Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

W.W. Grainger, Inc.

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, 2025 and 2024, 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, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, 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, 2025, 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 19, 2026 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 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 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, 2025, the goodwill balance of the Canada business reporting unit was $119 million. As discussed in Notes 1 and 5 to 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 for the Canada business reporting unit was complex due to certain assumptions that were significant to the analysis. Management performed an annual impairment analysis in the fourth quarter to evaluate changes in key assumptions and operating results since the last impairment test. The more subjective assumptions used in the analysis were projections of future revenue growth, and operating expenditures, which are all affected by expectations about future market or economic conditions.
How We Addressed the Matter in Our Audit			Our audit procedures included 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 changes in key assumptions and operating results since the last impairment test. To test management’s annual goodwill impairment analysis of the Canada business reporting unit, we performed audit procedures that included evaluating the key assumptions and operating results considering the relevant events and circumstances identified since the date of 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.

/s/ Ernst & Young LLP

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

Chicago, Illinois

February 19, 2026

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(In millions, except for per share amounts)

			For the Years Ended December 31,
			2025						2024						2023
Net sales			$	17,942					$	17,168					$	16,478
Cost of goods sold			10,933						10,410						9,982
Gross profit			7,009						6,758						6,496
Selling, general and administrative expenses			4,514						4,121						3,931
Operating earnings			2,495						2,637						2,565
Other (income) expense:
Interest expense – net			81						77						93
Other – net			(16)						(24)						(28)
Total other expense – net			65						53						65
Earnings before income taxes			2,430						2,584						2,500
Income tax provision			622						595						597
Net earnings			1,808						1,989						1,903
Less net earnings attributable to noncontrolling interest			102						80						74
Net earnings attributable to W.W. Grainger, Inc.			$	1,706					$	1,909					$	1,829
Earnings per share:
Basic			$	35.47					$	38.84					$	36.39
Diluted			$	35.40					$	38.71					$	36.23
Weighted average number of shares outstanding:
Basic			47.9						48.9						49.9
Diluted			48.0						49.0						50.1

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In millions of dollars)

			For the Years Ended December 31,
			2025						2024						2023
Net earnings			$	1,808					$	1,989					$	1,903
Other comprehensive earnings (losses):
Foreign currency translation adjustments			49						(137)						(11)
Reclassification of cumulative translation adjustment to earnings			40						—						—
Postretirement benefit plan gains (losses) – net of tax (expense) benefit of $(5), $0, and $2, respectively			19						(1)						(2)
Total other comprehensive earnings (losses)			108						(138)						(13)
Comprehensive earnings – net of tax			1,916						1,851						1,890
Less comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings			102						80						74
Foreign currency translation adjustments			(1)						(36)						(21)
Total comprehensive earnings (losses) attributable to noncontrolling interest			101						44						53
Comprehensive earnings attributable to W.W. Grainger, Inc.			$	1,815					$	1,807					$	1,837

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

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

			As of December 31,
Assets			2025						2024
Current assets
Cash and cash equivalents			$	585					$	1,036
Accounts receivable (less allowance for credit losses of $32 and $32)			2,329						2,232
Inventories – net			2,394						2,306
Prepaid expenses and other current assets			176						163
Total current assets			5,484						5,737
Property, buildings and equipment – net			2,268						1,927
Goodwill			360						355
Intangibles – net			265						243
Operating lease right-of-use			345						371
Other assets			240						196
Total assets			$	8,962					$	8,829
Liabilities and shareholders' equity
Current liabilities
Current maturities			126						499
Trade accounts payable			963						952
Accrued compensation and benefits			343						324
Operating lease liability			73						78
Accrued expenses			386						407
Income taxes payable			49						45
Total current liabilities			1,940						2,305
Long-term debt			2,362						2,279
Long-term operating lease liability			301						327
Deferred income taxes and tax uncertainties			121						101
Other non-current liabilities			97						114
Shareholders' equity
Cumulative preferred stock – $5 par value – 12,000,000 shares authorized; none issued or outstanding			—						—
Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued			55						55
Additional contributed capital			1,446						1,399
Retained earnings			14,958						13,677
Accumulated other comprehensive losses			(165)						(274)
Treasury stock, at cost – 62,240,438 and 61,326,349 shares, respectively			(12,558)						(11,499)
Total W.W. Grainger, Inc. shareholders’ equity			3,736						3,358
Noncontrolling interest			405						345
Total shareholders' equity			4,141						3,703
Total liabilities and shareholders' equity			$	8,962					$	8,829

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of dollars)

			For the Years Ended December 31,
			2025						2024						2023
Cash flows from operating activities:
Net earnings			$	1,808					$	1,989					$	1,903
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for credit losses			23						23						23
Deferred income taxes and tax uncertainties			16						(8)						(9)
Depreciation and amortization			254						237						214
Non-cash lease expense			82						84						76
Net losses from sales of assets and business divestitures			196						—						17
Stock-based compensation			64						62						62
Change in operating assets and liabilities:
Accounts receivable			(190)						(110)						(98)
Inventories			(147)						(77)						(16)
Prepaid expenses and other assets			(73)						(36)						101
Trade accounts payable			43						20						(65)
Operating lease liabilities			(104)						(96)						(88)
Accrued liabilities			38						20						(91)
Income taxes – net			(4)						(3)						(4)
Other non-current liabilities			9						6						6
Net cash provided by operating activities			2,015						2,111						2,031
Cash flows from investing activities:
Capital expenditures			(684)						(541)						(445)
Proceeds from sales of assets and business divestitures			33						3						21
Other – net			6						18						2
Net cash used in investing activities			(645)						(520)						(422)
Cash flows from financing activities:
Short-term borrowings (repayments), original maturities of 90 days or less, net			125						—						—
Proceeds from debt			91						503						7
Payments of debt			(506)						(39)						(37)
Proceeds from stock options exercised			15						30						34
Payments for employee taxes withheld from stock awards			(36)						(50)						(37)
Purchases of treasury stock			(1,045)						(1,201)						(850)
Cash dividends paid			(467)						(421)						(392)
Other – net			(2)						(2)						(3)
Net cash used in financing activities			(1,825)						(1,180)						(1,278)
Exchange rate effect on cash and cash equivalents			4						(35)						4
Net change in cash and cash equivalents			(451)						376						335
Cash and cash equivalents at beginning of year			1,036						660						325
Cash and cash equivalents at end of period			$	585					$	1,036					$	660
Supplemental cash flow information:
Cash payments for interest (net of amounts capitalized)			$	106					$	111					$	109
Cash payments for income taxes			$	610					$	606					$	615

