<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
W.W. GRAINGER, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
455 Knightsbridge Parkway, Lincolnshire, IL 60069-3620
(847) 793-9030
March 25, 1998
TO OUR SHAREHOLDERS:
The 1998 annual meeting of shareholders of W.W. Grainger, Inc., an
Illinois corporation, will be held at Company offices located at 5500
W. HOWARD ST., SKOKIE, ILLINOIS (see map overleaf), on Wednesday,
April 29, 1998, at 10 A.M. (CDT).
We will report at the meeting on our operations and other matters
of current interest. The Board of Directors and management cordially
invite you to attend.
The formal notice of the annual meeting and the proxy statement
follow. Whether or not you plan to attend the meeting, please sign,
date, and return the enclosed proxy promptly to ensure that your
shares will be represented.
Sincerely,
[SIGNATURE]
Richard L. Keyser
Chairman and Chief Executive Officer
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE AND RETURN YOUR PROXY PROMPTLY.
<PAGE>
[MAP - OF CHICAGO AND NILES/SKOKIE, IL AREAS SHOWING LOCATION OF THE ANNUAL
MEETING.]
<PAGE>
[LOGO]
455 Knightsbridge Parkway, Lincolnshire, IL 60069-3620
(847) 793-9030
---------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 29, 1998
The annual meeting of shareholders of W.W. Grainger, Inc. will be held at
Company offices located at 5500 W. HOWARD ST., SKOKIE, ILLINOIS (see map on
previous page), on April 29, 1998, at 10 A.M. (CDT) for the following purposes:
1. To elect eleven directors for the ensuing year;
2. To consider and act upon a proposal to ratify the appointment of
Grant Thornton LLP as independent auditors for the year ending December 31,
1998; and
3. To transact such other business as may properly come before the
meeting and any adjournment thereof.
The Board has fixed the close of business on March 2, 1998 as the record
date for the meeting. Shareholders may vote either in person or by proxy.
By order of the Board of Directors.
J. M. BAISLEY
Secretary
Lincolnshire, Illinois
March 25, 1998
<PAGE>
[LOGO]
455 Knightsbridge Parkway, Lincolnshire, IL 60069-3620
(847) 793-9030
March 25, 1998
PROXY STATEMENT
INTRODUCTION
This proxy statement is furnished in connection with the solicitation on
behalf of the Board of Directors of W.W. Grainger, Inc., an Illinois corporation
(the "Company"), of proxies to be voted at the annual meeting of shareholders of
the Company to be held on April 29, 1998, and at any adjournment thereof. It is
anticipated that this proxy statement and the accompanying form of proxy will be
mailed to shareholders commencing on or about March 25, 1998.
VOTING AT THE MEETING
The Board has fixed the close of business on March 2, 1998 as the record
date for determining shareholders entitled to notice of and to vote at the
meeting. On that date, there were outstanding on the books of the Company
48,834,587 shares of Company common stock. A majority of the shares having
voting power at the meeting will constitute a quorum for the transaction of
business.
In the election of directors, shareholders have the right to cumulative
voting. "Cumulative voting" means that each shareholder has that number of votes
equal to the number of directors to be elected, times the number of shares owned
by such shareholder. The total number of these votes may be cast for one nominee
or apportioned among two or more nominees, as the shareholder desires. In any
matter other than the election of directors, each share is entitled to one vote.
Shares of record on the record date and represented by each properly
executed proxy received by the Company in time to permit its use at the meeting
will be voted in accordance with the instructions indicated in the proxy. If no
instructions are indicated, such shares will be voted as recommended by the
Board. A shareholder who has given a proxy may revoke it by voting in person at
the meeting, or by giving written notice of revocation or a later-dated proxy to
the Secretary of the Company at any time before the voting.
1
<PAGE>
EXPENSES OF SOLICITATION
The expenses of soliciting proxies will be paid by the Company. In addition
to the use of the mails, proxies may be solicited personally, or by telephone or
other means, by directors, officers, and regular employees of the Company and
its subsidiaries who, except for normal overtime pay in certain instances, will
not receive additional compensation therefor, and by representatives of the
Company's stock transfer agent. Arrangements will also be made with brokerage
firms and other custodians, nominees, and fiduciaries for the forwarding of
proxy soliciting material to certain beneficial owners of Company common stock,
and the Company will reimburse such brokerage firms, custodians, nominees, and
fiduciaries for reasonable expenses incurred by them in connection therewith.
D.F. King & Co., Inc. has been retained by the Company to aid in the
solicitation of proxies and will be paid for its services in this regard a fee
approximating $5,000, plus reasonable costs and expenses.
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
Eleven directors are to be elected to hold office until the next annual
meeting of shareholders and until their successors shall have been elected and
qualified. When authorized to vote for any of the nominees, as set forth in the
proxy, the person or persons voting the proxy, voting cumulatively, are
permitted to and may apportion the total votes represented by the proxy to one
or more of the nominees. Directors are elected by the votes of a majority of the
shares represented in person or by proxy at the meeting. Broker non-votes and
directions to withhold authority will not count as votes in the election.
If any nominee named herein should not continue to be available for
election, a circumstance that is not expected, discretionary authority may be
exercised to vote for a substitute. Shareholder nominations of persons for
election as directors are subject to the notice requirements described under the
caption OTHER MATTERS appearing later in this proxy statement.
The following pages contain certain information about the nominees. All of
the nominees are presently directors and were previously elected by the
shareholders. Unless otherwise indicated, each of the nominees has served for at
least the past five years in the principal business position currently or most
recently held. For the nominees' beneficial ownership of shares of Company
common stock, see STOCK OWNERSHIP appearing later in this proxy statement.
2
<PAGE>
[PHOTO 1]
GEORGE R. BAKER, age 68, is a corporate director/advisor.
