W.W. Grainger 10-Q 2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

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)
						(847)			535-1000
(Registrant’s telephone number including area code)
Not Applicable
(Former name or former address, if changed since last report)

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 51,520,047 shares of the Company’s Common Stock, par value $0.50, outstanding as of September 30, 2021.

			TABLE OF CONTENTS
						Page
			PART I - FINANCIAL INFORMATION
Item 1:			Financial Statements (Unaudited)
			Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2021 and 2020			3
			Condensed Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended September 30, 2021 and 2020			4
			Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020			5
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020			6
			Condensed Consolidated Statements of Shareholders' Equity for the Three and Nine Months Ended September 30, 2021 and 2020			7
			Notes to Condensed Consolidated Financial Statements			9
Item 2:			Management's Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3:			Quantitative and Qualitative Disclosures About Market Risk			30
Item 4:			Controls and Procedures			30
			PART II - OTHER INFORMATION
Item 1:			Legal Proceedings			31
Item 1A:			Risk Factors			31
Item 2:			Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 6:			Exhibits			34
Signatures						35

PART I – FINANCIAL INFORMATION

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In millions of dollars and shares, except for per share amounts)

(Unaudited)

			Three Months Ended												Nine Months Ended
			September 30,												September 30,
			2021						2020						2021						2020
Net sales			$	3,372					$	3,018					$	9,663					$	8,856
Cost of goods sold			2,122						1,944						6,196						5,645
Gross profit			1,250						1,074						3,467						3,211
Selling, general and administrative expenses			812						694						2,337						2,467
Operating earnings			438						380						1,130						744
Other (income) expense:
Interest expense - net			22						23						65						72
Other - net			(6)						(5)						(19)						(16)
Total other expense - net			16						18						46						56
Earnings before income taxes			422						362						1,084						688
Income tax provision			107						106						271						118
Net earnings			315						256						813						570
Less: Net earnings attributable to noncontrolling interest			18						16						53						43
Net earnings attributable to W.W. Grainger, Inc.			$	297					$	240					$	760					$	527
Earnings per share:
Basic			$	5.68					$	4.43					$	14.48					$	9.74
Diluted			$	5.65					$	4.41					$	14.40					$	9.70
Weighted average number of shares outstanding:
Basic			51.8						53.6						52.1						53.6
Diluted			52.1						53.9						52.4						53.8
Cash dividends paid per share			$	1.62					$	1.53					$	4.77					$	4.41

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In millions of dollars)

(Unaudited)

			Three Months Ended												Nine Months Ended
			September 30,												September 30,
			2021						2020						2021						2020
Net earnings			$	315					$	256					$	813					570
Other comprehensive earnings (losses):
Foreign currency translation adjustments, net of reclassification to earnings			(17)						24						(43)						30
Postretirement benefit plan losses, net of tax benefit of $1, $1, $3, and $3, respectively			(4)						(2)						(10)						(8)
Other			—						—						1						4
Total other comprehensive earnings (losses)			(21)						22						(52)						26
Comprehensive earnings - net of tax			294						278						761						596
Less: Comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings			18						16						53						43
Foreign currency translation adjustments			(1)						5						(19)						6
Total comprehensive earnings (losses) attributable to noncontrolling interest			17						21						34						49
Comprehensive earnings attributable to W.W. Grainger, Inc.			$	277					$	257					$	727					$	547

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions of dollars, except for share and per share amounts)

			As of
Assets			(Unaudited) September 30, 2021						December 31, 2020
Current assets
Cash and cash equivalents			$	328					$	585
Accounts receivable (less allowances for credit losses of $29 and $27, respectively)			1,742						1,474
Inventories - net			1,786						1,733
Prepaid expenses and other current assets			149						127
Total current assets			4,005						3,919
Property, buildings and equipment - net			1,429						1,395
Goodwill			387						391
Intangibles - net			233						228
Other assets			336						362
Total assets			$	6,390					$	6,295
Liabilities and shareholders' equity
Current liabilities
Current maturities of long-term debt			$	—					$	8
Trade accounts payable			933						779
Accrued compensation and benefits			259						307

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General

W.W. Grainger, Inc. (Grainger or Company) 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.). Grainger uses a combination of its high-touch solutions and endless assortment businesses to serve its customers worldwide, which rely on Grainger for MRO products and services that enable them to run safe, sustainable and productive operations.

Effective January 1, 2021, Grainger's two reportable segments are High-Touch Solutions N.A. and Endless Assortment. These reportable segments align with Grainger's go-to-market strategies and bifurcated business models (high-touch solutions and endless assortment). The High-Touch Solutions N.A. segment includes the Grainger-branded businesses in the United States of America (U.S.), Canada, Mexico and Puerto Rico. The Endless Assortment segment includes the Company’s Zoro Tools, Inc. (Zoro) and MonotaRO Co., Ltd. (MonotaRO) online channels which operate predominately in the U.S., U.K. and Japan.

Strategic Priorities and Impact of the COVID-19 Pandemic

The Company’s longstanding strategic priorities are to “Keep the World Working” and relentlessly expand Grainger’s leadership position in the MRO space by being the go-to-partner for people who build and run safe, sustainable and productive operations. However, the Company’s business and plans to achieve these strategic priorities continue to be impacted by the Coronavirus (COVID-19 pandemic). In response, Grainger instituted and has continued to enforce safety precautions to protect the health and well-being of all of its employees, with a particular focus on those serving customers and operating its distribution centers and branches.

The COVID-19 pandemic continues to cause significant disruptions in the U.S. and global markets, and the full extent of the impacts will depend on a number of developments, including any continued spread of the virus and its variants, the availability and effectiveness of treatments and vaccines, the imposition of protective public safety measures, and the potential impact of governmental measures to combat the spread of the virus, such as vaccine mandates for certain federal contractors and anticipated Occupational Health and Safety Administration safety directives. The Company continues to leverage a dedicated cross-functional task force to understand and implement guidance from government agencies and health officials to meet requirements from federal, state and local authorities and may take further actions in the best interests of its employees, customers, suppliers and shareholders.

The ongoing recovery from the COVID-19 pandemic has been accompanied by increased demand as industries have begun to return to regular operations. However, the pandemic continues to disrupt supply chains, transportation efficiency, raw materials and labor availability. Grainger’s businesses and its major facilities have remained operational as customers rely on Grainger’s products and services to keep their businesses up and running. The Company continues to monitor and refine its product assortment and actions to support customers’ return to regular operations.

The Company cannot reasonably estimate the full extent to which the COVID-19 pandemic will continue to impact its business and financial results. As the pandemic continues to impact global markets and the needs of employees, customers, suppliers and other stakeholders continue to change, the Company’s efforts and business plans will evolve accordingly. Grainger is focused on servicing customers and communities in addressing the pandemic and providing products to assist in the ongoing recovery, supporting the needs and safety of employees and ensuring the Company continues to operate with a strong financial position.

Further discussion of the risks and uncertainties posed by the COVID-19 pandemic is disclosed in Risk Factors under Part II, Item 1A of this report.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Matters Affecting Comparability

There were 64 sales days in both the three months ended September 30, 2021 and September 30, 2020. There were 191 and 192 sales days in the nine months ended September 30, 2021 and September 30, 2020.

Consistent with the Company's strategic focus on broad line MRO distribution in key markets, in June 2020, Grainger divested the Fabory high-touch solutions business, in August 2020, divested the China high-touch solutions business (China) and in November 2020, commenced the liquidation of Zoro Tools Europe (ZTE) in Germany. Accordingly, the Company’s operating results include Fabory, China and ZTE results through the respective dates of divestiture or liquidation.

In addition, beginning in mid-February 2020, the Company experienced elevated levels of COVID-19 pandemic-related product sales (e.g., personal protective equipment (PPE) and safety products) due to higher customer demand in response to the COVID-19 pandemic, while non-pandemic sales decreased. Conversely, as the COVID-19 pandemic progressed throughout 2020 and into 2021, the Company has seen pandemic-related sales soften and non-pandemic sales grow, as mix returns to more normalized levels. This shift between pandemic and core, non-pandemic product mix impacted gross margin as pandemic-related product sales are generally lower-margin.

Results of Operations – Three Months Ended September 30, 2021

The following table is included as an aid to understand the changes in Grainger’s Condensed Consolidated Statements of Earnings (in millions of dollars):

			Three Months Ended September 30,
												Percent Increase/(Decrease)						As a Percent of Net Sales
			2021						2020						2021						2020
Net sales			$	3,372					$	3,018		11.7		%				100.0		%				100.0		%
Cost of goods sold			2,122						1,944			9.2		%				62.9		%				64.4		%
Gross profit			1,250						1,074			16.3		%				37.1		%				35.6		%
Selling, general and administrative expenses (SG&A)			812						694			16.7		%				24.1		%				23.0		%
Operating earnings			438						380			15.6		%				13.0		%				12.6		%
Other expense - net			16						18			(8.2)		%				0.5		%				0.6		%
Income tax provision			107						106			1.4		%				3.2		%				3.5		%
Net earnings			315						256			23.0		%				9.3		%				8.5		%
Noncontrolling interest			18						16			13.3		%				0.5		%				0.5		%
Net earnings attributable to W.W. Grainger, Inc.			$	297					$	240		23.7		%				8.8		%				8.0		%

Grainger’s net sales of $3,372 million for the third quarter of 2021 increased $354 million, or 11.7%, compared to the same quarter in 2020. The increase in net sales was primarily driven by volume increases in the High-Touch Solutions N.A. and Endless Assortment segments. Also, core, non-pandemic product sales grew significantly as the economy improved, while demand for pandemic-related products continued to taper off with mix reverting to near pre-pandemic levels. See Note 3 to the Financial Statements for information related to disaggregated revenue. See the Segment Analysis below for further details related to segment revenue.

Gross profit of $1,250 million for the third quarter of 2021 increased $176 million, or 16%, compared to the same quarter in 2020. The gross profit margin of 37.1% during the third quarter of 2021 increased 1.5 percentage points when compared to the same quarter in 2020. This increase was primarily driven by the result of price realization and higher sales volume for core, non-pandemic products as mix continued to revert to more normalized levels. See Segment Analysis below for further details related to segment gross profit.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

SG&A of $812 million for the third quarter of 2021 increased $118 million, or 17%, compared to the third quarter of 2020. This increase was primarily driven by higher wages, variable compensation, healthcare costs and marketing expenses.

The following tables (in millions of dollars, except percentages) reconcile reported SG&A, operating earnings and net earnings attributable to W.W. Grainger, Inc. determined in accordance with U.S. generally accepted accounting principles (GAAP) to non-GAAP measures including SG&A adjusted, operating earnings adjusted and net earnings attributable to W.W. Grainger, Inc. adjusted. The Company believes that these non-GAAP measures provide meaningful information to assist investors in understanding financial results and assessing prospects for future performance as they provide a better baseline for analyzing the ongoing performance of its businesses by excluding 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 these measures with other companies' non-GAAP measures having the same or similar names.

			Three Months Ended September 30,
			2021						2020						%
SG&A reported			$	812					$	694					17		%
Restructuring - net (High-Touch Solutions N.A.)			—						(1)
Grainger China divestiture (Other)			—						(5)
Total restructuring - net and business divestiture			—						(6)
SG&A adjusted			$	812					$	700					16		%

			2021						2020						%
Operating earnings reported			$	438					$	380					16		%
Total restructuring - net and business divestiture			—						(6)
Operating earnings adjusted			$	438					$	374					17		%

			2021						2020						%
Net earnings attributable to W.W. Grainger, Inc. reported			$	297					$	240					24		%
Total restructuring - net, business divestiture and tax¹			—						6
Net earnings attributable to W.W. Grainger, Inc. adjusted			$	297					$	246					21		%

¹ The tax impact of adjustments and non-cash impairments are calculated based on the income tax rate in each applicable jurisdiction, subject to deductibility and the Company's ability to realize the associated tax benefits.

Excluding restructuring, net and business divestiture in the third quarter of 2 020, SG&A increased $112 million, or 16%. This increase is primarily due to higher wages, variable compensation, healthcare costs and marketing expenses.

Operating earnings of $438 million for the third quarter of 2021 increased $58 million, or 16%, compared to the third quarter of 2020. Excluding restructuring, net and business divestiture in the third quarter of 2020 as noted in the table above, operating earnings increased $64 million, or 17%, driven primarily by higher gross profit dollars partially offset by higher SG&A expenses.

Other expense, net was $16 million for the third quarter of 2021, a decrease of $2 million, or 8%, compared to the third quarter of 2020. The decrease was primarily related to higher interest expense in the third quarter of 2020 due to the draw down on the Company's revolving credit facility of $1 billion in March 2020 as a proactive measure to preserve financial flexibility during pandemic uncertainty.

Income taxes of $107 million for the third quarter of 2021 increased $1 million, or 1%, compared to $106 million in the third quarter of 2020. Grainger's effective tax rates were 25.5% and 29.3% for the three months ended September 30, 2021 and 2020, respectively. Excluding the tax benefit related to Fabory, as well as the restructuring, net and business divestiture in the third quarter of 2020 as noted in the table above, the effective tax rates were 25.5% and 26.5% for the three months ended September 30, 2021 and 2020, respectively.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Net earnings attributable to W.W. Grainger, Inc. of $297 million for the third quarter of 2021 increased $57 million, or 24%, compared to the third quarter of 2020. Excluding restructuring, net, business divestiture and tax in the third quarter of 2020 per the table above, net earnings increased $51 million or 21%.

Segment Analysis

See Note 10 to the Financial Statements for further detail on segment information.

High-Touch Solutions N.A.

Net sales were $2,663 million for the third quarter of 2021, an increase of $286 million, or 12.0% compared to the same period in 2020 and consisted of the following:

			Percent Increase
Volume (including product mix)			8.6%
Price and customer mix			3.0
Foreign exchange			0.4
Total			12.0%

Overall, revenue increases for the high-touch solutions businesses were primarily driven by volume and product mix. During the third quarter of 2021, the U.S. business continued to experience elevated sales volume of non-pandemic products from manufacturing businesses with overall sales up for nearly all customer segments as industries continued to improve and re-open. See Note 3 to the Financial Statements for information related to disaggregated revenue. From a product perspective, mix continued to revert to more normalized levels with higher demand for core, non-pandemic products as the economy recovered, despite a slight increase in demand for pandemic-related product in connection with renewed PPE guidelines.

Gross profit margin for the third quarter of 2021 increased 1.4 percentage points compared to the same period in 2020. The increase was primarily the result of price realization and higher sales volume for core, non-pandemic products as mix continued to revert to more normalized levels.

SG&A of $661 million for the third quarter of 2021 increased $94 million, or 17%, when compared to the third quarter of 2020, which was primarily driven by higher wages, variable compensation, healthcare costs and marketing expenses.

Operating earnings of $387 million for the third quarter of 2021 increased $53 million, or 16%, from $334 million for the third quarter of 2020. This increase was driven by higher gross profit dollars, partially offset by higher SG&A expenses.

Endless Assortment

Net sales were $646 million for the third quarter of 2021, an increase of $74 million, or 12.7%, compared to the same period in 2020 and consisted of the following:

			Percent Increase/ (Decrease)
Volume/price/mix			14.9%
Foreign exchange			(2.2)
Total			12.7%

The increase in net sales was driven by continued strong customer acquisition at both Zoro and MonotaRO.

Gross profit margin increased 1.2 percentage points in the third quarter of 2021 compared to the third quarter of 2020. The increase was driven primarily by pricing actions and freight efficiency at Zoro.

SG&A of $124 million for the third quarter of 2021 increased $16 million or 15% when compared to the third quarter of 2020. SG&A leverage improved 0.3 percentage point compared with the same period in 2020 due to sales revenue outpacing SG&A expenses.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Operating earnings of $59 million for the third quarter of 2021 increased $11 million, or 24% from $48 million for the third quarter of 2020. The increase was primarily driven by higher sales volume due to continued strong customer acquisitions, partially offset by higher SG&A expenses.

Other

Net sales were $63 million for the third quarter of 2021, a decrease of $6 million, or 6.1%, when compared to the same quarter in 2020 and consisted of the following:

			Percent (Decrease)/Increase
Business divestiture			(11.9)%
Foreign exchange			5.8
Total			(6.1)%

The decrease in net sales was driven by the net impact of the China business divestiture, partially offset by favorable foreign exchange for the Cromwell business in the U.K.

Gross profit margin increased 3.8 percentage points in the third quarter of 2021 compared to the third quarter of 2020 primarily due to improved customer and product mix at the Cromwell business in the U.K.

SG&A increased $8 million, or 32%, in the third quarter of 2021 from $19 million for the third quarter of 2020. This increase is primarily due to higher wages and marketing expenses.

Operating losses of $8 million for the third quarter of 2021 increased $6 million compared to operating losses of $2 million for the third quarter of 2020. The increase is primarily due to higher SG&A expenses, partially offset by higher gross profit dollars.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Results of Operations – Nine Months Ended September 30, 2021

The following table is included as an aid to understanding the changes in Grainger’s Condensed Consolidated Statements of Earnings (in millions of dollars):

			Nine Months Ended September 30,
												Percent Increase/(Decrease)						As a Percent of Net Sales
			2021						2020						2021						2020
Net sales			$	9,663					$	8,856		9.1		%				100.0		%				100.0		%
Cost of goods sold			6,196						5,645			9.8		%				64.1		%				63.7		%
Gross profit			3,467						3,211			8.0		%				35.9		%				36.3		%
Selling, general and administrative expenses (SG&A)			2,337						2,467			(5.3)		%				24.2		%				27.9		%
Operating earnings			1,130						744			52.0		%				11.7		%				8.4		%
Other expense - net			46						56			(17.3)		%				0.5		%				0.6		%
Income tax provision			271						118			129.5		%				2.8		%				1.3		%
Net earnings			813						570			42.7		%				8.4		%				6.4		%
Noncontrolling interest			53						43			23.4		%				0.5		%				0.5		%
Net earnings attributable to W.W. Grainger, Inc.			$	760					$	527		44.3		%				7.9		%				6.0		%

Grainger’s net sales of $9,663 million for the nine months ended September 30, 2021 increased $807 million, or 9.1%, compared to the same period in 2020. On a daily basis, net sales increased 9.7%. The increase in net sales was primarily driven by volume and product mix, partially offset by the impact of the business divestitures in the prior year. Also, core, non-pandemic related product sales volume continued to improve as product mix continued to revert to more normalized levels, while demand for pandemic-related products continued to taper throughout 2021. See Note 3 to the Financial Statements for information related to disaggregated revenue. See Segment Analysis below for further details related to segment revenue.

Gross profit of $3,467 million for the nine months ended September 30, 2021 increased $256 million, or 8%, compared to the same period in 2020. The gross profit margin of 35.9% decreased 0.4 percentage point when compared to the same period in 2020. This decrease was primarily driven by certain pandemic-related inventory adjustments in the first half of the year in the U.S. business (part of High-Touch Solutions N.A.) partially offset by price realization during the third quarter of 2021. See Segment Analysis below for further details related to segment gross profit.

SG&A of $2,337 million for the nine months ended September 30, 2021 decreased $130 million, or 5%, compared to the same period in 2020. This decrease is primarily a result of the impairment charges and losses for the divested Fabory business (part of Other) in the first and second quarter of 2020, respectively.

The following tables (in millions of dollars, except percentages) reconciles reported SG&A, operating earnings and net earnings attributable to W.W. Grainger, Inc. determined in accordance with U.S. GAAP to non-GAAP measures including SG&A adjusted, operating earnings adjusted and net earnings attributable to W.W. Grainger, Inc. adjusted. The Company believes that these non-GAAP measures provide meaningful information to assist shareholders in understanding financial results and assessing prospects for future performance as they provide a better baseline for analyzing the ongoing performance of its businesses by excluding 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 these measures with other companies' non-GAAP measures having the same or similar names.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

			Nine Months Ended September 30,
						%
			2021						2020
SG&A reported			$	2,337					$	2,467					(5)		%
Restructuring - net (High-Touch Solutions N.A.)			—						7
Fabory impairment charges (Other)			—						177
Fabory divestiture (Other)			—						109
Grainger China divestiture (Other)			—						(5)
Total restructuring - net, impairment charges and business divestiture			—						288
SG&A adjusted			$	2,337					$	2,179					7		%

			2021						2020						%
Operating earnings reported			$	1,130					$	744					52		%
Total restructuring - net, impairment charges and business divestiture			—						288
Operating earnings adjusted			$	1,130					$	1,032					10		%

			2021						2020						%
Net earnings attributable to W.W. Grainger, Inc. reported			$	760					$	527					44		%
Total restructuring - net, impairment charges, business divestiture and tax 1			—						153
Net earnings attributable to W.W. Grainger, Inc. adjusted			$	760					$	680					12		%

¹ The tax impact of adjustments and non-cash impairments are calculated based on the income tax rate in each applicable jurisdiction, subject to deductibility and the Company's ability to realize the associated tax benefits.

As noted in the table above, a large portion of the Company's SG&A decrease for the nine months ended September 30, 2021 is due to the $177 million Fabory impairment and $109 million loss on the divestiture of the Fabory business in the first and second quarter of 2020, respectively. Excluding restructuring, net, impairment charges and business divestiture in the nine months ended September 30, 2020, as noted in the table above, SG&A increased $158 million, or 7%, primarily due to higher wages, variable compensation, healthcare costs and marketing expenses.

Operating earnings for the nine months ended September 30, 2021 were $1,130 million, an increase of $386 million, or 52%, compared to the same period in 2020. Excluding restructuring, net, impairment charges and business divestiture in the nine months ended September 30, 2020 as noted in the table above, operating earnings increased $98 million, or 10%, driven by higher gross profit dollars partially offset by higher SG&A expenses.

Other expense, net was $46 million for the nine months ended September 30, 2021, a decrease of $10 million, or 17%, compared to the nine months ended September 30, 2020. The decrease was primarily related to higher prior year interest expense on the draw down on the Company's revolving credit facility of $1 billion in March 2020 as a proactive measure to preserve financial flexibility during pandemic uncertainty.

Income taxes of $271 million for the nine months ended September 30, 2021 increased $153 million, or 130%, compared with $118 million for the comparable 2020 period. This change was primarily driven by lower taxable operating earnings for the nine months ended September 30, 2020, and the absence of the prior year tax impact from the Company's divestiture of its investment in Fabory. Grainger's effective tax rates were 25.0% and 17.3% for the nine months ended September 30, 2021 and 2020, respectively. Excluding the tax benefit related to Fabory, as well as the restructuring, net and business divestiture in the nine months ended September 30, 2020, as noted in the table above, the effective tax rates were 25.0% and 26.0% for the nine months ended September 30, 2021 and 2020, respectively.

Net earnings attributable to W.W. Grainger, Inc. for the nine months ended September 30, 2021 increased $233 million or 44% to $760 million from $527 million for the nine months ended September 30, 2020. Excluding restructuring, net, impairment charges, business divestiture and tax in the nine months ended September 30, 2020,

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

as noted in the table above, net earnings increased $80 million, or 12%. The increase in net earnings primarily resulted from higher gross profit dollars partially offset by higher SG&A expenses.

Segment Analysis

See Note 10 to the Financial Statements for further detail on segment information.

High-Touch Solutions N.A.

Net sales were $7,558 million for the nine months ended September 30, 2021, an increase of $629 million, or 9.1%, compared to the same period in 2020. On a daily basis, net sales increased 9.6% and consisted of the following:

			Percent Increase
Volume (including product mix)			6.7%
Price and customer mix			2.3
Foreign exchange			0.6
Total			9.6%

Overall, revenue increases for the high-touch solutions businesses were primarily driven by volume and product mix. See Note 3 to the Financial Statements for information related to disaggregated revenue. From a product perspective, the high-touch solutions businesses experienced higher demand for core, non-pandemic product as mix continued to revert to more normalized levels, while demand for pandemic-related products continued to taper.

Gross profit margin decreased 0.7 percentage point compared to the same period in 2020. The decrease was primarily the result of U.S. business inventory adjustments on certain pandemic-related products in the first half of 2021 partially offset by price realization and product mix during the third quarter of 2021.

SG&A for the nine months ended September 30, 2021 increased $150 million compared to the same period in 2020, which is primarily driven by higher wages, variable compensation, healthcare costs and marketing expenses.

Operating earnings of $975 million for the nine months ended September 30, 2021 increased $42 million, or 5%, from $933 million for the nine months ended September 30, 2020. This increase was driven by higher gross profit dollars partially offset by higher SG&A expenses.

Endless Assortment

Net sales were $1,913 million for the nine months ended September 30, 2021, an increase of $320 million, or 20.0%, compared to the same period in 2020. On a daily basis, net sales increased 20.7% and consisted of the following:

			Percent Increase
Volume/price/mix			20.5%
Foreign exchange			0.2
Total			20.7%

The increase in net sales was driven by continued strong customer acquisition at both Zoro and MonotaRO.

Gross profit margin increased 0.8 percentage point in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily driven by pricing actions and freight efficiency at Zoro.

SG&A increased $55 million, or 18%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. SG&A leverage improved 0.4 percentage point compared to the same period in 2020 due to sales revenue outpacing SG&A expenses.

Operating earnings of $172 million for the nine months ended September 30, 2021 increased $47 million, or 38%, from $125 million for the nine months ended September 30, 2020. The increase was primarily driven by higher sales due to continued strong customer acquisitions, partially offset by higher SG&A expenses.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Other

Net sales for other businesses were $192 million for the nine months ended September 30, 2021 a decrease of $142 million, or 42.0%, compared to the same period in 2020. On a daily basis, net sales decreased 42.0% and consisted of the following:

			Percent (Decrease)/Increase
Business divestiture			(47.6)%
Foreign exchange			4.8
Volume/price/mix			0.8
Total			(42.0)%

The decrease in net sales was driven by the net impact of the Fabory and China business divestitures, partially offset by volume increases and favorable foreign exchange at the Cromwell business in the U.K.

Gross profit margin increased 2.0 percentage points for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to improved margins at the Cromwell business in the U.K.

SG&A decreased $335 million, or 81%, in the nine months ended September 30, 2021 from $414 million for the same period in 2020 primarily due to the impairment and losses related to the divested Fabory business in the first half of 2020. Excluding restructuring, net, impairment charges and business divestiture in both periods, SG&A would have decreased $54 million, or 41%. See table above for reconciliation of non-GAAP measures.

Operating losses of $17 million for the nine months ended September 30, 2021 improved $297 million from operating losses of $314 million in the comparable period from the prior year. Excluding restructuring, net, impairment charges and business divestiture in both periods, operating losses would have improved $16 million or 48%. See table above for reconciliation of non-GAAP measures.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Financial Condition

Grainger believes that its current level of cash and cash equivalents, marketable securities and availability under its revolving credit facilities will be sufficient to meet its liquidity needs for the next twelve months. Grainger 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 total available liquidity and 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, Cash Equivalents and Liquidity

As of September 30, 2021 and December 31, 2020, Grainger had cash and cash equivalents of $328 million and $585 million, respectively. This decrease in cash is primarily due to resuming capital investments and the share repurchase program, which were paused in 2020 due to the COVID-19 pandemic. As of September 30, 2021, the Company had approximately $1.8 billion in available liquidity.

Cash Flows

Net cash provided by operating activities was $724 million and $787 million for the nine months ended September 30, 2021 and 2020, respectively. The decrease in cash provided by operating activities is primarily the result of the net impacts from the now divested Fabory business partially offset by higher net earnings and favorable working capital.

Net cash used in investing activities was $180 million and $132 million for the nine months ended September 30, 2021 and 2020, respectively. This increase in net cash used in investing activities was primarily driven by higher additions to the Company's supply chain infrastructure combined with lower proceeds from sales and redemptions of assets.

Net cash used in financing activities was $790 million in the nine months ended September 30, 2021 compared to $147 million in the nine months ended September 30, 2020. The change in net cash used in financing activities was primarily driven by higher treasury stock repurchases in the current year and prior year borrowings of long-term debt.

Working Capital

Internally generated funds are the primary source of working capital and funds used for growth initiatives and capital expenditures.

Working capital consists of current assets (less non-operating cash) and current liabilities (less short-term debt, current maturities of long-term debt and lease liabilities). Working capital as of September 30, 2021, was $2,350 million, an increase of $130 million when compared to $2,220 million as of December 31, 2020. The increase was primarily driven by an increase in accounts receivable partially offset by an increase in accounts payable. At these dates, the ratio of current assets to current liabilities was 2.6 for both September 30, 2021 and December 31, 2020.

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 revolving credit facilities. Total debt, which is defined as total interest-bearing debt (short-term, current maturities and long-term) and lease liabilities as a percent of total capitalization was 55.1% at September 30, 2021, and 55.6% at December 31, 2020.

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 at September 30, 2021:

			Corporate						Senior Unsecured						Short-term
Moody's			A3						A3						P2
S&P			A+						A+						A1

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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 2020 Form 10-K.

Critical Accounting Estimates

The methods, assumptions and estimates used in applying the Company’s accounting policies may require the application of judgments regarding matters that are inherently uncertain. The Company considers an accounting policy to be a critical estimate if: (1) it involves assumptions that are uncertain when judgment was applied, and (2) 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 that estimates, assumptions and judgments used are reasonable, they are based on information available when the estimate was made.

A description of the Company's critical accounting estimates is described in Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2020 Form 10-K. There have been no material changes to the Company's critical accounting estimates from those described in the Company's 2020 Form 10-K.

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.

Grainger 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 Grainger’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: the unknown duration and health, economic, operational and financial impacts of the global outbreak of the coronavirus disease 2019 and its variants, including the Delta variant and any other variants that may emerge (COVID-19), as well as the impact of actions taken or contemplated by government authorities to mitigate the spread of COVID-19 (such as vaccine mandates for certain federal contractors and anticipated Occupational Health and Safety Administration safety directives, mask mandates, social distancing or other requirements) and to promote economic stability and recovery, on the Company’s businesses, its employees, customers and suppliers, including disruption to Grainger’s operations resulting from employee illnesses, the development, availability and usage of effective treatment or vaccines, changes in customers’ product needs, the acquisition of excess inventory leading to additional inventory carrying costs and inventory obsolescence, raw material, inventory and labor shortages, continued strain on global supply chains, and diminished transportation availability and efficiency, disruption caused by business responses to the COVID-19 pandemic, including working remote arrangements, which may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, adaptions to the Company’s controls and procedures required by working remote arrangements, including financial reporting processes, which could impact the design or operating effectiveness of such controls or procedures, and global or regional economic downturns or recessions, which could result in a decline in demand for the Company’s products; higher product costs or other expenses; a major loss of customers; loss or disruption of sources of supply; changes in customer or product mix; increased competitive pricing pressures; failure to enter into or sustain contractual arrangements on a satisfactory basis with group purchasing organizations; failure to develop or implement new technology initiatives or business strategies; 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, advertising and marketing, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, compliance or safety, trade and export compliance, general

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

commercial disputes, or privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and standards; government contract matters; disruption 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; other pandemic diseases or viral contagions; natural or human induced disasters, extreme weather and other catastrophes or conditions; failure to attract, retain, train, motivate, develop and transition 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 and other factors identified under Part I, Item 1A: “Risk Factors” in the Company’s 2020 Form 10-K, as updated from time to time in the Company’s Quarterly Reports on Form 10-Q.

Caution should be taken not to place undue reliance on Grainger’s forward-looking statements and Grainger 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.

W.W. Grainger, Inc. and Subsidiaries

As disclosed in Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk in the Company's 2020 Form 10-K, Grainger’s primary market risk exposures include changes in foreign currency exchange and interest rates.

For a discussion of current market conditions resulting from the COVID-19 pandemic, refer to Part I, Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.

Disclosure Controls and Procedures

Grainger carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, of 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 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.

Changes in Internal Control Over Financial Reporting

There have been no changes in Grainger's internal control over financial reporting for the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, Grainger’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1: Legal Proceedings

For a description of the Company’s legal proceedings, see Note 11 - Contingencies, Legal Matters, Commitments and Other Contractual Obligations - to the Condensed Consolidated Financial Statements included under Part I, Item 1: Financial Statements.

The Company’s business, results of operations, and financial condition are subject to various risks and uncertainties, including those described in Part I, Item 1A: Risk Factors in the Company’s 2020 Form 10-K. The following risk factors are being provided to supplement and update the risk factors set forth in the 2020 Form 10-K.

Grainger’s business and operations have been and may continue to be adversely affected by the global outbreak of the Coronavirus (COVID-19 pandemic) and may be adversely affected by other global outbreaks of pandemic disease.

Any global outbreaks of pandemic disease, such as the COVID-19 pandemic, could have a material adverse effect on Grainger’s business, results of operations and financial condition, including liquidity, capital and financing resources.

The COVID-19 pandemic has disrupted and adversely affected Grainger’s business, including its business with customers and suppliers. Grainger has experienced customer disruptions to their ability or willingness to purchase Grainger products, customer delays in making purchasing decisions, shifts in the types and quantities of products purchased and, in some cases, diminished customer loyalty and retention rates. These may continue to persist during and beyond the COVID-19 pandemic. Grainger has also experienced and may continue to experience supply chain disruptions, supplier inability to manufacture or deliver products to Grainger or meet the unprecedented demand for pandemic-related products, rapid shifts in the type, quantity or quality of products sold, and higher product costs including as a result of inflation.

Additional effects from the COVID-19 pandemic on Grainger's business include adverse impacts on transportation, including shipping delays and port disruptions, the availability of products, and labor shortages, which have impacted Grainger’s ability to hire employees to fill all open positions. There is the potential for disruptions or closures of customer and supplier facilities, and the ability of certain customers and suppliers to continue as a going concern. Furthermore, Grainger's ability to collect its accounts receivable or receive product ordered from suppliers, as customers and suppliers face higher liquidity and solvency risks and seek terms that are less favorable to Grainger, may adversely affect the Company’s business. These developments, alone or in combination, could materially adversely affect Grainger’s future sales and results of operations.

The effects of the COVID-19 pandemic on Grainger also include restrictions on Grainger’s employees’ ability to visit customers and many of Grainger’s employees’ ability to work in offices or at facilities, as well as disruptions or temporary closures of the Company’s facilities, including distribution centers, branches, and support buildings. Some actions that Grainger has taken in response to the COVID-19 pandemic, including enabling remote working arrangements, may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage Grainger’s reputation and commercial relationships, disrupt operations, increase costs and/or decrease revenues, and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card association, employees and others. In addition, Grainger’s remote working arrangements have required the Company to make adaptions to its controls and procedures, including to its financial reporting processes, that could impact the design or operating effectiveness of such controls or procedures. The COVID-19 pandemic has also resulted in increased variable compensation, wage rates and employee healthcare costs, and Grainger expects these trends to continue.

Furthermore, as result of surges in demand and disruptions in supply chains, including in Asia and other locations, the COVID-19 pandemic has resulted in shortages of certain PPE, cleaning supplies and other products, which may materially impact Grainger's ability to obtain or deliver inventory to customers on a timely basis or at all. While Grainger attempts to maintain sufficient inventory levels to meet quickly shifting customer demand patterns and supplier lead time requirements, which may become extended due to the pandemic demand increase, the Company cannot be certain it will be able to accurately predict demand or lead times, which might cause it to be unable to service customer demand or expose it to risks of product shortages. This uncertainty has caused and may continue to cause Grainger to acquire excess inventory, which has led and may lead to additional inventory carrying costs and inventory obsolescence. For example, as discussed in the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2021 and June 30, 2021, respectively, the Company had certain pandemic-related

inventory adjustments in the U.S. business (part of High-Touch Solutions N.A.) on certain non-core SKUs, which were selling below cost based on then current market-relevant pricing.

Pandemic product shortages may also require the Company to attempt to procure products from new suppliers or through brokers with whom it has a limited or no prior relationship. Despite due diligence and product compliance protocols, the products from these sources may not be delivered on a timely basis or at all, or their quality may not be as represented, all of which could cause Grainger to incur costs, including the expense of procuring alternate products or recalling or replacing products in addition to other adverse impacts to Grainger’s business.

Moreover, global outbreaks such as the COVID-19 pandemic have resulted in a widespread health crisis that has adversely affected and could continue to adversely affect the economies of many countries, resulting in a global or regional economic downturn or recession. Any such recession could result in a significant decline in demand for the Company’s products or limit Grainger’s ability to access capital markets on terms that are attractive or at all, any of which could materially adversely affect the Company’s business, results of operations and financial condition.

The duration and ultimate impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition, including liquidity, capital and financing resources, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be predicted at this time. Such factors and developments may include the geographic spread, severity and duration of the COVID-19 pandemic, including whether there are periods of increased COVID-19 cases, the further spread of the Delta variant or the emergence of other new or more contagious variants that may render vaccines ineffective or less effective, disruption to Grainger’s operations resulting from employee illnesses or any inability to attract, retain or motivate employees, the development, availability and administration of effective treatment or vaccines and the willingness of individuals to receive a vaccine or otherwise comply with various mandates, the extent and duration of the impact on the U.S. or global economy, including the pace and extent of recovery when the pandemic subsides, and the actions that have been or may be taken by various governmental authorities in response to the outbreak.

The Company is a federal contractor and part of its workforce will be covered by vaccine mandates expected to be imposed by Executive Order, while other members of its workforce are likely to be covered by anticipated Occupational Health and Safety Administration safety directives for vaccination or testing. Complying with these requirements could disrupt the workforce and operations and impose additional compliance and other costs. Other requirements, including health and safety measures, such as mandatory facility closures of non-essential businesses, stay in shelter health orders or similar restrictions, social distancing mandates and/or travel bans, import and export restrictions, pricing mandates, including disaster or emergency declaration pricing statutes, and mandatory directives that certain products be allocated or provided to certain customers, could also disrupt the Company’s business and impose costs. If the Company is unable to respond to and manage the impact of these mandates, requirement or events, the Company’s business and results of operations may continue to be adversely affected.

Cybersecurity incidents, including breaches of information systems security, could damage Grainger’s reputation, disrupt operations, increase costs and/or decrease revenues.

Through Grainger’s sales and eCommerce channels, Grainger collects and stores personally identifiable, confidential, proprietary and other information from customers so that they may, among other things, purchase products or services, enroll in promotional programs, register on Grainger’s websites or otherwise communicate or interact with the Company. Moreover, Grainger’s operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to its business, customers, suppliers and employees, and other sensitive matters.

Cyber threats are rapidly evolving and those threats and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated. Each year, cyber-attackers make numerous attempts to access the information stored in the Company’s information systems. If successful, these attacks may expose Grainger to risk of loss or misuse of proprietary or confidential information or disruptions of business operations.

Grainger's IT infrastructure also includes products and services provided by suppliers, vendors and other third parties, and these providers can experience breaches of their systems and products that impact the security of systems and proprietary or confidential information. Moreover, from time to time, Grainger may share information with these third parties in connection with the products and services they provide to the business. While Grainger requires assurances that these third parties will protect confidential information, there is a risk that the confidentiality of data held or accessed by them may be compromised. If successful, those attempting to penetrate Grainger’s or its vendors’ information systems may misappropriate intellectual property or personally identifiable, credit card,

confidential, proprietary or other sensitive customer, supplier, employee or business information, or cause systems disruption. While many of Grainger's agreements with these third parties include indemnification provisions, the Company may not be able to recover sufficiently, or at all, under such provisions to adequately offset any losses it may incur.

Moreover, the Company may face the threat to its computer systems of unauthorized access, computer hackers, computer viruses, malicious code, ransomware, phishing, organized cyber-attacks and other security problems and system disruptions. Such tactics may also seek to cause payments due to or from the Company to be misdirected to fraudulent accounts, which may not be recoverable by the Company.

In addition, a Grainger employee, contractor or other third party with whom Grainger does business may attempt to circumvent security measures or otherwise access Grainger’s information systems in order to obtain such information or inadvertently cause a breach involving such information. Further, Grainger’s systems are integrated with customer systems in certain cases, and a breach of the Company’s information systems could be used to gain illicit access to a customer’s systems and information.

Grainger has been subject to unauthorized accesses of certain supplier and customer information in the past, which it deemed immaterial to its business and operations, and may be subject to other unauthorized accesses of its systems in the future. There can be no assurance that any future unauthorized access to or breach of Grainger’s information systems will not be material to Grainger’s business, operations or financial condition.

Grainger maintains information security staff, policies and procedures for managing risk to its information security systems, conducts annual employee awareness training of cybersecurity threats and routinely utilizes consultants to assist in evaluating the effectiveness of the security of its IT systems. While Grainger has instituted these and other safeguards for the protection of information, because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, Grainger may be unable to anticipate these techniques or implement adequate preventative measures. Any breach of Grainger’s security measures or any breach, error or malfeasance of those of its third party service providers could cause Grainger to incur significant costs to protect any customers, suppliers, employees, and other parties whose personal data is compromised and to make changes to its information systems and administrative processes to address security issues. In addition, although Grainger maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber and information security risks, such insurance coverage may be insufficient to cover all losses.

Grainger continuously evaluates the need to upgrade and/or replace its systems and network infrastructure to protect its computing environment, to stay current on vendor supported products and to improve the efficiency of its systems and for other business reasons. The implementation of new systems and IT could adversely impact its operations by imposing substantial capital expenditures, demands on management time and risks of delays or difficulties in transitioning to new systems. In addition, the Company's systems implementations may not result in productivity improvements at the levels anticipated. Systems implementation disruption and any other IT disruption, if not anticipated and appropriately mitigated, could have an adverse effect on its business.

Loss of customer, supplier, employee or intellectual property or other business information or failure to comply with data privacy and security laws could disrupt operations, damage Grainger’s reputation and expose Grainger to claims from customers, suppliers, financial institutions, regulators, payment card associations, employees and others, any of which could have a material adverse effect on Grainger, its financial condition and results of operations. In the past, Grainger has experienced certain cybersecurity incidents. In each instance, Grainger provided notifications and adopted remedial measures. While these incidents have not been deemed to be material to Grainger, there can be no assurance that a future breach or incident would not be material to Grainger’s operations and financial condition.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities – Third Quarter

Period			Total Number of Shares Purchased (A) (D)			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 31			80,047			$453.15			79,944			4,742,620
Aug. 1 – Aug. 31			274,451			$437.41			274,451			4,468,169
Sept. 1 – Sept. 30			208,265			$413.23			207,688			4,260,481
Total			562,763						562,083

(A)There were no shares withheld to satisfy tax withholding obligations.

(B)Average price paid per share excludes commissions of $0.01 per share paid.

(C)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.

(D)The difference of 680 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.

A list of exhibits filed with this report on Form 10-Q is provided in the Exhibit Index on page 36 of this report.

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:			October 29, 2021			By:			/s/ Deidra C. Merriwether
									Deidra C. Merriwether
									Senior Vice President
									and Chief Financial Officer
									(Principal Financial Officer)
Date:			October 29, 2021			By:			/s/ Laurie R. Thomson
									Laurie R. Thomson
									Vice President and Controller
									(Principal Accounting Officer)

EXHIBIT INDEX

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).