As you most of you know, this last year we lost our unofficial chaplain for the last 24 years, my senior Jim Haberger. I suspect that after 24 years of praying for the welfare of Fastenal and our shareholders, he probably now has more of a direct line to be able to do the same. We have a very worthy replacement to give the invocation today. Father Michael Cronin, who bought shares in Fastenal about a year ago when he was here in Winona. He is currently a parochial vicar at Sacred Heart Parish in Owatonna, Minnesota.
I would like to welcome Father Cronin to the podium.
Good morning. I'm not so used to this corporate world because I work for the church. And so I'm going to take an opportunity before the prayer to do 2 short things. Back in February, Bob wrote me an e mail and said, Father Cronin, the Fastenal Annual Shareholder Meeting will be 10 o'clock on Tuesday, April 16. We would be honored to have you give the invocation at the start of the meeting.
You would be filling the big shoes of Monsignor Hamburger who did this for 25 years. I hope you can make it. We serve a barbecue chicken lunch after the meeting and Blados cookies before the meeting. And apparently that's why that section of the building got seated first because it's closest to the lunch. I emailed him back and said, Bob, I would love to.
I just put it on my calendar and I still have my 5 shares. And then he responded back as only corporate e mails can do, okay, you're on. Remember that the stock's success in the following year correlates with the quality of the invocation. I do want to remember and dedicate this prayer today to the life of Monsignor Jim Habiger, who was such a great friend of this whole community. And I also want to just take a moment now if we could just stand just for a moment of quiet silence for the people of Boston.
And peace. Enlighten our hearts, strengthen us with your grace and wisdom, aid us with your constant help. Unite us to yourself in the bond of love and keep us faithful to all that is true. May everything we do begin with your inspiration and continue with your help. Give us light and strength to know your will, to make it our own and to live it in our daily lives.
Amen.
This annual meeting of the shareholders of the Fastenal Company is now convene. I am Robert A. Kirlin, Chairman of the Board of the Company. Steven M. Sloggy will act as Secretary of this meeting and I will act as Chairman.
Also present are Michael M. Kiesniewski, Willard D. Overton, Michael J. Dolan, Rene K. Weiskopf, Q.
L. Miller, Michael J. Anzius, Scottie Satterlee, Rita J. Heisey and Niran R. Jackson, who are directors of the company.
I'd like to first welcome all of you to this Annual Meeting of Shareholders. And next, I will report on the number of shares present at this meeting and conducting and I'll conduct the voting on the proposals to be considered at this meeting. And following the votes, our Chief Executive Will Overton will report to you on the company. The record dates for the determination of the holders of the company's common stock entitled to receive notice and to vote at this meeting was fixed by the Board of Directors on February 22, 2013. I presented to the meeting at the back of the room by the receptionist, a certified list of the holders and shares of the company's issued and outstanding common stock as of the close of business on the record date.
The list will be kept open subject to the inspection of any shareholder during the meeting. And also, in the back, by the receptionist, I will present to the meeting an affidavit of a manager of Broadridge Financial Solutions Incorporated, attesting that a notice of meeting together with a proxy statement, proxy card and certain other documents were mailed on or about March 7, 2013 to each holder of record of the company's common stock at the close of business on the record date. The affidavit of mailing of the notice of the meeting will be attached to the the minutes of this meeting as Exhibit A. The certified list of holders of the company's common stock will be filed with the books and records of the company. At the close of business on the record date, there were outstanding and entitled to vote at this meeting, 296,000,006 2,531 shares of common stock.
Each share of common stock is entitled to 1 vote. Regardless of how many shares and votes you have though, you probably will only be getting 1 piece of chicken at the barbecue. For a quorum to be present, a majority of the 296,662,531 votes Entitled to be cast must be present in person or proxy at this meeting. And on a preliminary count, there are represented at the meeting either in person or by proxy, a majority of the votes entitled to be cast at the meeting. Therefore, a quorum is present for the transaction of business.
Is there anyone present who has not submitted a proxy or registration form? All right. Let's see, a record of the proxy submitted to the meeting and the ballots of the individuals appointed as proxies and of the shareholders voting in person at the meeting will be filed with the books and records of the company. Jean de Gallier is hereby appointed to act as the Inspector of Election with respect to all matters to be voted upon at the meeting or any adjournment thereof. The oath of the Inspector of Election will be administered and will be attached to the minutes of this meeting as Exhibit B.
We thereby make available to the Inspector the list of shareholders registration forms and a record of all proxies submitted at the meeting. And copies of the minutes of the last annual meeting of the company held on April 17, 2012 are available at the registration desk. We will therefore dispense with the reading of the minutes of that meeting. All shareholders of record at the close of business on February 22, 2013, may vote on the matters to be considered today. If you wish to vote by ballot, please raise your hand when I ask you to do so and a ballot will be given to you.
Shareholders who have appointed others as proxies to vote their shares, whether in writing or by telephone or over the Internet and have not terminated those proxies, should not vote by ballot. For the first time this year, we will distribute just one ballot covering all matters to be voted on at this meeting rather than separate ballots for each matter. We will now take up the business of the meeting. We have 3 matters to be considered by our shareholders today. The first is the election of directors for the coming year.
The Board of Directors of company has nominated the following 11 persons for election to the Board to serve until the next regular meeting of shareholders or until their successors are elected and qualified: Robert A. Kerlin, Stephen M. Slaghi, Michael M. Gustomski, Willard D. Overton, Michael J.
Dolan, Rene K. Weiskop, Hugh L. Miller, Michael J. Ancias, Scott A. Satterlee, Rita J.
Heisey and Darren R. Jackson. I will now open the floor to a motion to formally place these, for this meeting, the nomination of these individuals, and I'll recognize Mr. Christopher Gervais.
Mr. Chairman, my name is Christopher Gervais, and I am a shareholder of the company. I move to formally place before this meeting the nomination of the 11 individuals identified by you for election to the Board of Directors to serve until the next regular meeting of shareholders or until their successors are elected and qualified.
Thank you. Chair recognizes Mr. Darryl Dvorak.
Mr. Chairman, my name is Darryl Dvorak and I'm a shareholder of the company and I second the motion.
Thank you. As no other nominations have been made in accordance with the proceedings established in the company's bylaws, I declare the nominations to be closed. The next matter for consideration today is the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2013. I would like to introduce Mr. John Atkinson, a partner of that firm, who is here today to answer any questions you may have.
There he is. Let's see. I will now open the floor to a motion to formally place before this meeting a resolution concerning the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2013. Chair recognizes Ms. Teresa Lisowski.
Mr. Chairman, my name is Teresa Lisowski and I am a shareholder of the company. I move that the following resolution be adopted. Resolved that the appointment of KPMG LLP as independent registered public accounting firm for the company for the fiscal year ending December 31, 2013, be and hereby is ratified.
Thank you. Chair recognizes Ms. Gladys Severson.
Mr. Chairman, my name is Gladys Severson. I am a shareholder of the company. I second the motion.
Thank you. Is there any discussion on this motion? It has been moved and seconded that the appointment of KPMG LLP as an independent registered public accounting firm for the company for the fiscal year ending December 31, 2013, be ratified. I will now open the floor to a motion to formally place before this meeting a resolution concerning the approval of executive compensation. Chair recognizes Mr.
J. W. Hain.
Mr. Chairman, my name is J. W. Hain, and I am a shareholder of the company. I move that the following resolution be adopted: Resolve that the shareholders of the company approve on an advisory basis the compensation of the company's named executive officers as disclosed in the compensation discussion and analysis, compensation tables and related disclosures contained in the section of the proxy statement for the 2013 Annual Meeting of Shareholders captioned Executive Compensation.
Thank you. Chair recognizes Ms. Mary Spitzer.
Mr. Chairperson, my name is Mary Spitzer and I am a shareholder of the company. I second the motion.
Thank you. Any discussion on this motion? It has been moved and seconded that the compensation of certain of our executive officers be approved. If you wish to vote on these motions by ballot, please raise your hand and a ballot will be given to you. If you have appointed another person or proxy to vote your shares and have not terminated that proxy, you should not vote by ballot.
After you have executed your ballot, it will be collected and tabulated. Anybody needing a paper ballot? Okay. The polls are now closed and the ballots will be counted. While the ballots are being counted, Mr.
Will Overton, our Chief Executive Officer, will report to you on the company. After the conclusion of this report, we will answer any questions you may have related to the company and its activities. Mr. Overton?
Thank you, Bob. Before I get started with my part of the portion, I want to lay out what our program is going to be today. I'm going to give a brief overview on the company and I need to make it brief because we had to shut down the picking system. So we have a bunch of people back there going, let's go. So I'll talk about the company.
Then I'm going to have a we're going to have a report from Lee Haim, our President Lee Haim. Lee is a long term member of the Fastenal team. He joined us in 1980 5. He's worked in various positions, been here in Winona for about the last 15 years as a Regional Vice President and an Executive Vice President and most recently President of Fastenal. Lee is going to report on our fastener initiative, how we're trying to put more focus on growing our fastener business.
Followed by Lee, we'll have a report from Walter Tate. Walter is a little bit newer to the Fastenal family. He started in November of 2000, so he's 13 years, which makes him young for a lot of us. Walter has worked in 6 different roles over his 13 years with Fastenal. He's been in sales, operations, marketing.
But most recently, he's heading up our project for automating our warehouses. And I thought it was a very good time to tell our shareholders more about what we're doing with automation. We made decisions in the last year to greatly increase our investment in these systems. And Walter, I think, will do a job of explaining why we're doing it and what we expect out of that. Forward looking statements.
Just some first some highlights from 2012. 2012 was a good year for Fastenal. We grew our sales 13.3%, which was lower than we had expected going into the year. We started out very strong at 20% in the Q1. And then as the economy softened a little bit, our sales flowed throughout the year.
We did a nice job in improving our profits. We grew our net profits at 17.5%, a number that we're proud of. We increased our dividend payout to the shareholders by 91.6%, dollars 367,000,000 were paid out in dividends. And we added $958,000,000 in market value, only 7.4% but when I that's a disappointing number for us. But when you look at almost $1,000,000,000 in market value increase, I was very proud of that number when you just look at it in absolute dollars.
When you compare that to the fact that 26 years ago when we went public, the value of the entire company was only about $25,000,000 to $30,000,000 It's a nice improvement in just 1 year. What I intend to do today is talk kind of just restate the basics of our model and I continue to do this with our managers and our employees and I think it's very important to tell people how we plan to go to business, what our strategy is. Always remember, our motto is growth through customer service. And the way that we plan to serve our customers, we want to serve our customers is through a store based network. And what I'm trying to show illustrate with this slide is everything we do evolves around our stores.
And the reason we're so committed to a store based network is we believe that the closer that we can become or get to our customers, the greater we'll be able to service them and the bigger market greater market share we will drive through the customer base. So we're trying to drive business, to get closer to the customers and drive more business. All the pieces around that are the things that we're trying to support our stores with, better people and people policies, products and marketing, distribution, systems that keep everything together and then finances make sure that we continue to make money and get a return so we can continue to invest in this system. On the people side, the most important thing we can do, there are a lot of things we need to do with people. We need to recruit.
We need to train. We need to provide benefits, pay and opportunities, all very, very important things. But probably the biggest part is developing the people. What I'm showing you here just one part of our people, our people policies today is our Fastenal School of Business. In 2012, Fastenal School of Business delivered 8,600 instructor led what this means is 8,600 people went through instructor led courses and these courses range from 1 to 5 days, mainly 2 to 3 day courses.
So 8,600 people out of our 1600. But more impressive to me is that we had 247,000 online courses. Some of these are 30 to 40 minutes, some of them take days and even weeks. But the real point here is we're adapting to the technology that's out there today. I shouldn't say we, our Fastenal School of Business is using it to train our people.
And this is what it's all about, taking smart ambitious people and investing in them to continue to make them better. I think that's a very important part of our culture that's been there for a long time, but we continue to evolve and push it forward. On the product side, if you think about it, you have the locations, you have people, you need to put give them great product to service our customers. And we continue to expand our products and look at different things that we can stock and that we should that we can provide and that we stock with really one pretty simple goal. We want to put our sales people in a position to say yes.
They pick up the phone, customer looks at is needing something, yes, I can get that for you. Yes, I have that in stock. I can have it for you tomorrow, whatever the answer is. Because we know that if we don't say yes and we say, well, let me take a look at it, maybe I can do that. There's a good chance when they hang up the phone that the customer is calling someone else, our competitor in many cases.
So we're very focused on putting our sales people in a position to say yes. The other thing that we want to do is we want to give our customers choices. And in the bottom corner there where it shows these, the Blackstone and Power Phase, those are Fastenal brands, brands we've developed. And what we do with that is we provide high quality product, typically at a lower price, So the customer has a choice between the best brands in the industry or the Fastenal brands depending on what they're looking for. Are they looking for price?
Are they looking for performance? Ours provide both price and performance, but sometimes a customer needs a certain brand. So we want to put them in choice or give them choice. If you look at the top, we have pictures of the vending machines. Those are really just delivery systems.
The one thing I want to comment on our industrial vending program, which is going very well. Our goal going into 2012 was to sign 15,000 vending contracts with customers. The team did a great job. The entire Blue team, Fastenal Blue team did a great job. We ended up the year signing just over 20,000 vending contracts.
We exceeded our goal by 30 some percent and it continues to go well this year as well. So great delivery system. The products, one thing I just want to mention on the products, the product journey if you put it that way will never end because every time we think we have everything they need, someone invents new products or new needs, which is great for our business, but creates a great a very large challenge for all the people involved in it. Moving forward on distribution, I'm not going to touch much on distribution because Walter is going to do his presentation. A couple of things or one thing I did want to mention is again always trying to change our company and do new things.
This year we made a decision somewhat of an experiment or a test. We went out and bought 6 brand new tractors that run on compressed natural gas, an effort to try and lower our emissions, lower our costs and try a fuel that's actually plentiful here in the United States. So far the test is going well, way too early to determine if we have 20 of them next year or 200 of them. But over time, we believe it will be something that we'll be able to deploy within our fleet, lower our costs and lower emissions at the same time. So we are trying a lot of different things to improve our business.
Systems and systems strengths. Many times and even myself when I think of systems, I almost always focus on just the IT stuff, the technology. But when I list it down, we have systems for purchasing, for shipping the product, all the stuff we do with logistics and containers and all that, We're storing the product and re picking it for our stores. We have separate systems for our branches. We have systems to develop sales tools.
In the middle is an iPad. That's something we're working on right now. So our salespeople have mobile. They can take orders on the fly, phone right above that. We have systems for delivering product out to not only to our stores but to our customers and other complete system.
And then we have a very large system to keep track of all the money, the accounting, the bill paying and all of that along with the inventory. So when I think of the things that our IT group does along with accounting and purchasing and all these other areas, we are completely dependent on the strength of our systems and we have a great team working well in all areas we have great people working on it, but it's going to continue to grow and we're going to continue to improve those systems. What does this mean to the company and what does it mean to the shareholders. I've been using this slide for many years. In 2012, we didn't add as many employees as we did in 2011.
We had a great Q1, business started slowing down. So we said, you know, we're going to be a little cautious on adding headcount. And so we basically ended up at about the same place we started the year with headcount. We did continue to open stores. We grew our sales, as I mentioned earlier, 13.3%.
We grew our earnings at 17.5%. So the visual that I have in my head and I've had it for years, it's like a big flywheel. We hire smart ambitious people. We put them in stores or some kind of a selling activity. If they do a great job, we grow our sales.
If they go good job or great job, we grow our sales. If we do that profitably, we grow our earnings and we take that earnings power and we put it back into the business like a big flywheel and hopefully we do that next year, recreating that and continue to go forward. We've been able to do that for the last 40 years and hopefully we'll continue for the next 40. I can't predict that, but that's really what we're trying to do. That's why we continue to hire great people and promote the strongest within the group.
With that, I would like to introduce Lee Hine, President of Fastenal. Thank you very much.
