From Motors to Mobile

Transcription

1 From Motors to Mobile 2013 FACT BOOK

2 Contents From Motors to Mobile Fast Facts Creating Shareholder Value Supply Chain Investing for Growth ecommerce United States International Overview Priority Markets: Canada Japan Europe Mexico Brazil Sustainability A Great Company to Work For Community Relations Supplier Relationships Consolidated Statements of Earnings Consolidated Balance Sheets Consolidated Statements of Cash Flows Historical Financial Summary Executive and Operating Management Compensation Practices Board of Directors Corporate Governance Company Information About the Company W.W. Grainger, Inc., with 2012 sales of $9 billion, is North America s leading broad-line supplier of maintenance, repair and operating (MRO) products, with an expanding global presence. Grainger is a business-to-business distributor of products used to maintain, repair or operate facilities. Millions of businesses and institutions worldwide rely on Grainger for pumps, motors, hand tools, janitorial supplies, fasteners and much more. These customers represent a broad collection of industries including healthcare, manufacturing, government and hospitality. They place orders over the phone, at local branches, online, by fax and using mobile devices. More than 4,000 manufacturers supply Grainger with more than 1 million products that are stocked in Grainger s branches and distribution centers or sourced through a network of suppliers. For more information on Grainger, visit Forward-Looking Statements The 2013 Fact Book 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 federal securities laws. 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. The forward-looking statements should be read in conjunction with the company s most recent annual report and Form 10-K as well as other reports filed with the Securities and Exchange Commission containing a discussion of the company s business and of the various factors that may affect it. 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.

3 From Motors to Mobile When William Grainger started his business in 1927, he created a catalog of available motors to advertise to his customers. Listing 41 products over eight pages, the catalog measured 3.5 x 6 inches and was designed to fit in a jacket pocket. Over the next 85 years, the company he founded expanded its product offering to more than 500,000 products offered through a 4,000-page catalog. Worldwide, Grainger provides two million customers with more than 1 million products. And with the introduction of the mobile phone application, Grainger returns to its roots by having the product offering fit in one s pocket. From a catalog to a smartphone, Grainger always maintains a focus on how to improve the experience for its customers, the ones who get it done. W.W. GRAINGER, INC. AND SUBSIDIARIES 1

4 Fast Facts (AS OF 12/31/12) $9 billion in sales in consecutive years of dividend increases MORE THAN 1 MILLION PRODUCTS AVAILABLE $1BILLION IN SALES IN 2012 FOR ACKLANDS GRAINGER (CANADA) 2012 Sales by Customer Category (Total Company) $561 MILLION RETURNED TO SHAREHOLDERS IN THE FORM OF DIVIDENDS AND SHARE REPURCHASES IN 2012 Awards and Recognitions MORE THAN 4,700 KEY SUPPLIERS 18% Commercial 18% Heavy Manufacturing 15% Government 12% Contractor 9% Light Manufacturing 9% Other 7% Retail/Wholesale 6% Natural Resources 4% Reseller 2% Transportation 2012 Sales by Product Category (Total Company) 17% Safety and Security 13% Material Handling 10% Metalworking 8% Cleaning and Maintenance 8% Pumps, Plumbing and Test Equipment 7% Electrical 7% Hand Tools 6% HVAC 6% Lighting 6% Other 3% Fluid Power 3% Power Tools 2% Motors 2% Power Transmission 2% Specialty Brands 20.4 percent average annual total shareholder return ( ) Grainger s common stock is listed on the New York and Chicago stock exchanges under the trading symbol GWW 29 DISTRIBUTION CENTERS 715 branches Named one of FORTUNE Magazine s 100 Best Companies to Work For in 2013 Winner, Canada s 10 Most Admired Cultures Award Ranked No.1, Wholesalers, Diversified, FORTUNE Magazine s Most Admired Companies 2012 CIO 100 Award CIO Magazine 15th largest e-retailer in the United States and Canada 22,400 team members 15 LEED-CERTIFIED BUILDINGS Multiple $9 million+ sales days in 2012 for U.S. ecommerce 2 W.W. GRAINGER, INC. AND SUBSIDIARIES

5 Grainger operates in 22 countries and serves customers in more than 150 countries through its export business. (AS OF 12/31/12) UNITED STATES MRO market size: > $118 billion Market share: 6 percent Branches: 369 Distribution centers: 15 Websites: Customers served in 2012: More than 1.4 million CANADA Doing business as: Acklands Grainger Inc. MRO market size: > $14 billion Market share: 8 percent Branches: 172 Distribution centers: 6 Website: (English and French) Customers served in 2012: Approximately 40,000 JAPAN Doing business as: MonotaRO Co., Ltd. MRO market size: > $57 billion Market share: < 1 percent Branches: 0 Distribution centers: 2 Website: Customers served in 2012: More than 400,000 EUROPE (Belgium, Czech Republic, France, Hungary, The Netherlands, Poland, Portugal, Romania, Slovakia, United Kingdom) Doing business as: Fabory Group* MRO market size: > $35 billion Market share: < 1 percent Branches: 142 Distribution centers: 2 Website: (Multilingual) Customers served in 2012: More than 100,000 *ALTHOUGH FABORY GROUP IS HEADQUARTERED IN EUROPE, IT ALSO HAS LIMITED OPERATIONS IN NORTH AMERICA AND ASIA. MEXICO MRO market size: > $10 billion Market share: 1 percent Branches: 19 Distribution centers: 1 Website: Customers served in 2012: More than 35,000 BRAZIL MRO market size: > $21 billion Market share: < 1 percent Branches: 0 Distribution centers: 1 Website: Customers served in 2012: Approximately 1,500 LATIN AMERICA (Colombia, Costa Rica, Dominican Republic, Panama, Puerto Rico**) MRO market size: > $6 billion Market share: < 1 percent Branches: 13 Distribution centers: 1 Website: Customers served in 2012: More than 13,000 **ALTHOUGH PUERTO RICO IS A U.S. TERRITORY, THE COMPANY MANAGES THIS BUSINESS AS A PART OF LATIN AMERICA. ASIA (China, India) Doing business as: Grainger China, Grainger Industrial Supply India Private Limited MRO market size: > $94 billion Market share: < 1 percent Branches: 0 Distribution centers: 1 Regional warehouses: 18 Websites: Customers served in 2012: More than 10,000 W.W. GRAINGER, INC. AND SUBSIDIARIES 3

6 Creating Shareholder Value Grainger has proven its ability to gain share, expand margins and generate strong cash flow through the economic cycle. The value creation opportunity for shareholders remains attractive given the highly fragmented market and a business model and strategy that speak to customers needs. Grainger is well positioned to generate attractive returns to shareholders regardless of the economy. By remaining focused on customer needs, Grainger also delivers for its shareholders. The company s strong track record of creating value for investors has been accomplished by delivering strong sales growth and consistently expanding margins, while prudently managing the capital invested in the business. By delivering on these three key metrics, Grainger Total Shareholder Return Percent (average annual) has met its goal over the past five years of producing top quartile returns for shareholders. For the five years ended 2012, Grainger s average total shareholder return topped 20 percent, versus 2 percent for the S&P 500. This performance places Grainger at No. 32 and in the 93rd percentile among companies in the S&P 500. Grainger s track record is also impressive when compared to industry peers. The Dow Jones U.S. Industrial Suppliers Total Stock Market Index, an industry-specific benchmark, delivered a five-year cumulative return of 98 percent, versus 153 percent for Grainger. Comparison of Five-Year Cumulative Total Return Percent Years 5 Years ( ) ( ) GWW S&P 500 W.W. Grainger, Inc. S&P 500 Stock Index Dow Jones U.S. Industrial Suppliers Total Stock Market Index 3 5 YEAR FINANCIAL TARGETS Organic Sales Growth 8 12 percent Annual Operating Margin Expansion basis points Grainger has a blueprint for running a healthy, successful business. The company s leadership team has proven its ability to manage through economic cycles, gain market share, expand margins and generate strong cash flow. Market Fragmentation North America 6% Grainger 24% Other Top 10 Distributors 70% All Other Distributors Sales Dollars in billions Accelerating Sales Growth Through Share Gain Despite its leadership position, Grainger has relatively low market share in the global MRO market, which is estimated at $570 billion. In North America alone, Grainger s industryleading market share is about 6 percent in a large and fragmented market. In both mature and emerging markets, Grainger has ample opportunity to grow organically and through acquisition as the market consolidates. A HISTORICAL LOOK W.W. Grainger, Inc., became a publicly traded company on March 29, 1967, with an initial public offering of shares on the Chicago Stock Exchange under the symbol GWW. The first issuance was for 720,000 shares, offered at $19 per share, and all sold within a few hours. At year-end 1967, there were approximately 3,450 registered shareholders. A $1,900 investment (100 shares at $19 per share) was worth $1,473,324 as of Dec. 31, W.W. GRAINGER, INC. AND SUBSIDIARIES

7 Operating Margin Percent * Expanding Margins The company has targeted an average of 30 to 60 basis points in operating margin expansion per year for the next three to five years. Grainger has a proven track record of expanding operating margins through better gross margins and improved expense leverage. Cash Generation/Deployment ( ) Dollars in millions 4,000 3,000 2,000 1,000 Cash from Operations Uses of Cash Share Repurchases Dividends Acquisitions Capital Expenditures 63 percent returned to shareholders Cash Flow from Operations Dollars in millions GROSS MARGIN EXPANSION Improvements in gross profit margins have primarily been generated by effective product cost management. Grainger leverages its scale position in the channel to ensure competitive product cost. In addition to this favorable price/cost relationship, Grainger has been successful at increasing the mix of private label products. Strong growth of exclusive brands, such as Dayton, Condor and Westward, have contributed to achieving this goal. Direct sourcing from low-cost countries provides Grainger with an additional venue for expanding gross profit margins. This program enables Grainger to offer quality products to customers across the globe at a variety of price points. Grainger Global Sourcing works with hundreds of manufacturers worldwide to develop these products. Grainger has promoted its globally sourced exclusive brands through seller education, increased marketing and product line expansion. Since 2007, Grainger has grown its exclusive brand SKU count by more than 200 percent. EXPENSE LEVERAGE Grainger has been successful at driving better productivity throughout the company with a robust continuous improvement program. For example, in the distribution business, travel time is waste. Team members have been charged with identifying new ways to re-engineer work through standardized processes that eliminate steps and reduce variability. In 2013 alone, the company is forecasting an incremental $165 million in productivity savings that will be used to fund $135 million in growth investments. Increasing Cash Flow One of Grainger s hallmarks is consistent cash flow generation. Strong working capital management, coupled with a steady track record of growth and margin expansion, has enabled the company to increase its cash flow over the past three years. In 2012, Grainger reported record cash flow from operations of $816 million. Since 2008, Grainger has returned about two-thirds of operating cash flow to shareholders in the form of dividends and share repurchases. In 2012, the company paid $220 million in dividends, which reflected the 21 percent increase in the quarterly dividend announced in April 2012, representing the 41st consecutive year of increased dividends. Grainger is among only three percent of S&P 500 companies that have increased their dividends for more than four decades. Since 2007, Grainger has grown its dividend at a compound annual rate of 18 percent, which exceeds the rate of earnings growth during the same period. In addition, Grainger returned $341 million to shareholders in 2012 in the form of share repurchases. Since 2007, the company s repurchase program has resulted in a 13 percent net reduction in common shares outstanding, from 79 million to 69 million shares. Shares Outstanding Millions of shares Dividends Paid Dollars per share Earnings per Share Diluted Dollars * Return on Invested Capital ** Percent * * Lower number represents reported figure; upper number represents adjusted figure, which excludes unusual items as reported by the company in its 2012 quarterly earnings releases. ** See footnote on page 29. Grainger s history of consistently increasing dividends pays off in more ways than one. Consider an investor who bought 100 shares at $70 per share in That $7,000 investment resulted in a $306 dividend in 2012, representing an effective yield of 4.4 percent on the original investment. W.W. GRAINGER, INC. AND SUBSIDIARIES 5

