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These excerpts taken from the GWW 10-K filed Feb 27, 2009. Business
Environment. Several economic factors and industry trends
shape Grainger’s business environment. The current overall economy and leading
economic indicators provide insight into anticipated economic factors for the
near term and help in forming the development of projections for the upcoming
year. In February 2009, Consensus Forecast-USA projected a 2009 GDP decline of
2.1% and an Industrial Production decline of 7.2% for the United States, as
compared to 2008 GDP growth of 1.3% and a 1.7% decline in Industrial Production.
In February 2009, Consensus Forecast-USA projected a GDP decline of 1.1% for
Canada, as compared to the 2008 growth estimate of 0.6%.
Historically,
Grainger’s sales trends have tended to correlate positively with industrial
production growth and non-farm payrolls. In more recent years, Grainger’s sales
growth in the United States has outperformed both economic indicators. For the
first five months of 2008, Grainger benefited from the growth in industrial
production and non-farm payrolls. Both economic indicators began to deteriorate
in May 2008, however, Grainger continued to outperform both until late 2008, at
which time Grainger’s sales began to be negatively affected by the economic
downturn.
The
light and heavy manufacturing customer sectors, which comprised
approximately 25% of Grainger’s total 2008 sales, have historically
correlated with manufacturing employment levels and manufacturing production.
Manufacturing employment levels in the United States declined approximately 5.7%
from December 2007 to December 2008, while manufacturing output decreased 9.9%
from December 2007 to December 2008. This decline in manufacturing employment
and output contributed to low single-digit sales growth in the light
manufacturing customer sector and flat sales growth in the heavy manufacturing
customer sector for Grainger in 2008.
Given the steep
decline in the economic trends in Grainger’s markets in the fourth quarter of
2008, it is difficult to project future results. During the fourth quarter,
Grainger began implementing contingency plans to deal with the changing
environment, which included a hiring freeze on all non-customer-facing
positions, a reduction in hours of part-time employees and a significant
reduction to travel, consulting and relocation expenses. In response to a
continuing decline in sales, on February 11, 2009, Grainger announced plans to
freeze salaries of all executives and salaried employees and indicated that the
payment of management incentive bonuses for 2009 would occur only
if Grainger meets aggressive sales targets. Additionally, Grainger
announced 300 to 400 jobs would be eliminated as a result of lower sales volume
and the combination of its Lab Safety Supply and Grainger Industrial Supply
businesses, resulting in annualized cost savings of between $25 million and $35
million. See Note 22 to the Consolidated Financial Statements.
In 2004, Grainger launched a multiyear market expansion program in the United States to strengthen its presence in top metropolitan markets and better position itself to serve the local customer. The expansion program was completed in 2008, however, the benefits realized from this initiative are expected to continue. In
2006, Grainger launched a multiyear product line expansion program in the United
States. Over the past three years, Grainger has added over 150,000 new products
to supplement Industrial Supply’s plumbing, fastener, material handling and
security product lines. The product line expansion program contributed to the
sales growth in 2007 and 2008, and is expected to be a driver of growth in 2009
and beyond. In 2009, Grainger expects to add 50,000 new products to further
supplement Industrial Supply’s product lines.
Grainger’s financial
strength enables it to fund major initiatives, acquisitions and productivity
improvements. Capital spending in 2008 for the U.S. market expansion program was
approximately $40 million, with total capital expenditures of $196
million.
Capital expenditures
are expected to range from $175 million to $200 million in 2009. Projected
investments include improved infrastructure in distribution centers, both in the
U.S. and Canada, information technology, including
11
upgraded electronic
commerce platforms, and the normal recurring replacement of equipment. Grainger
expects to fund 2009 capital investments from operating cash flows, with
spending planned for the following major projects:
Business Environment. Several economic factors and industry trends shape Grainger’s business environment. The current overall economy and leading economic indicators provide insight into anticipated economic factors for the near term and help in forming the development of projections for the upcoming year. In February 2009, Consensus Forecast-USA projected a 2009 GDP decline of 2.1% and an Industrial Production decline of 7.2% for the United States, as compared to 2008 GDP growth of 1.3% and a 1.7% decline in Industrial Production. In February 2009, Consensus Forecast-USA projected a GDP decline of 1.1% for Canada, as compared to the 2008 growth estimate of 0.6%. Historically, Grainger’s sales trends have tended to correlate positively with industrial production growth and non-farm payrolls. In more recent years, Grainger’s sales growth in the United States has outperformed both economic indicators. For the first five months of 2008, Grainger benefited from the growth in industrial production and non-farm payrolls. Both economic indicators began to deteriorate in May 2008, however, Grainger continued to outperform both until late 2008, at which time Grainger’s sales began to be negatively affected by the economic downturn. The light and heavy manufacturing customer sectors, which comprised approximately 25% of Grainger’s total 2008 sales, have historically correlated with manufacturing employment levels and manufacturing production. Manufacturing employment levels in the United States declined approximately 5.7% from December 2007 to December 2008, while manufacturing output decreased 9.9% from December 2007 to December 2008. This decline in manufacturing employment and output contributed to low single-digit sales growth in the light manufacturing customer sector and flat sales growth in the heavy manufacturing customer sector for Grainger in 2008. Given the steep decline in the economic trends in Grainger’s markets in the fourth quarter of 2008, it is difficult to project future results. During the fourth quarter, Grainger began implementing contingency plans to deal with the changing environment, which included a hiring freeze on all non-customer-facing positions, a reduction in hours of part-time employees and a significant reduction to travel, consulting and relocation expenses. In response to a continuing decline in sales, on February 11, 2009, Grainger announced plans to freeze salaries of all executives and salaried employees and indicated that the payment of management incentive bonuses for 2009 would occur only if Grainger meets aggressive sales targets. Additionally, Grainger announced 300 to 400 jobs would be eliminated as a result of lower sales volume and the combination of its Lab Safety Supply and Grainger Industrial Supply businesses, resulting in annualized cost savings of between $25 million and $35 million. See Note 22 to the Consolidated Financial Statements. In 2004, Grainger launched a multiyear market expansion program in the United States to strengthen its presence in top metropolitan markets and better position itself to serve the local customer. The expansion program was completed in 2008, however, the benefits realized from this initiative are expected to continue. In 2006, Grainger launched a multiyear product line expansion program in the United States. Over the past three years, Grainger has added over 150,000 new products to supplement Industrial Supply’s plumbing, fastener, material handling and security product lines. The product line expansion program contributed to the sales growth in 2007 and 2008, and is expected to be a driver of growth in 2009 and beyond. In 2009, Grainger expects to add 50,000 new products to further supplement Industrial Supply’s product lines. Grainger’s financial strength enables it to fund major initiatives, acquisitions and productivity improvements. Capital spending in 2008 for the U.S. market expansion program was approximately $40 million, with total capital expenditures of $196 million. Capital expenditures are expected to range from $175 million to $200 million in 2009. Projected investments include improved infrastructure in distribution centers, both in the U.S. and Canada, information technology, including 11 upgraded electronic commerce platforms, and the normal recurring replacement of equipment. Grainger expects to fund 2009 capital investments from operating cash flows, with spending planned for the following major projects:
This excerpt taken from the GWW 10-Q filed Jul 31, 2008. Business Environment Several economic factors and industry trends shape Grainger’s business environment. Historically, Grainger’s sales tended to correlate positively with industrial production growth, particularly manufacturing output, as well as employment growth, particularly non-farm payrolls. According to the Federal Reserve, overall industrial production increased 0.3% from June 2007 to June 2008. Manufacturing output decreased 0.6% from June 2007 to June 2008, and manufacturing employment levels declined approximately 2.5%. Non-farm employment was essentially flat from June 2007 to June 2008. Grainger’s sales to manufacturing customers continue to show improvement, though at a slower rate than the second quarter of 2007. Current economic growth projections for 2008 industrial production and GDP are 0.1% and 1.5%, respectively.
For the first six months of 2008, the Company had $109.9 million of capital expenditures, of which $29.3 million related to its U.S. market expansion program. The Company expects to complete its investments in the U.S. market expansion program in 2008.
This excerpt taken from the GWW 10-Q filed May 8, 2008. Business Environment Several economic factors and industry trends shape Grainger’s business environment. Grainger’s sales tend to correlate positively with industrial production growth, particularly manufacturing output as well as employment growth, particularly non-farm payrolls. According to the Federal Reserve, overall industrial production increased 1.6% from March 2007 to March 2008. Manufacturing output increased 1.2% from March 2007 to March 2008, although manufacturing employment levels declined approximately 2%. Non-farm employment was essentially flat from March 2007 to March 2008. Grainger’s sales to manufacturing customers continue to show improvement, though at a slower rate than the first quarter of 2007. Current economic growth projections for 2008 industrial production and GDP are 0.7% and 1.3%, respectively.
For the first quarter of 2008, the Company had $37.2 million of capital expenditures, of which $15.0 million related to its U.S. market expansion program. The Company expects to complete its investments in the U.S. market expansion program in 2008.
These excerpts taken from the GWW 10-K filed Feb 27, 2008. Business Environment. Several economic factors and industry trends shape Grainger’s business environment. The current overall economy and leading economic indicators provide insight into anticipated economic factors for the near term and help in forming the development of projections for the upcoming year. Consensus Forecast-USA projected 2008 GDP growth of 1.6% and Industrial Production growth of 1.1% for the United States, a decrease from 2007 estimates of 2.2% and 1.9%, respectively. For Canada, Consensus Forecast-USA projected 2008 GDP growth of 1.8%, below the 2007 estimate of 2.6%.
In 2007, Grainger benefited from the economic growth in the United States. Grainger’s sales correlate positively with industrial production growth. With the improvement in Industrial Production and general growth in the economy, Grainger realized an increase in sales across all customer sectors. Grainger’s sales also tend to increase when non-farm payrolls
10 grow, especially during economic recoveries. Non-farm payrolls increased approximately 1% on average in 2007 over 2006. For 2007, Grainger benefited from the combination of increased Industrial Production and non-farm payroll growth.
The light and heavy manufacturing customer sectors, which comprised more than 25% of Grainger’s total 2007 sales, have historically correlated with manufacturing employment levels and manufacturing production. Manufacturing employment levels in the United States declined approximately 1% on average in 2007 from 2006, however, manufacturing output increased approximately 2%. This contributed to mid single-digit sales growth in the heavy manufacturing and light manufacturing customer sectors for Grainger in 2007.
In 2004, Grainger launched a multiyear initiative in the United States to strengthen its presence in top metropolitan markets and better position itself to serve the local customer. The market expansion program contributed to the sales growth in 2007 and is expected to be a driver of growth in 2008 and beyond. The first phase of the market expansion program was completed in 2005. The second, third and fourth phases of the market expansion program were completed in 2007. Phases five and six were more than 50% complete at December 31, 2007, and are expected to be completed during 2008.
In 2006, Grainger launched a multiyear product line expansion program in the United States. Over the past two years, Grainger has added approximately 90,000 new products to supplement Industrial Supply’s plumbing, fastener, material handling and security product lines. The product line expansion program contributed to the sales growth in 2007 and is expected to be a driver of growth in 2008 and beyond. In 2008, Grainger plans to add an additional 50,000 products to further supplement Industrial Supply’s product lines.
Customer buying behavior is also important in Grainger’s business environment. Grainger believes that customers will continue to focus on reducing their cost to procure facilities maintenance products. Consequently, during 2006, Grainger increased information available to employees for improved service to customers by installing an upgraded SAP branch operating system as part of an overall conversion to an integrated SAP system in the U.S. branch-based business.
Grainger’s financial strength enables it to fund major initiatives and acquisitions and to improve effectiveness. Capital spending in 2007 for the U.S. market expansion program was approximately $88 million, with total capital expenditures of $196 million.
For 2008, Grainger anticipates total capital expenditures of $175 million to $200 million. Grainger intends to continue its investment in the market expansion program and information technology enhancements, with spending planned for the following major projects:
Lease or purchase decisions, based on availability of facilities, may affect the timing and amount of capital expenditures associated with the market expansion program.
Business Environment. Several economic factors and industry trends shape Grainger’s business environment. The current overall economy and leading economic indicators provide insight into anticipated economic factors for the near term and help in forming the development of projections for the upcoming year. Consensus Forecast-USA projected 2008 GDP growth of 1.6% and Industrial Production growth of 1.1% for the United States, a decrease from 2007 estimates of 2.2% and 1.9%, respectively. For Canada, Consensus Forecast-USA projected 2008 GDP growth of 1.8%, below the 2007 estimate of 2.6%.
In 2007, Grainger benefited from the economic growth in the United States. Grainger’s sales correlate positively with industrial production growth. With the improvement in Industrial Production and general growth in the economy, Grainger realized an increase in sales across all customer sectors. Grainger’s sales also tend to increase when non-farm payrolls 10 grow, especially during economic recoveries. Non-farm payrolls increased approximately 1% on average in 2007 over 2006. For 2007, Grainger benefited from the combination of increased Industrial Production and non-farm payroll growth.
The light and heavy manufacturing customer sectors, which comprised more than 25% of Grainger’s total 2007 sales, have historically correlated with manufacturing employment levels and manufacturing production. Manufacturing employment levels in the United States declined approximately 1% on average in 2007 from 2006, however, manufacturing output increased approximately 2%. This contributed to mid single-digit sales growth in the heavy manufacturing and light manufacturing customer sectors for Grainger in 2007.
In 2004, Grainger launched a multiyear initiative in the United States to strengthen its presence in top metropolitan markets and better position itself to serve the local customer. The market expansion program contributed to the sales growth in 2007 and is expected to be a driver of growth in 2008 and beyond. The first phase of the market expansion program was completed in 2005. The second, third and fourth phases of the market expansion program were completed in 2007. Phases five and six were more than 50% complete at December 31, 2007, and are expected to be completed during 2008.
In 2006, Grainger launched a multiyear product line expansion program in the United States. Over the past two years, Grainger has added approximately 90,000 new products to supplement Industrial Supply’s plumbing, fastener, material handling and security product lines. The product line expansion program contributed to the sales growth in 2007 and is expected to be a driver of growth in 2008 and beyond. In 2008, Grainger plans to add an additional 50,000 products to further supplement Industrial Supply’s product lines.
Customer buying behavior is also important in Grainger’s business environment. Grainger believes that customers will continue to focus on reducing their cost to procure facilities maintenance products. Consequently, during 2006, Grainger increased information available to employees for improved service to customers by installing an upgraded SAP branch operating system as part of an overall conversion to an integrated SAP system in the U.S. branch-based business.
Grainger’s financial strength enables it to fund major initiatives and acquisitions and to improve effectiveness. Capital spending in 2007 for the U.S. market expansion program was approximately $88 million, with total capital expenditures of $196 million.
For 2008, Grainger anticipates total capital expenditures of $175 million to $200 million. Grainger intends to continue its investment in the market expansion program and information technology enhancements, with spending planned for the following major projects:
Lease or purchase decisions, based on availability of facilities, may affect the timing and amount of capital expenditures associated with the market expansion program.
This excerpt taken from the GWW 10-Q filed Nov 2, 2007. Business Environment Several economic factors and industry trends shape Grainger’s business environment. Grainger’s sales tend to correlate positively with production growth, particularly manufacturing output, as well as employment growth, particularly non-farm payrolls. According to the Federal Reserve, overall industrial production increased 1.9% from September 2006 to September 2007. Manufacturing output increased 1.6% from September 2006 to September 2007, although manufacturing employment levels declined approximately 1.6%. Non-farm employment levels grew 1.2% from September 2006 to September 2007. Grainger’s sales to manufacturing customers continue to show improvement over the prior year, though at a slower rate. Current economic growth projections for 2007 industrial production and GDP are 2.1% and 2.0%, respectively.
For the first nine months of 2007, the Company had $142.7 million of capital expenditures, of which $62.4 million related to its U.S. market expansion program. The Company expects to complete its investments in the U.S. market expansion program in 2008.
