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OFFON

W.W. GRAINGER, INC.

(GWW)
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W.W. GRAINGER, INC.  : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

02/24/2021 | 05:42pm EDT

General

W.W. Grainger, Inc. (Grainger or Company) is a broad line, business-to-business
distributor of maintenance, repair and operating (MRO) products and services
with operations primarily in North America, Japan and Europe. Grainger uses a
combination of its high-touch and endless assortment businesses to serve its
more than 5 million customers worldwide and which rely on Grainger for MRO
products and services that enable them to run safe, sustainable and productive
operations.

Grainger's two reportable segments are the U.S. and Canada. These reportable
segments reflect the results of the Company's high-touch businesses in those
geographies. Other businesses include the endless assortment businesses (Zoro in
the U.S. and the United Kingdom (U.K.) and MonotaRO in Japan) and smaller
international high-touch businesses in the U.K. and Mexico.

Business Re-segmentation - Effective January 1, 2021
In February 2021, the Company announced a change to its reportable segments to
align with its go-to-market strategies and bifurcated business models
(high-touch and endless assortment). Accordingly, on or about March 8, 2021, the
Company plans to publish the required restated financial information for the
quarters ended December 31, 2020 and 2019 and for the twelve-month periods ended
December 31, 2020, 2019 and 2018. A supplemental investor call is expected to be
scheduled on or about March 9, 2021 to discuss the Company's restated Form 8-K
results and new segments. All summary financial information on a prospective
basis will be presented under the new reportable segments beginning with the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2021.

Business Divestitures and Liquidations
Consistent with the Company's strategic focus on broad line MRO distribution in
key markets, in June 2020 Grainger divested the Fabory high-touch business, in
August 2020 divested the China high-touch business (China) and in November 2020
commenced the liquidation of Zoro Tools Europe (ZTE) in Germany. Accordingly,
the Company's operating results include Fabory, China and ZTE results through
the respective dates of divestiture or liquidation.

In 2020, Grainger recognized a net loss of approximately $109 million, a gain of
approximately $5 million and a loss of approximately $9 million (presented
within Selling, general and administrative expenses (SG&A)) as a result of the
Fabory, China and ZTE exits, respectively. The go-forward impacts from these
business exits are not expected to be material for Company results in an
individual or aggregated basis.

Outlook

The Company's strategic priority for 2021 is clear: 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 focused on top line growth
through market share gain. The high-touch 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. Additionally, all Grainger businesses are
focused on continuously improving customer experience, optimizing and scaling
cost structures and investing in digital marketing, technology, and supply chain
infrastructure to ultimately deliver long-term returns for shareholders.

In March 2020, the World Health Organization characterized Coronavirus
(COVID-19) as a pandemic. The rapid spread of the COVID-19 pandemic has caused
significant disruptions in the U.S. and global markets, and economists expect
the economic impact will continue to be significant. Grainger is an essential
business and its major facilities have been allowed to remain operational during
the pandemic as customers have depended on Grainger's products and services to
keep their businesses up and running. In 2020, as the COVID-19 pandemic impacted
global markets and the needs of customers, employees, suppliers and communities
changed, the Company's efforts and business plans evolved accordingly. Grainger
is currently focused on serving customers and communities well through the
pandemic and their respective recovery, supporting the needs and safety of
employees and ensuring the Company continues to operate with a strong financial
position.
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Impact of the COVID-19 Pandemic on Grainger Businesses The COVID-19 pandemic has impacted and is likely to continue impacting Grainger's businesses and operations as well as the operations of its customers and suppliers.


From a customer perspective, business re-openings and related activity
throughout the year varied based on geography, industry and COVID-19 pandemic
conditions. For example, in the U.S. and endless assortment businesses, sales to
government, healthcare and other essential businesses remained strong, but sales
to non-essential and disrupted industries were depressed compared to
pre-COVID-19 pandemic levels. The Canada business and other international
high-touch businesses were severely impacted by pandemic-related slowdowns with
each geography experiencing meaningful year-over-year declines.

The Company's major operational facilities and infrastructure (i.e., DCs, branches, e-commerce sites, and logistic partners) remained operational during 2020 with limited disruptions, while adhering to strict safety and social-distancing protocols. From an inventory management and supply chain perspective, the Company has experienced elevated levels of demand for pandemic-related products, while demand for non-pandemic products has declined.


To date, the Company has been able to absorb the pandemic impact with minimal
workforce reductions or furloughs, which positions the Company for accelerated
growth once post-pandemic recovery commences. Also, the Company has prioritized
maintaining all facilities safe for customers and employees to work and
interact.

With respect to the Company's financial position, the Company plans to maintain
its focus on liquidity as pandemic-related uncertainties continue into 2021.
During 2020, the Company generated operating cash of $1.1 billion and used the
cash generated to invest in the business and return excess capital to
shareholders in the form of dividends and share repurchases. As of December 31,
2020, the Company had approximately $1.8 billion in available liquidity,
including $585 million in cash. For further detail on cash flows refer to the
Financial Condition section below.

Matters Affecting Comparability
There were 256 sales days in the full year 2020 versus 255 sales days in the
full years 2019 and 2018. The Company completed two divestitures and commenced
one liquidation in 2020. The Company's operating results have included the
results of each business until its respective divestiture or liquidation date.

In addition, starting in mid-February 2020, the Company began experiencing
elevated levels of COVID-19 pandemic-related product sales (e.g., personal
protective equipment (PPE) and safety products) due to higher customer demand in
response to the COVID-19 pandemic, while non-pandemic sales have decreased. The
incremental demand came primarily from customers on the front-lines of the
pandemic, including government, healthcare and other essential businesses, while
the demand from non-essential and disrupted industries decreased over the same
period due to business activity slowdown or temporary shutdowns. Grainger
experienced adverse gross margin impacts from sales of lower-margin COVID-19
pandemic-related products to the Company's largest, lowest margin customers.













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Results of Operations
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 Year                 As a Percent of Net Sales
                                                 2020                 2019                      2020                        2020                2019
Net sales                                  $       11,797$ 11,486                               2.7  %             100.0  %            100.0  %
Cost of goods sold                                  7,559             7,089                               6.6  %              64.1  %             61.7  %
Gross profit                                        4,238             4,397                              (3.6) %              35.9  %             38.3  %
Selling, general and administrative
expenses                                            3,219             3,135                               2.7  %              27.3  %             27.3  %
Operating earnings                                  1,019             1,262                             (19.3) %               8.6  %             11.0  %
Other expense, net                                     72                53                              35.0  %               0.6  %              0.5  %
Income tax provision                                  192               314                             (38.9) %               1.6  %              2.7  %
Net earnings                                          755               895                             (15.6) %               6.4  %              7.8  %
Noncontrolling interest                                60                46                              30.3  %               0.5  %              0.4  %
Net earnings attributable to W.W.
Grainger, Inc.                             $          695          $    849                             (18.1) %               5.9  %              7.4  %



2020 Compared to 2019
Grainger's net sales of $11,797 million for the year ended December 31, 2020
increased $311 million, or 2.7%, compared to the same period in 2019. On a daily
basis, net sales increased 2.3%. The increase in net sales was primarily driven
by volume/mix, partially offset by price/mix and the impact of business
divestitures. During the year ended December 31, 2020, the Company experienced
strong pandemic-related sales volume primarily in the U.S. to large government
and healthcare customers. See Note 3 to the Financial Statements for information
related to disaggregated revenue. This pandemic-related elevated volume was
partially offset by volume declines of non-pandemic related products across most
industries. Also, sales in the Canada business and other international
high-touch businesses are down compared to 2019 due to COVID-19 business
slowdowns. Overall, business activity still trails pre-pandemic levels as some
customers remain disrupted by COVID-19. See Note 15 to the Financial Statements
and refer to the Segment Analysis below for further details.

Gross profit of $4,238 million for the year ended December 31, 2020 decreased
$159 million, or 4% compared with the same period in 2019. The gross profit
margin of 35.9% decreased 2.4 percentage points when compared to the same period
in 2019. This decrease was primarily driven by lower margins from COVID-19
pandemic-related products sales in the U.S. and business unit mix impact from
higher growth in the lower margin endless assortment businesses. See Segment
Analysis below for further details related to segment gross profit.


