-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wb6G683cG+nWj5XVtnHZHpPJCLSj48OrWveAvd/etcK8PN5qBdhWLSlN0rnrbUxC MsAnrFMXY5OzIcmDYC9PKg== 0000950131-96-001114.txt : 19960319 0000950131-96-001114.hdr.sgml : 19960319 ACCESSION NUMBER: 0000950131-96-001114 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960318 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: 96535838 BUSINESS ADDRESS: STREET 1: 2001 THEURER BLVD CITY: WINONA STATE: MN ZIP: 55987 BUSINESS PHONE: 5074545374 10-K405 1 FORM 10-K 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, 1995, 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, 1996 was $958,035,715. 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, 1996, the registrant had 37,938,688 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, 1995 are incorporated by reference in Part II. Portions of the registrant's Proxy Statement for the annual meeting of shareholders to be held April 23, 1996 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, 1995, the Company sold approximately 41,000 different types of threaded fasteners and other industrial and construction supplies through 366 stores located in 45 states and in Canada which were operated by the Company under the Fastenal(R) name/1/, and approximately 8,000 different types of tools and safety supplies through 37 stores located in 18 states which were operated by the Company under the FastTool(R) name. As of December 31, 1995, the Company also operated nine combined Fastenal/FastTool stores in smaller communities located in nine states, all nine of which stores were opened in 1995. The Company maintains seven distribution centers from which the Company distributes products to its stores, and operates a facility in Memphis, Tennessee to receive and package goods coming from suppliers outside of the United States. Through 1995 the Company counted as a new store the addition of two employees at a site dedicated to the sale of a new product line. By way of example, each FastTool store is located in a store site housing an existing Fastenal store, but has been counted as a separate store because of the addition of two people at the site to sell the FastTool product line. The Company plans to begin adding product lines to some existing sites with only one additional employee or, in some cases, no additional employees. In the future, therefore, the Company's reports relating to growth will include data about total store sites, average sales at these sites, total employment at these sites, and average sales per marketing employee. The Company will also report total Company sales by major product classification, but will not report sales or profits by product class for individual sites. As of January 1, 1996, the Company had 375 store sites and 1,310 people employed at these sites. 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: - ----------------------- /1/ Fastenal(R), FastTool(R), SharpCut(TM) and PowerFlow(TM) are trademarks and/or service marks of the Company. -2-
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Number of stores at year end 45 58 75 98 126 158 200 256 324 412 Net sales (in thousands) $15,040 $20,295 $30,441 $41,190 $52,290 $62,305 $81,263 $110,307 $161,886 $222,555
As of December 31, 1995, the Company operated 412 stores located in Minnesota (11 stores), Wisconsin (22 stores), Iowa (16 stores), Illinois (23 stores), Indiana (18 stores), Ohio (31 stores), Michigan (18 stores), Kentucky (7 stores), Pennsylvania (16 stores), New York (14 stores), Nebraska (4 stores), Missouri (10 stores), Kansas (8 stores), South Dakota (4 stores), West Virginia (6 stores), Arkansas (5 stores), Maryland (4 stores), North Dakota (3 stores), North Carolina (16 stores), Oklahoma (5 stores), Tennessee (11 stores), Texas (33 stores), South Carolina (5 stores), Colorado (7 stores), Virginia (8 stores), Louisiana (3 stores), Georgia (12 stores), Alabama (11 stores), Utah (3 stores), Washington (10 stores), Oregon (6 stores), Mississippi (5 stores), California (12 stores), Idaho (4 stores), Massachusetts (7 stores), Florida (5 stores), Connecticut (4 stores), Arizona (2 stores), Montana (4 stores), Nevada (1 store), New Hampshire (4 stores), New Mexico (2 stores), Maine (2 stores), Delaware (1 store), Vermont (1 store) and Canada (8 stores). The Company has closed only three stores in its history. 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 135 additional markets in the United States have sufficient potential to justify a stand-alone Fastenal store. Since 1993 the Company has developed a new store concept, opening 37 FastTool stores which sell tools and safety supplies. Each such store is located in a store site housing an existing Fastenal store, but has been counted as a separate store because of the addition of two employees at the site dedicated to the sale of the FastTool product line. The Company plans to open between 25 and 35 additional FastTool stores in 1996. 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 opened nine experimental stores in communities which are smaller (populations of approximately 8,000 to 25,000) than those in which regular Fastenal stores are located. These stores, each of which starts operations with two full-time employees, combine the Fastenal and FastTool product lines in single stores. The Company plans to open between 25 and 40 of these combination stores in 1996. 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 1995 the Company announced plans to begin marketing an expanded line of metal cutting blades and new lines of fluid flow products and materials handling equipment and systems. The Company started selling the expanded line of cutting blades from certain existing Fastenal locations in January 1996, and plans to begin adding each of the other new product lines later in 1996. In 1994 the Company began to sell products into Mexico from its existing McAllen, Texas store. In 1995 similar operations were begun from stores in El Paso and Brownsville, Texas. The Company opened two Fastenal stores in -3- Canada in 1994 and six in 1995, and plans to open between five and ten additional Canadian stores in 1996. No assurance can be given that any of the expansion plans described 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 nine to 15 months for a new stand-alone Fastenal store to achieve its first profitable month. Of the 15 Fastenal stores, five FastTool stores and two combination stores opened in the first quarter of 1995, 12 Fastenal stores, one FastTool store and two combination stores were profitable in the fourth quarter of 1995. For 1995 annual sales volumes of stores operating at least five years ranged between approximately $398,000 and $3,386,000, with 75% of these stores having annual sales volumes within the range of approximately $630,000 to $1,495,000. The data in the following table shows the growth in the average sales of the Company's stores from 1994 to 1995 based on each store's age. The stores opened in 1995 contributed $8.6 million (or approximately 3.9%) of the Company's consolidated sales in 1995, with the remainder coming from existing stores.
