CONTENTSGrainger’s process aligns each customer’s assortment with its specific needs. KeepStock...

2016 FACT BOOK

W.W. Grainger, Inc. is a business-to-

business distributor of products used to

maintain, repair and operate facilities.

Approximately 3 million businesses and

institutions worldwide rely on Grainger for

products such as safety gloves, ladders,

motors and janitorial supplies, along with

services like inventory management and

technical support. These customers

represent a broad collection of industries

including healthcare, manufacturing,

government and hospitality. They place

orders online, with mobile devices, over

the phone and at local branches. More

than 4,800 key manufacturers supply

Grainger with 1.5 million products

stocked in Grainger’s distribution

centers and branches.

For more information on Grainger,

visit www.grainger.com/investor.

FORWARD-LOOKING STATEMENTS

All statements in this Fact Book, other than those relating to historical facts, are

“forward-looking statements.” These forward-looking statements are not guarantees of

future performance and are subject to a number of assumptions, risks and uncertainties,

many of which are beyond the company’s control, which could cause actual results to

differ materially from such statements.

These statements include, but are not limited to, statements about future strategic

plans and future financial and operating results. Important factors that could cause

actual results to differ materially from our expectations include, among others: 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, including with respect to wage and hour,

anti-bribery and corruption, environmental, advertising, privacy and cybersecurity

matters; 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; facilities disruptions or shutdowns; higher

fuel costs or disruptions in transportation services; natural and other catastrophes;

unanticipated weather conditions; loss of key members of management; Grainger’s

ability to operate, integrate and leverage acquired businesses and other factors, which

can be found in the company’s filings with the Securities and Exchange Commission,

including our most recent periodic reports filed on Form 10-K and Form 10-Q, which

are available on our Investor Relations website.

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.

CONTENTS

At a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Shareholder Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

U.S. (Large and Medium Customers ) . . . . . . . . . . . . . . . . . . 8

eCommerce/KeepStock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Single Channel Online Model . . . . . . . . . . . . . . . . . . . . . . . . 14

Rest of the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Consolidated Statements of Earnings. . . . . . . . . . . . . . . . . . 17

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . 18

Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . 19

Historical Financial Summary. . . . . . . . . . . . . . . . . . . . . . . . 20

Executive and Operating Management. . . . . . . . . . . . . . . . . 22

Compensation Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Board of Directors /Corporate Governance . . . . . . . . . . . . . . 24

Company Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Corporate Social Responsibility. . . . . . . . . . . . . . . . Back Cover

W.W. GRAINGER, INC. AND SUBSIDIARIES 1

AT A GLANCE W.W. GRAINGER, INC.(AS OF 12/31/15)

MRO MARKET MARKET BRANCHES DISTRIBUTION APPROXIMATE NUMBERSIZE1 SHARE CENTERS OF CUSTOMERS SERVED

IN 2015

UNITED STATES > $127 billion 6 percent 330 19 1,938,000Includes: Grainger Industrial Supply, E&R Industrial,Imperial Supplies, Techni-Tool, Zoro2

CANADA > $11 billion 8 percent 165 5 40,000Includes: Acklands–Grainger Inc., WFS Enterprises Inc.

LATIN AMERICA > $16 billion 1 percent 33 3 50,000Colombia, Dominican Republic, Mexico, Panama,Peru, Puerto Rico3

JAPAN > $37 billion 1 percent 0 3 789,000MonotaRO Co., Ltd.

ASIA > $90 billion < 1 percent 0 1 9,000China

EUROPE

Fabory: Belgium, Czech Republic, France, Hungary, > $34 billion < 1 percent 73 2 83,000The Netherlands, Poland, Portugal, Romania, Slovakia

Cromwell: United Kingdom4 > $18 billion 2 percent 67 1 32,000

Zoro Europe: Germany > $30 billion < 1 percent 0 0 125,000

TOTAL > $363 billion 3 percent 668 34 > 3,000,000

1 Estimated MRO market size where Grainger has operations. The worldwide MRO market is approximately $560 billion.2 For segment reporting, Zoro is included in Other Businesses.3 Although Puerto Rico is a U.S. territory, the company manages this business as a part of Latin America.4 Cromwell also operates in Europe, Africa, Asia and Australia, accounting for about 12 percent of revenue.

2015 SALES

GEOGRAPHIC OVERVIEW

2 W.W. GRAINGER, INC. AND SUBSIDIARIES

STRATEGY

n the large and fragmented maintenance, repair and

operating (MRO) supplies industry, Grainger holds an

enviable position with its advantaged infrastructure,

broad product offering and deep customer relationships.

This is a dynamic time in the industry. The convergence

of multiple economic challenges, global trends and

dramatically changing customer behaviors shape how

the company goes to market and serves customers.

workforce and the emergence of millennials, changing how

customers want to do business.

Grainger’s strategy has always been deVned by customers’

needs. The work they do and the needs they have will not

go away—maintaining facilities and keeping people safe

will always be important. Additionally, customers prefer not

to stock infrequently used items, although the need is often

urgent when that part is required.

Customers today are intensely focused on reducing cost

and becoming more productive. Also, the channels

customers use are shifting dramatically. Businesses

are ordering more products online, utilizing inventory

management solutions and opting to have orders shipped or

made available immediately through onsite services. These

changes are even more pronounced when looking at the

purchasing behaviors of customers of different sizes.

Large complex customers value Grainger’s time-tested

multichannel model and high-touch service. Medium-sized

customers want competitive pricing and a relevant product

offer. Small customers tend to purchase similarly to

consumers and value a simple, web-based solution to

quickly identify and purchase the items they need at a

competitive price.

These customer trends are most pronounced in the

United States, which has a signiVcant industrial economy

and high GDP per capita. In markets like these, companies

understand the economics of labor and inventory and highly

value the service Grainger offers.

I

e Customer purchasing behavior is changing, and Grainger is responding to those needs.

e Grainger has a strategy and business model to serve customers of all sizes.

e In a rapidly changing environment, Grainger is committed to growing its industry-leading position.

Dramatically changingcustomer behaviors anddemographic shifts areshaping how Graingergoes to market andserves customers.

Evolving with customers

As the world becomes even more connected geographically

and technologically, many customers want highly tailored

solutions with real-time access to information and just-in-

time delivery of products. Their expectations for information

are increasing as access to data grows, creating higher

expectations in both the consumer and business-to-

business space. Adding to these dynamics is the aging


STRATEGY

Geographic priorities

Grainger is most successful in markets where it has scale

positions in purchasing, supply chain and IT and serves

an established customer base. Those markets include

North America, western Europe and Japan. In North

America, Grainger is focused on growing and gaining

market share by selectively investing in key areas of the

business including IT, eCommerce, inventory management,

sales representatives and the supply chain to help provide

highly differentiated service.

One of Grainger’s strongest competitive advantages is

with large customers in North America. Grainger has the

expertise to help customers with complex needs save

time and money. The company knows how to manage and integrate a sales force, branch and customer service

networks, onsite services and online channels into a great

customer experience. Large customers in particular value

this capability, which has proven to help them reduce their

labor, product and inventory costs.

Grainger is committed to the rapidly changing and proVtable

medium-sized customer segment. The company is well-

positioned to serve medium customers who are part of a

national contract through the multichannel model. The

company is currently developing new price and service

offerings to more effectively compete for local customers

who do not have a national contract (see pages 8–9).

Grainger’s single channel online businesses reach small

and medium-sized customers in Japan (MonotaRO),

the United States (Zoro) and western Europe (Cromwell

Direct and Zoro Germany). Read more on pages 14–15.

Tying it all together is a team of more than 25,000 people,

committed to delivering exceptional customer service. And

Grainger will continue to attract and retain people who are

skilled at helping customers address their needs.

Grainger has great potential to grow in this rapidly changing

environment and will continue to deliver industry-leading

customer experience across all businesses and geographies.

As customers changehow they buy MROproducts, Graingeranticipates thoseneeds and changeswith its customers.

GRAINGER’S PURPOSE:

We help professionals keep their operations running and their people safe,while creating a company where dedicated, talented people can thrive.


SHAREHOLDER VALUE

hrough ups and downs of economic cycles,

Grainger has delivered strong long-term returns

to shareholders. Given the challenging industrial

environment, the company took actions in 2015

to remain an attractive option for shareholder capital in

2016 and beyond.

