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

Illinois |  |  | 36-1150280
(State or other jurisdiction of incorporation or organization) |  |  | (I.R.S. Employer Identification No.)
100 Grainger Parkway |  |  |
| Lake Forest, | Illinois |  |  | 60045-5201
(Address of principal executive offices) |  |  | (Zip Code)

Registrant’s telephone number, including area code: (847) 535-1000
Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
There were 50,166,964 shares of the Company’s Common Stock outstanding as of 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
| PART II - OTHER INFORMATION |
Item 1: | Legal Proceedings | 24
Item 1A: | Risk Factors | 24
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 24
Item 6: | Exhibits | 25
Signatures |  | 26

2

PART I – FINANCIAL INFORMATION
Item 1: Financial Statements
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In millions of dollars and shares, except for per share amounts)
(Unaudited)

| Three Months Ended |  |
| March 31, |  |
| 2023 |  | 2022 |  |  |  |
Net sales | $ | 4,091 |  |  | $ | 3,647 |  |  |  |  |
Cost of goods sold | 2,457 |  |  | 2,264 |  |  |  |  |
Gross profit | 1,634 |  |  | 1,383 |  |  |  |  |
Selling, general and administrative expenses | 954 |  |  | 849 |  |  |  |  |
Operating earnings | 680 |  |  | 534 |  |  |  |  |
Other (income) expense: |  |  |  |  |  |  |
Interest expense – net | 24 |  |  | 23 |  |  |  |  |
Other – net | (6) |  |  | (6) |  |  |  |  |
Total other expense – net | 18 |  |  | 17 |  |  |  |  |
Earnings before income taxes | 662 |  |  | 517 |  |  |  |  |
Income tax provision | 154 |  |  | 132 |  |  |  |  |
Net earnings | 508 |  |  | 385 |  |  |  |  |
Less net earnings attributable to noncontrolling interest | 20 |  |  | 19 |  |  |  |  |
Net earnings attributable to W.W. Grainger, Inc. | $ | 488 |  |  | $ | 366 |  |  |  |  |
Earnings per share: |  |  |  |  |  |  |
Basic | $ | 9.66 |  |  | $ | 7.11 |  |  |  |  |
Diluted | $ | 9.61 |  |  | $ | 7.07 |  |  |  |  |
Weighted average number of shares outstanding: |  |  |  |  |  |  |
Basic | 50.2 |  |  | 51.1 |  |  |  |  |
Diluted | 50.5 |  |  | 51.4 |  |  |  |  |

The accompanying notes are an integral part of these financial statements.
3

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In millions of dollars)
(Unaudited)

| Three Months Ended |  |  |  |
| March 31, |  |  |  |
| 2023 |  | 2022 |  |  |  |  |  |  |  |
Net earnings | $ | 508 |  |  | $ | 385 |  |  |  |  |  |  |  |  |
Other comprehensive earnings (losses): |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments – net of reclassification to earnings | 2 |  |  | (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 tax | 507 |  |  | 356 |  |  |  |  |  |  |  |  |
Less comprehensive earnings (losses) attributable to noncontrolling interest |  |  |  |  |  |  |  |  |  |  |
Net earnings | 20 |  |  | 19 |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments | (5) |  |  | (16) |  |  |  |  |  |  |  |  |
Total comprehensive earnings (losses) attributable to noncontrolling interest | 15 |  |  | 3 |  |  |  |  |  |  |  |  |
Comprehensive earnings attributable to W.W. Grainger, Inc. | $ | 492 |  |  | $ | 353 |  |  |  |  |  |  |  |  |

