85 Years of Getting It Done 2012 AN N UAL R E PORT 85 Years of Getting It Done W.W. Grainger, Inc. was founded in 1927 to serve the hardworking people who maintain and operate facilities. The business, which began with an eight-page catalog of motors and other products, now offers a broad array of more than one million maintenance, repair and operating (MRO) products to two million customers around the globe. Relationships are central to Grainger’s success. The company’s strong commitment to customers also extends to team members, suppliers, communities and shareholders. Every day, Grainger’s people are focused on upholding the tradition of service and quality established 85 years ago. Today and in the future, Grainger is proud to serve “the ones who get it done.” COMPANY INFORMATION W.W. Grainger, Inc., with 2012 sales of $9 billion, is North America’s leading broad-line supplier of maintenance, repair and operating (MRO) products, with expanding global operations. For more information about the company, visit www.grainger.com/investor. 2012 Sales by Customer Category (Total Company) 18% Commercial 18% Heavy Manufacturing 15% Government 12% Contractor 9% Light Manufacturing 9% Other 7% Retail/Wholesale 6% Natural Resources 4% Reseller 2% Transportation 2012 Sales by Product Category (Total Company) 17% Safety and Security 13% Material Handling 10% Metalworking 8% Cleaning and Maintenance 8% Pumps, Plumbing and Test Equipment 7% Electrical 7% Hand Tools 6% HVAC 6% Lighting 6% Other 3% Fluid Power 3% Power Tools 2% Motors 2% Power Transmission 2% Specialty Brands FINANCIAL HIGHLIGHTS W.W. GRAINGER, INC. AND SUBSIDIARIES (In thousands of dollars, except per share amounts) 2012 2011 % Change Income Statement Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As a percent of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As a percent of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As a percent of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings attributable to W.W. Grainger, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As a percent of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,950,045 3,916,160 43.8% 1,131,125 12.6% 1,117,789 12.5% $689,881 7.7% Per Share Earnings – basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average number of shares outstanding – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9.71 $9.52 $3.06 71,181,733 Balance Sheet and Cash Flow Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions to property, buildings and equipment – net . . . . . . . . . . . . . . . . . . . . . . . . . $1,603,748 816,195 241,330 Financial Ratios and Other Data Return on average shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average total capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on invested capital (ROIC)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of branches. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.6% 20.5% 29.1% 715 22,413 $8,078,185 3,510,792 43.5% 1,052,429 13.0% 1,051,527 13.0% $658,423 8.1% $9.26 $9.07 $2.52 71,176,158 $1,438,375 746,108 189,664 26.3% 22.2% 31.9% 711 21,446 10.8% 11.5% 7.5% 6.3% 4.8% 4.9% 5.0% 21.4% 0.0% 11.5% 9.4% 27.2% 4.5% Sales Dollars in billions Earnings per Share – Diluted Dollars Return on Invested Capital * Percent 6.9 6.2 7.2 8.1 9.0 5.97 5.62 6.93 9.07 9.52 29.8 24.9 29.8 31.9 29.1 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Operating Margin Percent Return on Equity Percent Dividends Paid Dollars per share 11.4 10.7 12.0 13.0 12.6 23.0 20.2 22.6 26.3 23.6 1.55 1.78 2.08 2.52 3.06 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 * See page 7 for definition. 1 W.W. GRAINGER, INC. AND SUBSIDIARIES TO OUR SHAREHOLDERS W illiam Wallace Grainger founded this company 85 years ago to provide businesses with products of the best quality and service of the highest standard. Driving value for our customers and our shareholders, creating opportunities for our people, managing for the long-term and operating with integrity are at our core. What began as a simple vision in 1927 has grown into a thriving $9 billion business. Through technology, an unparalleled supply chain and an outstanding team of people, Grainger today is an integrated, multichannel company that serves two million businesses around the globe. In the eyes of our customers, Grainger has become a beacon of reliability. We serve hardworking people who keep the economy running. While products like motors, fasteners, lights and generators may not be glamorous to some, they are critical to keeping businesses and institutions functioning and the people in them safe. James T. Ryan Chairman, President and Chief Executive Officer As our customers’ needs continue to change, products alone are no longer enough. Businesses are relentlessly focused on reducing costs and becoming more productive. Regardless of their industry, our customers are faced with mandates to improve productivity, ensure a safe environment for their employees and run their operations in a more environmentally friendly way. We understand these dynamics and have the products, information, services and people they need. Through steadfast service and running a healthy business, Grainger has built a strong financial position. Deep within our culture is a responsibility to continue this legacy and grow the company profitably for future generations. In 2012, we continued to deliver on this commitment by investing in the business and providing strong returns to our shareholders. Strong performance in ambiguous times In 2012, we delivered another record year with continued growth in sales and earnings. As the economy softened throughout the year, our improved productivity and ability to quickly adjust served us well. • Sales for the year were $9 billion, an increase of 11 percent versus 2011. Reported earnings per share were $9.52, up 5 percent; on an adjusted basis, earnings per share were $10.43, up 15 percent. The year included $0.91 per share of unique items including a $0.66 per share charge to settle a long-standing contract dispute with the federal government. • Our continued productivity initiatives allowed us to achieve $175 million in savings, of which $70 million was reinvested in growth programs. Past economic cycles have taught us which levers to pull to manage expenses, invest in the business and generate cash at the same time. • In 2012, cash flow from operations was $816 million, enabling us to fund capital expenditures of $241 million and two acquisitions. We returned $561 million in cash to shareholders, through $220 million in dividends and the repurchase of 1.7 million shares of stock. 2 In September 2012, Grainger celebrated its 85th year of serving customers in the United States. Grainger has been recognized by several organizations as a top workplace. W.W. GRAINGER, INC. AND SUBSIDIARIES 2012 HIGHLIGHTS A strong foundation helps our businesses perform well In 2012, we made substantial investments in our foundation to help ensure that each of our businesses continues to grow profitably. Grainger’s global supply chain and information systems are part of that foundation. This past year we focused on improving the capacity and productivity of our network. • Our new Midwest distribution center in the Chicago area began operations, significantly adding to our capacity. The new facility will ultimately stock more than 500,000 products and is equipped with a goods-to-person technology system that drives productivity and ergonomic benefits by bringing the products to team members. • In Saskatoon, Saskatchewan, we relocated our existing distribution center to a new, larger facility to further meet the needs of our expanding customer base in this region. We also established a consolidation center in Ontario to reduce inbound freight costs for our Canadian business and finalized plans for a larger, more modern distribution center in the Toronto area. • Our joint venture in Japan, MonotaRO, began construction of a new office and warehouse that is slated to open in 2013. The new facility will span 450,000 square feet and accommodate more than 100,000 additional products. • We started the work of updating and replacing our information systems in Canada and Mexico. These investments will add exciting new capabilities to two already well-performing businesses. Investing in our capabilities drives growth Customers continue to ask Grainger for help reducing their costs and managing their inventory. In 2012, we continued to invest to grow the business through expanding our product and service offering and extending our reach. • We know that strong customer relationships are critical to growth. In 2012, we added new sales representatives across our businesses in the United States, Canada, Mexico and Brazil. Sales representatives added in the past four years contributed 1 percentage point to revenue growth in 2012. • Product line expansion once again delivered strong returns this past year. We added more than 100,000 new products to our total company offering in 2012, providing more choices for customers and greater competitive advantage. • Helping customers manage