-----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, Vm/y4i+Sj4ziYseQx5zQMGusZ/icCGXmVELTHR1aSyR6L5OzvRdBpq/AR2+HepAo bjdydLk+no5hmiWN37eOWw== 0001045969-01-000283.txt : 20010307 0001045969-01-000283.hdr.sgml : 20010307 ACCESSION NUMBER: 0001045969-01-000283 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010305 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-K SEC ACT: SEC FILE NUMBER: 000-16125 FILM NUMBER: 1561109 BUSINESS ADDRESS: STREET 1: 2001 THEURER BLVD CITY: WINONA STATE: MN ZIP: 55987 BUSINESS PHONE: 5074545374 10-K 1 0001.txt 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 For the fiscal year ended December 31, 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) 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. [ ] The aggregate market value of the Common Stock held by non-affiliates of the registrant as of February 21, 2001 was $1,657,177,034. For purposes of determining this number, all executive officers and directors of the registrant as of February 21, 2001 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 February 21, 2001, the registrant had 37,938,688 shares of Common Stock issued and outstanding. 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2000 are incorporated by reference in Part II. Portions of the registrant's Proxy Statement for the annual meeting of shareholders to be held April 17, 2001 are incorporated by reference in Part III. FORWARD LOOKING STATEMENTS This Form 10-K, including the sections in Part I hereof captioned "Item 1. Business - Development of the Business", "Item 1. Business - Products", "Item 1. Business - Manufacturing and Support Services Operations", and "Item 2. Properties", and the sections in Part II hereof captioned "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations", contains or incorporates by reference statements that are not historical in nature and that are intended to be, and are hereby identified as, "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding new store and distribution center openings, markets for new stores, expansion of foreign operations, technology conversions, introduction of new product lines, growth in manufacturing and support services, completion of construction of distribution centers, leasing of new stores, capital expenditures, funding of expansion plans, and dividends. A discussion of certain risks and uncertainties that could cause actual results to differ materially from those predicted in such forward- looking statements is included in the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2000 in the section thereof captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations", which section has been incorporated in this Form 10-K by reference. The registrant assumes no obligation to update either such forward-looking statements or the discussion of such risks and uncertainties. PART I ITEM 1. BUSINESS Fastenal Company ("Fastenal Company" and, together with its wholly owned subsidiaries, Fastenal Company Services, Fastenal Company Purchasing, Fastenal Company Leasing, Fastenal Canada Company, Fastenal Mexico, S. de R.L. de C.V., and Fastenal Mexico Services, S. de R.L. de C.V., collectively, "the Company") began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968. As of December 31, 2000, the Company had 897 store sites located in 48 states, Puerto Rico, and Canada and 4,356 people employed at these sites. Sixty- nine of these sites were satellite stores of an existing site. The Company sells industrial and construction supplies. These industrial and construction supplies are grouped into nine product lines described further below. The Company operated eleven distribution centers as of December 31, 2000 from which the Company distributes products to its store sites, and operates a facility in Memphis, Tennessee to receive and package goods coming from suppliers outside of the United States. 3 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 site in Winona, Minnesota, a city with a population of approximately 25,000. The following table shows the number of Company store sites during each of the last ten years and the related consolidated net sales for each year during that period:
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------- Number of store sites at year end/1/ 897 809 766 644 484 375 315 253 200 158 Net sales (in thousands) $ 745,740 609,186 503,100 397,992 287,691 222,555 161,886 110,307 81,263 62,305
/1/ During 2000 two "in-plant" sites, previously included in the store sites number, were reclassified to in-plant status. One of these "in-plant" sites opened in 1996 and the other opened in 1997. The store numbers above reflect the historical numbers and have not been reflected for the reclassification. As of December 31, 2000, the Company operated 897 store sites located in:
Alabama 16 Iowa 19 Nebraska 9 Rhode Island 3 Arizona 5 Kansas 19 Nevada 4 South Carolina 13 Arkansas 12 Kentucky 14 New Hampshire 9 South Dakota 6 California 39 Louisiana 13 New Jersey 10 Tennessee 20 Colorado 10 Maine 7 New Mexico 5 Texas 56 Connecticut 9 Maryland 9 New York 24 Utah 9 Delaware 3 Massachusetts 11 North Carolina 30 Vermont 3 Florida 22 Michigan 39 North Dakota 7 Virginia 21 Georgia 26 Minnesota 30 Ohio 47 Washington 20 Idaho 8 Mississippi 11 Oklahoma 14 West Virginia 10 Illinois 34 Missouri 17 Oregon 16 Wisconsin 39 Indiana 37 Montana 7 Pennsylvania 38 Wyoming 4 Puerto Rico 5 Canada 58
The Company has closed only four store sites in its history. 4 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 intends to continue opening new store sites and currently expects the rate of new store openings to be approximately 10 to 15% per year. The Company stocks all new stores with an inventory drawn from all of its product lines. Subsequent to a site's opening, the site personnel customize the inventory offering to that site's customer base. The Company has two types of stores: (1) the stand-alone store and (2) the satellite store. The stand-alone store is typically located in cities with a population in excess of 8,000. The Company believes approximately 1,000 markets in the United States and Canada (including those in which existing stand-alone stores are already located) has sufficient potential to justify this type of store. Many of the future potential markets for stand-alone stores are located in smaller communities. The second type, the satellite store, operates as a satellite of a stand-alone store. The satellite store is usually located within 30 miles of the stand-alone (mother) store and is typically managed by personnel at the mother store. The Company has satellite stores located in communities with a population as small as 2,000. In most cases, the Company was already doing business in this community from the mother store, but the addition of a physical presence in the community provided sales increases from that community. Of the 90 stores opened during 2000, three opened as satellite stores. Although the Company cannot be sure of the success of these stores, the Company believes that their success could lead to approximately 500 satellite store sites in the United States and Canada. Some of these satellite stores are expected to eventually become stand-alone stores. Of the 897 store sites operating at December 31, 2000, 828 stores were operating as stand-alone stores and 69 were operating as satellite stores. In addition to the stand-alone and satellite stores discussed above, the Company also operates "in-plant" sites. The "in-plant" site is a selling unit located in or near a customer's facility. These sites are not included in the store count numbers. The Company opened nine store sites in Canada in 1998, five in 1999, and eleven in 2000, and plans to open additional store sites in Canada in the future. The Company opened three store sites in Puerto Rico in 1998, none in 1999, and one in 2000, and plans to open additional store sites in Puerto Rico in the future. The stores in Canada and Puerto Rico contributed less than 5% of the Company's consolidated net sales in 2000. In 2000 the Company sold products into Mexico from its existing stores along the border between the United States and Mexico. The Company also established a Mexican subsidiary in 1998. This subsidiary employs sales personnel who sell directly into Mexico. During 2001 the Company intends to open a store site in Mexico. 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 the opening of new store sites, 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 12 months for a new store to achieve its first profitable month. Of the twelve stores opened in the first quarter of 2000, seven were profitable in the fourth quarter of 2000. 5 For 2000, annual sales volumes of store sites operating at least five years ranged between approximately $200,000 and $5,400,000, with 75% of these store sites having annual sales volumes within the range of approximately $500,000 to $1,900,000. The data in the following table shows the growth in the average sales of the Company's store sites from 1999 to 2000 based on each site's age. The store sites opened in 2000 contributed approximately $8.5 million (or approximately 1.1%) of the Company's consolidated net sales in 2000, with the remainder coming from store sites opened prior to 2000.
Number of store Age of store sites as of Year sites in group as of Average Average Percent December 31, 2000 Opened December 31, 2000 sales 1999 sales 2000 Change ----------------------------------------------------------------------------------------------------- 0-1 year old 2000 90 $ -- $ 95,000/1/ -- % 1-2 years old 1999 44 44,000/1/ 407,000 -- 2-3 years old 1998 121/2/ 393,000/2/ 554,000/2/ 41.0 3-4 years old 1997 159/3/ 470,000/3/ 613,000/3/ 30.4 4-5 years old 1996 108/3/ 603,000/3/ 742,000/3/ 23.1 5-6 years old 1995 60 666,000 800,000 20.1 6-7 years old 1994 62 678,000 799,000 17.8 7-8 years old 1993 53 836,000 942,000 12.7 8-9 years old 1992 42 1,007,000 1,199,000 19.1 9-10 years old 1991 32 1,102,000 1,197,000 8.6 10-11 years old 1990 28 1,361,000 1,518,000 11.5 11-14 years old 1987-1989 53 1,628,000 1,734,000 6.5 14+ years old 1967-1986 45 2,037,000 2,315,000 13.6
/1/ Average sales include sales of store sites open for less than the full fiscal year. /2/ During 1999 one store site in this group closed. The 1999 average reflects 121.5 store sites and the 2000 average reflects 121 store sites. /3/ During 2000 two "in-plant" sites, previously included in the store sites number, were reclassified to in-plant status. The new 1999 and 2000 averages reflect the number of store sites after giving effect to such reclassification. As of December 31, 2000, the Company operated distribution centers in or near Winona, Minnesota; Indianapolis, Indiana; Dallas, Texas; Atlanta, Georgia; Scranton, Pennsylvania; Fresno, California; Lakewood, Washington; Akron, Ohio; Salt Lake City, Utah; Winston-Salem, North Carolina; and Kansas City, Missouri. Distribution centers are located so as to permit twice-a-week to five times-a- week deliveries 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 also operates 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. The Company operates a central UNIX/terminal-based computer system allowing automatic data exchange between the stores and the distribution centers. The use of client/server technology allows the Company's network of UNIX-based machines to serve networked personal computers and workstations. The Company converted a portion of this central processing system in both 1999 and 2000 to a new computer software and operating system and plans to convert additional modules during 2001 and 2002. At the store level, the Company operates a proprietary point-of-sale system. This system operates on a Microsoft Windows NT system. 6 Trademarks The Company conducts its business in the United States, Canada, and Puerto Rico under various trademarks and service marks, including Fastenal(R), FastTool(R), SharpCut(R), EquipRite(R), CleanChoice(R), PowerPhase(TM) and FastArc(TM). Although the Company does not believe its operations are substantially dependent upon any of its trademarks or service marks, the Company considers its "Fastenal" name and other trademarks and service marks to be valuable to its business. Products The Company's original product offering in 1967 was fasteners and other industrial and construction supplies, many of which are sold under the Fastenal(R) product name. Today, this product line consists of approximately 68,000 different stock items. This product line 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 paints, various pins and machinery keys, concrete anchors, batteries, sealants, metal framing systems, wire rope, stainless strut, private label stud anchors, rivets, 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 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 51%, 51%, and 55% of the Company's consolidated net sales in 2000, 1999 and 1998, respectively. Concrete anchors make up the largest portion of the other supply items included in the Fastenal(R) product line. Most concrete anchors use threaded fasteners as part of the completed anchor assembly. During the 1990's, the Company added eight additional product lines. These product lines are sold through the same distribution channel as the original Fastenal(R) product line and include the following:
Approximate Year number of Private label Product line: introduced stock items product name - ------------------------------------------------------------------- Tools 1993 51,000 FastTool(R) Cutting Tools 1996 24,000 SharpCut(R) Hydraulics and Pneumatics 1996 23,000 Material Handling 1996 8,000 EquipRite(R) Janitorial Supplies 1996 4,000 CleanChoice(R) Electrical Supplies 1997 7,000 PowerPhase(TM) Welding Supplies/1/ 1997 7,000 FastArc(TM) Safety supplies 1999 3,000
/1/ Excluding gas and welding machines. The Company plans to add other industrial product lines in the future. 7 Inventory Control The Company controls inventory by using computer systems to determine desired stock levels. The data used for this purpose is derived from reports showing sales activity by stock item for the previous three years. Computers then convert this data to typical store maximum-minimum inventory levels for each stock 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 and Support Services Operations In 2000 approximately 95.3% of the Company's consolidated net sales were attributable to products manufactured by other companies to industry standards. The remaining amount of approximately 4.7% of the Company's consolidated net sales for 2000 related to products manufactured, modified or repaired by either the Company's Manufacturing Division or its Support Services. The manufactured products consist primarily of non-standard sizes of threaded fasteners made to customers' specifications. The services provided by the Support Services group include, but are not limited to, items such as tool repair, band saw blade welding and light manufacturing. The Company engages in these activities primarily as a service to its customers and expects these activities in the future to continue to contribute in the range of 5% to 10% of the Company's consolidated net sales. Sources of Supply The Company uses a large number of suppliers for the approximately 195,000 standard stock items it distributes. Most items distributed by the Company can be purchased from several sources, although preferred sourcing is used for some stock items to facilitate quality control. No single supplier accounted for more than 5.0% of the Company's purchases in 2000. 8 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, 2000, the Company's total number of active customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 120,000. During each of the three years ended December 31, 2000, 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 is 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, catalogs, and direct mailings. 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, while others rely on mail order or telemarketing sales. The Company, however, believes that the convenience provided to customers by actually operating a number of stores in smaller markets, each offering a wide variety 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 December 31, 2000, the Company employed a total of 6,477 full and part- time employees, 4,356 being store managers and store employees, and the balance being employed in the Company's distribution centers, packaging facility, manufacturing operations, service operations and home office. 9 The Company believes that the quality of its employees is critical to its ability to compete successfully in the markets it currently serves and to its ability to open new stores in new markets. The Company fosters the growth and education of skilled employees throughout the organization by operating training programs and by decentralizing decision making. Wherever possible, promotions are from within the Company. For example, most new store managers are promoted from an assistant manager's position at another store and district managers (who supervise a number of stores) are usually former store managers. The Company's sales personnel participate in incentive bonus arrangements that 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 six facilities in Winona, Minnesota. These facilities are as follows:
Approximate Purpose Square Feet - ------------------------------------------------------------------------------------------- Distribution center and home office 213,000 Manufacturing facility 100,000 Winona store and regional training center 13,000 Winona product support and support services 55,000 Rack and shelving storage 42,000 Multi-building complex which houses certain operations of its Manufacturing Division and its Support Services group 30,000
The Company also owns the following facilities, excluding store locations, outside of Winona, Minnesota:
Approximate Purpose Location Square Feet - --------------------------------------------------------------------------------------------- Distribution center Indianapolis, Indiana 414,000 Distribution center Indianapolis, Indiana 76,000 Distribution center Atlanta, Georgia 54,000 Distribution center Dallas, Texas 95,000 Distribution center Scranton, Pennsylvania 80,000/1/ Distribution center Akron, Ohio 102,000 Distribution center Kansas City, Kansas ------/2/
/1/ An 80,000 square foot addition to the Scranton, Pennsylvania distribution center is currently being built. The Company expects to complete construction late in the second quarter or early in the third quarter of 2001. /2/ A new distribution center in Kansas City is currently being built. The Company expects to complete construction in third quarter of 2001. 10 In addition, the Company owns 31 buildings that house the Company's store locations in various cities throughout the United States. 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 also leases the following distribution centers and packaging facility:
Approximate Lease Expiration Remaining Lease Renewal Purpose Location Square Feet Date Options - ------------------------------------------------------------------------------------------------------------------------ Distribution center Lakewood, Washington 40,000 February 2002 None Distribution center Fresno, California 52,500 February 2002 Three one-year periods/1/ Distribution center Salt Lake City, Utah 22,000 October 2002 None Distribution center Winston-Salem, North Carolina 58,400 October 2002 None Packaging facility Memphis, Tennessee 115,000 December 2001 None Distribution center Kansas City, Missouri 40,000 April 2001 One two-year period/1,2/
/1/ The lease renewals can be exercised at the Company's option. /2/ As previously discussed, the Company is currently in the process of building a new distribution center in Kansas City, Kansas. If economic conditions are suitable, the Company will, in the future, consider purchasing store sites to house its older stores. It is anticipated that all sites for new stores will continue to be leased. It is the Company's policy to negotiate relatively short lease terms to facilitate relocation of particular store operations if deemed desirable by 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. 11 ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Fastenal Company are:
Name Age Position - ------------------------------------------------------------------------------------------------------------- Robert A. Kierlin 61 Chairman of the Board, President, Chief Executive Officer and Director Willard D. Oberton 42 Executive Vice President, Chief Operating Officer and Director Nicholas J. Lundquist 43 Vice President of Sales Daniel L. Florness 37 Treasurer, Chief Financial Officer and Chief Accounting Officer Stephen M. Slaggie 61 Secretary and Director
Mr. Kierlin has been the Chairman of the Board, President and Chief Executive Officer of Fastenal Company and has served as a director of Fastenal Company since Fastenal Company's incorporation in 1968. Mr. Oberton has been the Executive Vice President and Chief Operating Officer of Fastenal Company since June 2000 and has served as a director of Fastenal Company since June 1999. From March 1997 through June 2000, Mr. Oberton held the position of Vice President and Chief Operating Officer of Fastenal Company. From June 1986 through March 1997, Mr. Oberton held the position of General Operations Manager of Fastenal Company. Mr. Lundquist has been Vice President of Sales of Fastenal Company since June 2000. From April 1997 through June 2000, Mr. Lundquist held the position of National Sales Manager of Fastenal Company. From January 1991 through March 1997, Mr. Lundquist was a Regional Manager of Fastenal Company. Mr. Florness has been the Treasurer, Chief Financial Officer and Chief Accounting Officer of Fastenal Company since June 1996. From January 1987 through May 1996, Mr. Florness was employed by KPMG LLP, a public accounting firm. Mr. Florness served in the capacity of senior manager from July 1992 through May 1996 with that firm. Mr. Slaggie has been the Secretary of Fastenal Company and has served as a director of Fastenal Company 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. From 1970 through June 1996, Mr. Slaggie also served as the Treasurer of Fastenal Company. The executive officers are elected by the Board of Directors, generally for a term of one year, and serve until their successors are elected and qualified. None of the above executive officers is related to any other such executive officer or to any other director of Fastenal Company. 12 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, 2000, Common Stock Data on page 8. ITEM 6. SELECTED FINANCIAL DATA Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 2000, Six-Year Selected Financial Data on page 4. 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, 2000, Management's Discussion & Analysis of Financial Condition & Results of Operations on pages 5-7. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 2000, Market Risk Management on page 7. 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, 2000, Selected Quarterly Financial Data (Unaudited) on page 8, and Consolidated Financial Statements, Notes to Consolidated Financial Statements, and Independent Auditors' Report on pages 9-19. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 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 and 5, and "Section 16(a) Beneficial Ownership Reporting Compliance", page 13, in Fastenal Company's Proxy Statement dated March 6, 2001. 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--Compensation of Directors", page 6, "Executive Compensation--Summary of Compensation", page 7, "Executive Compensation-- Option/SAR Grants", pages 8 and 9, and "Executive Compensation--Compensation Committee Interlocks and Insider Participation", page 9, in Fastenal Company's Proxy Statement dated March 6, 2001. 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 2-4, in Fastenal Company's Proxy Statement dated March 6, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 14 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, 2000 and 1999 Consolidated Statements of Earnings for the years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998 Notes to Consolidated Financial Statements Independent Auditors' Report (Incorporated by reference to pages 9-19 of Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 2000) 2. Financial Statement Schedules: Schedule II--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) 10.1 Description of bonus arrangement for Executive Vice President (incorporated by reference to Exhibit 10 to Fastenal Company's Form 10-K for the year ended December 31, 1997) 10.2 Description of bonus arrangement for Treasurer (incorporated by reference to Exhibit 10.2 to Fastenal Company's Form 10-K for the year ended December 31, 1998) 10.3 Description of bonus arrangement for Vice President of Sales 10.4 Fastenal Company and Subsidiaries Stock Appreciation Rights Plan 13 Annual Report to Shareholders for the fiscal year ended December 31, 2000 (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 year ended December 31, 1999) 23 Consent of KPMG LLP 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 Fastenal Company filed no reports on Form 8-K during the fourth quarter of the fiscal year ended December 31, 2000. 15 Independent Auditors' Report on Schedule The Board of Directors and Stockholders Fastenal Company: Under date of January 16, 2001 we reported on the consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000, as contained in the 2000 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 2000. 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 consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota January 16, 2001 16 FASTENAL COMPANY Schedule II--Valuation and Qualifying Accounts Years ended December 31, 2000, 1999, and 1998 "Additions" Balance at charged to Balance beginning costs and "Less" at end Description of year expenses deductions of year - -------------------------------------------------------------------------------- Year ended December 31, 2000 allowance for doubtful accounts $ 1,400,000 $ 4,496,000 $ 3,658,000 $ 2,238,000 Year ended December 31, 1999 allowance for doubtful accounts $ 740,000 $ 3,566,000 $ 2,906,000 $ 1,400,000 Year ended December 31, 1998 allowance for doubtful accounts $ 660,000 $ 3,493,000 $ 3,413,000 $ 740,000 17 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 5, 2001 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 date indicated. Date: March 5, 2001 By /s/Robert A. Kierlin By /s/Daniel L. Florness ----------------------------------- --------------------------------- Robert A. Kierlin, President Daniel L. Florness, Treasurer (Principal Executive Officer) and (Principal Financial Officer and Director Principal Accounting Officer) By /s/Stephen M. Slaggie By /s/Michael M. Gostomski ----------------------------------- --------------------------------- Stephen M. Slaggie, Director Michael M. Gostomski, Director By /s/Henry K. McConnon By /s/John D. Remick ----------------------------------- --------------------------------- Henry K. McConnon, Director John D. Remick, Director By /s/Robert A. Hansen By /s/Willard D. Oberton ----------------------------------- ------------------------------------- Robert A. Hansen, Director Willard D. Oberton, Director By /s/Reyne K. Wisecup By /s/Michael J. Dolan ----------------------------------- --------------------------------- Reyne K. Wisecup, Director Michael J. Dolan, Director 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). 10.1 Description of bonus arrangement for Executive Vice President (incorporated by reference to Exhibit 10 to Fastenal Company's Form 10-K for the year ended December 31, 1997) 10.2 Description of bonus arrangement for Treasurer (incorporated by reference to Exhibit 10.2 to Fastenal Company's Form 10-K for the year ended December 31, 1998) 10.3 Description of bonus arrangement for Vice President of Sales................................... Electronically Filed 10.4 Fastenal Company and Subsidiaries Stock Appreciation Rights Plan............................. Electronically Filed 13 Annual Report to Shareholders for the fiscal year ended December 31, 2000 (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 year ended December 31, 1999) 23 Consent of KPMG LLP.................................. Electronically Filed EX-10.3 2 0002.txt VICE PRESIDENT OF SALES BONUS ARRANGEMENT Exhibit 10.3 Vice President of Sales Bonus Arrangement Fastenal Company's Vice President of Sales is paid a bonus under an individual oral bonus arrangement. Under this arrangement, the bonus paid to the Vice President of Sales for any year is calculated based on the amount by which the Company's consolidated pre-tax income for such year exceeds the Company's consolidated pre-tax income for the prior year. EX-10.4 3 0003.txt FASTENAL COMPANY STOCK APPRECIATION RIGHTS PLAN Exhibit 10.4 FASTENAL COMPANY STOCK APPRECIATION RIGHTS PLAN This Plan is adopted and made by Fastenal Company, a Minnesota corporation with principal offices at Winona, Minnesota (the "Company"), for the benefit of certain employees of the Company and its subsidiaries. 1. Purpose. ------- The Fastenal Company Stock Appreciation Rights Plan (the "Plan") is intended to advance the interests of Fastenal Company (the "Company"), its shareholders, and its subsidiaries by permitting selected employees upon whose judgment, initiative and effort the Company is dependent for the successful conduct of its business, to benefit financially from appreciation in the value of the Company's stock. All Rights granted under the Plan and all payments made pursuant to the Plan are granted and made by the Company or the subsidiary employing the Participant. Rights granted under the Plan do not constitute stock or options to acquire stock, and payments made pursuant to the Plan constitute compensation from the Company to the Participant. 2. Definitions. ----------- (a) "Administrator" means the body administering the Plan. (b) "Board" means the Board of Directors of the Company. (c) "Company" means Fastenal Company, a Minnesota corporation, and any successor corporation. (d) "Common Stock" means the Company's $.01 par value Common Stock. (e) "Date of Grant" means the date on which a Right is granted under the Plan. (f) "Employee" means any person, including an officer of the Company (whether or not also a director thereof), who is employed by the Company or a Subsidiary on a full-time basis, who is compensated for such employment by a regular salary, and who, in the opinion of the Administrator, is one of the key personnel of the Company in a position to contribute materially to its continued growth and development and to its future financial success. The term does not include persons who are retained by the Company or a Subsidiary as consultants only. (g) "Participant" means a person to whom a Right, which has not expired, has been granted under the Plan. (h) "Right" means a Right granted under the Plan. (i) "Shares" shall mean shares of Common Stock, or such other securities or property as may become subject to Rights pursuant to an adjustment as provided under Section 6 of the Plan. (j) "Subsidiary" means a subsidiary corporation of the Company as defined in Section 424 of the Code. (k) "Successor" means the legal representative of the estate of a deceased Participant or the person or persons who acquire the right to receive a payment pursuant to a Right by bequest or inheritance or by reason of the death of any Participant. (l) "Unit" or "Rights Unit" shall mean the equivalent, for purposes of measuring payments to be earned by a participant, of one share of Common Stock. 3. Participants. ------------ All Employees shall be eligible to participate in the Plan, subject to any criteria, categories, or limitations that may be established by the Administrator from time to time. The Administrator shall have the sole right and authority under the Plan to determine participation, to grant Rights, and to specify the number of Units for each grant. 4. Grant of Rights. --------------- Rights shall be granted from time to time, beginning April 18, 2000, at the discretion of the Board, until the Plan is terminated as provided herein. 