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

			Common Stock			Additional Contributed Capital			Retained Earnings			Accumulated Other Comprehensive Earnings (Losses)			Treasury Stock			Noncontrolling Interest			Total
Balance at January 1, 2023			$	55		$	1,310		$	10,700		$	(180)		$	(9,445)		$	295		$	2,735
Stock-based compensation			—			46			—			—			12			2			60
Purchases of treasury stock			—			—			—			—			(852)			(1)			(853)
Net earnings			—			—			1,829			—			—			74			1,903
Other comprehensive earnings (losses)			—			—			—			8			—			(21)			(13)
Capital contribution			—			(1)			—			—			—			3			2
Cash dividends paid ($7.30 per share)			—			—			(367)			—			—			(26)			(393)
Balance at December 31, 2023			$	55		$	1,355		$	12,162		$	(172)		$	(10,285)		$	326		$	3,441
Stock-based compensation			—			47			—			—			(5)			1			43
Purchases of treasury stock			—			—			—			—			(1,209)			(1)			(1,210)
Net earnings			—			—			1,909			—			—			80			1,989
Other comprehensive earnings (losses)			—			—			—			(102)			—			(36)			(138)
Capital contribution			—			(3)			—			—			—			3			—
Cash dividends paid ($8.01 per share)			—			—			(394)			—			—			(28)			(422)
Balance at December 31, 2024			$	55		$	1,399		$	13,677		$	(274)		$	(11,499)		$	345		$	3,703
Stock-based compensation			—			48			—			—			(5)			—			43
Purchases of treasury stock			—			—			—			—			(1,054)			—			(1,054)
Net earnings			—			—			1,706			—			—			102			1,808
Other comprehensive earnings (losses)			—			—			—			109			—			(1)			108
Capital contribution			—			(1)			—			—			—			1			—
Cash dividends paid ($8.83 per share)			—			—			(425)			—			—			(42)			(467)
Balance at December 31, 2025			$	55		$	1,446		$	14,958		$	(165)		$	(12,558)		$	405		$	4,141

The accompanying notes are an integral part of these financial statements.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

W.W. Grainger, Inc. is a broad line distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, Japan and the United Kingdom (U.K.). In the fourth quarter of 2025, Grainger exited the U.K. market by completing the sale of the Cromwell business and closing the Zoro U.K. business. In this report, the words “Grainger” or “Company” mean W.W. Grainger, Inc. and its subsidiaries, except where the context makes it clear that the reference is only to W.W. Grainger, Inc. itself and not its subsidiaries.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries over which the Company exercises control. All significant intercompany transactions are eliminated from the Consolidated Financial Statements. The Company has a controlling ownership interest in MonotaRO, the endless assortment business in Japan, with the residual representing the noncontrolling interest.

The Company reports MonotaRO on a one-month calendar lag allowing for the timely preparation of financial statements. This one-month reporting lag is with the exception of significant transactions or events that occur during the intervening period.

Use of Estimates

The preparation of the Company's Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions affecting reported amounts in the Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates.

Foreign Currency Translation

The U.S. dollar is the Company's reporting currency for all periods presented. The financial statements of the Company’s foreign operating subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of the Company’s foreign operating subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at average rates in effect during the period. Translation gains or losses are recorded as a separate component of other comprehensive earnings (losses).

Revenue Recognition

The Company recognizes revenue when a sales arrangement with a customer exists (e.g., contract, purchase orders, others), the transaction price is fixed or determinable and the Company has satisfied its performance obligation per the sales arrangement.

The majority of Company revenue originates from contracts with a single performance obligation to deliver products, whereby performance obligations are satisfied when control of the product is transferred to the customer per the arranged shipping terms. Some Company contracts contain a combination of product sales and services, which are distinct and accounted for as separate performance obligations and are satisfied when the services are rendered. Total service revenue is not material and accounted for approximately 1% of the Company's revenue for the years ended December 31, 2025, 2024 and 2023.

The Company’s revenue is measured at the determinable transaction price, net of any variable considerations granted to customers and any taxes collected from customers and subsequently remitted to governmental authorities. Variable considerations include rights to return products and sales incentives, which primarily consist of volume rebates. These variable considerations are estimated throughout the year based on various factors, including contract terms, historical experience and performance levels. Total accrued sales returns were approximately $53 million and $52 million as of December 31, 2025 and 2024, respectively, and are reported as a reduction of Accounts receivable – net. Total accrued sales incentives were approximately $115 million and $109 million as of December 31, 2025 and 2024, respectively, and are reported as part of Accrued expenses.

The Company records a contract asset when it has a right to payment from a customer that is conditioned on events other than the passage of time. The Company also records a contract liability when customers prepay but the Company has not yet satisfied its performance obligation. The Company did not have any material unsatisfied performance obligations, contract assets or liabilities as of December 31, 2025 and 2024.

Cost of Goods Sold (COGS)

COGS, exclusive of depreciation and amortization, includes the purchase cost of goods sold net of vendor considerations, in-bound shipping costs, outbound shipping and handling costs and service costs. The Company receives vendor considerations, such as rebates to promote their products, which are generally recorded as a reduction to COGS. Rebates earned from vendors that are based on product purchases are capitalized into inventory and rebates earned based on products sold are credited directly to COGS. Total accrued vendor rebates were $150 million as of December 31, 2025 and 2024, and are reported in Trade accounts payable.

Selling, General and Administrative Expenses (SG&A)

Company SG&A is primarily comprised of payroll and benefits, advertising, depreciation and amortization, lease, indirect purchasing, supply chain and branch operations, technology, and selling expenses, as well as other types of general and administrative costs.

Advertising

Advertising costs, which include online marketing, are generally expensed in the year the related advertisement is first presented or when incurred. Total advertising expense was $813 million, $750 million and $638 million for 2025, 2024 and 2023, respectively.

Stock Incentive Plans

The Company measures all share-based payments using fair-value-based methods and records compensation expense on a straight-line basis over the vesting periods, net of estimated forfeitures.

Income Taxes

The Company recognizes the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. Also, the Company evaluates deferred income taxes to determine if valuation allowances are required using a “more likely than not” standard. This assessment considers the nature, frequency and amount of book and taxable income and losses, the duration of statutory carryback and forward periods, future reversals of existing taxable temporary differences and tax planning strategies, among other matters.

The Company recognizes tax benefits from uncertain tax positions only if (based on the technical merits of the position) it is more likely than not that the tax positions will be sustained on examination by the tax authority. The Company recognizes interest expense and penalties to its tax uncertainties in the provision for income taxes.

Other Comprehensive Earnings (Losses)

The Company's Other comprehensive earnings (losses) include foreign currency translation adjustments and unrecognized gains (losses) on postretirement and other employment-related benefit plans. Accumulated other comprehensive earnings (losses) (AOCE) are presented separately as part of shareholders' equity.

Cash and Cash Equivalents

The Company considers cash equivalents to be short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.

Concentration of Credit Risk

The Company places temporary cash investments with institutions of high credit quality and, by policy, limits the amount of credit exposure to any one institution. Also, the Company has a broad customer base representing many diverse industries across North America, Japan, and the U.K. Consequently, no significant concentration of credit risk is considered to exist.

