W.W. Grainger 10-Q 2024-06-30

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 June 30, 2024

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 48,825,703 shares of the Company’s Common Stock outstanding as of July 25, 2024.

			TABLE OF CONTENTS
						Page
			PART I - FINANCIAL INFORMATION
Item 1:			Financial Statements (Unaudited)
			Condensed Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2024 and 2023			3
			Condensed Consolidated Statements of Comprehensive Earnings for the Three and Six Months Ended June 30, 2024 and 2023			4
			Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023			5
			Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023			6
			Condensed Consolidated Statements of Shareholders' Equity for the Three and Six Months Ended June 30, 2024 and 2023			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			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			31
Item 5:			Other Information			31
Item 6:			Exhibits			32
Signatures						33

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												Six Months Ended
			June 30,												June 30,
			2024						2023						2024						2023
Net sales			$	4,312					$	4,182					$	8,547					$	8,273
Cost of goods sold			2,618						2,538						5,185						4,995
Gross profit			1,694						1,644						3,362						3,278
Selling, general and administrative expenses			1,045						983						2,044						1,937
Operating earnings			649						661						1,318						1,341
Other expense (income):
Interest expense – net			20						24						41						48
Other – net			(7)						(8)						(14)						(14)
Total other expense – net			13						16						27						34
Earnings before income taxes			636						645						1,291						1,307
Income tax provision			146						155						304						309
Net earnings			490						490						987						998
Less net earnings attributable to noncontrolling interest			20						20						39						40
Net earnings attributable to W.W. Grainger, Inc.			$	470					$	470					$	948					$	958
Earnings per share:
Basic			$	9.54					$	9.32					$	19.20					$	18.98
Diluted			$	9.51					$	9.28					$	19.13					$	18.89
Weighted average number of shares outstanding:
Basic			49.0						50.1						49.1						50.2
Diluted			49.2						50.3						49.3						50.4

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												Six Months Ended
			June 30,												June 30,
			2024						2023						2024						2023
Net earnings			$	490					$	490					$	987					998
Other comprehensive earnings (losses):
Foreign currency translation adjustments – net of reclassification to earnings			(57)						(32)						(111)						(30)
Postretirement benefit plan losses and other – net of tax benefits of $1, $1, $2, and $2, respectively			(4)						(3)						(7)						(6)
Total other comprehensive earnings (losses)			(61)						(35)						(118)						(36)
Comprehensive earnings – net of tax			429						455						869						962
Less comprehensive earnings (losses) attributable to noncontrolling interest
Net earnings			20						20						39						40
Foreign currency translation adjustments			(20)						(27)						(42)						(32)
Total comprehensive earnings (losses) attributable to noncontrolling interest			—						(7)						(3)						8
Comprehensive earnings attributable to W.W. Grainger, Inc.			$	429					$	462					$	872					$	954

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) June 30, 2024						December 31, 2023
Current assets
Cash and cash equivalents			$	769					$	660
Accounts receivable (less allowances for credit losses of $37 and $35, respectively)			2,344						2,192
Inventories – net			2,169						2,266
Prepaid expenses and other current assets			239						156
Total current assets			5,521						5,274
Property, buildings and equipment – net			1,667						1,658
Goodwill			360						370
Intangibles – net			237						234
Operating lease right-of-use			396						429
Other assets			171						182
Total assets			$	8,352					$	8,147
Liabilities and shareholders' equity
Current liabilities
Current maturities			$	505					$	34
Trade accounts payable			1,106						954
Accrued compensation and benefits			254						327
Operating lease liability			72						71
Accrued expenses			424						397
Income taxes payable			36						48
Total current liabilities			2,397						1,831
Long-term debt			1,783						2,266
Long-term operating lease liability			352						381
Deferred income taxes and tax uncertainties			117						104
Other non-current liabilities			116						124
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			1,371						1,355
Retained earnings			12,917						12,162
Accumulated other comprehensive losses			(248)						(172)
Treasury stock, at cost – 60,777,600 and 60,341,817 shares, respectively			(10,818)						(10,285)
Total W.W. Grainger, Inc. shareholders’ equity			3,277						3,115
Noncontrolling interest			310						326
Total shareholders' equity			3,587						3,441
Total liabilities and shareholders' equity			$	8,352					$	8,147

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

W.W. Grainger, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of dollars)

(Unaudited)

						Six Months Ended
						June 30,
						2024						2023
Cash flows from operating activities:
Net earnings						$	987					$	998
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for credit losses						12						9
Deferred income taxes and tax uncertainties						15						17
Depreciation and amortization						116						102
Non-cash lease expense						41						38
Stock-based compensation						34						31
Change in operating assets and liabilities:
Accounts receivable						(205)						(303)
Inventories						71						28
Prepaid expenses and other assets						(42)						93
Trade accounts payable						184						147
Operating lease liabilities						(47)						(42)
Accrued liabilities						(18)						(169)
Income taxes – net						(62)						(28)
Other non-current liabilities						(14)						(17)
Net cash provided by operating activities						1,072						904
Cash flows from investing activities:
Capital expenditures						(195)						(193)
Proceeds from sale of assets						1						2
Other – net						17						—
Net cash used in investing activities						(177)						(191)
Cash flows from financing activities:
Proceeds from debt						3						6
Payments of debt						(17)						(18)
Proceeds from stock options exercised						10						28
Payments for employee taxes withheld from stock awards						(40)						(29)
Purchases of treasury stock						(512)						(313)
Cash dividends paid						(206)						(194)
Other – net						(1)						(1)
Net cash used in financing activities						(763)						(521)
Exchange rate effect on cash and cash equivalents						(23)						(2)
Net change in cash and cash equivalents						109						190
Cash and cash equivalents at beginning of year						660						325
Cash and cash equivalents at end of period						$	769					$	515

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

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
Stock-based compensation			—			7			—			—			(7)			2			2
Purchases of treasury stock			—			—			—			—			(168)			—			(168)
Net earnings			—			—			470			—			—			20			490
Other comprehensive earnings (losses)			—			—			—			(8)			—			(27)			(35)
Cash dividends paid ($1.86 per share)			—			—			(94)			—			—			(13)			(107)
Balance at June 30, 2023			$	55		$	1,331		$	11,477		$	(184)		$	(9,744)		$	292		$	3,227

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

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, 2024			$	55		$	1,355		$	12,162		$	(172)		$	(10,285)		$	326		$	3,441
Stock-based compensation			—			8			—			—			2			—			10
Purchases of treasury stock			—			—			—			—			(277)			—			(277)
Net earnings			—			—			478			—			—			19			497
Other comprehensive earnings (losses)			—			—			—			(35)			—			(22)			(57)
Cash dividends paid ($1.86 per share)			—			—			(92)			—			—			(13)			(105)
Balance at March 31, 2024			$	55		$	1,363		$	12,548		$	(207)		$	(10,560)		$	310		$	3,509
Stock-based compensation			—			8			—			—			(15)			1			(6)
Purchases of treasury stock			—			—			—			—			(243)			(1)			(244)
Net earnings			—			—			470			—			—			20			490
Other comprehensive earnings (losses)			—			—			—			(41)			—			(20)			(61)
Cash dividends paid ($2.05 per share)			—			—			(101)			—			—			—			(101)
Balance at June 30, 2024			$	55		$	1,371		$	12,917		$	(248)		$	(10,818)		$	310		$	3,587

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

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, 2023, 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, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2024 (2023 Form 10-K).

There were no material changes to the Company’s significant accounting policies from those disclosed in Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data in the Company's 2023 Form 10-K.

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 MRO product sales and related activities.

The Company's presentation of revenue by reportable segment and customer 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. The majority of Company revenue originates from contracts with a single performance obligation to deliver products, whereby performance obligations are satisfied when control of the product is transferred to the customer per the arranged shipping terms.

The following tables present the Company's percentage of revenue by reportable segment and by customer industry:

			Three Months Ended June 30,
			2024																		2023
Customer Industry(1)			High-Touch Solutions N.A.						Endless Assortment						Total Company(2)						High-Touch Solutions N.A.						Endless Assortment						Total Company(2)
Manufacturing			31		%				30		%				31		%				29		%				30		%				30		%
Government			19		%				3		%				16		%				21		%				3		%				18		%
Wholesale			7		%				18		%				9		%				7		%				16		%				8		%
Commercial Services			7		%				12		%				8		%				7		%				12		%				8		%
Contractors			5		%				12		%				6		%				5		%				12		%				6		%
Healthcare			7		%				2		%				6		%				7		%				2		%				6		%
Retail			4		%				4		%				4		%				4		%				4		%				4		%
Transportation			4		%				2		%				4		%				4		%				2		%				4		%
Utilities			3		%				2		%				3		%				3		%				2		%				2		%
Warehousing			3		%				—		%				2		%				4		%				1		%				3		%
Other(3)			10		%				15		%				11		%				9		%				16		%				11		%
Total net sales			100		%				100		%				100		%				100		%				100		%				100		%
Percent of total company revenue			80		%				18		%				100		%				80		%				18		%				100		%
(1) Customer industry results for the three months ended June 30, 2024 and 2023 primarily use the North American Industry Classification System (NAICS). As customers' businesses evolve, industry classifications may change. When these changes occur, Grainger does not recast the customer classification for prior periods as the industry used in the prior period was appropriate at the point-in-time. As a result, year-over-year changes may be impacted.
(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately 2% of Total Company revenue for both the three months ended June 30, 2024 and 2023.
(3) Other primarily includes revenue from industries and customers that are not material individually, including hospitality, restaurants, property management and natural resources.

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

			Six Months Ended June 30,
			2024																		2023
Customer Industry(1)			High-Touch Solutions N.A.						Endless Assortment						Total Company(2)						High-Touch Solutions N.A.						Endless Assortment						Total Company(2)
Manufacturing			31		%				29		%				31		%				30		%				30		%				30		%
Government			19		%				3		%				16		%				20		%				3		%				16		%
Wholesale			7		%				18		%				9		%				7		%				16		%				9		%
Commercial Services			7		%				12		%				8		%				7		%				12		%				8		%
Contractors			5		%				11		%				6		%				5		%				12		%				6		%
Healthcare			7		%				1		%				6		%				7		%				2		%				6		%
Retail			4		%				4		%				4		%				4		%				4		%				4		%
Transportation			4		%				2		%				4		%				4		%				2		%				4		%
Utilities			3		%				2		%				3		%				3		%				2		%				3		%
Warehousing			3		%				1		%				2		%				4		%				1		%				3		%
Other(3)			10		%				17		%				11		%				9		%				16		%				11		%
Total net sales			100		%				100		%				100		%				100		%				100		%				100		%
Percent of total company revenue			80		%				18		%				100		%				80		%				18		%				100		%
(1) Customer industry results for the six months ended June 30, 2024 and 2023 primarily use the North American Industry Classification System (NAICS). As customers' businesses evolve, industry classifications may change. When these changes occur, Grainger does not recast the customer classification for prior periods as the industry used in the prior period was appropriate at the point-in-time. As a result, year-over-year changes may be impacted.
(2) Total Company includes other businesses, which includes the Cromwell business. Other businesses account for approximately 2% of Total Company revenue for both the six months ended June 30, 2024 and 2023.
(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 $109 million and $114 million as of June 30, 2024 and December 31, 2023, respectively.

The Company had no material unsatisfied performance obligations, contract assets or liabilities as of June 30, 2024 and December 31, 2023.

NOTE 3 - PROPERTY, BUILDINGS AND EQUIPMENT

Property, buildings and equipment consisted of the following (in millions of dollars):

			As of
			June 30, 2024						December 31, 2023
Land and land improvements			$	397					$	397
Building, structures and improvements			1,524						1,469
Furniture, fixtures, machinery and equipment			1,859						1,852
Property, buildings and equipment			$	3,780					$	3,718
Less accumulated depreciation			2,113						2,060
Property, buildings and equipment – net			$	1,667					$	1,658

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS

The Company did not identify any significant events or changes in circumstances that indicated the existence of impairment indicators during the three and six months ended June 30, 2024. 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												Total
Balance at January 1, 2023						$	313					$	58											$	371
Translation						2						(3)												(1)
Balance at December 31, 2023						315						55												370
Translation						(4)						(6)												(10)
Balance at June 30, 2024						$	311					$	49											$	360

The Company's cumulative goodwill impairments as of June 30, 2024 were $137 million. No goodwill impairments were recorded for the three and six months ended June 30, 2024 and 2023.

The balances and changes in intangible assets – net are as follows (in millions of dollars):

									As of
									June 30, 2024																		December 31, 2023
			Weighted average life						Gross carrying amount						Accumulated amortization						Net carrying amount						Gross carrying amount						Accumulated amortization						Net carrying amount
Customer lists and relationships			10.6 years						$	164					$	153					$	11					$	166					$	153					$	13
Trademarks, trade names and other			14.9 years						31						24						7						31						23						8
Non-amortized trade names and other			Indefinite						18						—						18						20						—						20
Capitalized software			4.3 years						690						489						201						659						466						193
Total intangible assets			6.1 years						$	903					$	666					$	237					$	876					$	642					$	234

W.W. Grainger, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 5 - DEBT

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

			As of
			June 30, 2024												December 31, 2023
			Carrying Value						Fair Value						Carrying Value						Fair Value
4.60% senior notes due 2045			$	1,000					$	897					$	1,000					$	967
1.85% senior notes due 2025			—						—						500						483
3.75% senior notes due 2046			400						312						400						336
4.20% senior notes due 2047			400						333						400						361
Debt issuance costs – net of amortization and other			(17)						(17)						(34)						(34)
Long-term debt			1,783						1,525						2,266						2,113
1.85% senior notes due 2025			500						489						—						—
Japanese yen term loan			14						14						32						32
Other			(9)						(9)						2						2
Current maturities			505						494						34						34
Total debt			$	2,288					$	2,019					$	2,300					$	2,147

Senior Notes

Between 2015 and 2020, Grainger issued $2.3 billion in unsecured debt (Senior Notes) primarily to provide flexibility in funding general working capital needs, share repurchases and long-term cash requirements. The Senior Notes require no principal payments until maturity and interest is paid semi-annually.

The Company incurred debt issuance costs related to its Senior Notes, representing underwriting fees and other expenses. These costs were recorded as a contra-liability in Long-term debt and are being amortized over the term of the Senior Notes using the straight-line method to Interest expense – net. As of June 30, 2024 and December 31, 2023, the unamortized costs were $18 million and $19 million, respectively.

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 are presented in Other in Current maturities as of June 30, 2024 and Other in Long-term debt as of December 31, 2023 in the table above. For further discussion on the Company's hedge accounting policies, see Note 6.

MonotaRO Term Loan

In August 2020, MonotaRO Co., Ltd (MonotaRO) entered into a ¥9 billion term loan agreement to fund technology investments and the expansion of its distribution center (DC) network. As of June 30, 2024 and December 31, 2023, the carrying amount of the term loan in Current maturities was $14 million and $32 million, respectively. The term loan matures in August 2024 and bears an average interest rate of 0.05%.

Fair Value

The estimated fair value of the Company’s Senior Notes was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as Level 2 inputs within the fair value hierarchy.

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 and interest rates. Grainger currently 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 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 Condensed Consolidated Statements of Earnings in Interest expense – net. The notional amount of the Company’s outstanding fair value hedges as of June 30, 2024 and December 31, 2023 was $450 million.

Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, no recognition of ineffectiveness was recorded for the three and six months ended June 30, 2024 and 2023.

The liability hedged by the interest rate swaps is recorded in Current maturities as of June 30, 2024 and Long-term debt as of December 31, 2023 on the Condensed Consolidated Balance Sheets. The carrying amount of the hedged item, including the cumulative amount of fair value hedging adjustments was $438 million as of June 30, 2024 and $432 million as of December 31, 2023.

The interest rate swaps are reported on the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 as shown in the following table (in millions of dollars):

						As of
						June 30, 2024						December 31, 2023
Accrued expenses						$	11					$	—
Other non-current liabilities						$	—					$	16

Fair Value

The estimated fair values of the Company's derivative instruments were based on quoted market forward rates, which are classified as Level 2 inputs within the fair value hierarchy and reflect the present value of the amount that the Company would pay for contracts involving the same notional amounts and maturity dates. No adjustments were required during the current period to reflect the counterparty’s credit risk or the Company’s own nonperformance risk.

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 remaining 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 reportable segment's Selling, general and administrative expenses (SG&A) and are also eliminated in the Company's Condensed Consolidated Financial Statements.

Following is a summary of segment results (in millions of dollars):

			Three Months Ended June 30,																								Six Months Ended June 30,
			2024												2023												2024												2023
			Net sales						Operating earnings (losses)						Net sales						Operating earnings (losses)						Net sales						Operating earnings (losses)						Net sales						Operating earnings (losses)
High-Touch Solutions N.A.			$	3,458					$	591					$	3,355					$	600					$	6,863					$	1,201					$	6,649					$	1,221
Endless Assortment			776						61						751						65						1,527						120						1,475						123
Other			78						(3)						76						(4)						157						(3)						149						(3)
Total Company			$	4,312					$	649					$	4,182					$	661					$	8,547					$	1,318					$	8,273					$	1,341

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 team members, consumers, competitors, suppliers, customers, governmental entities and other third parties.

The Company has been engaged in litigation involving KMCO, LLC (KMCO) as described in previous quarterly and annual reports. The Company has since settled several of the personal injury lawsuits. Those settlements had, and continue to have, no effect on net earnings or cash flows. The Company continues to contest the remaining KMCO-related lawsuits and cannot predict the timing, outcome or any estimate of possible loss or range of losses on the remaining KMCO lawsuits.

NOTE 9 - SUBSEQUENT EVENTS

On July 31, 2024, the Company’s Board of Directors declared a quarterly dividend of $2.05 per share, payable September 1, 2024, to shareholders of record on August 12, 2024.

W.W. Grainger, Inc. and Subsidiaries

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS