-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QajZw5P2BX4i+/sR9x/2oBtm2omgTFI8RBlNZzA7OFQXQPhSocyAnRGlymxiZKDm 5rWhs/TZR5XYHpoV9QsfRQ== 0000950131-97-001844.txt : 19970318 0000950131-97-001844.hdr.sgml : 19970318 ACCESSION NUMBER: 0000950131-97-001844 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970317 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FASTENAL COMPANY CENTRAL INDEX KEY: 0000815556 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY [5200] IRS NUMBER: 410948415 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16125 FILM NUMBER: 97557596 BUSINESS ADDRESS: STREET 1: 2001 THEURER BLVD CITY: WINONA STATE: MN ZIP: 55987 BUSINESS PHONE: 5074545374 10-K405 1 FORM 10-K UNITED STATES 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, 1996, or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________________ to ______________________ Commission file number 0-16125 FASTENAL COMPANY ______________________________________________________ (Exact name of registrant as specified in its charter) Minnesota 41-0948415 _______________________________ ________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2001 Theurer Boulevard Winona, Minnesota 55987-1500 - ------------------------------- ---------- (Address of principal executive offices) (Zip Code) (507) 454-5374 ---------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Stock held by non-affiliates of the registrant as of March 3, 1997 was $1,000,669,151. For purposes of determining this number, all officers and directors of the registrant as of March 3, 1997 are considered to be affiliates of the registrant. This number is provided only for the purposes of this report on Form 10-K and does not represent an admission by either the registrant or any such person as to the status of such person. As of March 3, 1997, the registrant had 37,938,688 shares of Common Stock issued and outstanding. 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996 are incorporated by reference in Part II. Portions of the registrant's Proxy Statement for the annual meeting of shareholders to be held April 22, 1997 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" and "Item 1. Business - Manufacturing Operations", and the section in Part II hereof captioned "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 expected results of operations, new store and distribution center openings, markets for new stores, introduction of existing and new product lines, technology conversions and capital expenditures. 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, 1996 at the end of the section thereof captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations", which section has been incorporated in this Form 10-K by reference. The registrant assumes no obligation to update either such forward-looking statements or the discussion of such risks and uncertainties. PART I ITEM 1. BUSINESS Fastenal Company ("Fastenal Company" and, together with its wholly owned subsidiary, Fastenal Canada Company, collectively, "the Company") began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968. As of December 31, 1996, the Company has 484 store sites located in 48 states and Canada and 1,989 people employed at these sites. Eight of these sites are satellite stores of an existing site. The Company has six product lines. The traditional Fastenal(R) product line/1/ consists of approximately 49,000 different types of threaded fasteners and other industrial and construction supplies. The FastTool(R) product line/1/, which was introduced in 1993, consists of approximately 14,000 different types of tools and safety supplies. The SharpCut(R), PowerFlow(TM), EquipRite(TM) and CleanChoice(TM) product lines/1/ were introduced into select store sites beginning in 1996. The SharpCut(R) product line consists of approximately 8,000 different types of metal cutting tool blades, the PowerFlow(TM) product line consists of approximately 7,000 different types of fluid transfer components and accessories for hydraulic and pneumatic power, the EquipRite(TM) product line consists of approximately 2,000 different types of material handling and storage products, and the CleanChoice(TM) product line consists of approximately 2,000 different types of industrial, janitorial and paper products. The Company maintains eight distribution centers from which the Company distributes products to its store sites, and operates a facility in Memphis, Tennessee to receive and package goods coming from suppliers outside of the United States. ________________ /1/Fastenal(R), FastTool(R), SharpCut(R), PowerFlow(TM), EquipRite(TM) and CleanChoice(TM) are trademarks and/or service marks of the Company. 3 As was previously indicated in Fastenal Company's Form 10-K for the fiscal year ended December 31, 1995, through 1995 the Company counted as a new store the addition of two employees at a site dedicated to the sale of a new product line. By way of example, each FastTool(R) store was located in a store site housing an existing Fastenal(R) store, but was counted as a separate store because of the addition of two people at the site to sell the FastTool(R) product line. During 1996, the Company began adding product lines to some existing sites with only one additional employee or, in some cases, no additional employees. Therefore, beginning in 1996, the Company's reports relating to growth ceased counting new stores in the manner described above and started including data about total store sites, average sales at these sites and total employment at these sites. As of January 1, 1996, the Company had 375 store sites and 1,310 people employed at these sites, as compared to the 484 store sites and 1,989 site employees on December 31, 1996. DEVELOPMENT OF THE BUSINESS Fastenal Company began in 1967 with a marketing strategy of supplying threaded fasteners to customers in small- to medium-sized cities. The Company believes its success can be attributed to its ability to offer such customers a full line of products at convenient locations, and to the high quality of the Company's employees. The Company opened its first store site in Winona, Minnesota, a city with a population of approximately 25,000. The following table shows the growth in the number of Company store sites during the last ten years, and the related increases in the Company's consolidated net sales during that period:
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 - --------------------------------------------------------------------------------------------------------- Number of store sites at year end 58 75 98 126 158 200 253 315 375 484 Net sales (in thousands) $ 20,295 30,441 41,190 52,290 62,305 81,263 110,307 161,886 222,555 287,691
As of December 31, 1996, the Company operated 484 store sites located in Minnesota (12 sites), Wisconsin (24 sites), Iowa (13 sites), Illinois (19 sites), Indiana (17 sites), Ohio (30 sites), Michigan (22 sites), Kentucky (8 sites), Pennsylvania (22 sites), New York (14 sites), Nebraska (4 sites), Missouri (10 sites), Kansas (7 sites), South Dakota (4 sites), West Virginia (7 sites), Arkansas (7 sites), Maryland (5 sites), North Dakota (4 sites), North Carolina (17 sites), Oklahoma (7 sites), Tennessee (13 sites), Texas (37 sites), South Carolina (7 sites), Colorado (8 sites), Virginia (11 sites), Louisiana (7 sites), Georgia (16 sites), Alabama (11 sites), Utah (5 sites), Washington (12 sites), Oregon (7 sites), Mississippi (6 sites), California (15 sites), Idaho (5 sites), Massachusetts (8 sites), Florida (11 sites), Connecticut (7 sites), Arizona (3 sites), Montana (4 sites), Nevada (2 sites), New Hampshire (5 sites), New Mexico (3 sites), Maine (4 sites), Delaware (2 sites), Vermont (1 site), New Jersey (3 sites), Rhode Island (1 site), Wyoming (1 site) and Canada (16 sites). The 484 sites listed above include 8 satellite store sites, with one satellite in each of the following states: Arizona, Indiana, Michigan, Minnesota, Pennsylvania and Wisconsin, and two satellites in Ohio. The Company has closed only three store sites in its history. The Company selects new locations for its stores based on their proximity to the Company's distribution network, population statistics, and employment data for manufacturing and construction. The Company currently intends to continue opening new store sites at or above the rate experienced over the last several years, subject to market and general economic conditions. 4 In 1995 the Company opened nine experimental multi-product line 'combination' stores in communities which were smaller (populations of approximately 8,000 to 25,000) than those in which traditional stores selling one product line were located. These stores, each of which started operations with two full-time employees, combined the Fastenal(R) and FastTool(R) product lines in a single store. The Company opened 71 of these combination stores in 1996, most of which were located in smaller communities. Beginning in 1997, the Company plans to stock all new stores with an inventory drawn from all six product lines. This includes sites in smaller communities as well as larger communities. Subsequent to a site's opening, the site personnel will then customize the inventory offering to that site's customer base. In addition, the Company plans to introduce selected product from all of the Company's product lines into existing stores. Therefore, beginning in 1997 the Company will no longer make a distinction between a traditional Fastenal(R) store and a 'combination' store. The Company believes that approximately 500 additional markets in the United States and Canada (most of them located in smaller communities) have sufficient potential to justify this type of multi- product line store. In 1996, the Company opened eight experimental stores that are satellites of existing stores. These satellites are located in communities as small as 2,000 population and are usually located within a 30 mile radius of the mother store. In most cases, the Company was already doing business in this community from the mother store, but the addition of a physical presence in the community provided sales increases from that community. The Company plans to open additional satellite stores in 1997. Although the Company cannot be sure of the success of these stores, the Company believes that their success could lead to approximately 500 satellite store sites in the United States and Canada. In 1996 the Company sold products into Mexico from its existing Brownsville, El Paso and McAllen, Texas stores. The Company opened six store sites in Canada in 1995 and seven in 1996, and plans to open additional Canadian store sites in 1997. 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 17 stores opened in the first quarter of 1996, six were profitable in the fourth quarter of 1996. 5 For 1996, annual sales volumes of store sites operating at least five years ranged between approximately $406,000 and $4,260,000, with 75% of these store sites having annual sales volumes within the range of approximately $612,000 to $1,658,000. The data in the following table shows the growth in the average sales of the Company's store sites from 1995 to 1996 based on each site's age. The store sites opened in 1996 contributed approximately $9.5 million (or approximately 3.3%) of the Company's consolidated sales in 1996, with the remainder coming from existing store sites.
