Industrial Distribution & Logistics (D&L) Quarterly

Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011 END MARKET CYCLE [1] Ag Equipment General Industrial Automotive Steel Heavy Truck Peak Gr...
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Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011

END MARKET CYCLE [1] Ag Equipment General Industrial Automotive Steel Heavy Truck Peak Growth Oil & Gas Mining Equipment Construction Machinery (Light) Commercial Aerospace (Aftermarket) Semiconductor Equipment

Non-Cyclical Early-Cycle Mid-Cycle Late-Cycle

Commercial Aerospace (OEM) Residential Construction Water / Wastewater

Military/Defense Accelerating Decline

Decelerating Decline

Trough Decline

Accelerating Growth

Decelerating Growth

Nonresidential Construction Power Generation Construction Machinery (Heavy) Chemicals

Ag Equipment General Industrial Mining Equipment Heavy Truck Oil & Gas Commercial Aerospace (AM) Water / Wastewater Commercial Aerospace (OEM) Construction Machinery (Light) Military/Defense Residential Construction

Automotive Steel Semiconductor Equipment

Power Generation Construction Machinery (Heavy) Nonresidential Construction Chemicals

ƒ The industrial end market cycle showed signs of improvement in the first quarter of 2011 as early and mid-cycle industries continued their recovery of accelerating growth, in addition to three late-cycle industries that continued their transition from trough into the recovery phase of the business cycle

Market Factors ƒ Demand for manufactured goods increased 6.2% YoY, supporting the thesis that a turnaround in industrial distribution and logistics channels is continuing – Durable goods orders decreased 0.9% in February, excluding transportation, new orders decreased 0.6% – Machinery orders, down two consecutive months, declined 4.2% MoM to $26.1 billion, representing the largest decline in February – Unfilled orders for manufactured goods have increased ten of the last eleven months, most recently growing by $2.9 billion, or 0.4% in February

ƒ The Purchasing Managers Index (PMI) showed signs of continued growth in the manufacturing sector during March, at 61.2, representing an 80 basis point increase over the last year ― March is the 20th consecutive month of PMI levels over 50, indicating that the manufacturing sector is growing “If“Ifyou youremember rememberlast lastyear, year,we wewere werejust justbeginning beginningtotoemerge emergefrom fromthe thedepths depthsofofaarecession, recession,so sowe westill stillhave haveaaways waystotogo gobefore beforewe’re we’reall allthe theway wayback backtotothe thepreprerecession recessionlevels, levels,but butwe’re we’redefinitely definitelymoving movingininthe theright rightdirection, direction,and andwe weare arehitting hittingon onall alleight eightcylinders cylindersright rightnow.” now.”––David DavidPugh, Pugh,Chairman Chairmanand andCEO CEOofof Applied AppliedIndustrial IndustrialTechnologies TechnologiesInc. Inc.––1/21/2011 1/21/2011 “Although the market environment stabilized throughout the year, several of our markets operated “Although the market environment stabilized throughout the year, several of our markets operatedunder undersome someuncertainty uncertaintyininterms termsofofthe theactual actualpath pathofofrecovery. recovery. We Weare are encouraged encouragedby bysigns signsof ofimprovement improvementinineach eachofofour ourend endmarkets. markets. More Moreimportantly, importantly,we weare arebetter betterpositioned positionedtoday todayhaving havingexited exitedthe theyear yearstronger strongerthan thanwhen whenwe we entered.” entered.”––Michael MichaelGrebe, Grebe,Chairman Chairmanand andCEO CEOofofInterline InterlineBrands BrandsInc. Inc.––2/25/2011 2/25/2011 [1] KeyBanc Capital Markets; Industrial Distribution Index = AXE, AIT, B, BECN, DXPE, FAST, GWW, IBI, KAMN, LAWS, MSM, PKOH, WSO, WCC Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete, and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.

Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011

INDUSTRY FUNDAMENTALS PMI and Manufacturing Inventories (through March 2011) 80

The Institute of Supply Management’s PMI for the month of March 2011 was 61.2, 20 basis points below the February reading of 61.4

PMI PMIabove above50 50indicates indicates expansion expansionininmanufacturing manufacturing

70

60

According to the PMI, the manufacturing sector continued to experience expansion through 1Q 2011, the seventh consecutive quarter above 50.0

50

40

Manufacturing inventory levels decreased 140 basis points, to 47.4 in March

Above Above42.7 42.7considered considered economic economicexpansion expansion(GDP) (GDP)

30

PMI

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

20

Inventories [1]

The current manufacturing inventory levels are greater than 42.7, a figure representing economic expansion according to the Bureau of Economic Analysis (BEA)

Value of U.S. Construction – Annualized & Seasonally Adjusted (through February 2011) $800

According to the U.S. Census Bureau, February 2011 construction spending totaled $760.6 billion, a decline of 6.8% YoY

$700

Construction spending decreased 1.4% over the revised January estimate of $771.0 billion

Billions of Dollars

$600

Residential spending decreased 3.8% MoM, to $237.4 billion in February, down 7.8% YoY

$500

$400

Nonresidential spending decreased 0.2% MoM to $523.2 billion in February, down 6.3% YoY

$300

$200 2002

2003

2004

2005 Residential

2006

2007

2008

2009

2010

2011

Non-residential

Source: Institute of Supply Management, U.S. Census Bureau [1] Measures inventory levels of 18 manufacturing industries

2

Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011

INDUSTRY FUNDAMENTALS Industrial Production and Capacity Utilization (through March 2011) 95.0%

10.00%

90.0%

5.00%

85.0%

0.00%

80.0%

Industrial Production

Industrial production has increased in nineteen of the past twenty months Capacity utilization remained flat in March at 76.9% compared to 76.9% in February and 76.8% in January Capacity utilization remains well below its long-term average of 80.4% (1970-2010)

2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

65.0% 1979

-15.00% 1977

70.0%

1975

-10.00%

1973

75.0%

1971

-5.00%

Industrial production increased modestly by 0.1% in March after a revised increases of 1.4% and 0.2% in January and February, respectively

Capacity Utilization

Industrial Production (% change YoY)

15.00%

Capacity Utilization

Durable Goods Orders (through February 2011) 30.0%

Durable Goods Orders

New orders for manufactured durable goods decreased $1.9 billion, or 0.9% to $199.9 billion in February The decrease in February orders was largely due to defense orders; excluding defense, February orders increased 0.4% MoM Durable goods orders have increased on a YoY basis every month in 2010 and 2011

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

(30.0%) 1997

$0 1996

(20.0%)

1995

$50

1994

(10.0%)

1993

$100

1992

0.0%

1991

$150

1990

10.0%

1989

$200

1988

20.0%

1987

$250

1986

$ in billions

$300

% Change YoY

Source: Federal Reserve, U.S. Census Bureau

3

Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011

PUBLIC COMPANY TRADING DYNAMICS Operating, Trading and Credit Statistics (as of March 31, 2011) $ in millions, except per share data Company

Market Cap

Enterprise Value

LTM EBITDA

Sales

% Margin

EPS

2011E EBITDA EPS

LTM EV/EBITDA

P/E Ratio

2011E EV/EBITDA P/E Ratio

Anixter International Inc.

AXE

$69.89

$2,388

$3,202

$5,472

$300

5.5%

$3.72

$389

$5.08

10.7x

18.8x

8.2x

13.8x

Applied Industrial Technologies, Inc.

AIT

33.26

1,412

1,358

2,066

163

7.9%

$1.99

171

2.05

8.3x

16.7x

8.0x

16.2x

Barnes Group Inc.[1] Operating & Trading Statistics

Current Price 3/31/2011

Ticker

B

20.88

1,136

1,481

1,133

139

12.3%

0.72

161

1.25

10.6x

29.2x

9.2x

16.7x

Beacon Roofing Supply Inc.

BECN

20.47

938

1,110

1,647

102

6.2%

0.80

124

1.09

10.9x

25.7x

9.0x

18.7x

DXP Enterprises Inc.

DXPE

23.08

325

439

656

47

7.1%

1.36

60

1.70

9.4x

17.0x

7.3x

13.5x

Fastenal Co.

FAST

64.83

9,558

9,388

2,389

509

21.3%

1.99

599

2.32

NM

NM

NM

27.9x

W.W. Grainger, Inc.

GWW

137.68

9,561

9,824

7,182

991

13.8%

7.43

1095

7.87

9.9x

18.5x

9.0x

17.5x

Interline Brands Inc.

IBI

20.40

680

910

1,087

96

8.8%

1.08

116

1.29

9.5x

18.9x

7.8x

15.8x

Kaman Corporation[1]

KAMN

35.20

918

1,034

1,319

91

6.9%

1.62

112

1.95

11.4x

21.7x

9.3x

18.1x

Lawson Products Inc.

LAWS

23.04

197

157

317

18

5.8%

1.06

0.30

8.5x

21.7x

NM

NM

MSC Industrial Direct Co. Inc.

MSM

68.47

4,342

4,280

1,868

331

17.7%

3.00

3.56

13.0x

22.8x

10.9x

19.2x

Park-Ohio Holdings Corp.[1]

PKOH

20.66

245

525

814

58

7.1%

1.01

74

1.90

9.1x

20.4x

7.1x

10.9x

Watsco Inc.

WSO

69.71

2,268

2,316

2,845

176

6.2%

3.31

211

3.14

13.1x

21.0x

11.0x

22.2x

WESCO International Inc.

WCC

62.50

2.47

321

3.50

17.8x

NM 392

2,690

3,394

5,064

254

5.0%

13.3x

25.3x

10.6x

Average

$2,618

$2,816

$2,418

$234

9.4%

$294

10.6x

21.4x

8.9x

17.6x

Median

$1,274

$1,419

$1,757

$151

7.1%

$171

10.6x

21.0x

9.0x

17.5x

$ in millions Company

Ticker

Net Debt

Total Debt/ EBITDA

Net Debt/ EBITDA

Total Debt/ Cap

AXE

$892

$814

3.0x

2.7x

46.9%

5.6x

Applied Industrial Technologies, Inc.

AIT

0

(54)

0.0x

NM

0.0%

NM

B

358

345

2.6x

2.5x

33.5%

7.0x

Beacon Roofing Supply Inc.

BECN

348

172

3.4x

1.7x

41.8%

6.3x

DXP Enterprises Inc.

DXPE

115

114

2.5x

2.4x

48.0%

9.0x

Fastenal Co.

FAST

0

(151)

0.0x

NM

W.W. Grainger, Inc.

GWW

494

181

0.5x

0.2x

Interline Brands Inc.

Consensus ConsensusFinancial FinancialOutlook Outlook

EBITDA/ Interest

Anixter International Inc.

Barnes Group Inc.[1]

Credit Statistics

Total Debt

0.0x 17.8%

NM NM

IBI

317

230

3.3x

2.4x

39.0%

5.1x

Kaman Corporation[1]

KAMN

148

116

1.6x

1.3x

29.0%

9.0x

Lawson Products Inc.

LAWS

1

(40)

0.1x

NM

0.0x

NM

MSC Industrial Direct Co. Inc.

MSM

0

(76)

0.0x

NM

0.0%

NM

Park-Ohio Holdings Corp.[1]

PKOH

316

281

5.5x

4.9x

87.2%

2.4x

Watsco Inc.

WSO

10

(116)

0.1x

NM

1.1%

NM

WESCO International Inc.

WCC

757

704

3.0x

2.8x

39.7%

4.4x

Average

$268

$180

1.8x

2.3x

27.5%

6.1x

Median

$232

$144

2.0x

2.4x

31.3%

6.0x

ƒƒ 2011 2011vs. vs.2010 2010 –– Revenue Revenueisisexpected expectedtotoincrease increase10.9%, 10.9%,on on average average –– EBITDA EBITDAisisexpected expectedtotoincrease increase21.4%, 21.4%,on on average average –– EPS EPSisisexpected expectedtotoincrease increase20.1%, 20.1%,on onaverage average ƒƒ 2012 2012vs. vs.2011 2011 –– Revenue Revenueisisexpected expectedtotoincrease increase7.2%, 7.2%,on on average average –– EBITDA EBITDAisisexpected expectedtotoincrease increase17.2%, 17.2%,on on average average –– EPS EPSisisexpected expectedtotoincrease increase21.3%, 21.3%,on onaverage average

Three-Year Stock Price Performance: Industrial Distribution Index vs. S&P 500 (through March 31, 2011) 60% 40% 20%

Industrial Distribution Index

S&P 500 Index

LTM

31.9%

12.5%

YTD

4.7%

4.2%

In the last twelve months, the Industrial Distribution Index and the S&P 500 43.3% posted positive returns of 31.9% and 12.5%, respectively

0%

(3.2%)

(20%) (40%) (60%) Apr-08

Sep-08

Mar-09 Industrial Distribution Index

Sep-09

Mar-10

Sep-10

Mar-11

During 1Q 2011, the Industrial Distribution Index grew 4.7% vs. 4.2% for the S&P 500 Index Improving fundamentals and dynamics inherent to the industry support a favorable long-term investment thesis for the distribution industry

S&P 500 Index

[1] Companies with prominent manufacturing and distribution operations Sources: Capital IQ, Reuters, SEC Filings Note: LTM equals “Last Twelve Months”, data for most recent fiscal quarter ended; “NM” denotes if EV/EBITDA multiple is greater than 15x or less than 0x, if EBITDA/Interest multiple is greater than 30x or if P/E multiple is greater than 30x or less than 0x; KeyBanc Capital Markets Industrial Distribution Index = AXE, AIT, B, BECN, DXPE, FAST, GWW, IBI, KAMN, LAWS, MSM, PKOH, WSO, WCC

4

Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011

VALUATION, PROFITABILITY & FINANCIAL OUTLOOK Five-Year Historical Valuation and Profitability Analysis (as of March 31, 2011) EV/LTM EBITDA 15.0x

LTM EBITDA Margin

8.5%

8.0%

12.0x

10.6x 8.9x 8.8x

9.0x

7.5%

7.2% 7.1% 7.1%

7.0%

6.0x 6.5%

3.0x

0.0x Jul-06

6.0%

5.5%

Jan-07

Jul-07

Jan-08

Aug-08

Feb-09

Aug-09

Mar-10

Index Median

Sep-10

Mar-11

Current Average

ƒ Industrial Distribution Index is ƒ Long-term trends suggest trading at median 10.6x EV/LTM industrial distribution companies EBITDA vs. 5- and 10-year have returned to normalized averages of 8.8x and 8.9x, valuation levels witnessed at the respectively end of previous cycles

Jul-06

Jan-07

Jul-07

5-Year Average

Jan-08

Aug-08

Feb-09

Aug-09

Mar-10

Sep-10

Mar-11

10-Year Average

ƒ On average, the Industrial Distribution Index generated EBITDA margins of 7.1%, vs. 5and 10-year averages of 7.2% and 7.1%, respectively

ƒ EBITDA margins have returned to long-term averages as sales revenues have recovered and continue to remain strong

INTEREST RATE RISK MANAGEMENT – RECENT INTEREST RATE AND ECONOMIC ENVIRONMENT Note: as of 4/4/2011

ƒ The U.S. exerted a government shutdown as legislators agreed on budget compromises before the deadline on April 8, 2011

Short Term Rates

Today

Last Week

Change

1-Month LIBOR 3-Month LIBOR Fed Funds Fed Discount Prime

0.24% 0.30% 0.25% 0.50% 3.25%

0.25% 0.31% 0.25% 0.50% 3.25%

(0.01% ) (0.01% ) 0.00% 0.00% 0.00%

} } } } }

U.S. Treasury Yields 2-Year Treasury 5-Year Treasury 10-Year Treasury

0.80% 2.24% 3.44%

0.74% 2.16% 3.44%

0.06% 0.08% 0.00%

Ç Ç }

Swaps vs. 3M LIBOR 2-Year 5-Year 10-Year

1.03% 2.50% 3.60%

0.98% 2.43% 3.60%

0.05% 0.07% 0.00%

Ç Ç }

ƒ U.S. existing home sales declined in February following several consecutive monthly increases. Sales fell by 9.6% to 4.9 million for the month, representing the first decline since October 2010. New home sales also decline 16.9% to a record low of 250k for the month ƒ The S&P / Case-Shiller Home Price Index also posted a decrease of 1.4, to 140.9, for January from the revised December report of 142.3 ƒ U.S. factory orders declined 0.1% while shipments increased by 0.3% in February. The recent stagnation in orders and shipments was largely due to companies adjusting for higher petroleum prices

