GWW.2013.06.30.13.10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2013
OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to _______
 
Commission file number 1-5684

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

Illinois
 
36-1150280
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
100 Grainger Parkway, Lake Forest, Illinois
 
60045-5201
(Address of principal executive offices)
 
(Zip Code)
(847) 535-1000
(Registrant’s telephone number including area code)
 
Not Applicable
(Former name, former address and former fiscal year; if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [  ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]  No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [X]  Accelerated filer [  ]   Non-accelerated filer [  ]   Smaller reporting company [  ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ]  No [X]
 
There were 69,497,219 shares of the Company’s Common Stock outstanding as of June 30, 2013.

1



 
TABLE OF CONTENTS
 
 
 
Page No.
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
Condensed Consolidated Statements of Earnings 
    for the Three and Six Months Ended June 30, 2013 and 2012   
 
 
 
 
Condensed Consolidated Statements of Comprehensive
    Earnings for the Three and Six Months Ended June 30, 2013 and 2012
 
 
 
 
Condensed Consolidated Balance Sheets
    as of June 30, 2013 and December 31, 2012
 
 
 
 
Condensed Consolidated Statements of Cash Flows
    for the Six Months Ended June 30, 2013 and 2012
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial
    Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
 
Signatures
 
 
 
 
EXHIBITS
 
 


2


PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except for share and per share amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
2,381,561

 
$
2,249,275

 
$
4,661,996

 
$
4,442,720

Cost of merchandise sold
1,334,577

 
1,270,932

 
2,583,276

 
2,490,045

Gross profit
1,046,984

 
978,343

 
2,078,720

 
1,952,675

Warehousing, marketing and administrative expenses
696,912

 
664,343

 
1,385,344

 
1,334,314

Operating earnings
350,072

 
314,000

 
693,376

 
618,361

Other income and (expense):
 

 
 

 
 
 
 
Interest income
796

 
602

 
1,694

 
1,197

Interest expense
(3,201
)
 
(2,910
)
 
(6,367
)
 
(5,967
)
Other non-operating income
164

 
156

 
2,146

 
868

Other non-operating expense
(311
)
 
(1,119
)
 
(1,405
)
 
(1,217
)
Total other income and (expense)
(2,552
)
 
(3,271
)
 
(3,932
)
 
(5,119
)
Earnings before income taxes
347,520

 
310,729

 
689,444

 
613,242

Income taxes
126,767

 
117,628

 
254,164

 
230,683

Net earnings
220,753

 
193,101

 
435,280

 
382,559

Less: Net earnings attributable to noncontrolling interest
3,093

 
2,397

 
5,782

 
4,339

Net earnings attributable to W.W. Grainger, Inc.
$
217,660

 
$
190,704

 
$
429,498

 
$
378,220

Earnings per share:
 

 
 

 
 
 
 
Basic
$
3.08

 
$
2.68

 
$
6.07

 
$
5.30

Diluted
$
3.03

 
$
2.63

 
$
5.97

 
$
5.20

Weighted average number of shares outstanding:
 

 
 

 
 

 
 

Basic
69,664,697

 
69,937,085

 
69,613,947

 
70,034,142

Diluted
70,801,050

 
71,307,640

 
70,788,203

 
71,480,677

Cash dividends paid per share
$
0.93

 
$
0.80

 
$
1.73

 
$
1.46

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

3


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands of dollars)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Net earnings
$
220,753

 
$
193,101

 
$
435,280

 
$
382,559

Other comprehensive earnings (losses):
 

 
 

 
 

 
 

Foreign currency translation adjustments, net of tax benefit (expense) of $1,988, $1,146, $3,517 and $(166), respectively
(38,689
)
 
(20,736
)
 
(69,800
)
 
(4,470
)
Derivative instruments, net of tax (expense) benefit of $(1,862), $(816), $(2,994) and $(216), respectively
3,657

 
486

 
6,035

 
(1,256
)
Other, net of tax benefit of $430, $0, $722 and $0, respectively
(775
)
 
(78
)
 
(527
)
 
508

Comprehensive earnings, net of tax
184,946

 
172,773

 
370,988

 
377,341

Comprehensive earnings (losses) attributable to noncontrolling interest
(1,221
)
 
8,307

 
(5,299
)
 
5,201

Comprehensive earnings attributable to W.W. Grainger, Inc.
$
186,167

 
$
164,466

 
$
376,287

 
$
372,140

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

4


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except for share and per share amounts)
 
 
(Unaudited)
 
 
ASSETS
June 30, 2013
 
Dec 31, 2012
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
488,741

 
$
452,063

Accounts receivable (less allowances for doubtful
 

 
 

accounts of $18,541 and $19,449, respectively)
1,075,592

 
940,020

Inventories – net
1,221,888

 
1,301,935

Prepaid expenses and other assets
109,490

 
110,414

Deferred income taxes
56,290

 
55,967

Prepaid income taxes
10,183

 
40,241

Total current assets
2,962,184

 
2,900,640

PROPERTY, BUILDINGS AND EQUIPMENT
2,791,071

 
2,760,434

Less: Accumulated depreciation and amortization
1,672,321

 
1,615,861

Property, buildings and equipment – net
1,118,750

 
1,144,573

DEFERRED INCOME TAXES
53,414

 
51,536

GOODWILL
513,545

 
543,670

OTHER ASSETS AND INTANGIBLES – NET
382,242

 
374,179

TOTAL ASSETS
$
5,030,135

 
$
5,014,598


5



W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands of dollars, except for share and per share amounts)
 
 
(Unaudited)
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 2013
 
Dec 31, 2012
CURRENT LIABILITIES
 
 
 
Short-term debt
$
70,007

 
$
79,071

Current maturities of long-term debt
25,502

 
18,525

Trade accounts payable
452,179

 
428,782

Accrued compensation and benefits
157,259

 
165,450

Accrued contributions to employees’ profit sharing plans
90,152

 
170,434

Accrued expenses
182,682

 
204,800

Income taxes payable
9,104

 
12,941

Total current liabilities
986,885

 
1,080,003

LONG-TERM DEBT (less current maturities)
452,449

 
467,048

DEFERRED INCOME TAXES AND TAX UNCERTAINTIES
118,326

 
119,280

EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES
230,280

 
230,901

SHAREHOLDERS' EQUITY
 

 
 

Cumulative Preferred Stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding
—

 
—

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

 
54,830

Additional contributed capital
855,112

 
812,573

Retained earnings
5,585,752

 
5,278,577

Accumulated other comprehensive losses
365

 
53,578

Treasury stock, at cost – 40,162,000 and 40,180,724 shares, respectively
(3,331,524
)
 
(3,175,646
)
Total W.W. Grainger, Inc. shareholders’ equity
3,164,535

 
3,023,912

Noncontrolling interest
77,660

 
93,454

Total shareholders' equity
3,242,195

 
3,117,366

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
5,030,135

 
$
5,014,598

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

6


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
 
Six Months Ended
 
June 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net earnings
$
435,280

 
$
382,559

Provision for losses on accounts receivable
3,783

 
4,428

Deferred income taxes and tax uncertainties
(1,074
)
 
(3,874
)
Depreciation and amortization
80,813

 
73,442

Stock-based compensation
31,372

 
30,573

Change in operating assets and liabilities – net of business 
  acquisitions:
 

 
 

Accounts receivable
(155,887
)
 
(128,648
)
Inventories
57,771

 
4,918

Prepaid expenses and other assets
31,369

 
39,907

Trade accounts payable
31,472

 
(6,751
)
Other current liabilities
(128,468
)
 
(145,965
)
Current income taxes payable
(2,648
)
 
(11,407
)
Employment-related and other non-current liabilities
8,088

 
1,886

Other – net
(5,048
)
 
(2,848
)
Net cash provided by operating activities
386,823

 
238,220

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to property, buildings and equipment
(83,175
)
 
(96,378
)
Proceeds from sales of property, buildings and equipment
2,528

 
3,950

Net cash paid for business acquisitions
(8,234
)
 
(24,336
)
Other – net
100

 
63

Net cash used in investing activities
(88,781
)
 
(116,701
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Borrowings under lines of credit
105,412

 
72,903

Payments against lines of credit
(114,436
)
 
(68,893
)
Proceeds from issuance of long-term debt
—

 
300,000

Payments of long-term debt and commercial paper
(4,845
)
 
(270,583
)
Proceeds from stock options exercised
48,142

 
39,060

Excess tax benefits from stock-based compensation
41,690

 
35,502

Purchase of treasury stock
(202,400
)
 
(210,981
)
Cash dividends paid
(123,549
)
 
(105,361
)
Net cash used in financing activities
(249,986
)
 
(208,353
)
Exchange rate effect on cash and cash equivalents
(11,378
)
 
1,089

NET CHANGE IN CASH AND CASH EQUIVALENTS
36,678

 
(85,745
)
Cash and cash equivalents at beginning of year
452,063

 
335,491

Cash and cash equivalents at end of period
$
488,741

 
$
249,746

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

7


W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    BACKGROUND AND BASIS OF PRESENTATION
 
W.W. Grainger, Inc. is a broad-line distributor of maintenance, repair and operating supplies, and other related products and services used by businesses and institutions.  W.W. Grainger, Inc.’s operations are primarily in the United States and Canada, with an expanding presence in Europe, Asia and Latin America.  In this report, the words “Company” or “Grainger” mean W.W. Grainger, Inc. and its subsidiaries.
 
The Condensed Consolidated Financial Statements of the Company and the related notes are unaudited and should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).
 
The Condensed Consolidated Balance Sheet as of December 31, 2012 has been derived from the audited consolidated financial statements at that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.
 
The unaudited financial information reflects all adjustments (primarily consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the statements contained herein.

2.    NEW ACCOUNTING STANDARDS

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income (AOCI) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 is effective for interim and annual periods beginning after December 15, 2012 and early adoption is permitted. The Company adopted ASU 2013-02 in the first quarter of 2013. The adoption of ASU 2013-02 did not have a material impact on the consolidated financial statements.

3.    DIVIDEND
 
On July 31, 2013, the Company’s Board of Directors declared a quarterly dividend of 93 cents per share, payable September 1, 2013, to shareholders of record on August 12, 2013.

















8
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

4.    DERIVATIVE INSTRUMENTS
 
The fair value of significant derivative instruments included in Employment-related and other non-current liabilities was as follows (in thousands of dollars):
Derivatives Designated as Hedges
 
June 30, 2013
 
Dec 31, 2012
Interest rate swap
 
$
2,885

 
$
4,120

Foreign currency forwards
 
$
122

 
$
7,916

The Company uses derivative instruments to manage a portion of exposures to fluctuations in interest rates and foreign currency exchange rates. The Company does not enter into derivative financial instruments for trading or speculative purposes.
The fair values of these instruments are determined by using quoted market forward rates (level 2 inputs) and reflect the present value of the amount that the Company would pay for contracts involving the same notional amounts and maturity dates. These instruments qualify for hedge accounting and the changes in fair value are reported as a component of other comprehensive earnings (losses) net of tax effects.

5.    EMPLOYEE BENEFITS - POSTRETIREMENT
 
The Company has a postretirement healthcare benefits plan that provides coverage for a majority of its United States employees and their dependents should they elect to maintain such coverage upon retirement. Covered employees become eligible for participation when they qualify for retirement while working for the Company. Participation in the plan is voluntary and requires participants to make contributions toward the cost of the plan, as determined by the Company.

The net periodic benefit costs charged to operating expenses, which are valued at the measurement date of January 1 and recognized evenly throughout the year, consisted of the following components (in thousands of dollars):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Service cost
$
2,567

 
$
5,015

 
$
5,294

 
$
10,029

Interest cost
2,119

 
3,203

 
4,469

 
6,405

Expected return on assets
(1,769
)
 
(1,553
)
 
(3,538
)
 
(3,106
)
Amortization of transition asset
(36
)
 
(36
)
 
(71
)
 
(71
)
Amortization of unrecognized losses
746

 
1,207

 
1,862

 
2,414

Amortization of prior service credits
(1,852
)
 
(124
)
 
(3,705
)
 
(248
)
Net periodic benefit costs
$
1,775

 
$
7,712

 
$
4,311

 
$
15,423

 
For the six months of 2013, the net periodic benefit costs decreased $11 million driven primarily by plan design changes that went into effect on January 1, 2013. Covered employees as of December 31, 2012, will remain eligible for retiree health benefits with the employee contribution structure modified for certain employees based on minimum age and service requirements. Employees hired after January 1, 2013, will not be eligible for retiree health benefits.

The Company has established a Group Benefit Trust to fund the plan and process benefit payments. The funding of the trust is an estimated amount which is intended to allow the maximum deductible contribution under the Internal Revenue Code of 1986 (IRC), as amended.  There are no minimum funding requirements and the Company intends to follow its practice of funding the maximum deductible contribution under the IRC. During the three and six months ended June 30, 2013, the Company contributed $1.3 million and $2.2 million, respectively, to the trust.


9
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

6.    SEGMENT INFORMATION
 
The Company has two reportable segments: the United States and Canada. The United States operating segment reflects the results of the Company's U.S. business. The Canada operating segment reflects the results for Acklands – Grainger Inc., the Company’s Canadian business. Other businesses include operations in Europe, Asia, Latin America and other U.S. operations. These other businesses individually do not meet the definition of a reportable segment. Operating segments generate revenue almost exclusively through the distribution of maintenance, repair and operating supplies, as service revenues account for less than 1% of total revenues for each operating segment. Following is a summary of segment results (in thousands of dollars):

 
Three Months Ended June 30, 2013
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
1,863,112

 
$
288,645

 
$
261,282

 
$
2,413,039

Intersegment net sales
(31,135
)
 
(112
)
 
(231
)
 
(31,478
)
Net sales to external customers
$
1,831,977

 
$
288,533

 
$
261,051

 
$
2,381,561

Segment operating earnings
$
338,884

 
$
37,299

 
$
12,799

 
$
388,982

  
 
Three Months Ended June 30, 2012
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
1,742,101

 
$
279,617

 
$
249,131

 
$
2,270,849

Intersegment net sales
(21,205
)
 
(172
)
 
(197
)
 
(21,574
)
Net sales to external customers
$
1,720,896

 
$
279,445

 
$
248,934

 
$
2,249,275

Segment operating earnings
$
310,683

 
$
33,555

 
$
11,244

 
$
355,482


 
Six Months Ended June 30, 2013
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
3,637,650

 
$
571,786

 
$
509,156

 
$
4,718,592

Intersegment net sales
(56,025
)
 
(151
)
 
(420
)
 
(56,596
)
Net sales to external customers
$
3,581,625

 
$
571,635

 
$
508,736

 
$
4,661,996

Segment operating earnings
$
669,772

 
$
70,155

 
$
21,050

 
$
760,977

  
 
Six Months Ended June 30, 2012
 
United States
 
Canada
 
Other Businesses
 
Total
Total net sales
$
3,442,810

 
$
552,500

 
$
488,087

 
$
4,483,397

Intersegment net sales
(40,130
)
 
(206
)
 
(341
)
 
(40,677
)
Net sales to external customers
$
3,402,680

 
$
552,294

 
$
487,746

 
$
4,442,720

Segment operating earnings
$
609,647

 
$
63,255

 
$
21,959

 
$
694,861


 
United States
 
Canada
 
Other Businesses
 
Total
Segment assets:
 
 
 
 
 
 
 
June 30, 2013
$
1,966,649

 
$
365,209

 
$
355,134

 
$
2,686,992

December 31, 2012
$
1,884,102

 
$
387,915

 
$
347,905

 
$
2,619,922


10
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Following are reconciliations of segment information with the consolidated totals per the financial statements (in thousands of dollars):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Operating earnings:
 
 
 
 
 
Total operating earnings for operating segments
$
388,982

 
$
355,482

 
$
760,977

 
$
694,861

Unallocated expenses and eliminations
(38,910
)
 
(41,482
)
 
(67,601
)
 
(76,500
)
Total consolidated operating earnings
$
350,072

 
$
314,000

 
$
693,376

 
$
618,361

 
 
June 30, 2013
 
Dec 31, 2012
Assets:
 
Total assets for operating segments
$
2,686,992

 
$
2,619,922

Other current and non-current assets
1,907,159

 
1,967,480

Unallocated assets
435,984

 
427,196

Total consolidated assets
$
5,030,135

 
$
5,014,598


Assets for reportable segments include net accounts receivable and first-in, first-out inventory which are reported to the Company's Chief Operating Decision Maker.

Unallocated expenses and unallocated assets primarily relate to the Company headquarters' support services, which are not part of any business segment, as well as intercompany eliminations. Unallocated expenses include payroll and benefits, depreciation and other costs associated with headquarters-related support services. Unallocated assets include non-operating cash and cash equivalents, certain prepaid expenses and property, buildings and equipment-net.



11
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

7.    EARNINGS PER SHARE
 
The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in thousands of dollars, except for share and per share amounts):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Net earnings attributable to W.W. Grainger, Inc. as reported
$
217,660

 
$
190,704

 
$
429,498

 
$
378,220

Distributed earnings available to participating securities
(826
)
 
(996
)
 
(1,717
)
 
(1,706
)
Undistributed earnings available to participating securities
(2,265
)
 
(2,503
)
 
(5,006
)
 
(5,143
)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders
214,569

 
187,205

 
422,775

 
371,371

Undistributed earnings allocated to participating securities
2,265

 
2,503

 
5,006

 
5,143

Undistributed earnings reallocated to participating securities
(2,230
)
 
(2,455
)
 
(4,925
)
 
(5,041
)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders
$
214,604

 
$
187,253

 
$
422,856

 
$
371,473

Denominator for basic earnings per share – weighted average shares
69,664,697

 
69,937,085

 
69,613,947

 
70,034,142

Effect of dilutive securities
1,136,353

 
1,370,555

 
1,174,256

 
1,446,535

Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities
70,801,050

 
71,307,640

 
70,788,203

 
71,480,677

Earnings per share two-class method
 

 
 

 
 
 
 
Basic
$
3.08

 
$
2.68

 
$
6.07

 
$
5.30

Diluted
$
3.03

 
$
2.63

 
$
5.97

 
$
5.20



12
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


8.    CONTIGENCIES AND LEGAL MATTERS

From time to time the Company is involved in various legal and administrative proceedings that are incidental to its business, including claims relating to product liability, premises liability, general negligence, environmental issues, employment, intellectual property and other matters. As a government contractor selling to federal, state and local governmental entities, the Company is also subject to governmental or regulatory inquiries or audits or other proceedings, including those related to pricing compliance. It is not expected that the ultimate resolution of any of these matters will have, either individually or in the aggregate, a material adverse effect on the Company's consolidated financial position or results of operations.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

General
Grainger is a broad-line distributor of maintenance, repair and operating supplies, and other related products and services used by businesses and institutions. Grainger’s operations are primarily in the United States and Canada, with an expanding presence in Europe, Asia and Latin America. Grainger uses a multichannel business model to provide customers with a range of options for finding and purchasing products utilizing sales representatives, catalogs and direct marketing materials and eCommerce. Grainger serves approximately 2 million customers worldwide through a network of highly integrated branches, distribution centers, multiple websites and export services.

Business Environment
Given Grainger's large number of customers and the diverse industries it serves, several economic factors and industry trends tend to shape Grainger’s business environment. The overall economy and leading economic indicators provide general insight into projecting Grainger's growth. Grainger’s sales in the United States and Canada tend to positively correlate with Gross Domestic Product (GDP), Industrial Production, Exports, and Business Investment. In the United States, sales also tend to positively correlate with Business Inventory. The table below provides these estimated indicators for 2013:

 
2013 Forecasted Growth
 
United States
 
Canada
GDP
1.6%
 
1.7%
Industrial Production
2.5%
 
1.1%
Exports
1.8%
 
2.0%
Business Investment
5.2%
 
2.4%
Business Inventory
3.0%
 
—
Source: Global Insight (July 2013)
 
 
 

According to the Federal Reserve, overall industrial production increased 2.0% from June 2012 to June 2013. This improvement positively affected Grainger's sales growth for the six months of 2013. In addition, according to Bloomberg, crude oil prices have increased from $82 to $96 per barrel, or a 17% increase from June 2012 to June 2013. As oil production represents a large segment of the Canadian economy, fluctuations in crude oil prices can have a significant impact on the sales and business conditions in Grainger's Canadian business.
 
The light and heavy manufacturing customer end-markets have historically correlated with manufacturing employment levels and manufacturing output. The United States Department of Labor reported an increase of 0.2% in manufacturing employment levels from June 2012 to June 2013. According to the Federal Reserve, manufacturing output increased 2.1% from June 2012 to June 2013. Grainger’s heavy and light manufacturing customer end-markets outperformed these indicators as sales to these customer end-markets increased in the mid-single digits and high single digits, respectively, for the six months of 2013.

Outlook
On July 17, 2013, Grainger revised the 2013 sales growth guidance from a range of 5 to 9 percent to a range of 5 to 8 percent and also revised the 2013 earnings per share guidance from a range of $11.30 to $12.00 to a range of $11.40 to $12.00. These revised estimates reflect performance in the first half of the year and expectations for the second half of the year.

13
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Matters Affecting Comparability
There were 64 sales days in the second quarter of 2013 and 2012. Grainger completed two acquisitions in 2012, both of which were immaterial individually and in the aggregate. Grainger’s operating results have included the results of each business acquired since the respective acquisition dates.

Results of Operations – Three Months Ended June 30, 2013
The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings:
 
Three Months Ended June 30,
 
As a Percent of Net Sales
 
Percent Increase/(Decrease)
 
2013
 
2012
 
Net sales
100.0
 %
 
100.0
 %
 
5.9
 %
Cost of merchandise sold
56.0

 
56.5

 
5.0

Gross profit
44.0

 
43.5

 
7.0

Operating expenses
29.3

 
29.5

 
4.9

Operating earnings
14.7

 
14.0

 
11.5

Other income (expense)
(0.1
)
 
(0.2
)
 
(22.0
)
Income taxes
5.3

 
5.2

 
7.8

Noncontrolling interest
0.2

 
0.1

 
29.0

Net earnings attributable to W.W. Grainger, Inc.
9.1
 %
 
8.5
 %
 
14.1
 %

Grainger’s net sales of $2,382 million for the second quarter of 2013 increased 6% compared with sales of $2,249 million for the comparable 2012 quarter. On a daily basis, sales also increased 6%. The 6% daily increase for the quarter consisted of the following:
 
Percent Increase/(Decrease)
Volume
4
Price
2
Business acquisitions
1
Foreign exchange
(1)
Total
6%

Sales to most customer end-markets increased in the second quarter of 2013. The increase in net sales was led by growth in sales to light manufacturing, contractors, and heavy manufacturing customers. Refer to the Segment Analysis below for further details.

Gross profit of $1,047 million for the second quarter of 2013 increased 7%. The gross profit margin during the second quarter of 2013 increased 0.5 percentage point when compared to the same period in 2012, primarily driven by price increases exceeding product cost increases, partially offset by unfavorable customer mix from stronger sales to large customers.

Operating expenses of $697 million for the second quarter of 2013 increased 5%, driven primarily by payroll and benefits, an incremental $37 million in spending to fund Grainger's growth programs, and incremental expense associated with the two acquisitions completed in 2012.

Operating earnings for the second quarter of 2013 were $350 million, an increase of 11% compared to the second quarter of 2012. The increase in operating earnings was driven by higher sales, improved gross profit margins and positive operating expense leverage.


14
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Net earnings attributed to W.W. Grainger, Inc. for the second quarter of 2013 increased by 14% to $218 million from $191 million in the second quarter of 2012. Diluted earnings per share of $3.03 in the second quarter of 2013 were 15% higher than the $2.63 for the second quarter of 2012, due to higher earnings and lower average shares outstanding.

Segment Analysis
Grainger’s two reportable segments are the United States and Canada. The United States segment reflects the results of Grainger’s U.S. operating segment. The Canada segment reflects the results for Acklands – Grainger Inc., Grainger’s Canadian operating segment. Other businesses include operations in Europe, Asia, Latin America and other U.S operations, which are not material individually.

The following comments at the segment and business unit level include external and intersegment net sales and operating earnings. See Note 6 to the Condensed Consolidated Financial Statements.

United States
Net sales were $1,863 million for the second quarter of 2013, an increase of $121 million, or 7%, when compared with net sales of $1,742 million for the same period in 2012. On a daily basis, sales also increased 7%. The 7% daily increase for the quarter consisted of the following:
 
Percent Increase
Volume
4
Price
2
Business acquisition
1
Total
7%

The increase in net sales was led by high single digit growth to light manufacturing customers, followed by mid-single digit growth to heavy manufacturing, commercial services, contractors, and natural resource customers. Government and retail customers were up in the low single digits and net sales to resellers were down in the low single digits.

The gross profit margin for the second quarter of 2013 was essentially flat to the comparable quarter of 2012, primarily driven by price increases exceeding product cost increases, offset by unfavorable customer mix from stronger sales to large customers.

Operating expenses were up 6% in the second quarter of 2013 versus the second quarter of 2012, driven by $33 million of incremental spending on growth initiatives such as eCommerce, sales force expansion, and inventory management solutions.

Operating earnings of $339 million for the second quarter of 2013 increased 9% from $311 million for the second quarter of 2012, driven by higher sales and positive operating expense leverage.

Canada
Net sales were $289 million for the second quarter of 2013, an increase of $9 million, or 3%, when compared with $280 million for the same period in 2012. On a daily basis, sales also increased 3% (5% in local currency). The 3% daily increase for the quarter consisted of the following:
 
Percent Increase/(Decrease)
Volume
2
Timing of Easter holiday
2
Flood-related sales
1
Foreign exchange
(2)
Total
3%

The increase in net sales was driven by double digit growth in the forestry and construction end markets, followed by high single digit growth to light manufacturing customers and resellers. Sales to retail end customers were down in the low single digits.
 

15
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The gross profit margin increased 1.4 percentage points in the second quarter of 2013 versus the second quarter of 2012, due to cost savings from freight consolidation, higher supplier rebates and stronger sales of private label products.

Operating expenses were up 5% in the second quarter of 2013 versus the second quarter of 2012. In local currency, operating expenses increased 6%, primarily due to payroll as a result of merit increases, travel and entertainment, and occupancy, partially offset by lower bad debt expense driven by customer bankruptcies in 2012.

Operating earnings of $37 million for the second quarter of 2013 were up $4 million, or 11%, over the second quarter of 2012. In local currency, operating earnings increased by 13%, driven by higher sales and improvements in gross profit margins.

Other Businesses
Net sales for other businesses, which include operations in Europe, Asia, Latin America and other U.S. operations, increased 5% for the second quarter of 2013 when compared to the same period in 2012. On a daily basis, sales also increased by 5%. The sales increase was primarily due to strong revenue growth in Mexico and the timing of the business acquisition in Brazil in the second quarter of 2012. The 5% daily increase for the quarter consisted of the following:
 
Percent Increase/(Decrease)
Volume/Price
9
Business acquisition
2
Foreign exchange
(6)
Total
5%

Operating earnings were $13 million in the second quarter of 2013, compared to $11 million in the second quarter of 2012. Improved earnings performance for the quarter versus prior year was primarily driven by earnings growth in the businesses in Japan and Europe.

Income Taxes
Grainger’s effective income tax rates were 36.5% and 37.9% for the three months ended June 30, 2013 and 2012, respectively. The 2013 second quarter rate reflected a benefit from the resolution of foreign tax matters in the current period. Excluding this benefit, the tax rate for the quarter would have been 37.3%.


16
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Matters Affecting Comparability
There were 127 and 128 sales days in the six months of 2013 and 2012, respectively. Grainger completed two acquisitions in 2012, both of which were immaterial individually and in the aggregate. Grainger’s operating results have included the results of each business acquired since the respective acquisition dates.

Results of Operations – Six Months Ended June 30, 2013
The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings:
 
Six Months Ended June 30, 2013
 
As a Percent of Net Sales
 
Percent Increase/(Decrease)
 
2013
 
2012
 
Net sales
100.0
 %
 
100.0
 %
 
4.9
 %
Cost of merchandise sold
55.4

 
56.1

 
3.7

Gross profit
44.6

 
43.9

 
6.5

Operating expenses
29.7

 
30.0

 
3.8

Operating earnings
14.9

 
13.9

 
12.1

Other income (expense)
(0.1
)
 
(0.1
)
 
(23.2
)
Income taxes
5.5

 
5.2

 
10.2

Noncontrolling interest
0.1

 
0.1

 
33.3

Net earnings attributable to W.W. Grainger, Inc.
9.2
 %
 
8.5
 %
 
13.6
 %

Grainger’s net sales of $4,662 million for the six months of 2013 increased 5% compared with sales of $4,443 million for the comparable 2012 period. On a daily basis, sales increased 6%. The 6% daily increase for the period consisted of the following:
 
Percent Increase/(Decrease)
Volume
4
Price
2
Business acquisitions
1
Foreign exchange
(1)
Total
6%

Sales to most customer end-markets increased in the six months of 2013. The increase in net sales was led by growth in sales to light manufacturing customers, followed by contractors, diversified commercial services, and heavy manufacturing customers. Refer to the Segment Analysis below for further details.

Gross profit of $2,079 million for the six months of 2013 increased 6%. The gross profit margin during the six months of 2013 increased 0.7 percentage point when compared to the same period in 2012, primarily driven by price increases exceeding product cost increases, partially offset by unfavorable customer mix from stronger sales to large customers.

Operating expenses of $1,385 million for the six months of 2013 increased 4%, driven primarily by an incremental $59 million in spending to fund Grainger's growth programs as well as expenses from prior year acquisitions. The incremental spend on the growth programs was primarily related to eCommerce, sales force expansion, and inventory management solutions.

Operating earnings for the six months of 2013 were $693 million, an increase of 12% compared to the six months of 2012. The increase was due to higher sales, improved gross profit margins, and positive operating expense leverage.

Net earnings attributed to W.W. Grainger, Inc. for the six months of 2013 increased by 14% to $429 million from $378 million in the six months of 2012. Diluted earnings per share of $5.97 in the six months of 2013 were 15% higher than the $5.20 for the six months of 2012, due to higher earnings and lower average shares outstanding.