Accounts Receivable and Allowance for Credit Losses

The Company’s accounts receivable arises primarily from sales on credit to customers and are stated at their estimated net realizable value. The Company establishes allowances for credit losses on customer accounts that are potentially uncollectible. These allowances are determined based on several factors, including the age of the receivables, historical collection trends and economic conditions that may have an impact on a specific industry, group of customers or a specific customer.

The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the loss-rate method, which requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivable. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual customers.

Inventories

Company inventories primarily consist of merchandise purchased for resale. The Company uses the last-in, first-out (LIFO) method, valued at the lower of cost or market, to account for approximately 80% of total inventory and the first-in, first-out (FIFO) method, valued at the lower of cost or net realizable value, for the remaining inventory. The Company regularly reviews inventory to evaluate continued demand and records excess and obsolete provisions representing the difference between excess and obsolete inventories and market value. Estimated market value considers various variables, including product demand, aging and shelf life, market conditions, and liquidation or disposition history and values.

If FIFO had been used for all of the Company’s inventories, they would have been $939 million and $804 million higher than reported as of December 31, 2025 and 2024, respectively. Concurrently, net earnings would have increased by $102 million, $26 million and $58 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Property, Buildings and Equipment

Property, buildings and equipment are stated at cost, less accumulated depreciation. Depreciation is computed over the estimated useful lives of the asset classes using the straight-line method. Useful lives for buildings, structures and improvements range from 10 to 50 years and furniture, fixtures, machinery and equipment from 3 to 20 years. Amounts expended for maintenance and repairs are charged to expense as incurred.

Long-Lived Assets

The carrying value of long-lived assets, primarily property, buildings and equipment and amortizable intangibles, is evaluated whenever events or changes in circumstances indicate that the carrying value of the asset group may be impaired. An impairment loss is recognized when estimated undiscounted future cash flows resulting from use of the asset, including disposition, are less than their carrying value. Impairment is measured as the amount by which the asset's carrying amount exceeds the fair value.

Leases

The Company leases certain properties, buildings and equipment (including branches, warehouses, DCs and office space) under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company determines if an arrangement contains a lease at inception. Leases with an initial term of more than 12 months are recorded on the balance sheet as right-of-use (ROU) assets representing the right to use the underlying asset for the lease term and the corresponding current and long-term lease liabilities representing the obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at the lease commencement or possession date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined using the incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate, the ROU asset and the lease liability are re-evaluated upon a lease modification.

Certain lease agreements include variable lease payments that primarily include payments for non-lease components including pass-through operating expenses such as certain maintenance costs and utilities, and payments for non-components such as real estate taxes and insurance. Lease agreements with fixed lease and non-lease components are generally accounted for as a single lease component for all underlying classes of assets. Certain of the Company’s lease arrangements contain renewal provisions from 1 to 30 years, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in SG&A.

Goodwill and Other Intangible Assets

In a business acquisition, the Company recognizes goodwill as the excess purchase price of an acquired reporting unit over the net amount assigned to assets acquired including intangible assets and liabilities assumed. Acquired intangibles include both assets with indefinite lives and assets that are subject to amortization, which are amortized straight-line over their estimated useful lives.

The Company tests goodwill and indefinite-lived intangibles for impairment annually during the fourth quarter and more frequently if impairment indicators exist. The Company performs qualitative assessments of significant events and circumstances, such as reporting units' historical and current results, assumptions regarding future performance, strategic initiatives and overall economic factors to determine the existence of impairment indicators and assess if it is more likely than not that the fair value of the reporting unit or indefinite-lived intangible asset is less than its carrying value that would necessitate a quantitative impairment test. In the quantitative test, Grainger compares the carrying value of the reporting unit or an indefinite-lived intangible asset with its fair value. Any excess of the carrying value over fair value is recorded as an impairment charge, presented as part of SG&A.

The fair value of reporting units is calculated primarily using the discounted cash flow method and utilizing value indicators from a market approach to evaluate the reasonableness of the resulting fair values. Estimates of market-participant risk-adjusted weighted average cost of capital are used as a basis for determining the discount rates to apply to the reporting units’ future expected cash flows and terminal value.

The Company’s indefinite-lived intangibles are primarily trade names. The fair value of trade names is calculated primarily using the relief-from-royalty method, which estimates the expected royalty savings attributable to the ownership of the trade name asset. The key assumptions when valuing a trade name are the revenue base, the royalty rate and the discount rate.

Additionally, the Company capitalizes certain costs related to the purchase and development of internal-use software, which are presented as intangible assets. Amortization of capitalized software is on a straight-line basis over 3 or 5 years.

Contingencies

The Company records a liability when a particular contingency is both probable and estimable. If the probable loss cannot be reasonably estimated, no accrual is recorded, but the loss contingency and the reasons to the effect that it cannot be reasonably estimated are disclosed. If a loss is reasonably possible, the Company will provide disclosure to that effect.

For further discussion on the Company's contingencies, see Note 14.

New Accounting Standards

Accounting Pronouncements Recently Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The Company adopted this ASU effective December 31, 2025 on retrospective basis and it did not have material impact on the Consolidated Financial Statements. For the related income tax reporting disclosure, see Note 12.

Accounting Pronouncements Recently Issued

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update requires public entities to disclose required information for inventory purchases, employee compensation, depreciation, intangible asset amortization and selling expenses. The effective date is for fiscal years beginning after December 15, 2026, with the option to early adopt prior to the effective date and should be applied on a prospective basis, but retrospective application is permitted. The Company is evaluating the impact of the requirements on the related income statement line item disclosures.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which introduces a practical expedient for all entities, allowing entities to assume that current conditions as of the balance sheet date remain unchanged when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under FASB Accounting Standards Codification (ASC) Topic 606. This guidance is effective for annual periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods. Early adoption is permitted and shall be applied prospectively. The Company is evaluating the impact of the adoption of this guidance on its Consolidated Financial Statements and related disclosures.

In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which modernizes the accounting for internal-use software by removing reference to prescriptive development stages and allows software development costs to be capitalized once management authorized and committed funding for the project and it is probable that the project will be completed. This guidance is effective for annual periods beginning after December 15, 2027 on either a prospective or a retrospective basis, with early adoption permitted. The Company is evaluating the impact of the adoption of this guidance on its Consolidated Financial Statements and related disclosures.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow - Scope Improvements, which clarifies the scope, form, and content of interim financial statements and notes in accordance with GAAP. The update compiles a comprehensive list of required interim disclosures, introduces a disclosure principle requiring entities to report material events occurring after the last annual period and aligns interim disclosure requirements across various topics. This guidance is effective for interim periods within annual periods beginning after December 15, 2027 on either a prospective or a retrospective basis, with early adoption permitted. The Company is evaluating the impact of the adoption of this guidance on its Condensed Consolidated Financial Statements and related disclosures.