8 Supply Chain Customers count on Grainger to have the right products, in the right place, at the right time to meet their critical business needs. Serving two million customers with more than 1 million products takes deep expertise and disciplined execution to consistently deliver superior results. Grainger continues to invest in its supply chain capabilities across all of its businesses, developing a powerful global platform for profitable growth. Having a broad range of products available to meet customer needs is central to Grainger s mission. The company is aggressively expanding its product line to capture even more of its customers MRO spend. For example, in the United States the company s product line has more than quadrupled over the past five years, providing customers with easy access to a nearly endless assortment of both in-stock and less frequently purchased drop-ship items. Grainger Mexico has more than doubled the number of products available to its customers by improving the efficiency of its in-country network and leveraging shipping from Grainger s U.S. distribution centers. With best-inclass inventory management and deployment practices, Grainger is able to maintain product availability and inventory turns while continually adding new products to meet customer needs. Purchasing Leverage Grainger works closely with its suppliers on product cost as well as service enhancements such as cycle time and quality improvements. As Grainger aggregates more of its product purchases across the globe, it is realizing even greater scale advantages. Grainger s global businesses continually evaluate purchasing processes on product lines such as hand tools to enhance both cost and service. The company also leverages the specialized fastener expertise of its European business, Fabory Group, to improve the cost and delivery of its overall fastener offering (see Fastener House sidebar on page 13). Grainger Global Sourcing Adding more private label products is a key priority for Grainger. These products which include the Dayton, Condor, Westward, LumaPro and Tough Guy brands offer customers high-quality, low-cost options and typically carry higher gross profit margins. The engine behind much of the company s private label offer is Grainger Global Sourcing (GGS), which works with 650 Global Sourcing External Sales Percent of total company sales suppliers in 30 countries to provide Grainger s businesses access to high-quality options. In 2012, GGS introduced the Condor brand to Grainger s European business and expanded this product offering in Canada. To reduce cycle time and ensure quality, GGS continues to build product engineering and inspection capabilities closer to its Asian supplier base. At the same time, GGS evaluates its supply network to help minimize risk and ensure access to low-cost products throughout the world. OFFERING A NEARLY ENDLESS ASSORTMENT Availability matters when it comes to MRO products. When a mission-critical part goes down, oftentimes the item is needed immediately. That s why Grainger s supply chain expertise is a competitive advantage. Through effective network design and smart stocking decisions, the company offers customers a nearly endless assortment of products while effectively managing its own inventory costs. Through a combination of products stocked in a Grainger facility, drop-shipped direct from a supplier or sourced specifically for a customer, Grainger is able to serve as a one-stop shop for customers MRO needs. To ensure customer satisfaction, Grainger has a comprehensive supplier drop-ship certification program that clearly identifies order transparency and shipping requirements. Drop-ship is one of the service attributes suppliers are measured against each year. This service helps provide customers with exceptional availability on slower moving items or products that are typically made to order. Stocked Drop-shipped Sourced Grainger has continued to expand its offering through a combination of stocked, drop-shipped and sourced items so customers have convenient access to a nearly endless assortment of products. 6 W.W. GRAINGER, INC. AND SUBSIDIARIES

9 NORTH AMERICAN DISTRIBUTION NETWORK Grainger makes substantial investments each year to strengthen its supply chain infrastructure. Highlights in 2012 included: Edmonton Acklands Grainger relocated its distribution center (DC) in Saskatoon, Saskatchewan, to a new, larger facility that is double the size of the original DC. Vancouver Seattle San Francisco Los Angeles Saskatoon Denver Monterrey KEY Super Regional DC Regional DC Market DC Kansas City Dallas Winnipeg Minneapolis Janesville Chicago Cleveland Memphis Jacksonville Richmond Hill (Relocating in 2014) Robbinsville Greenville Dartmouth Acklands Grainger completed the purchase of land for a new distribution center outside of Toronto. The existing DC in Richmond Hill will relocate to the new facility, which is designed to house 500,000 products and provide branch replenishment and direct shipping to customers in eastern Canada. Grainger s new central stocking distribution center outside Chicago in Minooka, Ill., began operations in late The 1 million square-foot facility includes a goods-to-person system that stores up to 500,000 items and delivers product to team members positioned in ergonomic workstations. This process increases team member safety and productivity, while improving order accuracy. Grainger celebrated the grand opening in May of its 820,000 square-foot distribution center in Patterson, Calif., near San Francisco. With the capacity for 350,000 items, the new DC provides next-day service to customers on much of the West Coast. GLOBAL BEST PRACTICES For Grainger, the supply chain thrives on operational excellence. This means having team members who are highly engaged in continuous improvement efforts. In the distribution centers, these efforts pay off with a strong and improving safety record, better inventory and order accuracy, and a variety of cycle time improvements. Best practice sharing across facilities and businesses has contributed to better productivity throughout the global supply chain. In 2012, teams from the Global Supply Chain department supported other Grainger teams around the world. These projects included: the design, construction and inventory transition of the new distribution center in Saskatoon, Saskatchewan; the design and engineering of the upcoming distribution center near Toronto; the expansion of the distribution center in Monterrey, Mexico, which nearly doubled the facility s capacity for product line expansion; and the establishment of inbound supplier cross docks near Toronto to improve cost and service on inbound freight. A HISTORICAL LOOK Grainger has been an industry leader in innovation, a tradition that continues with the opening of the state-of-the-art distribution center in Minooka, Ill. In1981, Grainger introduced one of the first large-scale automated storage and retrieval systems (ASRS) in a distribution center. The 84,000 square-foot structure was equivalent to a 250,000 square-foot conventional warehouse and featured a series of cranes that efficiently and safely moved pallets of product through the structure. The company continues to make infrastructure investments that are designed for improved productivity, service and team member safety. W.W. GRAINGER, INC. AND SUBSIDIARIES 7

