UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
[X]☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2023
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)

Illinois36-1150280
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
100 Grainger Parkway Lake Forest, Illinois
60045-5201
Lake Forest,Illinois60045-5201
(Address of principal executive offices)(Zip Code)
(847) 535-1000
(Registrant’s telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year; 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 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 [X]☒  No [  ]
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes [X]☒  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“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]  Accelerated filer [  ]Filer ☒  Accelerated Filer ☐   Non-accelerated filer [  ]Filer ☐   Smaller reporting company [  ]
Reporting Company ☐ Emerging growth company [  ]

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 [X]☒ 

There were 56,983,18850,166,964 shares of the Company’s Common Stock par value $0.50, outstanding as of September 30, 2017.



April 20, 2023.
1

TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1:Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings 
    for the Three Months Ended March 31, 2023 and 2022
3
Condensed Consolidated Statements of Comprehensive Earnings 
    for the Three Months Ended March 31, 2023 and 2022
4
Condensed Consolidated Balance Sheets
    as of March 31, 2023 and December 31, 2022
5
Condensed Consolidated Statements of Cash Flows
    for the Three Months Ended March 31, 2023 and 2022
6
Condensed Consolidated Statements of Shareholders' Equity
    for the Three Months Ended March 31, 2023 and 2022
7
Notes to Condensed Consolidated Financial Statements
9
Item 2:Management's Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3:Quantitative and Qualitative Disclosures About Market Risk
23
Item 4:Controls and Procedures
23
TABLE OF CONTENTS
Page No.
PART IFINANCIALII - OTHER INFORMATION
Item 1.Financial Statements (Unaudited).
Condensed Consolidated Statements of Earnings 
    for the Three and Nine Months Ended September 30, 2017 and 2016
4
Item 1:Condensed Consolidated Statements of Comprehensive
    Earnings for the Three and Nine Months Ended September 30, 2017 and 2016Legal Proceedings
524
Item 1A:
Condensed Consolidated Balance Sheets
    as of September 30, 2017 and December 31, 2016Risk Factors
624
Item 2:
Condensed Consolidated Statements of Cash Flows
    for the Nine Months Ended September 30, 2017 and 2016
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.Management's Discussion and Analysis of Financial
    Condition and Results of Operations.
19
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
29
Item 4.Controls and Procedures.
29
PART IIOTHER INFORMATION
29
Item 1.Legal Proceedings.
29
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
3024
Item 6.6:Exhibits.Exhibits
3025
Signatures
Signatures
3126
EXHIBITS



























2

PART I – FINANCIAL INFORMATION


Item 1.1: Financial Statements.Statements


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousandsmillions of dollars and shares, except for share and per share amounts)
(Unaudited)
Three Months Ended Nine Months EndedThree Months Ended
September 30, September 30, March 31,
2017 2016 2017 2016 20232022
Net sales$2,635,999
 $2,596,288
 $7,792,397
 $7,666,494
Net sales$4,091 $3,647 
Cost of merchandise sold1,618,819
 1,556,536
 4,716,069
 4,541,629
Cost of goods soldCost of goods sold2,457 2,264 
Gross profit1,017,180
 1,039,752
 3,076,328
 3,124,865
Gross profit1,634 1,383 
Warehousing, marketing and administrative expenses736,010
 717,165
 2,267,605
 2,179,596
Selling, general and administrative expensesSelling, general and administrative expenses954 849 
Operating earnings281,170
 322,587
 808,723
 945,269
Operating earnings680 534 
Other income (expense): 
  
    
Interest income707
 147
 1,365
 474
Interest expense(21,765) (18,024) (58,649) (48,556)
Loss from equity method investment(10,635) (10,333) (25,130) (22,147)
Other non-operating income (expense)521
 (1,192) 1,558
 (1,291)
Total other expense(31,172) (29,402) (80,856) (71,520)
Other (income) expense:Other (income) expense:  
Interest expense – netInterest expense – net24 23 
Other – netOther – net(6)(6)
Total other expense – netTotal other expense – net18 17 
Earnings before income taxes249,998
 293,185
 727,867
 873,749
Earnings before income taxes662 517 
Income taxes79,182
 99,776
 267,239
 309,251
Income tax provisionIncome tax provision154 132 
Net earnings170,816
 193,409
 460,628
 564,498
Net earnings508 385 
Less: Net earnings attributable to noncontrolling interest8,810
 7,536
 25,957
 19,236
Less net earnings attributable to noncontrolling interestLess net earnings attributable to noncontrolling interest20 19 
Net earnings attributable to W.W. Grainger, Inc.$162,006
 $185,873
 $434,671
 $545,262
Net earnings attributable to W.W. Grainger, Inc.$488 $366 
Earnings per share: 
  
    Earnings per share:  
Basic$2.80
 $3.07
 $7.43
 $8.88
Basic$9.66 $7.11 
Diluted$2.79
 $3.05
 $7.39
 $8.82
Diluted$9.61 $7.07 
Weighted average number of shares outstanding: 
  
  
  
Weighted average number of shares outstanding:  
Basic57,316,532
 60,016,550
 58,010,222
 60,854,548
Basic50.2 51.1 
Diluted57,521,348
 60,416,151
 58,329,925
 61,268,119
Diluted50.5 51.4 
Cash dividends paid per share$1.28
 $1.22
 $3.78
 $3.61
 
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 thousandsmillions of dollars)
(Unaudited)
 Three Months Ended
March 31,
 20232022
Net earnings$508 $385 
Other comprehensive earnings (losses):  
Foreign currency translation adjustments – net of reclassification to earnings2 (26)
Postretirement benefit plan losses and other – net of tax benefit of $1,and $1, respectively(3)(3)
Total other comprehensive earnings (losses)(1)(29)
Comprehensive earnings – net of tax507 356 
Less comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings20 19 
Foreign currency translation adjustments(5)(16)
Total comprehensive earnings (losses) attributable to noncontrolling interest15 3 
Comprehensive earnings attributable to W.W. Grainger, Inc.$492 $353 
 Three Months EndedNine Months Ended
 September 30,September 30,
 2017 20162017 2016
Net earnings$170,816
 $193,409
$460,628
 $564,498
Other comprehensive earnings: 
  
 
  
Foreign currency translation adjustments, net of reclassification (see Note 5)24,563
 (12,866)100,409
 31,709
Postretirement benefit plan re-measurement, net of tax expense $29,172 (see Note 7)46,543
 —
46,543
 —
Postretirement benefit plan reclassification, net of tax benefit of $962, $631, and $2,720, $1,893, respectively(1,540) (1,008)(4,338) (3,026)
  Other1
 188
(11) 844
Comprehensive earnings, net of tax240,383
 179,723
603,231
 594,025
Less: Comprehensive earnings attributable to noncontrolling interest      
Net earnings8,810
 7,536
25,957
 19,236
Foreign currency translation adjustments(8) 2,188
4,338
 16,621
Comprehensive earnings attributable to W.W. Grainger, Inc.$231,581
 $169,999
$572,936
 $558,168


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

4


W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousandsmillions of dollars, except for share and per share amounts)
 (Unaudited)  
ASSETSSeptember 30, 2017 December 31, 2016
CURRENT ASSETS   
Cash and cash equivalents$284,575
 $274,146
Accounts receivable (less allowances for doubtful 
  
accounts of $31,583 and $26,690, respectively)1,373,323
 1,223,096
Inventories – net1,391,993
 1,406,470
Prepaid expenses and other assets84,481
 81,766
Prepaid income taxes40,688
 34,751
Total current assets3,175,060
 3,020,229
PROPERTY, BUILDINGS AND EQUIPMENT3,441,802
 3,411,502
Less: Accumulated depreciation and amortization2,045,896
 1,990,611
Property, buildings and equipment – net1,395,906
 1,420,891
DEFERRED INCOME TAXES56,054
 64,775
GOODWILL543,248
 527,150
INTANGIBLES - NET582,274
 586,126
OTHER ASSETS72,518
 75,136
TOTAL ASSETS$5,825,060
 $5,694,307



W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands of dollars, except for share and per share amounts)
As of
Assets(Unaudited) March 31, 2023December 31, 2022
Current assets  
Cash and cash equivalents$461 $325 
Accounts receivable (less allowances for credit losses of $38 and $36, respectively)2,294 2,133 
 Inventories – net2,252 2,253 
 Prepaid expenses and other current assets183 266 
Total current assets5,190 4,977 
Property, buildings and equipment – net1,468 1,461 
Goodwill370 371 
Intangibles – net234 232 
Operating lease right-of-use386 367 
Other assets177 180 
Total assets$7,825 $7,588 
Liabilities and shareholders' equity
Current liabilities  
Current maturities$37 $35 
Trade accounts payable1,074 1,047 
Accrued compensation and benefits230 334 
Operating lease liability65 68 
Accrued expenses372 474 
Income taxes payable146 52 
Total current liabilities1,924 2,010 
Long-term debt2,278 2,284 
Long-term operating lease liability340 318 
Deferred income taxes and tax uncertainties129 121 
Other non-current liabilities109 120 
Shareholders' equity 
Cumulative preferred stock – $5 par value – 12,000,000 shares authorized; none issued or outstanding— — 
Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued55 55 
Additional contributed capital1,324 1,310 
Retained earnings11,101 10,700 
Accumulated other comprehensive losses(176)(180)
Treasury stock, at cost – 59,502,483 and 59,402,896 shares, respectively(9,569)(9,445)
Total W.W. Grainger, Inc. shareholders’ equity2,735 2,440 
Noncontrolling interest310 295 
Total shareholders' equity3,045 2,735 
Total liabilities and shareholders' equity$7,825 $7,588 
 
 (Unaudited)  
LIABILITIES AND SHAREHOLDERS' EQUITYSeptember 30, 2017 December 31, 2016
CURRENT LIABILITIES   
Short-term debt$11,348
 $386,140
Current maturities of long-term debt41,836
 19,966
Trade accounts payable713,453
 650,092
Accrued compensation and benefits192,513
 212,525
Accrued contributions to employees’ profit sharing plans65,988
 54,948
Accrued expenses333,311
 290,207
Income taxes payable34,074
 15,059
Total current liabilities1,392,523
 1,628,937
LONG-TERM DEBT (less current maturities)2,270,001
 1,840,946
DEFERRED INCOME TAXES AND TAX UNCERTAINTIES135,149
 126,101
EMPLOYMENT-RELATED AND OTHER NON-CURRENT LIABILITIES126,302
 192,555
SHAREHOLDERS' EQUITY 
  
Cumulative Preferred Stock – $5 par value – 12,000,000 shares authorized; none issued or outstanding—
 —
Common Stock – $0.50 par value – 300,000,000 shares authorized; 109,659,219 shares issued54,830
 54,830
Additional contributed capital1,040,384
 1,030,256
Retained earnings7,327,140
 7,113,559
Accumulated other comprehensive losses(134,029) (272,294)
Treasury stock, at cost – 52,676,031 and 50,854,905 shares, respectively(6,520,828) (6,128,416)
Total W.W. Grainger, Inc. shareholders’ equity1,767,497
 1,797,935
Noncontrolling interest133,588
 107,833
Total shareholders' equity1,901,085
 1,905,768
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$5,825,060
 $5,694,307
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 thousandsmillions of dollars)
(Unaudited)
 Nine Months Ended
 September 30,
 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net earnings$460,628
 $564,498
Provision for losses on accounts receivable15,187
 14,753
Deferred income taxes and tax uncertainties(15,261) 24,259
Depreciation and amortization194,338
 177,395
Net losses (gains) from sales of assets and divestitures11,296
 (16,928)
Stock-based compensation27,152
 27,545
Losses from equity method investment25,130
 22,147
Change in operating assets and liabilities – net of business 
  acquisitions and divestitures:
 
  
Accounts receivable(145,631) (123,922)
Inventories34,851
 41,938
Prepaid expenses and other assets(4,206) 3,478
Trade accounts payable56,717
 36,594
Other current liabilities29,643
 (68,370)
Current income taxes payable18,015
 (9,714)
Accrued employment-related benefits cost4,306
 5,591
Other – net8,713
 (10,340)
Net cash provided by operating activities720,878
 688,924
CASH FLOWS FROM INVESTING ACTIVITIES: 
  
Additions to property, buildings and equipment(191,183) (213,622)
Proceeds from sales of assets and divestitures110,421
 48,089
Equity method investment(22,430) (19,299)
Other – net3,554
 (564)
Net cash used in investing activities(99,638) (185,396)
CASH FLOWS FROM FINANCING ACTIVITIES: 
  
Net (decrease) increase in commercial paper(369,748) 39,887
Borrowings under lines of credit33,931
 26,681
Payments against lines of credit(39,705) (32,515)
Proceeds from issuance of long-term debt424,020
 516,058
Payments of long-term debt(15,812) (257,109)
Proceeds from stock options exercised27,255
 29,553
Payments for employee taxes withheld from stock awards(17,546) (18,541)
Excess tax benefits from stock-based compensation—
 11,873
Purchase of treasury stock(435,983) (613,198)
Cash dividends paid(225,504) (221,131)
Net cash used in financing activities(619,092) (518,442)
Exchange rate effect on cash and cash equivalents8,281
 10,759
NET CHANGE IN CASH AND CASH EQUIVALENTS10,429
 (4,155)
Cash and cash equivalents at beginning of year274,146
 290,136
Cash and cash equivalents at end of period$284,575
 $285,981
Three Months Ended
 March 31,
 20232022
Cash flows from operating activities: 
Net earnings$508 $385 
Adjustments to reconcile net earnings to net cash provided by operating activities:
  Provision for credit losses4 4 
  Deferred income taxes and tax uncertainties10 7 
  Depreciation and amortization51 52 
  Stock-based compensation12 9 
Change in operating assets and liabilities: 
   Accounts receivable(162)(263)
   Inventories4 (65)
   Prepaid expenses and other assets74 (39)
   Trade accounts payable53 228 
   Accrued liabilities(198)(53)
   Income taxes – net102 86 
   Other non-current liabilities(4)(8)
Net cash provided by operating activities454 343 
Cash flows from investing activities: 
Capital expenditures(98)(57)
Proceeds from sale of assets2 — 
Net cash used in investing activities(96)(57)
Cash flows from financing activities: 
Proceeds from debt6 — 
Payments of debt(18)— 
Proceeds from stock options exercised23 6 
Payments for employee taxes withheld from stock awards(3)(2)
Purchases of treasury stock(142)(79)
Cash dividends paid(87)(84)
Other – net(3)— 
Net cash used in financing activities(224)(159)
Exchange rate effect on cash and cash equivalents2 (4)
Net change in cash and cash equivalents136 123 
Cash and cash equivalents at beginning of year325 241 
Cash and cash equivalents at end of period$461 $364 
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, 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 

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, 2023$55 $1,310 $10,700 $(180)$(9,445)$295 $2,735 
Stock-based compensation— 14 — — 18 — 32 
Purchases of treasury stock— — — — (142)— (142)
Net earnings— — 488 — — 20 508 
Other comprehensive earnings (losses)— — — 4 — (5)(1)
Cash dividends paid ($1.72 per share)— — (87)— — — (87)
Balance at March 31, 2023$55 $1,324 $11,101 $(176)$(9,569)$310 $3,045 

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)


1.    BACKGROUND AND BASIS
NOTE 1 - SUMMARY OF PRESENTATION
SIGNIFICANT ACCOUNTING POLICIES
W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) supplies, and other related products and services.  W.W. Grainger, Inc.’sservices with operations are primarily in North America (N.A.), Japan and the United States (U.S.Kingdom (U.K.) and Canada, with a presence in Europe, Asia and Latin America.. 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 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, 2022, 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 of the Company and the related notes are unaudited and should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and relatedaccompanying notes for the year ended December 31, 20162022 included in the Company’s Annual Report on Form 10-K filed with the SecuritiesSEC on February 21, 2023 (2022 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 Exchange Commission (SEC).
The Condensed Consolidated Balance Sheet as of December 31, 2016 has been derived from the audited consolidated financial statements at that date, but does not include all of the disclosures required by U. S. generally accepted accounting principles (U.S. GAAP) for complete financial statements.
The unaudited financial information reflects all adjustments (primarily consisting of normal recurring adjustments) which,Supplementary Data in the opinion of management, are necessary for a fair presentation of the statements contained herein.Company's 2022 Form 10-K.


Certain amounts in the Condensed Consolidated Statements of Cash Flows, as previously reported, have been reclassified to conform to the 2017 presentation. In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Stock Based Compensation: Improvements to Employee Share-Based Payment Accounting, which became effective January 1, 2017.As a result, the Company reclassified $19 million of employee taxes paid from cash flows from operating activities to cash flows from financing activities in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2016.



2.    NEW ACCOUNTING STANDARDS


In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities. This change to the financial instrument model primarily affects the accounting for equity investments, financial liabilities under the fair value options and the presentation and disclosure requirements for financial instruments. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2017. Certain provisions for the new guidance may be adopted early. The Company is evaluating the impact of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU improves transparency and comparability related to the accounting and reporting of leasing arrangements. The guidance will require balance sheet recognition for assets and liabilities associated with rights and obligations created by leases with terms greater than twelve months. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2018 and early adoption is permitted. The Company is evaluating the impact of this ASU.


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2017. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.


In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2017. This ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

















9
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 2 - REVENUE
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-GoodwillGrainger serves a large number of customers in diverse industries, which are subject to different economic and Other (Topic 350) Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurementmarket-specific factors. The Company's revenue is primarily comprised of goodwill by eliminating the Step 2 procedure from the goodwill impairment test. Under the updates in ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. MRO product sales and related activities.

The amendments of this ASU are effective for annual or any interim goodwill impairment tests beginning after December 15, 2019, and early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company early adopted this ASU during the third quarter of 2017 and there was no impact to the financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU improves theCompany's presentation of net periodic pension costrevenue by segment and net periodic postretirement benefit cost. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. The amendments in this ASU should be applied retrospectively for the presentation of the net periodic postretirement cost components in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company is evaluating the impact of this ASU.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017 and early adoption is permitted. The ASU should be applied prospectively on and after the effective date. The Company is evaluating the impact of this ASU.

REVENUE RECOGNITION STANDARDS

In July 2015, the FASB announced a one-year delay in the effective date of ASU 2014-09, Revenue from Contracts with Customers. This ASU will be effective for interim and fiscal years beginning after December 15, 2017. The standard will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosures aboutindustry most reasonably depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows arisingare 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 with customers.whereas in the Endless Assortment segment, a majority of revenue is derived from non-contractual purchases.


InThe following table present the Company's percentage of revenue by reportable segment and by major customer industry:
Three Months Ended March 31,
2023
2022(1)
High-Touch Solutions N.A.Endless Assortment
Total Company(2)
High-Touch Solutions N.A.Endless Assortment
Total Company(2)
Commercial Services7 %12 %8 %7 %13 %8 %
Contractors5 %12 %6 %5 %12 %6 %
Government18 %3 %15 %17 %4 %14 %
Healthcare7 %2 %6 %8 %2 %6 %
Manufacturing31 %30 %31 %31 %30 %31 %
Retail4 %4 %4 %4 %4 %4 %
Transportation4 %2 %4 %4 %2 %4 %
Utilities3 %2 %3 %3 %2 %3 %
Warehousing4 %— %3 %5 %— %4 %
Wholesale7 %17 %9 %7 %15 %9 %
Other(3)
10 %16 %11 %9 %16 %11 %
Total net sales100 %100 %100 %100 %100 %100 %
Percent of total company revenue81 %18 %100 %79 %19 %100 %
(1) Customer industry results for March 31, 2022 were reclassified to reflect the Company's current year classifications, which primarily uses the North American Industry Classification System (NAICS) beginning January 1, 2023.
(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately 1% and 2% of revenue for the three months ended March 31, 2023 and 2022, respectively.
(3) Other primarily includes revenue from industries and customers that are not material individually, including hospitality, restaurants, property management and natural resources.

Total accrued sales incentives are recorded in Accrued expenses and were approximately $92 million and $102 million as of March 2016, the FASB issued ASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU reduces the potential for diversity in practice arising from inconsistent application of principal versus agent guidance as well as reduce the cost31, 2023 and complexity during the transition and on an ongoing basis.December 31, 2022, respectively.


In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. This ASU clarifies the identification ofThe Company had no material unsatisfied performance obligations, contract assets or liabilities as of March 31, 2023 and the licensing implementation guidelines, while retaining the related principles of those areas.December 31, 2022.


In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This ASU includes technical corrections and improvements to Topic 606 and other topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to ASU 2014-09.


In February 2017, the FASB issued ASU 2017-05, Other Income - Gain and Losses from the Derecognition of Nonfinancial Assets. This ASU clarifies the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and adds guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of ASU 2014-09, provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers.






10
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT
The effective dates of ASU 2016-08, ASU 2016-10, ASU 2016-20Property, buildings and ASU 2017-05 are consistent with ASU 2014-09. The Company has elected not to early adopt these ASUs. The standard permits the use of either the full retrospective or the modified retrospective adoption method. The Company is planning to elect the modified retrospective method and recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of equity as of January 1, 2018.

These ASUs require expanded qualitative and quantitative disclosures of revenue and cash flows emerging from contracts with customers. The Company has evaluated the provisionsequipment consisted of the new standard and assessed its impact on financial statement disclosures, information systems, business processes and internal controls. The standard is not expected to have a material impact on the Company's Consolidated Financial Statements.following (in millions of dollars):

As of
March 31, 2023December 31, 2022
Land and land improvements$319 $318 
Building, structures and improvements1,432 1,463 
Furniture, fixtures, machinery and equipment1,708 1,662 
Property, buildings and equipment$3,459 $3,443 
Less accumulated depreciation and amortization1,991 1,982 
Property, buildings and equipment – net$1,468 $1,461 

3.    DIVIDEND
On October 25, 2017, the Company’s Board of Directors declared a quarterly dividend of $1.28 per share, payable December 1, 2017, to shareholders of record on November 13, 2017.

4.NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS

Grainger had approximately $1.1 billion of goodwill and intangible assets as of September 30, 2017 and December 31, 2016, or 19% and 20% of total assets, respectively. Grainger tests reporting units’ goodwill and intangible assets for impairment annually during the fourth quarter and more frequently if impairment indicators exist. Accordingly, Grainger periodically performs qualitative assessments ofThe Company did not identify any significant events andor changes in circumstances such as reporting units' historical and current results, assumptions regarding future performance, strategic initiatives and overall economic factors to determinethat indicated the existence of impairment indicators and assess if it is more likely thanduring the three months ended March 31, 2023. As such, quantitative assessments were not that the fair value of the reporting unit or indefinite-lived intangible assets is less than its carrying value and if a quantitative impairment test is necessary. In the quantitative test, Grainger compares the carrying value of the reporting unit or an indefinite-lived intangible asset with its fair value. Any excess of the carrying value over fair value is recorded as an impairment charge.required.     


The fair value of reporting units is calculated primarily using the discounted cash flow (DCF) method and utilizing value indicators from a market approach to evaluate the reasonableness of the resulting fair values. The DCF method incorporates various assumptions including the amount and timing of future expected cash flows, including revenues, gross margins, operating expenses, capital expenditures and working capital based on operational budgets, long-range strategic plans and other estimates. The terminal value growth rate is used to calculate the value of cash flows beyond the last projected period and reflects management’s best estimates for perpetual growth for the reporting units. Estimates of market-participant risk-adjusted weighted average cost of capital are used as a basis for determining the discount rates to apply to the reporting units’ future expected cash flows and terminal value.

Grainger’s indefinite-lived intangibles are primarily trade names. The fair value of trade names is calculated primarily using the relief from royalty method, which estimates the expected royalty savings attributable to the ownership of the trade name asset. The key assumptions when valuing a trade name are the revenue base, the royalty rate and the discount rate.

During the quarter ended September 30, 2017, the Company performed qualitative assessments of its reporting units’ goodwill and intangible assets. The operating performance of two of its reporting units has been below expectations and resulted in lowered short-term forecasts. Accordingly, the Company concluded that further evaluation was required. Based on the results of the quantitative tests, the Company concluded that there was no impairment of goodwill or indefinitely-lived intangible assets as of September 30, 2017. The fair values of the reporting units exceeded their carrying values by approximately 31 percent for the Canada reporting unit and 15 percent for the reporting unit included in Other Businesses. Changes in assumptions regarding future performance as well as the ability to execute on growth initiatives and productivity improvements may have a significant impact on future cash flows. Likewise, unfavorable economic environmentbalances and changes in market conditions or other factors may resultthe carrying amount of goodwill by segment are as follows (in millions of dollars):
High-Touch Solutions N.A.Endless AssortmentOtherTotal
Balance at January 1, 2022$321 $63 $— $384 
Translation(8)(5)— (13)
Balance at December 31, 2022313 58 — 371 
Translation— (1)— (1)
Balance at March 31, 2023$313 $57 $— $370 
The aggregate cumulative goodwill impairments as of March 31, 2023, was $137 million and consisted of $32 million within High-Touch Solutions N.A. and $105 million in future impairments of the goodwillOther.
The balances and intangible assets.

Additionally, the Company performed an impairment test on thechanges in intangible assets subject to amortization for the two reporting units. The first step– net are as follows (in millions of the impairment test is to compare the undiscounted cash flows of the reporting units to their carrying values. If the results of the test determine that the undiscounted cash flows of the reporting units are less than their carrying values, then an impairment risk exists and further testing is required. An impairment chargedollars):

As of
March 31, 2023December 31, 2022
Weighted average lifeGross carrying amountAccumulated amortization/impairmentNet carrying amountGross carrying amountAccumulated amortization/impairmentNet carrying amount
Customer lists and relationships11.7 years$217 $183 $34 $217 $181 $36 
Trademarks, trade names and other14.4 years32 23 9 32 22 10 
Non-amortized trade names and otherIndefinite22 — 22 22 — 22 
Capitalized software4.2 years597 428 169 580 416 164 
Total intangible assets6.9 years$868 $634 $234 $851 $619 $232 





11
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 5 - DEBT
was not requiredTotal debt, including long-term, current maturities and debt issuance costs and discounts – net, consisted of the following (in millions of dollars):
As of
March 31, 2023December 31, 2022
Carrying ValueFair ValueCarrying ValueFair Value
4.60% senior notes due 2045$1,000 $959 $1,000 $916 
1.85% senior notes due 2025500 476 500 470 
4.20% senior notes due 2047400 357 400 338 
3.75% senior notes due 2046400 332 400 317 
Japanese yen term loan56 56 69 69 
Other(20)(20)(29)(29)
Subtotal2,336 2,160 2,340 2,081 
Less current maturities(37)(37)(35)(35)
Debt issuance costs and discounts – net of amortization(21)(21)(21)(21)
Long-term debt$2,278 $2,102 $2,284 $2,025 

Senior Notes
Between 2015 and 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, 2017 using this test.March 31, 2023 and December 31, 2022, are presented within Other in the table above. For further discussion on the Company's hedge accounting policies, see Note 6.
The balances
Term Loan
In August 2020, MonotaRO entered into a ¥9 billion term loan agreement to fund technology investments and changes inthe expansion of its distribution center (DC) network. As of March 31, 2023 and December 31, 2022, the carrying amount of Goodwill by segment are as follows (in thousands of dollars):
  United States Canada Other Businesses Total
Balance at December 31, 2016 $202,020
 $122,140
 $202,990
 $527,150
Divestiture (3,316) —
 —
 (3,316)
Impairment (7,169) —
 —
 (7,169)
Translation —
 9,433
 17,150
 26,583
Balance at September 30, 2017 $191,535
 $131,573
 $220,140
 $543,248
Cumulative goodwill impairment charges, December 31, 2016 $17,038
 $32,265
 $70,299
 $119,602
Impairment charges 7,169
 —
 —
 7,169
Cumulative goodwill impairment charges, September 30, 2017 $24,207
 $32,265
 $70,299
 $126,771

The balances and changes in Intangible assets - net are as follows (in thousands of dollars):
   September 30, 2017 December 31, 2016
 Weighted average life Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount
Customer relationships13.8 years $428,041
 $190,395
 $237,646
 $424,405
 $175,112
 $249,293
Trade names and other13.5 years 25,960
 15,611
 $10,349
 25,353
 14,262
 11,091
Non-amortized trade names and other—
 136,333
 —
 $136,333
 128,282
 —
 128,282
Capitalized software4.1 years 626,652
 428,706
 $197,946
 571,978
 374,518
 197,460
Total8.2 years $1,216,986
 $634,712
 $582,274
 $1,150,018
 $563,892
 $586,126
For the nine months ended September 30, 2017 and the twelve months ended December 31, 2016, amortization expense recognized on intangible assetsterm loan, including current maturities due within one year, was $67$56 million and $82$69 million, respectively,respectively. The term loan matures in August 2024, payable over four equal semi-annual principal installments in 2023 and is included in Warehousing, marketing2024 and administrative expensesbears 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 Consolidated statement of earnings.

5.     RESTRUCTURING RESERVES

The Company continues to evaluate performance and take restructuring actions such as the consolidationCompany’s debt instruments, see Note 5 of the contact center networkNotes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data in the U.S., branch closures in the U.S. and Canada, the disposition of under performing assets in the U.S. and Canada and the wind-down of operations in Colombia which is part of the Other businesses. The purpose of these initiatives is to reduce costs in the U.S. and to streamline and focus on profitability in Canada and Other Businesses.Company’s 2022 Form 10-K.















12
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


NOTE 6 - DERIVATIVE INSTRUMENTS
The restructuring costs, Company's earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. Grainger currently, and may in the future, enters into certain derivatives or other financial instruments to hedge against these risks.

Fair Value Hedges
The Company uses interest rate swaps to hedge a portion of its fixed-rate long-term debt. These swaps are treated as fair value hedges and consequently the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item, are recognized in the Consolidated Statements of Earnings in Interest expense – net. The notional amount of the Company’s outstanding fair value hedges as of March 31, 2023 and December 31, 2022 was $450 million and $500 million, respectively.

The liability hedged by the interest rate swaps is recorded on the Condensed Consolidated Balance Sheets in Long-term debt. As of March 31, 2023 and December 31, 2022, the carrying amount of the hedged item, including the cumulative amount of fair value hedging adjustments was$424 million and $466 million, respectively.

The effect of the Company's fair value hedges on the Condensed Consolidated Statements of Earnings in Interest expense – net of gains, for the three and nine months ended September 30, 2017 and 2016 areis as follows (in thousandsmillions of dollars):

Three Months Ended March 31,
20232022
Gain or (loss):
Interest rate swaps:
      Hedged item$(8)$19 
      Derivatives designated as hedging instrument$8 $(19)

The location and fair values of derivative instruments designated as hedging instruments in the Condensed Consolidated Balance Sheets as of March 31, 2023, are shown in the following table (in millions of dollars):
As of
March 31, 2023December 31, 2022
Interest rate swaps reported in Other non-current liabilities$22 $34 

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


 Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
 Cost of merchandise sold Warehousing, marketing and administrative expenses Total Cost of merchandise sold Warehousing, marketing and administrative expenses Total
  Involuntary employee termination costs Other charges (gains)   Involuntary employee termination costs Other charges (gains) 
United States$(100) $10,917
 $(2,873) $7,944
 $—
 $3,511
 $1,926
 $5,437
Canada—
 1,882
 3,055
 4,937
 548
 3,119
 700
 4,367
Other Businesses581
 73
 (864) (210) —
 —
 —
 —
Total$481
 $12,872
 $(682) $12,671
 $548
 $6,630
 $2,626
 $9,804










 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
 Cost of merchandise sold Warehousing, marketing and administrative expenses Total Cost of merchandise sold Warehousing, marketing and administrative expenses Total
  Involuntary employee termination costs Other charges (gains)   Involuntary employee termination costs Other charges (gains) 
United States$(100) $19,459
 $(17,634) $1,725
 $3,100
 $18,342
 $(8,949) $12,493
Canada2,574
 9,842
 14,093
 26,509
 11,452
 13,194
 700
 25,346
Other Businesses581
 3,595
 37,124
 41,300
 —
 —
 —
 —
Unallocated—
 —
   —
 —
 —
 8,947
 8,947
Total$3,055
 $32,896
 $33,583
 $69,534
 $14,552
 $31,536
 $698
 $46,786

Other charges (gains) primarily includes gains from the sales of branches partially offset by asset write-downs in the U. S., assets write-downs in Canada and $16 million of accumulated foreign currency translations losses from the wind-down of Colombia reclassified from Accumulated other comprehensive losses to earnings in Other Businesses.
The following summarizes the restructuring reserve activity (in thousands of dollars):
 Current assets write-downs Fixed assets write - downs and disposals Involuntary employee termination costs Lease termination costs Other costs Total
Reserves as of December 30, 2016$167
 $—
 $24,541
 $3,125
 $511
 $28,344
Restructuring costs, net of (gains)9,775
 (5,987) 32,896
 2,512
 30,338
 69,534
Cash (paid) received(865) 18,793
 (24,370) (2,575) (5,620) (14,637)
Translation(82) 3
 843
 (11) (196) 557
Other—
 (12,809) —
 —
 (17,230) (30,039)
Reserves as of September 30, 2017$8,995
 $—
 $33,910
 $3,051
 $7,803
 $53,759
           



13
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 7 - SEGMENT INFORMATION

Grainger's two reportable segments are High-Touch Solutions N.A. and Endless Assortment. The remaining businesses, which include the Company's 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.

The amounts incurred netCompany's 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 gainssales to external customers. Service fees for intersegment sales are included in connection witheach segment's selling, general and administrative expenses and are also eliminated in the restructuring activities are as followsCompany's Consolidated Financial Statements.



Following is a summary of segment results (in thousandsmillions of dollars):
 Three Months Ended March 31,
20232022
 Net salesOperating earnings (losses)Net salesOperating earnings (losses)
High-Touch Solutions N.A.$3,294 $621 $2,878 $481 
Endless Assortment724 58 697 55 
Other73 1 72 (2)
Total Company$4,091 $680 $3,647 $534 
 Cumulative amount incurred to date Additional amount expected
United States$61,814
 $—
Canada26,509
 11,270
Other Businesses41,300
 —
Total$129,623
 $11,270

6.    SHORT-TERM AND LONG-TERM DEBT

The following summarizesCompany is a broad line distributor of MRO products and services. Products are regularly added and removed from the Company's inventory. Accordingly, it would be impractical to provide sales information concerning short-term debt (in thousandsby product category due to the way the business is managed, and the dynamic nature of dollars):the inventory offered, including the evolving list of products stocked and additional products available online but not stocked. Assets for reportable segments are not disclosed as such information is not regularly reviewed by the Company's Chief Operating Decision Maker.

NOTE 8 - CONTINGENCIES AND LEGAL MATTERS
 September 30, 2017 December 31, 2016
Outstanding lines of credit$11,348
 $16,392
Outstanding commercial paper—
 369,748
 $11,348
 $386,140
From time to time the Company is involved in various legal and administrative proceedings, including claims related to: 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 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, since the fourth quarter of September 30, 20172019, Grainger, KMCO, LLC (KMCO) and December 31, 2016, there was $0 millionother 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 approximately 186 plaintiffs, seek recovery of compensatory and $370 million, respectively,other damages and relief in relation to personal injury, including one 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 commercial paper outstanding. A portionTexas for relief under Chapter 7 of Title 11 of the proceeds fromUnited States Bankruptcy Court in the May 2017 bond issuance (see below) was used to redeem outstanding commercial paper.

Long-term debt consistedcase KMCO, LLC, No. 20-60028. As a result of the following (in thousandsChapter 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 cases, the Harris County District Court decided to schedule bellwether trials involving a subset of dollars):
 September 30, 2017 December 31, 2016
4.60% senior notes due 2045$1,000,000
 $1,000,000
3.75% senior notes due 2046400,000
 400,000
4.20% senior notes due 2047400,000
 —
British pound term loan and revolving credit facility192,903
 187,506
Euro term loan and revolving credit facility141,743
 120,900
Canadian dollar revolving credit facility116,307
 100,521
Other84,860
 71,109
 2,335,813
 1,880,036
Less current maturities(41,836) (19,966)
Debt issuance costs and discounts(23,976) (19,124)
 $2,270,001
 $1,840,946

Onplaintiffs the Court believes are representative of the parties' claims and defenses, and the first of such trials involving six plaintiffs (the First Scheduled Trial) was scheduled to commence in mid-January 2023 and later postponed until May 22, 2017,2023. To date, the Company issued $400 million of unsecured 4.20% Senior Notes (4.20% Notes) that mature on May 15, 2047. The 4.20% Notes require no principal payments until the maturity date and interest is payable semi-annually on May 15 and November 15, beginning on November 15, 2017. Prior to November 15, 2046, the Company may redeem the 4.20% Notes in whole at any time or gradually at a “make-whole” redemption price. This redemption price is calculated by reference to the then-current yield on a U.S. treasury security32 plaintiffs have executed settlement agreements with a maturity comparable to the remaining term of the 4.20% Notes plus 20 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 4.20% Notes at 101% of their principal amount plus accrued and unpaid interest, if any, at the date of purchase. Costs and discounts of approximately $5.8 million associated with the issuance of the 4.20%
Notes, representing underwriting fees and other expenses, have been recorded as a contra-liability within Long-term debt and will be amortized to interest expense over the term of the 4.20% Notes.

The estimated fair values of the Company’s 4.20% Notes, 3.75% Senior Notes due 2046 (3.75% Notes) and 4.60% Senior Notes due 2045 (4.60% Notes) were based on available external pricing data and current market rates for

14
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


similar debt instruments, among other factors, which are classified as level 2 inputs within the fair value hierarchy. The fair value of the 4.20% Notes was approximately $407 million as of September 30, 2017. The fair value of the 3.75% Notes was approximately $380 million and $371 million as of September 30, 2017 and December 31, 2016, respectively. The fair value of the 4.60% Notes was approximately $1.1 billion as of September 30, 2017 and December 31, 2016, respectively. The carrying value of other long-term debt approximates fair value duerespect to their variable interest rates.

On October 6, 2017, the Company replaced its $900 million unsecured revolving line of credit with a new five-year $750 million unsecured revolving line of credit, with the option to extend the line to up to $1.125 billion subject to customary conditions, to be used for general corporate purposes. The terms of the new line of credit are customary for transactions of this type (including the Company's guarantee of subsidiary borrower obligation) and do not contain any financial performance covenants. The primary purpose of this credit facility is to provide support to the Company's commercial paper program. There were no borrowings outstanding under the previous line of credit, which was scheduled to mature on August 22, 2018. The preceding summary of the credit facility does not purport to be complete and is qualified in its entirety by the reference to the full text of the credit facility, a copy of which has been filed as Exhibit 10.1 to the Company's Form 8-K, previously filed on October 10, 2017.

7.    EMPLOYEE BENEFITS - POSTRETIREMENT
The Company has a postretirement healthcare benefits plan that provides coverage for a majority of its U.S. employees (and their dependents) hired prior to January 1, 2013, should they elect to maintain such coverage upon retirement. Covered employees become eligible for participation when they qualify for retirement while working forplaintiffs' claims against the Company. Participation inThose 32 plaintiffs include the plan is voluntary and requires participants to make contributions towardplaintiffs who alleged the cost of the plan, as determined by the Company.

During the third quarter of 2017, the Company implemented plan design changes effective January 1, 2018 for the post-65 age group. This plan change will move all post-65 Medicare eligible retirees to healthcare exchanges and provide them a subsidy to purchase insurance. The amount of the subsidy will be based on years of service. The plan obligation was re-measured as a result of this plan design change. At re-measurement, the Company decreased the discount rate from 4.00% at December 31, 2016 to 3.55% and updated various actuarial assumptions and the fair value of plan assets. The plan re-measurement as of August 31, 2017 resulted in a decrease in the postretirement benefit obligation of $75.7 million and a corresponding unrecognized gain recorded in Other comprehensive earnings net of tax of $29.2 million. The Company has elected to amortize the amount of net unrecognized gains over a period equal to the average remaining service period for active plan participants expected to retire and receive benefits.
The postretirement benefit obligation was $29.0 million and $101.5 million at September 30, 2017 and December 31, 2016, respectively. Net accumulated gains recognized in Accumulated other comprehensive losses were $67.5 million and $25.3 million at September 30, 2017 and December 31, 2016, respectively.
The net periodic (benefits) costs recorded in Warehousing, marketing and administrative expenses consisted of the following components (in thousands of dollars):
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Service cost$1,856
 $2,059
 $5,649
 $6,178
Interest cost2,026
 2,464
 6,323
 7,391
Expected return on assets(2,957) (2,528) (8,670) (7,584)
Amortization of unrecognized (gains) losses(609) 32
 (1,919) 96
Amortization of prior service credits(1,893) (1,672) (5,139) (5,016)
Net periodic (benefits) costs$(1,577) $355
 $(3,756) $1,065

The Company has established a Group Benefit Trust (Trust) to fund postretirement healthcare benefits plan obligations and process benefit payments. The funding of the Trust is an estimated amount which is intended to allow the maximum deductible contribution under the Internal Revenue Code of 1986 (IRC), as amended. There are no minimum funding requirements and the Company intends to follow its practice of funding the maximum deductible contribution under the IRC. The Company did not make a contribution to the Trust during the nine months ended September 30, 2017.