NOTE 2 - BUSINESS DIVESTITURES

On December 17, 2025, Grainger completed the divestiture of the Cromwell business in the U.K, part of Other which is not a reportable segment. Accordingly, the Company's Consolidated Statements of Earnings, Comprehensive Earnings, and Cash Flows and related notes include financial results through the divestiture date. As a result of this transaction, assets of $246 million, liabilities of $83 million and accumulated other comprehensive losses of $44 million were removed from the Company’s Consolidated Balance Sheet as of December 31, 2025. The Company recorded a loss of $186 million in SG&A expenses related to the sale of this business (including cumulative translation losses related to the Cromwell business in accumulated other comprehensive losses). There was no tax benefit as a result of this loss. The divestiture is not considered a strategic shift that will have a material effect on the Company's operations and financial results; therefore, it does not qualify for reporting as discontinued operations.

NOTE 3 - REVENUE

Grainger serves a large number of customers in diverse industries, which are subject to different economic and market-specific factors. The Company's revenue is primarily comprised of MRO product sales and related activities.

The Company's presentation of revenue by reportable segment and customer industry most reasonably depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic and market-specific factors. The majority of Company revenue originates from contracts with a single performance obligation to deliver products, whereby performance obligations are satisfied when control of the product is transferred to the customer per the arranged shipping terms.

The following tables present the Company's percentage of revenue by reportable segment and by customer industry:

			Twelve Months Ended December 31,
			2025																		2024																		2023
Customer Industry(1)			High-Touch Solutions N.A.						Endless Assortment						Total Company (2)						High-Touch Solutions N.A.						Endless Assortment						Total Company (2)						High-Touch Solutions N.A.						Endless Assortment						Total Company (2)
Manufacturing			30		%				30		%				30		%				31		%				29		%				31		%				30		%				30		%				30		%
Government			19		%				3		%				15		%				19		%				3		%				16		%				19		%				3		%				16		%
Wholesale			7		%				18		%				9		%				7		%				18		%				9		%				7		%				16		%				9		%
Commercial Services			7		%				12		%				8		%				7		%				12		%				8		%				7		%				12		%				8		%
Contractors			6		%				12		%				7		%				5		%				12		%				6		%				5		%				12		%				6		%
Healthcare			7		%				2		%				6		%				7		%				2		%				6		%				7		%				2		%				6		%
Transportation			4		%				2		%				5		%				4		%				2		%				4		%				4		%				2		%				4		%
Retail			4		%				4		%				4		%				4		%				4		%				4		%				4		%				4		%				4		%
Utilities			3		%				2		%				3		%				3		%				2		%				3		%				3		%				2		%				3		%
Warehousing			3		%				—		%				2		%				3		%				—		%				2		%				4		%				—		%				3		%
Other(3)			10		%				15		%				11		%				10		%				16		%				11		%				10		%				17		%				11		%
Total net sales			100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%
Percent of total company revenue			78		%				20		%				100		%				80		%				18		%				100		%				81		%				18		%				100		%
(1)Customer industry results for the twelve months ended December 31, 2025, 2024 and 2023 primarily use the North American Industry Classification System (NAICS). As customers' businesses evolve, industry classifications may change. When these changes occur, Grainger does not recast the customer classification for prior periods as the industry used in the prior period was appropriate at the point-in-time. As a result, year-over-year changes may be impacted.
(2)Total Company includes Other, which includes the Cromwell business. The Cromwell business was sold in December 2025. For further details on the sale, see Note 2. Other accounted for approximately 2%, 2% and 1% of Total Company revenue for the twelve months ended December 31, 2025, 2024 and 2023, respectively.
(3)Other primarily includes revenue from industries and customers that are not material individually, including hospitality, restaurants, property management and natural resources.

NOTE 4 - PROPERTY, BUILDINGS AND EQUIPMENT

Grainger's property, buildings and equipment consisted of the following (in millions of dollars):

			As of
			December 31, 2025						December 31, 2024
Land and land improvements			$	551					$	415
Building, structures and improvements			1,883						1,723
Furniture, fixtures, machinery and equipment			2,066						1,945
Property, buildings and equipment			4,500						4,083
Less: Accumulated depreciation and amortization			2,232						2,156
Property, buildings and equipment, net			$	2,268					$	1,927

Depreciation expense on property, buildings and equipment was $171 million, $164 million and $146 million for the years ended December 31, 2025, 2024 and 2023, respectively.

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS

Grainger completed its annual impairment testing of goodwill and intangible assets during the fourth quarter of 2025 and 2024. Based on the results of that testing, the Company did not identify any significant events or changes in circumstances that indicated the existence of impairment indicators and concluded that it was more likely than not that the fair value of the reporting units exceeded their carrying amounts at each respective period.

High-Touch Solutions N.A. – Canada Business

As of December 31, 2025 and 2024, the Canada business reporting unit had goodwill of $119 million and $114 million, respectively. As part of our annual impairment testing, the Company compared the current results to forecasted expectations of the most recent quantitative analysis, along with analyzing macroeconomic conditions, current industry trends and transactions, and other market data of industry peers. The Company also performed various sensitivities over key assumptions, including projections of future revenue growth and operating expenditures used in the analysis. The Company did not identify any significant events or changes in circumstances that indicated the existence of impairment indicators for its Canada business, and concluded it was more likely than not its fair value exceeded its carrying value.

The balances and changes in the carrying amount of goodwill by segment are as follows (in millions of dollars):

			High-Touch Solutions N.A.						Endless Assortment												Total
Balance at January 1, 2024			$	315					$	55											$	370
Translation			(9)						(6)												(15)
Balance at December 31, 2024			306						49												355
Translation			5						—												5
Balance at December 31, 2025			$	311					$	49											$	360

The Company's cumulative goodwill impairment as of December 31, 2025, was $32 million. No goodwill impairment was recorded for the twelve months ended December 31, 2025, 2024 and 2023.

