10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000, or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 55987-1500 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (507) 454-5374 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Class Outstanding at October 15, 2000 ---------------------------- ------------------------------- Common Stock, $.01 par value 37,938,688 FASTENAL COMPANY INDEX
Page No. -------- Part I Financial Information: Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 1 Consolidated Statements of Earnings for the nine months and the three months ended September 30, 2000 and 1999 2 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 3 Notes to Consolidated Financial Statements 4 Management's discussion and analysis of financial condition and results of operations 5-8 Quantitative and qualitative disclosures about market risk 9 Part II Other Information: Exhibits and reports on Form 8-K 9
-1- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FASTENAL COMPANY AND SUBSIDIARIES Consolidated Balance Sheets (Amounts in thousands except share information) (Unaudited)
September 30, December 31, Assets 2000 1999 -------------------------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 23,918 27,849 Trade accounts receivable, net of allowance for doubtful accounts of $2,238 and $1,400, respectively 111,612 84,563 Inventories 134,380 106,597 Deferred income tax asset 2,886 2,886 Other current assets 10,593 5,510 -------------------------------------------------------------------------------------------------------------------------- Total current assets 283,389 227,405 Marketable securities 0 215 Property and equipment, less accumulated depreciation 101,815 87,630 Other assets, less accumulated amortization 3,266 3,371 -------------------------------------------------------------------------------------------------------------------------- Total assets $ 388,470 318,621 -------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity -------------------------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 25,305 19,325 Accrued expenses 13,746 11,785 Income taxes payable 3,244 2,551 -------------------------------------------------------------------------------------------------------------------------- Total current liabilities 42,295 33,661 -------------------------------------------------------------------------------------------------------------------------- Deferred income tax liability 5,000 3,000 -------------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock 0 0 Common stock, 50,000,000 shares authorized 37,938,688 shares issued and outstanding 379 379 Additional paid-in capital 4,424 4,424 Retained earnings 336,341 277,553 Accumulated other comprehensive gain (loss) 31 (396) -------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 341,175 281,960 -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 388,470 318,621 --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. -2- FASTENAL COMPANY AND SUBSIDIARIES Consolidated Statements of Earnings (Amounts in thousands except earnings per share.) (Unaudited)
Nine months ended Three months ended September 30, September 30, ------------------------------ ------------------------------ 2000 1999 2000 1999 --------------------------------------------------------------------------------------------- ------------------------------ Net sales $ 557,779 453,884 192,922 159,359 Cost of sales 267,470 215,814 92,462 76,112 --------------------------------------------------------------------------------------------- ------------------------------ Gross profit 290,309 238,070 100,460 83,247 Operating and administrative expenses 190,984 157,970 66,883 55,739 --------------------------------------------------------------------------------------------- ------------------------------ Operating income 99,325 80,100 33,577 27,508 Other income (expense): Interest income 1,464 309 335 199 Interest expense 0 (57) 0 0 (Loss) gain on disposal of property and equipment (151) 294 (32) 101 --------------------------------------------------------------------------------------------- ------------------------------ Total other income 1,313 546 303 300 --------------------------------------------------------------------------------------------- ------------------------------ Earnings before income taxes 100,638 80,646 33,880 27,808 Income tax expense 38,815 31,079 13,078 10,717 --------------------------------------------------------------------------------------------- ------------------------------ Net earnings $ 61,823 49,567 20,802 17,091 --------------------------------------------------------------------------------------------- ------------------------------ Basic and diluted earnings per share $ 1.63 1.31 0.55 0.45 --------------------------------------------------------------------------------------------- ------------------------------ Weighted average shares outstanding 37,939 37,939 37,939 37,939 --------------------------------------------------------------------------------------------- ------------------------------
The accompanying notes are an integral part of the consolidated financial statements. -3- FASTENAL COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited)
Nine months ended September 30, ----------------------------------- 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 61,823 49,567 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property and equipment 8,495 9,112 Loss (gain) on disposal of property and equipment 151 (294) Deferred income taxes 2,000 0 Amortization of goodwill and non-compete 165 165 Changes in operating assets and liabilities: Trade accounts receivable (27,049) (22,253) Inventories (27,783) (5,610) Other current assets (5,083) 819 Accounts payable 5,980 2,541 Accrued expenses 1,961 3,696 Income taxes payable 693 3,065 ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 21,353 40,808 ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Additions of property and equipment, net (28,796) (23,219) Proceeds from sale of property and equipment 5,965 9,880 Translation adjustment 427 290 Decrease in marketable securities 215 50 Increase in other assets (60) (61) ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (22,249) (13,060) ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net decrease in notes payable 0 (4,055) Payment of dividends (3,035) (1,517) ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (3,035) (5,572) ----------------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (3,931) 22,176 Cash and cash equivalents at beginning of period 27,849 2,086 ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 23,918 24,262 ----------------------------------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during each period for: Income taxes $ 59,130 27,381 ----------------------------------------------------------------------------------------------------------------------------------- Interest $ 0 87 -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. -4- FASTENAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (Unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements of Fastenal Company and subsidiaries (collectively referred to as the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, there has been no material change in the information disclosed in the notes to consolidated financial statements included in the Company's consolidated financial statements as of and for the year ended December 31, 1999. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. -5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial position and operating results during the periods included in the accompanying consolidated financial statements. (Dollar amounts are in thousands.) Nine months ended September 30, 2000 vs. 1999 --------------------------------------------- Net sales for the nine months ended September 30, 2000 were $557,779, an increase of 22.9% over net sales of $453,884 for the comparable period in 1999. The increase came primarily from higher unit sales. Higher unit sales resulted primarily from increases in sales at existing store sites. The increases in sales at existing store sites are due primarily to increases in market share and, to a lesser extent, the introduction of new product lines at the existing sites. Sites opened in 1998 or earlier had average sales increases of 18.7%. The remainder of the 22.9% sales growth came from store sites opened in 1999 and during the first nine months of 2000. The sales growth in the first nine months of 2000 allowed additional leverage on the infrastructure of the organization. This leverage was tempered somewhat by the impact of rising fuel costs. The impact was approximately $1,800 pretax (or $.03 per share after tax) of additional vehicle and freight costs. As we move into the final quarter of 2000, we will continue our planned investment in additional people and selling locations. Consistent with our discussion in prior quarters, the number of store openings is modified throughout the year based on current results and the strength of the industrial marketplace. As we discussed the last two quarters, in March we moved into our new distribution center in Indianapolis, Indiana. While the 400,000 square foot facility is larger than our current distribution needs, the property was purchased at a very competitive price and the extra space will allow us to explore the possibility of providing logistics services to other firms. Our Manufacturing Division began utilizing its expanded Winona plant during the first quarter of 2000. The expanded plant now consists of over 100,000 square feet and will allow the growing business to continue to provide high quality service to our customers. During the nine months ended September 30, 2000, 54 new sites were opened; one site opened as a satellite store and the 53 remaining sites opened as Fastenal(R) stores. During the first quarter of 2000 the Company converted two customer sites, which had originally been reported as a store, to in-plant status. The Company began, in 1999, to designate selling locations not selling to the general public as in-plant stores. The customer sites mentioned above were converted to have a consistent classification of all selling locations within the Company. -6- ITEM 2. (continued) The mix of sales during the first nine months of 2000 and 1999, from the original Fastenal(R) product line (which consists primarily of threaded fasteners) and from the newer product lines, was as follows:
2000 1999 ------------------------------------------------------------------------- Fastenal product line 64.9% 68.5% ------------------------------------------------------------------------- Newer product lines 35.1% 31.5% -------------------------------------------------------------------------
The newer product lines consist of and were introduced as follows: Product line Introduced ---------------------------------------------------- Tools 1993 ---------------------------------------------------- Cutting tools 1996 ---------------------------------------------------- Hydraulics & pneumatics 1996 ---------------------------------------------------- Material handling 1996 ---------------------------------------------------- Janitorial supplies 1996 ---------------------------------------------------- Electrical supplies 1997 ---------------------------------------------------- Welding supplies 1997 ---------------------------------------------------- Safety supplies 1999 ---------------------------------------------------- Net earnings for the nine months ended September 30, 2000 were $61,823, an increase of 24.7% over net earnings of $49,567 for the comparable period in 1999. Operating income grew 24.0% from 1999 to 2000, a rate of growth higher than the net sales rate of growth. The higher rate of growth in operating income occurred primarily because operating and administrative expenses increased at a 20.9% rate, a rate less than the net sales growth rate. The benefit of this leverage was partially offset by the decrease in the Company's gross profit percent, which was 52.0% in the first nine months of 2000 as compared to 52.5% in the first nine months of 1999. This decrease in the gross margin percent is primarily attributed to (1) the impact of higher fuel costs on our in-bound freight, (2) the success the Company has experienced in growing its larger account business over the last several years, which carries slightly lower gross margins, and (3) the impact of the change in the mix of products sold. Net earnings increased at a 24.7% rate, a rate greater than the operating income growth rate, primarily because the elimination of outstanding debt early in 1999 and the subsequent build-up of cash has caused the Company to have a growing amount of net interest income. The Company site personnel totaled 4,284 on September 30, 2000, an increase of 16.7% over the 3,670 on December 31, 1999. -7- ITEM 2. (continued) Three months ended September 30, 2000 vs. 1999 ---------------------------------------------- Net sales for the three months ended September 30, 2000 were $192,922, an increase of 21.1% over net sales of $159,359 for the comparable period in 1999. The increase came primarily from higher unit sales. Higher unit sales resulted primarily from increases in sales at existing store sites. The increases in sales at existing store sites are due primarily to increases in market share and, to a lesser extent, the introduction of new product lines at the existing sites. Sites opened in 1998 or earlier had average sales increases of 15.7%. The remainder of the 21.1% sales growth came from store sites opened in 1999 and during the first nine months of 2000. After a slow start at the beginning of July, the third quarter of 2000 finished with a solid August and September. Daily average sales growth rates, in 2000 versus 1999, were: July..21.1%, August..23.3% and September..24.5%. The slower start in July was primarily due to the July 4th holiday falling on a Tuesday. The one business day on Monday, July 3rd had sales about half of a normal day. The 24.5% daily growth rate in September represented the second highest daily rate gain since August 1998. The sales growth allowed additional leverage on the infrastructure of the organization during the quarter. Consistent with the first half of 2000, the leverage was tempered somewhat by the impact of rising fuel costs. The impact was approximately $600 pretax (or $.01 per share after tax) of additional vehicle and freight costs. During the three months ended September 30, 2000, 20 new sites were opened; all sites opened as Fastenal(R) stores. The mix of sales during the third quarter of 2000 and 1999, from the original Fastenal(R) product line (which consists primarily of threaded fasteners) and from the newer product lines, was as follows: 2000 1999 ---------------------------------------------------- Fastenal product line 63.1% 68.0% ---------------------------------------------------- Newer product lines 36.9% 32.0% ---------------------------------------------------- Net earnings for the three months ended September 30, 2000 were $20,802, an increase of 21.7% over net earnings of $17,091 for the comparable period in 1999. Operating income grew 22.1% from 1999 to 2000, a rate of growth higher than the net sales rate of growth. The higher rate of growth in operating income occurred primarily because operating and administrative expenses increased at a 20.0% rate, a rate less than the net sales growth rate. The benefit of this leverage was partially offset by the decrease in the Company's gross profit percent, which was 52.1% in the third quarter