Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations GeneralW.W. Grainger, Inc. (Grainger or Company) is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily inNorth America (N.A.),Japan and theUnited Kingdom (U.K. ). Grainger uses a combination of its high-touch solutions and endless assortment businesses to serve its customers worldwide, which rely on Grainger for MRO products and services that enable them to run safe, sustainable and productive operations. EffectiveJanuary 1, 2021 , Grainger's two reportable segments areHigh-Touch Solutions N.A. and Endless Assortment. These reportable segments align with Grainger's go-to-market strategies and bifurcated business models (high-touch solutions and endless assortment).The High-Touch Solutions N.A. segment includes the Grainger-branded businesses inthe United States of America (U.S. ),Canada ,Mexico andPuerto Rico . The Endless Assortment segment includes the Company'sZoro Tools, Inc. (Zoro) and MonotaRO Co., Ltd. (MonotaRO) online channels which operate predominately in theU.S. ,U.K. andJapan . Strategic Priorities and Impact of the COVID-19 PandemicThe Company's longstanding strategic priorities are to "Keep the World Working" and relentlessly expand Grainger's leadership position in the MRO space by being the go-to-partner for people who build and run safe, sustainable and productive operations. However, the Company's business and plans to achieve these strategic priorities continue to be impacted by the Coronavirus (COVID-19 pandemic). In response, Grainger instituted and has continued to enforce safety precautions to protect the health and well-being of all of its employees, with a particular focus on those serving customers and operating its distribution centers and branches. The COVID-19 pandemic continues to cause significant disruptions in theU.S. and global markets, and the full extent of the impacts will depend on a number of developments, including any continued spread of the virus and its variants, the availability and effectiveness of treatments and vaccines, the imposition of protective public safety measures, and the potential impact of governmental measures to combat the spread of the virus, such as vaccine mandates for certain federal contractors and anticipatedOccupational Health and Safety Administration safety directives. The Company continues to leverage a dedicated cross-functional task force to understand and implement guidance from government agencies and health officials to meet requirements from federal, state and local authorities and may take further actions in the best interests of its employees, customers, suppliers and shareholders. The ongoing recovery from the COVID-19 pandemic has been accompanied by increased demand as industries have begun to return to regular operations. However, the pandemic continues to disrupt supply chains, transportation efficiency, raw materials and labor availability. Grainger's businesses and its major facilities have remained operational as customers rely on Grainger's products and services to keep their businesses up and running. The Company continues to monitor and refine its product assortment and actions to support customers' return to regular operations. The Company cannot reasonably estimate the full extent to which the COVID-19 pandemic will continue to impact its business and financial results. As the pandemic continues to impact global markets and the needs of employees, customers, suppliers and other stakeholders continue to change, the Company's efforts and business plans will evolve accordingly. Grainger is focused on servicing customers and communities in addressing the pandemic and providing products to assist in the ongoing recovery, supporting the needs and safety of employees and ensuring the Company continues to operate with a strong financial position.
Further discussion of the risks and uncertainties posed by the COVID-19 pandemic is disclosed in Risk Factors under Part II, Item 1A of this report.
18 --------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Matters Affecting Comparability There were 64 sales days in both the three months endedSeptember 30, 2021 andSeptember 30, 2020 . There were 191 and 192 sales days in the nine months endedSeptember 30, 2021 andSeptember 30, 2020 . Consistent with the Company's strategic focus on broad line MRO distribution in key markets, inJune 2020 , Grainger divested the Fabory high-touch solutions business, inAugust 2020 , divested the China high-touch solutions business (China) and inNovember 2020 , commenced the liquidation of Zoro Tools Europe (ZTE) inGermany . Accordingly, the Company's operating results include Fabory, China and ZTE results through the respective dates of divestiture or liquidation. In addition, beginning inmid-February 2020 , the Company experienced elevated levels of COVID-19 pandemic-related product sales (e.g., personal protective equipment (PPE) and safety products) due to higher customer demand in response to the COVID-19 pandemic, while non-pandemic sales decreased. Conversely, as the COVID-19 pandemic progressed throughout 2020 and into 2021, the Company has seen pandemic-related sales soften and non-pandemic sales grow, as mix returns to more normalized levels. This shift between pandemic and core, non-pandemic product mix impacted gross margin as pandemic-related product sales are generally lower-margin.