17
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Segment Analysis
Grainger’s two reportable segments are the United States and Canada. The United States segment reflects the results of Grainger’s U.S. operating segment. The Canada segment reflects the results for Acklands – Grainger Inc., Grainger’s Canadian operating segment. Other businesses include operations in Europe, Asia, Latin America and other U.S operations, which are not material individually.

The following comments at the segment and business unit level include external and intersegment net sales and operating earnings. See Note 6 to the Condensed Consolidated Financial Statements.

United States
Net sales were $3,638 million for the six months of 2013, an increase of $195 million, or 6%, when compared with net sales of $3,443 million for the same period in 2012. On a daily basis, sales also increased 6%. The 6% daily increase for the period consisted of the following:
 
Percent Increase
Volume
3
Price
2
Business acquisition
1
Total
6%

Sales to all customer end-markets except resellers increased in the six months of 2013. The increase in net sales was led by high single digit growth to light manufacturing customers, followed by mid-single digit growth to heavy manufacturing, diversified commercial services, and contractor end markets. Sales to the reseller segment were down in the low single digits.

The gross profit margin increased 0.4 percentage point in the six months of 2013 over the comparable period of 2012, primarily driven by price increases exceeding product cost increases, partially offset by unfavorable customer mix from stronger sales to large customers.

Operating expenses were up 5% in the six months of 2013 versus the six months of 2012. The increase in operating expenses was primarily driven by an incremental $54 million on growth-related spending. The incremental growth spending was primarily related to eCommerce, sales force expansion, and inventory management solutions.

Operating earnings of $670 million for the six months of 2013 increased 10% from $610 million for the six months of 2012. Operating earnings increased due to higher sales, improved gross profit margins and positive operating expense leverage.

Canada
Net sales were $572 million for the six months of 2013, an increase of $19 million, or 3%, when compared with $553 million for the same period in 2012. On a daily basis, sales were up 4% (5% in local currency). The 4% daily increase for the period consisted of the following:
 
Percent Increase/(Decrease)
Volume
5
Foreign exchange
(1)
Total
4%

The increase in net sales was led by double digit growth to contractors, diversified commercial services, and light manufacturing customers, followed by mid-single digit growth in the agriculture and reseller segments. The government segment was down in the mid-single digits.

The gross profit margin increased 0.7 percentage point in the six months of 2013 versus the six months of 2012, primarily driven by cost savings from freight consolidation, higher supplier rebates and stronger sales of private label products.


18
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Operating expenses were up 3% in the six months of 2013 versus the six months of 2012. In local currency, operating expenses increased 4%, primarily due to higher volume-related payroll and professional services, partially offset by lower bad debt expense driven by customer bankruptcies in 2012.

Operating earnings of $70 million for the six months of 2013 were up $7 million, or 11%, over the six months of 2012. In local currency, operating earnings increased 12% in the six months of 2013 over the same period in 2012. The increase in earnings was due to sales growth, improved gross profit margins and positive operating expense leverage.

Other Businesses
Net sales for other businesses, which include operations in Europe, Asia, Latin America and other U.S. operations, increased 4% for the six months of 2013 when compared to the same period in 2012. On a daily basis, sales increased 5%. The sales increase was primarily due to incremental sales from other U.S. operations, Brazil, and Mexico. The 5% daily increase for the period consisted of the following:
 
Percent Increase/(Decrease)
Volume/Price
8
Business acquisition
3
Foreign exchange
(6)
Total
5%

Operating earnings were $21 million in the six months of 2013, compared to $22 million in the six months of 2012.

Income Taxes
Grainger’s effective income tax rates were 36.9% and 37.6% for the six months ended June 30, 2013 and 2012, respectively. The income tax rate for the period reflects a benefit from the resolution of foreign tax matters that occurred in the 2013 second quarter. Excluding the benefit, the tax rate for the six months would have been 37.3%.

Financial Condition

Cash Flow
Cash from operating activities continues to serve as Grainger’s primary source of liquidity. Net cash provided by operating activities was $387 million and $238 million for the six months ended June 30, 2013 and 2012, respectively. The primary contribution to cash flows from operating activities was net earnings of $435 million in the six months ended June 30, 2013 compared to $383 million in the six months of 2012. Partially offsetting these amounts were changes in operating assets and liabilities, which resulted in a net use of cash of $158 million in the six months of 2013 compared to $246 million in the six months of 2012. The lower use of cash from changes in operating assets and liabilities was driven primarily by lower inventory purchases for the six months of 2013 compared to the six months of 2012. Inventory purchases were down for the six months of 2013 due to a higher inventory balance at the beginning of the year as a result of lower sales in December of 2012.

Net cash used in investing activities was $89 million and $117 million for the six months ended June 30, 2013 and 2012, respectively. Cash expended for additions to property, buildings, equipment and capitalized software was $83 million in the six months ended June 30, 2013, compared to $96 million in 2012. The decrease in cash paid for business acquisitions was driven by the acquisition in Brazil in the second quarter of 2012, partially offset by the purchase of the remaining interest of the business in Colombia in the second quarter of 2013.

