W.W. Grainger (GWW) 10-K risk factor changes: FY2021 vs FY2020

Grainger’s business and operations have been and may continue to be adversely affected by the global outbreak of the Coronavirus [removed: (COVID-19) pandemic] and [added: its variants, including the Delta variant, the Omicron variant and any other variants that] may [added: emerge (COVID-19 pandemic) and may] be adversely affected by other global outbreaks of pandemic disease.

[removed: The COVID-19 pandemic has disrupted and adversely affected Grainger’s business, including its business with customers and suppliers*.*] [added: Among other things,] Grainger [removed: has] experienced customer [removed: disruptions to] [added: disruptions, including] their ability or willingness to purchase [removed: Grainger] products, [removed: customer] delays in making purchasing decisions, [added: and] shifts in the types and quantities of products [removed: purchased and, in some cases, diminished customer loyalty and retention rates.][added: purchased.]

These may [removed: continue to persist] [added: recur] during and beyond the COVID-19 pandemic.

Grainger has also experienced and may continue to experience [removed: supplier disruptions to their] supply [removed: chains,] [added: chain disruptions,] supplier inability to manufacture or [removed: sell] [added: deliver] products to Grainger or meet the unprecedented demand for pandemic-related products, rapid shifts in the type, quantity or quality of products sold, and higher product [removed: costs.][added: costs as a result of inflation.]

Some actions that Grainger has taken in response to the COVID-19 pandemic, including enabling remote working arrangements, may [removed: create increased] [added: increase Grainger’s] vulnerability to cybersecurity [removed: incidents,] [added: incidents] including breaches of information systems security, which could damage Grainger’s reputation and commercial relationships, disrupt operations, increase costs and/or decrease revenues, and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card association, employees and others.

In addition, Grainger’s remote working arrangements have required the Company to make adaptions to its controls and [removed: procedures, including to its financial reporting processes,] [added: procedures] that could impact [removed: the] [added: their] design or operating [removed: effectiveness of such controls or procedures.][added: effectiveness.]

Furthermore, as [added: a] result of surges in demand and disruptions in supply chains, including in [removed: China] [added: Asia] and other locations, [added: from time to time,] the COVID-19 pandemic has resulted in shortages of certain PPE, cleaning supplies and other [removed: products, which may materially impact Grainger's ability to obtain or deliver inventory to customers on a timely basis or at all.][added: products.]

While Grainger attempts to maintain sufficient inventory levels to meet quickly shifting customer demand patterns and supplier lead time requirements, which may become extended due to the pandemic demand increase, the Company cannot be certain it will be able to accurately predict demand or lead times, which might cause it to be unable to service customer demand or expose it to risks of product [removed: shortages, or acquire excess inventory, which could lead to additional inventory carrying costs and inventory obsolescence.][added: shortages.]

[removed: Pandemic] [added: From time to time,] product shortages [removed: may] [added: have] also [removed: require] [added: required] the Company to [removed: attempt to] procure products from new suppliers or through brokers with whom it has a limited or no prior relationship.

Despite due diligence and product compliance protocols, the products from these sources may not be delivered on a timely basis or at all, or their quality may not be as represented, all of which could cause Grainger to incur costs, including the expense of procuring alternate products or recalling or replacing products in addition to [added: reputational and] other adverse impacts to Grainger’s business.

Moreover, global outbreaks such as the COVID-19 pandemic have resulted in a widespread health crisis that has adversely affected and could continue to adversely affect the economies of many countries, resulting in a global or regional economic downturn or [removed: recession.][added: recession and supply chain challenges.]

[added: Any such recession could result in a significant decline in access to products, demand for the] Company’s products or limit Grainger’s ability to access capital [removed: markets on terms that are attractive or at all,] [added: markets,] any of which could materially adversely affect the Company’s business, results of operations and financial condition.

The duration and ultimate impact of the COVID-19 pandemic on the Company’s business, results of operations and financial [removed: condition, including liquidity, capital and financing resources,] [added: condition] will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be predicted at this time.

Such factors and developments may include the geographic spread, severity and duration of the COVID-19 pandemic, including whether there are periods of increased COVID-19 cases, [added: the further spread of the Delta variant, Omicron variant or the emergence of other new or more contagious variants that may render vaccines ineffective or less effective,] disruption to Grainger’s operations resulting from employee [removed: illnesses,] [added: illnesses or any inability to attract, retain or motivate employees,] the development, availability and administration of effective treatment or [removed: vaccines,] [added: vaccines and] the [added: willingness of individuals to receive a vaccine or otherwise comply with various mandates, the] extent and duration of the impact on the U.S. or global economy, including the pace and extent of recovery when the pandemic subsides, and the actions that have been or may be taken by various governmental authorities in response to the [removed: outbreak, including current and future health and safety measures, such as mandatory facility closures of non-essential businesses, stay in shelter health orders or similar restrictions, social distancing mandates and travel bans, import and export restrictions, pricing mandates, including disaster or emergency declaration pricing statutes, and mandatory directives that certain products be allocated or provided to certain customers, which could disrupt the Company’s relationship with customers, among other actions.][added: outbreak.]

If the Company is unable to respond to and manage the impact of these [added: mandates, requirement or] events, the Company’s business and results of operations may continue to be adversely affected.

Many of these customers operate in markets that are subject to cyclical fluctuations resulting from market uncertainty, trade and tariff policies, costs of goods sold, currency exchange rates, central bank interest rate [removed: changes,] [added: fluctuations, economic downturns, recessions,] foreign competition, offshoring of production, oil and natural gas prices, geopolitical developments, labor shortages, inflation, natural or human induced disasters, extreme weather, outbreaks of pandemic disease such as the COVID-19 pandemic, [added: inflation,] deflation, and a variety of other factors beyond Grainger’s control.

This includes the ease of use of Grainger’s high-touch operations [removed: (branches] and [removed: digital platforms) and] delivery of products.

[removed: Implementing] [added: Developing, managing or implementing] new technology and innovations may result in unexpected costs and [removed: interruptions] [added: disruptions] to operations, may take longer than expected, [added: may increase the Company’s vulnerability to cyber breaches, attacks or intrusions,] and may not provide all anticipated benefits.

Products are purchased from more than [removed: 4,500] [added: 4,900] suppliers located in various countries around the world, not one of which accounted for more than 5% of total purchases.

[removed: While Grainger has not generally encountered significant difficulty] [added: Disruptions] in procuring sources of [removed: supply, disruptions] [added: supply] could occur due to factors beyond Grainger’s control.

These factors could include economic downturns, [added: recessions,] outbreaks of pandemic disease such as the COVID-19 pandemic (which from time to time has resulted in some shortages of PPE, cleaning supplies and other products), natural or human induced disasters, extreme weather, geopolitical unrest, tariffs, new tariffs or tariff increases, trade issues and policies, detention orders or withhold release orders on imported products, labor problems [added: or shortages] experienced by Grainger’s [removed: suppliers,] [added: suppliers or others in the supply chain,] transportation [removed: availability] [added: availability, staffing] and cost, shortage of raw materials, unilateral product cost increases by suppliers of products in short supply, inflation and other factors, any of which could adversely affect a supplier’s ability to manufacture or deliver products or could result in an increase in Grainger’s product costs.

In addition, Grainger has entered, and may in the future continue to enter, into contracts with group purchasing organizations [removed: (“GPOs”)] [added: (GPOs)] that aggregate the buying power of their member customers in negotiating selling prices.

If Grainger’s systems or those of third parties on which Grainger depends are damaged, [removed: breached or] [added: breached,] cease to function [removed: properly,] [added: properly or are otherwise disrupted,] Grainger may have to make a significant investment to repair or replace them and may suffer interruptions in its business operations in the interim.

Through Grainger’s sales and eCommerce channels, [removed: Grainger] [added: the Company] collects and stores personally identifiable, confidential, proprietary and other information from customers so that they may, among other things, purchase products or services, enroll in promotional programs, register on Grainger’s websites or otherwise communicate or interact with the Company.

[added: If successful, those attempting to penetrate Grainger’s or] its vendors’ information systems may misappropriate intellectual property or personally identifiable, credit card, confidential, proprietary or other sensitive customer, supplier, employee or business information, or cause systems disruption.

In addition, a Grainger employee, contractor or other third party with whom Grainger does business may attempt to circumvent security measures [added: or otherwise access Grainger’s information systems] in order to obtain such information or inadvertently cause a breach involving such information.

Grainger maintains information security staff, policies and procedures for managing risk to its information security systems, conducts [added: annual] employee awareness training of cybersecurity threats and routinely utilizes consultants to assist in evaluating the effectiveness of the security of its IT systems.

Any breach of Grainger’s security measures or any breach, error or malfeasance of those of its [removed: third party] [added: third-party] service providers could cause Grainger to incur significant costs to protect any customers, suppliers, employees, and other parties whose personal data is compromised and to make changes to its information systems and administrative processes to address security issues.

In order to compete, Grainger must attract, retain, train, [removed: motivate, develop] [added: motivate] and [removed: transition] [added: develop] key employees, and the failure to do so could have an adverse effect on results of operations.

In order to compete and have continued growth, Grainger must attract, retain, train, [removed: motivate, develop] [added: motivate] and [removed: transition] [added: develop] executives and other key employees, including those in managerial, technical, sales, marketing and IT support positions.

Grainger competes to hire employees [added: at increasingly competitive wage rates] and then must train them and develop their skills and competencies.

The Company's employee hiring and retention also [removed: depend] [added: depends] on [removed: its] [added: the Company's] ability to build and maintain a diverse and inclusive workplace culture that enables its employees to thrive.

Failure to comply or unforeseen developments in related contingencies such as litigation could adversely affect Grainger’s financial condition, [removed: results of operations] [added: profitability] and cash flows.

In addition to Grainger’s U.S. operations, which in [removed: 2020] [added: 2021] generated approximately [removed: 78%] [added: 79%] of its consolidated net sales, Grainger operates its business principally through [removed: wholly-owned] [added: wholly owned] subsidiaries in Canada, China, Mexico, and the U.K., and its majority-owned subsidiary in Japan.

The wide array of laws, regulations and standards in each domestic and foreign jurisdiction where Grainger operates, include, but are not limited to: advertising and marketing regulations, anti-bribery and corruption laws, anti-competition regulations, data protection (including, because Grainger accepts credit cards, the Payment Card Industry Data Security Standard), data privacy (including in the U.S., the California Consumer Privacy Act, and in the European Union, the General Data Protection Regulation 2016) and cybersecurity requirements (including protection of information and incident responses), environmental protection laws, foreign exchange controls and cash repatriation restrictions, health and safety laws, import and export requirements, intellectual property laws, labor laws (including federal and state wage and hour laws), product compliance or safety laws, supplier regulations [added: regarding the sources of supplies or products, tax laws (including as to U.S. taxes on foreign subsidiaries), unclaimed property laws and laws, regulations and standards applicable to other commercial matters.]

In conducting its [removed: business] [added: business,] Grainger may become subject to legal proceedings or governmental investigations, including in connection with product liability or product compliance claims if people, property or the environment are harmed by Grainger’s products or services.

Grainger also may be subject to disputes and proceedings incidental to its business, including product-related claims for personal injury or illness, death, environmental or property damage or other commercial disputes, including the proceedings discussed in Part I, Item [removed: 3.][added: 3: Legal Proceedings.]