Age of Store Number of Stores in Average Average as of 12/31/95 Group as of 12/31/95 Sales 1994 Sales 1995 % Change - ----------------- -------------------- ------------ ------------- -------- 0-1 year old 88 $ -- $ 98,000/(1)/ -- 1-2 years old 68 73,000/(1)/ 283,000 -- 2-3 years old 56 233,000 378,000 +62 3-4 years old 42 393,000 551,000 +40 4-5 years old 32 550,000 671,000 +22 5-6 years old 28 644,000 788,000 +22 6-7 years old 23 648,000 778,000 +20 7-8 years old 17 818,000 976,000 +19 8-9 years old 13 872,000 1,095,000 +26 9-10 years old 10 833,000 992,000 +19 10-13 years old 15 1,066,000 1,143,000 + 7 13+ years old 20 1,365,000 1,532,000 +12
- -------------------- /(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; Fresno, California; 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 Ohio in 1996. 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. -4- The Company operates 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 1995 the Company continued to improve its point of sale hardware and software. PRODUCTS Fastenal Stores --------------- The Company distributes approximately 41,000 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. 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 consolidated sales in 1993 and 1994, and approximately 65% of consolidated sales in 1995. 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 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 inventory of tools and safety supplies in the FastTool stores is comprised of approximately 8,000 different items. The Company opened three FastTool stores in 1993, six FastTool stores in 1994, and 28 FastTool stores in 1995. The Company uses its current distribution system -5- for the FastTool division, but store personnel are specialists in tool marketing. FastTool stores are located in store sites housing existing Fastenal stores. Smaller Community Combination Stores ------------------------------------ In 1995 the Company opened nine 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, each of which started operations with two full-time employees, combine the Fastenal and FastTool product lines in single stores. 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. Additional Product Lines ------------------------ In 1995 the Company announced plans to begin selling an expanded line of metal cutting blades and blade regrinding services under the SharpCut(TM) name, to begin selling fluid transmission products under the PowerFlow(TM) name, and to begin selling materials handling products and systems. The Company began the regrinding service in September 1995, started selling the expanded line of cutting blades from select Fastenal sites in January 1996, and plans to begin adding the other new products later in 1996. 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 1995 approximately 95.9% of the Company's consolidated sales were attributable to products manufactured by other companies to industry standards. The remaining approximately 4.1% of the Company's consolidated sales for 1995 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 consolidated sales attributable to manufacturing. SOURCES OF SUPPLY The Company uses a large number of suppliers for the approximately 49,000 standard 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 1995. -6- 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, 1995, the Company's total number of active customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 53,000. During each of the three years ended December 31, 1995, 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 1, 1996, the Company employed a total of 2,045 full and part- time employees, 1,310 being store managers and store employees, and the balance being employed in the Company's distribution centers, packaging facility, manufacturing operations and home office. 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 -7- 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 three facilities in Winona, Minnesota: a 98,000 square foot distribution center and home office building, a 50,000 square foot manufacturing facility, and a 23,000 square foot building that houses both the Company's Winona store and some operations departments. In 1995 the Company began construction of a 75,000 square foot addition to its distribution center and office building in Winona. The Company expects to occupy this facility in July 1996. The Company also owns a 60,000 square foot distribution center in Indianapolis, Indiana, a 54,000 square foot distribution center in Atlanta, Georgia, a 50,000 square foot distribution center in Dallas, Texas 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; Wichita Falls and Texarkana, Texas; Topeka, Kansas; and Kokomo, Indiana are also owned by the Company. 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 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 distribution center in Fresno, California, which opened in March 1995, is approximately 11,200 square feet. The term of the lease of the California facility expires on February 28, 1998. 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 sites to house its older stores. All sites for new stores (other than new FastTool stores, which are located in sites housing existing Fastenal stores, some of which are or may be owned) 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 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. -8- ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT - --------------------------------------------- The executive officers of Fastenal Company are:
Name Age Position ---- --- -------- Robert A. Kierlin 56 Chairman of the Board, President and Director Stephen M. Slaggie 56 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. -9- 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, 1995, 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, 1995, 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, 1995, 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, 1995, 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. -10- PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ Incorporated herein by reference is the information appearing under the headings "Election of Directors - Nominees and Required Vote", pages 4-5, and "General", page 9, in Fastenal Company's Proxy Statement dated March 19, 1996. 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 19, 1996. 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 19, 1996. 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 19, 1996. -11- 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, 1995 and 1994 Consolidated Statements of Earnings for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 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, 1995) 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, 1995 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission) 21 List of Subsidiaries (incorporated by reference to Exhibit 21 to Fastenal Company's Form 10-K for the fiscal year ended December 31, 1994) 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, 1995. -12- [LETTERHEAD OF KPMG PEAT MARWICK LLP] Independent Auditors' Report on Schedule ---------------------------------------- The Board of Directors and Stockholders Fastenal Company: Under date of January 29, 1996, we reported on the consolidated balance sheets of Fastenal Company and subsidiary as of December 31, 1995 and 1994, 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, 1995, as contained in the 1995 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 1995. 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 29, 1996 -13- FASTENAL COMPANY Schedule VIII Valuation and Qualifying Accounts Years Ended December 31, 1995, 1994 and 1993 --------------------------------------------
"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 12/31/95 $300,000 $519,513 -0- $359,513 $460,000 Allowance for doubtful accounts 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
-14- 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 18, 1996 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 18, 1996 /s/Robert A. Kierlin ------------------------------------ Robert A. Kierlin, President (Principal Executive Officer) and Director Date: March 18, 1996 /s/Stephen M. Slaggie ------------------------------------ Stephen M. Slaggie, Treasurer (Principal Financial Officer) and Director Date: March 18, 1996 /s/Patrick J. Rice ------------------------------------ Patrick J. Rice, Controller (Principal Accounting Officer) Date: March 18, 1996 /s/Michael M. Gostomski ------------------------------------ Michael M. Gostomski, Director Date: March 18, 1996 /s/Henry K. McConnon ------------------------------------ Henry K. McConnon, Director Date: March 18, 1996 /s/John D. Remick ------------------------------------ John D. Remick, Director -15- 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, 1995 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission)........................................Electronically Filed 21 List of Subsidiaries (incorporated by reference to Exhibit 21 to Fastenal Company's Form 10-K for the fiscal year ended December 31, 1994). 27 Financial Data Schedule ...........................Electronically Filed EX-13 2 ANNUAL REPORT TO SHAREHOLDERS [FASTENAL(R) LOGO] 1995 ANNUAL REPORT [Picture of samples of the Company's manufactured parts] PROFILE OF FASTENAL COMPANY Fastenal Company was founded in 1967. As of December 31, 1995, the Company operated 366 Fastenal(R) stores located in 45 states and Canada through which it sold approximately 41,000 different types of threaded fasteners and other industrial and construction supplies, 37 FastTool(R) stores located in 18 states through which it sold approximately 8,000 different types of tools and safety supplies, and nine combination stores located in smaller communities in nine states through which it sold both Fastenal and FastTool product lines. As of December 31, 1995, the Company also operated seven distribution centers located in Minnesota, Indiana, Pennsylvania, Texas, Georgia, Washington, and California, and a packaging facility in Tennessee. Approximately 95.9% of the Company's 1995 sales were attributable to products manufactured by others, and approximately 4.1% related to custom threaded fasteners manufactured or modified by the Company. Since December 31, 1995, the Company has opened additional stores in the United States and Canada. Through 1995 the Company counted as a new store the addition of two employees at a site dedicated to the sale of a new product line. By way of example, each FastTool store is located in a store site housing an existing Fastenal store, but has been counted as a separate store because of the addition of two people at the site to sell the FastTool product line. The Company plans to begin adding product lines to some existing sites with only one additional employee or, in some cases, no additional employees. In the future, therefore, the Company's reports relating to growth will include data about total store sites, average sales at these sites, total employment at these sites, and average sales per marketing employee. The Company will also report total Company sales by major product classification, but will not report sales or profits by product class for individual sites. As of January 1, 1996, the Company had 375 store sites and 1,310 people employed at these sites. Fastenal(R), FastTool(R), SharpCut(TM), and PowerFlow(TM) are trademarks and/or service marks of the Company. 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
SIX YEAR SELECTED FINANCIAL DATA OPERATING RESULTS YEARS ENDED DECEMBER 31
PERCENT 1995 CHANGE 1994 1993 1992 1991 1990 ------------ ------- ------------ ------------ ----------- ----------- ----------- Net sales............................ $222,555,000 +37.5 $161,886,000 $110,307,000 $81,263,000 $62,305,000 $52,290,000 Gross profit......................... 118,944,000 +38.4 85,927,000 58,552,000 43,683,000 32,927,000 28,467,000 Earnings before income taxes......... 46,206,000 +47.2 31,391,000 20,075,000 14,735,000 10,748,000 10,462,000 Net earnings......................... 27,411,000 +46.8 18,666,000 11,910,000 8,833,000 6,606,000 6,411,000 Earnings per share................... .72 +46.9 .49 .31 .23 .17 .17 Dividends per share.................. .02 .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.................. $ 66,100,000 +45.8 $ 45,341,000 $ 33,319,000 $22,569,000 $19,554,000 $16,827,000 Total assets......................... 109,320,000 +33.7 81,795,000 57,463,000 43,937,000 34,103,000 28,290,000 Long-term debt, less current installments........................ -- -- -- -- -- -- 743,000 Total stockholders' equity........... 94,323,000 +39.4 67,649,000 49,809,000 38,468,000 30,204,000 24,073,000
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, 1992, AND 1995. [Picture of computer [Picture of overview of the numerically controlled Company's manufacturing vertical machining shop floor] center with operator] 2 PRESIDENT'S LETTER TO SHAREHOLDERS Helped by a growing national economy, Fastenal had a strong year in 1995. Our 1995 net sales of $222,555,000 represented a 37.5% increase over the 1994 level. Our 1995 net earnings of $27,411,000 represented a 46.8% increase over the 1994 level. Earnings per share increased from $.49 in 1994 to $.72 in 1995 after giving effect to the 2-for-1 stock split declared on January 31, 1995. During 1995 we opened 51 new Fastenal stores, 28 new FastTool stores and 9 new "Combo" stores (combined fastener and tool stores in smaller communities), bringing our total of open stores at the end of the year to 412. Our stores are located in 45 states and 8 stores are in Canada. The rapid growth in the number of FastTool stores during 1995 from 9 to 37 resulted in these stores contributing 4% of our total sales in the fourth quarter of the year and just under 3% for the full year. The nine "Combo" stores were all opened during 1995 and in the fourth quarter contributed less than 1% of the total Company sales. During 1995 Fastenal achieved growth in stores of all ages. Stores more than 5 years old had average sales gains of 17.0%. Stores between 2 and 5 years old had average sales gains of 39.5%. The 35 oldest stores had average net sales of just over $1,360,000 per store. Our seventh distribution center opened in Fresno, California, in March of 1995. An eighth distribution center is planned for Ohio in 1996. 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. During 1995 we experienced lower unit freight and packaging costs because of the addition of this facility. During 1995 Fastenal moved into a new 50,000 square foot facility for the manufacturing division. This new facility allowed us to expand our business of producing special fasteners. The facility is also home to our SharpCut(TM) tool regrinding service which began operations in September of 1995. We own the Winona building that formerly housed our manufacturing facility and are using it for our Winona store and for activities related to our operations departments. In the latter part of 1995 we began the expansion of our Winona warehouse and corporate offices. The expansion totals about 75,000 square feet. Included in the addition are facilities for a material composition laboratory and an interactive video training room. The addition is scheduled for completion in the summer of 1996. During 1995 we announced that Fastenal was studying the addition of an expanded product line of metal cutting tools, and new products lines of hydraulic hoses and pipe, and materials management systems. In January of 1996 we started selling both our regrinding service and the expanded line of cutting tools from certain of our existing Fastenal store sites. We hope to begin adding the other new product lines later in 1996. [Picture of hot heading machine with operator] (cont.) 3 PRESIDENT'S LETTER (CONT.) [Picture of computer numerically controlled metal cutting tool grinder with operator] We opened 6 new Fastenal stores in Canada during 1995, bringing our total of Canadian stores to 8. We continue to sell in Mexico from our United States stores located near the border, but we have no immediate plans to locate stores in Mexico. During 1995 we began a department specializing in marketing to national accounts. Our continental presence and our distribution system allow us to offer multi-plant customers the same service throughout the United States and Canada. We offer these customers uniform data processing, but individualized service at each of their locations from a nearby Fastenal store. Our fleet of trucks connect all of our distribution centers and our packaging center. Among the anecdotes I have collected during the year to show the level of service given by Fastenal people I would offer the following: A Fastenal employee who handled and satisfied the first request from a prospective customer ... for 1,000 plastic scouring pads. A Fastenal employee who, in a critical two day period, handled all of the logistics through two sub-assemblers of caster wheels to make our customer's delivery date. Our shipping people who responded to a common carrier's unwillingness to enter our drifted-in warehouse docks following a winter storm by using a tractor with a front bucket attachment to take the needed material to the common carrier. And finally, the Fastenal employee who on Friday, December 29, received a call at noon from a railroad maintenance crew who needed a large assortment of fasteners delivered the next morning to a train site 25 miles away. Several other suppliers had said they couldn't do it. Our employee filled the order that afternoon and evening and drove to the train at 3 a.m. on Saturday, December 30. That kind of service was a good way to end 1995 and lead us into 1996. Thank you for your continued belief in Fastenal. BOB KIERLIN 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Net