Until 1985, he was a special limited partner of Bear,
Stearns & Co. Inc., investment bankers. Mr. Baker is also a
director of The Midland Company, Reliance Group Holdings,
Inc., Reliance Insurance Company, and Williams Hospitality
Group Inc. He was first elected a director of the Company
in 1976 and is a member of the Board Affairs and Nominating
Committee and the Compensation Committee.
[PHOTO 2]
ROBERT E. ELBERSON, age 69, retired in 1989 as Vice
Chairman and a director of Sara Lee Corporation, a
marketer, manufacturer, and distributor of consumer
products and food services. Until 1986, he served that
company as President and Chief Operating Officer. Mr.
Elberson is also a director of Sonoco Products Company. He
was first elected a director of the Company in 1982 and is
Chairman of the Audit Committee.
JERE D. FLUNO, age 56, is Vice Chairman of the Company. Mr.
[PHOTO 3] Fluno, who joined the Company in 1969, is a member of the
Office of the Chairman. He is also a director of Andrew
Corporation, a member of the Board of Governors of the
Chicago Stock Exchange, Incorporated, and a director of
certain Chicago Stock Exchange subsidiaries. Mr. Fluno was
first elected a director of the Company in 1975.
[PHOTO 4]
WILBUR H. GANTZ, age 60, is President and Chief Executive
Officer of PathoGenesis Corporation, a health care company
discovering and developing therapeutics for infectious
diseases. Mr. Gantz is also a director of The Gillette
Company, Harris Bankcorp, Inc., Harris Trust and Savings
Bank, and PathoGenesis Corporation. He was first elected a
director of the Company in 1985 and is a member of the
Board Affairs and Nominating Committee and the Compensation
Committee.
3
<PAGE>
[PHOTO 5]
DAVID W. GRAINGER, age 70, is the Company's Senior Chairman
of the Board, a position assumed in 1997 after serving as
Chairman of the Board. He was the Company's Chief Executive
Officer until 1995 and President from 1992 to 1994. Mr.
Grainger, who joined the Company in 1952, is a member of
the Office of the Chairman. He is also a director of
Allegiance Corporation. Mr. Grainger was first elected a
director of the Company in 1953.
RICHARD L. KEYSER, age 55, is the Company's Chairman of the
[PHOTO 6] Board, a position assumed in 1997, and Chief Executive
Officer, a position assumed in 1995. Mr. Keyser, who joined
the Company in 1986, is a member of the Office of the
Chairman. Other positions in which he served during the
past five years were President, Chief Operating Officer,
Executive Vice President, and Grainger Division President.
Mr. Keyser is also a director of Morton International, Inc.
He was first elected a director of the Company in 1992.
[PHOTO 7]
JOHN W. MCCARTER, JR., age 60, is President and Chief
Executive Officer of The Field Museum of Natural History, a
position assumed in 1996. Mr. McCarter served as Senior
Vice President of Booz, Allen & Hamilton Inc., a management
consulting firm, until 1997. He is also a director of A.M.
Castle & Co., HT Insight Funds, Inc., and LaSalle Partners
Master Trust, and a trustee of Harris Insight Funds Trust
and LaSalle Partners Funds, Inc. Mr. McCarter was first
elected a director of the Company in 1990 and is Chairman
of the Board Affairs and Nominating Committee.
[PHOTO 8]
JAMES D. SLAVIK, age 45, is President of Mark IV Capital,
Inc., an investment company dealing in real estate and
corporate investments. Until 1987, he served as an
investment real estate broker of Coldwell Banker Commercial
Real Estate Services, a real estate brokerage company. Mr.
Slavik is also a director of Mark IV Capital, Inc. He was
first elected a director of the Company in 1987 and is a
member of the Audit Committee and the Board Affairs and
Nominating Committee.
4
<PAGE>
[PHOTO 9]
HAROLD B. SMITH, age 64, is Chairman of the Executive
Committee of Illinois Tool Works Inc., a manufacturer and
marketer of engineered components and industrial systems
and consumables. He is also a director of Illinois Tool
Works Inc. and Northern Trust Corporation, and a trustee of
Northwestern Mutual Life Insurance Company. Mr. Smith was
first elected a director of the Company in 1981 and is
Chairman of the Compensation Committee.
[PHOTO 10]
FRED L. TURNER, age 65, is Senior Chairman of the Board and
Chairman of the Executive Committee of McDonald's
Corporation, a restaurant licensor. He joined McDonald's
Corporation in 1956 and assumed his current position in
1990, after serving that company as Chairman of the Board
and Chief Executive Officer. Mr. Turner is also a director
of Aon Corporation, Baxter International Inc., McDonald's
Corporation, and Ronald McDonald House Charities. He was
first elected a director of the Company in 1984 and is a
member of the Audit Committee and the Compensation
Committee.
[PHOTO 11]
JANIECE S. WEBB, age 44, is a Corporate Vice President of
Motorola, Inc., a leading provider of electronic equipment,
systems, components and services produced for both U.S. and
international markets, and the General Manager of the U.S.
Markets Division of the Pan American Cellular Subscriber
Group of Motorola's Cellular Subscriber Sector. She first
became a director of the Company in 1995 and is a member of
the Audit Committee and the Compensation Committee.
MEETINGS AND COMMITTEES OF THE BOARD
Five meetings of the Board were held in 1997. In addition, the directors
acted twice during the year by unanimous consent.
The Board has three standing committees: Audit, Board Affairs and
Nominating, and Compensation. Committee members are elected by the Board
following the annual meeting of shareholders.
Directors who presently serve on the Audit Committee are R.E. Elberson
(Chairman), J.D. Slavik, F.L. Turner, and J.S. Webb. The Audit Committee, which
met four times in 1997, makes recommendations to the Board concerning the annual
appointment of the independent auditors, reviews the annual audit plan with the
independent auditors, and reviews the results of the annual
5
<PAGE>
audit with the independent auditors. In addition, the Audit Committee reviews
the adequacy of internal controls with both the independent auditors and the
Company's internal auditors, and has oversight responsibilities for various
aspects of certain employee benefit plans. Although the Audit Committee, as well
as the Board, is apprised of the nature and costs of the non-audit professional
services provided by the independent auditors, neither the Audit Committee nor
the Board reviews all non-audit services in advance. All services and fees,
however, are subsequently reviewed and approved by the Audit Committee. The
Audit Committee reviews the independence of the independent auditors, giving
consideration to the possible effect of each audit and non-audit service on such
independence.
Directors who presently serve on the Board Affairs and Nominating Committee
are J.W. McCarter, Jr. (Chairman), G.R. Baker, W.H. Gantz, and J.D. Slavik. The
Board Affairs and Nominating Committee, which met three times in 1997,
recommends to the Board the size of the Board, criteria for Board membership,
and prospective nominees. It also recommends to the Board the make-up of the
Board committees (Audit, Board Affairs and Nominating, and Compensation), makes
periodic reviews with respect to senior management organization and corporate
governance matters, and makes initial assessments regarding major issues or
proposals. The Board Affairs and Nominating Committee has not established any
policy or procedure for considering nominees recommended by shareholders.
Directors who presently serve on the Compensation Committee are H.B. Smith
(Chairman), G.R. Baker, W.H. Gantz, F.L. Turner, and J.S. Webb. The Compensation
Committee, which met four times in 1997, oversees the activities of the Company
in the area of compensation and benefits (generally with regard to all employees
and specifically with regard to officers) and reviews and makes recommendations
concerning compensation-related matters to be submitted to the Board and/or
shareholders for approval. The Compensation Committee also acts as the
administration committee under various stock and incentive plans.
Each director who is not an employee of the Company or any subsidiary
thereof is an alternate member of each Board committee of which such director
has not been specifically appointed a member. An alternate committee member may
serve for all purposes at a committee meeting in place of a specifically
appointed committee member who is absent.
DIRECTORS' FEES AND RELATED INFORMATION
Directors who are not employees of the Company or any subsidiary thereof
receive for their services (i) a retainer fee for serving on the Board of
$25,000 per annum, (ii) a retainer fee for serving as chairman of any Board
committee at the rate of $4,000 per annum, and (iii) a fee of $1,000 for each
Board and Board committee meeting attended. The retainer fee for Board service
is paid in the form of an annual award under the Director Stock Plan of
unrestricted shares of Company common stock. The number of shares is equal to
the retainer fee divided by the fair market value of a share of Company common
stock at the time of award, rounded up to the next 10-share increment. Directors
6
<PAGE>
may elect to receive their retainer fees for serving as chairman of a Board
committee and/or their Board and Board committee meeting attendance fees in the
form of stock units under the Director Stock Plan. These stock units, each of
which is intended to be the economic equivalent of a share of Company common
stock, are expected to be settled in cash after termination of service as a
director. In addition, the Company reimburses travel expenses relating to
service as a director.
Directors who are not employees of the Company or any subsidiary thereof
additionally receive under the Director Stock Plan an annual stock option award
to purchase shares of Company common stock. The number of shares covered by each
option is equal to $75,000 divided by the fair market value of a share of
Company common stock at the time of award, rounded up to the next 10-share
increment. The per-share option exercise price is 100% of that value. The
options have a 10-year term and are fully exercisable three years after the date
of award. Upon death, disability, or retirement after age 70 or with at least
five years of Board service, the options become fully exercisable and remain
exercisable for six years, but in no case beyond the original option term. If
Board service terminates under any other circumstance, the options may be
exercised only during the first 90 days following the termination and only to
the extent that they were exercisable at the time of termination.
Stock ownership guidelines are applicable to directors who are not employees
of the Company or any subsidiary thereof. These guidelines provide for director
ownership, within five years after election, of Company common stock having a
value of at least five times the annual retainer fee for serving on the Board.
Failure to comply with the guidelines will result in ineligibility to receive
awards of stock options under the Director Stock Plan until the guidelines are
met.
Directors who are employees of the Company or any subsidiary thereof do not
receive any retainer fees for Board or Board committee service, Board or Board
committee attendance fees, or stock options under the Director Stock Plan.
In the ordinary course of business during 1997, the Company and its
subsidiaries engaged in various types of business transactions with, and with
affiliates of, organizations with which directors of the Company are associated
in their principal business occupations or otherwise. The transactions are not
deemed material to any of the directors. Similar transactions are likely to
occur in the future.
7
<PAGE>
STOCK OWNERSHIP
The table below, which is based upon information furnished to the Company by
the individuals involved, sets forth the number of shares of Company common
stock beneficially owned (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) on March 2, 1998 by each of the directors, the
nominees and certain executive officers of the Company, and by all directors and
executive officers of the Company as a group. Unless otherwise indicated in the
footnotes following the table, each of the named persons had beneficial
ownership of the shares shown by sole voting and investment power.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY OF COMMON
BENEFICIAL OWNER OWNED(1) STOCK(2)
- --------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
David W. Grainger(3,4,5,6) ................................................ 5,559,317 11.38%
5500 W. Howard St.
Skokie, IL 60077
James D. Slavik(3,7,8,9,10,11) ............................................ 4,393,216 8.99%
100 Bayview Circle
Suite 4500
Newport Beach, CA 92660
George R. Baker(7)......................................................... 5,865 *
Donald E. Bielinski(12,13,14).............................................. 70,950 *
Wesley M. Clark(12,13)..................................................... 20,540 *
Robert E. Elberson(7)...................................................... 17,260 *
Jere D. Fluno(12,13,15).................................................... 172,620 *
Wilbur H. Gantz(7)......................................................... 8,567 *
Richard L. Keyser(12,13,16)................................................ 134,780 *
John W. McCarter, Jr.(7,17)................................................ 4,747 *
Harold B. Smith(7,18)...................................................... 20,060 *
Fred L. Turner(7).......................................................... 6,060 *
Janiece S. Webb(7)......................................................... 2,208 *
Directors and Executive Officers as a group(7,11,12,19,20)................. 10,601,493 21.51%
- -------------
<FN>
(1) In some instances, shares are included as to which beneficial ownership
has been disclaimed in reports filed with the Securities and Exchange
Commission.