The accompanying notes are an integral part of these financial statements.
4

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions of dollars, except for share and per share amounts)

| As of
Assets | (Unaudited) March 31, 2023 |  | December 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 – net | 2,252 |  |  | 2,253 |
Prepaid expenses and other current assets | 183 |  |  | 266 |
Total current assets | 5,190 |  |  | 4,977 |
Property, buildings and equipment – net | 1,468 |  |  | 1,461 |
Goodwill | 370 |  |  | 371 |
Intangibles – net | 234 |  |  | 232 |
Operating lease right-of-use | 386 |  |  | 367 |
Other assets | 177 |  |  | 180 |
Total assets | $ | 7,825 |  |  | $ | 7,588 |
Liabilities and shareholders' equity |  |  |
Current liabilities |  |  |
Current maturities | $ | 37 |  |  | $ | 35 |
Trade accounts payable | 1,074 |  |  | 1,047 |
Accrued compensation and benefits | 230 |  |  | 334 |
Operating lease liability | 65 |  |  | 68 |
Accrued expenses | 372 |  |  | 474 |
Income taxes payable | 146 |  |  | 52 |
Total current liabilities | 1,924 |  |  | 2,010 |
Long-term debt | 2,278 |  |  | 2,284 |
Long-term operating lease liability | 340 |  |  | 318 |
Deferred income taxes and tax uncertainties | 129 |  |  | 121 |
Other non-current liabilities | 109 |  |  | 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 issued | 55 |  |  | 55 |
Additional contributed capital | 1,324 |  |  | 1,310 |
Retained earnings | 11,101 |  |  | 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’ equity | 2,735 |  |  | 2,440 |
Noncontrolling interest | 310 |  |  | 295 |
Total shareholders' equity | 3,045 |  |  | 2,735 |
Total liabilities and shareholders' equity | $ | 7,825 |  |  | $ | 7,588 |

The accompanying notes are an integral part of these financial statements.
5

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)

|  | Three Months Ended
|  | March 31,
|  | 2023 |  | 2022
Cash flows from operating activities: |  |  |  |
Net earnings |  | $ | 508 |  |  | $ | 385 |
Adjustments to reconcile net earnings to net cash provided by operating activities: |  |  |  |
Provision for credit losses |  | 4 |  |  | 4 |
Deferred income taxes and tax uncertainties |  | 10 |  |  | 7 |
Depreciation and amortization |  | 51 |  |  | 52 |
Stock-based compensation |  | 12 |  |  | 9 |
Change in operating assets and liabilities: |  |  |  |
Accounts receivable |  | (162) |  |  | (263) |
Inventories |  | 4 |  |  | (65) |
Prepaid expenses and other assets |  | 74 |  |  | (39) |
Trade accounts payable |  | 53 |  |  | 228 |
Accrued liabilities |  | (198) |  |  | (53) |
Income taxes – net |  | 102 |  |  | 86 |
Other non-current liabilities |  | (4) |  |  | (8) |
Net cash provided by operating activities |  | 454 |  |  | 343 |
Cash flows from investing activities: |  |  |  |
Capital expenditures |  | (98) |  |  | (57) |
Proceeds from sale of assets |  | 2 |  |  | — |
Net cash used in investing activities |  | (96) |  |  | (57) |
Cash flows from financing activities: |  |  |  |
Proceeds from debt |  | 6 |  |  | — |
Payments of debt |  | (18) |  |  | — |
Proceeds from stock options exercised |  | 23 |  |  | 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 equivalents |  | 2 |  |  | (4) |
Net change in cash and cash equivalents |  | 136 |  |  | 123 |
Cash and cash equivalents at beginning of year |  | 325 |  |  | 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 Stock | Additional Contributed Capital | Retained Earnings | Accumulated Other Comprehensive Earnings (Losses) | Treasury Stock | Noncontrolling Interest | Total
Balance at January 1, 2022 | $ | 55 |  | $ | 1,270 |  | $ | 9,500 |  | $ | (96) |  | $ | (8,855) |  | $ | 286 |  | $ | 2,160 |
Stock-based compensation | — |  | 10 |  | — |  | — |  | 3 |  | — |  | 13 |
Purchases of treasury stock | — |  | — |  | — |  | — |  | (75) |  | — |  | (75) |
Net earnings | — |  | — |  | 366 |  | — |  | — |  | 19 |  | 385 |
Other comprehensive earnings (losses) | — |  | — |  | — |  | (13) |  | — |  | (16) |  | (29) |
Cash dividends paid ($1.62 per share) | — |  | — |  | (84) |  | — |  | — |  | — |  | (84) |
Balance at March 31, 2022 | $ | 55 |  | $ | 1,280 |  | $ | 9,782 |  | $ | (109) |  | $ | (8,927) |  | $ | 289 |  | $ | 2,370 |

The accompanying notes are an integral part of these financial statements.
7

W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In millions of dollars, except for per share amounts)
(Unaudited)

| Common Stock | Additional Contributed Capital | Retained Earnings | Accumulated Other Comprehensive Earnings (Losses) | Treasury Stock | Noncontrolling Interest | Total
Balance at January 1, 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)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America (N.A.), Japan and the United Kingdom (U.K.). In this report, the words “Grainger” or “Company” mean W.W. Grainger, Inc. and its subsidiaries, except where the context makes it clear that the reference is only to W.W. Grainger, Inc. itself and not its subsidiaries.
Basis of Presentation
The Company's Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and therefore do not include all information and disclosures normally included in the annual Consolidated Financial Statements. The preparation of these Condensed Consolidated Financial Statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from these estimated amounts. In the opinion of the Company’s management, the Condensed Consolidated Financial Statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
The Condensed Consolidated Balance Sheet at December 31, 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 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 Annual Report on Form 10-K filed with the SEC on February 21, 2023 (2022 Form 10-K).
There w ere no mater ial changes to the Company’s significant accounting policies from those disclosed in Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data in the Company's 2022 Form 10-K.
9

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 2 - REVENUE
Grainger serves a large number of customers in diverse industries, which are subject to different economic and market-specific factors. The Company's revenue is primarily comprised of M RO product sales and related activities.
The Company's presentation of revenue by segment and industry most reasonably depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic and market-specific factors. In addition, the segments have unique underlying risks associated with customer purchasing behaviors. In the High-Touch Solutions N.A. segment, more than two-thirds of revenue is derived from customer contracts whereas in the Endless Assortment segment, a majority of revenue is derived f rom non-contractual purchases.
The 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 Services | 7 | % |  | 12 | % |  | 8 | % |  | 7 | % |  | 13 | % |  | 8 | %
Contractors | 5 | % |  | 12 | % |  | 6 | % |  | 5 | % |  | 12 | % |  | 6 | %
Government | 18 | % |  | 3 | % |  | 15 | % |  | 17 | % |  | 4 | % |  | 14 | %
Healthcare | 7 | % |  | 2 | % |  | 6 | % |  | 8 | % |  | 2 | % |  | 6 | %
Manufacturing | 31 | % |  | 30 | % |  | 31 | % |  | 31 | % |  | 30 | % |  | 31 | %
Retail | 4 | % |  | 4 | % |  | 4 | % |  | 4 | % |  | 4 | % |  | 4 | %
Transportation | 4 | % |  | 2 | % |  | 4 | % |  | 4 | % |  | 2 | % |  | 4 | %
Utilities | 3 | % |  | 2 | % |  | 3 | % |  | 3 | % |  | 2 | % |  | 3 | %
Warehousing | 4 | % |  | — | % |  | 3 | % |  | 5 | % |  | — | % |  | 4 | %
Wholesale | 7 | % |  | 17 | % |  | 9 | % |  | 7 | % |  | 15 | % |  | 9 | %
Other(3) | 10 | % |  | 16 | % |  | 11 | % |  | 9 | % |  | 16 | % |  | 11 | %
Total net sales | 100 | % |  | 100 | % |  | 100 | % |  | 100 | % |  | 100 | % |  | 100 | %
Percent of total company revenue | 81 | % |  | 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% an d 2% of reven ue 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 mil lion and $102 million as of March 31, 2023 and December 31, 2022, respectively.
The Compa ny had no material unsatisfied performance obligations, contract assets or liabilities as of March 31, 2023 and December 31, 2022.
10

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consisted of the following (in millions of dollars):

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

NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
The Company did not identify any significant events or changes in circumstances that indicated the existence of impairment indicators during the three months ended March 31, 2023. As such, quantitative assessments were not required.
The balances and changes in the carrying amount of goodwill by segment are as follows (in millions of dollars):

|  | High-Touch Solutions N.A. |  | Endless Assortment |  | Other |  | Total
Balance at January 1, 2022 |  | $ | 321 |  |  | $ | 63 |  |  | $ | — |  |  | $ | 384 |
Translation |  | (8) |  |  | (5) |  |  | — |  |  | (13) |
Balance at December 31, 2022 |  | 313 |  |  | 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 Other.
The balances and changes in intangible assets – net are as follows (in millions of dollars):

|  |  | As of
|  |  | March 31, 2023 |  | December 31, 2022
| Weighted average life |  | Gross carrying amount |  | Accumulated amortization/impairment |  | Net carrying amount |  | Gross carrying amount |  | Accumulated amortization/impairment |  | Net carrying amount
Customer lists and relationships | 11.7 years |  | $ | 217 |  |  | $ | 183 |  |  | $ | 34 |  |  | $ | 217 |  |  | $ | 181 |  |  | $ | 36 |
Trademarks, trade names and other | 14.4 years |  | 32 |  |  | 23 |  |  | 9 |  |  | 32 |  |  | 22 |  |  | 10 |
Non-amortized trade names and other | Indefinite |  | 22 |  |  | — |  |  | 22 |  |  | 22 |  |  | — |  |  | 22 |
Capitalized software | 4.2 years |  | 597 |  |  | 428 |  |  | 169 |  |  | 580 |  |  | 416 |  |  | 164 |
Total intangible assets | 6.9 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
Total debt, including long-term, cur rent maturities and debt issuance costs and discounts – net, consisted of the following (in millions of dollars):

| As of
| March 31, 2023 |  | December 31, 2022
| Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
4.60% senior notes due 2045 | $ | 1,000 |  |  | $ | 959 |  |  | $ | 1,000 |  |  | $ | 916 |
1.85% senior notes due 2025 | 500 |  |  | 476 |  |  | 500 |  |  | 470 |
4.20% senior notes due 2047 | 400 |  |  | 357 |  |  | 400 |  |  | 338 |
3.75% senior notes due 2046 | 400 |  |  | 332 |  |  | 400 |  |  | 317 |
Japanese yen term loan | 56 |  |  | 56 |  |  | 69 |  |  | 69 |
Other | (20) |  |  | (20) |  |  | (29) |  |  | (29) |
Subtotal | 2,336 |  |  | 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 issue d $2.3 billion in unsecured long-term debt (Senior Notes) primarily to provide flexibility in funding general working capital needs, share repurchases a nd 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 approxima tely $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 March 31, 2023 and December 31, 2022, are presented within Other in the table above. F or further discussion on the Company's hedge accounting policies, see Note 6.
Term Loan
In August 2020, MonotaRO entered into a ¥9 billion te rm loan agreement to fund technology investments and the expansion of its distribution center (DC) network. As of March 31, 2023 and December 31, 2022, the carrying amount of the term loan, including current maturities due within one year, was $56 million and $69 million, respectively. The term loan matures i n August 2024, payable over four equal semi-annual principal installments in 2023 and 2024 and bears an average interest of 0.05%.
Fair Value
The estimated fair value of the Company’s Senior Notes was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as Level 2 inputs within the fair v alue hierarchy.
For further information on the Company’s debt instruments, see Note 5 of the Notes to Consolidated Financia l Statements in Part II, Item 8: Financial Statements and Supplementary Data in the 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 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 wa s $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 is as follows (in millions of dollars):

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
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, 2023 |  | December 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 t he Comp any’s own nonperformance risk.
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 Company'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 sales to external customers. Service fees for intersegment sales are included in each segment's selling, general and administrative expenses and are also eliminated in the Company's Consolidated Financial Statements.
Following is a summary of segment results (in millions of dollars):

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
| Net sales |  | Operating earnings (losses) |  | Net sales |  | Operating earnings (losses) |  |  |  |  |  |  |  |
High-Touch Solutions N.A. | $ | 3,294 |  |  | $ | 621 |  |  | $ | 2,878 |  |  | $ | 481 |  |  |  |  |  |  |  |  |
Endless Assortment | 724 |  |  | 58 |  |  | 697 |  |  | 55 |  |  |  |  |  |  |  |  |
Other | 73 |  |  | 1 |  |  | 72 |  |  | (2) |  |  |  |  |  |  |  |  |
Total Company | $ | 4,091 |  |  | $ | 680 |  |  | $ | 3,647 |  |  | $ | 534 |  |  |  |  |  |  |  |  |

The Company 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 by product category due to the way the business is managed, and the dynamic nature of the inventory offered, including the evolving list of products stocked and additional products available online but not stocked. 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
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 2019, Grainger, KMCO, LLC (KMCO) and other defendants have been named in several product liability-related lawsuits in the Harris County, Texas District Court relating to an explosion at a KMCO chemical refinery located in Crosby, Harris County, Texas on April 2, 2019. The complaints in which Grainger has been named, which to date encompass approximately 186 plaintiffs, seek recovery of compensatory and 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 Texas for relief under Chapter 7 of Title 11 of the United States Bankruptcy Court in the case KMCO, LLC, No. 20-60028. As a result of the Chapter 7 proceedings, the claims against KMCO in the Harris County lawsuits were stayed. Effective January 1, 2021, the Bankruptcy Court lifted the stay with respect to KMCO.
In the product liability cases, the Harris County District Court decided to schedule bellwether trials involving a subset of plaintiffs the Court believes are representative of the parties' claims and defenses, and the first of such trials involving six pl aintiffs (the First Scheduled Trial) was scheduled to commence in mid-January 2023 and later postponed until May 2023. To date, the Company and 32 plaintiffs have executed settlement agreements with
14

W.W. Grainger, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
respect to such plaintiffs' claims against the Company. Those 32 plaintiffs include the plaintiffs who alleged the most serious injuries, as well as all six plaintiffs from the First Scheduled Trial. The contingent liability and corresponding 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 damages. The Company is currently unable to predict the timing, outcome or any estimate of possible loss or range of loss of the ORG and the Indian Harbor Insurance Company lawsuits.
Grainger continues to investigate each of the various remaining claims against the Company relating to the KMCO chemical refinery incident and intends to contest these matters vigorously.
Also, as a government contractor selling to federal, state and local governmental entities, the Company may be subject to governmental or regulatory inquiries or audits or other proceedings, including those related to contract administration, pricing and product compliance.
From time to time, the Company has also been named, along with numerous other nonaffiliated companies, as defendant in litigation in various states involving asbestos and/or silica. These lawsuits typically assert claims of personal injury arising from alleged exposure to asbestos and/or silica as a consequence of products manufactured by third parties purportedly distributed by the Company. While several lawsuits have been dismissed in the past based on the lack of product identification, if a specific product distributed by the Company is identified in any pending or future lawsuits, the Company will seek to exercise indemnification remedies against the product manufacturer to the extent available. In addition, the Company believes that a substantial number of these claims are covered by insurance. The Company has entered into agreements with its major insurance carriers relating to the scope, coverage and the costs of defense of lawsuits involving claims of exposure to asbestos. The Company believes it has strong legal and factual defenses and intends to continue defending itself vigorously in these lawsuits.
While the Company is unable to predict the outcome of any of these proceedings and other matters, it believes that their ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on the Company’s consolidated financial condition or results of operations.
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.
15