sales for 1995 exceeded net sales for 1994 by 37.5%. This compares with a 46.8% net sales growth rate experienced from 1993 to 1994. The increase in net sales in 1995 and 1994 came primarily from new store openings and unit sales growth in existing stores, rather than price increases or the introduction of new products or services. The FastTool stores, a product line introduced in 1993, contributed less than 3% of total net sales in 1995 and less than 1% of total net sales in 1994. The lesser total growth rate in 1995 than in 1994 resulted primarily from the weaker U.S. economy in 1995, which affected unit sales growth in existing stores. Stores opened in 1995 contributed $8,600,000 (or 3.9%) to 1995 net sales. Stores opened in 1994 contributed $4,900,000 (or 3.0%) to 1994 net sales and $19,600,000 (or 8.8%) to 1995 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 1993 and 1994, and 65% of net sales in 1995. Gross profit as a percent of net sales was 53.4% in 1995, and 53.1% in both 1994 and 1993. The increase from 1994 to 1995 resulted primarily from lower costs on standard imported products handled through our import and packaging center in Memphis, Tennessee. This facility became operational in the fourth quarter of 1994. Operating and administrative expenses were 33.0% of net sales in 1995 after having been 34.0% of net sales in 1994 and 35.1% of net sales in 1993. Occupancy and distribution costs increased at a slower rate than net sales in both 1995 and 1994. The positive growth of the economy in both 1995 and 1994 increased net sales at a faster rate than the growth rate in the number of Company stores. Distribution costs benefited from productivity gains in both 1995 and 1994. Interest income minus interest expense decreased 52.5% between 1994 and 1995 primarily because of less investable cash during 1995. Interest income increased by 13% between 1993 and 1994 because of higher interest rates during 1994. The gains on the disposal of property and equipment in 1995 and 1994 came primarily from the disposal of used vehicles owned by the Company. The 1993 gain on the disposal of property and equipment came primarily from the disposal of warehouse racks. The 1995 gain was higher than the 1994 gain because the 1995 gain included the sale of depreciated semi-tractors along with pickup trucks while the 1994 gain was limited to pickup trucks. Net earnings grew 56.7% from 1993 to 1994, and 46.8% from 1994 to 1995. The growth in net earnings in all years resulted primarily from increased net sales. In both 1995 and 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 a positive growth of the economy in both 1994 and 1995, with 1994 being the stronger of the two years. EFFECTS OF INFLATION Inflation had little effect on the Company's operations in 1993, 1994 and 1995. The only pressure toward higher prices from the Company's suppliers occurred in the fourth quarter of 1994. Many of the price increases announced in that period were to take place in January of 1995; but a slowing economy in the first half of 1995 kept many of these increases from being implemented. 5 LIQUIDITY AND CAPITAL RESOURCES Working capital increased from $33,319,000 at December 31, 1993 to $45,341,000 at December 31, 1994, and to $66,100,000 at December 31, 1995. These increases came primarily from higher trade accounts receivable and inventory levels without comparable increases in current liabilities. Net cash provided by operating activities increased from $4,468,000 in 1993 to $11,284,000 in 1994, and to $14,945,000 in 1995. These increases came primarily because the growth in net earnings and depreciation charges for each year exceeded the growth in accounts receivable and inventories. Net cash used by investing activities increased from $3,239,000 in 1993 to $9,369,000 in 1994, and to $10,736,000 in 1995. The 1994 increase in net cash used by investing activities resulted primarily from an increase in purchases of property and equipment, and from higher purchases than sales of marketable securities. The 1995 increase in net cash used by investing activities resulted primarily from a further increase in purchases of property and equipment. This increase was partially offset with higher sales of marketable securities. Additions to property and equipment are expected to be the largest part of cash used by investing activities in 1996. The Company had no long-term debt at December 31, 1993, 1994, or 1995. The Company paid an annual dividend of $.015 per share in 1993, and $.02 per share in both 1994 and 1995. 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 1996 for this division, primarily for inventory. The Company began a SharpCut division in 1995. This division sells metal cutting tool blades and resharpens used blades. Additional expenditures of about $1,500,000 are expected for this division in 1996, with $500,000 of the amount for inventory and $1,000,000 for regrinding machinery. At December 31, 1995, the Company had outstanding commitments for capital expenditures of approximately $2,470,000. These commitments were to complete the construction of the Company's addition to its Winona warehouse and corporate offices. The Company expects to make approximately $12,500,000 in additional capital expenditures in 1996, consisting of approximately $4,000,000 for vehicles, approximately $3,500,000 for manufacturing and packaging equipment, approximately $2,500,000 for used buildings and approximately $2,500,000 for data processing equipment. In addition to opening new stores in the United States, the Company plans in 1996 to open between five and ten additional 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. [Picture of hydraulic bending machine with operator] 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 1995 and 1994. The Common Stock trading prices below have been retroactively adjusted for the 2-for-1 stock split declared on January 31, 1995. See Note 6 of the Notes to Financial Statements.