Results of Operations - Three Months Ended
Three Months Ended
As a Percent of Net Sales 2021 2020 Percent Increase/(Decrease) 2021 2020 Net sales$ 3,372 $ 3,018 11.7 % 100.0 % 100.0 % Cost of goods sold 2,122 1,944 9.2 % 62.9 % 64.4 % Gross profit 1,250 1,074 16.3 % 37.1 % 35.6 % Selling, general and administrative expenses (SG&A) 812 694 16.7 % 24.1 % 23.0 % Operating earnings 438 380 15.6 % 13.0 % 12.6 % Other expense - net 16 18 (8.2) % 0.5 % 0.6 % Income tax provision 107 106 1.4 % 3.2 % 3.5 % Net earnings 315 256 23.0 % 9.3 % 8.5 % Noncontrolling interest 18 16 13.3 % 0.5 % 0.5 % Net earnings attributable to W.W. Grainger, Inc.$ 297 $ 240 23.7 % 8.8 % 8.0 % Grainger's net sales of$3,372 million for the third quarter of 2021 increased$354 million , or 11.7%, compared to the same quarter in 2020. The increase in net sales was primarily driven by volume increases in theHigh-Touch Solutions N.A. and Endless Assortment segments. Also, core, non-pandemic product sales grew significantly as the economy improved, while demand for pandemic-related products continued to taper off with mix reverting to near pre-pandemic levels. See Note 3 to the Financial Statements for information related to disaggregated revenue. See the Segment Analysis below for further details related to segment revenue. Gross profit of$1,250 million for the third quarter of 2021 increased$176 million , or 16%, compared to the same quarter in 2020. The gross profit margin of 37.1% during the third quarter of 2021 increased 1.5 percentage points when compared to the same quarter in 2020. This increase was primarily driven by the result of price realization and higher sales volume for core, non-pandemic products as mix continued to revert to more normalized levels. See Segment Analysis below for further details related to segment gross profit. 19 -------------------------------------------------------------------------------- W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SG&A of$812 million for the third quarter of 2021 increased$118 million , or 17%, compared to the third quarter of 2020. This increase was primarily driven by higher wages, variable compensation, healthcare costs and marketing expenses. The following tables (in millions of dollars, except percentages) reconcile reported SG&A, operating earnings and net earnings attributable toW.W. Grainger, Inc. determined in accordance withU.S. generally accepted accounting principles (GAAP) to non-GAAP measures including SG&A adjusted, operating earnings adjusted and net earnings attributable toW.W. Grainger, Inc. adjusted. The Company believes that these non-GAAP measures provide meaningful information to assist investors in understanding financial results and assessing prospects for future performance as they provide a better baseline for analyzing the ongoing performance of its businesses by excluding items that may not be indicative of core operating results. Because non-GAAP financial measures are not standardized, it may not be possible to compare these measures with other companies' non-GAAP measures having the same or similar names. Three Months Ended September 30, 2021 2020 % SG&A reported $ 812$ 694 17 %
Restructuring - net (High-Touch Solutions
N.A.) -
(1)
Grainger China divestiture (Other) -
(5)
Total restructuring - net and business
divestiture - (6) SG&A adjusted $ 812$ 700 16 % 2021 2020 %
Operating earnings reported$ 438 $
380 16 %
Total restructuring - net and business divestiture - (6)
Operating earnings adjusted$ 438 $
374 17 % 2021 2020 %
Net earnings attributable to
Total restructuring - net, business divestiture and tax¹ -
6
Net earnings attributable to
¹ The tax impact of adjustments and non-cash impairments are calculated based on the income tax rate in each applicable jurisdiction, subject to deductibility and the Company's ability to realize the associated tax benefits.