Grainger’s future results could be adversely affected by changes in the effective tax rate as a result of [removed: changes in] Grainger’s [added: relative] overall profitability and [removed: changes in] the mix of earnings in countries with differing statutory tax rates, changes in tax legislation, the results of the examination of previously filed tax [removed: returns] [added: returns,] and continuing assessment of the Company’s tax exposures.

The trading prices and volumes of Grainger’s common stock may be subject to broad and unpredictable fluctuations due to changes in economic, political and market conditions, the financial results and business strategies of Grainger and its competitors, changes in expectations as to Grainger’s future financial or operating performance, including estimates by securities analysts and investors, the Company’s failure to meet the financial performance guidance or other forward-looking statements provided to the public, speculation, coverage or sentiment in the media or investment community or by groups of individual investors, changes in capital structure, share repurchase programs or dividend policies, outbreak of pandemic disease such as the COVID-19 pandemic, and a number of [added: other factors, including those discussed in this Item 1A.]

As of December 31, [removed: 2020,] [added: 2021,] Grainger’s consolidated indebtedness was approximately [removed: $2.6] [added: $2.4] billion.

Industry and Market Risks

The COVID-19 pandemic has disrupted and adversely affected Grainger’s business, including its business with customers and suppliers.

Additional effects from the COVID-19 pandemic on Grainger's business include adverse impacts on transportation, including shipping delays and port disruptions, increased shipping costs, constraints on the availability of products, and labor shortages, which have impacted Grainger’s ability to hire employees to fill all open positions.

The potential for further disruptions from the COVID-19 pandemic, including closures of customer and supplier facilities remains.

The COVID-19 pandemic has also resulted in increased variable compensation, wage rates and employee healthcare costs, which adversely affect net earnings, and Grainger expects these trends to continue.

These shortages have impacted and in the future may continue to impact Grainger's ability to obtain or deliver inventory to customers on a timely basis or at all.

This uncertainty caused Grainger to acquire excess inventory, which led to additional inventory carrying costs and inventory obsolescence, and similar results may occur in the future.

For example, in each of its first two fiscal quarters of 2021 as discussed in its corresponding Quarterly Reports on Form 10-Q, the Company had pandemic-related inventory adjustments in the U.S. business (part of High-Touch Solutions N.A.) on certain non-core SKUs, which were selling below cost based on then current market-relevant pricing.

The Company is a federal contractor and part of its workforce is covered by vaccine mandates imposed under President Biden's September 9, 2021 executive order.

Complying with these requirements or other potential government mandates could disrupt the workforce and operations and impose additional compliance and other costs.

Other requirements, including health and safety measures such as social distancing and mask mandates and/or travel bans, import and export restrictions, pricing mandates, including disaster or emergency declaration pricing statutes, and mandatory directives that certain products be allocated or provided to certain customers, could also disrupt the Company’s business and impose costs.

Inflation could cause Grainger's operating and administrative expenses to grow more rapidly than net sales, which could result in lower gross margins and lower net earnings.

Market variables, such as inflation of product costs, labor rates and fuel, freight and energy costs, could increase potentially causing the Company to be unable to manage its operating and administrative expenses in a way that would enable it to leverage its revenue growth into higher net earnings.

In addition, Grainger's inability to pass on such increases in costs to customers in a timely manner, or at all, could cause Grainger's operating and administrative expenses to grow, which could result in lower gross profit margins and lower net earnings.

Customer demand for certain products has also fluctuated as the pandemic has progressed, which has challenged Grainger's ability to anticipate and/or procure product to maintain inventory levels to meet that demand.

These factors have resulted in higher out-of-stock inventory positions in certain products as well as delays in delivering those products to the Company's distribution centers, branches or customers, and similar results may occur in the future.

Even when Grainger is able to find alternate sources for certain products, they may cost more or require the Company to incur higher transportation costs, which could adversely impact the Company's profitability and financial condition.

Any of these circumstances could impair Grainger's ability to meet customer demand for products and result in lost sales, increased supply chain costs, penalties or damage to Grainger's reputation.

If Grainger was unable to promptly replace sources of supply that become disrupted, there could be adverse effects on inventory levels, results of operations, customer relationships and Grainger’s reputation.

The recent global geopolitical and trade environment has resulted in raw material inflation and potential for increased escalation of domestic and international tariffs and retaliatory trade policies.

Further changes in U.S. trade policy (including new or additional increases in duties or tariffs) and retaliatory actions by U.S. trade partners could result in a worsening of economic conditions.

The level of demand for Grainger's products and services is influenced in multiple ways by the price and availability of raw materials and commodities, including fuel.

Grainger has increased, and expects to continue to increase, its investments in developing, managing and implementing technology information systems, software development and other capabilities to provide high-quality service to its customers and simplify customer interactions.

Operational Risks

Grainger has experienced these incidents in the past, which it deemed immaterial to its business and operations individually and in the aggregate and may be subject to other incidents in the future.

There can be no assurance that any future incidents will not be material to Grainger’s business, operations or financial condition.

Some actions that Grainger has taken in response to the COVID-19 pandemic, including enabling remote working arrangements, may increase Grainger’s vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage Grainger’s reputation and commercial relationships, disrupt operations, increase costs and/or decrease revenues, and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card association, employees and others.

Grainger has been subject to unauthorized accesses of certain supplier and customer information in the past, which it deemed immaterial to its business and operations individually and in the aggregate, and may be subject to other unauthorized accesses of its systems in the future.

There can be no assurance that any future unauthorized access to or breach of Grainger’s information systems will not be material to Grainger’s business, operations or financial condition.

Qualified individuals needed to fill open positions may be in short supply in some areas.

Further, changes in market compensation rates may adversely affect the Company's labor costs.

Competition for qualified employees could require the Company to pay higher wages to attract a sufficient number of employees.

Regulatory, Legal and Tax Risks

Grainger may be adversely impacted by the effects of climate change and may incur increased costs and experience other impacts due to new or more stringent environmental laws and regulations designed to address climate change.

The potential impacts of climate change on the Company’s suppliers, product offerings, operations, facilities and customers are accelerating and uncertain.

Increased public awareness and concern regarding global climate change may result in more international, federal, and/or state or other stakeholder requirements or expectations that could result in more restrictive or expansive standards, such as stricter limits on greenhouse gas emissions or more prescriptive reporting of environmental, social, and governance metrics.

There continues to be a lack of consistent climate change legislation and standards, which creates economic and regulatory uncertainty.

New laws, regulations and enforcement could strain the Company’s suppliers and result in increased compliance-related costs, which could result in higher product costs that are passed to the Company.

New or changing environmental laws and regulations could also increase the Company’s operating costs, including through higher utility and transportation costs, and Grainger is unable to predict the potential impact such laws and regulations could have on its financial condition and results of operations.

In addition, the potential physical risks of climate change may impact the availability and cost of materials and natural resources, sources and supply of energy and product demand, and could increase the Company’s operating costs.

Additional effects on Grainger's business include disruptions or closures of customer and supplier facilities, and their ability to continue as a going concern.

Any such recession could result in a significant decline in demand for the

The price of commodities has historically been subject to substantial volatility, which among other things, could be driven by economic, monetary, political or weather-related factors.

If Grainger was to experience difficulty in obtaining products, there could be a short-term adverse effect on results of operations and a longer-term adverse effect on customer relationships and Grainger’s reputation.

Any such disruption or other catastrophic event could cause one or more of Grainger’s distribution centers or branches to become non-operational, adversely affect Grainger’s ability to obtain or deliver inventory in a timely manner, impair Grainger’s ability to meet customer demand for products, result in lost sales, additional costs, or penalties, or damage Grainger’s reputation.

If successful, those attempting to penetrate Grainger’s or

regarding the sources of supplies or products, tax laws (including as to U.S. taxes on foreign subsidiaries), unclaimed property laws and laws, regulations and standards applicable to other commercial matters.

Legal Proceedings.

other factors, including those discussed in this Item 1A.

W.W. Grainger, Inc. [removed: (Grainger or Company)] is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North [removed: America,] [added: America (N.A.),] Japan and [removed: Europe.][added: the United Kingdom (U.K.).]

Grainger uses a combination of its high-touch [added: solutions] and endless assortment businesses to serve its [removed: more than 5 million] customers [removed: worldwide and] [added: worldwide,] which rely on Grainger for [removed: MRO] products and services that enable them to run safe, sustainable and productive operations.

[removed: Consistent] [added: In November 2020, consistent] with the Company's strategic focus on broad line MRO distribution in key markets, [removed: in June 2020] Grainger [removed: divested the Fabory high-touch business, in August 2020 divested the China high-touch business (China) and in November 2020] commenced the liquidation of Zoro Tools Europe (ZTE) in Germany.

Accordingly, the Company’s operating results include Fabory, China and ZTE [removed: results] through the respective dates of divestiture or liquidation.

The Company’s [added: continued] strategic priority for [removed: 2021] [added: 2022] is [removed: clear:] [added: to] relentlessly expand Grainger’s leadership position in the MRO space by being the [removed: go-to-partner] [added: go-to partner] for people who build and run safe and productive operations.

To achieve this, each Grainger business has a set of strategic [removed: objectives focused on top line growth through market share gain.][added: objectives.]

[removed: The] [added: Additionally, the] high-touch [added: solutions] businesses are focused on growing through differentiated sales and services (e.g., direct customer relationships and onsite services), advantaged MRO solutions (e.g., get customers the exact products and services they need to solve a problem quickly) and unparalleled customer service (e.g., deliver flawlessly on every customer transaction).

The endless assortment businesses are focused on product assortment expansion and innovative customer [removed: acquisition.][added: acquisition and retention.]

Additionally, all Grainger businesses are focused on continuously improving customer experience, optimizing and scaling cost structures and investing in digital marketing, [removed: technology,] [added: technology] and supply chain infrastructure to ultimately deliver long-term returns for shareholders.

[removed: Grainger is an essential business] [added: Grainger’s businesses] and its major facilities have [removed: been allowed to remain] [added: remained] operational [removed: during the pandemic] as customers [removed: have depended] [added: rely] on [removed: Grainger's] [added: Grainger’s] products and services to keep their businesses up and running.

[removed: In 2020, as] [added: As] the [removed: COVID-19] pandemic [removed: impacted] [added: continues to impact] global markets and the needs of customers, [removed: employees,] [added: team members,] suppliers and communities [removed: changed,] [added: continue to change,] the Company’s efforts and business [removed: plans evolved] [added: plan will evolve] accordingly.

Grainger is [removed: currently] focused on [removed: serving] [added: servicing] customers and communities [removed: well through] [added: in addressing] the pandemic and [removed: their respective] [added: providing products to assist in the ongoing] recovery, supporting the needs and safety of [removed: employees] [added: team members] and ensuring the Company continues to operate with a strong financial position.

[removed: Impact] [added: Strategic Priorities and Impact] of the COVID-19 [removed: Pandemic on Grainger Businesses][added: Pandemic]

As of December 31, [removed: 2020,] [added: 2021,] the Company had approximately [removed: $1.8] [added: $1.5] billion in available [removed: liquidity, including $585 million in cash.][added: liquidity.]

There were [removed: 256] [added: 254] sales days in the full year [removed: 2020] [added: 2021] versus [added: 256 and] 255 sales days in the full [removed: years 2019] [added: year of 2020] and [removed: 2018.][added: 2019, respectively.]

In [removed: addition, starting in] mid-February 2020, the Company began experiencing elevated levels of COVID-19 pandemic-related product sales (e.g., [removed: personal protective equipment (PPE)] [added: PPE] and safety products) due to higher customer demand in response to the COVID-19 pandemic, while non-pandemic sales [removed: have] decreased.

The following table is included as an aid to understanding changes in Grainger's Consolidated Statements of Earnings (in millions of [removed: dollars):][added: dollars).]

| | | | For the Years Ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | |]

| | | | | | | | | | | | | | | | [added: | | | | | |] Percent Increase/(Decrease) from Prior Year | | | | | | As a Percent of Net Sales | | | | | | | | | [added: | | | | | |]

| | | | [added: 2021 | | | | | |] 2020 | | | | | | 2019 | | | | | | [removed: 2020] [added: 2021] | | | | | | [added: 2021 | | | | | |] 2020 | | | | | | 2019 | | |

| Net sales [added: (1)] | | | $ | [added: 13,022 | | | | | $ |] 11,797 | | | | | $ | 11,486 | | | | | [removed: 2.7] [added: 10.4] | | % | | | | 100.0 | | % | | | | 100.0 | | % | [added: | | | 100.0 | | % |]

| Cost of goods sold | | | [added: 8,302 | | | | | |] 7,559 | | | | | | 7,089 | | | | | | [removed: 6.6] [added: 9.8] | | [removed: %] | | | | [added: 63.8 | | | | | |] 64.1 | | [removed: %] | | | | 61.7 | | [removed: %] |

| Gross profit | | | [added: 4,720 | | | | | |] 4,238 | | | | | | 4,397 | | | | | | [removed: (3.6)] [added: 11.4] | | [removed: %] | | | | [added: 36.2 | | | | | |] 35.9 | | [removed: %] | | | | 38.3 | | [removed: %] |

| Operating earnings | | | [added: 1,547 | | | | | |] 1,019 | | | | | | 1,262 | | | | | | [removed: (19.3)] [added: 51.8] | | [removed: %] | | | | [added: 11.9 | | | | | |] 8.6 | | [removed: %] | | | | 11.0 | | [removed: %] |

| Other [removed: expense,] [added: expense -] net | | | [added: 62 | | | | | |] 72 | | | | | | 53 | | | | | | [removed: 35.0] [added: (12.8)] | | [removed: %] | | | | [added: 0.5 | | | | | |] 0.6 | | [removed: %] | | | | 0.5 | | [removed: %] |

| Income tax provision | | | [added: 371 | | | | | |] 192 | | | | | | 314 | | | | | | [removed: (38.9)] [added: 92.7] | | [removed: %] | | | | [added: 2.8 | | | | | |] 1.6 | | [removed: %] | | | | 2.7 | | [removed: %] |

| Net earnings | | | [added: 1,114 | | | | | |] 755 | | | | | | 895 | | | | | | [removed: (15.6)] [added: 47.5] | | [removed: %] | | | | [added: 8.6 | | | | | |] 6.4 | | [removed: %] | | | | 7.8 | | [removed: %] |

| Noncontrolling interest | | | [added: 71 | | | | | |] 60 | | | | | | 46 | | | | | | [removed: 30.3] [added: 19.0] | | [removed: %] | | | | 0.5 | | [removed: %] | | | | [added: 0.5 | | | | | |] 0.4 | | [removed: %] |

| Net earnings attributable to W.W. Grainger, Inc. | | | $ | [added: 1,043 | | | | | $ |] 695 | | | | | $ | 849 | | | | | [removed: (18.1)] [added: 50.0] | | [removed: %] | | | | [added: 8.0 | | | | | |] 5.9 | | [removed: %] | | | | 7.4 | | [removed: %] |

[removed: Grainger's net] [added: Net] sales of $11,797 million for the year ended December 31, 2020 increased $311 million, or 2.7%, compared to the same period in 2019.

The increase [removed: in net sales] was primarily driven by [removed: volume/mix,] [added: higher sales volume,] partially offset by [removed: price/mix and the impact of business divestitures.][added: higher SG&A.]

[removed: See] [added: For further segment information, see] Note [removed: 15 to] [added: 14 of] the [added: Notes to Consolidated] Financial Statements [added: in Part II, Item 8: Financial Statements] and [removed: refer to the *Segment Analysis* below for further details.][added: Supplementary Data of this Form 10-K.]

Gross profit of $4,238 million for the year ended December 31, 2020 decreased $159 million, or [removed: 4%] [added: 4%,] compared [removed: with] [added: to] the same period in 2019.

[removed: The gross] [added: Gross] profit margin of 35.9% decreased 2.4 percentage points [removed: when] compared to the same period in 2019.

[removed: This] [added: The] decrease was primarily driven by lower margins from COVID-19 pandemic-related [removed: products] [added: product] sales in the [removed: U.S.] [added: high-touch solutions businesses] and business unit mix [removed: impact from higher] [added: due to] growth in the lower margin endless assortment businesses.

The following tables [removed: (in millions of dollars)] reconcile reported [removed: SG&A,] [added: SG&A expenses,] operating [removed: earnings and] [added: earnings,] net earnings attributable to W.W. Grainger, Inc. [added: and diluted earnings per share] determined in accordance with [removed: Generally Accepted Accounting Principles] [added: U.S. generally accepted accounting principles] (GAAP) [removed: in the United States of America] to [added: non-GAAP measures including] adjusted SG&A, [added: adjusted] operating [removed: earnings and] [added: earnings, adjusted] net earnings attributable to W.W. Grainger, [removed: Inc., which are all considered non-GAAP measures.][added: Inc. and adjusted diluted earnings per share.]

The Company believes that these non-GAAP measures provide meaningful information to assist [removed: shareholders] [added: investors] in understanding financial results and assessing prospects for future performance as they provide a better baseline for analyzing the ongoing performance of its businesses by excluding items that may not be indicative of core operating results.

| | | | [added: 2021 | | | | | |] 2020 | | | | | | 2019 | | | | | | [added: | | |] % | | |

| SG&A reported | | | $ | [added: 3,173 | | | | | $ |] 3,219 | | | | | $ | 3,135 | | | | | [removed: 3] | | [added: | (1) | |] % |

| [removed: Restructuring,] [added: Restructuring –] net [removed: (U.S.)] [added: (Other)] | | | [removed: 6] [added: —] | | | | | | [removed: 5] [added: —] | | | | | | [added: 2] | | | [added: | | | | | | | | |]

Objective

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of W.W. Grainger, Inc. (Grainger or Company) as it is viewed by the Company.

The following discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.

*Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding.

For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in the Company's Consolidated Financial Statements or in the associated text.*

Overview

The high-touch solutions businesses are focused on key initiatives that drive top-line revenue and MRO market outgrowth.

The Company continues to adhere to its purpose to keep the world working while using its core principles as the framework for expanding Grainger’s leadership position and ensuring Grainger is the go-to-partner for building and running safe, sustainable and productive operations.

However, the Company’s business plans to achieve these strategic priorities continue to be affected by the impact of the COVID-19 pandemic.

The COVID-19 pandemic caused significant disruptions in the U.S. and global markets, and the full extent of the impacts will depend on several uncertain and unpredictable developments including any continued spread of the virus and its variants, the availability and effectiveness of treatments and vaccines, imposition of protective public safety measures and the overall impact of government measures to combat the spread of the virus.

While the ongoing recovery from the COVID-19 pandemic has fluctuated throughout the year, it has been accompanied by a resurgence in demand as industries return to regular operations, which continues to disrupt supply chains, transportation efficiency, raw materials and labor availability.

The Company continues to monitor and refine its product assortment and inventory availability and remains committed to serving customers and supporting team members.

The Company continues to leverage a dedicated cross-functional task force to understand and implement guidance from government agencies and health officials to meet requirements from federal, state and local authorities and may take further actions in the best interests of its team members, customers, suppliers and shareholders.

The Company qualified for certain government assistance programs that partially offset related expenses in Canada and the U.K. The amounts received were not material to the Consolidated Financial Statements for the year ended December 31, 2021.

The Company cannot reasonably estimate the full extent to which the COVID-19 pandemic will continue to impact its business and financial results.

Further discussion of the risks and uncertainties posed by the COVID-19 pandemic, see Part I, Item 1A: Risk Factors of this Form 10-K.

Effective January 1, 2021, Grainger's two reportable segments are High-Touch Solutions N.A. and Endless Assortment.

On March 8, 2021, Grainger provided investors with segment summary historical financial information and segment historical data that is consistent with its new reportable segment structure and reflective of its updated intersegment accounting policies.

In August 2020, Grainger divested the China high-touch solutions business (China) and in June 2020, divested the Fabory high-touch solutions business.

For further business divestitures and liquidation information, see Note 2 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Data and Supplementary Data of this Form 10-K.

Conversely, as the COVID-19 pandemic progressed throughout 2020 and through 2021, the Company has seen pandemic-related sales soften and non-pandemic sales grow, as mix returns to more normalized levels.

This shift between pandemic and core, non-pandemic product mix impacted gross margin as pandemic-related product sales are generally lower-margin.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| SG&A | | | 3,173 | | | | | | 3,219 | | | | | | 3,135 | | | | | | (1.4) | | | | | | 24.4 | | | | | | 27.3 | | | | | | 27.3 | | |

| Diluted earnings per share: | | | $ | 19.84 | | | | | $ | 12.82 | | | | | $ | 15.32 | | | | | 54.8 | | % | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| (1) For further information regarding the Company's disaggregated revenue, see Note 3 of the Notes to the Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

*2021 Compared to 2020*

Net sales of $13,022 million for the year ended December 31, 2021 increased $1,225 million, or 10.4%, compared to the same period in 2020.

On a daily basis, net sales increased 11.3%, primarily driven by improved core, non-pandemic related product sales volume as product mix continued to revert to more normalized levels in the year ended December 31, 2021.

This consisted of increased volume, which includes product mix, of 10.1%, price, which includes customer mix, of 2.3% and foreign exchange of 0.3%, partially offset by the impact of the business divestitures in the prior year of 1.4%.

Gross profit of $4,720 million for the year ended December 31, 2021 increased $482 million, or 11%, compared to the same period in 2020.

Gross profit margin of 36.2% increased 0.3 percentage point compared to the same period in 2020.

The increase was primarily driven by price realization and favorable product mix, partially offset by unfavorable pandemic-related inventory adjustments and product cost inflation in the year ended December 31, 2021.

SG&A of $3,173 million for the year ended December 31, 2021 decreased $46 million, or 1%, compared to the same period in 2020.

The decrease was the result of impairment charges and losses related to the divested Fabory business in the first half of 2020, partially offset by increased SG&A due to higher wages, variable compensation and marketing expenses in 2021.

Operating earnings of $1,547 million for the year ended December 31, 2021 increased $528 million, or 52%, compared to the same period in 2020.

The increase was driven by higher gross profit dollars and lower SG&A.

Other expense, net of $62 million for the year ended December 31, 2021 decreased $10 million, or 13%, compared to the same period in 2020.

General

Grainger’s two reportable segments are the U.S. and Canada.

These reportable segments reflect the results of the Company's high-touch businesses in those geographies.

Other businesses include the endless assortment businesses (Zoro in the U.S. and the United Kingdom (U.K.) and MonotaRO in Japan) and smaller international high-touch businesses in the U.K. and Mexico.

Business Re-segmentation – Effective January 1, 2021

In February 2021, the Company announced a change to its reportable segments to align with its go-to-market strategies and bifurcated business models (high-touch and endless assortment).

Accordingly, on or about March 8, 2021, the Company plans to publish the required restated financial information for the quarters ended December 31, 2020 and 2019 and for the twelve-month periods ended December 31, 2020, 2019 and 2018.

A supplemental investor call is expected to be scheduled on or about March 9, 2021 to discuss the Company's restated Form 8-K results and new segments.

All summary financial information on a prospective basis will be presented under the new reportable segments beginning with the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2021.

Business Divestitures and Liquidations

In 2020, Grainger recognized a net loss of approximately $109 million, a gain of approximately $5 million and a loss of approximately $9 million (presented within Selling, general and administrative expenses (SG&A)) as a result of the Fabory, China and ZTE exits, respectively.

The go-forward impacts from these business exits are not expected to be material for Company results in an individual or aggregated basis.

Outlook

In March 2020, the World Health Organization characterized Coronavirus (COVID-19) as a pandemic.

The rapid spread of the COVID-19 pandemic has caused significant disruptions in the U.S. and global markets, and economists expect the economic impact will continue to be significant.

The COVID-19 pandemic has impacted and is likely to continue impacting Grainger’s businesses and operations as well as the operations of its customers and suppliers.

From a customer perspective, business re-openings and related activity throughout the year varied based on geography, industry and COVID-19 pandemic conditions.

For example, in the U.S. and endless assortment businesses, sales to government, healthcare and other essential businesses remained strong, but sales to non-essential and disrupted industries were depressed compared to pre-COVID-19 pandemic levels.

The Canada business and other international high-touch businesses were severely impacted by pandemic-related slowdowns with each geography experiencing meaningful year-over-year declines.

The Company's major operational facilities and infrastructure (i.e., DCs, branches, e-commerce sites, and logistic partners) remained operational during 2020 with limited disruptions, while adhering to strict safety and social-distancing protocols.

From an inventory management and supply chain perspective, the Company has experienced elevated levels of demand for pandemic-related products, while demand for non-pandemic products has declined.

To date, the Company has been able to absorb the pandemic impact with minimal workforce reductions or furloughs, which positions the Company for accelerated growth once post-pandemic recovery commences.

Also, the Company has prioritized maintaining all facilities safe for customers and employees to work and interact.

With respect to the Company’s financial position, the Company plans to maintain its focus on liquidity as pandemic-related uncertainties continue into 2021.

During 2020, the Company generated operating cash of $1.1 billion and used the cash generated to invest in the business and return excess capital to shareholders in the form of dividends and share repurchases.

For further detail on cash flows refer to the *Financial Condition* section below.

The Company completed two divestitures and commenced one liquidation in 2020.

The Company's operating results have included the results of each business until its respective divestiture or liquidation date.

The incremental demand came primarily from customers on the front-lines of the pandemic, including government, healthcare and other essential businesses, while the demand from non-essential and disrupted industries decreased over the same period due to business activity slowdown or temporary shutdowns.

Grainger experienced adverse gross margin impacts from sales of lower-margin COVID-19 pandemic-related products to the Company's largest, lowest margin customers.

| Selling, general and administrative expenses | | | 3,219 | | | | | | 3,135 | | | | | | 2.7 | | % | | | | 27.3 | | % | | | | 27.3 | | % |

On a daily basis, net sales increased 2.3%.

During the year ended December 31, 2020, the Company experienced strong pandemic-related sales volume primarily in the U.S. to large government and healthcare customers.

See Note 3 to the Financial Statements for information related to disaggregated revenue.

This pandemic-related elevated volume was partially offset by volume declines of non-pandemic related products across most industries.

Also, sales in the Canada business and other international high-touch businesses are down compared to 2019 due to COVID-19 business slowdowns.

Overall, business activity still trails pre-pandemic levels as some customers remain disrupted by COVID-19.

See *Segment Analysis* below for further details related to segment gross profit.

These non-GAAP measures should not be considered in isolation or as a substitute for reported results.

These non-GAAP measures reflect an additional way of viewing aspects of operations that, when viewed with GAAP results, provide a more complete understanding of the business.

Grainger's primary market risk exposures [added: is] as follows:

[removed: As of December 31, 2020, the] [added: The] annualized effect of a 0.1 percentage point increase in interest rates on Grainger’s variable-rate debt obligations [removed: would] [added: did] not have a material impact on [added: the Company's] net [removed: earnings.][added: earnings for 2021.]

The Company regularly monitors commodity trends and, as a broad line supplier, mitigates any material exposure to commodity price risk by having alternative sourcing plans in place that mitigate the risk of supplier concentration, passing commodity-related inflation to customers or [removed: suppliers,] [added: suppliers] and continuing to scale its distribution networks, including its transportation infrastructure.

For the fiscal year ended December 31, 2021, approximately 21% of the Company's net sales were denominated in a currency other than the Company's functional U.S. dollar currency.

Consequently, the Company is exposed to the impact of exchange rate volatility primarily between the U.S. dollar and the Japanese yen, Canadian dollar and the British pound sterling.

A hypothetical 10% change in the relative value of the U.S. dollar would not materially impact the Company's net earnings for 2021.

For derivative instrument information, see Note 12 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.

For long-term debt and derivative instrument information, see Note 6 and Note 12 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.

See Note 13 to the Financial Statements.

Grainger's net earnings exposure to foreign currency exchange rates was not material for 2020.

See Note 7 to the Financial Statements.

W.W. Grainger, Inc., incorporated in the State of Illinois in 1928, is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North [removed: America,] [added: America (N.A.),] Japan and [removed: Europe.][added: the United Kingdom (U.K.).]

The Grainger [removed: Edge (Purpose, Aspiration, Strategy)][added: Edge]

Grainger's framework, “The Grainger [removed: Edge”,] [added: Edge,”] uniquely defines the Company by [removed: describing] [added: asserting] why it exists, how it serves [removed: its] customers and how [removed: its] team members work together to achieve its objectives.

The [removed: framework also] [added: Company has in place a strategic framework, The Grainger Edge, which] outlines a set of principles that define the behaviors expected from Grainger’s team members in working with each other and [removed: their] [added: the Company's] customers, [removed: supplier partners] [added: suppliers] and communities.

[removed: It is a basis for holding team members accountable to these principles and] [added: This framework] helps the [removed: company] [added: Company] execute its strategy and create value for shareholders.

[removed: ][added: ]

The high-touch [added: solutions] model serves customers with complex buying [removed: needs, primarily in North America.][added: needs.]

[removed: The] [added: In the Endless Assortment segment, Grainger offers an expansive product] assortment [added: and a broad, extensive product range that] contains millions of [removed: Stock Keeping Units (SKUs), including] products [added: including those] outside of traditional industrial MRO categories.

Competing with [removed: these two] [added: both high-touch solutions and endless assortment] business models allows Grainger to leverage its scale and advantaged supply chain to meet the changing needs of its customers.

The following provides a high-level view of [removed: each model:][added: the Company's business models:]

In the large and fragmented MRO industry, Grainger holds an advantaged position with its supply chain [removed: infrastructure,] [added: infrastructure and] broad in-stock product [removed: offering, robust eCommerce platform and deep customer relationships.][added: offering.]

Effective January 1, 2021, [removed: Grainger’s] [added: Grainger's] two reportable segments are [removed: High Touch – North America] [added: High-Touch Solutions N.A.] and Endless [removed: Assortment to align with Grainger's two distinct business models.][added: Assortment.]

For further segment [removed: and financial] information, see Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note [removed: 1 to] [added: 14 of] the [added: Notes to] Consolidated Financial Statements [removed: (Financial Statements), included] in Part II, Item 8: Financial Statements and Supplementary Data of this [removed: report, which is incorporated herein by reference.][added: Form 10-K.]

[removed: | Other businesses: | | | | | | | | | | | | | | | | | | | | | | | |][added: *Other*]

[removed: | Endless assortment businesses | | | 3% | | | | | | 4 | | | | | | — | | | | | | 3,800 | | |][added: *Endless Assortment*]

[removed: Approximately 5 million] [added: Grainger’s] customers [removed: worldwide rely on Grainger for MRO products] [added: range from smaller businesses to large corporations, government entities] and [removed: services] [added: other institutions,] representing a broad collection of industries, including, but not limited to commercial, [removed: government, healthcare] [added: healthcare,] and manufacturing.

[removed: More than 4,500] [added: Approximately 5,000] suppliers worldwide provide Grainger businesses with [removed: about] [added: more than] 1.5 million products stocked in [removed: DCs] [added: Distribution Centers (DCs)] and [removed: branches.][added: branches globally.]

Grainger’s [removed: MRO] product offering is grouped under several broad categories, including [removed: material-handling equipment,] safety and [removed: security supplies, lighting and electrical products, power] [added: security, material handling] and [removed: hand tools,] [added: storage,] pumps and plumbing [removed: supplies,] [added: equipment,] cleaning and [removed: maintenance supplies and] [added: maintenance,] metalworking [added: and hand] tools.

Products are regularly added and removed from Grainger's product lines [added: based] on [removed: the basis of] customer demand, market research, suppliers' [removed: recommendations, sales volumes] [added: recommendations] and other factors.

[removed: Sales in 2020 were made to approximately 1 million customers and no] [added: No] single end customer accounted for more than 3% of total [removed: sales.][added: sales for the year ended December 31, 2021.]

[added: In the High-Touch Solutions N.A. segment,] Grainger.com provides real-time price and product availability, detailed product information and [removed: features] [added: features,] such as product search and compare capabilities.

For customers with sophisticated electronic purchasing platforms, the [removed: U.S. high-touch business] [added: segment] utilizes [added: eProcurement] technology that allows these systems to communicate directly with Grainger.com.

[removed: In addition, approximately 20%] [added: Approximately 19%] of [removed: 2020 U.S. business] [added: 2021] sales were private label MRO items bearing Grainger’s registered trademarks, including DAYTON®, SPEEDAIRE®, AIR HANDLER®, TOUGH GUY®, WESTWARD®, CONDOR® and LUMAPRO®.

Grainger has taken steps to protect these [added: service marks and] trademarks against infringement and believes [removed: that] they will remain available for future use in its business.

Sales and service representatives [removed: in the U.S. high-touch business] drive relationships with customers by helping select the right products [removed: for their needs] and reducing costs by utilizing Grainger as a consistent source of supply.

[removed: KeepStock® is a] [added: Additionally, Grainger offers] comprehensive [added: inventory management through its KeepStock®] program that includes vendor-managed inventory, customer-managed inventory and onsite vending machines.

Automation in the DCs allows [removed: the majority of] [added: most] orders to ship complete with next-day delivery and replenish branches that provide same-day availability to customers.

Branches [removed: in the U.S. high-touch business] serve the immediate needs of customers by allowing them to directly pick up items and leverage branch staff for their technical product expertise and search-and-select support.

The [removed: centers] [added: North American Customer Service Centers] handle [removed: more than 62,000 daily] customer interactions for the region via phone, email, eCommerce portals and online chat.

[removed: Canada - High-Touch][added: *High-Touch Solutions N.A.*]

[removed: MonotaRO had more than $1.4 billion in revenue] [added: Collectively] in [removed: 2020] [added: the U.S.] and [added: U.K., Zoro offers approximately 10 million products and MonotaRO] provides [removed: customers with] access to [removed: approximately] [added: more than] 20 million [removed: MRO products] [added: products,] primarily through its websites and catalogs.