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The following tables (in millions of dollars) reconcile reported SG&A, operating
earnings and net earnings attributable to W.W. Grainger, Inc. determined in
accordance with Generally Accepted Accounting Principles (GAAP) in the United
States of America to adjusted SG&A, operating earnings and net earnings
attributable to W.W. Grainger, Inc., which are all considered non-GAAP measures.
The Company believes that these non-GAAP measures provide meaningful information
to assist shareholders 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. These non-GAAP
measures should not be considered in isolation or as a substitute for reported
results. These non-GAAP measures reflect an additional way of viewing aspects of
operations that, when viewed with GAAP results, provide a more complete
understanding of the business.
                                                    Twelve Months Ended
                                                        December 31,
                                             2020                             2019          %
SG&A reported                          $       3,219$ 3,135         3  %
Restructuring, net (U.S.)                          6                              5
Restructuring, net (Canada)                       12                              -
Restructuring, net (Other businesses)              9                        

2

Restructuring (Unallocated)                        -                        

(1)

Impairment charges (Other businesses)            177                        

120

Fabory divestiture (Other businesses)             (7)                       

-

Fabory divestiture (Unallocated)                 116                        

-

Grainger China divestiture
(Unallocated)                                     (5)                       

-

Total restructuring, net, impairment
charges and business divestitures                308                            126
SG&A adjusted                          $       2,911$ 3,009        (3) %

                                             2020                             2019          %
Operating earnings reported            $       1,019$ 1,262       (19) %
Total restructuring, net, impairment
charges and business divestitures                308                            126
Operating earnings adjusted            $       1,327$ 1,388        (4) %

                                             2020                             2019          %
Net earnings attributable to W.W.
Grainger, Inc. reported                $         695                        

$ 849 (18) %


Total restructuring, net, impairment
charges, business divestitures and tax
(1)                                              182                        

109

Net earnings attributable to W.W.
Grainger, Inc. adjusted                $         877                        

$ 958 (8) %


(1) The tax impact of adjustments and non-cash impairments are calculated based on the
income tax rate in each applicable jurisdiction, subject to deductibility and the
Company's ability to realize the associated tax benefits.



SG&A of $3,219 million for the year ended December 31, 2020 increased $84
million, or 3% compared to $3,135 million in the same period in 2019. During the
first quarter of 2020, the Company recorded a $177 million write-down of
goodwill, intangibles and long-lived assets from the Fabory business and during
the second quarter of 2020, the Company recorded a $109 million pretax loss from
the sale of the Fabory business which was the largest contributor to the decline
in reported operating earnings. Excluding restructuring, net, impairment charges
and business divestitures in both periods as noted in the table above, SG&A
decreased $98 million or 3%.

                                       27
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Operating earnings of $1,019 million in 2020 decreased $243 million, or 19%
compared to $1,262 million in the same period in 2019. Excluding restructuring,
net, impairment charges and business divestitures in both periods as noted in
the table above, operating earnings decreased $61 million, or 4%, driven by
lower gross profit dollars partially offset by lower SG&A.

Other expense, net of $72 million for the year ended December 31, 2020,
increased $19 million, or 35% compared to the same period in 2019. The increase
was primarily from the costs related to an increase in indebtedness during the
year.

Income taxes of $192 million for the year ended December 31, 2020 decreased $122
million, or 39% compared to $314 million for the same period in 2019. This
decrease was primarily driven by lower taxable operating earnings for the year,
tax losses from the Company's investment in Fabory due to the impairment and
internal reorganization of the Company's holdings in Fabory in the first quarter
of 2020 and tax impacts of the Fabory divestiture. Grainger's effective tax
rates were 20.3% and 26.0% for the twelve months ended December 31, 2020 and
2019, respectively, and this decrease is primarily due to the Fabory tax
impacts.