their inventory is a priority for our businesses in the United States, Canada, Europe and Mexico as businesses seek new ways to become more productive. Sales to customers who use our inventory solutions grow faster than customers without this service. We added more than 10,000 inventory management installations across our business. • eCommerce was again Grainger’s fastest growing channel in 2012, comprising more than 30 percent of total company sales. Improving how customers find, buy and manage their inventory online was a main focus for our eCommerce team. • Having an international presence provides us both purchasing and supply chain scale, access to new, fast-growing markets and the ability to share new ideas and expertise. In 2012, we continued to build our position across the globe and refined our strategy to focus on markets that have the greatest potential for long-term leadership and profitability. – Our 123-year-old Canadian business surpassed $1 billion in sales and continued to achieve double-digit operating margins. – In Europe, Fabory managed through a difficult economy by more closely aligning its cost structure with the economic environment. – We entered Brazil, the largest MRO market in Latin America, through the acquisition of AnFreixo S.A. 3 Having the right people enables Grainger to enhance the capabilities needed to win today and in the future. In 2012, the company opened an eCommerce office in downtown Chicago, a growing market for high-tech talent. Traffic to the Grainger.com® website consistently exceeded 10 million visits per month with 5 percent coming from mobile, outpacing both traditional competitors and online retailers with MRO offerings. Grainger’s Corporate Social Responsibility Report will be released in March 2013. On hand for Grainger’s 85th Anniversary celebration were David W. Grainger, Senior Chairman; Jim Ryan, Chairman, President and CEO; and Dick Keyser, former Chairman and CEO. W.W. GRAINGER, INC. AND SUBSIDIARIES Sustainable business is successful business We know that customers, suppliers, investors and team members want to work with a company they trust and that is well regarded in the community. Service and reliability are at the core of our business and at the heart of our commitment to the communities where we operate. I’m very pleased to announce that in March 2013, Grainger will publish a Corporate Social Responsibility report and website. Grainger and our people are making a difference in our business practices, work places, communities and the environment. In 2012, Grainger reported its U.S. carbon footprint, a measure of greenhouse gas emissions, for the first time. We are the first industrial distributor to publicly disclose this information through the Carbon Disclosure Project. Reporting carbon emissions is a growing trend for companies around the globe and an indicator of a company’s commitment to operating in a sustainable manner. A strong heritage, a stronger future People have been at the heart of this company’s success for 85 years. They have built our reputation for ethics and integrity and delivered unparalleled service and results. Our team members are passionate about the way they serve our customers, communities and each other. As this industry becomes more competitive, service and relationships matter even more. Thanks to our team members, Grainger is more than a supplier; we are a trusted, reliable partner. The worldwide MRO market continues to be highly fragmented and we are excited by the opportunities to gain market share in 2013 and beyond. Our focus is on expanding capabilities that help our customers become more productive and their people safe, and delivering these capabilities through great customer service. We will continue to drive the full potential of our businesses in the United States, Mexico, Canada and Japan. And we look forward to building our business in Brazil, while stabilizing and growing our business in Europe. We will do this by keeping service levels high and our people in front of customers everywhere we operate. And we will continue to invest in attracting, growing and developing the best team in the industry. Grainger is a business built for the ages and I am confident that we will continue to extend our market leadership position. I want to thank those who have shared our first 85 years with us. To our team members, customers, suppliers and shareholders, your dedication to Grainger has helped make us who we are today and your trust in us will help sustain a strong, prosperous future. As we move ahead, we would