Financial Analysis

The following tables present the Company's percentage of revenue by reportable segment and by customer industry: Twelve Months Ended December 31, 2025 2024 2023 Customer Industry (1) High-Touch Solutions N.A. Endless Assortment Total Company (2) High-Touch Solutions N.A. Endless Assortment Total Company (2) High-Touch Solutions N.A. Endless Assortment Total Company (2) Manufacturing 30 % 30 % 30 % 31 % 29 % 31 % 30 % 30 % 30 % Government 19 % 3 % 15 % 19 % 3 % 16 % 19 % 3 % 16 % Wholesale 7 % 18 % 9 % 7 % 18 % 9 % 7 % 16 % 9 % Commercial Services 7 % 12 % 8 % 7 % 12 % 8 % 7 % 12 % 8 % Contractors 6 % 12 % 7 % 5 % 12 % 6 % 5 % 12 % 6 % Healthcare 7 % 2 % 6 % 7 % 2 % 6 % 7 % 2 % 6 % Transportation 4 % 2 % 5 % 4 % 2 % 4 % 4 % 2 % 4 % Retail 4 % 4 % 4 % 4 % 4 % 4 % 4 % 4 % 4 % Utilities 3 % 2 % 3 % 3 % 2 % 3 % 3 % 2 % 3 % Warehousing 3 % % 2 % 3 % % 2 % 4 % % 3 % Other (3) 10 % 15 % 11 % 10 % 16 % 11 % 10 % 17 % 11 % Total net sales 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Percent of total company revenue 78 % 20 % 100 % 80 % 18 % 100 % 81 % 18 % 100 % (1) Customer industry results for the twelve months ended December 31, 2025, 2024 and 2023 primarily use the North American Industry Classification System (NAICS). As customers' businesses evolve, industry classifications may change. When these changes occur, Grainger does not recast the customer classification for prior periods as the industry used in the prior period was appropriate at the point-in-time. As a result, …

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STOCK INCENTIVE PLANS The Company maintains stock incentive plans under which the Company may grant a variety of incentive awards to team members and executives, which include restricted stock units (RSUs), performance shares and deferred stock units. As of December 31, 2025, there were 1.3 million shares available for grant under the plans. When awards are exercised or settled, shares of the Companys treasury stock are issued. Pretax stock-based compensation expense included in SG&A was $64 million, $62 million, and $62 million in 2025, 2024 and 2023, respectively, and was primarily comprised of RSUs. Related income tax benefits recognized in earnings were $24 million, $34 million, and $34 million in 2025, 2024 and 2023, respectively. Restricted Stock Units The Company awards RSUs to certain team members and executives. RSUs vest generally over periods from one to seven years from issuance. The RSU grant date fair value is based on the closing price of the Company's common stock on the last trading day preceding the date of the grant. RSU expense for the years ended December 31, 2025, 2024 and 2023 was approximately $50 million, $48 million and $43 million, respectively. The following table summarizes RSU activity (in millions of dollars, except for share and per share amounts): 2025 2024 2023 Shares Weighted Average Price Per Share Shares Weighted Average Price Per Share Shares Weighted Average Price Per Share Beginning nonvested units 136,200 $ 768.64 172,984 $ 550.62 …

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GOODWILL AND OTHER INTANGIBLE ASSETS Grainger completed its annual impairment testing of goodwill and intangible assets during the fourth quarter of 2025 and 2024. Based on the results of that testing, the Company did not identify any significant events or changes in circumstances that indicated the existence of impairment indicators and concluded that it was more likely than not that the fair value of the reporting units exceeded their carrying amounts at each respective period. High-Touch Solutions N.A. Canada Business As of December 31, 2025 and 2024, the Canada business reporting unit had goodwill of $119 million and $114 million, respectively. As part of our annual impairment testing, the Company compared the current results to forecasted expectations of the most recent quantitative analysis, along with analyzing macroeconomic conditions, current industry trends and transactions, and other market data of industry peers. The Company also performed various sensitivities over key assumptions, including projections of future revenue growth and operating expenditures used in the analysis. The Company did not identify any significant events or changes in circumstances that indicated the existence of impairment indicators for its Canada business, and concluded it was more likely than not its fair value exceeded its carrying value. The balances and changes in the carrying amount of goodwill by segment are as follows (in millions of dollars): High-Touch Solutions N.A. Endless Ass …