Net earnings attributable to W.W. Grainger, Inc. for the year ended December 31,
2020 decreased $154 million, or 18% to $695 million from $849 million in the
same period in 2019. Excluding restructuring, net, impairment charges and
business divestitures and income taxes from both periods as noted in the table
above, net earnings decreased $81 million, or 8%. The decrease in net earnings
primarily resulted from lower gross profit dollars partially offset by lower
SG&A.

Diluted earnings per share was $12.82 for the year ended December 31, 2020 and
decreased 16% compared to $15.32 for the same period in 2019, due to lower net
earnings. Excluding restructuring, net, impairment charges and business
divestitures and income taxes from both periods as noted in the table above,
diluted earnings per share would have been $16.18 compared to $17.29 in 2019, an
decrease of 6%.

2019 Compared to 2018
For the full year 2018 to 2019 comparative discussion, see Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations in Grainger's Annual Report on Form 10-K for the fiscal
year ended December 31, 2019.

Segment Analysis - 2020 Compared to 2019
The following comments at the reportable segment and other business unit level
include external and intersegment net sales and operating earnings. See Note 15
to the Financial Statements.

United States
Net sales were $9,070 million for the year ended December 31, 2020, an increase
of $255 million, or 2.9%, compared with net sales of $8,815 million for 2019. On
a daily basis, net sales increased 2.5% and consisted of the following:
                                             Percent Increase/(Decrease)
           Volume (including product mix)               2.8%
           Price and customer mix                       (0.3)

           Total                                        2.5%



Overall, revenue increases for the U.S. business were primarily driven by
COVID-19 pandemic-related sales, which accounted for the majority of the sales
growth beginning in mid-February 2020. As a result of the COVID-19 pandemic, the
U.S. business experienced strong sales volume of pandemic-related products
primarily from large government and healthcare customers; however, sales to
non-essential and disrupted industries are down compared to 2019. See Note 3 to
the Financial Statements for information related to disaggregated revenue. From
a product perspective, the U.S. business experienced strong demand for COVID-19
pandemic-related products; however, this elevated demand was partially offset by
lower demand of non-pandemic products.

Gross profit margin decreased 2.5 percentage points compared to the same period
in 2019. The decrease was the result of pandemic related headwinds, including
product, customer mix and inventory write-downs to reflect current
                                       28
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market dynamics. The Company expects these pandemic related decreases to subdue
as the economy recovers and shifts back towards non-pandemic products, which
should normalize product mix and margins back to pre-COVID-19 levels.

SG&A for the year ended December 31, 2020 decreased 2% compared to the same
period in 2019, which is primarily driven by reduced travel and depreciation
expenses partially offset by incremental operating costs to support the U.S.
business response to the COVID-19 pandemic and related activities.

Operating earnings of $1,299 million decreased $92 million, or 7% from $1,391
million in the same period of 2019. This decrease was driven primarily by lower
gross profit dollars.

Canada

Net sales were $476 million for the year ended December 31, 2020, a decrease of
$53 million, or 9.9% when compared with $529 million for 2019. On a daily basis,
net sales decreased 10.3% and consisted of the following:
                                                   Percent Decrease
                Volume (including product mix)          (8.4)%
                Price and customer mix                  (1.0)
                Foreign exchange                        (0.9)
                Total                                  (10.3)%



For the year ended December 31, 2020, volume decreased by 8.4 percentage points
compared to the same period in 2019 primarily due to market declines partially
offset by COVID-19 pandemic-related product sales. During the first half of
2020, global oil prices declined sharply as a result of market forces. More than
a fifth of sales for the Canada business are derived from the oil industry or
ancillary segments. This current low oil price environment could further reduce
demand for the business, which is already negatively impacted by the COVID-19
pandemic.

Gross profit margin decreased 2.9 percentage points in 2020 compared to the same
period in 2019 primarily due to negative price cost spread and COVID-19
pandemic-related mix impact.
SG&A decreased $13 million, or 7% in 2020 compared to the same period in 2019.
Excluding restructuring, net in both periods as noted in the table above, SG&A
would have decreased $25 million, or 14% compared to the prior period. This
decrease was primarily due to lower variable costs from lower sales and cost
management actions to improve SG&A leverage.

