by ASUs 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01(Topic 842). The Company utilized the simplified modified retrospective transition method that allowed for a cumulative-effect adjustment in the period of adoption, and did not restate prior periods. Additionally, the Company elected the practical expedients package permitted under the transition guidance. Adoption of the new standard resulted in the recording of ROU assets and lease liabilities of approximately $208 million and $205 million, respectively, as of January 1, 2019 related to operating and finance leases.
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments as modified by subsequently issued ASUs 2018-19, 2019-04, 2019-05 and 2019-11. This ASU requires estimating all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Per the permitted effective dates, the Company will adopt this ASU effective January 1, 2020. The Company does not expect the adoption of this ASU to have a material impact on the Company's Financial Statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. Per the permitted effective dates, the Company will adopt this ASU effective January 1, 2021. The Company is evaluating the impact of this ASU.
NOTE 2 - REVENUE
Company revenue is primarily comprised of MRO product sales and related activities, such as freight and services.
Grainger serves a large number of customers in diverse industries, which are subject to different economic and market specific factors. The Company's presentation of revenue by industry most reasonably depicts how the nature, amount, timing and uncertainty of Company revenue and cash flows are affected by economic and market specific factors. The
following table presents the Company's percentage of revenue by reportable segment and by major customer industry:
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|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2019
|
|
U.S.
|
|
Canada
|
|
Total Company (2)
|
Government
|
18
|
%
|
|
6
|
%
|
|
14
|
%
|
Heavy Manufacturing
|
19
|
%
|
|
20
|
%
|
|
17
|
%
|
Light Manufacturing
|
12
|
%
|
|
6
|
%
|
|
10
|
%
|
Transportation
|
6
|
%
|
|
8
|
%
|
|
5
|
%
|
Healthcare
|
7
|
%
|
|
—
|
%
|
|
6
|
%
|
Commercial
|
10
|
%
|
|
9
|
%
|
|
8
|
%
|
Retail/Wholesale
|
9
|
%
|
|
4
|
%
|
|
7
|
%
|
Contractors
|
10
|
%
|
|
10
|
%
|
|
8
|
%
|
Natural Resources
|
3
|
%
|
|
33
|
%
|
|
4
|
%
|
Other (1)
|
6
|
%
|
|
4
|
%
|
|
21
|
%
|
Total net sales
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Percent of Total Company Revenue
|
72
|
%
|
|
5
|
%
|
|
100
|
%
|
|
(1) Other category primarily includes revenue from individual customers not aligned to major industry segment, including small businesses and consumers, and intersegment net sales.
|
(2) Total Company includes other businesses, which include the Company's endless assortment businesses and operations in Europe and Mexico and account for approximately 23% of revenue for the twelve months ended December 31, 2019.
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|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2018
|
|
U.S.
|
|
Canada
|
|
Total Company (2)
|
Government
|
18
|
%
|
|
6
|
%
|
|
14
|
%
|
Heavy Manufacturing
|
19
|
%
|
|
20
|
%
|
|
18
|
%
|
Light Manufacturing
|
13
|
%
|
|
6
|
%
|
|
11
|
%
|
Transportation
|
6
|
%
|
|
7
|
%
|
|
5
|
%
|
Healthcare
|
7
|
%
|
|
—
|
%
|
|
5
|
%
|
Commercial
|
9
|
%
|
|
10
|
%
|
|
8
|
%
|
Retail/Wholesale
|
8
|
%
|
|
4
|
%
|
|
7
|
%
|
Contractors
|
10
|
%
|
|
11
|
%
|
|
8
|
%
|
Natural Resources
|
3
|
%
|
|
32
|
%
|
|
4
|
%
|
Other (1)
|
7
|
%
|
|
4
|
%
|
|
20
|
%
|
Total net sales
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Percent of Total Company Revenue
|
72
|
%
|
|
6
|
%
|
|
100
|
%
|
|
(1) Other category primarily includes revenue from individual customers not aligned to major industry segment, including small businesses and consumers, and intersegment net sales.
|
(2) Total Company includes other businesses, which include the Company's endless assortment businesses and operations in Europe and Mexico and account for approximately 22% of revenue for the twelve months ended December 31, 2018.
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NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consisted of the following (in millions of dollars):
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|
|
|
|
|
|
|
|
|
|
As of
|
|
December 31, 2019
|
|
|
|
December 31, 2018
|
|
|
Land
|
$
|
332
|
|
|
|
$
|
318
|
|
|
Building, structures and improvements
|
1,329
|
|
|
|
1,338
|
|
|
Furniture, fixtures, machinery and equipment
|
1,832
|
|
|
|
1,785
|
|
|
Property, buildings and equipment
|
$
|
3,493
|
|
|
|
$
|
3,441
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|
|
Less: Accumulated depreciation and amortization
|
2,093
|
|
|
|
2,089
|
|
|
Property, buildings and equipment, net
|
$
|
1,400
|
|
|
|
$
|
1,352
|
|
|
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
The balances and changes in the carrying amount of Goodwill by segment are as follows (in millions of dollars):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Canada
|
|
Other businesses
|
|
Total
|
Balance at January 1, 2018
|
|
$
|
192
|
|
|
$
|
130
|
|
|
$
|
222
|
|
|
$
|
544
|
|
Impairment
|
|
—
|
|
|
—
|
|
|
(105
|
)
|
|
(105
|
)
|
Translation
|
|
—
|
|
|
(10
|
)
|
|
(5
|
)
|
|
(15
|
)
|
Balance at December 31, 2018
|
|
192
|
|
|
120
|
|
|
112
|
|
|
424
|
|
Translation
|
|
—
|
|
|
6
|
|
|
(1
|
)
|
|
5
|
|
Balance at December 31, 2019
|
|
$
|
192
|
|
|
$
|
126
|
|
|
$
|
111
|
|
|
$
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Canada
|
|
Other businesses
|
|
Total
|
Cumulative goodwill impairment charges, December 31, 2019 (1)
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
152
|
|
|
$
|
184
|
|
(1) Restated to include only impairments related to current businesses in Grainger's portfolio.
There were no impairments to goodwill for the years ended December 31, 2019 and 2017. In 2018, there was a $105 million goodwill impairment recorded in SG&A at the Cromwell business in the U.K.