Number of store Age of store site as of sites in group as of Average Average Percent December 31, 1996 December 31, 1996 sales 1995 sales 1996 change - ---------------------------------------------------------------------------------------------- 0-1 year old 109 $ -- 88,000 (1) -- 1-2 years old 60 93,000 (1) 299,000 -- 2-3 years old 62 273,000 405,000 48.4 3-4 years old 53 398,000 509,000 27.9 4-5 years old 42 558,000 724,000 29.7 5-6 years old 32 691,000 821,000 18.8 6-7 years old 28 824,000 959,000 16.4 7-8 years old 23 820,000 947,000 15.5 8-9 years old 17 980,000 992,000 1.2 9-10 years old 13 1,110,000 1,346,000 21.3 10-13 years old 22 1,115,000 1,215,000 9.0 13+ years old 23 1,559,000 1,811,000 16.2
(1) Average sales includes sales of store sites open for less than the full fiscal year. As of December 31, 1996, the Company maintained distribution centers in or near Winona, Minnesota; Indianapolis, Indiana; Dallas, Texas; Atlanta, Georgia; Scranton, Pennsylvania; Fresno, California; Kent, Washington; and Akron, Ohio. Distribution centers are located so as to permit twice-a-week to four times-a- week delivery to Company stores using Company trucks and overnight delivery by surface common carrier. As the number of stores increases, the Company intends to add new distribution centers. In conjunction with an expansion, the Company moved its Kent, Washington facility to Lakewood, Washington in January 1997. The Company plans to open a distribution center in Salt Lake City, Utah in April 1997 and two to four other distribution centers later in 1997. In December 1994 the Company opened a packaging facility in Memphis, Tennessee. This facility receives freight containers from foreign suppliers and repackages the items in standard packages using high speed equipment. This packaging facility serves six of the Company's distribution centers. The Company operates a UNIX/terminal-based computer system allowing automatic data exchange between the stores and the distribution centers during regular business hours. The use of client/server technology allows the Company's network of UNIX-based machines to serve networked personal computers and workstations. During 1997 the Company plans to convert to a Microsoft Windows NT, client/server, graphical user environment in its store locations. 6 PRODUCTS Traditional Fastenal(R) Product Line The Company's Fastenal(R) product line consists of approximately 49,000 different items, which may be divided into two broad categories: threaded fasteners, such as bolts, nuts, screws, studs, and related washers; and other industrial and construction supplies, such as paints, various pins and machinery keys, concrete anchors, batteries, sealants, metal framing systems, wire rope, and related accessories. Threaded fasteners are used in most manufactured products and building projects, and in the maintenance and repair of machines and structures. Although some aspects of the threaded fastener market are common to all cities, the Company feels that each city's market is to some extent unique. Therefore, the Company opens each store with minimal base stocks of inventory, and then tailors the growing inventory to the local market demand as it develops. Threaded fasteners accounted for approximately 68%, 65% and 64% of the Company's consolidated sales in 1994, 1995 and 1996, respectively. Concrete anchors make up the largest portion of the other supply items included in the Fastenal(R) product line. Most concrete anchors use threaded fasteners as part of the completed anchor assembly. Recently, the Company has added stainless strut, private label stud anchors and rivets to its Fastenal(R) product line. FastTool(R) Product Line In 1993 the Company began selling a new FastTool(R) product line, which consists of power and hand tools and safety supplies, targeted to the same customer base as the traditional Fastenal(R) product line. The inventory of tools and safety supplies is comprised of approximately 14,000 different items. The Company uses its current distribution system for the FastTool(R) product line. SharpCut(R) Product Line Late in 1995 the Company developed a new SharpCut(R) product line which was introduced into select stores beginning in 1996. This product line consists of metal cutting tool blades and a resharpening service. The inventory related to the SharpCut(R) product line is comprised of approximately 8,000 different items. The Company uses its current distribution system for the SharpCut(R) product line. PowerFlow(TM) Product Line In 1996 the Company began selling a new PowerFlow(TM) product line. This product line consists of fluid transfer components and accessories for hydraulic and pneumatic power and a hose crimping service. The inventory related to the PowerFlow(TM) product line is comprised of approximately 7,000 different items. The Company uses its current distribution system for the PowerFlow(TM) product line. EquipRite(TM) Product Line In 1996 the Company began selling a new EquipRite(TM) product line. This product line consists of material handling and related storage products and a storeroom layout design service. The inventory related to the EquipRite(TM) product