The balances and changes in intangible assets – net are as follows (in millions of dollars):

									As of December 31,
									2025																		2024
			Weighted average life						Gross carrying amount						Accumulated amortization						Net carrying amount						Gross carrying amount						Accumulated amortization						Net carrying amount
Customer lists and relationships			10.7 years						$	163					$	157					$	6					$	164					$	155					$	9
Trademarks, trade names and other			16.5 years						20						17						3						31						24						7
Non-amortized trade names and other			Indefinite						19						—						19						18						—						18
Capitalized software			4.5 years						821						584						237						714						505						209
Total intangible assets			5.8 years						$	1,023					$	758					$	265					$	927					$	684					$	243

Amortization expense of intangible assets recorded in SG&A was $81 million, $70 million and $64 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Estimated amortization expense for future periods is as follows (in millions of dollars):

Year						Expense
2026						$	76
2027						68
2028						53
2029						32
2030						12
Thereafter						5
Total						$	246

NOTE 6 - DEBT

Total debt, including long-term, current maturities and debt issuance costs and discounts – net, consisted of the following (in millions of dollars):

			As of December 31,
			2025												2024
			Carrying Value						Fair Value						Carrying Value						Fair Value
4.60% senior notes due 2045			$	1,000					$	904					$	1,000					$	894
4.45% senior notes due 2034			500						496						500						477
3.75% senior notes due 2046			400						338						400						332
4.20% senior notes due 2047			400						317						400						312
Japanese Yen term loans			83						83						—						—
Debt issuance costs – net of amortization and other			(21)						(21)						(21)						(21)
Long-term debt			2,362						2,117						2,279						1,994
1.85% senior notes due 2025			—						—						500						498
Commercial paper and other			126						126						(1)						(1)
Current maturities			126						126						499						497
Total debt			$	2,488					$	2,243					$	2,778					$	2,491

Revolving Credit Facility

In October 2023, the Company entered into a five-year unsecured revolving credit facility agreement (2023 Credit Facility). Grainger may obtain loans in various currencies on a revolving basis in an aggregate amount not exceeding $1.25 billion, which may be increased up to $1.875 billion at the request of the Company, subject to obtaining additional commitments and other customary conditions. The primary purpose of the 2023 Credit Facility is to support the Company's commercial paper program and for general corporate purposes.

As of December 31, 2025, there was $125 million of commercial paper outstanding and recorded as short-term debt with a weighted-average interest rate of 3.84%. There were no borrowings outstanding as of December 31, 2024.

Senior Notes

In the years 2015-2024, Grainger issued $2.8 billion in unsecured long-term debt (Senior Notes) primarily to provide flexibility in funding general working capital needs, share repurchases and long-term cash requirements. The Senior Notes require no principal payments until maturity and interest is paid semi-annually. On February 18, 2025, Grainger repaid in full the principal amount of $500 million for the 1.85% Senior Notes that matured in February 2025. The related interest rate swaps with a notional value of $450 million that hedged a portion of the interest rate risk related to this debt expired on February 15, 2025.

The Company incurred debt issuance costs related to the Senior Notes representing underwriting fees and other expenses. These costs were recorded as a contra-liability in Long-term debt and are being amortized over the term of the Senior Notes using the straight-line method to Interest expense – net. As of December 31, 2025 and 2024, the unamortized costs were $21 million and $22 million, respectively.

Japanese Yen Term Loans

In 2025, MonotaRO entered into ¥13 billion term loan agreements to fund the expansion of its distribution center (DC) network. The Japanese Yen term loans mature in 2035, payable in equal monthly principal installments from September 2028 through June 2035, and bear a weighted average interest rate of 1.27%.

Fair Value

The estimated fair value of the Company’s senior notes was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as Level 2 inputs within the fair value hierarchy.

The Company's debt instruments include affirmative and negative covenants that are usual and customary for companies with similar credit ratings and do not contain any financial performance covenants. The Company was in compliance with all debt covenants as of December 31, 2025 and 2024.

The Company's foreign subsidiaries utilize various financing sources for working capital purposes and other operating needs. These financing sources in aggregate were not material as of December 31, 2025 and 2024.

The scheduled aggregate principal payments required on the Company's indebtedness, based on the maturity dates defined within the debt arrangements, for the succeeding five years, excluding debt issuance costs and the impact of derivatives, are due as follows (in millions of dollars):

Year						Payment Amount
2026						$	126
2027						—
2028						—
2029						—
2030						—
Thereafter						2,383
Total						$	2,509

NOTE 7 - EMPLOYEE BENEFITS

The Company provides various retirement benefits to eligible team members, including contributions to defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and other benefits. Eligibility requirements and benefit levels vary depending on team member location. Various foreign benefit plans cover team members in accordance with local legal requirements.

Defined Contribution Plans

A majority of the Company's U.S. team members are covered by a retirement savings plan, which provides for an automatic contribution equal to 6% of the eligible team member's total eligible compensation. The total retirement savings plan expense was $95 million, $91 million, and $85 million for 2025, 2024 and 2023, respectively.

The Company sponsors additional defined contribution plans available to certain U.S. and foreign team members for which contributions are made by the Company and participating team members. The expense associated with these defined contribution plans totaled $19 million, $20 million and $21 million for 2025, 2024 and 2023, respectively.

Postretirement Healthcare Benefits Plans

The Company has a postretirement healthcare benefit plan that provides coverage for certain U.S. team members. Covered team members become eligible for participation when they qualify for retirement while working for the Company. Participation in the plan is voluntary and requires participants to make contributions toward the cost of the plan, as determined by the Company.

The net periodic benefits costs were valued with a measurement date of January 1 for each year and consisted of the following components (in millions of dollars):

			For the Years Ended December 31,
			2025						2024						2023
SG&A
Service cost			$	2					$	2					$	2
Other (income) expense
Interest cost			5						5						5
Expected return on assets			(7)						(7)						(6)
Amortization of prior service credit			(6)						(9)						(10)
Amortization of unrecognized gains			(10)						(8)						(7)
Net periodic benefits			$	(16)					$	(17)					$	(16)

Reconciliations of the beginning and ending balances of the postretirement benefit asset, which is calculated as of the December 31 measurement date, the fair value of plan assets available for benefits and the funded status of the benefit asset follow (in millions of dollars):

			2025						2024
Benefit obligation at beginning of year			$	103					$	114
Service cost			2						2
Interest cost			5						5
Plan participants' contributions			3						3
Actuarial (gain) loss			(24)						(12)
Benefits paid			(9)						(9)
Benefit obligation at end of year			$	80					$	103
Plan assets available for benefits at beginning of year			$	178					$	173
Actual returns on plan assets			20						11
Plan participants' contributions			3						3
Benefits paid			(9)						(9)
Plan assets available for benefits at end of year			192						178
Noncurrent postretirement benefit asset			$	112					$	75

The amounts recognized in AOCE consisted of the following (in millions of dollars):

			As of December 31,
			2025						2024
Prior service credit			$	7					$	13
Unrecognized gains			114						88
Deferred tax liability			(30)						(25)
Net accumulated gains			$	91					$	76

The Company has elected to amortize the amount of net unrecognized gains over a period equal to the average remaining service period for active plan participants expected to retire and receive benefits of approximately 9 years for 2025.

The postretirement benefit obligation is determined by applying the terms of the plan and actuarial models. These models include various actuarial assumptions, including discount rates, long-term rates of return on plan assets, healthcare cost trend rate, mortality and cost-sharing between the Company and the retirees. The actuarial gains recognized during the plan year are primarily related to changes in assumptions related to certain retiree coverage elections, as well as turnover and retirement rates.

