UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission file number 1-5684

W.W. Grainger, Inc.

(Exact name of registrant as specified in its charter)

Illinois

36-1150280

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

100 Grainger Parkway

Lake Forest,

Illinois

60045-5201

(Address of principal executive offices)

(Zip Code)

~~(847)~~

~~535-1000~~

~~(Registrant’s telephone number including area code)~~

~~Not Applicable~~

~~(Former name or former address, if changed since last report)~~

Registrant’s telephone number, including area code: (847) 535-1000

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock	GWW	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

There were ~~51,520,047~~50,871,195 shares of the Company’s Common Stock ~~par value $0.50,~~ outstanding as of ~~September 30, 2021.~~July 22, 2022.


	TABLE OF CONTENTS
		Page
	PART I - FINANCIAL INFORMATION

Item 1:	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Earnings for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	3
	Condensed Consolidated Statements of Comprehensive Earnings for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	4
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021	5
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	6
	Condensed Consolidated Statements of Shareholders' Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	1817
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	3027
Item 4:	Controls and Procedures	3027

	PART II - OTHER INFORMATION

Item 1:	Legal Proceedings	3128
Item 1A:	Risk Factors	3128
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	3428
Item 6:	Exhibits	3429
Signatures		3530

PART I – FINANCIAL INFORMATION

Item 1: Financial Statements

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In millions of dollars and shares, except for per share amounts)

(Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net sales	Net sales	$	3,372	$	3,018	$	9,663	$	8,856	Net sales	$	3,837	$	3,207	$	7,484	$	6,291
Cost of goods sold	Cost of goods sold	2,122		1,944		6,196		5,645		Cost of goods sold	2,396		2,083		4,660		4,074
Gross profit	Gross profit	1,250		1,074		3,467		3,211		Gross profit	1,441		1,124		2,824		2,217
Selling, general and administrative expenses	Selling, general and administrative expenses	812		694		2,337		2,467		Selling, general and administrative expenses	907		790		1,756		1,525
Operating earnings	Operating earnings	438		380		1,130		744		Operating earnings	534		334		1,068		692
Other (income) expense:	Other (income) expense:									Other (income) expense:
Interest expense - net		22		23		65		72
Other - net		(6)		(5)		(19)		(16)
Total other expense - net		16		18		46		56
Interest expense – net										Interest expense – net	22		22		45		43
Other – net										Other – net	(5)		(7)		(11)		(13)
Total other expense – net										Total other expense – net	17		15		34		30
Earnings before income taxes	Earnings before income taxes	422		362		1,084		688		Earnings before income taxes	517		319		1,034		662
Income tax provision	Income tax provision	107		106		271		118		Income tax provision	128		76		260		164
Net earnings	Net earnings	315		256		813		570		Net earnings	389		243		774		498
Less: Net earnings attributable to noncontrolling interest		18		16		53		43
Less net earnings attributable to noncontrolling interest										Less net earnings attributable to noncontrolling interest	18		18		37		35
Net earnings attributable to W.W. Grainger, Inc.	Net earnings attributable to W.W. Grainger, Inc.	$	297	$	240	$	760	$	527	Net earnings attributable to W.W. Grainger, Inc.	$	371	$	225	$	737	$	463
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	5.68	$	4.43	$	14.48	$	9.74	Basic	$	7.22	$	4.30	$	14.33	$	8.80
Diluted	Diluted	$	5.65	$	4.41	$	14.40	$	9.70	Diluted	$	7.19	$	4.27	$	14.26	$	8.76
Weighted average number of shares outstanding:	Weighted average number of shares outstanding:									Weighted average number of shares outstanding:
Basic	Basic	51.8		53.6		52.1		53.6		Basic	51.0		52.2		51.1		52.2
Diluted	Diluted	52.1		53.9		52.4		53.8		Diluted	51.3		52.5		51.4		52.5
Cash dividends paid per share		$	1.62	$	1.53	$	4.77	$	4.41

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In millions of dollars)

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Net earnings $ 315 $ 256 $ 813 570
Other comprehensive earnings (losses):
Foreign currency translation adjustments, net of reclassification to earnings (17) 24 (43) 30
Postretirement benefit plan losses, net of tax benefit of $1, $1, $3, and $3, respectively
(4) (2) (10) (8)
Other — — 1 4
Total other comprehensive earnings (losses) (21) 22 (52) 26
Comprehensive earnings - net of tax 294 278 761 596
Less: Comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings 18 16 53 43
Foreign currency translation adjustments (1) 5 (19) 6
Total comprehensive earnings (losses) attributable to noncontrolling interest 17 21 34 49
Comprehensive earnings attributable to W.W. Grainger, Inc. $ 277 $ 257 $ 727 $ 547


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net earnings	$	389	$	243	$	774	498
Other comprehensive earnings (losses):
Foreign currency translation adjustments – net of reclassification to earnings	(83)		9		(109)		(26)


Postretirement benefit plan losses and other – net of tax benefit of $1, $1, $2, and $2, respectively	(4)		(2)		(7)		(5)

Total other comprehensive earnings (losses)	(87)		7		(116)		(31)
Comprehensive earnings – net of tax	302		250		658		467
Less comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings	18		18		37		35
Foreign currency translation adjustments	(31)		—		(47)		(18)
Total comprehensive earnings attributable to noncontrolling interest	(13)		18		(10)		17
Comprehensive earnings attributable to W.W. Grainger, Inc.	$	315	$	232	$	668	$	450

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions of dollars, except for share and per share amounts)


		As of					As of
Assets	Assets	(Unaudited) September 30, 2021		December 31, 2020		Assets	(Unaudited) June 30, 2022		December 31, 2021
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	328	$	585	Cash and cash equivalents	$	262	$	241
Accounts receivable (less allowances for credit losses of $29 and $27, respectively)		1,742		1,474
Inventories - net		1,786		1,733
Accounts receivable (less allowances for credit losses of $34 and $30, respectively)						Accounts receivable (less allowances for credit losses of $34 and $30, respectively)	2,099		1,754
Inventories – net						Inventories – net	1,990		1,870
Prepaid expenses and other current assets	Prepaid expenses and other current assets	149		127		Prepaid expenses and other current assets	162		146

Total current assets	Total current assets	4,005		3,919		Total current assets	4,513		4,011
Property, buildings and equipment - net		1,429		1,395
Property, buildings and equipment – net						Property, buildings and equipment – net	1,438		1,424

Goodwill	Goodwill	387		391		Goodwill	374		384
Intangibles - net		233		228
Intangibles – net						Intangibles – net	227		238
Operating lease right-of-use						Operating lease right-of-use	337		393
Other assets	Other assets	336		362		Other assets	160		142
Total assets	Total assets	$	6,390	$	6,295	Total assets	$	7,049	$	6,592

Liabilities and shareholders' equity	Liabilities and shareholders' equity					Liabilities and shareholders' equity
Current liabilities	Current liabilities					Current liabilities

Current maturities of long-term debt	Current maturities of long-term debt	$	—	$	8	Current maturities of long-term debt	$	17	$	—
Trade accounts payable	Trade accounts payable	933		779		Trade accounts payable	1,054		816
Accrued compensation and benefits	Accrued compensation and benefits	259		307		Accrued compensation and benefits	282		319

Operating lease liability						Operating lease liability	68		66
Accrued expenses	Accrued expenses	336		305		Accrued expenses	299		290
Income taxes payable	Income taxes payable	22		42		Income taxes payable	30		37
Total current liabilities	Total current liabilities	1,550		1,441		Total current liabilities	1,750		1,528
Long-term debt (less current maturities)	Long-term debt (less current maturities)	2,372		2,389		Long-term debt (less current maturities)	2,309		2,362
Long-term operating lease liability						Long-term operating lease liability	282		334
Deferred income taxes and tax uncertainties	Deferred income taxes and tax uncertainties	88		110		Deferred income taxes and tax uncertainties	131		121
Other non-current liabilities	Other non-current liabilities	263		262		Other non-current liabilities	112		87
Shareholders' equity	Shareholders' equity					Shareholders' equity
Cumulative preferred stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding	Cumulative preferred stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding	—		—		Cumulative preferred stock – $5 par value – 12,000,000 shares authorized; none issued nor outstanding	—		—
Common Stock – $0.50 par value – 300,000,000 shares authorized; issued 109,659,219 shares		55		55
Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued						Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued	55		55
Additional contributed capital	Additional contributed capital	1,255		1,239		Additional contributed capital	1,287		1,270
Retained earnings	Retained earnings	9,301		8,779		Retained earnings	10,066		9,500
Accumulated other comprehensive losses	Accumulated other comprehensive losses	(94)		(61)		Accumulated other comprehensive losses	(165)		(96)
Treasury stock, at cost – 58,139,172 and 57,134,828 shares, respectively		(8,690)		(8,184)
Treasury stock, at cost – 58,709,727 and 58,439,014 shares, respectively						Treasury stock, at cost – 58,709,727 and 58,439,014 shares, respectively	(9,042)		(8,855)
Total W.W. Grainger, Inc. shareholders’ equity	Total W.W. Grainger, Inc. shareholders’ equity	1,827		1,828		Total W.W. Grainger, Inc. shareholders’ equity	2,201		1,874
Noncontrolling interest	Noncontrolling interest	290		265		Noncontrolling interest	264		286
Total shareholders' equity	Total shareholders' equity	2,117		2,093		Total shareholders' equity	2,465		2,160
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	6,390	$	6,295	Total liabilities and shareholders' equity	$	7,049	$	6,592

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of dollars)

(Unaudited)


		Nine Months Ended					Six Months Ended
		September 30,					June 30,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net earnings	Net earnings	$	813	$	570	Net earnings	$	774	$	498
Adjustments to reconcile net earnings to net cash provided by operating activities:						Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for credit losses	Provision for credit losses	12		18		Provision for credit losses	8		8
Deferred income taxes and tax uncertainties	Deferred income taxes and tax uncertainties	(7)		9		Deferred income taxes and tax uncertainties	15		(8)
Depreciation and amortization	Depreciation and amortization	137		137		Depreciation and amortization	107		92
Impairment of goodwill, intangible and long-lived assets		—		177
Net (gains) losses from sale or redemption of assets and business divestitures		(3)		104

Net gains from sale or redemption of assets						Net gains from sale or redemption of assets	2		(4)
Stock-based compensation	Stock-based compensation	33		36		Stock-based compensation	27		25

Subtotal		172		481

Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Accounts receivable	Accounts receivable	(298)		(145)		Accounts receivable	(398)		(180)
Inventories	Inventories	(64)		(222)		Inventories	(149)		22
Prepaid expenses and other assets	Prepaid expenses and other assets	(1)		(29)		Prepaid expenses and other assets	(50)		(8)
Trade accounts payable	Trade accounts payable	167		145		Trade accounts payable	263		178
Accrued liabilities	Accrued liabilities	(13)		(13)		Accrued liabilities	(8)		(7)
Income taxes - net		(42)		(19)
Income taxes – net						Income taxes – net	10		(50)
Other non-current liabilities	Other non-current liabilities	(10)		19		Other non-current liabilities	(8)		(3)
Subtotal		(261)		(264)

Net cash provided by operating activities	Net cash provided by operating activities	724		787		Net cash provided by operating activities	593		563
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions to property, buildings, equipment and intangibles	Additions to property, buildings, equipment and intangibles	(197)		(152)		Additions to property, buildings, equipment and intangibles	(163)		(147)
Proceeds from sale or redemption of assets and business divestitures		17		22
Other - net		—		(2)
Proceeds from sale or redemption of assets						Proceeds from sale or redemption of assets	2		17
Other – net						Other – net	(11)		—

Net cash used in investing activities	Net cash used in investing activities	(180)		(132)		Net cash used in investing activities	(172)		(130)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Borrowings under lines of credit		—		12
Payments against lines of credit		—		(65)
Proceeds from long-term debt		—		1,583

Payments of long-term debt	Payments of long-term debt	(8)		(1,361)		Payments of long-term debt	—		(8)
Proceeds from stock options exercised	Proceeds from stock options exercised	31		47		Proceeds from stock options exercised	15		30
Payments for employee taxes withheld from stock awards	Payments for employee taxes withheld from stock awards	(29)		(16)		Payments for employee taxes withheld from stock awards	(19)		(28)
Purchases of treasury stock	Purchases of treasury stock	(525)		(101)		Purchases of treasury stock	(199)		(283)
Cash dividends paid	Cash dividends paid	(261)		(246)		Cash dividends paid	(183)		(176)
Other - net		2		—
Other – net						Other – net	(2)		2
Net cash used in financing activities	Net cash used in financing activities	(790)		(147)		Net cash used in financing activities	(388)		(463)
Exchange rate effect on cash and cash equivalents	Exchange rate effect on cash and cash equivalents	(11)		(9)		Exchange rate effect on cash and cash equivalents	(12)		(8)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(257)		499		Net change in cash and cash equivalents	21		(38)
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	585		360		Cash and cash equivalents at beginning of year	241		585
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	328	$	859	Cash and cash equivalents at end of period	$	262	$	547

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In millions of dollars, except for per share amounts)

(Unaudited)


		Common Stock		Additional Contributed Capital		Retained Earnings		Accumulated Other Comprehensive Earnings (Losses)		Treasury Stock		Noncontrolling Interest		Total			Common Stock		Additional Contributed Capital		Retained Earnings		Accumulated Other Comprehensive Earnings (Losses)		Treasury Stock		Noncontrolling Interest		Total
Balance at January 1, 2020		$	55	$	1,182	$	8,405	$	(154)	$	(7,633)	$	205	$	2,060
Balance at January 1, 2021																Balance at January 1, 2021	$	55	$	1,239	$	8,779	$	(61)	$	(8,184)	$	265	$	2,093
Stock-based compensation	Stock-based compensation	—		10		—		—		13		—		23		Stock-based compensation	—		9		—		—		5		—		14
Purchases of treasury stock	Purchases of treasury stock	—		—		—		—		(100)		—		(100)		Purchases of treasury stock	—		—		—		—		(175)		—		(175)
Net earnings	Net earnings	—		—		173		—		—		12		185		Net earnings	—		—		238		—		—		17		255
Other comprehensive earnings (losses)	Other comprehensive earnings (losses)	—		—		—		(63)		—		3		(60)		Other comprehensive earnings (losses)	—		—		—		(20)		—		(18)		(38)

