W.W. GRAINGER, INC. (GWW)

CIK: 0000277135. SIC: 5000 Wholesale-Durable Goods. Latest 10-K as of: 2026-02-19.

SIC breadcrumb: Wholesale Trade > SIC Major Group 50 > SIC 5000 Wholesale-Durable Goods

SEC company page: https://www.sec.gov/edgar/browse/?CIK=277135. Latest filing source: 0000277135-26-000011.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-19. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000277135.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Financial Charts

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Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-02-19. Report date: 2025-12-31.

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 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 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, 2024.

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 U.K. Grainger uses its high-touch solutions and endless assortment businesses to serve customers worldwide, who rely on Grainger for products and services that enable them to run safe, sustainable and productive operations.

Strategic Priorities

The Company’s continued strategic aspiration for 2026 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. The High-Touch Solutions North America (High-Touch Solutions N.A.) segment is focused on three areas: advantaged MRO solutions, differentiated sales and services, and unparalleled customer service. In the Endless Assortment segment, the business is 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 technology, strong supplier relationships, supply chain infrastructure and a continuous improvement mindset, which ultimately delivers long-term returns for shareholders.

Recent Events

Macroeconomic Conditions

The global economy continues to experience elevated levels of volatility and uncertainty, including within the commodity, labor, and transportation markets, driven by a combination of geopolitical developments and macroeconomic factors that can influence demand, cost and execution risk. These dynamics, together with recent changes in U.S. and foreign tariff and trade policies, continue to drive intermittent disruptions in global capital markets and supply chains. These developments may impact the Company’s operations, business, financial condition, and results of operations.

The Company is actively monitoring economic conditions in the U.S. and key international markets, including the continued uncertainty regarding evolving tariff and trade policies, changes in interest rates, foreign currency exchange rate fluctuations, inflationary pressures, and the risk of a global or regional economic recession. Although the precise timing and magnitude of these factors remains uncertain, the Company believes its strategy is well positioned to navigate a range of outcomes. The Company continues to evaluate the impact of evolving tariff and trade policies, including potential changes in product sourcing strategies, cost management and customer pricing, and has implemented various strategies designed to mitigate certain adverse effects of changing inflationary conditions and challenges in our supply chain, while striving to maintain market price competitiveness.

Historically, the Company's broad and diverse customer base and the generally nondiscretionary nature of its products have provided a degree of resilience during periods of economic contraction in the industrial MRO market. The full extent and impact of ongoing macroeconomic conditions, including recent, unprecedented tariff-related developments and shifting government budget policies and priorities at the municipal, state, and national levels,

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remains uncertain and cannot be predicted at this time, but may impact the Company’s operations, business, financial condition and results of operations.

For further discussion of the Company's risks and uncertainties, see Part I, Item 1A: Risk Factors of this Form 10-K.

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Results of Operations

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. As discussed in the "Non-GAAP Measures" section, we have adjusted the current year results to exclude one-time losses recorded in SG&A expenses of $186 million within Other and $10 million within Endless Assortment related to the Cromwell divestiture and closure of Zoro U.K., respectively. For further information regarding the Company's non-GAAP measures, including reconciliations to the most directly comparable U.S. generally accepted accounting principles (GAAP) measures, see "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, 2025 and 2024 (in millions of dollars except per share amounts):

For the Years Ended December 31,

% of Net Sales

2025

2024

% Change

2025

2024

Net sales(1)

$

17,942 

$

17,168 

4.5 

%

100.0 

%

100.0 

%

Cost of goods sold

10,933 

10,410 

5.0 

60.9 

60.6 

Gross profit

7,009 

6,758 

3.7 

39.1 

39.4 

Selling, general and administrative expenses

4,514 

4,121 

9.5 

25.2 

24.0 

Operating earnings

2,495 

2,637 

(5.4)

13.9 

15.4 

Other expense – net

65 

53 

22.6 

0.3 

0.3 

Income tax provision

622 

595 

4.5 

3.5 

3.5 

Net earnings

1,808 

1,989 

(9.1)

10.1 

11.6 

Less noncontrolling interest

102 

80 

27.5 

0.6 

0.5 

Net earnings attributable to W.W. Grainger, Inc.

$

1,706 

$

1,909 

(10.6)

9.5 

%

11.1 

%

Diluted earnings per share:

$

35.40 

$

38.71 

(8.6)

%

(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 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, 2025 (in millions of dollars):

For the Years Ended December 31,

2025

% Change(1)

2024

% Change(1)

Net sales

$

17,942 

4.5 

%

$

17,168 

4.2 

%

Daily net sales(2)

$

70.4 

4.9 

%

$

66.5 

3.4 

%

Daily, organic constant currency net sales(2)

$

70.4 

4.9 

%

$

67.4 

4.7 

%

(1)Calculated on the basis of prior year reported net sales for the years ended December 31, 2025 and 2024.

(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 are also adjusted to exclude the impact on net sales due to year-over-year foreign currency exchange rate fluctuations and excludes the results of Cromwell and Zoro U.K. in the comparable prior year period post date of divestiture and closure, respectively, for the year ended December 31, 2025. There were 255 and 256 sales days in the full year 2025 and 2024, respectively. For further information regarding the Company's non-GAAP measures, including reconciliations to the most directly comparable GAAP measure, see below "Non-GAAP Measures."

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Net sales of $17,942 million for the year ended December 31, 2025 increased $774 million, which represents a 5% increase on a reported and daily, organic constant currency basis compared to the same period in 2024. Both High-Touch Solutions N.A. and the Endless Assortment segments contributed to sales growth in 2025. For further discussion on the Company's net sales, see the Segment Analysis section below.

Gross profit of $7,009 million for the year ended December 31, 2025 increased $251 million, or 4%, and gross profit margin of 39.1% decreased 30 basis points compared to the same period in 2024. For further discussion on the Company's gross profit, see the Segment Analysis section below.

Selling, general, and administrative (SG&A) expenses of $4,514 million for the year ended December 31, 2025 increased $393 million, or 10%. Adjusted SG&A of $4,318 million increased $213 million, or 5%, due to higher payroll and benefits and marketing expenses in 2025.

Operating earnings of $2,495 million for the year ended December 31, 2025 decreased $142 million, or 5%, compared to the same period in 2024. Adjusted operating earnings of $2,691 million increased $38 million, or 1%, compared to the same period in 2024.

Income taxes of $622 million for the year ended December 31, 2025 increased $27 million, compared to the same period in 2024. Grainger's effective tax rates were 25.6% and 23.0% for the years ended December 31, 2025 and 2024, respectively. The adjusted effective tax rates were 23.7% and 23.0% for the twelve months ended December 31, 2025 and 2024, respectively. The Company's adjusted effective tax rate increase was primarily due to the prior year benefit from the expiration of a statue of limitation period in 2024.

Diluted earnings per share was $35.40 for the year ended December 31, 2025, a decrease of 9% compared to $38.71 for the same period in 2024. Adjusted diluted earnings per share was $39.48 for the year ended December 31, 2025, an increase of 1% compared to $38.96 for the same period in 2024.

Segment Analysis

In this section, Grainger utilizes non-GAAP measures where it believes it will assist users of its financial statements in understanding its business. For further information regarding the Company's non-GAAP measures, including reconciliations to the most directly comparable GAAP measures, see "Non-GAAP Measures." For further segment information, see Note 13 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,

2025

2024

% Change

Net sales

$

13,993 

$

13,720 

2.0 

%

Gross profit

5,832 

5,741 

1.6 

Selling, general and administrative expenses

3,478 

3,356 

3.6 

Operating earnings

$

2,354 

$

2,385 

(1.3)

%

Net sales of $13,993 million for the year ended December 31, 2025 increased $273 million, or 2%, and on a daily constant currency basis increased 3% compared to the same period in 2024. The increase was primarily due to volume.

Gross profit of $5,832 million for the year ended December 31, 2025 increased $91 million, or 2%, and gross profit margin of 41.7% decreased 10 basis points compared to the same period in 2024.

SG&A expenses of $3,478 million for the year ended December 31, 2025 increased $122 million, or 4%, compared to the same period in 2024. Adjusted SG&A increased $137 million, or 4%. The increase was primarily due to higher payroll and benefits and marketing expenses in 2025.

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Operating earnings of $2,354 million for the year ended December 31, 2025 decreased $31 million, or 1%, compared to the same period in 2024. Adjusted operating earnings decreased $46 million, or 2% compared to the same period in 2024.

Endless Assortment

The following table shows reported segment results (in millions of dollars):

For the Years Ended December 31,

2025

2024

% Change

Net sales

$

3,625 

$

3,134 

15.7 

%

Gross profit

1,085 

923 

17.6 

Selling, general and administrative expenses

740 

663 

11.6 

Operating earnings

$

345 

$

260 

32.7 

%

Net sales of $3,625 million for the year ended December 31, 2025 increased $491 million, which represents a 16% increase on a reported and daily, organic constant currency basis compared to the same period in 2024. The increase was due to repeat business for the segment and enterprise customer growth at MonotaRO.