The Company continues to look for ways of improving its productivity and efficiency. During the fourth quarter of 2007, the Company identified up to 125 positions in information technology that can be eliminated. As a result, the Company anticipates incurring up to a $6 million charge in the fourth quarter of 2007 and reducing costs of up to $12 million in 2008.
16
W.W. Grainger, Inc. and Subsidiaries MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This excerpt taken from the GWW 10-Q filed Aug 2, 2007. Business Environment Several economic factors and industry trends shape Grainger’s business environment. Grainger’s sales tend to correlate positively with production growth, particularly manufacturing output, as well as growth in non-farm payrolls. According to the Federal Reserve, overall industrial production increased 1.4% from June of 2006 to June of 2007. Manufacturing output increased 1.6% from June of 2006 to June of 2007, although manufacturing employment levels declined approximately 1.3%. Non-farm employment levels grew 1.5% from June of 2006 to June of 2007. Grainger’s sales to the heavy and light manufacturing customer sector continue to show improvement over the prior year, though at a slower rate than the first quarter of 2007. Current economic growth projections for 2007 industrial production and GDP are 1.9% and 2.1%, respectively.
For the first six months of 2007, the Company had $81.7 million of capital expenditures, of which $33.8 million related to its market expansion program. The Company expects to continue its investments in the market expansion program through 2008.
16
W.W. Grainger, Inc. and Subsidiaries MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This excerpt taken from the GWW 10-Q filed May 2, 2007. Business Environment Several economic factors and industry trends shape Grainger’s business environment. Grainger’s sales tend to correlate positively with production growth, particularly manufacturing output, as well as growth in non-farm payrolls. According to the Federal Reserve, overall industrial production increased 2.3% from March 2006 to March 2007. Manufacturing output increased 2.6% from March of 2006 although manufacturing employment levels have declined approximately 0.8%. Non-farm employment levels grew 1.4% since March of 2006. Grainger’s sales to the light and heavy manufacturing customer sectors showed improvement over the prior year. Current economic growth projections for 2007 industrial production and GDP are 2.2% and 2.3%, respectively.
For the first quarter of 2007, the Company had $35.1 million of capital expenditures, of which $12.9 million related to its market expansion program. The Company expects to continue its investments in the market expansion program and information technology enhancements are scheduled for 2008 and beyond.
14
W.W. Grainger, Inc. and Subsidiaries This excerpt taken from the GWW 10-K filed Feb 27, 2007. Business Environment. Several economic factors and industry trends shape Grainger’s business environment. The current overall economy and leading economic indicators forecast by economists provide insight into anticipated economic factors for the near term and help in forming the development of projections for the upcoming year. At the start of 2007, Consensus Forecast-USA predicted 2007 GDP growth of 2.4% and Industrial Production growth of 2.5% for the United States, a slight decrease from preliminary fourth quarter 2006 GDP estimates. For Canada, Consensus Forecast-USA predicted 2007 GDP growth of 2.3%, below the 2006 estimate of 2.7%.
In 2006, Grainger benefited from the economic growth in the United States. Grainger’s sales correlate positively with industrial production growth. With the improvement in Industrial Production and general growth in the economy, Grainger realized an increase in sales across all customer sectors. Grainger’s sales also tend to increase when non-farm payrolls grow, especially during economic recoveries. Non-farm payrolls increased approximately 1%, on average, in 2006 over 2005. For 2006, Grainger benefited from the combination of increased Industrial Production and non-farm payroll growth.
The light and heavy manufacturing customer sectors, which comprised more than 25% of Grainger’s total 2006 sales, have historically correlated with manufacturing employment levels and manufacturing production. Manufacturing employment levels in the United States were flat during 2006, however, manufacturing output increased almost 5%. This contributed to almost double-digit sales growth in the heavy manufacturing and mid single-digit sales growth in the light manufacturing customer sectors for Grainger in 2006. Economic forecasts suggest that the manufacturing sector will continue to expand in 2007.
In 2004, Grainger launched a multiyear initiative to strengthen its presence in top metropolitan markets and better position itself to serve the local customer. The market expansion program contributed to the sales growth in 2006 and is expected to be a driver of growth in 2007 and beyond. The first phase of the market expansion program was completed in 2005. Phases two through six were in various stages of completion at December 31, 2006.