10 Investing for Growth Investing in proven growth initiatives allows Grainger to build strength in core competencies and drive share gain. It s part of a commitment to deliver outstanding service to customers and outpace the competition for years to come. By listening to customers and responding to their evolving needs, Grainger invests in the growth drivers noted below, along with ecommerce and international expansion, that best position the company for success in a competitive marketplace. G rainger has established the following growth drivers: Product Line Expansion Grainger has grown from 41 products in 1927 to a one-stop shop with more than 1 million products available worldwide. Meeting customer demand with a large and growing MRO assortment is a competitive advantage for Grainger. Product line expansion isn t an event it s how Grainger runs and grows the business. The company monitors customer demand for every product to ensure stocking in the proper location. Customers count on Grainger to have the right products in stock to meet critical business needs, so products are stocked according to their popularity (see sidebar on page 6). Establishing a repeatable, predictable delivery performance for direct-shipped items generates confidence from the customer that Grainger will always come through in a time of need. A broad selection gives customers access to the products they need. The 2013 U.S. catalog contains more than 570,000 SKUs. Product Line Expansion SKUs in U.S. Catalog Thousands Sales Force Expansion Distribution is a relationship business. Customers need to know that their partner understands their unique needs, so connecting with customers is a differentiating factor. Calling on customers in person allows Grainger to understand each business and help it meet its productivity needs. Grainger knows that sales representatives work, and the company is adding new sales staff at all levels. This enables Grainger to deepen relationships with larger customers and reach out to medium-sized customers in previously underserved markets. In addition, Grainger is moving to a vertically aligned sales force to address the unique needs of customers in specific industries. Territory Sales Representatives extend the value proposition to medium-sized businesses that previously didn t have an in-person relationship with Grainger. Grainger started a Territory Sales Representative (TSR) program in 2009 to strengthen relationships with medium-sized businesses, hiring more than 600 TSRs since then. TSRs are located in more than 30 markets in the United States. With TSRs, Grainger expects to make inroads and extend its value proposition with new and existing customers. Internationally, Grainger added more than 100 sales representatives in the Latin America and Canadian businesses in Inventory Management Grainger s 85 years of inventory management experience is an asset when partnering with customers on inventory solutions. Today, customers are looking for more than just a product; they are looking for a holistic solution that includes services. Distributors that can provide customized solutions will differentiate themselves from the competition, and Grainger offers the KeepStock suite of solutions to help customers manage and maintain the right inventory level. Secure dispensing machines, one of the seven solutions in the KeepStock suite, illustrates Grainger s improved capabilities. The lead time required to design, fill and deliver a machine has been cut from 10 weeks to U.S. KeepStock Installations two weeks. Getting secure In thousands machines and other offerings 60 to the customer faster makes Grainger more competitive in the arena of inventory 10 solutions. Grainger also offers inventory solutions to businesses outside the United States, including Canada, E FUTURE Europe and Latin America. 8 W.W. GRAINGER, INC. AND SUBSIDIARIES

11 ecommerce Grainger has been a pioneer in business-to-business ecommerce, launching the Grainger.com website in 1995 and becoming one of the first business-to-business companies to conduct sales via the Internet in Today, ecommerce accounts for more than 30 percent of company sales, or $2.7 billion in Afastest growing and most profitable channel. The company s ecommerce sales are growing more than twice the rate of the rest of the business, increasing 23 percent in 2012 versus The company recently opened an ecommerce office in downtown Chicago to help attract and retain top talent in s more customers leverage technology to enhance productivity, ecommerce has become Grainger s the web and mobile fields. This team is helping drive significant improvements for ecommerce customers. Creating the Best User Experience Over the past two years, Grainger has introduced a number of enhanced capabilities that are improving the online customer experience, which in turn helps boost order conversion rates and increases average order size. ecommerce Revenue Percentage of total company sales E Grainger ranked 15th in the United States and Canada of the Top 100 e-retailers of (SOURCE: INTERNET RETAILER S TOP 500 GUIDE) PRODUCT RATINGS AND REVIEWS allows customers to share their experiences and learn from other customers who bought similar products. GUEST CHECKOUT makes it easy for non-registered customers to quickly place orders for needed supplies. CLICK TO CALL/CHAT offers the same great service on Grainger.com that customers have come to expect over the phone and at the company s branches. Through this capability, Grainger provides real-time technical product support and service that helps customers get the products they need. With usage increasing 200 percent in one year, Grainger added 30 Click to Chat agents in 2012 and expects to offer a mobile chat function in early AUTO-REORDER allows customers to choose a desired frequency for repeat purchases and have orders automatically generated, saving them time, money and effort. Next Generation ecommerce Platform Grainger is in the process of converting to a new ecommerce platform that provides more flexibility, making it easier to make real-time enhancements to the site. The new platform is scalable, and can be used by different brands and in different geographies. The company expects that all U.S. customers will be migrated to the new platform by the end of Mobile Grainger launched its mobile website in late 2011 to reach businesses and institutions where maintenance and purchasing professionals are on the go. Research indicates that approximately 60 percent of Grainger s customers use smartphones. The mobile site allows customers to access Grainger s extensive product offering no matter where they are: on the job site, on the plant floor or in the maintenance shop. Mobile sales grew more than 50 percent quarter-over-quarter for the last three quarters of Mobile now accounts for 5 percent of Grainger s website traffic and more than 20 percent of all online searches. In 2012, the company launched a new mobile application for all smartphone users, which averaged 3,200 downloads per week. Using the mobile app, customers can log into their account, view pricing, confirm local product availability, approve pending orders and check out with the product ready for pickup at their nearest Grainger branch or shipped directly to their office or job site. More than 25 percent of mobile transactions are will-call orders placed for product pickup at the nearest Grainger branch. Zoro Tools Leveraging the ecommerce expertise of both Grainger.com and MonotaRO, the company launched Zoro Tools in 2011 to meet the low-touch, low-cost needs of smaller customers. With impressive year-over-year growth, this single channel model offers new opportunities to gain share, while leveraging Grainger s existing distribution network. LEVERAGING EMARKETING TO DRIVE WEBSITE TRAFFIC In two years, Grainger has increased its investment in keywords from 10,000 to more than 5.6 million today. Digital advertising produces a better than 6:1 return for every advertising dollar spent. Banner ads generate over 50 million impressions per month, yielding a 10:1 return on every advertising dollar spent. W.W. GRAINGER, INC. AND SUBSIDIARIES 9

