--- ticker: GWW company: W.W. Grainger Inc. filing_type: 10-K year_current: 2024 year_prior: 2023 risks_added: 2 risks_removed: 4 risks_modified: 14 risks_unchanged: 15 source: SEC EDGAR url: https://riskdiff.com/gww/2024-vs-2023/ markdown_url: https://riskdiff.com/gww/2024-vs-2023/index.md generated: 2026-05-10 --- # W.W. Grainger Inc.: 10-K Risk Factor Changes 2024 vs 2023 > Source: U.S. Securities and Exchange Commission (EDGAR) > Generated: 2026-05-10 > All data extracted directly from official filings. No hallucinated content. > **[AI-Generated Summary]** The paragraph below was produced by a language > model and may contain errors. All other content on this page is deterministically > extracted from the original SEC filing. > W.W. Grainger Inc. significantly elevated its focus on debt and financial obligations in the 2024 risk factors by adding a dedicated debt risk disclosure while removing pandemic-related risks that no longer pose material threats to operations. The company substantially modified 14 risk disclosures, with notable expansions to eCommerce platform risks, information systems vulnerability, and regulatory compliance exposures, reflecting increased emphasis on operational resilience and digital transformation challenges. These structural changes indicate a strategic pivot from pandemic-era concerns toward financial leverage management and technology-dependent business model risks. --- ## Summary | Status | Count | |--------|-------| | New risks added | 2 | | Risks removed | 4 | | Risks modified | 14 | | Unchanged | 15 | --- ## New in Current Filing: Grainger has incurred indebtedness and may incur additional indebtedness, which could adversely affect cash flow, decrease business flexibility, or prevent Grainger from fulfilling its obligations. As of December 31, 2023, Grainger's consolidated indebtedness was approximately $2.3 billion. The Company's indebtedness could, among other things, limit Grainger's ability to respond to rapidly changing business and economic conditions, require the Company to dedicate a substantial portion of its cash flows to the payment of principal and interest on its indebtedness, reducing the funds available for other business purposes, and make it more difficult to satisfy the Company's financial obligations as they come due during periods of adverse economic and industry conditions. The agreements governing Grainger's debt agreements and instruments contain representations, warranties, affirmative, negative and financial covenants, and default provisions. Grainger's failure to comply with these restrictions and obligations could result in a default under such agreements, which may allow Grainger's creditors to accelerate the related indebtedness. Any such acceleration could have a material adverse effect on Grainger's business, financial condition, results of operations, cash flows, and its ability to obtain financing on favorable terms in the future. In addition, Grainger may in the future seek to raise additional financing for working capital, capital expenditures, refinancing of indebtedness, share repurchases or other general corporate purposes. Grainger's ability to obtain additional financing will be dependent on, among other things, the Company's financial condition, prevailing market conditions and numerous other factors beyond the Company's control. Such additional financing may not be available on commercially reasonable terms or at all. Any inability to obtain financing when needed could materially adversely affect the Company's business, financial condition or results of operations. 20 20 20 20 20 20 Item 1B: Unresolved Staff Comments None. Item 1C: Cybersecurity --- ## New in Current Filing: Non-GAAP Measures Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. Non-GAAP measures exclude certain items affecting comparability that can affect the year-over-year assessment of operating results and other one-time items that do not directly reflect ongoing operating results. Organic net sales results exclude the impact of changes in foreign currency exchange rates and results of certain divested businesses in the comparable prior year period post date of divestiture. Adjusted results including adjusted SG&A, adjusted operating earnings, adjusted net earnings and adjusted diluted EPS exclude certain non-recurring items, including restructuring charges, asset impairments, gains and losses associated with business divestitures and other non-recurring, infrequent or unusual gains and losses from the Company's most directly comparable reported U.S. generally accepted accounting principles (GAAP) results. The Company believes its non-GAAP measures provide meaningful information to assist 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. Grainger's non-GAAP financial measures should be considered in addition to, and not as a replacement for or as a superior measure to its most directly comparable GAAP measure and may not be comparable to similarly titled measures reported by other companies. Business Divestitures In the fourth quarter of 2023, Grainger divested E & R Industrial Sales, Inc. (E&R) and recorded a one-time pre-tax loss on the divestiture of $26 million in SG&A. In the fourth quarter of 2022, Grainger divested Cromwell's wholly owned software business in the U.K. and recorded a one-time pre-tax gain on the divestiture of $21 million in SG&A. The Company does not expect these business exits to have a material effect on its future results of operations. 28 28 28 28 28 28 The following table provides a reconciliation of reported net sales growth from the prior year period in accordance with GAAP to the Company's non-GAAP measures daily net sales and daily, organic constant currency net sales for the twelve months ended December 31, 2023 (in millions of dollars): For the Years Ended December 31, High-Touch Solutions N.A.Endless AssortmentTotal Company(1)2023% Change(2)2023% Change(2)2023% Change(2)Reported net sales$13,267 8.9 %$2,916 4.7 %$16,478 8.2 % Daily impact(3) 0.2 0.4 - 0.4 0.3 0.4 Daily net sales52.4 9.3 11.5 5.1 65.2 8.6 Foreign currency exchange(4) - - 0.6 5.3 0.6 0.9 Business divestiture(5) - 0.1 - - - - Daily, organic constant currency net sales$52.4 9.4 %$12.1 10.4 %$65.8 9.5 %2022% Change(2)2022% Change(2)2022% Change(2)Reported net sales$12,182 19.6 %$2,787 8.2 %$15,228 16.9 % Daily impact(3) (0.2)(0.5) - (0.5)(0.2)(0.4)Daily net sales47.6 19.1 10.9 7.7 59.5 16.5 Foreign currency exchange(4)0.1 0.2 1.3 12.4 1.5 2.8 Daily, organic constant currency net sales$47.7 19.3 %$12.2 20.1 %61.019.3 %(1) Total Company includes Other. Grainger's businesses reported in Other do not meet the criteria of a reportable segment.(2) Calculated on the basis of prior year reported net sales. Daily, organic constant currency net sales excludes the results of E&R in the comparable prior year period post date of divestiture for the year ended December 31, 2023.(3) Excludes the impact on net sales due to the difference in U.S. selling days relative to the prior year period on a daily basis. There were 254 and 255 sales days in the full year 2023 and 2022, respectively. (4) Excludes the impact on net sales due to year-over-year foreign currency exchange rate fluctuations on a daily basis.(5) Excludes the results of E&R in the comparable prior year period post date of divestiture on a daily basis. Total Company(1) % Change(2) % Change(2) % Change(2) Daily impact(3) Foreign currency exchange(4) Business divestiture(5) % Change(2) % Change(2) % Change(2) Daily impact(3) Foreign currency exchange(4) (1) Total Company includes Other. Grainger's businesses reported in Other do not meet the criteria of a reportable segment. (2) Calculated on the basis of prior year reported net sales. Daily, organic constant currency net sales excludes the results of E&R in the comparable prior year period post date of divestiture for the year ended December 31, 2023. (3) Excludes the impact on net sales due to the difference in U.S. selling days relative to the prior year period on a daily basis. There were 254 and 255 sales days in the full year 2023 and 2022, respectively. (4) Excludes the impact on net sales due to year-over-year foreign currency exchange rate fluctuations on a daily basis. (5) Excludes the results of E&R in the comparable prior year period post date of divestiture on a daily basis. Total Company(1) % Change(2) % Change(2) % Change(2) Daily impact(3) Foreign currency exchange(4) Business divestiture(5) % Change(2) % Change(2) % Change(2) Daily impact(3) Foreign currency exchange(4) (1) Total Company includes Other. Grainger's businesses reported in Other do not meet the criteria of a reportable segment. (2) Calculated on the basis of prior year reported net sales. Daily, organic constant currency net sales excludes the results of E&R in the comparable prior year period post date of divestiture for the year ended December 31, 2023. (3) Excludes the impact on net sales due to the difference in U.S. selling days relative to the prior year period on a daily basis. There were 254 and 255 sales days in the full year 2023 and 2022, respectively. (4) Excludes the impact on net sales due to year-over-year foreign currency exchange rate fluctuations on a daily basis. (5) Excludes the results of E&R in the comparable prior year period post date of divestiture on a daily basis. 29 29 29 29 29 29 The following tables provide a reconciliation of reported SG&A expenses, operating earnings, net earnings attributable to W.W. Grainger, Inc. and diluted earnings per share determined in accordance with GAAP to the Company's non-GAAP measures adjusted SG&A, adjusted operating earnings, adjusted net earnings attributable to W.W. Grainger, Inc. and adjusted diluted earnings per share for the twelve months ended December 31, 2023 and 2022 (in millions of dollars): For the Year Ended December 31, 2023ReportedBusiness Divestiture(1)Adjusted% Change Adjusted% of Net Sales Adjusted(2) High-Touch Solutions N.A.$3,212 $(26)$3,186 7.3%24.0% Endless Assortment631 - 631 6.221.6 Other(3) 88 - 88 (3.8)30.0Selling, general and administrative expenses$3,931 $(26)$3,905 6.823.7 High-Touch Solutions N.A.$2,334 $26 $2,360 19.017.8 Endless Assortment233 - 233 4.38.0 Other(3) (2) - (2)(81.2)(0.8)Operating earnings$2,565 $26 $2,591 18.115.7Total other expense - net(65) - (65)(5.5)(0.4)Income tax provision(4)(597)(4)(601)12.9(3.6)Net earnings$1,903 $22 $1,925 20.911.7Noncontrolling interest(74) - (74)12.5(0.5)Net earnings attributable to W.W. Grainger, Inc. $1,829 $22 $1,851 21.211.2Diluted earnings per share:$36.23 $0.44 $36.67 23.6%(1) Reflects the loss on the divestiture of E&R in the fourth quarter of 2023.(2) Calculated on the basis of reported net sales for the year ended December 31, 2023.(3) Grainger's businesses reported in Other do not meet the criteria of a reportable segment.(4) Reflects a one-time tax benefit recognized upon the divestiture of E&R in the fourth quarter of 2023. Grainger's reported and adjusted effective tax rates were 23.9% and 23.8% for the year ended December 31, 2023, respectively. Business Divestiture(1) % of Net Sales Adjusted(2) Other(3) Other(3) Income tax provision(4) (1) Reflects the loss on the divestiture of E&R in the fourth quarter of 2023. (2) Calculated on the basis of reported net sales for the year ended December 31, 2023. (3) Grainger's businesses reported in Other do not meet the criteria of a reportable segment. (4) Reflects a one-time tax benefit recognized upon the divestiture of E&R in the fourth quarter of 2023. Grainger's reported and adjusted effective tax rates were 23.9% and 23.8% for the year ended December 31, 2023, respectively. Business Divestiture(1) % of Net Sales Adjusted(2) Other(3) Other(3) --- ## No Match in Current: Grainger's business and operations have been and could in the future be adversely affected by the global outbreak of the Coronavirus and its variants (COVID-19 pandemic), or other global outbreaks of pandemic disease. *This section from the 2023 filing does not have a high-confidence textual match in 2024. It may have been removed, merged, or substantially reworded.* Any global outbreaks of pandemic disease, such as the COVID-19 pandemic, could have a material adverse effect on Grainger's business, results of operations and financial condition, including liquidity, capital and financing resources. Additional effects from global pandemics on Grainger's business could include adverse impacts on transportation, including shipping delays and port disruptions, increased shipping costs, constraints on the availability of products, inflation, and labor shortages. Furthermore, Grainger's ability to collect its accounts receivable or receive product ordered from suppliers, as customers and suppliers face higher liquidity and solvency risks and seek terms that are less favorable to Grainger, may adversely affect the Company's business. These adverse effects could result in product shortages, including certain PPE and cleaning supplies, and may impact the Company's ability to maintain sufficient inventory and 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 shortages. Addressing shortages may require the Company to procure products from new suppliers or through brokers with whom it has a limited or no prior relationship. These developments, alone or in combination, could materially adversely affect Grainger's future sales and results of operations. 13 13 13 13 13 13 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 recession and supply chain challenges. 