2013 ANNUAL REPORT COMPANY INFORMATION W.W. Grainger, Inc., with 2013 sales of $9.4 billion, is North America’s leading broad line supplier of maintenance, repair and operating products, with operations in Asia, Europe and Latin America. For more information about the company, visit www.grainger.com/investor. 2013 SALES (Total Company) Customer Category 18% Heavy Manufacturing 15% Commercial* 13% Government 12% Contractor 11% Light Manufacturing 10% Other 6% Natural Resources 6% Retail/Wholesale 5% Transportation* 4% Reseller * Note: Some Transportation sales in the United States were formerly classified as Commercial. Product Category 18% Safety and Security 13% Material Handling 10% Metalworking 9% Cleaning and Maintenance 8% Pumps, Plumbing and Test Equipment 7% Hand Tools 6% Electrical 6% HVAC 6% Other 5% Lighting 4% Power Tools 3% Fluid Power 2% Motors 2% Power Transmission 1% Specialty Brands Sales Dollars in billions Operating Margin Percent Earnings per Share – Diluted Dollars 6.2 7.2 8.1 9.0 9.4 10.7 12.0 13.0 12.6 13.7 5.62 6.93 9.07 9.52 11.13 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 W.W. GRAINGER, INC. AND SUBSIDIARIES Financial Highlights (In thousands of dollars, except per share amounts) 2013 2012 % 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,437,758 4,136,483 43.8% 1,296,854 13.7% 1,287,599 13.6% $797,036 8.4% Per Share Earnings – basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average number of shares outstanding – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.31 $11.13 $3.59 70,576,432 Balance Sheet and Cash Flow Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions to property, buildings and equipment – net . . . . . . . . . . . . . . . . . . . . . . . . . $1,621,103 986,498 245,444 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.7% 21.4% 31.8% 709 23,741 $8,950,045 3,916,160 43.8% 1,131,125 12.6% 1,117,789 12.5% $689,881 7.7% $9.71 $9.52 $3.06 71,181,733 $1,603,748 816,195 241,330 23.6% 20.5% 29.1% 715 22,413 5.4 % 5.6 % 14.7 % 15.2 % 15.5 % 16.5 % 16.9 % 17.3 % (0.9)% 1.1 % 20.9 % 1.7 % (0.8)% 5.9 % Return on Equity Percent Return on Invested Capital* Percent Dividends Paid Dollars per share 20.2 22.6 26.3 23.6 24.7 24.9 29.8 31.9 29.1 31.8 1.78 2.08 2.52 3.06 3.59 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 1 * See page 7 for definition. To Our Shareholders W.W. GRAINGER, INC. AND SUBSIDIARIES 2013 HIGHLIGHTS A solid year and more opportunity ahead With record sales and earnings in 2013, Grainger is a healthy and financially strong company. • Sales for the year were $9.4 billion, an increase of 5 percent versus 2012. Reported earnings per share were $11.13, up 17 percent; on an adjusted basis, earnings per share were $11.52, up 10 percent. We had $0.39 per share of impairment and restructuring charges that were a result of underperformance in some of our smaller businesses. • Our continued productivity initiatives allowed us to generate $190 million in savings, of which $132 million was reinvested in growth and infrastructure programs. • In 2013, cash flow from operations was $986 million, enabling us to fund capital expenditures of $272 million and $154 million in acquisitions. We returned $693 million in cash to shareholders, including $255 million in dividends and repurchased 1.7 million shares of stock. Even with these results, we have more work to do. While I was pleased with how our largest businesses performed this past year, we have other areas that are not meeting our expectations. We are taking the appropriate steps to improve the growth and profitability of several of our smaller businesses. Competing through two models In the highly fragmented maintenance, repair and operating (MRO) market, there is a large amount of share to be gained, and we are well positioned to take advantage of the opportunity. We know that while our customers’ needs are universal, how customers buy MRO supplies differs significantly based on the size of their business. These behaviors are driving how we think about our business and have helped us bring greater focus to how we serve customers of different sizes. Driven to lower their total cost of ownership, large customers tend to have more complex needs and require services more customized to how they operate. They want a broad product James T. Ryan Chairman, President and Chief Executive Officer At Grainger, we help professionals keep their operations running and their people safe. Our customers trust and rely on us every day to provide the right products, services and solutions, when and where they need them. They are the backbone of economies around the world and the reason we exist as a business. With more than two million customers of all shapes and sizes across multiple countries, our relationships are a testament to our understanding of facilities maintenance professionals. While their industries vary, their needs don’t. All businesses and institutions today must maintain productive, safe and efficient operations. To do this, customers need access to a broad product offering, fast delivery and Grainger team members who understand their business and are committed to their success. Time is money for these professionals; when motors break or the lights go out, their businesses stop. Our commitment is to help them get their jobs done every time. We continue to operate in an increasingly complex and unpredictable global economic environment. This creates opportunities for us to gain market share by helping our customers simplify their business using a trusted and reliable partner – Grainger. 