W.W. Grainger (GWW)

Net sales at Acklands - Grainger were $375.2 million for the first six months of 2008, an increase of $73.9 million, or 24.5%, when compared with $301.3 million for the same period in 2007. In local currency, sales increased 10.8% due to sales to mining, petroleum and government customers, partially offset by weakness in the forestry sector.

The gross profit margin increased 0.3 percentage point in the first half of 2008 over the first half of 2007. The increase was driven by positive inflation recovery and lower freight costs.

Operating expenses were up 21.8% in the first six months of 2008. The segment achieved positive operating expense leverage as operating expenses increased 8.2% in local currency. The increase in operating expenses was primarily due to payroll and benefits as a result of increased headcount and merit increases, and other operating expenses.

Operating earnings of $27.7 million for the first six months of 2008 were up $8.2 million, or 42.2%. This earnings improvement exceeded the sales growth rate primarily due to a slightly improved gross profit margin and positive operating expense leverage.

Net sales at Acklands – Grainger were $177.3 million for the first quarter of 2008, an increase of $35.2 million, or 24.8%, when compared with $142.1 million for the same period in 2007. The timing of the Easter holiday had a negative impact of approximately 2 percentage points. In local currency, sales increased 7.0% due to stronger sales in the mining, petroleum and government sectors, partially offset by weakness in the forestry sector.

The gross profit margin increased 0.6 percentage point in the 2008 first quarter over the first quarter of 2007. The improvement in the gross profit margin was primarily due to lower freight costs partially offset by lower inflation recovery.

Operating expenses were up 26.0% in the first quarter of 2008. In local currency, operating expenses increased 8.1% in the 2008 first quarter over the first quarter of 2007. The increase in operating expenses was primarily due to payroll and benefits as a result of increased headcount and merit increases, partially offset by a reduction in contract labor services and incentive compensation.

Operating earnings of $11.7 million for the first quarter of 2008 were up $2.8 million or 30.5%. This earnings improvement exceeded the sales growth rate due to an improved gross profit margin partially offset by higher operating expenses.

17

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Acklands – Grainger Branch-based

Acklands – Grainger Branch-based

Net sales at Acklands – Grainger were $464.9 million for the first nine months of 2007, an increase of $37.4 million, or 8.7%, when compared with $427.5 million for the same period in 2006. In local currency, sales increased 5.8% due to stronger sales in the construction, mining, and oil and gas sectors, partially offset by weakness in the forestry and manufacturing sectors.

The gross profit margin increased 2.1 percentage points in the first nine months of 2007 over the first nine months of 2006. The improvement in the gross profit margin was primarily due to positive inflation recovery and higher supplier funding, partially offset by higher freight costs.

Operating expenses were up 3.7% in the first nine months of 2007. Expenses grew at a slower rate than sales due to operating expense leverage, the result of improved cost management.

Operating earnings of $29.7 million for the first nine months of 2007 were up $17.6 million or 146%. This earnings improvement exceeded the sales growth rate due to an improved gross profit margin and operating expenses which grew at a slower rate than sales.

Net sales at Acklands – Grainger were $301.3 million for the first six months of 2007, an increase of $15.4 million, or 5.4%, when compared with $285.9 million for the same period in 2006. In local currency, sales increased 4.9% due to stronger sales in the construction, mining, and oil and gas sectors, partially offset by weakness in the forestry and manufacturing sectors.

The gross profit margin increased 2.3 percentage points in the first half of 2007 over the first half of 2006. The improvement in the gross profit margin was primarily due to positive inflation recovery, partially offset by higher freight costs.

Operating expenses decreased 0.5% in the first six months of 2007 primarily driven by lower payroll costs, including lower severance costs of $1.0 million.

Operating earnings of $19.5 million in the first six months of 2007 were up 180%. This earnings improvement exceeded the sales growth rate due to an improved gross profit margin and lower operating expenses.

Net sales for Acklands – Grainger in the first quarter of 2007 were 2.2% higher than the comparable quarter of 2006. In local currency, sales increased 3.7%, due to stronger sales in the oil and gas industries, partially offset by weakness in the mining, forestry and manufacturing industries.

The gross profit margin increased 2.7 percentage points in the 2007 first quarter over the comparable quarter of 2006. The improvement in gross profit margin was primarily due to price increases, higher supplier funding and vendor rebates, partially offset by higher freight costs.

Operating earnings of $8.9 million in the first quarter of 2007 were up 130.7%, resulting from increased sales, higher gross profit margin and operating expenses growing slower than sales. This improvement in operating performance is consistent with the Company’s expectations.

Acklands – Grainger Branch-based