Gross profit of $1,085 million for the year ended December 31, 2025 increased $162 million, or 18%, and gross profit margin of 29.9% increased 40 basis points compared to the same period in 2024.

SG&A expenses of $740 million for the year ended December 31, 2025 increased $77 million, or 12%, compared to the same period in 2024. Adjusted SG&A of $730 million increased $67 million, or 10%, compared to the same period in 2024. The increase was primarily due to higher marketing expenses in 2025.

Operating earnings of $345 million for the year ended December 31, 2025 increased $85 million, or 33%, compared to the same period in 2024. Adjusted operating earnings of $355 million increased $95 million, or 37%, compared to the same period in 2024.

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. The Company adjusts its reported net sales when there are differences in the number of U.S. selling days relative to the prior year period and also excludes the impact on reported net sales due to changes in foreign currency exchange rate fluctuations and results of certain divested or closed businesses. 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 measures and may not be comparable to similarly titled measures reported by other companies.

Exiting Market in the United Kingdom

In 2025, Grainger performed an assessment of its businesses in the United Kingdom (U.K.) and made the decision to exit the U.K. market in order to concentrate efforts where it can deliver the greatest long-term impact. On December 17, 2025, Grainger completed the divestiture of the Cromwell business. The Company recorded a loss of $186 million in SG&A expenses related to the sale. There was no tax benefit as a result of this loss. Additionally, the Company completed the closure of Zoro U.K. in its Endless Assortment segment during the fourth quarter of 2025. Expenses related to the closure of $10 million were also recorded in SG&A expenses. There was no tax benefit as a result of the recognition of these expenses. The Company does not expect the exit from the U.K. market to have a

31

material effect on its future results of operations. 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 for more information on the sale of the Cromwell business.

Restructuring Actions

In the second quarter of 2024, the Company recorded restructuring charges in SG&A expenses of $15 million in the High-Touch Solutions N.A. segment and $1 million in Grainger's Other businesses. The charges consisted primarily of team member severance and benefit costs. The Company does not expect these actions to have a material effect on its future results of operations.

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, 2025 (in millions of dollars):

For the Years Ended December 31,

High-Touch Solutions N.A.

Endless Assortment

Total Company(1)

2025

% Change(2)

2025

% Change(2)

2025

% Change(2)

Reported net sales

$

13,993 

2.0 

%

$

3,625 

15.7 

%

$

17,942 

4.5 

%

   Daily impact(3)

0.2 

0.4 

0.1 

0.5 

0.3 

0.4 

Daily net sales

54.9 

2.4 

14.2 

16.2 

70.4 

4.9 

   Foreign currency exchange(4)

0.1 

0.2 

(0.1)

(0.7)

— 

— 

   Business divestiture(5)

— 

— 

— 

0.1 

— 

— 

Daily, organic constant currency net sales

$

55.0 

2.6 

%

$

14.1 

15.6 

%

$

70.4 

4.9 

%

2024

% Change(2)

2024

% Change(2)

2024

% Change(2)

Reported net sales

$

13,720 

3.4 

%

$

3,134 

7.5 

%

$

17,168 

4.2 

%

   Daily impact(3)

(0.4)

(0.8)

(0.1)

(0.9)

(0.5)

(0.8)

Daily net sales

53.2 

2.6 

12.1 

6.6 

66.5 

3.4 

   Foreign currency exchange(4)

0.1 

0.1 

0.6 

5.0 

0.6 

0.9 

   Business divestiture(6)

0.3 

0.5 

— 

— 

0.3 

0.4 

Daily, organic constant currency net sales

$

53.6 

3.2 

%

$

12.7 

11.6 

%

67.4 

4.7 

%

(1)Total Company includes Other. Grainger's businesses reported in Other do not meet the criteria of a reportable segment.

(2)Compared to net sales in the prior year period.

(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 255 and 256 sales days in the full year 2025 and 2024, 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 net sales results of the divested Cromwell business and closed Zoro U.K. business in the prior year period on a daily basis.

(6)Excludes the net sales results of the divested E&R business in 2023 on a daily basis.

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, 2025 and 2024 (in millions of dollars):

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Twelve Months Ended December 31, 2025

Reported

Adjustment(1)

Adjusted

% Change Reported(3)

% Change Adjusted(3)

Selling, general and administrative expenses

High-Touch Solutions N.A.

$

3,478 

$

— 

$

3,478 

Endless Assortment

740 

(10)

730 

Other(4)

296 

(186)

110 

Selling, general and administrative expenses

$

4,514 

$

(196)

$

4,318 

9.5%

5.2%

Earnings

High-Touch Solutions N.A.

$

2,354 

$

— 

$

2,354 

Endless Assortment

345 

10 

355 

Other(4)

(204)

186 

(18)

Operating earnings

$

2,495 

$

196 

$

2,691 

(5.4)%

1.4%

Total other expense – net

(65)

— 

(65)

Income tax provision(5)

(622)

— 

(622)

Net earnings

$

1,808 

$

196 

$

2,004 

Noncontrolling interest

(102)

— 

(102)

Net earnings attributable to W.W. Grainger, Inc.

$

1,706 

$

196 

$

1,902 

(10.6)%

(1.0)%

Diluted earnings per share

$

35.40 

$

4.08 

$

39.48 

(8.6)%

1.3%

Twelve Months Ended December 31, 2024

Reported

Adjustment(2)

Adjusted

% Change Reported(3)

% Change Adjusted(3)

Selling, general and administrative expenses

High-Touch Solutions N.A.

$

3,356 

$

(15)

$

3,341 

Endless Assortment

663 

— 

663 

Other(4)

102 

(1)

101 

Selling, general and administrative expenses

$

4,121 

$

(16)

$

4,105 

4.8%

5.1%

Earnings

High-Touch Solutions N.A.

$

2,385 

$

15 

$

2,400 

Endless Assortment

260 

— 

260 

Other(4)

(8)

1 

(7)

Operating earnings

$

2,637 

$

16 

$

2,653 

2.8%

2.4%

Total other expense – net

(53)

— 

(53)

Income tax provision(5)

(595)

(4)

(599)

Net earnings

$

1,989 

$

12 

$

2,001 

Noncontrolling interest

(80)

— 

(80)

Net earnings attributable to W.W. Grainger, Inc.

$

1,909 

$

12 

$

1,921 

4.4%

3.8%

Diluted earnings per share

$

38.71 

$

0.25 

$

38.96 

6.8%

6.2%

(1)Reflects the loss on sale of the Cromwell business and closure of Zoro U.K. announced in the third quarter of 2025 and completed in the fourth quarter of 2025.

(2)Reflects restructuring costs incurred in the second quarter of 2024.

(3)Compared to the reported and adjusted results of the prior year period.

(4)Grainger's businesses reported in Other do not meet the criteria of a reportable segment.

(5)Grainger's reported and adjusted effective tax rates were 25.6% and 23.7% for the twelve months ended December 31, 2025, respectively. The twelve months ended December 31, 2024 reflect a tax benefit related to the restructuring costs incurred in the second quarter of 2024.

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Liquidity and Capital Resources

Grainger believes its current balances of cash and cash equivalents, marketable securities and availability under its revolving credit facility, which supports the Company's commercial paper program, will be sufficient to meet its liquidity needs for the next twelve months. The Company expects to continue to invest in its business and return excess cash to shareholders through cash dividends and share repurchases, which it plans to fund through cash flows generated from operations. 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.

Sources of Liquidity

Cash and Cash Equivalents

As of December 31, 2025 and 2024, Grainger had cash and cash equivalents of $585 million and $1,036 million, respectively. The decrease in cash was primarily due to cash used in financing activities due to repayment of the 1.85% Senior Notes in the amount of $500 million and continued capital project spending. The Company had approximately $1.8 billion in available liquidity as of December 31, 2025.

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,

2025

2024

Total cash provided by (used in):

Operating activities

$

2,015 

$

2,111 

Investing activities

(645)

(520)

Financing activities

(1,825)

(1,180)

Effect of exchange rate changes on cash and cash equivalents

4 

(35)

(Decrease) increase in cash and cash equivalents

$

(451)

$

376 

Net cash provided by operating activities was $2,015 million and $2,111 million for the year ended December 31, 2025 and 2024, respectively. The decrease was driven by unfavorable changes in working capital primarily due to an increase in accounts receivable and inventory inflation.

Net cash used in investing activities was $645 million and $520 million for the year ended December 31, 2025 and 2024, respectively. The increase reflects the continued investment in U.S. and MonotaRO supply chain capacity expansion throughout 2025.

Net cash used in financing activities was $1,825 million and $1,180 million for the year ended December 31, 2025 and 2024, respectively. The increase in cash used in financing activities was primarily due to the repayment of the 1.85% Senior Notes in the amount of $500 million in 2025.

