Item 16. Form 10-K Summary

None.

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

December 31, 2018, 2017 and 2016

Page
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING	37
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	38
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS	40
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS	41
CONSOLIDATED BALANCE SHEETS	42
CONSOLIDATED STATEMENTS OF CASH FLOWS	43
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY	44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	45

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of W.W. Grainger, Inc. (Grainger) is responsible for establishing and maintaining adequate internal control over financial reporting. Grainger's internal control system was designed to provide reasonable assurance to Grainger's management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements under all potential conditions. Therefore, effective internal control over financial reporting provides only reasonable, and not absolute, assurance with respect to the preparation and presentation of financial statements.

Grainger's management assessed the effectiveness of Grainger's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based on its assessment under that framework and the criteria established therein, Grainger's management concluded that Grainger's internal control over financial reporting was effective as of December 31, 2018.

Ernst & Young LLP, an independent registered public accounting firm, has audited Grainger's internal control over financial reporting as of December 31, 2018, as stated in their report, which is included herein.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

W.W. Grainger, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of W.W. Grainger, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2005.

Chicago, Illinois

February 28, 2019

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

W.W. Grainger, Inc. and Subsidiaries

Opinion on Internal Control over Financial Reporting

We have audited W.W. Grainger, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO Criteria). In our opinion, W.W. Grainger, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, and the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018 and the related notes and our report dated February 28, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of effectiveness of the internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Chicago, Illinois

February 28, 2019

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(In millions, except for per share amounts)

	For the Years Ended December 31,
	2018				2017				2016
Net sales	$	11,221			$	10,425			$	10,137
Cost of goods sold	6,873				6,327				6,022
Gross profit	4,348				4,098				4,115
Selling, general and administrative expenses	3,190				3,063				3,002
Operating earnings	1,158				1,035				1,113
Other income (expense):
Interest income	6				3				1
Interest expense	(88		)		(89		)		(76		)
Loss from equity method investment	(19		)		(37		)		(31		)
Other, net	24				24				12
Total other expense	(77		)		(99		)		(94		)
Earnings before income taxes	1,081				936				1,019
Income taxes	258				313				386
Net earnings	823				623				633
Less: Net earnings attributable to noncontrolling interest	41				37				27
Net earnings attributable to W.W. Grainger, Inc.	$	782			$	586			$	606
Earnings per share:
Basic	$	13.82			$	10.07			$	9.94
Diluted	$	13.73			$	10.02			$	9.87
Weighted average number of shares outstanding:
Basic	56.1				57.7				60.4
Diluted	56.5				58.0				60.8

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

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In millions of dollars)

	For the Years Ended December 31,
	2018				2017				2016
Net earnings	$	823			$	623			$	633
Other comprehensive (losses) earnings:
Foreign currency translation adjustments, net of reclassification (see Note 7 and Note 14)	(41		)		93				(39		)
Postretirement benefit plan re-measurement, net of tax expense $29 (see Note 10 and Note 14)	—				47				—
Postretirement benefit plan reclassification, net of tax benefit of $3, $1 and $7	(7		)		2				(12		)
Total other comprehensive (losses) earnings	(48		)		142				(51		)
Comprehensive earnings, net of tax	775				765				582
Less: Comprehensive earnings attributable to noncontrolling interest
Net earnings	41				37				27
Foreign currency translation adjustments	3				4				1
Comprehensive earnings attributable to noncontrolling interest	44				41				28
Comprehensive earnings attributable to W.W. Grainger, Inc.	$	731			$	724			$	554

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

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

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

	As of December 31,
ASSETS	2018				2017
CURRENT ASSETS
Cash and cash equivalents	$	538			$	327
Accounts receivable – net	1,385				1,325
Inventories – net	1,541				1,429
Prepaid expenses and other assets	83				87
Prepaid income taxes	10				38
Total current assets	3,557				3,206
PROPERTY, BUILDINGS AND EQUIPMENT – NET	1,352				1,392
DEFERRED INCOME TAXES	12				22
GOODWILL	424				544
INTANGIBLES – NET	460				569
OTHER ASSETS	68				71
TOTAL ASSETS	$	5,873			$	5,804
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt	$	49			$	56
Current maturities of long-term debt	81				39
Trade accounts payable	678				731
Accrued compensation and benefits	262				254
Accrued contributions to employees’ profit-sharing plans	133				93
Accrued expenses	269				314
Income taxes payable	29				20
Total current liabilities	1,501				1,507
LONG-TERM DEBT (less current maturities)	2,090				2,248
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES	103				111
EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES	86				110
SHAREHOLDERS' EQUITY
Cumulative preferred stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding	—				—
Common stock – $0.50 par value – 300,000,000 shares authorized; issued 109,659,219 shares	55				55
Additional contributed capital	1,134				1,041
Retained earnings	7,869				7,405
Accumulated other comprehensive losses	(171		)		(135		)
Treasury stock, at cost – 53,796,859 and 53,330,356 shares, respectively	(6,966		)		(6,676		)
Total W.W. Grainger, Inc. shareholders’ equity	1,921				1,690
Noncontrolling interest	172				138
Total shareholders' equity	2,093				1,828
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	5,873			$	5,804

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

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of dollars)

	For the Years Ended December 31,
	2018				2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	823			$	623			$	633
Provision for losses on accounts receivable	7				16				16
Deferred income taxes and tax uncertainties	7				(5		)		(6		)
Depreciation and amortization	257				264				249
Impairment of goodwill, intangible and other assets	156				28				52
Net (gains) losses from sales of assets and business divestitures	(25		)		(9		)		(19		)
Stock-based compensation	47				33				36
Losses from equity method investment	19				37				31
Change in assets and liabilities – net of business acquisitions and divestitures:
Accounts receivable	(79		)		(103		)		(46		)
Inventories	(129		)		(5		)		(4		)
Prepaid expenses and other assets	(2		)		(5		)		19
Trade accounts payable	(51		)		72				73
Accrued liabilities	18				113				(4		)
Income taxes payable	36				4				(4		)
Employment-related and other liabilities	(35		)		(6		)		8
Other – net	8				—				(10		)
Net cash provided by operating activities	1,057				1,057				1,024
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment and intangibles	(239		)		(237		)		(284		)
Proceeds from sales of assets and business divestitures	86				120				55
Equity method investment	(13		)		(35		)		(34		)
Other – net	—				6				1
Net cash used in investing activities	(166		)		(146		)		(262		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in commercial paper	—				(370		)		40
Borrowings under lines of credit	26				74				36
Payments against lines of credit	(31		)		(43		)		(37		)
Proceeds from issuance of long-term debt	—				401				516
Payments of long-term debt	(96		)		(39		)		(263		)
Proceeds from stock options exercised	181				47				34
Payments for employee taxes withheld from stock awards	(12		)		(28		)		(21		)
Excess tax benefits from stock-based compensation	—				—				12
Purchase of treasury stock	(425		)		(605		)		(790		)
Cash dividends paid	(316		)		(304		)		(303		)
Other – net	3				—				—
Net cash used in financing activities	(670		)		(867		)		(776		)
Exchange rate effect on cash and cash equivalents	(10		)		9				(2		)
NET CHANGE IN CASH AND CASH EQUIVALENTS:	211				53				(16		)
Cash and cash equivalents at beginning of year	327				274				290
Cash and cash equivalents at end of year	$	538			$	327			$	274
Supplemental cash flow information:
Cash payments for interest (net of amounts capitalized)	$	86			$	78			$	63
Cash payments for income taxes	$	229			$	335			$	360

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

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

	Common Stock			Additional Contributed Capital			Retained Earnings			Accumulated Other Comprehensive Earnings (Losses)			Treasury Stock				Noncontrolling Interest
Balance at January 1, 2016	$	55		$	1,000		$	6,802		$	(221	)	$	(5,370	)		$	86
Stock based compensation	—			29			—			—			42				—
Purchase of treasury stock	—			—			—			—			(800		)		—
Net earnings	—			—			606			—			—				27
Other comprehensive (losses) earnings	—			—			—			(52		)	—				1
Capital contribution	—			—			—			—			—				3
Cash dividends paid ($4.83 per share)	—			1			(295		)	—			—				(9		)
Balance at December 31, 2016	$	55		$	1,030		$	7,113		$	(273	)	$	(6,128	)		$	108
Stock based compensation	—			10			—			—			60				—
Purchase of treasury stock	—			—			—			—			(608		)		—
Net earnings	—			—			586			—			—				37
Other comprehensive earnings	—			—			—			138			—				4
Cash dividends paid ($5.06 per share)	—			1			(294		)	—			—				(11		)
Balance at December 31, 2017	$	55		$	1,041		$	7,405		$	(135	)	$	(6,676	)		$	138
Stock based compensation	—			92			—			—			122				—
Purchase of treasury stock	—			—			—			—			(412		)		—
Net earnings	—			—			782			—			—				41
Other comprehensive (losses) earnings	—			—			—			(51		)	—				3
Capital contribution	—			—			—			—			—				4
Reclassification due to the adoption of ASU 2018-02	—			—			(15		)	15			—				—
Cash dividends paid ($5.36 per share)	—			1			(303		)	—			—				(14		)
Balance at December 31, 2018	$	55		$	1,134		$	7,869		$	(171	)	$	(6,966	)		$	172

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

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. W.W. Grainger, Inc.'s operations are primarily in the United States (U.S.), Canada, Europe, Japan and Mexico. In this report, the words “Company” or “Grainger” mean W.W. Grainger, Inc. and its subsidiaries.

PRINCIPLES OF CONSOLIDATION

The Consolidated 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 (single channel) business in Japan, with the residual representing the noncontrolling interest.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent liabilities. Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSLATION

The U.S. dollar is the 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. Net exchange gains or losses resulting from the translation of financial statements of foreign operations are recorded as a separate component of other comprehensive earnings. See Note 14 to the Consolidated Financial Statements (Financial Statements). Foreign currency transaction gains and losses are included in the Consolidated Statement of Earnings.

RECLASSIFICATIONS

Certain amounts in the 2017 and 2016 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.

See Note 10 to the Financial Statements.

REVENUE RECOGNITION

The Company recognizes revenue when a sales arrangement with a customer exists (e.g., contract, purchase orders, others), transaction price is fixed or determinable and the Company has satisfied its performance obligation per the sales arrangement. The Company's sales arrangements generally have standard payment terms that do not exceed a year.

The majority of Company revenue originates from contracts with a single performance obligation to deliver products, whereby the Company’s performance obligations are satisfied when control of the product is transferred to the customer per the arranged shipping terms. Some Company contracts contain a combination of product sales and services, which are distinct and accounted for as separate performance obligations. The Company’s performance obligations for services are satisfied when the services are rendered within the arranged service period. Total service revenue is not material and accounted for approximately 1% of total Company revenue for the twelve months ended December 31, 2018.

The Company records a contract asset when it has a right to payment from a customer that is conditioned on events other than the passage of time. The Company also records a contract liability when customers prepay but the Company has not yet satisfied its performance obligation. The Company did not have any material unsatisfied performance obligations, contract assets or liabilities as of December 31, 2018 and 2017.

The Company’s revenue is reported as Net sales and is measured at the determinable transaction price, net of any variable considerations (e.g., rights to return product, sales incentives, others) and any taxes collected from customers and subsequently remitted to governmental authorities. The Company considers shipping and handling as activities to fulfill its performance obligation. Billings for freight are accounted for as Net sales and shipping and handling costs

are accounted for in Cost of goods sold.

The Company offers customers rights to return product and sales incentives, which primarily consist of volume rebates. The Company’s terms for product returns and sales incentives generally do not exceed a year. The Company estimates sales returns and volume rebate accruals throughout the year based on various factors, including contract terms, historical experience and performance levels. Total accrued sales returns were approximately $29 million and $28 million as of December 31, 2018 and 2017, respectively, and are reported as a reduction of Accounts receivable, net. Total accrued sales incentives were approximately $62 million and $55 million as of December 31, 2018 and 2017, respectively, and are reported as part of Accrued expenses.

COST OF GOODS SOLD (COGS)

COGS includes products and product-related costs, vendor consideration, shipping and handling costs and service costs.

The Company receives rebates and allowances from its vendors to promote their products, which are recorded as a reduction to COGS unless the considerations are directly identifiable to specific costs incurred to promote vendor products.

Rebates earned from vendors that are based on product purchases are capitalized into inventory as part of product purchase price. These rebates are credited to COGS based on sales. Vendor rebates that are earned based on products sold are credited directly to COGS.

ADVERTISING

Advertising costs are generally expensed in the year the related advertisement is first presented. Catalog expense is amortized equally to expense over the life of the catalog, generally one year, beginning in the month of its distribution. Advertising expense, which includes digital marketing costs and catalog amortization, was $241 million, $187 million and $180 million for 2018, 2017 and 2016, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)

Included in this category are purchasing, supply chain and branch operations, information services and marketing 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 related to these payments over the vesting period net of estimated forfeitures. See Note 12 to the Financial Statements.

INCOME TAXES

Income taxes are recognized during the year in which transactions enter into the determination of financial statement income, with deferred taxes being provided for temporary differences between financial and tax reporting. The Company recognizes in the financial statements a provision for tax uncertainties, resulting from application of complex tax regulations in multiple tax jurisdictions. 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. See Note 15 to the Financial Statements.

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. See Note 14 to the Financial Statements.

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.

The Company has a broad customer base representing many diverse industries doing business in North America, Europe and Asia. 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 reserves for customer accounts that are potentially uncollectible. The method used to estimate the allowances is based on several factors, including the age of the receivables and the historical ratio of actual write-offs to the age of the receivables. These analyses also take into consideration economic conditions that may have an impact on a specific industry, group of customers or a specific customer. When it is determined that customer accounts cannot be collected, the receivable balances are charged to the allowance for doubtful accounts. See Note 5 to the Financial Statements.

INVENTORIES

Inventories are valued at the lower of cost or net realizable value. Cost is determined primarily by the last-in, first-out (LIFO) method, which accounts for approximately 66% of total inventory. Grainger uses LIFO method to better match inventory cost and revenue. For the remaining inventory, cost is determined by the first-in, first-out (FIFO) method.

Grainger regularly reviews inventory to evaluate continued demand and identify any obsolete or excess quantities. Grainger records provisions for the difference between excess and obsolete inventory cost and its estimated realizable value. See Note 6 of the Financial Statements.

PROPERTY, BUILDINGS AND EQUIPMENT

Property, buildings and equipment are valued at cost. For financial statement purposes, depreciation and amortization are recorded in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, principally on the declining-balance and sum-of-the-years-digits depreciation methods. The Company's international businesses record depreciation expense primarily on a straight-line basis. The principal estimated useful lives for determining depreciation are as follows:

Buildings, structures and improvements	10 to 30 years
Furniture, fixtures, machinery and equipment	3 to 10 years

Depreciation expense was $162 million, $170 million and $166 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Improvements to leased property are amortized over the initial terms of the respective leases or the estimated service lives of the improvements, whichever is shorter.

The Company capitalized interest costs of $10 million, $2 million and $2 million for the years ended December 31, 2018, 2017 and 2016, respectively.

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 may be impaired. An impairment loss is recognized when estimated undiscounted future cash flows resulting from use of the asset, including disposition, are less than the carrying value of the asset. Impairment is measured as the amount by which the asset's carrying amount exceeds the fair value.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized, but rather tested for impairment on an annual basis and more often if circumstances require. Impairment losses are recognized whenever the carrying value of a reporting unit exceeds its fair value. See Note 4 to the Financial Statements.

The Company recognizes an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights, or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed,

rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their estimated useful lives (approximately 7 to 22 years) unless the estimated useful life is determined to be indefinite. The straight-line method of amortization is used as it has been determined to approximate the use pattern of the asset. The Company also maintains intangible assets with indefinite lives that are not amortized. These intangibles are tested for impairment on an annual basis and more often if circumstances require. An impairment loss is recognized whenever the estimated fair value of the asset is less than its carrying value. See Note 4 to the Financial Statements.

The Company capitalizes certain costs related to the purchase and development of internal-use software. Amortization of capitalized software is on a straight-line basis over three or five years.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term nature of these financial instruments. See Note 9 to the Financial Statements for fair value of long-term debt.

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 February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows a reclassification from AOCE to Retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company has evaluated the provisions of this standard and elected to early implement and reclassify $15 million of income tax effects related to the change in the U.S. federal corporate income tax rate from AOCE to Retained earnings. See Note 14 to the Financial Statements.

In August 2018, the FASB issued ASU 2018-14, Retirement Benefits - Defined Benefit Plans - Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU removes disclosures that are no longer considered cost-beneficial, clarifies specific requirements of the disclosure and adds disclosure requirements identified as relevant to improve the effectiveness of the disclosures. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020, and early adoption is permitted. The Company elected to early adopt this ASU and the related disclosure changes are reflected in Note 10 to the Financial Statements.

In September 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other Internal Use Software (Subtopic 350-40) Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. 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 elected to early adopt during the fourth quarter of 2018 prospectively, with no material impact to the Company's Consolidated Financial Statements.

LEASE ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU 2016-02, Leases as modified subsequently by ASUs 2018-01, 2018-10, 2018-11 and 2018-20 (Topic 842). The core principle of the ASU improves transparency and comparability related to the accounting and reporting of leasing arrangements, including balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months, among other changes.

The effective date of these ASUs is for fiscal years and interim periods beginning after December 15, 2018. The Company adopted the new guidance on January 1, 2019, utilizing the modified retrospective transition method that allows for a cumulative-effect adjustment in the period of adoption, and does not plan to restate prior periods. Additionally, the Company elected certain practical expedients permitted under the transition guidance.

Upon adoption, the Company's rights of use assets and corresponding lease liabilities are estimated at approximately $210 million to $230 million before considering deferred taxes. These amounts represent 4% and 6% of the Company’s

Total assets and Total liabilities, respectively. Grainger does not expect a material impact to the Company’s Consolidated Statements of Earnings, Comprehensive Earnings or Cash Flows.

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:

	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	%
Commercial	16	%		10	%		13	%
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, Asia and Mexico and account for approximately 22% of revenue for the twelve months ended December 31, 2018.

NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT

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

	As of
	December 31, 2018					December 31, 2017
Land	$	318				$	349
Building, structures and improvements	1,338					1,343
Furniture, fixtures, machinery and equipment	1,785					1,753
Property, buildings and equipment	$	3,441				$	3,445
Less: Accumulated depreciation and amortization	2,089					2,053
Property, buildings and equipment, net	$	1,352				$	1,392

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):

		United States				Canada				Other businesses				Total
Balance at January 1, 2017		$	202			$	122			$	203			$	527
Divestiture		(3		)		—				—				(3		)
Impairment		(7		)		—				—				(7		)
Translation		—				8				19				27
Balance at December 31, 2017		192				130				222				544
Impairment		—				—				(105		)		(105		)
Translation		—				(10		)		(5		)		(15		)
Balance at December 31, 2018		$	192			$	120			$	112			$	424

Cumulative goodwill impairment charges, January 1, 2018		$	24			$	32			$	71			$	127
Impairment		—				—				105				105
Cumulative goodwill impairment charges, December 31, 2018		$	24			$	32			$	176			$	232

The balances and changes in Intangible assets - net are as follows (in millions of dollars):

			As of December 31,
			2018												2017
	Weighted average life		Gross carrying amount				Accumulated amortization				Net carrying amount				Gross carrying amount				Accumulated amortization				Net carrying amount
Customer lists and relationships	14.3 years		$	410			$	204			$	206			$	430			$	196			$	234
Trademarks, trade names and other	14.5 years		24				15				9				26				16				10
Non-amortized trade names and other			99				—				99				137				—				137
Capitalized software	4.2 years		657				511				146				633				445				188
Total intangible assets	8.2 years		$	1,190			$	730			$	460			$	1,226			$	657			$	569

Amortization expense recognized on intangible assets was $92 million, $89 million and $82 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is included in SG&A on the Consolidated Statement of Earnings. Estimated amortization expense for future periods is as follows (in millions of dollars):

Year		Expense
2019		$	84
2020		66
2021		50
2022		26
2023		20
Thereafter		115

Grainger tests reporting units’ goodwill and intangible assets for impairment annually during the fourth quarter and more frequently if impairment indicators exist. Grainger periodically performs qualitative assessments of significant events and circumstances, such as reporting units' historical and current results, assumptions regarding future performance, strategic initiatives and overall economic factors to determine the existence of impairment indicators and assess if it is more likely than not that the fair value of the reporting unit or indefinite-lived intangible assets 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.

The fair value of reporting units is calculated primarily using the discounted cash flow (DCF) 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.

Grainger’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.

During the quarter ended September 30, 2018, the Company identified impairment indicators at the Cromwell reporting unit. In the quantitative goodwill impairment test performed in 2017, the fair value of the Cromwell reporting unit exceeded its carrying value by 15%. However, its operating performance deteriorated during 2018 and the Company lowered its short-term forecasts and long-term outlook projections. These factors, combined with sustained economic uncertainty in the U.K. market and higher interest rates, led the Company to conclude that it was more likely than not that the carrying value of Cromwell’s goodwill and intangible assets may not be recoverable. Accordingly, a quantitative test was performed during the quarter ended September 30, 2018.

The Company considered the impact of the prolonged softness and uncertainty in the U.K. market due to Brexit and other unfavorable structural economic conditions, as well as Cromwell’s underperformance compared to expectations, prior year quantitative test assumptions and future performance projections. The revised outlook and uncertainty beyond 2018 were factored into lower revenues, earnings and cash flow projections which, combined with an increase in the discount rate, resulted in the calculated fair value of the Cromwell reporting unit below its carrying value. Accordingly, the Company recorded a full goodwill impairment charge of $105 million with no tax benefit due to the nondeductibility of goodwill for tax purposes. The revised revenue and gross margin projections also resulted in the reduction of royalty rate and value attributable to the Cromwell trade name for which the Company recorded a $34 million impairment charge during the same period.

The impairment charges related to Cromwell goodwill and trade name were recorded in other businesses in SG&A. The Company also performed an impairment test on Cromwell’s intangible assets subject to amortization and long-lived assets using the undiscounted cash flows method and no impairment charge was required.

Grainger performed its annual impairment testing in the fourth quarter. The testing included a qualitative assessment of all other reporting units' goodwill and intangible assets. The Company concluded that it was not more likely than not that the fair value of the reporting unit of indefinite-lived intangible assets is less than its carrying value.

The risk of potential failure of future impairment tests is highly dependent upon a number of assumptions. Changes in assumptions regarding discount rate and future performance, as well as the ability to execute on growth initiatives and productivity improvements, may have a significant impact on future cash flows. Likewise, unfavorable economic environment and changes in market conditions or other factors may result in future impairments of the goodwill and intangible assets.

NOTE 5 - ALLOWANCE FOR DOUBTFUL ACCOUNTS

The following table shows the activity in the allowance for doubtful accounts (in millions of dollars):

	For the Years Ended December 31,
	2018				2017
Balance at beginning of period	$	(29	)		$	(27	)
Provision for uncollectible accounts	(7		)		(16		)
Write-off of uncollectible accounts, net of recoveries	10				17
Foreign currency and other	1				(3		)
Balance at end of period	$	(25	)		$	(29	)

NOTE 6 - INVENTORIES

Inventories primarily consist of merchandise purchased for resale. Inventories would have been $394 million and $382 million higher than reported at December 31, 2018 and December 31, 2017, respectively, if the FIFO method of inventory accounting had been used for all the Company inventories. Net earnings would have increased by $8 million, and decreased by $1 million and $3 million for the years ended December 31, 2018, 2017 and 2016, respectively, using the FIFO method of accounting. Inventory values using the FIFO method of accounting approximate replacement cost.