Operating losses were $16 million for the year ended December 31, 2020 compared
to earnings of $3 million in the same period in 2019. Excluding restructuring,
net in both periods as noted in the table above, operating losses would have
been $4 million compared to operating earnings of $3 million in the prior period
primarily due to lower sales volume.
Other Businesses
Net sales for other businesses were $2,762 million for the year ended December
31, 2020, an increase of $111 million, or 4.2%, when compared to the same period
in 2019. The net sales increase was primarily due to incremental sales within
the endless assortment businesses. On a daily basis, net sales increased 3.8%
and consisted of the following:
                                         Percent Increase/(Decrease)
               Price/volume                         9.0%
               Foreign exchange                      0.4
               Business divestitures                (5.6)
               Total                                3.8%


The increase in net sales was driven by the endless assortment businesses, partially offset by lower performance in other international high-touch businesses, which were heavily impacted by pandemic-related slowdowns and the net

                                       29
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impact of Fabory and China business divestitures. The endless assortment businesses benefited from COVID-19 pandemic-related sales and continued to see strong new customer acquisition during the year.


Gross profit margin decreased 1.4 percentage points compared to the same period
in 2019, driven by business unit mix due to the Fabory divestiture, lower
margins in the Cromwell business and unfavorable mix from the faster growing
endless assortment businesses.

SG&A increased $9 million, or 1% in 2020 compared with the same period in 2019.
Excluding restructuring, net, impairment charges and business divestitures in
both periods as noted in the table above, SG&A would have decreased $48 million
or 7%. This decrease is primarily due to significant SG&A leverage in the
Company's endless assortment businesses and lower expenses as a result of the
Fabory divestiture.

Operating losses for other businesses were $24 million for the year ended
December 31, 2020, a decrease of $15 million, or 166% compared to operating
losses of $9 million for 2019. Excluding restructuring, net, impairment charges
and business divestitures in both periods as noted in the table above, operating
earnings would have increased $42 million, or 38%. This increase is primarily
due to higher earnings in the endless assortment businesses resulting from
strong revenue growth and SG&A leverage.

2019 Compared to 2018
For the full year 2018 to 2019 comparative discussion, see Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Segment Analysis - 2019 Compared to 2018 in Grainger's Annual Report on Form
10-K for the fiscal year ended December 31, 2019.

Financial Condition
Grainger believes that, assuming its operations are not significantly impacted
by the COVID-19 pandemic for a prolonged period, its current level of cash and
cash equivalents, marketable securities and availability under its revolving
credit facilities will be sufficient to meet its liquidity needs. Grainger
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 total available liquidity and 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.

For the full year 2018 discussion, see Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
in Grainger's Annual Report on Form 10-K for the fiscal year ended December 31,
2019.

Cash and Cash Equivalents
At December 31, 2020 and 2019, Grainger had cash and cash equivalents of $585
million and $360 million, respectively. This increase in cash is primarily due
to cash flows from operations, delayed capital investments and temporarily
reduced share repurchase program. Approximately 54% and 69% of cash and cash
equivalents were outside the U.S. as of December 31, 2020 and 2019,
respectively. Grainger has no material limits or restrictions on its ability to
use these foreign liquid assets.

Cash Flows
2020 Compared to 2019
Net cash provided by operating activities was $1,123 million and $1,042 million
for the years ended December 31, 2020 and 2019, respectively. The increase in
cash provided by operating activities is primarily the result of lower net
payments related to employee variable compensation and benefits paid under
annual incentive plans and lower tax payments, partially offset by investments
in working capital.

Net cash used in investing activities was $179 million and $202 million for the
years ended December 31, 2020 and 2019, respectively. This decrease in net cash
used in investing activities was primarily driven by lower additions to
property, buildings and equipment and intangibles.

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Net cash used in financing activities was $726 million and $1,023 million in the
years ended December 31, 2020 and 2019, respectively. The decrease in net cash
used in financing activities was primarily driven by increased borrowings of
long term debt and lower treasury stock repurchases.