(2) An asterisk (*) indicates less than 1%.
(3) Messrs. Grainger and Slavik are known by the Company to be beneficial
owners of more than 5% of the Company's common stock.
(4) Includes 629,698 shares held by The Grainger Foundation Inc., a charitable
foundation, as to which shares Mr. Grainger has shared voting and investment
power.
(5) Includes 762,360 shares held by various family trusts, as to which shares
Mr. Grainger has shared voting and investment power.
8
<PAGE>
(6) Includes 355,955 shares held by various family trusts, as to which shares
Mr. Grainger, alone or with his wife, has voting and investment power.
(7) Includes stock units, each of which is intended to be the economic
equivalent of a share of Company common stock, credited as of December 31,
1997 to accounts of non-employee directors under the Director Stock Plan as
follows: Mr. Baker, 4,715 units; Mr. Elberson, 2,710 units; Mr. Gantz, 4,117
units; Mr. McCarter, 1,897 units; Mr. Slavik, 2,710 units; Mr. Smith, 2,710
units; Mr. Turner, 2,710 units; Ms. Webb, 1,258 units; and all non-employee
directors as a group, 22,827 units. Such units are excluded from the
computations of percentages of shares owned.
(8) Excludes 344 shares held by Mr. Slavik's wife, as to which shares Mr.
Slavik disclaims voting or investment power.
(9) Includes 3,218,680 shares held by certain family-owned corporations, as to
which shares Mr. Slavik has sole voting power and shared investment power.
(10) Includes 707,006 shares held by various family trusts, as to which shares
Mr. Slavik has shared voting and investment power.
(11) Includes 83,160 shares held by various family trusts or as custodian for
family members, as to which shares Mr. Slavik, alone or with his wife, has
voting and investment power.
(12) Includes shares that may be acquired within 60 days after March 2, 1998
upon exercise of employee stock options as follows: Mr. Bielinski, 53,850
shares; Mr. Clark, 8,540 shares; Mr. Fluno, 92,620 shares; Mr. Keyser,
77,680 shares; and all directors and executive officers of the Company as a
group, 348,890 shares. In computing the percentage of shares owned by each
such person and by the group, such shares were added to the total number of
outstanding shares for the separate calculations.
(13) Includes shares of restricted stock as follows: Mr. Bielinski, 10,000
shares; Mr. Clark, 10,000 shares; Mr. Fluno, 40,000 shares; Mr. Keyser,
50,000 shares; and all directors and executive officers as a group, 170,000
shares. Such shares, which are held under the Company's 1990 Long Term Stock
Incentive Plan, as amended, are not transferable and are subject to
forfeiture during the applicable restricted period.
(14) Includes 4,260 shares as to which Mr. Bielinski has shared voting and
investment power with his wife.
(15) Includes 35,700 shares as to which Mr. Fluno has shared voting and
investment power with his wife.
(16) Includes 7,050 shares as to which Mr. Keyser has shared voting and
investment power with his wife.
(17) Includes 2,850 shares as to which Mr. McCarter has shared voting and
investment power with his wife.
(18) Includes 16,000 shares as to which Mr. Smith has shared voting and
investment power.
(19) Includes 5,665,477 shares as to which members of the group have shared
voting and/or investment power.
(20) Excludes 794 shares held by certain family members, as to which shares
members of the group disclaim voting or investment power.
</FN>
</TABLE>
9
<PAGE>
The table below sets forth information concerning beneficial ownership of
the Company's common stock as of December 31, 1997, as reported in a Schedule
13G filed with the Securities and Exchange Commission. Schedule 13G filers
generally are institutional investors who acquire beneficial ownership of more
than 5% of a public company's voting securities in the ordinary course of
business without the purpose of changing or influencing control of the company.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF
BENEFICIAL OWNER OWNED COMMON STOCK
- --------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
J.P. Morgan & Co. Incorporated ............................................ 3,036,765* 6.1%
60 Wall Street
New York, NY 10260
- ------------
<FN>
* In cases where voting power is claimed, includes 1,829,397 shares as to
which there is sole voting power and 51,190 shares as to which there is
shared voting power. In cases where investment power is claimed, includes
2,930,952 shares as to which there is sole investment power and 99,563
shares as to which there is shared investment power.