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INCOME TAXES Earnings before income taxes by geographical area consisted of the following (in millions of dollars): For the Years Ended December 31, 2025 2024 2023 U.S. $ 2,065 $ 2,265 $ 2,211 Foreign 365 319 289 Total $ 2,430 $ 2,584 $ 2,500 Income tax expense consisted of the following (in millions of dollars): For the Years Ended December 31, 2025 2024 2023 Current income tax expense: U.S. Federal $ 403 $ 404 $ 431 U.S. State 86 84 100 Foreign 116 89 81 Total current 605 577 612 Deferred income tax (benefit) expense 17 18 (15) Total income tax expense $ 622 $ 595 $ 597 Income taxes paid consisted of the following (in millions of dollars): For the Years Ended December 31, 2025 2024 2023 U.S. Federal taxes paid $ 412 $ 428 $ 439 State and local taxes paid 87 88 102 Foreign taxes paid Japan 85 68 57 Foreign other 26 22 17 Total income taxes paid $ 610 $ 606 $ 615 The income tax effects of temporary differences that gave rise to the net deferred tax asset (liability) as of December 31, 2025 and 2024 were as follows (in millions of dollars): As of December 31, 2025 2024 Deferred tax assets: Accrued expenses $ 161 $ 172 U.S. and foreign loss carryforwards 173 82 Accrued employment-related benefits 33 42 Tax credit carryforward 18 20 Other 38 23 Deferred tax assets 423 339 Less valuation allowance (192) (100) Deferred tax assets net of valuation allowance $ 231 $ 239 Deferred tax liabilities: Property, buildings, equipment and other capital assets $ (234) $ (216) Intangibles (55) …

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CONTINGENCIES AND LEGAL MATTERS From time to time the Company is involved in various legal and administrative proceedings, including claims related to: product liability, safety or compliance; privacy and cybersecurity matters; negligence; contract disputes; environmental issues; unclaimed property; wage and hour laws; intellectual property; advertising and marketing; consumer protection; pricing (including disaster or emergency declaration pricing statutes); employment practices; regulatory compliance, including trade and export matters; anti-bribery and corruption; and other matters and actions brought by team members, consumers, competitors, suppliers, customers, governmental entities and other third parties. The Company has been engaged in litigation involving KMCO, LLC (KMCO) as described in previous quarterly and annual reports. T he Company has settled or resolved all remaining lawsuits pending against the Company. These settlements had no effect on net earnings or cash flows. Also, as a government contractor selling to federal, state and local governmental entities, the Company may be subject to governmental or regulatory inquiries or audits or other proceedings, including those related to contract administration, pricing and product compliance. While the Company is unable to predict the outcome of any of these proceedings and other matters, it believes that their ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on …

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LEASES The Company leases certain properties, buildings and equipment (including branches, warehouses, DCs and office space) under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Companys lease portfolio consists mainly of operating leases that expire at various dates through 2037. Information related to operating leases is as follows (in millions of dollars): As of December 31, 2025 2024 Right-of-use assets Operating lease right-of-use $ 345 $ 371 Operating lease liabilities Operating lease liability 73 78 Long-term operating lease liability 301 327 Total operating lease liabilities $ 374 $ 405 As of December 31, 2025 2024 Weighted average remaining lease term 6 years 6 years Weighted average incremental borrowing rate 2.82 % 2.57 % Cash paid for operating leases $ 104 $ 96 Right-of-use assets obtained in exchange for operating lease obligations $ 69 $ 48 Rent expense was $106 million, $103 million and $102 million for 2025, 2024 and 2023, respectively. These amounts are net of sublease income of $3 million for 2025, and $2 million for 2024 and 2023. The remaining maturity of existing lease liabilities as of December 31, 2025 are as follows (in millions of dollars): Year Operating Leases 2026 $ 86 2027 79 2028 71 2029 59 2030 48 Thereafter 69 Total lease payments 412 Less interest 38 Present value of lease liabilities $ 374 As of December 31, 2025 and 2024, the Company's finance leases and service co …

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DEBT Total debt, including long-term, current maturities and debt issuance costs and discounts net, consisted of the following (in millions of dollars): As of December 31, 2025 2024 Carrying Value Fair Value Carrying Value Fair Value 4.60% senior notes due 2045 $ 1,000 $ 904 $ 1,000 $ 894 4.45% senior notes due 2034 500 496 500 477 3.75% senior notes due 2046 400 338 400 332 4.20% senior notes due 2047 400 317 400 312 Japanese Yen term loans 83 83 Debt issuance costs net of amortization and other (21) (21) (21) (21) Long-term debt 2,362 2,117 2,279 1,994 1.85% senior notes due 2025 500 498 Commercial paper and other 126 126 (1) (1) Current maturities 126 126 499 497 Total debt $ 2,488 $ 2,243 $ 2,778 $ 2,491 Revolving Credit Facility In October 2023, the Company entered into a five-year unsecured revolving credit facility agreement (2023 Credit Facility). Grainger may obtain loans in various currencies on a revolving basis in an aggregate amount not exceeding $1.25 billion, which may be increased up to $1.875 billion at the request of the Company, subject to obtaining additional commitments and other customary conditions. The primary purpose of the 2023 Credit Facility is to support the Company's commercial paper program and for general corporate purposes. As of December 31, 2025, there was $125 million of commercial paper outstanding and recorded as short-term debt with a weighted-average interest rate of 3.84%. There were no borrowings outstanding as of December 31, 2024. S …