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 markets, any of which could materially adversely affect the Company's business, results of operations and financial condition. The duration and ultimate impact of a global pandemic on the Company's business, results of operations and financial 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 extent and geographic spread, severity and duration of the pandemic, including whether there are periods of increased cases, 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 outbreak. In addition, if the Company is unable to respond to and manage the impact of governmental mandates, requirements or other directives related to a pandemic, the Company's business and results of operations may be adversely affected. --- ## No Match in Current: Non-GAAP Measures *This section from the 2023 filing does not have a high-confidence textual match in 2024. It may have been removed, merged, or substantially reworded.* The following tables reconcile reported selling, general and administrative (SG&A) expenses, operating earnings, net earnings attributable to W.W. Grainger, Inc. and diluted earnings per share determined in accordance with U.S. generally accepted accounting principles (GAAP) to non-GAAP measures including adjusted SG&A, adjusted operating earnings, adjusted net earnings attributable to W.W. Grainger, Inc. and adjusted diluted earnings per share. The Company believes that these non-GAAP measures provide meaningful information to assist 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. Because non-GAAP financial measures are not standardized, it may not be possible to compare these measures with other companies' non-GAAP measures having the same or similar names. The following tables provide a reconciliation of GAAP to non-GAAP measures (in millions of dollars): For the Years Ended December 31, 20222021Percent Increase from Prior YearReported selling, general, and administration expenses$3,634 $3,173 14.5 %Business divestiture 21 - Adjusted selling, general, and administration expenses$3,655 $3,173 15.2 %Reported operating earnings$2,215 $1,547 43.2 %Business divestiture (21) - Adjusted operating earnings$2,194 $1,547 41.9 %Reported net earnings attributable to W.W. Grainger, Inc.$1,547 $1,043 48.4 %Business divestiture(21) - Adjusted net earnings attributable to W.W. Grainger, Inc.$1,526 $1,043 46.4 %Reported diluted earnings per share$30.06 $19.84 51.5 %Business divestiture (0.40) - Adjusted diluted earnings per share$29.66 $19.84 49.5 %For further information regarding the Company's business divestitures, see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K. Business divestiture Adjusted net earnings attributable to W.W. Grainger, Inc. For further information regarding the Company's business divestitures, see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K. Business divestiture Adjusted net earnings attributable to W.W. Grainger, Inc. For further information regarding the Company's business divestitures, see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K. Noted in the table above for the twelve months ended December 31, 2022, Grainger divested Cromwell's wholly owned software business in the U.K. (Cromwell subsidiary). As a result of the divestiture, the Company recorded a gain in Other businesses of $21 million in SG&A in the fourth quarter of 2022. Excluding the business divestiture, adjusted SG&A and adjusted operating earnings for the full year 2022 were $3,655 and $2,194, an increase of $482 million and $647 million, or 15% and 42%, respectively, compared to the same period in 2021. Grainger's adjusted effective tax rate was 25.1% for the twelve months ended December 31, 2022. The divestiture was non-taxable. The Company's adjusted net earnings attributable to W.W. Grainger Inc. for the full year 2022 was $1,526 million, an increase of $483 million, or 46%, compared to the same period in 2021. Adjusted diluted earnings per share of $29.66 increased 49% compared to $19.84 for the twelve months ended December 31, 2021. 29 29 29 29 29 29 --- ## No Match in Current: Segment Analysis *This section from the 2023 filing does not have a high-confidence textual match in 2024. It may have been removed, merged, or substantially reworded.* For further segment information, see Note 14 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K. High-Touch Solutions N.A. The following table shows reported segment results (in millions of dollars): For the Years Ended December 31,20222021Percent Increase from Prior YearNet sales$12,182 $10,186 19.6 %Gross profit$4,951 $3,906 26.8 %Selling, general and administrative expenses$2,968 $2,572 15.4 %Operating earnings$1,983 $1,334 48.7 % Net sales Gross profit Selling, general and administrative expenses Operating earnings Net sales Gross profit Selling, general and administrative expenses Operating earnings Net sales of $12,182 million for the year ended December 31, 2022 increased $1,996 million, or 19.6%, compared to the same period in 2021. On a daily basis, net sales increased 19.1%. This consisted of increased price, which includes customer mix, of 10.6% and increased volume, which includes product mix, of 8.7%, partially offset by unfavorable foreign exchange of 0.2%. Gross profit of $4,951 million for the year ended December 31, 2022 increased $1,045 million, or 27%, compared to the same period in 2021. Gross profit margin of 40.6% increased 2.3 percentage points compared to the same period in 2021. The increase was primarily due to favorable product mix and lapping of prior year pandemic-related inventory adjustments. SG&A of $2,968 million for the year ended December 31, 2022 increased $396 million, or 15%, compared to the same period in 2021. The increase was primarily due to higher payroll, marketing and variable compensation expenses in 2022. SG&A leverage improved by 0.9 percentage point. Operating earnings of $1,983 million for the year ended December 31, 2022 increased $649 million, or 49%, compared to the same period in 2021. The increase was driven by higher gross profit dollars, partially offset by higher SG&A. Endless Assortment The following table shows reported segment results (in millions of dollars): For the Years Ended December 31,20222021Percent Increase (decrease) from Prior YearNet sales$2,787 $2,576 8.2 %Gross profit$817 $729 12.0 %Selling, general and administrative expenses$594 $497 19.4 %Operating earnings$223 $232 (3.8)% Net sales Gross profit Selling, general and administrative expenses Operating earnings Net sales Gross profit Selling, general and administrative expenses Operating earnings Net sales of $2,787 million for the year ended December 31, 2022 increased $211 million, or 8.2%, compared to the same period in 2021 and on a daily basis, net sales increased 7.7%. The increase was due to sales growth of 20.1%, driven by strong new customer acquisition and repeat business for the segment, as well as enterprise customer growth at MonotaRO, partially offset by unfavorable foreign exchange of 12.4% due to changes in the exchange rate between the U.S. dollar and the Japanese yen. 30 30 30 30 30 30 Gross profit of $817 million for the year ended December 31, 2022 increased $88 million, or 12%, compared to the same period in 2021. Gross profit margin of 29.3% increased 1.0 percentage point compared to the same period in 2021. The increase was driven by freight efficiencies and business unit mix in 2022. SG&A of $594 million for the year ended December 31, 2022 increased $97 million, or 19%, compared to the same period in 2021. The increase was due to higher payroll and benefits, occupancy and marketing expenses to support the continued growth of the segment in 2022. SG&A leverage decreased 2.0 percentage points. Operating earnings of $223 million for the year ended December 31, 2022 decreased $9 million, or 4%, compared to the same period in 2021. The decrease was primarily driven by higher SG&A, partially offset by higher gross profit dollars. Other Net sales of $259 million for the year ended December 31, 2022 decreased $1 million, or 0.2%, compared to the same period in 2021. The decrease was driven by unfavorable foreign exchange of 11.3% due to changes in the exchange rate between the U.S. dollar and British pound sterling, partially offset by increased sales growth due to improved customer mix of 11.1%. Operating earnings of $9 million for the year ended December 31, 2022 increased $28 million, or 145%, compared to the same period in 2021. The increase was due to the divestiture of Cromwell's software business in the fourth quarter of 2022. 31 31 31 31 31 31 --- ## No Match in Current: Liquidity and Capital Resources *This section from the 2023 filing does not have a high-confidence textual match in 2024. It may have been removed, merged, or substantially reworded.* Grainger believes its current balances of cash and cash equivalents, marketable securities and availability under its revolving credit facilities will be sufficient to meet its liquidity needs for the next 12 months and beyond. Grainger also maintains access to capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity. The Company will continue to assess its liquidity position and potential sources of supplemental liquidity in view of Grainger's operating performance, current economic and capital market conditions and other relevant circumstances. Sources of Liquidity Cash and Cash Equivalents As of December 31, 2022 and 2021, Grainger had cash and cash equivalents of $325 million and $241 million, respectively. The increase in cash was primarily due to cash flows from operations and lower volume of share repurchases, partially offset by working capital changes and higher tax disbursements in 2022. The Company had approximately $1.6 billion in available liquidity as of December 31, 2022. Cash Flows The following table shows the Company's cash flow activity for the periods presented (in millions of dollars): For the Years Ended December 31,20222021Total cash provided by (used in):Operating activities$1,333 $937 Investing activities(263)(226)Financing activities(972)(1,039)Effect of exchange rate changes on cash and cash equivalents(14)(16)Increase (decrease) in cash and cash equivalents$84 $(344) Debt Grainger maintains a debt ratio and liquidity position that provides flexibility in funding working capital needs and long-term cash requirements. Grainger has various sources of financing available. For further information regarding the Company's debt instruments and available financing sources, see Note 6 of the Notes to the Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K. Total debt, which is defined as total interest-bearing debt and lease liabilities as a percent of total capitalization, was 49.9% and 56.2%, as of December 31, 2022 and 2021, respectively. Credit Ratings Grainger receives ratings from two independent credit ratings agencies: Moody's Investor Service (Moody's) and Standard & Poor's (S&P). Both credit rating agencies currently rate the Company's corporate credit at investment grade. The following table summarizes the Company's credit ratings as of December 31, 2022: CorporateSenior UnsecuredShort-termMoody'sA3A3P2S&PA+A+A1 --- ## Modified: Company Performance **Key changes:** - Reworded sentence: "It covers the period commencing December 31, 2018 and ending December 31, 2023." - Reworded sentence: "This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022." - Reworded sentence: "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.)." **Prior (2023):** The following stock price performance graph compares the cumulative total return on an investment in Grainger common stock with the cumulative total return of an investment in each of the Dow Jones US Industrial Suppliers Total Stock Market Index and the S&P 500 Stock Index. It covers the period commencing December 31, 2017 and ending December 31, 2022. The graph assumes that the value for the investment in Grainger common stock and in each index was $100 on December 31, 2017, and that all dividends were reinvested. December 31,201720182019202020212022W.W. Grainger, Inc.$100 $122 $149 $183 $235 $256 Dow Jones US Industrial Suppliers Total Stock Market Index100 96 126 149 192 157 S&P 500 Stock Index100 92 122 153 209 184 Item 6: [Reserved] 24 24 24 24 24 24 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Objective The following Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations 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. This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 are not included in this Form 10-K, and can be found in MD&A of Financial Condition and Results of Operations in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Percentage figures included in this section have not 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 W.W. Grainger, Inc. is a broad line distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America (N.A.), Japan and the United Kingdom (U.K.). Grainger uses a combination of its high-touch solutions and endless assortment businesses to serve its customers worldwide, which rely on Grainger for products and services that enable them to run safe, sustainable and productive operations. **Current (2024):** The following stock price performance graph compares the cumulative total return on an investment in Grainger common stock with the cumulative total return of an investment in each of the Dow Jones US Industrial Suppliers Total Stock Market Index and the S&P 500 Stock Index. It covers the period commencing December 31, 2018 and ending December 31, 2023. The graph assumes that the value for the investment in Grainger common stock and in each index was $100 on December 31, 2018, and that all dividends were reinvested. December 31,201820192020202120222023W.W. Grainger, Inc.