line is comprised of approximately 2,000 different items. The Company uses its current distribution system for the EquipRite(TM) product line. 7 CleanChoice(TM) Product Line In 1996 the Company began selling a new CleanChoice(TM) product line. This product line consists of industrial, janitorial and paper products. The inventory related to the CleanChoice(TM) product line is comprised of approximately 2,000 different items. The Company uses its current distribution system for the CleanChoice(TM) product line. Additional Product Lines The Company plans to add other industrial product lines in the future. INVENTORY CONTROL The Company controls inventory by using computer systems to preset desired stock levels. The data used for this purpose is derived from reports showing sales activity by item for the previous three years. Computers then convert this data to typical store maximum-minimum inventory levels for each item. Stores can deviate from preset inventory levels as deemed appropriate by their district managers. Inventories in distribution centers are established from computerized sales data for the stores served by the respective centers. MANUFACTURING OPERATIONS In 1996 approximately 95.9% of the Company's consolidated sales were attributable to products manufactured by other companies to industry standards. The remaining amount of approximately 4.1% of the Company's consolidated sales for 1996 related to products manufactured by, or modified in, the Company's machining shop. These manufactured products consist primarily of non-standard sizes of threaded fasteners made to customers' specifications. The Company engages in manufacturing activity primarily as a service to its customers and does not expect any significant growth in the foreseeable future in the proportion of the Company's consolidated sales attributable to manufacturing. SOURCES OF SUPPLY The Company uses a large number of suppliers for the approximately 82,000 standard items it distributes. Most items distributed by the Company can be purchased from several sources, although preferred sourcing is used for some items to facilitate quality control. No single supplier accounted for more than 5.0% of the Company's purchases in 1996. CUSTOMERS AND MARKETING The Company believes its success can be attributed to its ability to offer customers in small- to medium-sized cities a full line of products at convenient locations, and to the high quality of the Company's employees. Most of the Company's customers are in the construction and manufacturing markets. The construction market includes general, electrical, plumbing, sheet metal, and road contractors. The manufacturing market includes both original equipment manufacturers and maintenance and repair operations. Other users of the Company's products include farmers, truckers, railroads, mining companies, municipalities, schools, and certain retail trades. As of December 31, 1996, the Company's total number of active customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 57,000. During each of the three years ended December 31, 1996, 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. 8 A significant portion of the Company's sales are generated through direct calls on customers by store personnel. Because of the nature of the Company's business, the Company does not use the more expensive forms of mass media advertising such as television, radio, and newspapers. Forms of advertising used by the Company include signs and catalogs. COMPETITION The Company's business is highly competitive. Competitors include both large distributors located primarily in large cities and smaller distributors located in many of the same cities in which the Company has stores. The Company believes that the principal competitive factors affecting the markets for the Company's products are customer service and convenience. Some competitors use vans to sell their products in communities away from their main warehouses, while others rely on mail order or telemarketing sales. The Company, however, believes that the convenience provided to customers by actually operating a number of stores in smaller markets, each offering a full line of products, is a competitive selling advantage and that the large number of stores in a given area, taken together with the Company's ability to provide frequent deliveries to such stores from centrally located distribution centers, makes possible the prompt and efficient distribution of products. Having trained personnel at each store also enhances the Company's ability to compete (see "Employees" below). EMPLOYEES As of December 31, 1996, the Company employed a total of 3,073 full- and part- time employees, 1,989 being store managers and store employees, and the balance being employed in the Company's distribution centers, packaging facility, manufacturing operations, and home office. The Company believes that the quality of its employees is critical to its ability to compete successfully in the markets it currently serves and to its ability to open new stores in new markets. The Company fosters the growth and education of skilled employees throughout the organization by operating