10-Q 1 gww-20220930.htm 10-Q gww-20220930
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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 ClassTrading SymbolName of Each Exchange on Which Registered
Common StockGWWNew 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
 
Condensed Consolidated Statements of Comprehensive Earnings 
    for the Three and Nine Months Ended September 30, 2022 and 2021
 
Condensed Consolidated Balance Sheets
    as of September 30, 2022 and December 31, 2021
 
Condensed Consolidated Statements of Cash Flows
    for the Nine Months Ended September 30, 2022 and 2021
Condensed Consolidated Statements of Shareholders' Equity
    for the Three and Nine Months Ended September 30, 2022 and 2021
 Notes to Condensed Consolidated Financial Statements
Item 2:Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3:Quantitative and Qualitative Disclosures About Market Risk
Item 4:Controls and Procedures
PART II - OTHER INFORMATION

   
Item 1:Legal Proceedings
Item 1A:Risk Factors
Item 2:Unregistered Sales of Equity Securities and Use of Proceeds
Item 5:Other Information
Item 6:Exhibits
Signatures 
  

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 EndedNine Months Ended
 September 30,September 30,
 2022202120222021
Net sales$3,942 $3,372 $11,426 $9,663 
Cost of goods sold2,423 2,122 7,083 6,196 
Gross profit1,519 1,250 4,343 3,467 
Selling, general and administrative expenses916 812 2,672 2,337 
Operating earnings603 438 1,671 1,130 
Other (income) expense:  
Interest expense – net25 22 70 65 
Other – net(9)(6)(20)(19)
Total other expense – net16 16 50 46 
Earnings before income taxes
587 422 1,621 1,084 
Income tax provision145 107 405 271 
Net earnings442 315 1,216 813 
Less net earnings attributable to noncontrolling interest16 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:    
Basic50.8 51.8 51.0 52.1 
Diluted51.1 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 EndedNine Months Ended
September 30,September 30,
 2022202120222021
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 tax368 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 interest2 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, 2022December 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 – net2,071 1,870 
Prepaid expenses and other current assets142 146 
Total current assets4,686 4,011 
Property, buildings and equipment – net1,409 1,424 
Goodwill363 384 
Intangibles – net222 238 
Operating lease right-of-use360 393 
Other assets161 142 
Total assets$7,201 $6,592 
Liabilities and shareholders' equity
Current liabilities  
Current maturities$16 $ 
Trade accounts payable1,038 816 
Accrued compensation and benefits307 319 
Operating lease liability67 66 
Accrued expenses332 290 
Income taxes payable25 37 
Total current liabilities1,785 1,528 
Long-term debt2,294 2,362 
Long-term operating lease liability305 334 
Deferred income taxes and tax uncertainties135 121 
Other non-current liabilities120 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 capital1,299 1,270 
Retained earnings10,402 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’ equity2,308 1,874 
Noncontrolling interest254 286 
Total shareholders' equity2,562 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,
 20222021
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 losses13 12 
  Deferred income taxes and tax uncertainties 20 (7)
  Depreciation and amortization159 137 
  Net losses (gains) from sale or redemption of assets1 (3)
  Stock-based compensation38 33 
Change in operating assets and liabilities: 
   Accounts receivable(487)(298)
   Inventories(253)(64)
   Prepaid expenses and other assets(39)(1)
   Trade accounts payable261 167 
   Accrued liabilities51 (13)
   Income taxes – net8 (42)
   Other non-current liabilities(15)(10)
Net cash provided by operating activities973 724 
Cash flows from investing activities: 
Additions to property, buildings, equipment and intangibles(208)(197)
Proceeds from sale or redemption of assets7 17 
Other – net(11) 
Net cash used in investing activities(212)(180)
Cash flows from financing activities: 
Borrowings under lines of credit1  
Payments of long-term debt (8)
Proceeds from stock options exercised21 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 equivalents74 (257)
Cash and cash equivalents at beginning of year241 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 StockAdditional Contributed CapitalRetained EarningsAccumulated Other Comprehensive Earnings (Losses)Treasury StockNoncontrolling
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 StockAdditional Contributed CapitalRetained EarningsAccumulated Other Comprehensive Earnings (Losses)Treasury StockNoncontrolling
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,
20222021
High-Touch Solutions N.A.Endless Assortment
Total Company (2)
High-Touch Solutions N.A.Endless Assortment
Total Company (2)
Contractors8 %14 %9 %9 %15 %10 %
Commercial10 %15 %11 %9 %15 %10 %
Government17 %2 %14 %18 %3 %15 %
Healthcare6 %2 %5 %7 %2 %6 %
Manufacturing32 %30 %32 %29 %30 %29 %
Retail/Wholesale8 %15 %9 %9 %10 %10 %
Transportation6 %3 %6 %5 %3 %5 %
Other (1)
13 %19 %14 %14 %22 %15 %
Total net sales100 %100 %100 %100 %100 %100 %
Percent of total company revenue80 %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,
20222021
High-Touch Solutions N.A.Endless Assortment
Total Company (2)
High-Touch Solutions N.A.Endless Assortment
Total Company (2)
Contractors9 %15 %10 %9 %15 %10 %
Commercial10 %15 %11 %9 %15 %10 %
Government17 %3 %14 %19 %3 %15 %
Healthcare6 %2 %5 %7 %2 %6 %
Manufacturing31 %30 %31 %30 %29 %29 %
Retail/Wholesale9 %15 %10 %9 %10 %10 %
Transportation6 %3 %5 %5 %3 %5 %
Other (1)
12 %17 %14 %12 %23 %15 %
Total net sales100 %100 %100 %100 %100 %100 %
Percent of total company revenue80 %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, 2022December 31, 2021
Land$329 $329 
Building, structures and improvements1,403 1,431 
Furniture, fixtures, machinery and equipment1,630 1,567 
Property, buildings and equipment$3,362 $3,327 
Less accumulated depreciation and amortization1,953 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 AssortmentOtherTotal
Balance at January 1, 2021$321 $70 $ $391 
Translation (7) (7)
Balance at December 31, 2021321 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, 2022December 31, 2021
Weighted average lifeGross carrying amountAccumulated amortization/impairmentNet carrying amountGross carrying amountAccumulated amortization/impairmentNet carrying amount
Customer lists and relationships11.7 years$215 $177 $38 $221 $176 $45 
Trademarks, trade names and other14.3 years33 24 9 36 24 12 
Non-amortized trade names and otherIndefinite20  20 25  25 
Capitalized software4.2 years554 399 155 525 369 156 
Total intangible assets7.0 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 ValueFair Value Carrying ValueFair 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 
Subtotal2,331 2,047 2,385 2,829 
Less current maturities(16)(16)