like to thank Bill Gantz, a Grainger director for 28 years, who is leaving the Board this year. We appreciate the wisdom and sound judgment Bill has brought during his years of service to Grainger. A lot has changed since 1927, but the principles instilled by our founder endure. We are committed to building on our proud heritage and growing this great company. James T. Ryan Chairman of the Board, President and Chief Executive Officer February 27, 2013 4 CORPORATE GOVERNANCE AT A GLANCE W.W. GRAINGER, INC. AND SUBSIDIARIES Board Accountability Shareholder Rights Board is elected by majority vote . . . . . . . . . . . . . . . . . . . . . . . . . . Majority of Directors independent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes . Yes Separate Chairman and CEO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Shareholders may call special meetings . . . . Independent Lead Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Employees may vote their shares in company-sponsored plans. . . . . . . . . . . . . . Yes Independent Board Affairs and Nominating Committee . . . . . . . . . . . . . . . . . . . . . Yes All stock-based incentive plans have been approved by shareholders. . . . . . . . Yes Number of Board meetings held or scheduled . . . All Directors elected annually. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 . . . . . . . . . . . . . . . . . Yes An independent tabulator tabulates shareholder votes . . . . . . . . . . . . . . . . . . . . . Yes Company posts its articles of incorporation and bylaws on website . . . . . . . . . . Yes Company has a shareholder rights plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Shareholders have cumulative voting rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes . Yes Corporate governance guidelines (Operating Principles) approved by the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board plays active role in risk oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes . Yes Independent Directors hold meetings without management present . . . . . . . . . Yes Board-approved succession plan in place . . . . . . . . . . The performance of the Board is reviewed regularly. . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes . . . . . . . . . . . . . . . . . . Yes The performance of each Committee is reviewed regularly . . . . . . . . . . . . . . . . . . Yes Board members conduct periodic individual self-evaluations . . . . . . . . . . . . . . . . Yes Board orientation/education program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Directors must tender resignation upon a substantive change in career (Criteria for Membership). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes All Directors are expected to attend annual shareholders meeting . . . . . . . . . . . Yes All Directors attended at least 75 percent of Board and Committee meetings . . . Yes Financial Disclosure and Internal Controls Charters for Audit, Compensation, and Board Affairs and Nominating Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation Independent Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Board Compensation Committee has independent compensation consultant . . . Yes Compensation risk assessment conducted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes The Company does not have employment agreements . . . . . . . . . . . . . . . . . . . . . . Yes Executive compensation is tied to performance; numeric criteria are disclosed . . Yes The Company has the ability to claw back incentive compensation . . . . . . . . . . . Yes CEO salary is no more than 2½ times salary of next highest paid named executive officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Corporate Behavior A Company employee is tasked with environmental responsibilities . . . . . . . . . Yes Company has environmental, health and safety guidelines. . . . . . . . . . . . . . . . . . Yes Environmental and workplace safety policy is disclosed . . . . . . . . . . . . . . . . . . . . Yes Environmental performance is audited by an independent outside firm . . . . . . . No . . . . . . . . . . . . . . . . . . Yes Company publishes core vision and values statement . . . . . . . . . . . . . . . . . . . . . . Yes Disclosure Committee function for financial reporting . . . . . . . . . . . . . . . . . . . . . . . Yes Independent Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Company compares its governance policies to an external code of best practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Audit Committee has a financial expert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Auditors elected at most recent annual meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Company has program in place to monitor its policies on corruption and bribery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Company has a code of ethics (Business Conduct Guidelines) . . . . . . . . . . . . . Yes Company has an ethics officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes For more information on Corporate Governance, visit www.grainger.com. Training on ethical behavior is required for all employees . . . . . . . . . . . . . . . . . . . Yes CORPORATE SOCIAL RESPONSIBILITY Grainger’s spirit of service goes beyond helping customers maintain their facilities. The company is committed to operating responsibly and having a positive effect in the communities where it does business. In 2012, Grainger donated more than $22 million to charitable organizations in cash, products and employee matching gifts. Team members around the globe also give generously of their time and talents to help in their local communities. To learn more about Grainger’s corporate social responsibility (CSR) initiatives and view the most recent CSR report, visit www.graingercsr.com. 5 HISTORICAL FINANCIAL SUMMARY W.W. GRAINGER, INC. AND SUBSIDIARIES Financial Summary ($000) Net sales Earnings before income taxes and 2012 2011 2010 $8,950,045 $8,078,185 $7,182,158 cumulative effect of accounting change 1,117,789 1,051,527 Income taxes Earnings before cumulative effect of accounting change Cumulative effect of accounting change Net earnings attributable to W.W. Grainger, Inc. Working capital Additions to property, buildings and equipment and capitalized software Depreciation and amortization Current assets Total assets Shareholders’ equity Cash dividends paid Long-term debt (less current maturities) Earnings – basic Earnings – diluted Cash dividends paid Book value Year-end stock price Percent of return on average shareholders’ equity Percent of return on average total capitalization Earnings before income taxes and cumulative effect of accounting change as a percent of net sales Earnings before cumulative effect of accounting change as a percent of net sales Cash dividends paid as a percent of net earnings Total debt as a percent of total capitalization Current assets as a percent of total assets Current assets to current liabilities Average inventory turnover – FIFO Average inventory turnover – LIFO 418,940 689,881 — 689,881 1,603,748 249,860 145,612 2,900,640 5,014,598 3,117,366 220,077 467,048 9.71 9.52 3.06 44.87 202.37 23.6 20.5 12.5 7.7 31.9 15.3 57.8 2.7 2.8 3.9 385,115 658,423 — 658,423 1,438,375 196,942 137,211 2,694,900 4,716,062 2,724,279 180,527 175,055 9.26 9.07 2.52 38.94 187.19 26.3 22.2 13.0 8.1 27.4 15.9 57.1 1.9 3.0 4.0 853,778 340,196 510,865 — 510,865 1,162,318 127,124 137,793 2,238,071 3,904,377 2,287,670 152,338 420,446 7.05 6.93 2.08 32.97 138.11 22.6 18.7 11.9 7.1 29.8 17.8 57.3 2.6 3.1 4.4 Per Share ($) Ratios Other Data Average number of shares outstanding – basic Average number of shares outstanding – diluted Number of employees Number of outside sales representatives Number of branches Number of products in the Grainger® catalog issued February 1 69,811,881 71,181,733 69,690,854 71,176,158 70,836,945 72,138,858 22,413 4,157 715 410,000 21,446 4,029 711 354,000 18,596 3,079 607 307,000 Note: See the company’s current and prior years’ Form 10-K for changes in accounting and unusual items. 6 W.W. GRAINGER, INC. AND SUBSIDIARIES 2009 2008 2007 2006 2005 2004 2003 2002 $6,221,991 $6,850,032 $6,418,014 $5,883,654 $5,526,636 $5,049,785 $4,667,014 $4,643,898 707,337 276,565 430,466 — 430,466 1,026,690 142,414 140,974 2,131,515 3,726,332 2,227,199 134,684 437,500 5.70 5.62 1.78 30.81 96.83 20.2 16.4 11.4 6.9 31.3 19.1 57.2 2.7 2.7 3.8 773,218 297,863 475,355 — 475,355 1,064,094 194,975 135,137 2,144,109 3,515,417 2,033,805 121,504 488,228 6.07 5.97 1.55 27.20 78.84 23.0 20.3 11.3 6.9 25.6 20.7 61.0 2.8 2.9 4.1 681,861 261,741 420,120 — 420,120 1,021,663 197,423 127,882 1,800,817 3,094,028 2,098,108 113,093 4,895 5.01 4.91 1.34 26.40 87.52 19.7 19.2 10.6 6.6 26.9 5.0 58.2 2.2 3.1 4.3 603,023 219,624 383,399 — 383,399 852,472 136,764 114,884 1,862,086 3,046,088 2,177,615 97,896 4,895 4.36 4.24 1.11 25.90 69.94 17.2 17.2 10.2 6.5 25.5 0.4 61.1 2.6 3.1 4.4 532,674 186,350 346,324 — 346,324 1,290,188 157,247 105,671 1,985,539 3,107,921 2,288,976 82,663 4,895 3.87 3.78 0.92 25.51 71.10 15.9 15.9 9.6 6.3 23.9 0.4 63.9 2.9 3.2 4.5 445,139 158,216 286,923 — 286,923 1,108,384 160,758 96,305 1,744,416 2,809,573 2,067,970 71,243 — 3.18 3.13 0.79 22.83 66.62 14.7 14.2 8.8 5.7 24.8 0.5 62.1 2.7 3.3 4.6 381,090 154,119 226,971 — 226,971 926,773 80,486 88,629 1,633,413 2,624,678 1,845,135 67,281 4,895 2.50 2.46 0.74 20.27 47.39 12.9 12.3 8.2 4.9 29.6 7.5 62.2 2.3 2.9 4.4 397,837 162,349 235,488 (23,921) 211,567 898,681 144,052 92,811 1,484,947 2,437,448 1,667,698 66,467 119,693 2.30 2.24 0.72 18.21 51.55 12.9 13.6 8.6 5.1 31.4 7.2 60.9 2.5 3.2 4.5 73,786,346 74,891,852 76,579,856 77,887,620 82,403,958 84,173,381 87,838,723 90,523,774 89,568,746 91,588,295 90,206,773 91,673,375 90,731,013 92,394,085 91,982,430 94,303,497 18,006 2,845 612 233,000 18,334 2,433 617 183,000 18,036 2,386 610 139,000 17,074 1,805 593 115,000 16,732 2,507 589 82,400 15,523 2,154 582 82,300 14,701 1,741 575 88,400 15,236 1,650 576 98,700 NOTE ON ROIC Prior to January 2011, ROIC was calculated using annual operating earnings divided by a 13-point (monthly) average for net working assets. Moving forward, ROIC will be calculated using a 5-point (quarterly) average for net working assets to provide greater transparency. Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (non-operating cash), deferred taxes and investments in unconsolidated entities, plus the LIFO reserve. Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees’ profit sharing plans and accrued expenses. 7 BOARD OF DIRECTORS Brian P. Anderson Former Executive Vice President and Chief Financial Officer, OfficeMax Incorporated, Itasca, Ill. (1, 2,* †) W.W. GRAINGER, INC. AND SUBSIDIARIES Stuart L. Levenick Group President, Caterpillar Inc., Peoria, Ill. (2, 3*) Gary L. Rogers Former Vice Chairman, General Electric Company, Fairfield, Conn. (1, 2) Wilbur H. Gantz President and Chief Executive Officer, PathoCapital LLC, Northbrook, Ill. John W. McCarter, Jr. President Emeritus of the Field Museum of Natural History, Chicago, Ill. James T. Ryan Chairman, President and Chief Executive Officer, W.W. Grainger, Inc. (1, 2) (2, 3) V. Ann Hailey President, Chief Executive Officer and Chief Financial Officer, Famous Yard Sale, Inc., New Albany, Ohio Neil S. Novich Former Chairman, President and Chief Executive Officer, Ryerson Inc., Chicago, Ill. (1,* 2) (2, 3) William K. Hall Founding Partner, Procyon Advisors LLP, Skokie, Ill. (1, 2) Michael J. Roberts Former Global President and COO of McDonalds Corporation, CEO of LYFE Kitchen, Chicago, Ill. (2, 3) E. Scott Santi President and Chief Executive Officer, Illinois Tool Works Inc., Glenview, Ill. (1, 2) James D. Slavik Chairman, Mark IV Capital, Inc., Newport Beach, Calif. (2, 3) (1) Member of Audit Committee (2) Member of Board Affairs and Nominating Committee (3) Member of Compensation Committee * Committee Chair † Lead Director EXECUTIVE AND OPERATING MANAGEMENT Laura D. Brown Senior Vice President, Communications and Investor Relations Joseph C. High Senior Vice President and Chief People Officer DG Macpherson Senior Vice President; President, Global Supply Chain and Corporate Strategy Court D. Carruthers Senior Vice President; President, Grainger U.S. Timothy M. Ferrarell Senior Vice President and Chief Information Officer John L. Howard Senior Vice President and General Counsel Ronald L. Jadin Senior Vice President and Chief Financial Officer Michael A. Pulick Senior Vice President; President, Grainger International James T. Ryan Chairman, President and Chief Executive Officer 8 S HAR E HOLDE R AN D M E DIA I N FOR MATION W.W. GRAINGER, INC. AND SUBSIDIARIES Company Headquarters W.W. Grainger, Inc. 100 Grainger Parkway Lake Forest, Illinois 60045-5201 847.535.1000 Phone 847.535.0878 Fax Annual Meeting The 2013 Annual Meeting of Shareholders will be held at the company’s headquarters in Lake Forest, Illinois, at 10:00 a.m. CDT on Wednesday, April 24, 2013. Auditors Ernst & Young LLP 155 North Wacker Drive Chicago, Illinois 60606-1787 Common Stock Listing The company’s common stock is listed on the New York and Chicago stock exchanges under the trading symbol GWW. Transfer Agent, Registrar and Dividend Disbursing Agent Instructions and inquiries regarding transfers, certificates, changes of title or address, lost or missing dividend checks, consolidation of accounts and elimination of multiple mailings should be directed to: Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 800.446.2617 Dividend Direct Deposit Shareholders of record have the opportunity to have their quarterly dividends electronically deposited directly into their checking, money market or savings accounts at financial institutions that participate in the automated clearinghouse system. Shareholders who are interested in taking advantage of this service or would like more information on the program should contact Computershare at the above address. Investor Relations Contacts Laura D. Brown Senior Vice President, Communications and Investor Relations 847.535.0409 William D. Chapman Senior Director, Investor Relations 847.535.0881 Upon written request to Investor Relations, we will provide, free of charge, a copy of our Form 10-K for the fiscal year ended December 31, 2012. Grainger’s Annual Report, Form 10-K, Form 10-Q, proxy statement and other filings with the Securities and Exchange Commission, as well as the Fact Book and news releases including quarterly earnings and monthly sales, can be accessed free of charge at the Investor Relations section of the company’s website at www.grainger.com/investor. For more information, contact Investor Relations at 847.535.1000. Requests for other company-related information should be made to David Rawlinson, Vice President, Deputy General Counsel and Corporate Secretary, at the company’s headquarters. Media Relations Contact Joseph Micucci Director, Media Relations 847.535.0879 Trademarks ACKLANDS – GRAINGER, AIR HANDLER, CONDOR, FOR THE ONES WHO GET IT DONE, GRAINGER, GRAINGER and Design, GRAINGER FOR THE ONES WHO GET IT DONE and Design, GRAINGER LIGHTING SERVICES, GRAINGER Shipping Box Design, GRAINGER.COM, GRAINGER.COM.MX, KEEPSTOCK, LUMAPRO, TOUGH GUY and WESTWARD are the trademarks or service marks of W.W. Grainger, Inc., which may be registered in the United States and/or other countries. DAYTON and SPEEDAIRE are the trademarks of Dayton Electric Manufacturing Co., which may be registered in the United States and/or other countries. FABORY is the trademark of Fabory Nederland B.V., which may be registered in the United States and/or other countries. TECHNI-TOOL is the trademark of Techni-Tool, Inc., which may be registered in the United States and/or other countries. All other trademarks and service marks are the property of their respective owners. Forward-Looking Statements This Annual Report and Form 10-K contain statements that are not historical in nature but concern future results and business plans, strategies and objectives and other matters that may be deemed to be “forward-looking statements” under federal securities laws. Grainger has generally identified such forward-looking statements in this Annual Report by using words such as “can”, “continue”, “continued”, “continues”, “expect”, “expected”, “forward”, “future”, “gain”, “gain market share”, “goals”, “moving forward”, “grow”, “grow faster”, “growing”, “growth”, “intend”, “look forward to”, “plan”, “plans”, “strategy”, “will” or similar expressions. Factors that could cause actual results to differ materially from those presented or implied in a forward-looking statement include, without limitation: higher product costs or other expenses; a major loss of customers; loss or disruption of source of supply; increased competitive pricing pressures; failure to develop or implement new technologies or business strategies; the outcome of pending and future litigation or governmental or regulatory proceedings; investigations, inquiries, audits and changes in laws and regulations; disruption of information technology or data security systems; general industry or market conditions; general global economic conditions; currency exchange rate fluctuations; market volatility; commodity price volatility; labor shortages; litigation involving appropriate payment for wages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; natural and other catastrophes; unanticipated weather conditions; and the factors identified in Item 1A, Risk Factors in the Form 10-K. Caution should be taken not to place undue reliance on Grainger’s forward-looking statements, and Grainger undertakes no obligation to publicly update the forward-looking statements, whether as a result of new information, future events or otherwise. . c n I , i n g s e D s u o m y n o n A : I N G S E D The printer and paper utilized for this report have been certified by the Forest Stewardship Council (FSC), which promotes environmentally appropriate, socially beneficial and economically viable management of the world’s forests. This report is on paper made from mixed sources of post-industrial recycled and virgin fiber. Recyclable. Please recycle. Headquarters W.W. Grainger, Inc. 100 Grainger Parkway Lake Forest, Illinois 60045-5201 847.535.1000 www.grainger.com 8S5263 © 2013 W.W. Grainger, Inc.