The following assumptions were used to determine net periodic benefit costs as of January 1:

			For the Years Ended December 31,
			2025						2024						2023
Discount rate			5.39		%				4.73		%				4.92		%
Expected long-term rate of return on plan assets – net of tax			4.04		%				4.04		%				4.04		%
Initial healthcare cost trend rate (pre age 65)			6.90		%				7.20		%				7.50		%
Ultimate healthcare cost trend rate			4.50		%				4.50		%				4.50		%
Year ultimate healthcare cost trend rate reached			2033						2033						2033

The following assumptions were used to determine benefit obligations as of December 31:

			2025						2024						2023
Discount rate			5.25		%				5.39		%				4.73		%
Expected long-term rate of return on plan assets – net of tax			4.04		%				4.04		%				4.04		%
Initial healthcare cost trend rate (pre age 65)			8.50		%				6.90		%				7.20		%
Ultimate healthcare cost trend rate			4.50		%				4.50		%				4.50		%
Year ultimate healthcare cost trend rate reached			2034						2033						2033

The Company's investment strategy reflects the long-term nature of the plan obligation and seeks to reach a balance allocation between Fixed Income securities and Equities of approximately 85% and 15%, respectively. Current allocations may differ from targeted allocations based on investment results and other timing factors. The plan's assets are stated at fair value, which represents the net asset value of shares held by the plan in the registered investment companies at the quoted market prices (Level 1 input) or at significant other observable inputs (Level 2 input).

The plan assets available for benefits consisted of the following as of December 31 (in millions of dollars):

			2025						2024
Asset class
Level 1 inputs:
Mutual funds and exchange-traded funds			$	16					$	10
Level 2 Inputs:
Fixed Income:
Corporate bonds			40						48
Government and municipal debt securities			6						8
Mutual funds and exchange-traded funds			88						—
Equity funds			30						101
Plan assets			180						167
Trust assets			12						$	11
Plan assets available for benefits			$	192					$	178

The Company forecasts the following benefit payments related to postretirement (which include a projection for expected future team member service) for the next ten years (in millions of dollars):

Year						Estimated Gross Benefit Payments
2026						$	7
2027						7
2028						6
2029						6
2030						6
2031-2035						29
Total						$	61

NOTE 8 - LEASES

The Company leases certain properties, buildings and equipment (including branches, warehouses, DCs and office space) under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists mainly of operating leases that expire at various dates through 2037.

Information related to operating leases is as follows (in millions of dollars):

			As of December 31,
			2025						2024
Right-of-use assets
Operating lease right-of-use			$	345					$	371
Operating lease liabilities
Operating lease liability			73						78
Long-term operating lease liability			301						327
Total operating lease liabilities			$	374					$	405

			As of December 31,
			2025						2024
Weighted average remaining lease term			6 years						6 years
Weighted average incremental borrowing rate			2.82		%				2.57		%
Cash paid for operating leases			$	104					$	96
Right-of-use assets obtained in exchange for operating lease obligations			$	69					$	48

Rent expense was $106 million, $103 million and $102 million for 2025, 2024 and 2023, respectively. These amounts are net of sublease income of $3 million for 2025, and $2 million for 2024 and 2023.

The remaining maturity of existing lease liabilities as of December 31, 2025 are as follows (in millions of dollars):

Year						Operating Leases
2026						$	86
2027						79
2028						71
2029						59
2030						48
Thereafter						69
Total lease payments						412
Less interest						38
Present value of lease liabilities						$	374

As of December 31, 2025 and 2024, the Company's finance leases and service contracts with lease arrangements were not material. Finance leases are reported in Property, buildings and equipment – net, and as a short and long-term finance lease liability in Accrued expenses and Other non-current liabilities.

NOTE 9 - STOCK INCENTIVE PLANS

The Company maintains stock incentive plans under which the Company may grant a variety of incentive awards to team members and executives, which include restricted stock units (RSUs), performance shares and deferred stock units. As of December 31, 2025, there were 1.3 million shares available for grant under the plans. When awards are exercised or settled, shares of the Company’s treasury stock are issued.

Pretax stock-based compensation expense included in SG&A was $64 million, $62 million, and $62 million in 2025, 2024 and 2023, respectively, and was primarily comprised of RSUs. Related income tax benefits recognized in earnings were $24 million, $34 million, and $34 million in 2025, 2024 and 2023, respectively.

Restricted Stock Units

The Company awards RSUs to certain team members and executives. RSUs vest generally over periods from one to seven years from issuance. The RSU grant date fair value is based on the closing price of the Company's common stock on the last trading day preceding the date of the grant. RSU expense for the years ended December 31, 2025, 2024 and 2023 was approximately $50 million, $48 million and $43 million, respectively.

The following table summarizes RSU activity (in millions of dollars, except for share and per share amounts):

			2025												2024												2023
			Shares						Weighted Average Price Per Share						Shares						Weighted Average Price Per Share						Shares						Weighted Average Price Per Share
Beginning nonvested units			136,200						$	768.64					172,984						$	550.62					191,032						$	409.77
Issued			59,031						993.21						57,012						1,008.98						81,174						692.02
Cancelled			(7,505)						869.44						(10,221)						701.36						(7,943)						512.31
Vested			(70,956)						684.06						(83,575)						489.57						(91,279)						384.92
Ending nonvested units			116,770						$	927.09					136,200						$	768.64					172,984						$	550.62
Fair Value of Shares Vested			$	49											$	41											$	35

As of December 31, 2025, there was $68 million of total unrecognized compensation expense related to nonvested RSUs the Company expects to recognize over a weighted average period of two years.

NOTE 10 - CAPITAL STOCK

The Company had no shares of preferred stock outstanding as of December 31, 2025 and 2024. The activity related to outstanding common stock and common stock held in treasury was as follows:

			2025												2024												2023
			Outstanding Common Stock						Treasury Stock						Outstanding Common Stock						Treasury Stock						Outstanding Common Stock						Treasury Stock
Balance at beginning of period			48,332,870						61,326,349						49,317,402						60,341,817						50,256,323						59,402,896
Exercise of stock options			45,618						(45,618)						113,274						(113,274)						139,189						(139,189)
Settlement of restricted stock units – net of 26,078, 39,118 and 32,800 shares retained, respectively			64,422						(64,422)						79,400						(79,400)						83,795						(83,795)
Settlement of performance share units – net of 8,596, 9,629 and 18,521 shares retained, respectively			14,380						(14,380)						15,110						(15,110)						28,135						(28,135)
Purchase of treasury shares			(1,038,509)						1,038,509						(1,192,316)						1,192,316						(1,190,040)						1,190,040
Balance at end of period			47,418,781						62,240,438						48,332,870						61,326,349						49,317,402						60,341,817

NOTE 11 - ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSSES) (AOCE)

The components of AOCE consisted of the following (in millions of dollars):