[removed: In the large and fragmented MRO industry,] Grainger faces competition from a variety of competitors, including manufacturers (including some of its own suppliers) that sell directly to certain segments of the market, wholesale distributors, retailers and internet-based businesses.

Also, competitors vary by size, from large broad line distributors and eCommerce retailers to small local and regional [removed: competitors, with a high degree of overlap for both business models.][added: competitors.]

Grainger differentiates itself by providing local product availability, a broad product line, sales and service [removed: representatives, catalogs (which include product descriptions and, in certain cases, extensive technical and application data)] [added: representatives] and advanced electronic and eCommerce technology.

In addition to Grainger’s [removed: U.S.] [added: U.S.-based] operations, which in [removed: 2020] [added: 2021] generated approximately [removed: 78%] [added: 79%] of its consolidated net sales, Grainger operates its business principally through [removed: wholly-owned] [added: wholly owned] subsidiaries in Canada, [removed: China,] Mexico and the U.K., and through its majority-owned subsidiary in Japan.

Compliance with these laws, regulations and standards requires the dedication of time and effort of [removed: employees] [added: team members] as well as financial resources.

In [removed: 2020,] [added: 2021,] compliance with the applicable laws, regulations and standards did not have a material effect on capital expenditures, earnings or competitive position.

[removed: For] [added: See Part I, Item 1A: Risk Factors of this Form 10-K for] a discussion of the risks associated with government regulations that may materially impact [removed: Grainger, please see Item 1A: Risk Factors.][added: Grainger.]

Human [removed: Capital Resources][added: Capital]

As of December 31, [removed: 2020,] [added: 2021,] Grainger had approximately [removed: 23,100 employees] [added: 24,200 team members] worldwide, of whom approximately [removed: 21,800] [added: 22,700] were full-time and [removed: 1,300] [added: 1,500] were part-time or temporary.

For financial information regarding the Company, see the Consolidated Financial Statements and Notes included in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.

Grainger’s purpose is to keep the world working, which in turn allows customers to focus on the core of their businesses and do what they do best.

This framework also outlines a set of principles that define the behaviors expected from Grainger’s team members in working with each other and the Company's customers, suppliers and communities as Grainger executes its strategy and creates value for shareholders.

For further information on the Company's principles, see below "Workplace Practices and Policies."

General

These reportable segments align with Grainger's go-to-market strategies and bifurcated business models of high-touch solutions and endless assortment.

Below is a description of Grainger’s reportable segments and other businesses.

The Company's High-Touch Solutions N.A. segment provides value-added MRO solutions that are rooted in deep product knowledge and customer expertise.

This segment includes the Grainger-branded businesses in the United States (U.S.), Canada, Mexico and Puerto Rico.

The Company’s Endless Assortment segment provides a streamlined and transparent online platform with one-stop shopping for millions of products.

The Endless Assortment segment includes the Company’s Zoro Tools, Inc. (Zoro) and MonotaRO Co., Ltd. (MonotaRO) online channels which operate predominately in the U.S., U.K. and Japan.

Other businesses is comprised of smaller international high-touch solutions businesses primarily in the U.K., as well as the Fabory and China businesses in the periods prior to their divestitures in the second and third quarter of 2020, respectively.

These businesses individually and in the aggregate do not meet the criteria of a reportable segment.

For further business divestitures and liquidation information, see Note 2 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.

Business Models

The Company uses a combination of its two business models to serve its more than 4.5 million customers worldwide which rely on Grainger for products and services that enable them to run safe, sustainable and productive operations.

In the High-Touch Solutions N.A. segment, customers are typically large enterprises with multi-faceted purchasing and processing complexities.

Customers served in this segment expect product and service depth and are focused on total cost of procurement.

KeepStock®, Grainger's inventory management solution, serves customers on site, offering valuable insights to drive efficiencies and cost savings.

In the Endless Assortment segment, customers are typically smaller businesses with straight-forward product and service needs.

Additionally, MonotaRO continues to attract and retain large enterprise customers.

Customers purchasing through the endless assortment platforms are focused on transparent pricing and an easy-to-navigate procurement process.

MonotaRO and Zoro offer an innovative customer experience by allowing customers to quickly find competitively priced products through intuitive business-focused eCommerce platforms with intelligent analytic capabilities.

No single product category comprised more than 18% of the Company's sales for the year ended December 31, 2021.

Collectively, this segment offers more than 2 million products.

The endless assortment businesses continue to enhance assortment by strategically adding products and expanding the offer of third party held products.

Distribution and Sources of Supply

No single supplier comprised more than 5% of Grainger's total purchases for the year ended December 31, 2021.

In the High-Touch Solutions N.A. segment, DCs are the primary order fulfillment channel, mainly through direct shipments to customers.

Grainger’s North American distribution network supplies inventory planning and management, transportation and distribution services to all Grainger businesses in the North American region.

In the Endless Assortment segment, orders are placed primarily through online channels.

Zoro leverages the High-Touch Solution N.A.'s DCs and third-party drop shipments to deliver products to customers.

MonotaRO fulfills customer orders through local DCs and third-party drop shipments.

For further information on the Company’s properties, see Part I, Item 2: Properties of this Form 10-K.

Trademarks and Service Marks

Grainger conducts business under various trademarks and service marks.

Grainger also provides a suite of inventory services to its customers under the KEEPSTOCK® brand, which is a registered service mark.

The Compensation Committee of the Board, which is comprised of independent directors, oversees the Company's human capital management programs and policies and routinely provides updates to the Board.

Grainger has been consistently recognized for its commitment to its culture, diversity, equity and inclusion efforts and employee engagement.

*Workplace Practices and Policies*

The Company

Grainger’s purpose is to keep the world working.

Whether that means helping a hospital focus on patient care, a manufacturing plant focus on building great products or a school focus on educating, Grainger and its team members help keep facilities running so customers can focus on what they do best.

Business Model

Grainger's strategy is defined by its customers’ needs and the Company uses a combination of its high-touch and endless assortment businesses to serve the varying needs for customers of all sizes.

This model helps Grainger deliver a great customer experience and develop deep customer relationships—whether onsite, at a branch, over the phone or online.

Grainger creates value for customers through its sales and service representatives, technical product support, fulfillment capabilities, inventory management solutions and other services.

The endless assortment model is designed for customers with less complex needs and includes the Zoro brand in the United States (U.S.) and United Kingdom (U.K.) and MonotaRO in Japan.

Customers buying through the endless assortment platforms have access to an expansive product assortment and can quickly find the products they need with an easy and streamlined online search experience.


Accelerated Growth

Grainger’s high-touch and endless assortment businesses are supported by Grainger's strong competencies to help drive accelerated growth across the MRO industry.


Geographic Overview

While the global MRO market is vastly large, Grainger's estimated addressable market is more than $200 billion.

Grainger is most successful in markets where it has scale positions in purchasing, supply chain and information technology (IT), and where a developed infrastructure exists.

Those markets include North America, Europe and Japan.

Each of these core markets has similar characteristics: the market is large, and the competition is highly fragmented.

In total, Grainger estimates it has approximately 6% share within these markets with ample opportunity for growth.

Grainger’s two reportable segments are the U.S. and Canada through December 31, 2020, and are further described below.

Other businesses include the endless assortment businesses, Zoro in the U.S. and the U.K. and MonotaRO in Japan, and smaller international businesses primarily in the U.K. and Mexico.

The table below shows Grainger's estimated share of the MRO market and the summary of its operations by reportable segments and other businesses as of December 31, 2020:

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | Approximate Market Share | | | | | | Distribution Centers (DCs)(1) | | | | | | Branches(1) | | | | | | Approximate Number of Customers Served (thousands)(2) | | |

| United States - high touch business | | | 7% | | | | | | 17 | | | | | | 287 | | | | | | 1,100 | | |

| Canada - high-touch business | | | 4% | | | | | | 5 | | | | | | 49 | | | | | | 50 | | |

| International high-touch businesses | | | 2% | | | | | | 3 | | | | | | 71 | | | | | | 50 | | |

| Total | | | 6% | | | | | | 29 | | | | | | 407 | | | | | | 5,000 | | |

(1) See Item 2: Properties for more information.

(2) Customers served in the U.S. may include overlap with Zoro within the endless assortment businesses.

Grainger's high-touch and endless assortment businesses appeal to varying customer needs and complexities as follows:


Additionally, Grainger’s endless assortment businesses offer approximately 26 million products through the Company's expanding drop-ship assortment.

No single supplier comprised more than 5% of Grainger's total purchases and no significant barriers exist with respect to sources of supply.

No single product category comprises more than 19% of global sales.

Coronavirus (COVID-19) Pandemic Response

In response to the COVID-19 pandemic, the Company built and executed a pandemic-response focused on serving customers, supporting team members, and ensuring the Company remains financially strong.

Grainger is an essential business, allowing the Company to serve its customers with needed supplies and services throughout the pandemic and recovery.

As the pandemic evolved throughout 2020, the Company has continually shifted accordingly to ensure the Company is well positioned to continue executing its priorities.

For a description of legal proceedings, see the disclosure contained in Note [removed: 16] [added: 15] to the Consolidated Financial Statements included in Part II, Item 8: Financial Statements and Supplementary Data of this [removed: report,] [added: Form 10-K,] which is incorporated herein by reference.

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) [removed: OF][added: OF THE SECURITIES EXCHANGE ACT OF 1934]

[removed: THE] [added: ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE] SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, [removed: 2020][added: 2021]

| Illinois | | | | | | | | | | | | | | | [added: | | |] 36-1150280 | | |

| (State or other jurisdiction of incorporation or organization) | | | | | | | | | | | | | | | [added: | | |] (I.R.S. Employer Identification No.) | | |

| [removed: 100 Grainger Parkway,] | | | Lake Forest, | | | Illinois | | | | | | | | | [added: | | |] 60045-5201 | | |

| (Address of principal executive offices) | | | | | | | | | | | | | | | [added: | | |] (Zip Code) | | |

[removed: | (Registrant’s] [added: Registrant’s] telephone number, including area [removed: code) | | | | | | | | | | | | | | | | | |][added: code: (847) 535-1000]

| Title of Each Class | | | Trading [removed: Symbol] [added: Symbol(s)] | | | Name of Each Exchange on Which Registered | | |

Securities registered pursuant to Section 12(g) of the Act: [added: None]

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ [added: Emerging Growth Company ☐]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange [removed: Act.][added: Act.☐]

The aggregate market value of the voting common equity held by [removed: nonaffiliates] [added: non-affiliates] of the registrant was [removed: $15,084,028,289] [added: $20,483,168,550] as of the close of trading as reported on the New York Stock Exchange on June 30, [removed: 2020.][added: 2021.]

The registrant had [removed: 52,375,717] [added: 51,107,898] shares of the Company’s Common Stock outstanding as of [removed: January 31, 2021.][added: February 11, 2022.]

Portions of the registrant's definitive proxy statement to be filed in connection with the annual meeting of shareholders to be held on April [removed: 28, 2021,] [added: 27, 2022,] are incorporated by reference into Part III [removed: hereof] of this [added: Annual Report on] Form 10-K [added: for the fiscal year ended December 31, 2021 (Form 10-K)] where indicated.

The registrant's definitive [removed: 2020] [added: 2021] proxy statement will be filed on or about March [removed: 18, 2021.][added: 17, 2022.]

| Item 1: | | | BUSINESS | | | | | | | | | | | | | | | [removed: [4](#i906ee179ad9f4903b49bbc95a4e596a7_13)] [added: [3](#ibfd9dc13381848669a4fb6062fd416bc_13)] | | |

| Item 1A: | | | RISK FACTORS | | | | | | | | | | | | | | | [removed: [13](#i906ee179ad9f4903b49bbc95a4e596a7_19)] [added: [10](#ibfd9dc13381848669a4fb6062fd416bc_19)] | | |

| Item 1B: | | | UNRESOLVED STAFF COMMENTS | | | | | | | | | | | | | | | [removed: [20](#i906ee179ad9f4903b49bbc95a4e596a7_22)] [added: [19](#ibfd9dc13381848669a4fb6062fd416bc_22)] | | |

| Item 2: | | | PROPERTIES | | | | | | | | | | | | | | | [removed: [21](#i906ee179ad9f4903b49bbc95a4e596a7_25)] [added: [20](#ibfd9dc13381848669a4fb6062fd416bc_28)] | | |

| Item 3: | | | LEGAL PROCEEDINGS | | | | | | | | | | | | | | | [removed: [21](#i906ee179ad9f4903b49bbc95a4e596a7_28)] [added: [20](#ibfd9dc13381848669a4fb6062fd416bc_28)] | | |

| Item 4: | | | MINE SAFETY DISCLOSURES | | | | | | | | | | | | | | | [removed: [21](#i906ee179ad9f4903b49bbc95a4e596a7_31)] [added: [20](#ibfd9dc13381848669a4fb6062fd416bc_31)] | | |

| Item 5: | | | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER | | | | | | | | | | | | | | | [removed: [22](#i906ee179ad9f4903b49bbc95a4e596a7_37)] [added: [21](#ibfd9dc13381848669a4fb6062fd416bc_37)] | | |

| Item 7: | | | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL | | | | | | | | | | | | | | | [removed: [25](#i906ee179ad9f4903b49bbc95a4e596a7_43)] [added: [23](#ibfd9dc13381848669a4fb6062fd416bc_43)] | | |

| Item 7A: | | | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | | | | | | | | | | | | | | | [removed: [35](#i906ee179ad9f4903b49bbc95a4e596a7_58)] [added: [36](#ibfd9dc13381848669a4fb6062fd416bc_64)] | | |

| Item 8: | | | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | | | | | | | | | | | | | | [removed: [35](#i906ee179ad9f4903b49bbc95a4e596a7_61)] [added: [37](#ibfd9dc13381848669a4fb6062fd416bc_67)] | | |

| Item 9: | | | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS | | | | | | | | | | | | | | | [removed: [35](#i906ee179ad9f4903b49bbc95a4e596a7_64)] [added: [67](#ibfd9dc13381848669a4fb6062fd416bc_70)] | | |

| Item 9A: | | | CONTROLS AND PROCEDURES | | | | | | | | | | | | | | | [removed: [35](#i906ee179ad9f4903b49bbc95a4e596a7_67)] [added: [67](#ibfd9dc13381848669a4fb6062fd416bc_73)] | | |

| Item 9B: | | | OTHER INFORMATION | | | | | | | | | | | | | | | [removed: [35](#i906ee179ad9f4903b49bbc95a4e596a7_70)] [added: [69](#ibfd9dc13381848669a4fb6062fd416bc_76)] | | |

| Item 10: | | | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | | | | | | | | | | | | | | | [removed: [36](#i906ee179ad9f4903b49bbc95a4e596a7_76)] [added: [70](#ibfd9dc13381848669a4fb6062fd416bc_82)] | | |

| Item 11: | | | EXECUTIVE COMPENSATION | | | | | | | | | | | | | | | [removed: [36](#i906ee179ad9f4903b49bbc95a4e596a7_79)] [added: [70](#ibfd9dc13381848669a4fb6062fd416bc_85)] | | |

| Item 12: | | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND [removed: RELATED STOCKHOLDER MATTERS] | | | | | | | | | | | | | | | [removed: [36](#i906ee179ad9f4903b49bbc95a4e596a7_82)] [added: [70](#ibfd9dc13381848669a4fb6062fd416bc_88)] | | |

| Item 13: | | | CERTAIN RELATIONSHIPS AND RELATED [removed: TRANSACTIONS,] [added: TRANSACTIONS] AND DIRECTOR [removed: INDEPENDENCE] | | | | | | | | | | | | | | | [removed: [36](#i906ee179ad9f4903b49bbc95a4e596a7_85)] [added: [70](#ibfd9dc13381848669a4fb6062fd416bc_91)] | | |

| Item 14: | | | PRINCIPAL ACCOUNTANT FEES AND SERVICES | | | | | | | | | | | | | | | [removed: [36](#i906ee179ad9f4903b49bbc95a4e596a7_88)] [added: [70](#ibfd9dc13381848669a4fb6062fd416bc_94)] | | |

| Item 15: | | | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | | | | | | | | | | | | | | | [removed: [37](#i906ee179ad9f4903b49bbc95a4e596a7_94)] [added: [71](#ibfd9dc13381848669a4fb6062fd416bc_100)] | | |

| Item 16: | | | FORM 10-K SUMMARY | | | | | | | | | | | | | | | [removed: [37](#i906ee179ad9f4903b49bbc95a4e596a7_94)] [added: [74](#ibfd9dc13381848669a4fb6062fd416bc_103)] | | |

| 100 Grainger Parkway | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Item 6: | | | RESERVED | | | | | | | | | | | | | | | [22](#ibfd9dc13381848669a4fb6062fd416bc_40) | | |

| Item 9C: | | | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | | | | | | | | | | | | | | | [69](#ibfd9dc13381848669a4fb6062fd416bc_2748779071463) | | |

| | | | | | | RELATED STOCKHOLDER MATTERS | | | | | | | | | | | | | | |

| | | | | | | INDEPENDENCE | | | | | | | | | | | | | | |

| Signatures | | | | | | | | | | | | | | | | | | [75](#ibfd9dc13381848669a4fb6062fd416bc_211) | | |

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | 847 | | | 535-1000 | | | | | | | | |

None

Emerging Growth Company ☐

| Item 6: | | | SELECTED FINANCIAL DATA | | | | | | | | | | | | | | | [24](#i906ee179ad9f4903b49bbc95a4e596a7_40) | | |

| Signatures | | | | | | | | | | | | | | | | | | [74](#i906ee179ad9f4903b49bbc95a4e596a7_235) | | |

As of December 31, [removed: 2020,] [added: 2021,] Grainger’s owned and leased facilities totaled approximately [removed: 26.8] [added: 29.2] million square feet.

| Location | | | | | | Facility and Use [removed: (7)] [added: (9)] | | | | | | Size in Square Feet (in thousands) | | | [added: | | | Segment | | |]

[removed: (2)] These facilities [removed: are primarily owned and] range in size from approximately [removed: 45,000] [added: 200] to [removed: 1.5 million] [added: 633,000] square feet.

[removed: These branches] [added: (1) Consists of 16 DCs that] range in size from approximately [removed: 500] [added: 55,000] to [removed: 70,000] [added: 1.5 million] square feet.

[removed: (5) These] [added: Other] facilities [removed: are primarily owned and] [added: include office space that] range in size from approximately [removed: 40,000] [added: 1,000] to [removed: 540,000] [added: 49,000] square feet.

[removed: (7)] [added: (9)] Owned facilities are not subject to any mortgages.

Grainger owns and leases facilities primarily in the U.S., Japan, Canada (5), Mexico (6), Puerto Rico (7) and the U.K. (8) The Company's corporate headquarters is located in Lake Forest, Illinois and other general offices are located in the Chicago Metropolitan area.

The following table includes Grainger's material facilities:

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| U.S. (1) | | | | | | DCs | | | | | | 9,132 | | | | | | High-Touch Solutions N.A. | | |

| U.S. (2) | | | | | | Branch Locations | | | | | | 6,407 | | | | | | High-Touch Solutions N.A. | | |

| U.S. (3) | | | | | | Other Facilities | | | | | | 4,805 | | | | | | High-Touch Solutions N.A. | | |

| Japan (4) | | | | | | DCs | | | | | | 3,718 | | | | | | Endless Assortment | | |

These facilities are primarily owned.

(2) Consists of 246 branches, 45 onsite and three will-call express locations.

These facilities are primarily owned.

(3) Primarily consists of storage facilities, office space and customer service centers.

These facilities are both owned and leased.

(4) Consists of eight DCs that range in size from approximately 11,000 to 1.8 million square feet.

These facilities are primarily leased.

These facilities are also primarily leased.

(5) In Canada, Grainger has 35 branch locations, five DCs and other facilities which total two million square feet.

(6) In Mexico, Grainger has 16 branch locations and two DCs which total 712,000 square feet.

(7) In Puerto Rico, Grainger has three branch locations and one DC which total 95,000 square feet.

(8) In the U.K., Grainger has 43 branch locations, one DC and other facilities which total 806,000 square feet.

The U.S. and Canada businesses accounted for the majority of the total square footage.

A brief description of significant facilities follows:

| | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| U.S. (1) | | | | | | 287 branch locations | | | | | | 6,404 | | |

| U.S. (2) | | | | | | 17 DCs | | | | | | 9,178 | | |

| U.S. (3) | | | | | | Other facilities | | | | | | 4,441 | | |

| Canada (4) | | | | | | 49 branch locations | | | | | | 686 | | |

| Canada (5) | | | | | | 5 DCs | | | | | | 968 | | |

| Canada | | | | | | Other facilities | | | | | | 440 | | |

| Other businesses (6) | | | | | | Other facilities | | | | | | 3,742 | | |

| Chicago area (2) | | | | | | Headquarters and general offices | | | | | | 947 | | |

| | | | | | | Total Square Footage | | | | | | 26,806 | | |

(1) Consists of 246 stand-alone, 39 onsite and 2 will-call express locations, of which 202 are owned and 85 are leased.

(3) These facilities include both owned and leased locations and primarily consist of storage facilities, office space and call centers.

(4) Consists of 34 stand-alone and 15 onsite locations, of which 18 are owned and 31 are leased.

(6) These facilities include owned and leased locations primarily in North America, Japan and the U.K.

The approximate number of shareholders of record of Grainger’s common stock as of [removed: January 29, 2021,] [added: February 11, 2022,] was [removed: 585] [added: 553] with approximately [removed: 226,759] [added: 285,524] additional shareholders holding stock through nominees.

(C)Purchases were made pursuant to a share repurchase program approved by Grainger's Board of Directors and announced [removed: on] April [removed: 24, 2019 (2019] [added: 28, 2021 (2021] Program).

The [removed: 2019] [added: 2021] Program [removed: authorizes] [added: authorized] the repurchase of up to [removed: 5] [added: five] million shares with no expiration date.

(D)The difference of [removed: 895] [added: 830] shares between the Total Number of Shares Purchased and the Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs represents shares purchased by the administrator and record keeper of the W.W. Grainger, Inc. [removed: Employees Profit Sharing] [added: Retirement Savings] Plan [removed: (ESPP)] for the benefit of the [removed: employees] [added: team members] who participate in the plan.

It covers the period commencing December 31, [removed: 2015,] [added: 2016] and ending December 31, [removed: 2020.][added: 2021.]

