-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JcBgubFuDfy6Q06rU4/jFIyWOsQS3Hbx0LBkqdx27gn4NJkcLEQ6SIk7c/ZJmbSY dsne2uQKXBbRoj95uKNoDg== 0000950131-95-000632.txt : 19950615 0000950131-95-000632.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950131-95-000632 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950320 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FASTENAL COMPANY CENTRAL INDEX KEY: 0000815556 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY [5200] IRS NUMBER: 410948415 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16125 FILM NUMBER: 95521755 BUSINESS ADDRESS: STREET 1: 2001 THEURER BLVD CITY: WINONA STATE: MN ZIP: 55987 BUSINESS PHONE: 5074545374 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________ FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended December 31, 1994, or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from __________________ to __________________ Commission file number 0-16125 FASTENAL COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Minnesota 41-0948415 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2001 Theurer Boulevard Winona, Minnesota 55987 - ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) (507)454-5374 ---------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Stock held by non-affiliates of the registrant as of March 1, 1995 was $624,949,888. For purposes of determining this number, all officers and directors of the registrant are considered to be affiliates of the registrant. This number is provided only for the purposes of this report on Form 10-K and does not represent an admission by either the registrant or any such person as to the status of such person. As of March 1, 1995, the registrant had 18,969,344 shares of Common Stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1994 are incorporated by reference in Part II. Portions of the registrant's Proxy Statement for the annual meeting of shareholders to be held April 25, 1995 are incorporated by reference in Part III. PART I ------ ITEM 1. BUSINESS - ----------------- Fastenal Company ("Fastenal Company" and, together with its wholly owned subsidiary, Fastenal Canada Company, collectively, the "Company") began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968. As of December 31, 1994, the Company sold approximately 37,000 different types of threaded fasteners and other industrial and construction supplies through 315 stores located in forty-two states and in Canada which were operated by the Company under the Fastenal name. As of December 31, 1994, the Company also operated under the FastTool name nine stores located in seven states which sold tools and safety supplies. The Company maintains six distribution centers from which the Company distributes products to its stores. In December 1994 the Company opened a facility in Memphis, Tennessee to receive and package goods coming from suppliers outside of the United States. DEVELOPMENT OF THE BUSINESS Fastenal Company began in 1967 with a marketing strategy of supplying threaded fasteners to customers in small to medium-sized cities. The Company believes its success can be attributed to its ability to offer such customers a full line of products at convenient locations, and to the high quality of the Company's employees. The Company opened its first store in Winona, Minnesota, a city with a population of approximately 25,000. The following table shows the growth in the number of Company stores during the last ten years, and the related increases in the Company's consolidated net sales during that period:
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Number of stores at year end 35 45 58 75 98 126 158 200 256 324 Net sales (in thousands) $11,567 $15,040 $20,295 $30,441 $41,190 $52,290 $62,305 $81,263 $110,307 $161,886
As of December 31, 1994, the Company operated 324 stores located in Minnesota (9 stores), Wisconsin (18 stores), Iowa (15 stores), Illinois (19 stores), Indiana (16 stores), Ohio (24 stores), Michigan (14 stores), Kentucky (6 stores), Pennsylvania (14 stores), New York (12 stores), Nebraska (4 stores), Missouri (9 stores), Kansas (6 stores), South Dakota (3 stores), West Virginia (5 stores), Arkansas (4 stores), Maryland (3 stores), North Dakota (3 stores), North Carolina (13 stores), Oklahoma (5 stores), Tennessee (9 stores), Texas (25 stores), South Carolina (4 stores), Colorado (6 stores), Virginia (8 stores), Louisiana (3 stores), Georgia (9 stores), Alabama (9 stores), Utah (3 stores), Washington (8 stores), Oregon (4 stores), Mississippi (3 stores), California (5 stores), Idaho (3 stores), Massachusetts (6 stores), Florida (4 stores), Connecticut (3 stores), Arizona (2 stores), Montana (2 stores), Nevada (1 store), New Hampshire (2 stores), New Mexico (1 store) and Canada (2 stores). The Company has closed only three stores in its history. -2- The Company selects new locations for its stores based on their proximity to the Company's distribution network, population statistics, and employment data for manufacturing and construction. The Company currently intends to continue opening new stores at the rate experienced over the last several years, subject to market and general economic conditions. The Company believes that approximately 185 additional markets in the United States have sufficient potential to justify a Fastenal store. In 1993 and 1994 the Company developed a new store concept, opening nine FastTool stores which sell tools and safety supplies. Such stores are located adjacent to existing Fastenal stores. The Company plans to open between 20 and 30 additional FastTool stores in 1995. The Company believes that most cities with Fastenal stores have sufficient market potential for a FastTool store. However, in the aggregate, the existing FastTool stores currently operate at a loss. In 1995 the Company plans to open between five and ten experimental stores in communities which are smaller (populations of approximately 8,000 to 25,000) than those in which current Fastenal stores are located. These stores will combine the Fastenal and FastTool product lines in single stores, each of which will start operations with two full-time employees. Although the Company cannot be sure of the success of these stores, the Company believes that their success potentially could lead to 500 more store sites in the United States. In 1994 the Company began to sell products into Mexico from its existing McAllen, Texas store. The Company opened two Fastenal stores in Canada in 1994 and plans to open between two and four additional Canadian stores in 1995. No assurance can be given that any of the expansion plans set forth above will be achieved, or that new stores, once opened, will be profitable. It has been the Company's experience that near-term profitability has been adversely affected by new store openings, due to the related start-up costs and the time necessary to generate a customer base. A new store generates its sales from direct sales calls, a slow process involving repeated contacts. As a result of this process, sales volume builds slowly and it typically requires 9 to 15 months for a new Fastenal store to achieve its first profitable month. Of the 18 Fastenal and FastTool stores opened in the first quarter of 1994, five stores (all of which were Fastenal stores) were profitable in the fourth quarter of 1994. For 1994 annual sales volumes of stores operating at least five years ranged between approximately $384,000 and $3,057,000, with 75% of these stores having annual sales volumes within the range of approximately $583,000 to $1,407,000. The data in the following table shows the growth in the average sales of the Company's stores from 1993 to 1994 based on each store's age. The stores opened in 1994 contributed $4,915,000 (or approximately 3.0%) of the total 1994 consolidated sales with the remainder coming from existing stores.
