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, 2002, 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 incorporation or organization)	(I.R.S. Employer 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.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x  No  ¨

The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter, was $2,260,304,477, based on the closing sale price of the Common Stock on that date. For purposes of determining this number, all executive officers and directors of the registrant as of June 28, 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 3, 2003, the registrant had 75,877,376 shares of Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2002 are incorporated by reference in Part II. Portions of the registrant’s Proxy Statement for the annual meeting of shareholders to be held April 15, 2003 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, the typical time period for new stores to achieve their first profitable month, technology conversions, introduction of new product lines, growth in manufacturing and support services, protection from economic downturns provided by the number and type of the Company’s customers, expected increased leasing of vehicles, expecting leasing of new stores, the leveling off of sales growth and the variability of sales at older 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, 2002 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.

PRESENTATION OF DOLLAR AMOUNTS

All dollar amounts in this Form 10-K are presented in thousands unless otherwise noted.

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, 2002, the Company had 1,169 store sites located in 50 states, Puerto Rico, Canada, Mexico and Singapore and 4,743 people employed at these sites.

The Company sells industrial and construction supplies in a wholesale and retail fashion. As of December 31, 2002 these industrial and construction supplies were grouped into ten product lines described further below.

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The Company operated eleven distribution centers as of December 31, 2002 from which the Company distributes products to its store sites, and operates a facility in Memphis, Tennessee to receive and distribute products coming from suppliers involved in the Company’s ‘Customer Service Project’ (CSP).

Development of the Business

Fastenal Company began in 1967 with a marketing strategy of supplying threaded fasteners to customers in small, medium-sized, and, in subsequent years, large cities. The Company believes its success can be attributed to its ability to offer its 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 at the end of each of the last ten years and the related consolidated net sales for each year during the last ten years:

	2002		2001	2000	1999	1998	1997	1996	1995	1994	1993
Number of store sites at year end		1,169	1,025	897	807	764	642	483	375	315	253
Net sales (in millions)	$	905.4	818.3	755.6	618.2	511.2	404.2	292.3	226.5	164.7	112.1

As of December 31, 2002, the Company operated 1,169 store sites located in:

United States	1,088	Mexico	2
Puerto Rico	7	Singapore	1
Canada	71

The Company has closed only four stores in its history.

The Company selects new locations for its stores based on their proximity to the Company’s distribution network, population statistics, and employment data for manufacturing and construction. The Company intends to continue opening new store sites and currently expects the rate of new store openings to be approximately 14 to 16% 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 may customize the inventory offering to that site’s customer base.

For several years, the Company had two types of stores: (1) the stand-alone store and (2) the satellite store. The stand-alone store was typically located in cities with a population in excess of 8,000. The second type, the satellite store, operated as a satellite of a stand-alone store. The satellite store was usually located within 30 miles of the stand-alone (mother) store and was typically managed by personnel at the mother store. The Company had satellite stores located in communities with a population as small as 2,000. The Company discontinued this distinction at the end of 2002. Of the 144 stores opened during 2002, none opened as a satellite store. 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 the new store sites would be in cities in which we currently operate.

In addition to the 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 a store.

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The Company opened the following store sites, outside the United States, in the last five years:

	2002	2001	2000	1999	1998
Puerto Rico	1	1	1	—	3
Canada	7	4	11	5	9
Mexico	—	2	—	—	—
Singapore	—	1	—	—	—

During 2002, the Company began operating an “in-plant” site in the Dominican Republic. 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 2002. 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 24 stores opened in the first quarter of 2002, 10 were profitable in the fourth quarter of 2002.

For 2002, annual sales volumes of store sites operating at least five years ranged between approximately $175 and $7,061, with 75% of these store sites having annual sales volumes within the range of approximately $417 to $1,640. The data in the following table shows the growth in the average sales of the Company’s store sites from 2001 to 2002 based on each site’s age (dollar amounts in thousands). The store sites opened in 2002 contributed approximately $18.6 (or approximately 2.1%) of the Company’s consolidated net sales in 2002, with the remainder coming from store sites opened prior to 2002 and from the acquisition of the DIY Business discussed below.

Age of store site as of December 31, 2002	Year Opened	Number of store sites in group as of December 31, 2002	Average sales 2001	Average sales 2002	Percent Change
0–1 year old	2002	144	$    —	$   129 1	—  %
1–2 years old	2001	128	169 1	440	—
2–3 years old	2000	90	399	519	30.1
3–4 years old	1999	44	486	600	23.5
4–5 years old	1998	121	627	676	7.8
5–6 years old	1997	159	678	712	5.0
6–7 years old	1996	108	768	797	3.8
7–8 years old	1995	60	778	812	4.4
8–9 years old	1994	62	792	796	0.5
9–10 years old	1993	53	950	898	(5.5)
10–11 years old	1992	42	1,225	1,163	(5.1)
11–12 years old	1991	32	1,175	1,166	(0.8)
12–15 years old	1988-1990	68	1,449	1,342	(7.4)
15+ years old	1967-1987	58	2,249	2,349	4.4

¹ The average sales include sales of store sites open for less than the full fiscal year.

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As of December 31, 2002, the Company operated distribution centers in or near Winona, Minnesota; Indianapolis, Indiana; Dallas, Texas; Atlanta, Georgia; Scranton, Pennsylvania; Fresno, California; Seattle, 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 centralized distribution center in Memphis, Tennessee. This facility consolidates inventory for the ‘Customer Service Project’ (CSP) and ships it to existing stores, for use in conversion to the CSP format, and also to new stores.

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 were not reflective of the DIY Business’s operations at the time it was acquired by the Company. The DIY Business was subsequently sold to The Hillman Group, Inc. on October 3, 2002. The DIY Business produced net sales of $16,974 and $8,526 during the approximately nine months and four months, respectively, that it was operated by the Company in 2002 and 2001. The DIY Business had 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 four years, the Company has been converting a portion of this central processing system to a new computer software and operating system and plans to convert additional modules during 2003. At the store level, the Company operates a proprietary point-of-sale system. This system operates on a Microsoft Windows NT system.

Trademarks

The Company conducts its business in the United States, Canada, Puerto Rico, Mexico, and Singapore under various trademarks and service marks, including Fastenal^®, FastTool^®, SharpCut^®, EquipRite^®, CleanChoice^®, PowerPhase^™, and FastArc^™. During 2002 and 2001, the Company also operated the DIY Business under the trademarks FAS-N-IT^™, and Anchor Wire^™. The Anchor Wire^™ trademark was sold with the sale of the DIY Business in October 2002. 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.

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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^® product name. Today, the fastener product line consists of approximately 169,000 different stock items. This product line consists of 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, 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. Many aspects of the threaded fastener market are common to all cities; variations from city to city that do exist typically relate to the types of businesses operating in a market or to the environmental conditions in a market. Therefore, the Company opens each store with a broad selection of base stocks of inventory and then allows the local store and district leaders to tailor the additional inventory to the local market demand as it develops. Threaded fasteners accounted for approximately 46%, 49%, and 51% of the Company’s consolidated net sales in 2002, 2001 and 2000, respectively.

Concrete anchors make up the largest portion of the other supply items included in the Fastenal^® 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^® product line. The additional product lines include the following:

Product line1:	Year introduced	Approximate number of stock items	Private label product name
Tools	1993	67,000	FastTool	®
Cutting tools	1996	29,000	SharpCut	®
Hydraulics and pneumatics	1996	34,000
Material handling	1996	10,000	EquipRite	®
Janitorial supplies	1996	5,000	CleanChoice	®
Electrical supplies	1997	10,000	PowerPhase	™
Welding supplies 2	1997	17,000	FastArc	™
Safety supplies	1999	9,000
Raw materials (metals)	2001	6,000

¹ During 2002 and 2001, the Company sold product in an eleventh product line called ‘Retail packaged product’. This product line was added with the 2001 acquisition of the DIY Business. The DIY Business was sold in 2002. This product line is now included in the other product lines and represents a subset of the type of products included in our CSP conversion.