12 United States For 85 years, Grainger has been helping businesses and institutions in the United States improve the way they purchase and manage the supplies needed to keep their facilities running efficiently and their employees safe. Grainger s multichannel business model and world-class distribution network provide customers nationwide with easy access to more than 1 million products, helping them consolidate their MRO purchases and take cost out of their business. Grainger has more than 14,000 U.S. team members who are passionate about helping customers get the products they need to get their jobs done. The company provides products across more than 30 categories including safety, security, material handling, pumps, plumbing, test equipment, cleaning, maintenance, HVAC and much more. Multichannel Model Grainger s strength is in its multichannel business model, which allows customers to get the products they want, when they want them, how they want them. This model includes: KNOWLEDGEABLE SALES REPRESENTATIVES Grainger has more than 2,600 sales representatives who are skilled at identifying ways to help large and medium-sized businesses save time and money by better managing their MRO inventory. The company s sales team works with a variety of customers in industries including manufacturing, government, healthcare, hospitality, transportation and natural resources. Grainger uses several different sales coverage models including: Corporate and Major Account representatives who work primarily with large customers looking to standardize purchasing across multiple facilities. Account Managers who use a consultative approach to helping businesses and government institutions reduce total purchasing costs. Territory Sales Representatives who primarily call on mediumsized customers who value Grainger s multichannel model, broad product offering and service capabilities. ECOMMERCE ecommerce is the glue that holds the multichannel model together. In addition to the Grainger.com website, customers also utilize Grainger s online Order Management System, which automates the purchasing and approval process, making it easier for customers to manage their department s MRO spend. Grainger s eprocurement solutions help larger customers with buyers across multiple locations connect electronically with Grainger, resulting in end-to-end integration that enhances efficiency and lowers purchasing costs. INVENTORY MANAGEMENT SOLUTIONS Grainger provides a suite of inventory management solutions under its KeepStock offering. From customer-managed inventory solutions like labeling, scanning and mobile capabilities to vendor-managed inventory solutions like on-site support, vending machines and on-site branches, Grainger s KeepStock program meets customers Secure dispensing machines, one of the KeepStock suite of inventory management solutions, reduce consumption by up to 40 percent through controlled inventory access, saving customers time and money. unique needs. The company ended 2012 with approximately 40,000 KeepStock installations in the United States, a 30 percent increase versus An additional 10,000 installations are projected for EXTENSIVE BRANCH NETWORK Grainger s branch network plays a critical role in providing customers immediate access to needed supplies. The company has more than 360 U.S. locations stocked with inventory tailored to meet the just-in-time and emergency needs of local businesses. The branches are backed up by a network of distribution centers that carry more than 500,000 products. SERVICE CENTERS Grainger s off-site customer service centers provide 24/7 telephone support, including technical product support, as well as online support through the company s Click to Call/Chat capabilities on Grainger.com. Strategic Acquisitions Grainger remains largely driven by organic growth but sees the opportunity to augment this growth, and the capabilities to serve customers, through acquisitions. In December 2012, Grainger acquired Techni-Tool, Inc. and its affiliate Wassco Inc., leading specialist distributors serving manufacturing customers. This acquisition helps Grainger provide more of the products, services and technical support needed by manufacturers in the electronics, aerospace, telecommunications and medical industries. The company expects to continue to make strategic acquisitions that extend its capabilities and help customers consolidate more of their MRO purchases with Grainger. 10 W.W. GRAINGER, INC. AND SUBSIDIARIES

13 2012 Sales by Customer Category United States 21% Commercial 17% Government 17% Heavy Manufacturing 12% Contractor 10% Light Manufacturing 7% Other 7% Retail 5% Reseller 3% Natural Resources 1% Transportation 2012 Sales by Product Category United States KEY Branch Distribution Center (As of 12/31/12) 15% Safety and Security 13% Material Handling 10% Cleaning and Maintenance 10% Pumps, Plumbing and Test Equipment 8% Electrical 8% HVAC 8% Metalworking 7% Lighting 6% Hand Tools 4% Fluid Power 3% Power Tools 3% Power Transmission 3% Specialty Brands 2% Motors RESPONDING TO HURRICANE SANDY Grainger has a long and proven history of helping customers prepare for, respond to and recover from disasters. The company once again answered the call when Hurricane Sandy devastated communities in coastal New York and New Jersey. Grainger s national emergency response team kicked into high gear in the days leading up to the storm, working with suppliers to get shipments of needed products to the affected areas and coordinating efforts between the company s sales, customer service and supply chain teams. Court Carruthers, Senior Vice President and President, Grainger U.S., talks with Account Manager Stephen Sacco at Grainger s temporary store in lower Manhattan. Grainger opened the store to provide immediate supplies to customers after Hurricane Sandy. Many of the company s local team members overcame damage to their homes and personal property to stand with customers, helping them get critical supplies in their time of greatest need. Grainger s support before, during and after Hurricane Sandy helped position the company to play a lead role in rebuilding efforts in the months following the storm. The company supplied customers with a variety of critical supplies throughout the ordeal, including generators used to help healthcare customers maintain operations during the power outage in New York City, and air moving equipment used to dry out the north tube of the Holland Tunnel. In addition, Grainger provided thousands of recovery-related products to customers at a critical time, including chain saws, gas cans, extension cords, wet vacs, water and trash pumps, flashlights, batteries, space heaters and sanitizing supplies. To help customers and contractors in the Financial District, Grainger opened a temporary store in lower Manhattan to better position core cleanup products. Grainger also reinforced its commitment to the community by donating $100,000 to the American Red Cross to assist in relief efforts. Individual team members made a difference by utilizing the company s Matching Charitable Gifts Program, which provides a three-to-one match for contributions to qualified nonprofit organizations, and by volunteering time through the American Red Cross Ready When the Time Comes program (see more on page 22). Once again, Grainger demonstrated its commitment to being a trusted partner that customers and communities can rely on in good times and bad. HELPING HOSPITALS SUCCEED Hospitals and healthcare facilities are focused on improving patient satisfaction while keeping overall costs low, and Grainger is there to help. Just ask the team at The University of Pittsburgh Medical Center (UPMC) that leveraged KeepStock on-site to implement a more streamlined purchasing process and realize efficiency gains. Previously, the maintenance staff placed orders daily, often resulting in duplicate orders. Other inefficiencies included repetitive purchasing of items that couldn t be located quickly and decentralized storage practices. The benefits of KeepStock implementation were clear: Within the first year, UPMC saw a 25 percent reduction in supply costs, the near-elimination of emergency parts runs by staff and improved clarity in the invoicing process. Repairs and replacements have also become more predictable and efficient as parts are in the right place. In addition, the program significantly decreased the time spent on supply-related activities, allowing more time for maintenance tasks, leading to greater internal customer and patient satisfaction. UPMC s success is just one example of how Grainger helps hospitals stay productive and improve the bottom line. W.W. GRAINGER, INC. AND SUBSIDIARIES 11