Age of Store Number of Stores in Average Average as of 12/31/94 Group as of 12/31/94 Sales 1993 Sales 1994 % Change - ---------------- -------------------- ------------ ------------- -------- 0-1 year old 68 $ -- $ 73,000(1) -- 1-2 years old 56 55,000(1) 233,000 -- 2-3 years old 42 245,000 393,000 +60 3-4 years old 32 385,000 550,000 +43 4-5 years old 28 469,000 644,000 +37 5-6 years old 23 486,000 648,000 +33 6-7 years old 17 571,000 818,000 +43 7-8 years old 13 643,000 872,000 +36 8-9 years old 10 667,000 833,000 +25 9-12 years old 15 840,000 1,066,000 +27 12+ years old 20 1,148,000 1,365,000 +19
-3- ____________________ (1) Average sales includes sales of stores open for less than the full fiscal year. The Company currently maintains distribution centers in or near Winona, Minnesota; Indianapolis, Indiana; Dallas, Texas; Atlanta, Georgia; Scranton, Pennsylvania; and Kent, Washington. Distribution centers are located so as to permit twice-a-week delivery to Company stores using Company trucks and overnight delivery by surface common carrier. As the number of stores increases, the Company intends to add new distribution centers. The Company plans to open a distribution center in Fresno, California in March 1995. In December 1994 the Company opened a packaging facility in Memphis, Tennessee. This facility receives freight containers from foreign suppliers and repackages the items in standard packages using high speed equipment. This packaging facility serves five of the Company's distribution centers. In recent years the Company implemented a UNIX/terminal-based computer system allowing automatic data exchange between the stores and the distribution centers during regular business hours. The use of client/server technology allows the Company's network of UNIX-based machines to serve networked personal computers and workstations. During 1994 the Company continued to improve its point of sale hardware and software. PRODUCTS The Company distributes approximately 37,000 different items through its Fastenal stores which may be divided into two broad categories: threaded fasteners, such as bolts, nuts, screws, studs and related washers; and other industrial and construction supplies, such as cutting tools, paints, chains, various pins and machinery keys, concrete anchors, masonry drills, flashlights and batteries, sealants, metal framing systems, wire rope and related accessories. The inventory of tools and safety supplies in the FastTool stores is comprised of approximately 3,000 different items. Fastenal Stores --------------- Threaded fasteners are used in most manufactured products and building projects, and in the maintenance and repair of machines and structures. Although some aspects of the threaded fastener market are common to all cities, the Company feels that each city's market is to some extent unique. Therefore, the Company opens each Fastenal store with minimal base stocks of inventory, and then tailors the growing inventory to the local market demand as it develops. Threaded fasteners accounted for approximately 68% of the Company's total consolidated sales in 1992, 1993 and 1994. The remainder of the Company's products sold through the Fastenal stores consists primarily of other supplies used in construction and industrial maintenance. Many of the same marketing methods used with regard to threaded fasteners also apply to the marketing of these items. The Company currently believes that it will continue to add to the number of supply items it distributes. With the exception of limited lines of chemical anchors, paints and sealants, the Company does not distribute chemical supplies. The Company also avoids selling supplies that have limited shelf lives. The Company has added certain supplies, such as cutting tools, paints, brass fittings, flashlights and batteries, chains and various pins and -4- machinery keys, to its product line to improve a marketing strategy targeted toward industrial maintenance accounts. These accounts improve their buying efficiency by purchasing large orders of maintenance items from a single source. Concrete anchors make up the largest portion of supply items used in construction. Most concrete anchors use threaded fasteners as part of the completed anchor assembly. Most of the other supplies distributed by the Company through the Fastenal stores to construction firms are items that are consumed as construction takes place, such as cutting tools and blades. FastTool Stores --------------- In 1993 the Company began a new FastTool division which sells power and hand tools and safety supplies to the same customer base serviced by its existing Fastenal stores. The Company opened three stores in 1993 in this division and added six more stores in 1994. The Company plans to use its current distribution system for the new division, but store personnel will be specialists in tool marketing. FastTool stores are located adjacent to existing Fastenal stores. Smaller Community Combination Stores ------------------------------------ In 1995 the Company plans to open between five and ten experimental stores in communities which are smaller (populations of approximately 8,000 to 25,000) than those in which current Fastenal stores are located. These stores will combine the Fastenal and FastTool product lines in single stores, each of which will start operations with two full-time employees. Although the Company cannot be sure of the success of these stores, the Company believes that their success potentially could lead to 500 more store sites in the United States. INVENTORY CONTROL The Company controls inventory by using computer systems to preset desired stock levels. The data used for this purpose are derived from reports showing sales activity by item for the previous three years. Computers then convert this data to typical store maximum-minimum inventory levels for each item. Stores can deviate from preset inventory levels as deemed appropriate by their district managers. Inventories in distribution centers are established from computerized sales data for the stores served by the respective centers. MANUFACTURING OPERATIONS In 1994 approximately 95.7% of the Company's consolidated sales were attributable to products manufactured by other companies to industry standards. The remaining approximately 4.3% of the Company's consolidated sales for 1994 related to products manufactured by, or modified in, the Company's machining shop. These manufactured products consist primarily of non-standard sizes of threaded fasteners made to customers' specifications. The Company engages in manufacturing activity primarily as a service to its customers and does not expect any significant growth in the foreseeable future in the proportion of the Company's total consolidated sales attributable to manufacturing. -5- SOURCES OF SUPPLY The Company uses a large number of suppliers for the approximately 40,000 items it distributes. Most items distributed by the Company can be purchased from several sources, although preferred sourcing is used for some items to facilitate quality control. No single supplier accounted for more than 5.0% of the Company's purchases in 1994. CUSTOMERS AND MARKETING The Company believes its success can be attributed to its ability to offer customers in small to medium-sized cities a full line of products at convenient locations, and to the high quality of the Company's employees. Most of the Company's customers are in the construction and manufacturing markets. The construction market includes general, electrical, plumbing, sheet metal and road contractors. The manufacturing market includes both original equipment manufacturers and maintenance and repair operations. Other users of the Company's products include farmers, truckers, railroads, mining companies, municipalities, schools and certain retail trades. As of December 31, 1994, the Company's total number of active customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 44,000. During each of the three years ended December 31, 1994, no one customer accounted for a significant portion of the Company's sales. The Company believes that the large number of its customers together with the varied markets that they represent provide some protection to the Company from economic downturns in a particular market. A significant portion of the Company's sales are generated through direct calls on customers by store personnel. Because of the nature of the Company's business, the Company does not use the more expensive forms of mass media advertising such as television, radio and newspapers. Forms of advertising used by the Company include signs and catalogs. COMPETITION The Company's business is highly competitive. Competitors include both large distributors located primarily in large cities and smaller distributors located in many of the same cities in which the Company has stores. The Company believes that the principal competitive factors affecting the markets for the Company's products are customer service and convenience. Some competitors use vans to sell their products in communities away from their main warehouses. The Company, however, believes that the convenience provided to customers by actually operating a number of stores in smaller markets, each carrying a full line of products, is a competitive selling advantage and that the large number of stores in a given area, taken together with the Company's ability to provide frequent deliveries to such stores from centrally located distribution centers, makes possible the prompt and efficient distribution of products. Having trained personnel at each store also enhances the Company's ability to compete (see "Employees" below). EMPLOYEES As of January 10, 1995, the Company employed a total of 1,593 full and part-time employees, 1,003 being store managers and store employees, and the balance being employed in the Company's distribution centers, packaging facility, manufacturing operations and home office. -6- The Company believes that the quality of its employees is critical to its ability to compete successfully in the markets it currently serves and to its ability to open new stores in new markets. The Company fosters the growth and education of skilled employees throughout the organization by operating training programs and by decentralizing decision making. Wherever possible, promotions are from within the Company. For example, most new store managers are promoted from an assistant manager's position at another store and district managers (who supervise a number of stores) are usually former store managers. The Company's sales personnel participate in incentive bonus arrangements which place emphasis on achieving increased sales on a store and regional basis, while still attaining targeted levels of gross profit. As a result, a significant portion of the Company's total employment cost varies with sales volume. The Company also pays incentive bonuses to other personnel for achieving pre-determined cost containment goals. None of the Company's employees is subject to a collective bargaining agreement and the Company has experienced no work stoppages. The Company believes its employee relations are excellent. ITEM 2. PROPERTIES - ------------------- The Company owns two facilities in Winona, Minnesota: a 98,000 square foot distribution center and home office building, and a 23,000 square foot building that houses both the Company's manufacturing operations and the Winona store. In 1994 the Company began construction of a 50,000 square foot manufacturing building in Winona. The Company expects to occupy this facility in July 1995 and to use the old manufacturing facility for a warehouse until it is sold. The Company also owns a 60,000 square foot distribution center in Indianapolis, Indiana, a 54,000 square foot distribution center in Atlanta, Georgia and a 50,000 square foot distribution center near Scranton, Pennsylvania. The buildings that house the Fastenal and FastTool stores in Waterloo and Mason City, Iowa, St. Joseph, Missouri and Kokomo, Indiana are also owned by the Company. The owned stores range from approximately 5,000 to 12,000 square feet. All other buildings occupied by the Company are leased. Leased stores range from approximately 1,200 to 8,000 square feet, with lease terms of up to 48 months. The Company's leased distribution center in Dallas, Texas is approximately 16,000 square feet. The term of the lease of the Dallas facility is month-to-month. In 1994 the Company began construction of a 50,000 square foot building for its distribution center in Dallas. The Company expects to vacate its leased facility and move into the owned facility in March 1995. The Company's leased distribution center in Kent, Washington, which opened in February 1994, is approximately 16,400 square feet. The term of the lease of the Washington facility expires on January 31, 1997, provided that the lease may be renewed at the Company's option for two additional one year periods. The Company's leased packaging facility in Memphis, Tennessee, which opened in December 1994, is approximately 37,500 square feet. The term of the lease of the Memphis facility expires on November 15, 1997. If economic conditions are suitable, the Company will, in the future, consider purchasing store locations in communities in which its older branch stores are located. All buildings housing new stores will continue to be leased. It is the Company's policy to negotiate relatively short lease terms to facilitate relocation of particular store operations if deemed desirable by -7- management. It has been the Company's experience that space suitable for its needs and available for leasing is more than sufficient. ITEM 3. LEGAL PROCEEDINGS - -------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ Not Applicable. ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT - --------------------------------------------- The executive officers of Fastenal Company are:
Name Age Position ---- --- -------- Robert A. Kierlin 55 Chairman of the Board, President and Director Stephen M. Slaggie 55 Secretary, Treasurer and Director
Mr. Kierlin has been the Chairman of the Board and President of Fastenal Company and has served as a director since Fastenal Company's incorporation in 1968. Mr. Slaggie has been the Secretary and Treasurer of Fastenal Company and has served as a director since 1970. He became a full-time employee of Fastenal Company in December 1987, at which time he assumed the additional duties of Shareholder Relations Director and Insurance Risk Manager. Neither of the above executive officers is related to the other or to any other director of Fastenal Company. -8- PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1994, Common Stock Data on page 7. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1994, page 2. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - ------------- Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1994, pages 5-6. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1994, Selected Quarterly Financial Data (Unaudited) on page 7 and Consolidated Financial Statements, Notes to Consolidated Financial Statements and Independent Auditors' Report on pages 8-16. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - -------------------- None. -9- PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ Incorporated herein by reference is the information appearing under the heading "Election of Directors - Nominees and Required Vote", pages 4-5, in Fastenal Company's Proxy Statement dated March 21, 1995. See also Part I hereof under the heading "Item X. Executive Officers of the Registrant". ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- Incorporated herein by reference is the information appearing under the headings "Election of Directors - Board and Committee Meetings", page 5, "Election of Directors - Executive Compensation - Summary of Compensation", page 5, and "Election of Directors - Executive Compensation - Compensation Committee Interlocks and Insider Participation", pages 5-6, in Fastenal Company's Proxy Statement dated March 21, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ Incorporated herein by reference is the information appearing under the heading "Security Ownership of Principal Shareholders and Management", pages 2-3, in Fastenal Company's Proxy Statement dated March 21, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Incorporated herein by reference is the information appearing under the heading "Election of Directors - Executive Compensation - Compensation Committee Interlocks and Insider Participation", pages 5-6, in Fastenal Company's Proxy Statement dated March 21, 1995. -10- PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- a) 1. Financial Statements: Consolidated Balance Sheets as of December 31, 1994 and 1993 Consolidated Statements of Earnings for the years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements Independent Auditors' Report (Incorporated by reference to pages 8-16 of Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1994) 2. Financial Statement Schedules: Schedule VIII - Valuation and Qualifying Accounts 3. Exhibits: 3.1 Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q for the quarter ended September 30, 1993) 3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-14923) 13 Annual Report to Shareholders for the fiscal year ended December 31, 1994 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission) 21 List of Subsidiaries 27 Financial Data Schedule Copies of Exhibits will be furnished upon request and payment of the Company's reasonable expenses in furnishing the Exhibits. b) Reports on Form 8-K No report on Form 8-K was filed by Fastenal Company during the fourth quarter of the fiscal year ended December 31, 1994. -11- [LETTERHEAD OF KPMG PEAT MARWICK LLP] Independent Auditors' Report on Schedule ---------------------------------------- The Board of Directors and Stockholders Fastenal Company: Under date of January 31, 1995, we reported on the consolidated balance sheets of Fastenal Company and subsidiary as of December 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994, as contained in the 1994 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Minneapolis, Minnesota January 31, 1995 -12- FASTENAL COMPANY Schedule VIII Valuation and Qualifying Accounts Years Ended December 31, 1994, 1993 and 1992 --------------------------------------------
"Additions" "Additions" Balance at Charged to Charged to Beginning Costs and Other "Less" Balance at Description of Year Expenses Accounts Deductions End of Year ----------- ---------- ----------- ----------- ---------- ----------- Year Ended 12/31/94 $225,000 $452,977 -0- $377,977 $300,000 Allowance for doubtful accounts Year Ended 12/31/93 $200,000 $260,205 -0- $235,205 $225,000 Allowance for doubtful accounts Year Ended 12/31/92 $ 75,000 $285,213 -0- $160,213 $200,000 Allowance for doubtful accounts
-13- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 20, 1995 FASTENAL COMPANY By /s/Robert A. Kierlin ---------------------------------- Robert A. Kierlin, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 20, 1995 /s/Robert A. Kierlin ------------------------------------ Robert A. Kierlin, President (Principal Executive Officer) and Director Date: March 20, 1995 /s/Stephen M. Slaggie ------------------------------------ Stephen M. Slaggie, Treasurer (Principal Financial Officer) and Director Date: March 20, 1995 /s/Patrick J. Rice ------------------------------------ Patrick J. Rice, Controller (Principal Accounting Officer) Date: March 20, 1995 /s/Michael M. Gostomski ------------------------------------ Michael M. Gostomski, Director Date: March 20, 1995 /s/Henry K. McConnon ------------------------------------ Henry K. McConnon, Director Date: March 20, 1995 /s/John D. Remick ------------------------------------ John D. Remick, Director -14-
INDEX TO EXHIBITS 3.1 Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q for the quarter ended September 30, 1993). 3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-14923). 13 Annual Report to Shareholders for the fiscal year ended December 31, 1994 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission).................................... Electronically Filed 21 List of Subsidiaries ................................... Electronically Filed 27 Financial Data Schedule ................................ Electronically Filed
EX-13 2 ANNUAL REPORT EXHIBIT 13 FASTENAL [PORTION OF LOGO OF FASTENAL] 1994 ANNUAL REPORT PROFILE OF FASTENAL COMPANY Fastenal Company was founded in 1967. As of December 31, 1994, the Company sold approximately 37,000 different types of threaded fasteners and other industrial and construction supplies through 315 Company-operated Fastenal stores located in 42 states and Canada, sold approximately 3,000 different types of tools and safety supplies through nine Company-operated FastTool stores in seven states, operated six distribution centers located in Minnesota, Indiana, Pennsylvania, Texas, Georgia and Washington, and operated a packaging facility in Tennessee. Approximately 95.7% of the Company's 1994 sales were attributable to products manufactured by others, and approximately 4.3% related to custom threaded fasteners manufactured or modified by the Company. Since December 31, 1994, the Company has opened additional Company-operated stores in the United States. CONTENTS
Six Year Selected Financial Data................. 2 President's Letter to Shareholders............... 3-4 Management's Discussion and Analysis of Results of Operations and Financial Condition.... 5-6 Stock and Financial Data......................... 7 Consolidated Balance Sheets...................... 8 Consolidated Statements of Earnings.............. 9 Consolidated Statements of Stockholders' Equity.. 10 Consolidated Statements of Cash Flows............ 11 Notes to Consolidated Financial Statements....... 12-15 Independent Auditors' Report..................... 16 Officers and Directors................Inside Back Cover Corporate Information.................Inside Back Cover
1 SIX YEAR SELECTED FINANCIAL DATA OPERATING RESULTS YEARS ENDED DECEMBER 31
PERCENT 1994 CHANGE 1993 1992 1991 1990 1989 ------------ ------- ------------ ----------- ----------- ----------- ----------- Net sales............................ $161,886,000 +46.8 $110,307,000 $81,263,000 $62,305,000 $52,290,000 $41,190,000 Gross profit......................... 85,927,000 +46.8 58,552,000 43,683,000 32,927,000 28,467,000 22,004,000 Earnings before income taxes......... 31,391,000 +56.4 20,075,000 14,735,000 10,748,000 10,462,000 7,203,000 Net earnings......................... 18,666,000 +56.7 11,910,000 8,833,000 6,606,000 6,411,000 4,396,000 Earnings per share................... .49 +58.1 .31 .23 .17 .17 .12 Dividends per share.................. .02 .015 .015 .0125 -- -- Weighted average shares outstanding.. 37,938,688 37,938,688 37,938,688 37,938,688 37,938,688 37,938,688 FINANCIAL POSITION DECEMBER 31 Net working capital.................. $ 45,341,000 +36.1 $ 33,319,000 $22,569,000 $19,554,000 $16,827,000 $12,554,000 Total assets......................... 81,795,000 +42.3 57,463,000 43,937,000 34,103,000 28,290,000 21,774,000 Long-term debt, less current installments....................... -- -- -- -- -- 743,000 783,000 Total stockholders' equity........... 67,649,000 +35.8 49,809,000 38,468,000 30,204,000 24,073,000 17,662,000
ALL INFORMATION CONTAINED IN THIS ANNUAL REPORT REFLECTS THE 2-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A 100% STOCK DIVIDEND IN 1990, THE 2-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A 100% STOCK DIVIDEND IN 1992, AND THE 2-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A 100% STOCK DIVIDEND IN 1995. [PHOTO OF PORTION OF HEX HEAD MACHINE SCREW APPEARS HERE] 2 PRESIDENT'S LETTER TO SHAREHOLDERS With the help of a strong economy, Fastenal had a strong year in 1994. Our 1994 net sales of $161,886,000 represented a 46.8% increase over the 1993 level. Our 1994 net earnings of $18,666,000 represented a 56.7% increase over the 1993 level. Earnings per share increased from $.31 in 1993 to $.49 in 1994 after giving effect to the 2-for-1 stock split declared on January 31, 1995. During 1994 we opened 62 new Fastenal stores and 6 new FastTool stores, bringing our total of open stores at the end of the year to 324. Our stores are located in 42 states and 2 stores are in Canada. Nine of the 324 stores open at the end of 1994 were FastTool stores. The addition of 6 FastTool stores opened during the year helped us test refinements in the FastTool format. Although the FastTool stores contributed less than 1% of our 1994 net sales, we feel we are making good progress along the learning curve for this new concept. As always, our progress with FastTool comes from the creativity of our people who find efficient ways to improve our service to customers. During the first quarter of 1995 we will open our first two combination stores, selling both fastener and tool lines in smaller communities. During 1994 Fastenal achieved growth in stores of all ages. Stores more than 5 years old had average sales gains of 28.4%. Stores between 2 and 5 years old had average sales gains of 45.8%. The 35 oldest stores had average net sales of just over $1,230,000 each. Our sixth distribution center opened in Kent, Washington, in February of 1994. A seventh distribution center will open in Fresno, California, in March of 1995. In December of 1994 we opened a packaging center in Memphis, Tennessee. This facility receives freight containers from our international suppliers and packages the goods in smaller lots using high-speed equipment. In February of 1995 our trucking routes will change to allow trucks from 5 of our distribution centers to pick up goods from the Memphis facility. We believe the Memphis facility will lower our incoming freight costs and our packaging costs. During 1994 Fastenal began construction in Winona of a new 50,000 square foot facility for the manufacturing division. Construction should be complete in July of 1995. This new facility will allow us to expand our business of producing special fasteners. The existing facility operated at capacity during the last half of 1994. The manufacturing division will move from the existing facility when the new facility is completed. We will use the old facility for a warehouse until it is sold. As part of our quality control program, our six distribution centers received ISO 9003 certification during 1994. Our commitment to quality is part of our commitment to customer service. Fastenal's growth depends on the growth of the people who make up the Fastenal Company. In January of 1995 we added a third training specialist to our staff. We now have training specialists in the fields of marketing, operations, and manufacturing. During 1995 we hope to incorporate more communications technology to facilitate training and diminish traveling. [PHOTO OF PORTION OF HEX NUT APPEARS HERE] (cont.) 3 PRESIDENT'S LETTER (CONT.) As trade barriers fall, we have increased our international business. During 1994 we opened 2 stores in Canada under our new subsidiary company. We also sell our products from our Texas stores to customers located in Mexico. During 1994 we placed a member of our purchasing department in the Far East to facilitate our