2 and service offering available through the phone, branch, sales representative and eCommerce channels. To meet this need, we run our multichannel business model in all geographies except Japan. On the other end of the spectrum, many small customers tend to use fewer services, mix business and personal purchases and are often willing to spend more time shopping, often on the web. We serve these customers through our online business in Japan, MonotaRO, and our growing Zoro Tools business in the United States. I am excited about the great success we are seeing with both of these businesses. In 2013, sales for MonotaRO grew nearly 20 percent in local currency, and revenue for Zoro Tools grew more than 150 percent. Scale matters In the distribution business, scale matters. It provides the opportunity to drive higher levels of customer service, more productivity and ultimately more growth. In 2013, we continued to invest in our supply chain and systems infrastructure to create economies of scale and competitive advantage. • Ramped up operations at our new Minooka, Ill., distribution center. This Leadership in Energy and Environmental Design (LEED) Commercial Interiors (CI) Platinum facility features the world’s largest goods-to-person installation, an automated system that increases productivity and maximizes storage space by stocking and dispensing more than 500,000 products. • Made progress on the construction of a new 500,000 square-foot distribution center in the Toronto area, which will be two and a half times larger than the current one. • Transitioned to a new web platform in the United States to offer a consistent purchase experience for customers across multiple purchase channels, launched a Spanish language website and introduced innovative mobile solutions including a new iPad® app. • Continued our work to design and build more scalable, responsive and flexible information systems in Canada and Mexico. W.W. GRAINGER, INC. AND SUBSIDIARIES • Launched an initiative to improve our fastener offering and drive a better cost position globally by leveraging the expertise of our European fastener business, Fabory. Growth through service Grainger’s differentiating factor has always been service. When we invest in things that matter to our customers, create value for their business and deliver it better than anyone else, we gain more of our customers’ purchase volume. In 2013, we continued to make investments in several capabilities that help our customers take cost out and become more productive. These capabilities have proven returns and continue to be drivers of market share gain globally. • Added more than 200 new sales representatives in North America to help customers find solutions for their MRO needs and reduce their total costs. Relationships matter in this business. In general, sales to customers with a sales representative grow at twice the rate of customers who are not covered by a salesperson. • Bolstered our inventory management services across the Americas and Europe, making it easier for customers to lower inventory and reduce labor costs in their business. Installations for vendor- and customer-managed inventory and vending machines totaled approximately 60,000 in 2013. Sales to customers with a KeepStock® installation also grow at twice the rate of non-KeepStock customers. • Surpassed $3 billion in eCommerce sales in 2013, representing 33 percent of total company sales. eCommerce is an integrated part of our multichannel business. Revenue through this channel grew 15 percent last year, and it is the most profitable channel in the business. • Added more than 300,000 new products to Grainger.com,® bringing the total number of products online to more than 1.2 million. In Canada, Acklands–Grainger announced the addition of 200,000 products to its online offering. A broader product line enables customers to increase productivity by consolidating their supplier base. 3 MonotaRO was named to the Forbes® Asia “Best Under A Billion” list, which highlights 200 of the best small and mid-sized companies in Asia Pacific. Grainger is the 15th largest e-retailer in North America according to Internet Retailer. Volunteer Connection is used by the Red Cross to recruit and engage its 500,000 volunteers. W.W. GRAINGER, INC. AND SUBSIDIARIES • Gained momentum with recent strategic acquisitions in the United States. We view