Cash Bow

Grainger has consistently been a strong producer of cash

and consistently has returned about two-thirds of cash to

shareholders, with the remaining one-third invested in the

business. That ratio has been supplemented by a new

share repurchase plan (see below), and the business

investment is expected to decline due to the lower capital

requirements of the business. The growth of the single

channel online model (see pages 14–15) and trends away

from branch fulVllment make the business less capital

intensive. As less cash is required for capital expenditures,

more cash is freed up for dividends and share repurchases.

Grainger is proud of its 44-year track record of increasing

its dividend. From 2011 to 2015, the dividend grew at a

compound annual growth rate of 16 percent. The company

expects to continue increasing dividends at a rate greater

than earnings growth.

Capital structure

In April 2015, Grainger announced a change to its capital

structure, reWecting conVdence in the business and strategy.

Over the course of three years, the company plans to

take on $1.8 billion of new, permanent debt. Along with

$1.2 billion of internally generated cash from operations,

the three-year plan calls for $3 billion of share buybacks.

The timing, size and structure of the share repurchase

and debt issuance is Wexible enough to allow for continued

investment in the business, while resulting in a meaningful

beneVt to earnings per share. Average share count is

expected to decrease from 66 million in 2015 to

approximately 61 million in 2016, based on the current

stock price. Over the three-year program, the share

count is expected to decline 15 to 18 percent.

Grainger has employed another non-operating initiative to

drive returns to shareholders. The company has invested

in two separate partnerships to create clean energy. The

operating gains and losses are recorded in Other Income

and Expense, and the energy production generated is

eligible for tax credits. Grainger beneVts through those

tax credits and in a lower overall tax rate.

Working capital management

Distributors that operate efVciently can realize strong cash

Wow from effective working capital management. Two of

the largest assets on the balance sheet are inventories

and accounts receivable. Continued investment in supply

chain and infrastructure have played an instrumental role

in contributing to Grainger’s strong cash generation.

T

e Grainger generates strong cash flow and consistently returns about two-thirds of it to shareholders.

e A strong balance sheet and a 44-year history of increasing its dividend make Grainger anattractive investment.

e A revised capital structure exemplifies Grainger’s commitment to increasing shareholder value.

LONG-TERM OPERATING MARGIN AND ROICOPERATING MARGIN 2016E 2018E 2020E

United States 17% – 17% 17% – 17% 17% – 18%

without intercompany transfers 18% – 18% 18% – 19% 19% – 19%

Canada 2% – 4% 5% – 7% 8% – 10%

Other Businesses 5% – 6% 8% – 9% 10% – 11%

Company 13% – 13% 13% – 14% 14% – 15%

25% – 27% 29% – 30% 31% – 32%

ROIC

Note: As of 11/12/15.


SHAREHOLDER VALUE

* Lower number represents reportedVgure; upper number representsadjusted Vgure, which excludes itemsas reported by the company in its 2015earnings releases.** See deVnition on page 21.

The company also sees opportunity to improve working

capital efVciency in Canada through supply chain and

IT investments (see pages 12–13).

Margin expansion

The company’s goal remains to expand operating margin

over the next Vve years. However, the current economic

environment has forced a change in the composition of

that expansion. Historically, gross margin has been a

greater contributor to operating margin growth. But in an

era of low inWation and falling commodity prices driven by

excessive supply, Grainger’s emphasis has centered on

growth while reducing the cost structure to generate

better expense leverage.

The company began taking action in 2015 to improve

the cost structure by closing 81 branches and eliminating

management layers. Another 55 branches are scheduled

to close in 2016. Continuous improvement in distribution

centers also contributes to better expense leverage. At

the same time, the company is focused on generating

better returns from its medium- and long-term investments,

including supply chain infrastructure, IT systems and sales

force productivity.

ROIC

The company continues to achieve high return on

invested capital (ROIC) while completing signiVcant

investments in distribution center and technology

projects. The asset-light single channel online model

drives improvement in ROIC, as these businesses

require less brick-and-mortar investment. As the online

businesses grow disproportionately, they will continue to

contribute to better ROIC. At the same time, Grainger’s

future capital needs are moderating. It is expected that

ROIC will beneVt as the company closes branches and

ships more products through highly efVcient distribution

centers, leading to better asset utilization.


SCALE

he backbone of Grainger’s standing as a

distribution leader is its supply chain. In today’s

connected world, digital technology enables

on-demand delivery of products, information

and services. The need for a well-developed logistics

infrastructure in mature markets like the United States is

more important than ever. No company knows this better

than Grainger, which has made signiVcant investments in

its supply chain over the past decade.

Becoming the supplier of choice

Businesses and institutions have more choices than ever

before. Broad product availability and price transparency

have changed customer behavior through consolidation of

suppliers, online search and onsite services.

Grainger has addressed the trend of supplier consolidation

by increasing the number of items stocked. Availability, the

percent of time a product is in stock when and where the

customer needs it, has remained at very high levels even

as Grainger increased its product line seven-fold, creating

a strong service experience enabled by the company’s

supply chain.

There are a number of drivers of this performance.

Grainger has made signiVcant improvements in reading

demand signals and managing inventory across the

network. The percent of excess and obsolete inventory

has dropped as Grainger analyzes data to help ensure

fast-moving inventory Wows through the system.

Furthermore, Grainger’s more than 4,800 key product

suppliers are measured on consistent and reliable service,

increasing the speed at which products move through

the supply chain.

Through efforts to improve the cost structure and build

a locally relevant product assortment, the company

has an ongoing product line review process. Grainger

evaluates product categories regularly and has continued

to evolve the product offer to ensure that local customers

have the products relevant to their operations. At the

same time, Grainger realizes savings by partnering with

suppliers, leveraging the company’s overall scale and

understanding of the marketplace. The company has

managed to hold cost of goods sold inWation below the

rate of general inWation over the past few years and

expects about 1 percent cost of goods sold deWation

in the United States in 2016.

In 2015, Grainger began an initiative called Product

Procurement Optimization (PPO). Grainger’s engineering

and sourcing teams break down products to their

individual components, leading to a better understanding

of what the manufactured product should cost. By

deploying dedicated teams, the project has enabled

Grainger to review the product assortment, realize cost

savings and implement decisions faster than a traditional

line review. The process also helps ensure the right

supplier mix to serve customers. The PPO team plans

to review 40 percent of the company’s total product

spend over the next three years and eventually expand

the scope to include other businesses across North

America and Europe.

T

e Grainger has industry-leading product availability across a broad offering of more than4 million quality commercial and industrial products.

e A strong logistics network enables Grainger to manage 1.5 million stocked SKUs across the company.

e The company continually invests in its industry-leading foundation of supply chain, systems,eCommerce and people.

The Product ProcurementOptimization (PPO) initiativebreaks products down totheir individual components,leading to a betterunderstanding of whatthe manufactured itemshould cost.


SCALE

NORTH AMERICAN DISTRIBUTION NETWORK

ENABLING GROWTH THROUGHINFORMATION TECHNOLOGYWith about 140,000 orders processed a day, covering1.5 million products in stock and approximately3 million customers, massive amounts of data areconstantly generated. Grainger uses this informationto better understand customer behaviors, assistcustomers in making product selections, moreeffectively price products and enhance online andin-person communication with customers. Havinga single SAP information system running the NorthAmerican businesses puts Grainger in a position toleverage transaction and website data, creating astronger competitive advantage.

Systems and technology

Part of creating an advantaged supply chain foundation

is making sure systems have the capability and capacity

to support growth. With that in mind, Grainger continues to

invest in technology, including:• Extending the U.S. installation of SAP to Mexico in late

2015 and to Canada in early 2016;• Upgrading core supply chain technologies including

product information, warehouse, inventory and

transportation systems, driving productivity and service

gains and• Rolling out a new customer relationship management

system to enable sales representatives to serve customers

more efVciently.

NORTHEAST DISTRIBUTION CENTER

Grainger is building a 1.3 million square-foot distribution center,twice the size of the DC it is replacing, in Bordentown Township,N.J. The new facility can house more than 350,000 SKUs,features state-of-the-art automation and was built to LEEDcertified standards. These features will allow Grainger to shipmore products next-day to customers in the northeast UnitedStates. It will have the highest throughput of any building in thenetwork when it becomes fully operational in 2016.