– The new legislation is expected to cut spending in 2011 by approximately $39 billion ƒ As evidenced in recent Central bank meeting minutes, a number of Fed Presidents have been increasing their attention towards inflation – Fed Chairman Ben Bernake and Vice Chairman William Dudley continue to downplay the threat from inflation, stressing the importance of a full recovery of labor markets before the Central bank begins fiscal tightening – A number of dissenting Fed Presidents have argued that price increases in grocery stores and gas stations show signs of concern

Following a bottom in late 2010, Treasury rates have rebounded back to levels reached 1-year ago. Inflationary pressures are the main concern for interest rates. The increase of dollars in the economy are expected to have a significant impact inflation as the economy continues to recover

Source: Capital IQ, Reuters, SEC Filings Industrial Distribution Index = AXE, AIT, B, BECN, DXPE, FAST, GWW, IBI, KAMN, LAWS, MSM, PKOH, WSO, WCC

5

Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011

SELECT RECENT MERGER AND ACQUISITION ACTIVITY (1Q 2011) Closed Date 3/23/2011

Acquirer (Parent) Stewart & Stevenson, LLC

Target (Seller) E.M.D. Services International, Inc.

Highlights

ƒ

Stewart & Stevenson, LLC acquired E.M.D. Services International, Inc. for $26.5 million in cash on March 23, 2011. The acquisition was funded from available cash and Stewart & Stevenson’s revolving credit facility E.M.D. Services International, Inc. distributes diesel engines and electro-motive diesel engine parts for marine, drilling and power generation

ƒ

3/15/2011

WESCO International Inc.

RECO, LLC

ƒ ƒ

WESCO International Inc. acquired RECO, LLC on March 15, 2011. The financial terms of the transaction were not disclosed RECO, LLC distributes industrial automation parts from five regional offices located in Cincinnati, Indianapolis, Louisville, Nashville and Birmingham

3/1/2011

Singer Equities Inc.

Spartan Industrial Products, LLC

ƒ ƒ

Singer Equities Inc. acquired Spartan Industrial Products, LLC on March 1, 2011. The financial terms of the transaction were not disclosed Spartan Industrial Products, LLC distributes industrial hydraulic and safety products to oilfield service and marine industries in South Louisiana

2/22/2011

Arborview Capital

Drexel Metals Inc.

ƒ ƒ

Arborview Capital acquired Drexel Metals Inc. on February 22, 2011. The financial terms of the transaction were not disclosed Drexel Metals Inc. supplies equipment, materials and technical support for metal roofing manufacturers, contractors and distributors

2/15/2011

EnPower Systems, Inc.

Plan It Solar, Inc.

ƒ ƒ

EnPower Systems, Inc. acquired Plant It Solar, Inc. on February 15, 2011. The financial terms of the transaction were not disclosed Plant It Solar, Inc. distributes solar electric systems and parts

2/11/2011

United Central Industrial Supply Company, LLC

Gooding Rubber Company

ƒ ƒ

United Central Industrial Supply Company, LLC acquired Gooding Rubber Company on February 11, 2011. The financial terms of the transaction were not disclosed Gooding Rubber Conmpany distributes rubber products from four regional offices located in the Midwest

2/1/2011

Pfingsten Partners, LLC

TPC Wire & Cable Corp. (Premier Farnell Corp.)

ƒ ƒ ƒ

Pfingsten Partners, LLC acquired TPC Wire & Cable Corp. from Premier Farnell Corp. for $43 million in cash on February 1, 2011 TPC Wire & Cable Corp. distributes electrical wire, cable, connectors and electrical components for design, maintenance and industrial applications Premier Farnell Corp. manufactures electronic parts and equipment

1/28/2011

Interline Brands, Inc.