acquisitions as a vehicle to accelerate organic growth in key end markets. The acquisitions of both E&R Industrial Sales, Inc. and Safety Solutions, Inc. have helped us broaden our offering to manufacturing customers on the plant floor. People make the difference Embedded in this business is the belief that engaged, hard-working and talented people ultimately provide great service and make Grainger a better company. We have attracted and developed a terrific mix of people who have spent much of their career with Grainger and are experts on this industry. They work shoulder-to-shoulder with new team members who have come from other industries and bring different experiences. This is a powerful combination. Grainger team members not only make a difference for our customers, they extend that commitment to service into our local communities. In 2013, the company continued our long-standing relationship with the American Red Cross, completing a $3 million grant to help launch Volunteer Connection, an online volunteer management system that enables the Red Cross to more efficiently recruit and deploy volunteers across the country. Through our ongoing support of the Ready When the Time Comes® program, Grainger volunteers helped the Canadian and American Red Cross respond to multiple disasters this past year, including flooding in Alberta, Canada, and storms in the Midwestern United States. I’m very proud of Grainger’s legacy of helping communities in need. As part of our commitment to environmental sustainability, we continue to improve our capabilities to measure, report and manage our energy use. Over the past year, we’ve made investments to improve energy efficiency at several of our distribution centers and continued our commitment to building LEED certified facilities. In 2013, Grainger also expanded the reporting of our carbon footprint through the Carbon Disclosure Project beyond 4 our core U.S. business to include two of our international businesses, Acklands–Grainger and Grainger Mexico. Investing for the long term Grainger is a strong company with the confidence to invest in our business for the long term. Across the company, we will continue to add to the capabilities and services that help customers manage their business and drive growth for Grainger. At the same time, we will further strengthen our infrastructure through new distribution centers and updated information technology systems to add capacity and improve customer service. We know that the investments we are making help drive growth and shareholder value. In the past five years in particular, we have seen some of our largest market share gains and some of our biggest increases in shareholder value. We are committed and disciplined to find ways to invest in this business and continue this trend. Together with our team members, suppliers and other businesses partners, Grainger will continue to advance its leadership position in the MRO market by serving the professional customer better than anyone else. Helping to guide Grainger for 24 years has been John McCarter, a long-standing member of our Board of Directors and trusted adviser. As John leaves the Board this year, we thank him for his knowledgeable perspective and dedicated service. I am confident and excited about where Grainger is headed. We know our customers, what is important to them and how their business runs. The opportunities in the years ahead are energizing. This is a great industry and we have a proven strategy to win. James T. Ryan Chairman of the Board, President and Chief Executive Officer February 27, 2014 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 does not have a shareholder rights plan . . . . . . . . . . . . . . . . . . . . . . . . . Yes 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 Audit Committee has a financial expert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Auditors ratified at most recent annual meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes Company compares its governance policies to an external code of best practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 commitment to delivering with the highest levels of service and integrity is the foundation of the company’s corporate social responsibility (CSR) efforts. Grainger’s CSR strategy is based on four pillars: operating responsibly, valuing our people, serving our communities and sustainability as a priority. Key areas of progress in 2013 included rolling out a Code of Ethics for our suppliers, launching a global safety program, investing in partnerships to strengthen community resiliency and expanding our sustainability reporting through the Carbon Disclosure Project. In 2013, Grainger donated more than $22 million to charitable organizations in cash, products and employee matching gifts. To learn more about Grainger’s 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 ($000) Per Share ($) Ratios Other Data Net sales Earnings before income taxes Income taxes 