of 2000 as compared to 52.2% in the third quarter of 1999. Net earnings increased at a 21.7% rate, a rate less than the operating income growth rate, primarily because other income remained unchanged from the comparable period in 1999. -8- ITEM 2. (continued) Liquidity and Capital Resources ------------------------------- The higher level of sales during the nine-month period resulted in the growth of trade accounts receivable and inventories. Property and equipment increased because of: (1) the retrofitting of the Company's new distribution center in Indianapolis, which was originally purchased in October 1999, (2) the completion of the 50,000 square foot addition to the Company's manufacturing facility in Winona, Minnesota, (3) the purchase or construction of certain store locations, (4) the purchase of land for future distribution sites, (5) the purchase of software and hardware for the Company's information processing systems, (6) the addition of certain pickup trucks and (7) the addition of manufacturing and warehouse equipment. Cash requirements for these asset changes were satisfied from net earnings, cash on hand and the proceeds of asset disposals. Disposals of property and equipment related to the planned disposition of certain pickup trucks and semi-tractors and trailers in the normal course of business. As of September 30, 2000, the Company had no material outstanding commitments for capital expenditures. Certain Risks and Uncertainties ------------------------------- This discussion contains statements that are not historical in nature and that are intended to be, and are hereby identified as, "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, including statements regarding planned store openings and additions of new employees. The following factors are among those that could cause the Company's actual results to differ materially from those predicted in such forward-looking statements: (i) an upturn or downturn in the economy could impact sales at existing stores and the rates of new store openings and additions of new employees, (ii) a change, from that projected, in the number of smaller communities able to support future store sites could impact the rate of new store openings and additions of new employees, (iii) the ability of the Company to develop product expertise at the store level, to identify future product lines that complement existing product lines, to transport and store certain hazardous products and to otherwise integrate new product lines into the Company's existing stores and distribution network could impact sales and margins, (iv) the ability of the Company to successfully attract and retain qualified personnel to staff the Company's smaller community stores could impact sales at existing stores and the rate of new store openings, (v) changes in governmental regulations related to product quality or product source traceability could impact the cost to the Company of regulatory compliance, (vi) inclement weather could impact the Company's distribution network, (vii) foreign currency fluctuations or changes in trade relations could impact the ability of the Company to procure products overseas at competitive prices and the Company's foreign sales, (viii) disruptions caused by the implementation of the Company's new management information systems infrastructure could impact sales, (ix) unforeseen disruptions associated with "Year 2000 Computer Problems" could impact sales and the Company's ability to order and pay for product and (x) changes in the rate of new store openings could impact expenditures for computers and other capital equipment. -9- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks from changes in interest rates and foreign currency exchange rates. Changes in these factors cause fluctuations in the Company's earnings and cash flows. The Company evaluates and manages exposure to these market risks as follows: Interest Rates - The Company has a $15 million line of credit of which $0 was outstanding at September 30, 2000. The line bears interest at 0.9% over the LIBOR rate. Foreign Currency Exchange Rates - Foreign currency fluctuations can affect the Company's net investments and earnings denominated in foreign currencies. The Company's primary exchange rate exposure is with the Canadian dollar against the U.S. dollar. The Company's estimated net earnings exposure for foreign currency exchange rates was not material at September 30, 2000. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 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) 27 Financial Data Schedule (b) Reports on Form 8-K: No report on Form 8-K was filed by Fastenal Company during the quarter ended September 30, 2000. -10- SIGNATURES Pursuant to the requirements 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. FASTENAL COMPANY /s/ Robert A. Kierlin ------------------------------ (Robert A. Kierlin, President) (Duly Authorized Officer) Date October 20, 2000 /s/ Daniel L. Florness ---------------- ------------------------------- (Daniel L. Florness, Treasurer) (Principal Financial Officer) 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). 27 Financial Data Schedule............................Electronically Filed