$100 $122 $150 $193 $210 $317 Dow Jones US Industrial Suppliers Total Stock Market Index100 133 166 226 200 296 S&P 500 Stock Index100 131 156 200 164 207 Item 6: [Reserved] 24 24 24 24 24 24 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Objective The following Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations 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. This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Form 10-K, and can be found in MD&A of Financial Condition and Results of Operations in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Percentage figures included in this section have not 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 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.). Grainger uses a combination of its high-touch solutions and endless assortment businesses to serve its customers worldwide, which rely on Grainger for products and services that enable them to run safe, sustainable and productive operations. --- ## Modified: Market Information and Dividends **Key changes:** - Reworded sentence: "Holders The approximate number of shareholders of record of Grainger's common stock as of February 14, 2024, was 510 with approximately 593,729 additional shareholders holding stock through nominees." **Prior (2023):** Grainger's common stock is listed and traded on the New York Stock Exchange, under the symbol GWW. Dividends Grainger expects that its practice of paying quarterly dividends on its common stock will continue, although the payment of future dividends is at the discretion of Grainger's Board of Directors and will depend upon Grainger's earnings, capital requirements, financial condition and other factors. Holders The approximate number of shareholders of record of Grainger's common stock as of January 31, 2023, was 531 with approximately 423,817 additional shareholders holding stock through nominees. **Current (2024):** Grainger's common stock is listed and traded on the New York Stock Exchange, under the symbol GWW. Dividends Grainger expects that its practice of paying quarterly dividends on its common stock will continue, although the payment of future dividends is at the discretion of Grainger's Board of Directors and will depend upon Grainger's earnings, capital requirements, financial condition and other factors. Holders The approximate number of shareholders of record of Grainger's common stock as of February 14, 2024, was 510 with approximately 593,729 additional shareholders holding stock through nominees. --- ## Modified: The growth of Grainger's eCommerce platforms exposes Grainger to additional risks which could adversely affect Grainger's reputation, financial condition and operating results. **Key changes:** - Reworded sentence: "The successful execution of Grainger's eCommerce growth strategy depends on a number of factors, including Grainger's investment in its eCommerce platforms, consumer preferences and purchasing trends, and the ability to deliver a seamless procurement experience across digital and also physical retail channels." - Reworded sentence: "If Grainger's customer-facing technology systems are perceived as more difficult or less compelling for customers to use than those of Grainger's competitors, or if digital marketing efforts are unsuccessful or if Grainger is otherwise unsuccessful at realizing the benefits of these investments, its reputation, financial condition and operating results may be adversely affected." - Reworded sentence: "Grainger also relies on email and other messaging services to promote its websites and product offerings, and changes in Grainger's current or prospective customers' use of email or other messaging services or actions by third parties to block, restrict or charge for the delivery of such messages could adversely affect sales through Grainger's eCommerce channels and Grainger's results of operations." **Prior (2023):** The successful execution of Grainger's eCommerce growth strategy depends on a number of factors, including the Company's investment in its eCommerce platforms, consumer preferences and purchasing trends, and the ability to deliver a seamless procurement experience across digital and also physical retail channels. As its eCommerce platforms have grown in recent years, 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 simplified customer interactions and to provide high-quality, user-friendly service to its customers and streamline customer interactions. Grainger has also made significant investments in digital advertising and customer acquisition and retention efforts for its eCommerce channels, including through paid and non-paid advertising such as display advertising, search engine optimization, email and mobile "push" notifications. If Grainger's customer-facing technology systems are perceived as more difficult or less compelling for customers to use than those of the Company's competitors, or if digital marketing efforts are unsuccessful or if Grainger is otherwise unsuccessful at realizing the benefits of these investments, its reputation, financial condition and operating results may be adversely affected. In addition, the successful operation of Grainger's eCommerce channels depends in part upon third parties and factors over which Grainger has limited or no control. For example, Grainger relies in part on Internet search engines to drive traffic to its websites, and the reach of Grainger's eCommerce channels is impacted by how and where its websites rank in both paid and unpaid search results. Potential changes to search engine ranking rules could cause Grainger's websites to place lower in search results and cause Grainger to incur increased advertising costs in order to increase its visibility. Further, ongoing changes in the legal and regulatory requirements surrounding data privacy, online tracking technologies such as cookies, digital advertising and other eCommerce matters could require Grainger to modify its eCommerce strategy, incur significant additional costs to comply with such changes or otherwise adversely affect Grainger's business, results of operations or financial condition. Grainger also relies on email and other messaging services to promote its websites and product offerings, and changes in the Company's current or prospective customers' use of email or other messaging services or actions by third parties to block, restrict or charge for the delivery of such messages could adversely affect sales through Grainger's eCommerce channels and the Company's results of operations. **Current (2024):** The successful execution of Grainger's eCommerce growth strategy depends on a number of factors, including Grainger's investment in its eCommerce platforms, consumer preferences and purchasing trends, and the ability to deliver a seamless procurement experience across digital and also physical retail channels. As its eCommerce platforms have grown in recent years, 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 simplified customer interactions and to provide high-quality, user-friendly service to its customers and streamline customer interactions. Grainger has also made significant investments in digital advertising and customer acquisition and retention efforts for its eCommerce channels, including through paid and non-paid advertising such as display advertising, search engine optimization, email and mobile "push" notifications. If Grainger's customer-facing technology systems are perceived as more difficult or less compelling for customers to use than those of Grainger's competitors, or if digital marketing efforts are unsuccessful or if Grainger is otherwise unsuccessful at realizing the benefits of these investments, its reputation, financial condition and operating results may be adversely affected. Additionally, Grainger faces many risks and uncertainties beyond the Company's control, including theft, credit card fraud, and other fraudulent behavior. 14 14 14 14 14 14 Grainger has also increased, and expects to continue to increase, its investments in developing, managing and implementing artificial intelligence (AI), machine learning and large language model technologies. While the use of these technologies can present significant benefits to Grainger, it also creates risks and challenges. Further, if these investments in Grainger's eCommerce platforms are less successful at attracting and retaining customers than similar investments by our competitors, or if Grainger is otherwise unsuccessful at realizing the benefits of these technological investments generally, its reputation, financial condition and operating results may be adversely affected. In addition, the successful operation of Grainger's eCommerce channels depends in part upon third parties and factors over which Grainger has limited or no control. For example, Grainger relies in part on Internet search engines to drive traffic to its websites, and the reach of Grainger's eCommerce channels is impacted by how and where its websites rank in both paid and unpaid search results. Potential changes to search engine ranking rules could cause Grainger's websites to place lower in search results and cause Grainger to incur increased advertising costs in order to increase its visibility. Further, ongoing changes in the legal and regulatory requirements surrounding data privacy, online tracking technologies such as cookies, digital advertising and other eCommerce matters could require Grainger to modify its eCommerce strategy, incur significant additional costs to comply with such changes or otherwise adversely affect Grainger's business, results of operations or financial condition. Grainger also relies on email and other messaging services to promote its websites and product offerings, and changes in Grainger's current or prospective customers' use of email or other messaging services or actions by third parties to block, restrict or charge for the delivery of such messages could adversely affect sales through Grainger's eCommerce channels and Grainger's results of operations. --- ## Modified: Interruptions in the proper functioning of information systems could disrupt operations and cause unanticipated increases in costs and/or decreases in revenues. **Key changes:** - Reworded sentence: "The functioning of Grainger's information systems is critical to the operation of its business." **Prior (2023):** The proper functioning of Grainger's information systems is critical to the successful operation of its business. Grainger continues to invest in software, hardware and network infrastructures in order to effectively manage its information systems. Although Grainger's information systems are protected with backup and security systems, including physical and software safeguards and remote processing capabilities, information systems are still vulnerable to damage or interruption from natural or human induced disasters, extreme weather, power losses, telecommunication failures, user error, third party actions such as malicious computer programs, denial-of-service attacks and cybersecurity breaches, and other problems. In addition, from time to time Grainger relies on the information technology (IT) systems of third parties to assist in conducting its business. If Grainger's systems or those of third parties on which Grainger depends are damaged, breached, cease to function 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. If critical information systems fail or otherwise become unavailable, Grainger's ability to operate its eCommerce platforms, process orders, maintain proper levels of inventories, collect accounts receivable, disburse funds, manage its supply chain, monitor results of operations, and process and store employee or customer data, among other functions, could be adversely affected. Any such interruption of Grainger's information systems could have a material adverse effect on its business or results of operations. 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. 16 16 16 16 16 16 **Current (2024):** The functioning of Grainger's information systems is critical to the operation of its business. Grainger continues to invest in software, hardware and network infrastructures to effectively manage its information systems. However, Grainger may not be able to maintain or update its information systems to capture and use data in ways that result in operational efficiency, including as a result of ineffective software, difficulties obtaining the right talent and ability to manage the increasing volume of data available to, and managed by Grainger. Furthermore, although Grainger's information systems are protected with backup and security systems, including physical and software safeguards and remote processing capabilities, information systems are still vulnerable to damage or interruption from natural or human induced disasters, extreme weather, power losses, telecommunication failures, user error, third-party actions such as malicious computer programs, denial-of-service attacks and cybersecurity breaches, and other problems. In addition, Grainger relies on the information technology (IT) systems of third parties to assist in conducting its business. The implementation of new systems and upgrades to existing systems could impact Grainger's operations by imposing substantial capital expenditures, demands on management's time and risks of delays or difficulties in transitioning to new systems. In addition, Grainger's systems implementations may not result in productivity improvements at the levels anticipated. Systems implementation disruption and any other IT disruption could have an adverse effect on its business. If Grainger's systems or those of third parties on which Grainger depends are damaged, breached, cease to function properly or are otherwise disrupted, Grainger may require a significant investment to repair or replace them and may suffer interim interruptions in its business operations. If critical information systems fail or otherwise become unavailable, Grainger's ability to operate its eCommerce platforms, process orders, maintain proper levels of inventories, collect accounts receivable, disburse funds, manage its supply chain, monitor results of operations, and process and store team member or customer data, among other functions, could be adversely affected. Any such interruption of Grainger's information systems could have a material adverse effect on its business or results of operations. 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. --- ## Modified: Grainger is subject to a complex array of laws, regulations and standards globally. Failure to comply or unforeseen developments in related contingencies such as litigation and other regulatory proceedings could adversely affect Grainger's financial condition, profitability and cash flows. **Key changes:** - Reworded sentence: "operations, which in 2023 generated approximately 82% of its consolidated net sales, Grainger operates its business principally through wholly owned subsidiaries in Canada, Mexico, and the U.K., and its majority-owned subsidiary in Japan." - Reworded sentence: "taxes on international subsidiaries), unclaimed property laws and laws, regulations and standards applicable to other commercial matters." - Reworded sentence: "Failure to comply with any of these laws, regulations and standards could result in civil, criminal, monetary and non-monetary fines, penalties, remediation costs and/or significant legal fees as well as potential damage to Grainger's reputation." - Reworded sentence: "Furthermore, while Grainger has implemented policies and procedures and provides training designed to facilitate compliance with these laws, regulations and standards, there can be no assurance that team members, contractors, suppliers, vendors, or other third parties will not violate such laws, regulations and standards or Grainger's policies." - Removed sentence: "19 19 19 19 19 19 In addition, Grainger's business and results of operations in the U.K." **Prior (2023):** Grainger's business is subject to legislative, legal, and regulatory risks and conditions specific to the countries in which it operates. In addition to Grainger's U.S. operations, which in 2022 generated approximately 82% of its consolidated net sales, Grainger operates its business principally through wholly owned subsidiaries in Canada, 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, marketing and Internet regulations (including the use of proprietary or third-party "cookies" in connection with Grainger's eCommerce platforms), 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 Privacy Rights Act, in Japan, the Act on Protection of Personal Information, 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 compliance (including the U.S. Commerce Department's Export Administration Regulations, trade sanctions promulgated by the Office of Foreign Asset Control and anti-money laundering regulations), intellectual property laws, labor laws (including federal and state wage and hour laws), product compliance or safety laws, supplier regulations 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. Moreover, Grainger is also subject to audits and inquiries in the normal course of business. Failure to comply with any of these laws, regulations and standards could result in civil, criminal, monetary and non-monetary fines, penalties, remediation costs and/or significant legal fees as well as potential damage to the Company's reputation. Changes in these laws, regulations and standards, or in their interpretation, could increase the cost of doing business, including, among other factors, as a result of increased investments in technology and the development of new operational processes. Furthermore, while Grainger has implemented policies and procedures and provides training designed to facilitate compliance with these laws, regulations and standards, there can be no assurance that employees, contractors, suppliers, vendors, or other third parties will not violate such laws, regulations and standards or Grainger's policies. Any such failure to comply or violation could individually or in the aggregate materially adversely affect Grainger's financial condition, results of operations and cash flows. 19 19 19 19 19 19 In addition, Grainger's business and results of operations in the U.K. may be negatively affected by changes in trade policies, or changes in labor, immigration, tax or other laws, resulting from the U.K.'s exit from the European Union. **Current (2024):** Grainger's business is subject to legislative, legal, and regulatory risks and conditions specific to the countries in which it operates. In addition to Grainger's U.S. operations, which in 2023 generated approximately 82% of its consolidated net sales, Grainger operates its business principally through wholly owned subsidiaries in Canada, Mexico, and the U.K., and its majority-owned subsidiary in Japan. The wide array of laws, regulations and standards in each jurisdiction where Grainger operates, include, but are not limited to, advertising, marketing and Internet regulations (including the use of proprietary or third-party "cookies" in connection with Grainger's eCommerce platforms), anti-bribery and corruption laws, competition and antitrust 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 Privacy Rights Act, 18 18 18 18 18 18 in Japan, the Act on Protection of Personal Information, and in the European Union, the General Data Protection Regulation) and cybersecurity requirements (including protection of information and incident responses), environmental protection laws, currency exchange controls and cash repatriation restrictions, health and safety laws, import and export compliance (including the U.S. Commerce Department's Export Administration Regulations, trade sanctions promulgated by the Office of Foreign Asset Control and anti-money laundering regulations), intellectual property laws, labor laws (including federal and state wage and hour laws), product compliance or safety laws, supplier regulations regarding the sources of supplies or products, tax laws (including as to U.S. taxes on international subsidiaries), unclaimed property laws and laws, regulations and standards applicable to other commercial matters. Moreover, Grainger is also subject to audits and inquiries in the normal course of business. Failure to comply with any of these laws, regulations and standards could result in civil, criminal, monetary and non-monetary fines, penalties, remediation costs and/or significant legal fees as well as potential damage to Grainger's reputation. Changes in these laws, regulations and standards, or in their interpretation, could increase the cost of doing business, including, among other factors, as a result of increased investments in technology and the development of new operational processes. Furthermore, while Grainger has implemented policies and procedures and provides training designed to facilitate compliance with these laws, regulations and standards, there can be no assurance that team members, contractors, suppliers, vendors, or other third parties will not violate such laws, regulations and standards or Grainger's policies. Any such failure to comply or violation could individually or in the aggregate materially adversely affect Grainger's financial condition, results of operations and cash flows. --- ## Modified: Cybersecurity incidents, including breaches of information systems security, could damage Grainger's reputation, disrupt operations, increase costs and/or decrease revenues. **Key changes:** - Reworded sentence: "Through Grainger's sales and eCommerce channels, Grainger 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 Grainger." - Reworded sentence: "The transition in recent years to remote and "hybrid" 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 or other actions from customers, suppliers, financial institutions, regulators, payment card associations, team members and others." **Prior (2023):** Through Grainger's sales and eCommerce channels, 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. Moreover, Grainger's operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to its business, customers, suppliers and employees, and other sensitive matters. Cyber threats are rapidly evolving and those threats and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated. Each year, cyber-attackers make numerous attempts to access the information stored in the Company's information systems. If successful, cyber-attacks may expose Grainger to risk of loss or misuse of proprietary or confidential information or disruptions of business operations. The transition in recent years to remote and "hybrid" 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 associations, employees and others. Grainger's IT infrastructure also includes products and services provided by suppliers, vendors and other third parties, and these providers can experience breaches of their systems and products that impact the security of systems and proprietary or confidential information. Moreover, from time to time, Grainger may share information with these third parties in connection with the products and services they provide to the business. While Grainger requires assurances that these third parties will protect confidential information, there is a risk that the confidentiality of data held or accessed by them may be compromised. 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. While many of Grainger's agreements with these third parties include indemnification provisions, the Company may not be able to recover sufficiently, or at all, under such provisions to adequately offset any losses it may incur. Moreover, the Company may face the threat to its computer systems of unauthorized access, computer hackers, computer viruses, malicious code, ransomware, phishing, organized cyber-attacks and other security problems and system disruptions. Such tactics may also seek to cause payments due to or from the Company to be misdirected to fraudulent accounts, which may not be recoverable by the Company. In addition, a Grainger employee, contractor or other third party with whom Grainger does business may attempt to circumvent security measures or otherwise access Grainger's information systems in order to obtain such information or inadvertently cause a breach involving such information. Further, Grainger's systems are integrated with customer systems in certain cases, and a breach of the Company's information systems could be used to gain illicit access to a customer's systems and information. Grainger has been subject to unauthorized accesses of certain supplier and customer information, including in the last three years, 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. Grainger maintains information security staff, policies and procedures for managing risk to its information security systems, conducts annual employee awareness training of cybersecurity threats and routinely utilizes consultants to assist in evaluating the effectiveness of the security of its IT systems. Moreover, senior leadership, including Grainger's Chief Technology Officer and Chief Information Security Officer, present a cybersecurity briefing at every Audit Committee meeting, provide "cyber dashboard" reports for the Board material at each meeting, and at least annually brief the full Board of Directors. While Grainger has instituted these and other safeguards for the protection of information and governance and oversight of its information security posture, because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, Grainger may be unable to anticipate these techniques or implement adequate preventative measures. Any breach of Grainger's security measures or any breach, error or malfeasance of those of its third-party service providers could cause Grainger to incur significant costs to protect any customers, suppliers, 17 17 17 17 17 17 employees, and other parties whose personal data is compromised and to make changes to its information systems and administrative processes to address security issues. Grainger works with third party information security consultants to assess and enhance its policies and incident responses and to respond to breaches. In addition, although Grainger maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber and information security risks, depending on the nature, location and extent of any event, such insurance coverage may be insufficient to cover all losses. Grainger continuously evaluates the need to upgrade and/or replace its systems and network infrastructure to protect its computing environment, to stay current on vendor supported products and to improve the efficiency of its systems and for other business reasons. The implementation of new systems and IT could adversely impact its operations by imposing substantial capital expenditures, demands on management time and risks of delays or difficulties in transitioning to new systems. In addition, the Company's systems implementations may not result in productivity improvements at the levels anticipated. Systems implementation disruption and any other IT disruption, if not anticipated and appropriately mitigated, could have an adverse effect on its business. Loss of customer, supplier, employee or intellectual property or other business information or failure to comply with data privacy and security laws could disrupt operations, damage Grainger's reputation and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card associations, employees and others, any of which could have a material adverse effect on Grainger, and financial condition and results of operations. Grainger has experienced certain of these cybersecurity incidents in each instance, Grainger provided notifications and adopted remedial measures. None of these incidents have been deemed to be material to Grainger and Grainger has neither incurred any material net expenses nor been penalized or paid any settlement amounts with respect to any cybersecurity breach in the last three years. However there can be no assurance that a future breach or incident would not be material to Grainger's operations and financial condition. **Current (2024):** Through Grainger's sales and eCommerce channels, Grainger 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 Grainger. Moreover, Grainger's operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to its business, customers, suppliers and team member, and other sensitive matters. Cyber threats are rapidly evolving and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated. Each year, cyber-attackers make numerous attempts to access the information stored in Grainger's information systems. Loss of customer, supplier, and team member information, intellectual property or other business information, or failure to comply with data privacy and security laws could, for example, disrupt operations, damage Grainger's reputation and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card associations, team members and others, any of which could have a material adverse effect on Grainger, including its financial condition and results of operations. If successful, cyber-attacks may expose Grainger to risk of loss or misuse of proprietary or confidential information or disruptions of business operations. The transition in recent years to remote and "hybrid" 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 or other actions from customers, suppliers, financial institutions, regulators, payment card associations, team members and others. 16 16 16 16 16 16 Grainger's IT infrastructure also includes products and services provided by suppliers, vendors and other third parties, and these providers can experience breaches of their systems and products that impact the security of systems and proprietary or confidential information. Moreover, Grainger shares information with these third parties in connection with the products and services they provide to the business. Although Grainger performs risk assessments on third parties where appropriate to learn about their security program, there is a risk that the confidentiality of data held or accessed by them may be compromised. Moreover, Grainger may face threats to its information systems, for example, unauthorized access, business email compromise, viruses, malicious code, ransomware, phishing, and organized cyber-attacks. 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, team member or business information, or cause systems disruption. While many of Grainger's agreements with these third parties include indemnification provisions, Grainger may not be able to recover sufficiently, or at all, under such provisions to adequately offset any losses it may incur. In addition, a Grainger team member, contractor or other third party with whom Grainger does business may attempt to circumvent security measures or otherwise access Grainger's information. Grainger's systems are integrated with customer systems and a breach of Grainger's systems could be used as an attempt to gain illicit access to customer systems and information. Grainger has been subject to unauthorized access 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. Techniques used to obtain unauthorized access or to sabotage systems change frequently and may not be recognized until they are launched against a target. Grainger may be unable to anticipate these techniques or implement preventative measures. Any breach of Grainger's security measures or any breach, error or malfeasance of those of its third-party service providers could cause Grainger to incur significant costs to protect any customers, suppliers, team members and other parties whose information is compromised. Such a breach could also cause Grainger to make changes to its information systems and administrative processes to address security issues. Although Grainger maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber and information security risks, depending on the nature, location and extent of any event, such insurance coverage may be insufficient to cover all losses. Grainger has experienced certain cybersecurity incidents and in each instance Grainger provided notifications and adopted remedial measures. None of these incidents have been deemed to be material to Grainger and Grainger has neither incurred any material net expenses nor been materially penalized or subject to any material settlement amounts with respect to such incidents in the last three years. However, there can be no assurance that a future breach or incident would not be material to Grainger's operations and financial condition. For further information regarding Grainger's cybersecurity risk management strategy and the Board's oversight role, see Part I, Item 1C: Cybersecurity of this Form 10-K. --- ## Modified: The facilities maintenance industry is highly competitive, and changes in competition and other risks could impact demand for Grainger's products and services. **Key changes:** - Reworded sentence: "Grainger competes in a variety of ways, including product assortment and availability, services offered to customers, pricing, purchasing convenience and the overall experience Grainger offers." - Reworded sentence: "There are several large competitors in the industry, although most of the market is served by small local and regional competitors." - Reworded sentence: "To manage these potential pressures, Grainger continuously considers the adoption of new operating initiatives, including new marketing programs, productivity improvements, inventory management and loss prevention initiatives, and other similar strategies." - Reworded sentence: "Developing, upgrading, managing or implementing new technologies, business applications, strategies and innovations may require significant investment of resources by Grainger, may result in unexpected costs and disruptions to operations, may take longer than expected, may increase Grainger's vulnerability to cyber breaches, attacks or intrusions, and may not provide all anticipated benefits." **Prior (2023):** Grainger competes in a variety of ways, including product assortment and availability, services offered to customers, pricing, purchasing convenience, and the overall experience Grainger offers. This includes the ease of use of Grainger's high-touch operations, eCommerce platforms and delivery of products. 14 14 14 14 14 14 There are several large competitors in the industry, although most of the market is served by small local and regional competitors. Grainger faces competition in all markets it serves from manufacturers (including some of its own suppliers) that sell directly to certain segments of the market, wholesale distributors, catalog houses, retail enterprises and online businesses that compete with price transparency. To remain competitive, the Company must be willing and able to respond to market pressures. Downward pressure on sales prices, changes in the volume of orders, and an inability to pass higher product costs on to customers could cause Grainger's gross profit percentage to fluctuate or decline. Grainger may not be able to pass rising product costs to customers if those customers have ready product or supplier alternatives in the marketplace. These pressures could have a material effect on Grainger's sales and profitability. If the Company is unable to grow sales or reduce costs, among other actions, the Company's results of operations and financial condition may be adversely affected. Moreover, Grainger expects technological advancements and the increased use of eCommerce solutions within the industry to continue to evolve at a rapid pace. As a result, Grainger's ability to effectively compete requires Grainger to respond and adapt to new industry trends and developments. Developing, upgrading, managing or implementing new technologies, business applications, strategies and innovations may require significant investment of resources by the Company, may result in unexpected costs and disruptions to operations, may take longer than expected, may increase the Company's vulnerability to cyber breaches, attacks or intrusions, and may not provide all anticipated benefits. **Current (2024):** Grainger competes in a variety of ways, including product assortment and availability, services offered to customers, pricing, purchasing convenience and the overall experience Grainger offers. This includes the ease of use of Grainger's high-touch operations, eCommerce platforms and delivery of products. There are several large competitors in the industry, although most of the market is served by small local and regional competitors. Grainger faces competition in all markets it serves from manufacturers (including some of its own suppliers) that sell directly to certain segments of the market, wholesale distributors, catalog houses, retail enterprises and online businesses. To remain competitive, Grainger must be willing and able to respond to market pressures. Downward pressure on sales prices, changes in the volume of orders, and an inability to pass higher product costs on to customers could cause Grainger's gross profit percentage to fluctuate or decline. Grainger may not be able to pass rising product costs to customers if those customers have ready product or supplier alternatives in the marketplace. These pressures could have a material effect on Grainger's sales and profitability. To manage these potential pressures, Grainger continuously considers the adoption of new operating initiatives, including new marketing programs, productivity improvements, inventory management and loss prevention initiatives, and other similar strategies. If Grainger is unable to sustain or grow sales, reduce costs, and prevent loss and fraud, among other actions, Grainger's results of operations and financial condition may be adversely affected. Moreover, Grainger expects technological advancements, innovations and the increased use of eCommerce solutions within the industry to continue to evolve at a rapid pace. As a result, Grainger's ability to effectively compete requires Grainger to respond and adapt to new industry trends and developments. Developing, upgrading, managing or implementing new technologies, business applications, strategies and innovations may require significant investment of resources by Grainger, may result in unexpected costs and disruptions to operations, may take longer than expected, may increase Grainger's vulnerability to cyber breaches, attacks or intrusions, and may not provide all anticipated benefits. --- ## Modified: Disruptions in Grainger's supply chain could result in an adverse impact on results of operations. **Key changes:** - Reworded sentence: "Grainger's logistics or supply chain network could be disrupted by the occurrence of: one or more natural or human induced disasters, including earthquakes, tsunamis, storms, hurricanes, floods, fires, droughts, tornados and other extreme weather events or conditions; pandemic diseases or viral contagions; geopolitical events, such as war, civil unrest or terrorist attacks in a country in which Grainger operates or in which its suppliers are located; disruptions to transportation infrastructure and networks, including from transport providers or third-party work stoppages related to labor strikes or lockouts; and the imposition of measures that create barriers to or increases in costs associated with international trade." - Reworded sentence: "Further escalation of geopolitical tensions across the world and potential actions taken in response to them could have a broad impact on markets where Grainger does business, adversely affect its suppliers and disrupt the sourcing, manufacturing and transportation of products." **Prior (2023):** Grainger's logistics or supply chain network could be disrupted by the occurrence of: one or more natural or human induced disasters, including earthquakes, tsunamis, storms, hurricanes, floods, fires, droughts, tornados and other extreme weather; pandemic diseases or viral contagions such as the COVID-19 pandemic; geopolitical events, such as war, civil unrest or terrorist attacks in a country in which Grainger operates or in which its suppliers are located; disruptions in transport networks, including from transport providers or third party work stoppages related to labor strikes or lockouts; and the imposition of measures that create barriers to or increase the costs associated with international trade. 