Good morning. Good morning. When we talk today, when you look at our catalog, we offer this, but I'm going to talk about just this piece here today, and it's really just about the fasteners. And I'm going to start off with being very honest. We're not happy with where we're at with the fastener growth, and we're going to address that.
And I'm going to give you just a real clear overview of why that is. 2 things that we have to talk about first, so external and internal. External externally, what happens to our fasteners is basically this, and it's real simple. The economy slows, production slows, faster consumption slows. That's just the reality of our of the world that we live in.
But internally, we have X amount of resources that we can use. And you know if you've been to a number of our shareholder meetings, we poured a lot of our resources into vending, government, safety, cutting tools, FSB, opening stores, etcetera, etcetera. And so I'd say, maybe a year ago or so, we really started to look at bringing back and putting resources into fasteners. And I want to give you some facts. Just when you look at fasteners, you got to always be thinking like, what's this guy talking about?
I'm talking about threaded fasteners, they're heavy. They're difficult to move. And the other thing is when you look at fasteners, to be able to bring a high quality of satisfaction to our customers, that's difficult to do from a distance. So heavy, weighty objects, you need to move them. The other thing is they use high quantities of fasteners daily, weekly and monthly.
That's the reality of what we try to do in our 2,658 stores. So we try to bring value. How do we bring value to a threaded fastener? It's real simple. We use a statement often that says, if I, will you.
If I stock this product for you in my local branch, will you buy it? If I come out to your facility and I manage your inventory, will you pay me in a timely manner? Or we go, if I were to help you reduce your inventory and your assets, will you allow me, Mr. Customer, Mrs. Customer, to let me make a fair return?
So generally, that's how we go to market and how we do it locally and how we try to take fastener share. Now the story by the numbers. I really want to now give you just a real good overview of why we're the leader in fasteners. And you have to understand now the breadth and depth of our of what we offer. When you look at the fastener market share and you look at the world market, we're it's about $70,000,000,000 We do about $1,350,000,000 So we're about this much of the world market fasteners.
When you look at North America, again, dollars 16,700,000,000 were still about this much of the fastener, yet we're number 1 in the fastener when you rank fastener distributors. But that's only 7.9% of the market. It's a very fragmented market. Now when you start to look at the SKUs and you look at the actual number of items that we try to manage to different customers, whether they're standard or specials, this gives you a clear picture about 1,300,000 SKUs, 189,000 standard everyday product. They come into the store, we make a call, hey, I need a half by 2 grade 5 zinc cap screw.
That's a standard. But they may say, you know what, I need this real weird type, if you look down front here, bolt, stud, what have you, we can do things like that. But we also offer our customers, we can import items for you. So when you look at the import part, 65,000 parts, 5,119, and these are really wild parts. That's where a customer says, I need you to import this sprocket.
We'll do that for them. We'll do we look at every opportunity. Then you got to look at how much product are we bringing in. Last year, we brought in about roughly 4,000 containers. That's what you see driving down the some of these big 40 foot containers.
That's how many containers of just fasteners we brought in last year. Another impressive number is how many pounds of fasteners this company moves in a year, about £200,000,000 of fasteners. So we're into this. One important part when I'm talking here today, keep in mind, always think of the weight of what we're trying to do, of moving these £200,000,000 of fasteners. We move it internally, another very good weapon for us.
We own our company owned fleet, local store moving a heavy product.
Now I'd
like to take into some of the different things that we do in our core capabilities. So again, you've heard from Will, it's about the local store. So local store inventory. Now we're talking about MRO fasteners, right to my left here, you look at the bins. When you hear the word MRO, maintenance, repair and operations, that's where someone I need to keep this place running, that machine rolling and we have something go down, I need a part, they go to the bin, they grab it, they go right back to work.
Okay? So they need that in their plant and they need someone that can fulfill that and replenish that oftentimes daily. We also talk about OEM, original equipment manufacturing. That is now where someone's producing something. That's where they need high volumes of fasteners and they may need them by the hour and someone out there to manage that.
Custom manufacturing right here out front, that's where they say, standards don't work, specials don't work, I need this print, I have this print. Can you make this for me? Yes, we can. Or I don't have a print, but I have this part. We will reverse engineer that part for them and produce a part over our manufacturing facility.
And again, I want to just say, if it's high volume, we can take it overseas. Again, high quality always with Fastenal. Transportation network is critical. Again, how do we get part from Asia to a customer in their facility? It's through our distribution network and then our VMI services.
We'll come into your facility. We'll stock it in our branch locally. We'll do what it takes to get you taken care of within your place of business. So now I'm going to talk now I'm going to take you down one more layer and I'm going to talk about the OEM, the FMI, we call it Fastenal Managed Inventory. 2 individuals I'd like to really recognize and that's Jeremy Johnson and Daryl Dvorak.
Both these gentlemen have stepped up and said, I'd like to take control of this initiative and they have done a wonderful job. Now on the OEM, we're going to just take it from the top, the most energy, the most how do I say the initiative that takes the most energy for us and we'll take it from the OEM. So this is what we do. It's a local supply chain again. And then we'll go in and it's global sourcing.
We'll come into the facility for manufactured parts, we'll look at the quality of their items, engineering and then logistics. All this goes into our OEM initiative. These are customers with high volumes of fasteners. And what we come in is we want to our tagline internally is get in line and stay in line. So think of like a window manufacturer that they're buying from someone else.
We'll come in, make the call, identify the problem and we'll stay right with the customer till we get one part. That's all we want. Just give us one opportunity. Then we'll come in, we'll solve their we'll bring a solution and we'll then begin to come in their facility and manage their inventory. Now sometimes, like I said earlier, they need a special part.
We've now taken our manufacturing and we've really put some energy into this. This is where we have custom manufacturing, which you drove by on the way in. We have cold heading. This is where we're producing high quantity of production runs. So think thread cutting screws, high speed screws of sorts, they'll come in and we'll make 200000,000, 30000, 100000 pieces.
Holochrome, we purchased this company a few years back, highly recognized name in the industry on socket products. And we're truly making the unavailable part available when you think of manufacturing, okay? Now we're going to go down to the fastenal managed inventory. And really, pictures, they say it says a 1000 words. When you look at the before and after, that says everything you need to know about what we are trying to do for our customers.
We'll go into their tool crib, there we'll walk in and it will be chaos. I mean, labels will be off the bins, boxes will be sitting on top, bins will be empty, it will be dusty and dirty. We come in and we say, no, let us bring our bins in. And we have a real nice system for our people. In the old days, when I had to do it at the store, it was like that.
We came in, we tore bins off labels, we were just cleaning them up, put new ones on and it was work. Today, our stores can go out, identify the problem, here's the solution. They can go in and on their web page, they can go in and start selecting parts and just dropping them in. What will happen then is we'll start and we'll get the bin the labels printed in our build centers. The folks in the build centers will get the bins ready for our people in the store efficiently, send them out, our folks will have them packaged fasteners, they'll start to fill the bins and it's an excellent cycle for us to do FMI or Fastenal Managed Inventory.
When you think about this, it's like if you were a meat packing plant in Iowa or you're a processing place out on the East Coast or you needed and you need stainless. We have stainless bins or stainless fasteners that we can put in. And the key here is, again, as I said earlier, these people these parts are waiting on a problem. That's all they're doing. A problem arises at any hour of the day, they need their parts.
So stainless or grade 5 or grade 8 or what have you. Now lastly, I got to get better on the enter. Lastly, okay. So we've taken OEM, FMI, manufacturing and there's also we've identified a problem where we have customers that we have both fasteners in our stores. So 2,600 stores roughly, every store has a fastener center, large quantities of fasteners.
We identified and heard from our customers that you know what we need is we want to buy small quantities of fasteners. And so what we did is we went out and as you can see in the slide here, we created a mini pack or a package fastener center that when the customer walks into our store now, they can grab a couple bags of fasteners and be on their way. And so this really is boiling down to a strategy of a local store servicing customers in any capacity. Do you want us to come to your facility? Is it a production facility?
We'll come in and help you. Do you want bins replenished every month? We can do that. Do you want to come to our store and do you need bulk fasteners or bulk anchors customer? We have those.
If you have a small project and you want bag fasteners, we can do that. The point I'm trying to drive home more than anything else, it's about our stores. You've got to process in your mind when you think of Fastenal. You've got to compare us and you've got to think, is this a better strategy or is it a better strategy to buy out of a catalog and try to move fasteners? You got to think that through, the Internet, the 1800 or do you want someone local looking you in the eye and saying, you know what, I hear exactly what your problem is.
I can take care of it. For us at Fastenal, it's real simple. It is about our men and women in the store. It really is. It's about local people with local inventory solving and providing local solutions.
It is truly about growth through customer service. Thank
you. With that,
thank you. With that, I'd like to turn it over to Walter Tate.
Good morning. It was a real honor to be asked to speak here in front of what a great group of shareholders, directors, all of our Fastenal leadership, coworkers and even my parents who made the 1,000 mile trek to be here today. So I appreciate it. I'd also like to thank our people at our distribution centers. What we do when we go in and automate hubs is much like remodeling your kitchen.
When you remodel your kitchen, you have to take everything out of your cabinets, you have to move all of the stuff that was stuck to get back in a corner, you have to put it in your living room, your den, etcetera. And so it makes multiple areas of your house basically unlivable. We go in and we do these automation projects with great return in the future. We ask our people to go in and deal with the fact that we displace certain portions of the operations without affecting our customers and they do whatever they have do day in and day out to make that happen for the 9 months to a year that they're under construction and being updated. So they do a great job taking care of our customers and I really appreciate that.
As a housekeeping note, Lee said he will be translating this into Midwest. I'm from Alabama. So if anybody doesn't understand me, see Lee after the meeting. I tried to look at scenarios that would kind of bring it down to anybody who doesn't deal with it because I deal with this every day. So one of the things that I thought about was grocery shopping.
Grocery shopping is a lot like what we do in our distribution centers every day. We make a list, the customer provides a list, it comes to the Fastenal warehouse and we walk up and down the aisles every day passing thousands of items we don't need to get to the 1 or 2 that we do. Same way as if you run-in the grocery store, the milk is always in the back. It always seems to be that way. We spend a lot of time doing that.
You spend a lot of time doing that when you go to the grocery store. So what we look to do is how do we automate that? Think about going into a grocery store, you've got your list, but all of a sudden you stop right when you walk in the door, you get a shopping bag and the shelves just automatically appear to you. That's exactly what we're doing with this automation. Instead of walking to the part, wasting the time, we're bringing the part to the picker.
Once you're done, the shelf just goes away and the next item you need from your grocery list appears in front of you. As we continue to revolutionize vendor managed inventory, we're automating that list for the customer through our fast solutions, the fast 5000s, the fast 10000s, we're automatically generating that list to our warehouses back to the customer. And the best equation I can think of is every time your refrigerator was almost out of milk, more just appeared. That's what happens with our fast solutions. So what is an automated storage and retrieval It's a fancy word for a variety of computer controlled methods of automatically placing retrieving loads from a specific location.
I actually like a term that was come up by a guy that I work with named Matt Lowe's. He called it auto magic. You put the inventory in the tote and it auto magically disappears and it auto magically reappears at the time it's needed to pick for the customer and process. That's really all it is. It consists of a few things, storage rack, captive containers, cranes, robots, conveyors, barcodes and the real intelligence is in the software, how we process our orders and what's done behind the scenes.
I'm running a little fast. So right now, I'm going to show you a little warehouse or take you through a little tour of what we're doing, if I can get this to work.
Why is Fastenal investing in warehouse automation? To get a better sense of how this technology is impacting our business, let's take a look at the activity that takes place in this distribution center on a daily basis. We'll start with our traditional picking process, using people and forklifts to store and pull product from rows of shelving. With this method, once the product is received into the warehouse, it's hauled to a shelf location, which may be hundreds of yards away and then manually entered into the system so that it can become live inventory. To fill each store's daily orders, employees known as pickers travel back and forth across the warehouse picking store orders 1 at a time.
We've improved this process significantly since we implemented it years ago, but it's still relatively time intensive, which is why we only use it for bulk items that aren't supported by our automated systems. In fact, around 60% of all of the time spent in a traditional warehouse involves traveling to the next pick. And of course, every time a product is touched, it increases the potential for accidents and human error, compromising safety and accuracy. Our automated storage and retrieval system or ASRS eliminates many of these issues. With this system, the product becomes live ready to use inventory the moment it's received in.
Upon receipt, inventory is placed into a custom made plastic bulk container. It's then conveyed to a high density rack system, where it awaits an order assignment from our warehouse management computer system. Rather than traveling from one pick location to the next to fill an order, the product is automatically brought to the picker, a journey that involves robotic cranes and state of the art conveyor systems. The product isn't touched until the moment it's packed, minimizing the potential for errors. The process is further streamlined with our new pick to light technology.
This system is reserved for high moving pre packaged items that lend themselves to a grab and go process, things like cable ties, fastener quick packs and saw blades. We don't store a huge number of items in our pick to light system, but together these products represent about 30% of our total picks on a daily basis. Rather than wasting time and energy moving these repetitive items via cranes and conveyors, the product is stored along a conveyor line. As a shipping container representing a store order moves down the line, it passes through a series of product zones. If a product in a given zone is needed to fill the store's order, a light illuminates, prompting the picker to grab the item and place it in the container.
By the time the container reaches the end of the line, it contains all of the high moving product needed to store the next day. Using our traditional picking method, we can pick around 40 lines per hour. The primary ASRS picking solution allows us to process orders for most products at a rate of 80 lines per hour. And finally, our pick to light system, which again is reserved for a subset of high volume prepackaged parts, enables us to achieve a rate of 2 50 lines per hour. By matching the product to the right picking solution, we're able to fill orders more quickly, accurately and efficiently, allowing us to get our trucks on the road earlier and ultimately improve our service to the customer, all while reducing labor and distribution costs.
So that was a little overview. Hopefully, it helped everybody understand. You start back in 2007, I'll kind of run everybody through what we've done and where we're going as far as automation. 2,007, we really had no automation. In 2,008, we started with our first facility in Denton, Texas.
And that represented about 10% of our total sales moving into an automated system. I talked about the fact that it's like remodeling your house. Sometimes when you have a really big house, you can't remodel all of it at once. We really spent the next few years unlikely I forgot to hit the button. 2,009, we moved about 18%, but that was in Indianapolis that we had to do in 3 phases.
So 2010, we continued, we brought about 26 percent of our sales up to automation and then we finished the 3rd phase in 2011, which brought about 34% of our sales up. That 3 years is on Indianapolis because we had to continue to keep the business running as we move through different sections of the business that is our master hub. 2012, we actually moved around here to Winona, Minnesota which is our 2nd largest and our oldest distribution center in the network. In fact, if anybody who wants to see it, they'll be happy to show you through the new system on the other end of the building when they turn it back on as soon as I quit talking. And that took us to over 50% of our sales.
And what we decided during the Winona was we decided, we're really going to push forward with this. The return, taking care of our customers, it's the right decision for us. So if we move forward, this year, we're actually automating our Atlanta facility, which turns on next month, our Akron, Ohio facility, which turns on in September and our Scranton facility, which we're going to try to have turned on by the Q1 of next year, taking us to almost over 70% of our sales. We roll into 2014, we still have a pretty aggressive plan where we're going to take care of our Kansas City facility, our California facility, our High Point and hopefully our Kitchener, Ontario facility up in Canada and get some of this savings up into that area. And in 2015, we hope to have our new state of the art facility built up in Lacey, Washington, where we purchased some land and we are developing a greenfield facility for that area.
So that kind of gives you the plan of what we're doing and where we're headed. And I kind of put this slide together to show this is kind of how we used to do and it kind of removes some steps. We used to touch a package approximately 10 times from the time it came in a door, so the time it was loaded on a truck, we would handle that 10 times. And every time that's handled, that's an opportunity for a mistake and an additional cost. With the automation that we're doing currently with the ASRS systems and the current state of what we're rolling out, we've cut that down to 6.
We're not happy there. We can continue to do better. As we move forward with things like automated receiving and other automated initiatives that we're scoping and working on right now, we think we can cut that down to 5. In essence, taking 50% of the work and the non value added cost of processing a customer order. So in conclusion, why do we automate?
Well, there's several reasons. Speed, we fit the right solution to the right process. We fit the pick the light to the grab and go products, we pull the ASRS systems for the non grab and go products. Accuracy, we actually go to one part per tote. And why that's important is our number one mistake in traditional picking is right shelf, wrong part, meaning I grab something off the shelf next to it, above it or below it.
By only presenting the picker with a product that's to fulfill that order, we eliminate that opportunity for a mistake and provide better customer service. Cost is really easy. The less we touch a product, the less it costs to process an order, the more we can add to the bottom line from a DC network. And extending building life, and that's really a big one. The Winona facility you're in here today is a great example.
We were landlocked. We put on high density storage. We never thought we could get this facility as far out as it is and we don't even know how far it can go right now because we have expansion plans and can probably double what we're doing out of this building. If we try to do that in a traditional warehouse, we'd be somewhere in the middle of the Mississippi right now. So it allows us to keep the jobs local where the people are.
We have great trained people and extend the life of our facilities. That's what
I got.
Thank you for your time.
Before we go back to see the results of the election, we have a few minutes to open up for question and answer. I believe there are some people with mics around. Yes, someone back there if you want to if you'd like to ask a question, please raise your hand.
I'm Marian Peace. I'm from La Crosse, and I'm a long time shareholder. I have a problem with customer service and I know you don't get to see that, but more than once this year have I been cut off by a Fastenal van, and I mean really sharp.
You mean Fastenal vehicle?
Yes.
Okay.
The not the truck and not the big trucks. It's a van. Now, Fastenal, I'm very proud of Fastenal. I think you've done a great job. But for customer service, they remember the name on the van.
They don't know who it is, but I've been really sometimes very angry. I had to get out of cruise control. I had to just they just cut you off. And I know you don't see that, but perhaps there's somebody who can teach these people to be a little more careful. Thank you.
Thank you for your comments. We do concentrate very much on our safety record. I apologize for what happened to you, but we have a great transportation group and we are very concerned about the safety of our drivers. We have more than 6,000 vehicles, 50 of our vehicles with the public and our drivers are about 6,000 vehicles on the road today.
My understanding is you may be making some of your own fasteners. To me that's vertical integration. Could you explain why vertical integration is important to your operation?
Yes. The reason vertical integration is important is because back up a little bit. We've been making some of our own fasteners since 1982, I believe. Is that correct, Bob? Since 1982.
So we've been doing this for a long time. And it's really about the specials. We produce about somewhere between 4% 5% of what we sell. So we're not trying to make the standard fasteners that people make in very large factories at very good cost. We're trying to make the items that are lower quantity special materials.
Many times it's a highly engineered part made out of a special alloy or materials that are not on the shelf and we do that to enhance our customer service. Our goal, as I said earlier, is to put our salespeople in a position to say one thing, yes, that allows us to do that a much higher percentage of the time. If you go into our stores, many of them you'll see a sign that says, if we don't have it, we'll make it. And that's really what we're trying to accomplish. Does that answer your question, sir?
My name is Eileen Babula. I'd like to know what your growth plans are for expansion of the company?
Well, we have lots of growth plans to expand the company. It's really driven around adding additional people and additional products to sell. For many, many years it was about opening 30% more stores every year over a long period of time. We did that basically from throughout the '80s and '90s. As we run out of store locations, then we have to look at other things.
1 of our big areas is international. We continue to open in new countries and add additional people outside of the United States or outside of North America. One is would be our vending systems where it's really a delivery system. We look at as an off-site store that's designed to grow our products. And in other words, expanding product into much bigger or much expanding greatly into new product areas like metal and cutting tools.
So it's about adding people, adding products, adding new deliveries and new geographies and several other things, but those would be the major four or 4 major areas. We want you to know that we all shareholders really appreciate the continual increase of the dividend. And we'll know how shareholders like it as well. Also, I wonder if there's any plan I don't believe we have anything in the works right now for our dividend reinvestment program. Not that I know of.
I don't think we've been discussing that. There are no oh, there's one over here.
Yes. I'm John Duszak and I'm a shareholder. I've been a shareholder since well, no one wants to account for that time. But my question is, it has to do with Europe. How are you doing in Europe?
We're doing
okay in Europe. We have a lot of good things going on. Our European business is centered on a we have a lot of business with a few customers, meaning it's larger customers and a couple of our larger customers have been struggling in the last year or so. So we're expanding nicely. We continue to add countries.
We have a few companies that are very slow, so our actual sales growth is a little lower than we would expect. But we continue to expand because we think it's a good opportunity.
How about in the Eastern part of
Europe?
Europe,
yes. Today, we're in 3 countries in what would be considered the old East block. We're in Romania, we're in Hungary and we're in the Czech Republic. And all three of those areas are doing quite well. Romania is quite new for us.
We opened it, I believe, in May of last year, so it's less than a year old.
How are you in Slovenia?
We are not in Slovenia, no. I don't know if we have customers in Slovenia or not. I don't know.
I hear the German produce a lot of their products over in Slovenia because they're very high quality manufacturing. Actually, we've found that all
of the Eastern countries, European countries that we deal with have a very craftsman style, very high quality production manufacturing. We also do so into Poland, but we're not located there.
Thank you very much.
Thank you. I find the
automation extremely interesting and it appears to be a huge financial undertaking. Is there any way that you've been able to monetize it and
we the reason it took us from 2,007 to 2012 to decide to really go full force is we are measuring the returns and we found that the returns on these investments actually exceed the average return on that Fastenal is getting on their invested capital and that's what we base the returns on or we base the investment decisions on those results. Hi. I'm Ed Walsh, a stockholder. And a question I have is, what quality control do you have on imported items? I know the Chinese were mislabeling bolts at one time.
We have a tremendous program and I'm not saying this just because Bob's sitting next to me, but I've said it to hundreds of customers over the years. We have an advantage because we were founded by a gentleman with a mechanical engineering background. So back in the 80s, we were the one of the first companies probably in the world to have lot traceability, to have a very good part numbering and quality system. When we opened FASCO Trading, which is our Chinese trading company, we actually invested in putting 3 A2LA laboratories in Asia. We have one outside of Shanghai, China.
We have one in Kunshan, Taiwan and we have one in Johor, Malaysia. So what we do is we actually test the product before we take possession because there's lots of reasons. One is you want to have a good product, but it's a lot easier to argue whose product it is when it's on their dock than it was when it is on our dock. It's also we save a lot of time because if we do find a quality issue by testing it when it's still in China, we can get things going much quicker to takes 6 to 8 weeks to get the product here. Very good quality standards, and it's really all driven by our group that works in the building next door to us, our quality engineering group.
We'll take it very serious.
Yes. My name is Roger Sorenson and I'm a shareholder going back to when you first went public.
Happy one? Pardon? A happy one?
Yes. What troubles me is I went through a GM manufacturing, truck manufacturing facility about a year ago. And in that facility, there were all kinds of boxes of fasteners that said made in China. I'm wondering, do you guys supply that possibly? Or is that are you doing much with auto manufacturers?
We probably don't supply the GM truck manufacturer. A lot of the parts that are actually used to assemble high volume vehicles like trucks are bought purchased direct. We do have some high volume business, but typically not car and truck business.
I'm Carol Jefferson, a shareholder here from Winona. First, I'd like to thank and Bob Kirtland for all they've put into our community. But my question is a problem I face with many of my financial holdings and that is private equity or Warren Buffett buying out my best companies. What are your prospects here? Do you have a way to defend yourself against this?
Have you been approached by private equity? Need we be concerned? Thank you.
Well, I think our best defense against that is a good offense. If we continue to do well and we have a high price to earnings ratio, people are going to have to be more bold than they are to try and add it up. Because if you look at the recent ones, you look at Warren just or his group bought out the Heinz, I think there's about roughly a 20% premium on that stock at the point of purchase. So the best thing is we continue to keep our folks motivated. We continue to focus on our customers in the market.
If we grow the business, keep our stock price high, that's usually typically not a problem. But people we can't predict that. We can only do our jobs and continue to move forward.
I want to congratulate the management and staff of Fastenal. It's been a great benefit to all of us who own stock and I think you should be congratulated. Bye bye.
Thank you.
Duane Carlson, stockholder. Second question. Thank you. Is there a trickle down effect between housing starts in your revenues?
We have not seen a trickle down effect from housing starts. If you look at housing, we're not highly involved in the actual construction of the home. It's more of a stick construction. Where we benefit from housing would be things like the shingles, like Owens Corning is a supplier of ours, shingles, insulation, garage door openers, people pouring the concrete or making the trucks to pour the concrete. So there is a residual effect, but it's quite distant and we're not feeling the positive impact at this point.
We're crossing our fingers and hoping. With that, I think I'll unless there's someone queued up, I think I'll end the questions and turn it back over to Bob to see if we were elected for another year. Thank you.
Okay. Probably the most important thing here, the 2 winners of the buckets of NASCAR and Fastenal for prizes in the back, One is Ray Walter. Ray, there he is right in front. And the second one is Jim Engbrecht. Where's Jim?
Way back there. Okay. Both of you can pick up your buckets at the end. The ballots have now been counted and the report of the Inspector indicates that Robert A. Kerlin, Stephen M.
Sloggy, Michael M. Gustomski, Willard D. Overton, Michael J. Dolan, Renee K. Weiskopf, U.
L. Miller, Michael J. Ancias, Scott A. Satterly Rita, Jay Heisey and Darren R. Jackson have received the required number of votes and are hereby elected directors of the company.
And the report of the Inspector of Election also indicates number 1, the resolution for the ratification of KPMG LLP as the independent registered public accounting firm for the company for the fiscal year ending December 31, 2013 has received the required number of votes and has been adopted and 2, the resolution for the approval on an advisory basis of the compensation of certain of our executive officers has received the required number of votes and has been adopted. All ballots and a record of all proxies will be filed with the books and records of the company and the certificate of the Inspector of Election will be attached to the minutes of the meeting Exhibit C. And I will now entertain a motion for adjournment. The Chair recognizes Mr. Max Hernpannige.
Mr. Chairman, my name is Max Harnpanych. I am the shareholder of the company and I move that the meeting be accurate.
Thank you. And the Chair recognizes Mr. Michael Chikhanowski. Mr. Chairman, I'm Mike Chikhanowski, a shareholder of the company.
Because we're getting hungry, I second the motion. All right. It has been moved and seconded and making the adjourned. All those in favor, say aye. Food is right over here.
Head over