The following table shows the activity in the reserves for excess and obsolete inventory (in millions of dollars):

	For the Years Ended December 31,
	2018				2017
Balance at beginning of period	$	(193	)		$	(191	)
Provision for excess and obsolete inventory	(20		)		(25		)
Disposal of unsaleable inventory	55				29
Other	4				(6		)
Balance at end of period	$	(154	)		$	(193	)

NOTE 7 - RESTRUCTURING RESERVES

During 2018, Grainger substantially completed initiatives to reduce costs in the U.S. business and at the Company level (unallocated expense) and streamline and focus on profitability in the Canada business and other businesses. Restructuring costs, net of gains, for the years ended December 31, 2018, 2017 and 2016 are as follows (in millions of dollars):

	For the Year Ended December 31, 2018
	COGS				SG&A								Total
		Involuntary employee termination costs				Other charges (gains)
United States	$	(1	)		$	15			$	(6	)		$	8
Canada	—				24				11				35
Other businesses	1				1				4				6
Unallocated expense	—				—				(2		)		(2		)
Total	$	—			$	40			$	7			$	47

	For the Year Ended December 31, 2017
	COGS				SG&A								Total
		Involuntary employee termination costs				Other charges (gains)
United States	$	1			$	32			$	(22	)		$	11
Canada	8				15				16				39
Other businesses	4				12				39				55
Unallocated expense	—				—				11				11
Total	$	13			$	59			$	44			$	116

	For the Year Ended December 31, 2016
	COGS				SG&A								Total
		Involuntary employee termination costs				Other charges (gains)
United States	$	3			$	21			$	(9	)		$	15
Canada	2				13				1				16
Unallocated expense	—				—				9				9
Total	$	5			$	34			$	1			$	40

Other charges (gains) for all three years primarily include asset impairments, write-down losses and other exit-related costs. The charges in the U.S. and Canada businesses are partially offset by gains from the sales of assets in those segments. Included in other charges (gains) is also approximately $18 million of accumulated foreign currency translations losses reclassified from Accumulated other comprehensive losses to earnings primarily related to the wind-down of Colombia during 2017.

Restructuring reserves are primarily recorded as part of Accrued compensation and benefits and Accrued expenses. The following summarizes the restructuring and related reserve activity for the years ended December 31, 2018 and 2017 (in millions of dollars):

									Current liabilities
	Current assets write-downs				Property, buildings and equipment write-downs and disposals				Involuntary employee termination costs				Lease termination costs				Other costs				Total
Reserves as of January 1, 2017	$	—			$	—			$	24			$	3			$	1			$	28
Restructuring costs, net of (gains)	14				—				59				6				37				116
Cash (paid) received	(1		)		24				(34		)		(4		)		(8		)		(23		)
Non-cash, translation and others	$	—			$	(23	)		$	1			$	—			$	(17	)		$	(39	)
Reserves as of December 31, 2017	$	13			$	1			$	50			$	5			$	13			$	82
Restructuring costs, net of (gains)	4				(10		)		40				12				1				47
Cash (paid) received	(1		)		44				(57		)		(4		)		(1		)		(19		)
Non-cash, translation and others	(16		)		(35		)		(2		)		(2		)		(8		)		(63		)
Reserves as of December 31, 2018	$	—			$	—			$	31			$	11			$	5			$	47

The cumulative amounts incurred to date and expected (excluding results of sales of real estate) in connection with the Company's restructuring actions for active programs are as follows (in millions of dollars):

	Cumulative amount incurred to date				Additional amount expected
United States	$	70			$	3
Canada	93				—
Other businesses	67				—
Unallocated expense	18				—
Total	$	248			$	3

NOTE 8 - SHORT-TERM DEBT

Short-term debt consisted of the following (in millions of dollars):

	As of December 31,
	2018				2017
Lines of Credit
Outstanding at December 31	$	49			$	56
Maximum month-end balance during the year	$	138			$	56
Weighted average interest rate during the year	2.29		%		2.41		%
Weighted average interest rate at December 31	2.35		%		2.01		%
Commercial Paper
Outstanding at December 31	$	—			$	—
Maximum month-end balance during the year	$	90			$	455
Weighted average interest rate during the year	1.80		%		0.83		%

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, 2018 and 2017. The primary purpose of this credit facility is to provide support to 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 $49 million and $56 million as of December 31, 2018 and 2017, respectively.

Commercial Paper

The Company issues commercial paper from time to time for general working capital needs. At December 31, 2018, 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, 2018.

NOTE 9 - LONG-TERM DEBT

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

	As of December 31,
	2018								2017
	Carrying Value				Fair Value				Carrying Value				Fair Value
4.60% senior notes due 2045	$	1,000			1,026				$	1,000			$	1,089
3.75% senior notes due 2046	400				357				400				384
4.20% senior notes due 2047	400				383				400				411
British pound term loan	174				174				195				195
Euro term loan	126				126				132				132
Canadian dollar revolving credit facility	44				44				99				99
Other	49				49				84				84
Subtotal	2,193				2,159				2,310				2,394
Less current maturities	(81		)		(81		)		(39		)		(39		)
Debt issuance costs and discounts, net of amortization	(22		)		(22		)		(23		)		(23		)
Long-term debt (less current maturities)	$	2,090			$	2,056			$	2,248			$	2,332

Senior Notes

In May 2017, the Company issued $400 million of unsecured 4.20% Senior Notes that mature on May 15, 2047. A portion of the proceeds from this bond issuance was used to pay outstanding commercial paper during 2017. The 4.20% Notes require no principal payments until the maturity date and interest is payable semi-annually on May 15 and November 15.

In May 2016, the Company issued $400 million of unsecured 3.75% Senior Notes that mature on May 15, 2046. The 3.75% Notes require no principal payments until the maturity date and interest is payable semi-annually on May 15 and November 15.

In June 2015, the Company issued $1 billion of unsecured 4.60% Senior Notes that mature on June 15, 2045. The 4.60% Notes require no principal payments until the maturity date and interest is payable semi-annually on June 15 and December 15.

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 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 8 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. 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, 2018, the Company had elected a one-month LIBOR interest period. The weighted average interest rate was 1.34% and 1.04% for the years ended December 31, 2018 and 2017, respectively.

Euro Term Loan

On August 31, 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 8 to the Financial Statements). The proceeds from the term loan were used to pay in full €102.5 million of a term loan that matured in August 2016. 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, 2018 and 2017 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 2.50%. No principal payments are required on the credit facility until the maturity date. The facility matures in 2019 and accordingly, the amount outstanding is included in Current maturities of long-term debt as of December 31, 2018.

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.

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
2019		$	81
2020		182
2021		126
2022		4
2023		—
Thereafter		1,800
Total		$	2,193

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 covenant. The Company was in compliance with all debt covenants as of December 31, 2018.

NOTE 10 - 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 a rate of return on invested capital and an automatic contribution equal to 3% of 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 $164 million, $120 million and $84 million for 2018, 2017 and 2016, 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 $13 million, $18 million, and $12 million for 2018, 2017 and 2016, respectively.

Defined Benefit Plans and Other Retirement Plans

The Company sponsors defined benefit plans available to certain foreign employees. The cost of these programs is not significant to the Company. In certain countries, pension contributions are made to government-sponsored social security pension plans in accordance with local legal requirements. For these plans, the Company has no continuing obligations other than the payment of contributions.

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.