GGS works withapproximately 850 suppliersin 33 countries to provideGrainger’s businesses withaccess to approximately

65,000 high-quality products.

In 2015, sales ofproduct procured bythe GGS operation

exceeded $1 billion.

To reduce cycle time andensure quality, GraingerGlobal Sourcing (GGS)

continues to add technicaland inspection capabilitiesin its China operations andat its state-of-the-art

engineering lab near Chicago.

Grainger’s private label brands—which include Dayton,®

Westward,® LumaPro® and Tough Guy®—offer customershigh-quality options at generally lower price points thannational brands, while providing Grainger stronger grossprofit margins. In 2015, private label productsrepresented 22 percent of company sales.


U.S. (LARGE AND MEDIUM CUSTOMERS)

rainger continues to win with large customers in

the United States because of its strong and

differentiated offer. The company is well-positioned

through its multichannel business model that

includes a broad product offering, Grainger.com, dedicated

sales representatives, branches, contact centers, onsite

inventory management services and technical support.

lower operating expenses and

improved cash Wow and ROIC.

Grainger knows the importance

of a sales representative in the

onsite environment, especially

for larger customers who seek

solutions and services beyond

products. Larger, more complex

customers are served by

dedicated account managers

who build and maintain relationships at the corporate and

site level. Through productivity efforts, sellers are expected

to become more efVcient, spending less time on

administrative tasks and more time with customers.

The capability to offer inventory management, online

solutions and other services can differentiate distributors.

Grainger has a strong offering in all these services; read

more on pages 10–11.

Medium-sized customers

When choosing a supplier, medium and large organizations

make choices based on similar criteria: product quality,

availability, delivery time, price and service. But medium-

sized customers generally have less-complex purchasing

G

e Grainger’s traditional value proposition resonates best among large customers with complex needs.

e Sales representatives, branches and services are all part of the successful multichannel model.

e In 2016, Grainger plans to improve coverage and introduce more competitive pricing to better grow itsmedium customer business.

Strong service offerings,including technical andproduct support, candifferentiate successfuldistributors.

Large customers in the United States appreciate Grainger’s broad product line andsales representatives who can offer additional services.

Large customers

Customer behavior has rapidly shifted over the past two

decades. The battle for large customers is increasingly

being fought at their place of business. Sales coverage,

eCommerce, inventory management and delivery

capabilities have evolved to adapt to the onsite sales and

service model. In addition, the growth of online sales has

reduced branch foot trafVc and phone orders.

Since the company’s beginning, branches have been the

backbone of Grainger’s customer service. In response to

the changes in customer behavior, Grainger is adjusting its

branch network, closing about 100 branches over the past

Vve years, with 55 additional closings planned for 2016.

Branches will continue to be a part of the company’s model

moving forward, but each market was evaluated to ensure

the branches meet Grainger’s and customers’ needs.

Grainger expects beneVts from branch closures to include


U.S. (LARGE AND MEDIUM CUSTOMERS)

needs and often don’t require the same services as larger

businesses. In addition, there can be differences in buying

behavior depending on whether a medium-sized customer

is part of a larger organization with a national contract or

a local site without a contract. Grainger recognizes these

differences by focusing on creating unique value for each

customer type.

Medium customer sites that are part of larger corporations

or purchasing groups are able to take advantage of those

national contracts. These customers behave more like larger

businesses and grew modestly in 2015. And there is more

opportunity for Grainger to grow with these customers

through more tailored marketing and sales interactions.

Local businesses that are not part of a corporate or

group purchasing agreement require a different approach.

Grainger’s new strategy includes improved customer

coverage through the introduction of an inside sales force,

coupled with a more relevant offer featuring improved

marketing, merchandising and pricing, which are tailored to

each industry. The company expects this strategy to deliver

improved performance for this attractive segment of the

MRO market.

CUSTOMER ESTIMATED PERCENT GRAINGERSIZE MRO MARKET OF SALES MARKET SHARE

LARGE ~$40B ~76% ~14%(>100 employees)

MEDIUM ~$50B ~20% ~3%(10–99 employees)

SMALL ~$40B ~4% ~1%(<10 employees)

TOTAL ~$130B 100% ~5–6%

CUSTOMER GROWTH OPPORTUNITY

The battle for large customers is increasingly being fought at their place of business,and Grainger’s capabilities have evolved to adapt to the onsite sales and service model.


ECOMMERCE/KEEPSTOCK

wenty years ago, Grainger debuted the Vrst

eCommerce-enabled website in the MRO

distribution industry. Now with two decades of

experience, Grainger continues to be an

eCommerce leader, connecting with customers through

digital channels including eProcurement and mobile devices.

In 2015, 41 percent, or $4.1 billion, of Grainger’s revenue

came from online channels, making it the 11th largest

e-retailer in North America, according to Internet Retailer.

Through Grainger.com,® eProcurement connections and

mobile applications, the company continues to develop

features that promote a personalized, relevant, effortless

experience for each customer.

ePro

For large customers with complex needs, eCommerce

means more than buying from a website. Connecting

purchasing systems directly to Grainger lowers process

costs for the customer and ensures a customized solution

with the right assortment, workWow and processes in place.

Known as eProcurement (ePro), these implementations

drive signiVcant value for the customer and incremental

revenue for Grainger. ePro also has the added beneVt of

being Grainger’s lowest cost order origination channel.

Today, one-third of eCommerce revenue comes from

ePro, and in 2015, ePro channel revenue grew more

than 25 percent.

Mobile

Grainger continues to innovate in the industrial mobile

space, being the Vrst industrial distributor with ePro Mobile.

Customers can now build a requisition on the Grainger.com

mobile app and forward it to their procurement system

(also known as punch-out). Workers without easy access

to a desktop computer can quickly locate items on a

mobile device and route those orders to their desired

procurement platform.

Search

With 1.4 million SKUs available on Grainger.com, helping

customers Vnd the right product quickly is critical for a

successful online experience. Grainger continues to invest

in capabilities to provide a fast, accurate search experience

to customers.

But buying the right product is more than just search.

Customers want to know their spend approval levels and

account pricing are accurate, while being presented with

product availability and lower cost options. One example of

helping complex customers manage search is Grainger’s

T

e Grainger has 20 years of experience in online sales and is the industry leader.

e Inventory management helps customers take cost out of their business.

e Excellent service through these channels helps build stickier customer relationships.

Grainger continues to develop features that promote a personalized, relevant,effortless experience. For example, Grainger.com can display the customer’spreviously purchased products on the home page, with the ability to reorder inone click.

Innovations in mobiletechnology includeePro Mobile, whichenables fast and easypunch-out capabilities.

W.W. GRainGeR, inC. and SubSidiaRieS 11

ECOMMERCE/KEEPSTOCK

custom catalog offering. This ensures contract customers

buy only products that are approved by their company.

Grainger’s process aligns each customer’s assortment

with its specific needs.

KeepStock®

Creating value for Grainger’s customers also means

helping them manage their inventory. MRO is a complex,

inefficient purchasing category. Customers find it challenging

to have the right products in stock when they are needed

while avoiding wasting money by holding infrequently

used products.

Grainger has a suite of inventory management

solutions for customers under the KeepStock offering.

Customized solutions save time and money based on

the customer’s specific needs. For a typical large customer,

Grainger may deploy a KeepStock solution that includes

traditional vendor managed inventory and dispensing

machines for items requiring access control. The

customer benefits through a reduction of labor,

inventory and consumption costs.

Grainger is the 11th largest e-retailer

in North Americaaccording to

Internet Retailer.

Customers who purchase via online channels have

a higher average order sizeand generally are more

profitable than other orderorigination channels.

Grainger’s KeepStock program provides vendor managed inventory and secure (vending) machines to18,000 customer accounts in the United States, with more than 9.9 million SKUs under management.

A STEP IN A NEW DIRECTIONThe Grainger Shoemobile providessafety footwear options at thecustomer’s location. The company has about 40 vehicles in service, with eight more planned in 2016.Grainger has expanded this service,part of a business acquired in 2013,into a national network.


CANADA

cklands–Grainger Inc. is Grainger’s Canadian

business. With 2015 revenues of almost

$900 million, it is Grainger’s largest business

outside the United States and the MRO market

leader in Canada.

Acklands–Grainger was founded by Dudley Ackland

more than 125 years ago and acquired by Grainger in

1996. It has grown to become Canada’s largest distributor

of industrial, safety and fastener products by helping

customers get the products they need, when they need

them, anywhere in Canada.

Despite the economic challenges, Canada remains a very

attractive market for Grainger. The Canadian MRO market is

highly fragmented, and Acklands–Grainger holds signiVcant

advantages versus its competition: unmatched scale, a

strong, experienced team and Canada’s best MRO

distribution network.

Transformational investments

Acklands–Grainger’s competitive advantage is partly the

result of Grainger’s strategic investment in the Canadian

business, particularly in recent years. These investments

improved the company’s distribution network and replaced

outdated enterprise systems, enabling an opportunity to

improve customer experience and reduce costs.

One of these investments, a 535,000 square-foot

distribution center near Toronto, opened in 2015. With

capacity to stock more than 150,000 products, this

distribution center will double throughput capacity in

Ontario and eastern Canada, while enabling direct-to-

customer fulVllment in eastern Canada.

Acklands–Grainger will also beneVt from extending

the U.S. installation of SAP to Canada. This foundational

investment replaced legacy systems, establishing a

platform that provides a wealth of data and enables

better decision-making.

A

The new Toronto Distribution Center is 535,000 square feet, two and a half timeslarger than the facility it replaced.

e Acklands–Grainger is Canada’s MRO market leader.

e Foundational investments will allow the business to provide a better customer experience at a lowercost to the company and improve operating margins.

e Despite Canada’s near-term economic challenges, the country remains an attractive market for Grainger.

Significant investments atAcklands–Grainger createan opportunity to improveservice and reduce cost.

Economic conditions

The year 2015 was a challenging period for

Acklands–Grainger, as it was for many businesses in

Canada. After nearly a decade beneVtting from a strong

economy fueled by demand for natural resources, 2015

saw Canadian MRO distributors face into headwinds

of foreign exchange pressures and rapidly declining oil

prices. As Canada’s largest broad line MRO distributor,

Acklands–Grainger has signiVcant exposure to Canada’s

oil and gas sector.


CANADA

Plans for growth

Today, Acklands–Grainger is executing a strategy to focus

efforts in three areas.

• First is creating unique value for different customers. In

recent years, Acklands–Grainger has done an exceptional

job of developing and growing relationships with some of

Canada’s largest and most proVtable companies. As a

result of this emphasis, the company’s share with small

and medium-sized customers—historically its strongest

relationships—has declined.

In 2016, Acklands–Grainger will use strengthened insights

and analytics capabilities to begin developing the right value

proposition for small, medium and large customers. Efforts

will focus on developing the right assortment, simplifying

pricing and launching new sales channels to acquire

customers in different markets.

• Second is ensuring an effortless customer experience. With

the right offer for different customer types, the company

will focus on ensuring it is easier than ever to transact

with Acklands–Grainger. Key deliverables in 2016 include

launching direct-to-customer fulVllment and implementing

hub-branch shipping, which will improve the customer

experience and enable productivity improvements. The

company will also focus on reducing order cycle Vll-time

and improving the eCommerce experience.

• Third is reducing cost. In 2016, Acklands–Grainger will

renew a sharp focus on reducing cost by maximizing

global product negotiation opportunities, optimizing

the company’s branch network and reducing or

eliminating costs that don’t add value for customers.

The implementation of SAP was a necessary Vrst step

to enable many of these cost reductions to occur.

With predictions of a challenging economic environment in

Canada for the near term, Acklands–Grainger will focus on

implementing foundational building blocks that will separate

the company from the competition, grow market share and

put the company back on the path to proVtable growth.

Note: The sales of WFS Enterprises, Inc. are categorized under Other.

Key deliverables in 2016 include launching direct-to-customer fulfillment and implementing hub-branch shipping,which will improve the customer experience and enable productivity improvements.


SINGLE CHANNEL ONLINE MODEL

rainger’s single channel online model is designed

to serve smaller customers with a simple,

straightforward web solution that leverages the

company’s back-end capabilities. By 2020,

Grainger expects these businesses will represent about

$2.5 billion in revenue.

MonotaRO operates primarily in Japan, a $37 billion

MRO market, but also has operations in South Korea

and customers in Singapore and southeast Asia.

The engine behind MonotaRO’s success is a robust

customer segmentation and data analytics capability that

helps conceive, develop and deploy customer offers. As a

result, MonotaRO has created a loyal customer following.

In 2015, MonotaRO grew its customer base by 26 percent,

fueling 28 percent revenue growth in local currency over

the prior year.

MonotaRO now boasts a private label offering of 316,000

SKUs, driven by the recent addition of about 300,000

fasteners. Operating margins for MonotaRO were 12 percent

in 2015. And ROIC is greater than 50 percent, illustrating the

low investment and light asset intensity of the single channel

model. With a broad product offering including a robust

private label offer, an easy-to-use website and competitive

pricing, MonotaRO is attractive to small-business customers

in Japan.

Zoro

Leveraging expertise from Grainger’s Japan and U.S.

businesses, Zoro was launched in the United States in

2011. Headquartered outside Chicago, this business is

aimed at the small customer market. Zoro’s competitive

pricing, broad product offering and simpliVed transactions

are designed to appeal to the more than 20 million small

and medium-sized businesses in the United States. The

business had $296 million in sales in 2015, up 62 percent

from the prior year.

Zoro also offers an easy-to-use website and convenient

payment options. This simpliVed process helped Zoro

expand its customer base rapidly through a variety of digital

and traditional marketing strategies. Zoro also leverages

online marketplaces like eBay to Vnd and service the needs

of small businesses.

Zoro fulVlls the majority of customer orders through the same

supply chain infrastructure used by Grainger’s core U.S.

GMonotaRO offers316,000 private labelSKUs, including oilfilters, face masks,batteries andgrinding wheels.

e Grainger expects $1 billion in sales in 2016 from the single channel online businesses.

e Knowledge and experience from existing single channel businesses are used to build new ventures.

e Germany and the U.K. markets are ripe for growth in the online-only model.

Grainger expects the single channel online businesses combined will represent about $2.5 billion in revenueby 2020.

MonotaRO

Grainger’s most mature single channel online business,

MonotaRO, grew out of a joint venture launched in 2000

and is now a publicly traded company in Japan. Grainger

has an approximately 51 percent equity interest in this

business, which had a market capitalization of $3.5 billion

on the Tokyo Stock Exchange at year end 2015.


SINGLE CHANNEL ONLINE MODEL

business. Access to a pre-existing distribution network is

one advantage Zoro has that MonotaRO didn’t have at its

founding. As a result, Zoro experienced faster growth than

MonotaRO did at comparable stages.

Today, Zoro continues to grow with small customers, a

combination of new accounts and customers that previously

did business with Grainger. The business has an ROIC in

excess of 50 percent, and Grainger expects Zoro will have

$1 billion in sales by 2020. Zoro has the culture of a start-up

backed by the strengths of a stable, mature company.

Zoro Germany

Zoro Germany was launched in 2014 as a way to expand

the online model in Europe. The business is still young,

but early signs are promising. Today, Zoro Germany has

an assortment of more than 300,000 products, a capable

web presence and a small facility near Dusseldorf, Germany.

The German online market is competitive, but Zoro Germany

is creating a valuable offer for small and medium-sized

businesses. Grainger projects the business will break even

in about the same time as MonotaRO took but with a

smaller investment. A large part of its success will stem from

leveraging the Cromwell and Fabory private label assortment

to expand gross proVt margins and improve scale.

Cromwell

In September 2015, Grainger acquired Cromwell, the

largest independent MRO distributor in the United

Kingdom. Founded in 1970 and headquartered in Leicester,

England, Cromwell serves more than 35,000 industrial and

manufacturing customers worldwide with more than 80,000

industrial products. In Vscal year 2015, Cromwell sales were

approximately $440 million.

The acquisition brought together Cromwell’s product

strength and customer relationships with Grainger’s

expertise in supply chain and eCommerce to accelerate

growth in the core business and Cromwell Direct, the

relaunched online business. Additionally, Zoro Germany will

beneVt from access to Cromwell’s large portfolio of private

label products. Grainger established a track record of

successful online start-ups through MonotaRO and Zoro,

and the company intends to grow the online model in the

U.K. with the same playbook. The U.K. and Germany are

two of the largest eCommerce markets in Europe, though

online adoption is lower than in the United States.

Cromwell is a successful and well-established distributor

with a broad product line, stable supply chain, robust

private label assortment, solid customer base and a strong

reputation for customer service. Post-acquisition priorities

include launching a new website, improving the supply chain

for greater capacity and productivity to support expected

growth and leveraging Grainger’s purchasing scale to

reduce cost of goods sold.

In early 2016, Cromwelllaunched a new website withcleaner presentation, smartersearch functionality, richerproduct information and agreater investment in digitalmarketing. This experienceshould improve customeracquisition through bettertraffic and conversion, whichhas been key for MonotaROand Zoro.

Zoro has the culture of a start-up backed by the strengths of a stable,mature company.

The single channel onlinebusinesses go to marketwith competitive pricingand simplified transactions.


REST OF THE WORLD

eyond the U.S. and Canadian segments,

Grainger’s operations are grouped under Other

Businesses. The strategic priority in these

geographies is to achieve sustainable proVtability.

Fabory

Fabory, based in the Netherlands, operates as a fastener

specialist with more than 110,000 fastener SKUs and

other MRO products. The business is one of the leaders

in fasteners in Europe, with 73 shops in nine countries,

concentrated in Belgium and the Netherlands.

Since Fabory’s acquisition by Grainger in 2011, the

economy in Europe has been challenging. Fabory has been

restructured to enable the business to better respond

to changing customer buying behaviors and to improve

the cost structure. The recovery plan includes leveraging

Fabory’s strength in the highly proVtable fastener category

to offer additional services, including more coordinated

sales efforts.

Investments were made to ensure that eCommerce

capabilities add to the business’s relevance to customers.

The Fabory.com website, capable of supporting

17 languages, leverages Grainger.com® expertise,

creating shared knowledge across businesses.

After the restructuring, Fabory was nearly break-even in

2015 and is expected to reach modest proVtability in 2016.

Customers appreciate Fabory’s fastener expertise, resulting

in strong customer relationships.

Mexico

Grainger Mexico, a $130 million business with 19 branches

and two distribution centers, drives growth through a focus

on customer sectors including manufacturing, automotive,

food and beverage, petrochemical and hospitality.

Product line expansion remains an effective growth driver for

Grainger Mexico. Total sales increased 14 percent in local

currency in 2015, and new products represented more than

half of the overall growth. In 2015, Grainger Mexico released

a new catalog with nearly 125,000 products, up from

120,000 in the prior year’s

catalog. Taking advantage of

cross-border collaboration

with the U.S. business,

Grainger Mexico now offers

more than 253,000 products

online, a 79 percent increase

over the prior year.

China

Grainger maintains a

presence in China, the

second-largest economy in the world. The business was

proVtable in 2015 and is focused on insides sales and

eCommerce to best serve the needs of customers in China.

Grainger also offers products to customers with operations

in other parts of the world through its export service. Export

helps customers in more than 150 countries get products

quickly and at a competitive price.

In Latin America, Grainger has a presence in Vve additional

countries: Colombia, Dominican Republic, Panama, Peru

and Puerto Rico.

B

Customers in Europerely on Fabory’sexpertise in fasteners.

e Grainger’s other operations include businesses in Europe, Asia and Latin America.

e Fabory, the largest of these businesses, is a fastener specialist based in the Netherlands.

e Grainger Mexico’s growth drivers include product line expansion and sales of private label products.


CONSOLIDATED STATEMENTS OF EARNINGS

For the Years Ended December 31,

(In thousands of dollars, except per share amounts) 2015 2014 2013

Net sales $9,973,384 $9,964,953 $9,437,758

Cost of merchandise sold 5,741,956 5,650,711 5,301,275

Gross profit 4,231,428 4,314,242 4,136,483

Warehousing, marketing and administrative expenses 2,931,108 2,967,125 2,839,629

Operating earnings 1,300,320 1,347,117 1,296,854

Other income and (expense):Interest income 1,166 2,068 3,234

Interest expense (33,571) (10,093) (13,225)

Loss from equity method investment (11,740) — —

Other non-operating income 1,102 483 2,732

Other non-operating expense (6,572) (5,189) (1,996)

Total other income and (expense) (49,615) (12,731) (9,255)

Earnings before income taxes 1,250,705 1,334,386 1,287,599

Income taxes 465,531 522,090 479,850

Net earnings 785,174 812,296 807,749

Less: Net earnings attributable to noncontrolling interest 16,178 10,567 10,713

Net earnings attributable to W.W. Grainger, Inc. $ 768,996 $ 801,729 $ 797,036

Earnings per share:Basic $ 11.69 $ 11.59 $ 11.31

Diluted $ 11.58 $ 11.45 $ 11.13

Weighted average number of shares outstanding:Basic 65,156,864 68,334,322 69,455,507

Diluted 65,765,121 69,205,744 70,576,432

Diluted Earnings Per Share:Net earnings as reported $ 768,996 $ 801,729 $ 797,036

Earnings allocated to participating securities (7,515) (9,444) (11,522)

Net earnings available to common shareholders $ 761,481 $ 792,285 $ 785,514

Weighted average shares adjusted for dilutive securities 65,765,121 69,205,744 70,576,432

Diluted earnings per share $ 11.58 $ 11.45 $ 11.13

Segment Information

(In thousands of dollars) 2015 2014 2013

SalesUnited States $7,963,416 $7,926,075 $7,413,712

Canada 890,530 1,075,754 1,114,285

Other Businesses 1,405,750 1,182,186 1,040,473

Intersegment sales (286,312) (219,062) (130,712)

Net sales to external customers $9,973,384 $9,964,953 $9,437,758

Operating earningsUnited States $1,371,626 $1,444,288 $1,304,175

Canada 27,368 87,583 128,768

Other Businesses 48,051 (37,806) 7,599

Unallocated expenses (146,725) (146,948) (143,688)

Operating earnings $1,300,320 $1,347,117 $1,296,854


CONSOLIDATED BALANCE SHEETS

As of December 31,

(In thousands of dollars) 2015 2014

AssetsCurrent AssetsCash and cash equivalents $ 290,136 $ 226,644

Accounts receivable (less allowances for doubtful accounts of$22,288 and $22,121 respectively) 1,209,641 1,172,924

Inventories — net 1,414,177 1,356,396

Prepaid expenses and other assets 85,670 102,669

Deferred income taxes — 61,387

Prepaid income taxes 49,018 47,529

Total current assets 3,048,642 2,967,549

Property, Buildings and EquipmentLand 323,765 337,573

Buildings, structures and improvements 1,352,498 1,269,491

Furniture, fixtures, machinery and equipment 1,694,050 1,508,066

3,370,313 3,115,130

Less: Accumulated depreciation and amortization 1,939,072 1,790,784

Property, buildings and equipment – net 1,431,241 1,324,346

Deferred income taxes 83,996 16,718

Goodwill 582,336 506,905

Intangibles – net 463,294 263,930

Other assets 248,246 203,601

Total Assets $5,857,755 $5,283,049

Liabilities and Shareholders’ EquityCurrent LiabilitiesShort-term debt $ 353,072 $ 56,896

Current maturities of long-term debt 247,346 23,404

Trade accounts payable 583,474 554,088

Accrued compensation and benefits 196,667 191,696

Accrued contributions to employees’ profit sharing plans 124,587 178,076

Accrued expenses 266,702 245,300

Income taxes payable 16,686 12,256

Total current liabilities 1,788,534 1,261,716

Long-term debt (less current maturities) 1,388,414 403,333

Deferred income taxes and tax uncertainties 154,352 95,455

Employment-related and other noncurrent liabilities 173,741 238,444

Shareholders’ equityCumulative preferred stock – $5 par value – 12,000,000 shares authorized;none issued or outstanding — —

Common stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued 54,830 54,830

Additional contributed capital 1,000,476 948,340

Retained earnings 6,802,130 6,335,990

Accumulated other comprehensive earnings (221,091) (96,673)

Treasury stock, at cost – 47,630,511 and 42,227,178 shares, respectively (5,369,711) (4,032,615)

Total W.W. Grainger, Inc. shareholders’ equity 2,266,634 3,209,872

Noncontrolling interest 86,080 74,229

Total shareholders’ equity 2,352,714 3,284,101

Total Liabilities and Shareholders’ Equity $5,857,755 $5,283,049


CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

(In thousands of dollars) 2015 2014 2013

Cash flows from operating activities:Net earnings $ 785,174 $ 812,296 $ 807,749

Provision for losses on accounts receivable 10,181 12,945 8,855

Deferred income taxes and tax uncertainties 4,076 (13,732) (9,319)

Depreciation and amortization 227,967 208,326 180,613

Impairment of goodwill and other intangible assets — 16,652 26,284

Losses (gains) from non-cash charges and sales of assets 2,765 41,037 (22,155)

Stock-based compensation 46,861 49,032 55,590

Losses from equity method investment 11,740 — —

Change in operating assets and liabilities – net of acquisitionsand divestitures:Accounts receivable (3,085) (122,580) (126,465)

Inventories (37,737) (92,443) (23,636)

Prepaid expenses and other assets 15,788 (24,550) 16,873

Trade accounts payable 23,130 32,019 71,118

Other current liabilities (70,306) 8,693 (707)

Current income taxes payable 6,943 (1,487) (4,813)

Accrued employment-related benefits cost (27,721) 35,027 9,872

Other – net (5,872) (1,421) (3,361)

Net cash provided by operating activities 989,904 959,814 986,498

Cash flows from investing activities:Additions to property, buildings and equipment (373,868) (387,390) (272,145)

Proceeds from sales of assets 14,857 26,755 26,701

Equity method investment (20,382) — —

Cash paid for business acquisitions (464,431) (30,713) (153,915)

Other – net 466 7,290 (68)

Net cash used in investing activities (843,358) (384,058) (399,427)

Cash flows from financing activities:Net increase in commercial paper 325,000 5,000 —

Borrowings under lines of credit 54,770 108,721 144,805

Payments against lines of credit (78,559) (117,277) (154,450)

Proceeds from issuance of long-term debt 1,307,183 150,504 —

Payments of long-term debt and commercial paper (52,838) (170,907) (16,681)

Proceeds from stock options exercised 60,885 48,579 69,412

Excess tax benefits from stock-based compensation 27,553 33,772 59,984

Purchase of treasury stock (1,400,071) (525,120) (438,473)

Cash dividends paid (306,474) (291,395) (255,466)

Net cash used in financing activities (62,551) (758,123) (590,869)

Exchange rate effect on cash and cash equivalents (20,503) (21,633) (17,621)

Net change in cash and cash equivalents 63,492 (204,000) (21,419)

Cash and cash equivalents at beginning of year 226,644 430,644 452,063

Cash and cash equivalents at end of year $ 290,136 $ 226,644 $ 430,644

Supplemental cash flow information:Cash payments for interest (net of amounts capitalized) $ 31,591 $ 10,172 $ 12,954

Cash payments for income taxes 442,486 509,378 414,363


HISTORICAL FINANCIAL SUMMARY

2015 2014 2013

Financial Net sales $9,973,384 $9,964,953 $9,437,758

Summary ($000) Earnings before income taxes 1,250,705 1,334,386 1,287,599

Income taxes 465,531 522,090 479,850

Net earnings attributable to W.W. Grainger, Inc. 768,996 801,729 797,036

Working capital 1,794,371 1,697,487 1,621,103

Additions to property, buildings and equipment andcapitalized software 373,868 387,390 272,145

Depreciation and amortization 206,841 190,171 164,902

Current assets 3,048,642 2,967,549 3,044,285

Total assets 5,857,755 5,283,049 5,266,328

Shareholders’ equity 2,352,714 3,284,101 3,326,836

Cash dividends paid 306,474 291,395 255,466

Long-term debt (less current maturities) 1,388,414 403,333 445,513

Per Share ($) Earnings – basic 11.69 11.59 11.31

Earnings – diluted 11.58 11.45 11.13

Cash dividends paid 4.59 4.17 3.59

Book value 43.30 48.70 48.32

Year-end stock price 202.59 254.89 255.42

Ratios Percent of return on average shareholders’ equity 27.3 24.3 24.7

Percent of return on average total capitalization 19.8 20.9 21.4

Earnings before income taxes as a percent of net sales 12.5 13.4 13.6

Earnings as a percent of net sales 7.7 8.1 8.4

Cash dividends paid as a percent of net earnings 39.9 36.3 32.1

Total debt as a percent of total capitalization 45.8 12.9 14.0

Current assets as a percent of total assets 52.0 56.2 57.8

Current assets to current liabilities 2.5 2.4 2.5

Average inventory turnover – FIFO 3.1 3.1 3.0

Average inventory turnover – LIFO 4.1 4.2 4.1

Other Data Average number of shares outstanding – basic 65,156,864 68,334,322 69,455,507

Average number of shares outstanding – diluted 65,765,121 69,205,744 70,576,432

Number of employees 25,758 23,622 23,741

Number of outside sales representatives 4,778 4,907 4,479

Number of branches 668 681 709

Number of products in the Grainger® catalog issued February 1 452,000 590,000 570,000

Note: See the company’s current and prior years’ Form 10-K for changes in accounting and other adjustments.


HISTORICAL FINANCIAL SUMMARY

2012 2011 2010 2009 2008 2007 2006 2005

$8,950,045 $8,078,185 $7,182,158 $6,221,991 $6,850,032 $6,418,014 $5,883,654 $5,526,636

1,117,789 1,051,527 853,778 707,337 773,218 681,861 603,023 532,674

418,940 385,115 340,196 276,565 297,863 261,741 219,624 186,350

689,881 658,423 510,865 430,466 475,355 420,120 383,399 346,324

1,603,748 1,438,375 1,162,318 1,026,690 1,064,094 1,021,663 852,472 1,290,188

249,860 196,942 127,124 142,414 194,975 197,423 136,764 157,247

145,612 137,211 137,793 140,974 135,137 127,882 114,884 105,671

2,900,640 2,694,900 2,238,071 2,131,515 2,144,109 1,800,817 1,862,086 1,985,539

5,014,598 4,716,062 3,904,377 3,726,332 3,515,417 3,094,028 3,046,088 3,107,921

3,117,366 2,724,279 2,287,670 2,227,199 2,033,805 2,098,108 2,177,615 2,288,976

220,077 180,527 152,338 134,684 121,504 113,093 97,896 82,663

467,048 175,055 420,446 437,500 488,228 4,895 4,895 4,895

9.71 9.26 7.05 5.70 6.07 5.01 4.36 3.87

9.52 9.07 6.93 5.62 5.97 4.91 4.24 3.78

3.06 2.52 2.08 1.78 1.55 1.34 1.11 0.92

44.87 38.94 32.97 30.81 27.20 26.40 25.90 25.51

202.37 187.19 138.11 96.83 78.84 87.52 69.94 71.10

23.6 26.3 22.6 20.2 23.0 19.7 17.2 15.9

20.5 22.2 18.7 16.4 20.3 19.2 17.2 15.9

12.5 13.0 11.9 11.4 11.3 10.6 10.2 9.6

7.7 8.1 7.1 6.9 6.9 6.6 6.5 6.3

31.9 27.4 29.8 31.3 25.6 26.9 25.5 23.9

15.3 15.9 17.8 19.1 20.7 5.0 0.4 0.4

57.8 57.1 57.3 57.2 61.0 58.2 61.1 63.9

2.7 1.9 2.6 2.7 2.8 2.2 2.6 2.9

2.8 3.0 3.1 2.7 2.9 3.1 3.1 3.2

3.9 4.0 4.4 3.8 4.1 4.3 4.4 4.5

69,811,881 69,690,854 70,836,945 73,786,346 76,579,856 82,403,958 87,838,723 89,568,746

71,181,733 71,176,158 72,138,858 74,891,852 77,887,620 84,173,381 90,523,774 91,588,295

22,413 21,446 18,596 18,006 18,334 18,036 17,074 16,732

4,157 4,029 3,079 2,845 2,433 2,386 1,805 2,507

715 711 607 612 617 610 593 589

410,000 354,000 307,000 233,000 183,000 139,000 115,000 82,400

NOTE ON ROICPrior 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 assetsminus working liabilities defined as follows: working assets equal total assets less cash equivalents (non-operating cash), deferred taxes and investments inunconsolidated entities, plus the LIFO reserve. Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributionsto employees’ profit sharing plans and accrued expenses.