Net cash used in financing activities was $250 million and $208 million for the six months ended June 30, 2013 and 2012, respectively. The $42 million increase in cash used in financing activities for the six months ended June 30, 2013 was due to an increase in payments against short-term lines of credit, a net decrease in long-term debt, and an increase in dividends paid.


19
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Working Capital
Working capital consists of current assets (less non-operating cash) and current liabilities (less short-term debt and current maturities of long-term debt).

Working capital at June 30, 2013, was $1,701 million, an increase of $97 million when compared to $1,604 million at December 31, 2012. The working capital assets to working capital liabilities ratio increased to 2.9 at June 30, 2013, from 2.6 at December 31, 2012. The increase primarily related to higher receivable balances and lower profit sharing accruals due to the timing of annual payments.

Debt
Grainger maintains a debt ratio and liquidity position that provide flexibility in funding working capital needs and long-term cash requirements. In addition to internally generated funds, Grainger has various sources of financing available, including bank borrowings under lines of credit. Total debt as a percent of total capitalization was 14.5% at June 30, 2013, and 15.3% at December 31, 2012.

20
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements. Management bases its estimates on historical experience and other assumptions, which it believes are reasonable. If actual amounts are ultimately different from these estimates, the revisions are included in Grainger’s results of operations for the period in which the actual amounts become known.

Accounting policies are considered critical when they require management to make assumptions about matters that are highly uncertain at the time the estimates are made and when there are different estimates that management reasonably could have made, which would have a material impact on the presentation of Grainger’s financial condition, changes in financial condition or results of operations. For a description of Grainger’s critical accounting policies see Grainger's Annual Report on Form 10-K for the year ended December 31, 2012.

Forward-Looking Statements
This Form 10-Q contains 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 the federal securities laws. Grainger has generally identified such forward-looking statements by using words such as “anticipated, believes, continues, could, earnings per share guidance, estimate, estimated, expected, expecting, forecasted, guidance, had potentially, intended, intends, help in forming, historically correlated, may, not expected to have a material adverse effect, possible, projected, projections, proposed, provide insight, range, reasonably likely, sales growth guidance, scheduled, should, subject to, tend, tended, tend to correlate, tend to shape, trends, unanticipated, uncertainties, will, will remain" or similar expressions.
 
Grainger cannot guarantee that any forward-looking statement will be realized although Grainger does believe that its assumptions underlying its forward-looking statements are reasonable. Achievement of future results is subject to risks and uncertainties which could cause Grainger's results to differ materially from those which are presented.
 
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; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; natural and other catastrophes and unanticipated weather conditions.
 
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.

21

W.W. Grainger, Inc. and Subsidiaries


Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
For quantitative and qualitative disclosures about market risk, see “Item 7A: Quantitative and Qualitative Disclosures About Market Risk” in Grainger's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Item 4.
Controls and Procedures
 
Disclosure Controls and Procedures
Grainger carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of Grainger’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that Grainger’s disclosure controls and procedures were effective as of the end of the period covered by this report.
 
Changes in Internal Control Over Financial Reporting
There were no changes in Grainger’s internal control over financial reporting that occurred during the second quarter that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.

PART II – OTHER INFORMATION
 
Items 1A, 3, 4 and 5 not applicable.

Item 1.
Legal Proceedings

Information on specific and significant legal proceedings is set forth in Note 8 to the Condensed Consolidated Financial Statements included under Item 1.



22

W.W. Grainger, Inc. and Subsidiaries


Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Issuer Purchases of Equity Securities – Second Quarter
 
Period
Total Number of Shares Purchased (A)
Average Price Paid per Share (B)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (C)
Maximum Number of
Shares That May Yet be Purchased Under the
Plans or Programs
Apr. 1 – Apr. 30
55,076
$245.14
55,076
4,993,639
shares
May 1 – May 31
236,793
$257.43
236,793
4,756,846
shares
June 1 – June 30
229,143
$254.02
229,143
4,527,703
shares
Total
521,012
$254.63
521,012
 
 
 
(A)
There were no shares withheld to satisfy tax withholding obligations in connection with the vesting of employee restricted stock awards.
(B)
Average price paid per share includes any commissions paid and includes only those amounts related to purchases as part of publicly announced plans or programs.
(C)
Purchases were made pursuant to a share repurchase program approved by Grainger’s Board of Directors on July 28, 2010. The program has no specified expiration date. Activity is reported on a trade date basis.


Item 6.
Exhibits


(a)
 
Exhibits (numbered in accordance with Item 601 of Regulation S-K)
 
 
(31)
Rule 13a – 14(a)/15d – 14(a) Certifications
 
 
 
(a)  Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
(b)  Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
(32)
Section 1350 Certifications
 
 
 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS
XBRL Instance Document.
 
101.SCH
XBRL Taxonomy Extension Schema Document.

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.

23


SIGNATURES


 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
W.W. Grainger, Inc.
 
 
 
(Registrant)
Date:
August 1, 2013
 
 
 
By:
 
 
 
/s/ R. L. Jadin
 
 
 
R. L. Jadin, Senior Vice President
and Chief Financial Officer
Date:
August 1, 2013
 
 
 
By:
 
 
 
/s/ G. S. Irving
 
 
 
G. S. Irving, Vice President
and Controller


24