5. Terms and Conditions of Options. ------------------------------- All Rights granted under the Plan shall be evidenced by such writings and entries in records maintained by the Administrator and such acknowledgements by the Participant and shall be in such form as the Administrator may from time to time approve, and shall be upon the following terms and subject to the following limitations and conditions: (a) Base Price. The Base Price per Unit with respect to each Right shall ----------- be the greater of $55.00 per Share or the fair market value of a Share on the date of the grant or on a date specified by the Board at the time of the grant. For the purposes hereof, fair market value shall be determined: (i) in case the Common Stock shall not then be listed and traded upon a recognized securities exchange or the Nasdaq National Market System, upon the basis of the mean between the bid and asked quotations for such stock on the specified date (as reported by a recognized stock quotation service) or, in the event that there shall be no bid or asked quotations on the date of grant, then upon the basis of the mean between the bid and asked quotations on the date nearest preceding the specified date or (ii) in case the Common Stock shall then be listed and traded upon a recognized securities exchange or the Nasdaq National Market System, upon the basis of the mean between the highest and lowest selling prices at which Shares of the 2 Common Stock were traded on such recognized securities exchange or the Nasdaq National Market System on the specified date or, if the Common Stock was not traded on said date, upon the basis of the mean of such prices on the date nearest preceding the specified date. The Administrator shall determine and state the fair market value at the specified time, and such determination shall be binding upon the Participant and all other persons. (b) Exercise Price. The Exercise Price per Unit with respect to each -------------- Right shall be the greater of $55.00 per Share or the fair market value of a Share on the date of exercise. For the purposes hereof, fair market value shall be determined: (i) in case the Common Stock shall not then be listed and traded upon a recognized securities exchange or the Nasdaq National Market System, upon the basis of the mean between the bid and asked quotations for such stock on the date of exercise (as reported by a recognized stock quotation service) or, in the event that there shall be no bid or asked quotations on the date of exercise, then upon the basis of the mean between the bid and asked quotations on the date nearest preceding the date of exercise or (ii) in case the Common Stock shall then be listed and traded upon a recognized securities exchange or the Nasdaq National Market System, upon the basis of the mean between the highest and lowest selling prices at which Shares of the Common Stock were traded on such recognized securities exchange or the Nasdaq National Market System on the date of exercise or, if the Common Stock was not traded on said date, upon the basis of the mean of such prices on the date nearest preceding the date of exercise. The Administrator shall determine and state the fair market value at the time of exercise, and such determination shall be binding upon the Participant and all other persons. (c) Period of Rights. The period of each Right shall be specified by the ---------------- Board at the time of grant. (d) Exercise of Rights. Each Right shall be exercisable from time to time ------------------ during the six-month period ending on the date of expiration of such Right specified in subparagraph (c) above. (e) Manner of Exercise. Each exercise of a Right shall be in writing, in ------------------ such form as the Administrator may prescribe, delivered to the Administrator or its designee, specifying the number of Units exercised. (f) Payment Upon Exercise. Upon exercise of a Right, the Company or --------------------- Subsidiary employing the Participant shall pay to the Participant, in cash, an amount equal to the positive difference, if any, between the Base Price and the Exercise Price for each Unit exercised. (g) Termination of Employment. Upon termination of a Participant's ------------------------- employment with the Company or a Subsidiary, any outstanding Right shall terminate unless immediately exercisable by its terms at the date of such termination of employment, and any outstanding Right that is immediately exercisable by its terms at the date of such termination of employment shall expire unless exercised on or before the earlier of 90 days after the date of such termination of employment or the date of expiration of the Right specified in subparagraph (b) above. The granting of a Right to a Participant does not alter in any way the existing rights of the Company 3 and its Subsidiaries to terminate such person's employment at any time for any reason or for no reason, nor does it confer upon such person any rights or privileges except as specifically provided for in the Plan. (h) Death of Participant. If a Participant dies while in the employ of -------------------- the Company or any Subsidiary, any outstanding Right shall be exercisable by such Participant's Successor according to its terms. (i) Absence of Shareholder Rights. Neither a Participant nor a Successor ------------------------------ shall have any of the rights of a shareholder of the Company by virtue of the granting of Rights. (j) Nontransferability of Rights. No Right shall be transferable or ---------------------------- assignable by a Participant, otherwise than by will or the laws of descent and distribution, and each Right shall be exercisable, during the Participant's lifetime, only by the Participant. No Right shall be pledged or hypothecated in any way and no Right shall be subject to execution, attachment, or similar process. 6. Adjustments. ------------ (a) In the event that the outstanding Shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, stock split, combination of shares, or dividend or other distribution payable in capital stock, the Administrator shall make appropriate adjustment in the number and kind of Shares for which Rights may be granted under the Plan and in the Base Price per Unit with respect to such Rights. In addition, the Administrator shall make appropriate adjustment in the number and kind of Shares as to which outstanding Rights, or portions thereof then unexercised, shall be exercisable, to the end that the measuring price and value of the holder of the Right shall, to the extent practicable, be maintained as before the occurrence of such event. (b) In the event of the dissolution or liquidation of the Company, any Right granted under the Plan shall terminate as of a date to be fixed by the Administrator, provided that not less than 30 days written notice of the date so fixed shall be given to each Participant and each such Participant shall have the right during such period to exercise his Rights as to all or any part of the Units covered thereby including Units as to which such Right would not otherwise be exercisable by reason of an insufficient lapse of time. (c) In the event of a Reorganization (as hereinafter defined) in which the Company is not the surviving or acquiring company, or in which the Company is or becomes a wholly-owned subsidiary of another company after the effective date of the Reorganization, then (1) If there is no plan or agreement respecting the Reorganization ("Reorganization Agreement") or if the Reorganization Agreement does not specifically provide for the change, conversion, or exchange of the Units under outstanding and unexercised Rights 4 for similar rights with respect to securities of another corporation, then any Right granted under the Plan shall terminate as of a date to be fixed by the Administrator, provided that not less than 30 days written notice of the date so fixed shall be given to each Participant and each such Participant shall have the right during such period to exercise his Right as to all or any part of the Units covered thereby including Units as to which such Right would not otherwise be exercisable by reason of an insufficient lapse of time; or (2) If there is a Reorganization Agreement and if the Reorganization Agreement specifically provides for the change, conversion, or exchange of the Units under outstanding and unexercised Rights for similar rights with respect to securities of another corporation, then the Administrator shall make appropriate adjustment in the number and kind of Shares for which Rights may be granted under the Plan and in the Base price per Unit with respect to such Rights. In addition, the Administrator shall make appropriate adjustment in the number and kind of Shares as to which outstanding Rights, or portions thereof then unexercised, shall be exercisable, to the end that the measuring price and value of the holder of the Right shall, to the extent practicable, be maintained as before the occurrence of such event. The term "Reorganization" as used in this subparagraph (c) of this paragraph 6 shall mean any statutory merger, statutory consolidation, sale of all or substantially all of the assets of the Company, or sale, pursuant to an agreement with the Company, of securities of the Company pursuant to which the Company is or becomes a wholly-owned subsidiary of another company after the effective date of the Reorganization. (d) Adjustments and determinations under this paragraph 6 shall be made by the Administrator, and its decisions as to what adjustments or determinations shall be made, and the extent thereof, shall be final, binding, and conclusive. 7. Restrictions on Exercise of Rights. ---------------------------------- The exercise of each Option shall be subject to the condition that if at any time the Administrator shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the payment of compensation pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Administrator. 8. Administration of Plan. ---------------------- The Plan shall be administered by the Board or by a committee appointed by the Board (the "Administrator"). If the Plan is administered by a committee, it shall report all action taken by it to the Board. In administering the Plan, the Administrator shall be governed by and shall adhere to the provisions of the Plan, including any criteria for eligibility or participation established by 5 the Company from time to time. Subject to the foregoing, the Administrator shall determine the Employees who are to participate in the Plan, ascertain the number of Units for which each Participant is eligible, construe and interpret the Plan, and make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All such actions and determinations shall be conclusively binding for all purposes and upon all persons. 