EXECUTIVE AND OPERATING MANAGEMENT

James T. RyanChairman, President and Chief ExecutiveOfficer

Mr. Ryan was named Chairman in April 2009 and ChiefExecutive Officer in June 2008. He has been Presidentof Grainger since 2006, served as Chief OperatingOfficer from 2007 to 2008 and was appointed to theBoard of Directors in February 2007.

Mr. Ryan has held a number of other key roles since joining Grainger in1980. They include Group President; Executive Vice President, Marketing,Sales and Service; President, Grainger.com; Vice President, InformationServices; and President, Grainger Parts.

Mr. Ryan is the Vice Chair of the Board of Trustees of DePaul University,serves on the Board of Trustees of the Chicago Museum of Science andIndustry and is a Co-Chair of the Business Advisory Council for the FarmerSchool of Business at Miami University, Oxford, Ohio. He is also a memberof the Civic Committee of the Commercial Club of Chicago, the EconomicClub of Chicago and the National Association of Wholesaler-Distributors.

Laura D. BrownSenior Vice President, Communications andInvestor Relations

Ms. Brown was named Senior Vice President,Communications and Investor Relations in July 2010.She is responsible for Grainger’s internal and externalcommunications, public affairs and investor relations.

Ms. Brown had served as Vice President, Global BusinessCommunications. Since joining the company in 2000, she has heldroles of increasing responsibility in the finance, marketing, and investorrelations organizations. Prior to joining Grainger, Ms. Brown was avice president at Baxter International and Alliant Food Service.

Ms. Brown is a member of The Chicago Network and The Economic Clubof Chicago, serves as Chair of the Board of Make-A-Wish Illinois and is a2012 Fellow of the Leadership Greater Chicago program.

Joseph C. HighSenior Vice President and Chief People Officer

Mr. High joined Grainger as Senior Vice Presidentand Chief People Officer in June 2011. As the globalHuman Resources leader, he aligns business strategieswith people initiatives to build high performing leadersand teams.

Before joining Grainger, Mr. High was the Senior Vice President ofHuman Resources at Owens Corning in Toledo, Ohio. Prior to that role,he was head of Human Resources for ConocoPhillips in Houston.Mr. High also served as an Officer at Rockwell Automation and CumminsEngine Company.

Mr. High currently serves on the Board of Skills for Chicagoland’s Future, apublic-private partnership working to match businesses that have current,unmet hiring needs with qualified, unemployed or underemployed jobseekers. He has also served on the Board of Outward Bound, which is apremier provider of experience-based outdoor leadership programs, andwas a Trustee of the University of Toledo. Mr. High is currently a memberof the Society for Human Resource Management (SHRM) and the HumanResource Policy Association. He is also a member of the Board of Visitorsfor the UNC Kenan-Flagler School of Business and The ExecutiveLeadership Council, a premier leadership organization comprised of seniorAfrican-American corporate executives from Fortune 500 companiesdedicated to inclusion and development of young leaders.

John L. HowardSenior Vice President and General Counsel

Mr. Howard joined Grainger andwas named SeniorVice President andGeneral Counsel in January 2000.His responsibilities include all of the company’s legaland corporate development functions.

Before joining Grainger, Mr. Howard served as VicePresident and General Counsel for Tenneco Automotive, a subsidiary ofTenneco, Inc. Prior assignments included Vice President, Law at Tenneco.From 1990 to 1993, Mr. Howard served in TheWhite House as Counsel to theVice President of the United States. From 1984 to 1990, he held a variety oflegal positions within the federal government, including Associate DeputyAttorney General in the U.S. Department of Justice.

Mr. Howard served a five-year term asChairman, Special Panel on Appeals. Healso served a two-year term on the Federal Reserve Bank of Chicago’s SeventhDistrict Advisory Council. He currently serves on the boards of theChicagoBotanicGarden, RushUniversityMedical Center and TheGrainger Foundation.

Ronald L. JadinSenior Vice President and Chief Financial Officer

Mr. Jadin was named Senior Vice President andChief Financial Officer for Grainger in March 2008.His responsibilities include financial planning andanalysis, financial reporting, internal audit, treasuryoperations and financial services.

Mr. Jadin had served as Vice President and Controller since November2006. Prior to that, he was Vice President, Finance, for GraingerIndustrial Supply, as well as Director of Financial Planning and Analysisfor the company.

Prior to joining Grainger in 1998, he spent 15 years serving in financialanalysis and management capacities within General Electric.

Mr. Jadin volunteers at Habitat for Humanity and his church.

DG MacphersonChief Operating Officer

Mr. Macpherson was namedChief Operating Officer forGrainger in August 2015. In this role, he is responsible forall operating units of the company globally, as well asEnterprise Systems.

Most recently, Mr. Macpherson was Senior VicePresident andGroup President, Global Supply Chain and International, wherehe led the development of corporate strategy and continuous improvement,the global supply chain organization, the company’s single channel onlinebusinessmodel and international operations in Asia and Europe. Prior to that,Mr. Macpherson was Senior Vice President and President, Global SupplyChain and Corporate Strategy.

Mr. Macpherson joined Grainger in 2008 from the Boston Consulting Group(BCG), where he was Partner andManaging Director since 2002.

Mr. Macpherson is active with the American RedCross and recently served onits Board of Directors.


EXECUTIVE AND OPERATING MANAGEMENT

EXECUTIVE COMPENSATION

The Company does not have employment agreements . . . . . . . . . . . . . . . . Yes

Executive compensation is tied to performance; numeric criteriaare 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 paidnamed executive officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

EQUITY COMPENSATION

All stock-based incentive plans have been approved by shareholders . Yes

The Company’s 2015 Incentive Plan does not allow reloads,repricing, stock options issued at a discount to fair market value,or stock options to be transferred by a participant for consideration . . . Yes

Stock options are always awarded at an exercise price equal tothe closing price of the Company’s common stock on the dayof the grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

The Company has not misdated or backdated stock optionsresulting in a restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

The Company discloses performance criteria in its stock-basedcompensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

Dividends are not available on performance shares . . . . . . . . . . . . . . . . . . . . . Yes

The Company, in coordination with a proxy advisory firm, commitsto an appropriate burn rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

COMPENSATION PRACTICES

Fred CostelloVice President and President,Global Product Management

Debra S. OlerVice President and President,Large Customer, Latin Americaand Direct Sales

David Rawlinson IIPresident, Online Business

Greg HarmanVice President andChief Information Officer

John KaulVice President and President,Acklands–Grainger

PAY FOR PERFORMANCE

Compensation Element Link to Performance

Base Salary Base salary increases are linked toindividual performance.

Annual Cash Incentives Annual cash incentives are linked toachieving predetermined Company objectives.

Long-Term Incentives • Stock options are granted based onindividual performance and linked tostock price performance for ten years.

• Performance shares are granted basedon achieving specific, predeterminedCompany objectives over the three-yearperformance period.

Benefits The profit sharing plan encouragesfinancial performance that drives increasedshareholder value.