15
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

8.    SEGMENT INFORMATION
The Company has two reportable segments: the U.S. and Canada. The U.S. operating segment reflects the results of the Company's U.S. businesses. The Canada operating segment reflects the results for Acklands – Grainger Inc. and its subsidiaries. Other businesses include Zoro in the U.S, MonotaRO in Japan and operations in Europe, Asia and Latin America. Other businesses do not meet the definition of a reportable segment. Operating segments generate revenue almost exclusively through the distribution of MRO supplies, as service revenues account for less than 1% of total revenues for each operating segment. Following is a summary of segment results (in thousands of dollars):

 Three Months Ended September 30, 2017
 United States Canada Other Businesses Total
Total net sales$2,015,968
 $188,216
 $536,927
 $2,741,111
Intersegment net sales(103,667) (13) (1,432) (105,112)
Net sales to external customers$1,912,301
 $188,203
 $535,495
 $2,635,999
Segment operating earnings (losses)$297,855
 $(14,972) $26,892
 $309,775
 Three Months Ended September 30, 2016
 United States Canada Other Businesses Total
Total net sales$2,028,235
 $179,281
 $481,929
 $2,689,445
Intersegment net sales(92,160) (23) (974) (93,157)
Net sales to external customers$1,936,075
 $179,258
 $480,955
 $2,596,288
Segment operating earnings (losses)$342,524
 $(15,118) $24,835
 $352,241

 Nine Months Ended September 30, 2017
 United States Canada Other Businesses Total
Total net sales$5,968,565
 $563,470
 $1,560,894
 $8,092,929
Intersegment net sales(297,247) (15) (3,270) (300,532)
Net sales to external customers$5,671,318
 $563,455
 $1,557,624
 $7,792,397
Segment operating earnings (losses)$922,614
 $(59,428) $44,177
 $907,363
 Nine Months Ended September 30, 2016
 United States Canada Other Businesses Total
Total net sales$5,973,044
 $552,470
 $1,401,429
 $7,926,943
Intersegment net sales(257,101) (109) (3,239) (260,449)
Net sales to external customers$5,715,943
 $552,361
 $1,398,190
 $7,666,494
Segment operating earnings (losses)$1,023,318
 $(55,207) $76,343
 $1,044,454

 United States Canada Other Businesses Total
Segment assets:       
September 30, 2017$2,316,683
 $298,553
 $589,564
 $3,204,800
December 31, 2016$2,275,009
 $286,035
 $494,067
 $3,055,111



16
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Following are reconciliations of segment information with the consolidated totals per the financial statements (in thousands of dollars):
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Operating earnings:   
Total operating earnings for operating segments$309,775
 $352,241
 $907,363
 $1,044,454
Unallocated expenses and eliminations(28,605) (29,654) (98,640) (99,185)
Total consolidated operating earnings$281,170
 $322,587
 $808,723
 $945,269
 September 30, 2017 December 31, 2016
Assets: 
Total assets for operating segments$3,204,800
 $3,055,111
Other current and non-current assets2,455,538
 2,464,656
Unallocated assets164,722
 174,540
Total consolidated assets$5,825,060
 $5,694,307

Assets for reportable segments include net accounts receivable and first-in, first-out inventory which are reported to the Company's Chief Operating Decision Maker. Other current and non-current assets include all other assets of the reportable segments.

Unallocated expenses and unallocated assets primarily relate to the Company headquarter's support services, which are not part of any business segment,most serious injuries, as well as intercompany eliminations. Unallocated expenses include payrollall six plaintiffs from the First Scheduled Trial. The contingent liability and benefits, depreciationcorresponding recoverable asset recorded on the Consolidated Balance Sheet as of December 31, 2022 related to settlements previously disclosed were relieved in full upon payment by insurance. This resulted in no effect on net earnings or cash flows for the quarter ended March 31, 2023.

Whether trials involving any or all of the remaining plaintiffs will proceed is uncertain and the timing or outcome of any such trials cannot currently be predicted, nor is it currently possible to make any additional estimate of potential loss or range of loss.

On December 16, 2020, KMCO, the trustee of its estate and ORG Chemical Holdings, LLC, KMCO’s parent company (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). 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 costs associated with headquarters-related support services. Unallocated assets include non-operating cashdamages. The Company is currently unable to predict the timing, outcome or any estimate of possible loss or range of loss of the ORG and cash equivalents, certain prepaid expenses and property, buildings and equipment-net.the Indian Harbor Insurance Company lawsuits.


Intersegment net sales forGrainger continues to investigate each of the U.S. segment increased by $12 million and $40 million forvarious remaining claims against the three and nine months ended September 30, 2017, respectively, comparedCompany relating to the prior year, driven by increased sales from the U.S. businessKMCO chemical refinery incident and intends to Zoro. Zoro's primary source of inventory is the U.S. business' supply chain network.contest these matters vigorously.



17
W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

9.    EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in thousands of dollars, except for share and per share amounts):
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Net earnings attributable to W.W. Grainger, Inc. as reported$162,006
 $185,873
 $434,671
 $545,262
Distributed earnings available to participating securities(603) (547) (1,576) (1,749)
Undistributed earnings available to participating securities(806) (1,085) (1,966) (3,179)
Numerator for basic earnings per share – Undistributed and distributed earnings available to common shareholders160,597
 184,241
 431,129
 540,334
Undistributed earnings allocated to participating securities806
 1,085
 1,966
 3,179
Undistributed earnings reallocated to participating securities(803) (1,078) (1,956) (3,157)
Numerator for diluted earnings per share – Undistributed and distributed earnings available to common shareholders$160,600
 $184,248
 $431,139
 $540,356
Denominator for basic earnings per share – weighted average shares57,316,532
 60,016,550
 58,010,222
 60,854,548
Effect of dilutive securities204,816
 399,601
 319,703
 413,571
Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities57,521,348
 60,416,151
 58,329,925
 61,268,119
Earnings per share two-class method 
  
    
Basic$2.80
 $3.07
 $7.43
 $8.88
Diluted$2.79
 $3.05
 $7.39
 $8.82


10.    CONTINGENCIES AND LEGAL MATTERS

From time to time the Company is involved in various legal and administrative proceedings that are incidental to its business, including claims related to product liability, general negligence, contract disputes, environmental issues, wage and hour laws, intellectual property, employment practices, regulatory compliance or other matters and actions brought by employees, consumers, competitors, suppliers or governmental entities. AsAlso, as a government contractor selling to federal, state and local governmental entities, the Company is alsomay be subject to governmental or regulatory inquiries or audits or other proceedings, including those related to contract administration, pricing and product compliance. It

From time to time, the Company has also been named, along with numerous other nonaffiliated companies, as 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 not expectedidentified 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 ultimate resolutionscope, 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'sCompany’s consolidated financial positioncondition or results of operations.




NOTE 9 - SUBSEQUENT EVENTS

On April 26, 2023, the Company’s Board of Directors declared a quarterly dividend of $1.86 per share, payable June 1, 2023, to shareholders of record on May 8, 2023.
18
15
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Item 2.2: Management's Discussion and Analysis of Financial Condition and Results of Operations.Operations

General
The following Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of W.W. Grainger, Inc. (Grainger)(Grainger or Company) as it is viewed by management of the Company. The following discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended December 31, 2022 included in the Company's 2022 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
Grainger is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) supplies, and other related products and services with operations primarily in North America, Japan and the United States (U.S.)U.K. Grainger uses a combination of its high-touch solutions and Canada, with a presence in Europe, Asia and Latin America. More than 3.2 millionendless assortment businesses and institutionsto serve its customers worldwide, which rely on Grainger for products such as safety, gloves, ladders, motors and janitorial supplies, alongservices that enable them to run safe, sustainable and productive operations.

Strategic Priorities
For a discussion of the Company’s strategic priorities for 2023, see Part 1, Item 1: Business and Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2022 Form 10-K.

Recent Events
Inflationary Cost Environment and Macroeconomic Pressures
In combination with the economic recovery from the pandemic and repercussions from geopolitical events, including the war in Ukraine, the global economy continues to experience volatile 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 like inventory managementnecessary for the Company's operations. Such disruptions have impacted, and technical support. These customers represent a broad collectionmay continue to impact, the Company's business, financial condition and results of industries including commercial, government, healthcare and manufacturing. They place orders online, on mobile devices, through sales representatives, over the phone and at local branches. Approximately 5,000 suppliers provide Grainger with more than 1.6 million products stocked in Grainger's distribution centers (DCs) and branches worldwide.operations.


Business Environment
Given Grainger's large number of customers and the diverse industries it serves, severalThe Company continues to monitor economic factors and industry trends tend to shape Grainger’s business environment. The overall economy and leading economic indicators provide general insight into projecting Grainger's growth. Grainger’s salesconditions in the U.S. and Canada tendglobally, and the impact of macroeconomic pressures, including repercussions from the recent banking crisis, rising interest rates, fluctuating currency exchange rates, inflation and recession fears, on the Company’s business, customers, suppliers and other third parties. As a result of continued inflation, the Company has implemented strategies designed to positively correlate with Business Investment, Business Inventory, Exportsmitigate certain adverse effects of higher costs while also remaining market price competitive. Historically, the Company’s broad and Industrial Production. Indiverse customer base and the U.S., sales tendnondiscretionary nature of the Company’s products to positively correlate with Gross Domestic Product (GDP). In Canada, sales tend to positively correlate with oil prices. The table below provides these estimated indicators for 2017:
 United StatesCanada
 2017 Forecast (October)2017 Forecast (July)2017 Forecast (October)2017 Forecast (July)
Business Investment3.7%4.3%2.3%1.1%
Business Inventory1.0%0.6%—%—%
Exports3.1%2.7%2.2%1.2%
Industrial Production1.8%2.0%6.1%3.9%
GDP2.2%2.3%3.1%2.5%
Oil Prices —$50/barrel$49/barrel
Source: Global Insight (October & July 2017)    
In the U.S., Business Investment and Exports are two major indicators of MRO spending. Per the Global Insight October 2017 forecast, Business Investment is forecast to continue to improve in 2017 compared to 2016 primarily through equipment-related spending. Export growthits customers has improved, as exports have responded to improved economic growth among countries that the U.S. exports to.
Per the Global Insight October 2017 forecast, Canada economic growth, as measured by GDP, is forecast to grow to 3.1% in 2017. The 2017 forecast assumes that oil prices will continue to grow and stabilize as compared to 2016 and that business nonresidential investment (a component of Business Investment) will begin to increase. The latest forecast is for the Canadian dollar to strengthen against the U.S. dollar over the next two quarters.

Outlook
On October 17, 2017, Grainger narrowed its sales and earnings per share guidance for 2017. The Company now expects 2017 sales growth of 1.5 to 2.5 percent and earnings per share of $10.40 to $10.90. The Company's previous 2017 guidance included sales growth of 1 to 4 percent and earnings per share of $10.00 to $11.30.

Matters Affecting Comparability
There were 63 sales dayshelped it perform well in the third quarterindustrial MRO market in recessionary periods. The full extent and impact of 2017 compared to 64 sales daysthese conditions are uncertain and cannot be predicted at this time.

For further discussion of the Company's risks and uncertainties, see Part I, Item 1A: Risk Factors in 2016.the Company’s 2022 Form 10-K.

16
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations – Three–Three Months Ended September 30, 2017March 31, 2023
The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings (in millions of dollars except per share amounts):
Three Months Ended March 31,
Percent Increase from Prior Year
As a Percent of Net Sales
2023202220232022
Net sales(1)
$4,091 $3,647 12.2 %100.0 %100.0 %
Cost of goods sold2,457 2,264 8.6 60.1 62.1 
Gross profit1,634 1,383 18.1 39.9 37.9 
Selling, general and administrative expenses954 849 12.3 23.3 23.3 
Operating earnings680 534 27.4 16.6 14.6 
Other expense – net18 17 4.3 0.4 0.5 
Income tax provision154 132 17.3 3.8 3.5 
Net earnings508 385 32.0 12.4 10.6 
Noncontrolling interest20 19 4.1 0.5 0.6 
Net earnings attributable to W.W. Grainger, Inc.$488 $366 33.4 11.9 10.0 
Diluted earnings per share:$9.61 $7.07 36.0 %
(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):

Three Months Ended March 31,
20232022
Net sales$4,091 $3,647 
  $ Change from prior-year period444 563 
  % Change from prior-year period12.2 %18.2 %
Daily sales(1)
$63.9 $57.0 
  $ Change from prior-year period6.9 8.0 
  % Change from prior-year period12.2 %16.4 %
Daily sales impact of currency fluctuations(2.3)%(1.5)%
(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 March 31, 2023 and 2022.