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. Grainger's ability to provide same-day shipping and next-day delivery is an integral component of Grainger's business strategy and any such disruption could adversely impact results of operations and financial performance. Furthermore, in connection with Russia's invasion of Ukraine, the U.S. and other countries have responded by imposing major, and potentially prolonged, economic sanctions and other responses. Although Grainger's business has limited direct exposure in Russia and Ukraine, further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which could adversely affect Grainger's business and/or supply chain, customers and/or suppliers in the broader region. Similarly an increase in tensions across the Taiwan Straits and in overall relations with China, and the potential of various resulting actions and responses of the international community and other factors affecting trade in and from the region could disrupt the sourcing and manufacturing of products in the region. It is not possible to predict whether these events will occur, or the broader consequences of these events if they did occur, which could include further instability, geopolitical shifts and adverse effects on the global economy or possible sanctions, embargoes or other trade barriers. **Current (2024):** Grainger's logistics or supply chain network could be disrupted by the occurrence of: one or more natural or human induced disasters, including earthquakes, tsunamis, storms, hurricanes, floods, fires, droughts, tornados and other extreme weather events or conditions; pandemic diseases or viral contagions; geopolitical events, such as war, civil unrest or terrorist attacks in a country in which Grainger operates or in which its suppliers are located; disruptions to transportation infrastructure and networks, including from transport providers or third-party work stoppages related to labor strikes or lockouts; and the imposition of measures that create barriers to or increases in costs associated with international trade. Even when Grainger is able to find alternate sources for certain products, they may cost more or require Grainger to incur higher transportation costs, which could adversely impact Grainger'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. Grainger's ability to provide same-day shipping and next-day delivery is an integral component of Grainger's business strategy and any such disruption could adversely impact results of operations and financial performance. Further escalation of geopolitical tensions across the world and potential actions taken in response to them could have a broad impact on markets where Grainger does business, adversely affect its suppliers and disrupt the sourcing, manufacturing and transportation of products. It is not possible to predict whether certain geopolitical events which could adversely affect Grainger's business will occur, or the broader consequences of these events if they did occur, which could include further instability, geopolitical shifts and adverse effects on the global economy or possible sanctions, embargoes or other trade barriers. --- ## Modified: Strategic Priorities **Key changes:** - Reworded sentence: "The Company's continued strategic aspiration for 2024 is to relentlessly expand Grainger's leadership position by being the go-to partner for people who build and run safe, sustainable, and productive operations." **Prior (2023):** The Company's continued strategic priority for 2023 is to relentlessly expand Grainger's leadership position in the MRO space by being the go-to partner for people who build and run safe and productive operations. To achieve this, each Grainger business has a set of strategic objectives. The high-touch solutions businesses are focused on key initiatives that drive top-line revenue and MRO market outgrowth. Additionally, the high-touch 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 acquisition and retention. Additionally, all Grainger businesses are focused on continuously improving customer experience, productivity and optimizing and scaling cost structures and investing in digital marketing, technology and supply chain infrastructure to ultimately deliver long-term returns for shareholders. **Current (2024):** The Company's continued strategic aspiration for 2024 is to relentlessly expand Grainger's leadership position by being the go-to partner for people who build and run safe, sustainable, and productive operations. To achieve this, each Grainger business has a set of strategic growth drivers to drive top-line revenue and MRO market outgrowth. In the High-Touch Solutions North America (High-Touch Solutions N.A.) segment, businesses are focused on three areas: advantaged MRO solutions, differentiated sales and services, and unparalleled customer service. In the Endless Assortment segment, businesses are focused on product assortment expansion and innovative customer acquisition and retention capabilities. Additionally, all Grainger businesses are focused on continuously enhancing our operational processes to improve service and cost through customer experience, technology and supply chain infrastructure which ultimately delivers long-term returns for shareholders. --- ## Modified: Risk Management and Strategy **Key changes:** - Reworded sentence: "Grainger has a cybersecurity team that works to prevent, detect, and respond to cybersecurity threats." - Reworded sentence: "The following table includes Grainger's material facilities: LocationFacility and Use(9)Size in Square Feet (in thousands)SegmentU.S.(1) DCs11,635High-Touch Solutions N.A.U.S.(2)Branch locations6,324High-Touch Solutions N.A.Japan(3)DCs3,370Endless AssortmentU.S.(4)Other facilities3,878High-Touch Solutions N.A.The square footage of Grainger's corporate headquarters in Lake Forest, Illinois and other general offices in the Chicago Metropolitan area are not included in the total square footage of Grainger's U.S." - Reworded sentence: "(2) Consists of 245 branches, 62 onsite and four will-call express locations." - Reworded sentence: "(3) Consists of four DCs that range in size from approximately 160,000 to 2.1 million square feet." - Removed sentence: "Other facilities include office space that range in size from approximately 1,000 to 49,000 square feet." **Prior (2023):** As of December 31, 2022, Grainger's consolidated indebtedness was approximately $2.3 billion. The Company's indebtedness could, among other things, limit Grainger's ability to respond to rapidly changing business and economic conditions, require the Company to dedicate a substantial portion of its cash flows to the payment of principal and interest on its indebtedness, reducing the funds available for other business purposes, and make it more difficult to satisfy the Company's financial obligations as they come due during periods of adverse economic and industry conditions. The agreements governing Grainger's debt agreements and instruments contain representations, warranties, affirmative, negative and financial covenants, and default provisions. Grainger's failure to comply with these restrictions and obligations could result in a default under such agreements, which may allow Grainger's creditors to accelerate the related indebtedness. Any such acceleration could have a material adverse effect on Grainger's business, financial condition, results of operations, cash flows, and its ability to obtain financing on favorable terms in the future. In addition, Grainger may in the future seek to raise additional financing for working capital, capital expenditures, refinancing of indebtedness, share repurchases or other general corporate purposes. Grainger's ability to obtain additional financing will be dependent on, among other things, the Company's financial condition, prevailing market conditions and numerous other factors beyond the Company's control. Such additional financing may not be available on commercially reasonable terms or at all. Any inability to obtain financing when needed could materially adversely affect the Company's business, financial condition or results of operations. Item 1B: Unresolved Staff Comments None. 21 21 21 21 21 21 Item 2: Properties As of December 31, 2022, Grainger's owned and leased facilities totaled approximately 30.3 million square feet. 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. Grainger believes that its properties are generally in excellent condition, well maintained and suitable for the conduct of business. The following table includes Grainger's material facilities: LocationFacility and Use(9)Size in Square Feet (in thousands)SegmentU.S.(1) DCs10,368High-Touch Solutions N.A.U.S.(2)Branch Locations6,325High-Touch Solutions N.A.Japan(3)DCs3,924Endless AssortmentU.S.(4)Other Facilities3,638High-Touch Solutions N.A. Facility and Use(9) U.S.(1) U.S.(2) Japan(3) U.S.(4) Facility and Use(9) U.S.(1) U.S.(2) Japan(3) U.S.(4) (1) Consists of 19 DCs that range in size from approximately 61,000 to 1.5 million square feet, including three leased facilities that primarily manage bulk products, that were previously disclosed in Other Facilities. The remaining DCs are primarily owned. (2) Consists of 246 branches, 49 onsite and four will-call express locations. These branches range in size from approximately 500 to 109,000 square feet. These facilities are primarily owned. (3) Consists of seven DCs that range in size from approximately 11,000 to 2 million square feet. These facilities are primarily leased. Other facilities include office space that range in size from approximately 1,000 to 49,000 square feet. These facilities are also primarily leased. (4) Primarily consists of storage facilities, office space and customer service centers. These facilities are owned and leased. These facilities range in size from approximately 200 to 633,000 square feet. (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 649,000 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 37 branch locations, one DC and other facilities which total 751,000 square feet. (9) Owned facilities are not subject to any mortgages. Item 3: Legal Proceedings For a description of legal proceedings, see the disclosure contained in Note 15 to the Consolidated Financial Statements included in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K, which is incorporated herein by reference. Item 4: Mine Safety Disclosures Not applicable. 22 22 22 22 22 22 PART II Item 5: Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities **Current (2024):** Grainger has a cybersecurity team that works to prevent, detect, and respond to cybersecurity threats. The team has implemented processes designed to assess, identify and manage material risks and vulnerabilities to the Company's security posture, including prioritizing and remediating such risks. The team also works to assess and manage cybersecurity risks by: (i) reviewing cyber risks with senior management, including the Senior Vice President and Chief Technology Officer (CTO); (ii) incorporating cybersecurity in its enterprise risk processes; (iii) establishing regular reviews of cybersecurity risks and mitigation efforts, including with the Audit Committee and the Board; and (iv) using third parties as needed for reviews and testing. Grainger regularly identifies its enterprise risks. Grainger's cybersecurity team reviews and updates its information security strategy and plans to align cybersecurity prioritization with the identified top enterprise risks. Grainger has developed a cybersecurity risk intake process to facilitate the identification of cybersecurity risks, including those related to third-party vendors. Identified risks are tracked by management, and incorporated into mitigation plans. The management team engaged in the cybersecurity risk management process, including the CTO, has risk management backgrounds, certifications, and/or cyber experience in prior professional roles and at Grainger. The team maintains expertise on cyber risk management through third-party consultants, external trainings, and affiliations with relevant organizations. Grainger has been subject to unauthorized access of systems on which certain supplier, customer, and team member information was stored, which have been deemed immaterial to our business and operations individually and in the aggregate. Grainger, or third-party service providers engaged by Grainger, may be subject to other unauthorized access of information systems in the future. There can be no assurance that any future unauthorized access to or breach of these information systems will not be material to Grainger's business, operations or financial condition. See Part I, Item 1A: Risk Factors of this Form 10-K. Governance The Audit Committee assists the Board in its oversight of the Company's Enterprise Risk Management (ERM) program and processes, including with respect to cybersecurity. Both the Board and the Audit Committee regularly review the Company's risk assessment and management processes and policies and receive regular updates from the Company's management team members who are responsible for the effectiveness of the Company's ERM program. As part of its ERM oversight, the Board oversees and regularly reviews the Company's programs and processes for cybersecurity risks, including the Company's framework for preventing, detecting, and addressing cybersecurity incidents and identifying emerging risks both broadly and within related industries. The Company's CTO routinely provides cybersecurity updates to the Audit Committee and information to the Board. The CTO leads an information security team that works to facilitate the protection of the Company's information and computing assets. 21 21 21 21 21 21 Item 2: Properties As of December 31, 2023, Grainger's owned and leased facilities totaled approximately 30.4 million square feet. 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 owns its corporate headquarters in Lake Forest, Illinois and leases other general offices in the Chicago Metropolitan area that consists of approximately one million square feet. Grainger believes that its properties are generally in excellent condition, well maintained and suitable for the conduct of business. The following table includes Grainger's material facilities: LocationFacility and Use(9)Size in Square Feet (in thousands)SegmentU.S.(1) DCs11,635High-Touch Solutions N.A.U.S.(2)Branch locations6,324High-Touch Solutions N.A.Japan(3)DCs3,370Endless AssortmentU.S.