Ownership Guidelines Officers are subject to ownership guidelines:• CEO at least 6X salary• Other senior officers at least 3X salary

Risk Mitigation The Company’s incentive programsincorporate a balance of risk mitigationcomponents.Michael Kerins

Vice President and President,Cromwell

Elizabeth UbellVice President and President,U.S. Medium Customer,Marketing and eCommerce

Deidra MerriwetherVice President, Pricing andIndirect Procurement

Ronald BaarslagGeneral Manager andPresident, Fabory

Paige RobbinsSenior Vice President, Global SupplyChain, Branch Network, ContactCenters and Corporate Strategy


BOARD OF DIRECTORS

CORPORATE GOVERNANCEBoard is elected by majority vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

Majority of Directors independent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

Separate Chairman and CEO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No

Independent Lead Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

Independent Board Affairs and Nominating Committee . . . . . . . . . . . . . . . . . . . . . Yes

Number of Board meetings held or scheduled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

All Directors elected annually . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

Corporate governance guidelines (Operating Principles) approved bythe Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

Board plays active role in risk oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

Independent Directors hold meetings without management present. . . . . . . . Yes

Board-approved succession plan in place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

The performance of the Board is reviewed regularly . . . . . . . . . . . . . . . . . . . . . . . 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 Committeemeetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

Charters for Audit, Compensation, and Board Affairs andNominating Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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

Independent Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

Board Compensation Committee has independent compensationconsultant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

INDEPENDENT DIRECTOR COMPENSATIONThe majority of the Director pay package is in the form ofCompany equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

The majority of the pay package is required to be held in the formof Company equity for the entire duration of the Director’s service . . . . . . . . . . . Yes

The Company’s Director Stock Ownership Guidelines require Directors toown Company equity worth at least 5X the annual retainer . . . . . . . . . . . . . . . . . . Yes

The Director pay package is regularly benchmarked to market andreviewed by an Independent Compensation Consultant . . . . . . . . . . . . . . . . . . . . . Yes

The Company does not use stock options as part of the Directorpay package . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

The Company does not have a Director retirement program. . . . . . . . . . . . . . . . . Yes

The Company does not offer perquisites to Directors . . . . . . . . . . . . . . . . . . . . . . . Yes

The Company only reimburses for expenses relating to service asa Director and for attending continuing education programs. . . . . . . . . . . . . . . . . Yes

A Director who is an employee of the Company does not receiveany compensation for services as a Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes

SHAREHOLDER RIGHTSCompany does not have a shareholder rights plan . . . . . . . . . . . . . . . . Yes

Shareholders have cumulative voting rights . . . . . . . . . . . . . . . . . . . . . Yes

Shareholders have majority voting with Director resignation policy . . . . . . . Yes

Shareholders may call special meetings . . . . . . . . . . . . . . . . . . . . . . . Yes

Employees may vote their shares in company-sponsored plans . . . . . . . . Yes

All stock-based incentive plans have been approved by shareholders . . . . . Yes

An independent tabulator tabulates shareholder votes . . . . . . . . . . . . . . Yes

Company posts its articles of incorporation and bylaws on website . . . . . . Yes

(1) Member of Audit Committee(2) Member of Board Affairs and

Nominating Committee(3) Member of Compensation Committee

† Lead Director

Rodney C. AdkinsFormer Senior Vice President of InternationalBusiness Machines Corporation, President of3RAM Group LLC, Miami Beach, Fla.(2, 3)

Brian P. AndersonFormer Executive Vice President andChief Financial Officer, OfficeMaxIncorporated, Itasca, Ill.(1, 2)

V. Ann HaileyFormer President, Chief Executive Officerand Chief Financial Officer,Famous Yard Sale, Inc., New Albany, Ohio(1, 2)

William K. HallFounding Partner, Procyon Advisors LLP,Skokie, Ill.(1, 2)

James T. RyanChairman, President andChief Executive Officer, W.W. Grainger, Inc.

E. Scott SantiChairman and Chief Executive Officer,Illinois Tool Works Inc., Glenview, Ill.(1, 2)

James D. SlavikChairman, Mark IV Capital, Inc.,Newport Beach, Calif.(2, 3)

Stuart L. LevenickRetired Group President, Caterpillar Inc.,Peoria, Ill.(2, 3, †)

Neil S. NovichFormer Chairman, President andChief Executive Officer, Ryerson Inc.,Chicago, Ill.(1, 2)

Michael J. RobertsFormer Global President and COO ofMcDonalds Corporation,Founder of LYFE Kitchen, Chicago, Ill.(2, 3)

Gary L. RogersFormer Vice Chairman,General Electric Company, Fairfield, Conn.(2, 3)

Note: As of April 1, 2016.


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HeadquartersW.W. Grainger, Inc.100 Grainger ParkwayLake Forest, IL 60045-5201847.535.1000www.grainger.com

Annual MeetingThe 2016 Annual Meeting of Shareholderswill be held at the company’s headquartersin Lake Forest, Illinois, at 10:00 a.m. CDTon Wednesday April 27, 2016.

Media Relations ContactJoseph MicucciDirector, Media Relations847.535.0879

Investor Relations ContactsLaura D. BrownSenior Vice President, Communicationsand Investor Relations847.535.0409

William D. ChapmanSenior Director, Investor Relations847.535.0881

Michael P. FerreterFinancial Communications Manager847.535.1439

Common Stock ListingThe company’s common stock is listed on theNew York Stock Exchange under the tradingsymbol GWW.

Analyst Coverage (As of April 1, 2016)Atlantic Equities — Richard RadbourneBarclays — Scott DavisBB&T Capital Markets — Charles ReddingBMO Capital Markets — Scott GrahamCleveland Research Company — Adam UhlmanCredit Suisse — Andrew BuscagliaDeutsche Bank Securities, Inc. — John InchGabelli and Company — Justin BergnerGoldman Sachs — Joe RitchieKeyBanc Capital Markets — Ryan CieslakLongbow Research — Chris DankertMorgan Stanley — Nigel CoeMorningstar — Kwame WebbOppenheimer & Company — Christopher GlynnRaymond James — Sam DarkatshRBC Capital Markets — Deane DrayRobert W. Baird — David MantheyStephens, Inc. — Matt DuncanSterne Agee CRT — Hamzah MazariStifel — Rob McCarthySusquehanna Financial Group — Robert BarryThompson Research Group — Brent RakersUBS — Shannon O’CallaghanWells Fargo — Allison Poliniak-CusicWilliam Blair & Company, LLC — Ryan Merkel

William D. ChapmanSenior Director, Investor Relations

Mr. Chapman was named Senior Director, Investor Relations, in April 2012.In this role, he serves as the company’s primary contact with the investmentcommunity. He had served as Director, Investor Relations since 1999.

Mr. Chapman serves on the advisory board of the Chicago Chapter of theNational Investor Relations Institute (NIRI) and is a past president and chairman.He is also a member of the NIRI National Senior Roundtable. Mr. Chapman wasnominated by the investment community as the Best Investor Relations Officer

(Mid Cap) in the 2015 IR Magazine Awards. In 2012–2014, he was recognized by Institutional Investor

Magazine as the top IR professional in the capital goods/industrials sector.

Mr. Chapman serves as a director, past president and current scholarship chairman of theWisconsin Alumni Association–Chicago Chapter and is a former director of the National WisconsinAlumni Association.

COMPANY INFORMATION

The Grainger Investor Relations team wasnominated for the IR Magazine Awards – US 2016in two categories: Grand prix for best overall investorrelations – mid cap and Best in sector – industrials.

Expected Earnings Release Dates

First Quarter April 18, 2016

Second Quarter July19, 2016

Third Quarter October 18, 2016

Fourth Quarter January 25, 2017

Transfer Agent, Registrar and DividendDisbursing AgentInstructions and inquiries regarding transfers,certificates, changes of title or address, lost ormissing dividend checks, consolidation ofaccounts and elimination of multiple mailingsshould be directed to:

Computershare Trust Company, N.A.P.O. Box 43078Providence, RI 02940-3078800.446.2617

AuditorsErnst & Young LLP155 North Wacker DriveChicago, Illinois 60606-1787

TrademarksThe registered and unregistered trademarkscontained in this document are the property oftheir respective owners and the use of suchtrademarks shall inure to the benefit of thetrademark owner.

Scan this QR code withyour smartphone to godirectly to Grainger’s mobileIR website. Get the latestpress releases, financialsand more informationabout the company.

857590 © 2016 W.W. Grainger, Inc.

CORPORATE SOCIAL RESPONSIBILITYGrainger’s Corporate Social Responsibility platform includes the company’s commitments to

operating responsibly, valuing its people, sustaining the environment and serving its communities.

Grainger’s program is led by a cross-functional team with oversight by the CEO and executive leadership team.

Periodic updates on the company’s efforts are also provided to the Board of Directors.

For more information, please visit graingercsr.com.

CONTENTSGrainger’s process aligns each customer’s assortment with its specific needs. KeepStock...

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Transcript of CONTENTSGrainger’s process aligns each customer’s assortment with its specific needs. KeepStock...