9. Amendment, Suspension, or Termination of Plan. --------------------------------------------- The Company may at any time suspend or terminate the Plan or may amend it from time to time in such respects as it may deem advisable in order that the Rights granted thereunder may conform to any changes in the law or in any other respect which it may deem to be in the best interests of the Company. No Right may be granted during any suspension or after the termination of the Plan. No amendment, suspension, or termination of the Plan shall, without a Participant's consent, alter or impair any of the rights or obligations under any Right theretofore granted to such Participant under the Plan. 10. Effective Date of Plan. ---------------------- The effective date of the Plan is April 18, 2000. Executed at Winona, Minnesota, this 18th day of April, 2000. ---- ----- FASTENAL COMPANY /s/ Robert A. Kierlin --------------------------------- Robert A. Kierlin, CEO 6 EX-13 4 0004.txt ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 [LOGO OF FASTENAL COMPANY] 2000 ANNUAL REPORT www.fastenal.com [DEPICTION OF THE EARTH] Servicing the World From Branches in the U.S., Canada, Puerto Rico and on the Web! 2000 | Profile of Fastenal Company Fastenal Company was founded in 1967. As of December 31, 2000, the Company operated 897 store sites located in 48 states, Puerto Rico and Canada and employed 4,356 people at these sites. In addition, there were 2,121 people employed in various support positions. The Company sells approximately 195,000 different types of industrial and construction supplies in nine product categories. These include approximately 68,000 different types of threaded fasteners and miscellaneous supplies; approximately 51,000 different types of tools; approximately 24,000 different types of metal cutting tool blades; approximately 23,000 different types of fluid transfer components and accessories for hydraulic and pneumatic power; approximately 8,000 different types of material handling and storage products; approximately 4,000 different types of janitorial and paper products; approximately 7,000 different types of electrical supplies; approximately 7,000 different types of welding supplies (excluding gas & welding machines) and approximately 3,000 different types of safety supplies. As of December 31, 2000, the Company also operated eleven distribution centers located in Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington, California, Utah, North Carolina and Missouri, and a packaging facility in Tennessee. Approximately 95.3% of the Company's 2000 sales were attributable to products manufactured by others, and approximately 4.7% related to items manufactured, modified or repaired by either the Company's Manufacturing Division or its Support Services. Since December 31, 2000, the Company has opened additional store sites. [PHOTO OF FASTENAL CORPORATE HEADQUARTERS IN WINONA, MINNESOTA] - -------------------------------------------------------------------------------- This Annual Report, including the sections captioned "President's Letter to Shareholders," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Stock and Financial Data," contains statements that are not historical in nature and that are intended to be, and are hereby identified as, "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), including statements regarding broadening of the Company's customer base into service accounts, growth in manufacturing operations, opening of new stores, additions of new employees, expansion of foreign operations, capital expenditures, funding of expansion plans, and dividends. A discussion of certain risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements is included in the section of this Annual Report captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company assumes no obligation to update either such forward-looking statements or the discussion of such risks and uncertainties. - -------------------------------------------------------------------------------- 2000 | Table of Contents [PHOTO OF BIG BLUE CATALOG] 2001 BIG BLUE CATALOG pages 2-3 PRESIDENT'S LETTER TO SHAREHOLDERS page 4 SIX-YEAR SELECTED FINANCIAL DATA pages 5-7 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS page 8 STOCK AND FINANCIAL DATA page 9 CONSOLIDATED BALANCE SHEETS page 10 CONSOLIDATED STATEMENTS OF EARNINGS 11 page CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY & COMPREHENSIVE INCOME 12 page CONSOLIDATED STATEMENTS OF CASH FLOWS 13 -18 pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19 page INDEPENDENT AUDITORS' REPORT 20 page OFFICERS & DIRECTORS CORPORATE INFORMATION [PHOTO OF FASTENAL'S COMPANY WEBSITE] FASTENAL COMPANY'S WEBSITE www.fastenal.com - -------------------------------------------------------------------------------- 2000 Annual Report 1 2000 | President's Letter to Shareholders For Fastenal, the year 2000 was a good one, but not a spectacular one. Our net sales growth of 22.4% over our 1999 sales was better than the 21.1% growth we experienced in 1999, but below our historical growth rates. Once again, the overall economy created the background that influenced our performance. The slowing of the US economy in the second half of the year 2000 particularly impacted our main customer base of manufacturers. Over 95% of our sales are within the USA, and the majority of these sales are to manufacturers. Manufacturers use our products either as a component of what they make or in the maintenance of their facilities. The strong dollar throughout the year and high natural gas prices in the second half of the year created a difficult environment for US industrial firms. The service economy and the construction market remained strong in the year 2000. Going forward, we believe the growth of our product lines will allow us to broaden our customer base into service accounts. The percentage of our sales coming from fasteners has declined in each of the last four years, while products such as safety and janitorial supplies have increased as a percentage of sales. By placing more emphasis on our newer product lines we are able to grow our total sales at a faster rate than we open new stores. We grew our store count from 809 at the start of the year to 897 at the end of the year. Our older stores continue to see much of their growth coming from sales of products other than fasteners. Our growth in employees also was consistent with emphasizing the growth of newer product lines in existing stores. We finished the year 2000 with 4,356 branch store employees, an 18.7% increase over the 3,670 at the start of the year. The majority of these people were added to existing stores. The number of our support people grew from 1,823 at the start of the year to 2,121 at the end of the year, an increase of 16.3%. With overall selling price increases in 2000 estimated at about 2%, our net sales increase of 22.4% for the year suggests that we experienced some productivity gains throughout the Company. Fastenal has its own distribution capability including distribution centers, connecting truck routes and local delivery services. In July we began offering our logistics services to other firms. In the second half of the year we generated approximately $500,000 in sales for logistics services such as warehousing, material management, transportation and brokerage of freight. At year end, ten people were involved in this new part of our business. In the year 2000 we began operating our second manufacturing facility. Prior to this year, all of the special fasteners we made were manufactured in our Winona facility. We now have a machining capability in our Fresno, California distribution center. We plan on adding this capability at some of our other distribution centers during 2001. During the year 2000 we continued evolving our decentralization program. Several years ago all of our regional managers resided in Winona and our distribution centers reported back to a national distribution manager in Winona. By the end of 2000, most of our regional managers resided within the regions they managed and they had responsibility for the distribution centers within those regions. We want all decisions to be made as close to the customer as possible. - -------------------------------------------------------------------------------- 2 2000 Annual Report 2000 | President's Letter to Shareholders continued Our sales development effort in 2000 included an emphasis on securing key accounts. These accounts are defined as large customers with annual sales potential of at least $3 million each. In 1999 we had three accounts at this level, but in 2000 we had ten such accounts that contributed over $50 million to our total sales. During 2000 our technology people developed "FastNet", an internal web site that serves as a repository for all Company information for the use of Fastenal employees. This site contains a wealth of Company information such as job postings, product information, price changes, links to suppliers and a listing of all non-standard parts located within Fastenal. In June of 2000 we increased the size of our Board of Directors from seven to nine with the additions of Michael J. Dolan and Reyne K. Wisecup. With these two new directors, we believe we have a strong board that will oversee our future growth. Looking forward, our intention is to continue to grow through customer service. Subject to general economic conditions, we will continue to add more stores and employees throughout 2001. We ended the year debt free, with enough cash to finance our continued expansion. We thank you for your belief in us and we promise to work for the continued success of Fastenal. /s/ Robert A Kierlin January 16, 2001 [PHOTO OF UNITED STATES AND FASTENAL COMPANY TRUCK] - -------------------------------------------------------------------------------- 2000 Annual Report 3 2000 | Six-Year Selected Financial Data (AMOUNTS IN THOUSANDS EXCEPT EARNINGS AND DIVIDENDS PER SHARE INFORMATION.) 6-Year
Operating Results Percent Years Ended Dec. 31 2000 Change 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Net sales $745,740 +22.4% $609,186 503,100 397,992 287,691 222,555 Gross profit 388,560 +21.7% 319,266 264,280 208,929 152,880 118,944 Earnings before income taxes 131,430 +23.4% 106,479 86,123 67,336 54,432 46,206 Net earnings 80,730 +23.3% 65,455 52,953 40,834 32,539 27,411 Basic and diluted earnings per share 2.13 +23.3% 1.73 1.40 1.08 .86 .72 Dividends per share $ .08 +100% $ .04 .02 .02 .02 .02 Weighted average shares outstanding 37,939 - 37,939 37,939 37,939 37,939 37,939 Financial Position December 31 - ---------------------------------------------------------------------------------------------------------------- Net working capital $256,845 +32.6% $193,744 142,459 106,555 78,417 66,100 Total assets 402,464 +26.3% 318,621 251,234 205,137 151,545 109,320 Total stockholders' equity $359,258 +27.4% $281,960 217,646 165,872 125,967 94,323
All information contained in this Annual Report reflects the 2-for-1 stock split effected in the form of a 100% stock dividend in 1995. - -------------------------------------------------------------------------------- 4 2000 Annual Report 2000 | Management's Discussion & Analysis of Financial Condition & Results of Operations (AMOUNTS IN THOUSANDS EXCEPT PERSONNEL COUNTS AND DIVIDENDS PER SHARE.) Results of Operations Net sales for 2000 exceeded net sales for 1999 by 22.4%. This compares with a 21.1% net sales growth rate experienced from 1998 to 1999. The increase in net sales in 2000 came primarily from new site openings, unit sales growth in existing sites and growth in the newer product lines. This growth was tempered by a deflationary impact to pricing in the first half of the year. The increase in net sales in 1999 came primarily from new site openings, unit sales growth in existing sites, and growth in the newer product lines. The growth in 1999 was also tempered by a slight deflationary impact to pricing. The following tables indicate: (1) sales from the Fastenal product line and from the newer product lines, and (2) product lines added to the original fastener product line and the year of introduction. 