(4)Other facilities3,878High-Touch Solutions N.A.The square footage of Grainger's corporate headquarters in Lake Forest, Illinois and other general offices in the Chicago Metropolitan area are not included in the total square footage of Grainger's U.S. Other facilities provided above. Square footage of the Company's owned and leased properties provided below are presented as approximates.(1) Consists of 21 DCs that range in size from approximately 60,000 to 1.5 million square feet, including six leased facilities that primarily manage bulk products. The remaining DCs are primarily owned.(2) Consists of 245 branches, 62 onsite and four will-call express locations. These facilities range in size from under 1,000 to 110,000 square feet. These facilities are primarily owned.(3) Consists of four DCs that range in size from approximately 160,000 to 2.1 million square feet. These facilities are both owned and leased. Other facilities include office space that range in size from approximately 1,500 to 90,000 square feet. These facilities are primarily leased.(4) Primarily consists of storage facilities, office space and customer service centers. These facilities are owned and leased. These facilities range in size from under 1,000 to over 1 million square feet.(5) In Canada, Grainger has 32 branch locations, five DCs and other facilities which total two million square feet.(6) In Mexico, Grainger has 16 branch locations, two DCs and one other location which total 655,000 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 35 branch and other facility locations and one DC which total 705,000 square feet. (9) Owned facilities are not subject to any mortgages. Facility and Use(9) Size in Square Feet (in thousands) U.S.(1) U.S.(2) Japan(3) U.S.(4) The square footage of Grainger's corporate headquarters in Lake Forest, Illinois and other general offices in the Chicago Metropolitan area are not included in the total square footage of Grainger's U.S. Other facilities provided above. Square footage of the Company's owned and leased properties provided below are presented as approximates. (1) Consists of 21 DCs that range in size from approximately 60,000 to 1.5 million square feet, including six leased facilities that primarily manage bulk products. The remaining DCs are primarily owned. (2) Consists of 245 branches, 62 onsite and four will-call express locations. These facilities range in size from under 1,000 to 110,000 square feet. These facilities are primarily owned. (3) Consists of four DCs that range in size from approximately 160,000 to 2.1 million square feet. These facilities are both owned and leased. Other facilities include office space that range in size from approximately 1,500 to 90,000 square feet. These facilities are primarily leased. (4) Primarily consists of storage facilities, office space and customer service centers. These facilities are owned and leased. These facilities range in size from under 1,000 to over 1 million square feet. (5) In Canada, Grainger has 32 branch locations, five DCs and other facilities which total two million square feet. (6) In Mexico, Grainger has 16 branch locations, two DCs and one other location which total 655,000 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 35 branch and other facility locations and one DC which total 705,000 square feet. (9) Owned facilities are not subject to any mortgages. Facility and Use(9) Size in Square Feet (in thousands) U.S.(1) U.S.(2) Japan(3) U.S.(4) The square footage of Grainger's corporate headquarters in Lake Forest, Illinois and other general offices in the Chicago Metropolitan area are not included in the total square footage of Grainger's U.S. Other facilities provided above. Square footage of the Company's owned and leased properties provided below are presented as approximates. (1) Consists of 21 DCs that range in size from approximately 60,000 to 1.5 million square feet, including six leased facilities that primarily manage bulk products. The remaining DCs are primarily owned. (2) Consists of 245 branches, 62 onsite and four will-call express locations. These facilities range in size from under 1,000 to 110,000 square feet. These facilities are primarily owned. (3) Consists of four DCs that range in size from approximately 160,000 to 2.1 million square feet. These facilities are both owned and leased. Other facilities include office space that range in size from approximately 1,500 to 90,000 square feet. These facilities are primarily leased. (4) Primarily consists of storage facilities, office space and customer service centers. These facilities are owned and leased. These facilities range in size from under 1,000 to over 1 million square feet. (5) In Canada, Grainger has 32 branch locations, five DCs and other facilities which total two million square feet. (6) In Mexico, Grainger has 16 branch locations, two DCs and one other location which total 655,000 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 35 branch and other facility locations and one DC which total 705,000 square feet. (9) Owned facilities are not subject to any mortgages. Item 3: Legal Proceedings For a description of legal proceedings, see the disclosure contained in Note 14 to the Consolidated Financial Statements included in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K, which is incorporated herein by reference. Item 4: Mine Safety Disclosures Not applicable. 22 22 22 22 22 22 PART II Item 5: Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities --- ## Modified: Tax changes could affect Grainger's effective tax rate and future profitability. **Key changes:** - Reworded sentence: "Grainger's future results could be adversely affected by changes in the effective tax rate as a result of Grainger's relative overall profitability and the mix of earnings in countries with differing statutory tax rates, changes in tax legislation, the results of the examination of previously filed tax returns, and continuing assessment of Grainger's tax exposures." **Prior (2023):** Grainger's future results could be adversely affected by changes in the effective tax rate as a result of Grainger's relative overall profitability and the mix of earnings in countries with differing statutory tax rates, changes in tax legislation, the results of the examination of previously filed tax returns, and continuing assessment of the Company's tax exposures. For example, the Company continues to monitor the Inflation Reduction Act of 2022 (IRA) and other similar regulatory developments to evaluate their potential impact on Grainger's tax rate, financial statements and share repurchase program. **Current (2024):** Grainger's future results could be adversely affected by changes in the effective tax rate as a result of Grainger's relative overall profitability and the mix of earnings in countries with differing statutory tax rates, changes in tax legislation, the results of the examination of previously filed tax returns, and continuing assessment of Grainger's tax exposures. The Organization for Economic Cooperation and Development (OECD) Pillar Two guidelines address the increasing digitization of the global economy, re-allocating taxing rights among countries. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework expected during 2024. Grainger continues to evaluate the Pillar Two Framework and its potential impact on future periods. Based on information to date, Grainger does not expect either the Pillar One or Two proposals to materially impact the Company's global income tax liability or effective tax rate. 19 19 19 19 19 19 --- ## Modified: Recent Events **Key changes:** - Reworded sentence: "Inflationary Cost Environment and Macroeconomic Pressures The global economy continues to experience volatile disruptions including to the commodity, labor and transportation markets, arising from a combination of geopolitical events and various economic and financial factors." - Reworded sentence: "Historically, the Company's broad and diverse customer base and the nondiscretionary nature of the Company's products to its customers has helped to insulate it from the effects of recessionary periods in the industrial MRO market." - Removed sentence: "Geopolitical Events In February 2022, Russia invaded Ukraine." - Removed sentence: "In response to the conflict, the U.S." - Removed sentence: "and other countries have implemented economic and other sanctions." **Prior (2023):** Inflation Reduction Act of 2022 In August 2022, the Inflation Reduction Act of 2022 (IRA) was signed into United States (U.S.) law. Under the IRA, there is a new 15% corporate minimum tax and a new 1% excise tax on net stock repurchases, effective after December 31, 2022. In addition, the IRA contains provisions relating to climate change, energy and health care. Based on Grainger's current analysis of the provisions, the Company does not anticipate compliance with the IRA will result in a material impact to the Consolidated Financial Statements. Inflationary Cost Environment and Macroeconomic Pressures In combination with the economic recovery of the ongoing COVID-19 pandemic, the global economy continues to experience volatile disruptions including to the commodity, labor and transportation markets. These disruptions have contributed to an inflationary environment which has affected, and may continue to affect, the price and availability of certain products and services necessary for the Company's operations. Such disruptions have impacted, and may continue to impact, the Company's business, financial condition and results of operations. As a result of continued inflation, the Company has implemented strategies designed to mitigate certain adverse effects of higher costs while also remaining market price competitive. The Company continues to monitor economic conditions in the U.S. and globally, and the impact of macroeconomic pressures, including rising interest rates, fluctuating currency exchange rates and recession fears, on the Company's business, customers, suppliers and other third parties. Historically, the Company's broad and diverse 25 25 25 25 25 25 customer base and the nondiscretionary nature of the Company's products to its customers has helped it perform well in the industrial MRO market in recessionary periods. The full extent and impact of these conditions are uncertain and cannot be predicted at this time. Geopolitical Events In February 2022, Russia invaded Ukraine. In response to the conflict, the U.S. and other countries have implemented economic and other sanctions. While Grainger has limited direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact on the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company's business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on global and regional economic conditions. The Company does not currently expect significant disruption to its overall business resulting from these events. For further discussion of the Company's risks and uncertainties, see Part I, Item 1A: Risk Factors of this Form 10-K. 26 26 26 26 26 26 **Current (2024):** Inflationary Cost Environment and Macroeconomic Pressures The global economy continues to experience volatile disruptions including to the commodity, labor and transportation markets, arising from a combination of geopolitical events and various economic and financial factors. These disruptions have affected the Company's operations and may continue to affect the Company's business, financial condition and results of operations. The Company continues to monitor economic conditions in the U.S. and globally, and the impact of macroeconomic pressures, including repercussions from changes in interest rates, currency exchange fluctuations, inflation and a potential recession on the Company's business, customers, suppliers and other third parties. As a result of continued inflation, the Company has implemented strategies designed to mitigate certain adverse effects of higher costs while also remaining market price competitive. Historically, the Company's broad and diverse customer base and the nondiscretionary nature of the Company's products to its customers has helped to insulate it from the effects of recessionary periods in the industrial MRO market. The full extent and impact of these conditions are uncertain and cannot be predicted at this time. For further discussion of the Company's risks and uncertainties, see Part I, Item 1A: Risk Factors of this Form 10-K. 25 25 25 25 25 25 --- ## Modified: Results of Operations **Key changes:** - Reworded sentence: "In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business." - Reworded sentence: "Gross profit of $6,496 million for the year ended December 31, 2023 increased $647 million, or 11%, and gross profit margin of 39.4% increased 100 basis points compared to the same period in 2022." - Reworded sentence: "26 26 26 26 26 26 Selling, general, and administrative (SG&A) expenses of $3,931 million for the year ended December 31, 2023 increased $297 million, or 8%." **Prior (2023):** The following table is included as an aid to understanding changes in Grainger's Consolidated Statements of Earnings (in millions of dollars). For the Years Ended December 31,Percent Increase/(Decrease) from Prior YearAs a Percent of Net Sales2022202120222021Net sales(1)$15,228 $13,022 16.9 %100.0 %100.0 %Cost of goods sold9,379 8,302 13.0 61.6 63.8 Gross profit5,849 4,720 23.9 38.4 36.2 Selling, general and administrative expenses3,634 3,173 14.5 23.9 24.4 Operating earnings2,215 1,547 43.2 14.5 11.9 Other expense - net69 62 10.6 0.4 0.5 Income tax provision533 371 43.8 3.5 2.8 Net earnings1,613 1,114 44.8 10.6 8.6 Noncontrolling interest66 71 (7.1)0.4 0.5 Net earnings attributable to W.W. Grainger, Inc.