The balances and changes in Intangible assets - net are as follows (in millions of dollars):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2019
|
|
2018
|
|
Weighted average life
|
|
Gross carrying amount
|
|
Accumulated amortization/ impairment
|
|
Net carrying amount
|
|
Gross carrying amount
|
|
Accumulated amortization/impairment
|
|
Net carrying amount
|
Customer lists and relationships
|
13.2 years
|
|
$
|
401
|
|
|
$
|
301
|
|
|
$
|
100
|
|
|
$
|
410
|
|
|
$
|
204
|
|
|
$
|
206
|
|
Trademarks, trade names and other
|
14.1 years
|
|
36
|
|
|
20
|
|
|
16
|
|
|
24
|
|
|
15
|
|
|
9
|
|
Non-amortized trade names and other
|
—
|
|
100
|
|
|
38
|
|
|
62
|
|
|
133
|
|
|
34
|
|
|
99
|
|
Capitalized software
|
4.2 years
|
|
626
|
|
|
500
|
|
|
126
|
|
|
657
|
|
|
511
|
|
|
146
|
|
Total intangible assets
|
8.2 years
|
|
$
|
1,163
|
|
|
$
|
859
|
|
|
$
|
304
|
|
|
$
|
1,224
|
|
|
$
|
764
|
|
|
$
|
460
|
|
Amortization expense of intangible assets presented within SG&A, excluding impairment charges was $78 million, $92 million, and $89 million for the years ended December 31, 2019, 2018 and 2017, respectively. Estimated amortization expense for future periods is as follows (in millions of dollars):
|
|
|
|
|
|
|
|
|
Year
|
|
Expense
|
2020
|
|
$
|
72
|
|
2021
|
|
55
|
|
2022
|
|
38
|
|
2023
|
|
13
|
|
2024
|
|
12
|
|
Thereafter
|
|
52
|
|
Total
|
|
$
|
242
|
|
Grainger completed its annual impairment testing during the fourth quarter of 2019. Qualitative tests for the quarter indicated the existence of impairment indicators for the Canada business and Cromwell (included in other businesses). As such, quantitative tests were performed.
Based on the result of the quantitative tests performed for the Canada business, the Company concluded that there was no impairment of goodwill. The risk of impairment for the Canada business is dependent upon key assumptions included in the determination of the reporting unit's fair value, particularly revenue growth expectations, future expected cash flows and operating earnings performance. Changes in assumptions regarding future performance and unfavorable economic environment in Canada may have a significant impact on future cash flows expectations and require the recording of future impairment charges. The carrying value of the Canada businesses goodwill was $126 million as of December 31, 2019.
The quantitative test for Cromwell indicated the existence of impairment of the reporting unit’s intangible assets. Cromwell’s declining operating performance and accelerated customer attrition resulted in lowered outlook projections. As a result, the Company concluded that Cromwell’s trade name was fully impaired. Concurrently, as a result of the circumstances leading to trade name impairment, the Company performed a recoverability and fair value test of Cromwell’s customer relationships intangible asset and concluded to impair the asset. The aggregate impairment charge for Cromwell’s intangibles in 2019 amounted to approximately $120 million.
Previously, during the third quarter of 2018 the Company recorded impairment charges totaling $139 million attributable to all of Cromwell’s goodwill and a portion of its trade name assets. This impairment was driven by the deterioration
of Cromwell’s operating performance at the time combined with prolonged softness and uncertainty in the U.K. market due to Brexit and other unfavorable economic conditions.
NOTE 5 - RESTRUCTURING
Restructuring activity for the twelve months ended December 31, 2019 was not material. In the twelve months ended December 31, 2018 and 2017, the Company recorded restructuring charges of approximately $47 million and $116 million, respectively. These charges primarily consisted of involuntary employee termination costs across the business, asset impairments, write-down losses and other exit-related costs and are included in SG&A. The charges in the U.S. and Canada businesses were partially offset by gains from the sales of real estate. The reserve balance as of December 31, 2019 and December 31, 2018 was approximately $10 million and $47 million, respectively, and is primarily included in Accrued compensation and benefits. The remaining reserves are expected to be paid through 2020.
NOTE 6 - SHORT-TERM DEBT
Short-term debt consisted of the following (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Lines of Credit
|
|
|
|
Outstanding at December 31
|
$
|
55
|
|
|
$
|
49
|
|
Maximum month-end balance during the year
|
$
|
56
|
|
|
$
|
138
|
|
Weighted average interest rate during the year
|
2.32
|
%
|
|
2.29
|
%
|
Weighted average interest rate at December 31
|
2.44
|
%
|
|
2.35
|
%
|
|
|
|
|
Commercial Paper
|
|
|
|
Outstanding at December 31
|
$
|
—
|
|
|
$
|
—
|
|
Maximum month-end balance during the year
|
$
|
—
|
|
|
$
|
90
|
|
Weighted average interest rate during the year
|
—
|
%
|
|
1.80
|
%
|
Lines of Credit
The Company's U.S. business has a five-year $750 million unsecured revolving line of credit, maturing in 2022. There were no borrowings outstanding under the line of credit as of December 31, 2019 and 2018. The primary purpose of this credit facility is to support the Company's commercial paper program and for general corporate purposes.
Foreign subsidiaries utilize lines of credit for working capital purposes and other operating needs. These foreign lines of credit in aggregate were $55 million and $49 million as of December 31, 2019 and 2018, respectively.
Commercial Paper
The Company issues commercial paper from time to time for general working capital needs. At December 31, 2019, there was none outstanding.
The Company's short-term debt instruments include affirmative and negative covenants that are usual and customary for companies with similar credit ratings and do not contain any financial performance covenants. The Company was in compliance with all debt covenants as of December 31, 2019.
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
|
Carrying Value
|
|
Fair Value (1)
|
|
Carrying Value
|
|
Fair Value (1)
|
4.60% senior notes due 2045
|
$
|
1,000
|
|
|
$
|
1,194
|
|
|
$
|
1,000
|
|
|
$
|
1,026
|
|
3.75% senior notes due 2046
|
400
|
|
|
416
|
|
|
400
|
|
|
357
|
|
4.20% senior notes due 2047
|
400
|
|
|
449
|
|
|
400
|
|
|
383
|
|
British pound term loan
|
170
|
|
|
170
|
|
|
174
|
|
|
174
|
|
Euro term loan
|
123
|
|
|
123
|
|
|
126
|
|
|
126
|
|
Canadian dollar revolving credit facility
|
46
|
|
|
46
|
|
|
44
|
|
|
44
|
|
Other
|
42
|
|
|
42
|
|
|
49
|
|
|
49
|
|
Subtotal
|
2,181
|
|
|
2,440
|
|
|
2,193
|
|
|
2,159
|
|
Less current maturities
|
(246
|
)
|
|
(246
|
)
|
|
(81
|
)
|
|
(81
|
)
|
Debt issuance costs and discounts, net of amortization
|
(21
|
)
|
|
(21
|
)
|
|
(22
|
)
|
|
(22
|
)
|
Long-term debt (less current maturities)
|
$
|
1,914
|
|
|
$
|
2,173
|
|
|
$
|
2,090
|
|
|
$
|
2,056
|
|
(1) The estimated fair value of the Company’s Senior Notes was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as level 2 inputs within the fair value hierarchy. The carrying value of other long-term debt approximates fair value due to their variable interest rates.
Senior Notes
In the years 2015-2017, Grainger issued $1.8 billion in long-term debt (Senior Notes) to partially fund the repurchase of $2.8 billion in shares of the total $3 billion previously announced. The remaining share repurchases were funded from internally generated cash. Debt was issued as follows:
|
|
•
|
In May 2017, $400 million payable in 30 years and carries a 4.20% interest rate, payable semiannually.
|
|
|
•
|
In May 2016, $400 million payable in 30 years and carries a 3.75% interest rate, payable semiannually.
|
|
|
•
|
In June 2015, $1 billion payable in 30 years and carries a 4.60% interest rate, payable semiannually.
|
The Company may redeem the Senior Notes in whole at any time or in part from time to time at a “make-whole” redemption price prior to their respective maturity dates. The 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 Senior Notes plus 20-25 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 Senior Notes at 101% of their principal amount plus accrued and unpaid interest, if any, at the date of purchase. Within one year of the maturity date, the Company may redeem the Senior Notes in whole at any time or in part at 100% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date.
Costs and discounts of approximately $24 million associated with the issuance of the Senior Notes, representing underwriting fees and other expenses, have been recorded as a contra-liability within Long-term debt and are being amortized to interest expense over the term of the Senior Notes.
British Pound Term Loan
In August 2015, the Company entered into an unsecured credit facilities agreement providing for a five-year term loan of £160 million and revolving credit facility of up to £20 million (see Note 6 to the Financial Statements). Under the agreement, the principal amount of the term loan will be repaid semiannually in installments of £4 million beginning February 2016 through February 2020 with the remaining outstanding amount due August 2020 and accordingly, the amount outstanding is included in Current maturities of long-term debt as of December 31, 2019. At the election of the Company, the term loan bears interest at the LIBOR Rate plus a margin of 75 basis points, as defined within the term loan agreement. At December 31, 2019 , the Company had elected a one-month LIBOR interest period. The weighted average interest rate was 1.47% and 1.34% for the years ended December 31, 2019 and 2018, respectively.
Euro Term Loan
In August 2016, the Company entered into an agreement for a five-year term loan of €110 million and a revolving credit facility of up to €20 million (see Note 6 to the Financial Statements). Under the agreement, no principal amount of the loan will be required to be paid until the loan becomes due on August 31, 2021, at which time the loan will be required to be paid in full. The Company, at its option, may prepay this term loan in whole or in part at the end of any interest period without penalty. The loan bears interest at the EURIBOR plus a margin of 45 basis points, as defined within the term loan agreement. If EURIBOR is less than zero, then EURIBOR will be deemed to be zero. The interest rate at both December 31, 2019 and 2018 was 0.45%.
Canadian Dollar Revolving Credit Facility
In September 2014, the Company entered into an unsecured revolving credit facility with a maximum availability of C$175 million. The loan bears interest at the Canadian Dollar Offered Rate (CDOR) plus a margin of 80 basis points, as defined within the loan agreement. The weighted average interest rate during the year on this outstanding amount was 2.82%. No principal payments are required on the credit facility until the maturity date. In July 2019, the facility was amended to mature in 2020 and accordingly, the amount outstanding is included in Current maturities of long-term debt as of December 31, 2019.
The scheduled aggregate principal payments related to long-term debt, excluding debt issuance costs, are due as follows (in millions of dollars):
|
|
|
|
|
|
Year
|
|
Payment Amount
|
|
2020
|
|
$
|
246
|
|
2021
|
|
129
|
|
2022
|
|
—
|
|
2023
|
|
—
|
|
2024
|
|
6
|
|
Thereafter
|
|
1,800
|
|
Total
|
|
$
|
2,181
|
|
The Company's long-term debt instruments include affirmative and negative covenants that are usual and customary for companies with similar credit ratings and do not contain any financial performance covenants. The Company was in compliance with all debt covenants as of December 31, 2019.
NOTE 8 - EMPLOYEE BENEFITS
The Company provides various retirement benefits to eligible employees, including contributions to defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and other benefits. Eligibility requirements and benefit levels vary depending on employee location. Various foreign benefit plans cover employees in accordance with local legal requirements.
Defined Contribution Plans
A majority of the Company's U.S. employees are covered by a noncontributory profit-sharing plan. The plan aligns Company contributions to Company performance and includes two components, a variable annual contribution based on the Company's rate of return on invested capital and an automatic contribution equal to 3% of the eligible employee's total eligible compensation. In addition, employees covered by the plan are also able to make personal contributions. The total Company contribution will be maintained at a minimum of 8% and a maximum of 18% of total eligible compensation paid to eligible employees. The total profit-sharing plan expense was $113 million, $164 million, and $120 million for 2019, 2018 and 2017, respectively.
The Company sponsors additional defined contribution plans available to certain U.S. and foreign employees for which contributions are made by the Company and participating employees. The expense associated with these defined contribution plans totaled $19 million, $13 million, and $18 million for 2019, 2018 and 2017, respectively.
Postretirement Healthcare Benefits Plans
The Company has a postretirement healthcare benefits plan that provides coverage for a majority of its U.S. employees hired prior to January 1, 2013, and their dependents should they elect to maintain such coverage upon retirement. Covered employees become eligible for participation when they qualify for retirement while working for the Company.
Participation in the plan is voluntary and requires participants to make contributions toward the cost of the plan, as determined by the Company.
During the third quarter of 2017, the Company implemented plan design changes effective January 1, 2018, for the post-65 age group. This plan change moved all post-65 Medicare eligible retirees to healthcare exchanges and provided them a subsidy to purchase insurance. The amount of the subsidy is based on years of service. As a result of the plan change, the plan obligation was remeasured as of August 31, 2017. The remeasurement resulted in a decrease in the postretirement benefit obligation of $76 million and a corresponding unrecognized gain recorded in Other comprehensive earnings net of tax of $29 million.
Certain amounts in the 2017 financial statements, as previously reported, have been reclassified to conform to the 2018 presentation. In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), which became effective January 1, 2018.
The net periodic benefits costs were valued with a measurement date of January 1 for each year and August 31, 2017 remeasurement date and consisted of the following components (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
SG&A
|
|
|
|
|
|
Service cost
|
$
|
4
|
|
|
$
|
6
|
|
|
$
|
7
|
|
Other income (expense)
|
|
|
|
|
|
Interest cost
|
7
|
|
|
7
|
|
|
8
|
|
Expected return on assets
|
(12)
|
|
(13
|
)
|
|
(12
|
)
|
Amortization of prior service credit
|
(10)
|
|
(10
|
)
|
|
(7
|
)
|
Amortization of unrecognized gains
|
(4)
|
|
(3
|
)
|
|
(2
|
)
|
Net periodic (benefits) costs
|
$
|
(15
|
)
|
|
$
|
(13
|
)
|
|
$
|
(6
|
)
|
Reconciliations of the beginning and ending balances of the postretirement benefit obligation, which is calculated as of December 31 measurement date, the fair value of plan assets available for benefits and the funded status of the benefit obligation follow (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Benefit obligation at beginning of year
|
$
|
190
|
|
|
$
|
208
|
|
Service cost
|
4
|
|
|
6
|
|
Interest cost
|
7
|
|
|
7
|
|
Plan participants' contributions
|
3
|
|
|
3
|
|
Actuarial (gains)
|
5
|
|
|
(26
|
)
|
Benefits paid
|
(9
|
)
|
|
(9
|
)
|
Prescription drug rebates
|
—
|
|
|
1
|
|
Benefit obligation at end of year
|
$
|
200
|
|
|
$
|
190
|
|
|
|
|
|
Plan assets available for benefits at beginning of year
|
$
|
176
|
|
|
$
|
189
|
|
Actual (losses) returns on plan assets
|
28
|
|
|
(8
|
)
|
Plan participants' contributions
|
3
|
|
|
3
|
|
Prescription drug rebates
|
—
|
|
|
1
|
|
Benefits paid
|
(9
|
)
|
|
(9
|
)
|
Plan assets available for benefits at end of year
|
198
|
|
|
176
|
|
Noncurrent postretirement benefit obligation
|
$
|
2
|
|
|
$
|
14
|
|
The amounts recognized in AOCE consisted of the following (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Prior service credit
|
$
|
61
|
|
|
$
|
71
|
|
Unrecognized gains
|
44
|
|
|
37
|
|
Deferred tax (liability)
|
(26
|
)
|
|
(26
|
)
|
Net accumulated gains
|
$
|
79
|
|
|
$
|
82
|
|
The Company has elected to amortize the amount of net unrecognized gains over a period equal to the average remaining service period for active plan participants expected to retire and receive benefits of approximately 11.1 years for 2019.