Working Capital
Internally generated funds are the primary source of working capital and growth
initiatives including capital expenditures. Grainger's working capital is not
impacted by significant seasonality trends throughout the year.

Working capital consists of current assets (less non-operating cash) and current
liabilities (less short-term debt, current maturities of long-term debt and
lease liabilities). Working capital was $2,220 million at December 31, 2020,
compared with $2,092 million at December 31, 2019 primarily due to an increase
in operating cash, accounts receivable and inventory, partially offset by
increases in trade accounts payable. At these dates, the ratio of current assets
to current liabilities was 2.6 for both years.

Capital Expenditures
In each of the past two years, a portion of the Company's net cash flows has
been used for additions to property, buildings, equipment and capitalized
software as summarized in the following table (in millions of dollars):
                                                               For the 

Years Ended December 31,

                                                                  2020                     2019
Land, buildings, structures and improvements              $              19          $          47
Furniture, fixtures, machinery and equipment                            120                    131
Subtotal                                                                139                    178

Capitalized software (presented in Intangibles - net on the Consolidated Balance Sheet)

                                          58                     43
Total                                                     $             197          $         221


In both 2020 and 2019, the Company invested in its North American and Japanese distribution networks (construction of new DCs as well as machinery and equipment to further automate the distribution process). In addition, the Company invested in the development of inventory management and software solutions.


Projected spending for 2021 is expected to be approximately $250 million which
includes continued investments in its supply chain, software development and
inventory management solutions. Grainger expects to fund 2021 capital spending
primarily from operating cash flows.

Debt

Grainger maintains a debt ratio and liquidity position that provides flexibility
in funding working capital needs and long-term cash requirements. In addition to
internally generated funds, Grainger has various sources of financing available,
including bank borrowings under lines of credit. Total debt, which is defined as
total interest-bearing debt (short-term current and long-term) and lease
liabilities as a percent of total capitalization, was 55.6% and 54.3%, as of
December 31, 2020 and 2019, respectively.

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 at December 31, 2020:
                             Corporate       Senior Unsecured        Short-term
                Moody's         A3                  A3                   P2
                S&P             A+                  A+                   A1



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Commitments and Other Contractual Obligations
At December 31, 2020 Grainger's contractual obligations, including estimated
payments due by period, are as follows (in millions of dollars):
                                                                        Payments Due by Period
                                      Total Amounts        Less than 1          1 - 3                                More than 5
                                        Committed              Year             Years            3 - 5 Years            Years
Debt obligations                     $      2,400$       8$    43$        544$   1,805
Interest on debt                            1,998                 87              174                   174              1,563
Operating lease obligations                   230                 59               92                    41                 38
Purchase obligations:
Uncompleted additions to
property, buildings and equipment             147                147                -                     -                  -
Commitments to purchase inventory             666                666                -                     -                  -
Other goods and services                      300                173              113                    14                  -
Other liabilities                              83                 65                3                     2                 13
Total                                $      5,824$   1,205$   425$        775$   3,419

See Notes 6, 7 and 9 to the Financial Statements for further detail related to debt, interest on debt and operating lease obligations.


Purchase obligations are made in the normal course of business to meet operating
needs. While purchase orders for both inventory purchases and non-inventory
purchases are generally cancellable without penalty, certain vendor agreements
provide for cancellation fees or penalties depending on the terms of the
contract.

Other liabilities represent future payments for profit sharing and other employee benefit plans.


Grainger has recorded a noncurrent liability of approximately $42 million for
tax uncertainties and interest at December 31, 2020. This amount is excluded
from the table above, as Grainger is unable to reasonably estimate the period of
cash settlement with the respective taxing authorities on such items. See Note
14 to the Financial Statements.

Off-Balance Sheet Arrangements
Grainger does not have any material off-balance sheet arrangements.

Critical Accounting Estimates
The methods, assumptions, and estimates that used in applying the Company's
accounting policies may require the application of judgments regarding matters
that are inherently uncertain. 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 that estimates, assumptions, and judgments used are reasonable, they
are based on information available when the estimate was made. See Note 1 to the
Financial Statements for further information on the Company's critical
accounting estimates, which are as follows:

Contingencies: the estimation of when a contingent loss is probable and
reasonably estimable;
Goodwill and Intangible Assets Impairment: the valuation methods and assumptions
used in assessing the
impairment of goodwill and intangible assets; and
Inventory: inventory reflected at the lower of cost or net realizable value
considering future demand, market
conditions and liquidation values.