14 International Overview Grainger made its first international acquisition in 1996 with the purchase of Acklands Limited in Canada. Since that time, the company has significantly grown its international presence and now has operations in 22 countries and serves customers in more than 150 countries through its export operation. Having robust global capabilities is essential to best meet the needs of customers and capture share in a $570 billion global MRO market. W ith such a significant growth opportunity in the core U.S.-based business, why focus on global expansion? The company sees four primary reasons. CUSTOMER PULL In an era of increasing globalization, existing Grainger customers regularly ask for support in helping them maintain safe, productive workplaces around the world. Customers know how challenging this work can be, particularly in markets where the distribution of MRO products is less mature and where the services they re accustomed to are not yet established. Having a trusted partner like Grainger matters. HIGHER GROWTH MARKETS Global operations allow Grainger to diversify economic risk across a broad set of geographic regions. It also gives the company access to markets with significantly higher growth rates than the United States. PURCHASING LEVERAGE In this industry, purchasing scale matters. Global expansion gives Grainger stronger leverage for all of its businesses, ultimately resulting in a more cost-effective product offering. ACCESS TO IDEAS AND TALENT Operating globally gives Grainger access to diverse talent and expertise that otherwise would be difficult, if not impossible, to leverage. This knowledge comes in the form of market intelligence, customer relationships, buying expertise and product knowledge. With operations in North America, Asia, Europe and Latin America, Grainger believes it s important to have a framework to determine whether and where further expansion is warranted. The following four dimensions are used to evaluate and prioritize investment among existing markets: The first is materiality. To have a significant presence in a given market requires there be significant latent MRO potential. For example, the overall continent of Europe, which includes countries where Grainger does not currently operate, has an estimated MRO market potential of $155 billion, greater than that of the United States. Relevance is the second filter and speaks to how relevant Grainger s core capabilities of helping customers save time and money in finding and managing MRO products are in a given SHARING TALENT ACROSS BORDERS As Grainger expands globally, the company is finding new ways to share expertise in different countries. At the highest levels of the company, leaders have rotated roles between the United States and international businesses, to become well versed in all aspects of the business and develop a global mindset. In the Latin America region, several leaders whose careers began in Mexico are now leading teams in other countries, providing great leverage and expertise sharing at the region level. In addition, the company is increasingly using short-term international assignments as a means to develop high-potential talent and foster collaboration across borders. Short-term assignments and best practice sharing in the supply chain, finance, sales and other teams have proven highly effective in developing talent and sharing expertise at the local level. market. Grainger has learned that the structure and maturity of a market as measured by GDP per capita is a good indicator of where its offering will be compelling. Mid-developed economies ($5,000 $25,000 of GDP per capita) and developed economies (greater than $25,000 of GDP per capita) are best suited for Grainger s traditional value proposition. The third element is advantage. This relates to where Grainger can achieve an advantaged position relative to competition, which requires both scale through high local share and some local tailoring of the product offering. The fourth dimension is risk versus reward. With a proud history of operating with the highest levels of ethics and integrity, maintaining and building upon the company s reputation is paramount. Consideration is given to political, security and economic risk, which is arguably the most important filter used to evaluate expansion opportunities. 12 W.W. GRAINGER, INC. AND SUBSIDIARIES

15 INTERNATIONAL PRIORITY MARKETS CANADA JAPAN EUROPE MEXICO BRAZIL Priority Markets Using the criteria noted, Grainger believes it is in the right markets at this time. In addition, five of the markets have emerged as priorities for the company, offering the greatest potential for long-term market leadership. These priority markets are Canada, Japan, Europe, Mexico and Brazil. These markets offer exceptional growth potential as the company currently has single-digit share in each of these markets. Grainger s businesses in Canada, Japan * and Mexico have proven successful, and the company intends to increase support to accelerate the continued growth of those operations. Brazil offers a very attractive opportunity, and with its recent entrance into the market through the acquisition of AnFreixo S.A., now known as Grainger Brazil, the company has set its sights on becoming the country s leading industrial distributor. Europe remains attractive to Grainger through its Fabory operations, offering a stable presence in the Netherlands, Belgium and France and access to the high-growth economies of Central and Eastern Europe. FASTENER HOUSE Grainger s acquisition of Fabory is a great example of how the company seeks to leverage the expertise and talent of the companies it acquires to benefit the overall organization. With more than 50,000 unique fasteners in its offering, Fabory possesses specialization in fasteners that Grainger did not previously have. Fabory gives Grainger a competitive position against other fastener distributors through strategic sourcing capabilities and an expanded fastener offering. The company has already realized significant cost savings on a limited assortment of fasteners in the United States and Canada and is in the process of establishing Fabory as the sourcing center for all nonbranded fasteners for the company. This move should bring Grainger a more comprehensive and competitive offering at a lower cost across key fastener categories. Additional Markets Along with the five priority global markets, Grainger intends to continue to nurture and grow its existing locations. In Latin America, for example, Grainger has focused on building its physical presence throughout the region to provide businesses with service above and beyond what had been available previously. In addition to its focus on Mexico and Brazil, the company now has operations in Colombia, Costa Rica, Dominican Republic, Panama and Puerto Rico and will be opening in Peru in early In these countries, Grainger is focused on ensuring it has a competitively advantaged broad product offering with local availability while leveraging the company s global scale. Grainger has also taken a closer look at its business operations in India and China. These growing economies offer growth potential on a long-term time horizon, and Grainger has managed accordingly. In 2012, the company announced changes to the businesses in India and China to improve long-term performance. In India, for example, Grainger has fine-tuned its business model to directly serve end-user customers and increase profitability. In both India and China, Grainger intends to continue providing outstanding service to local and multinational customers. The key to global success is a tireless focus on winning more customers to create a commanding lead in market share, while choosing wisely where to invest. Grainger is convinced that this approach will maximize returns, mitigate risk and create a worldwide collaborative culture to leverage best practices. * Grainger operates in Japan through a 52 percent ownership stake in MonotaRO. W.W. GRAINGER, INC. AND SUBSIDIARIES 13

16 Priority Markets Canada Acklands Grainger reached an important milestone in For the first time in its 123-year history, the business crossed the $1 billion mark in annual sales. This milestone is a reflection of the team s dedication to customers, team members and communities. This continued strong performance has allowed the company to invest in building new distribution centers and upgrading information systems while expanding ecommerce, customer coverage, services and products. Acklands Grainger sees great opportunity in the $14 billion MRO market of Canada. With 8 percent market share, Acklands Grainger has the highest share of any Grainger business. The business is strong in customer markets including oil and gas, construction, utilities and the natural resources market in western Canada, but significant potential remains, particularly in eastern Canada. As Acklands Grainger sets its sights on its next chapter, it is intent on achieving $2 billion in annual sales far faster than its first billion dollar year. Through a combination of organic and acquired growth, the team is focused on the following initiatives: Distribution Center (DC) and IT Investments Acklands Grainger is in the midst of a multiyear program to boost the supply chain infrastructure. The effort began a few years ago with the DC improvements in British Columbia and has continued with the new facility in Saskatchewan (see map on page 7). The team is investing in the infrastructure needed to support a much larger organization, improving productivity, enhancing customer service and investing in proven growth drivers to accelerate profitable growth. Included are plans to build up the IT infrastructure and invest in the distribution center network to improve capacity and availability. In 2012, the company purchased land in the Toronto area to begin construction of a new distribution center that is expected to be more operationally efficient and provide additional capacity to serve customers in eastern Canada. Product Line Expansion With more room to grow, the business is able to more aggressively expand its product line, particularly in products used in the facilities maintenance arena, a category less penetrated in Canada than elsewhere. Nearly 120,000 products will be featured in the 2013 catalog, an increase of 15 percent versus Plans are under way to more than double the web offering in 2013 to broaden relevance and reach new and existing customers as well as help customers consolidate their purchases with Acklands Grainger. The expansion will cross all product categories, including additions in new product segments such as plumbing, lab supplies and electrical. The team expects to leverage the North American offering available through the U.S. network to provide customers with even more solutions. A significant portion of this increase will come through private brands, providing high-quality products with attractive margins. Services The Acklands Grainger team is also expanding its services offering. The technical services offering helps maximize workforce productivity, helps reduce the risk of injury and minimizes costly downtime by offering a one-stop solution. For more than 20 years, the Canadian team has provided customers with a suite of inventory management solutions, ranging from on-site branches to vending machines. This is particularly relevant to customers across Canada, including natural resource customers who leverage automated dispensing solutions in mining operations located below the earth s surface, saving time and improving workforce safety and productivity. Acklands Grainger s KeepStock SM offering allows customers to better manage their MRO spend, have the right inventory in the places they need it and limit use of controlled items to authorized team members. ecommerce ecommerce is a key productivity tool for customers, providing convenience, control and improved purchasing and invoice processes. The team offers three solutions: core website functionality, enhanced website capabilities (including customer order workflow management) and integrated ecommerce. In 2013, the business intends to refine and enhance the ecommerce customer experience by leveraging functionality that exists elsewhere in Grainger. Accelerating Profitability and Productivity While growing the top line, the team is also focused on actions to further enhance profitability, including accelerating the private label brand offering, improving the cost structure and strategically pricing the offering. To fund ongoing growth over the next several years, the Acklands Grainger team is committed to leveraging continuous improvement principles to take cost out of the business through more stable, simple processes that can be standardized across the network for an even better customer experience. 14 W.W. GRAINGER, INC. AND SUBSIDIARIES

17 2012 Sales by Customer Category Canada 31% Agriculture and Mining 17% Contractor 9% Transportation 9% Retail/Wholesale 8% Heavy Manufacturing 8% Commercial 7% Government 7% Other 4% Light Manufacturing 2012 Sales by Product Category Canada KEY Branch Distribution Center (As of 12/31/12) 37% Safety and Security 16% Metalworking 15% Hand Tools 15% Material Handling 7% Cleaning and Maintenance 5% Power Tools 3% Electrical 1% Fluid Power 1% HVAC A HISTORICAL LOOK What is today Acklands Grainger traces its roots back to 1889 and a woodworker from Lanark County, Ontario, named Dudley Ackland. CONTINUOUS IMPROVEMENT A significant shift is under way at Acklands Grainger to build a culture of continuous improvement (CI) across all levels. The team in Canada has fully embraced CI to deliver on its growth and productivity goals. They ve also found that CI is a powerful driver for delivering value to customers and engaging team members. In 2012, the Acklands Grainger team completed several Kaizen and Value Stream events to teach team members how to use basic CI tools. Highlights included improvements in the outbound shipping process from distribution centers that helped reduce errors by more than 30 percent. Process enhancements achieved during the year also contributed to reducing cycle time for delivering KeepStock Secure vending machines to customers by more than 50 percent. By using CI to develop all team members, the company expects to deliver incremental value to customers and a more efficient and safer workplace for team members. Attracted by the promise of the New West, Ackland left his position as manager of a successful carriage factory in Port Elgin, Ontario, to set up a farm implement and wagon repair business with his son in Winnipeg, Manitoba. In 1905 the company was legally incorporated as D. Ackland & Son Limited. It was the only firm on the prairies of Canada producing parts for carriages and buckboards. It also manufactured farm machinery and a variety of other goods and equipment to meet the needs of settlers flooding into the West. In 1919, with the advent of the automobile and mechanized farm equipment, the company began to serve this new market by adding replacement parts and accessories to its product offering. The company also expanded into welding equipment and industrial products, keeping pace with the economic expansion of the prairie provinces. In the 1960s and 1970s, Acklands Limited (as it was known at the time) launched its first private brand, Westward, and set its sights on aggressive expansion in Ontario and Quebec to balance its traditional strength in the West. In 1996 Acklands Limited was purchased by W.W. Grainger, Inc. and became Acklands Grainger Inc. This was Grainger s first international purchase, and since then, Acklands Grainger has grown steadily, both organically and through acquisitions. W.W. GRAINGER, INC. AND SUBSIDIARIES 15

18 Priority Markets Japan Grainger is a 52 percent stakeholder in MonotaRO Co. Ltd., a leading ecommerce direct marketer. With more than $57 billion in MRO potential in Japan, Grainger is focused on aggressively growing its presence through the single channel business model it operates. The company serves more than 400,000 mostly small and medium-sized customers across a full range of industries, with more than 80 percent of its transactions conducted online. MonotaRO started as a direct marketer in 2002 and has enjoyed rapid, sustained growth since then. With about 1 percent market share of a fragmented market, MonotaRO is continuing its profitable growth journey by focusing on three key growth drivers: CUSTOMER ACQUISITION MonotaRO uses a blend of ecommerce and traditional marketing including paid search, search engine optimization, flyers and faxes to attract new customers. The company adds thousands of new customers monthly who are drawn to MonotaRO s broad product offering, attractive prices and delivery capabilities. The company also focuses on acquiring larger customers with tools such as workflow routing and reporting capabilities. MonotaRO, Osaka Spirit, and Otokomae. Private brand sales now comprise nearly 30 percent of total sales in Japan and are expected to become an even larger contributor to sales moving forward. To support the continued expansion of its product offering, MonotaRO plans to open a new distribution center in 2013 with 450,000 square feet available to accommodate 100,000 additional products available to customers within two days. DATABASE MARKETING MonotaRO has become known for its expertise in using sophisticated data analytics to understand customer buying behaviors and respond with a full line of products offered at the same price for all customers. Leveraging advanced techniques will continue to be a core component that helps drive MonotaRO s growth. Data analytics techniques include predictive analytics that anticipate customer demand based on previous buying behavior of like customers. The company is also leveraging data to explore purchasing trends that help the company evaluate additional products for cross-product promotions and private label opportunities. Operating Margin Percent GDP Growth -0.7% +2.3% Sales Growth +25% +25% PRODUCT LINE EXPANSION Key to MonotaRO s value proposition is the access to a broad assortment of national and private label brands. The company continues to add to its product offering, including fasteners and factory automation product lines, while expanding the company s private label brands, JAPAN KEY Distribution Center (As of 12/31/12) 16 W.W. GRAINGER, INC. AND SUBSIDIARIES

19 Priority Markets Europe Grainger acquired Fabory Group, a Europe-based fastener distributor, in August This business is enabling Grainger to pursue growth in both mature (Western Europe) and emerging (Central and Eastern Europe) markets, while gaining more scale and relevance in fastener purchasing and distribution. With an MRO market size of $35 billion in the countries where Fabory operates, there is great potential in the Eurozone. Throughout Europe, Fabory Group is known as the Masters in Fasteners. Founded in 1947, Fabory Group serves small businesses, MRO professionals, original equipment manufacturers (OEM) and technical wholesalers across Europe. Over the last several decades, Fabory Group has expanded its geographic reach to include small operations in North America and Asia and now operates more than 140 locations in 14 countries. Fabory Group s products and services range from standard and specialized fasteners to tools and industrial supplies. PORTUGAL UNITED KINGDOM FRANCE Robotic arms at the Tilburg, Netherlands, distribution center retrieve fasteners and other products with speed and precision. More than 65 percent of sales are from higher margin fasteners, producing gross profit margins in excess of 50 percent. Customers have access to more than 80,000 products in Fabory Group s offering through a variety of channels, including shops, sales representatives and a multilingual website. Fabory will likely expand its shop presence in Central and Eastern Europe over the next several years. NETHERLANDS BELGIUM CZECH REPUBLIC POLAND HUNGARY SLOVAKIA ROMANIA KEY Branch Distribution Center (As of 12/31/12) It s also investing in its ecommerce platform to provide customers new and convenient ways to conduct business. Similar to other Grainger business units, Fabory is focused on product line expansion in both mature and emerging markets as an additional driver of growth. In Fabory s case, the emphasis is on selling name brand and private label safety products and tools to customers where it already has strong relationships built through its fastener offering. Over time, Fabory plans to broaden its product offering across a growing range of industrial supplies, becoming a trusted source for businesses to get the fasteners and industrial supplies needed for both MRO and OEM applications. Another avenue of growth for Fabory has been its vendor-managed inventory (VMI) program. Since it was developed more than 20 years ago, Fabory Group s VMI systems have helped thousands of customers concentrate on their core business while removing inefficiencies and cost. Today, more than 2,500 customers are on the Fabory VMI platform. Given the weak economy in Europe, Grainger took action in late 2012 to lower the cost structure of the business, closing six shops while continuing to invest in the growth areas of Central and Eastern Europe. W.W. GRAINGER, INC. AND SUBSIDIARIES 17

20 Priority Markets Mexico Starting with a team of just 12 people in a storefront location outside of Monterrey, Grainger Mexico began operations in 1996 by leveraging the U.S. product offering and focusing on local manufacturing customers. Since its humble beginnings, the team has built a national presence and is now Mexico s leading MRO distributor. Grainger Mexico is expanding its leadership by making strategic investments to support continued growth. Mexico offers strong growth potential, a highly fragmented MRO market, proximity to the U.S. supply chain infrastructure, a similar product offering to the United States and strong recognition of the Grainger brand. Additionally, MRO-intensive industries such as manufacturing and hospitality align closely with Grainger s product offering and expertise. Customers in Mexico value working with a partner that offers a wide variety of products at an attractive price, with proximity to their business and services that help them take cost out of their operations. To meet these needs, Grainger Mexico is focused on three areas to expand its presence and differentiate its offering: SALES FORCE EXPANSION With a robust branch network, Grainger Mexico is expanding its sales force to meet the evolving needs of its customers, including adding sales representatives with specific industry expertise, such as automotive, food and beverage, mining, oil and gas, and hospitality. Grainger Mexico is leveraging the Territory Sales Representative model, focused on serving small and medium-sized businesses, and adding more corporate account managers to serve large customers. PRODUCT LINE EXPANSION Product expansion remains an important growth driver, positioning Grainger Mexico as a single source to meet the MRO needs of customers. The Grainger Mexico team is aggressively adding new products to better serve specific customer segments. The addition of private label products, such as the Contender hand tool line, offers businesses high-quality products at attractive price points. In 2012, the team Grainger Mexico was named to the Súper Empresas list in 2012 by Expansión Magazine. Today, Grainger Mexico reaches 90 percent of MRO customers next day through 16 branches 3 master branches 1 distribution center (LEED Gold Certified building in Monterrey) Call center professionals An ecommerce channel that comprises 22 percent of total sales launched a new catalog comprised of 29,000 non-stocked products available for two-day delivery from the U.S. distribution center in Dallas, Texas. SERVICES Inventory management solutions are a fast-growing service offering in Mexico and an area of continued focus for the business. Grainger Mexico continues to take advantage of partnerships with the U.S. business to build and strengthen these service competencies. MEXICO KEY Branch Distribution Center (As of 12/31/12) Team members celebrated a successful year at Grainger Mexico s annual customer show in Mexico City. 18 W.W. GRAINGER, INC. AND SUBSIDIARIES