The postretirement benefit obligation was determined by applying the terms of the plan and actuarial models. These models include various actuarial assumptions, including discount rates, long-term rates of return on plan assets, healthcare cost trend rate and cost-sharing between the Company and the retirees. The Company evaluates its actuarial assumptions on an annual basis and considers changes in these long-term factors based upon market conditions and historical experience.
The following assumptions were used to determine net periodic benefit costs at January 1 of each year (excluding the August 31, 2017 remeasurement date):
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Discount rate
|
4.08
|
%
|
|
3.44
|
%
|
|
4.00
|
%
|
Long-term rate of return on plan assets, net of tax
|
7.13
|
%
|
|
7.13
|
%
|
|
7.13
|
%
|
Initial healthcare cost trend rate
|
|
|
|
|
|
Pre age 65
|
6.31
|
%
|
|
6.56
|
%
|
|
6.81
|
%
|
Post age 65
|
NA
|
|
|
NA
|
|
|
9.36
|
%
|
Catastrophic drug benefit
|
NA
|
|
|
12.50
|
%
|
|
NA
|
|
Ultimate healthcare cost trend rate
|
4.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
Year ultimate healthcare cost trend rate reached
|
2026
|
|
|
2026
|
|
|
2026
|
|
HRA credit inflation index for grandfathered retirees
|
2.50
|
%
|
|
2.50
|
%
|
|
NA
|
|
The following assumptions were used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Discount rate
|
3.01
|
%
|
|
4.08
|
%
|
|
3.44
|
%
|
Expected long-term rate of return on plan assets, net of tax
|
4.00
|
%
|
|
7.13
|
%
|
|
7.13
|
%
|
Initial healthcare cost trend rate
|
|
|
|
|
|
Pre age 65
|
6.06
|
%
|
|
6.31
|
%
|
|
6.56
|
%
|
Post age 65
|
NA
|
|
|
NA
|
|
|
NA
|
|
Catastrophic drug benefit
|
NA
|
|
|
11.50
|
%
|
|
12.50
|
%
|
Ultimate healthcare cost trend rate
|
4.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
Year ultimate healthcare cost trend rate reached
|
2026
|
|
|
2026
|
|
|
2026
|
|
HRA credit inflation index for grandfathered retirees
|
2.50
|
%
|
|
2.50
|
%
|
|
2.50
|
%
|
The discount rate assumptions reflect the rates available on high-quality fixed income debt instruments as of December 31, the measurement date of each year. These rates have been selected due to their similarity to the duration of the projected cash flows of the postretirement healthcare benefit plan. As of December 31, 2019, the Company decreased the discount rate from 4.08% to 3.01% to reflect the decrease in the market interest rates at December 31, 2019.
The Company reviews external data and its own historical trends for healthcare costs to determine the healthcare cost trend rates. As of December 31, 2019, the initial healthcare cost trend rate was 6.06% for pre age 65. The
healthcare costs trend rates decline each year until reaching the ultimate trend rate of 2.50%. The plan amendment adopted in 2017 moves all post age 65 Medicare eligible retirees to an exchange and provides a subsidy to those retirees to purchase insurance. The amount of the subsidy is based on years of service and is indexed at 2.50% for grandfathered employees.
The Company has established a Group Benefit Trust (Trust) to fund the plan obligations and process benefit payments. In 2019, the Company liquidated previously held index funds and has temporarily invested all assets of the Trust in money market funds. The Company is in the process of transitioning the Trust assets from money market funds into a liability driven investment solution composed of growth assets and fixed income. The plan's assets are stated at fair value, which represents the net asset value of shares held by the plan in the registered investment companies at the quoted market prices (Level 1 input). The plan assets available for benefits are net of Trust liabilities, primarily related to deferred income taxes and taxes payable at December 31 (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Registered investment companies:
|
|
|
|
Vanguard Federal Money Market Fund
|
$
|
109
|
|
|
$
|
—
|
|
Fidelity Government Money Market Fund
|
95
|
|
|
—
|
|
Fidelity Spartan U.S. Equity Index Fund
|
—
|
|
|
80
|
|
Vanguard 500 Index Fund
|
—
|
|
|
93
|
|
Vanguard Total International Stock
|
—
|
|
|
26
|
|
Plan Assets
|
204
|
|
|
199
|
|
Less: trust liabilities
|
(6
|
)
|
|
(23
|
)
|
Plan assets available for benefits
|
$
|
198
|
|
|
$
|
176
|
|
Consistent with the new investment strategy, the after-tax expected long-term rates of return on plan assets of 4.00% at December 31, 2019 is based on the historical average of long-term rates of return and an estimated tax rate. The required use of an expected long-term rate of return on plan assets may result in recognition of income that is greater or lower than the actual return on plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns and, therefore, result in a pattern of income recognition that more closely matches the pattern of the services provided by the employees.
The Company's investment policies include periodic reviews by management and trustees at least annually concerning: (1) the allocation of assets among various asset classes (e.g., domestic stocks, international stocks, short-term bonds, long-term bonds, etc.); (2) the investment performance of the assets, including performance comparisons with appropriate benchmarks; (3) investment guidelines and other matters of investment policy and (4) the hiring, dismissal or retention of investment managers.
The funding of the Trust is an estimated amount that is intended to allow the maximum deductible contribution under the Internal Revenue Code of 1986 (IRC), as amended. There are no minimum funding requirements and the Company intends to follow its practice of funding the maximum deductible contribution under the IRC.
The Company forecasts the following benefit payments related to postretirement (which include a projection for expected future employee service) for the next ten years (in millions of dollars):
|
|
|
|
|
|
Year
|
|
Estimated Gross Benefit Payments
|
2020
|
|
$
|
9
|
|
2021
|
|
10
|
|
2022
|
|
11
|
|
2023
|
|
12
|
|
2024
|
|
12
|
|
2025-2029
|
|
62
|
|
Total
|
|
$
|
116
|
|
NOTE 9 - LEASES
The Company leases certain properties and buildings (including branches, warehouses, distribution centers and office space) and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists mainly of operating leases which expire at various dates through 2036. Finance leases and service contracts with lease arrangements are not material and the following disclosures pertain to the Company’s operating leases.