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Forward-Looking Statements
From time to time, in this Annual Report on Form 10-K, as well as in other
written reports, communications and verbal statements, Grainger makes
forward-looking statements that are not historical in nature but concern
forecasts of future results, business plans, analyses, prospects, strategies,
objectives and other matters that may be deemed to be "forward-looking
statements" under the federal securities laws. Forward-looking statements can
generally be identified by their use of terms such as "anticipate," "estimate,"
"believe," "expect," "could," "forecast," "may," "intend," "plan," "predict,"
"project," "will" or "would" and similar terms and phrases, including references
to assumptions.

Grainger cannot guarantee that any forward-looking statement will be realized
and achievement of future results is subject to risks and uncertainties, many of
which are beyond the Company's control, which could cause Grainger's results to
differ materially from those that are presented.

Important factors that could cause actual results to differ materially from
those presented or implied in the forward-looking statements include, without
limitation: the unknown duration and health, economic, operational and financial
impacts of the global outbreak of the coronavirus disease 2019 (COVID-19) as
well as the duration, extent and impact of the actions taken or contemplated by
governmental authorities or others in connection with the COVID-19 pandemic on
the Company's businesses, its employees, customers and suppliers, including
disruption to Grainger's operations resulting from employee illnesses, the
development and availability of effective treatment or vaccines, any mandated
facility closures of non-essential businesses, stay in shelter health orders or
other similar restrictions for customers and suppliers, changes in customers'
product needs, suppliers' inability to meet unprecedented demand for COVID-19
related products, inventory shortages, the potential for government action to
allocate or direct products to certain customers which may cause disruption in
relationships with other customers, disruption caused by business responses to
the COVID-19 pandemic, including working remote arrangements, which may create
increased vulnerability to cybersecurity incidents, including breaches of
information systems security, adaptions to the Company's controls and procedures
required by working remote arrangements, including financial reporting
processes, which could impact the design or operating effectiveness of such
controls or procedures, and global or regional economic downturns or recessions,
which could result in a decline in demand for the Company's products or limit
the Company's ability to access capital markets on terms that are attractive or
at all; higher product costs or other expenses; a major loss of customers; loss
or disruption of sources of supply; changes in customer or product mix;
increased competitive pricing pressures; failure to develop or implement new
technology initiatives or business strategies; failure to adequately protect
intellectual property or successfully defend against infringement claims;
fluctuations or declines in the Company's gross profit percentage; the Company's
responses to market pressures; the outcome of pending and future litigation or
governmental or regulatory proceedings, including with respect to wage and hour,
anti-bribery and corruption, environmental, advertising, consumer protection,
pricing (including disaster or emergency declaration pricing statutes), product
liability, general commercial disputes, safety or compliance, or privacy and
cybersecurity matters; investigations, inquiries, audits and changes in laws and
regulations; failure to comply with laws, regulations and standards; government
contract matters; disruption of information technology or data security systems
involving the Company or third parties on which the Company depends; general
industry, economic, market or political conditions; general global economic
conditions including tariffs and trade issues and policies; currency exchange
rate fluctuations; market volatility, including price and trading volume
volatility or price declines of the Company's common stock; commodity price
volatility; labor shortages; facilities disruptions or shutdowns; higher fuel
costs or disruptions in transportation services; other pandemic diseases or
viral contagions; natural or human induced disasters, extreme weather and other
catastrophes or conditions; failure to attract, retain, train, motivate, develop
and transition key employees; loss of key members of management or key
employees; changes in effective tax rates; changes in credit ratings or outlook;
the Company's incurrence of indebtedness and other factors identified under Part
II, Item 1A: "Risk Factors" and elsewhere in this Form 10-K.

Caution should be taken not to place undue reliance on Grainger's forward-looking statements and Grainger undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

                                       33

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