The net periodic costs, as previously reported in the 2017 and 2016 Financial Statements, have been reclassified to conform to the 2018 presentation in accordance with ASU 2017-07. 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,
	2018				2017				2016
SG&A
Service cost	$	6			$	7			$	8
Other income (expense)
Interest cost	7				8				10
Expected return on assets	(13		)		(12		)		(10		)
Amortization of prior service credit	(10		)		(7		)		(7		)
Amortization of unrecognized gains	(3		)		(2		)		—
Net periodic (benefits) costs	$	(13	)		$	(6	)		$	1

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):

	2018				2017
Benefit obligation at beginning of year	$	208			$	265
Service cost	6				7
Interest cost	7				8
Plan participants' contributions	3				3
Actuarial (gains)	(26		)		(34		)
Plan amendment	—				(34		)
Benefits paid	(9		)		(9		)
Prescription drug rebates	1				2
Benefit obligation at end of year	190				208
Plan assets available for benefits at beginning of year	189				164
Actual (losses) returns on plan assets	(8		)		29
Plan participants' contributions	3				3
Benefits paid	(9		)		(8		)
Prescription drug rebates	1				1
Plan assets available for benefits at end of year	176				189
Noncurrent postretirement benefit obligation	$	14			$	19

The amounts recognized in AOCE consisted of the following (in millions of dollars):

	As of December 31,
	2018				2017
Prior service credit	$	71			$	80
Unrecognized gains	37				37
Deferred tax (liability)	(26		)		(44		)
Net accumulated gains	$	82			$	73

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 12.9 years for 2018.

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,
	2018			2017			2016
Discount rate	3.44	%		4.00	%		4.20	%
Long-term rate of return on plan assets, net of tax	7.13	%		7.13	%		6.65	%
Initial healthcare cost trend rate
Pre age 65	6.56	%		6.81	%		7.00	%
Post age 65	NA			9.36	%		7.00	%
Catastrophic drug benefit	12.50	%		NA			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	%		NA			NA

The following assumptions were used to determine benefit obligations at December 31:

	2018			2017			2016
Discount rate	4.08	%		3.44	%		4.00	%
Expected 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	N/A			NA			9.36	%
Catastrophic drug benefit	11.50	%		12.50	%		N/A
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	%		N/A

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, 2018, the Company increased the discount rate from 3.44% to 4.08% to reflect the increase in the market interest rates at December 31, 2018.

As of December 31, 2018, the Company changed the mortality improvement table used to project mortality rates into the future from Mortality Table RPH-2014 with Mortality Improvement Scale MP 2016 to Mortality Table RPH-2014 with Mortality Improvement Scale MP 2018, which was published by the Society of Actuaries and reflects the most recent updates to life expectancies. RPH-2014 Table is a headcount weighted table, which is also more appropriate for a postretirement healthcare benefit plan.

The Company reviews external data and its own historical trends for healthcare costs to determine the healthcare cost trend rates. As of December 31, 2016, Grainger adopted a new healthcare trend rate to include a pre and post age 65 trend rates. Post age 65, prescription drug costs, primarily specialty drugs, are expected to increase the cost of healthcare more significantly than medical expenses. The alternative trend rates allow for a better estimate of expected costs for this plan. As of December 31, 2018, the initial healthcare cost trend rate was 6.31% for pre age 65. The healthcare costs trend rates decline each year until reaching the ultimate trend rate of 4.50%. 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. All assets of the Trust are invested in equity funds designed to track to either the Standard & Poor's 500 Index (S&P 500) or the Total International Composite Index. The Total International Composite Index tracks non-U.S. stocks within developed and emerging market economies. This investment strategy reflects the long-term nature of the plan obligation and seeks to take advantage of the earnings potential of equity securities in the global markets and intends to reach a balanced allocation between U.S. and non-U.S. equities. 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):

	2018				2017
Registered investment companies:
Fidelity Spartan U.S. Equity Index Fund	$	80			$	83
Vanguard 500 Index Fund	93				104
Vanguard Total International Stock	26				30
Plan Assets	199				217
Trust liabilities	(23		)		(28		)
Plan assets available for benefits	$	176			$	189

The Company uses the long-term historical return on the plan assets and the historical performance of the S&P 500 and the Total International Composite Index to develop its expected return on plan assets. The after-tax expected long-term rates of return on plan assets of 7.13% at December 31, 2018 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
2019		$	8
2020		9
2021		10
2022		11
2023		12
2024-2028		66

NOTE 11 - LEASES

The Company leases certain land, buildings, equipment and vehicles under noncancelable operating leases that expire at various dates through 2036. Many of the building leases obligate the Company to pay real estate taxes, insurance and certain maintenance costs and contain multiple renewal provisions, exercisable at the Company's option. Leases that contain predetermined fixed escalations of the minimum rentals are recognized in rental expense on a straight-line basis over the lease term. Cash or rent abatements received upon entering into certain operating leases are also recognized on a straight-line basis over the lease term.

At December 31, 2018 the approximate future minimum lease payments for operating leases were as follows (in millions of dollars):

Year		Future Minimum Lease Payments
2019		$	65
2020		49
2021		36
2022		27
2023		18
Thereafter		38
Total minimum payments required		233
Less amounts representing sublease income		(11		)
		$	222

In the fourth quarter of 2018, Grainger consolidated three office locations into one main location in the Chicago area, which increased the future minimum lease payments by $48 million and sublease income by $6 million. The new lease has a 10-year term.

Rent expense was $76 million, $76 million and $81 million for 2018, 2017 and 2016, respectively. These amounts are net of sublease income of $3 million, $2 million and $2 million for 2018, 2017 and 2016.

Capital leases as of December 31, 2018 are not considered material. Capital lease obligations are reported in Long-term debt.

Effective January 1, 2019, the Company implemented ASU 2016-02, Leases and subsequent modifications ASUs 2018-01, 2018-10, 2018-11 and 2018-20. See Note 1 to the Financial Statements for more information.

NOTE 12 - 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, 2018, there were 2.5 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 $47 million, $33 million and $36 million in 2018, 2017 and 2016, respectively and was primarily comprised of Restricted Stock Units (RSUs) and option grants. Related income tax benefits recognized in earnings were $26 million, $26 million and $12 million in 2018, 2017 and 2016, respectively.

Restricted Stock Units

The Company awards RSUs to certain employees and executives. RSUs granted vest generally over periods from three to seven years from issuance, although accelerated vesting is provided in certain instances. Holders of RSUs are entitled to receive nonforfeitable cash payments equivalent to cash dividends and other distributions paid with respect to common stock. RSUs are settled by the issuance of the Company's common stock on a one-for-one basis. Compensation expense related to RSUs is based upon the closing market price on the last trading day preceding the date of award and is charged to earnings on a straight-line basis over the vesting period. The following table summarizes RSU activity (in millions, except for share and per share amounts):

	2018						2017						2016
	Shares		Weighted Average Price Per Share				Shares		Weighted Average Price Per Share				Shares		Weighted Average Price Per Share
Beginning nonvested units	352,919		$	226.31			373,403		$	221.77			432,783		$	213.45
Issued	141,775		$	284.98			129,378		$	222.53			113,909		$	230.36
Canceled	(56,393	)	$	245.08			(47,488	)	$	229.36			(62,869	)	$	229.70
Vested	(94,487	)	$	233.75			(102,374	)	$	203.51			(110,420	)	$	193.51
Ending nonvested units	343,814		$	245.38			352,919		$	226.31			373,403		$	221.77
Fair value of shares vested	$22						$21						$21

At December 31, 2018 there was $51 million of total unrecognized compensation expense related to nonvested RSUs that the Company expects to recognize over a weighted average period of 3.0 years.

Stock Options

The Company issues stock option grants to certain employees and executives. Option awards 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 vest over three years, although accelerated vesting is provided in certain circumstances. Awards generally expire 10 years from the grant date. Transactions involving stock options are summarized as follows:

	Shares Subject to Option			Weighted Average Price Per Share				Options Exercisable
Outstanding at January 1, 2016	2,226,286			$	169.96			1,411,460
Granted	294,874			$	234.25
Exercised	(317,110	)		$	108.28
Canceled or expired	(80,014	)		$	210.01
Outstanding at December 31, 2016	2,124,036			$	186.59			1,346,707
Granted	306,206			$	230.97
Exercised	(409,269	)		$	115.35
Canceled or expired	(87,260	)		$	222.00
Outstanding at December 31, 2017	1,933,713			$	207.10			1,375,844
Granted	204,250			$	276.64
Exercised	(931,929	)		$	193.68
Canceled or expired	(72,931	)		$	226.48
Outstanding at December 31, 2018	1,133,103			$	229.42			581,534

At December 31, 2018 there was $9 million of total unrecognized compensation expense related to nonvested option awards, which the Company expects to recognize over a weighted average period of 1.9 years.