$1,547 $1,043 48.4 10.2 8.0 Diluted earnings per share:$30.06 $19.84 51.5 %(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. Net sales(1) (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. Net sales(1) (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. The following table is included as an aid to understanding the changes in Grainger's total net sales and daily sales from the prior period to the most recent period (in millions of dollars): For the Years Ended December 31,20222021Net Sales$15,228 $13,022 $ Change from prior-year period2,206 1,225 % Change from prior-year period16.9 %10.4 %Daily sales(1)$59.7 $51.3 $ Change from prior-year period8.4 5.2 % Change from prior-year period16.5 %11.3 %Daily sales impact of currency fluctuations(2.8)%0.3 %(1) Daily sales are defined as the total net sales for the period divided by the number of U.S. selling days in the period. There were 255 and 254 sales days in the full year 2022 and 2021, respectively. Daily sales(1) (1) Daily sales are defined as the total net sales for the period divided by the number of U.S. selling days in the period. There were 255 and 254 sales days in the full year 2022 and 2021, respectively. Daily sales(1) (1) Daily sales are defined as the total net sales for the period divided by the number of U.S. selling days in the period. There were 255 and 254 sales days in the full year 2022 and 2021, respectively. Net sales of $15,228 million for the year ended December 31, 2022 increased $2,206 million, or 16.9%, compared to the same period in 2021. The increase in net sales was primarily due to growth in the High-Touch Solutions N.A. and Endless Assortment segments in 2022. For further discussion on the Company's net sales, see the Segment Analysis section below. 27 27 27 27 27 27 Gross profit of $5,849 million for the year ended December 31, 2022 increased $1,129 million, or 24%, compared to the same period in 2021. Gross profit margin of 38.4% increased 2.2 percentage points compared to the same period in 2021. The increase was driven by favorability in the High-Touch Solutions N.A. and Endless Assortment segments. For further discussion on the Company's gross profit, see the Segment Analysis section below. SG&A of $3,634 million for the year ended December 31, 2022 increased $461 million, or 15%, compared to the same period in 2021. The increase was primarily due to higher marketing, payroll and variable compensation expenses in 2022. Operating earnings of $2,215 million for the year ended December 31, 2022 increased $668 million, or 43%, compared to the same period in 2021. The increase was driven by higher gross profit dollars, partially offset by higher SG&A. Other expense - net of $69 million for the year ended December 31, 2022 increased $7 million, or 11%, compared to the same period in 2021. The increase was primarily driven by unfavorable changes in market interest rates in 2022. Income taxes of $533 million for the year ended December 31, 2022 increased $162 million, or 44%, compared to the same period in 2021. The increase was primarily driven by higher taxable operating earnings for the full year 2022. Grainger's effective tax rates were 24.8% and 25.0% for the twelve months ended December 31, 2022 and 2021, respectively. Net earnings of $1,547 million attributable to W.W. Grainger, Inc. for the year ended December 31, 2022 increased $504 million, or 48%, compared to the same period in 2021. Diluted earnings per share was $30.06 for the year ended December 31, 2022, an increase of 52% compared to $19.84 for the same period in 2021. The increase was primarily due to higher net earnings in 2022. 28 28 28 28 28 28 **Current (2024):** In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. Non-GAAP measures exclude certain items affecting comparability that can affect the year-over-year assessment of operating results and other one-time items that do not directly reflect ongoing operating results. For further information regarding the Company's non-GAAP measures including reconciliations to the most directly comparable GAAP measures, see below "Non-GAAP Measures." The following table is included as an aid to understanding the changes in Grainger's Consolidated Statements of Earnings for the twelve months ended December 31, 2023 and 2022 (in millions of dollars). For the Years Ended December 31,% of Net Sales20232022% Change20232022Net sales(1)$16,478 $15,228 8.2 %100.0 %100.0 %Cost of goods sold9,982 9,379 6.4 60.6 61.6 Gross profit6,496 5,849 11.1 39.4 38.4 Selling, general and administrative expenses3,931 3,634 8.2 23.8 23.9 Operating earnings2,565 2,215 15.8 15.6 14.5 Other expense - net65 69 (5.5)0.4 0.4 Income tax provision597 533 12.0 3.6 3.5 Net earnings1,903 1,613 18.0 11.6 10.6 Less noncontrolling interest74 66 12.5 0.5 0.4 Net earnings attributable to W.W. Grainger, Inc.$1,829 $1,547 18.2 11.1 %10.2 %Diluted earnings per share:$36.23 $30.06 20.5 %(1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K. Net sales(1) (1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K. Net sales(1) (1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K. The following table is included as an aid to understanding the changes of Grainger's total net sales, daily net sales and daily organic constant currency net sales from the prior period for the twelve months ended December 31, 2023 (in millions of dollars): For the Years Ended December 31,2023% Change(1)2022% Change(1)Net sales $16,478 8.2 %$15,228 16.9 %Daily net sales(2)$65.2 8.6 %$59.5 16.5 %Daily, organic constant currency net sales(2)$65.8 9.5 %$61.0 19.3 %(1) Calculated on the basis of prior year reported net sales for the years ended December 31, 2023 and 2022.(2) Daily net sales are adjusted for the difference in U.S. selling days relative to the prior year period. Daily, organic constant currency net sales excludes the results of E & R Industrial Sales, Inc. in the comparable prior year period post date of divestiture and excludes the impact on net sales due to year-over-year foreign currency exchange rate fluctuations. There were 254 and 255 sales days in the full year 2023 and 2022, respectively. For further information regarding the Company's non-GAAP measures, including reconciliations to the most directly comparable GAAP measures, see below "Non-GAAP Measures." % Change(1) % Change(1) Daily net sales(2) Daily, organic constant currency net sales(2) (1) Calculated on the basis of prior year reported net sales for the years ended December 31, 2023 and 2022. (2) Daily net sales are adjusted for the difference in U.S. selling days relative to the prior year period. Daily, organic constant currency net sales excludes the results of E & R Industrial Sales, Inc. in the comparable prior year period post date of divestiture and excludes the impact on net sales due to year-over-year foreign currency exchange rate fluctuations. There were 254 and 255 sales days in the full year 2023 and 2022, respectively. For further information regarding the Company's non-GAAP measures, including reconciliations to the most directly comparable GAAP measures, see below "Non-GAAP Measures." % Change(1) % Change(1) Daily net sales(2) Daily, organic constant currency net sales(2) (1) Calculated on the basis of prior year reported net sales for the years ended December 31, 2023 and 2022. (2) Daily net sales are adjusted for the difference in U.S. selling days relative to the prior year period. Daily, organic constant currency net sales excludes the results of E & R Industrial Sales, Inc. in the comparable prior year period post date of divestiture and excludes the impact on net sales due to year-over-year foreign currency exchange rate fluctuations. There were 254 and 255 sales days in the full year 2023 and 2022, respectively. For further information regarding the Company's non-GAAP measures, including reconciliations to the most directly comparable GAAP measures, see below "Non-GAAP Measures." Net sales of $16,478 million for the year ended December 31, 2023 increased $1,250 million, or 8%, and on a daily, organic constant currency basis, net sales increased 10% compared to the same period in 2022. Both High-Touch Solutions N.A. and the Endless Assortment segments contributed to sales growth in 2023. For further discussion on the Company's net sales, see the Segment Analysis section below. Gross profit of $6,496 million for the year ended December 31, 2023 increased $647 million, or 11%, and gross profit margin of 39.4% increased 100 basis points compared to the same period in 2022. Both segments contributed to margin expansion in 2023. For further discussion on the Company's gross profit, see the Segment Analysis section below. 26 26 26 26 26 26 Selling, general, and administrative (SG&A) expenses of $3,931 million for the year ended December 31, 2023 increased $297 million, or 8%. Adjusted SG&A of $3,905 million increased $250 million, or 7%, compared to the same period in 2022 driven by higher marketing and payroll expenses. Adjusted SG&A leverage improved 30 basis points in 2023. Operating earnings of $2,565 million for the year ended December 31, 2023 increased $350 million, or 16%. Adjusted operating earnings of $2,591 million increased $397 million, or 18%, compared to the same period in 2022 due to higher gross profit dollars, partially offset by increased SG&A consistent with sales growth in 2023. Adjusted operating margin improved 130 basis points in 2023. Income tax expense of $597 million and $533 million represents effective tax rates of 23.9% and 24.8% for the years ended December 31, 2023 and 2022, respectively. The Company's effective tax rate was positively impacted by increased benefits related to stock compensation in 2023. Diluted earnings per share was $36.23 for the year ended December 31, 2023. Adjusted diluted earnings per share was $36.67 for the year ended December 31, 2023, an increase of 24% compared to $29.66 for the same period in 2022. 27 27 27 27 27 27 --- ## Modified: In order to compete, Grainger must attract, train, motivate, develop and retain key team members, and the failure to do so could have an adverse effect on results of operations. **Key changes:** - Reworded sentence: "In order to compete and have continued growth, Grainger must attract, train, motivate, develop, and retain executives and other key team members, including those in managerial, technical, sales, supply chain, technology development and information technology positions." - Reworded sentence: "Further, changes in market compensation rates may adversely affect Grainger's labor costs." **Prior (2023):** In order to compete and have continued growth, Grainger must attract, retain, train, motivate and develop executives and other key employees, including those in managerial, technical, sales, marketing and IT support positions. Grainger competes to hire employees at increasingly competitive wage rates and then must train them and develop their skills and competencies. 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. The performance of Grainger's stock price could impact Grainger's use of equity-based compensation to attract and retain executives and other key employees. The Company's employee hiring and 18 18 18 18 18 18 retention also depends on the Company's ability to build and maintain a diverse and inclusive workplace culture that enables its employees to thrive. Grainger's results of operations could be adversely affected by increased costs due to generally higher wage rates, competition for diverse talent, higher employee turnover, increased employee benefit costs, failure to successfully hire executives and key employees or the loss of executives and key employees. Further, changes in the Company's management team may be disruptive to its business, and any failure to successfully transition and assimilate key new hires or promoted employees could adversely affect its business and results of operations. **Current (2024):** In order to compete and have continued growth, Grainger must attract, train, motivate, develop, and retain executives and other key team members, including those in managerial, technical, sales, supply chain, technology development and information technology positions. Grainger competes to hire team members at increasingly competitive wage rates and then must train them and develop their skills and competencies. Qualified individuals needed to fill open positions may be in short supply in some areas. Further, changes in market compensation rates may adversely affect Grainger's labor costs. Competition for qualified team members could require Grainger to pay higher wages to attract a sufficient number of team members. Additionally collective bargaining or unionization of team members could decrease Grainger's operational flexibility and lead to work stoppages or slowdowns. The performance of Grainger's stock price could impact Grainger's use of equity-based compensation to attract and retain executives and other key team members. The success of Grainger's team member hiring and retention also depends on Grainger's ability to build and maintain a diverse and inclusive workplace culture that enables its team members to thrive. Generally, higher wages and benefit costs, competition for diverse talent, and the risk of an increase in team member turnover, could adversely affect Grainger's results of operations. Further, failure to successfully hire executives and key team members or adequately plan for the succession, transition, and assimilation of executive leaders and team members in key roles, or to plan for the loss of executives and key team members, could adversely affect Grainger's business results and financial condition. --- *Data sourced from SEC EDGAR. Last updated 2026-05-10.*