Net sales of $4,091 million for the three months ended March 31, 2023 increased $444 million, or 12%, compared to the same period in 2022. For further discussion on the Company's net sales, see the Segment Analysis section below.

Gross profit of $1,634 million for the three months ended March 31, 2023 increased $251 million, or 18%, compared to the same period in 2022. Gross profit margin of 39.9% for the three months ended March 31, 2023 increased 200 basis points compared to the same period in 2022. For further discussion on the Company's gross profit, see the Segment Analysis section below.
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17
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 Three Months Ended September 30,
    Percent Increase/(Decrease) As a Percent of Net Sales
 2017 (A) 2016 (A) 2017 2016
Net sales$2,636
 $2,596
2 % 100.0% 100.0%
Cost of merchandise sold1,619
 1,557
4 % 61.4
 60.0
Gross profit1,017
 1,040
(2)% 38.6
 40.0
Operating expenses736
 717
3 % 27.9
 27.6
Operating earnings281
 323
(13)% 10.7
 12.4
Other expense31
 29
6 % 1.2
 1.1
Income taxes79
 100
(21)% 3.0
 3.8
Noncontrolling interest9
 8
17 % 0.3
 0.3
Net earnings attributable to W.W. Grainger, Inc.$162
 $186
(13)% 6.1% 7.2%

(A) May not sum due to rounding

Grainger’s net salesSG&A of $2,636$954 million for the third quarter of 2017 increased 2% compared with sales of $2,596 million for the comparable 2016 quarter. On a daily basis, sales increased 3% and consisted of the following:
Percent Increase/(Decrease)
Volume8
Hurricane impact1
Seasonal sales(1)
Divestiture(1)
Price(4)
Total3%

The increase in net sales was primarily driven by the single channel online businesses in the U.S. and Japan, as well as volume increases in the U.S. business as a result of the pricing actions. Refer to the Segment Analysis below for further details.

The U.S. business pricing actions were primarily implemented in the first and third quarters of 2017. The actions included adjusting list price and introducing new lower web prices on the entire business assortment. These actions are expected to enable faster growth through share gains with existing customers and acquisition of new customers. Herein referred to as pricing actions.

In the three months ended September 30, 2017, eCommerce sales for Grainger were $1,387 million, an increase of 12% over the prior year. Total eCommerce sales represented 53% and 48% of total sales for the three months ended September 30, 2017 and 2016, respectively. The increase was primarily driven by Grainger.com and other electronic purchasing platforms in the U.S. business and the single channel online businesses. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 58% and 54% of total sales for the three months ended September 30, 2017 and 2016, respectively.

Gross profit of $1,017 million for the third quarter of 2017 decreased $23March 31, 2023 increased $105 million, or 2% compared to the same quarter in 2016. The gross profit margin of 38.6% during the third quarter of 2017 decreased 1.4 percentage points when12%, compared to the same period in 2016, driven2022. The increase was primarily by the pricing actions in the U.S. business.due to higher payroll and marketing expenses.


Operating expensesearnings of $736$680 million for the third quarterthree months ended March 31, 2023 increased $146 million, or 27%, compared to the same period in 2022.

Income taxes of 2017 increased 3% from $717$154 million for the comparable 2016three months ended March 31, 2023 increased $22 million, or 17%, compared to the same period in 2022. The increase in tax expense was primarily driven by higher taxable operating earnings for the first quarter of 2023. Grainger's effective tax rates were 23.3% and 25.5% for the three months ended March 31, 2023 and 2022, respectively. The decrease in the effective tax rate was primarily due to increased stock compensation tax benefit.

Net earnings of $488 million attributable to W.W. Grainger, Inc. for the three months ended March 31, 2023 increased $122 million, or 33%, compared to the same period in 2022.

Diluted earnings per share was $9.61 for the three months ended March 31, 2023, an increase of 36% compared to $7.07 for the same period in 2022.

Segment Analysis
For further segment information, see Note 7 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):
Three Months Ended March 31,
20232022Percent Increase
Net sales$3,294 $2,878 14.5 %
Gross profit$1,397 $1,164 20.0 %
Selling, general and administrative expenses$775 $683 13.5 %
Operating earnings$621 $481 29.3 %

Net sales of $3,294 million for the three months ended March 31, 2023 increased $416 million, or 15%, compared to the same period in 2022. The increase was due to price, which includes customer mix of 8% and volume, which includes product mix of 7%.

Gross profit of $1,397 million for the three months ended March 31, 2023 increased $233 million, or 20%, compared to the same period in 2022. Gross profit margin of 42.4% for the three months ended March 31, 2023 increased 195 basis points compared to the same period in 2022. The increase was driven by improved product mix and freight efficiencies.

SG&A of $775 million for the three months ended March 31, 2023 increased $92 million, or 14%, compared to the same period in 2022. The increase was primarily due to higher payroll and marketing expenses. SG&A leverage improved by 20 basis points for the three months ended March 31, 2023 compared to the same period in 2022.

Operating earnings of $621 million for the three months ended March 31, 2023 increased employee related costs.$140 million, or 29%, compared to the same period in 2022.







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18
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Endless Assortment
Operating earnings for the third quarterThe following table shows reported segment results (in millions of 2017 were $281 million, a decrease of 13% compared to the third quarter of 2016. The decrease in operating earnings was driven primarily by lower gross profit from the pricing actions in the U.S. business and increased employee related costs.dollars):

Three Months Ended March 31,
20232022Percent Increase
Net sales$724 $697 3.8 %
Gross profit$214 $197 9.0 %
Selling, general and administrative expenses$156 $142 10.2 %
Operating earnings$58 $55 6.0 %

Net earnings attributable to W.W. Grainger, Inc.sales of $724 million for the third quarter of 2017 decreased 13% to $162 million from $186 million in the third quarter of 2016, primarily related to lower gross profit and higher operating expenses.

Diluted earnings per share of $2.79 in the third quarter of 2017 were down 9% versus the $3.05 for the third quarter of 2016 due to lower earnings, partially offset by lower average shares outstanding.

The table below reconciles reported operating earnings determined in accordance with U.S. generally accepted accounting principles (GAAP) to adjusted operating earnings, a non-GAAP measure. Management believes adjusted operating earnings is an important indicator of operations because it excludes 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 this financial measure with other companies' non-GAAP financial measures having the same or similar names.
 Three Months Ended 
 September 30, 
 2017 2016%
Operating earnings reported$281,170
 $322,587
(13)%
Restructuring (U.S.)13,151
 6,600
 
Branch gains (U.S.)(5,207) (1,163) 
Other charges (U.S.)(3,023) —
 
Restructuring (Canada)4,937
 4,367
 
Restructuring (Other Businesses)(210) —
 
Subtotal9,648
 9,804
 
Operating earnings adjusted$290,818
 $332,391
(13)%

For the three months ended September 30, 2017 and 2016 the non-GAAP measure presented in the table above did not have a material impact on the financial results.

Segment Analysis
Grainger’s two reportable segments are the U.S. and Canada. The U.S. operating segment reflects the results of Grainger’s U.S. businesses. The Canada operating segment reflects the results for Acklands – Grainger Inc. and its subsidiaries. Other businesses include the single channel online businesses (Zoro in the U.S. and MonotaRO in Japan) and operations in Europe, Asia and Latin America.

The following comments at the segment and business unit level include external and intersegment net sales and operating earnings. See Note 8March 31, 2023 increased $27 million, or 4%, compared to the Condensed Consolidated Financial Statements.

United States
Net sales were $2,016 million for the third quarter of 2017, a decrease of 1% when compared with net sales of $2,028 million for the same period in 2016. On a daily2022. The increase was due to sales growth of 14%, driven by new and repeat customers at Zoro, as well as new customer acquisition, repeat business and enterprise growth at MonotaRO, partially offset by unfavorable foreign exchange of 10% due to changes in the exchange rate between the U.S. dollar and the Japanese yen.

Gross profit of $214 million for the three months ended March 31, 2023 increased $17 million, or 9%, compared to the same period in 2022. Gross profit margin of 29.6% increased 140 basis salespoints compared to the same period in 2022. The increase was driven by freight efficiencies and business unit mix.

SG&A of $156 million for the three months ended March 31, 2023 increased 1%$14 million, or 10%, compared to the same period in 2022. The increase was primarily driven by higher payroll and consistedbenefits and marketing expenses. SG&A leverage decreased by 125 basis points as higher expenses outpaced revenue growth for the three months ended March 31, 2023 compared to the same period in 2022.

Operating earnings of $58 million for the following:three months ended March 31, 2023 increased $3 million, or 6%, compared to the same period in 2022.


21
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W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources
Percent Increase/(Decrease)
Volume7
Intercompany sales to Zoro1
Hurricane impact1
Holiday timing(1)
Seasonal sales(1)
Divestiture(1)
Price(5)
Total1%

SalesGrainger believes its current balances of cash and cash equivalents, marketable securities and availability under its revolving credit facility will be sufficient to customers in natural resources increased high single digits. Resellers, transportation and retail end markets increased mid-single digits, while heavy manufacturing and government increased low single digits.

In the three months ended September 30, 2017, eCommerce salesmeet its liquidity needs for the U.S.next twelve months. The Company expects to continue to invest in its business were $1,039and return excess cash to shareholders through cash dividends and share repurchases, which it plans to fund through 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 and Cash Equivalents
As of March 31, 2023 and December 31, 2022, Grainger had cash and cash equivalents of $461 million an increase of 8% over the prior year. Total eCommerce sales represented 52% and 47% of total sales for the three months ended September 30, 2017 and 2016,$325 million, respectively. The increase was primarily driven by Grainger.com and other electronic purchasing platforms. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 58% and 54%had approximately $1.7 billion in available liquidity as of total sales for the three months ended September 30, 2017 and 2016, respectively.March 31, 2023.


The gross profit margin for thethird quarter of 2017 decreased 1.9 percentage points compared to the same period in 2016 largely due to the pricing actions.

Operating expenses of $493 million in the third quarter of 2017 were flat versus the third quarter of 2016 demonstrating leverage on volume growth as a result of pricing actions.

Operating earnings of $298 million for the third quarter of 2017 decreased 13% from $343 million for the third quarter of 2016 , primarily driven by the pricing actions.

Canada
Net sales were $188 million for the third quarter of 2017, an increase of $9 million, or 5%, when compared with $179 million for the same period in 2016. On a daily basis, sales increased 7% and consisted of the following:
Percent Increase
Foreign exchange5
Volume2
Total7%

In the three months ended September 30, 2017, eCommerce sales in the Canadian business were $33 million, an increase of 41% over the prior year. Total eCommerce sales represented 17% and 13% of total sales for the three months ended September 30, 2017 and 2016, respectively. If the Canadian business included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 32% and 26% of total sales for the three months ended September 30, 2017 and 2016, respectively.

The gross profit margin improved 0.8 percentage points in the third quarter of 2017 versus the third quarter of 2016 primarily due to improved management and disposition of obsolete or discontinued inventory and thus lower inventory reserve requirements in 2017 and incremental vendor rebates.
Operating expenses increased $4 million, or 6% in the third quarter of 2017 versus the third quarter of 2016, primarily related to foreign exchange and higher employee related costs.

Operating losses of $15 million for the third quarter of 2017 were flat versus the third quarter of 2016.

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W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Other Businesses
Net sales for other businesses were $537 million for the third quarter of 2017, an increase of $55 million, or 11%, when compared with net sales of $482 million for the same period in 2016. On a daily basis, sales increased 13% and consisted of the following:
Percent Increase/(Decrease)
Price/volume15
Foreign exchange(2)
Total13%

Operating earnings were $27 million for the third quarter of 2017 up $2 million compared to the third quarter of 2016. The operating earnings included strong results from the single channel online businesses.

Other Income and Expense
Other income and expense was $31 million of expense in the third quarter of 2017 compared to $29 million of expense in the third quarter of 2016. The increase in expense was primarily due to interest expense from the additional $400 million in long-term debt issued in May 2017.

Income Taxes
For the quarter, the effective tax rate was 31.7% versus 34.0% in 2016. The decrease is primarily due to higher benefits primarily from the Company's investments in clean energy along with solar energy and higher foreign tax credits.

Matters Affecting Comparability
There were 191 sales days in the nine months ended September 30, 2017 compared to 192 sales days in 2016.

Results of Operations – Nine Months Ended September 30, 2017Cash Flows
The following table is included as an aid to understandingshows the changes in Grainger’s Condensed Consolidated Statements of EarningsCompany's cash flow activity for the periods presented (in millions of dollars):

 Nine Months Ended September 30,
    Percent Increase/(Decrease) As a Percent of Net Sales
 2017 (A) 2016 (A) 2017 2016
Net sales$7,792
 $7,666
2 % 100.0% 100.0%
Cost of merchandise sold4,716
 4,542
4 % 60.5
 59.2
Gross profit3,076
 3,125
(2)% 39.5
 40.8
Operating expenses2,268
 2,180
4 % 29.1
 28.4
Operating earnings809
 945
(14)% 10.4
 12.3
Other expense81
 72
13 % 1.0
 0.9
Income taxes267
 309
(14)% 3.4
 4.0
Noncontrolling interest26
 19
35 % 0.3
 0.3
Net earnings attributable to W.W. Grainger, Inc.$435
 $545
(20)% 5.6% 7.1%
Three Months Ended March 31,
20232022
Total cash provided by (used in):
Operating activities$454 $343 
Investing activities(96)(57)
Financing activities(224)(159)
Effect of exchange rate changes on cash and cash equivalents2(4)
Increase in cash and cash equivalents$136 $123 
(A) May not sum due to rounding

Grainger’s net sales of $7,792 million for the nine months ended September 30, 2017 increased 2% compared with sales of $7,666 million for the comparable 2016 period. On a daily basis, sales increased 2% and consisted of the following:

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W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Percent Increase/(Decrease)
Volume7
Seasonal sales(1)
Price(4)
Total2%

The increase in net sales was primarily driven by the single channel online businesses, as well as volume increases in the U.S. business as a result of the pricing actions. Refer to the Segment Analysis below for further details.

In the nine months ended September 30, 2017, eCommerce sales for Grainger were $4,029 million, an increase of 14% over the prior year. Total eCommerce sales represented 52% and 46% of total sales for the nine months ended September 30, 2017 and 2016, respectively. The increase was primarily driven by Grainger.com and other electronic purchasing platforms in the U.S. and the single channel online businesses. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 58% and 52% of total sales for the nine months ended September 30, 2017 and 2016, respectively.

Gross profit of $3,076 million for the nine months ended September 30, 2017 decreased 2% compared with $3,125 million in the same period in 2016. The gross profit margin during the nine months ended September 30, 2017 decreased 1.3 percentage points when compared to the same period in 2016, driven primarily by the pricing actions in the U.S. business.

Operating expenses of $2,268 million for the nine months ended September 30, 2017 increased 4% compared with $2,180 million for the comparable 2016 period. The increase was primarily due to the following:
$2 million, net in restructuring in the U.S., primarily related to the costs incurred in the consolidation of the contact center network and asset write-downs, offset by gains on the sales of branches compared to $12 million, net in 2016. These costs primarily related to involuntary employee termination costs offset by gains on the sales of branches.
$27 million in restructuring due to branch closures and asset write-downs in Canada compared to $15 million in 2016.
$41 million in restructuring in other businesses, primarily related to the wind-down of operations in Colombia.
Excluding restructuring costs, gains on the sale of assets and other charges in both periods, operating expenses increased 3%, driven primarily by higher employee related costs.
Operating earnings for the nine months ended September 30, 2017 were $809 million, a decrease of $137 million or 14%, compared to the nine months ended September 30, 2016. Excluding restructuring costs, gains on the sale of assets and other charges in both periods, operating earnings decreased $117 million or 12%, driven primarily by lower gross profit and higher operating expenses.

Net earnings attributable to W.W. Grainger, Inc. for the nine months ended September 30, 2017 decreased 20% to $435 million from $545 million in the nine months ended September 30, 2016.

Diluted earnings per share of $7.39 in the nine months ended September 30, 2017 were 16% lower than the $8.82 for the nine months ended September 30, 2016, due to lower earnings partially offset by lower average shares outstanding.

The table below reconciles reported operating earning determined in accordance with generally accepted accounting principles in the U.S. to adjusted operating earnings, a non-GAAP measure. Management believes adjusted operating earnings is an important indicator of operations because it excludes 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 this financial measure with other companies' non-GAAP financial measures having the same or similar names.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 Nine Months Ended 
 September 30, 
 2017 2016%
Operating earnings reported$808,723
 $945,269
(14)%
Restructuring (U.S.)29,757
 29,035
 
Branch gains (U.S.)(28,032) (16,543) 
Other charges (U.S.)(3,023) —
 
Restructuring (Canada)26,509
 15,499
 
Inventory reserve adjustment (Canada)—
 9,847
 
Restructuring (Other Businesses)41,300
 —
 
Restructuring (Unallocated expense)—
 8,947
 
Subtotal66,511
 46,785
 
Operating earnings adjusted$875,234
 $992,054
(12)%



Segment Analysis
The following comments at the segment and business unit level include external and intersegment net sales and operating earnings. See Note 8 to the Condensed Consolidated Financial Statements.

United States
Net sales were $5,969 million for the nine months ended September 30, 2017 and were relatively flat when compared with net sales of $5,973 million for the same period in 2016. On a daily basis, sales were flat and consisted of the following:
Percent Increase/(Decrease)
Volume5
Intercompany sales to Zoro1
Seasonal sales(1)
Price(5)
Total0%

Sales to customers in natural resources and retail end markets increased mid-single digits, while heavy manufacturing and government increased low single digits. The sales growth was partially offset by declines in contractors and commercial services. Volume increased year over year primarily driven by the pricing actions.

In the nine months ended September 30 2017, eCommerce sales for the U.S. business were $3,024 million, an increase of 10% over the prior year. Total eCommerce sales represented 51% and 46% of total sales for the nine months ended September 30, 2017 and 2016, respectively. The increase was primarily driven by Grainger.com and other electronic purchasing platforms. If the Company included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 57% and 53% of total sales for the nine months ended September 30, 2017 and 2016, respectively.

The gross profit margin for the nine months ended September 30, 2017 decreased 1.6 percentage points compared to the same period in 2016, primarily driven by the pricing actions.

Operating expenses were flat for the nine months ended September 30, 2017 versus the nine months ended September 30, 2016. Excluding restructuring costs, net gains on the sale of assets and divestiture and other charges in both periods mentioned above, operating expenses increased 1%.


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W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Operating earnings of $923 million for the nine months ended September 30, 2017 decreased 10% from $1,023 million for the nine months ended September 30, 2016. Excluding restructuring costs, gains on the sale of assets and divestiture and other charges in both periods, operating earnings decreased 11%, driven primarily by the pricing actions.

Canada
Net sales of $563 million for the nine months ended September 30, 2017 an increase of 2% when compared with $552 million for the same period in 2016. On a daily basis, sales increased 3% and consisted of the following:
Percent Increase/(Decrease)
Volume3
Wildfire impact1
Foreign exchange1
Holiday timing(1)
Price(1)
Total3%

In the nine months ended September 30, 2017, eCommerce sales for the Canadian business were $96 million, an increase of 35% over the prior year. Total eCommerce sales represented 17% and 13% of total sales for the nine months ended September 30, 2017 and 2016, respectively. If the Canadian business included KeepStock®, the electronic inventory management offering, total eCommerce and KeepStock® sales would represent 31% and 25% of total sales for the nine months ended September 30, 2017 and 2016, respectively.

The gross profit margin increased 0.9 percentage points in the nine months ended September 30, 2017 versus the nine months ended September 30, 2016, largely due to a favorable comparison to an inventory adjustment in the second quarter of 2016 that did not repeat in 2017, partially offset by price deflation, cost inflation and higher freight costs from an increase in shipping directly to customers in 2017.

Operating expenses in the nine months ended September 30, 2017 were $229 million compared to $216 million for the nine months ended September 30, 2016. Excluding restructuring costs in both periods, operating expenses would have increased 1%.

Operating losses were $59 million for the nine months ended September 30, 2017 versus $55 million in the nine months ended September 30, 2016. Excluding the restructuring costs and the inventory adjustment, operating losses would have been $33 million compared to $30 million in the prior year. The higher loss was primarily driven by higher operating expenses.

Other Businesses
Net sales for other businesses, were $1,561 million for the nine months ended September 30, 2017, an increase of $160 million or 11% when compared with net sales of $1,401 million for the same period in 2016. On a daily basis, sales increased 12% and consisted of the following:
Percent Increase/(Decrease)
Volume15
Foreign exchange(3)
Total12%

Operating earnings of $44 million in the nine months ended September 30, 2017 decreased by $32 million compared to $76 million in the nine months ended September 30, 2016. Operating earnings in 2017 included a $41 million charge primarily for the wind-down of the business in Colombia partially offset by strong performance from the single channel online businesses.

Other Income and Expense
Other income and expense was $81 million of expense in the nine months ended September 30, 2017 compared to $72 million of expense in the nine months ended September 30, 2016. The increase in expense was primarily due to

26
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

interest expense from the $400 million of additional long-term debt issued in May 2017, as well as increased losses from the Company's investments in clean energy.