</FN>
</TABLE>
10
<PAGE>
MANAGEMENT COMPENSATION AND BENEFITS
SUMMARY COMPENSATION INFORMATION
Set forth below is certain summary information concerning compensation paid
to or accrued for those persons who, at December 31, 1997, were (i) the
Company's Chief Executive Officer and (ii) each of the four other most highly
compensated executive officers of the Company (the "Named Executive Officers")
for services in all capacities to the Company and its subsidiaries for the
fiscal years ended December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION ALL OTHER
COMPENSATION(3)
---------------------- ------------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
AWARDS
------------------------
RESTRICTED STOCK
NAME AND PRINCIPAL POSITION STOCK OPTIONS
(AT 12/31/97) YEAR SALARY BONUS(1) AWARDS(2) (SHARES)
- ---------------------------------- --- --------- ----------- ----------- -----------
Richard L. Keyser................. 1997 $ 594,000 $ 550,638 -0- 21,530 $ 188,034
Chairman of the Board and 1996 576,000 587,878 $3,800,000 23,040 196,810
Chief Executive Officer 1995 511,950 673,700 -0- 14,840 205,576
Donald E. Bielinski............... 1997 $ 343,440 $ 223,870 -0- 7,950 $ 91,753
Group President 1996 310,560 221,708 $ 760,000 8,560 89,553
1995 303,000 235,976 -0- 6,320 95,287
Wesley M. Clark................... 1997 $ 304,000 $ 223,870 -0- 7,950 $ 69,497
Group President................. 1996 230,040 124,359 $ 760,000 6,170 42,248
1995 202,790 92,746 -0- 3,440 30,667
Jere D. Fluno..................... 1997 $ 501,600 $ 430,327 -0- 16,160 $ 160,917
Vice Chairman 1996 487,200 491,610 $3,040,000 17,330 161,796
1995 472,800 539,277 -0- 13,360 198,873
David W. Grainger................. 1997 $ 360,000 $ 307,259 -0- -0- $ 120,430
Senior Chairman of the Board 1996 612,000 148,104 -0- -0- 126,864
1995 612,000 161,568 -0- -0- 164,868
- ---------------
<FN>
(1) Includes amounts paid with respect to performance during the indicated
fiscal year under the Office of the Chairman Incentive Plan, in which
Messrs. Keyser, Fluno, and Grainger participated for 1997, and the
Management Incentive Program. The 1997 amounts for Messrs. Fluno and
Grainger additionally include $17,009 and $233,099 in payment of their
respective account balances under the Management Incentive Program in which
they previously participated. Mr. Keyser, who also previously participated
in the Management Incentive Program, had no account balance under it.
(2) Represents the fair market value on the date of award of restricted stock
awarded under the Company's 1990 Long Term Stock Incentive Plan, as amended.
Shares of restricted stock have the same rights, including dividend and
voting rights, as other shares of Company common stock. As of December 31,
1997, Messrs. Keyser, Bielinski, Clark, and Fluno held 50,000, 10,000,
10,500, and 40,000 shares of restricted stock, having then-current market
values of $4,859,375, $971,875, $1,020,469, and $3,887,500, respectively.
Except for 500 shares held by Mr. Clark, which vested on January 1, 1998,
all such shares are scheduled to vest in November 2006. With respect to
Messrs. Keyser and Fluno, acceleration of vesting is provided in the event
of death or disability or in the event of a "change of control" of the
Company.
(3) The amounts shown were accrued under the Company's non-contributory profit
sharing plan, in which most Company employees participate, and the related
supplemental profit sharing plan.
</FN>
</TABLE>
11
<PAGE>
STOCK OPTION GRANTS
Set forth below is further information concerning grants of stock options
during the fiscal year ended December 31, 1997 to the Named Executive Officers
other than Mr. Grainger, to whom no stock options were granted during the year.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE OR EARLIEST GRANT DATE
GRANTED EMPLOYEES IN BASE PRICE (PER EXERCISE EXPIRATION PRESENT
NAME (SHARES) FISCAL 1997 SHARE)(1) DATE(2) DATE VALUE(3)
- --------------------- ----------- --------------- --------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Keyser.... 21,530 6.36% $ 74.50 4/30/00 4/29/07 $ 556,206
Donald E.
Bielinski........... 7,950 2.35% 74.50 4/30/00 4/29/07 205,380
Wesley M. Clark...... 7,950 2.35% 74.50 4/30/00 4/29/07 205,380
Jere D. Fluno........ 16,160 4.77% 74.50 4/30/00 4/29/07 417,477
- ---------------
<FN>
(1) The per share option exercise price equals the per share closing price of
Company common stock reported in the Composite Tape for New York Stock
Exchange listed stocks on the business day preceding the date of award.
Stock optionees presently may make payment of the exercise price of stock
options by delivering already owned shares of Company common stock (based on
the fair market value of the shares at the time). Stock optionees presently
may also direct that shares of Company common stock otherwise deliverable
upon exercise (based on the fair market value of the shares at the time) be
withheld in satisfaction of withholding tax obligations arising from
exercise.
(2) All options granted to the Named Executive Officers were granted on April
30, 1997, and become fully exercisable three years following the date of
award.
(3) The amounts shown are based on the Black-Scholes option pricing model.
Material assumptions incorporated into this model in estimating the value of
the options are consistent with those required by Statement of Financial
Accounting Standards No. 123 (Accounting for Stock-Based Compensation) and
include the following:
a. Exercise price of $74.50.
b. Expected term of 7.0 years.
c. Interest rate of 6.72%.
d. Volatility of 20.97%.
e. Dividend yield of 1.46%.
The actual value, if any, an executive may realize will depend on the excess
of the stock price over the exercise price on the date the option is
exercised. There is no assurance the value realized by an executive will be
at or near the value estimated by the Black-Scholes model.
</FN>
</TABLE>
STOCK OPTION EXERCISES AND HOLDINGS
Set forth below is information relating to stock options exercised by the
Named Executive Officers during the 1997 fiscal year and the number of shares of
Company common stock covered by,
12
<PAGE>
and the value of, outstanding stock options held by them at December 31, 1997.
Mr. Grainger is excluded from the table as he did not hold any stock options
during the year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/97 AT 12/31/97(3)
SHARES ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE(1) REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- --------------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Keyser......... 9,340 $ 445,401 62,840 59,410 $ 3,121,745 $ 1,692,789
Donald E. Bielinski....... 10,116 544,660 47,530 22,830 2,443,549 656,085
Wesley M. Clark........... -0- -0- 5,100 17,560 189,073 484,152
Jere D. Fluno............. -0- -0- 79,260 46,850 3,885,653 1,349,549
- ------------
<FN>
(1) The figures shown are the numbers of shares covered by the exercised stock
options.
(2) The amounts shown are the differences between the per share stock option
exercise prices and fair market values of Company common stock on the dates
of exercise, multiplied by the number of shares covered by the exercised
stock options.
(3) The amounts shown are the differences between the per share stock option
exercise prices and the closing price of Company common stock on December
31, 1997 of $97.1875 per share, as reported in the Composite Tape for New
York Stock Exchange listed stocks, multiplied by the number of shares
covered by the unexercised stock options.
</FN>
</TABLE>
OTHER BENEFITS
The Executive Deferred Compensation Plan, an unfunded plan administered by a
committee of management, permitted participants selected by the committee and
the committee to agree on a salary reduction of between 5% and 15% (or more with
special agreement) for up to four years. The Company allocated to participants'
accounts an additional 15% of the salary reduction to reflect reduced profit
sharing plan contributions. Under the related Plan Agreement, a participant is
entitled to 180 monthly payments, commencing at age 65, in an annual amount that
is based upon the amount of the salary reduction, the additional amount
allocated by the Company, and the number of years from deferment to normal
retirement age. Reduced or increased payments are provided in the event that the
participant begins receiving payments before or after age 65. If a participant
terminates service with the Company prior to qualifying for early benefits
pursuant to the terms of the Plan, or if the Company reduces benefits or
terminates the Plan, or if there is a "change of control" of the Company, the
Plan provides for various benefits to the participant, ranging from a return of
the amount of salary deferral, plus interest, to a lump-sum benefit equal to the
present value of a projected payment stream. If a participant dies before
retirement or before having received the full amount of the benefits, the
balance will be paid to the participant's designated beneficiary. Although the
initiation of salary payment deferrals has not been permitted for several years
and there were no such deferrals for 1997, all of the Named Executive Officers,
except for Mr. Clark, have deferred salary payments under the Plan for prior
years. Payments under the Plan
13
<PAGE>
have commenced with respect to Mr. Grainger, who is receiving $12,280 per month
in this regard. If Messrs. Keyser, Bielinski, and Fluno remain employees of the
Company until age 65 and then commence receiving payments under the Plan, the
monthly payments would amount to $10,509, $3,664, and $26,207, respectively.
Participation of employees in the Executive Death Benefit Plan, which is
unfunded, is determined by a committee of management. The beneficiary of a
participant who dies while employed by the Company is generally entitled to 120
monthly payments of 50% of the participant's monthly compensation, calculated on
the basis of salary and target bonus under the applicable cash incentive
program. A lump-sum benefit in an amount which, after taxes, approximates the
participant's last year's compensation, calculated on the same basis, is payable
to a participant's designated beneficiary upon death after retirement, as
defined in the Plan. All of the Named Executive Officers and certain other
members of management participate in the Plan.
The Company has minimized its exposure relating to the Executive Deferred
Compensation Plan and the Executive Death Benefit Plan by purchasing life
insurance contracts, which are owned by the Company.
Account balances under the Office of the Chairman Incentive Plan and the
Management Incentive Program are adjusted periodically to reflect bonuses
earned, bonuses paid, and the merit salary budget applicable to exempt employees
generally. Any account balances are generally paid out upon death, retirement or
long term disability, but are subject to forfeiture in the event of voluntary
resignation or termination for misconduct. In the case of the Office of the
Chairman Incentive Plan, payment is further subject to limitations calculated by
reference to the Company's reported net earnings. Messrs. Keyser, Fluno, and
Grainger do not currently have account balances under the Office of the Chairman
Incentive Plan. Messrs. Bielinski and Clark currently have account balances of
$9,008 and $2,194, respectively, under the Management Incentive Program.
The Company provides a separation benefit to certain full-time employees
upon termination of employment (other than for cause) at age 55 or later with at
least 15 years service. This benefit, which is unfunded, is equal to one week's
regular pay for each two full years of continuous employment accrued prior to
December 31, 1984, with a maximum of 13 weeks pay. Messrs. Keyser and Clark
joined the Company after December 31, 1984 and, accordingly, will not receive
the separation benefit. Had they been eligible and terminated their employment
as of the date of this proxy statement, Messrs. Fluno and Grainger, who are
eligible, and Mr. Bielinski, who is not eligible, would have received a
separation benefit of $70,221, $90,000, and $42,923, respectively.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
This report of the Compensation Committee of the Board (the "Committee")
discusses the Company's compensation policy and programs for the executive
officers, including members of the
14
<PAGE>
Office of the Chairman who consist of Messrs. Keyser, Fluno, and Grainger,
respectively the Chairman and Chief Executive Officer, the Vice Chairman, and
the Senior Chairman.
The Committee administers the Company's executive compensation programs and
recommends to the Board the compensation for all executive officers. In this
connection, the Committee considers information and data supplied by management
and by an independent compensation and benefits consultant. All members of the
Committee are non-employee directors.
Executive Compensation Policy
The purpose of the executive compensation programs is to enable the Company
to attract and retain qualified executives and to provide appropriate
incentives, including equity incentives, to support the achievement of the
Company's business goals. The overall program includes variable pay components
which link total executive compensation to the creation of shareholder value
over the long term.
When Company performance is at target, the Company's objective is to pay
total compensation at least at the size-adjusted median of a peer group of
companies approved by the Committee. All elements of recurring compensation are
valued to determine the Company's posture relative to the comparator group. For
1997, the Company met its total compensation objective. Based on the Company's
performance, total compensation paid for 1997 was at the peer group median.
The companies used for compensation comparator purposes are not the same
companies used to compare total shareholder return in the stock price
performance graph. The companies in the stock price performance graph are those
comprising the Dow Jones Electrical Components & Equipment Index. However, the
Company's "market" for executive talent is broader than that index. The
compensation comparator group used is representative of the types of major
companies with whom the Company historically competes for talent.