Cash dividends paid ($1.44 per share)		—		—		(78)		—		—		—		(78)
Balance at March 31, 2020		$	55	$	1,192	$	8,500	$	(217)	$	(7,720)	$	220	$	2,030
Reclassification due to the adoption of ASU 2019-12																Reclassification due to the adoption of ASU 2019-12	—		—		12		—		—		—		12
Cash dividends paid ($1.53 per share)																Cash dividends paid ($1.53 per share)	—		—		(81)		—		—		—		(81)
Balance at March 31, 2021																Balance at March 31, 2021	$	55	$	1,248	$	8,948	$	(81)	$	(8,354)	$	264	$	2,080
Stock-based compensation	Stock-based compensation	—		6		—		—		11		—		17		Stock-based compensation	—		(1)		—		—		12		1		12
Purchases of treasury stock	Purchases of treasury stock	—		—		—		—		—		(1)		(1)		Purchases of treasury stock	—		—		—		—		(107)		(1)		(108)
Net earnings	Net earnings	—		—		114		—		—		15		129		Net earnings	—		—		225		—		—		18		243
Other comprehensive earnings (losses)	Other comprehensive earnings (losses)	—		—		—		66		—		(2)		64		Other comprehensive earnings (losses)	—		—		—		7		—		—		7
Capital contribution																Capital contribution	—		—		—		—		—		2		2

Cash dividends paid ($1.44 per share)		—		—		(78)		—		—		(9)		(87)
Balance at June 30, 2020		$	55	$	1,198	$	8,536	$	(151)	$	(7,709)	$	223	$	2,152
Stock-based compensation		—		16		—		—		11		—		27
Cash dividends paid ($1.62 per share)																Cash dividends paid ($1.62 per share)	—		—		(84)		—		—		(11)		(95)
Balance at June 30, 2021																Balance at June 30, 2021	$	55	$	1,247	$	9,089	$	(74)	$	(8,449)	$	273	$	2,141

Net earnings		—		—		240		—		—		16		256
Other comprehensive earnings (losses)		—		—		—		17		—		5		22

Cash dividends paid ($1.53 per share)		—		—		(82)		—		—		—		(82)
Balance at September 30, 2020		$	55	$	1,214	$	8,694	$	(134)	$	(7,698)	$	244	$	2,375

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In millions of dollars, except for per share amounts)

(Unaudited)


		Common Stock		Additional Contributed Capital		Retained Earnings		Accumulated Other Comprehensive Earnings (Losses)		Treasury Stock		Noncontrolling Interest		Total			Common Stock		Additional Contributed Capital		Retained Earnings		Accumulated Other Comprehensive Earnings (Losses)		Treasury Stock		Noncontrolling Interest		Total
Balance at January 1, 2021		$	55	$	1,239	$	8,779	$	(61)	$	(8,184)	$	265	$	2,093
Balance at January 1, 2022																Balance at January 1, 2022	$	55	$	1,270	$	9,500	$	(96)	$	(8,855)	$	286	$	2,160
Stock-based compensation	Stock-based compensation	—		9		—		—		5		—		14		Stock-based compensation	—		10		—		—		3		—		13
Purchases of treasury stock	Purchases of treasury stock	—		—		—		—		(175)		—		(175)		Purchases of treasury stock	—		—		—		—		(75)		—		(75)
Net earnings	Net earnings	—		—		238		—		—		17		255		Net earnings	—		—		366		—		—		19		385
Other comprehensive earnings (losses)	Other comprehensive earnings (losses)	—		—		—		(20)		—		(18)		(38)		Other comprehensive earnings (losses)	—		—		—		(13)		—		(16)		(29)

Reclassification due to the adoption of ASU 2019-12		—		—		12		—		—		—		12
Cash dividends paid ($1.53 per share)		—		—		(81)		—		—		—		(81)
Balance at March 31, 2021		$	55	$	1,248	$	8,948	$	(81)	$	(8,354)	$	264	$	2,080
Stock-based compensation		—		(1)		—		—		12		1		12
Purchases of treasury stock		—		—		—		—		(107)		(1)		(108)
Net earnings		—		—		225		—		—		18		243
Other comprehensive earnings (losses)		—		—		—		7		—		—		7
Capital contribution		—		—		—		—		—		2		2

Cash dividends paid ($1.62 per share)	Cash dividends paid ($1.62 per share)	—		—		(84)		—		—		(11)		(95)		Cash dividends paid ($1.62 per share)	—		—		(84)		—		—		—		(84)
Balance at June 30, 2021		$	55	$	1,247	$	9,089	$	(74)	$	(8,449)	$	273	$	2,141
Balance at March 31, 2022																Balance at March 31, 2022	$	55	$	1,280	$	9,782	$	(109)	$	(8,927)	$	289	$	2,370
Stock-based compensation	Stock-based compensation	—		8		—		—		1		—		9		Stock-based compensation	—		7		—		—		2		1		10
Purchases of treasury stock	Purchases of treasury stock	—		—		—		—		(242)		—		(242)		Purchases of treasury stock	—		—		—		—		(117)		(1)		(118)
Net earnings	Net earnings	—		—		297		—		—		18		315		Net earnings	—		—		371		—		—		18		389
Other comprehensive earnings (losses)	Other comprehensive earnings (losses)	—		—		—		(20)		—		(1)		(21)		Other comprehensive earnings (losses)	—		—		—		(56)		—		(31)		(87)

Cash dividends paid ($1.62 per share)		—		—		(85)		—		—		—		(85)
Balance at September 30, 2021		$	55	$	1,255	$	9,301	$	(94)	$	(8,690)	$	290	$	2,117
Cash dividends paid ($1.72 per share)																Cash dividends paid ($1.72 per share)	—		—		(87)		—		—		(12)		(99)
Balance at June 30, 2022																Balance at June 30, 2022	$	55	$	1,287	$	10,066	$	(165)	$	(9,042)	$	264	$	2,465

The accompanying notes are an integral part of these financial statements.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - ~~BACKGROUND AND BASIS~~SUMMARY OF ~~PRESENTATION~~SIGNIFICANT ACCOUNTING POLICIES

W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America (N.A.), Japan and the United Kingdom (U.K.). In this report, the words ~~“Company”~~“Grainger” or ~~“Grainger”~~“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.

Basis of Presentation

The Company's Condensed Consolidated Financial Statements ~~(Financial Statements)~~have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and the ~~related~~rules and regulations of the U.S. Securities and Exchange Commission (SEC) and therefore do not include all information and disclosures normally included in the annual Consolidated Financial Statements. The preparation of these Condensed Consolidated Financial Statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from these estimated amounts. In the opinion of the Company’s management, the Condensed Consolidated Financial Statements reflect all adjustments, which are ~~unaudited~~normal and recurring in nature, necessary for fair financial statement presentation.

The Condensed Consolidated Balance Sheet at December 31, 2021, has been derived from the audited Consolidated Financial Statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

The Condensed Consolidated Financial Statements should be read in conjunction with the ~~consolidated financial statements~~Consolidated Financial Statements and ~~associated~~accompanying notes for the year ended December 31, ~~2020~~2021 included in the Company’s Annual Report on Form 10-K filed with the ~~Securities and Exchange Commission (SEC)~~SEC on February ~~24, 2021 (2020~~23, 2022 (2021 Form 10-K). The Condensed Consolidated Balance Sheet as of December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all of the disclosures required by accounting principles generally accepted in the United States of America (U.S.) for complete financial statements.

The unaudited financial information reflects all adjustments (primarily consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the statements contained in this report.

~~Changes~~There were no material changes to ~~Reportable Segments~~

~~Effective January 1, 2021, Grainger's 2 reportable segments are High-Touch Solutions N.A. and Endless Assortment. On March 8, 2021,~~ the Company provided investors with segment summary historical financial information and segment historical data that is consistent with its new reportable segment structure and reflective of the intersegmentCompany’s significant accounting policies ~~described~~from those disclosed in Note ~~10 - Segment Information.~~1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data in the Company's 2021 Form 10-K.

The Company's High-Touch Solutions N.A. segment provides value-added MRO solutions that are rooted in deep product knowledge and customer expertise. This segment includes the Grainger-branded businesses in the U.S., Canada, Mexico and Puerto Rico. The Company’s Endless Assortment segment provides a simple, transparent and streamlined experience for customers to shop millions of products online. This segment includes the Company’s Zoro Tools, Inc. (Zoro) businesses in the U.S. and U.K. and MonotaRO Co., Ltd. (MonotaRO), which operates predominately in Japan. The remaining international High-Touch Solutions businesses, operating primarily in the U.K., are classified as “Other” to reconcile to consolidated results. These businesses individually do not meet the criteria of a reportable segment.

~~NOTE 2 - NEW ACCOUNTING STANDARDS~~New Accounting Standards

Accounting Pronouncements Recently Adopted

In ~~December 2019,~~November 2021, the ~~Financial Accounting Standards Board (FASB)~~FASB issued ~~Accounting Standards Update (ASU) 2019-12,~~ASU 2021-10, ~~Income Taxes~~Government Assistance (Topic ~~740)~~832): ~~Simplifying~~Disclosures by Business Entities about Government Assistance. This update provides increased transparency of government assistance, including the ~~Accounting for Income Taxes.~~ ~~This ASU clarifies and simplifies~~disclosure of the types of assistance an entity receives, an entity's method of accounting for ~~income taxes by eliminating certain exceptions~~government assistance and the effect of the assistance on an entity's financial statements. The guidance is effective for intra-period tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. The effective date of this ASU was for fiscal years and interimannual periods beginning after December 15, ~~2020.~~2021 and should be applied prospectively or retrospectively. Early adoption is permitted. The Company adopted this ASU ~~effective~~on January 1, ~~2021~~2022 on a prospective basis and it did not have a material impact on the Consolidated Financial ~~Statements.~~Statements and related disclosures.

~~In January 2020, the FASB issued ASU 2020-01,~~ Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), Clarifying the Interactions between Topic 321, Topic 323 and Topic 815. This ASU simplifies the understanding and application of the codification topics by eliminating inconsistencies and providing clarifications. The effective date of this ASU was for fiscal years and interim periods beginning after December 15, 2020. The Company adopted this ASU effective January 1, 2021 and it did not have a material impact on the Financial Statements.

~~In October 2020, the FASB issued ASU 2020-10,~~ ~~Codification Improvements.~~ These amendments improve consistency by amending the codification to include all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions in the codification by amending and adding new headings, cross referencing to other guidance and refining or correcting terminology. The effective date of this ASU was for fiscal

~~W.W. Grainger, Inc. and Subsidiaries~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~years and interim periods beginning after December 15, 2020. The Company adopted this ASU effective January 1, 2021 and it did not have a material impact on the Financial Statements.~~

Accounting Pronouncements Recently Issued

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting as modified by subsequently issued ASU 2021-01. This update provides optional expedients and exceptions for applying ~~generally accepted accounting principles~~GAAP to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied prospectively to contract modifications made and hedging relationships entered ~~into~~ or evaluated on or before December 31, 2022. The Company ~~is evaluating~~evaluated the impact of this ASU and it does not expect a material impact on the Consolidated Financial Statements.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 32 - REVENUE

Company revenue is primarily comprised of MRO product sales and related activities, such as freight and services. Total service revenue ~~is not material and~~ accounted for approximately 1% of the Company's revenue for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively.~~2021.

Grainger serves a large number of customers in diverse industries, which are subject to different economic and market-specific factors. The Company's presentation of revenue by segment and industry most reasonably depicts how the nature, amount, timing and uncertainty of ~~Company~~the Company's revenue and cash flows are affected by economic and market-specific factors. In addition, the segments have unique underlying risks associated with customer purchasing behaviors. In the High-Touch Solutions N.A. segment, more ~~than~~ than two-thirds of revenue is derived from customer contracts whereas in the Endless Assortment segment, a majority of revenue is derived from ~~customer spot buys.~~ non-contractual purchases.

The following ~~table presents~~tables present the Company's percentage of revenue by reportable segment and by major customer industry:


		Three Months Ended September 30,													Three Months Ended June 30,
		2021						2020							2022						2021
		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)		High-Touch Solutions N.A.		Endless Assortment		Total Company (2)
Contractors	Contractors	9	%	15	%	10	%	8	%	15	%	10	%	Contractors	11	%	15	%	11	%	9	%	15	%	10	%
Commercial	Commercial	9	%	15	%	10	%	9	%	15	%	10	%	Commercial	10	%	16	%	11	%	9	%	14	%	10	%
Government	Government	18	%	3	%	15	%	22	%	3	%	18	%	Government	17	%	2	%	14	%	19	%	3	%	15	%
Healthcare	Healthcare	7	%	2	%	6	%	8	%	2	%	6	%	Healthcare	6	%	2	%	5	%	7	%	2	%	6	%
Manufacturing	Manufacturing	29	%	30	%	29	%	27	%	27	%	28	%	Manufacturing	30	%	29	%	30	%	29	%	30	%	30	%
Retail/Wholesale	Retail/Wholesale	9	%	10	%	10	%	9	%	10	%	9	%	Retail/Wholesale	9	%	15	%	10	%	10	%	10	%	10	%
Transportation	Transportation	5	%	3	%	5	%	5	%	3	%	5	%	Transportation	5	%	3	%	5	%	5	%	3	%	5	%
Others(1)		14	%	22	%	15	%	12	%	25	%	14	%
Total		100	%	100	%	100	%	100	%	100	%	100	%
Percent of Total Company Revenue		79	%	19	%	100	%	79	%	19	%	100	%
Other (1)														Other (1)	12	%	18	%	14	%	12	%	23	%	14	%
Total net sales														Total net sales	100	%	100	%	100	%	100	%	100	%	100	%
Percent of total company revenue														Percent of total company revenue	79	%	19	%	100	%	78	%	20	%	100	%

(1) Other primarily includes revenue from industries and customers that are not material individually, including agriculture, mining, natural resources and resellers not aligned to a major industry segment.														(1) Other primarily includes revenue from industries and customers that are not material individually, including agriculture, mining, natural resources and resellers not aligned to a major industry segment.
(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately 2% of revenue for both the three months ended June 30, 2022 and 2021.														(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately 2% of revenue for both the three months ended June 30, 2022 and 2021.

~~(1)~~ Others primarily includes revenue from industries and customers that are not material individually, including agriculture, mining, natural resources and resellers not aligned to a major industry segment.

~~(2)~~ Total Company includes other businesses, which includes the Cromwell business in the U.K., as well as the China business in the period prior to its divestiture in the third quarter of 2020. Other businesses account for approximately 2% of revenue for the three months ended September 30, 2021 and September 30, 2020.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


		Nine Months Ended September 30,													Six Months Ended June 30,
		2021						2020							2022						2021
		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)		High-Touch Solutions N.A.		Endless Assortment		Total Company (2)
Contractors	Contractors	9	%	15	%	10	%	9	%	15	%	10	%	Contractors	10	%	15	%	11	%	9	%	15	%	10	%
Commercial	Commercial	9	%	15	%	10	%	9	%	15	%	9	%	Commercial	10	%	15	%	10	%	9	%	15	%	10	%
Government	Government	19	%	3	%	15	%	20	%	3	%	16	%	Government	17	%	3	%	14	%	19	%	3	%	15	%
Healthcare	Healthcare	7	%	2	%	6	%	9	%	2	%	7	%	Healthcare	7	%	2	%	5	%	7	%	2	%	6	%
Manufacturing	Manufacturing	30	%	29	%	29	%	28	%	29	%	29	%	Manufacturing	31	%	29	%	31	%	30	%	29	%	30	%
Retail/Wholesale	Retail/Wholesale	9	%	10	%	10	%	9	%	10	%	9	%	Retail/Wholesale	9	%	15	%	10	%	10	%	10	%	10	%
Transportation	Transportation	5	%	3	%	5	%	5	%	3	%	5	%	Transportation	5	%	3	%	6	%	5	%	3	%	5	%
Others(1)		12	%	23	%	15	%	11	%	23	%	15	%
Total		100	%	100	%	100	%	100	%	100	%	100	%
Percent of Total Company Revenue		78	%	20	%	100	%	78	%	18	%	100	%
Other (1)														Other (1)	11	%	18	%	13	%	11	%	23	%	14	%
Total net sales														Total net sales	100	%	100	%	100	%	100	%	100	%	100	%
Percent of total company revenue														Percent of total company revenue	79	%	19	%	100	%	78	%	20	%	100	%

(1) Other primarily includes revenue from industries and customers that are not material individually, including agriculture, mining, natural resources and resellers not aligned to a major industry segment.														(1) Other primarily includes revenue from industries and customers that are not material individually, including agriculture, mining, natural resources and resellers not aligned to a major industry segment.
(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately 2% of revenue for both the six months ended June 30, 2022 and 2021.														(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately 2% of revenue for both the six months ended June 30, 2022 and 2021.

~~(2)~~ Total Company includes other businesses, which includes the Cromwell business in the U.K., as well as the Fabory and China businesses in the period prior to their divestitures in the second and third quarter of 2020, respectively. Other businesses account for approximately 2% and 4% of revenue for the nine months ended September 30, 2021 and September 30, 2020.

~~Total accrued sales returns were approximately $41 million and $31 million as of September 30, 2021 and December 31, 2020, respectively and are reported as a reduction of Accounts receivable, net.~~ Total accrued sales incentives were approximately ~~$65~~$92 million and ~~$58~~$73 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021, and are reported as part of Accrued expenses.

The Company had no material unsatisfied performance obligations, contract assets or liabilities as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

NOTE 43 - PROPERTY, BUILDINGS AND EQUIPMENT

Property, buildings and equipment consisted of the following (in millions of dollars):


		As of					As of
		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Land	Land	$	329	$	329	Land	$	329	$	329
Building, structures and improvements	Building, structures and improvements	1,445		1,330		Building, structures and improvements	1,418		1,431
Furniture, fixtures, machinery and equipment	Furniture, fixtures, machinery and equipment	1,566		1,878		Furniture, fixtures, machinery and equipment	1,631		1,567
Property, buildings and equipment	Property, buildings and equipment	$	3,340	$	3,537	Property, buildings and equipment	$	3,378	$	3,327
Less: Accumulated depreciation and amortization		1,911		2,142
Property, buildings and equipment - net		$	1,429	$	1,395
Less accumulated depreciation and amortization						Less accumulated depreciation and amortization	1,940		1,903
Property, buildings and equipment – net						Property, buildings and equipment – net	$	1,438	$	1,424

NOTE 54 - GOODWILL AND OTHER INTANGIBLE ASSETS

Grainger tests reporting units' goodwill and intangible assets for impairment annually during the fourth quarter and more frequently if impairment indicators exist. Accordingly, Grainger performs quarterly qualitative assessments of significant events and circumstances such as reporting units' historical and current results, assumptions regarding future performance, strategic initiatives and overall economic factors, including the current global outbreak of the Coronavirus (COVID-19 pandemic) and macro-economic developments, to determine the existence of potential indicators of impairment and assess if it is more likely than not that the fair value of reporting units' goodwill or intangible assets is less than their carrying value. If indicators of impairment are identified, a quantitative impairment test is performed. The Company ~~did~~did not identify any significant events or changes in circumstances that indicated the existence of impairment indicators during the three and six months ended June 30, 2022. As such, quantitative assessments were not required.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~the existence of impairment indicators during the three and nine months ended September 30, 2021. As such, quantitative assessments were not required.~~

The balances and changes in the carrying amount of Goodwill (net of cumulative goodwill impairments) by segment are as follows (in millions of dollars):

High-Touch Solutions N.A Endless Assortment Other Total
Balance at January 1, 2020 $ 318 $ 52 $ 59 $ 429
Acquisition — 15 — 15
Impairment — — (58) (58)
Translation 3 3 (1) 5
Balance at December 31, 2020 321 70 — 391
Translation — (4) — (4)
Balance at September 30, 2021 $ 321 $ 66 $ — $ 387


	High-Touch Solutions N.A.		Endless Assortment		Other		Total
Balance at January 1, 2021	$	321	$	70	$	—	$	391


Translation	—		(7)		—		(7)
Balance at December 31, 2021	321		63		—		384


Translation	(2)		(8)		—		(10)
Balance at June 30, 2022	$	319	$	55	$	—	$	374

The cumulative goodwill impairments as of ~~September~~June 30, ~~2021, were~~2022, were $137 million and consisted of $32 million within High-Touch Solutions N.A. and $105 million in Other. During the first quarter of 2020, the Company recorded $58 million of impairment charges in Selling, general and administrative expenses (SG&A) in connection with the impairment of Fabory's goodwill. The impairment is presented in Other in the table above. The Company divested the Fabory business during the second quarter of 2020. Grainger's current business portfolio had 0

There were no impairments to goodwill for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020.~~2022 or the year ended December 31, 2021.

The balances in Intangible assets – net are as follows (in millions of dollars):


																	As of
			September 30, 2021						December 31, 2020								June 30, 2022						December 31, 2021
		Weighted average life	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount			Weighted average life	Gross carrying amount		Accumulated amortization/impairment		Net carrying amount		Gross carrying amount		Accumulated amortization/impairment		Net carrying amount
Customer lists and relationships	Customer lists and relationships	11.8 years	$	221	$	175	$	46	$	223	$	171	$	52	Customer lists and relationships	11.7 years	$	217	$	176	$	41	$	221	$	176	$	45
Trademarks, trade names and other	Trademarks, trade names and other	14.1 years	36		24		12		36		22		14		Trademarks, trade names and other	14.2 years	35		24		11		36		24		12
Non-amortized trade names and other	Non-amortized trade names and other	Indefinite	26		—		26		28		—		28		Non-amortized trade names and other	Indefinite	21		—		21		25		—		25
Capitalized software	Capitalized software	4.2 years	510		361		149		461		327		134		Capitalized software	4.2 years	545		391		154		525		369		156
Total intangible assets	Total intangible assets	6.9 years	$	793	$	560	$	233	$	748	$	520	$	228	Total intangible assets	7.0 years	$	818	$	591	$	227	$	807	$	569	$	238

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 65 - DEBT

~~There was 0 short-term debt as of September 30, 2021 and December 31, 2020.~~

Long-term debt, including ~~current~~current maturities and debt issuance costs and discounts – net, consisted of the following (in millions of dollars):

As of September 30, 2021 As of December 31, 2020
Carrying Value
Fair Value(4)
Carrying Value
Fair Value(4)
4.60% senior notes due 2045(1)
$ 1,000 $ 1,298 $ 1,000 $ 1,343
3.75% senior notes due 2046(1)
400 463 400 479
4.20% senior notes due 2047(1)
400 497 400 514
1.85% senior notes due 2025(2)
500 515 500 526
Japanese Yen term loan(3)
81 81 87 87
Other 14 14 34 34
Subtotal 2,395 2,868 2,421 2,983
Less: Current maturities — — (8) (8)
Debt issuance costs and discounts, net of amortization (23) (23) (24) (24)
Long-term debt (less current maturities) $ 2,372 $ 2,845 $ 2,389 $ 2,951


	As of
	June 30, 2022				December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
4.60% senior notes due 2045	$	1,000	$	958	$	1,000	$	1,284
1.85% senior notes due 2025	500		477		500		509
4.20% senior notes due 2047	400		368		400		492
3.75% senior notes due 2046	400		341		400		459



Japanese yen term loan	67		67		78		78

Other	(19)		(19)		7		7
Subtotal	2,348		2,192		2,385		2,829
Less current maturities	(17)		(17)		—		—

Debt issuance costs and discounts – net of amortization	(22)		(22)		(23)		(23)
Long-term debt (less current maturities)	$	2,309	$	2,153	$	2,362	$	2,806

Senior Notes

~~(1)~~In the years ~~2015-2017,~~2015-2020, Grainger ~~issued $1.8~~issued $2.3 billion in unsecured long-term debt (Senior Notes)~~. Debt was issued as follows:~~

• primarily to provide flexibility in funding general working capital needs, share repurchases a~~In May 2017, $400 million payable in 30 years~~nd long-term cash requirements. The Senior Notes require no principal payments until maturity and ~~carries a 4.20%~~ interest ~~rate, payable semi-annually.~~

•~~In May 2016, $400 million payable in 30 years and carries a 3.75% interest rate, payable semi-annually.~~

•~~In June 2015, $1 billion payable in 30 years and carries a 4.60% interest rate, payable~~is paid semi-annually.

The Company ~~may redeem the~~incurred debt issuance costs related to its Senior Notes in whole at any time or in part from time to time at a “make-whole” redemption price prior to their respective maturity dates. The redemption price is calculated by reference to the then-current yield on a U.S. treasury security with a maturity comparable to the remaining term of the Senior Notes plus 20-25 basis points, together with accrued and unpaid interest, if any, at the redemption date. Additionally, if the Company experiences specific kinds of changes in control, it will be required to make an offer to purchase the Senior Notes at 101% of their principal amount plus accrued and unpaid interest, if any, at the date of purchase. Within one year of the maturity date, the Company may redeem the Senior Notes in whole at any time or in part at 100% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date. At the time of issuance, costs and discounts of approximately $24approximately $29 million, representing underwriting fees and other expenses, that were recorded as a contra-liability within Long-term debt and are being amortized ~~to interest expense~~ over the term of the Senior ~~Notes.~~Notes using the straight-line method to Interest expense – net.

~~(2)~~ ~~In February 2020, the~~The Company issued $500 million of unsecured 1.85% Senior Notes (1.85% Notes) and used the proceeds to repay the British pound term loan, Euro term loan and the Canadian dollar revolving credit facility, and to fund general working capital needs. The 1.85% Notes mature in February 2025 and they require no principal payments until the maturity date anduses interest is payable semi-annually on February 15 and August 15, beginning in August 2020. Prior to January 2025, the Company may redeem the 1.85% Notes in whole at any time or in part from time to time at a “make-whole” redemption price. This redemption price is calculated by reference to the then-current yield on a U.S. treasury security with a maturity comparable to the remaining term of the 1.85% Notes plus 10 basis points, together with accrued and unpaid interest, if any, at the redemption date. Additionally, if the Company experiences specific kinds of changes in control, it will be required to make an offer to purchase the 1.85% Notes at 101% of their principal amount plus accrued and unpaid interest, if any, at the date of purchase. On or after January 15, 2025, the Company may redeem the 1.85% Notes in whole at any time or in part from time to time at 100% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date. At the time of issuance, costs and discounts of approximately $5 million, representing underwriting fees and other expenses, were recorded as a contra-liability within Long-term debt and are being amortized to interest expense, net over the term of the 1.85% Notes. In connection with the

~~W.W. Grainger, Inc. and Subsidiaries~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~1.85% Notes, in February 2020, the Company entered into derivative instrument agreements~~rate swaps to manage ~~its~~the risks associated with ~~interest rates on~~its 1.85% Senior Notes. These swaps were designated for hedge accounting treatment as fair value hedges. The resulting carrying value adjustments as of June 30, 2022 and December 31, 2021, are presented within Other in the ~~1.85% Notes and foreign currency fluctuations related to the financing of international operations. See Note 7 to the Financial Statements for~~table above. For further discussion ~~of these derivative instruments and~~on the Company's hedge accounting ~~policies.~~policies and derivative instruments, see Note 6.

Term Loan

~~(3)~~In August 2020, MonotaRO ~~Co. Ltd.,~~ entered into a ¥9 billion ~~term~~term loan agreement to fund technology investments and the expansion of its distribution center (DC) network. As of June 30, 2022 and December 31, 2021, the carrying amount of the term loan, including current maturities due within one year, was $67 million and $78 million, respectively. The ~~Japanese Yen~~ term loan matures inin 2024, payable over 4 equal semi-annual principal installments in 2023 and 2024 and bears an average interest atof 0.05%.

~~(4)~~ Fair Value

The estimated fair value of the Company’s Senior Notes was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as Level 2 inputs within the fair value hierarchy. ~~The carrying value~~

For further information on the Company’s debt instruments, see Note 6 of ~~other long-term debt approximates fair value due~~the Notes to ~~their variable interest rates.~~Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data in the Company’s 2021 Form 10-K.

NOTE 76 - DERIVATIVE INSTRUMENTS

The Company maintains various agreements with bank counterparties that permit the Company to enter into ~~"over-the-counter"~~“over-the-counter” derivative instrument agreements to manage its risk associated with interest rates and foreign currency fluctuations. In February 2020, the Company entered into certain derivative instrument agreements to manage its risk associated with interest rates onon its 1.85% Notes and foreign currency fluctuations in connection with its foreign

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

currency-denominated intercompany ~~financing arrangements. The~~borrowings. The Company did not enter into these agreements for trading or speculative purposes.

~~Fair value hedges~~

The Company uses fair value hedges primarily to hedge a portion of its fixed-rate long-term debt via interest rate swaps. Changes in the fair value of the interest rate swap, along with the gain or loss on the hedged item, is recorded in earnings under the same line item, interest expense, net. The notional amount of the Company’s outstanding fair value hedges as of September 30, 2021 and December 31, 2020 was $500 million.

Cash ~~flow hedges~~Flow Hedges

The Company uses cash flow hedges primarily to hedge the exposure to variability in forecasted cash flows from foreign currency-denominated intercompany borrowings via cross-currency swaps. Gains or losses on the cross-currency swaps are reported as a component of Accumulated other comprehensive earnings (losses) (AOCE) and reclassified into earnings in the same period during which the hedged transaction affects earnings. The notional amount of the Company’s outstanding cash flow hedges as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 was approximately $34 million.

The effect of the Company’s cash flow hedges on the Condensed Consolidated Statement of Earnings (Other – net) and AOCE for the three and six months ended June 30, 2022 and 2021 was not material.