			Foreign Currency Translation and Other						Defined Postretirement Benefit Plan						Other Employment-related Benefit Plans									Total						Foreign Currency Translation Attributable to Noncontrolling Interests						AOCE Attributable to W.W. Grainger, Inc.
Balance at January 1, 2024 – net of tax			$	(331)					$	77					$	(3)								$	(257)					$	(85)					$	(172)
Other comprehensive earnings (loss) before reclassifications – net of tax			(137)						12						—									(125)						(36)						(89)
Amounts reclassified to net earnings			—						(13)						—									(13)						—						(13)
Net current period activity			$	(137)					$	(1)					$	—								$	(138)					$	(36)					$	(102)
Balance at December 31, 2024 – net of tax			$	(468)					$	76					$	(3)								$	(395)					$	(121)					$	(274)
Other comprehensive earnings (loss) before reclassifications – net of tax			49						27						(1)									75						(1)						76
Amounts reclassified to net earnings			40						(12)						5									33						—						33
Net current period activity			$	89					$	15					$	4								$	108					$	(1)					$	109
Balance at December 31, 2025 – net of tax			$	(379)					$	91					$	1								$	(287)					$	(122)					$	(165)

NOTE 12 - INCOME TAXES

Earnings before income taxes by geographical area consisted of the following (in millions of dollars):

			For the Years Ended December 31,
			2025						2024						2023
U.S.			$	2,065					$	2,265					$	2,211
Foreign			365						319						289
Total			$	2,430					$	2,584					$	2,500

Income tax expense consisted of the following (in millions of dollars):

			For the Years Ended December 31,
			2025						2024						2023
Current income tax expense:
U.S. Federal			$	403					$	404					$	431
U.S. State			86						84						100
Foreign			116						89						81
Total current			605						577						612
Deferred income tax (benefit) expense			17						18						(15)
Total income tax expense			$	622					$	595					$	597

Income taxes paid consisted of the following (in millions of dollars):

			For the Years Ended December 31,
			2025						2024						2023
U.S. Federal taxes paid			$	412					$	428					$	439
State and local taxes paid			87						88						102
Foreign taxes paid
Japan			85						68						57
Foreign other			26						22						17
Total income taxes paid			$	610					$	606					$	615

The income tax effects of temporary differences that gave rise to the net deferred tax asset (liability) as of December 31, 2025 and 2024 were as follows (in millions of dollars):

			As of December 31,
			2025						2024
Deferred tax assets:
Accrued expenses			$	161					$	172
U.S. and foreign loss carryforwards			173						82
Accrued employment-related benefits			33						42
Tax credit carryforward			18						20
Other			38						23
Deferred tax assets			423						339
Less valuation allowance			(192)						(100)
Deferred tax assets – net of valuation allowance			$	231					$	239
Deferred tax liabilities:
Property, buildings, equipment and other capital assets			$	(234)					$	(216)
Intangibles			(55)						(55)
Inventory			(12)						(16)
Other			(13)						(14)
Deferred tax liabilities			(314)						(301)
Net deferred tax liability			$	(83)					$	(62)
The net deferred tax asset (liability) is classified as follows:
Noncurrent assets			$	14					$	15
Noncurrent liabilities (foreign)			(97)						(77)
Net deferred tax liability			$	(83)					$	(62)

As of December 31, 2025 and 2024, the Company had $692 million and $328 million, respectively, of gross loss carryforwards related to foreign operations and U.S. transactions. Some of the loss carryforwards may expire at various dates through 2040. The Company has recorded a valuation allowance, which represents a provision for uncertainty as to the realization of the tax benefits of these carryforwards and deferred tax assets that may not be realized.

The Company's valuation allowance changed as follows (in millions of dollars):

			For the Years Ended December 31,
			2025						2024
Balance at beginning of period			$	(100)					$	(93)
Increases primarily related to foreign NOLs			(3)						(8)
Releases primarily related to foreign NOLs			46						—
Foreign exchange rate changes			—						1
Decrease related to U.S. foreign tax credits			2						2
Increase related to capital loss carryforwards			(137)						(1)
Other changes – net			—						(1)
Balance at end of period			$	(192)					$	(100)

A reconciliation of income tax expense with federal income taxes at the statutory rate follows (in millions of dollars):

			For the Years Ended December 31,
			2025												2024												2023
			Amount						Percent						Amount						Percent						Amount						Percent
U.S. Federal statutory tax rate			$	510					21.0		%				$	543					21.0		%				$	525					21.0		%
State and local income taxes, net of federal income tax effect(1)			67						2.8		%				67						2.6		%				74						3.0		%
Foreign tax effects
Japan
Statutory tax rate difference between Japan and US			29						1.2		%				24						0.9		%				22						0.9		%
Other			(4)						(0.2)		%				(1)						—		%				(6)						(0.3)		%
Other foreign jurisdictions			33						1.4		%				12						0.4		%				18						0.8		%
Effect of cross-border tax laws			(24)						(1.0)		%				3						0.1		%				(10)						(0.4)		%
Tax credits			(23)						(1.0)		%				(16)						(0.6)		%				(12)						(0.5)		%
Changes in valuation allowances			113						4.6		%				(1)						—		%				13						0.5		%
Nontaxable or nondeductible items:
Gain/(Loss) on sale of subsidiaries(2)			(76)						(3.1)		%				—						—		%				(12)						(0.5)		%
Other			(7)						(0.3)		%				(18)						(0.7)		%				(18)						(0.7)		%
Changes in unrecognized tax benefits			—						—		%				(22)						(0.8)		%				3						0.1		%
Other adjustments			4						0.2		%				4						0.1		%				—						—		%
Effective tax rate			$	622					25.6		%				$	595					23.0		%				$	597					23.9		%
(1)The jurisdictions that contributed to the majority (greater than 50%) of the state and local income taxes, net of federal income tax effect include California, Illinois, Michigan, Minnesota, New York, New Jersey and New York City for each of the years presented.
(2)Reflects the divestiture of Cromwell in the fourth quarter of 2025 and E&R in the fourth quarter of 2023.

The increase to the Company's effective tax rate for the year ended December 31, 2025 was primarily due to the loss from the exit of the U.K. market, for which there was no corresponding tax benefit.

Foreign Undistributed Earnings

The Company considers foreign subsidiary undistributed earnings permanently reinvested in its foreign operations and is not recording a deferred tax liability for any foreign withholding taxes on such amounts. If at some future date the Company ceases to be permanently reinvested in its foreign subsidiaries, the Company may be subject to foreign withholding and other taxes on these undistributed earnings and may need to record a deferred tax liability for any outside basis difference in its investments in its foreign subsidiaries.

Tax Uncertainties

The Company recognizes in the financial statements a provision for tax uncertainties, resulting from application of complex tax regulations in multiple tax jurisdictions.