Excluding restructuring, net and business divestiture in the third quarter of 2
020, SG&A increased
Operating earnings of$438 million for the third quarter of 2021 increased$58 million , or 16%, compared to the third quarter of 2020. Excluding restructuring, net and business divestiture in the third quarter of 2020 as noted in the table above, operating earnings increased$64 million , or 17%, driven primarily by higher gross profit dollars partially offset by higher SG&A expenses. Other expense, net was$16 million for the third quarter of 2021, a decrease of$2 million , or 8%, compared to the third quarter of 2020. The decrease was primarily related to higher interest expense in the third quarter of 2020 due to the draw down on the Company's revolving credit facility of$1 billion inMarch 2020 as a proactive measure to preserve financial flexibility during pandemic uncertainty. Income taxes of$107 million for the third quarter of 2021 increased$1 million , or 1%, compared to$106 million in the third quarter of 2020. Grainger's effective tax rates were 25.5% and 29.3% for the three months endedSeptember 30, 2021 and 2020, respectively. Excluding the tax benefit related to Fabory, as well as the restructuring, net and business divestiture in the third quarter of 2020 as noted in the table above, the effective tax rates were 25.5% and 26.5% for the three months endedSeptember 30, 2021 and 2020, respectively. 20 --------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net earnings attributable toW.W. Grainger, Inc. of$297 million for the third quarter of 2021 increased$57 million , or 24%, compared to the third quarter of 2020. Excluding restructuring, net, business divestiture and tax in the third quarter of 2020 per the table above, net earnings increased$51 million or 21%.
Segment Analysis See Note 10 to the Financial Statements for further detail on segment information.
High-Touch Solutions N.A. Net sales were$2,663 million for the third quarter of 2021, an increase of$286 million , or 12.0% compared to the same period in 2020 and consisted of the following: Percent Increase Volume (including product mix) 8.6% Price and customer mix 3.0 Foreign exchange 0.4 Total 12.0% Overall, revenue increases for the high-touch solutions businesses were primarily driven by volume and product mix. During the third quarter of 2021, theU.S. business continued to experience elevated sales volume of non-pandemic products from manufacturing businesses with overall sales up for nearly all customer segments as industries continued to improve and re-open. See Note 3 to the Financial Statements for information related to disaggregated revenue. From a product perspective, mix continued to revert to more normalized levels with higher demand for core, non-pandemic products as the economy recovered, despite a slight increase in demand for pandemic-related product in connection with renewed PPE guidelines.
Gross profit margin for the third quarter of 2021 increased 1.4 percentage points compared to the same period in 2020. The increase was primarily the result of price realization and higher sales volume for core, non-pandemic products as mix continued to revert to more normalized levels.
SG&A of$661 million for the third quarter of 2021 increased$94 million , or 17%, when compared to the third quarter of 2020, which was primarily driven by higher wages, variable compensation, healthcare costs and marketing expenses. Operating earnings of$387 million for the third quarter of 2021 increased$53 million , or 16%, from$334 million for the third quarter of 2020. This increase was driven by higher gross profit dollars, partially offset by higher SG&A expenses. Endless Assortment Net sales were$646 million for the third quarter of 2021, an increase of$74 million , or 12.7%, compared to the same period in 2020 and consisted of the following: Percent Increase/ (Decrease) Volume/price/mix 14.9% Foreign exchange (2.2) Total 12.7%
The increase in net sales was driven by continued strong customer acquisition at both Zoro and MonotaRO.
Gross profit margin increased 1.2 percentage points in the third quarter of 2021 compared to the third quarter of 2020. The increase was driven primarily by pricing actions and freight efficiency at Zoro.
SG&A of
21 --------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating earnings of$59 million for the third quarter of 2021 increased$11 million , or 24% from$48 million for the third quarter of 2020. The increase was primarily driven by higher sales volume due to continued strong customer acquisitions, partially offset by higher SG&A expenses.
Other
Net sales were$63 million for the third quarter of 2021, a decrease of$6 million , or 6.1%, when compared to the same quarter in 2020 and consisted of the following: Percent (Decrease)/Increase Business divestiture (11.9)% Foreign exchange 5.8 Total (6.1)% The decrease in net sales was driven by the net impact of the China business divestiture, partially offset by favorable foreign exchange for the Cromwell business in the U.K. Gross profit margin increased 3.8 percentage points in the third quarter of 2021 compared to the third quarter of 2020 primarily due to improved customer and product mix at the Cromwell business in theU.K. SG&A increased$8 million , or 32%, in the third quarter of 2021 from$19 million for the third quarter of 2020. This increase is primarily due to higher wages and marketing expenses.
Operating losses of
22 --------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Nine Months Ended
Nine Months Ended
As a Percent of Net Sales 2021 2020 Percent Increase/(Decrease) 2021 2020 Net sales$ 9,663 $ 8,856 9.1 % 100.0 % 100.0 % Cost of goods sold 6,196 5,645 9.8 % 64.1 % 63.7 % Gross profit 3,467 3,211 8.0 % 35.9 % 36.3 % Selling, general and administrative expenses (SG&A) 2,337 2,467 (5.3) % 24.2 % 27.9 % Operating earnings 1,130 744 52.0 % 11.7 % 8.4 % Other expense - net 46 56 (17.3) % 0.5 % 0.6 % Income tax provision 271 118 129.5 % 2.8 % 1.3 % Net earnings 813 570 42.7 % 8.4 % 6.4 % Noncontrolling interest 53 43 23.4 % 0.5 % 0.5 % Net earnings attributable to W.W. Grainger, Inc. $ 760$ 527 44.3 % 7.9 % 6.0 % Grainger's net sales of$9,663 million for the nine months endedSeptember 30, 2021 increased$807 million , or 9.1%, compared to the same period in 2020. On a daily basis, net sales increased 9.7%. The increase in net sales was primarily driven by volume and product mix, partially offset by the impact of the business divestitures in the prior year. Also, core, non-pandemic related product sales volume continued to improve as product mix continued to revert to more normalized levels, while demand for pandemic-related products continued to taper throughout 2021. See Note 3 to the Financial Statements for information related to disaggregated revenue. See Segment Analysis below for further details related to segment revenue. Gross profit of$3,467 million for the nine months endedSeptember 30, 2021 increased$256 million , or 8%, compared to the same period in 2020. The gross profit margin of 35.9% decreased 0.4 percentage point when compared to the same period in 2020. This decrease was primarily driven by certain pandemic-related inventory adjustments in the first half of the year in theU.S. business (part ofHigh-Touch Solutions N.A. ) partially offset by price realization during the third quarter of 2021. See Segment Analysis below for further details related to segment gross profit. SG&A of$2,337 million for the nine months endedSeptember 30, 2021 decreased$130 million , or 5%, compared to the same period in 2020. This decrease is primarily a result of the impairment charges and losses for the divested Fabory business (part of Other) in the first and second quarter of 2020, respectively. The following tables (in millions of dollars, except percentages) reconciles reported SG&A, operating earnings and net earnings attributable toW.W. Grainger, Inc. determined in accordance withU.S. GAAP to non-GAAP measures including SG&A adjusted, operating earnings adjusted and net earnings attributable toW.W. Grainger, Inc. adjusted. The Company believes that these non-GAAP measures provide meaningful information to assist shareholders in understanding financial results and assessing prospects for future performance as they provide a better baseline for analyzing the ongoing performance of its businesses by excluding items that may not be indicative of core operating results. Because non-GAAP financial measures are not standardized, it may not be possible to compare these measures with other companies' non-GAAP measures having the same or similar names. 23 -------------------------------------------------------------------------------- W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nine Months Ended September 30, 2021 2020 % SG&A reported $ 2,337
Restructuring - net (High-Touch Solutions
N.A.) -
7
Fabory impairment charges (Other) -
177
Fabory divestiture (Other) -
109
Grainger China divestiture (Other) -
(5)
Total restructuring - net, impairment charges
and business divestiture - 288 SG&A adjusted $ 2,337$ 2,179 7 % 2021 2020 % Operating earnings reported$ 1,130 $ 744 52 % Total restructuring - net, impairment charges and business divestiture - 288 Operating earnings adjusted$ 1,130 $ 1,032 10 % 2021 2020 % Net earnings attributable to W.W. Grainger, Inc. reported$ 760
Total restructuring - net, impairment charges, business divestiture and tax 1
-
153
Net earnings attributable to
¹ The tax impact of adjustments and non-cash impairments are calculated based on
the income tax rate in each applicable jurisdiction, subject to deductibility
and the Company's ability to realize the associated tax benefits.
