Cash Flow & Balance Sheet

The Company generated $596.4 million of cash from operating activities for the period of twelve months ending December 31, 2010, compared with $732.4 million for the same period in the prior year. Cash and cash equivalent as of December 31, 2010 amounted to $313.4 million versus $458.9 million as of December 31, 2009.

Accounts receivable were $762.9 million as of December 31, 2010, higher than $624.9 million as of December 31, 2009. Inventories increased to $991.6 million as of December 31, 2010 from $889.7 million as of December 31, 2009.

Trade accounts payable were $344.3 million as of December 31, 2010 versus $300.8 million as of December 31, 2009. Total current liabilities were $869.3 million as of December 31, 2010 versus $776.8 as of December 31, 2009. Long-term debt decreased to $426.3 million as of December 31, 2010 from $437.5 million as of December 31, 2009.

Debt-to-capitalization ratio was 17.9% as of December 31, 2010, compared with 19.1% as of September 30, 2010 and 18.6% as of June 30, 2010.

Share repurchase

The Company repurchased 4.6 million of its common stock for approximately $505 million, with an average price of $109.8 per share. The Company is still authorized to repurchase approximately 8.1 million shares of its common stock.

Dividend

The Company also paid $152 million in shareholders dividend. For fiscal FY10 the Company returned $657 million through dividends and share repurchases.

Divesture

On December 20, 2010, Grainger announced that it is divesting all of the assets of library supplies provider Highsmith to Madison-based library supplier DEMCO Inc. for an undisclosed amount. The Highsmith brand was a part of Grainger’s U.S. Specialty Brands portfolio. Grainger's Specialty Brands provide targeted customer segments with products and services specific to their work or industries.

The company is undergoing a strategic review of the U.S. Specialty Brands portfolio, and in addition to Highsmith, Grainger is contemplating the possible divestiture of four additional brands viz. Professional Equipment, Construction Book Express, McFeely's and Rand. The brands under contention along with Highsmith contribute a mere 1% of total Grainger revenue. Grainger plans to invest in the remaining Specialty Brands portfolio including: Lab Safety Supply, Imperial, Gempler's, Ben Meadows and AW Direct, and explore strategic acquisitions to grow the portfolio.

Highsmith, a direct marketing leader in the library equipment, furniture and supplies market, has been part of Grainger for two years. It was acquired by Grainger in July 2008 for $27.5 million in cash and $6.1 million in assumed liabilities. Highsmith had generated sales of $64 million in 2007.

The divestiture will not have a material impact on Grainger’s revenues and instead will help the company focus on maintaining specialized brands in growing markets that are strategic to its core offering and leverage Grainger's distribution capabilities.
 

• Grainger operates in a number of cyclical industries that could be adversely affected in any economic downturn.

• Over the past several years, Grainger has implemented several strategies (DC realignment, SAP system, inventory infusion, changing store sizes, sales force stratification). Each strategic move has inherent event risks.

• While the MRO supply market is large and highly fragmented, competition is intense.