The graph assumes that the value for the investment in Grainger common stock and in each index was $100 on December 31, [removed: 2015,] [added: 2016,] and that all dividends were reinvested.

[removed: ][added: ]

| | | | [removed: 2015 | | |] 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | [added: 2021 | | |]

| Dow Jones US Industrial Suppliers Total Stock Market Index | | | 100 | | | [removed: 126] [added: 112] | | | [removed: 140] [added: 103] | | | [removed: 129] [added: 137] | | | [removed: 172] [added: 171] | | | [removed: 214] [added: 233] | | |

Dividends

| Oct. 1 – Oct. 31 | | | 138,985 | | | $423.80 | | | 138,890 | | | 4,121,591 | | | shares | | |

| Nov. 1 – Nov. 30 | | | 101,244 | | | $484.93 | | | 101,043 | | | 4,020,548 | | | shares | | |

| Dec. 1 – Dec. 31 | | | 134,893 | | | $502.16 | | | 134,359 | | | 3,886,189 | | | shares | | |

| Total | | | 375,122 | | | | | | 374,292 | | | | | | | | |

| W.W. Grainger, Inc. | | | $ | 100 | | $ | 104 | | $ | 127 | | $ | 155 | | $ | 191 | | $ | 246 | |

| S&P 500 Stock Index | | | 100 | | | 122 | | | 116 | | | 153 | | | 181 | | | 233 | | |

| Oct. 1 – Oct. 31 | | | 102,696 | | | $353.81 | | | 102,696 | | | 2,639,859 | | | shares | | |

| Nov. 1 – Nov. 30 | | | 578,797 | | | $400.63 | | | 578,497 | | | 2,061,362 | | | shares | | |

| Dec. 1 – Dec. 31 | | | 568,214 | | | $408.53 | | | 567,619 | | | 1,493,743 | | | shares | | |

| Total | | | 1,249,707 | | | | | | 1,248,812 | | | | | | | | |

On January 1, 2021, the ESPP was renamed the Retirement Savings Plan.

| W.W. Grainger, Inc. | | | $ | 100 | | $ | 117 | | $ | 122 | | $ | 149 | | $ | 182 | | $ | 223 | |

| S&P 500 Stock Index | | | 100 | | | 112 | | | 136 | | | 130 | | | 171 | | | 203 | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | 2020 | | | | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2016 | | |

| | | | (In millions of dollars, except for per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Net sales | | | $ | 11,797 | | | | | $ | 11,486 | | | | | $ | 11,221 | | | | | $ | 10,425 | | | | | $ | 10,137 | |

| Gross profit | | | 4,238 | | | | | | 4,397 | | | | | | 4,348 | | | | | | 4,098 | | | | | | 4,115 | | |

| Operating earnings | | | 1,019 | | | | | | 1,262 | | | | | | 1,158 | | | | | | 1,035 | | | | | | 1,113 | | |

| Net earnings attributable to W.W. Grainger, Inc. (herein referred to as Net earnings) | | | 695 | | | | | | 849 | | | | | | 782 | | | | | | 586 | | | | | | 606 | | |

| Net earnings per basic share | | | 12.88 | | | | | | 15.39 | | | | | | 13.82 | | | | | | 10.07 | | | | | | 9.94 | | |

| Net earnings per diluted share | | | 12.82 | | | | | | 15.32 | | | | | | 13.73 | | | | | | 10.02 | | | | | | 9.87 | | |

| Total current assets | | | 3,919 | | | | | | 3,555 | | | | | | 3,557 | | | | | | 3,206 | | | | | | 3,020 | | |

| Property, building and equipment, net | | | 1,395 | | | | | | 1,400 | | | | | | 1,352 | | | | | | 1,392 | | | | | | 1,421 | | |

| Long-term debt (less current maturities) | | | 2,389 | | | | | | 1,914 | | | | | | 2,090 | | | | | | 2,248 | | | | | | 1,841 | | |

| Total shareholders' equity | | | 2,093 | | | | | | 2,060 | | | | | | 2,093 | | | | | | 1,828 | | | | | | 1,906 | | |

| Operating cash flow | | | 1,123 | | | | | | 1,042 | | | | | | 1,057 | | | | | | 1,057 | | | | | | 1,024 | | |

| Cash dividends paid per share | | | $ | 5.94 | | | | | $ | 5.68 | | | | | $ | 5.36 | | | | | $ | 5.06 | | | | | $ | 4.83 | |

The items discussed below are considered to materially affect the comparability of the information reflected in the selected financial data.

For further information see Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations of this report.

Net earnings for 2020 included a net expense of $182 million after tax primarily consisting of a $54 million net charge related to intangible asset impairments, a $109 million net charge associated with the sale of the Fabory business, a $9 million net charge for the wind-down of operations of Zoro Tools Europe, and a $14 million net charge related to restructuring in U.S. and Canada.

The net expense was partially offset by a $4 million gain related to the sale of the China business.

Net earnings for 2019 included a net expense of $109 million primarily consisting of a $104 million net non-cash charge related to intangible assets impairment at the Cromwell business in the U.K., which is part of other businesses and a net charge of $5 million related to restructuring primarily in the U.S business.

Net earnings for 2018 included a net expense of $170 million primarily consisting of a $133 million net non-cash charge related to goodwill and intangible asset impairment at Cromwell, which is part of other businesses and a net charge of $37 million related to restructuring primarily consisting of asset impairment charges in Canada and other related charges, net of gains from the sale of real estate in the U.S., Canada and corporate offices.

Net earnings for 2017 included a net expense of $84 million primarily consisting of a net charge of $102 million related to restructuring and other charges primarily consisting of branch closures in the U.S. and Canada businesses, net of gains on sale of real estate in the U.S., the consolidation of the contact center network in the U.S. and the wind-down of operations in Colombia, which was part of other businesses.

This was partially offset by the net benefit of $15 million related to U.S. tax legislation and other discrete tax items.

Net earnings for 2016 included a net expense of $105 million primarily related to restructuring actions in the U.S. and Canada, goodwill and intangible impairments in Europe and Latin America operations, contingencies and a net tax benefit.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

W.W. Grainger, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of W.W. Grainger, Inc. and Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| | | | Valuation of Goodwill for the Canadian Reporting Unit | | |

| *Description of the Matter* | | | At December 31, 2021, the goodwill balance of the Canada business reporting unit was $129 million. As discussed in Notes 1 and 5 of the financial statements, goodwill is tested at the reporting unit level annually during the fourth quarter and more frequently if impairment indicators exist. Auditing management’s annual goodwill impairment analysis is complex and highly judgmental due to certain assumptions that are significant to the analysis. Management performed an annual impairment analysis in the fourth quarter to evaluate changes in key assumptions and results since the last impairment test. The more subjective assumptions used in the analysis were projections of future revenue growth and operating expenditures as well as the discount rate used, which are all affected by expectations about future market or economic conditions. | | |

| *How We Addressed the Matter in Our Audit* | | | Our audit procedures included, among others obtaining an understanding, evaluating the design and testing the operating effectiveness of controls over the Company’s goodwill impairment analysis, including controls over management’s review of the significant assumptions described above. | | |

| | | | To test management’s annual goodwill impairment analysis of the Canada business reporting unit, we performed audit procedures that included, among others, evaluating the key assumptions and results considering the relevant events and circumstances identified since the date the last fair value calculation. We compared the significant assumptions used by management to current industry and economic trends, changes to the Company’s business model, customer product mix, and other relevant factors. We also assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in fair value that would result from changes in the assumptions utilized in the last quantitative assessment. In addition, we reviewed the reconciliation of the fair value of the reporting units to the market capitalization of the Company and tested the completeness and accuracy of the underlying data used by management in its analysis. | | |

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2005.

Chicago, Illinois

February 23, 2022

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(In millions, except for per share amounts)

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | For the Years Ended December 31, | | | | | | | | | | | | | | |

| | | | 2021 | | | | | | 2020 | | | | | | 2019 | | |

| Net sales | | | $ | 13,022 | | | | | $ | 11,797 | | | | | $ | 11,486 | |

| Cost of goods sold | | | 8,302 | | | | | | 7,559 | | | | | | 7,089 | | |

| Gross profit | | | 4,720 | | | | | | 4,238 | | | | | | 4,397 | | |

The financial statements and supplementary data are included on pages 39 to 73.

See the Index to Financial Statements and Supplementary Data on page 38.

[removed: Grainger carried out an evaluation,] [added: The Company,] under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, [removed: of] [added: evaluated] the effectiveness of the design and operation of Grainger's disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended (Exchange Act).

[removed: *Internal] [added: Changes in Internal] Control Over Financial [removed: Reporting*][added: Reporting]

[removed: (A)Management's] [added: Management's] Annual Report on Internal Control Over Financial [removed: Reporting][added: Reporting]

[removed: Management's report on Grainger's] [added: The Company’s management is responsible for maintaining effective] internal control over financial reporting [removed: is included on page 39] [added: and for its assessment] of [removed: this Report under] the [removed: heading Management's] [added: effectiveness of internal control over financial reporting included in the accompanying Management’s] Annual Report on Internal [removed: Control Over] [added: Controls over] Financial Reporting.

[removed: (B)Attestation Report] [added: Report] of [removed: the] [added: Independent] Registered Public Accounting [removed: Firm][added: Firm]

[removed: The report from] Ernst & Young [removed: LLP on its audit of the effectiveness of] [added: LLP, an independent registered public accounting firm, has audited] Grainger's internal control over financial reporting as of December 31, [removed: 2020,] [added: 2021, as stated in their report, which] is included [removed: on page 40 of this Report under the heading Report of Independent Registered Public Accounting Firm.][added: herein.]

[removed: (C)Changes in] [added: Opinion on] Internal Control [removed: Over] [added: over] Financial [removed: Reporting][added: Reporting]

There [removed: have been] [added: were] no changes [removed: in] [added: to] Grainger's internal control over financial reporting [removed: during] [added: for] the [removed: last fiscal] quarter [added: ending December 31, 2021] that have materially affected, or are reasonably likely to materially affect, Grainger's internal control over financial reporting.

Evaluation of Disclosures and Controls

The management of W.W. Grainger, Inc. (Grainger) is responsible for establishing and maintaining adequate internal control over financial reporting.

Grainger's internal control system was designed to provide reasonable assurance to Grainger's management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements under all potential conditions.

Therefore, effective internal control over financial reporting provides only reasonable, and not absolute, assurance with respect to the preparation and presentation of financial statements.

Grainger's management assessed the effectiveness of Grainger's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

Based on its assessment under that framework and the criteria established therein, Grainger's management concluded that Grainger's internal control over financial reporting was effective as of December 31, 2021.

To the Shareholders and the Board of Directors of

W.W. Grainger, Inc. and Subsidiaries

We have audited W.W. Grainger, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, W.W Grainger, Inc. and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 23, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Chicago, Illinois

February 23, 2022

*Disclosure Controls and Procedures*

PART III

None.

PART III

The information required by this item is incorporated by reference to Grainger's proxy statement relating to the annual meeting of shareholders to be held April [removed: 28, 2021,] [added: 27, 2022,] under the captions “Board Qualifications, Attributes, Skills and Background,” “Annual Election of Directors,” “Candidates for Board Membership,” “Director Nominees’ Experience and Qualifications,” [removed: "Delinquent Section 16(a) Reports,"] “Audit Committee,” and “Board Affairs and Nominating Committee.” Information required by this item regarding executive officers of Grainger is set forth in Part I, Item 1, under the caption [removed: “Executive Officers of the Registrant.”][added: “Information about our Executive Officers.”]

