-----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, SPlxUMrWcizWtbJU+1Ej7uy9FF7dRAxWAxHfUk6h836DIA/i/HC5n2BPHG9D48dK e24SmmfeUE+rPrUzXRnrrA== 0001045969-02-000357.txt : 20020415 0001045969-02-000357.hdr.sgml : 20020415 ACCESSION NUMBER: 0001045969-02-000357 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020304 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: 1934 Act SEC FILE NUMBER: 000-16125 FILM NUMBER: 02566168 BUSINESS ADDRESS: STREET 1: 2001 THEURER BLVD CITY: WINONA STATE: MN ZIP: 55987 BUSINESS PHONE: 5074545374 10-K 1 d10k.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, 2001, 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 22, 2002 was $2,069,201,600. For purposes of determining this number, all executive officers and directors of the registrant as of February 22, 2002 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 22, 2002, 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, 2001 are incorporated by reference in Part II. Portions of the registrant's Proxy Statement for the annual meeting of shareholders to be held April 16, 2002 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, 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, 2001 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., Fastenal Mexico Services, S. de R.L. de C.V., and Fastenal Singapore P.T.E. Ltd., collectively, "the Company") began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968. As of December 31, 2001, the Company had 1,025 store sites located in 50 states, Puerto Rico, Canada, Mexico and Singapore and 4,263 people employed at these sites. The Company sells industrial and construction supplies. These industrial and construction supplies are grouped into eleven product lines described further below. The Company operated eleven distribution centers as of December 31, 2001 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. The Company also operates two packaging/processing centers that support the business acquired in 2001 (discussed later in this section). 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:
2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Number of store sites at year end/1/ 1,025 897 807 764 642 483 375 315 253 200 Net sales/2/ (in millions) $ 818.3 755.6 618.2 511.2 404.2 292.3 226.5 164.7 112.1 82.5
/1/ During 2000, two "in-plant" sites, previously included in the store site number, were reclassified to in-plant status. One of these "in-plant" sites opened in 1996 and the other opened in 1997. The 1999, 1998, 1997, and 1996 store numbers above were adjusted to reflect the reclassification. /2/ The net sales amounts for 2000 and prior years have been restated to reflect the reclassification of shipping and handling costs billed to customers and sales incentives paid to customers which were previously included in operating and administrative expenses. This reclassification reflects the adoption of Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs, and EITF 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Incentive Offers, and Offers for Free Product. As of December 31, 2001, the Company operated 1,025 store sites located in: Alabama 21 Indiana 40 Nebraska 11 South Carolina 15 Alaska 1 Iowa 22 Nevada 5 South Dakota 7 Arizona 6 Kansas 21 New Hampshire 9 Tennessee 24 Arkansas 14 Kentucky 17 New Jersey 12 Texas 63 California 43 Louisiana 15 New Mexico 7 Utah 11 Colorado 14 Maine 7 New York 29 Vermont 3 Connecticut 9 Maryland 11 North Carolina 33 Virginia 22 Delaware 4 Massachusetts 14 North Dakota 7 Washington 22 Florida 28 Michigan 41 Ohio 49 West Virginia 9 Georgia 29 Minnesota 39 Oklahoma 14 Wisconsin 44 Hawaii 1 Mississippi 12 Oregon 18 Wyoming 5 Idaho 9 Missouri 22 Pennsylvania 47 Illinois 37 Montana 7 Rhode Island 3 Puerto Rico 6 Canada 63 Mexico 2 Singapore 1
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 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. The Company believes, based on the demographics of the marketplace in the United States and Canada, that there is sufficient potential in those two countries to support approximately 2,000 to 2,200 total stores. Many of these stores would be in cities in which we currently operate. The Company believes most of the future stores will be stand-alone stores and that some of the satellite stores will eventually become stand-alone stores. Of the 128 stores opened during 2001, none opened as a satellite store. Of the 1,025 store sites operating at December 31, 2001, 954 stores were operating as stand-alone stores and 71 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 as they represent a customer subset of the two types of stores mentioned earlier. The Company opened the following store sites, outside the United States, in the last five years:
2001 2000 1999 1998 1997 ------------------------------------------------------------ Puerto Rico 1 1 -- 3 1 Canada 4 11 5 9 20 Mexico 2 -- -- -- -- Singapore 1 -- -- -- --
The Company plans to open additional store sites in Puerto Rico, Canada, Mexico, and Singapore in the future. The store sites located outside the United States contributed less than 5% of the Company's consolidated net sales in 2001. In all years presented, the Company also sold products into Mexico from its existing stores along the border between the United States and 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 50 stores opened in the first quarter of 2001, 18 were profitable in the fourth quarter of 2001. 5 For 2001, annual sales volumes of store sites operating at least five years ranged between approximately $165,000 and $5,939,000, with 75% of these store sites having annual sales volumes within the range of approximately $477,000 to $1,745,000. The data in the following table shows the growth in the average sales of the Company's store sites from 2000 to 2001 based on each site's age. The store sites opened in 2001 contributed approximately $21.6 million (or approximately 2.6%) of the Company's consolidated net sales in 2001, with the remainder coming from store sites opened prior to 2001 and from the 2001 acquisition.
