Grainger(GWW) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related notes for W.W. Grainger, Inc Item 1: Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for W.W. Grainger, Inc. and its subsidiaries, including statements of earnings, comprehensive earnings, balance sheets, cash flows, and shareholders' equity, along with detailed notes explaining accounting policies, segment information, debt, derivatives, and contingencies Condensed Consolidated Statements of Earnings This statement details the company's revenues, costs, and net earnings over specified periods | Metric | Three Months Ended Sep 30, 2021 (Millions $) | Three Months Ended Sep 30, 2020 (Millions $) | Nine Months Ended Sep 30, 2021 (Millions $) | Nine Months Ended Sep 30, 2020 (Millions $) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net sales | 3,372 | 3,018 | 9,663 | 8,856 | | Gross profit | 1,250 | 1,074 | 3,467 | 3,211 | | Operating earnings | 438 | 380 | 1,130 | 744 | | Net earnings attributable to W.W. Grainger, Inc. | 297 | 240 | 760 | 527 | | Basic EPS | 5.68 | 4.43 | 14.48 | 9.74 | | Diluted EPS | 5.65 | 4.41 | 14.40 | 9.70 | | Cash dividends paid per share | 1.62 | 1.53 | 4.77 | 4.41 | Condensed Consolidated Statements of Comprehensive Earnings This statement presents net earnings and other comprehensive income components, leading to total comprehensive earnings | Metric | Three Months Ended Sep 30, 2021 (Millions $) | Three Months Ended Sep 30, 2020 (Millions $) | Nine Months Ended Sep 30, 2021 (Millions $) | Nine Months Ended Sep 30, 2020 (Millions $) | | :------------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net earnings | 315 | 256 | 813 | 570 | | Total other comprehensive earnings (losses) | (21) | 22 | (52) | 26 | | Comprehensive earnings attributable to W.W. Grainger, Inc. | 277 | 257 | 727 | 547 | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific points in time | Metric | As of September 30, 2021 (Millions $) | As of December 31, 2020 (Millions $) | | :----------------------------------- | :------------------------------------ | :----------------------------------- | | Cash and cash equivalents | 328 | 585 | | Accounts receivable (net) | 1,742 | 1,474 | | Inventories - net | 1,786 | 1,733 | | Total current assets | 4,005 | 3,919 | | Property, buildings and equipment - net | 1,429 | 1,395 | | Goodwill | 387 | 391 | | Intangibles - net | 233 | 228 | | Total assets | 6,390 | 6,295 | | Total current liabilities | 1,550 | 1,441 | | Long-term debt (less current maturities) | 2,372 | 2,389 | | Total shareholders' equity | 2,117 | 2,093 | | Total liabilities and shareholders' equity | 6,390 | 6,295 | Condensed Consolidated Statements of Cash Flows This statement outlines the cash inflows and outflows from operating, investing, and financing activities | Metric | Nine Months Ended Sep 30, 2021 (Millions $) | Nine Months Ended Sep 30, 2020 (Millions $) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net cash provided by operating activities | 724 | 787 | | Net cash used in investing activities | (180) | (132) | | Net cash used in financing activities | (790) | (147) | | Net change in cash and cash equivalents | (257) | 499 | | Cash and cash equivalents at end of period | 328 | 859 | Condensed Consolidated Statements of Shareholders' Equity This statement details changes in equity accounts, including retained earnings and treasury stock, over time - For the nine months ended September 30, 2021, Retained Earnings increased from $8,779 million to $9,301 million, driven by net earnings of $297 million in Q3 2021 and $225 million in Q2 2021, partially offset by cash dividends paid. Treasury Stock increased from $(8,184) million to $(8,690) million due to significant purchases of treasury stock totaling $525 million[23] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION This note describes W.W. Grainger, Inc.'s business, operations, and reportable segments - W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services, primarily operating in North America, Japan, and the United Kingdom[25] - Effective January 1, 2021, the Company's reportable segments are High-Touch Solutions N.A. (Grainger-branded businesses in U.S., Canada, Mexico, Puerto Rico) and Endless Assortment (Zoro in U.S. and U.K., MonotaRO in Japan). Other international High-Touch Solutions businesses are classified as 'Other'[28][29] NOTE 2 - NEW ACCOUNTING STANDARDS This note discusses the adoption and evaluation of new accounting standards and their impact on financial statements - The Company adopted ASU 2019-12 (Income Taxes), ASU 2020-01 (Investments), and ASU 2020-10 (Codification Improvements) effective January 1, 2021, none of which had a material impact on the financial statements[30][31][33] - The Company is evaluating ASU 2020-04 (Reference Rate Reform), as modified by ASU 2021-01, and does not expect a material impact on the financial statements[34] NOTE 3 - REVENUE This note details the company's revenue recognition policies and disaggregates revenue by industry and segment - Company revenue is primarily from MRO product sales and related activities, with service revenue accounting for approximately 1% for the three and nine months ended September 30, 2021 and 2020[35] Revenue by Industry (Three Months Ended Sep 30) | Industry | High-Touch Solutions N.A. (3M 2021) | Endless Assortment (3M 2021) | Total Company (3M 2021) | High-Touch Solutions N.A. (3M 2020) | Endless Assortment (3M 2020) | Total Company (3M 2020) | | :----------- | :---------------------------------- | :--------------------------- | :---------------------- | :---------------------------------- | :--------------------------- | :---------------------- | | Contractors | 9 % | 15 % | 10 % | 8 % | 15 % | 10 % | | Commercial | 9 % | 15 % | 10 % | 9 % | 15 % | 10 % | | Government | 18 % | 3 % | 15 % | 22 % | 3 % | 18 % | | Healthcare | 7 % | 2 % | 6 % | 8 % | 2 % | 6 % | | Manufacturing | 29 % | 30 % | 29 % | 27 % | 27 % | 28 % | | Retail/Wholesale | 9 % | 10 % | 10 % | 9 % | 10 % | 9 % | | Transportation | 5 % | 3 % | 5 % | 5 % | 3 % | 5 % | | Others | 14 % | 22 % | 15 % | 12 % | 25 % | 14 % | | Percent of Total Company Revenue | 79 % | 19 % | 100 % | 79 % | 19 % | 100 % | Revenue by Industry (Nine Months Ended Sep 30) | Industry | High-Touch Solutions N.A. (9M 2021) | Endless Assortment (9M 2021) | Total Company (9M 2021) | High-Touch Solutions N.A. (9M 2020) | Endless Assortment (9M 2020) | Total Company (9M 2020) | | :----------- | :---------------------------------- | :--------------------------- | :---------------------- | :---------------------------------- | :--------------------------- | :---------------------- | | Contractors | 9 % | 15 % | 10 % | 9 % | 15 % | 10 % | | Commercial | 9 % | 15 % | 10 % | 9 % | 15 % | 9 % | | Government | 19 % | 3 % | 15 % | 20 % | 3 % | 16 % | | Healthcare | 7 % | 2 % | 6 % | 9 % | 2 % | 7 % | | Manufacturing | 30 % | 29 % | 29 % | 28 % | 29 % | 29 % | | Retail/Wholesale | 9 % | 10 % | 10 % | 9 % | 10 % | 9 % | | Transportation | 5 % | 3 % | 5 % | 5 % | 3 % | 5 % | | Others | 12 % | 23 % | 15 % | 11 % | 23 % | 15 % | | Percent of Total Company Revenue | 78 % | 20 % | 100 % | 78 % | 18 % | 100 % | NOTE 4 - PROPERTY, BUILDINGS AND EQUIPMENT This note provides a breakdown of the company's property, buildings, and equipment, net of depreciation Property, Buildings and Equipment (Millions $) | Category | As of September 30, 2021 (Millions $) | As of December 31, 2020 (Millions $) | | :----------------------------------- | :------------------------------------ | :----------------------------------- | | Property, buildings and equipment (gross) | 3,340 | 3,537 | | Less: Accumulated depreciation and amortization | 1,911 | 2,142 | | Property, buildings and equipment - net | 1,429 | 1,395 | NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS This note details changes in goodwill and other intangible assets, including their carrying amounts and amortization - Goodwill decreased from $391 million at December 31, 2020, to $387 million at September 30, 2021, primarily due to a $4 million translation adjustment in the Endless Assortment segment. No significant impairment indicators were identified in Q3 2021[41] Intangible Assets (Millions $) | Intangible Asset Category | Weighted Average Life | Gross Carrying Amount (Sep 30, 2021, Millions $) | Net Carrying Amount (Sep 30, 2021, Millions $) | Net Carrying Amount (Dec 31, 2020, Millions $) | | :-------------------------------- | :-------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Customer lists and relationships | 11.8 years | 221 | 46 | 52 | | Trademarks, trade names and other | 14.1 years | 36 | 12 | 14 | | Non-amortized trade names and other | Indefinite | 26 | 26 | 28 | | Capitalized software | 4.2 years | 510 | 149 | 134 | | Total intangible assets | 6.9 years | 793 | 233 | 228 | NOTE 6 - DEBT This note outlines the company's long-term debt structure, including senior notes and term loans, and their fair values Long-Term Debt (Millions $) | Debt Type | Carrying Value (Sep 30, 2021, Millions $) | Fair Value (Sep 30, 2021, Millions $) | Carrying Value (Dec 31, 2020, Millions $) | Fair Value (Dec 31, 2020, Millions $) | | :-------------------------- | :--------------------------------------- | :------------------------------------ | :--------------------------------------- | :------------------------------------ | | 4.60% senior notes due 2045 | 1,000 | 1,298 | 1,000 | 1,343 | | 3.75% senior notes due 2046 | 400 | 463 | 400 | 479 | | 4.20% senior notes due 2047 | 400 | 497 | 400 | 514 | | 1.85% senior notes due 2025 | 500 | 515 | 500 | 526 | | Japanese Yen term loan | 81 | 81 | 87 | 87 | | Other | 14 | 14 | 34 | 34 | | Long-term debt (less current maturities) | 2,372 | 2,845 | 2,389 | 2,951 | - The Company's long-term debt includes $1.8 billion in Senior Notes issued between 2015-2017 with maturities up to 2047 and a $500 million 1.85% Senior Note due 2025. A ¥9 billion Japanese Yen term loan, maturing in 2024, was entered into in August 2020 to fund technology and distribution center expansion[44][45][50] NOTE 7 - DERIVATIVE INSTRUMENTS This note describes the company's use of derivative instruments for hedging interest rate and foreign currency risks - The Company uses fair value hedges (interest rate swaps) to hedge fixed-rate long-term debt, with a notional amount of $500 million as of September 30, 2021. It also uses cash flow hedges (cross-currency swaps) to manage foreign currency risk on intercompany borrowings, with a notional amount of approximately $34 million[48][49] Derivative Instruments (Millions $) | Derivative Type | Balance Sheet Classification | Fair Value and Carrying Amounts (Sep 30, 2021, Millions $) | Fair Value and Carrying Amounts (Dec 31, 2020, Millions $) | | :------------------ | :--------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | | Cross-currency swap | Other non-current liabilities | 2 | 2 | | Interest rate swap | Other assets | 9 | 21 | NOTE 8 - INCOME TAXES This note presents the income tax provision and effective tax rates for the reported periods, explaining key drivers Income Tax Provision and Effective Tax Rate (Millions $) | Metric | Three Months Ended Sep 30, 2021 (Millions $) | Three Months Ended Sep 30, 2020 (Millions $) | Nine Months Ended Sep 30, 2021 (Millions $) | Nine Months Ended Sep 30, 2020 (Millions $) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Income tax provision | 107 | 106 | 271 | 118 | | Effective tax rate | 25.5 % | 29.3 % | 25.0 % | 17.3 % | - The change in effective tax rate for both the three and nine months ended September 30, 2021, was primarily due to the absence of tax impacts and prior year net tax benefits from the Fabory business divestiture in 2020[55] NOTE 9 - DIVIDEND This note reports on the quarterly cash dividends declared by the company's Board of Directors - On October 27, 2021, the Board of Directors declared a quarterly dividend of $1.62 per share, payable December 1, 2021[56] NOTE 10 - SEGMENT INFORMATION This note provides financial performance data, including net sales and operating earnings, for each reportable segment Segment Performance (Three Months Ended Sep 30, Millions $) | Segment | Net Sales (3M 2021, Millions $) | Operating Earnings (3M 2021, Millions $) | Net Sales (3M 2020, Millions $) | Operating Earnings (3M 2020, Millions $) | | :------------------------ | :------------------------------ | :------------------------------------- | :------------------------------ | :------------------------------------- | | High-Touch Solutions N.A. | 2,663 | 387 | 2,377 | 334 | | Endless Assortment | 646 | 59 | 572 | 48 | | Other | 63 | (8) | 69 | (2) | | Total Company | 3,372 | 438 | 3,018 | 380 | Segment Performance (Nine Months Ended Sep 30, Millions $) | Segment | Net Sales (9M 2021, Millions $) | Operating Earnings (9M 2021, Millions $) | Net Sales (9M 2020, Millions $) | Operating Earnings (9M 2020, Millions $) | | :------------------------ | :------------------------------ | :------------------------------------- | :------------------------------ | :------------------------------------- | | High-Touch Solutions N.A. | 7,558 | 975 | 6,929 | 933 | | Endless Assortment | 1,913 | 172 | 1,593 | 125 | | Other | 192 | (17) | 334 | (314) | | Total Company | 9,663 | 1,130 | 8,856 | 744 | NOTE 11 - CONTINGENCIES, LEGAL MATTERS, COMMITMENTS AND OTHER CONTRACTUAL OBLIGATIONS This note discloses ongoing legal proceedings, contingencies, and contractual obligations - The Company is involved in various legal and administrative proceedings, including product liability lawsuits related to a KMCO chemical refinery incident (16 lawsuits, ~186 plaintiffs) and asbestos/silica claims. The Company intends to vigorously contest these matters and believes their ultimate resolution will not have a material adverse effect on its financial condition or results of operations[61][62][63][64][65][66] - There were no material changes to the Company's commitments and other contractual obligations from those disclosed in its 2020 Form 10-K[67] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, condition, and results of operations for the three and nine months ended September 30, 2021, highlighting key drivers, segment performance, and the ongoing impact of the COVID-19 pandemic General Business Overview This section provides an overview of W.W. Grainger, Inc.'s business model and operational segments - W.W. Grainger, Inc. is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services, primarily in North America, Japan, and the U.K[69] - The Company operates through two reportable segments: High-Touch Solutions N.A. (Grainger-branded businesses) and Endless Assortment (Zoro and MonotaRO online channels)[70] Strategic Priorities and COVID-19 Impact This section discusses the company's strategic goals and the ongoing effects of the COVID-19 pandemic on its operations - Grainger's strategic priorities are to 'Keep the World Working' and expand its leadership in the MRO space. These priorities are continuously impacted by the COVID-19 pandemic[71] - The COVID-19 pandemic continues to cause significant disruptions in supply chains, transportation efficiency, raw materials, and labor availability, while demand for core, non-pandemic products has increased as industries recover[73] - The Company cannot reasonably estimate the full extent of the pandemic's impact but remains focused on servicing customers, supporting employees, and maintaining a strong financial position[74] Matters Affecting Comparability This section explains factors impacting the comparability of financial results, including prior year divestitures and sales mix shifts - Comparability is affected by prior year divestitures of Fabory (June 2020), China (August 2020), and the liquidation of Zoro Tools Europe (November 2020)[78] - The mix of sales has shifted from elevated COVID-19 pandemic-related products (e.g., PPE) in early 2020 to increased core, non-pandemic product sales in 2021, impacting gross margin due to lower margins on pandemic-related products[79] Results of Operations – Three Months Ended September 30, 2021 This section analyzes the company's financial performance for the three-month period, highlighting key revenue and earnings drivers Key Financial Metrics (Three Months Ended Sep 30, Millions $) | Metric | 3 Months Ended Sep 30, 2021 (Millions $) | 3 Months Ended Sep 30, 2020 (Millions $) | % Increase/(Decrease) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Net sales | 3,372 | 3,018 | 11.7 % | | Gross profit | 1,250 | 1,074 | 16.3 % | | Gross profit margin | 37.1 % | 35.6 % | +1.5 ppts | | SG&A | 812 | 694 | 16.7 % | | Operating earnings | 438 | 380 | 15.6 % | | Net earnings attributable to W.W. Grainger, Inc. | 297 | 240 | 23.7 % | - Net sales increased 11.7% driven by volume increases in both High-Touch Solutions N.A. and Endless Assortment segments, with significant growth in core, non-pandemic products as the economy improved[80] - Gross profit margin increased 1.5 percentage points to 37.1%, primarily due to price realization and higher sales volume for core, non-pandemic products[81] - SG&A increased 17% due to higher wages, variable compensation, healthcare costs, and marketing expenses[83] High-Touch Solutions N.A. (3 Months) This section details the financial performance of the High-Touch Solutions N.A. segment for the three-month period - Net sales increased 12.0% to $2,663 million, driven by 8.6% from volume (including product mix) and 3.0% from price and customer mix[93] - Gross profit margin increased 1.4 percentage points due to price realization and higher sales volume for core, non-pandemic products[95] - Operating earnings increased 16% to $387 million, primarily from higher gross profit dollars partially offset by increased SG&A[96] Endless Assortment (3 Months) This section details the financial performance of the Endless Assortment segment for the three-month period - Net sales increased 12.7% to $646 million, driven by 14.9% from volume/price/mix, partially offset by a 2.2% negative foreign exchange impact[97] - Gross profit margin increased 1.2 percentage points, driven by pricing actions and freight efficiency at Zoro[98] - Operating earnings increased 24% to $59 million, primarily due to higher sales volume from strong customer acquisitions[101] Other Businesses (3 Months) This section details the financial performance of the company's other businesses for the three-month period - Net sales decreased 6.1% to $63 million, primarily due to the China business divestiture (-11.9%), partially offset by favorable foreign exchange for the Cromwell business (+5.8%)[102][103] - Operating losses increased to $8 million from $2 million in the prior year, driven by higher SG&A expenses[104] Results of Operations – Nine Months Ended September 30, 2021 This section analyzes the company's financial performance for the nine-month period, highlighting key revenue and earnings drivers Key Financial Metrics (Nine Months Ended Sep 30, Millions $) | Metric | 9 Months Ended Sep 30, 2021 (Millions $) | 9 Months Ended Sep 30, 2020 (Millions $) | % Increase/(Decrease) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Net sales | 9,663 | 8,856 | 9.1 % | | Gross profit | 3,467 | 3,211 | 8.0 % | | Gross profit margin | 35.9 % | 36.3 % | -0.4 ppts | | SG&A | 2,337 | 2,467 | (5.3)% | | Operating earnings | 1,130 | 744 | 52.0 % | | Net earnings attributable to W.W. Grainger, Inc. | 760 | 527 | 44.3 % | - Net sales increased 9.1% (9.7% daily basis), driven by volume and product mix, partially offset by prior year business divestitures. Core, non-pandemic product sales improved as pandemic-related demand tapered[107] - Gross profit margin decreased 0.4 percentage points to 35.9%, primarily due to pandemic-related inventory adjustments in the first half of 2021, partially offset by Q3 price realization[108] - SG&A decreased 5% due to impairment charges and losses from the divested Fabory business in 2020. Excluding these, SG&A increased 7% due to higher wages, variable compensation, healthcare, and marketing[109][112] High-Touch Solutions N.A. (9 Months) This section details the financial performance of the High-Touch Solutions N.A. segment for the nine-month period - Net sales increased 9.1% (9.6% daily basis) to $7,558 million, driven by 6.7% from volume (including product mix) and 2.3% from price and customer mix[120] - Gross profit margin decreased 0.7 percentage points due to U.S. business inventory adjustments on pandemic-related products in H1 2021, partially offset by Q3 price realization and product mix[122] - Operating earnings increased 5% to $975 million, driven by higher gross profit dollars partially offset by increased SG&A expenses[123] Endless Assortment (9 Months) This section details the financial performance of the Endless Assortment segment for the nine-month period - Net sales increased 20.0% (20.7% daily basis) to $1,913 million, driven by 20.5% from volume/price/mix[124] - Gross profit margin increased 0.8 percentage points, primarily due to pricing actions and freight efficiency at Zoro[125] - Operating earnings increased 38% to $172 million, driven by higher sales from strong customer acquisitions, partially offset by increased SG&A[127] Other Businesses (9 Months) This section details the financial performance of the company's other businesses for the nine-month period - Net sales decreased 42.0% to $192 million, primarily due to the Fabory and China business divestitures (-47.6%), partially offset by favorable foreign exchange and volume increases at Cromwell[129][130] - Operating losses improved by $297 million to $17 million, largely due to the absence of impairment and losses related to the divested Fabory business in the prior year[132] Financial Condition This section assesses the company's liquidity, cash flows, working capital, and debt position Cash, Cash Equivalents and Liquidity This section discusses changes in cash and cash equivalents and the company's overall liquidity position - Cash and cash equivalents decreased from $585 million at December 31, 2020, to $328 million at September 30, 2021, primarily due to resuming capital investments and share repurchases[136] - As of September 30, 2021, the Company had approximately $1.8 billion in available liquidity and expects to meet liquidity needs for the next twelve months through cash, equivalents, and revolving credit facilities[135][136] Cash Flows This section analyzes the company's cash generation and usage across operating, investing, and financing activities - Net cash provided by operating activities decreased to $724 million for the nine months ended September 30, 2021, from $787 million in the prior year, mainly due to the net impacts from the divested Fabory business, partially offset by higher net earnings[137] - Net cash used in investing activities increased to $180 million from $132 million, driven by higher capital additions to supply chain infrastructure and lower proceeds from asset sales[138] - Net cash used in financing activities increased significantly to $790 million from $147 million, primarily due to higher treasury stock repurchases and prior year long-term debt borrowings[139] Working Capital This section examines the company's working capital components and their impact on financial flexibility - Working capital increased by $130 million to $2,350 million at September 30, 2021, compared to $2,220 million at December 31, 2020, driven by an increase in accounts receivable partially offset by an increase in accounts payable[141] - The ratio of current assets to current liabilities remained stable at 2.6 for both periods[141] Debt This section provides an overview of the company's debt structure and credit ratings - Total debt as a percentage of total capitalization was 55.1% at September 30, 2021, a slight decrease from 55.6% at December 31, 2020[142] Credit Ratings | Rating Agency | Corporate | Senior Unsecured | Short-term | | :-------------- | :-------- | :--------------- | :--------- | | Moody's | A3 | A3 | P2 | | S&P | A+ | A+ | A1 | Commitments and Other Contractual Obligations This section confirms no material changes to the company's contractual obligations since the last annual report - There were no material changes to the Company's commitments and other contractual obligations from those disclosed in its 2020 Form 10-K[145] Critical Accounting Estimates This section confirms no material changes to the company's critical accounting estimates since the last annual report - There have been no material changes to the Company's critical accounting estimates from those described in its 2020 Form 10-K[147] Forward-Looking Statements This section outlines the inherent risks and uncertainties associated with the company's forward-looking statements - The report contains forward-looking statements subject to risks and uncertainties, including the ongoing impacts of the COVID-19 pandemic (e.g., supply chain disruptions, labor shortages, demand shifts, vaccine mandates), higher product costs, major customer losses, increased competition, and cybersecurity incidents[148][149][150] - Grainger cautions against undue reliance on these statements and undertakes no obligation to update them, except as required by law[153] Item 3: Quantitative and Qualitative Disclosures About Market Risk This section reiterates the Company's primary market risk exposures and refers to previous disclosures for detailed information - Grainger's primary market risk exposures include changes in foreign currency exchange and interest rates[155] - Current market conditions are influenced by the COVID-19 pandemic, as discussed in Item 2[156] Item 4: Controls and Procedures This section details the effectiveness of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures - The Chief Executive Officer and Chief Financial Officer concluded that Grainger's disclosure controls and procedures were effective as of September 30, 2021[157] Changes in Internal Control Over Financial Reporting This section reports on any material changes to the company's 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, its internal control over financial reporting[158] PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal matters and risk factors Item 1: Legal Proceedings This section refers to the detailed discussion of legal proceedings provided in the notes to the financial statements - For a description of the Company's legal proceedings, refer to Note 11 - Contingencies, Legal Matters, Commitments and Other Contractual Obligations - to the Condensed Consolidated Financial Statements[160] Item 1A: Risk Factors This section supplements and updates the risk factors from the 2020 Form 10-K, focusing on the ongoing impacts of the COVID-19 pandemic and cybersecurity threats COVID-19 Pandemic Risks This section details the ongoing adverse impacts of the COVID-19 pandemic on the company's business operations and financial performance - The COVID-19 pandemic continues to adversely affect Grainger's business, including customer disruptions, supply chain issues, supplier inability to meet demand, higher product costs, transportation delays, and labor shortages[163][164] - Remote working arrangements due to the pandemic may increase vulnerability to cybersecurity incidents and have required adaptions to controls and financial reporting processes[165] - Pandemic-driven product shortages may necessitate procuring from new suppliers, risking quality issues or delivery delays, and have led to excess inventory and associated carrying costs/obsolescence[166][168] - Compliance with vaccine mandates and other public safety measures could disrupt the workforce, operations, and impose additional costs[171] Cybersecurity Risks This section outlines the evolving cybersecurity threats and their potential consequences for the company's operations and data - Grainger faces evolving cyber threats, including unauthorized access, viruses, ransomware, and phishing, which could lead to loss or misuse of sensitive information, business disruptions, increased costs, and reputational damage[172][173][176][181] - Risks extend to third-party providers whose systems may be breached, potentially compromising data shared with them, despite contractual assurances[174][175] - The Company has experienced immaterial cybersecurity incidents in the past and continuously evaluates and implements safeguards, but cannot guarantee protection against all sophisticated attacks[178][179][181] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the Company's share repurchase activities during the third quarter Share Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------- | :------------------------------- | :--------------------------- | | July 1 – July 31 | 80,047 | $453.15 | | Aug. 1 – Aug. 31 | 274,451 | $437.41 | | Sept. 1 – Sept. 30 | 208,265 | $413.23 | | Total | 562,763 | | - Purchases were made under a share repurchase program approved on April 28, 2021, authorizing up to 5 million shares with no expiration date. As of September 30, 2021, 4,260,481 shares remained available under the program[183] Item 6: Exhibits This section lists all exhibits filed with the Form 10-Q report - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32) and various XBRL-related documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[190] Signatures This section contains the required signatures for the Form 10-Q filing - The report was signed on October 29, 2021, by Deidra C. Merriwether, Senior Vice President and Chief Financial Officer, and Laurie R. Thomson, Vice President and Controller[188]