Fair Value Hedges

The Company uses fair value hedges primarily to hedge a portion of its fixed-rate long-term debt via interest rate swaps. Changes in the fair value of the interest rate swaps, along with the gain or loss on the hedged item, is recorded in earnings under the same line item, Interest expense – net. The notional amount of the Company’s outstanding fair value hedges as of June 30, 2022 and December 31, 2021 was $500 million.

The effect of the Company's fair value ~~and cash flow~~ hedges in Interest expense – net on the ~~Company's~~ Condensed Consolidated Statement of Earnings for the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020~~respectively, is as follows (in millions of dollars):

~~W.W. Grainger, Inc. and Subsidiaries~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Interest expense, net Other, net Interest expense, net Other, net Interest expense, net Other, Net Interest expense, net Other, Net
Gain or (loss) recognized in earnings
Fair value hedge:
Hedged item $ 3 $ — $ — $ — $ 12 $ — $ (22) $ —
Interest rate swap designated as hedging instrument $ (3) $ — $ — $ — $ (12) $ — $ 22 $ —
Cash flow hedge:
Hedged item $ — $ (1) $ — $ — $ — $ — $ — $ —
Cross-currency swap designated as hedging instrument $ — $ 1 $ — $ — $ — $ — $ — $ —

~~The effect of the Company’s fair value and cash flow hedges on AOCE~~ ~~for the three and~~ ~~nine months ended September 30, 2021 and 2020 was not material.~~


	Three Months Ended June 30,			Six Months Ended June 30,
		2022		2021		2022		2021
		Gains (losses)


Interest rate swaps:
Hedged item		$	5	$	(1)	$	24	$	9
Derivatives designated as hedging instrument		$	(5)	$	1	$	(24)	$	(9)

The fair value and carrying amounts of outstanding derivative instruments in the Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021, respectively, were as follows (in millions of dollars):

As of September 30, 2021 As of December 31, 2020
Balance Sheet Classification Fair Value and Carrying Amounts Fair Value and Carrying Amounts
Cross-currency swap Other non-current liabilities $ 2 $ 2
Interest rate swap Other assets $ 9 $ 21


		As of
		June 30, 2022		December 31, 2021
	Balance Sheet Classification	Fair Value and Carrying Amounts
Cross-currency swap	Accrued expenses	$	2	$	—
	Other non-current liabilities	$	—	$	2
Interest rate swaps	Other assets	$	—	$	1
	Other non-current liabilities	$	23	$	—

The carrying amount of the liability hedged by the interest rate ~~swap (long-term~~swaps (Long-term debt), including the cumulative amount of fair value hedging adjustments, as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020 amounted to $509~~2021 totaled $477 million and ~~$521~~$501 million, respectively.

Fair Value

The estimated fair values of the Company's derivative instruments were based on quoted market forward rates, which are classified as Level 2 inputs within the fair value hierarchy and reflect the present value of the amount that the Company would pay for contracts involving the same notional amounts and maturity ~~dates.~~dates. No adjustments ~~were required during the current period to reflect the counterparty’s credit risk and/or the Company’s own nonperformance risk.~~

1514

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~NOTE 8 - INCOME TAXES~~

~~The reconciliations of income tax expense with federal income taxes at the statutory rate are as follows (in millions of dollars):~~

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Federal income tax $ 89 $ 89 $ 228 $ 171
States income taxes, net of federal income tax benefit 12 12 29 23
Foreign rate difference 7 10 19 17
Net tax benefit related to foreign subsidiaries — (4) — (92)
Other - net (1) (1) (5) (1)
Income tax provision $ 107 $ 106 $ 271 $ 118
Effective tax rate 25.5 % 29.3 % 25.0 % 17.3 %

~~The changes to the Company's effective tax rate for the three and nine months ended September 30, 2021~~ were ~~primarilydriven by the absenceof the tax impacts and the prior year net tax benefit from the Company's investment in Fabory. The Company divested the Fabory business~~required during the ~~second quarter of 2020.~~current period to reflect the counterparty’s credit risk or the Company’s own nonperformance risk.

NOTE 97 - DIVIDEND

On ~~October~~July 27, ~~2021,~~2022, the Company’s Board of Directors declared a quarterly dividend of ~~$1.62~~ $1.72 per share, payable ~~December~~September 1, ~~2021,~~2022, to shareholders of record on ~~November~~August 8, ~~2021.~~2022.

NOTE 108 - SEGMENT INFORMATION

Grainger's 2 reportable segments are High-Touch Solutions N.A. and Endless Assortment. The remaining international businesses, which include the Cromwell business, 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.

Corporate costs are allocated to each reportable segment based on benefits received. Additionally, intersegment sales transactions, which are sales between Grainger businesses in separate reportable segments, are eliminated within the segment to present only the impact of sales to external customers. Service fees for intersegment sales from the High-Touch Solutions N.A. segment to the Endless Assortment segment are included in each segment's Selling, general and administrative expenses (SG&A) and are eliminated in consolidation.

Following is a summary of segment results (in millions of dollars):


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended June 30,								Six Months Ended June 30,
		2021				2020				2021				2020					2022				2021				2022				2021
		Net sales		Operating earnings		Net sales		Operating earnings		Net sales		Operating earnings		Net sales		Operating earnings			Net sales		Operating earnings (losses)		Net sales		Operating earnings (losses)		Net sales		Operating earnings (losses)		Net sales		Operating earnings (losses)
High-Touch Solutions N.A.	High-Touch Solutions N.A.	$	2,663	$	387	$	2,377	$	334	$	7,558	$	975	$	6,929	$	933	High-Touch Solutions N.A.	$	3,053	$	475	$	2,498	$	282	$	5,931	$	956	$	4,895	$	588
Endless Assortment	Endless Assortment	646		59		572		48		1,913		172		1,593		125		Endless Assortment	719		62		645		58		1,416		117		1,267		113
Other	Other	63		(8)		69		(2)		192		(17)		334		(314)		Other	65		(3)		64		(6)		137		(5)		129		(9)
Total Company	Total Company	$	3,372	$	438	$	3,018	$	380	$	9,663	$	1,130	$	8,856	$	744	Total Company	$	3,837	$	534	$	3,207	$	334	$	7,484	$	1,068	$	6,291	$	692

The Company is a broad line distributor of MRO products and services. Products are regularly added and removed from the Company's ~~inventory.~~inventory assortment. Accordingly, it would be impractical to provide sales information by product category due to the way the business is managed, and the dynamic nature of the inventory offered, including the evolving list of products stocked and additional products available online but not stocked.

Intersegment sales transactions, which are sales between Grainger businesses in separate reportable segments, are eliminated within the segment to present only the impact of third-party sales. Service fees for intersegment sales from the High-Touch Solutions N.A. segment to the Endless Assortment segment are included in SG&A.

~~Corporate costs are substantially allocated to each reportable segment based on benefits received.~~ Assets for reportable segments are not ~~disclosed as such~~disclosed. This information is not regularly reviewed by the Company's Chief Operating Decision Maker.

~~W.W. Grainger, Inc. and Subsidiaries~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

NOTE 119 - CONTINGENCIES AND LEGAL MATTERS ~~COMMITMENTS AND OTHER CONTRACTUAL OBLIGATIONS~~

~~Contingencies and Legal Matters~~

From time to time the Company is involved in various legal and administrative proceedings, including claims related toto: 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 ~~as to~~ trade and export matters; anti-bribery and corruption; and other matters and actions brought by employees, consumers, competitors, suppliers, customers, governmental entities and other third parties.

As previously disclosed, beginning in the fourth quarter of 2019, Grainger, KMCO, LLC (KMCO) and other defendants have been named in several product liability-related lawsuits in the Harris County, Texas District Court relating to an explosion at a KMCO chemical refinery located in Crosby, Harris County, Texas on April 2, 2019. The complaints in which Grainger has been named, which to date encompass ~~16 lawsuits and~~ approximately 186 plaintiffs, seek recovery of compensatory and other damages and relief in relation to personal injury, including ~~one~~1 death and various other alleged injuries. On May 8, 2020, KMCO filed a voluntary petition in the United States Bankruptcy Court for the Southern District of Texas for relief under Chapter 7 of Title 11 of the United States Bankruptcy Court in

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

the case KMCO, LLC, No. 20-60028. As a result of the Chapter 7 proceedings, the claims against KMCO in the Harris County lawsuits were stayed. Effective January 1, 2021, the Bankruptcy Court lifted the stay with respect to KMCO. In the product liability related cases, the Harris County District Court has decided to conduct bellwether trials involving a subset of plaintiffs the Court believes are representative of the parties' claims and defenses. The first such trial is scheduled for early 2023 and will include 6 plaintiffs. Additional trials may follow after the resolution of this initial trial.

On December 16, 2020, KMCO, the trustee of its estate and ORG Chemical Holdings, LLC, KMCO’s parent company ~~(“ORG”)~~(ORG), filed a property damage lawsuit relating to the KMCO chemical refinery incident against Grainger and another defendant in the Harris County, Texas District Court, which seeks unspecified damages (the ~~“KMCO Case”)~~KMCO Case). On April 1, 2021, 24 individual plaintiffs filed a petition in intervention seeking to be added as plaintiffs in the KMCO Case and seeking unspecified damages. On March 24, 2021, Indian Harbor Insurance Company, together with other insurance companies and underwriters, filed a property damage lawsuit relating to the KMCO chemical refinery incident against Grainger and another defendant in the Harris County, Texas District Court, seeking reimbursement of insurance payments made to or on behalf of KMCO and ORG, the insured parties under their respective policies, and other damages.

Grainger is investigating each of the various claims against the Company relating to the KMCO chemical refinery incident ~~which are at an early stage,~~ and intends to contest these matters vigorously.

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.

From time to time, the Company has also been named, along with numerous other nonaffiliated companies, as a defendant in litigation in various states involving asbestos and/or silica. These lawsuits typically assert claims of personal injury arising from alleged exposure to asbestos and/or silica as a consequence of products manufactured by third parties purportedly distributed by the Company. While several lawsuits have been dismissed in the past based on the lack of product identification, if a specific product distributed by the Company is identified in any pending or future lawsuits, the Company will seek to exercise indemnification remedies against the product manufacturer to the extent available. In addition, the Company believes that a substantial number of these claims are covered by insurance. The Company has entered into agreements with its major insurance carriers relating to the scope, coverage and the costs of defense, of lawsuits involving claims of exposure to asbestos. The Company believes it has strong legal and factual defenses and intends to continue defending itself vigorously in these lawsuits.

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 the Company’s consolidated financial condition or results of operations.

~~Commitments and Other Contractual Obligations~~

There were no material changes to the Company's commitments and other contractual obligations from those disclosed in Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2020 Form 10-K.

1716

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

~~General~~

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of W.W. Grainger, Inc. (Grainger or Company) as it is viewed by the Company. The following discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2021 included in the Company's 2021 Form 10-K and the Condensed Consolidated Financial Statements and accompanying notes included in Part I, Item 1: Financial Statements of this Form 10-Q.

Percentage figures included in this section have not been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in the Company's Condensed Consolidated Financial Statements or in the associated text.

General

W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, ~~(N.A.),~~ Japan and the ~~United Kingdom (U.K.).~~U.K. Grainger uses a combination of its high-touch solutions and endless assortment businesses to serve its customers worldwide, which rely on Grainger for ~~MRO~~ products and services that enable them to run safe, sustainable and productive operations.

~~Effective January~~Strategic Priorities and Recent Events

The Company continues to adhere to its purpose to keep the world working while using its core principles as the framework for expanding Grainger’s leadership position and ensuring Grainger is the go-to-partner for building and running safe, sustainable and productive operations.

For a discussion of the Company’s strategic priorities for 2022, see Part 1, Item 1: Business and Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations (Overview) in the Company’s 2021 Form 10-K.

Russia’s Invasion of Ukraine

In February 2022, Russia invaded Ukraine. In response to the conflict, the United States (U.S.) and other countries have implemented economic and other sanctions. While Grainger has limited direct exposure in Russia and Ukraine, the Company continues to monitor any broader impact on the global economy, including with respect to inflation, supply chains and fuel prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the conflict and its impact on global and regional economic conditions. The Company does not currently expect significant disruption to its overall business resulting from the conflict.

Inflationary Cost Environment

During fiscal 2021 and continuing into the first half of fiscal 2022, in combination with the economic recovery of the ongoing COVID-19 pandemic, the global economy continues to experience disruptions including to the commodity, labor and transportation markets. These disruptions have contributed to an inflationary environment which has affected, and may continue to affect, the price and availability of certain products and services necessary for the Company's operations. Such disruptions have impacted, and may continue to impact, the Company's business, financial condition and results of operations. As a result of continued inflation, the Company has implemented strategies designed to mitigate certain adverse effects of higher costs during the first half of fiscal 2022 while also remaining market price competitive.

For further discussion of the Company's risks and uncertainties, see Part II, Item 1A: Risk Factors of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022 and Part I, Item 1A: Risk Factors in the Company’s 2021 Form 10-K.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Results of Operations –Three Months Ended June 30, 2022

The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings (in millions of dollars):


	Three Months Ended June 30,
					Percent Increase from Prior Year		As a Percent of Net Sales
	2022		2021				2022		2021
Net sales (1)	$	3,837	$	3,207	19.6	%	100.0	%	100.0	%
Cost of goods sold	2,396		2,083		15.0		62.4		65.0
Gross profit	1,441		1,124		28.3		37.6		35.0
SG&A	907		790		14.9		23.7		24.6
Operating earnings	534		334		60.0		13.9		10.4
Other expense – net	17		15		11.2		0.4		0.5
Income tax provision	128		76		70.6		3.4		2.3
Net earnings	389		243		59.8		10.1		7.6
Noncontrolling interest	18		18		0.1		0.4		0.6
Net earnings attributable to W.W. Grainger, Inc.	$	371	$	225	64.5		9.7		7.0
Diluted earnings per share:	$	7.19	$	4.27	68.4	%

(1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1: Financial Statements of this Form 10-Q.

The following table is included as an aid to understanding the changes in Grainger's ~~two reportable segments are~~total net sales and daily sales from the prior period to the most recent period (in millions of dollars):


	Three Months Ended June 30,
	2022			2021
Net sales	$	3,837		$	3,207
$ Change from prior-year period	630			370
% Change from prior-year period	19.6		%	13.1		%


Daily sales (1)	$	60.0		$	50.1
$ Change from prior-year period	9.9			5.8
% Change from prior-year period	19.6		%	13.1		%

Daily sales impact of currency fluctuations	(2.4)		%	0.9		%

(1) Daily sales are defined as the total net sales for the period divided by the number of U.S. selling days in the period. There were 64 sales days in both the three months ended June 30, 2022 and June 30, 2021.

Net sales of $3,837 million for the three months ended June 30, 2022 increased $630 million, or 19.6%, compared to the same period in 2021. The increase in net sales was primarily due to growth in the High-Touch Solutions N.A. and Endless Assortment. These reportable segments align with Grainger's go-to-market strategies and bifurcated business models (high-touch solutions and endless assortment). The High-Touch Solutions N.A. segment includesAssortment segments. For further discussion on the ~~Grainger-branded businesses in~~Company's net sales, see the United States of America (U.S.), Canada, Mexico and Puerto Rico. The Endless Assortment segment includes the Company’s Zoro Tools, Inc. (Zoro) and MonotaRO Co., Ltd. (MonotaRO) online channels which operate predominately in the U.S., U.K. and Japan.Segment Analysis section below.

~~Strategic Priorities and Impact~~Gross profit of $1,441 million for the ~~COVID-19 Pandemic~~

three months ended June 30, 2022 increased $317 million, or 28%, compared to the same period in 2021. Gross profit margin of 37.6% increased 2.6 percentage points. The ~~Company’s longstanding strategic priorities are~~increase was due to “Keep the World Working” and relentlessly expand Grainger’s leadership position in the MRO space by being the go-to-partner for people who build and run safe, sustainable and productive operations. However, the Company’s business and plans to achieve these strategic priorities continue to be impacted by the Coronavirus (COVID-19 pandemic). In response, Grainger instituted and has continued to enforce safety precautions to protect the health and well-being of all of its employees, with a particular focus on those serving customers and operating its distribution centers and branches.

The COVID-19 pandemic continues to cause significant disruptions in the U.S. and global markets, and the full extent of the impacts will depend on a number of developments, including any continued spread of the virus and its variants, the availability and effectiveness of treatments and vaccines, the imposition of protective public safety measures, and the potential impact of governmental measures to combat the spread of the virus, such as vaccine mandates for certain federal contractors and anticipated Occupational Health and Safety Administration safety directives. The Company continues to leverage a dedicated cross-functional task force to understand and implement guidance from government agencies and health officials to meet requirements from federal, state and local authorities and may take further actions in the best interests of its employees, customers, suppliers and shareholders.

The ongoing recovery from the COVID-19 pandemic has been accompanied by increased demand as industries have begun to return to regular operations. However, the pandemic continues to disrupt supply chains, transportation efficiency, raw materials and labor availability. Grainger’s businesses and its major facilities have remained operational as customers rely on Grainger’s products and services to keep their businesses up and running. The Company continues to monitor and refine its product assortment and actions to support customers’ return to regular operations.

The Company cannot reasonably estimate the full extent to which the COVID-19 pandemic will continue to impact its business and financial results. As the pandemic continues to impact global markets and the needs of employees, customers, suppliers and other stakeholders continue to change, the Company’s efforts and business plans will evolve accordingly. Grainger is focused on servicing customers and communities in addressing the pandemic and providing products to assist in the ongoing recovery, supporting the needs and safety of employees and ensuring the Company continues to operate with a strong financial position.

~~Further discussion of the risks and uncertainties posed by the COVID-19 pandemic is disclosed in~~ ~~Risk Factors~~ ~~under Part II, Item 1A of this report.~~

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

~~Matters Affecting Comparability~~lapping pandemic-related inventory adjustments in the second quarter of 2021 and improved product mix in the second quarter of 2022.

~~There were 64 sales days in both~~

SG&A of $907 million for the three months ended ~~September~~June 30, ~~2021~~2022 increased $117 million, or 15%, compared to the same period in 2021. The increase was primarily due to higher marketing, payroll and ~~September 30, 2020. There were 191 and 192 sales days in the nine months ended September 30, 2021 and September 30, 2020.~~variable compensation expenses.

~~Consistent with~~Operating earnings of $534 million for the ~~Company's strategic focus on broad line MRO distribution~~three months ended June 30, 2022 increased $200 million, or 60%, compared to the same period in key markets, in June 2020, Grainger divested the Fabory high-touch solutions business, in August 2020, divested the China high-touch solutions 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.2021.

~~In addition, beginning in mid-February 2020,~~Income taxes of $128 million for the ~~Company experienced elevated levels of COVID-19 pandemic-related product sales (e.g.~~three months ended June 30, 2022 increased $52 million or 71%, ~~personal protective equipment (PPE) and safety products) due to higher customer demand in response~~compared to the ~~COVID-19 pandemic, while non-pandemic sales decreased. Conversely, as~~same period in 2021. The increase was primarily driven by higher taxable operating earnings in the ~~COVID-19 pandemic progressed throughout 2020~~second quarter of 2022. Grainger's effective tax rates were 24.8% and ~~into~~23.6% for the three months ended June 30, 2022 and 2021, ~~the Company has seen pandemic-related sales soften and non-pandemic sales grow, as mix returns to more normalized levels. This~~ ~~shift between pandemic and core, non-pandemic product mix impacted gross margin as pandemic-related product sales are generally lower-margin.~~respectively.

~~Results~~Net earnings of ~~Operations – Three Months Ended September~~$371 million attributable to W.W. Grainger, Inc. for the three months ended June 30, ~~2021~~2022 increased $146 million, or 65%, compared to the same period in 2021.

Diluted earnings per share was $7.19 for the three months ended June 30, 2022, an increase of 68% compared to $4.27 for the same period in 2021.

Segment Analysis

For further segment information, see Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q.

High-Touch Solutions N.A.

The following table ~~is included as an aid to understand the changes in Grainger’s Condensed Consolidated Statements of Earnings~~shows reported segment results (in millions of dollars):

Three Months Ended September 30,
Percent Increase/(Decrease) As a Percent of Net Sales
2021 2020 2021 2020
Net sales $ 3,372 $ 3,018 11.7 % 100.0 % 100.0 %
Cost of goods sold 2,122 1,944 9.2 % 62.9 % 64.4 %
Gross profit 1,250 1,074 16.3 % 37.1 % 35.6 %
Selling, general and administrative expenses (SG&A) 812 694 16.7 % 24.1 % 23.0 %
Operating earnings 438 380 15.6 % 13.0 % 12.6 %
Other expense - net 16 18 (8.2) % 0.5 % 0.6 %
Income tax provision 107 106 1.4 % 3.2 % 3.5 %
Net earnings 315 256 23.0 % 9.3 % 8.5 %
Noncontrolling interest 18 16 13.3 % 0.5 % 0.5 %
Net earnings attributable to W.W. Grainger, Inc. $ 297 $ 240 23.7 % 8.8 % 8.0 %


	Three Months Ended June 30,
	2022		2021		Percent Increase
Net sales	$	3,053	$	2,498	22.2	%
Gross profit	$	1,211	$	922	31.4	%
SG&A	$	736	$	640	15.0	%
Operating earnings	$	475	$	282	68.3	%

~~Grainger’s net~~Net sales of ~~$3,372~~$3,053 million for the ~~third quarter of 2021~~three months ended June 30, 2022 increased ~~$354~~$555 million, or ~~11.7%~~22.2%, compared to the same ~~quarter~~period in ~~2020.~~2021. The increase in net sales was ~~primarily driven~~due to growth in all geographies and included increased volume, which includes product mix, of 11.8% and price, which includes customer mix, of 10.6%, partially offset by ~~volume increases in the High-Touch Solutions N.A. and Endless Assortment segment~~s. Also, core, non-pandemic product sales grew significantly as the economy improved, while demand for pandemic-related products continued to taper off with mix reverting to near pre-pandemic levels. See Note 3 to the Financial Statements for information related to disaggregated revenue. See the ~~Segment Analysis~~ ~~below for further details related to segment revenue.~~unfavorable foreign exchange of 0.2%.

Gross profit of ~~$1,250~~$1,211 million for the ~~third quarter of 2021~~three months ended June 30, 2022 increased ~~$176~~$289 million, or ~~16%~~31%, compared to the same ~~quarter~~period in ~~2020. The gross~~2021. Gross profit margin of ~~37.1% during~~39.7% increased 2.8 percentage points. The increase was due to lapping pandemic-related inventory adjustments in the ~~third~~second quarter of 2021 and improved product mix in the second quarter of 2022.

SG&A of $736 million for the three months ended June 30, 2022 increased ~~1.5 percentage points when~~$96 million, or 15%, compared to the same ~~quarter~~period in ~~2020.~~ ~~This~~2021. The increase was primarily ~~driven~~due to higher marketing, payroll and variable compensation expenses. SG&A leverage improved by 1.5 percentage points.

Operating earnings of $475 million for the ~~result of price realization and higher sales volume for core, non-pandemic products as mix continued~~three months ended June 30, 2022 increased $193 million, or 68%, compared to ~~revert to more normalized levels. Se~~e ~~Segment Analysis~~ ~~below for further details related to segment gross profit.~~the same period in 2021.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

~~SG&A~~Endless Assortment

The following table shows reported segment results (in millions of ~~$812~~dollars):


	Three Months Ended June 30,
	2022		2021		Percent Increase
Net sales	$	719	$	645	11.4	%
Gross profit	$	209	$	182	15.4	%
SG&A	$	147	$	124	18.9	%
Operating earnings	$	62	$	58	8.0	%

Net sales of $719 million for the ~~third quarter of 2021~~three months ended June 30, 2022, increased ~~$118~~$74 million, or ~~17%~~11.4%, compared to the ~~third quarter~~same period in 2021. The increase was due to sales growth of ~~2020. This~~21.1%, driven by continued customer acquisition and repeat and enterprise customer growth at MonotaRO, partially offset by unfavorable foreign exchange of 9.7% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.

Gross profit of $209 million for the three months ended June 30, 2022 increased $27 million, or 15%, compared to the same period in 2021. Gross profit margin of 29.2% increased 1.0 percentage point compared to the same period in 2021. The increase was driven by freight efficiencies at Zoro and MonotaRO.

SG&A of $147 million for the three months ended June 30, 2022 increased $23 million, or 19%, compared to the same period in 2021. The increase was primarily driven by higher ~~wages, variable compensation, healthcare costs~~marketing, occupancy and ~~marketing expenses.~~

~~The following tables (in millions of dollars, except percentages) reconcile reported SG&A, operating earnings~~payroll and net earnings attributable to W.W. Grainger, Inc. determined in accordance with U.S. generally accepted accounting principles (GAAP) to non-GAAP measures including SG&A adjusted, operating earnings adjusted and net earnings attributable to W.W. Grainger, Inc. adjusted. The Company believes that these non-GAAP measures provide meaningful information to assist investors in understanding financial results and assessing prospects for future performance as they provide a better baseline for analyzing the ongoing performance of its businesses by excluding items that may not be indicative of core operating results. Because non-GAAP financial measures are not standardized, it may not be possible to compare these measures with other companies' non-GAAP measures having the same or similar names.

Three Months Ended September 30,
2021 2020 %
SG&A reported $ 812 $ 694 17 %
Restructuring - net (High-Touch Solutions N.A.) — (1)
Grainger China divestiture (Other) — (5)
Total restructuring - net and business divestiture — (6)
SG&A adjusted $ 812 $ 700 16 %

2021 2020 %
Operating earnings reported $ 438 $ 380 16 %
Total restructuring - net and business divestiture — (6)
Operating earnings adjusted $ 438 $ 374 17 %

2021 2020 %
Net earnings attributable to W.W. Grainger, Inc. reported $ 297 $ 240 24 %
Total restructuring - net, business divestiture and tax¹ — 6
Net earnings attributable to W.W. Grainger, Inc. adjusted $ 297 $ 246 21 %

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.

~~Excluding restructuring, net and business divestiture~~benefits expenses in the ~~third~~second quarter of ~~2 020,~~2022. SG&A ~~increased $112 million, or 16%. This increase is primarily due to higher wages, variable compensation, healthcare costs and marketing expenses.~~leverage decreased by 1.3 percentage points.

Operating earnings of ~~$438~~$62 million for the ~~third quarter of 2021~~three months ended June 30, 2022 increased $58 million, or 16%, compared to the third quarter of 2020. Excluding restructuring, net and business divestiture in the third quarter of 2020 as noted in the table above, operating earnings increased $64 million, or 17%, driven primarily by higher gross profit dollars partially offset by higher SG&A expenses.

~~Other expense, net was $16 million for the third quarter of 2021, a decrease of $2~~$4 million, or 8%, compared to the ~~third quarter of 2020. The decrease was primarily related to higher interest expense~~same period in the third quarter of 2020 due to the draw down on the Company's revolving credit facility of $1 billion in March 2020 as a proactive measure to preserve financial flexibility during pandemic uncertainty.2021.

~~Income taxes~~Other

Net sales of ~~$107~~$65 million ~~for the third quarter of 2021 increased $1 million, or 1%, compared to $106 million in the third quarter of 2020. Grainger's effective tax rates were 25.5% and 29.3%~~ for the three months ended ~~September~~June 30, ~~2021 and 2020, respectively. Excluding~~2022, increased $1 million, or 2.7%, compared to the ~~tax benefit related~~same period in 2021. The increase was due to ~~Fabory, as well as the restructuring, net and business divestiture~~sales growth of 14.4%, partially offset by unfavorable foreign exchange of 11.7% due to changes in the ~~third quarter~~exchange rate between the U.S. dollar and the British pound sterling.

Operating losses of ~~2020 as noted in the table above, the effective tax rates were 25.5% and 26.5%~~$3 million for the three months ended ~~September~~June 30, ~~2021 and 2020, respectively.~~

2022 improved $3 million, or 47.2%, compared to the same period in 2021.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Results of Operations – Six Months Ended June 30, 2022

The following table is included as an aid to understanding the changes in Grainger's total net sales and daily sales from the prior period to the most recent period (in millions of dollars):


	Six Months Ended June 30,
					Percent Increase from Prior Year		As a Percent of Net Sales
	2022		2021				2022		2021
Net sales (1)	$	7,484	$	6,291	19.0	%	100.0	%	100.0	%
Cost of goods sold	4,660		4,074		14.4		62.3		64.8
Gross profit	2,824		2,217		27.4		37.7		35.2
SG&A	1,756		1,525		15.1		23.4		24.2
Operating earnings	1,068		692		54.4		14.3		11.0
Other expense – net	34		30		13.7		0.5		0.5
Income tax provision	260		164		59.0		3.5		2.6
Net earnings	774		498		55.4		10.3		7.9
Noncontrolling interest	37		35		6.1		0.4		0.5
Net earnings attributable to W.W. Grainger, Inc.	$	737	$	463	59.1		9.9		7.4
Diluted earnings per share:	$	14.26	$	8.76	62.8	%

(1) For further information regarding the Company's disaggregated revenue, see Note 2 of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1: Financial Statements of this Form 10-Q.

The following table is included as an aid to understanding the changes in Grainger's total net sales and daily sales from the prior period to the most recent period (in millions of dollars):


	Six Months Ended June 30,
	2022			2021
Net sales	$	7,484		$	6,291
$ Change from prior-year period	1,193			453
% Change from prior-year period	19.0		%	7.8		%

Daily sales (1)	$	58.5		$	49.5
$ Change from prior-year period	9.0			3.9
% Change from prior-year period	18.0		%	8.6		%

Daily sales impact of currency fluctuations	(2.0)		%	1.0		%

(1) Daily sales are defined as the total net sales for the period divided by the number U.S. selling days in the period. There were 128 and 127 sales days in the six months ended June 30, 2022 and June 30, 2021, respectively.

Net ~~earnings attributable to W.W. Grainger, Inc.~~sales of ~~$297~~$7,484 million for the ~~third quarter of 2021~~six months ended June 30, 2022 increased ~~$57~~$1,193 million, or ~~24%~~19.0%, ~~compared to the third quarter of 2020. Excluding restructuring,~~and on a daily basis, net ~~business divestiture and tax in the third quarter of 2020 per the table above, net earnings~~sales increased ~~$51 million or 21%.~~

~~Segment Analysis~~

~~See Note 10 to the Financial Statements for further detail on segment information.~~

~~High-Touch Solutions N.A.~~

~~Net sales were $2,663 million for the third quarter of 2021, an increase of $286 million, or 12.0%~~18.0% compared to the same period in ~~2020 and consisted of the following:~~


			~~Percent Increase~~
~~Volume (including product mix)~~			~~8.6%~~
~~Price and customer mix~~			~~3.0~~
~~Foreign exchange~~			~~0.4~~

~~Total~~			~~12.0%~~

Overall, revenue increases for the high-touch solutions businesses were primarily driven by volume and product mix. During the third quarter of 2021, the U.S. business continued to experience elevated sales volume of non-pandemic products from manufacturing businesses with overall sales up for nearly all customer segments as industries continued to improve and re-open. See Note 3 to the Financial Statements for information related to disaggregated revenue. From a product perspective, mix continued to revert to more normalized levels with higher demand for core, non-pandemic products as the economy recovered, despite a slight increase in demand for pandemic-related product in connection with renewed PPE guidelines.

Gross profit margin for the third quarter of 2021 increased 1.4 percentage points compared to the same period in 2020. The increase was primarily the result of price realization and higher sales volume for core, non-pandemic products as mix continued to revert to more normalized levels.

SG&A of $661 million for the third quarter of 2021 increased $94 million, or 17%, when compared to the third quarter of 2020, which was primarily driven by higher wages, variable compensation, healthcare costs and marketing expenses.

Operating earnings of $387 million for the third quarter of 2021 increased $53 million, or 16%, from $334 million for the third quarter of 2020. This increase was driven by higher gross profit dollars, partially offset by higher SG&A expenses.

~~Endless Assortment~~

~~Net sales were $646 million for the third quarter of 2021, an increase of $74 million, or 12.7%, compared to the same period in 2020 and consisted of the following:~~


			~~Percent Increase/ (Decrease)~~
~~Volume/price/mix~~			~~14.9%~~

~~Foreign exchange~~			~~(2.2)~~
~~Total~~			~~12.7%~~

2021. The increase in net sales was ~~driven by continued strong customer acquisition at both Zoro and MonotaRO.~~

~~Gross profit margin increased 1.2 percentage points in the third quarter of 2021 compared to the third quarter of 2020. The increase was driven~~ primarily ~~by pricing actions and freight efficiency at Zoro.~~

SG&A of $124 million for the third quarter of 2021 increased $16 million or 15% when compared to the third quarter of 2020. SG&A leverage improved 0.3 percentage point compared with the same period in 2020 due to sales ~~revenue outpacing SG&A expenses.~~growth in the High-Touch Solutions N.A. and Endless Assortment segments. For further discussion on the Company's net sales, see the Segment Analysis section below.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

~~Operating earnings~~Gross profit of ~~$59~~$2,824 million for the ~~third quarter of 2021~~six months ended June 30, 2022 increased ~~$11~~$607 million, or ~~24% from $48 million for the third quarter of 2020. The increase was primarily driven by higher sales volume due to continued strong customer acquisitions, partially offset by higher SG&A expenses.~~

~~Other~~

~~Net sales were $63 million for the third quarter of 2021, a decrease of $6 million, or 6.1%, when compared to the same quarter in 2020 and consisted of the following:~~


			~~Percent (Decrease)/Increase~~
~~Business divestiture~~			~~(11.9)%~~

~~Foreign exchange~~			~~5.8~~
~~Total~~			~~(6.1)%~~

~~The decrease in net sales was driven by the net impact of the China business divestiture, partially offset by favorable foreign exchange for the Cromwell business in the U.K.~~

Gross profit margin increased 3.8 percentage points in the third quarter of 2021 compared to the third quarter of 2020 primarily due to improved customer and product mix at the Cromwell business in the U.K.

~~SG&A increased $8 million, or 32%, in the third quarter of 2021 from $19 million for the third quarter of 2020. This increase is primarily due to higher wages and marketing expenses.~~

~~Operating losses of $8 million for the third quarter of 2021 increased $6 million compared to operating losses of $2 million for the third quarter of 2020. The increase is primarily due to higher SG&A expenses, partially offset by higher gross profit dollars.~~

~~W.W. Grainger, Inc. and Subsidiaries~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

~~Results of Operations – Nine Months Ended September 30, 2021~~

~~The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings (in millions of dollars):~~

Nine Months Ended September 30,
Percent Increase/(Decrease) As a Percent of Net Sales
2021 2020 2021 2020
Net sales $ 9,663 $ 8,856 9.1 % 100.0 % 100.0 %
Cost of goods sold 6,196 5,645 9.8 % 64.1 % 63.7 %
Gross profit 3,467 3,211 8.0 % 35.9 % 36.3 %
Selling, general and administrative expenses (SG&A) 2,337 2,467 (5.3) % 24.2 % 27.9 %
Operating earnings 1,130 744 52.0 % 11.7 % 8.4 %
Other expense - net 46 56 (17.3) % 0.5 % 0.6 %
Income tax provision 271 118 129.5 % 2.8 % 1.3 %
Net earnings 813 570 42.7 % 8.4 % 6.4 %
Noncontrolling interest 53 43 23.4 % 0.5 % 0.5 %
Net earnings attributable to W.W. Grainger, Inc. $ 760 $ 527 44.3 % 7.9 % 6.0 %

~~Grainger’s net sales of $9,663 million for the nine months ended September 30, 2021 increased $807 million, or 9.1%~~27%, compared to the same period in ~~2020. On a daily basis, net sales~~2021. Gross profit margin of 37.7% increased ~~9.7%.~~2.5 percentage points. The increase ~~in net sales~~ was ~~primarily driven by volume and product mix, partially offset by the impact of the business divestitures in the prior year. Also, core,~~ ~~non-pandemic related product sales volume continued~~due to ~~improve as product mix continued to revert to more normalized levels, while demand for pandemic-related products continued to taper throughout 2021.~~ ~~See Note 3 to the Financial Statements for information related to disaggregated revenue. See~~ ~~Segment Analysis~~ ~~below for further details related to segment revenue.~~

~~Gross profit of $3,467 million for the nine months ended September 30, 2021 increased $256 million, or 8%, compared to the same period in 2020. The gross profit~~ ~~margin of 35.9% decreased 0.4 percentage point when compared to the same period in 2020. This decrease was primarily driven by certain~~lapping pandemic-related inventory adjustments in the first half of ~~the year~~2021 and improved product mix in the ~~U.S. business (part~~first half of ~~High-Touch Solutions N.A.) partially offset by price realization during the third quarter of 2021. See~~ ~~Segment Analysis~~ ~~below for further details related to segment gross profit.~~2022.

SG&A of ~~$2,337~~$1,756 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 decreased $130~~2022 increased $231 million, or 5%15%, compared to the same period in ~~2020. This decrease is~~2021. The increase was primarily ~~a result~~due to higher marketing, payroll and variable compensation expenses.

Operating earnings of ~~the impairment charges and losses~~$1,068 million for the ~~divested Fabory business (part~~six months ended June 30, 2022 increased $376 million, or 54%, compared to the same period in 2021.

Income taxes of ~~Other)~~$260 million for the six months ended June 30, 2022 increased $96 million or 59%, compared to the same period in 2021. The increase was primarily driven by higher taxable operating earnings in the first half of 2022. Grainger's effective tax rates were 25.2% and ~~second quarter of 2020, respectively.~~24.7% for the six months ended June 30, 2022 and June 30, 2021, respectively.

~~The following tables (in millions~~Net earnings of ~~dollars, except percentages) reconciles reported SG&A, operating earnings and net earnings~~$737 million attributable to W.W. Grainger, Inc. ~~determined in accordance with U.S. GAAP~~for the six months ended June 30, 2022 increased $274 million, or 59%, compared to non-GAAP measures including SG&A adjusted, operating earnings adjusted and net earnings attributable to W.W. Grainger, Inc. adjusted. 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 period in 2021.

Diluted earnings per share was $14.26 for the six months ended June 30, 2022, an increase of 63% compared to $8.76 for the same period in 2021.

Segment Analysis

For further segment information, see Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q.

High-Touch Solutions N.A.

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


	Six Months Ended June 30,
	2022		2021		Percent Increase
Net sales	$	5,931	$	4,895	21.2	%
Gross profit	$	2,375	$	1,817	30.7	%
SG&A	$	1,419	$	1,229	15.4	%
Operating earnings	$	956	$	588	62.6	%

Net sales of $5,931 million for the six months ended June 30, 2022 increased $1,036 million, or ~~similar names.~~21.2%, compared to the same period in 2021. On a daily basis, net sales increased 20.2% due to increased volume, which includes product mix, of 10.9% and price, which includes customer mix, of 9.4%, driven by sales growth in all geographies, partially offset by unfavorable foreign exchange of 0.1%.

Gross profit of $2,375 million for the six months ended June 30, 2022 increased $558 million, or 31%, compared to the same period in 2021. Gross profit margin of 40.0% increased 2.9 percentage points. The increase was due to lapping pandemic-related inventory adjustments in the first half of 2021 and improved product mix in the first half of 2022.

SG&A of $1,419 million for the six months ended June 30, 2022 increased $190 million, or 15% compared to the same period in 2021. The increase was primarily due to higher marketing, payroll and variable compensation expenses. SG&A leverage improved by 1.2% percentage point.

Operating earnings of $956 million for the six months ended June 30, 2022 increased $368 million, or 63%, compared to the same period in 2021.

2322

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Nine Months Ended September 30,
%
2021 2020
SG&A reported $ 2,337 $ 2,467 (5) %
Restructuring - net (High-Touch Solutions N.A.) — 7
Fabory impairment charges (Other) — 177
Fabory divestiture (Other) — 109
Grainger China divestiture (Other) — (5)
Total restructuring - net, impairment charges and business divestiture — 288
SG&A adjusted $ 2,337 $ 2,179 7 %

2021 2020 %
Operating earnings reported $ 1,130 $ 744 52 %
Total restructuring - net, impairment charges and business divestiture — 288
Operating earnings adjusted $ 1,130 $ 1,032 10 %
Endless Assortment

2021 2020 %
Net earnings attributable to W.W. Grainger, Inc. reported $ 760 $ 527 44 %
Total restructuring - net, impairment charges, business divestiture and tax 1
— 153
Net earnings attributable to W.W. Grainger, Inc. adjusted $ 760 $ 680 12 %
The following table shows reported segment results (in millions of dollars):


	Six Months Ended June 30,
	2022		2021		Percent Increase
Net sales	$	1,416	$	1,267	11.7	%
Gross profit	$	406	$	357	14.0	%
SG&A	$	289	$	244	18.6	%
Operating earnings	$	117	$	113	4.0	%

~~As noted in the table above, a large portion~~Net sales of ~~the Company's SG&A decrease~~$1,416 million for the ~~nine~~six months ended ~~September~~June 30, 2021 is due to the $177 million Fabory impairment and $109 million loss on the divestiture of the Fabory business in the first and second quarter of 2020, respectively. Excluding restructuring, net, impairment charges and business divestiture in the nine months ended September 30, 2020, as noted in the table above, SG&A2022, increased ~~$158~~$149 million, or ~~7%, primarily due to higher wages, variable compensation, healthcare costs and marketing expenses.~~

~~Operating earnings for the nine months ended September 30, 2021 were $1,130 million, an increase of $386 million, or 52%~~11.7%, compared to the same period in ~~2020. Excluding restructuring,~~2021. On a daily basis, net ~~impairment charges and business divestiture in the nine months ended September 30, 2020 as noted in the table above, operating earnings~~sales increased ~~$98 million, or 10%~~10.9%. The increase was due to sales growth of 19.3%, driven by ~~higher gross profit dollars~~continued customer acquisition at Zoro and repeat customer growth at MonotaRO, partially offset by ~~higher SG&A expenses.~~

~~Other expense, net was $46 million for~~unfavorable foreign exchange of 8.4% due to changes in the ~~nine months ended September 30, 2021, a decrease of $10 million, or 17%, compared to~~exchange rate between the ~~nine months ended September 30, 2020.~~ ~~The decrease was primarily related to higher prior year interest expense on~~U.S. dollar and the ~~draw down on the Company's revolving credit facility of $1 billion in March 2020 as a proactive measure to preserve financial flexibility during pandemic uncertainty.~~Japanese yen.

~~Income taxes~~Gross profit of ~~$271~~$406 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 increased ~~$153~~$49 million, or 130%, compared with $118 million for the comparable 2020 period. This change was primarily driven by lower taxable operating earnings for the nine months ended September 30, 2020, and the absence of the prior year tax impact from the Company's divestiture of its investment in Fabory. Grainger's effective tax rates were 25.0% and 17.3% for the nine months ended September 30, 2021 and 2020, respectively. Excluding the tax benefit related to Fabory, as well as the restructuring, net and business divestiture in the nine months ended September 30, 2020, as noted in the table above, the effective tax rates were 25.0% and 26.0% for the nine months ended September 30, 2021 and 2020, respectively.

Net earnings attributable to W.W. Grainger, Inc. for the nine months ended September 30, 2021 increased $233 million or 44% to $760 million from $527 million for the nine months ended September 30, 2020. Excluding restructuring, net, impairment charges, business divestiture and tax in the nine months ended September 30, 2020,

~~W.W. Grainger, Inc. and Subsidiaries~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

~~as noted in the table above, net earnings increased $80 million, or 12%. The increase in net earnings primarily resulted from higher gross profit dollars partially offset by higher SG&A expenses.~~

~~Segment Analysis~~

~~See Note 10 to the Financial Statements for further detail on segment information.~~

~~High-Touch Solutions N.A.~~

~~Net sales were $7,558 million for the nine months ended September 30, 2021, an increase of $629 million, or 9.1%,~~14% compared to the same period in ~~2020. On a daily basis, net sales increased 9.6% and consisted of the following:~~


			~~Percent Increase~~
~~Volume (including product mix)~~			~~6.7%~~
~~Price and customer mix~~			~~2.3~~
~~Foreign exchange~~			~~0.6~~

~~Total~~			~~9.6%~~

~~Overall, revenue increases for the high-touch solutions businesses were primarily driven by volume and product mix. See~~ ~~Note 3 to the Financial Statements for information related to disaggregated revenue.~~ From a product perspective, the high-touch solutions businesses experienced higher demand for core, non-pandemic product as mix continued to revert to more normalized levels, while demand for pandemic-related products continued to taper.

2021. Gross profit margin ~~decreased 0.7~~of 28.7% increased 0.6 percentage point compared to the same period in ~~2020.~~2021. The ~~decrease was primarily the result of U.S. business inventory adjustments on certain pandemic-related products in the first half of 2021 partially~~ ~~offset by price realization and product mix during the third quarter of 2021.~~

SG&A for the nine months ended September 30, 2021 increased $150 million compared to the same period in 2020, which is primarily driven by higher wages, variable compensation, healthcare costs and marketing expenses.

~~Operating earnings of $975 million for the nine months ended September 30, 2021 increased $42 million, or 5%, from $933 million for the nine months ended September 30, 2020. This~~ increase was driven by ~~higher gross profit dollars partially offset by higher~~ freight efficiencies at Zoro and MonotaRO.

SG&A ~~expenses.~~

~~Endless Assortment~~

~~Net sales were $1,913~~of $289 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021, an increase of $320~~2022 increased $45 million, or ~~20.0%~~19%, compared to the same period in ~~2020.~~2021. The increase was primarily driven by higher occupancy expenses at MonotaRO due to the DC placed into service in the first quarter of 2022 and higher marketing and payroll and benefits expenses compared to the first half of 2021. SG&A leverage decreased by 1.2 percentage points.

Operating earnings of $117 million for the six months ended June 30, 2022 increased $4 million, or 4%, compared to the same period in 2021.

Other

Net sales of $137 million for the six months ended June 30, 2022 increased $8 million, or 6.2%, compared to the same period in 2021. On a daily basis, net sales increased ~~20.7% and consisted of the following:~~


			~~Percent Increase~~
~~Volume/price/mix~~			~~20.5%~~
~~Foreign exchange~~			~~0.2~~

~~Total~~			~~20.7%~~

~~The increase in net sales was driven by continued strong customer acquisition at both Zoro and MonotaRO.~~

~~Gross profit margin increased 0.8 percentage point in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.~~5.3%. The increase was ~~primarily driven by pricing actions and freight efficiency at Zoro.~~

SG&A increased $55 million, or 18%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. SG&A leverage improved 0.4 percentage point compared to the same period in 2020 due to sales ~~revenue outpacing SG&A expenses.~~growth of 12.6%, partially offset by unfavorable foreign exchange of 7.3% due to changes in the exchange rate between the U.S. dollar and the British pound sterling.

Operating ~~earnings~~losses of ~~$172~~$5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 increased $47~~2022 improved $4 million, or 38%, from $125 million for the nine months ended September 30, 2020. The increase was primarily driven by higher sales due to continued strong customer acquisitions, partially offset by higher SG&A expenses.

~~W.W. Grainger, Inc. and Subsidiaries~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

~~Other~~

~~Net sales for other businesses were $192 million for the nine months ended September 30, 2021 a decrease of $142 million, or 42.0%~~42%, compared to the same period in ~~2020. On a daily basis, net sales decreased 42.0% and consisted of the following:~~


			~~Percent (Decrease)/Increase~~
~~Business divestiture~~			~~(47.6)%~~
~~Foreign exchange~~			~~4.8~~
~~Volume/price/mix~~			~~0.8~~
~~Total~~			~~(42.0)%~~

The decrease in net sales was driven by the net impact of the Fabory and China business divestitures, partially offset by volume increases and favorable foreign exchange at the Cromwell business in the U.K.

Gross profit margin increased 2.0 percentage points for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to improved margins at the Cromwell business in the U.K.

SG&A decreased $335 million, or 81%, in the nine months ended September 30, 2021 from $414 million for the same period in 2020 primarily due to the impairment and losses related to the divested Fabory business in the first half of 2020. Excluding restructuring, net, impairment charges and business divestiture in both periods, SG&A would have decreased $54 million, or 41%. See table above for reconciliation of non-GAAP measures.

Operating losses of $17 million for the nine months ended September 30, 2021 improved $297 million from operating losses of $314 million in the comparable period from the prior year. Excluding restructuring, net, impairment charges and business divestiture in both periods, operating losses would have improved $16 million or 48%. See table above for reconciliation of non-GAAP measures.

2021.

2623

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Financial Condition

Grainger believes ~~that~~ its current ~~level~~balances of cash and cash equivalents, marketable securities and availability under its revolving credit facilities will be sufficient to meet its liquidity needs for the next twelve months. ~~Grainger~~The Company expects to continue to invest in its business and return excess cash to shareholders through cash dividends and share repurchases, which it plans to fund through ~~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.

Cash, Cash Equivalents and Liquidity

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, Grainger had~~2021, Grainger's cash and cash equivalents ~~of $328~~were $262 million and ~~$585~~$241 million, respectively. ~~This decrease in cash is primarily due to resuming capital investments and the share repurchase program, which were paused in 2020 due to the COVID-19 pandemic.~~ As of ~~September~~June 30, ~~2021,~~2022, the Company had approximately ~~$1.8~~$1.5 billion in available liquidity.

Cash Flows

Net cash provided by operating activities was ~~$724 million~~$593 million and ~~$787~~$563 million for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020~~respectively. , ~~respectively.~~ The ~~decrease~~increase in cash provided by operating activities iswas primarily ~~the result of the~~due to higher net ~~impacts from the now divested Fabory business~~earnings, partially offset by ~~higher net earnings~~unfavorable working capital and ~~favorable working capital.~~increased tax payments compared to the same period in 2021.

Net cash used in investing activities was ~~$180~~$172 million and ~~$132~~$130 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively. This increase~~2021, respectively. The change in net cash used in investing activities was primarily ~~driven by higher additions~~due to ~~the Company's~~timing of Japanese supply chain ~~infrastructure combined with lower proceeds from sales and redemptions of assets.~~investments.

Net cash used in financing ~~activities~~activities was ~~$790~~$388 million inand $463 million for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~compared to $147 million in the nine months ended September 30, 2020.~~respectively. The ~~change~~decrease in net cash used in financing activities was ~~primarily driven by higher~~due to lower volume of treasury stock repurchases in the ~~current year and prior year borrowings~~first half of ~~long-term debt.~~2022.

Working Capital

Internally generated funds are the primary source of working capital and funds used for growth initiatives and capital expenditures.

~~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 as of ~~September~~June 30, ~~2021,~~2022, was ~~$2,350~~$2,664 million, an increase of ~~$130~~$209 million when compared to ~~$2,220~~$2,455 million as of December 31, ~~2020.~~ 2021. The increase was primarily driven by ~~an increase in~~increased accounts receivable and inventory due to continued sales growth, partially offset by ~~an increase in~~higher accounts payable. ~~At these dates,~~As of June 30, 2022 and December 31, 2021, the ratio of current assets to current liabilities was 2.6 ~~for both September 30, 2021~~ and ~~December 31, 2020.~~2.7, respectively.

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 ~~revolving credit facilities.~~bank borrowings under lines of credit.

Total debt, which is defined as total interest-bearing debt ~~(short-term, current maturities and long-term)~~ and lease liabilities as a percent of total capitalization, was ~~55.1%~~ ~~at September~~52.3% and 56.2% as of June 30, ~~2021,~~2022 and ~~55.6% at~~ December 31, ~~2020.~~2021, respectively.

Grainger receives ratings from two independent credit rating 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 ~~September~~June 30, ~~2021:~~2022:

Corporate

Senior Unsecured

Short-term

Moody's

S&P

A+

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Commitments and Other Contractual Obligations

There ~~were~~were no ~~material~~material changes to the Company’s commitments and other contractual obligations from those disclosed in Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s ~~2020~~2021 Form 10-K.

Critical Accounting Estimates

The ~~methods,~~preparation of Grainger’s Condensed Consolidated Financial Statements and accompanying notes are in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make assumptions and estimates ~~used in applying~~that affect the ~~Company’s accounting policies may require the application of judgments regarding matters that are inherently uncertain.~~reported amounts. The Company considers an accounting policy to be a critical estimate if: ~~(1)~~(i) it involves assumptions that are uncertain when judgment was applied, and ~~(2)~~(ii) 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,~~the assumptions and ~~judgments~~estimates used are reasonable, ~~they are based~~the Company’s management bases its estimates on ~~information available when~~historical experience and on various other assumptions it believes to be reasonable under the ~~estimate was made.~~circumstances.

~~A description~~Note 1 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this Form 10-Q and in Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements of the Company's 2021 Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s Condensed Consolidated Financial Statements.

There were no material changes to the Company's critical accounting estimates ~~is described~~from those disclosed in Part II, Item 7: Management's ~~Discussion~~Discussion and Analysis of Financial Condition and Results of Operations in the Company's ~~2020~~2021 Form 10-K. ~~There have been no material changes to the Company's critical accounting estimates from those described in the Company's 2020 Form 10-K.~~

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

From time to time in this Quarterly Report on Form 10-Q as well as in other written reports, communications and verbal statements, ~~Grainger~~the Company 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~~The Company 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~~the Company’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 and its variants ~~including the Delta variant and any other variants that may emerge~~ (COVID-19), as well as the impact of actions taken or contemplated by government authorities to mitigate the spread of COVID-19 (such as vaccine mandates for certain federal contractors, ~~and anticipated Occupational Health and Safety Administration safety directives,~~ mask mandates, social distancing or other requirements) and to promote economic stability and recovery, on the Company’s businesses, its employees, customers and suppliers, including disruption to ~~Grainger’s~~the Company’s operations resulting from employee illnesses, the development, availability and usage of effective treatment or vaccines, changes in customers’ product needs, the acquisition of excess inventory leading to additional inventory carrying costs and inventory obsolescence, raw material, inventory and labor shortages, continued strain on global supply chains, and diminished transportation availability and efficiency, disruption caused by business responses to the COVID-19 pandemic, including remote 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 remote 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; inflation, higher product costs or other expenses, including operational expenses; the impact of Russia's invasion of Ukraine on the global economy; a major loss of customers; loss or disruption of sources of supply; changes in customer or product mix; increased competitive pricing pressures; failure to enter into or sustain contractual arrangements on a satisfactory basis with group purchasing organizations; failure to develop, manage 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 margin; 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 and marketing, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, compliance or safety, trade and export compliance, general

~~W.W. Grainger, Inc. and Subsidiaries~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS~~

commercial disputes, or privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and ~~standards;~~standards, including new or stricter environmental laws or regulations; government contract matters; disruption or breaches 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; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; geopolitical events, including war or acts of terrorism; other pandemic diseases or viral contagions; natural or human induced disasters, extreme weather and other catastrophes or conditions; effects of climate change; competition for, or failure to attract, retain, train, motivate ~~develop~~ and ~~transition~~develop 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 I, Item 1A: ~~“Risk Factors”~~Risk Factors in the ~~Company’s 2020~~Company's 2021 Form 10-K, as updated from time to time in the Company’s Quarterly Reports on Form 10-Q.

Caution should be taken not to place undue reliance on ~~Grainger’s~~the Company’s forward-looking statements and ~~Grainger~~the Company 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.

2926

W.W. Grainger, Inc. and Subsidiaries

Item 3.3: Quantitative and Qualitative Disclosures About Market Risk

~~As disclosed in Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk in the Company's 2020 Form 10-K,~~ Grainger’s primary market risk exposures include changes in foreign currency exchange and interest rates.

~~For a discussion of current~~There were no material changes to the Company’s market ~~conditions resulting~~risk from those described in Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk in the ~~COVID-19 pandemic, refer to Part I, Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.~~Company's 2021 Form 10-K.

Item 4.4: Controls and Procedures

Disclosure Controls and Procedures

~~Grainger carried out an evaluation,~~The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, ofevaluated the effectiveness of Grainger's disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that Grainger’s disclosure controls and procedures were effective as of the end of the period covered by this report in (i) ensuring that information required to be disclosed by Grainger in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required ~~disclosure.~~disclosures.

Changes in Internal Control Over Financial Reporting

There ~~have been~~were no ~~changes~~changes in Grainger's internal control over financial reporting for the quarter ended ~~September~~June 30, ~~2021,~~2022, that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.

3027

PART II – OTHER INFORMATION

Item 1: Legal Proceedings

For a description of the Company’s legal proceedings, see Note ~~11 - Contingencies, Legal Matters, Commitments and Other Contractual Obligations -~~9 of the Notes to ~~the~~ Condensed Consolidated Financial Statements included ~~under~~in Part I, Item 1: Financial ~~Statements.~~Information of this Form 10-Q.

Item 1A: Risk Factors

~~The Company’s business, results of operations, and financial condition are subject to various risks and uncertainties, including those described~~There have been no material changes from the risk factors previously disclosed in Part I,II, Item 1A: Risk Factors in the ~~Company’s 2020 Form 10-K. The following risk factors are being provided to supplement and update the risk factors set forth in the 2020 Form 10-K.~~

Grainger’s business and operations have been and may continue to be adversely affected by the global outbreak of the Coronavirus (COVID-19 pandemic) and may be adversely affected by other global outbreaks of pandemic disease.

Any global outbreaks of pandemic disease, such as the COVID-19 pandemic, could have a material adverse effect on Grainger’s business, results of operations and financial condition, including liquidity, capital and financing resources.

The COVID-19 pandemic has disrupted and adversely affected Grainger’s business, including its business with customers and suppliers. Grainger has experienced customer disruptions to their ability or willingness to purchase Grainger products, customer delays in making purchasing decisions, shifts in the types and quantities of products purchased and, in some cases, diminished customer loyalty and retention rates. These may continue to persist during and beyond the COVID-19 pandemic. Grainger has also experienced and may continue to experience supply chain disruptions, supplier inability to manufacture or deliver products to Grainger or meet the unprecedented demand for pandemic-related products, rapid shifts in the type, quantity or quality of products sold, and higher product costs including as a result of inflation.

Additional effects from the COVID-19 pandemic on Grainger's business include adverse impacts on transportation, including shipping delays and port disruptions, the availability of products, and labor shortages, which have impacted Grainger’s ability to hire employees to fill all open positions. There is the potential for disruptions or closures of customer and supplier facilities, and the ability of certain customers and suppliers to continue as a going concern. Furthermore, Grainger's ability to collect its accounts receivable or receive product ordered from suppliers, as customers and suppliers face higher liquidity and solvency risks and seek terms that are less favorable to Grainger, may adversely affect the Company’s business. These developments, alone or in combination, could materially adversely affect Grainger’s future sales and results of operations.