² Excluding gas and welding machines.

The Company plans to add other product lines in the future.

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Inventory Control

The Company controls inventory by using computer systems, sales personnel, product managers, and vendor information to determine desired stock levels. The data used for this determination is derived from sales activity from all of Company’s stores, from individual stores, and from geographic areas; it is also derived from vendor information and from customer demographic information. The computer system monitors the inventory level for all stock items and triggers replenishment, or prompts a buyer, as necessary based on an established minimum-maximum level. All stores stock a base inventory and may expand beyond preset inventory levels as deemed appropriate by their district managers. Inventories in distribution centers are established from computerized data for the stores served by the respective centers.

Manufacturing and Support Services Operations

In 2002 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 2002 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, third-party logistics, 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 356,000 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 2002.

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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, 2002, the Company’s total number of active customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 159,000.

During each of the three years ended December 31, 2002, 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 operating stores in small, medium, 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, 2002, the Company employed a total of 7,108 full and part-time employees, 4,743 being store managers and store employees, and the balance being employed in the Company’s distribution centers, manufacturing operations, service operations, and home office.

The Company believes that the quality of its employees is critical to its ability to compete successfully in the markets it currently serves and to its ability to open new stores in new markets. The Company fosters the growth and education of skilled employees throughout the organization by operating training programs and by decentralizing decision-making. Wherever possible, promotions are from within the Company. For example, most new store managers are promoted from an assistant manager’s position at another store and district managers (who supervise a number of stores) are usually former store managers.

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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.

Posting of Periodic and Current Reports

Fastenal Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on or through the Company’s website at www.fastenal.com as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission.

ITEM 2. PROPERTIES

The Company owns six facilities in Winona, Minnesota. These facilities are as follows:

Purpose	Approximate 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 facility	55,000
Rack and shelving storage	42,000
Multi-building complex which houses certain operations of the Manufacturing Division and the Support Services group	30,000

The Company also owns the following facilities, excluding store locations, outside of Winona, Minnesota:

Purpose	Location	Approximate Square Feet
Distribution center	Indianapolis, Indiana	414,000
Distribution center	Indianapolis, Indiana	76,000
Distribution center 1	Atlanta, Georgia	198,000
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
Distribution center 1	Toronto, Ontario, Canada	62,000

¹ New buildings added in 2002, scheduled to become operational in 2003.

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In addition, the Company owns 70 buildings that house the Company’s store locations in various cities throughout North America and is currently in the process of building or renovating another 23 owned store locations.

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:

Purpose	Location	Approximate Square Feet	Lease Expiration Date	Remaining Lease Renewal Options
Distribution center	Seattle, Washington	55,000	February 2004	None
Distribution center	Fresno, California	52,500	February 2004	One one-year period 1
Distribution center	Salt Lake City, Utah	22,000	October 2003	None
Distribution center	Winston-Salem, North Carolina	58,400	October 2003	None
Centralized distribution center	Memphis, Tennessee	115,000	December 2003	None

¹ The lease renewal can be exercised at the Company’s option.

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.

ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of Fastenal Company are:

Name	Age	Position
Robert A. Kierlin	63	Chairman of the Board
Willard D. Oberton	44	Chief Executive Officer, President, and Director
Nicholas J. Lundquist	45	Executive Vice-President and Chief Operating Officer
Daniel L. Florness	39	Executive Vice-President, Treasurer, and Chief Financial Officer
Steven L. Appelwick	43	Vice-President – Product Procurement, Marketing, and Logistics
Stephen M. Slaggie	63	Secretary and Director

Mr. Kierlin has been Chairman of the Board of Fastenal Company and has served as a director of Fastenal Company since its incorporation in 1968. Mr. Kierlin also served as Chief Executive Officer of Fastenal Company from 1968 through December 2002 and as President of Fastenal Company from 1968 through July 2001.

Mr. Oberton has been Chief Executive Officer and President of Fastenal Company since December 2002. From July 2001 through December 2002, Mr. Oberton was President and Chief Operating Officer of Fastenal Company. 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. Mr. Oberton has also served as a director of Fastenal Company since June 1999.

Mr. Lundquist has been Executive Vice-President and Chief Operating Officer of Fastenal Company since December 2002. From June 2000 through December 2002, Mr. Lundquist was Vice-President of Sales of Fastenal Company. From April 1997 through June 2000, Mr. Lundquist held the position of National Sales Manager of Fastenal Company.

Mr. Florness has been the Executive Vice-President, Treasurer, and Chief Financial Officer of Fastenal Company since December 2002. From June 1996 to November 2002, Mr. Florness was the Treasurer and Chief Financial Officer of Fastenal Company.

Mr. Appelwick has been Vice-President – Product Procurement, Marketing, and Logistics of Fastenal Company since December 2002. From August 2001 through December 2002, Mr. Appelwick was Operations Manager of Fastenal Company. From August 1999 through July 2001, Mr. Appelwick held the position of Business Development/Logistics Manager of Fastenal Company. From 1995 through July 1999, Mr. Appelwick served as Distribution Manager of Fastenal Company.

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.

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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, 2002, 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, 2002, 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, 2002, Management’s Discussion & Analysis of Financial Condition & Results of Operations on pages 5 to 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, 2002, 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, 2002, Selected Quarterly Financial Data (Unaudited) on page 9, and Consolidated Financial Statements, Notes to Consolidated Financial Statements, and Independent Auditors’ Report on pages 10 to 20.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                 DISCLOSURE

None.

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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 to 6, and “Section 16(a) Beneficial Ownership Reporting Compliance”, page 23, in Fastenal Company’s Proxy Statement dated February 27, 2003. 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”, pages 9 to 10, “Executive Compensation—Option/SAR Grants”, pages 10 to 13, and “Executive Compensation—Compensation Committee Interlocks and Insider Participation”, page 13, in Fastenal Company’s Proxy Statement dated February 27, 2003.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED                   STOCKHOLDER MATTERS

Incorporated herein by reference is the information appearing under the heading “Security Ownership of Principal Shareholders and Management”, pages 2 to 4, and “Executive Compensation – Option/SAR Grants”, pages 10 to 13, in Fastenal Company’s Proxy Statement dated February 27, 2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

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ITEM 14. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on their evaluation, as of a date within 90 days prior to the date of the filing of this Form 10-K, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended), the principal executive officer and the principal financial officer of Fastenal Company have each concluded that such disclosure controls and procedures are effective and sufficient to ensure that information required to be disclosed by Fastenal Company in the reports that it files or submits under such Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

Changes in Internal Controls

Subsequent to the date of their evaluation, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect those controls, including any corrective action with regard to significant deficiencies and material weaknesses.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

.

(a)1.  Financal Statements:
	Consolidated Balance Sheets as of December 31, 2002 and 2001
	Consolidated Statements of Earnings for the years ended December 31, 2002, 2001, and 2000
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended December 31, 2002, 2001,    and 2000
	Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000
	Notes to Consolidated Financial Statements
	Independent Auditors’ Report
	(Incorporated by reference to pages 10 to 20 of Fastenal Company’s Annual Report to Shareholders for the fiscal year ended    December 31, 2002)
2.   Financial Statement Schedules:
	Schedule II—Valuation and Qualifying Accounts

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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	Articles of Amendment to Restated Articles of Incorporation of Fastenal Company effective May 10, 2002 (incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-88170)
3.3	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 Chief Executive Officer and President*
10.2	Description of bonus arrangement for Executive Vice-President, Treasurer and Chief Financial Officer*
10.3	Description of bonus arrangement for Executive Vice-President and Chief Operating Officer*
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 (incorporated by reference to Exhibit 10.5 to Fastenal Company’s Form 10-K for the year ended December 31, 2001)*
10.6	Description of bonus arrangement for Vice-President – Product Procurement, Marketing, and Logistics*
10.7	Robert A. Kierlin Stock Option Plan (incorporated by reference to Exhibit 99.1 to Registration Statement No. 333-52765)*
10.8	Amendment to Robert A. Kierlin Stock Option Plan (incorporated by reference to Exhibit 99.2 to Registration Statement No. 333-52765)*
13	Annual Report to Shareholders for the fiscal year ended December 31, 2002 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission)
21	List of Subsidiaries (incorporated by reference to Exhibit 21 to Fastenal Company’s Form 10-K for the year ended December 31, 2001)
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 15(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, 2002.

15

Independent Auditors’ Report on Schedule

The Board of Directors and Stockholders

Fastenal Company:

Under date of January 17, 2003 we reported on the consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 2002 and 2001, 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, 2002, as contained in the 2002 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 2002. 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       

Minneapolis, Minnesota

January 17, 2003

16

FASTENAL COMPANY

Schedule II—Valuation and Qualifying Accounts

Years ended December 31, 2002, 2001, and 2000

(Amounts in thousands)

Description	Balance at beginning of year		“Additions” charged to costs and expenses		“Other” additions (deductions)		“Less” deductions		Balance at end of year
Year ended December 31, 2002
Allowance for doubtful accounts	$	3,474	5,189		(219	) 1	4,901		3,543
Insurance reserves	$	2,371	24,732	3	—		21,140	4	5,963
Year ended December 31, 2001
Allowance for doubtful accounts	$	2,238	5,453		294	2	4,511		3,474
Insurance reserves	$	1,577	17,548	3	—		16,754	4	2,371
Year ended December 31, 2000
Allowance for doubtful accounts	$	1,400	4,496		—		3,658		2,238
Insurance reserves	$	1,072	13,27	3	—		12,766	4	1,577

¹ Represents ending allowance for doubtful accounts from the sale of the DIY Business in 2002.

² Represents opening allowance for doubtful accounts from the acquisition of the DIY Business in 2001.

³ Includes costs and expenses incurred for premiums and claims related to health and general insurance.

⁴ Includes costs and expenses paid for premiums and claims related to health and general insurance.

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:	February 26, 2003
FASTENAL COMPANY
By:	/s/    Willard D. Oberton
	Willard D. Oberton, 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:February 26, 2003
By:	/s/    Willard D. Oberton	By:	/s/    Daniel L. Florness
	Willard D. Oberton, Chief Executive Officer (Principal Executive Officer) and Director		Daniel L. Florness, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

By:	/s/    Robert A. Kierlin	By:	/s/    Michael M. Gostomski
	Robert A. Kierlin, Director		Michael M. Gostomski, Director

By:	/s/    Stephen M. Slaggie	By:	/s/    John D. Remick
	Stephen M. Slaggie, Director		John D. Remick, Director

By:	/s/    Henry K. McConnon	By:	/s/    Robert A. Hansen
	Henry K. McConnon, Director		Robert A. Hansen, Director

By:	/s/    Reyne K. Wisecup	By:	/s/    Michael J. Dolan
	Reyne K. Wisecup, Director		Michael J. Dolan, Director

18

CERTIFICATIONS

I, Willard D. Oberton, certify that:

1. I have reviewed this annual report on Form 10-K of Fastenal Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date	February 26, 2003	/s/    Willard D. Oberton
		(Willard D. Oberton, CEO)
		(Principal Executive Officer)

CERTIFICATIONS

I, Daniel L. Florness, certify that:

1. I have reviewed this annual report on Form 10-K of Fastenal Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date February 26, 2003     /s/ Daniel L. Florness         (Daniel L. Florness, Treasurer) (Principal Financial Officer)

INDEX TO EXHIBITS

3.1	Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company’s Form 10-Q for the quarter ended September 30, 1993).
3.2	Articles of Amendment to Restated Articles of Incorporation of Fastenal Company (incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-88170).
3.3	Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-14923).
10.1	Descriptionof bonus arrangement for Chief Executive Officer and President ... Electronically Filed
10.2	Description of bonus arrangement for Executive Vice-President, Treasurer and Chief Financial Officer ................................................................................ Electronically Filed
10.3	Description of bonus arrangement for Executive Vice-President and Chief Operating Officer ............................................................................... 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 (incorporated by reference to Exhibit 10.5 to Fastenal Company’s Form 10-K for the year ended December 31, 2001).
10.6	Description of bonus arrangement for Vice President – Product Procurement, Marketing, and Logistics ...................................................................................... Electronically Filed
10.7	Robert A. Kierlin Stock Option Plan (incorporated by reference to Exhibit 99.1 to Registration Statement No. 333-52765).
10.8	Amendment to Robert A. Kierlin Stock Option Plan (incorporated by reference to Exhibit 99.2 to Registration Statement No. 333-52765).
13	Annual Report to Shareholders for the fiscal year ended December 31, 2002 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission) ............................................................................................................................. Electronically Filed
21	List of Subsidiaries (incorporated by reference to Exhibit 21 to Fastenal Company’s Form 10-K for the year ended December 31, 2001).
23	Consentof KPMG LLP ........................................................................................ Electronically Filed

EX-10.1

Exhibit 10.1

Bonus Arrangement for Chief Executive Officer and President

Fastenal Company’s Chief Executive Officer and President is paid a bonus under an individual bonus arrangement. Under this arrangement, the 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

Exhibit 10.2

Bonus Arrangement for Executive Vice-President, Treasurer, and Chief Financial Officer

Fastenal Company’s Executive Vice-President, Treasurer, and Chief Financial Officer is paid a bonus under an individual bonus arrangement. Under this arrangement, the 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 consolidated net sales.

EX-10.3

Exhibit 10.3

Bonus Arrangement for Executive Vice-President and Chief Operating Officer

Fastenal Company’s Executive Vice-President and Chief Operating Officer is paid a bonus under an individual bonus arrangement. Under this arrangement, the bonus for any quarter is calculated based on the amounts by which the Company’s consolidated net sales and consolidated pre-tax income for such quarter exceeds, respectively, the Company’s consolidated net sales and consolidated pre-tax income for the same quarter in the prior year.

EX-10.6

Exhibit 10.6

Bonus Arrangement for Vice-President – Product Procurement, Marketing, and Logistics

Fastenal Company’s Vice-President – Product Procurement, Marketing, and Logistics is paid a bonus under an individual bonus arrangement. Under this arrangement, the 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-13

Profile of Fastenal Company

Fastenal Company was founded in 1967. As of December 31, 2002, the Company operated 1,169 store sites located in 50 states, PuertoRico, Canada, Mexico and Singapore and employed 4,743 people at these sites. In addition, there were 2,365 people employed in various support positions. The Company sells approximately 356,000 different types of industrial and construction supplies in ten product categories. These include approximately 169,000 different types of threaded fasteners and miscellaneous supplies; approximately 67,000 different types of tools; approximately 29,000 different types of metal cutting tool blades; approximately 34,000 different types of fluid transfer components and accessories for hydraulic and pneumatic power; approximately 10,000 different types of material handling and storage products; approximately 5,000 different types of janitorial and paper products; approximately 10,000 different types of electrical supplies; approximately 17,000 different types of welding supplies (excluding gas & welding machines); approximately 9,000 different types of safety supplies; and approximately 6,000 different types of raw materials (metals). As of December 31, 2002, the Company operated eleven distribution centers located in Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia,Washington, California, Utah, North Carolina, and Kansas and also a facility located in Tennessee which is used to distribute “Customer Service Project” inventory and supplies to new stores and to existing stores for their conversion. (See additional discussion below.) Approximately 95.7% of the Company’s 2002 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, 2002, the Company has opened additional store sites.

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 the expected non-recurrence of a large increase late last year in expenses for general self-insured claims, the implementation of the Company’s Customer Service Project (CSP), the expansion of the course offerings at the Fastenal School of Business, opening of new distribution centers, the leveling off of sales growth and the variability of sales at older stores, expansion of foreign operations, capital expenditures, funding of expansion plans, expected increased leasing of vehicles, 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.

Table of Contents

	pages 2-3
	PRESIDENT’S LETTER TO SHAREHOLDERS
	page 4
	SIX-YEAR SELECTED FINANCIAL DATA
	pages 5-8
	MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
	page 9
	STOCK AND FINANCIAL DATA
	page10
	CONSOLIDATED BALANCE SHEETS
	page11
	CONSOLIDATED STATEMENTS OF EARNINGS
page12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY & COMPREHENSIVE INCOME
page 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
pages 14-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
page 20
REPORT OF MANAGEMENT & INDEPENDENT AUDITORS’ REPORT
Inside Back Cover
OFFICERS & DIRECTORS CORPORATE INFORMATION

2002 Annual Report    1

President’s Letter to Shareholders

For Fastenal, 2002 was a better year than 2001 but not a great one. We were able to grow both our sales and our earnings in 2002. Sales in 2002 were $905.4 million, a 10.7% increase over sales of $818.3 million in 2001. We continued to see improvement in our sales growth throughout much of the year. The industrial economy was difficult to read in 2002. We saw a slow but continual improvement in our business for the first six months of the year, then saw a weakening in July. After July, sales slowly gained momentum through November, again slowing down around the holidays. Despite the uncertain economy, we opened 144 stores increasing our total to 1,169 at year-end.

Our net earnings in 2002 were $75.5 million, an increase of 7.7% over $70.1 million in 2001. This was made possible by the increase in sales and the gain we had on the sale of our DIY Business (see description on page 5). Our people did a good job of expense control in 2002, but we had some large unexpected increases in our expenses for general self-insured claims late in the year. These expenses were to cover changes in claim estimates from 2002 and earlier years and should not be reoccurring.

In October, we completed the sale of our DIY Business to The Hillman Group. We learned a lot about retail sales and customer service in the 13 months we owned this business. Based on this, we felt Fastenal could best service its industrial and construction customers by applying what we learned to our Fastenal stores. We wanted to focus all of our energy and resources on improving our stores.

After purchasing the DIY Business, we put a team of experienced Fastenal employees in place to lead the business. These individuals spent a great deal of time in hardware and lumber stores, setting displays and merchandising product. They soon came to us with many ideas that they believed could improve our stores. These ideas centered on stocking a broader inventory in our stores and displaying it so our customers can service themselves. The team believed this would improve the efficiency for both our people and our customers. Our sales force, marketing department, and finance people researched this further and concluded it was worth the investment to assemble a team and develop this concept. Internally, the concept is known as the Customer Service Project, or CSP. Our product development and marketing people, along with the help of our suppliers, spent months determining which products should be represented and how they should be merchandised. In the next 12 months you should see significant changes taking place at our Fastenal stores. We are re-merchandising them with an open floor design, a broader product selection, improved signage and improved store fixtures, and we are making system changes that will speed up the invoicing process.

Since June 2002, we converted approximately 75 of our existing stores to and opened approximately 80 stores with this new format; each time getting a little better at the process and achieving better results. The early returns on our investments look favorable. Based on these results, and our continued commitment to improve our customer service, we intend to continue to move forward on this project. Our plan is to convert approximately 80 stores per month and to open all new stores with the CSP format in 2003. Our goal is simple: to position our stores to be the best industrial products distributor in each of the markets we are in.

The Fastenal School of Business experienced continued success and growth in 2002, both in the number of people served and also in the programs offered. The number of employees attending Fastenal School of Business courses in 2002 increased approximately 50% from 900 in 2001. An accelerated training program for high potential employees seeking store manager positions started mid year and continued to expand. The school will continue to expand its course offerings in alignment with our business and employee needs.

For our National Accounts group, 2002 was a good year. We added 65 new accounts, bringing our total number of national account customers to 211. We continued to see improvement in our sales growth throughout much of the year. In the first quarter, our national account sales grew 20.4% over the previous year, and in the fourth quarter such sales grew 30.9%. In 2002, national account sales represented 20.7% of our overall sales. Our efforts to sell to government accounts were also very successful. Sales to the government grew 53.1% over 2001. In 2002, government sales represented 1.7% of our overall sales.

2    2002 Annual Report

President’s Letter to Shareholders

In the third quarter, we started a new specialty sales group focused on the largest construction companies in North America. This is a small group of experienced employees who focus their efforts on developing national sales agreements with large construction companies.

Our marketing department continued to work on product development in 2002; adding more than 63,000 new parts to existing product lines. Late in 2001, we added raw materials (or metals) to our product offering, and in the second half of 2002 we added a selection of metals to 25 stores. This selection consists of over 300 items in different materials, shapes, and sizes. This product offering is focused on selling smaller quantities to the maintenance market.

Although the Internet is not changing our business like some thought it would, we continue to use it to improve our business. In 2002 we introduced our new electronic billing software. This project was developed internally and allows our customers to access their account information 24 hours a day. This program has received great reviews from our customers. In December we introduced a new website designed for recruiting and screening prospective employees. The initial results have been very promising. Take a look at www.fastenal.com.

During 2002 we purchased two new distribution centers. The first is a 198,000 square foot facility in Atlanta, Georgia that will open in the first quarter of 2003. This facility will replace our existing distribution center in Atlanta, which is 54,000 square feet. The second is a 62,000 square foot facility in Kitchener, Ontario. This facility will be our first distribution center in Canada and is expected to open in the second quarter of 2003.

Although the results we reported for 2002 were less than great, I believe the efforts put forth by the Fastenal team were, indeed, great. I want to thank every one of them. We are better positioned than we have ever been to grow our business, to grow the opportunities for our employees, and to create better returns for our shareholders.

Thank you for your support and your belief in the Fastenal Team.

2002 Annual Report    3

Six -Year Selected Financial Data

(AMOUNTS IN THOUSANDS EXCEPT EARNINGS AND DIVIDENDS PER SHARE INFORMATION.)

Operating Results Years Ended Dec. 31	2002			Percent Change	2001		2000	1999	1998	1997
Net sales	$	905,438		10.7%	$	818,283	755,618	618,191	511,233	404,248
Gross profit		448,476		8.7%		412,427	388,118	319,460	265,179	209,143
Earnings before income taxes		121,207	1	6.7%		113,634	131,430	106,479	86,123	67,336
Net earnings		75,542	2	7.7%		70,112	80,730	65,455	52,953	40,834
Basic and diluted earnings per share		1.00	2	8.7%		.92	1.06	.86	.70	.54
Dividends per share	$	.05		11.1%	$	.045	.04	.02	.01	.01
Weighted average shares outstanding		75,877		—		75,877	75,877	75,877	75,877	75,877
Financial Position December 31
Net working capital	$	349,422		16.2%	$	300,680	247,876	193,744	142,459	106,555
Total assets		559,008		17.6%		475,244	402,464	318,621	251,234	205,137
Total stockholders’ equity	$	499,871		17.6%	$	424,888	359,258	281,960	217,646	165,872

All information contained in this Annual Report reflects the 2-for-1 stock split

effected in the form of a stock dividend in 2002.

¹ Amount includes a gain on the sale of the DIY Business of $5,934.

² Amount includes an extraordinary gain, net of tax, of $716, or $.01 per basic and diluted share.

4    2002 Annual Report

Management’s Discussion & Analysis of

Financial Condition & Results of Operations

(AMOUNTS IN THOUSANDS EXCEPT PERSONNEL COUNTS AND DIVIDENDS PER SHARE.)

Results of Operations

During August 2001, the Company acquired a business which sold packaged fasteners to the retail market (Do-It-Yourself or DIY Business). During October 2002 this business was sold. The DIY Business had sales of $16,974 and $8,526 (or approximately 1.9% and 1.0% of the consolidated sales of the Company) during 2002 and 2001, respectively.

Net sales for 2002 exceeded net sales for 2001 by 10.7%. This compares with an 8.3% net sales growth rate experienced from 2000 to 2001. The increase in net sales in 2002 came primarily from new site openings, unit sales growth in existing sites less than 5 years old, growth in the newer product lines, and the acquisition. The growth in 2002 was tempered by a slight deflationary impact to pricing. 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 the acquisition. This 2001 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 following table indicates: (1) percentage of net sales from the Fastenal^® product line and from the newer product lines and (2) product lines added to the original fastener product line and the year of introduction.

	Introduced	2002	2001
Fastenal Product Line	1967	55.6%	58.8%
Tools	1993	11.1%	11.6%
Cutting Tools	1996	5.4%	5.5%
Hydraulics & Pneumatics	1996	6.0%	5.2%
Material Handling	1996	6.7%	6.7%
Janitorial Supplies	1996	3.2%	2.5%
Electrical Supplies	1997	2.6%	2.4%
Welding Supplies	1997	2.8%	2.3%
Safety Supplies	1999	4.1%	3.3%
Raw Materials	2001	0.1%	0.2%
Retail Packaged Products*	2001	1.9%	1.0%
Other	–	0.5%	0.5%

*The Retail Packaged Product line was added as a result of the DIY Business acquisition. This business was sold in October 2002. This product line has been merged into the Company’s other product lines.

Threaded fasteners accounted for approximately 46%, 49%, and 51% of the Company’s consolidated sales in 2002, 2001, and 2000, respectively. Sites opened in 2002 contributed approximately $18,600 (or 2.1%) to 2002 net sales. Sites opened in 2001 contributed approximately $56,370 (or 6.2%) to 2002 net sales and approximately $21,620 (or 2.6%) to 2001 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 do the sales of younger sites.

The twelve months of 2002 and 2001 had daily sales growth rates of (compared to the comparable month in the preceding year, and excluding the impact of the DIY Business):

Month	2002	2001
January	2.7%	20.0%
February	4.8%	16.2%
March	6.0%	11.4%
April	9.3%	9.0%
May	9.4%	9.4%
June	11.0%	7.6%
July	8.7%	7.4%
August	10.4%	5.9%
September	12.5%	4.8%
October	13.3%	1.0%
November	17.9%	-0.5%
December	11.6%	1.4%

Note: Daily sales are defined as the sales for a period divided by the number of business days in a period.

The daily sales growth rates above represent several trends. The first being a downward trend in the first eleven months of 2001, which reflected the overall weakening of the industrial economy we service in North America. This trend reversed itself from December 2001 to June 2002; this was partly due to changing comparisons in the prior year and partly due to stronger month-to-month (i.e. April to May and May to June) growth rates compared to 2001. During July 2002, the daily sales growth rate decreased and began to improve again in August 2002 and September 2002. During the fourth quarter, the daily sales growth rate continued to grow through November, and slipped in December, the final month of the year.

Gross profit as a percent of net sales was 49.5% in 2002, 50.4% in 2001, and 51.4% in 2000. The fluctuations resulted primarily from changes in the mix of products being sold. Absent the DIY Business acquisition, the gross profit percent would have been 0.4% and 0.2% higher in 2002 and 2001, respectively. The DIY Business operated at 30% to 32% gross margin.

2002 Annual Report    5

Management’s Discussion & Analysis of

Financial Condition & Results of Operations

(AMOUNTS IN THOUSANDS EXCEPT PERSONNEL COUNTS AND DIVIDENDS PER SHARE.)

Operating and administrative expenses were 37.0% of net sales in 2002, compared to 36.7% of net sales in 2001, and 34.2% of net sales in 2000. These increases were primarily due to changes in payroll and related costs, changes in occupancy costs, flat or lower net sales in stores greater than five years old, and, with respect to 2002, changes in the estimate of general self-insured clams, plus the impact of the August 2001 acquisition.

In 2002 and 2001, payroll and related costs, increased at a rate which was greater 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:

	2002	2001
Sales Personnel	6.1%	7.4%
Support Personnel	11.4%	8.3%

During the fourth quarter of 2002, we completed the preparation for our January 2003 change in our general insurance provider. During this process, our first change in over 20 years, we experienced some difficulties. As is common in the industry, we have a self-insurance program that is administered by our insurance provider. On a periodic basis, we are updated as to the status of our claims. This update includes an estimate by our insurance provider regarding the reserves needed for open claims. During the transition process, we were advised by our old insurance provider of reserve levels which were inconsistent with earlier information and with estimates previously provided. The estimation process conducted by our outside insurance provider indicated a reserve adjustment of approximately $4 million was necessary. This change was recorded during the fourth quarter and increased our operating and administrative expenses in 2002.

In 2002 and 2001, the rate of increase in occupancy costs was greater than the rate of increase in net sales. Occupancy costs increased due to a 14.0% and a 14.3% increase in the number of sites in 2002 and 2001, respectively.

Interest income, net of interest expense, in 2002 decreased $266 from 2001. Interest income, net of interest expense, in 2001 increased $207 over 2000. Changes were due to the fluctuations in the weighted average amount of outstanding Company investments combined with the impact of lower interest rates in 2002 and 2001.

The loss on sale of property and equipment in all years came primarily from the sale of used vehicles. The gain on sale of the DIY Business in 2002 was from the sale of the business acquired in 2001. The extraordinary gain of $716, net of tax, in 2002 resulted from the negative goodwill recognized on the DIY Business acquisition.

Net earnings grew 7.7% from 2001 to 2002 and contracted 13.2% from 2000 to 2001. During 2002 and 2001, the net earnings growth rate was lower than that of net sales because of the earlier mentioned impact of operating and administrative costs. The growth in net earnings in 2002 resulted primarily from increased net sales and from the gain on the sale of the DIY Business. 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.

Effects of Inflation

Price deflation related to certain products negatively impacted net sales in 2002, 2001, and 2000.

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 includes the aging of accounts 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 includes inventory levels, physical inventory counts, cycle count adjustments, the nature of the products and their 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

6    2002 Annual Report

Management’s Discussion & Analysis of

Financial Condition & Results of Operations

(AMOUNTS IN THOUSANDS EXCEPT PERSONNEL COUNTS AND DIVIDENDS PER SHARE.)

trends do not reflect actual results or if demand for the Company’s products decreases 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 is for general claims related to worker’s compensation, property and casualty losses, and other self-insured losses. The reserve is based on an external analysis of the Company’s historical general claim trends. Management believes the results could be materially different if historical trends do not reflect actual results. (See comments earlier.)

Liquidity and Capital Resources

Net cash provided by operating activities was:

2002	$17,819
2001	$91,727
2000	$38,253

The 2002 decrease in net cash provided by operating activities was primarily due to the increases in inventory for the continued implementation of the Company’s “CSP” Project (discussed below). 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.

During 2002, the Company’s inventory level increased by $64,556 (or 42.3%) from December 31, 2001. The increase in 2002 was the result of: (1) growth in sales and in the number of store locations over the last two years, (2) the Company’s “CSP” implementation, and (3) higher stocking levels in the Company’s distribution centers. During 2001, the Company’s inventory level increased $9,638 (or 6.7%) from December 31, 2000.

During 2002, the Company began its Customer Service Project (CSP). This project centers on stocking a broader inventory in each of our stores and displaying it so our customers can service themselves. The impact of this project on our inventory will vary from store to store. The inventory stocked under a CSP format consists of a core stocking level of approximately $55,000 per location. Existing stores stock some, but not all, of the inventory stocked under the CSP format. The existing stores converted have experienced increases in their inventory levels as they fill out the product selection. New stores, prior to the CSP, opened with approximately $25,000 of inventory per location, and would grow this amount to approximately $50,000 after operating for twelve months. On December 31, 2002, the Company had 155 stores operating under the CSP format. This number consisted of 75 existing stores and 80 new stores. The Company currently intends to convert approximately 80 stores per month and to open all new stores with the CSP format beginning in 2003.

Net cash used in investing activities was:

2002	$47,007
2001	$60,648
2000	$43,300

The 2002 decrease in net cash used in investing activities resulted primarily from the sale of the DIY Business. The 2001 increase in net cash used in investing activities resulted primarily from the purchase of the DIY Business and from the increase in marketable securities.

The Company had future commitments for leased facilities and for leased vehicles at December 31, 2002. The Company had $6,533 of long-term debt related to an Industrial Revenue Bond (IRB) at December 31, 2002 and 2001, and had no long-term debt at December 31, 2000. The future contractual cash obligations related to the commitments are as follows:

	Total		2003	2004	2005 and 2006	After 2006
Facilities	$	33,951	18,269	9,534	5,702	446
Vehicles		12,597	8,182	4,199	216	––
IRB		6,533	––	––	––	6,533
Total	$	53,081	26,451	13,733	5,918	6,979

The Company has a letter of credit issued on its behalf to its insurance carrier. The future commercial commitment related to the letter of credit is $3,969. 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 Company paid an annual dividend of $.05 per share in 2002, $.045 per share in 2001, and $.04 per share in 2000.

As of December 31, 2002, the Company had no material outstanding commitments for capital expenditures.

The Company expects to incur approximately $38,000 in total capital expenditures in 2003, consisting of approximately $7,000 for manufacturing, warehouse and

2002 Annual Report    7

Management’s Discussion & Analysis of

Financial Condition & Results of Operations

(AMOUNTS IN THOUSANDS EXCEPT PERSONNEL COUNTS AND DIVIDENDS PER SHARE.)

packaging equipment and facilities, approximately $7,000 for shelving and related supplies for the Company’s “CSP” implementation, approximately $6,000 for data processing equipment, approximately $10,000 for store buildings, 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 2002 and 2001. 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 2003.

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.

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, 2002. 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, 2002.

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, 2002, 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) an upturn or downturn in the economy, or a change in product mix, could impact gross margins, (iii) 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, (iv) 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, (v) increases or decreases in fuel and utility costs could impact distribution and occupancy expenses of the Company, (vi) 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, (vii) changes in governmental regulations related to product quality or product source traceability could impact the cost to the Company of regulatory compliance, (viii) inclement weather could impact the Company’s distribution network, (ix) 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, (x) disruptions caused by the implementation of the Company’s new management information systems infrastructure could impact sales, (xi) changes in the rate of new store openings could impact expenditures for computers and other capital equipment, (xii) disruption related to the “CSP” implementation could cause expenses and inventory investments to increase, which in turn could cause the Company to reevaluate implementation of the project, and (xiii) changes in the availability of suitable land and buildings could impact expenditures for additional owned locations which house our stores.

New Accounting Pronouncements

During 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Account Standards (SFAS) No. 146, Accounting for Costs Associated with Exit and Disposal Activities, and Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This statement also establishes that fair value is the objective for initial measurement of the liability. FIN No. 45 requires companies to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Guarantees in existence at December 15, 2002 are grandfathered for the purposes of recognition and would only need to be disclosed. The adoption of both SFAS No.146 and FIN No. 45 in 2003 is not expected to have a significant impact on the Company’s financial condition or results of operations.

8    2002 Annual Report

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 2002 and 2001.

2002:	High	Low	2001:	High	Low
First quarter	$38.84	31.63	First quarter	$32.03	24.19
Second quarter	43.35	36.15	Second quarter	36.50	24.50
Third quarter	41.80	29.49	Third quarter	33.95	25.24
Fourth quarter	39.39	26.61	Fourth quarter	33.73	27.32

As of February 3, 2003, there were approximately 1,800 recordholders of the Company’s Common Stock. A $.05 annual dividend per share was paid in 2002 and a $.045 annual dividend per share was paid in 2001. On January 21, 2003, the Company announced a $.06 annual dividend per share to be paid on March 7, 2003 to shareholders of record at the close of business on February 21, 2003. The Company expects that it will continue to pay comparable cash dividends in the foreseeable future, provided that any future determination as to payment of dividends will depend upon the financial condition and results of operations of the Company and such other factors as are deemed relevant by the board of directors.

Selected Quarterly Financial Data (Unaudited)

(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

2002:	Net sales	Gross profit	Net earnings	Earnings per share2
First quarter	$214,582	106,577	17,705	.23
Second quarter	233,484	115,485	21,8311	.29
Third quarter	238,086	117,069	19,117	.25
Fourth quarter	219,286	109,345	16,889	.22
Total	$905,438	448,476	75,542	1.00

2001:	Net sales	Gross profit	Net earnings	Earnings per share
First quarter	$203,374	104,555	20,739	.27
Second quarter	207,442	104,631	19,018	.25
Third quarter	209,397	104,774	17,001	.22
Fourth quarter	198,070	98,467	13,354	.18
Total	$818,283	412,427	70,112	.92

¹ Includes an extraordinary gain, net of tax, of $716.

² Earnings per share amounts do not equal the total annual earnings per share due to rounding differences.

2002 Annual Report    9

Consolidated Balance Sheets

DECEMBER 31, 2002 & 2001

(AMOUNTS IN THOUSANDS EXCEPT SHARE INFORMATION.)

Assets	2002			2001
Current assets:
Cash and cash equivalents	$	14,296		47,264
Marketable securities		37,062		21,258
Trade accounts receivable, net of allowance for doubtful accounts of $3,543 and $3,474, respectively		105,553		101,356
Inventories		217,262		152,706
Deferred income tax asset		5,868		4,696
Other current assets		14,607		13,961
Refundable income taxes		1,838		—
Total current assets		396,486		341,241
Marketable securities		15,340		9,374
Property and equipment, less accumulated depreciation		144,252		121,607
Other assets, net		2,930		3,022
Total assets	$	559,008		475,244
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	25,783		20,100
Accrued expenses		21,281		17,973
Income tax payable		—		2,488
Total current liabilities		47,064		40,561
Deferred income tax liability		12,073		9,795
Stockholders’ equity:
Preferred stock		—		—
Common stock, 100,000,000 shares authorized                         75,877,376 shares issued		759		759
Additional paid-in capital		7,472		4,044
Retained earnings		493,693		421,945
Accumulated other comprehensive loss		(2,053	)	(1,860	)
Total stockholders’ equity		499,871		424,888
Commitments (notes 4, 8, and 9)
Total liabilities and stockholders’ equity	$	559,008		475,244

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

10    2002 Annual Report

Consolidated Statements of Earnings

(AMOUNTS IN THOUSANDS EXCEPT EARNINGS PER SHARE.)

YEARS ENDED DECEMBER 31,

2002, 2001, & 2000

	2002			2001	2000
Net sales	$	905,438		818,283	755,618
Cost of sales		456,962		405,856	367,500
Gross profit		448,476		412,427	388,118
Operating and administrative expenses		334,875		300,696	258,561
Loss on sale of property and equipment		304		339	162
Gain on sale of DIY Business		(5,934	)	––	––
Operating income		119,231		111,392	129,395
Interest income		1,976		2,242	2,035
Earnings before income taxes and extraordinary gain		121,207		113,634	131,430
Income tax expense		46,381		43,522	50,700
Net earnings before extraordinary gain	$	74,826		70,112	80,730
Extraordinary gain on DIY Business acquisition, net of tax		716		––	––
Net earnings	$	75,542		70,112	80,730
Basic and diluted earnings per share before extraordinary gain	$	.99		.92	1.06
Basic and diluted extraordinary gain per share, net of tax		.01		––	––
Basic and diluted earnings per share	$	1.00		.92	1.06
Weighted average shares outstanding		75,877		75,877	75,877

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

2002 Annual Report    11

Consolidated Statements of Stockholders’

Equity & Comprehensive Income

(AMOUNTS IN THOUSANDS.)

YEARS ENDED DECEMBER 31,

2002, 2001, & 2000

	Common Stock			Additional Paid-in Capital	Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balances as of December 31, 1999	75,877	$	759	4,044	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	75,877		759	4,044	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	75,877		759	4,044	421,945		(1,860	)	424,888
Dividends paid in cash	—		—	—	(3,794	)	—		(3,794	)
Tax benefit from exercise of stock options				3,428					3,428
Net earnings for the year	—		—	––	75,542				75,542
Translation adjustment	—		—	—	—		(193	)	(193	)
Total comprehensive income									75,349
Balances as of December 31, 2002	75,877	$	759	7,472	493,693		(2,053	)	499,871

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

12    2002 Annual Report

Consolidated Statements of Cash Flows

(AMOUNTS IN THOUSANDS)

YEARS ENDED DECEMBER 31,

2002, 2001, & 2000

	2002			2001		2000
Cash flows from operating activities:
Net earnings	$	75,542		70,112		80,730
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of property and equipment		16,945		14,747		11,757
Loss on sale of property and equipment		304		339		162
Gain on sale of DIY Business		(5,934	)	–		–
Bad debt expense		5,189		5,453		4,496
Deferred income taxes		1,106		2,532		2,453
Tax benefit from exercise of stock options		3,428		–		–
Amortization of goodwill and non-compete agreement		67		220		220
Changes in operating assets and liabilities, net of acquisition and sale of the DIY Business:
Trade accounts receivable		(13,025	)	6,232		(26,053	)
Inventories		(71,738	)	(2,605	)	(36,471	)
Other current assets		(1,893	)	(4,407	)	(1,959	)
Accounts payable		6,949		(1,835	)	573
Accrued expenses		5,205		1,630		1,717
Income taxes, net		(4,326	)	(691	)	628
Net cash provided by operating activities		17,819		91,727		38,253
Cash flows from investing activities:
Purchases of business and property and equipment		(42,683	)	(45,342	)	(36,729	)
Proceeds from sale of property and equipment		2,693		3,295		6,633
Proceeds from sale of DIY business		14,935		–		–
Translation adjustment		(207	)	(957	)	(340	)
Net increase in marketable securities		(21,770	)	(17,635	)	(12,782	)
Decrease (increase) in other assets		25		(9	)	(82	)
Net cash used in investing activities		(47,007	)	(60,648	)	(43,300	)
Cash flows from financing activities:
Payment of dividends		(3,794	)	(3,415	)	(3,035	)
Net cash used in financing activities		(3,794	)	(3,415	)	(3,035	)
Effect of exchange rate changes on cash		14		(110	)	(57	)
Net increase (decrease) in cash and cash equivalents		(32,968	)	27,554		(8,139	)
Cash and cash equivalents at beginning of year		47,264		19,710		27,849
Cash and cash equivalents at end of year	$	14,296		47,264		19,710
Supplemental disclosure of cash flow information:
Cash paid during each year for:
Income taxes	$	46,573		41,682		50,072

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

2002 Annual Report    13

Notes to Consolidated Financial Statements

(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.)

YEARS ENDED DECEMBER 31,

2002, 2001, & 2000

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 NE C.V., and Fastenal Singapore P.T.E., Ltd. (collectively referred to as the Company). All material intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition and Accounts Receivable

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. Accounts receivable are stated at their estimated net realizable value.

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, 2002 and 2001 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, 2002 and 2001.

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.

14    2002 Annual Report

Notes to Consolidated Financial Statements

(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.)

YEARS ENDED DECEMBER 31,

2002, 2001, & 2000

Summary of Significant Accounting Policies continued

Other Assets and Long-Lived Assets

Other assets consists of prepaid security deposits, goodwill and a non-compete agreement.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Beginning in 2002, goodwill amortization was discontinued in accordance with SFAS No. 142, Goodwill, and Other Intangible Assets. Total goodwill amortization costs were $153 per year in 2001 and 2000. The non-compete is amortized on a straight-line basis over 15 years. Total non-compete amortization costs were $67 per year in 2002, 2001, and 2000.

Goodwill and other tangible and identifiable intangible long-lived assets are reviewed whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, or on an annual basis if no event or change occurs, to determine that the unamortized balances are recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset, or, in the case of goodwill, by also looking at an adverse change in legal factors or 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 asset is deemed to be impaired, the amount of impairment is charged to earnings as a part of operating and administrative expenses in the current period. 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.

Insurance Reserves

The Company is self-insured for certain losses relating to medical, worker’s compensation, and other casualty losses. Specific stop loss coverage is provided for catastrophic claims in order to limit exposure to significant claims. Losses and claims are charged to operations when it is probable a loss has been incurred and the amount can be reasonably estimated. Accrued insurance liabilities are based on claims filed and estimates of claims incurred but not reported.

Stock-Based Compensation

The Company has not granted any stock options. However, certain employees participate in a stock option plan sponsored by the Company’s founder, Robert A. Kierlin. This is a shareholder sponsored plan, and does not directly involve the Company. The Company continues to apply the provisions of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, however, a proforma fair value disclosure is contained in Note 4.

During 2000, the Company established a stock appreciation rights (SAR) plan. During 2002, 2001, and 2000, the Company granted 8,000, 8,000, and 20,000 SAR units, respectively, under this plan. The SAR units granted in 2000 vested in July 2002 with a six month exercise period before expiration. The SAR units granted in 2001 and 2002 also vest approximately 2.5 years after grant and also have a six month exercise period. The Company recognized $80, $154, and $0 compensation expense during 2002, 2001, and 2000, respectively, related to the SAR plan.

2002 Annual Report    15

Notes to Consolidated Financial Statements

(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.)

YEARS ENDED DECEMBER 31,

2002, 2001, & 2000

Summary of Significant Accounting Policies continued

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Earnings Per Share

Basic and diluted earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding. All common shares and per share amounts have been adjusted to reflect the 2-for-1 stock split effected in the form of a stock dividend in May 2002. As of December 31, 2002 and 2001, the Company did not have any contingently issuable shares.

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	2002			2001
Land	—	$	9,246		7,029
Buildings and improvements	31 to 39		56,093		37,572
Equipment and shelving	3 to 10		129,306		111,079
Transportation equipment	3 to 5		17,162		17,413
Construction in progress	—		12,145		13,349
			223,952		186,442
Less accumulated depreciation			(79,700	)	(64,835	)
Net property and equipment		$	144,252		121,607

3 Accrued Expenses

Accrued expenses as of December 31 consist of the following:

	2002		2001
Payroll and related taxes	$	7,545	7,273
Bonuses and commissions		3,724	3,449
Insurance		5,963	2,371
Sales and real estate taxes		1,566	1,062
Other		2,483	3,818
	$	21,281	17,973

16    2002 Annual Report

Notes to Consolidated Financial Statements

(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.)

