filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
W.W. Grainger, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In millions of dollars and shares, except for per share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net sales | $ | 4,388 | $ | 4,208 | $ | 12,935 | $ | 12,481 | |||||||||||||||
| Cost of goods sold | 2,668 | 2,553 | 7,853 | 7,548 | |||||||||||||||||||
| Gross profit | 1,720 | 1,655 | 5,082 | 4,933 | |||||||||||||||||||
| Selling, general and administrative expenses | 1,034 | 988 | 3,078 | 2,925 | |||||||||||||||||||
| Operating earnings | 686 | 667 | 2,004 | 2,008 | |||||||||||||||||||
| Other expense (income): | |||||||||||||||||||||||
| Interest expense – net | 19 | 22 | 60 | 70 | |||||||||||||||||||
| Other – net | (4) | (7) | (18) | (21) | |||||||||||||||||||
| Total other expense – net | 15 | 15 | 42 | 49 | |||||||||||||||||||
| Earnings before income taxes | 671 | 652 | 1,962 | 1,959 | |||||||||||||||||||
| Income tax provision | 166 | 159 | 470 | 468 | |||||||||||||||||||
| Net earnings | 505 | 493 | 1,492 | 1,491 | |||||||||||||||||||
| Less net earnings attributable to noncontrolling interest | 19 | 17 | 58 | 57 | |||||||||||||||||||
| Net earnings attributable to W.W. Grainger, Inc. | $ | 486 | $ | 476 | $ | 1,434 | $ | 1,434 | |||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 9.90 | $ | 9.47 | $ | 29.10 | $ | 28.45 | |||||||||||||||
| Diluted | $ | 9.87 | $ | 9.43 | $ | 29.00 | $ | 28.32 | |||||||||||||||
| Weighted average number of shares outstanding: | |||||||||||||||||||||||
| Basic | 48.8 | 49.9 | 49.0 | 50.1 | |||||||||||||||||||
| Diluted | 48.9 | 50.1 | 49.2 | 50.3 | |||||||||||||||||||
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, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net earnings | $ | 505 | $ | 493 | $ | 1,492 | 1,491 | ||||||||||||||||
| Other comprehensive earnings (losses): | |||||||||||||||||||||||
| Foreign currency translation adjustments | 79 | (39) | (32) | (69) | |||||||||||||||||||
| Postretirement benefit plan losses and other – net of tax benefit of $1, $1, $3, and $3, respectively | (3) | (3) | (10) | (9) | |||||||||||||||||||
| Total other comprehensive earnings (losses) | 76 | (42) | (42) | (78) | |||||||||||||||||||
| Comprehensive earnings – net of tax | 581 | 451 | 1,450 | 1,413 | |||||||||||||||||||
| Less comprehensive earnings (losses) attributable to noncontrolling interest | |||||||||||||||||||||||
| Net earnings | 19 | 17 | 58 | 57 | |||||||||||||||||||
| Foreign currency translation adjustments | 38 | (7) | (4) | (39) | |||||||||||||||||||
| Total comprehensive earnings (losses) attributable to noncontrolling interest | 57 | 10 | 54 | 18 | |||||||||||||||||||
| Comprehensive earnings attributable to W.W. Grainger, Inc. | $ | 524 | $ | 441 | $ | 1,396 | $ | 1,395 |
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, 2024 | December 31, 2023 | |||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 1,448 | $ | 660 | |||||||
| Accounts receivable (less allowance for credit losses of $36 and $35, respectively) | 2,346 | 2,192 | |||||||||
| Inventories – net | 2,170 | 2,266 | |||||||||
| Prepaid expenses and other current assets | 219 | 156 | |||||||||
| Total current assets | 6,183 | 5,274 | |||||||||
| Property, buildings and equipment – net | 1,746 | 1,658 | |||||||||
| Goodwill | 366 | 370 | |||||||||
| Intangibles – net | 247 | 234 | |||||||||
| Operating lease right-of-use | 400 | 429 | |||||||||
| Other assets | 172 | 182 | |||||||||
| Total assets | $ | 9,114 | $ | 8,147 | |||||||
| Liabilities and shareholders' equity | |||||||||||
| Current liabilities | |||||||||||
| Current maturities | $ | 497 | $ | 34 | |||||||
| Trade accounts payable | 1,046 | 954 | |||||||||
| Accrued compensation and benefits | 306 | 327 | |||||||||
| Operating lease liability | 78 | 71 | |||||||||
| Accrued expenses | 429 | 397 | |||||||||
| Income taxes payable | 27 | 48 | |||||||||
| Total current liabilities | 2,383 | 1,831 | |||||||||
| Long-term debt | 2,279 | 2,266 | |||||||||
| Long-term operating lease liability | 353 | 381 | |||||||||
| Deferred income taxes and tax uncertainties | 125 | 104 | |||||||||
| Other non-current liabilities | 118 | 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 | 1,388 | 1,355 | |||||||||
| Retained earnings | 13,302 | 12,162 | |||||||||
| Accumulated other comprehensive losses | (210) | (172) | |||||||||
| Treasury stock, at cost – 60,951,791 and 60,341,817 shares, respectively | (11,032) | (10,285) | |||||||||
| Total W.W. Grainger, Inc. shareholders’ equity | 3,503 | 3,115 | |||||||||
| Noncontrolling interest | 353 | 326 | |||||||||
| Total shareholders' equity | 3,856 | 3,441 | |||||||||
| Total liabilities and shareholders' equity | $ | 9,114 | $ | 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)
| Nine Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net earnings | $ | 1,492 | $ | 1,491 | ||||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||
| Provision for credit losses | 18 | 15 | ||||||||||||
| Deferred income taxes and tax uncertainties | 24 | 20 | ||||||||||||
| Depreciation and amortization | 175 | 157 | ||||||||||||
| Non-cash lease expense | 61 | 56 | ||||||||||||
| Net (gains) losses from sale of assets | — | (4) | ||||||||||||
| Stock-based compensation | 48 | 49 | ||||||||||||
| Change in operating assets and liabilities: | ||||||||||||||
| Accounts receivable | (183) | (351) | ||||||||||||
| Inventories | 86 | 42 | ||||||||||||
| Prepaid expenses and other assets | (26) | 104 | ||||||||||||
| Trade accounts payable | 99 | 55 | ||||||||||||
| Operating lease liabilities | (73) | (65) | ||||||||||||
| Accrued liabilities | 36 | (92) | ||||||||||||
| Income taxes – net | (64) | (34) | ||||||||||||
| Other non-current liabilities | (10) | (16) | ||||||||||||
| Net cash provided by operating activities | 1,683 | 1,427 | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Capital expenditures | (283) | (318) | ||||||||||||
| Proceeds from sale of assets | 2 | 11 | ||||||||||||
| Other – net | 19 | — | ||||||||||||
| Net cash used in investing activities | (262) | (307) | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Proceeds from debt | 503 | 7 | ||||||||||||
| Payments of debt | (38) | (37) | ||||||||||||
| Proceeds from stock options exercised | 26 | 29 | ||||||||||||
| Payments for employee taxes withheld from stock awards | (44) | (32) | ||||||||||||
| Purchases of treasury stock | (739) | (506) | ||||||||||||
| Cash dividends paid | (321) | (300) | ||||||||||||
| Other – net | (2) | — | ||||||||||||
| Net cash used in financing activities | (615) | (839) | ||||||||||||
| Exchange rate effect on cash and cash equivalents | (18) | (5) | ||||||||||||
| Net change in cash and cash equivalents | 788 | 276 | ||||||||||||
| Cash and cash equivalents at beginning of year | 660 | 325 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 1,448 | $ | 601 |
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 | |||||||||
| Stock-based compensation | $ | — | $ | 13 | $ | — | $ | — | $ | (1) | $ | — | $ | 12 | |||||||||
| Purchases of treasury stock | — | — | — | — | (203) | (1) | (204) | ||||||||||||||||
| Net earnings | — | — | 476 | — | — | 17 | 493 | ||||||||||||||||
| Other comprehensive earnings (losses) | — | — | — | (35) | — | (7) | (42) | ||||||||||||||||
| Capital contribution | — | (1) | — | — | — | 3 | 2 | ||||||||||||||||
| Cash dividends paid ($1.86 per share) | — | — | (94) | — | — | (12) | (106) | ||||||||||||||||
| Balance at September 30, 2023 | $ | 55 | $ | 1,343 | $ | 11,859 | $ | (219) | $ | (9,948) | $ | 292 | $ | 3,382 | |||||||||
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 | |||||||||
| Stock-based compensation | — | 18 | — | — | 9 | — | 27 | ||||||||||||||||
| Purchases of treasury stock | — | — | — | — | (223) | — | (223) | ||||||||||||||||
| Net earnings | — | — | 486 | — | — | 19 | 505 | ||||||||||||||||
| Other comprehensive earnings (losses) | — | — | — | 38 | — | 38 | 76 | ||||||||||||||||
| Capital contribution | — | (1) | — | — | — | 1 | — | ||||||||||||||||
| Cash dividends paid ($2.05 per share) | — | — | (101) | — | — | (15) | (116) | ||||||||||||||||
| Balance at September 30, 2024 | $ | 55 | $ | 1,388 | $ | 13,302 | $ | (210) | $ | (11,032) | $ | 353 | $ | 3,856 |
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 September 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 | 30 | % | 30 | % | 30 | % | 30 | % | 30 | % | 30 | % | |||||||||||||||||||||||
| Government | 20 | % | 3 | % | 17 | % | 19 | % | 3 | % | 16 | % | |||||||||||||||||||||||
| Wholesale | 7 | % | 18 | % | 9 | % | 7 | % | 17 | % | 9 | % | |||||||||||||||||||||||
| Commercial Services | 7 | % | 12 | % | 8 | % | 7 | % | 12 | % | 8 | % | |||||||||||||||||||||||
| Contractors | 5 | % | 12 | % | 6 | % | 5 | % | 12 | % | 6 | % | |||||||||||||||||||||||
| Healthcare | 7 | % | 1 | % | 6 | % | 7 | % | 2 | % | 6 | % | |||||||||||||||||||||||
| Retail | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | |||||||||||||||||||||||
| Transportation | 4 | % | 2 | % | 4 | % | 5 | % | 2 | % | 4 | % | |||||||||||||||||||||||
| Utilities | 3 | % | 2 | % | 3 | % | 3 | % | 2 | % | 2 | % | |||||||||||||||||||||||
| Warehousing | 3 | % | — | % | 2 | % | 4 | % | — | % | 4 | % | |||||||||||||||||||||||
| Other(3) | 10 | % | 16 | % | 11 | % | 9 | % | 16 | % | 11 | % | |||||||||||||||||||||||
| Total net sales | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||||||||||
| Percent of total company revenue | 80 | % | 18 | % | 100 | % | 81 | % | 17 | % | 100 | % | |||||||||||||||||||||||
| (1) Customer industry results for the three months ended September 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 September 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)
| Nine Months Ended September 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 | % | 12 | % | 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 | % | — | % | 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 | % | 81 | % | 18 | % | 100 | % | |||||||||||||||||||||||
| (1) Customer industry results for the nine months ended September 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% and 1% of Total Company revenue for the nine months ended September 30, 2024 and 2023, respectively. | |||||||||||||||||||||||||||||||||||
| (3) Other primarily includes revenue from industries and customers that are not material individually, including hospitality, restaurants, property management and natural resources. | |||||||||||||||||||||||||||||||||||
Total accrued sales incentives are recorded in Accrued expenses and were approximately $111 million and $114 million as of September 30, 2024 and December 31, 2023, respectively.
The Company had no material unsatisfied performance obligations, contract assets or liabilities as of September 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 | |||||||||||
| September 30, 2024 | December 31, 2023 | ||||||||||
| Land and land improvements | $ | 403 | $ | 397 | |||||||
| Building, structures and improvements | 1,578 | 1,469 | |||||||||
| Furniture, fixtures, machinery and equipment | 1,927 | 1,852 | |||||||||
| Property, buildings and equipment | $ | 3,908 | $ | 3,718 | |||||||
| Less accumulated depreciation | 2,162 | 2,060 | |||||||||
| Property, buildings and equipment – net | $ | 1,746 | $ | 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 nine months ended September 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 | (2) | (2) | (4) | |||||||||||||||||||||||
| Balance at September 30, 2024 | $ | 313 | $ | 53 | $ | 366 |
The Company's cumulative goodwill impairments as of September 30, 2024 were $137 million. No goodwill impairments were recorded for the three and nine months ended September 30, 2024 and 2023.
The balances and changes in intangible assets – net are as follows (in millions of dollars):
| As of | |||||||||||||||||||||||||||||||||||||||||
| September 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 | 10.7 years | $ | 166 | $ | 156 | $ | 10 | $ | 166 | $ | 153 | $ | 13 | ||||||||||||||||||||||||||||
| Trademarks, trade names and other | 14.8 years | 32 | 25 | 7 | 31 | 23 | 8 | ||||||||||||||||||||||||||||||||||
| Non-amortized trade names and other | Indefinite | 20 | — | 20 | 20 | — | 20 | ||||||||||||||||||||||||||||||||||
| Capitalized software | 4.3 years | 721 | 511 | 210 | 659 | 466 | 193 | ||||||||||||||||||||||||||||||||||
| Total intangible assets | 6.1 years | $ | 939 | $ | 692 | $ | 247 | $ | 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 | |||||||||||||||||||||||
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| 4.60% senior notes due 2045 | $1,000 | $948 | $1,000 | $967 | |||||||||||||||||||
| 1.85% senior notes due 2025 | — | — | 500 | 483 | |||||||||||||||||||
| 4.45% senior notes due 2034 | 500 | 499 | — | — | |||||||||||||||||||
| 3.75% senior notes due 2046 | 400 | 334 | 400 | 336 | |||||||||||||||||||
| 4.20% senior notes due 2047 | 400 | 356 | 400 | 361 | |||||||||||||||||||
| Debt issuance costs – net of amortization and other | (21) | (21) | (34) | (34) | |||||||||||||||||||
| Long-term debt | 2,279 | 2,116 | 2,266 | 2,113 | |||||||||||||||||||
| 1.85% senior notes due 2025 | 500 | 495 | — | — | |||||||||||||||||||
| Japanese yen term loan | — | — | 32 | 32 | |||||||||||||||||||
| Other | (3) | (3) | 2 | 2 | |||||||||||||||||||
| Current maturities | 497 | 492 | 34 | 34 | |||||||||||||||||||
| Total debt | $ | 2,776 | $ | 2,608 | $ | 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.
In September 2024, Grainger issued $500 million in unsecured 4.45% senior notes (4.45% Notes). Grainger intends to use the net proceeds from this offering to repay the 1.85% Senior Notes that mature in February 2025 and any remaining net proceeds for general corporate purposes. The 4.45% Notes mature in September 2034, require no principal payments until maturity, and interest is paid semi-annually in arrears, beginning March 15, 2025.
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 September 30, 2024 and December 31, 2023, the cumulative unamortized costs were $23 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 September 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. In the third quarter of 2024, the term loan was paid in full.
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 September 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 nine months ended September 30, 2024 and 2023.
The liability hedged by the interest rate swaps is recorded in Current maturities as of September 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 $444 million as of September 30, 2024 and $432 million as of December 31, 2023.
The interest rate swaps are reported on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 as shown in the following table (in millions of dollars):
| As of | ||||||||||||||
| September 30, 2024 | December 31, 2023 | |||||||||||||
| Accrued expenses | $ | 6 | $ | — | ||||||||||
| 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 September 30, | Nine Months Ended September 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. | $ | 3,515 | $ | 617 | $ | 3,403 | $ | 612 | $ | 10,378 | $ | 1,818 | $ | 10,052 | $ | 1,833 | |||||||||||||||||||||||||||||||
| Endless Assortment | 791 | 70 | 732 | 55 | 2,318 | 190 | 2,207 | 178 | |||||||||||||||||||||||||||||||||||||||
| Other | 82 | (1) | 73 | — | 239 | (4) | 222 | (3) | |||||||||||||||||||||||||||||||||||||||
| Total Company | $ | 4,388 | $ | 686 | $ | 4,208 | $ | 667 | $ | 12,935 | $ | 2,004 | $ | 12,481 | $ | 2,008 |
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 remains in litigation involving KMCO, LLC (KMCO) as previously disclosed. 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 October 30, 2024, the Company’s Board of Directors declared a quarterly dividend of $2.05 per share, payable December 1, 2024, to shareholders of record on November 11, 2024.
W.W. Grainger, Inc. and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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