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
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 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) products and services with operations primarily in North America, Japan and the U.K. Grainger uses a combination of its high-touch solutions and endless assortment businesses to serve its customers worldwide, which rely on Grainger for products and services 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 necessary for the Company's operations. Such disruptions have impacted, and may continue to impact, the Company's business, financial condition and results of operations.
The Company continues to monitor economic conditions in the U.S. and globally, and the impact of macroeconomic pressur es, 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 mitigate certain adverse effects of higher costs while also remaining market price competitive. Historically, the Company’s broad and diverse customer base and the nondiscretionary nature of the Company’s products to its customers has helped it perform well in the industrial MRO market in recessionary periods. The full extent and impact of these 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 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 Months Ended March 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
| 2023 |  | 2022 |  |  | 2023 |  | 2022
Net sales(1) | $ | 4,091 |  |  | $ | 3,647 |  |  | 12.2 | % |  | 100.0 | % |  | 100.0 | %
Cost of goods sold | 2,457 |  |  | 2,264 |  |  | 8.6 |  |  | 60.1 |  |  | 62.1 |
Gross profit | 1,634 |  |  | 1,383 |  |  | 18.1 |  |  | 39.9 |  |  | 37.9 |
Selling, general and administrative expenses | 954 |  |  | 849 |  |  | 12.3 |  |  | 23.3 |  |  | 23.3 |
Operating earnings | 680 |  |  | 534 |  |  | 27.4 |  |  | 16.6 |  |  | 14.6 |
Other expense – net | 18 |  |  | 17 |  |  | 4.3 |  |  | 0.4 |  |  | 0.5 |
Income tax provision | 154 |  |  | 132 |  |  | 17.3 |  |  | 3.8 |  |  | 3.5 |
Net earnings | 508 |  |  | 385 |  |  | 32.0 |  |  | 12.4 |  |  | 10.6 |
Noncontrolling interest | 20 |  |  | 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,
| 2023 |  | 2022
Net sales | $ | 4,091 |  |  | $ | 3,647 |
$ Change from prior-year period | 444 |  |  | 563 |
% Change from prior-year period | 12.2 | % |  | 18.2 | %
Daily sales(1) | $ | 63.9 |  |  | $ | 57.0 |
$ Change from prior-year period | 6.9 |  |  | 8.0 |
% Change from prior-year period | 12.2 | % |  | 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.
17

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SG&A of $954 million for the three months ended March 31, 2023 increased $105 million, or 12%, compared to the same period in 2022. The increase was primarily due to higher payroll and marketing expenses.
Operating earnings of $680 million for the three months ended March 31, 2023 increased $146 million, or 27%, compared to the same period in 2022.
Income taxes of $154 million for the three 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, |  |
| 2023 |  | 2022 |  | Percent 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 $140 million, or 29%, compared to the same period in 2022.
18

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Endless Assortment
The following table sho ws reported segment results (in millions of dollars):

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  | Percent 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 sales of $724 million for the three months ended March 31, 2023 increased $27 million, or 4%, compared to the same period in 2022. 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 points 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 $14 million, or 10%, compared to the same period in 2022. The increase was primarily driven by higher payroll and benefits 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 three months ended March 31, 2023 increased $3 million, or 6%, compared to the same period in 2022.
19

W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Grainger believes its current balances of cash and cash equivalents, marketable securities and availability under its revolving credit facility will be sufficient to meet its liquidity needs for the next twelve months. The Company expects to continue to invest in its business and return excess cash to shareholders through cash dividends and share repurchases, which it plans to fund through 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 and $325 million, respectively. The Company had approximately $1.7 billion in available liquidity as of March 31, 2023.
Cash Flows
The following table shows the Company's cash flow activity for the periods presented (in millions of dollars):

| Three Months Ended March 31,
| 2023 |  | 2022
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 equivalents | 2 |  | (4)
Increase in cash and cash equivalents | $ | 136 |  |  | $ | 123 |

Net cash provided by operating activities was $454 million and $343 million for the three months ended March 31, 2023 and 2022, respectively. The increase was primarily due to higher net earnings, partially offset by changes in year-over-year working capital requirements primarily due to sales growth and inflation.
Net cash used in investing activities was $96 million and $57 million for the three months ended March 31, 2023 and 2022, respectively. The change was driven by increased U.S. supply chain investment compared to the prior year period in 2022.
Net cash used in financing activities was $224 million and $159 million for the three months ended March 31, 2023 and 2022, respectively. The increase was due to higher treasury stock repurchases compared to the prior year period.
Working Capital
Working capital as of March 31, 2023 was $3,032 million, an increase of $168 million when compared to $2,864 million as of December 31, 2022. The increase was primarily driven by increased accounts receivable due to continued sales growth and lower accrued current liabilities. As of March 31, 2023 and December 31, 2022, the ratio of current assets to current liabilities was 2.7 and 2.5, respectively.
Debt
Grainger maintains a debt ratio and liquidity position that provides flexibility in funding working capital needs and long-term cash requirements. In addition to internally generated funds, Grainger has various sources of financing available, including 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 47.4% and 49.9% as of March 31, 2023 and December 31, 2022, respectively.
20

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:

| Corporate |  | Senior Unsecured |  | Short-term
Moody's | A2 |  | A2 |  | P1
S&P | A+ |  | A+ |  | A1

Commitments and Other Contractual Obligations
Th ere 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 position 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 the Notes to Condensed Consolidated Financial Statements in Part I, Item 1: Financial Statements of this 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.
T here were no material changes to the Company's critical accounting estimates from those disclosed in Part II, Item 7: Management's Disc ussion and Analysis of Financial Condition and Results of Operations in the Company's 2022 Form 10-K.
21

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. Forward-looking statements can generally be identified by their use of terms such as “anticipate,” “estimate,” “believe,” “expect,” “could,” “forecast,” “may,” “intend,” “plan,” “predict,” “project,” “will” or “would” and similar terms and phrases, including references to assumptions.
The Company cannot guarantee that any forward-looking statement will be realized and achievement of future results is subject to risks and uncertainties, many of which are beyond the Company’s control, which could cause the Company’s results to differ materially from those that are presented.
Important factors that could cause actual results to differ materially from those presented or implied in the forward-looking statements include, without limitation: 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 sources 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 technology initiatives or business strategies, including with respect to the Company’s eCommerce platforms; failure to adequately protect intellectual property or successfully defend against infringement claims; fluctuations or declines in the Company's gross profit margin; the Company’s responses to market pressures; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, 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 involving the Company or third parties on which the Company depends; general industry, economic, market or political conditions; general global economic conditions including tariffs and trade issues and policies; currency exchange rate fluctuations; market volatility, including price and trading volume volatility or price declines of the Company’s common stock; commodity price volatility; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; outbreaks of pandemic disease or viral contagions such as the COVID-19 pandemic; natural or human induced disasters, extreme weather and other catastrophes 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 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 latest Form 10-K, as updated from time to time in the Company's Quarterly Form 10-Q.
The preceding list is not intended to be an 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 the Company’s forward-looking statements and the Company undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
22

W.W. Grainger, Inc. and Subsidiaries
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Grainger’s primary market risk exposures 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 in the Company's 2022 Form 10-K.
Item 4: Controls and Procedures
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated 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 disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in Grainger's internal control over financial reporting for the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.
23

PART II – OTHER INFORMATION
Item 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 in Part 1, Item 1A: Risk Factors in the Company's 2022 Form 10-K.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities – First 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. 31 | 92,528 | $563.74 | 92,521 | 2,649,445
Feb. 1 – Feb. 28 | 57,903 | $661.23 | 57,815 | 2,591,630
Mar. 1 – Mar. 31 | 74,630 | $675.01 | 74,246 | 2,517,384
Total | 225,061 |  | 224,582 |

(A)There were no shares withheld to satisfy tax withholding obligations.
(B)The difference of 479 shares between the Total Number of Shares Purchased and the Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs represents shares purchased by the administrator and record keeper of the W.W. Grainger, Inc. Retirement Savings Plan for the benefit of the employees who participate in the plan.
(C)Average price paid per share excludes commissions of $0.01 per share paid.
(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.
24

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.INS |  | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH |  | XBRL Taxonomy Extension Schema Document.
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document.
104 |  | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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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.
Date: | April 27, 2023 | By: | /s/ Deidra C. Merriwether
|  |  | Deidra C. Merriwether
|  |  | Senior Vice President
|  |  | and Chief Financial Officer
|  |  | (Principal Financial Officer)
Date: | April 27, 2023 | By: | /s/ Laurie R. Thomson
|  |  | Laurie R. Thomson
|  |  | Vice President and Controller
|  |  | (Principal Accounting Officer)

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