YEARS ENDED DECEMBER 31,

2002, 2001, & 2000

4 Stockholders’ Equity

Preferred stock has a par value of $.01 per share. There were 5,000,000 shares authorized and no shares issued as of December 31, 2002 and 2001. Common Stock has a par value of $.01 per share. There were 100,000,000 shares authorized and 75,877,376 shares issued and outstanding as of December 31, 2002 and 2001.

Dividends

On January 21, 2003, the Company’s board of directors declared a dividend of $.06 per share of Common Stock to be paid in cash on March 7, 2003 to shareholders of record at the close of business on February 21, 2003.

Stock Options

In 2002, 2001, and 2000, options were granted, under the Robert A. Kierlin Stock Option Plan, to purchase shares of common stock owned by the Company’s founder Robert A. Kierlin. The individuals eligible to receive options included those employees with three or more years of service, or employed as a district manager or a store manager, on the last business day of December in the previous year. The options were granted with an exercise price equal to or greater than fair market value on the date of grant. The stock options vest approximately 2.5 years after grant and expire approximately 3 years after grant. The stock option plan was sponsored by the Company’s founder and does not involve a commitment by the Company. The Company’s net earnings and net earnings per share would have been as follows if the Company had elected to recognize compensation expense consistent with the methodology prescribed in SFAS No.123, Accounting for Stock-Based Compensation:

	2002		2001	2000
Net earnings, as reported	$	75,542	70,112	80,730
Pro forma net earnings	$	72,868	67,603	79,215
Basic and diluted earnings per share	$	1.00	.92	1.06
Pro forma basic and diluted earnings per share	$	0.96	.89	1.04

The fair value of stock options is estimated as of the grant date using the Black-Scholes option-pricing model with the following assumptions:

	2002	2001	2000
Risk-free interest rate	4.5%	5.0%	6.0%
Expected life of option in years	2.66	2.75	2.75
Expected dividend yield	0.2%	0.2%	0.2%
Expected stock volatility	27.03%	37.66%	42.29%

The fair market value of options granted in 2002, 2001, and 2000 was estimated to be $6.65, $8.07, and $5.77 per share, respectively. A summary of stock option activity under the plan described above, by grant year, is:

	2002		2001	2000
Exercise price of options issued during the year	$	35.00	27.50	27.50
Options granted during the year		820	700	1,451
Options canceled since grant		192	199	388
Options exercised in 2002		––	––	1,063

5 Retirement Plan

In 1998 the Company established the Fastenal Company and Subsidiaries 401(k) Plan. This plan covers all employees of the Company in the United States. The Company made no contributions to the plan in 2002, 2001, or 2000.

2002 Annual Report    17

Notes to Consolidated Financial Statements

(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.)

YEARS ENDED DECEMBER 31,

2002, 2001, & 2000

6 Income Taxes

Components of income tax expense are as follows:

2002:	Current	Deferred	Total
Federal	$39,346	960	40,306
State	5,929	146	6,075
	$45,275	1,106	46,381
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

Income tax expense in the accompanying consolidated financial statements differs from the “expected” tax expense as follows:

	2002		2001	2000
Federal income tax expense at the “expected” rate of 35%	$	42,422	39,772	46,000
Increase attributed to:
State income taxes, net of federal benefit		3,949	3,705	4,627
Other, net		10	45	73
Total income tax expense	$	46,381	43,522	50,700

The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31 are as follows:

	2002			2001
Deferred tax asset (liability):
Inventory costing and valuation methods	$	2,425		2,020
Allowance for doubtful accounts receivable		1,357		1,188
Insurance claims payable		2,112		965
Fixed assets		(12,016	)	(9,795	)
Other, net		(83	)	523
Net deferred tax liability	$	(6,205	)	(5,099	)

No valuation allowance for deferred tax assets was necessary as of December 31, 2002 and 2001. 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.

During 2002, $3,428 was added to additional paid-in capital reflecting the permanent book to tax difference in accounting for tax benefits related to employee stock option transactions.

18    2002 Annual Report

Notes to Consolidated Financial Statements

(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA.)

YEARS ENDED DECEMBER 31,

2002, 2001, & 2000

7 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 purchase price consisted of a cash payment and the assumption of certain liabilities at closing.The acquisition was not material to the financial statements of the Company. The DIY Business was sold to The Hillman Group, Inc. on October 3, 2002.

On July 1, 2001, the Company adopted SFAS No. 141, Business Combinations. SFAS No. 141 requires the use of the purchase method of accounting and, accordingly, the operating results of the DIY Business were included in the Company’s consolidated financial statements from the date of acquisition through the date of sale. The total purchase price was allocated to tangible assets and liabilities based upon the estimate of their fair value on the acquisition date. The purchase price was finalized during the second quarter of 2002. The final purchase price resulted in tangible assets in excess of the cash paid and liabilities assumed, or negative goodwill. The negative goodwill, net of tax, of $716 was recognized in earnings during the second quarter of 2002 as an extraordinary gain.

The DIY Business was purchased after a prolonged period of contraction; therefore, the historical sales and earnings were not reflective of the DIY Business’s operations at the time it was acquired. 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 net sales from the DIY Business totaled $16,974 from January 1, 2002 through October 3, 2002. The Company recognized a gain, before tax, of $5,934 from the sale of the DIY Business during the fourth quarter of 2002.

8 Operating Leases

The Company leases space under non-cancelable operating leases for its California, North Carolina, Utah, and Washington distribution centers, its Tennessee conversion center, and certain store sites with initial terms of one to 48 months. The Company leases certain semi-tractors and pick-ups under operating leases. The semi-tractor leases typically have a 36 month term. The pick-up leases typically have a 72 month term and include an early buy out clause the Company generally exercises, 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 Facilities	Leased Vehicles	Total
2003	$18,269	8,182	26,451
2004	9,534	4,199	13,733
2005	4,387	216	4,603
2006	1,315	––	1,315
2007 and thereafter	446	––	446

Rent expense under all operating leases is as follows:

	Leased Facilities	Leased Vehicles	Total
2002	$22,127	10,770	32,879
2001	19,826	10,660	30,486
2000	16,899	8,328	25,227

9 Lines of Credit and Commitments

The Company has a line of credit arrangement with a bank which expires June 30, 2003. The line allows for borrowings of up to $15,000 at .9% over the LIBOR rate. On December 31, 2002 there was $0 outstanding on the line. The Company currently has a letter of credit issued on its behalf to its insurance carrier. As of December 31, 2002, the total undrawn balance of this letter of credit was $3,969.

During 2001, the Company completed the construction of a new building for its Kansas City warehouse. The 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 outstanding balance of the IRB at December 31, 2002 and 2001 was $6,533.

2002 Annual Report    19

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 Sates 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. In 2002, the Audit Committee recommended the selection of the independent auditors, who were 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.

Willard D. Oberton Chief Executive Officer and President	Daniel L. Florness Executive Vice-President, 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, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

Minneapolis, Minnesota

January 17, 2003

20    2002 Annual Report

0fficers

Robert A. Kierlin

Chairman of the Board

Willard D. Oberton

Chief Executive Officer and President

Nicholas J. Lundquist

Executive Vice-President and Chief

Operating Officer

Daniel L. Florness

Executive Vice-President, Chief Financial

Officer, and Treasurer

Steven L. Appelwick

Vice-President–Product Procurement,

Marketing, and Logistics

Stephen M. Slaggie

Secretary

Directors

Robert A. Kierlin

Michael M. Gostomski

President

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

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 15, 2003,

at Corporate Headquarters,

2001 Theurer Boulevard,

Winona, Minnesota

Corporate Headquarters

Fastenal Company

2001 Theurer Boulevard

Winona, Minnesota 55987-0978

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 2002 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

EX-23

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 17, 2003 relating to the consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 2002 and 2001, 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, 2002, and our report dated January 17, 2003 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, 2002.

/s/ KPMG LLP

Minneapolis, Minnesota

February 26, 2003