1995 HIGH LOW First Quarter $ 25 5/8 $ 19 7/8 Second Quarter 30 1/2 23 Third Quarter 38 27 Fourth Quarter 43 33 1/2 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
As of January 29, 1996, there were approximately 2,100 record holders of the Company's Common Stock. A $.02 annual dividend per share was paid during both 1994 and 1995. On January 26, 1996, the Company announced a $.02 annual dividend per share to be paid on March 15, 1996 to shareholders of record at the close of business on March 1, 1996. 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 6 of the Notes to Financial Statements. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
EARNINGS QUARTER NET SALES GROSS PROFIT NET EARNINGS PER SHARE 1995: First $ 51,091,000 $ 27,055,000 $ 6,084,000 $ .16 Second 55,475,000 29,429,000 6,720,000 .18 Third 57,993,000 31,021,000 7,386,000 .19 Fourth 57,996,000 31,439,000 7,221,000 .19 ------------ ------------ ----------- ----- $222,555,000 $118,944,000 $27,411,000 $ .72 ============ ============ =========== ===== 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 ============ ============ =========== =====
7 FASTENAL COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
ASSETS 1995 1994 Current assets: Cash and cash equivalents $ 6,583,000 $ 3,133,000 Trade accounts receivable, net of allowance for doubtful accounts of $460,000 and $300,000 as of December 31, 1995 and 1994, respectively 31,866,000 23,606,000 Inventories 40,178,000 30,911,000 Deferred income tax assets 947,000 729,000 Other current assets 1,523,000 1,108,000 ------------ ------------ Total current assets 81,097,000 59,487,000 Marketable securities 784,000 5,026,000 Property and equipment, less accumulated depreciation 27,090,000 16,988,000 Other assets, net 349,000 294,000 ------------ ------------ Total assets $109,320,000 $ 81,795,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,882,000 $ 7,814,000 Accrued expenses 4,974,000 4,146,000 Income taxes payable 2,141,000 2,186,000 ------------ ------------ Total current liabilities 14,997,000 14,146,000 ------------ ------------ 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 89,566,000 62,914,000 Translation adjustment (52,000) (11,000) Unrealized holding gains (losses) on marketable securities 6,000 (57,000) ------------ ------------ Total stockholders' equity 94,323,000 67,649,000 ------------ ------------ Total liabilities and stockholders' equity $109,320,000 $ 81,795,000 ============ ============
The accompanying notes are an integral part of the financial statements. 8 FASTENAL COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF EARNINGS Years ended December 31, 1995, 1994, and 1993
1995 1994 1993 Net sales $222,555,000 $161,886,000 $110,307,000 Cost of sales 103,611,000 75,959,000 51,755,000 ------------ ------------ ------------ Gross profit 118,944,000 85,927,000 58,552,000 Operating and administrative expenses 73,448,000 54,963,000 38,695,000 ------------ ------------ ------------ Operating income 45,496,000 30,964,000 19,857,000 ------------ ------------ ------------ Other income (expense): Interest income 181,000 238,000 210,000 Interest expense (68,000) 0 0 Gain on disposal of property and equipment 597,000 189,000 8,000 ------------ ------------ ------------ Total other income 710,000 427,000 218,000 ------------ ------------ ------------ Earnings before income taxes 46,206,000 31,391,000 20,075,000 Income tax expense 18,795,000 12,725,000 8,165,000 ------------ ------------ ------------ Net earnings $ 27,411,000 $ 18,666,000 $ 11,910,000 ============ ============ ============ Earnings per share $ .72 $ .49 $ .31 ============ ============ ============ 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 AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1995, 1994, and 1993
UNREALIZED HOLDING GAINS ADDITIONAL (LOSSES) ON TOTAL COMMON STOCK PAID-IN RETAINED TRANSLATION MARKETABLE STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SECURITIES EQUITY ------------ -------- ---------- -------- ----------- ----------- ------------- 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 Dividends paid in cash - - - (759,000) - - (759,000) Net earnings for the year - - - 27,411,000 - - 27,411,000 Translation adjustment - - - - (41,000) - (41,000) Unrealized holding gains on marketable securities - - - - - 63,000 63,000 ---------- -------- ---------- ----------- -------- ------- ----------- Balances as of December 31, 1995 37,938,688 $379,000 $4,424,000 $89,566,000 $(52,000) $ 6,000 $94,323,000 ========== ======== ========== =========== ======== ======= ===========
The accompanying notes are an integral part of the financial statements. 10 FASTENAL COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994, and 1993
1995 1994 1993 Cash flows from operating activities: Net earnings $27,411,000 $18,666,000 $11,910,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property and equipment 5,404,000 3,619,000 2,603,000 Gain on disposal of property and equipment (597,000) (189,000) (8,000) Deferred income taxes (218,000) (298,000) (99,000) Amortization of premium on marketable securities 36,000 53,000 53,000 Changes in operating assets and liabilities: Trade accounts receivable (8,260,000) (7,883,000) (5,020,000) Inventories (9,267,000) (8,677,000) (7,014,000) Other current assets (415,000) (499,000) (142,000) Accounts payable 68,000 3,450,000 1,353,000 Accrued expenses 828,000 1,541,000 747,000 Income taxes payable (45,000) 1,501,000 85,000 ------------ ----------- ----------- Net cash provided by operating activities 14,945,000 11,284,000 4,468,000 ------------ ----------- ----------- Cash flows from investing activities: Purchases of marketable securities - (2,266,000) (2,738,000) Sales of marketable securities 4,269,000 585,000 5,144,000 Additions of property and equipment, net (16,664,000) (8,129,000) (5,530,000) Proceeds from sale of property and equipment 1,755,000 450,000 8,000 Translation adjustment (41,000) (11,000) - Decrease (increase) in other assets (55,000) 2,000 (123,000) ------------ ----------- ----------- Net cash used by investing activities (10,736,000) (9,369,000) (3,239,000) ------------ ----------- ----------- Cash flows from financing activities: Payment of dividends (759,000) (758,000) (569,000) ------------ ----------- ----------- Net cash used in financing activities (759,000) (758,000) (569,000) ------------ ----------- ----------- Net increase in cash and cash equivalents 3,450,000 1,157,000 660,000 Cash and cash equivalents at beginning of year 3,133,000 1,976,000 1,316,000 ------------ ----------- ----------- Cash and cash equivalents at end of year $ 6,583,000 $ 3,133,000 $ 1,976,000 ============ =========== =========== Supplemental disclosure of cash flow information: Cash paid during each period for: Income taxes $ 19,057,000 $11,522,000 $ 8,179,000 ============ =========== =========== Interest $ 68,000 $ - $ - ============ =========== =========== Supplemental disclosure on non-cash investing activities: Unrealized holding gains (losses) on marketable securities $ 63,000 $ (57,000) $ - ============ =========== ===========
The accompanying notes are an integral part of the financial statements. 11 FASTENAL COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994, and 1993 (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. 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, 1995 and 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 as available-for-sale. Available-for-sale securities are recorded at fair value based on current market value. 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, provided that a decline in the market value of any available-for-sale 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 STOCK-BASED COMPENSATION The Company adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, in 1995. The Company does not have any stock options or any other types of stock-based compensation and, accordingly, adoption of this statement had no impact on the Company's financial position or results of operations. INCOME TAXES The Company accounts for income taxes under the asset and liability method. Under this method, 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. 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. EARNINGS PER SHARE Earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding. (2) MARKETABLE SECURITIES The amortized cost, unrealized holding gains (losses), and fair value of available-for-sale securities by major security type at December 31, 1995 and 1994 were as follows:
AMORTIZED UNREALIZED HOLDING FAIR COST GAINS (LOSSES) VALUE 1995 Available-for-sale debt securities $ 778,000 $ 6,000 $ 784,000 1994 Available-for-sale debt securities $5,083,000 $(57,000) $5,026,000
12 FASTENAL COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (3) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Accordingly, the aggregate fair value amounts presented as of December 31, 1995 do not represent the underlying value of the Company.
CARRYING FAIR AMOUNT VALUE Assets: Cash and cash equivalents $ 6,583,000 $ 6,583,000 Marketable securities 784,000 784,000 Trade accounts receivable 32,326,000 32,326,000 Liabilities: Accounts payable 7,882,000 7,882,000
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: CASH AND CASH EQUIVALENTS The carrying amount approximates fair value because of the short maturity of those instruments. MARKETABLE SECURITIES Fair values for all securities are based on quoted market prices, where available. If the quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. TRADE ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLE The carrying amount approximates fair value because of the short maturity of those instruments. (4) PROPERTY AND EQUIPMENT Property and equipment consist of the following:
1995 1994 Land $ 1,444,000 $ 994,000 Buildings and improvements 10,482,000 6,470,000 Equipment and shelving 19,063,000 12,538,000 Transportation equipment 10,078,000 7,015,000 Construction in progress 1,314,000 1,069,000 ----------- ----------- 42,381,000 28,086,000 Less accumulated depreciation 15,291,000 11,098,000 ----------- ----------- Net property and equipment $27,090,000 $16,988,000 =========== ===========
(5) ACCRUED EXPENSES Accrued expenses consist of the following:
1995 1994 Payroll and related taxes $1,846,000 $1,474,000 Bonuses 1,584,000 1,415,000 Commissions 688,000 653,000 Sales and real estate taxes 466,000 387,000 Other 390,000 217,000 ---------- ---------- $4,974,000 $4,146,000 ========== ==========
13 FASTENAL COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (6) 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 1995. DIVIDENDS On January 26, 1996, the Company's Board of Directors declared a dividend of $.02 per share of Common Stock to be paid in cash on March 15, 1996 to shareholders of record at the close of business on March 1, 1996. (7) INCOME TAXES Income tax expense in the accompanying consolidated financial statements differs from the "expected" tax expense as follows:
1995 1994 1993 Federal income tax expense at the "expected" rate of 35% $16,172,000 $10,987,000 $7,026,000 Increase (reduction) attributed to: State income taxes, net of Federal benefit 2,371,000 1,644,000 1,034,000 Tax exempt interest (46,000) (68,000) (74,000) Other, net 298,000 162,000 179,000 ----------- ----------- ---------- Total income tax expense $18,795,000 $12,725,000 $8,165,000 =========== =========== ==========
Components of income tax expense are as follows:
CURRENT DEFERRED TOTAL 1995 Federal $15,192,000 $(175,000) $15,017,000 State 3,821,000 (43,000) 3,778,000 ----------- --------- ----------- $19,013,000 $(218,000) $18,795,000 =========== ========= =========== 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 =========== ========= ===========
The tax effects of temporary differences that give rise to deferred tax assets as of December 31 are as follows:
1995 1994 Deferred tax assets: Inventory costing and valuation methods $705,000 $544,000 Allowance for doubtful accounts receivable 185,000 121,000 Health claims payable 63,000 59,000 Other, net (6,000) 5,000 -------- -------- Total deferred tax assets $947,000 $729,000 ======== ========
No valuation allowance for deferred tax assets was necessary as of December 31, 1995 and 1994. 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 AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (8) OPERATING LEASES The Company leases space under noncancellable operating leases for its Fresno 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 CENTERS, YEAR ENDING PACKAGING CENTER, AND DECEMBER 31 STORES 1996 $3,589,000 1997 2,429,000 1998 987,000 1999 134,000 2000 and thereafter -
Rent expense under all operating leases was as follows:
DISTRIBUTION YEAR ENDED CENTERS, PACKAGING TRANSPORTATION DECEMBER 31 CENTER, AND STORES EQUIPMENT TOTAL 1995 $4,003,000 $ - $4,003,000 1994 2,865,000 - 2,865,000 1993 2,175,000 137,000 2,312,000
(9) COMMITMENTS The Company is in the process of expanding its Winona warehouse facility and corporate offices. Building in progress construction costs of $449,000 incurred through December 31, 1995 relate to this expansion. During 1996, the Company anticipates $2,470,000 will be incurred to complete this project. The Company currently has letters of credit issued on its behalf to suppliers for large overseas purchases. As of December 31, 1995 and 1994, the total undrawn balance of outstanding letters of credit was $32,000 and $696,000, respectively. 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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Minneapolis, Minnesota January 29, 1996 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, Inc. (health club) STEPHEN M. SLAGGIE CORPORATE INFORMATION ANNUAL MEETING The annual meeting of shareholders will be held at 10:00 a.m., Tuesday, April 23, 1996, 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 URL http://fastenal.com TRANSFER AGENT Norwest Bank Minnesota, N.A. Minneapolis, Minnesota FORM 10-K A COPY OF THE COMPANY'S 1995 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 LLP Minneapolis, Minnesota Streater, Murphy, Gernander, Forsythe & Telstad, PA Winona, Minnesota FASTENAL COMPANY [FASTENAL(R) [FASTTOOL(R) LOGO] LOGO] [SHARPCUT(TM) [POWERFLOW(TM) LOGO] LOGO] Our Approach At Fastenal, we operate in an uncomplicated, straightforward way that makes it easy for our customer to gain confidence and satisfaction based on our performance. This concept, present when we opened our first Fastenal store in 1967, will remain unchanged. 2001 Theurer Boulevard ~ Winona, Minnesota 55987-1500 Phone: (507) 454-5374 ~ FAX: (507) 454-6542 URL: http://fastenal.com For More Information, E-Mail Us At: fastinfo@fastenal.com EX-27 3 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, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 6,583,000 0 32,326,000 460,000 40,178,000 81,097,000 42,381,000 15,291,000 109,320,000 14,997,000 0 379,000 0 0 93,944,000 109,320,000 222,555,000 222,555,000 103,611,000 103,611,000 0 520,000 68,000 46,206,000 18,795,000 27,411,000 0 0 0 27,411,000 .72 .72 Marketable securities in the amount of $784,000 have been classified as non-current assets on the Consolidated Balance Sheet of Fastenal Company and Subsidiary as of December 31, 1995.
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