Income Taxes
Grainger’s effective tax rates were 36.7% and 35.4% for the nine months ended September 30, 2017 and 2016, respectively. The increase was primarily due to the wind-down of the business in Colombia and the inability to realize the associated tax benefits, partially offset by incremental tax credits from the Company's investment in clean energy and the benefit of stock awards. The 2016 tax rate also included a benefit from the federal income tax audit resolution for the tax years 2009 through 2012 and other discrete items.

Financial Condition

Cash Flow
Net cash provided by operating activities was $721$454 million and $689$343 million for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. The increase in cash provided iswas primarily the result of lower payments relateddue to employee benefits,higher net earnings, partially offset by lower earningschanges in year-over-year working capital requirements primarily due to sales growth and higher working capital. Net cash provided had been reported as $670 million in the prior year. The $689 million is based on the adoption of ASU 2016-09, which required retrospective reclassification of $19 million from operating activities to financing activities. The reclassification relates to employee taxes paid as part of the exercise of stock options.inflation.


Net cash used in investing activities was $100$96 million and $185$57 million infor the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. The decrease in net cash usedchange was driven by lower additions to property, buildings and equipmentincreased U.S. supply chain investment compared to the prior year and higher proceeds from the sales of branch real estate assets and the U.S. specialty business divestiture when compared to the prior year.period in 2022.


Net cash used in financing activities was $619$224 million compared to $518and $159 million infor the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. The increase in net cash used in financing activities of $101 million was primarily driven by lower proceeds of long-term debt anddue to higher net payments of commercial paper, offset by lowertreasury stock repurchases in 2017 compared to 2016 and lower payments of long-term debt.the prior year period.


Working Capital
Working capital consistsas of current assets (less non-operating cash) and current liabilities (less short-term debt and current maturities of long-term debt).

Working capital at September 30, 2017March 31, 2023 was $1,740$3,032 million, an increase of $18$168 million when compared to $1,722$2,864 million atas of December 31, 2016,2022. The increase was primarily driven by increased accounts receivable due to an increase in accounts receivable partially offset by increases incontinued sales growth and lower accrued current liabilities. The working capitalAs of March 31, 2023 and December 31, 2022, the ratio of current assets to working capitalcurrent liabilities ratio decreased to 2.3 at September 30, 2017, from 2.4 at December 31, 2016.was 2.7 and 2.5, respectively.


Debt
Grainger maintains a debt ratio and liquidity position that provideprovides flexibility in funding working capital needs and long-term cash requirements. In addition to internally generated funds, Grainger has various sources of financing available, including bank borrowings under lines of credit.

Total debt, which is defined as total interest-bearing debt and lease liabilities as a percent of total capitalization, was 55.0% at September 30, 201747.4% and 54.1% at 49.9% as of March 31, 2023 and December 31, 2016.2022, respectively.

Critical Accounting Policies and Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements. Management bases its estimates on historical experience and other assumptions, which it believes are reasonable. If actual amounts are ultimately different from these estimates, the revisions are included in Grainger’s results of operations for the period in which the actual amounts become known.

Accounting policies are considered critical when they require management to make assumptions about matters that are highly uncertain at the time the estimates are made and when there are different estimates that management reasonably could have made, which would have a material impact on the presentation of Grainger’s financial condition,


27
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W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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 as of March 31, 2023:

CorporateSenior UnsecuredShort-term
Moody'sA2A2P1
S&PA+A+A1

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 2022 Form 10-K.

Critical Accounting Estimates
The 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 of operations require the Company’s management to make assumptions and estimates that affect the reported amounts. The Company considers an accounting policy to be a critical estimate if: (i) it involves assumptions that are uncertain when judgment was applied, and (ii) changes in the estimate assumptions, or selection of a different estimate methodology, could have a significant impact on Grainger’s consolidated financial condition or resultsposition and results. While the Company believes the assumptions and estimates used are reasonable, the Company’s management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances.

Note 1 of operations. For a descriptionthe Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of Grainger’sthis Form 10-Q and Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements of the Company's 2022 Form 10-K describe 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 policies see Grainger's Annual Report onestimates from those disclosed in Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2022 Form 10-K for the year ended December 31, 2016.10-K.

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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 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. Such forward-lookingForward-looking statements arecan generally be identified by wordstheir use of terms such as “anticipate,” “estimate,” “believe,” “expect,” “could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project”“project,” “will” or “would” and similar terms and expressions.phrases, including references to assumptions.


GraingerThe Company cannot guarantee that any forward-looking statement will be realized although Grainger does believe that its assumptions underlying its forward-looking statements are reasonable. Achievementand achievement of future results is subject to risks and uncertainties, many of which are beyond the Company'sCompany’s control, which could cause Grainger'sthe 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 athe forward-looking statementstatements include, without limitation: inflation, higher product costs or other expenses, including operational and administrative expenses; the impact of macroeconomic pressures and geopolitical trends, changes and events, including the impact of Russia’s invasion of Ukraine on the global economy, tensions across the Taiwan Straits and in overall relations with China, and the ramifications of these and other events; a major loss of customers; loss or disruption of sourcesources of supply; changes in customer or product mix; increased competitive pricing pressures; changes in third party practices regarding digital advertising; failure to enter into or sustain contractual arrangements on a satisfactory basis with group purchasing organizations; failure to develop, manage or implement new technologiestechnology initiatives or business strategies;strategies, including with respect to the implementation, timing and results ofCompany’s eCommerce platforms; failure to adequately protect intellectual property or successfully defend against infringement claims; fluctuations or declines in the Company's strategic pricing actions and othergross 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, regulations related to advertising, marketing and the Internet, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, compliance or safety, trade and export compliance, general commercial disputes, or privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and standards, including new or stricter environmental laws or regulations; government contract matters; disruption or breaches of information technology or data security systems;systems involving the Company or third parties on which the Company depends; general industry, economic, market or marketpolitical conditions; general global economic conditions;conditions including tariffs and trade issues and policies; currency exchange rate fluctuations; market volatility;volatility, including price and trading volume volatility or price declines of the Company’s common stock; commodity price volatility; labor shortages; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; outbreaks of pandemic disease or viral contagions such as the COVID-19 pandemic; natural or human induced disasters, extreme weather and other catastrophes; unanticipated weathercatastrophes or conditions; effects of climate change; failure to execute on our efforts and programs related to environmental, social and governance matters; competition for, or failure to attract, retain, train, motivate and develop executives and key employees; loss of key members of management; the Company's ability to operate, integrate and leverage acquired businesses; changes in credit ratings;management or key employees; changes in effective tax rates; changes in credit ratings or outlook; the Company’s incurrence of indebtedness or failure to comply with restrictions and obligations under its debt agreements and instruments; and other factors identified under Part I, Item 1A: Risk Factors in the Company's Annual Report onlatest Form 10-K, for the year ended December 31, 2016, as updated from time to time in the Company's Quarterly Reports on Form 10-Q.


Caution shouldThe preceding list is not intended to be takenan exhaustive list of all of the factors that could impact the Company's forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on Grainger'sthe Company’s forward-looking statements and Graingerthe Company undertakes no obligation to publicly update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise.

otherwise, except as required by law.
28
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W.W. Grainger, Inc. and Subsidiaries



Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures aboutGrainger’s primary market risk see “Itemexposures include changes in foreign currency exchange and interest rates.

There were no material changes to the Company’s market risk from those described in Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk”Risk in Grainger's Annual Report onthe Company's 2022 Form 10-K for the fiscal year ended December 31, 2016.10-K.


Item 4.Controls and Procedures.
Item 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 were no changes in Grainger's internal control over financial reporting that occurred duringfor the third quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, Grainger'sGrainger’s internal control over financial reporting.


23

PART II – OTHER INFORMATION
 
Item 1.Legal Proceedings.

AsItem 1: Legal Proceedings
For a description of the Company’s legal proceedings, see Note 8 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1: Financial Information of this Form 10-Q.

Item 1A: Risk Factors
There have been no material changes from the risk factors previously disclosed on April 5, 2013, David Davies filed a putative class action lawsuitin Part 1, Item 1A: Risk Factors in the Circuit Court of Cook County, Illinois under the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005, and sought certification of a class of persons who may have received one or more faxes the Company sent in connection with a 2009 marketing campaign. The Company removed the suit to the Federal District Court for the Northern District of Illinois (the “District Court”). On June 27, 2014, the District Court refused to certify the class. The United States Court of Appeals for the Seventh Circuit denied Davies’ petition for immediate review of that ruling. The Company has now entered into an individual settlement with Davies resolving all of his claims on terms not material to the Company. The case was dismissed with prejudice on September 28, 2017.Company's 2022 Form 10-K.








29

W.W. Grainger, Inc. and Subsidiaries


Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities – third quarterFirst Quarter 2023
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
Jan. 1 – Jan. 3192,528$563.7492,5212,649,445
Feb. 1 – Feb. 2857,903$661.2357,8152,591,630
Mar. 1 – Mar. 3174,630$675.0174,2462,517,384
  Total225,061224,582 
(A)There were no shares withheld to satisfy tax withholding obligations.
PeriodTotal Number of Shares Purchased (A)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 31245,081$170.24245,0814,187,194
Aug. 1 – Aug. 31342,665$163.10342,6653,844,529
Sept. 1 – Sept. 30131,462$170.47131,4623,713,067
Total719,208$166.88719,208 
(A)There were no shares withheld to satisfy tax withholding obligations.
(B)Average price paid per share includes any commissions paid and includes only those amounts related to purchases as part of publicly announced plans or programs.
(C)Purchases were made pursuant to a share repurchase program approved by Grainger’s Board of Directors on April 6, 2015. The program has no specified expiration date. Activity is reported on a trade date basis.


Item 6.        Exhibits.

A list(B)The difference of exhibits filed with this report on Form 10-Q is provided479 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 Exhibit Index on page 32plan.
(C)Average price paid per share excludes commissions of this report.$0.01 per share paid.

(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.































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W.W. Grainger, Inc. and Subsidiaries

Item 6: Exhibits
EXHIBIT NO.DESCRIPTION
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.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
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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.GRAINGER, INC.
Date:(Registrant)
Date:October 26, 2017April 27, 2023
 
 
 
By:
 
 
 
/s/ R. L. JadinDeidra C. Merriwether
R. L. Jadin, Deidra C. Merriwether
Senior Vice President
and Chief Financial Officer
Date:October 26, 2017(Principal Financial Officer)
Date:April 27, 2023
 
 
 
By:
 
 
 
/s/ E.Laurie R. TapiaThomson
E.Laurie R. Tapia, Vice President
and Controller





EXHIBIT INDEX

Thomson
EXHIBIT NO.DESCRIPTIONVice President and Controller
10.1
Credit Agreement, dated as of October 6, 2017 by and among W.W. Grainger, Inc., the lenders party thereto and U.S. Bank National Association, As Administrative Agent. (filed as Exhibit 10.1 to W. W. Grainger, Inc.'s Current Report on Form 8-K on October 6, 2017, and incorporated herein by reference.
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.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.Accounting Officer)




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