Total compensation for purposes of the Company's total compensation
objective consists of base salary, cash incentive compensation, stock options,
and benefits.
Base Salaries
The Committee reviews base salaries annually. Adjustments to base salaries
are determined based on an evaluation of the competitive market, individual
performance, position in the salary range (where applicable), experience of the
executive, and internal equity issues. After evaluating the competitive market,
a merit increase program for all exempt employees was approved by the Committee
for 1997. Salary adjustments to executive officers that were unrelated to
promotions were consistent with these salary objectives.
In determining the salary compensation of the members of the Office of the
Chairman, the Committee considers the financial and non-financial performance of
the Company, as well as an
15
<PAGE>
analysis of their salaries in relation to those for comparable positions in the
comparator group of companies approved by the Committee.
Cash Incentives
The Management Incentive Program ("MIP") rewards participating executive
officers and other key managers for improvements in economic earnings. The
concept of economic earnings recognizes the fact that capital providers have a
required rate of return on their investment. Economic earnings occur only after
the Company's earnings exceed this required return. The MIP emphasizes the need
to continually improve economic earnings. The basic concept underlying the MIP
is that improved economic earnings result from one or more of the following:
- Increasing the return on existing investments,
- Making new investments that have returns exceeding the Company's cost of
capital, and
- Reducing or eliminating investments that have returns which fail to meet
the Company's cost of capital.
The MIP is structured to provide an appropriate balance between short-term
and long-term results. The program emphasizes the common interests of management
and shareholders with long-term improvements in economic earnings expected to
correspond with long term improvement in shareholder value.
The MIP is based on quantitative measures, but also provides for utilization
of a qualitative component. The quantitative component is built around target
bonuses which are stated as a percentage of base salary. These target bonuses
are established based on a review of competitive market practice and are similar
to targets in prior programs. The qualitative component consists of a
discretionary factor under which, if used, total bonuses can be adjusted up or
down as much as 10% of participants' base salaries to account for economic or
other conditions outside the participants' control. Annually, actual results are
compared to targets to determine the amount of the bonus earned. Target bonuses
under the MIP and similar plans range from 10% to 90% of base salary.
Economic earnings for 1997 were slightly above target, resulting in a bonus
multiple earned that was slightly lower than in 1996, but was higher than the
1995 multiple. Bonuses were calculated under the MIP formula based on
Company-wide performance for all participants who were executive officers. No
discretionary adjustment was made in this year's bonuses.
Messrs. Keyser, Fluno, and Grainger participated in the Office of the
Chairman Incentive Plan ("OCIP") for 1997. OCIP bonuses, which are limited to an
incentive amount determined by reference to the Company's reported net earnings,
were calculated for the year using the same bonus multiple earned as was used
for MIP bonuses.
16
<PAGE>
Stock Option Program
Stock options are awarded at an option price not less than the fair market
value of the underlying Company common stock on the date of award. The stock
option program is considered an important means of aligning the financial
interests of executive officers and other key employees to the longer term
financial interests of the shareholders. The number of option shares awarded at
each level in the organization is designed to provide an economic value that is
competitive with awards made by other companies to those with comparable jobs.
Restricted Stock Award
Effective in November 1996, the Company awarded restricted stock (generally
subject to forfeiture if employment terminates before the end of a 10-year
restricted period) to executive and other officers of the Company, in each case
subject to the execution of a confidentiality and non-competition agreement with
the Company. Similar awards and agreements have been used with respect to
executives who have been promoted to or otherwise assumed eligible officer
positions since the original award date. Objectives of the awards and agreements
are to protect proprietary Company information, to preserve the Company's
competitive advantages, particularly in termination of employment situations, to
align more closely the interests of executives with those of shareholders, to
provide a strong executive retention incentive, and to provide for executive
continuity.
Stock Ownership Guidelines
Ownership in Company stock can encourage executives to consider the
shareholder impact of their decisions and to act to increase shareholder value.
In 1996, the Company established stock ownership guidelines for its officers.
Members of the Office of the Chairman must achieve stock ownership of at least
five times annualized base salary. Other officers must achieve stock ownership
of at least three times or two times annualized base salary. These ownership
guidelines must be met within three years of the establishment of the guidelines
or within three years of being named an officer, whichever comes last . Officers
who fail to achieve these ownership levels will not be eligible to receive any
stock-based awards until such time as the ownership levels are again achieved.
The Company believes that these ownership guidelines are important in aligning
the interests of the executive officers of the Company and the shareholders.
Executive Death Benefits
The death benefit component of the executive compensation programs consists
of the Executive Death Benefit Plan, which is discussed in an earlier section.
17
<PAGE>
Other Benefits
Most other benefits, including profit sharing and various welfare benefits,
provided to executives are comparable to those provided to the majority of
salaried and hourly Company employees.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code generally disallows a Federal
income tax deduction to a public company for compensation over $1 million per
fiscal year paid to the company's chief executive officer and its four other
most highly compensated executive officers serving at the end of that year. Not
subject to the deductibility limit, however, is compensation that qualifies as
"performance-based" compensation. A Company objective is to maximize the
deductibility of compensation under Section 162(m) to the extent doing so is
reasonable and consistent with Company strategies and goals. Awards under the
OCIP and gains on exercises of stock options awarded under the 1990 Long Term
Stock Incentive Plan, as amended, are considered to be "performance-based"
compensation not subject to the Section 162(m) deductibility limit.
Harold B. Smith, Chairman
George R. Baker
Wilbur H. Gantz
Fred L. Turner
Janiece S. Webb
Members of the Compensation Committee
of the Board of Directors
18
<PAGE>
STOCK PRICE PERFORMANCE
The following stock price performance graph compares the cumulative total
return on an investment in Company common stock with the cumulative total return
of an investment in each of the S&P 500 Stock Index and the Dow Jones Electrical
Components & Equipment Index for the period commencing December 31, 1992 and
ending December 31, 1997. The graph assumes that the value for the investment in
Company common stock and in each index was $100 on December 31, 1992 and that
all dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL
RETURN
<S> <C> <C> <C>
S&P 500 Dow Jones Electrical
W.W. Grainger, Inc. Stock Index Components & Equipment Index
1992 $ 100 100 100
1993 $ 97 110 109
1994 $ 99 112 113
1995 $ 115 153 148
1996 $ 141 189 181
1997 $ 173 252 222
Fiscal Year Ended December 31
</TABLE>
19
<PAGE>
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
Upon the recommendation of its Audit Committee, the Board has appointed
Grant Thornton LLP as independent auditors of the Company for the fiscal year
ending December 31, 1998, which appointment will be submitted for ratification
at the meeting. Grant Thornton LLP and its predecessors have served as
independent auditors of the Company for approximately 60 years. It is expected
that representatives of Grant Thornton LLP will be present at the meeting to
respond to appropriate questions of shareholders and to make any desired
statements.
THE BOARD RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT AUDITORS.
Approval of the proposal requires the affirmative votes of a majority of the
shares of Company common stock represented in person or by proxy at the meeting.
Broker non-votes and abstentions will have the same effect as votes against the
proposal. In the event the proposal is not approved, the Board will consider the
negative vote as a mandate to appoint other independent auditors of the Company
for the next fiscal year.
OTHER MATTERS
NOTICE REQUIREMENTS
Any shareholder who desires to have a proposal included in the Company's
proxy soliciting material relating to the Company's 1999 annual meeting of
shareholders (in accordance with Rule 14a-8 of Regulation 14A under the
Securities Exchange Act of 1934, as amended) should send to the Secretary of the
Company at the Company headquarters a signed notice of intent to submit the
proposal at the meeting. The notice, including the text of the proposal, must be
received at such offices no later than November 25, 1998 in order for the
proposal to be considered for inclusion in such proxy soliciting material.
The Company's By-laws require that there be furnished to the Company written
notice with respect to the nomination of a person for election as a director
(other than a person nominated at the direction of the Board), as well as the
submission of a proposal (other than a proposal submitted at the direction of
the Board), at a meeting of shareholders. In order for the nomination or
submission to be proper, the notice must contain certain information concerning
the nominating or proposing shareholder, and the nominee or proposal, as the
case may be. For a nomination, the notice must be furnished no later than the
date calculated in accordance with the notice requirements referred to in the
preceding paragraph. For a proposal, the notice must be furnished generally not
less than 30 days nor more than 60 days before the meeting. A copy of the
applicable By-law provisions may be obtained without charge upon written request
to the Secretary of the Company.
20
<PAGE>
DISCRETIONARY AUTHORITY
The Board does not know of any matters other than those described in this
proxy statement that will be presented for consideration at the meeting. If any
matter not described in this proxy statement should properly be so presented, it
is intended that the proxies will be voted on the matter in accordance with the
judgment of the person or persons voting them.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE AND SIGN
THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ACCOMPANYING POSTPAID ENVELOPE.
21
<PAGE>
[LOGO]
- --------------------------------------------------------------
NOTICE
of annual
meeting of
shareholders
and PROXY
STATEMENT
April 29, 1998
M Printed on recycled paper.
0945-PS-98
<PAGE>
COMMON PROXY COMMON PROXY
W.W. GRAINGER, INC.
455 KNIGHTSBRIDGE PARKWAY, LINCOLNSHIRE, IL 60069
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR ANNUAL SHAREHOLDERS' MEETING, APRIL 29, 1998
The undersigned hereby appoints Richard L. Keyser, Jere D. Fluno, and
David W. Grainger, and each of them, proxies of the undersigned with full
power of substitution to represent the undersigned and to vote all of the
shares of the Common Stock of the Company which the undersigned is entitled
to vote at the Annual Meeting of Shareholders of W.W. Grainger, Inc. to be
held on April 29, 1998 and at any and all adjournments thereof, with all the
powers the undersigned would possess if personally present and voting thereat.
A majority of said proxies or substitutes who shall be present at the
meeting may exercise all powers hereunder. All proxies will be voted as
specified. If no specification is made, the proxy will be voted FOR Items 1
and 2. If authority is given to vote for the election of directors, this
proxy may be voted cumulatively for directors as set forth in the proxy
statement.
SEE REVERSE SIDE SEE REVERSE SIDE
CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE
<PAGE>
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE.
MANAGEMENT RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
---
1. Election of Directors.
NOMINEES: George R. Baker, Robert E. Elberson,
Jere D. Fluno, Wilbur H. Gantz, David W. Grainger,
Richard L. Keyser, John W. McCarter, Jr., James D. Slavik,
Harold B. Smith, Fred L. Turner, Janiece S. Webb
FOR / / / / WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
/ / ________________________________________________
For, except vote withheld from nominees named above
2. Proposal to ratify appointment of FOR AGAINST ABSTAIN
Grant Thornton LLP as independent / / / / / /
auditors for the year ending
December 31, 1998.
3. In their discretion upon such other matters as may
properly come before the meeting.
CHECK BOX AT RIGHT IF YOU PLAN TO ATTEND / /
THE MEETING
CHECK BOX AT RIGHT FOR ADDRESS CHANGE AND / /
NOTE AT LEFT
Please sign exactly as your name or names appear hereon. Joint owners should
each sign personally. If signing in a fiduciary or representative capacity,
give full title as such.
Signature__________________________________ Date: _______________
Signature__________________________________ Date: _______________