Northern Colorado Paper, Inc.

ƒ ƒ ƒ

Interline Brands, Inc. acquired Northern Colorado Paper, Inc. for $9.8 million on January 28, 2011 Interline Brands, Inc. agreed to pay $9.5 million in cash and an earn-out of up to $0.3 million in cash Northern Colorado Paper, Inc. distributes facilities maintenance products

1/11/2011

Richelieu Hardware Ltd.

Outwater Hardware

ƒ ƒ

Richelieu Hardwar Ltd. Acquired Outwater Hardwar for $11.7 million in cash on January 11, 2011 Outwater Hardware Corporation operates as a wholesale distributor of specialty hardware products to the commercial woodworking industry in the United States

1/4/2011

Ajax Tocco Magnethermic (ParkOhio Holdings Corp.)

Pillar (ABP Induction, LLC)

ƒ ƒ

Ajax Tocco Magnethermic acquired Pillar from ABP Induction, LLC on January 10, 2011. the financial terms of the transaction were not disclosed Pillar designs and manufactures induction heating and melting systems and aftermarket parts

SELECT RECENT CAPITAL MARKETS (EQUITY / DEBT) ACTIVITY (1Q 2011) Offer Date

Company

Type

Gross Amount (MM)

Maturity

Offering Price

Coupon

3/8/2011

Park-Ohio Holdings Corp.

Senior Subordinated Notes

$250.0

4/1/2021

$100.0

8.125%

3/11/2011

The Hillman Group Inc.

Senior Unsecured Notes

$50.0

6/1/2018

$109.25

10.875%

SELECT RECENT CREDIT TRANSACTION ACTIVITY (1Q 2011) Date 4/8/2011

Company Anixter International Inc.

Type Revolving Credit Facility

Use of Proceeds General / Acquisitions

Amount (MM) $400.0

Maturity 4/8/2016

Spread LIBOR + 200 bps

Source: The Daily Deal, MergerMarket, Thomson Reuters, Capital IQ, SEC Filings

6

Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011

KEY COMPANY NEWS (Reported in 1Q 2011) Anixter International Inc. ƒ

2/18: Announced that it has named Theodore Dosch the Company’s Executive Vice President and Chief Financial Officer. Dosch has served as Anixter’s Senior Vice President since 2009. Before joining Anixter, Dosch served in several senior financial management positions with Whirlpool Corporation. Dosch’s promotion will follow the retirement of Dennis Letham at the end of June 2011. Letham served as Anixter’s Chief Financial Officer for 18-years

Applied Industrial Technologies, Inc. ƒ

2/22: Announced that it was awarded a 2010 Silver Boeing Performance Excellence Award. The Boeing Company issues the award annually to recognize suppliers who have achieved superior performance throughout the year. The Company provides Boeing a wide range of MRO parts and supplies for its manufacturing operations, including bearings, power transmission products, fluid power systems and specialty maintenance items

Barnes Group Inc. ƒ

3/2: Announced that it is using its senior credit facility to finance the redemption of the $92.5 million principal amount of its 3.75% Convertible Senior Subordinated Notes Due 2025. Barnes plans to pay cash to the holders for conversion, including the value of any residual value shares of common stock

Fastenal Company ƒ

1/13: Announced that it has signed a settlement agreement with the Civil Division of the Department of Justice (DOJ) which includes a one-time payment of $6.25 million. The settlement follows recent action from the DOJ advising they intended to commence litigation regarding a contract Fastenal entered with the U.S. General Services Administration (GSA). The DOJ and GSA claimed that the Company overcharged government customers under the contract. Fastenal elected to settle the disagreement instead of continuing the dispute with the DOJ and GSA

Interline Brands Inc. ƒ

2/17: Announced that it has named Kenneth Sweder the Company’s President. Sweder will continue to serve as the Company’s Chief Operating Officer which he has held since 2008. Before joining Interline in 2007 as Chief Merchandising Officer, Sweder served as First Vice Preisdnet of Property Operations Strategy at Equity Residential Properties, a Management Consultant at Bain & Company and several senior positions at PNC Bank

MSC Industrial Direct Co. Inc. ƒ

3/30: Announced that it has named Jeffrey Kaczka as Executive Vice president and Chief Financial Officer following the retirement of Charles Boehlke on April 8. Before joining MSC Industrial Direct Kaczka served as Chief Financial officer of Genworth Financial, Inc., Senior Vice president and Chief Financial Officer of Owens & Minor, Inc., Chief Financial Officer of Allied Wordwide, Inc., Chief Financial Officer of I-Net, Inc. and several financial positions at General Electric

Park-Ohio Holdings Corp. ƒ

3/31: Announced that its has priced its offering of $250 million in aggregate principal amount of 8.125% Senior Notes due 2021. In connection with the offering of Senior Notes, the Company intends to enter into a new revolving credit facility by amending and restating the agreement governing it existing credit facility

Watsco Inc. ƒ

3/2: Announced a joint venture with Carrier Corporation’s HVAC distribution network in the northeast U.S. Watsco will own 60% and Carrier will own 40% of the joint venture. Carrier’s network includes 230 employees in 11 states at 28 locations

Source: Company websites

7

Industrial Distribution & Logistics (D&L) Quarterly 2Q 2011

KEYBANC CAPITAL MARKETS’ END MARKET SPOTLIGHT – Trends in Inventory Levels Through the Cycle As the broader economy recovers, industrial distributors and manufacturers have continued to re-build their inventories to near pre-recession levels in order to meet growing demand for manufactured goods ƒ In Q3 ‘08, both the Industrial Distribution Index and U.S. Manufacturers reached the highest inventory levels in the last decade ƒ Through the downturn, distributors and manufacturers alike depleted inventory levels due to depressed demand, reaching a trough in Q4 ‘09 ƒ Since bottoming in 2009, distributors and manufacturers have steadily rebuilt inventories, nearly reaching pre-recession inventory highs at the end of Q1 ‘11 Trough to Today

Peak to Trough

(12.2%) (15.7%)

Distribution Index

10.8% 14.5%

$5,000

$600,000

$4,900 $4,800

$580,000

$4,700 $4,600

$540,000

$560,000

$4,500 $4,400

$520,000 $500,000

$4,300 $4,200 $4,100 $4,000 Q3 '08

$480,000 $460,000 Q4 '08

$ in millions

Q1 '09

Q2 '09

Q3 '09

Q4 '09

Q1 '10

Industrial Distribution Index Total Inventories

Q2 '10

Q3 '10

Q4 '10

U.S. Manufacturers Inventory

Industrial Distribution Index Cumulative Inventory

U.S. Manufacturers

$440,000 Q1 '11

U.S. Manufacturers Inventories [1]

Industrial Distributor Management Commentary ƒ

“We are improving our inventory turns while also improving service levels to our customers.” Robert Eck, President & CEO – 4/26/2011

ƒ

“Inventory turns continue to improve in the quarter and reached another all-time high” Mark Eisele, CFO – 4/21/2011

ƒ

“Inventory turns were up nicely from last year.” David Grace, CFO – 2/9/2011

ƒ

“We also invested in approximately $14 million of inventory at the end of the year. This … resulted in the yearover-year increase in inventory of $30 million.” Kenneth Sweder, President & COO – 2/25/2011

ƒ

“We’re pretty comfortable that by building the inventory that’s translating into world-class service levels and that’s translating into the share gains that we’re seeing.” Erik Gershwind, COO – 4/6/2011

– Industrial Distribution & Logistics Team For additional information on KeyBanc Capital Markets please contact any of the individuals listed below. Raj Trikha Greg Munsell 216.689.4089 212.424.1831 *Note all transactions listed above have been completed as of June 30, 2009 [email protected] [email protected]

T.J. Monico

Tony Allio

John Ebert

216.689.3079

216.689.0575

216.689.3553

[email protected]

[email protected]

[email protected]

Source: Capital IQ, U.S. Census Bureau, KeyBanc Capital Markets Investment Banking; [1] U.S. Census Bureau Total U.S. Manufacturers Inventories Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete, and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.

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