MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Item 2.
Overview
General
Grainger is the leading broad-line supplier of facilities maintenance and other related products in North America. Grainger distributes a wide range of products used by businesses and institutions to keep their facilities and equipment up and running. Grainger uses a multichannel business model to provide customers with a range of options for finding and purchasing products through a network of branches, sales representatives, direct marketing including catalogs, and a variety of electronic and Internet channels. Grainger serves customers through a network of more than 600 branches, 18 distribution centers and multiple Web sites.

Effective January 1, 2009 Grainger revised its segment disclosure. Grainger has two reportable segments: the United States and Canada. In the first quarter of 2009, Grainger integrated the Lab Safety Supply business into the Grainger Industrial Supply business and results are now reported under the United States segment. The Canada segment reflects the results for Acklands - Grainger, Inc., Grainger's Canadian branch-based distribution business. Other Businesses include the following: Grainger, S.A. de C.V. (Mexico), Asia Pacific Brands India Private Limited (India), Grainger Caribe Inc. (Puerto Rico), Grainger China LLC
(China) and Grainger Panama S.A. (Panama).

Business Environment
Several economic factors and industry trends tend to shape Grainger's business environment. The overall economy and leading economic indicators provide insight into anticipated economic factors for the near term and help in forming the development of projections for the remainder of 2009. In July 2009, Consensus Forecast-USA projected a 2009 Industrial Production and GDP decline for the United States of 11.0% and 2.6%, respectively. In July 2009, Consensus Forecast-USA projected a GDP decline of 2.3% for Canada.

Historically, Grainger's sales trends have tended to correlate with industrial production. According to the Federal Reserve, overall industrial production decreased 13.6% from June 2008 to June 2009. The continued decline in the economy has affected Grainger's sales growth for the second quarter of 2009, which declined 13 percent.

The light and heavy manufacturing customer sectors have historically correlated with manufacturing employment levels and manufacturing output. Manufacturing output decreased 15.5% from June 2008 to June 2009 while manufacturing employment levels decreased 12.2%. These declines contributed to an almost 30 percent decline in the heavy manufacturing customer sector for the three and six months ended June 30, 2009, and a low double-digit percent decline in the light manufacturing customer sector for the three and six months ended June 30, 2009.

Grainger expects some continued decline in sales and increased pricing pressure throughout the remainder of the year. Grainger plans to use its financial strength in an effort to increase its market share during the downturn. Some reductions to operating margins are expected as a result of expanding the sales force and implementing additional customer incentives. Grainger expects these actions to cost approximately $25-50 million this year, although it is more likely these costs will trend towards the lower end of the range.

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

Given the continued decline in economic trends, in February 2009 Grainger announced the elimination of 300-400 jobs across the Company's workforce. Grainger incurred approximately $8 million in severance expenses for the elimination of 298 of these positions during the first six months of 2009.

Matters Affecting Comparability
There were 127 sales days for the first six months of 2009, compared to 128 sales days for the first six months of 2008.

Since June 2009, Grainger's operating results have included the operating results of Asia Pacific Brands India Private Limited (India) in the Other Businesses segment. See Note 3 to the Consolidated Financial Statements for additional information regarding this business acquisition.

Effective January 1, 2009 Grainger revised its segment disclosure. Prior year amounts have been restated in a consistent manner.

Results of Operations - Three Months Ended June 30, 2009 The following table is included as an aid to understanding the changes in Grainger's Condensed Consolidated Statements of Earnings: