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 30, 2022

OR

☐ 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 50,529,263 shares of the Company’s Common Stock outstanding as of October 21, 2022.

1

	TABLE OF CONTENTS
		Page
	PART I - FINANCIAL INFORMATION
Item 1:	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Earnings      for the Three and Nine Months Ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Comprehensive Earnings      for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Balance Sheets     as of September 30, 2022 and December 31, 2021	5
	Condensed Consolidated Statements of Cash Flows     for the Nine Months Ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Shareholders' Equity     for the Three and Nine Months Ended September 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	18
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4:	Controls and Procedures	29
	PART II - OTHER INFORMATION
Item 1:	Legal Proceedings	30
Item 1A:	Risk Factors	30
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 5:	Other Information	34
Item 6:	Exhibits	35
Signatures		36

2

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
	September 30,				September 30,
	2022		2021		2022		2021
Net sales	$	3,942	$	3,372	$	11,426	$	9,663
Cost of goods sold	2,423		2,122		7,083		6,196
Gross profit	1,519		1,250		4,343		3,467
Selling, general and administrative expenses	916		812		2,672		2,337
Operating earnings	603		438		1,671		1,130
Other (income) expense:
Interest expense – net	25		22		70		65
Other – net	(9)		(6)		(20)		(19)
Total other expense – net	16		16		50		46
Earnings before income taxes	587		422		1,621		1,084
Income tax provision	145		107		405		271
Net earnings	442		315		1,216		813
Less net earnings attributable to noncontrolling interest	16		18		53		53
Net earnings attributable to W.W. Grainger, Inc.	$	426	$	297	$	1,163	$	760
Earnings per share:
Basic	$	8.31	$	5.68	$	22.64	$	14.48
Diluted	$	8.27	$	5.65	$	22.52	$	14.40
Weighted average number of shares outstanding:
Basic	50.8		51.8		51.0		52.1
Diluted	51.1		52.1		51.3		52.4

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

3

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,
	2022		2021		2022		2021
Net earnings	$	442	$	315	$	1,216	813
Other comprehensive earnings (losses):
Foreign currency translation adjustments – net of reclassification to earnings	(71)		(17)		(180)		(43)
Postretirement benefit plan losses and other – net of tax benefit of $2, $1, $4, and $3, respectively	(3)		(4)		(10)		(9)
Total other comprehensive earnings (losses)	(74)		(21)		(190)		(52)
Comprehensive earnings – net of tax	368		294		1,026		761
Less comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings	16		18		53		53
Foreign currency translation adjustments	(14)		(1)		(61)		(19)
Total comprehensive earnings (losses) attributable to noncontrolling interest	2		17		(8)		34
Comprehensive earnings attributable to W.W. Grainger, Inc.	$	366	$	277	$	1,034	$	727

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

4

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) September 30, 2022		December 31, 2021
Current assets
Cash and cash equivalents	$	315	$	241
Accounts receivable (less allowances for credit losses of $36 and $30, respectively)	2,158		1,754
Inventories – net	2,071		1,870
Prepaid expenses and other current assets	142		146
Total current assets	4,686		4,011
Property, buildings and equipment – net	1,409		1,424
Goodwill	363		384
Intangibles – net	222		238
Operating lease right-of-use	360		393
Other assets	161		142
Total assets	$	7,201	$	6,592
Liabilities and shareholders' equity
Current liabilities
Current maturities	$	16	$	—
Trade accounts payable	1,038		816
Accrued compensation and benefits	307		319
Operating lease liability	67		66
Accrued expenses	332		290
Income taxes payable	25		37
Total current liabilities	1,785		1,528
Long-term debt	2,294		2,362
Long-term operating lease liability	305		334
Deferred income taxes and tax uncertainties	135		121
Other non-current liabilities	120		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	1,299		1,270
Retained earnings	10,402		9,500
Accumulated other comprehensive losses	(225)		(96)
Treasury stock, at cost – 59,028,249 and 58,439,014 shares, respectively	(9,223)		(8,855)
Total W.W. Grainger, Inc. shareholders’ equity	2,308		1,874
Noncontrolling interest	254		286
Total shareholders' equity	2,562		2,160
Total liabilities and shareholders' equity	$	7,201	$	6,592

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

5

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of dollars)

(Unaudited)

	Nine Months Ended
	September 30,
	2022		2021
Cash flows from operating activities:
Net earnings	$	1,216	$	813
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for credit losses	13		12
Deferred income taxes and tax uncertainties	20		(7)
Depreciation and amortization	159		137
Net losses (gains) from sale or redemption of assets	1		(3)
Stock-based compensation	38		33
Change in operating assets and liabilities:
Accounts receivable	(487)		(298)
Inventories	(253)		(64)
Prepaid expenses and other assets	(39)		(1)
Trade accounts payable	261		167
Accrued liabilities	51		(13)
Income taxes – net	8		(42)
Other non-current liabilities	(15)		(10)
Net cash provided by operating activities	973		724
Cash flows from investing activities:
Additions to property, buildings, equipment and intangibles	(208)		(197)
Proceeds from sale or redemption of assets	7		17
Other – net	(11)		—
Net cash used in investing activities	(212)		(180)
Cash flows from financing activities:
Borrowings under lines of credit	1		—
Payments of long-term debt	—		(8)
Proceeds from stock options exercised	21		31
Payments for employee taxes withheld from stock awards	(22)		(29)
Purchases of treasury stock	(383)		(525)
Cash dividends paid	(285)		(261)
Other – net	—		2
Net cash used in financing activities	(668)		(790)
Exchange rate effect on cash and cash equivalents	(19)		(11)
Net change in cash and cash equivalents	74		(257)
Cash and cash equivalents at beginning of year	241		585
Cash and cash equivalents at end of period	$	315	$	328

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

6

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
Stock-based compensation	$	—	$	8	$	—	$	—	$	1	$	—	$	9
Purchases of treasury stock	—		—		—		—		(242)		—		(242)
Net earnings	—		—		297		—		—		18		315
Other comprehensive earnings (losses)	—		—		—		(20)		—		(1)		(21)
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

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

7

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
Stock-based compensation	—		12		—		—		3		—		15
Purchases of treasury stock	—		—		—		—		(184)		—		(184)
Net earnings	—		—		426		—		—		16		442
Other comprehensive earnings (losses)	—		—		—		(60)		—		(14)		(74)
Cash dividends paid ($1.72 per share)	—		—		(90)		—		—		(12)		(102)
Balance at September 30, 2022	$	55	$	1,299	$	10,402	$	(225)	$	(9,223)	$	254	$	2,562

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

8

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 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. In October 2022, the FASB amended Topic 848, updating the sunset date from December 31, 2022 to December 31, 2024. The Company adopted this ASU on July 1, 2022 on a prospective basis and it did not have a material impact on the Consolidated Financial Statements. For further discussion on the credit agreement modifications made to the revolving credit facility, see Note 5.

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.

9

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 nine months ended September 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 September 30,
	2022						2021
	High-Touch Solutions N.A.		Endless Assortment		Total Company (2)		High-Touch Solutions N.A.		Endless Assortment		Total Company (2)
Contractors	8	%	14	%	9	%	9	%	15	%	10	%
Commercial	10	%	15	%	11	%	9	%	15	%	10	%
Government	17	%	2	%	14	%	18	%	3	%	15	%
Healthcare	6	%	2	%	5	%	7	%	2	%	6	%
Manufacturing	32	%	30	%	32	%	29	%	30	%	29	%
Retail/Wholesale	8	%	15	%	9	%	9	%	10	%	10	%
Transportation	6	%	3	%	6	%	5	%	3	%	5	%
Other (1)	13	%	19	%	14	%	14	%	22	%	15	%
Total net sales	100	%	100	%	100	%	100	%	100	%	100	%
Percent of total company revenue	80	%	18	%	100	%	79	%	19	%	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 September 30, 2022 and 2021.

10

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

	Nine Months Ended September 30,
	2022						2021
	High-Touch Solutions N.A.		Endless Assortment		Total Company (2)		High-Touch Solutions N.A.		Endless Assortment		Total Company (2)
Contractors	9	%	15	%	10	%	9	%	15	%	10	%
Commercial	10	%	15	%	11	%	9	%	15	%	10	%
Government	17	%	3	%	14	%	19	%	3	%	15	%
Healthcare	6	%	2	%	5	%	7	%	2	%	6	%
Manufacturing	31	%	30	%	31	%	30	%	29	%	29	%
Retail/Wholesale	9	%	15	%	10	%	9	%	10	%	10	%
Transportation	6	%	3	%	5	%	5	%	3	%	5	%
Other (1)	12	%	17	%	14	%	12	%	23	%	15	%
Total net sales	100	%	100	%	100	%	100	%	100	%	100	%
Percent of total company revenue	80	%	18	%	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 nine months ended September 30, 2022 and 2021.

Total accrued sales incentives were approximately $96 million and $73 million as of September 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 September 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
	September 30, 2022		December 31, 2021
Land	$	329	$	329
Building, structures and improvements	1,403		1,431
Furniture, fixtures, machinery and equipment	1,630		1,567
Property, buildings and equipment	$	3,362	$	3,327
Less accumulated depreciation and amortization	1,953		1,903
Property, buildings and equipment – net	$	1,409	$	1,424

11

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 nine months ended September 30, 2022. 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, 2021	$	321	$	70	$	—	$	391
Translation	—		(7)		—		(7)
Balance at December 31, 2021	321		63		—		384
Translation	(10)		(11)		—		(21)
Balance at September 30, 2022	$	311	$	52	$	—	$	363

    

The cumulative goodwill impairments as of September 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 nine months ended September 30, 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, 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	$	215	$	177	$	38	$	221	$	176	$	45
Trademarks, trade names and other	14.3 years	33		24		9		36		24		12
Non-amortized trade names and other	Indefinite	20		—		20		25		—		25
Capitalized software	4.2 years	554		399		155		525		369		156
Total intangible assets	7.0 years	$	822	$	600	$	222	$	807	$	569	$	238

12

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 5 - DEBT

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

	As of
	September 30, 2022				December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
4.60% senior notes due 2045	$	1,000	$	899	$	1,000	$	1,284
1.85% senior notes due 2025	500		468		500		509
4.20% senior notes due 2047	400		335		400		492
3.75% senior notes due 2046	400		314		400		459
Japanese yen term loan	62		62		78		78
Other	(31)		(31)		7		7
Subtotal	2,331		2,047		2,385		2,829
Less current maturities	(16)		(16)		—		—
Debt issuance costs and discounts – net of amortization	(21)		(21)		(23)		(23)
Long-term debt	$	2,294	$	2,010	$	2,362	$	2,806

Revolving Credit Facility

In August 2022, the Company entered into a First Amendment (the Amendment) to its existing five-year unsecured credit agreement originally entered into in February 2020. The Amendment changes the benchmark rate for borrowings denominated in U.S. and foreign currencies from LIBOR to certain alternative benchmark rates. This includes benchmark rates based on the Euro Interbank Offered Rate (EURIBOR) for borrowings denominated in Euros, the Canadian Dollar Offer Rate (CDOR) for borrowings denominated in Canadian dollars, the Sterling Overnight Index Average (SONIA) for borrowings denominated in sterling and Secured Overnight Financing Rate (SOFR) for borrowings denominated in U.S. dollars. The Amendment also updates certain other provisions regarding successor interest rates to LIBOR.

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 September 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 September 30, 2022 and December 31, 2021, the carrying amount of the term loan, including current maturities due within one year, was $62 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%.

13

W.W. Grainger, Inc. and Subsidiaries