2000 1999 - -------------------------------------------------------------------------------- Fastenal Product Line 64.5% 68.3% - -------------------------------------------------------------------------------- Newer Product Lines 35.5% 31.7% - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Threaded fasteners accounted for approximately 51%, 51% and 55% of the Company's consolidated sales in 2000, 1999 and 1998, respectively. Sites opened in 2000 contributed approximately $8,500 (or 1.1%) to 2000 net sales. Sites opened in 1999 contributed approximately $17,900 (or 2.4%) to 2000 net sales and approximately $1,900 (or 0.3%) to 1999 net sales. The rate of growth in sales of sites generally levels off after sites have been open for five years, and the sales of older sites typically vary more with the economy than the sales of younger sites. Gross profit as a percent of net sales was 52.1% in 2000, 52.4% in 1999 and 52.5% in 1998. The fluctuations resulted primarily from changes in the mix of products being sold. Operating and administrative expenses were 34.7% of net sales in 2000 after having been 35.1% of net sales in 1999 and 35.2% of net sales in 1998. The fluctuations in operating and administrative costs were primarily due to changes in payroll and related costs and changes in occupancy costs. In both 2000 and 1999, payroll and related costs increased at a rate which was less than the rate of increase in net sales. The increases in payroll and related costs were due to the following increases in employees: 2000 1999 - -------------------------------------------------------------------------------- Sales Personnel 18.7% 21.3% - -------------------------------------------------------------------------------- Support Personnel 16.3% 19.6% - -------------------------------------------------------------------------------- In 2000 and 1999, the rate of increase in occupancy costs was less than the rate of increase in net sales. Occupancy costs increased in both years due to an 11.1% and a 5.6% increase in the number of sites in 2000 and 1999, respectively, and due to the relocation of existing stores to larger sites to accommodate their growth in activity and the introduction of new product lines. This reduction, from the 30% historical annual store growth rate, was due to a shift of emphasis, which began in 1999, from new store openings to growth of existing stores. Distribution costs benefited from productivity gains in both 2000 and 1999. Net interest income/expense in 2000 improved $1,458 over 1999. Net interest income/expense in 1999 increased $1,626 over 1998. Changes were due to the fluctuations in the weighted average amount of outstanding Company borrowings and investments. The loss/gains on disposal of property and equipment in 2000, 1999 and 1998 came primarily from the disposal of used vehicles. Net earnings grew 23.3% from 1999 to 2000 and 23.6% from 1998 to 1999. The growth in net earnings in both years resulted primarily from increased net sales. In 2000 and 1999 the net earnings growth rate was higher than that of net sales because of the earlier mentioned impact of payroll and related costs and occupancy costs. - -------------------------------------------------------------------------------- 2000 Annual Report 5 2000 | Management's Discussion & Analysis of Financial Condition & Results of Operations (AMOUNTS IN THOUSANDS EXCEPT PERSONNEL COUNTS AND DIVIDENDS PER SHARE.) The Asian economic turmoil impacted the Company in several ways during 2000 and 1999. During 1999, the Company experienced lower prices on low-carbon and stainless steel fasteners imported from the Far East when compared to most of 1998. To the extent the Company was able to retain the cost advantage, gross margins improved. However, these lower costs also affected net sales because some of the lower costs were passed on to customers in the competitive marketplace. During the winter of 1999/2000 this trend began to reverse itself and prices began to increase. To the extent the Company was able to pass on these increases, gross margins were not impacted. However, during the second quarter of 2000 the Company did experience a reduction in the gross margin percentage. This trend was reversed in the third and fourth quarters of 2000. In 2000 and 1999 the Company also experienced lower net sales of products to customers who export to the Far East when compared to sales levels to these customers in most of 1998. In addition to the impacts of the Far East situation, 2000 and 1999 showed a continuation of the slowdown in the manufacturing activity of customers we sell to in the U.S. and Canada. Effects of Inflation Price deflation related to certain products negatively impacted net sales in 2000, 1999 and 1998. Liquidity and Capital Resources Net cash provided by operating activities was: 2000 $ 38,253 - ------------------------------------------------------ 1999 $ 55,989 - ------------------------------------------------------ 1998 $ 43,316 - ------------------------------------------------------ The 2000 decrease was primarily due to the 34.2% increase in inventory levels. The 1999 increase was primarily from the growth in net earnings, depreciation and accounts payable exceeding the growth in accounts receivable and inventory. Net cash used in investing activities was: 2000 $ 30,360 - ------------------------------------------------------ 1999 $ 24,654 - ------------------------------------------------------ 1998 $ 28,609 - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ The 2000 increase in net cash used in investing activities resulted primarily from a decrease in the proceeds from sale of property and equipment. This decrease is directly related to the migration of our vehicles from owned to leased in 1999 and 2000. The 1999 decrease in net cash used in investing activities resulted primarily from an increase in proceeds from the disposal of vehicles and the increase in the leasing of branch vehicles and distribution semi-tractors. This decrease was partially offset by the purchase of a new distribution center in Indiana, additions to several other distribution centers, and the addition to the Minnesota manufacturing facility. The Company had no long-term debt at December 31, 2000, 1999, or 1998. See note 8 of the Notes to Consolidated Financial Statements for a description of the Company's current line of credit. The Company paid an annual dividend of $.08 per share in 2000, $.04 per share in 1999 and $.02 per share in 1998. As of December 31, 2000, the Company had no material outstanding commitments for capital expenditures. The Company expects to make approximately $40,000 in total capital expenditures in 2001, consisting of approximately $21,200 for manufacturing, warehouse and packaging equipment and facilities, approximately $10,000 for data processing equipment, and approximately $8,800 for vehicles. The capital expenditures for vehicles, which represented a substantial portion of the total amount in prior years, represented a smaller portion in both 2000 and 1999. This decrease, from earlier years, is a direct result of increases in the number of vehicles leased as opposed to owned. We expect this to recur in 2001. Management anticipates funding its current expansion plans with cash generated from operations, from available cash and cash equivalents, and, to a lesser degree, from its borrowing capacity. In addition to opening new sites in the United States, the Company plans to continue opening additional sites in Canada and Puerto Rico and to continue expanding operations in Mexico. - -------------------------------------------------------------------------------- 6 2000 Annual Report 2000 | Management's Discussion & Analysis of Financial Condition & Results of Operations (AMOUNTS IN THOUSANDS EXCEPT PERSONNEL COUNTS AND DIVIDENDS PER SHARE.) Market Risk Management 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 $15,000 line of credit of which $0 was outstanding at December 31, 2000. The line bears interest at .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 December 31, 2000. Certain Risks and Uncertainties Certain statements in this Annual Report, in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases and in oral statements made by or with approval of the Company's executive officers constitute or will constitute "forward-looking statements" under the Reform Act. 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 rates 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 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, changes in trade relations, or fluctuations in the relative strength of foreign economies could impact the ability of the Company to procure products overseas at competitive prices and the Company's sales, (viii) disruptions caused by the implementation of the Company's new management information systems infrastructure could impact sales, and (ix) changes in the rate of new store openings could impact expenditures for computers and other capital equipment. New Accounting Pronouncements During 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards for recognizing all derivatives as either assets or liabilities, and measuring those instruments at fair value. The new standard will be effective for the Company in the first quarter of 2001. The adoption of SFAS 133 will not have a significant impact on the Company's financial condition or results of operations. - -------------------------------------------------------------------------------- 2000 Annual Report 7 2000 | Stock & 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, by quarter, the high and low closing sale price of the Company's shares on The Nasdaq Stock Market for 2000 and 1999. --------------------------------------------- 2000: High Low First quarter $ 49 3/4 35 11/16 --------------------------------------------- Second quarter 73 5/16 45 1/4 --------------------------------------------- Third quarter 68 7/8 51 1/16 --------------------------------------------- Fourth quarter 62 3/4 45 1/8 --------------------------------------------- --------------------------------------------- 1999: High Low First quarter $ 45 3/8 33 5/8 --------------------------------------------- Second quarter 54 1/2 34 --------------------------------------------- Third quarter 60 9/16 45 13/16 --------------------------------------------- Fourth quarter 49 15/16 34 --------------------------------------------- As of February 16, 2001, there were approximately 2,400 recordholders of the Company's Common Stock. An $.08 annual dividend per share was paid in 2000 and a $.04 annual dividend per share was paid in 1999. On January 16, 2001, the Company announced a $.09 annual dividend per share to be paid on March 9, 2001 to shareholders of record at the close of business on February 23, 2001. 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. Selected Quarterly Financial Data (Unaudited) (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- 2000: Net sales Gross profit Net earnings Earnings per share First quarter $ 176,268 92,187 20,046 .53 - -------------------------------------------------------------------------------- Second quarter 188,589 97,662 20,975 .55 - -------------------------------------------------------------------------------- Third quarter 192,922 100,460 20,802 .55 - -------------------------------------------------------------------------------- Fourth quarter 187,961 98,251 18,907 .50 - -------------------------------------------------------------------------------- Total $ 745,740 388,560 80,730 2.13 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1999: Net sales Gross profit Net earnings Earnings per share First quarter $ 140,634 73,789 15,415 .41 - -------------------------------------------------------------------------------- Second quarter 153,891 81,034 17,062 .45 - -------------------------------------------------------------------------------- Third quarter 159,359 83,247 17,091 .45 - -------------------------------------------------------------------------------- Fourth quarter 155,302 81,196 15,887 .42 - -------------------------------------------------------------------------------- Total $ 609,186 319,266 65,455 1.73 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8 2000 Annual Report 2000 | Consolidated Balance Sheets DECEMBER 31, 2000 & 1999 (AMOUNTS IN THOUSANDS EXCEPT SHARE INFORMATION.)