Number of store Average Age of store site as of Year sites in group as of sales Average Percent December 31, 2001 Opened December 31, 2001 2000/1/ sales 2001 Change - ----------------------------------------------------------------------------------------------------------------------- 0-1 year old 2001 128 $ -- $ 169,000/2/ --% 1-2 years old 2000 90 96,000/2/ 399,000 -- 2-3 years old 1999 44 378,000 486,000 28.6 3-4 years old 1998 121 561,000 627,000 11.8 4-5 years old 1997 159 621,000 678,000 9.2 5-6 years old 1996 108 751,000 768,000 2.3 6-7 years old 1995 60 835,000 778,000 (6.8) 7-8 years old 1994 62 810,000 792,000 (2.2) 8-9 years old 1993 53 954,000 950,000 (0.4) 9-10 years old 1992 42 1,215,000 1,225,000 0.8 10-11 years old 1991 32 1,213,000 1,175,000 (3.1) 11-12 years old 1990 28 1,537,000 1,312,000 (14.6) 12-15 years old 1987-1989 53 1,770,000 1,681,000 (5.0) 15+ years old 1967-1986 45 2,340,000 2,293,000 (2.0)
/1/ The average sales amounts for 2000 have been restated to reflect the reclassification of shipping and handling costs billed to customers and sales incentives paid to customers which were previously included in operating and administrative expenses. This reclassification was in accordance with Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs, and EITF 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Incentive Offers, and Offers for Free Product. /2/ The average sales include sales of store sites open for less than the full fiscal year. As of December 31, 2001, 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. On August 31, 2001, the Company acquired certain assets of two subsidiaries of Textron, Inc. These assets were used in their business of selling packaged fasteners to the retail market (Do-It-Yourself or DIY Business). The DIY Business was purchased after a prolonged period of contraction; therefore, the historical sales and earnings are not reflective of the DIY Business's current operations. The four months since the acquisition produced net sales of $8.5 million at approximately a break even level and represent, for the most part, the starting base of business. The business operates facilities in Rockford, Illinois and Goodlettsville, Tennessee (near Nashville). 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. During the last three years, the Company converted a portion of this central processing system to a new computer software and operating system and plans to convert additional modules during 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, Puerto Rico, Mexico, and Singapore under various trademarks and service marks, including Fastenal(R), FastTool(R), SharpCut(R), EquipRite(R), CleanChoice(R), PowerPhase(TM), FastArc(TM), FAS-N-IT(TM), and Anchor Wire(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 78,000 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 miscellaneous 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 49%, 51%, and 51% of the Company's consolidated net sales in 2001, 2000 and 1999, 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 last ten years, the Company added additional product lines. The product lines introduced during the 1990's are sold through the same distribution channel as the original Fastenal(R) product line. The retail packaged product line introduced in 2001 as the result of an acquisition is sold through both a retail distribution channel and through the Company's industrial store site distribution channel. The additional product lines include the following:
Approximate Year number of stock Private label Product line: introduced items product name - ----------------------------------------------------------------------------------------------------------- Tools 1993 58,000 FastTool(R) Cutting tools 1996 25,000 SharpCut(R) Hydraulics and pneumatics 1996 24,000 Material handling 1996 9,000 EquipRite(R) Janitorial supplies 1996 5,000 CleanChoice(R) Electrical supplies 1997 8,000 PowerPhase(TM) Welding supplies/1/ 1997 12,000 FastArc(TM) Safety supplies 1999 29,000 Raw materials 2001 6,000 Retail packaged products 2001 26,000 FAS-N-IT(TM)and Anchor Wire(TM)
/1/ Excluding gas and welding machines. The Company plans to add other 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 2001 approximately 95.7% of the Company's consolidated net sales were attributable to products manufactured by other companies to industry standards. The remaining amount of approximately 4.3% of the Company's consolidated net sales for 2001 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 4% to 10% of the Company's consolidated net sales. Sources of Supply The Company uses a large number of suppliers for the approximately 280,000 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 2001. 8 Customers and Marketing The Company believes its success can be attributed to its ability to offer customers in small, medium, and large-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, 2001, the Company's total number of active customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 147,000. During each of the three years ended December 31, 2001, 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. Store personnel generate a significant portion of the Company's sales through direct calls on customers. 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 markets 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 both small and large 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, 2001, the Company employed a total of 6,536 full and part-time employees, 4,263 being store managers and store employees, and the balance being employed in the Company's distribution centers, packaging facilities, manufacturing operations, service operations, packaging/processing centers, 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 and collections. 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 160,000 Distribution center Akron, Ohio 102,000 Distribution center Kansas City, Kansas 200,000 Packaging/processing center Nashville, Tennessee/1/ 60,000
/1/ The Nashville facility was the result of a 2001 acquisition. 10 In addition, the Company owns 41 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, packaging facility, and packaging/processing center:
Approximate Lease Expiration Remaining Lease Purpose Location Square Feet Date Renewal Options - ------------------------------------------------------------------------------------------------------------------------------------ Distribution center Lakewood, Washington 55,000 February 2004 None Distribution center Fresno, California 52,500 February 2003 Two 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 2003 None Packaging/ Rockford, Illinois/2/ 160,000 November 2006 None processing center
/1/ The lease renewals can be exercised at the Company's option. /2/ The Rockford facility was the result of a 2001 acquisition. 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 62 Chairman of the Board, Chief Executive Officer and Director Willard D. Oberton 43 President, Chief Operating Officer and Director Nicholas J. Lundquist 44 Vice President of Sales Daniel L. Florness 38 Treasurer, Chief Financial Officer and Chief Accounting Officer Stephen M. Slaggie 62 Secretary and Director
Mr. Kierlin has been the Chairman of the Board and Chief Executive Officer of Fastenal Company and has served as a director of Fastenal Company since Fastenal Company's incorporation in 1968. From 1968 through July 2001, Mr. Kierlin also served as President of Fastenal Company. Mr. Oberton has been President and Chief Operating Officer of Fastenal Company since July 2001. From June 2000 through July 2001, Mr. Oberton was Executive Vice President and Chief Operating Officer of Fastenal Company. 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. Oberton has also served as a director of Fastenal Company since June 1999. 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. 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. 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, 2001, Common Stock Data on page 9. ITEM 6. SELECTED FINANCIAL DATA Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 2001, 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, 2001, Management's Discussion & Analysis of Financial Condition & Results of Operations on pages 5-8. 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, 2001, Market Risk Management on page 8. 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, 2001, Selected Quarterly Financial Data (Unaudited) on page 9, and Consolidated Financial Statements, Notes to Consolidated Financial Statements, and Report of Management & Independent Auditors' Report on pages 10-20. 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 5 and 6, and "Section 16(a) Beneficial Ownership Reporting Compliance", page 16, in Fastenal Company's Proxy Statement dated March 5, 2002. 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 7, "Executive Compensation--Summary of Compensation", page 9, "Executive Compensation--Option/SAR Grants", pages 10 and 11, and "Executive Compensation--Compensation Committee Interlocks and Insider Participation", page 11, in Fastenal Company's Proxy Statement dated March 5, 2002. 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 5, 2002. 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, 2001 and 2000 Consolidated Statements of Earnings for the years ended December 31, 2001, 2000, and 1999 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 2001, 2000, and 1999 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements Report of Management & Independent Auditors' Report (Incorporated by reference to pages 10-20 of Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 2001) 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 President/Chief Operating Officer* 10.2 Description of bonus arrangement for Treasurer/Chief Financial Officer* 10.3 Description of bonus arrangement for Vice President of Sales* 10.4 Fastenal Company Stock Appreciation Rights Plan (incorporated by reference to Exhibit 10.4 to Fastenal Company's Form 10-K for the year ended December 31, 2000)* 10.5 Amendment to Fastenal Company Stock Appreciation Rights Plan* 13 Annual Report to Shareholders for the fiscal year ended December 31, 2001 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission) 21 List of Subsidiaries 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. * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c). 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, 2001. 15 Independent Auditors' Report on Schedule The Board of Directors and Stockholders Fastenal Company: Under date of January 18, 2002 we reported on the consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 2001 and 2000, 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, 2001, as contained in the 2001 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 2001. 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 18, 2002 16 FASTENAL COMPANY Schedule II--Valuation and Qualifying Accounts Years ended December 31, 2001, 2000, and 1999
"Additions" Balance at charged to Balance beginning costs and "Other" "Less" at end Description of year expenses additions deductions of year - -------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2001 allowance for doubtful accounts $ 2,238,000 $ 5,453,000 $ 294,000/1/ $ 4,511,000 $ 3,474,000 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
/1/ Represents opening allowance for doubtful accounts from 2001 acquisition. 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, 2002 FASTENAL COMPANY By /s/ Robert A. Kierlin ------------------------------------------- Robert A. Kierlin, Chief Executive Officer 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, 2002 By /s/ Robert A. Kierlin ------------------------------------------- Robert A. Kierlin, Chief Executive Officer (Principal Executive Officer) and Director By /s/ Stephen M. Slaggie ------------------------------------------- Stephen M. Slaggie, Director By /s/ Henry K. McConnon ------------------------------------------- Henry K. McConnon, Director By /s/ Robert A. Hansen ------------------------------------------- Robert A. Hansen, Director By /s/ Reyne K. Wisecup ------------------------------------------- Reyne K. Wisecup, Director By /s/ Daniel L. Florness ------------------------------------------- Daniel L. Florness, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) By /s/ Michael M. Gostomski ------------------------------------------- Michael M. Gostomski, Director By /s/ John D. Remick ------------------------------------------- John D. Remick, Director By /s/ Willard D. Oberton ------------------------------------------- Willard D. Oberton, Director By /s/ Michael J. Dolan ------------------------------------------- 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 President/Chief Operating Officer......... Electronically Filed 10.2 Description of bonus arrangement for Treasurer/Chief Financial Officer......... Electronically Filed 10.3 Description of bonus arrangement for Vice President of Sales.................. Electronically Filed 10.4 Fastenal Company Stock Appreciation Rights Plan (incorporated by reference to Exhibit 10.4 to Fastenal Company's Form 10-K for the year ended December 31, 2000) 10.5 Amendment to Fastenal Company Stock Appreciation Rights Plan................... Electronically Filed 13 Annual Report to Shareholders for the fiscal year ended December 31, 2001 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission)........................................... Electronically Filed 21 List of Subsidiaries........................................................... Electronically Filed 23 Consent of KPMG LLP............................................................ Electronically Filed
EX-10.1 3 dex101.txt BONUS FOR PRESIDENT/ COO Exhibit 10.1 President/Chief Operating Officer's Bonus Arrangement Fastenal Company's President/Chief Operating Officer is paid a bonus under an individual bonus arrangement. Under this arrangement, the President/Chief Operating Officer's bonus for any quarter is calculated based on the amount by which the Company's consolidated pre-tax income for such quarter exceeds the Company's consolidated pre-tax income for the same quarter in the prior year. EX-10.2 4 dex102.txt BONUS FOR TREASURER/ CFO Exhibit 10.2 Treasurer/Chief Financial Officer's Bonus Arrangement Fastenal Company's Treasurer/Chief Financial Officer is paid a bonus under an individual bonus arrangement. Under this arrangement, the Treasurer/Chief Financial Officer's bonus for any quarter is calculated based on the amount by which the Company's consolidated net income for such quarter exceeds a percentage of such quarter's net sales. EX-10.3 5 dex103.txt BONUS FOR VICE PRESIDENT OF SALES Exhibit 10.3 Vice President of Sales Bonus Arrangement Fastenal Company's Vice President of Sales is paid a bonus under an individual bonus arrangement. Under this arrangement, the bonus paid to the Vice President of Sales for any quarter is calculated based on the amounts by which the Company's net sales and consolidated pre-tax income for such quarter exceed, respectively, the Company's net sales and consolidated pre-tax income for the same quarter in the prior year. EX-10.5 6 dex105.txt AMEND. TO STOCK APPRECIATION RIGHTS PLAN Exhibit 10.5 AMENDMENT NO. 1 TO FASTENAL COMPANY STOCK APPRECIATION RIGHTS PLAN This Amendment No. 1 to the Fastenal Company Stock Appreciation Rights Plan (the "Plan") is adopted and made by Fastenal Company, a Minnesota corporation with principal offices at Winona, Minnesota (the "Company"), pursuant to the power reserved to the Company under Paragraph 9 of the Plan. The Plan, which was adopted effective April 18, 2000, for the benefit of certain employees of Fastenal Company (the "Company"), is hereby amended as follows. 1. Subparagraph 5(a) of the Plan is hereby amended to read as follows: (a) Base Price. The Base price per Unit with respect to each Right -------------- shall be determined and stated by the Board at the time of grant. Such Base price shall be not less than the closing price at which Shares of the Common Stock were traded on the securities exchange or Nasdaq National Market System on which the Shares are then listed and traded on the most recent trading date preceding the date of grant. If the Common Stock is not then listed and traded upon a securities exchange or the Nasdaq National Market System, such Base price shall be not less than the fair market value of a Share on the date of grant, as determined by the Board. The determination of the Base price by the Company shall be binding upon the Participant and all other persons. 2. Subparagraph 5(b) of the Plan is hereby amended to read as follows: (b) Exercise Price. The Exercise Price per Unit with respect to each ------------------ Right shall be 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. 3. Subparagraph 5(c) of the Plan is hereby amended to read as follows: (c) Period of Rights. The period of each Right shall be specified by -------------------- the Board at the time of grant. If the expiration date is a day on which the securities exchange or the Nasdaq National Market System on which the Shares are then listed and traded is closed, the expiration date shall be the next day on which it is not closed. 4. Paragraph 9 of the Plan is hereby amended to read as follows: 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, impair any of the rights or obligations under any Right theretofore granted to such Participant under the Plan. A Participant's consent to any amendment, suspension, or termination of the Plan or to any Right issued pursuant to the Plan shall be deemed to have been given if the Participant fails to object in writing within 15 days after written notice thereof, given in person or by certified mail sent to the Participant's address contained in the records of the Company. 5. The provisions of this Amendment shall be effective on and after January 1, 2002, and shall apply to Rights thereafter issued under the Plan, but shall not apply to Rights outstanding on that date. 6. Except as modified herein, the Plan shall remain in full force and effect. Executed at Winona, Minnesota, this 2nd day of January, 2002. FASTENAL COMPANY /s/ Robert A. Kierlin ------------------------------------- Robert A. Kierlin, CEO 2 EX-13 7 dex13.txt 2001 ANNUAL REPORT Exhibit 13 [LOGO OF FASTENAL COMPANY] [PHOTO OF [PHOTO OF METALS, [PHOTO OF TOOLS [PHOTO OF CUTTING [PHOTO OF MATERIAL FASTENERS] ALLOYS & MATERIALS] & ACCESSORIES] TOOLS] HANDLING] [PHOTO OF JANITORIAL [PHOTO OF HYDRAULICS SUPPLIES] & PNEUMATICS] [PHOTO OF ELECTRICAL [PHOTO OF PACKAGING SUPPLIES] SUPPLIES] [PHOTO OF WELDING [PHOTO OF SAFETY SUPPLIES] SUPPLIES]
2001 ANNUAL REPORT GROWTH THROUGH CUSTOMER SERVICE 2001 Profile of Fastenal Company Fastenal Company was founded in 1967. As of December 31, 2001, the Company operated 1,025 store sites located in 50 states, Puerto Rico, Canada, Mexico and Singapore and employed 4,263 people at these sites. In addition, there were 2,273 people employed in various support positions. The Company sells approximately 280,000 different types of industrial and construction supplies in eleven product categories. These include approximately 78,000 different types of threaded fasteners and miscellaneous supplies; approximately 58,000 different types of tools; approximately 25,000 different types of metal cutting tool blades; approximately 24,000 different types of fluid transfer components and accessories for hydraulic and pneumatic power; approximately 9,000 different types of material handling and storage products; approximately 5,000 different types of janitorial and paper products; approximately 8,000 different types of electrical supplies; approximately 12,000 different types of welding supplies (excluding gas & welding machines); approximately 29,000 different types of safety supplies; approximately 6,000 different types of raw materials; and approximately 26,000 different types of retail packaged products. As of December 31, 2001, the Company also operated eleven distribution centers located in Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington, California, Utah, North Carolina and Kansas, a packaging facility located in Tennessee, and a packaging/processing center located in both Tennessee and Illinois. The retail packaged product line and the packaging/processing centers were from a 2001 acquisition. Approximately 95.7% of the Company's 2001 sales were attributable to products manufactured by others, and approximately 4.3% related to items manufactured, modified or repaired by either the Company's Manufacturing Division or its Support Services. Since December 31, 2001, the Company has opened additional store sites. [Photo of Corporate Headquarters] 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 improved results in 2002, 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. 2001 Table of Contents pages 2-3 President's Letter to Shareholders page 4 Six-Year Selected Financial Data pages 5-8 [Photo of Big Blue Product Catalog] Management's Discussion & Analysis of Financial Condition & Results of Operations 2002 Big Blue page 9 Product Catalog Stock and Financial Data page 10 Consolidated Balance Sheets page 11 Consolidated Statements of Earnings page 12 Consolidated Statements of Stockholders' Equity & Comprehensive Income page 13 Consolidated Statements of Cash Flows pages 14 -19 [Photo of Fastenal's Company website] Notes to Consolidated Financial Statements page 20 Report of Management & Independent Auditors' Report Inside Back Cover Fastenal Company's Website Officers & Directors www.fastenal.com Corporate Information
- -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 1 2001 President's Letter to Shareholders The year 2001 started out well for Fastenal with a 20.3% daily sales growth rate in January; this was a nice recovery from the 17.8% daily sales growth rate in December 2000. As it turned out, January was our best month of the year; the remainder of the year would have to be described as challenging. As the industrial economy in North America continued to slow, so did our year over year growth rates. Absent the impact of our August 2001 acquisition, our daily sales growth rate bottomed in November at negative 0.3%. We closed the year with a slight rebound in sales growth during December. Our 2001 net sales of $818.3 million, including the acquisition, represents an 8.3% increase over the $755.6 million net sales for 2000. The slowdown in our business was most noticeable in our large manufacturing customers. Sales to some of our top customers were down more than 30% from the previous year. In spite of this, our branch people worked hard and continued to add new accounts and to increase our number of active accounts every month. Our net earnings for 2001 of $70.1 million were impacted by the slower sales growth during the year. This was a decline of 13.2% from our 2000 earnings of $80.7 million. Early in 2001 we decided to continue opening new stores even as the economy slowed. We believe this was the right decision and it should help us going forward, but these openings added to our total expenses. Fastenal had an exciting year for new store openings, passing several milestones. In February we opened our first store in Mexico, locating it in the industrial city of Monterrey. Then in July we opened our first stores in Alaska and Hawaii. This gave us locations in all 50 states. The opening in Hawaii also happened to be our 1,000th store. In August, with the business support of a large customer, we opened our first branch in Asia, locating it in Singapore. Throughout the year we opened 128 stores in four countries. We ended the year with 1,025 stores. During 2001 The Fastenal School of Business continued to create new programs to help develop our employees. In April we completed a market based planning course. This is a one-week program designed for our store managers. The course was designed to help them better understand the potential in their markets. During the year, 397 managers completed the course. We have also increased the number of product training classes given by our regional development teams. In August we completed the acquisition of a business operated by two subsidiaries of Textron, Inc. The acquired business packages and sells fasteners to the retail market. The target markets for the acquired business are hardware cooperatives such as Ace, lumberyards and farm & fleet stores. This market is estimated to generate net sales of over $1 billion annually in the United States. The acquired business fits well with our existing distribution structure. In 2001 we opened a satellite manufacturing facility in our Indianapolis distribution center. Our satellite manufacturing facilities in Fresno, California, and Indianapolis, Indiana concentrate most of their efforts on machining parts that require rapid delivery. These parts are often produced and shipped the same day we receive the order. Our operations people continued to develop systems to handle products more accurately and efficiently. In December we moved our Kansas City distribution center into a new facility designed by our employees. The material handling system installed in this facility uses the latest technology in scanning and sortation. We also completed an 80,000 sq. ft. expansion to our distribution center in Scranton, Pennsylvania. - ------------------------------------------------------------------------------- 2 2001 ANNUAL REPORT 2001 President's Letter to Shareholders continued Product development continued to move at a steady pace in 2001 as we completed the introduction of our safety products line. We sold some of these products in the past, but we now have a more complete line. A section of our new catalog is dedicated to these safety products. We are also working on several other new product introductions. Our 2002 catalog has 32 pages of metal products, including rods, sheets, and angles. This new product line is targeted at the maintenance and small contractor markets. During 2001 we made great strides in our marketing initiatives. We started a direct mail program in 2000 with the support of our suppliers. In 2001 we more than doubled the size of this program, mailing over 5 million 32-page product catalogs to over 700,000 industrial and construction companies in the U.S. and Canada. We also printed 207,000 copies of our 1,500 page (big blue) catalog and distributed them to our customers. As I said in the opening paragraph, 2001 was a challenging year for Fastenal, but I am very proud of everything the dedicated employees in our company accomplished in a difficult economic environment. I believe 2002 will be a much better year for our company. Our plans are to continue opening new stores, hiring additional personnel, and creating more opportunities for all of the great people that have chosen to build a career at Fastenal. Thank you for your continued support and believing in our company and our people. /s/ Will Oberton [Photo of United States and Fastenal Company Truck] - -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 3 2001 Six-Year Selected Financial Data (AMOUNTS IN THOUSANDS EXCEPT EARNINGS AND DIVIDENDS PER SHARE INFORMATION.)
Operating Results Percent Years Ended Dec. 31 2001 Change 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ Net sales/1/ $ 818,283 8.3% $ 755,618 618,191 511,233 404,248 292,311 Gross profit/1/ 412,427 6.3% 388,118 319,460 265,179 209,143 152,677 Earnings before income taxes 113,634 (13.5%) 131,430 106,479 86,123 67,336 54,432 Net earnings 70,112 (13.2%) 80,730 65,455 52,953 40,834 32,539 Basic and diluted earnings per share 1.85 (13.1%) 2.13 1.73 1.40 1.08 .86 Dividends per share $ .09 12.5% $ .08 .04 .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 $ 300,680 21.3% $ 247,876/2/ 193,744 142,459 106,555 78,417 Total assets 475,244 18.1% 402,464 318,621 251,234 205,137 151,545 Total stockholders' equity $ 424,888 18.3% $ 359,258 281,960 217,646 165,872 125,967
/1/ The net sales and gross profit dollar amounts for 1996 to 2000 have been restated to reflect the reclassification of shipping and handling costs billed to customers and sales incentives paid to customers. The gross profit dollar amounts for 1996 to 2000 have also been restated to reflect outbound shipping costs as a cost of sale. These amounts were previously included in operating and administrative expenses. This reclassification was in accordance with Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs, and EITF 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future. /2/ The 2000 net working capital was reclassified to conform to the 2001 presentation. This reclassification did not impact 1999 and earlier years. - -------------------------------------------------------------------------------- 4 2001 ANNUAL REPORT 2001 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 2001 exceeded net sales for 2000 by 8.3%. This compares with a 22.2% net sales growth rate experienced from 1999 to 2000. The increase in net sales in 2001 came primarily from new site openings, unit sales growth in existing sites less than 5 years old, growth in the newer product lines, and an acquisition completed on August 31, 2001. This growth was tempered by a contraction of 3.0% in the sales of sites open more than 5 years and by a deflationary impact to pricing during the year. 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. The growth in 2000 was also tempered by a slight deflationary impact to pricing in the first half of the year. The following table indicates: (1) percentage of net sales from the Fastenal(R) product line and from the newer product lines, and (2) product lines added to the original fastener product line and the year of introduction. Introduced 2001 2000 - ------------------------------------------------------------------------------- Fastenal Product Line 1967 58.8% 64.5% - ------------------------------------------------------------------------------- Tools 1993 11.6% 12.5% - ------------------------------------------------------------------------------- Cutting Tools 1996 5.5% 5.3% - ------------------------------------------------------------------------------- Hydraulics & Pneumatics 1996 5.2% 4.8% - ------------------------------------------------------------------------------- Material Handling 1996 6.7% 6.4% - ------------------------------------------------------------------------------- Janitorial Supplies 1996 2.5% 2.0% - ------------------------------------------------------------------------------- Electrical Supplies 1997 2.4% 1.5% - ------------------------------------------------------------------------------- Welding Supplies 1997 2.3% 0.6% - ------------------------------------------------------------------------------- Safety Supplies 1999 3.3% 2.2% - ------------------------------------------------------------------------------- Raw Materials 2001 0.2% - - ------------------------------------------------------------------------------- Retail Packaged Products* 2001 1.0% - - ------------------------------------------------------------------------------- Other - 0.5% 0.2% - -------------------------------------------------------------------------------- *The Retail Packaged Product line was added as a result of the August 2001 acquisition. This acquired business produced $8,526 of net sales in 2001. - -------------------------------------------------------------------------------- Threaded fasteners accounted for approximately 49%, 51% and 51% of the Company's consolidated sales in 2001, 2000 and 1999, respectively. Sites opened in 2001 contributed approximately $21,620 (or 2.6%) to 2001 net sales. Sites opened in 2000 contributed approximately $35,900 (or 4.4%) to 2001 net sales and approximately $7,940 (or 1.1%) to 2000 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 50.4% in 2001, 51.4% in 2000 and 51.7% in 1999. The fluctuations resulted primarily from changes in the mix of products being sold. Absent the August 2001 acquisition, the 2001 gross profit percent would have been approximately 0.3% higher. Operating and administrative expenses were 36.7% of net sales in 2001 compared to 34.2% of net sales in 2000 and 34.6% of net sales in 1999. The fluctuations in operating and administrative costs were primarily due to changes in payroll and related costs, changes in occupancy costs, and, with respect to 2001, reductions in net sales in stores greater than five years old and the impact of the August 2001 acquisition. In 2001, payroll and related costs increased at a rate which was greater than the rate of increase in net sales. In 2000, 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 the average number of employees: 2001 2000 - ------------------------------------------------------------------------------ Sales Personnel 7.4% 22.0% - ------------------------------------------------------------------------------ Support Personnel 8.3% 20.0% - ------------------------------------------------------------------------------ In 2001, the rate of increase in occupancy costs was greater than the rate of increase in net sales. In 2000, 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 a 14.3% and an 11.1% increase in the number of sites in 2001 and 2000, respectively, and, in 2000, due to the relocation of existing stores to larger sites to accommodate their growth in activity and the introduction of new product lines. Distribution costs benefited from productivity gains in 2000. Net interest income/expense in 2001 increased $207 over 2000. Net interest income/expense in 2000 increased $1,458 over 1999. Changes were due to the fluctuations in the weighted average amount of outstanding Company borrowings and investments less the impact of lower interest rates in 2001. The loss/gains on disposal of property and equipment in 2001, 2000 and 1999 came primarily from the disposal of used vehicles. - -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 5 2001 Management's Discussion & Analysis of Financial Condition & Results of Operations (AMOUNTS IN THOUSANDS EXCEPT PERSONNEL COUNTS AND DIVIDENDS PER SHARE.) Net earnings contracted 13.2% from 2000 to 2001 and grew 23.3% from 1999 to 2000. The contraction in net earnings in 2001 resulted primarily from (1) lower net sales growth, (2) the decrease in gross margin percentage, caused primarily by changes in product mix, (3) the decrease in the gross margin dollars generated in older stores due to decreases in net sales, (4) the additional expenses of store site openings (see comments earlier), (5) the added impact of increases in utility and health care costs when compared to the same period in 2000, and (6) the increase in depreciation expense associated with additions of property and equipment, most notably software and hardware for the Company's management information system. The growth in net earnings in 2000 resulted primarily from increased net sales. In 2000 the net earnings growth rate was higher than that of net sales because of the earlier mentioned impact of operating and administrative costs. The Asian economic turmoil impacted the Company in several ways during 2000. 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 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 1999. In addition to the impacts of the Far East situation, 2001 and 2000 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 2001, 2000 and 1999. Critical Accounting Policies The Company's estimates related to certain assets and liabilities are an integral part of the consolidated financial statements. These estimates are considered critical to the consolidated financial statements because they require subjective and complex judgments. Allowance for doubtful accounts - This reserve is for accounts receivable balances that are potentially uncollectible. The reserve is based on (1) an analysis of customer accounts and (2) the Company's historical experience with accounts receivable write-offs. The analysis would include the age of the receivable, the financial condition of a customer or industry, and general economic conditions. Management believes the results could be materially different if historical trends do not reflect actual results or if economic conditions worsened for the Company's customers. Inventory reserves - This reserve is for shrinkage, slow moving, and obsolete inventory. The reserve is based on an analysis of inventory trends. The analysis would include inventory levels, physical inventory counts, cycle count adjustments, the nature of the product and its inherent risk of obsolescence, the gross margin of the product, and the on-hand quantities relative to the sales history for the product. Management believes the results could be materially different if historical trends do not reflect actual results or if demand for the Company's products decreased because of economic or competitive conditions. Health insurance reserves - This reserve is for incurred but not reported health claims. The reserve is based on an external analysis of the Company's historical claim reporting trends. Management believes the results could be materially different if historical trends do not reflect actual results. General insurance reserves - This reserve for general insurance claims. The reserve is based on an external analysis of the Company's historical general insurance trends. Management believes the results could be materially different if historical trends do not reflect actual results. - -------------------------------------------------------------------------------- 6 2001 ANNUAL REPORT 2001 Management's Discussion & Analysis of Financial Condition & Results of Operations (AMOUNTS IN THOUSANDS EXCEPT PERSONNEL COUNTS AND DIVIDENDS PER SHARE.) Liquidity and Capital Resources Net cash provided by operating activities was: 2001 $ 91,727 - ---------------------------------------------------------------------- 2000 $ 38,253 - ---------------------------------------------------------------------- 1999 $ 55,989 - ---------------------------------------------------------------------- The 2001 increase in net cash provided by operating activities was primarily due to the decrease in cash needed to fund trade accounts receivable and inventory due to lower sales growth in 2001. In 2000, these two assets consumed $62,524 of cash, while in 2001 these two assets generated $3,627 of cash. The 2000 decrease in net cash provided by operating activities was primarily due to the 34.2% increase in inventory levels. Net cash used in investing activities was: 2001 $ 60,648 - ---------------------------------------------------------------------- 2000 $ 43,300 - ---------------------------------------------------------------------- 1999 $ 24,654 - ---------------------------------------------------------------------- The 2001 increase in net cash used in investing activities resulted primarily from the purchase of a business and from the increase in marketable securities. The 2000 increase in net cash used in investing activities resulted primarily from an increase in marketable securities and 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 2000. The Company has future commitments for leased facilities and for leased vehicles at December 31, 2001. The Company has $6,533 of long-term debt related to an Industrial Revenue Bond (IRB) at December 31, 2001, and had no long-term debt at December 31, 2000 and 1999. The Company has a letter of credit issued on its behalf to its insurance carrier. See notes 8 and 9 of the Notes to Consolidated Financial Statements for additional information related to these obligations and to our current line of credit. The future contractual cash obligations related to these commitments are as follows: 2004 and After Total 2002 2003 2005 2005 - -------------------------------------------------------------------------------- Facilities $23,795 13,698 7,114 2,407 576 Vehicles 11,106 7,099 2,406 1,601 -- IRB 6,533 653 653 1,306 3,921 ------------------------------------------------------- Total $41,434 21,450 10,173 5,314 4,497 ------------------------------------------------------- The future commercial commitment related to the letter of credit is $3,969. The Company paid an annual dividend of $.09 per share in 2001, $.08 per share in 2000 and $.04 per share in 1999. As of December 31, 2001, the Company had no material outstanding commitments for capital expenditures. The Company expects to make approximately $30,000 in total capital expenditures in 2002, consisting of approximately $14,000 for manufacturing, warehouse and packaging equipment and facilities, approximately $8,000 for data processing equipment, and approximately $8,000 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 2001 and 2000. 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 2002. 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, Puerto Rico, Mexico and Singapore. - -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 7 2001 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, 2001. 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, 2001. 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, 2001, 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 markets 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 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Account Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with SFAS No. 142. The company's net goodwill at December 31, 2001 was $1,405. The related goodwill amortization was $152 in 2001. SFAS No. 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144, which will supersede SFAS No. 121, retains many of the fundamental provisions of that Statement. The adoption of both SFAS 142 and 144 is not expected to have a significant impact on the Company's financial condition or results of operations. - -------------------------------------------------------------------------------- 8 2001 ANNUAL REPORT 2001 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 2001 and 2000. - -------------------------------------------------------------------------------- 2001: High Low First quarter $ 64.06 $ 48.37 - -------------------------------------------------------------------------------- Second quarter 73.00 49.00 - -------------------------------------------------------------------------------- Third quarter 67.90 50.47 - -------------------------------------------------------------------------------- Fourth quarter 67.45 54.64 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2000: High Low First quarter $ 49.75 $ 35.69 - -------------------------------------------------------------------------------- Second quarter 73.31 45.25 - -------------------------------------------------------------------------------- Third quarter 68.88 51.06 - -------------------------------------------------------------------------------- Fourth quarter 62.75 45.13 - -------------------------------------------------------------------------------- As of February 16, 2002, there were approximately 2,400 recordholders of the Company's Common Stock. A $.09 annual dividend per share was paid in 2001 and an $.08 annual dividend per share was paid in 2000. On January 18, 2002, the Company announced a $.10 annual dividend per share to be paid on March 8, 2002 to shareholders of record at the close of business on February 22, 2002. 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)/1/ (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- 2001: Net sales Gross profit Net earnings Earnings per share First quarter $203,374 104,555 20,739 .55 - -------------------------------------------------------------------------------- Second quarter 207,442 104,631 19,018 .50 - -------------------------------------------------------------------------------- Third quarter 209,397 104,774 17,001 .45 - -------------------------------------------------------------------------------- Fourth quarter 198,070 98,467 13,354 .35 - -------------------------------------------------------------------------------- Total $818,283 412,427 70,112 1.85 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2000: Net sales Gross profit Net earnings Earnings per share First quarter $178,687 91,924 20,046 .53 - -------------------------------------------------------------------------------- Second quarter 191,177 97,305 20,975 .55 - -------------------------------------------------------------------------------- Third quarter 195,407 100,631 20,802 .55 - -------------------------------------------------------------------------------- Fourth quarter 190,347 98,258 18,907 .50 - -------------------------------------------------------------------------------- Total $755,618 388,118 80,730 2.13 - -------------------------------------------------------------------------------- /1/The net sales and gross profit dollar amounts for all periods presented have been restated to reflect the reclassification of shipping and handling costs billed to customers and sales incentives paid to customers. The gross profit dollar amounts for all periods presented have also been restated to reflect outbound shipping costs as a cost of sale. These amounts were previously included in operating and administrative expenses. This reclassification was in accordance with Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs, and EITF 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future. - -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 9 2001 Consolidated Balance Sheets DECEMBER 31, 2001 & 2000 (AMOUNTS IN THOUSANDS EXCEPT SHARE INFORMATION.)
Assets 2001 2000 Current assets: Cash and cash equivalents $ 47,264 19,710 Marketable securities 21,258 4,028 Trade accounts receivable, net of allowance for doubtful accounts of $3,474 and $2,238, respectively 101,356 106,120 Inventories 152,706 143,068 Deferred income tax asset 4,696 4,060 Other current assets 13,961 7,469 ------------------------------- Total current assets 341,241 284,455 Marketable securities 9,374 8,969 Property and equipment, less accumulated depreciation 121,607 105,807 Other assets, net 3,022 3,233 ------------------------------- Total assets $ 475,244 402,464 ------------------------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 20,100 19,898 Accrued expenses 17,973 13,502 Income tax payable 2,488 3,179 ------------------------------- Total current liabilities 40,561 36,579 ------------------------------- Deferred income tax liability 9,795 6,627 ------------------------------- 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 421,945 355,248 Accumulated other comprehensive loss (1,860) (793) ------------------------------- Total stockholders' equity 424,888 359,258 Commitments (notes 5, 8, and 9) ------------------------------- Total liabilities and stockholders' equity $ 475,244 402,464 -------------------------------
The Accompanying Notes are an Integral Part of the Financial Statements. - -------------------------------------------------------------------------------- 10 2001 ANNUAL REPORT 2001 Consolidated Statements of Earnings (AMOUNTS IN THOUSANDS EXCEPT EARNINGS PER SHARE.) YEARS ENDED DECEMBER 31, 2001, 2000 & 1999
2001 2000 1999 Net sales $ 818,283 755,618 618,191 Cost of sales 405,856 367,500 298,731 ----------------------------------- Gross profit 412,427 388,118 319,460 Operating and administrative expenses 300,696 258,561 213,774 ----------------------------------- Operating income 111,731 129,557 105,686 Other income (expense): Interest income 2,242 2,035 634 Interest expense 0 0 (57) (Loss) gain on disposal of property and equipment (339) (162) 216 ----------------------------------- Total other income 1,903 1,873 793 ----------------------------------- Earnings before income taxes 113,634 131,430 106,479 Income tax expense 43,522 50,700 41,024 ----------------------------------- Net earnings $ 70,112 80,730 65,455 ----------------------------------- Basic and diluted earnings per share $ 1.85 2.13 1.73 ----------------------------------- Weighted average shares outstanding 37,939 37,939 37,939 -----------------------------------
The Accompanying Notes are an Integral Part of the Financial Statements. - -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 11 2001 Consolidated Statements of Stockholders' Equity & Comprehensive Income (AMOUNTS IN THOUSANDS.) YEARS ENDED DECEMBER 31, 2001, 2000 & 1999
Accumulated Additional Other Total Common Stock Paid-in Retained Comprehensive Stockholders' --------------- Shares Amount Capital Earnings Income (Loss) Equity - ----------------------------------------------------------------------------------------------------------- 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 Dividends paid in cash -- -- -- (3,415) -- (3,415) Net earnings for the year -- -- -- 70,112 -- 70,112 Translation adjustment -- -- -- -- (1,067) (1,067) ------------- Total comprehensive income 69,045 - ----------------------------------------------------------------------------------------------------------- Balances as of December 31, 2001 37,939 $ 379 4,424 421,945 (1,860) 424,888 - -----------------------------------------------------------------------------------------------------------
The Accompanying Notes are an Integral Part of the Financial Statements. - -------------------------------------------------------------------------------- 12 2001 ANNUAL REPORT 2001 Consolidated Statements of Cash Flows (AMOUNTS IN THOUSANDS.) YEARS ENDED DECEMBER 31, 2001, 2000 & 1999
2001 2000 1999 - ----------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 70,112 80,730 65,455 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property and equipment 14,747 11,757 11,777 Loss (gain) on disposal of property and equipment 339 162 (216) Bad debt expense 5,453 4,496 3,566 Deferred income taxes 2,532 2,453 (354) Amortization of goodwill and non-compete agreement 220 220 220 Changes in operating assets and liabilities, net of acquisition Trade accounts receivable 6,232 (26,053) (19,631) Inventories (2,605) (36,471) (12,863) Other current assets (4,407) (1,959) 1,127 Accounts payable (1,835) 573 1,914 Accrued expenses 1,630 1,717 2,786 Income taxes payable (691) 628 2,208 ----------------------------- Net cash provided by operating activities 91,727 38,253 55,989 ----------------------------- Cash flows from investing activities: Purchases of business and property and equipment (45,342) (36,729) (39,176) Proceeds from sale of property and equipment 3,295 6,633 14,197 Translation adjustment (957) (340) 376 Net (increase) decrease in marketable securities (17,635) (12,782) 50 Increase in other assets (9) (82) (101) ----------------------------- Net cash used in investing activities (60,648) (43,300) (24,654) ----------------------------- Cash flows from financing activities: Net decrease in line of credit -- -- (4,055) Payment of dividends (3,415) (3,035) (1,517) ----------------------------- Net cash used in financing activities (3,415) (3,035) (5,572) ----------------------------- Effect of exchange rate changes on cash (110) (57) -- ----------------------------- Net increase (decrease) in cash and cash equivalents 27,554 (8,139) 25,763 Cash and cash equivalents at beginning of year 19,710 27,849 2,086 ----------------------------- Cash and cash equivalents at end of year $ 47,264 19,710 27,849 ============================= Supplemental disclosure of cash flow information: Cash paid during each year for: Income taxes $ 41,682 50,072 38,183 Interest $ -- -- 87
The Accompanying Notes are an Integral Part of the Financial Statements. - -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 13 2001 Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.) YEARS ENDED DECEMBER 31, 2001, 2000 & 1999 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., Fastenal Mexico Services, S. de R.L. de C.V., and Fastenal Singapore P.T.E., Ltd. (collectively referred to as the Company). All material One 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. Reclassifications Certain amounts in the consolidated balance sheets and consolidated statements of cash flows were restated to conform to the current presentation. During 2001, the Company adopted the provisions of Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs, and EITF 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future. As required by EITF 00-10 and EITF 00-22, the Company has reclassified shipping and handling costs billed to customers as an increase of net sales and incentives paid to customers as a reduction of net sales. The Company has also reclassified outbound shipping costs to cost of sales. These amounts were previously included in operating and administrative expenses. The reclassification resulted in a net increase in net sales of $9,878 and $9,005 in 2000 and 1999, respectively. The reclassification resulted in an increase in cost of sales of $10,320 and $8,811 in 2000 and 1999, respectively. Certain delivery costs such as labor and transportation can not be readilly allocated between selling and delivery activities and continue to be included in operating and administration costs. 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, 2001 and 2000 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, 2001 and 2000. - -------------------------------------------------------------------------------- 14 2001 ANNUAL REPORT 2001 Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.) YEARS ENDED DECEMBER 31, 2001, 2000 & 1999 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 using the straight line method over 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 One 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 (SAR) plan. During 2001 and 2000, the Company granted 4,000 and 10,000 SAR units, respectively, under this plan. The SAR units are exerciseable in 2002 and 2003. The Company recognized $154 and $0 compensation expense during 2001 and 2000, respectively, related to the SAR plan. - -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 15 2001 Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.) YEARS ENDED DECEMBER 31, 2001, 2000 & 1999 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 One 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. Segment Reporting The Company has reviewed SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, and determined the Company meets the aggregation criteria outlined as the various operations of the Company have similar (1) economic characteristics, (2) products and services, (3) customers, (4) distribution channels, and (5) regulatory environments. Therefore the Company reports as a single business segment. 2 Property and Equipment Property and equipment as of December 31 consists of the following: Depreciable life in years 2001 2000 ----------------------------------------------------------------------- Land -- $ 7,029 6,703 Buildings and improvements 31 to 39 37,572 34,123 Equipment and shelving 3 to 10 111,079 82,180 Transportation equipment 3 to 5 17,413 18,362 Construction in progress -- 13,349 17,461 -------------------- 186,442 158,829 Less accumulated depreciation (64,835) (53,022) -------------------- Net property and equipment $121,607 105,807 ==================== - -------------------------------------------------------------------------------- 16 2001 ANNUAL REPORT 2001 Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.) YEARS ENDED DECEMBER 31, 2001, 2000 & 1999 3 Accrued Expenses Accrued expenses as of December 31 consist of the following: 2001 2000 ----------------------------------------------------- Payroll and related taxes $ 7,273 6,359 Bonuses and commissions 3,449 3,480 Insurance 2,371 1,577 Sales and real estate taxes 1,062 982 Other 3,818 1,104 ---------------- $17,973 13,502 ---------------- 4 Acquisition of Business On August 31, 2001, the Company acquired certain assets of two subsidiaries of Textron, Inc. These assets were used in their business of selling packaged fasteners to the retail market (Do-It-Yourself or DIY Business). The asset were purchased for a cash payment at closing. The acquisition was not material to the financial statements of the Company. On July 1, 2001, the Company adopted SFAS No. 141, Business Combinations. SFAS 141 requires the use of the purchase method of accounting and, accordingly, the operating results of the DIY Business have been included in the Company's consolidated financial statements since the date of acquisition. The total purchase price was allocated to tangible assets and liabilities based upon the estimate of their fair value on the acquisition date. The final purchase price remains contingent on resolution of the closing balance sheet. The final purchase price could result in tangible assets in excess of the cash paid and liabilities assumed, or negative goodwill. The negative goodwill realized, if any, will be recognized in income when the purchase price is finalized. The DIY Business was purchased after a prolonged period of contraction; therefore, the historical sales and earnings are not reflective of the DIY Business's current operations. If the business combination had occurred at the beginning of the respective years, net income would not have been materially different from the amounts reported. The net sales from the DIY Business totaled $8,526 from August 31, 2001 through December 31, 2001. The DIY Business has operated at approximately a break even level from August 31, 2001 through December 31, 2001. 5 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, 2001 and 2000. 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, 2001 and 2000. Dividends On January 18, 2002, the Company's board of directors declared a dividend of $.10 per share of Common Stock to be paid in cash on March 8, 2002 to shareholders of record at the close of business on February 22, 2002. 6 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 2001, 2000 or 1999. - -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 17 2001 Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.) YEARS ENDED DECEMBER 31, 2001, 2000 & 1999 7 Income Taxes Components of income tax expense (benefit) are as follows: 2001: Current Deferred Total -------------------------------------------------------------------------- Federal $ 35,623 2,199 37,822 State 5,367 333 5,700 -------------------------------------------- $ 40,990 2,532 43,522 ============================================ 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 ============================================ Income tax expense in the accompanying consolidated financial statements differs the "expected" tax expense as follows: 2001 2000 1999 --------------------------------------------------------------------------- Federal income tax expense at the "expected" rate of 35% $39,772 46,000 37,268 Increase attributed to: State income taxes, net of federal benefit 3,705 4,627 3,712 Other, net 45 73 44 --------------------------- Total income tax expense $43,522 50,700 41,024 =====================------ The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31 are as follows: 2001 2000 ----------------------------------------------------------------- Deferred tax asset (liability): Inventory costing and valuation methods $ 2,020 2,597 Allowance for doubtful accounts receivable 1,188 862 Insurance claims payable 965 628 Fixed assets (9,795) (6,627) Other, net 523 (27) ----------------- Net deferred tax liability $(5,099) (2,567) ================= No valuation allowance for deferred tax assets was necessary as of December 31, 2001 and 2000. The character of the deferred tax assets is such that they can be realized through carryback to prior tax periods or offset against future taxable income. - -------------------------------------------------------------------------------- 18 2001 ANNUAL REPORT 2001 Notes to Consolidated Financial Statements (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.) YEARS ENDED DECEMBER 31, 2001, 2000 & 1999 8 Operating Leases The Company leases space under non-cancelable operating leases for its California, 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 its Illinois packaging/processing center under an assumed lease with five years remaining on the lease. 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 leased vehicles are as follows: Leased Leased Facilities Vehicles Total ------------------------------------------------------------------- 2002 $ 13,698 7,099 20,797 2003 7,114 2,406 9,520 2004 1,910 1,601 3,511 2005 497 - 497 2006 and thereafter 576 - 576 Rent expense under all operating leases is as follows: Leased Leased Facilities Vehicles Total ------------------------------------------------------------------- 2001 $ 19,826 10,660 30,486 2000 16,899 8,328 25,227 1999 14,867 4,282 19,149 9 Lines of Credit and Commitments The Company has a line of credit arrangement with a bank which expires June 30, 2002. The line allows for borrowings of up to $15,000 at .9% over the LIBOR rate. On December 31, 2001 there is $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, 2001, the total undrawn balance of this letter of credit is $3,969. During 2001, the Company completed the construction of a new building for its Kansas City warehouse. This Company was required to obtain financing for this facility under an Industrial Revenue Bond (IRB). The Company subsequently purchased 100% of the outstanding bonds under the IRB at par. In addition to purchasing the outstanding obligations, the Company has a right of offset included in the IRB debt agreement. Accordingly, the Company has netted the impact of the IRB in the accompanying consolidated financial statements. The total IRB at December 31, 2001 is $6,533. - -------------------------------------------------------------------------------- 2001 ANNUAL REPORT 19 2001 Report of Management & Independent Auditors' Report The Board of Directors and Stockholders Fastenal Company: Management is responsible for the integrity and accuracy of the consolidated financial information included in this report. Management believes these consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the consolidated financial statements 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 consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. In meeting its responsibility for the reliability of the financial statements, management relies on a system of internal accounting control. This system is designed to provide reasonable assurance assets are safeguarded and transactions are appropriately authorized and included in the financial records in all material aspects. The design of this system recognizes errors or irregularities may occur and estimates and judgments are required to assess the relative cost and expected benefits of the controls. Management believes the Company's accounting controls provide reasonable assurance errors or irregularities material to the consolidated financial statements are prevented or would be detected in a reasonable time period. The Audit Committee, comprised of members of the Board of Directors who are not employees of the Company, meets periodically with the independent auditors and management of the Company to discuss internal accounting control, auditing and financial reporting matters. The Audit Committee recommends the selection of the independent auditors, who are then appointed by the Board of Directors, subject to ratification by the shareholders. The independent auditors, KPMG LLP, conduct an independent audit of the consolidated financial statements /s/ Robert A. Kierlin Robert A. Kierlin Chairman of the Board and Chief Executive Officer /s/ Daniel L. Florness Daniel L. Florness Chief Financial Officer and Treasurer 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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 4 to consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 141, Business Combinations, on July 1, 2001. /s/ KPMG LLP Minneapolis, Minnesota January 18, 2002 - -------------------------------------------------------------------------------- 20 2001 ANNUAL REPORT Officers Robert A. Kierlin Chairman of the Board and Chief Executive Officer Willard D. Oberton President and Chief Operating Officer 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 Self Employed Business Consultant 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 16, 2002, 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 2001 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 [Logo of Fastenal Company] Take Advantage Of These Industrial Services [PHOTO OF TOOL [PHOTO OF SPECIAL [PHOTO OF INTEGRATED [PHOTO OF BAND SAW [PHOTO OF CUSTOM & HOIST REPAIR] MANUFACTURING] LOGISTICS] BLADE WELDING] PACKAGING] [PHOTO OF CUT TO [PHOTO OF HOSE [PHOTO OF CUTTING [PHOTO OF MATERIAL [PHOTO OF CAD LENGTH CHAIN & CABLE] CRIMPING] TOOL REGRIND] MANAGEMENT] STOREROOM DESIGN]
Over 1,100 Branches in all 50 States, Canada, Mexico, Puerto Rico & Singapore! Buy it Online www.fastenal.com Corporate Headquarters: 2001 Theurer Blvd. .Winona, MN 55987 Phone: 507-454-5374 . Fax: 507-453-8049 9700571 EX-21 8 dex21.txt LIST OF SUBSIDIARIES Exhibit 21 Subsidiaries of Fastenal Company.
Jurisdiction of Subsidiary name Doing business as incorporation - --------------- ----------------- ------------- Fastenal Canada Company Same Minnesota Fastenal Company Services Same Minnesota Fastenal Company Purchasing Same Minnesota Fastenal Company Leasing Same Minnesota Fastenal Mexico Services S. de R.L. de C.V. Same Mexico Fastenal Mexico S. de R.L. de C.V. Same Mexico Fastenal Singapore P.T.E. Ltd. Same Singapore
EX-23 9 dex23.txt CONSENT OF KPMG LLP Exhibit 23 Independent Auditors' Consent The Board of Directors 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 18, 2002 relating to the consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 2001 and 2000, 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, 2001, and our report dated January 18, 2002 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, 2001. Our report refers to the adoption of Statement of Financial Accounting Standards No. 141, Business Combinations, on July 1, 2001. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota March 5, 2002 -----END PRIVACY-ENHANCED MESSAGE-----