The changes in the liability for tax uncertainties, excluding interest, are as follows (in millions of dollars):

			For the Years Ended December 31,
			2025						2024						2023
Balance at beginning of year			$	21					$	42					$	41
Additions for tax positions related to the current year			3						3						6
Additions for tax positions of prior years			—						—						1
Reductions for tax positions of prior years			(1)						(1)						(1)
Reductions due to statute lapse			(2)						(22)						(3)
Settlements, audit payments, refunds – net			—						(1)						(2)
Balance at end of year			$	21					$	21					$	42

The Company classifies the liability for tax uncertainties in deferred income taxes and tax uncertainties. Included in

this amount is $4 million as of December 31, 2025, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Any changes in the timing of deductibility of these items would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authorities to an earlier period. In 2025, 2024 and 2023, the changes to tax positions were primarily related to the impact of expiring statutes and current year state and local reserves.

The Company is regularly subject to examination of its federal income tax returns by the Internal Revenue Service (IRS). The IRS effectively settled an audit of the Company’s 2021 and 2022 tax years in 2025. Tax years 2023 and 2024 are open. The Company is also subject to audit by state, local and foreign taxing authorities. Tax years 2012 through 2024 remain subject to state, local and foreign audits.

NOTE 13 - SEGMENT INFORMATION

The Company routinely evaluates whether its operating and reportable segments continue to reflect the way the chief operating decision maker (CODM) evaluates the business. The determination is based on: (1) how the Company’s CODM evaluates the performance of the business, including resource allocation decisions, and (2) whether discrete financial information for each reporting segment is available. The Company considers D.G. Macpherson, its Chief Executive Officer and Chairman of the Board, its CODM.

The CODM evaluates performance based on the results of the Company’s two reportable segments, High-Touch Solutions N.A. (HTSNA) and Endless Assortment (EA). These reportable segments align with Grainger's go-to-market strategies and bifurcated business models of high-touch solutions and endless assortment that generate sales primarily through the distribution of MRO products. The remaining businesses are classified as Other to reconcile to consolidated results. These businesses individually and in the aggregate do not meet the criteria of a reportable segment.

The accounting policies of the Company’s reportable segments are the same as those described in the summary of significant accounting policies. For further discussion on Grainger’s accounting policies, see Note 1.

All expenses directly attributable to each reportable segment are included in the operating results for each segment. Operating segment performance is evaluated by Grainger's CODM based on operating earnings as disclosed on the Company's Consolidated Statement of Earnings as the key determinant of the economic return and resource allocation among the segments. The CODM is not regularly provided and does not evaluate the segments using total asset or capital expenditure information and it is therefore not disclosed.

The following is a summary of segment results for the twelve months ended December 31, 2025, 2024 and 2023 (in millions of dollars):

			2025
			High-Touch Solutions N.A.						Endless Assortment						Total
Net sales(1)			$	13,993					$	3,625					$	17,618
Reconciliation of net sales
Other net sales															324
Total company net sales															$	17,942
Less:
Cost of goods sold			8,161						2,540
Other segment items(2)			3,478						740
Segment operating earnings			$	2,354					$	345					$	2,699
Reconciliation of operating earnings
Other operating earnings															(204)
Total company operating earnings															$	2,495

			2024
			High-Touch Solutions N.A.						Endless Assortment						Total
Net sales(1)			$	13,720					$	3,134					$	16,854
Reconciliation of net sales
Other net sales															314
Total company net sales															$	17,168
Less:
Cost of goods sold			7,979						2,211
Other segment items(2)			3,356						663
Segment operating earnings			$	2,385					$	260					$	2,645
Reconciliation of operating earnings
Other operating earnings (losses)															(8)
Total company operating earnings															$	2,637

			2023
			High-Touch Solutions N.A.						Endless Assortment						Total
Net sales(1)			$	13,267					$	2,916					$	16,183
Reconciliation of net sales
Other net sales															295
Total company net sales															$	16,478
Less:
Cost of goods sold			7,721						2,052
Other segment items(2)			3,212						631
Segment operating earnings			$	2,334					$	233					$	2,567
Reconciliation of operating earnings
Other operating earnings															(2)
Total company operating earnings															$	2,565
(1)Intersegment sales are recorded at values based on market prices, which creates intercompany profit sales that are eliminated within each segment to present only the impact of net sales to external customers.
(2)Other segment items for HTSNA and EA consist of selling, general and administrative expenses primarily comprised of payroll and benefits, marketing expense, depreciation, amortization and non-cash lease expense, corporate overhead expenses allocated to each segment based upon benefits received, occupancy and other miscellaneous expenses. Intersegment expenses, including fees and certain incurred costs for shared services, are also included within the amounts shown above.

The following is depreciation, amortization and non-cash lease expense (in millions of dollars):

			For the years ended December 31,
			2025						2024						2023
Depreciation, amortization and non-cash lease expense*(1)**:*
High-Touch Solutions N.A.			$	245					$	234					$	206
Endless Assortment			77						71						63
Other			8						6						8
Total			$	330					$	311					$	277
(1)Depreciation, amortization and non-cash lease expense presented above is related to long-lived assets, capitalized software and ROU assets. Long-lived assets consist of property, buildings and equipment.

The following is revenue by geographic location (in millions of dollars):

			For the years ended December 31,
			2025						2024						2023
Revenue by geographic location*(1)**:*
United States			$	14,441					$	13,947					$	13,389
Japan			2,173						1,893						1,797
Canada			683						661						646
Other foreign countries			645						667						646
			$	17,942					$	17,168					$	16,478
(1)Revenue presented above is attributed to the destination country where the customer is located.

The Company is a broad line distributor of MRO products. Products are regularly added and removed from the Company's inventory assortment. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed, and the dynamic nature of the inventory offered, including the evolving list of products stocked and additional products available online but not stocked. For further information regarding the Company's sales by segment and customer industry, see Note 3.

NOTE 14 - CONTINGENCIES AND LEGAL MATTERS

From time to time the Company is involved in various legal and administrative proceedings, including claims related to: product liability, safety or compliance; privacy and cybersecurity matters; negligence; contract disputes; environmental issues; unclaimed property; wage and hour laws; intellectual property; advertising and marketing; consumer protection; pricing (including disaster or emergency declaration pricing statutes); employment practices; regulatory compliance, including trade and export matters; anti-bribery and corruption; and other matters and actions brought by team members, consumers, competitors, suppliers, customers, governmental entities and other third parties.

The Company has been engaged in litigation involving KMCO, LLC (KMCO) as described in previous quarterly and annual reports. The Company has settled or resolved all remaining lawsuits pending against the Company. These settlements had no effect on net earnings or cash flows.

Also, as a government contractor selling to federal, state and local governmental entities, the Company may be subject to governmental or regulatory inquiries or audits or other proceedings, including those related to contract administration, pricing and product compliance.

While the Company is unable to predict the outcome of any of these proceedings and other matters, it believes that their ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on the Company’s consolidated financial condition or results of operations.

NOTE 15 - SUBSEQUENT EVENTS

On January 28, 2026, Grainger's Board of Directors declared a quarterly cash dividend of $2.26 per share of common stock, payable March 1, 2026 to shareholders of record on February 9, 2026.