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 as a percent of net sales Earnings 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 2013 2012 2011 $9,437,758 1,287,599 479,850 797,036 $8,950,045 $8,078,185 1,117,789 1,051,527 418,940 689,881 385,115 658,423 1,621,103 1,603,748 1,438,375 272,145 164,902 3,044,285 5,266,328 3,326,836 255,466 445,513 11.31 11.13 3.59 48.32 255.42 24.7 21.4 13.6 8.4 32.1 14.0 57.8 2.5 3.0 4.1 249,860 145,612 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 3.9 196,942 137,211 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 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 69,455,507 70,576,432 69,811,881 71,181,733 69,690,854 71,176,158 23,741 4,479 709 570,000 22,413 4,157 715 410,000 21,446 4,029 711 354,000 Note: See the company’s current and prior years’ Form 10-K for changes in accounting and other adjustments. 6 W.W. GRAINGER, INC. AND SUBSIDIARIES 2010 2009 2008 2007 2006 2005 2004 2003 $7,182,158 $6,221,991 $6,850,032 $6,418,014 $5,883,654 $5,526,636 $5,049,785 853,778 340,196 510,865 707,337 276,565 430,466 773,218 297,863 475,355 681,861 261,741 420,120 1,162,318 1,026,690 1,064,094 1,021,663 127,124 137,793 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 4.4 142,414 140,974 2,131,515 3,726,332 2,227,199 134,684 437,500 194,975 135,137 2,144,109 3,515,417 2,033,805 121,504 488,228 197,423 127,882 1,800,817 3,094,028 2,098,108 113,093 4,895 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 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 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 4.3 603,023 219,624 383,399 852,472 136,764 114,884 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 4.4 532,674 186,350 346,324 445,139 158,216 286,923 1,290,188 1,108,384 157,247 105,671 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 4.5 160,758 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 $4,667,014 381,090 154,119 226,971 926,773 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 70,836,945 72,138,858 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 18,596 3,079 607 307,000 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 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. Since 2011, ROIC has been 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 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. (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) Stuart L. Levenick Group President, Caterpillar Inc., Peoria, Ill. Gary L. Rogers Former Vice Chairman, General Electric Company, Fairfield, Conn. (1) Member of Audit Committee (2) Member of Board Affairs and Nominating Committee (2, 3) (1, 2) (3) Member of Compensation Committee † Lead Director Executive and Operating Management Michael S. Ali Senior Vice President and Chief Information Officer John L. Howard Senior Vice President and General Counsel Laura D. Brown Senior Vice President, Communications and Investor Relations Ronald L. Jadin Senior Vice President and Chief Financial Officer Court D. Carruthers Senior Vice President and Group President, Americas Joseph C. High Senior Vice President and Chief People Officer DG Macpherson Senior Vice President and Group President, Global Supply Chain and International James T. Ryan Chairman, President and Chief Executive Officer Paul C. Miller Vice President, Global eCommerce, Customer Information and Innovation Debra S. Oler Vice President and General Manager, Grainger Brand Paige Robbins Vice President, Americas Supply Chain Kinya Seto Senior Vice President, Online Business 8 Shareholder and Media Information 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 2014 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 30, 2014. 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 D. Casey Darby Senior Manager, Investor Relations 847.535.0099 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, 2013. 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. ANFREIXO is the trademark of Grainger Brasil Comércio e Distribuição Ltda., 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. MONOTARO is the trademark of MonotaRO Co., Ltd., which may be registered in the United States and/or other countries. SAFETY SOLUTIONS is the trademark of Safety Solutions, Inc., 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. ZORO TOOLS is the trademark of Zoro Tools, 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 “are taking”, “can”, “continue”, “continued”, “expectations”, “expected”, “forward”, “gain”, “gained”, “gains”, “gain market share”, “goals”, “grow”, “growing”, “growth”, “improve”, “intend”, “plan”, “plans”, “strategy”, “tend”, “well positioned”, “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. 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. 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. . c n I , i n g s e D s u o m y n o n A : I N G S E D Headquarters W.W. Grainger, Inc. 100 Grainger Parkway Lake Forest, Illinois 60045-5201 847.535.1000 www.grainger.com 8S6184 © 2014 W.W. Grainger, Inc.