The following table summarizes information about stock options (in millions of dollars):

		For the years ended December 31,
		2018				2017				2016
Fair value of options exercised		$	38			$	11			$	8
Total intrinsic value of options exercised		102				47				36
Fair value of options vested		8				24				15
Settlements of options exercised		180				47				35

Information about stock options outstanding and exercisable as of December 31, 2018, is as follows:

		Options Outstanding													Options Exercisable
					Weighted Average													Weighted Average
Range of Exercise Prices		Number			Remaining Contractual Life		Exercise Price				Intrinsic Value (millions)				Number			Remaining Contractual Life		Exercise Price				Intrinsic Value (millions)
$72.14 - $204.01		184,435			2.23 years		$	152.28			$	24			183,292			2.19 years		$	152.17			$	24
$223.68 - $276.64		948,668			7.37 years		$	244.42			36				398,242			6.10 years		$	238.88			17
		1,133,103			6.54 years		$	229.42			$	60			581,534			4.87 years		$	211.55			$	41

The Company uses a binomial lattice option pricing model for the valuation of stock options. The weighted average fair value of options granted in 2018, 2017 and 2016 was $67.31, $45.09 and $44.94, respectively. The fair value of options granted in 2018, 2017 and 2016 used the following assumptions:

		For the years ended December 31,
		2018		2017		2016
Risk-free interest rate		2.6%		2.0%		1.4%
Expected life		6 years		6 years		6 years
Expected volatility		27.5%		23.9%		24.5%
Expected dividend yield		1.9%		2.1%		2.0%

The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term approximately equal to the expected term of the options being valued. The expected life selected for options granted during each year presented represents the period of time that the options are expected to be outstanding based on historical data of option holder exercise and termination behavior. Expected volatility is based upon implied and historical volatility of the Company's closing stock price over a period equal to the expected life of each option grant. Historical Company information is the primary basis for selection of expected dividend yield assumptions.

NOTE 13 - CAPITAL STOCK

The Company had no shares of preferred stock outstanding as of December 31, 2018 and 2017. The activity related to outstanding common stock and common stock held in treasury was as follows:

	2018					2017					2016
	Outstanding Common Stock		Treasury Stock			Outstanding Common Stock		Treasury Stock			Outstanding Common Stock		Treasury Stock
Balance at beginning of period	56,328,863		53,330,356			58,804,314		50,854,905			62,028,708		47,630,511
Exercise of stock options	930,258		(930,258	)		407,542		(407,542	)		315,171		(315,171	)
Settlement of restricted stock units, net of 39,075, 36,585 and 41,128 shares retained, respectively	80,988		(80,988	)		103,331		(103,331	)		78,310		(78,310	)
Settlement of performance share units, net of 1,027, 9,334 and 6,765 shares retained, respectively	1,911		(1,911	)		13,978		(13,978	)		11,806		(11,806	)
Purchase of treasury shares	(1,479,660	)	1,479,660			(3,000,302	)	3,000,302			(3,629,681	)	3,629,681
Balance at end of period	55,862,360		53,796,859			56,328,863		53,330,356			58,804,314		50,854,905

NOTE 14 - 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, 2016, net of tax	$	(277	)	$	35		$	(3	)	$	(245	)	$	(24	)	$	(221	)
Other comprehensive earnings (loss) before reclassifications, net of tax	(39		)	(6		)	(2		)	(47		)	1			(48		)
Amounts reclassified to Net earnings	—			(4		)	—			(4		)	—			(4		)
Net current period activity	$	(39	)	$	(10	)	$	(2	)	$	(51	)	$	1		$	(52	)
Balance at December 31, 2016, 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	)

NOTE 15 - INCOME TAXES

Income tax expense consisted of the following (in millions of dollars):

	For the Years Ended December 31,
	2018				2017				2016
Current income tax expense:
U.S. Federal	$	166			$	248			$	311
U.S. State	32				29				38
Foreign	47				22				25
Total current	245				299				374
Deferred income tax expense	13				14				12
Total income tax expense	$	258			$	313			$	386

Earnings (losses) before income taxes by geographical area consisted of the following (in millions of dollars):

	For the Years Ended December 31,
	2018				2017				2016
U.S.	$	1,163			$	971			$	1,074
Foreign	(82		)		(35		)		(55		)
	$	1,081			$	936			$	1,019

The income tax effects of temporary differences that gave rise to the net deferred tax asset (liability) as of December 31, 2018 and 2017 were as follows (in millions of dollars):

	As of December 31,
	2018				2017
Deferred tax assets:
Inventory	$	4			$	14
Accrued expenses	35				44
Accrued employment-related benefits	49				63
Foreign operating loss carryforwards	64				72
Tax credit carryforward	22				20
Other	7				8
Deferred tax assets	181				221
Less valuation allowance	(72		)		(84		)
Deferred tax assets, net of valuation allowance	$	109			$	137
Deferred tax liabilities:
Property, buildings and equipment	(29		)		(33		)
Intangibles	(105		)		(119		)
Software	(15		)		(20		)
Prepaids	(6		)		(6		)
Other	(8		)		(4		)
Deferred tax liabilities	(163		)		(182		)
Net deferred tax liability	$	(54	)		$	(45	)
The net deferred tax asset (liability) is classified as follows:
Noncurrent assets	$	12			$	22
Noncurrent liabilities (foreign)	(66		)		(67		)
Net deferred tax liability	$	(54	)		$	(45	)

At December 31, 2018 the Company had $269 million of net operating loss (NOLs) carryforwards related primarily to foreign operations. Some of the operating loss carryforwards may expire at various dates through 2038. 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,
	2018				2017
Balance at beginning of period	$	(84	)		$	(73	)
Increases primarily related to foreign NOLs	(3		)		(13		)
Releases related to foreign NOLs	16				8
Other changes, net	—				5
Increase related to U.S. foreign tax credits	(1		)		(11		)
Balance at end of period	$	(72	)		$	(84	)

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,
	2018				2017				2016
Federal income tax	$	227			$	327			$	357
State income taxes, net of federal income tax benefit	32				20				26
Clean energy credit	(20		)		(38		)		(29		)
Foreign rate difference	20				10				21
Goodwill impairment	20				—				—
U.S. tax legislation impact (see note below)	—				(3		)		—
Excess tax benefits from stock-based compensation	(15		)		(14		)		—
Other - net	(6		)		11				11
Income tax expense	$	258			$	313			$	386
Effective tax rate	23.9		%		33.5		%		37.9		%

Clean Energy Credit

In 2015 and 2016, the Company acquired noncontrolling interests in limited liability companies established to produce refined coal. The production and sale of refined coal that results in required emission reductions is eligible for tax credits under Section 45 of the Internal Revenue Code. The Company received tax credits in proportion to its equity interest. During the second half of 2018, the Company concluded its investments and will not have future benefits from these interests.

U.S. Tax Legislation

On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was signed into law, which significantly revised the U.S. corporate income tax system by lowering federal corporate income tax rates from 35% to 21% effective January 1, 2018, allowing accelerated expensing of qualified capital investments for a specific period, limiting net interest expense deductions and transitioning U.S. international taxation from a worldwide to a territorial tax system that required a one-time transition tax on unremitted earnings of certain foreign subsidiaries that were previously tax deferred, among other changes.

During 2018, the Company completed the accounting for the impact from the Tax Act. The Company determined that there was no material change from its estimate recorded on December 31, 2017.