As noted in the table above, a large portion of the Company's SG&A decrease for the nine months endedSeptember 30, 2021 is due to the$177 million Fabory impairment and$109 million loss on the divestiture of the Fabory business in the first and second quarter of 2020, respectively. Excluding restructuring, net, impairment charges and business divestiture in the nine months endedSeptember 30, 2020 , as noted in the table above, SG&A increased$158 million , or 7%, primarily due to higher wages, variable compensation, healthcare costs and marketing expenses. Operating earnings for the nine months endedSeptember 30, 2021 were$1,130 million , an increase of$386 million , or 52%, compared to the same period in 2020. Excluding restructuring, net, impairment charges and business divestiture in the nine months endedSeptember 30, 2020 as noted in the table above, operating earnings increased$98 million , or 10%, driven by higher gross profit dollars partially offset by higher SG&A expenses. Other expense, net was$46 million for the nine months endedSeptember 30, 2021 , a decrease of$10 million , or 17%, compared to the nine months endedSeptember 30, 2020 . The decrease was primarily related to higher prior year interest expense on the draw down on the Company's revolving credit facility of$1 billion inMarch 2020 as a proactive measure to preserve financial flexibility during pandemic uncertainty. Income taxes of$271 million for the nine months endedSeptember 30, 2021 increased$153 million , or 130%, compared with$118 million for the comparable 2020 period. This change was primarily driven by lower taxable operating earnings for the nine months endedSeptember 30, 2020 , and the absence of the prior year tax impact from the Company's divestiture of its investment in Fabory. Grainger's effective tax rates were 25.0% and 17.3% for the nine months endedSeptember 30, 2021 and 2020, respectively. Excluding the tax benefit related to Fabory, as well as the restructuring, net and business divestiture in the nine months endedSeptember 30, 2020 , as noted in the table above, the effective tax rates were 25.0% and 26.0% for the nine months endedSeptember 30, 2021 and 2020, respectively. Net earnings attributable toW.W. Grainger, Inc. for the nine months endedSeptember 30, 2021 increased$233 million or 44% to$760 million from$527 million for the nine months endedSeptember 30, 2020 . Excluding restructuring, net, impairment charges, business divestiture and tax in the nine months endedSeptember 30, 2020 , 24 --------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS as noted in the table above, net earnings increased$80 million , or 12%. The increase in net earnings primarily resulted from higher gross profit dollars partially offset by higher SG&A expenses.
Segment Analysis See Note 10 to the Financial Statements for further detail on segment information.
High-Touch Solutions N.A. Net sales were$7,558 million for the nine months endedSeptember 30, 2021 , an increase of$629 million , or 9.1%, compared to the same period in 2020. On a daily basis, net sales increased 9.6% and consisted of the following: Percent Increase Volume (including product mix) 6.7% Price and customer mix 2.3 Foreign exchange 0.6 Total 9.6% Overall, revenue increases for the high-touch solutions businesses were primarily driven by volume and product mix. See Note 3 to the Financial Statements for information related to disaggregated revenue. From a product perspective, the high-touch solutions businesses experienced higher demand for core, non-pandemic product as mix continued to revert to more normalized levels, while demand for pandemic-related products continued to taper. Gross profit margin decreased 0.7 percentage point compared to the same period in 2020. The decrease was primarily the result ofU.S. business inventory adjustments on certain pandemic-related products in the first half of 2021 partially offset by price realization and product mix during the third quarter of 2021.
SG&A for the nine months ended
Operating earnings of$975 million for the nine months endedSeptember 30, 2021 increased$42 million , or 5%, from$933 million for the nine months endedSeptember 30, 2020 . This increase was driven by higher gross profit dollars partially offset by higher SG&A expenses. Endless Assortment Net sales were$1,913 million for the nine months endedSeptember 30, 2021 , an increase of$320 million , or 20.0%, compared to the same period in 2020. On a daily basis, net sales increased 20.7% and consisted of the following: Percent Increase Volume/price/mix 20.5% Foreign exchange 0.2 Total 20.7%
The increase in net sales was driven by continued strong customer acquisition at both Zoro and MonotaRO.
Gross profit margin increased 0.8 percentage point in the nine months ended
SG&A increased$55 million , or 18%, in the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . SG&A leverage improved 0.4 percentage point compared to the same period in 2020 due to sales revenue outpacing SG&A expenses. Operating earnings of$172 million for the nine months endedSeptember 30, 2021 increased$47 million , or 38%, from$125 million for the nine months endedSeptember 30, 2020 . The increase was primarily driven by higher sales due to continued strong customer acquisitions, partially offset by higher SG&A expenses. 25 --------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other
Net sales for other businesses were$192 million for the nine months endedSeptember 30, 2021 a decrease of$142 million , or 42.0%, compared to the same period in 2020. On a daily basis, net sales decreased 42.0% and consisted of the following: Percent (Decrease)/Increase Business divestiture (47.6)% Foreign exchange 4.8 Volume/price/mix 0.8 Total (42.0)%
The decrease in net sales was driven by the net impact of the Fabory and China
business divestitures, partially offset by volume increases and favorable
foreign exchange at the Cromwell business in the
Gross profit margin increased 2.0 percentage points for the nine months ended
SG&A decreased$335 million , or 81%, in the nine months endedSeptember 30, 2021 from$414 million for the same period in 2020 primarily due to the impairment and losses related to the divested Fabory business in the first half of 2020. Excluding restructuring, net, impairment charges and business divestiture in both periods, SG&A would have decreased$54 million , or 41%. See table above for reconciliation of non-GAAP measures. Operating losses of$17 million for the nine months endedSeptember 30, 2021 improved$297 million from operating losses of$314 million in the comparable period from the prior year. Excluding restructuring, net, impairment charges and business divestiture in both periods, operating losses would have improved$16 million or 48%. See table above for reconciliation of non-GAAP measures. 26 --------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition Grainger believes that its current level of cash and cash equivalents, marketable securities and availability under its revolving credit facilities will be sufficient to meet its liquidity needs for the next twelve months. Grainger expects to continue to invest in its business and return excess cash to shareholders through cash dividends and share repurchases, which it plans to fund through total available liquidity and cash flows generated from operations. Grainger also maintains access to capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity. Cash, Cash Equivalents and Liquidity As ofSeptember 30, 2021 andDecember 31, 2020 , Grainger had cash and cash equivalents of$328 million and$585 million , respectively. This decrease in cash is primarily due to resuming capital investments and the share repurchase program, which were paused in 2020 due to the COVID-19 pandemic. As ofSeptember 30, 2021 , the Company had approximately$1.8 billion in available liquidity. Cash Flows Net cash provided by operating activities was$724 million and$787 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The decrease in cash provided by operating activities is primarily the result of the net impacts from the now divested Fabory business partially offset by higher net earnings and favorable working capital. Net cash used in investing activities was$180 million and$132 million for the nine months endedSeptember 30, 2021 and 2020, respectively. This increase in net cash used in investing activities was primarily driven by higher additions to the Company's supply chain infrastructure combined with lower proceeds from sales and redemptions of assets. Net cash used in financing activities was$790 million in the nine months endedSeptember 30, 2021 compared to$147 million in the nine months endedSeptember 30, 2020 . The change in net cash used in financing activities was primarily driven by higher treasury stock repurchases in the current year and prior year borrowings of long-term debt. Working Capital Internally generated funds are the primary source of working capital and funds used for growth initiatives and capital expenditures. Working capital consists of current assets (less non-operating cash) and current liabilities (less short-term debt, current maturities of long-term debt and lease liabilities). Working capital as ofSeptember 30, 2021 , was$2,350 million , an increase of$130 million when compared to$2,220 million as ofDecember 31, 2020 . The increase was primarily driven by an increase in accounts receivable partially offset by an increase in accounts payable. At these dates, the ratio of current assets to current liabilities was 2.6 for bothSeptember 30, 2021 andDecember 31, 2020 .
Debt
Grainger maintains a debt ratio and liquidity position that provides flexibility in funding working capital needs and long-term cash requirements. In addition to internally generated funds, Grainger has various sources of financing available, including revolving credit facilities. Total debt, which is defined as total interest-bearing debt (short-term, current maturities and long-term) and lease liabilities as a percent of total capitalization was 55.1% atSeptember 30, 2021 , and 55.6% atDecember 31, 2020 . Grainger receives ratings from two independent credit rating agencies: Moody's Investor Service (Moody's) andStandard & Poor's (S&P). Both credit rating agencies currently rate the Company's corporate credit at investment grade. The following table summarizes the Company's credit ratings atSeptember 30, 2021 : Corporate Senior Unsecured Short-term Moody's A3 A3 P2 S&P A+ A+ A1 27
--------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Commitments and Other Contractual Obligations There were no material changes to the Company's commitments and other contractual obligations from those disclosed in Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2020 Form 10-K. Critical Accounting Estimates The methods, assumptions and estimates used in applying the Company's accounting policies may require the application of judgments regarding matters that are inherently uncertain. The Company considers an accounting policy to be a critical estimate if: (1) it involves assumptions that are uncertain when judgment was applied, and (2) changes in the estimate assumptions, or selection of a different estimate methodology could have a significant impact on Grainger's consolidated financial position and results. While the Company believes that estimates, assumptions and judgments used are reasonable, they are based on information available when the estimate was made. A description of the Company's critical accounting estimates is described in Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2020 Form 10-K. There have been no material changes to the Company's critical accounting estimates from those described in the Company's 2020 Form 10-K. Forward-Looking Statements From time to time in this Quarterly Report on Form 10-Q as well as in other written reports, communications and verbal statements, Grainger makes forward-looking statements that are not historical in nature but concern forecasts of future results, business plans, analyses, prospects, strategies, objectives and other matters that may be deemed to be "forward-looking statements" under the federal securities laws. Forward-looking statements can generally be identified by their use of terms such as "anticipate," "estimate," "believe," "expect," "could," "forecast," "may," "intend," "plan," "predict," "project," "will" or "would" and similar terms and phrases, including references to assumptions. Grainger cannot guarantee that any forward-looking statement will be realized and achievement of future results is subject to risks and uncertainties, many of which are beyond the Company's control, which could cause Grainger's results to differ materially from those that are presented. Important factors that could cause actual results to differ materially from those presented or implied in the forward-looking statements include, without limitation: the unknown duration and health, economic, operational and financial impacts of the global outbreak of the coronavirus disease 2019 and its variants, including the Delta variant and any other variants that may emerge (COVID-19), as well as the impact of actions taken or contemplated by government authorities to mitigate the spread of COVID-19 (such as vaccine mandates for certain federal contractors and anticipatedOccupational Health and Safety Administration safety directives, mask mandates, social distancing or other requirements) and to promote economic stability and recovery, on the Company's businesses, its employees, customers and suppliers, including disruption to Grainger's operations resulting from employee illnesses, the development, availability and usage of effective treatment or vaccines, changes in customers' product needs, the acquisition of excess inventory leading to additional inventory carrying costs and inventory obsolescence, raw material, inventory and labor shortages, continued strain on global supply chains, and diminished transportation availability and efficiency, disruption caused by business responses to the COVID-19 pandemic, including working remote arrangements, which may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, adaptions to the Company's controls and procedures required by working remote arrangements, including financial reporting processes, which could impact the design or operating effectiveness of such controls or procedures, and global or regional economic downturns or recessions, which could result in a decline in demand for the Company's products; higher product costs or other expenses; a major loss of customers; loss or disruption of sources of supply; changes in customer or product mix; increased competitive pricing pressures; failure to enter into or sustain contractual arrangements on a satisfactory basis with group purchasing organizations; failure to develop or implement new technology initiatives or business strategies; failure to adequately protect intellectual property or successfully defend against infringement claims; fluctuations or declines in the Company's gross profit margin; the Company's responses to market pressures; the outcome of pending and future litigation or governmental or regulatory proceedings, including with respect to wage and hour, anti-bribery and corruption, environmental, advertising and marketing, consumer protection, pricing (including disaster or emergency declaration pricing statutes), product liability, compliance or safety, trade and export compliance, general 28 --------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS commercial disputes, or privacy and cybersecurity matters; investigations, inquiries, audits and changes in laws and regulations; failure to comply with laws, regulations and standards; government contract matters; disruption of information technology or data security systems involving the Company or third parties on which the Company depends; general industry, economic, market or political conditions; general global economic conditions including tariffs and trade issues and policies; currency exchange rate fluctuations; market volatility, including price and trading volume volatility or price declines of the Company's common stock; commodity price volatility; facilities disruptions or shutdowns; higher fuel costs or disruptions in transportation services; other pandemic diseases or viral contagions; natural or human induced disasters, extreme weather and other catastrophes or conditions; failure to attract, retain, train, motivate, develop and transition key employees; loss of key members of management or key employees; changes in effective tax rates; changes in credit ratings or outlook; the Company's incurrence of indebtedness and other factors identified under Part I, Item 1A: "Risk Factors" in the Company's 2020 Form 10-K, as updated from time to time in the Company's Quarterly Reports on Form 10-Q.
Caution should be taken not to place undue reliance on Grainger's forward-looking statements and Grainger undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
29 --------------------------------------------------------------------------------W.W. Grainger, Inc. and Subsidiaries
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