The effects of the COVID-19 pandemic on Grainger also include restrictions on Grainger’s employees’ ability to visit customers and many of Grainger’s employees’ ability to work in offices or at facilities, as well as disruptions or temporary closures of the Company’s facilities, including distribution centers, branches, and support buildings. Some actions that Grainger has taken in response to the COVID-19 pandemic, including enabling remote working arrangements, may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage Grainger’s reputation and commercial relationships, disrupt operations, increase costs and/or decrease revenues, and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card association, employees and others. In addition, Grainger’s remote working arrangements have required the Company to make adaptions to its controls and procedures, including to its financial reporting processes, that could impact the design or operating effectiveness of such controls or procedures.~~The COVID-19 pandemic has also resulted in increased variable compensation, wage rates and employee healthcare costs, and Grainger expects these trends to continue.~~

Furthermore, as result of surges in demand and disruptions in supply chains, including in Asia and other locations, the COVID-19 pandemic has resulted in shortages of certain PPE, cleaning supplies and other products, which may materially impact Grainger's ability to obtain or deliver inventory to customers on a timely basis or at all. While Grainger attempts to maintain sufficient inventory levels to meet quickly shifting customer demand patterns and supplier lead time requirements, which may become extended due to the pandemic demand increase, the Company cannot be certain it will be able to accurately predict demand or lead times, which might cause it to be unable to service customer demand or expose it to risks of product shortages. This uncertainty has caused and may continue to cause Grainger to acquire excess inventory, which has led and may lead to additional inventory carrying costs and inventory obsolescence. For example, as discussed in the Company’s Quarterly ReportsCompany's quarterly report on Form 10-Q for the fiscal ~~quarters~~quarter ended March 31, ~~2021~~2022 and ~~June 30, 2021, respectively, the Company had certain pandemic-related~~

~~inventory adjustments~~Part 1, Item 1A: Risk Factors in the ~~U.S. business (part of High-Touch Solutions N.A.) on certain non-core SKUs, which were selling below cost based on then current market-relevant pricing.~~

Pandemic product shortages may also require the Company to attempt to procure products from new suppliers or through brokers with whom it has a limited or no prior relationship. Despite due diligence and product compliance protocols, the products from these sources may not be delivered on a timely basis or at all, or their quality may not be as represented, all of which could cause Grainger to incur costs, including the expense of procuring alternate products or recalling or replacing products in addition to other adverse impacts to Grainger’s business.

Moreover, global outbreaks such as the COVID-19 pandemic have resulted in a widespread health crisis that has adversely affected and could continue to adversely affect the economies of many countries, resulting in a global or regional economic downturn or recession. Any such recession could result in a significant decline in demand for theCompany’s products or limit Grainger’s ability to access capital markets on terms that are attractive or at all, any of which could materially adversely affect the Company’s business, results of operations and financial condition.

The duration and ultimate impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition, including liquidity, capital and financing resources, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be predicted at this time. Such factors and developments may include the geographic spread, severity and duration of the COVID-19 pandemic, including whether there are periods of increased COVID-19 cases, the further spread of the Delta variant or the emergence of other new or more contagious variants that may render vaccines ineffective or less effective, disruption to Grainger’s operations resulting from employee illnesses or any inability to attract, retain or motivate employees, the development, availability and administration of effective treatment or vaccines and the willingness of individuals to receive a vaccine or otherwise comply with various mandates, the extent and duration of the impact on the U.S. or global economy, including the pace and extent of recovery when the pandemic subsides, and the actions that have been or may be taken by various governmental authorities in response to the outbreak.

The Company is a federal contractor and part of its workforce will be covered by vaccine mandates expected to be imposed by Executive Order, while other members of its workforce are likely to be covered by anticipated Occupational Health and Safety Administration safety directives for vaccination or testing. Complying with these requirements could disrupt the workforce and operations and impose additional compliance and other costs. Other requirements, including health and safety measures, such as mandatory facility closures of non-essential businesses, stay in shelter health orders or similar restrictions, social distancing mandates and/or travel bans, import and export restrictions, pricing mandates, including disaster or emergency declaration pricing statutes, and mandatory directives that certain products be allocated or provided to certain customers, could also disrupt the Company’s business and impose costs. If the Company is unable to respond to and manage the impact of these mandates, requirement or events, the Company’s business and results of operations may continue to be adversely affected.

~~Cybersecurity incidents, including breaches of information systems security, could damage Grainger’s reputation, disrupt operations, increase costs and/or decrease revenues.~~

Through Grainger’s sales and eCommerce channels, Grainger collects and stores personally identifiable, confidential, proprietary and other information from customers so that they may, among other things, purchase products or services, enroll in promotional programs, register on Grainger’s websites or otherwise communicate or interact with the Company. Moreover, Grainger’s operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to its business, customers, suppliers and employees, and other sensitive matters.

Cyber threats are rapidly evolving and those threats and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated. Each year, cyber-attackers make numerous attempts to access the information stored in the Company’s information systems. If successful, these attacks may expose Grainger to risk of loss or misuse of proprietary or confidential information or disruptions of business operations.

Grainger's IT infrastructure also includes products and services provided by suppliers, vendors and other third parties, and these providers can experience breaches of their systems and products that impact the security of systems and proprietary or confidential information. Moreover, from time to time, Grainger may share information with these third parties in connection with the products and services they provide to the business. While Grainger requires assurances that these third parties will protect confidential information, there is a risk that the confidentiality of data held or accessed by them may be compromised. If successful, those attempting to penetrate Grainger’s or its vendors’ information systems may misappropriate intellectual property or personally identifiable, credit card,

confidential, proprietary or other sensitive customer, supplier, employee or business information, or cause systems disruption. While many of Grainger's agreements with these third parties include indemnification provisions, the Company may not be able to recover sufficiently, or at all, under such provisions to adequately offset any losses it may incur.

Moreover, the Company may face the threat to its computer systems of unauthorized access, computer hackers, computer viruses, malicious code, ransomware, phishing, organized cyber-attacks and other security problems and system disruptions. Such tactics may also seek to cause payments due to or from the Company to be misdirected to fraudulent accounts, which may not be recoverable by the Company.

In addition, a Grainger employee, contractor or other third party with whom Grainger does business may attempt to circumvent security measures or otherwise access Grainger’s information systems in order to obtain such information or inadvertently cause a breach involving such information. Further, Grainger’s systems are integrated with customer systems in certain cases, and a breach of the Company’s information systems could be used to gain illicit access to a customer’s systems and information.

Grainger has been subject to unauthorized accesses of certain supplier and customer information in the past, which it deemed immaterial to its business and operations, and may be subject to other unauthorized accesses of its systems in the future. There can be no assurance that any future unauthorized access to or breach of Grainger’s information systems will not be material to Grainger’s business, operations or financial condition.

Grainger maintains information security staff, policies and procedures for managing risk to its information security systems, conducts annual employee awareness training of cybersecurity threats and routinely utilizes consultants to assist in evaluating the effectiveness of the security of its IT systems. While Grainger has instituted these and other safeguards for the protection of information, because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, Grainger may be unable to anticipate these techniques or implement adequate preventative measures. Any breach of Grainger’s security measures or any breach, error or malfeasance of those of its third party service providers could cause Grainger to incur significant costs to protect any customers, suppliers, employees, and other parties whose personal data is compromised and to make changes to its information systems and administrative processes to address security issues. In addition, although Grainger maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber and information security risks, such insurance coverage may be insufficient to cover all losses.

Grainger continuously evaluates the need to upgrade and/or replace its systems and network infrastructure to protect its computing environment, to stay current on vendor supported products and to improve the efficiency of its systems and for other business reasons. The implementation of new systems and IT could adversely impact its operations by imposing substantial capital expenditures, demands on management time and risks of delays or difficulties in transitioning to new systems. In addition, the Company's systems implementations may not result in productivity improvements at the levels anticipated. Systems implementation disruption and any other IT disruption, if not anticipated and appropriately mitigated, could have an adverse effect on its business.

Loss of customer, supplier, employee or intellectual property or other business information or failure to comply with data privacy and security laws could disrupt operations, damage Grainger’s reputation and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card associations, employees and others, any of which could have a material adverse effect on Grainger, its financial condition and results of operations. In the past, Grainger has experienced certain cybersecurity incidents. In each instance, Grainger provided notifications and adopted remedial measures. While these incidents have not been deemed to be material to Grainger, there can be no assurance that a future breach or incident would not be material to Grainger’s operations and financial condition.

2021 Form 10-K.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities – ~~Third~~Second Quarter 2022

Period
Total Number of Shares Purchased (A) (D)
Average Price Paid per Share (B)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (C)
Maximum Number of
Shares That May Yet be Purchased Under the
Plans or Programs
July 1 – July 31 80,047 $453.15 79,944 4,742,620
Aug. 1 – Aug. 31 274,451 $437.41 274,451 4,468,169
Sept. 1 – Sept. 30 208,265 $413.23 207,688 4,260,481
Total 562,763 562,083


Period	Total Number of Shares Purchased (A) (B)	Average Price Paid per Share (C)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (D)	Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs
April 1 – April 30	78,309	$510.71	78,309	3,656,983
May 1 – May 31	103,261	$474.04	103,261	3,553,722
June 1 – June 30	60,354	$468.97	60,280	3,493,442
Total	241,924		241,850

(A)There were no shares withheld to satisfy tax withholding obligations.

(B)The difference of 74 shares between the Total Number of Shares Purchased and the Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs represents shares purchased by the administrator and record keeper of the W.W. Grainger, Inc. Retirement Savings Plan for the benefit of the employees who participate in the plan.

(C)Average price paid per share excludes commissions of $0.01 per share paid.

~~(C)~~(D)Purchases were made pursuant to a share repurchase program approved by Grainger's Board of Directors and announced April 28, 2021 (2021 Program). The 2021 Program authorized the repurchase of up to 5 million shares with no expiration date.

~~(D)~~
~~The difference of 680 shares between the Total Number of Shares Purchased and the Total Number of~~

~~Shares Purchased as Part of Publicly Announced Plans or Programs represents shares purchased by the~~

~~administrator and record keeper of the W.W. Grainger, Inc. Retirement Savings Plan for the benefit~~

~~of the employees who participate in the plan.~~

W.W. Grainger, Inc. and Subsidiaries

Item 6: Exhibits

~~A list of exhibits filed with this report on Form 10-Q is provided in the Exhibit Index on page 36 of this report.~~

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~


			~~W.W. GRAINGER, INC.~~
~~Date:~~	~~October 29, 2021~~	~~By:~~	~~/s/ Deidra C. Merriwether~~
			~~Deidra C. Merriwether~~
			~~Senior Vice President~~
			~~and Chief Financial Officer~~
			~~(Principal Financial Officer)~~
~~Date:~~	~~October 29, 2021~~	~~By:~~	~~/s/ Laurie R. Thomson~~
			~~Laurie R. Thomson~~
			~~Vice President and Controller~~
			~~(Principal Accounting Officer)~~

~~EXHIBIT INDEX~~


EXHIBIT NO.						DESCRIPTION
10.1						2022 Form of W.W. Grainger, Inc. 2022 Incentive Plan Restricted Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its executive officers.*
10.2						2022 Form of W.W. Grainger, Inc. 2022 Incentive Plan Performance Stock Unit Award Agreement between W.W. Grainger, Inc. and certain of its executive officers.*
10.3						W.W. Grainger, Inc. 2022 Incentive Plan, incorporated by reference to Appendix C of the Company's Definitive Proxy Statement on Schedule 14A filed on March 17, 2022.*
31.1						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32						Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema Document.
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

(*) Management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			W.W. GRAINGER, INC.
Date:	July 29, 2022	By:	/s/ Deidra C. Merriwether
			Deidra C. Merriwether
			Senior Vice President
			and Chief Financial Officer
			(Principal Financial Officer)
Date:	July 29, 2022	By:	/s/ Laurie R. Thomson
			Laurie R. Thomson
			Vice President and Controller
			(Principal Accounting Officer)


	High-Touch Solutions N.A		Endless Assortment		Other		Total
Balance at January 1, 2020	$	318	$	52	$	59	$	429
Acquisition	—		15		—		15
Impairment	—		—		(58)		(58)
Translation	3		3		(1)		5
Balance at December 31, 2020	321		70		—		391


Translation	—		(4)		—		(4)
Balance at September 30, 2021	$	321	$	66	$	—	$	387


	As of September 30, 2021				As of December 31, 2020
	Carrying Value		Fair Value(4)		Carrying Value		Fair Value(4)
4.60% senior notes due 2045(1)	$	1,000	$	1,298	$	1,000	$	1,343
3.75% senior notes due 2046(1)	400		463		400		479
4.20% senior notes due 2047(1)	400		497		400		514
1.85% senior notes due 2025(2)	500		515		500		526



Japanese Yen term loan(3)	81		81		87		87

Other	14		14		34		34
Subtotal	2,395		2,868		2,421		2,983
Less: Current maturities	—		—		(8)		(8)
Debt issuance costs and discounts, net of amortization	(23)		(23)		(24)		(24)
Long-term debt (less current maturities)	$	2,372	$	2,845	$	2,389	$	2,951


	Three Months Ended September 30,
					Percent Increase/(Decrease)		As a Percent of Net Sales
	2021		2020				2021		2020
Net sales	$	3,372	$	3,018	11.7	%	100.0	%	100.0	%
Cost of goods sold	2,122		1,944		9.2	%	62.9	%	64.4	%
Gross profit	1,250		1,074		16.3	%	37.1	%	35.6	%
Selling, general and administrative expenses (SG&A)	812		694		16.7	%	24.1	%	23.0	%
Operating earnings	438		380		15.6	%	13.0	%	12.6	%
Other expense - net	16		18		(8.2)	%	0.5	%	0.6	%
Income tax provision	107		106		1.4	%	3.2	%	3.5	%
Net earnings	315		256		23.0	%	9.3	%	8.5	%
Noncontrolling interest	18		16		13.3	%	0.5	%	0.5	%
Net earnings attributable to W.W. Grainger, Inc.	$	297	$	240	23.7	%	8.8	%	8.0	%


	2021		2020		%
Operating earnings reported	$	438	$	380	16	%
Total restructuring - net and business divestiture	—		(6)
Operating earnings adjusted	$	438	$	374	17	%


Period	Total Number of Shares Purchased (A) (D)	Average Price Paid per Share (B)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (C)	Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs
July 1 – July 31	80,047	$453.15	79,944	4,742,620
Aug. 1 – Aug. 31	274,451	$437.41	274,451	4,468,169
Sept. 1 – Sept. 30	208,265	$413.23	207,688	4,260,481
Total	562,763		562,083