In 2006, Grainger launched a multiyear product line expansion program. The product line expansion program contributed to the sales growth in 2006 and is expected to be a driver of growth in 2007 and beyond. In 2007, the company plans to add approximately 25,000 additional products to supplement the plumbing, fastener, material handling and security product lines.
10 Customer buying behavior is also important in Grainger’s business environment. Grainger believes that customers will continue to focus on reducing their cost to procure facilities maintenance products. Consequently, during 2006, Grainger increased information available to employees for improved service to customers by installing an upgraded SAP branch operating system as part of an overall conversion to an integrated SAP system in the U.S. branch-based business.
Grainger’s financial strength positions it to fund major initiatives and acquisitions and to improve effectiveness. Capital spending in 2006 for the market expansion program was approximately $63 million, with total capital expenditures of $139 million.
For 2007, Grainger anticipates total capital expenditures of $150 million to $175 million. Grainger intends to continue its investment in the market expansion program and information technology enhancements with spending planned for the following major projects:
Lease or purchase decisions, based on availability of facilities, may affect the timing and amount of capital expenditures associated with the market expansion program.
This excerpt taken from the GWW 10-Q filed Nov 2, 2006. Business Environment Several economic factors and industry trends shape Grainger’s business environment. Grainger’s sales tend to correlate positively with production growth, particularly manufacturing output, as well as growth in non-farm payrolls. According to the Federal Reserve, for the 2006 third quarter as a whole, industrial production rose at an annual rate of 3.6%, down from the second quarter rate of 6.6%. Manufacturing output for the 2006 third quarter as a whole rose at an annual rate of 3.8%, also down from the second quarter rate of 5.1%. Manufacturing employment levels throughout 2006 have been essentially flat versus 2005. Non-farm employment levels grew 1.3% since September of 2005. Grainger’s sales to the heavy manufacturing customer sector continue to show improvement over the prior year, reflecting the strength in industrial production. Current economic growth projections by Consensus Forecast–USA for 2006 industrial production and GDP are 4.4% and 3.5%, respectively.
For the first nine months of 2006, the Company had approximately $49.0 million of capital expenditures related to its U.S. branch network and information technology systems. The upgraded SAP system was installed in the U.S. branch-based businesses effective January 30, 2006. Installation in other business units is scheduled for 2008 and beyond.
22
W.W. Grainger, Inc. and Subsidiaries MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This excerpt taken from the GWW 10-Q filed Aug 2, 2006. Business Environment Several economic factors and industry trends shape Grainger’s business environment. Grainger’s sales tend to correlate positively with production growth, particularly manufacturing output, as well as growth in non-farm payrolls. According to the Federal Reserve, overall industrial production in June of 2006 was 4.5% above June of 2005. Manufacturing output was 5.7% above June of 2005, although manufacturing employment levels were essentially flat. Non-farm employment levels grew 1.4% since June of 2005. Grainger’s sales to the heavy manufacturing customer sector continue to show improvement over the prior year, reflecting the strength in industrial production. Current economic growth projections by Consensus Forecast–USA for 2006 industrial production and GDP are 4.2% and 3.4%, respectively.
For the first six months of 2006, the Company had approximately $33.1 million of capital expenditures related to its U.S. branch network and information technology systems. The upgraded SAP system was installed in the U.S. branch-based businesses effective January 30, 2006. Installation in other business units is scheduled for 2008 and beyond.
22
W.W. Grainger, Inc. and Subsidiaries MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This excerpt taken from the GWW 10-Q filed May 2, 2006. Business Environment Several economic factors and industry trends shape Grainger’s business environment. Grainger’s sales tend to correlate positively with production growth, particularly manufacturing output, as well as growth in non-farm payrolls. According to the Federal Reserve, overall industrial production in March of 2006 was 3.6% above March of 2005. Manufacturing output was 4.8% above March of 2005 although manufacturing employment levels have declined. Non-farm employment levels grew 1.5% since March of 2005. Grainger’s sales to the light and heavy manufacturing customer sectors continue to show improvement over the prior year reflecting the strength in industrial production. Current economic growth projections for 2006 industrial production and GDP are 4.0% and 3.3%, respectively.