Accounting for Income Taxes on Global Intangible Low-Taxed Income (GILTI)

The Company recognizes the tax on GILTI as a period expense in the period the tax is incurred. Under this policy, the Company has not provided deferred taxes related to temporary differences that upon their reversal will affect the amount of income subject to GILTI in the period.

Foreign Undistributed Earnings

Estimated gross undistributed earnings of foreign subsidiaries at December 31, 2018, amounted to $545 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 Tax 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,
	2018				2017				2016
Balance at beginning of year	$	45			$	59			$	61
Additions for tax positions related to the current year	4				4				14
Additions for tax positions of prior years	3				5				13
Reductions for tax positions of prior years	(5		)		(13		)		(15		)
Reductions due to statute lapse	(9		)		(5		)		(1		)
Settlements, audit payments, refunds - net	(1		)		(5		)		(13		)
Balance at end of year	$	37			$	45			$	59

The Company classifies the liability for tax uncertainties in deferred income taxes and tax uncertainties. Included in this amount are $13 million and $21 million at December 31, 2018 and 2017, 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 2018, the changes to tax positions related generally to the impact of expiring statutes, conclusion of audits and audit settlements.

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 2014 federal tax return. The tax years 2015 through 2018 are open. The Company is also subject to audit by state, local and foreign taxing authorities. Tax years 2009-2018 remain subject to state and local audits and 2007-2018 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.

The Company recognizes interest expense and penalties related to its tax uncertainties in the provision for income taxes. For the years ended December 31, 2018, 2017 and 2016, the Company recognized an expense of approximately $1 million for each year. Total accrued interest and penalties related to tax uncertainties as of December 31, 2018, 2017 and 2016, were approximately $4 million, $5 million and $4 million, respectively.

NOTE 16 - EARNINGS PER SHARE

Certain stock incentive plans grant stock awards that contain nonforfeitable rights to dividends meet the criteria of a participating security. Under the two-class method, earnings are allocated between common stock and participating securities. The presentation of basic and diluted earnings per share is required only for each class of common stock and not for participating securities. As such, the Company presents basic and diluted earnings per share for its one class of common stock.

The two-class method includes an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and undistributed earnings for the period. The Company’s reported net earnings are reduced by the amount allocated to participating securities to arrive at the earnings allocated to common stock shareholders for purposes of calculating earnings per share.

The dilutive effect of participating securities is calculated using the more dilutive of the treasury stock or the two-class method. The Company has determined the two-class method to be the more dilutive. As such, the earnings allocated to common stock shareholders in the basic earnings per share calculation is adjusted for the reallocation of undistributed earnings to participating securities to arrive at the earnings allocated to common stock shareholders for calculating the diluted earnings per share.

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

	For the Years Ended December 31,
	2018				2017				2016
Net earnings attributable to W.W. Grainger, Inc. as reported	$	782			$	586			$	606
Distributed earnings available to participating securities	(2		)		(2		)		(2		)
Undistributed earnings available to participating securities	(4		)		(3		)		(3		)
Numerator for basic earnings per share - Undistributed and distributed earnings available to common shareholders	776				581				601
Undistributed earnings allocated to participating securities	4				3				3
Undistributed earnings reallocated to participating securities	(4		)		(3		)		(3		)
Numerator for diluted earnings per share - Undistributed and distributed earnings available to common shareholders	$	776			$	581			$	601
Denominator for basic earnings per share – weighted average shares	56,142,604				57,674,977				60,430,892
Effect of dilutive securities	391,581				308,190				409,038
Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities	56,534,185				57,983,167				60,839,930
Earnings per share two-class method
Basic	$	13.82			$	10.07			$	9.94
Diluted	$	13.73			$	10.02			$	9.87

NOTE 17 - SEGMENT INFORMATION

Grainger’s two reportable segments are the U.S. and Canada. The U.S. reportable segment reflects the results of Grainger's U.S. businesses. The Canada reportable segment reflects the results for Acklands-Grainger, Inc. and its subsidiaries. Other businesses include the endless assortment (single-channel online businesses), Zoro Tools, Inc. (Zoro) in the U.S. and MonotaRO Co. (MonotaRO) in Japan, and smaller high-tough, high-service businesses in Europe, Asia 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):

	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

	2016
	United States				Canada				Total Reportable Segments				Other businesses				Total
Total net sales	$	7,870			$	734			$	8,604			$	1,885			$	10,489
Intersegment net sales	(348		)		—				(348		)		(4		)		(352		)
Net sales to external customers	7,522				734				8,256				1,881				10,137
Segment operating earnings	1,269				(65		)		1,204				40				1,244

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

	2018				2017				2016
Operating earnings:
Total operating earnings for reportable segments	$	1,289			$	1,123			$	1,204
Other businesses	8				56				40
Unallocated expenses	(139		)		(144		)		(131		)
Total consolidated operating earnings	$	1,158			$	1,035			$	1,113
Assets:
United States	$	2,496			$	2,310			$	2,275
Canada	188				279				286
Assets for reportable segments	$	2,684			$	2,589			$	2,561
Other current and noncurrent assets	2,879				3,033				2,959
Unallocated assets	310				182				174
Total consolidated assets	$	5,873			$	5,804			$	5,694
Depreciation and amortization:
United States	$	166			$	169			$	159
Canada	19				19				18
Depreciation and amortization for reportable segments	$	185			$	188			$	177
Other businesses and unallocated	49				53				46
Total consolidated depreciation and amortization	$	234			$	241			$	223
Additions to long-lived assets
United States	$	200			$	187			$	154
Canada	7				8				12
Additions to long-lived assets for reportable segments	$	207			$	195			$	166
Other businesses and unallocated	39				67				106
Total consolidated additions to long-lived assets	$	246			$	262			$	272

	2018				2017				2016
Revenue by geographic location:
United States	$	8,613			$	7,948			$	7,834
Canada	658				761				740
Other foreign countries	1,950				1,716				1,563
	$	11,221			$	10,425			$	10,137
Long-lived segment assets by geographic location:
United States	$	1,140			$	1,098			$	1,135
Canada	136				199				211
Other foreign countries	202				247				210
	$	1,478			$	1,544			$	1,556

Revenues are attributed to countries based on the ship-to location of the customer.

Segment and total consolidated operating earnings for the twelve months ended December 31, 2017 were restated for the implementation of ASU 2017-07. See Note 1 to the Financial Statements.

Unallocated expenses and eliminations primarily relate to the Company's headquarters support services and intercompany eliminations, which are not part of any reportable segment. Unallocated expenses include supply chain, product management and procurement, finance, communications, human resources, information systems, legal and compliance, internal audit and real estate. These services are provided in varying degrees to all businesses.

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.

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 assets are primarily comprised of non-operating cash and cash equivalents, property, buildings and equipment, net, and certain prepaid expenses related to the Company's headquarters support services.

Depreciation and amortization presented above includes depreciation of long-lived assets and amortization of capitalized software.

NOTE 18 - 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 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 contract administration or 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.

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 19 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of selected quarterly information for 2018 and 2017 is as follows (in millions of dollars, except for per share amounts):

		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

		2017 Quarter Ended
		March 31				June 30				September 30				December 31				Total
Net sales		$	2,541			$	2,615			$	2,636			$	2,633			$	10,425
COGS		1,522				1,575				1,619				1,611				6,327
Gross profit		1,019				1,040				1,017				1,022				4,098
SG&A		726				811				740				786				3,063
Operating earnings		293				229				277				236				1,035
Net earnings attributable to W.W. Grainger, Inc.		175				98				162				151				586
Earnings per share - basic		2.95				1.68				2.80				2.64				10.07
Earnings per share - diluted		$	2.93			$	1.67			$	2.79			$	2.63			$	10.02

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DATE: February 28, 2019

W.W. GRAINGER, INC.
By:	/s/ D.G. Macpherson
	D.G. Macpherson
	Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Grainger on February 28, 2019, in the capacities indicated.

/s/ D.G. Macpherson		/s/ Brian P. Anderson
D.G. Macpherson		Brian P. Anderson
Chairman and Chief Executive Officer, Director		Director
(Principal Executive Officer)
		/s/ V. Ann Hailey
/s/ Thomas B. Okray		V. Ann Hailey
Thomas B. Okray		Director
Senior Vice President
and Chief Financial Officer		/s/ Neil S. Novich
(Principal Financial Officer)		Neil S. Novich
		Director
/s/ Eric R. Tapia
Eric R. Tapia		/s/ E. Scott Santi
Vice President and Controller		E. Scott Santi
(Principal Accounting Officer)		Director
		/s/ Lucas E. Watson
		Lucas E. Watson
		Director

EXHIBIT INDEX (1)
EXHIBIT NO.		DESCRIPTION
1.1		Underwriting Agreement, dated as of May 15, 2017, among W.W. Grainger, Inc. and Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and U.S. Bancorp Investments, Inc., as representatives of the underwriters named therein, incorporated by reference to Exhibit 1.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 22, 2017.
2.1		Share Purchase Agreement, dated as of July 30, 2015, by and among Grainger, GWW UK Holdings Limited, Gregory Family Office Limited and Michael Gregory, incorporated by reference to Exhibit 2.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated July 31, 2015.
3.1		Restated Articles of Incorporation, incorporated by reference to Exhibit 3(i) to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
3.2		By-laws, as amended on March 9, 2017, incorporated by reference to Exhibit 3.1.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated March 9, 2017.
4.1		No instruments which define the rights of holders of W.W. Grainger, Inc.’s Industrial Development Revenue Bonds are filed herewith, pursuant to the exemption contained in Regulation S-K, Item 601(b)(4)(iii). W.W. Grainger, Inc. hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any such instrument.
4.2		Indenture, dated as of June 11, 2015, between W.W. Grainger, Inc. and U.S. Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated June 11, 2015.
4.3		First Supplemental Indenture, dated as of June 11, 2015, between W.W. Grainger, Inc. and U.S. Bank National Association, as trustee, and Form of 4.60% Senior Notes due 2045, incorporated by reference to Exhibit 4.2 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated June 11, 2015.
4.4		Second Supplemental Indenture, dated as of May 16, 2016, between W.W. Grainger, Inc., and U.S. Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 16, 2016.
4.5		Third Supplemental Indenture, dated as of May 22, 2017, between W.W. Grainger, Inc., and U.S. Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 22, 2017.
4.6		Form of 3.75% Senior Notes due 2046 (included in Exhibit 4.4), incorporated by reference to Exhibit 4.2 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 16, 2016.
4.7		Form of 4.20% Senior Notes due 2047 (included in Exhibit 4.5), incorporated by reference to Exhibit 4.2 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 22, 2017.
10.1		1990 Long-Term Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10(a) to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.*
10.2		Form of Indemnification Agreement between W.W. Grainger, Inc. and each of its directors and certain of its executive officers, incorporated by reference to Exhibit 10(b)(i) to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.*
10.3		Frozen Executive Death Benefit Plan, as amended, incorporated by reference to Exhibit 10(b)(v) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.*
10.4		First amendment to the Frozen Executive Death Benefit Plan, incorporated by reference to Exhibit 10(b)(v)(1) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008.*
10.5		Second amendment to the Frozen Executive Death Benefit Plan, incorporated by reference to Exhibit 10(b)(iv)(2) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009.*
10.6		Supplemental Profit Sharing Plan, as amended, incorporated by reference to Exhibit 10(viii) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003.*
10.7		Supplemental Profit Sharing Plan II, as amended, incorporated by reference to Exhibit 10(b)(ix) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.*
10.8		Voluntary Salary and Incentive Deferral Plan, as amended, incorporated by reference to Exhibit 10(b)(xi) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.*
10.9		Summary Description of the 2018 Directors Compensation Program.*
10.10		2005 Incentive Plan, as amended, incorporated by reference to Exhibit 10(d) to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.*

10.11		2010 Incentive Plan, incorporated by reference to Exhibit B of W.W. Grainger, Inc.’s Proxy Statement dated March 12, 2010.*
10.12		Form of Stock Option Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10(b)(xvi) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009.*
10.13		Form of Stock Option Award and Restricted Stock Unit Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10(b)(xvii) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009.*
10.14		Form of Restricted Stock Unit Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10(b)(xviii) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010.*
10.15		Form of 2012 Performance Share Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10(b)(xix) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012.*
10.16		Summary Description of the 2019 Management Incentive Program.*
10.17		Incentive Program Recoupment Agreement, incorporated by reference to Exhibit 10(b)(xxv) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009.*
10.18		Form of Change in Control Employment Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10(b)(xxvii) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010.*
10.19		Form of 2013 Performance Share Award Agreement between Grainger and certain of its executive officers, incorporated by reference to Exhibit 10(b)(xxiii) to Grainger's Annual Report on Form 10-K for the year ended December 31, 2013.*
10.20		Form of 2014 Performance Share Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10(b)(xxiv) to Grainger's Annual Report on Form 10-K for the year ended December 31, 2014.*
10.21		Form of 2015 Performance Share Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.28 to W.W. Grainger, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2015.*
10.22		W.W. Grainger, Inc. 2015 Incentive Plan, incorporated by reference to Exhibit B of W.W. Grainger, Inc.’s Proxy Statement dated March 13, 2015.*
10.23		First Amendment to the W.W. Grainger, Inc. 2015 Incentive Plan, incorporated by reference to 10.1 of W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.*
10.24		W.W. Grainger, Inc. 2015 Incentive Plan as Amended and Restated Effective October 31, 2018, incorporated by reference to Exhibit 10.1 to W.W. Grainger, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.*
10.25		Separation Agreement and General Release by and between W.W. Grainger, Inc. and Court Carruthers dated July 22, 2015, incorporated by reference to Exhibit 10(b)(i) to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.*
10.26		£180,000,000 Facilities Agreement, dated as of August 26, 2015, by and among GWW UK Holdings Ltd, W.W. Grainger, Inc., the lender parties thereto, Lloyds Bank PLC and Lloyds Securities Inc., as Arrangers, and Lloyds Bank PLC, as Agent, incorporated by reference to W.W. Grainger, Inc.’s Current Report on Form 8-K dated September 1, 2015.
10.27		Form of Stock Option Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.1 to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.*
10.28		Form of Restricted Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.2 to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.*
10.29		Form of 2016 Performance Share Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.3 to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.*
10.30		Form of Stock Option Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.2 to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.*
10.31		Form of Restricted Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.3 to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.*
10.32		Form of 2017 Performance Share Award Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.4 to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.*

10.33		Credit Agreement dated as of October 6, 2017, by and among W.W. Grainger, Inc., the lenders parties thereto, and U.S. Bank National Association, as Administrative Agent, incorporated by reference to Exhibit 10.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated October 6, 2017.
10.34		Separation Agreement and General Release by and between W.W. Grainger, Inc. and Ronald L. Jadin dated April 2, 2018, incorporated by reference to Exhibit 10.1 to W.W. Grainger, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.*
10.35		Form of Separation Agreement and General Release by and between W.W. Grainger, Inc. and Joseph C. High, incorporated by reference to Exhibit 10.2 to W.W. Grainger, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.*
10.36		Form of 2018 W.W. Grainger, Inc. 2015 Incentive Plan Stock Option Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.3 to W.W. Grainger, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.*
10.37		Form of 2018 W.W. Grainger, Inc. 2015 Incentive Plan Restricted Stock Unit Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.4 to W.W. Grainger, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.*
10.38		Form of 2018 W.W. Grainger, Inc. 2015 Incentive Plan Performance Restricted Stock Unit Agreement between W.W. Grainger, Inc. and certain of its executive officers, incorporated by reference to Exhibit 10.5 to W.W. Grainger, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.*
21		Subsidiaries of Grainger.
23		Consent of Independent Registered Public Accounting Firm.
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.
(1) Certain instruments defining the rights of holders of long-term debt securities of the Registrant are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.