Information related to operating leases is as follows (in millions of dollars):
|
|
|
|
|
|
|
|
As of December 31, 2019
|
ROU Assets
|
|
|
Other assets
|
|
$
|
223
|
|
|
|
|
Operating lease liabilities
|
|
|
Accrued expenses
|
|
58
|
|
Other non-current liabilities
|
|
171
|
|
Total operating lease liabilities
|
|
$
|
229
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2019
|
Weighted average remaining lease term
|
|
5 years
|
|
Weighted average incremental borrowing rate
|
|
2.3
|
%
|
Cash paid for operating leases
|
|
$
|
67
|
|
ROU assets obtained in exchange for operating lease obligations
|
|
$
|
88
|
|
Rent expense was $76 million for 2019, 2018 and 2017. These amounts are net of sublease income of $3 million, $3 million and $2 million for 2019, 2018 and 2017.
Maturities of operating lease liabilities as of December 31, 2019 (in millions of dollars) are as follows:
|
|
|
|
|
|
|
|
Maturity of operating lease liabilities
|
2020
|
|
$
|
63
|
|
2021
|
|
55
|
|
2022
|
|
45
|
|
2023
|
|
30
|
|
2024
|
|
16
|
|
Thereafter
|
|
30
|
|
Total lease payments
|
|
239
|
|
Less interest
|
|
(10
|
)
|
Present value of lease liabilities
|
|
$
|
229
|
|
Capital leases as of December 31, 2019 and 2018 were not considered material. Capital lease obligations are reported in Long-term debt.
As of December 31, 2019, the Company's future lease obligations that have not yet commenced are immaterial.
NOTE 10 - STOCK INCENTIVE PLANS
The Company maintains stock incentive plans under which the Company may grant a variety of incentive awards to employees and executives, which include restricted stock units (RSUs), non-qualified stock options, performance shares and deferred stock units. As of December 31, 2019, there were 2.3 million shares available for grant under the plans. When awards are exercised or settled, shares of the Company’s treasury stock are issued.
Pretax stock-based compensation expense included in SG&A was $40 million, $47 million, and $33 million in 2019, 2018 and 2017, respectively, and was primarily comprised of RSUs. Related income tax benefits recognized in earnings were $15 million, $26 million, and $26 million in 2019, 2018 and 2017, respectively.
Restricted Stock Units
The Company awards RSUs to certain employees and executives. RSUs vest generally over periods from one to seven years from issuance. RSU expense for the years ended December 31, 2019, 2018 and 2017 was approximately $27 million, $23 million and $17 million, respectively. The following table summarizes RSU activity (in millions, except for share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Shares
|
Weighted
Average Price Per Share
|
|
Shares
|
Weighted
Average Price Per Share
|
|
Shares
|
Weighted
Average Price Per Share
|
Beginning nonvested units
|
343,814
|
|
$
|
245.38
|
|
|
352,919
|
|
$
|
226.31
|
|
|
373,403
|
|
$
|
221.77
|
|
Issued
|
96,823
|
|
$
|
299.25
|
|
|
141,775
|
|
$
|
284.98
|
|
|
129,378
|
|
$
|
222.53
|
|
Canceled
|
(36,224
|
)
|
$
|
253.22
|
|
|
(56,393
|
)
|
$
|
245.08
|
|
|
(47,488
|
)
|
$
|
229.36
|
|
Vested
|
(78,289
|
)
|
$
|
247.96
|
|
|
(94,487
|
)
|
$
|
233.75
|
|
|
(102,374
|
)
|
$
|
203.51
|
|
Ending nonvested units
|
326,124
|
|
$
|
259.88
|
|
|
343,814
|
|
$
|
245.38
|
|
|
352,919
|
|
$
|
226.31
|
|
Fair value of shares vested
|
$
|
19
|
|
|
|
$
|
22
|
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019 there was $45 million of total unrecognized compensation expense related to nonvested RSUs that the Company expects to recognize over a weighted average period of 2.1 years.
Stock Options
The Company issues stock options to certain employees and executives. Stock options are granted with an exercise price equal to the closing market price of the Company's stock on the day of the grant. The options generally expire 10 years from the grant date. Stock option expense for the years ended December 31, 2019, 2018 and 2017 was approximately $8 million, $9 million and $13 million, respectively. At December 31, 2019 there was $10.5 million of total unrecognized compensation expense related to nonvested option awards, which the Company expects to recognize over a weighted average period of 1.8 years.
NOTE 11 - CAPITAL STOCK
The Company had no shares of preferred stock outstanding as of December 31, 2019 and 2018. The activity related to outstanding common stock and common stock held in treasury was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Outstanding Common Stock
|
Treasury Stock
|
|
Outstanding Common Stock
|
Treasury Stock
|
|
Outstanding Common Stock
|
Treasury Stock
|
Balance at beginning of period
|
55,862,360
|
|
53,796,859
|
|
|
56,328,863
|
|
53,330,356
|
|
|
58,804,314
|
|
50,854,905
|
|
Exercise of stock options
|
232,052
|
|
(232,052
|
)
|
|
930,258
|
|
(930,258
|
)
|
|
407,542
|
|
(407,542
|
)
|
Settlement of restricted stock units, net of 26,107, 39,075 and 36,585 shares retained, respectively
|
52,182
|
|
(52,182
|
)
|
|
80,988
|
|
(80,988
|
)
|
|
103,331
|
|
(103,331
|
)
|
Settlement of performance share units, net of 6,737, 1,027 and 9,334 shares retained, respectively
|
14,027
|
|
(14,027
|
)
|
|
1,911
|
|
(1,911
|
)
|
|
13,978
|
|
(13,978
|
)
|
Purchase of treasury shares
|
(2,473,093
|
)
|
2,473,093
|
|
|
(1,479,660
|
)
|
1,479,660
|
|
|
(3,000,302
|
)
|
3,000,302
|
|
Balance at end of period
|
53,687,528
|
|
55,971,691
|
|
|
55,862,360
|
|
53,796,859
|
|
|
56,328,863
|
|
53,330,356
|
|
NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSSES) (AOCE)
The components of AOCE consisted of the following (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation and Other
|
Defined Postretirement Benefit Plan
|
Other Employment-related Benefit Plans
|
Total
|
Foreign Currency Translation Attributable to Noncontrolling Interests
|
AOCE Attributable to W.W. Grainger, Inc.
|
Balance at January 1, 2017, net of tax
|
$
|
(316
|
)
|
$
|
25
|
|
$
|
(5
|
)
|
$
|
(296
|
)
|
$
|
(23
|
)
|
$
|
(273
|
)
|
Other comprehensive earnings (loss) before reclassifications, net of tax
|
75
|
|
86
|
|
1
|
|
162
|
|
4
|
|
158
|
|
Amounts reclassified to Net earnings
|
18
|
|
(38
|
)
|
—
|
|
(20
|
)
|
—
|
|
(20
|
)
|
Net current period activity
|
$
|
93
|
|
$
|
48
|
|
$
|
1
|
|
$
|
142
|
|
$
|
4
|
|
$
|
138
|
|
Balance at December 31, 2017, net of tax
|
$
|
(223
|
)
|
$
|
73
|
|
$
|
(4
|
)
|
$
|
(154
|
)
|
$
|
(19
|
)
|
$
|
(135
|
)
|
Other comprehensive earnings (loss) before reclassifications, net of tax
|
(43
|
)
|
4
|
|
(1
|
)
|
(40
|
)
|
3
|
|
(43
|
)
|
Amounts reclassified to Net earnings
|
2
|
|
(10
|
)
|
—
|
|
(8
|
)
|
—
|
|
(8
|
)
|
Amounts reclassified to Retained earnings
|
—
|
|
15
|
|
—
|
|
15
|
|
—
|
|
15
|
|
Net current period activity
|
$
|
(41
|
)
|
$
|
9
|
|
$
|
(1
|
)
|
$
|
(33
|
)
|
$
|
3
|
|
$
|
(36
|
)
|
Balance at December 31, 2018, net of tax
|
$
|
(264
|
)
|
$
|
82
|
|
$
|
(5
|
)
|
$
|
(187
|
)
|
$
|
(16
|
)
|
$
|
(171
|
)
|
Other comprehensive earnings (loss) before reclassifications, net of tax
|
25
|
|
8
|
|
(3
|
)
|
30
|
|
3
|
|
27
|
|
Amounts reclassified to Net earnings
|
1
|
|
(11
|
)
|
—
|
|
(10
|
)
|
—
|
|
(10
|
)
|
Net current period activity
|
26
|
|
(3
|
)
|
(3
|
)
|
20
|
|
3
|
|
17
|
|
Balance at December 31, 2019, net of tax
|
$
|
(238
|
)
|
$
|
79
|
|
$
|
(8
|
)
|
$
|
(167
|
)
|
$
|
(13
|
)
|
$
|
(154
|
)
|
NOTE 13 - INCOME TAXES
Earnings (losses) before income taxes by geographical area consisted of the following (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
U.S.
|
$
|
1,226
|
|
|
$
|
1,163
|
|
|
$
|
971
|
|
Foreign
|
(17
|
)
|
|
(82
|
)
|
|
(35
|
)
|
Total
|
$
|
1,209
|
|
|
$
|
1,081
|
|
|
$
|
936
|
|
Income tax expense consisted of the following (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Current income tax expense:
|
|
|
|
|
|
U.S. Federal
|
$
|
199
|
|
|
$
|
166
|
|
|
$
|
248
|
|
U.S. State
|
44
|
|
|
32
|
|
|
29
|
|
Foreign
|
58
|
|
|
47
|
|
|
22
|
|
Total current
|
301
|
|
|
245
|
|
|
299
|
|
Deferred income tax expense
|
13
|
|
|
13
|
|
|
14
|
|
Total income tax expense
|
$
|
314
|
|
|
$
|
258
|
|
|
$
|
313
|
|
The income tax effects of temporary differences that gave rise to the net deferred tax asset (liability) as of December 31, 2019 and 2018 were as follows (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Accrued expenses
|
$
|
86
|
|
|
$
|
35
|
|
Foreign operating loss carryforwards
|
67
|
|
|
64
|
|
Accrued employment-related benefits
|
49
|
|
|
49
|
|
Tax credit carryforward
|
22
|
|
|
22
|
|
Other
|
12
|
|
|
11
|
|
Deferred tax assets
|
236
|
|
|
181
|
|
Less valuation allowance
|
(72
|
)
|
|
(72
|
)
|
Deferred tax assets, net of valuation allowance
|
$
|
164
|
|
|
$
|
109
|
|
Deferred tax liabilities:
|
|
|
|
Property, buildings and equipment
|
(134
|
)
|
|
(44
|
)
|
Intangibles
|
(83
|
)
|
|
(105
|
)
|
Prepaids
|
(6
|
)
|
|
(6
|
)
|
Other
|
(6
|
)
|
|
(8
|
)
|
Deferred tax liabilities
|
(229
|
)
|
|
(163
|
)
|
Net deferred tax liability
|
$
|
(65
|
)
|
|
$
|
(54
|
)
|
|
|
|
|
The net deferred tax asset (liability) is classified as follows:
|
|
|
|
Noncurrent assets
|
$
|
11
|
|
|
$
|
12
|
|
Noncurrent liabilities
|
(76
|
)
|
|
(66
|
)
|
Net deferred tax liability
|
$
|
(65
|
)
|
|
$
|
(54
|
)
|
At December 31, 2019 the Company had $286 million of net operating loss (NOLs) carryforwards related primarily to foreign operations. Some of the operating loss carryforwards may expire at various dates through 2039. The Company
has recorded a valuation allowance, which represents a provision for uncertainty as to the realization of the tax benefits of these carryforwards and deferred tax assets that may not be realized. The Company's valuation allowance changed as follows (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2019
|
|
2018
|
Balance at beginning of period
|
$
|
(72
|
)
|
|
$
|
(84
|
)
|
Increases primarily related to foreign NOLs
|
(9
|
)
|
|
(3
|
)
|
Releases related to foreign NOLs
|
10
|
|
|
16
|
|
Increase related to U.S. foreign tax credits
|
(1
|
)
|
|
(1
|
)
|
Balance at end of period
|
$
|
(72
|
)
|
|
$
|
(72
|
)
|
A reconciliation of income tax expense with federal income taxes at the statutory rate follows (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Federal income tax
|
$
|
254
|
|
|
$
|
227
|
|
|
$
|
327
|
|
State income taxes, net of federal income tax benefit
|
36
|
|
|
32
|
|
|
20
|
|
Clean energy credit
|
—
|
|
|
(20
|
)
|
|
(38
|
)
|
Foreign rate difference
|
25
|
|
|
20
|
|
|
10
|
|
Goodwill impairment
|
—
|
|
|
20
|
|
|
—
|
|
U.S. tax legislation impact
|
—
|
|
|
—
|
|
|
(3
|
)
|
Excess tax benefits from stock-based compensation
|
(2
|
)
|
|
(15
|
)
|
|
(14
|
)
|
Other - net
|
1
|
|
|
(6
|
)
|
|
11
|
|
Income tax expense
|
$
|
314
|
|
|
$
|
258
|
|
|
$
|
313
|
|
Effective tax rate
|
26.0
|
%
|
|
23.9
|
%
|
|
33.5
|
%
|
Foreign Undistributed Earnings
Estimated gross undistributed earnings of foreign subsidiaries at December 31, 2019, amounted to $402 million. The Company considers these undistributed earnings permanently reinvested in its foreign operations and is not recording a deferred tax liability for any foreign withholding taxes on such amounts. The Company's permanent reinvestment assertion has not changed following the enactment of the 2017 Tax Cuts and Jobs Act. If at some future date the Company ceases to be permanently reinvested in its foreign subsidiaries, the Company may be subject to foreign withholding and other taxes on these undistributed earnings and may need to record a deferred tax liability for any outside basis difference in its investments in its foreign subsidiaries.
Tax Uncertainties
The Company recognizes in the financial statements a provision for tax uncertainties, resulting from application of complex tax regulations in multiple tax jurisdictions. The changes in the liability for tax uncertainties, excluding interest, are as follows (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
37
|
|
|
$
|
45
|
|
|
$
|
59
|
|
Additions for tax positions related to the current year
|
3
|
|
|
4
|
|
|
4
|
|
Additions for tax positions of prior years
|
1
|
|
|
3
|
|
|
5
|
|
Reductions for tax positions of prior years
|
(1
|
)
|
|
(5
|
)
|
|
(13
|
)
|
Reductions due to statute lapse
|
(10
|
)
|
|
(9
|
)
|
|
(5
|
)
|
Settlements, audit payments, refunds - net
|
(2
|
)
|
|
(1
|
)
|
|
(5
|
)
|
Balance at end of year
|
$
|
28
|
|
|
$
|
37
|
|
|
$
|
45
|
|
The Company classifies the liability for tax uncertainties in deferred income taxes and tax uncertainties. Included in
this amount are $8 million and $13 million at December 31, 2019 and 2018, respectively, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Any
changes in the timing of deductibility of these items would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authorities to an earlier period. Excluding the timing items, the remaining amounts would affect the annual tax rate. In 2019, the changes to tax positions related generally to the impact of expiring statutes, conclusion of audits and audit settlements. Estimated interest and penalties were not material.
The Company regularly undergoes examination of its federal income tax returns by the Internal Revenue Service. The statute of limitations expired for the Company's 2015 federal tax return while tax years 2016 through 2019 are open. The Company is also subject to audit by state, local and foreign taxing authorities. Tax years 2012-2019 remain subject to state and local audits and 2007-2019 remain subject to foreign audits. The amount of liability associated with the Company's tax uncertainties may change within the next 12 months due to the pending audit activity, expiring statutes or tax payments. A reasonable estimate of such change cannot be made.
NOTE 14 - SEGMENT INFORMATION
Grainger’s two reportable segments are the U.S. and Canada. These reportable segments reflect the results of the Company's high-touch solutions businesses in those geographies. Other businesses include the endless assortment businesses, Zoro Tools, Inc. (Zoro) and MonotaRO Co. (MonotaRO), and smaller high-tough solutions businesses in Europe and Mexico. These businesses individually do not meet the criteria of a reportable segment. Operating segments generate revenue almost exclusively through the distribution of MRO supplies, as service revenues account for approximately 1% of total revenues for each operating segment.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intersegment transfer prices are established at external selling prices, less costs not incurred due to a related party sale. The segment results include certain centrally incurred costs for shared services that are charged to the segments based upon the relative level of service used by each operating segment.
Following is a summary of segment results (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
United States
|
|
Canada
|
|
Total Reportable Segments
|
|
Other businesses
|
|
Total
|
Total net sales
|
$
|
8,815
|
|
|
$
|
529
|
|
|
$
|
9,344
|
|
|
$
|
2,651
|
|
|
$
|
11,995
|
|
Intersegment net sales
|
(505
|
)
|
|
—
|
|
|
(505
|
)
|
|
(4
|
)
|
|
(509
|
)
|
Net sales to external customers
|
$
|
8,310
|
|
|
$
|
529
|
|
|
$
|
8,839
|
|
|
$
|
2,647
|
|
|
11,486
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings
|
$
|
1,391
|
|
|
$
|
3
|
|
|
$
|
1,394
|
|
|
$
|
(9
|
)
|
|
$
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
United States
|
|
Canada
|
|
Total Reportable Segments
|
|
Other businesses
|
|
Total
|
Total net sales
|
$
|
8,588
|
|
|
$
|
653
|
|
|
$
|
9,241
|
|
|
$
|
2,441
|
|
|
$
|
11,682
|
|
Intersegment net sales
|
(457
|
)
|
|
—
|
|
|
(457
|
)
|
|
(4
|
)
|
|
(461
|
)
|
Net sales to external customers
|
$
|
8,131
|
|
|
$
|
653
|
|
|
$
|
8,784
|
|
|
$
|
2,437
|
|
|
$
|
11,221
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings
|
$
|
1,338
|
|
|
$
|
(49
|
)
|
|
$
|
1,289
|
|
|
$
|
8
|
|
|
$
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
United States
|
|
Canada
|
|
Total Reportable Segments
|
|
Other businesses
|
|
Total
|
Total net sales
|
$
|
7,960
|
|
|
$
|
753
|
|
|
$
|
8,713
|
|
|
$
|
2,120
|
|
|
$
|
10,833
|
|
Intersegment net sales
|
(404
|
)
|
|
—
|
|
|
(404
|
)
|
|
(4
|
)
|
|
(408
|
)
|
Net sales to external customers
|
$
|
7,556
|
|
|
$
|
753
|
|
|
$
|
8,309
|
|
|
$
|
2,116
|
|
|
$
|
10,425
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings
|
$
|
1,200
|
|
|
$
|
(77
|
)
|
|
$
|
1,123
|
|
|
$
|
56
|
|
|
$
|
1,179
|
|
Following are reconciliations of the segment information with the consolidated totals per the Financial Statements (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Operating earnings:
|
|
|
|
|
|
Total operating earnings for reportable segments
|
$
|
1,394
|
|
|
$
|
1,289
|
|
|
$
|
1,123
|
|
Other businesses
|
(9
|
)
|
|
8
|
|
|
56
|
|
Unallocated expenses
|
(123
|
)
|
|
(139
|
)
|
|
(144
|
)
|
Total consolidated operating earnings
|
$
|
1,262
|
|
|
$
|
1,158
|
|
|
$
|
1,035
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
United States
|
$
|
2,668
|
|
|
$
|
2,496
|
|
|
$
|
2,310
|
|
Canada
|
173
|
|
|
188
|
|
|
279
|
|
Assets for reportable segments
|
$
|
2,841
|
|
|
$
|
2,684
|
|
|
$
|
2,589
|
|
Other current and noncurrent assets
|
3,003
|
|
|
2,879
|
|
|
3,033
|
|
Unallocated assets
|
161
|
|
|
310
|
|
|
182
|
|
Total consolidated assets
|
$
|
6,005
|
|
|
$
|
5,873
|
|
|
$
|
5,804
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
United States
|
$
|
148
|
|
|
$
|
166
|
|
|
$
|
169
|
|
Canada
|
17
|
|
|
19
|
|
|
19
|
|
Depreciation and amortization for reportable segments
|
$
|
165
|
|
|
$
|
185
|
|
|
$
|
188
|
|
Other businesses and unallocated
|
45
|
|
|
49
|
|
|
53
|
|
Total consolidated depreciation and amortization
|
$
|
210
|
|
|
$
|
234
|
|
|
$
|
241
|
|
|
|
|
|
|
|
Additions to long-lived assets
|
|
|
|
|
|
United States
|
$
|
168
|
|
|
$
|
200
|
|
|
$
|
187
|
|
Canada
|
9
|
|
|
7
|
|
|
8
|
|
Additions to long-lived assets for reportable segments
|
$
|
177
|
|
|
$
|
207
|
|
|
$
|
195
|
|
Other businesses and unallocated
|
72
|
|
|
39
|
|
|
67
|
|
Total consolidated additions to long-lived assets
|
$
|
249
|
|
|
$
|
246
|
|
|
$
|
262
|
|
Following are revenue and long-lived assets by geographic location (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Revenue by geographic location:
|
|
|
|
|
|
United States
|
$
|
8,865
|
|
|
$
|
8,613
|
|
|
$
|
7,948
|
|
Canada
|
539
|
|
|
658
|
|
|
761
|
|
Other foreign countries
|
2,082
|
|
|
1,950
|
|
|
1,716
|
|
|
$
|
11,486
|
|
|
$
|
11,221
|
|
|
$
|
10,425
|
|
|
|
|
|
|
|
Long-lived segment assets by geographic location:
|
|
|
|
|
|
United States
|
$
|
1,268
|
|
|
$
|
1,140
|
|
|
$
|
1,098
|
|
Canada
|
152
|
|
|
136
|
|
|
199
|
|
Other foreign countries
|
327
|
|
|
202
|
|
|
247
|
|
|
$
|
1,747
|
|
|
$
|
1,478
|
|
|
$
|
1,544
|
|
The Company is a broad-line distributor of MRO products and services. Products are regularly added and deleted from the Company's inventory. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed.