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New Accounting Standards Accounting Pronouncements Recently Adopted In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This update requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The Company adopted this ASU effective December 31, 2025 on retrospective basis and it did not have material impact on the Consolidated Financial Statements. For the related income tax reporting disclosure, see Note 12. Accounting Pronouncements Recently Issued In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses . This update requires public entities to disclose required information for inventory purchases, employee compensation, depreciation, intangible asset amortization and selling expenses. The effective date is for fiscal years beginning after December 15, 2026, with the option to early adopt prior to the effective date and should be applied on a prospective basis, but retrospective application is permitted. The Company is evaluating the impact of the requirements on the related income statement line item disclosures. In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivabl …

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EMPLOYEE BENEFITS The Company provides various retirement benefits to eligible team members, including contributions to defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and other benefits. Eligibility requirements and benefit levels vary depending on team member location. Various foreign benefit plans cover team members in accordance with local legal requirements. Defined Contribution Plans A majority of the Company's U.S. team members are covered by a retirement savings plan, which provides for an automatic contribution e qual to 6% of the eligible team member's total eligible compensation. The total retirement savings plan expense was $95 million, $91 million, and $85 million for 2025, 2024 and 2023, respectively. The Company sponsors additional defined contribution plans available to certain U.S. and foreign team members for which contributions are made by the Company and participating team members. The expense associated with these defined contribution plans totaled $19 million, $20 million and $21 million for 2025, 2024 and 2023, respectively. Postretirement Healthcare Benefits Plans The Company has a postretirement healthcare benefit plan that provides coverage for certain U.S. team mem bers. C overed team members become eligible for participation when they qualify for retirement while working for the Company. Participation in the plan is voluntary and requires participants to make contributions toward t …

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REVENUE Grainger serves a large number of customers in diverse industries, which are subject to different economic and market-specific factors. The Company's revenue is primarily comprised of MRO product sales and related activities. The Company's presentation of revenue by reportable segment and customer industry most reasonably depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic and market-specific factors. The majority of Company revenue originates from contracts with a single performance obligation to deliver products, whereby performance obligations are satisfied when control of the product is transferred to the customer per the arranged shipping terms. The following tables present the Company's percentage of revenue by reportable segment and by customer industry: Twelve Months Ended December 31, 2025 2024 2023 Customer Industry (1) High-Touch Solutions N.A. Endless Assortment Total Company (2) High-Touch Solutions N.A. Endless Assortment Total Company (2) High-Touch Solutions N.A. Endless Assortment Total Company (2) Manufacturing 30 % 30 % 30 % 31 % 29 % 31 % 30 % 30 % 30 % Government 19 % 3 % 15 % 19 % 3 % 16 % 19 % 3 % 16 % Wholesale 7 % 18 % 9 % 7 % 18 % 9 % 7 % 16 % 9 % Commercial Services 7 % 12 % 8 % 7 % 12 % 8 % 7 % 12 % 8 % Contractors 6 % 12 % 7 % 5 % 12 % 6 % 5 % 12 % 6 % Healthcare 7 % 2 % 6 % 7 % 2 % 6 % 7 % 2 % 6 % Transportation 4 % 2 % 5 % 4 % 2 % 4 % 4 % 2 % 4 % Retail 4 % 4 % 4 % 4 % 4 …

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SEGMENT INFORMATION The Company routinely evaluates whether its operating and reportable segments continue to reflect the way the chief operating decision maker (CODM) evaluates the business. The determination is based on: (1) how the Companys CODM evaluates the performance of the business, including resource allocation decisions, and (2) whether discrete financial information for each reporting segment is available. The Company considers D.G. Macpherson, its Chief Executive Officer and Chairman of the Board, its CODM. The CODM evaluates performance based on the results of the Companys two reportable segments, High-Touch Solutions N.A. (HTSNA) and Endless Assortment (EA). These reportable segments align with Grainger's go-to-market strategies and bifurcated business models of high-touch solutions and endless assortment that generate sales primarily through the distribution of MRO products. The remaining businesses are classified as Other to reconcile to consolidated results. These businesses individually and in the aggregate do not meet the criteria of a reportable segment. The accounting policies of the Companys reportable segments are the same as those described in the summary of significant accounting policies. For further discussion on Graingers accounting policies, see Note 1. All expenses directly attributable to each reportable segment are included in the operating results for each segment. Operating segment performance is evaluated by Grainger's CODM based on operatin …

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES W.W. Grainger, Inc. is a broad line distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, Japan and the United Kingdom (U.K.). In the fourth quarter of 2025, Grainger exited the U.K. market by completing the sale of the Cromwell business and closing the Zoro U.K. business. In this report, the words Grainger or Company mean W.W. Grainger, Inc. and its subsidiaries, except where the context makes it clear that the reference is only to W.W. Grainger, Inc. itself and not its subsidiaries. Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its subsidiaries over which the Company exercises control. All significant intercompany transactions are eliminated from the Consolidated Financial Statements. The Company has a controlling ownership interest in MonotaRO, the endless assortment business in Japan, with the residual representing the noncontrolling interest. The Company reports MonotaRO on a one-month calendar lag allowing for the timely preparation of financial statements. This one-month reporting lag is with the exception of significant transactions or events that occur during the intervening period. Use of Estimates The preparation of the Company's Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions affecting reported …

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

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