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 as a percent of total capitalization was 37.5% and 42.9%, as of December 31, 2025 and 2024, 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.

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The following table summarizes the Company's credit ratings as of December 31, 2025:

Corporate

Senior Unsecured

Short-term

Moody's

A2

A2

P1

S&P

A+

A+

A1

Uses of Liquidity

Internally generated cash flows are the primary source of Grainger's working capital and growth initiatives, including capital expenditures. The Company expects to continue to return excess capital to shareholders through share repurchases and dividends.

Working Capital

Working capital as of December 31, 2025 was $3,515 million, an increase of $233 million compared to $3,282 million as of December 31, 2024. The increase was primarily due to sales growth and inventory inflation. As of December 31, 2025 and 2024, the ratio of current assets to current liabilities was 3.0 and 2.9, respectively.

Capital Expenditures

In fiscal 2025, the Company's capital expenditures were $684 million and $541 million for the years ended December 31, 2025 and 2024, respectively. Capital project spending for 2026 is expected to be in the range of $550 and $650 million. This includes continued supply chain capacity expansion and technology enhancements across the Company.

Share Repurchases

For the years ended December 31, 2025 and 2024, Grainger repurchased shares of its common stock in the open market for $1,045 million and $1,201 million, respectively. Share repurchases are executed at prices the Company determines appropriate subject to various factors, including market conditions and the Company's financial performance and may be affected through accelerated share repurchase programs, open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. Share repurchases for 2026 are expected to be in the range of $950 and $1,050 million.

Dividends

For the years ended December 31, 2025 and 2024, Grainger declared and paid $467 million and $421 million, respectively, in dividends to holders of the Company's common stock.

Commitments and Other Contractual Obligations

The Company's material cash requirements include the following commitments and other contractual obligations.

Debt

As of December 31, 2025, the Company had outstanding debt obligations with varying maturities for an aggregate principal amount of $2,509 million, with $126 million payable within 12 months. Total future interest payments associated with the Company's outstanding debt obligations was $1,763 million, with $101 million payable within 12 months.

Purchase Obligations

Grainger had purchase obligations of approximately $1,991 million as of December 31, 2025, which includes approximately $1,289 million payable within 12 months. Grainger's purchase obligations primarily include commitments to purchase inventory, uncompleted additions to property, buildings and equipment and other goods and services. Purchase obligations are made in the normal course of business to meet operating needs and are primarily noncancelable.

Leases

The Company has lease arrangements for certain properties, buildings and equipment (including branches, warehouses, DCs and office space). As of December 31, 2025, the Company had fixed operating lease payment obligations of $412 million, with $86 million payable within 12 months.

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Critical Accounting Estimates

The preparation of Grainger’s Consolidated Financial Statements and accompanying notes are in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make assumptions and estimates that affect the reported amounts. The Company considers an accounting policy to be a critical estimate if: (1) it involves assumptions that are uncertain when judgment was applied, and (2) changes in the estimate assumptions, or selection of a different estimate methodology, could have a significant impact on Grainger’s consolidated financial position and results. While the Company believes the assumptions and estimates used are reasonable, the Company’s management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s Consolidated Financial Statements.

Inventories

Company inventories primarily consist of merchandise purchased for resale. The majority of the Company’s inventory is accounted for using the last-in, first-out (LIFO) method, valued at the lower of cost or market value. Market value is based on an analysis of inventory trends including, but not limited to, reviews of inventory levels, sales and cost information and on-hand quantities relative to the sales history for the product and shelf-life. The Company's methodology for estimating whether adjustments are necessary is continually evaluated for factors including significant changes in product demand, liquidation or disposition history values and market conditions such as inflation and other acquisition costs, including freight and duties. If business or economic conditions change, estimates and assumptions may be adjusted as deemed appropriate.

Goodwill

The Company evaluates goodwill for impairment annually during the fourth quarter and more frequently if impairment indicators exist. The fair value of reporting units is calculated primarily using the discounted cash flow method and utilizing value indicators from a market approach to evaluate the reasonableness of the resulting fair values.

The estimates used to calculate the fair values of reporting units involve the use of significant assumptions, estimates and judgments and changes from year to year based on operating results, market conditions, macroeconomic developments and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and impairment for each reporting unit. For further information on the Company's goodwill, see Note 5 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10-K.

Contingencies and Legal Matters

The Company is subject to various claims and legal proceedings that arise in the ordinary course of business, the outcomes of which are inherently uncertain. The Company accrues for costs relating to litigation claims and other contingent matters when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. For further information on the Company's contingencies and legal matters, 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.

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