gww-20220630

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 June 30, 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)

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 50,871,195 shares of the Company’s Common Stock outstanding as of 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 Six Months Ended June 30, 2022 and 2021	3
	Condensed Consolidated Statements of Comprehensive Earnings for the Three and Six Months Ended June 30, 2022 and 2021	4
	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	6
	Condensed Consolidated Statements of Shareholders' Equity for the Three and Six Months Ended June 30, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4:	Controls and Procedures	27

	PART II - OTHER INFORMATION

Item 1:	Legal Proceedings	28
Item 1A:	Risk Factors	28
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6:	Exhibits	29
Signatures		30

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				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net sales	$	3,837	$	3,207	$	7,484	$	6,291
Cost of goods sold	2,396		2,083		4,660		4,074
Gross profit	1,441		1,124		2,824		2,217
Selling, general and administrative expenses	907		790		1,756		1,525
Operating earnings	534		334		1,068		692
Other (income) expense:
Interest expense – net	22		22		45		43
Other – net	(5)		(7)		(11)		(13)
Total other expense – net	17		15		34		30
Earnings before income taxes	517		319		1,034		662
Income tax provision	128		76		260		164
Net earnings	389		243		774		498
Less net earnings attributable to noncontrolling interest	18		18		37		35
Net earnings attributable to W.W. Grainger, Inc.	$	371	$	225	$	737	$	463
Earnings per share:
Basic	$	7.22	$	4.30	$	14.33	$	8.80
Diluted	$	7.19	$	4.27	$	14.26	$	8.76
Weighted average number of shares outstanding:
Basic	51.0		52.2		51.1		52.2
Diluted	51.3		52.5		51.4		52.5

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				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
Assets	(Unaudited) June 30, 2022		December 31, 2021
Current assets
Cash and cash equivalents	$	262	$	241
Accounts receivable (less allowances for credit losses of $34 and $30, respectively)	2,099		1,754
Inventories – net	1,990		1,870
Prepaid expenses and other current assets	162		146


Total current assets	4,513		4,011
Property, buildings and equipment – net	1,438		1,424

Goodwill	374		384
Intangibles – net	227		238
Operating lease right-of-use	337		393
Other assets	160		142
Total assets	$	7,049	$	6,592

Liabilities and shareholders' equity
Current liabilities

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

Operating lease liability	68		66
Accrued expenses	299		290
Income taxes payable	30		37
Total current liabilities	1,750		1,528
Long-term debt (less current maturities)	2,309		2,362
Long-term operating lease liability	282		334
Deferred income taxes and tax uncertainties	131		121
Other non-current liabilities	112		87
Shareholders' equity
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; 109,659,219 shares issued	55		55
Additional contributed capital	1,287		1,270
Retained earnings	10,066		9,500
Accumulated other comprehensive losses	(165)		(96)
Treasury stock, at cost – 58,709,727 and 58,439,014 shares, respectively	(9,042)		(8,855)
Total W.W. Grainger, Inc. shareholders’ equity	2,201		1,874
Noncontrolling interest	264		286
Total shareholders' equity	2,465		2,160
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)


	Six Months Ended
	June 30,
	2022		2021
Cash flows from operating activities:
Net earnings	$	774	$	498
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for credit losses	8		8
Deferred income taxes and tax uncertainties	15		(8)
Depreciation and amortization	107		92

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


Change in operating assets and liabilities:
Accounts receivable	(398)		(180)
Inventories	(149)		22
Prepaid expenses and other assets	(50)		(8)
Trade accounts payable	263		178
Accrued liabilities	(8)		(7)
Income taxes – net	10		(50)
Other non-current liabilities	(8)		(3)