The information required by this item is incorporated by reference to Grainger's proxy statement relating to the annual meeting of shareholders to be held April [removed: 28, 2021,] [added: 27, 2022,] under the captions “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee,” “Report of the Compensation Committee of the Board” and "Independent Compensation [removed: Consultant; Fees."][added: Consultant."]

The information required by this item is incorporated by reference to Grainger's proxy statement relating to the annual meeting of shareholders to be held April [removed: 28, 2021,] [added: 27, 2022,] under the captions “Ownership of Grainger Stock” and “Equity Compensation Plans.”

The information required by this item is incorporated by reference to Grainger's proxy statement relating to the annual meeting of shareholders to be held April [removed: 28, 2021,] [added: 27, 2022,] under the captions “Director Independence,” "Annual Election of Directors" and “Transactions with Related Persons.”

The information required by this item is incorporated by reference to Grainger's proxy statement relating to the annual meeting of shareholders to be held April [removed: 28, 2021,] [added: 27, 2022,] under the caption “Audit Fees and Audit Committee Pre-Approval Policies and Procedures.”

(1) All Financial Statements

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021, 2020 and 2019

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Page | | | | | | | | |

| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PCAOB ID: | | | 42 | | | [37](#ibfd9dc13381848669a4fb6062fd416bc_1735) | | |

| CONSOLIDATED STATEMENTS OF EARNINGS | | | | | | [39](#ibfd9dc13381848669a4fb6062fd416bc_121) | | |

| CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS | | | | | | [40](#ibfd9dc13381848669a4fb6062fd416bc_124) | | |

| CONSOLIDATED BALANCE SHEETS | | | | | | [41](#ibfd9dc13381848669a4fb6062fd416bc_127) | | |

| CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | [42](#ibfd9dc13381848669a4fb6062fd416bc_130) | | |

| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | | | | | | [43](#ibfd9dc13381848669a4fb6062fd416bc_133) | | |

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | | | | | | [44](#ibfd9dc13381848669a4fb6062fd416bc_136) | | |

(3) Exhibits Required by Item 601 of Regulation S-K

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| EXHIBIT INDEX (1) | | | | | | | | |

| EXHIBIT NO. | | | | | | DESCRIPTION | | |

| [2.1](http://www.sec.gov/Archives/edgar/data/277135/000110465915055285/a15-16633_1ex2d1.htm) | | | | | | Share Purchase Agreement, dated as of July 30, 2015, by and among Grainger, GWW UK Holdings Limited, Gregory Family Office Limited and Michael Gregory, incorporated by reference to Exhibit 2.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated July 31, 2015. | | |

| [3.1](http://www.sec.gov/Archives/edgar/data/277135/0000277135-98-000011.txt) | | | | | | Restated Articles of Incorporation, incorporated by reference to Exhibit 3(i) to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. | | |

| [3.2](http://www.sec.gov/Archives/edgar/data/277135/000110465917015516/a17-8047_1ex3d1d1.htm) | | | | | | By-laws, as amended on March 9, 2017, incorporated by reference to Exhibit 3.1.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated March 9, 2017. | | |

| 4.1 | | | | | | No instruments which define the rights of holders of W.W. Grainger, Inc.’s Industrial Development Revenue Bonds are filed herewith, pursuant to the exemption contained in Regulation S-K, Item 601(b)(4)(iii). W.W. Grainger, Inc. hereby agrees to furnish to the SEC, upon request, a copy of any such instrument. | | |

| [4.2](http://www.sec.gov/Archives/edgar/data/277135/000110465915044837/a15-11230_5ex4d1.htm) | | | | | | Indenture, dated as of June 11, 2015, between W.W. Grainger, Inc. and U.S. Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated June 11, 2015. | | |

| [4.3](http://www.sec.gov/Archives/edgar/data/277135/000110465915044837/a15-11230_5ex4d2.htm) | | | | | | First Supplemental Indenture, dated as of June 11, 2015, between W.W. Grainger, Inc. and U.S. Bank National Association, as trustee, and Form of 4.60% Senior Notes due 2045, incorporated by reference to Exhibit 4.2 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated June 11, 2015. | | |

| [4.4](http://www.sec.gov/Archives/edgar/data/277135/000110465916121315/a16-8597_3ex4d1.htm) | | | | | | Second Supplemental Indenture, dated as of May 16, 2016, between W.W. Grainger, Inc., and U.S. Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 16, 2016. | | |

| [4.5](http://www.sec.gov/Archives/edgar/data/277135/000110465917034230/a17-12594_3ex4d1.htm) | | | | | | Third Supplemental Indenture, dated as of May 22, 2017, between W.W. Grainger, Inc., and U.S. Bank National Association, as trustee, incorporated by reference to Exhibit 4.1 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 22, 2017. | | |

| [4.6](http://www.sec.gov/Archives/edgar/data/277135/000110465916121315/a16-8597_3ex4d1.htm) | | | | | | Form of 3.75% Senior Notes due 2046 (included in Exhibit 4.4), incorporated by reference to Exhibit 4.2 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 16, 2016. | | |

| [4.7](http://www.sec.gov/Archives/edgar/data/277135/000110465917034230/a17-12594_3ex4d1.htm) | | | | | | Form of 4.20% Senior Notes due 2047 (included in Exhibit 4.5), incorporated by reference to Exhibit 4.2 to W.W. Grainger, Inc.’s Current Report on Form 8-K dated May 22, 2017. | | |

| [4.8](https://www.sec.gov/Archives/edgar/data/277135/000027713522000012/exhibit48toformdescription.htm) | | | | | | Description of Registrant's Securities Pursuant to Section 12 of the Securities Exchange Act of 1934. | | |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| [4.9](http://www.sec.gov/Archives/edgar/data/277135/000110465920025418/tm208239d5_ex4-1.htm) | | | | | | Fourth Supplemental Indenture, dated as of February 26, 2020, between W.W. Grainger, Inc., and U.S. Bank National Association, as trustee incorporated by reference to Exhibit 4.1 to W.W. Grainger, Inc.'s Current Report on Form 8-K dated February 21, 2020. | | |

| [4.10](http://www.sec.gov/Archives/edgar/data/277135/000110465920025418/tm208239d5_ex4-1.htm) | | | | | | Form of 1.85% Senior Notes due 2025 (included in Exhibit 4.1), incorporated by reference to Exhibit 4.2 to W.W. Grainger, Inc.'s Current Report on Form 8-K dated February 21, 2020. | | |

| [10.1](http://www.sec.gov/Archives/edgar/data/277135/000027713506000031/ex10a1990amended072606.htm) | | | | | | 1990 Long-Term Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10(a) to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.* | | |

| [10.2](http://www.sec.gov/Archives/edgar/data/277135/000027713509000012/exhibit10bi.htm) | | | | | | Form of Indemnification Agreement between W.W. Grainger, Inc. and each of its directors and certain of its executive officers, incorporated by reference to Exhibit 10(b)(i) to W.W. Grainger, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.* | | |

| [10.3](http://www.sec.gov/Archives/edgar/data/277135/000027713508000006/exhibit10v.htm) | | | | | | Frozen Executive Death Benefit Plan, as amended, incorporated by reference to Exhibit 10(b)(v) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.* | | |

| [10.4](http://www.sec.gov/Archives/edgar/data/277135/000027713509000005/exhibit10v1.htm) | | | | | | First amendment to the Frozen Executive Death Benefit Plan, incorporated by reference to Exhibit 10(b)(v)(1) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008.* | | |

| [10.5](http://www.sec.gov/Archives/edgar/data/277135/000027713510000011/exhibit10biv2.htm) | | | | | | Second amendment to the Frozen Executive Death Benefit Plan, incorporated by reference to Exhibit 10(b)(iv)(2) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009.* | | |

| [10.6](http://www.sec.gov/Archives/edgar/data/277135/000027713504000007/exhibit10_8.htm) | | | | | | Supplemental Profit Sharing Plan, as amended, incorporated by reference to Exhibit 10(viii) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003.* | | |

| [10.7](http://www.sec.gov/Archives/edgar/data/277135/000027713508000006/exhibit10ix.htm) | | | | | | Supplemental Profit Sharing Plan II, as amended, incorporated by reference to Exhibit 10(b)(ix) to W.W. Grainger, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.* | | |

(1) Financial Statements: see Item 8: Financial Statements and Supplementary Data, on pages 38 hereof, for a list of financial statements.

Management's Annual Report on Internal Control Over Financial Reporting.

(3) Exhibits Required by Item 601 of Regulation S-K: the information required by this Item 15(a)(3) of Form 10-K is set forth on the Exhibit Index that follows the Signatures page 74 of the Form 10-K.

DATE: February [removed: 24, 2021][added: 23, 2022]

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on February [removed: 24, 2021,] [added: 23, 2022,] in the capacities indicated.

| Senior Vice President | | | | | | /s/ [removed: Stuart L. Levenick] [added: Katherine D. Jaspon] | | |

| and Chief Financial Officer | | | | | | [removed: Stuart L. Levenick] [added: Katherine D. Jaspon] | | |

| [removed: /s/ Eric R. Tapia] | | | | | | /s/ Neil S. Novich | | |

| [removed: Eric R. Tapia] | | | | | | Neil S. Novich | | |

| /s/ Laurie R. Thomson | | | | | | /s/ Stuart L. Levenick | | |

| Laurie R. Thomson | | | | | | Stuart L. Levenick | | |

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

December 31, 2020, 2019 and 2018

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| Page | | | | | |

| MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING | | | [39](#i906ee179ad9f4903b49bbc95a4e596a7_106) | | |

| REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | | | [40](#i906ee179ad9f4903b49bbc95a4e596a7_109) | | |

| FINANCIAL STATEMENTS | | | | | |

| CONSOLIDATED STATEMENTS OF EARNINGS | | | [43](#i906ee179ad9f4903b49bbc95a4e596a7_115) | | |

| CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS | | | [44](#i906ee179ad9f4903b49bbc95a4e596a7_118) | | |

| CONSOLIDATED BALANCE SHEETS | | | [45](#i906ee179ad9f4903b49bbc95a4e596a7_124) | | |

| CONSOLIDATED STATEMENTS OF CASH FLOWS | | | [46](#i906ee179ad9f4903b49bbc95a4e596a7_130) | | |

| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | | | [47](#i906ee179ad9f4903b49bbc95a4e596a7_133) | | |

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | | | [48](#i906ee179ad9f4903b49bbc95a4e596a7_139) | | |

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of W.W. Grainger, Inc. (Grainger) is responsible for establishing and maintaining adequate internal control over financial reporting.

Grainger's internal control system was designed to provide reasonable assurance to Grainger's management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements under all potential conditions.

Therefore, effective internal control over financial reporting provides only reasonable, and not absolute, assurance with respect to the preparation and presentation of financial statements.

Grainger's management assessed the effectiveness of Grainger's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

Based on its assessment under that framework and the criteria established therein, Grainger's management concluded that Grainger's internal control over financial reporting was effective as of December 31, 2020.

Ernst & Young LLP, an independent registered public accounting firm, has audited Grainger's internal control over financial reporting as of December 31, 2020, as stated in their report, which is included herein.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

W.W. Grainger, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of W.W. Grainger, Inc. and Subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter