W.W. GRAINGER, INC. 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 inNorth America ,Japan andEurope . 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 theU.S. andCanada . 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 theU.S. and theUnited Kingdom (U.K. ) and MonotaRO inJapan ) and smaller international high-touch businesses in theU.K. andMexico . Business Re-segmentation - EffectiveJanuary 1, 2021 InFebruary 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 aboutMarch 8, 2021 , the Company plans to publish the required restated financial information for the quarters endedDecember 31, 2020 and 2019 and for the twelve-month periods endedDecember 31, 2020 , 2019 and 2018. A supplemental investor call is expected to be scheduled on or aboutMarch 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 endedMarch 31, 2021 . Business Divestitures and Liquidations Consistent with the Company's strategic focus on broad line MRO distribution in key markets, inJune 2020 Grainger divested the Fabory high-touch business, inAugust 2020 divested the China high-touch business (China) and inNovember 2020 commenced the liquidation of Zoro Tools Europe (ZTE) inGermany . 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. InMarch 2020 , theWorld Health Organization characterized Coronavirus (COVID-19) as a pandemic. The rapid spread of the COVID-19 pandemic has caused significant disruptions in theU.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. 24 --------------------------------------------------------------------------------
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 theU.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. TheCanada 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 ofDecember 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 inmid-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. 25
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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
Total restructuring, net, impairment charges, business divestitures and tax (1) 182
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Net earnings attributable to W.W. Grainger, Inc. adjusted $ 877
(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 endedDecember 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 -------------------------------------------------------------------------------- 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 endedDecember 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 endedDecember 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 endedDecember 31, 2020 and 2019, respectively, and this decrease is primarily due to the Fabory tax impacts. Net earnings attributable toW.W. Grainger, Inc. for the year endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 theU.S. business were primarily driven by COVID-19 pandemic-related sales, which accounted for the majority of the sales growth beginning inmid-February 2020 . As a result of the COVID-19 pandemic, theU.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, theU.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 -------------------------------------------------------------------------------- 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 endedDecember 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 theU.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.
Net sales were$476 million for the year endedDecember 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 endedDecember 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 theCanada 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 endedDecember 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 endedDecember 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
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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 endedDecember 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 endedDecember 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 endedDecember 31, 2019 . Cash and Cash Equivalents AtDecember 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 theU.S. as ofDecember 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 endedDecember 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 endedDecember 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. 30 -------------------------------------------------------------------------------- Net cash used in financing activities was$726 million and$1,023 million in the years endedDecember 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 atDecember 31, 2020 , compared with$2,092 million atDecember 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
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$250 million which includes continued investments in its supply chain, software development and inventory management solutions. Grainger expects to fund 2021 capital spending primarily from operating cash flows.
Debt
Grainger maintains a debt ratio and liquidity position that provides flexibility in funding working capital needs and long-term cash requirements. In addition to internally generated funds, Grainger has various sources of financing available, including bank borrowings under lines of credit. Total debt, which is defined as total interest-bearing debt (short-term current and long-term) and lease liabilities as a percent of total capitalization, was 55.6% and 54.3%, as ofDecember 31, 2020 and 2019, respectively. Grainger receives ratings from two independent credit ratings agencies: Moody's Investor Service (Moody's) andStandard & Poor's (S&P). Both credit rating agencies currently rate the Company's corporate credit at investment grade. The following table summarizes the Company's credit ratings atDecember 31, 2020 : Corporate Senior Unsecured Short-term Moody's A3 A3 P2 S&P A+ A+ A1 31
-------------------------------------------------------------------------------- Commitments and Other Contractual Obligations AtDecember 31, 2020 Grainger's contractual obligations, including estimated payments due by period, are as follows (in millions of dollars): Payments Due by Period Total Amounts Less than 1 1 - 3 More than 5 Committed Year Years 3 - 5 Years Years Debt obligations$ 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 atDecember 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. 32 -------------------------------------------------------------------------------- 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.
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