2000 1999 Assets Current assets: Cash and cash equivalents $ 32,707 27,849 Trade accounts receivable, net of allowance for doubtful accounts of $2,238 and $1,400, respectively 106,120 84,563 Inventories 143,068 106,597 Deferred income tax asset 4,060 2,886 Other current assets 7,469 5,510 ----------------------------- Total current assets 293,424 227,405 Marketable securities -- 215 Property and equipment, less accumulated depreciation 105,807 87,630 Other assets, net 3,233 3,371 ----------------------------- Total assets $ 402,464 318,621 ----------------------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 19,898 19,325 Accrued expenses 13,502 11,785 Income tax payable 3,179 2,551 ----------------------------- Total current liabilities 36,579 33,661 ----------------------------- Deferred income tax liability 6,627 3,000 ----------------------------- Stockholders' equity: Preferred stock -- -- Common stock, 50,000,000 shares authorized 37,938,688 shares issued 379 379 Additional paid-in capital 4,424 4,424 Retained earnings 355,248 277,553 Accumulated other comprehensive loss (793) (396) ----------------------------- Total stockholders' equity 359,258 281,960 Commitments (notes 4, 7, and 8) ----------------------------- Total liabilities and stockholders' equity $ 402,464 318,621 -----------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 2000 Annual Report 9 2000 | Consolidated Statements of Earnings (AMOUNTS IN THOUSANDS EXCEPT EARNINGS PER SHARE.) YEARS ENDED DECEMBER 31, 2000, 1999 & 1998
2000 1999 1998 Net sales $ 745,740 609,186 503,100 Cost of sales 357,180 289,920 238,820 --------------------------------------------- Gross profit 388,560 319,266 264,280 Operating and administrative expenses 259,003 213,580 177,180 --------------------------------------------- Operating income 129,557 105,686 87,100 Other income (expense): Interest income 2,035 634 4 Interest expense -- (57) (1,053) (Loss) gain on disposal of property and equipment (162) 216 72 --------------------------------------------- Total other income (expense) 1,873 793 (977) --------------------------------------------- Earnings before income taxes 131,430 106,479 86,123 Income tax expense 50,700 41,024 33,170 Net earnings $ 80,730 65,455 52,953 --------------------------------------------- Basic and diluted earnings per share $ 2.13 1.73 1.40 --------------------------------------------- Weighted average shares outstanding 37,939 37,939 37,939 ---------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 10 2000 Annual Report 2000 | Consolidated Statements of Stockholders' Equity & Comprehensive Income (AMOUNTS IN THOUSANDS.) YEARS ENDED DECEMBER 31, 2000, 1999 & 1998
Accumulated Common Stock Additional Other Total ----------------------- Paid-in Retained Comprehensive Stockholders' Shares Amount Capital Earnings Income (Loss) Equity - ------------------------------------------------------------------------------------------------------------------ Balances as of December 31, 1997 37,939 $ 379 4,424 161,421 (352) 165,872 Dividends paid in cash -- -- -- (759) -- (759) Net earnings for the year -- -- -- 52,953 -- 52,953 Translation adjustment -- -- -- -- (420) (420) ------------ Total comprehensive income 52,533 - ------------------------------------------------------------------------------------------------------------------ Balances as of December 31, 1998 37,939 $ 379 4,424 213,615 (772) 217,646 Dividends paid in cash -- -- -- (1,517) -- (1,517) Net earnings for the year -- -- -- 65,455 -- 65,455 Translation adjustment -- -- -- -- 376 376 ------------ Total comprehensive income 65,831 - ------------------------------------------------------------------------------------------------------------------ Balances as of December 31, 1999 37,939 $ 379 4,424 277,553 (396) 281,960 Dividends paid in cash -- -- -- (3,035) -- (3,035) Net earnings for the year -- -- -- 80,730 -- 80,730 Translation adjustment -- -- -- -- (397) (397) ------------ Total comprehensive income 80,333 - ------------------------------------------------------------------------------------------------------------------ Balances as of December 31, 2000 37,939 $ 379 4,424 355,248 (793) 359,258 - ------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 2000 Annual Report 11 2000 | Consolidated Statements of Cash Flows (AMOUNTS IN THOUSANDS.) YEARS ENDED DECEMBER 31, 2000, 1999 & 1998
2000 1999 1998 - ------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 80,730 65,455 52,953 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property and equipment 11,757 11,777 11,040 Loss (gain) on disposal of property and equipment 162 (216) (72) Deferred income taxes 2,453 (354) 410 Amortization of goodwill and non-compete agreement 220 220 220 Changes in operating assets and liabilities: Trade accounts receivable (21,557) (16,065) (10,956) Inventories (36,471) (12,863) (14,319) Other current assets (1,959) 1,127 (1,400) Accounts payable 573 1,914 4,461 Accrued expenses 1,717 2,786 1,685 Income taxes payable 628 2,208 (706) ------------------------------------------- Net cash provided by operating activities 38,253 55,989 43,316 ------------------------------------------- Cash flows from investing activities: Sales of marketable securities 215 50 -- Additions of property and equipment (36,729) (39,176) (37,232) Proceeds from sale of property and equipment 6,633 14,197 9,136 Translation adjustment (397) 376 (420) Increase in other assets (82) (101) (93) ------------------------------------------- Net cash used in investing activities (30,360) (24,654) (28,609) ------------------------------------------- Cash flows from financing activities: Net decrease in line of credit -- (4,055) (12,030) Payment of note payable -- -- (218) Payment of dividends (3,035) (1,517) (759) ------------------------------------------- Net cash used in financing activities (3,035) (5,572) (13,007) ------------------------------------------- Net increase in cash and cash equivalents 4,858 25,763 1,700 Cash and cash equivalents at beginning of year 27,849 2,086 386 ------------------------------------------- Cash and cash equivalents at end of year $ 32,707 27,849 2,086 ------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during each year for: Income taxes $ 50,072 38,183 34,100 Interest $ -- 87 1,073
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 12 2000 Annual Report 2000 | Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA.) YEARS ENDED DECEMBER 31, 2000, 1999 & 1998 1 Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Fastenal Company and its wholly-owned subsidiaries, Fastenal Company Services, Fastenal Company Purchasing, Fastenal Company Leasing, Fastenal Canada Company , Fastenal Mexico, S. de R.L. de C.V. and Fastenal Mexico Services, S. de R.L. de C.V. (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. Financial Instruments All financial instruments are carried at amounts that approximate estimated fair value. 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, 1999 consist of debt securities. 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, but are included in comprehensive income, 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. The amortized cost approximated the fair value of available-for-sale debt securities as of December 31, 1999. - -------------------------------------------------------------------------------- 2000 Annual Report 13 2000 | Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA.) YEARS ENDED DECEMBER 31, 2000, 1999 & 1998 1 Summary of Significant Accounting Policies continued Property and Equipment Property and equipment are stated at cost. Depreciation on buildings and equipment is provided for financial statement reporting purposes by the straight line method and over the lives mandated by Internal Revenue Service Regulations. These lives approximate the anticipated economic useful lives of the related property. Other Assets Other assets consists of prepaid security deposits, goodwill and a non-compete agreement. Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized on a straight-line basis over 15 years. The non-compete agreement is amortized on a straight-line basis over 15 years. Goodwill and other long-term asset balances are reviewed periodically to determine that the unamortized balances are recoverable. In evaluating the recoverability of these assets, the following factors, among others, are considered: a significant change in the factors used to determine the amortization period, an adverse change in legal factors or in the business climate, a transition to a new product or services strategy, a significant change in the customer base, and/or a realization of failed marketing efforts. If the unamortized balance is believed to be unrecoverable, the Company recognizes an impairment charge necessary to reduce the unamortized balance to the amount of undiscounted cash flows expected to be generated over the remaining life. If the acquired entity has been integrated into other operations and cash flows cannot be separately measured, the Company recognizes an impairment charge necessary to reduce the unamortized balance to its estimated fair value. The amount of impairment is charged to earnings as a part of operating and administrative expenses in the current period. Long-Lived Assets The Company reviews tangible and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Stock-Based Compensation The Company has not granted any stock options. During 2000, the Company established a stock appreciation rights plan (SAR). During July 2000, the Company granted 10,000 SAR units under this plan. The SAR units are exerciseable from July 2002 through December 2002. The Company recognized no compensation expense during 2000 related to the SAR. - -------------------------------------------------------------------------------- 14 2000 Annual Report 2000 | Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA.) YEARS ENDED DECEMBER 31, 2000, 1999 & 1998 1 Summary of Significant Accounting Policies continued 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 Property and Equipment Property and equipment as of December 31 consists of the following:
Depreciable life in years 2000 1999 ------------------------------------------------------------------------------------ Land -- $ 6,703 4,442 Buildings and improvements 31 to 39 34,123 29,255 Equipment and shelving 3 to 10 82,180 63,999 Transportation equipment 3 to 5 18,362 21,352 Construction in progress -- 17,461 12,365 ---------------------------- 158,829 131,413 Less accumulated depreciation (53,022) (43,783) ---------------------------- Net property and equipment $ 105,807 87,630 ----------------------------
- -------------------------------------------------------------------------------- 2000 Annual Report 15 2000 | Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA.) YEARS ENDED DECEMBER 31, 2000, 1999 & 1998 3 Accrued Expenses Accrued expenses as of December 31 consist of the following:
2000 1999 ---------------------------------------------------------------------------------------------------- Payroll and related taxes $ 6,359 5,927 Bonuses and commissions 3,480 3,393 Insurance 1,577 1,072 Sales and real estate taxes 982 866 Other 1,104 527 --------------------------------- $ 13,502 11,785 ---------------------------------
4 Stockholders' Equity Preferred stock has a par value of $.01 per share. There were 5,000,000 shares authorized and no shares issued as of December 31, 2000 and 1999. Common Stock has a par value of $.01 per share. There were 50,000,000 shares authorized and 37,938,688 shares issued and outstanding as of December 31, 2000 and 1999. Dividends On January 16, 2001, the Company's board of directors declared a dividend of $.09 per share of Common Stock to be paid in cash on March 9, 2001 to shareholders of record at the close of business on February 23, 2001. 5 Retirement Plan In 1998 the Company established the Fastenal Company and Subsidiaries 401(k) Plan. This plan covers all employees of the Company in the United States. The Company made no contributions to the plan in 2000, 1999 or 1998. - -------------------------------------------------------------------------------- 16 2000 Annual Report 2000 | Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA.) YEARS ENDED DECEMBER 31, 2000, 1999 & 1998 6 Income Taxes Components of income tax expense are as follows: 2000: Current Deferred Total ------------------------------------------------------------------ Federal $ 41,472 2,110 43,582 State 6,775 343 7,118 -------------------------------------------------- $ 48,247 2,453 50,700 -------------------------------------------------- 1999: Current Deferred Total ------------------------------------------------------------------ Federal $ 35,618 (305) 35,313 State 5,760 (49) 5,711 -------------------------------------------------- $ 41,378 (354) 41,024 -------------------------------------------------- 1998: Current Deferred Total ------------------------------------------------------------------ Federal $ 28,199 353 28,552 State 4,561 57 4,618 -------------------------------------------------- $ 32,760 410 33,170 -------------------------------------------------- Income tax expense in the accompanying consolidated financial statements differs from the "expected" tax expense as follows: 2000 1999 1998 ----------------------------------------------------------------------- Federal income tax expense at the "expected" rate of 35% $ 46,000 37,268 30,143 Increase attributed to: State income taxes, net of federal benefit 4,627 3,712 3,002 Other, net 73 44 25 -------------------------- Total income tax expense $ 50,700 41,024 33,170 -------------------------- The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31 are as follows: 2000 1999 ------------------------------------------------------------------------- Deferred tax asset (liability): Inventory costing and valuation methods $ 2,597 1,940 Allowance for doubtful accounts receivable 862 539 Insurance claims payable 628 434 Fixed assets (6,627) (3,000) Other, net (27) (27) ------------------------ Net deferred tax liability $ (2,567) (114) ------------------------ No valuation allowance for deferred tax assets was necessary as of December 31, 2000 and 1999. The character of the deferred tax assets is such that they can be realized through carry-back to prior tax periods or offset against future taxable income. - -------------------------------------------------------------------------------- 2000 Annual Report 17 2000 | Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA.) YEARS ENDED DECEMBER 31, 2000, 1999 & 1998 7 Operating Leases The Company leases space under non-cancelable operating leases for its California, Missouri, North Carolina, Utah and Washington distribution centers, its Tennessee packaging center, and certain store sites with initial terms of one to 48 months. The Company leases certain semi-tractors and pick-ups under operating leases. The semi-tractor leases typically have a 36 month term. The pick-up leases typically have a 72 month term and include an early buy out clause the Company intends to exercise, thereby giving the leases an effective term of 12-15 months. Future minimum annual rentals for the leased facilities and the vehicles are as follows:
Distribution Centers, Semi-tractors Packaging Center and Store Sites and Pick-ups Total ----------------------------------------------------------------------------------------- 2001 $ 14,725 5,985 20,710 2002 8,674 1,899 10,573 2003 3,352 1,200 4,552 2004 461 0 461 2005 and thereafter 119 0 119
Rent expense under all operating leases was as follows:
Distribution Centers, Semi-tractors Packaging Center and Store Sites and Pick-ups Total ----------------------------------------------------------------------------------------- 2000 $ 16,899 8,328 25,227 1999 14,867 4,282 19,149 1998 13,040 0 13,040
8 Lines of Credit and Commitments The Company has a line of credit arrangement with a bank which expires June 30, 2001. The line allows for borrowings of up to $15,000 at .9% over the LIBOR rate. On December 31, 2000 there was $0 outstanding on the line. The Company currently has a letter of credit issued on its behalf to its insurance carrier. As of December 31, 2000, the total undrawn balance of this letter of credit was $3,600. - -------------------------------------------------------------------------------- 18 2000 Annual Report 2000 | Independent Auditors' Report The Board of Directors and Stockholders Fastenal Company: We have audited the accompanying consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000. 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 auditing standards generally accepted in the United States of America. 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 subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Minneapolis, Minnesota January 16, 2001 - -------------------------------------------------------------------------------- 2000 Annual Report 19 0fficers Robert A. Kierlin Chairman of the Board, Chief Executive Officer and President Willard D. Oberton Chief Operating Officer and Executive Vice-President Nicholas J. Lundquist Vice-President of Sales Daniel L. Florness Chief Financial Officer and Treasurer Stephen M. Slaggie Secretary Directors Michael M. Gostomski President and Chief Executive Officer Winona Heating & Ventilating Company (sheet metal and roofing contractor) Michael J. Dolan Chief Operating Officer and Executive Vice-President The Smead Manufacturing Company (office products manufacturer) Robert A. Hansen Associate Professor of Marketing and Logistics Management, Carlson School of Management, University of Minnesota Robert A. Kierlin Henry K. McConnon President Wise Eyes, Inc. (eyeglass retailer and wholesaler) Willard D. Oberton John D. Remick President and Chief Executive Officer Rochester Athletic Club, Inc. (health club) Stephen M. Slaggie Reyne K. Wisecup Human Resource Manager Fastenal Company Services Corporate Information Annual Meeting The annual meeting of shareholders will be held at 10:00 a.m., Tuesday, April 17, 2001, at Corporate Headquarters, 2001 Theurer Boulevard, Winona, Minnesota Corporate Headquarters Fastenal Company 2001 Theurer Boulevard Winona, Minnesota 55987-1500 Phone: (507) 454-5374 Fax: (507) 453-8049 Legal Counsel Faegre & Benson LLP Minneapolis, Minnesota Streater & Murphy, PA Winona, Minnesota Form 10-K A copy of the Company's 2000 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 at the address listed on this page for the Company's corporate headquarters. Copies of our latest press release, unaudited supplemental Company information and monthly sales information (beginning with October 2000 sales) are available at the Fastenal Company World Wide Web site at: www.fastenal.com Auditors KPMG LLP Minneapolis, Minnesota Transfer Agent Wells Fargo Bank Minnesota, National Association Minneapolis, Minnesota [FASTENAL COMPANY LOGO] - -------------------------------------------------------------------------------- 20 2000 ANNUAL REPORT www.fastenal.com Buy it Online Products Fasteners Tools & Accessories Safety Supplies Cutting Tools Hydraulics & Pneumatics Material Handling Packaging Supplies Janitorial Supplies Electrical Supplies Welding Supplies Services Special Manufacturing Tool & Hoist Repair Cutting Tool Regrind Hose Crimping Material Management CAD Storeroom Design Custom Packaging NEW Integrated Logistics Band Saw Blade Welding Corporate Headquarters: 2001 Theurer Blvd. -- Winona, MN 55987 Phone: 507-454-5374 -- Fax 507-453-8049 EX-23 5 0005.txt INDEPENDENT AUDITORS' CONSENT Exhibit 23 Independent Auditors' Consent The Board of Directors and Stockholders Fastenal Company: We consent to the incorporation by reference in Registration Statement No. 333- 52765 on Form S-8 of Fastenal Company of our report dated January 16, 2001 relating to the consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000, and our report dated January 16, 2001 relating to the related financial statement schedule, which reports are included or incorporated by reference in the Annual Report on Form 10-K of Fastenal Company for the year ended December 31, 2000. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota March 5, 2001 -----END PRIVACY-ENHANCED MESSAGE-----