UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______

Commission File Number 1-5684

W.W. Grainger, Inc.
(Exact name of registrant as specified in its charter)

Illinois
(State or other jurisdiction of incorporation or organization)

36-1150280
(I.R.S. Employer Identification No.)

100 Grainger Parkway, Lake Forest, Illinois
(Address of principal executive offices)

60045-5201
(Zip Code)

(847) 535-1000
(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ___X____ No _______

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ___X____ No _______


APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 91,013,839 shares of the Company’s Common Stock were outstanding as of June 30, 2004.

	TABLE OF CONTENTS	Page No.

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Earnings for the Three Months and Six Months Ended June 30, 2004 and June 30, 2003	3

	Condensed Consolidated Statements of Comprehensive Earnings for the Three Months and Six Months Ended June 30, 2004 and June 30, 2003	4

	Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003	5 - 6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and June 30, 2003	7 - 8

	Notes to Condensed Consolidated Financial Statements	9 - 15

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16 - 25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

PART II	OTHER INFORMATION

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	27

Item 6.	Exhibits and Reports on Form 8-K	27 - 28

Signatures		29

EXHIBITS

Exhibit 11	Computations of Earnings Per Share

Exhibits 31 & 32	Certifications

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except for per share amounts)
(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2004		2003			2004			2003
Net sales	$	1,255,974		$	1,172,661		$	2,483,773		$	2,311,930
Cost of merchandise sold		796,147			754,528			1,576,481			1,483,688

Gross profit		459,827			418,133			907,292			828,242
Warehousing, marketing and
administrative expenses		352,936			325,353			699,653			644,055

Operating earnings		106,891			92,780			207,639			184,187
Other income and (expense)
Interest income		1,292			729			2,524			1,502
Interest expense		(1,240	)		(1,574	)		(2,653	)		(3,009	)
Equity in income (loss) of
unconsolidated entities — net		143			(769	)		(202	)		(1,824	)
Gain on sale of unconsolidated
entity		--			--			750			--
Unclassified — net		277			2,668			418			1,022

Net other income and
(expense)		472			1,054			837			(2,309	)

Earnings before income taxes		107,363			93,834			208,476			181,878
Income taxes		40,744			37,841			79,298			73,481

Net earnings	$	66,619		$	55,993		$	129,178		$	108,397

Earnings per share:
Basic	$	0.74		$	0.61		$	1.43		$	1.19

Diluted	$	0.72		$	0.60		$	1.41		$	1.17

Weighted average number of
shares outstanding:
Basic		90,236,332			90,834,004			90,227,811			90,849,675

Diluted		91,723,607			92,369,529			91,498,520			92,477,141

Cash dividends paid per share	$	0.200		$	0.185		$	0.385		$	0.365

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

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands of dollars)
(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2004		2003			2004			2003
Net earnings	$	66,619		$	55,993		$	129,178		$	108,397
Other comprehensive (losses)
earnings:
Foreign currency translation
adjustments, net of tax
(expense) benefit related to
designated hedge of
$(918), $4,348, $(1,531)
and $7,466, respectively		(4,205	)		14,629			(6,651	)		26,978
Gains (losses) on investment
securities:
Unrealized holding gains
(losses), net of tax
(expense) benefit of
$0, $(340), $0 and
$455, respectively		--			532			--			(711	)
Reclassifications for net
(gains) losses included in
earnings, net of tax
expense (benefit) of $0,
$2, $0 and $(627),
respectively		--			(3	)		--			982

		(4,205	)		15,158			(6,651	)		27,249

Comprehensive earnings	$	62,414		$	71,151		$	122,527		$	135,646

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

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except for per share amounts)

ASSETS	(Unaudited) June 30, 2004		Dec. 31, 2003
CURRENT ASSETS
Cash and cash equivalents	$	486,131		$	402,824
Accounts receivable (less allowances for doubtful
accounts of $24,984 and $24,736, respectively)		484,547			431,896
Inventories		654,696			661,247
Prepaid expenses and other assets		50,123			37,947
Deferred income taxes		104,848			99,499

Total current assets		1,780,345			1,633,413
PROPERTY, BUILDINGS AND EQUIPMENT		1,566,696			1,545,150
Less accumulated depreciation and amortization		849,538			813,158

Property, buildings and equipment — net		717,158			731,992
DEFERRED INCOME TAXES		18,325			20,296
INVESTMENTS IN UNCONSOLIDATED ENTITIES		22,066			22,822
GOODWILL — NET		153,214			156,268
OTHER ASSETS AND INTANGIBLES — NET		61,909			59,887

TOTAL ASSETS	$	2,753,017		$	2,624,678

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands of dollars, except for per share amounts)

LIABILITIES AND SHAREHOLDERS’ EQUITY	(Unaudited) June 30, 2004		Dec. 31, 2003
CURRENT LIABILITIES
Current maturities of long-term debt	$	140,190		$	144,135
Trade accounts payable		314,783			257,806
Accrued expenses		252,328			261,009
Income taxes		29,587			43,690

Total current liabilities		736,888			706,640
LONG-TERM DEBT (less current maturities)		4,895			4,895
ACCRUED EMPLOYMENT-RELATED BENEFITS COSTS		74,670			68,008
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 109,887,881 and 109,377,216 shares,
respectively		54,944			54,689
Additional contributed capital		429,453			394,409
Retained earnings		2,336,902			2,242,762
Unearned restricted stock compensation		(16,672	)		(11,471	)
Accumulated other comprehensive (losses) earnings		(4,057	)		2,594
Treasury stock, at cost —
18,874,042 and 18,356,227 shares, respectively		(864,006	)		(837,848	)

Total shareholders’ equity		1,936,564			1,845,135

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,753,017		$	2,624,678

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

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)

	Six Months Ended June 30,
	2004		2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	129,178		$	108,397
Provision for losses on accounts receivable		4,010			3,908
Deferred income taxes		(4,903	)		(2,629	)
Depreciation and amortization:
Property, buildings and equipment		43,956			39,182
Other intangibles		976			649
Capitalized software		5,764			9,642
Tax benefit of stock incentive plans		5,547			962
Net gains on sales of property, buildings and equipment		(429	)		(2,948	)
Gain on sale of unconsolidated entity		(750	)		--
Write-downs of investments		--			1,614
Losses on unconsolidated entities		202			1,824
Change in operating assets and liabilities — net of business
acquisition:
(Increase) in accounts receivable		(58,168	)		(36,720	)
(Increase) decrease in inventories		3,443			(7,921	)
(Increase) in prepaid expenses		(14,386	)		(12,787	)
Increase in trade accounts payable		57,891			19,281
(Decrease) in other current liabilities		(8,423	)		(30,914	)
(Decrease) in current income taxes payable		(14,027	)		(5,606	)
Increase in accrued employment-related benefit costs		6,662			7,183
Other — net		3,554			1,580

Net cash provided by operating activities	$	160,097		$	94,697

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and
equipment — net of dispositions	$	(29,653	)	$	(26,048	)
Additions to capitalized software		(6,578	)		(3,773	)
Proceeds from sales of investment securities		--			675
Net cash paid for business acquisition		--			(36,725	)
Investments in unconsolidated entities		--			(3,564	)
Other — net		1,304

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

OR

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004