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


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




Payments of long-term debt	—		(8)
Proceeds from stock options exercised	15		30
Payments for employee taxes withheld from stock awards	(19)		(28)
Purchases of treasury stock	(199)		(283)
Cash dividends paid	(183)		(176)
Other – net	(2)		2
Net cash used in financing activities	(388)		(463)
Exchange rate effect on cash and cash equivalents	(12)		(8)
Net change in cash and cash equivalents	21		(38)
Cash and cash equivalents at beginning of year	241		585
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
Balance at January 1, 2021	$	55	$	1,239	$	8,779	$	(61)	$	(8,184)	$	265	$	2,093
Stock-based compensation	—		9		—		—		5		—		14
Purchases of treasury stock	—		—		—		—		(175)		—		(175)
Net earnings	—		—		238		—		—		17		255
Other comprehensive earnings (losses)	—		—		—		(20)		—		(18)		(38)

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)	—		—		(84)		—		—		(11)		(95)
Balance at June 30, 2021	$	55	$	1,247	$	9,089	$	(74)	$	(8,449)	$	273	$	2,141

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
Balance at January 1, 2022	$	55	$	1,270	$	9,500	$	(96)	$	(8,855)	$	286	$	2,160
Stock-based compensation	—		10		—		—		3		—		13
Purchases of treasury stock	—		—		—		—		(75)		—		(75)
Net earnings	—		—		366		—		—		19		385
Other comprehensive earnings (losses)	—		—		—		(13)		—		(16)		(29)


Cash dividends paid ($1.62 per share)	—		—		(84)		—		—		—		(84)
Balance at March 31, 2022	$	55	$	1,280	$	9,782	$	(109)	$	(8,927)	$	289	$	2,370
Stock-based compensation	—		7		—		—		2		1		10
Purchases of treasury stock	—		—		—		—		(117)		(1)		(118)
Net earnings	—		—		371		—		—		18		389
Other comprehensive earnings (losses)	—		—		—		(56)		—		(31)		(87)

Cash dividends paid ($1.72 per share)	—		—		(87)		—		—		(12)		(99)
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 - SUMMARY OF 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 “Grainger” or “Company” mean W.W. Grainger, Inc. and its subsidiaries, except where the context makes it clear that the reference is only to W.W. Grainger, Inc. itself and not its subsidiaries.

Basis of Presentation

The Company's Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and the 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 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 and accompanying notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2022 (2021 Form 10-K).

There were no material changes to the Company’s significant accounting policies from those disclosed in Note 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.

New Accounting Standards

Accounting Pronouncements Recently Adopted

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update provides increased transparency of government assistance, including the disclosure of the types of assistance an entity receives, an entity's method of accounting for government assistance and the effect of the assistance on an entity's financial statements. The guidance is effective for annual periods beginning after December 15, 2021 and should be applied prospectively or retrospectively. Early adoption is permitted. The Company adopted this ASU on January 1, 2022 on a prospective basis and it did not have a material impact on the Consolidated Financial Statements and related disclosures.

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 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 or evaluated on or before December 31, 2022. The Company 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 2 - REVENUE

Company revenue is primarily comprised of MRO product sales and related activities, such as freight and services. Total service revenue accounted for approximately 1% of the Company's revenue for both the three and six months ended June 30, 2022 and 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 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 two-thirds of revenue is derived from customer contracts whereas in the Endless Assortment segment, a majority of revenue is derived from non-contractual purchases.

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


	Three Months Ended June 30,
	2022						2021
	High-Touch Solutions N.A.		Endless Assortment		Total Company (2)		High-Touch Solutions N.A.		Endless Assortment		Total Company (2)
Contractors	11	%	15	%	11	%	9	%	15	%	10	%
Commercial	10	%	16	%	11	%	9	%	14	%	10	%
Government	17	%	2	%	14	%	19	%	3	%	15	%
Healthcare	6	%	2	%	5	%	7	%	2	%	6	%
Manufacturing	30	%	29	%	30	%	29	%	30	%	30	%
Retail/Wholesale	9	%	15	%	10	%	10	%	10	%	10	%
Transportation	5	%	3	%	5	%	5	%	3	%	5	%
Other (1)	12	%	18	%	14	%	12	%	23	%	14	%
Total net sales	100	%	100	%	100	%	100	%	100	%	100	%
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.
(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.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Six Months Ended June 30,
	2022						2021
	High-Touch Solutions N.A.		Endless Assortment		Total Company (2)		High-Touch Solutions N.A.		Endless Assortment		Total Company (2)
Contractors	10	%	15	%	11	%	9	%	15	%	10	%
Commercial	10	%	15	%	10	%	9	%	15	%	10	%
Government	17	%	3	%	14	%	19	%	3	%	15	%
Healthcare	7	%	2	%	5	%	7	%	2	%	6	%
Manufacturing	31	%	29	%	31	%	30	%	29	%	30	%
Retail/Wholesale	9	%	15	%	10	%	10	%	10	%	10	%
Transportation	5	%	3	%	6	%	5	%	3	%	5	%
Other (1)	11	%	18	%	13	%	11	%	23	%	14	%
Total net sales	100	%	100	%	100	%	100	%	100	%	100	%
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.
(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.

Total accrued sales incentives were approximately $92 million and $73 million as of June 30, 2022 and December 31, 2021, and are reported as part of Accrued expenses.

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

NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT

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


	As of
	June 30, 2022		December 31, 2021
Land	$	329	$	329
Building, structures and improvements	1,418		1,431
Furniture, fixtures, machinery and equipment	1,631		1,567
Property, buildings and equipment	$	3,378	$	3,327
Less accumulated depreciation and amortization	1,940		1,903
Property, buildings and equipment – net	$	1,438	$	1,424

NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS

The Company 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 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, 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 June 30, 2022, were $137 million and consisted of $32 million within High-Touch Solutions N.A. and $105 million in Other.

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

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


		As of
		June 30, 2022						December 31, 2021
	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	11.7 years	$	217	$	176	$	41	$	221	$	176	$	45
Trademarks, trade names and other	14.2 years	35		24		11		36		24		12
Non-amortized trade names and other	Indefinite	21		—		21		25		—		25
Capitalized software	4.2 years	545		391		154		525		369		156
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 5 - DEBT

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


	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

In the years 2015-2020, Grainger issued $2.3 billion in unsecured long-term debt (Senior Notes) primarily to provide flexibility in funding general working capital needs, share repurchases and long-term cash requirements. The Senior Notes require no principal payments until maturity and interest is paid semi-annually.

The Company incurred debt issuance costs related to its Senior Notes of approximately $29 million, representing underwriting fees and other expenses, that were recorded as a contra-liability within Long-term debt and are being amortized over the term of the Senior Notes using the straight-line method to Interest expense – net.

The Company uses interest rate swaps to manage the risks associated with 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 table above. For further discussion on the Company's hedge accounting policies and derivative instruments, see Note 6.

Term Loan

In August 2020, MonotaRO entered into a ¥9 billion 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 term loan matures in 2024, payable over four equal semi-annual principal installments in 2023 and 2024 and bears an average interest of 0.05%.

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.

For further information on the Company’s debt instruments, see Note 6 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.

NOTE 6 - DERIVATIVE INSTRUMENTS

The Company maintains various agreements with bank counterparties that permit the Company to enter into “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 on 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 borrowings. The Company did not enter into these agreements for trading or speculative purposes.

Cash 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 June 30, 2022 and December 31, 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 hedges in Interest expense – net on the Condensed Consolidated Statement of Earnings for the three and six months ended June 30, 2022 and 2021, respectively, is as follows (in millions of dollars):


	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 June 30, 2022 and December 31, 2021, respectively, were as follows (in millions of dollars):


		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 swaps (Long-term debt), including the cumulative amount of fair value hedging adjustments, as of June 30, 2022 and December 31, 2021 totaled $477 million and $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. No adjustments

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

were required during the current period to reflect the counterparty’s credit risk or the Company’s own nonperformance risk.

NOTE 7 - DIVIDEND

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

NOTE 8 - SEGMENT INFORMATION

Grainger's two 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 June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	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.	$	3,053	$	475	$	2,498	$	282	$	5,931	$	956	$	4,895	$	588
Endless Assortment	719		62		645		58