purchases from that area. The dedication of Fastenal people to customer service was shown during the year when our store in Burlington, North Carolina, received extensive damage from a fire. The fire started around 11:30 on a Sunday night. At midnight both our manager and assistant manager were at the site with the fire department. By 7:00 on Monday morning, our Winona computer department was loading a new point- of-sale computer on a plane for delivery to our Durham branch, 40 miles from Burlington. By Tuesday morning the computer was loaded with all of the customer history from before the fire, and was filled with inventory information from all surrounding Fastenal stores so that customer requests could be filled immediately. On Monday the Winona and Atlanta operations people put together new inventory stocks to be sent to a temporary location in Burlington. Early on Monday, our Burlington phone numbers were rerouted to our Durham store. Our Burlington customers were without Fastenal service for only 2 hours that Monday morning. After 8 weeks we moved back to our renovated building. The efforts of all of our people were indicative of the level of customer service that has become part of our reputation. Thank you for your continued belief in Fastenal. Bob Kierlin [Photo of portion of round head machine screw appears here] 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Net sales for 1994 exceeded net sales for 1993 by 46.8%. This compares with a 35.7% net sales growth rate experienced in 1993 compared to 1992. The increase in net sales in 1994 and 1993 came primarily from new store openings and unit sales growth in existing stores, rather than from price increases or the introduction of new products or services. The greater growth rate in 1994 than in 1993 resulted primarily from the stronger U.S. economy in 1994, which affected unit sales growth in existing stores. Stores opened in 1994 contributed $4,937,000 (or 3.0%) to 1994 net sales. Stores opened in 1993 contributed $3,211,000 (or 2.9%) to 1993 net sales, and $13,260,000 (or 8.2%) to 1994 net sales. Stores opened in 1992 contributed $2,597,000 (or 3.2%) to 1992 net sales, $10,476,000 (or 9.5%) to 1993 net sales and $16,758,000 (or 10.4%) to 1994 net sales. The rate of growth in sales of stores generally levels off after stores have been open for five years, and the sales of older stores typically vary more with the economy than the sales of younger stores. Threaded fasteners accounted for approximately 68% of net sales in 1992, 1993 and 1994. Gross profit as a percent of net sales was 53.1% in both 1994 and 1993, and 53.8% in 1992. The decrease from 1992 to 1993 resulted primarily from more bulk sales of standard products with lower gross margins, a condition continuing in 1994. Operating and administrative expenses were 34.0% of net sales in 1994 after having been 35.1% of net sales in 1993 and 36.0% of net sales in 1992. Occupancy and distribution costs increased at a slower rate than net sales in 1994. The stronger economy in 1994 increased net sales faster than the growth rate in the number of Company stores. Distribution costs benefited from productivity gains in 1994. In 1993, distribution costs increased at a slower rate than net sales, while sales expenses increased at a greater rate than net sales. Distribution costs benefited from productivity gains during 1993. Sales expenses grew faster than net sales as sales districts were added at a faster rate than the growth of net sales in 1993. The improvement in distribution costs was greater than the added sales costs during 1993. Interest income increased 13% between 1993 and 1994 primarily because of higher interest rates during 1994. Interest income dropped by 14% between 1992 and 1993 because of lower interest rates and the Company's decision to use cash to construct its new distribution facility in Pennsylvania. This use of cash resulted in less cash available for investment in 1993. The gains on the disposal of property and equipment in 1994 came primarily from the disposal of used vehicles owned by the Company. The 1993 and 1992 gains on the disposal of property and equipment came primarily from the disposal of warehouse racks. Net earnings grew 34.8% from 1992 to 1993, and 56.7% from 1993 to 1994. The growth in net earnings in all years resulted from increased net sales. In 1993 the net earnings growth rate was slightly less than that of net sales primarily because of higher 1993 federal income tax rates. In 1994 the net earnings growth rate was higher than that of net sales because net sales grew at a rate faster than that of new store openings. The net sales growth rate was greater than that of new store openings because of the strong economy in 1994. EFFECTS OF INFLATION Inflation had little effect on the Company's operations in 1992, 1993 and 1994. In 1992 the relatively slow economy and the Company's ability to take advantage of volume discounts resulted in a general reduction in the costs of products the Company buys from its suppliers. In 1993 selected price increases in basic steel products were offset by other volume discounts. At the end of 1994, the Company started to see some significant price increases from its suppliers, but these increases were to take effect in January of 1995. The Company believes it will be able to pass the price increases through to its customers. 5 LIQUIDITY AND CAPITAL RESOURCES Working capital increased from $22,569,000 at December 31, 1992 to $33,319,000 at December 31, 1993, and to $45,342,000 at December 31, 1994. These increases came primarily from higher trade accounts receivable and inventory. Net cash provided by operating activities decreased from $5,596,000 in 1992 to $4,468,000 in 1993, and increased to $11,284,000 in 1994. The 1993 decrease resulted primarily from the growth in inventories and trade accounts receivable exceeding the growth in net earnings and depreciation charges. Accounts receivable and inventories grew in the fourth quarter of 1993 because of increased sales activity, particularly to original equipment manufacturers. The 1994 increase came primarily because the growth in net earnings and depreciation charges exceeded the growth in accounts receivable and inventories. Net cash used by investing activities decreased from $7,118,000 in 1992 to $3,239,000 in 1993, and increased to $9,369,000 in 1994. The 1993 decrease in net cash used by investing activities resulted primarily from a decrease in purchases, and an increase in sales, of marketable securities. The 1994 increase in net cash used by investing activities resulted primarily from a decrease in sales of marketable securities. Additions to property and equipment made up the largest part of cash used by investing activities in each year, with trucks being the largest segment in 1994 and 1993, and land and buildings being the largest segment in 1992. The Company had no long-term debt at December 31, 1992, 1993, or 1994. The Company paid an annual dividend of $.015 per share in each of 1992 and 1993, and $.02 per share in 1994. Management anticipates funding its current expansion plans and fulfilling its commitments for capital expenditures with cash generated from operations and from available cash, cash equivalents, marketable securities and, if necessary, borrowing capacity. Management considers it prudent to maintain cash and cash equivalents to permit investment in additional integrated functions such as bulk repackaging, specialty manufacturing and product testing. The Company began a FastTool division in 1993. This division sells tools and safety supplies to the same customer base as the Fastenal stores. Additional expenditures of about $1,500,000 are expected in 1995 for this division, primarily for inventory. At December 31, 1994, the Company had outstanding commitments for capital expenditures of $2,800,000. These commitments were to complete the construction of the Company's new manufacturing facility in Winona and its new distribution facility in Dallas, Texas. The Company expects to make approximately $7,500,000 in additional capital expenditures in 1995, consisting of approximately $4,500,000 for vehicles, approximately $1,500,000 for manufacturing and packaging equipment and approximately $1,500,000 for data processing equipment. In addition to opening new stores in the United States, the Company plans in 1995 to open between two and four stores in Canada and to continue selling its products in Mexico from some of its existing stores in Texas. No assurance can be given that any of the Company's expansion plans will be achieved or that new stores, once opened, will be profitable. [Photo of portion of drill bit appears here] 6 STOCK AND FINANCIAL DATA COMMON STOCK DATA The Company's shares are traded on The Nasdaq Stock Market under the symbol "FAST". The following table sets forth the high and low closing sale price on The Nasdaq Stock Market for 1994 and 1993. The Common Stock trading prices below have been retroactively adjusted for the 2-for-1 stock split declared on January 31, 1995. See Note 5 of the Notes to Financial Statements.
1994 HIGH LOW First Quarter $19 3/4 $15 1/2 Second Quarter 17 1/2 14 1/2 Third Quarter 21 1/4 16 3/4 Fourth Quarter 23 3/8 18 5/8 1993 HIGH LOW First Quarter $13 $ 9 1/2 Second Quarter 13 3/8 11 1/8 Third Quarter 13 1/8 10 7/8 Fourth Quarter 15 7/8 12 7/8
As of February 27, 1995, there were approximately 1,750 record holders of the Company's common stock. A $.015 annual dividend per share was paid during 1993. A $.02 annual dividend per share was paid during 1994. On January 31, 1995, the Company announced a $.02 annual dividend per share to be paid on February 28, 1995 to shareholders of record at the close of business on February 14, 1995. The Company expects that it will continue to pay comparable cash dividends in the foreseeable future, provided that any future determination as to payment of dividends will depend upon the financial condition and results of operations of the Company, and such other factors as are deemed relevant by the Board of Directors. The dividend amounts above and the Selected Quarterly Financial Data below have been retroactively adjusted for the 2-for-1 stock split declared on January 31, 1995. See Note 5 of the Notes to Financial Statements. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
EARNINGS QUARTER NET SALES GROSS PROFIT NET EARNINGS PER SHARE 1994: First $ 33,982,000 $17,979,000 $ 3,434,000 $ .09 Second 39,388,000 20,943,000 4,570,000 .12 Third 43,508,000 22,994,000 5,154,000 .14 Fourth 45,008,000 24,011,000 5,508,000 .14 ------------ ----------- ----------- ----- $161,886,000 $85,927,000 $18,666,000 $ .49 ============ =========== =========== ===== 1993: First $ 23,404,000 $12,457,000 $ 2,212,000 $ .06 Second 27,094,000 14,335,000 2,876,000 .07 Third 29,475,000 16,190,000 3,371,000 .09 Fourth 30,334,000 15,570,000 3,451,000 .09 ------------ ----------- ----------- ----- $110,307,000 $58,552,000 $11,910,000 $ .31 ============ =========== =========== =====
7 FASTENAL COMPANY CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993
ASSETS 1994 1993 Current assets: Cash and cash equivalents $ 3,133,000 $ 1,976,000 Trade accounts receivable, net of allowance for doubtful accounts of $300,000 and $225,000 as of December 31, 1994 and 1993, respectively 23,606,000 15,723,000 Inventories 30,911,000 22,234,000 Deferred income tax assets 729,000 431,000 Other current assets 1,108,000 609,000 ----------- ----------- Total current assets 59,487,000 40,973,000 Marketable securities 5,026,000 3,455,000 Property and equipment, less accumulated depreciation 16,988,000 12,739,000 Other assets, net 294,000 296,000 ----------- ----------- $81,795,000 $57,463,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,814,000 $ 4,364,000 Accrued expenses 4,146,000 2,605,000 Income taxes payable 2,186,000 685,000 ----------- ----------- Total current liabilities 14,146,000 7,654,000 ----------- ----------- Stockholders' equity: Preferred stock of $.01 par value per share. Authorized 5,000,000 shares; none issued -- -- Common stock of $.01 par value per share. Authorized 50,000,000 shares; issued and outstanding 37,938,688 shares 379,000 379,000 Additional paid-in capital 4,424,000 4,424,000 Retained earnings 62,914,000 45,006,000 Translation adjustment (11,000) -- Unrealized holding losses on marketable securities (57,000) -- ----------- ----------- Total stockholders' equity 67,649,000 49,809,000 ----------- ----------- Total liabilities and stockholders' equity $81,795,000 $57,463,000 =========== ===========
The accompanying notes are an integral part of the financial statements. 8 FASTENAL COMPANY CONSOLIDATED STATEMENTS OF EARNINGS Years ended December 31, 1994, 1993, and 1992
1994 1993 1992 Net sales $161,886,000 $110,307,000 $81,263,000 Cost of sales 75,959,000 51,755,000 37,580,000 ------------ ------------ ----------- Gross profit 85,927,000 58,552,000 43,683,000 Operating and administrative expenses 54,963,000 38,695,000 29,260,000 ------------ ------------ ----------- Operating income 30,964,000 19,857,000 14,423,000 Other income: Interest income 238,000 210,000 244,000 Gain on disposal of property and equipment 189,000 8,000 68,000 ------------ ------------ ----------- Total other income 427,000 218,000 312,000 ------------ ------------ ----------- Earnings before income taxes 31,391,000 20,075,000 14,735,000 Income tax expense 12,725,000 8,165,000 5,902,000 ------------ ------------ ----------- Net earnings $ 18,666,000 $ 11,910,000 $ 8,833,000 ============ ============ =========== Earnings per share $ .49 $ .31 $ .23 ============ ============ =========== Weighted average shares outstanding 37,938,688 37,938,688 37,938,688 ============ ============ ===========
The accompanying notes are an integral part of the financial statements. 9 FASTENAL COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1994, 1993, and 1992
UNREALIZED HOLDING ADDITIONAL LOSSES ON TOTAL COMMON STOCK PAID-IN RETAINED TRANSLATION MARKETABLE STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SECURITIES EQUITY ---------- -------- ---------- ----------- ----------- ---------- ------------- Balances as of December 31, 1991 37,938,688 $379,000 $4,424,000 $25,401,000 $ -- $ -- $30,204,000 Dividends paid in cash -- -- -- (569,000) -- -- (569,000) Net earnings for the year -- -- -- 8,833,000 -- -- 8,833,000 ---------- -------- ---------- ----------- -------- -------- ----------- Balances as of December 31, 1992 37,938,688 379,000 4,424,000 33,665,000 -- -- 38,468,000 Dividends paid in cash -- -- -- (569,000) -- -- (569,000) Net earnings for the year -- -- -- 11,910,000 -- -- 11,910,000 ---------- -------- ---------- ----------- -------- -------- ----------- Balances as of December 31, 1993 37,938,688 379,000 4,424,000 45,006,000 -- -- 49,809,000 Dividends paid in cash -- -- -- (758,000) -- -- (758,000) Net earnings for the year -- -- -- 18,666,000 -- -- 18,666,000 Translation adjustment -- -- -- -- (11,000) -- (11,000) Unrealized holding losses on marketable securities -- -- -- -- -- (57,000) (57,000) ---------- -------- ---------- ----------- -------- -------- ----------- Balances as of December 31, 1994 37,938,688 $379,000 $4,424,000 $62,914,000 $(11,000) $(57,000) $67,649,000 ========== ======== ========== =========== ======== ======== ===========
The accompanying notes are an integral part of the financial statements. 10 FASTENAL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1994, 1993, and 1992
1994 1993 1992 Cash flows from operating activities: Net earnings $18,666,000 $11,910,000 $ 8,833,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property and equipment 3,619,000 2,603,000 1,890,000 Gain on disposal of property and equipment (189,000) (8,000) (68,000) Deferred income taxes (298,000) (99,000) (150,000) Amortization of premium on marketable securities 53,000 53,000 47,000 Changes in operating assets and liabilities: Trade accounts receivable (7,883,000) (5,020,000) (2,507,000) Inventories (8,677,000) (7,014,000) (3,989,000) Other current assets (499,000) (142,000) (30,000) Accounts payable 3,450,000 1,353,000 570,000 Accrued expenses 1,541,000 747,000 682,000 Income taxes payable 1,501,000 85,000 318,000 ----------- ----------- ----------- Net cash provided by operating activities 11,284,000 4,468,000 5,596,000 ----------- ----------- ----------- Cash flows from investing activities: Purchases of marketable securities (2,266,000) (2,738,000) (4,779,000) Sales of marketable securities 585,000 5,144,000 2,985,000 Additions of property and equipment, net (8,129,000) (5,530,000) (5,358,000) Proceeds from sale of property and equipment 450,000 8,000 68,000 Translation adjustment (11,000) -- -- Decrease (increase) in other assets 2,000 (123,000) (34,000) ----------- ----------- ----------- Net cash used by investing activities (9,369,000) (3,239,000) (7,118,000) ----------- ----------- ----------- Cash flows from financing activities: Payment of dividends (758,000) (569,000) (569,000) ----------- ----------- ----------- Net cash used in financing activities (758,000) (569,000) (569,000) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,157,000 660,000 (2,091,000) Cash and cash equivalents at beginning of year 1,976,000 1,316,000 3,407,000 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 3,133,000 $ 1,976,000 $ 1,316,000 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid during each period for: Income taxes $11,522,000 $ 8,179,000 $ 5,734,000 =========== =========== =========== Supplemental disclosure on non-cash investing activities: Unrealized holding losses on marketable securities $ 57,000 $ -- $ -- =========== =========== ===========
The accompanying notes are an integral part of the financial statements. 11 FASTENAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1994, 1993, and 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Fastenal Company and its wholly-owned subsidiary, Fastenal Canada Company (collectively referred to as the Company). All material intercompany balances and transactions have been eliminated in consolidation. RECLASSIFICATION Certain amounts as reported in 1993 and 1992 have been reclassifed to conform with the presentation in 1994. REVENUE RECOGNITION The Company recognizes sales and the related cost of sales on the accrual basis of accounting at the time products are shipped to or picked up by customers. CASH EQUIVALENTS For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories, consisting of merchandise held for resale, are stated at the lower of cost (first in, first out method) or market. MARKETABLE SECURITIES Marketable securities as of December 31, 1994, consist of debt securities. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (Statement 115) on January 1, 1994. Under Statement 115, the Company classifies its debt securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold the security until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is provided for both financial statement reporting and income tax reporting purposes by the methods and over the lives mandated by Internal Revenue Service Regulations. Such lives approximate the anticipated economic useful lives of the related property and are as follows: YEARS Buildings and building improvements 15 to 39 Transportation equipment 3 to 5 Equipment and shelving 3 to 7 INCOME TAXES Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Adoption of Statement 109 had an immaterial effect on the Company's 1992 financial position and results of operations. POSTRETIREMENT BENEFITS The Company adopted Statement of Financial Accounting Standards No. 106, Accounting for Postretirement Benefits Other Than Pensions, in 1993. The Company does not offer any postretirement benefits subject to the provisions of this statement and, accordingly, adoption of this position had no impact on the Company's financial position or results of operations. POSTEMPLOYMENT BENEFITS The Company adopted Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits, in 1993. The Company does not offer postemployment benefits subject to the provisions of this statement and, accordingly, adoption of this statement had no impact on the Company's financial position or results of operations. EARNINGS PER SHARE Earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding. 12 FASTENAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (2) MARKETABLE SECURITIES The amortized cost, unrealized holding gains, unrealized holding losses and fair value for available-for-sale securities by major security type at December 31, 1994 were as follows:
UNREALIZED UNREALIZED AMORTIZED HOLDING HOLDING FAIR COST GAINS LOSSES VALUE Available-for-sale debt securities $5,083,000 $ -- $57,000 $5,026,000
The market value of the portfolio was $3,455,000 and $5,914,000 at December 31, 1993 and 1992. The portfolio of debt securities includes unrealized gains of $23,000 and unrealized losses of $4,000 at December 31, 1993. Proceeds from the sale or maturity of investment securities were $585,000, $5,144,000, and $2,985,000 in 1994, 1993 and 1992 respectively. (3) PROPERTY AND EQUIPMENT Property and equipment consist of the following:
1994 1993 Land $ 994,000 $ 748,000 Buildings and improvements 6,470,000 6,288,000 Equipment and shelving 12,538,000 9,371,000 Transportation equipment 7,015,000 4,170,000 Construction in progress 1,069,000 -- ----------- ----------- 28,086,000 20,577,000 Less accumulated depreciation 11,098,000 7,838,000 ----------- ----------- Net property and equipment $16,988,000 $12,739,000 =========== ===========
(4) ACCRUED EXPENSES Accrued expenses consist of the following:
1994 1993 Payroll and related taxes $1,474,000 $ 999,000 Bonuses 1,415,000 807,000 Commissions 653,000 429,000 Sales and real estate taxes 387,000 293,000 Other 217,000 77,000 ---------- ---------- $4,146,000 $2,605,000 ========== ==========
(5) STOCKHOLDERS' EQUITY STOCK SPLITS Dollar, share and per share amounts herein and in the accompanying consolidated financial statements have been adjusted retroactively, where appropriate, to reflect the 2-for-1 common stock split effected in the form of a 100% stock dividend in both 1992 and 1995. DIVIDENDS On January 31, 1995 the Company's Board of Directors declared a dividend of $.02 per share of common stock to be paid in cash on February 28, 1995 to shareholders of record at the close of business on February 14, 1995. 13 FASTENAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (6) INCOME TAXES Income tax expense in the accompanying consolidated financial statements differs from the "expected" tax expense as follows:
1994 1993 1992 Federal income tax expense at the "expected" rate of 35% in 1994 and 1993 and 34% in 1992 $10,987,000 $7,026,000 $ 5,010,000 Increase (reduction) attributed to: State income taxes, net of Federal benefit 1,644,000 1,034,000 770,000 Tax exempt interest (68,000) (74,000) (62,000) Other, net 162,000 179,000 184,000 ----------- ---------- ----------- Total income tax expense $12,725,000 $8,165,000 $ 5,902,000 =========== ========== ===========
Components of income tax expense are as follows:
CURRENT DEFERRED TOTAL 1994 Federal $10,434,000 $ (239,000) $10,195,000 State 2,589,000 (59,000) 2,530,000 ----------- ---------- ----------- $13,023,000 $ (298,000) $12,725,000 =========== ========== =========== 1993 Federal $ 6,653,000 $ (79,000) $ 6,574,000 State 1,611,000 (20,000) 1,591,000 ----------- ---------- ----------- $ 8,264,000 $ (99,000) $ 8,165,000 =========== ========== =========== 1992 Federal $ 4,855,000 $ (120,000) $ 4,735,000 State 1,197,000 (30,000) 1,167,000 ----------- ---------- ----------- $ 6,052,000 $ (150,000) $ 5,902,000 =========== ========== ===========
The tax effects of temporary differences that give rise to deferred tax assets as of December 31 are as follows:
1994 1993 Deferred tax assets: Inventory costing and valuation methods $544,000 $330,000 Allowance for doubtful accounts receivable 121,000 90,000 Health claims payable 59,000 11,000 Other, net 5,000 -- -------- -------- Total deferred tax assets $729,000 $431,000 ======== ========
No valuation allowance for deferred tax assets was necessary as of December 31, 1994 and 1993. The character of the deferred tax assets is such that they can be realized through carryback to prior tax periods or offset against future taxable income. 14 FASTENAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (7) OPERATING LEASES The Company leases space under noncancellable operating leases for its Dallas and Kent distribution centers, its Memphis packaging center and certain stores with initial terms of one to 48 months. Minimum annual rentals (exclusive of taxes, insurance, etc., on the leased facilities, which are paid by the Company) under such leases are as follows:
DISTRIBUTION YEAR ENDING CENTERS, PACKAGING DECEMBER 31 CENTER, AND STORES 1995 $2,548,000 1996 1,699,000 1997 661,000 1998 55,000
Rent expense under all operating leases was as follows:
DISTRIBUTION YEAR ENDED CENTERS, PACKAGING TRANSPORTATION DECEMBER 31 CENTER, AND STORES EQUIPMENT TOTAL 1994 $2,865,000 $ -- $2,865,000 1993 2,175,000 137,000 2,312,000 1992 1,779,000 400,000 2,179,000
(8) COMMITMENTS The Company is in the process of building a new warehouse facility in Dallas, Texas. In addition, a new production facility is under construction in Winona, Minnesota. Building in progress construction costs of $1,069,000 incurred through December 31, 1994 relate to these two facilities. During 1995, the Company anticipates $2,800,000 will be incurred to complete both projects. The Company currently issues letters of credit to suppliers for large overseas purchases. As of December 31, 1994, the total balance available for advancing on the letters of credit was $696,000. [PHOTO OF PORTION OF SECURITY MACHINE SCREW APPEARS HERE] 15 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Fastenal Company: We have audited the accompanying consolidated balance sheets of Fastenal Company and subsidiary as of December 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fastenal Company and subsidiary as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Minneapolis, Minnesota January 31, 1995 [Photo of portion of clevis hook appears here] 16 OFFICERS DIRECTORS ROBERT A. KIERLIN MICHAEL M. GOSTOMSKI Chairman of the Board President, and President Winona Heating & Ventilating Co. (sheet metal and roofing contractor) STEPHEN M. SLAGGIE Secretary and Treasurer ROBERT A. KIERLIN PATRICK J. RICE HENRY K. McCONNON Controller President, Wise Eyes, Inc. (eyeglass retailer) JOHN D. REMICK President, Rochester Athletic Club STEPHEN M. SLAGGIE CORPORATE INFORMATION ANNUAL MEETING The annual meeting of shareholders will be held at 10:00 a.m., Tuesday, April 25, 1995, at Corporate Headquarters, 2001 Theurer Boulevard, Winona, Minnesota. CORPORATE HEADQUARTERS Fastenal Company 2001 Theurer Boulevard Winona, Minnesota 55987 (507) 454-5374 FAX (507) 454-6542 TRANSFER AGENT Norwest Bank Minnesota, N.A. Minneapolis, Minnesota FORM 10-K A COPY OF THE COMPANY'S 1994 ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE TO SHAREHOLDERS UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. AUDITORS KPMG Peat Marwick LLP Minneapolis, Minnesota LEGAL COUNSEL Faegre & Benson, Professional Limited Liability Partnership Minneapolis, Minnesota Streater, Murphy, Gernander & Forsythe, PA Winona, Minnesota [LOGO OF FASTENAL] 2001 Theurer Blvd., Winona, MN 55987 . 507-454-5374 EX-21 3 LIST OF SUBSIDIARIES EXHIBIT 21 LIST OF SUBSIDIARIES
State of Other Names Under Which Name of Subsidiary Incorporation Subsidiary Does Business - ------------------------- ------------- ------------------------ Fastenal Canada Company Minnesota None
EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS OF FASTENAL COMPANY AND SUBSIDIARY AS OF, AND FOR THE YEAR ENDED, DECEMBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 3,133,000 5,026,000 23,906,000 300,000 30,911,000 59,487,000 28,086,000 11,098,000 81,795,000 14,146,000 0 379,000 0 0 67,270,000 81,795,000 161,886,000 161,886,000 75,959,000 75,959,000 0 453,000 0 31,391,000 12,725,000 18,666,000 0 0 0 18,666,000 .49 .49
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