For the first quarter of 2006, the Company had approximately $13.5 million of capital expenditures related to its U.S. branch network and information technology system. The upgraded SAP system was installed in the U.S. branch-based businesses effective January 30, 2006. Installation in other business units is scheduled for 2007 and beyond.
19
W.W. Grainger, Inc. and Subsidiaries MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This excerpt taken from the GWW 10-K filed Mar 6, 2006. Business Environment. Several economic factors and industry trends shape Grainger’s business environment. The current overall economy and leading economic indicators forecast by economists provide insight into anticipated economic factors for the near term and help in forming the development of projections for the upcoming year. At the start of 2006, the Consensus Forecast-USA predicted GDP and Industrial Production growth of 3.4 percent for 2006, although preliminary fourth quarter 2005 GDP estimates reflected a slowdown from prior quarters.
In 2005, Grainger benefited from the economic recovery in the United States. Grainger’s sales correlate positively with production growth. With the improvement in Industrial Production and general growth in the economy, Grainger realized an increase in sales across all customer segments. Grainger’s sales also tend to increase when non-farm payrolls grow, especially during economic recoveries. Non-farm payrolls increased approximately 2%, on average, in 2005 over 2004. For 2005, Grainger benefited from the combination of increased Industrial Production and non-farm payroll growth.
The light and heavy manufacturing customer segments, which comprised over 25% of Grainger’s total 2005 sales, have historically correlated with manufacturing employment levels and manufacturing production. Manufacturing employment levels were flat during 2005, however manufacturing output increased almost 4%. This contributed to almost double-digit sales growth in the light and heavy manufacturing customer segments for Grainger in 2005. Economic forecasts suggest that the manufacturing sector should continue to expand in 2006.
In 2004, Grainger launched a multiyear initiative to strengthen its presence in top metropolitan markets and better position itself to serve the local customer. The market expansion program contributed to the sales growth in 2005 and is expected to be a driver of growth in 2006 and beyond. The first phase of the market expansion program was completed in 2005. Phases two through four were in progress at December 31, 2005. Additional phases are scheduled for 2006 and beyond.
Customer buying behavior is also important in Grainger’s business environment. Grainger believes that customers will continue to focus on reducing their cost to procure facilities maintenance products. Consequently, Grainger is increasing information available to employees for improved service to customers by installing an upgraded SAP branch operating system and replacing its legacy information systems with a new integrated software package also provided by SAP, in the U.S. branch-based businesses, effective January 30, 2006.
Grainger’s financial strength, including its low debt and strong cash flow, positions it to fund acquisitions and major initiatives, improve effectiveness and accelerate top line growth. Capital spending in 2005 related to the market expansion program and SAP initiative was approximately $88 million, with total capital expenditures of more than $157 million.
9
For 2006, Grainger anticipates total capital expenditures of $140 million to $175 million. Grainger intends to continue its investment in the market expansion program and information technology enhancements with spending planned for the following major projects:
Lease or purchase decisions, based on availability of facilities, may affect the timing of capital expenditures associated with the market expansion program.
This excerpt taken from the GWW 10-Q filed Nov 2, 2005. Business Environment
Several economic factors and industry trends shape Grainger’s business environment. Current economic growth projections for 2005 industrial production and GDP are 3.1 percent and 3.5 percent, respectively. Growth projections for industrial production have declined 0.4 percentage point from the second quarter. Third quarter manufacturing output increased reflecting improved productivity while manufacturing payrolls declined from the beginning of 2005. Non-farm payrolls have grown, with increases in the first six months and early projections for the third quarter showing continued increases. Early projections of manufacturing employment levels for the third quarter indicate slight decreases, while Grainger’s sales to the light and heavy manufacturing customer segments continue to show improvement over the prior year. There was growth in all customer segments except for transportation.
For the nine months ended September 30, 2005, Grainger had approximately $116.2 million of capital expenditures, of which approximately $65.2 million related to its branch network and information technology initiatives. Fourth quarter capital expenditures are expected to be consistent with prior quarters.
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