DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company's earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. Grainger currently enters into certain derivatives or other financial instruments to hedge against these risks, and may continue to do so in the future.

Fair Value Hedges

The Company uses interest rate swaps to hedge a portion of its fixed-rate long-term debt. These swaps are treated as fair value hedges and consequently the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item, are recognized in the Consolidated Statements of Earnings in Interest expense – net. The notional amount of the Company’s outstanding fair value hedges as of December 31, 2023 and 2022 were $450 million and $500 million, respectively.

The liability hedged by the interest rate swaps is recorded on the Consolidated Balance Sheets in Long-term debt. As of December 31, 2023 and 2022, the carrying amount of the hedged item, including the cumulative amount of fair value hedging adjustments totaled $432 million and $466 million, respectively.

The Company's interest rate swaps are reported on the Consolidated Balance Sheets in Other non-current liabilities. As of December 31, 2023 and 2022, the fair values of the Company's interest rate swaps were $16 million and $34 million, respectively.

The effect of the Company's fair value hedges on the Consolidated Statement of Earnings in Interest expense – net for the twelve months ended December 31, 2023 and 2022, are shown in the following table (in millions of dollars):


	For the Years Ended December 31,
		2023		2022
Gain or (loss):
Interest rate swaps:
Hedged item		$	(15)	$	35
Derivatives designated as hedging instrument		$	15	$	(35)

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.