Unallocated amounts include corporate-level support and administrative expenses, corporate-level assets consisting primarily of cash, property, buildings and equipment and intersegment eliminations and other adjustments. Unallocated expenses and assets are not included in any reportable segment.
Assets for reportable segments include net accounts receivable and first-in, first-out inventory, which are reported to the Company's Chief Operating Decision Maker. Long-lived assets consist of property, buildings, equipment, capitalized software and ROU assets of $223 million as of December 31, 2019.
Depreciation and amortization presented above includes depreciation of long-lived assets and amortization of capitalized software.
NOTE 15 - 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, unclaimed property, wage and hour laws, intellectual property, employment practices, regulatory compliance or other matters and actions brought by employees, consumers, competitors, suppliers, customers, governmental entities and other third parties. For example, beginning in the fourth quarter of 2019, Grainger has been named in several product liability-related lawsuits in the Harris County, Texas District Court relating to an explosion at a KMCO, LLC chemical refinery located in Harris County. The complaints seek recovery of compensatory and other damages and relief. Grainger is investigating the claims, which are at an early stage, and intends to contest these matters vigorously. Also, as a government contractor selling to federal, state and local governmental entities, the Company may be subject to governmental or regulatory inquiries or audits or other proceedings, including those related to contract administration or to pricing compliance. While the Company is unable to predict the outcome of any of these matters, it is not expected that the ultimate resolution of any of these matters will have, either individually or in the aggregate, a material adverse effect on the Company's consolidated financial position or results of operations.
From time to time, the Company has also been named, along with numerous other nonaffiliated companies, as a defendant in litigation in various states involving asbestos and/or silica. These lawsuits typically assert claims of personal injury arising from alleged exposure to asbestos and/or silica as a consequence of products manufactured by third parties purportedly distributed by the Company. While several lawsuits have been dismissed in the past based on the lack of product identification, if a specific product distributed by the Company is identified in any pending or future lawsuits, the Company will seek to exercise indemnification remedies against the product manufacturer to the extent available. In addition, the Company believes that a substantial number of these claims are covered by insurance. The Company has entered into agreements with its major insurance carriers relating to the scope and coverage and the costs of defense, of lawsuits involving claims of exposure to asbestos. The Company believes it has strong legal and factual defenses and intends to continue defending itself vigorously in these lawsuits. While the Company is unable
to predict the outcome of these proceedings, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on the Company’s consolidated financial position or results of operations.
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected quarterly information for 2019 and 2018 is as follows (in millions of dollars, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Quarter Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Total
|
Net sales
|
|
$
|
2,799
|
|
|
$
|
2,893
|
|
|
$
|
2,947
|
|
|
$
|
2,847
|
|
|
$
|
11,486
|
|
COGS
|
|
1,704
|
|
|
1,772
|
|
|
1,848
|
|
|
1,765
|
|
|
7,089
|
|
Gross profit
|
|
1,095
|
|
|
1,121
|
|
|
1,099
|
|
|
1,082
|
|
|
4,397
|
|
SG&A
|
|
732
|
|
|
741
|
|
|
761
|
|
|
901
|
|
|
3,135
|
|
Operating earnings
|
|
363
|
|
|
380
|
|
|
338
|
|
|
181
|
|
|
1,262
|
|
Net earnings attributable to W.W. Grainger, Inc.
|
|
$
|
253
|
|
|
$
|
260
|
|
|
$
|
233
|
|
|
$
|
103
|
|
|
$
|
849
|
|
Earnings per share - basic
|
|
$
|
4.50
|
|
|
$
|
4.69
|
|
|
$
|
4.27
|
|
|
$
|
1.89
|
|
|
$
|
15.39
|
|
Earnings per share - diluted
|
|
$
|
4.48
|
|
|
$
|
4.67
|
|
|
$
|
4.25
|
|
|
$
|
1.88
|
|
|
$
|
15.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Quarter Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Total
|
Net sales
|
|
$
|
2,766
|
|
|
$
|
2,861
|
|
|
$
|
2,831
|
|
|
$
|
2,763
|
|
|
$
|
11,221
|
|
COGS
|
|
1,674
|
|
|
1,750
|
|
|
1,752
|
|
|
1,697
|
|
|
6,873
|
|
Gross profit
|
|
1,092
|
|
|
1,111
|
|
|
1,079
|
|
|
1,066
|
|
|
4,348
|
|
SG&A
|
|
757
|
|
|
767
|
|
|
890
|
|
|
776
|
|
|
3,190
|
|
Operating earnings
|
|
335
|
|
|
344
|
|
|
189
|
|
|
290
|
|
|
1,158
|
|
Net earnings attributable to W.W. Grainger, Inc.
|
|
$
|
232
|
|
|
$
|
237
|
|
|
$
|
104
|
|
|
$
|
209
|
|
|
$
|
782
|
|
Earnings per share - basic
|
|
$
|
4.09
|
|
|
$
|
4.19
|
|
|
$
|
1.84
|
|
|
$
|
3.71
|
|
|
$
|
13.82
|
|
Earnings per share - diluted
|
|
$
|
4.07
|
|
|
$
|
4.16
|
|
|
$
|
1.82
|
|
|
$
|
3.68
|
|
|
$
|
13.73
|
|
NOTE 17 - SUBSEQUENT EVENT
In February 2020, the Company entered into a five-year syndicated $1.25 billion revolving credit facility (2020 Credit Facility). The 2020 Credit Facility is unsecured and repayable at maturity in February 2025, subject to two one-year extensions if sufficient lenders agree. This revolving credit facility replaced the Company's 2017 Credit Facility.