training programs and by decentralizing decision making. Wherever possible, promotions are from within the Company. For example, most new store managers are promoted from an assistant manager's position at another store and district managers (who supervise a number of stores) are usually former store managers. The Company's sales personnel participate in incentive bonus arrangements that place emphasis on achieving increased sales on a store and regional basis, while still attaining targeted levels of gross profit. As a result, a significant portion of the Company's total employment cost varies with sales volume. The Company also pays incentive bonuses to other personnel for achieving pre- determined cost containment goals. None of the Company's employees is subject to a collective bargaining agreement and the Company has experienced no work stoppages. The Company believes its employee relations are excellent. 9 ITEM 2. PROPERTIES The Company owns six facilities in Winona, Minnesota: a 173,000 square foot distribution center and home office building, a 50,000 square foot manufacturing facility, a 13,000 square foot building that houses the Company's Winona store, a 23,000 square foot building that houses the conveyor, sortation and packaging equipment fabrication department, a 55,000 square foot building that houses rack and shelving storage and a 35,000 square foot building, acquired in a 1996 acquisition, that currently houses the printing facility as well as serving as a warehouse for the CleanChoice(TM) product line. The Company also owns a 60,000 square foot distribution center in Indianapolis, Indiana, a 54,000 square foot distribution center in Atlanta, Georgia, a 50,000 square foot distribution center in Dallas, Texas, a 50,000 square foot distribution center near Scranton, Pennsylvania and a 102,000 square foot distribution center in Akron, Ohio. The buildings that house the Company's stores in Waterloo and Mason City, Iowa; St. Joseph, Missouri; Wichita Falls and Texarkana, Texas; Topeka, Kansas; and Kokomo, Indiana are also owned by the Company. All other buildings occupied by the Company are leased. Leased stores range from approximately 1,200 to 8,000 square feet, with lease terms of up to 48 months. The Company's leased distribution center in Lakewood, Washington is approximately 40,000 square feet. The term of the lease of the Washington facility expires in February 2000, provided that the lease may be renewed at the Company's option for two additional one-year periods. The Company's leased distribution center in Fresno, California is approximately 11,200 square feet. The term of the lease of the California facility expires in February 1998, provided that the lease may be renewed at the Company's option for two additional one-year periods. The Company's leased packaging facility in Memphis, Tennessee is approximately 37,500 square feet. The term of the lease of the Memphis facility expires in November 1997. If economic conditions are suitable, the Company will, in the future, consider purchasing store sites to house its older stores. All sites for new stores 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. 10 ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Fastenal Company are:
Name Age Position - -------------------------------------------------------------------------------- Robert A. Kierlin 57 Chairman of the Board, President, Chief Executive Officer and Director Willard D. Oberton 38 Vice President and Chief Operating Officer Stephen M. Slaggie 57 Secretary and Director Daniel L. Florness 33 Treasurer, Chief Financial Officer and Chief Accounting Officer
Mr. Kierlin has been the Chairman of the Board, President and Chief Executive Officer of Fastenal Company and has served as a director since Fastenal Company's incorporation in 1968. Mr. Oberton has been the Vice President and Chief Operating Officer of Fastenal Company since March 1997. From June 1986 through March 1997, Mr. Oberton held the position of general operations manager of Fastenal Company. Mr. Slaggie has been the Secretary of Fastenal Company and has served as a director since 1970. He became a full-time employee of Fastenal Company in December 1987, at which time he assumed the additional duties of Shareholder Relations Director and Insurance Risk Manager. From 1970 through June 1996, Mr. Slaggie also served as the Treasurer of Fastenal Company. Mr. Florness has been the Treasurer, Chief Financial Officer and Chief Accounting Officer of Fastenal Company since June 1996. From January 1987 through May 1996, Mr. Florness was employed by KPMG Peat Marwick LLP, a public accounting firm. Mr. Florness served in the capacity of senior manager at the time of his departure from that firm. None of the above executive officers is related to any other such executive officer or to any other director of Fastenal Company. 11 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, 1996, 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, 1996, page 2. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996, pages 5-8. 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, 1996, Selected Quarterly Financial Data (Unaudited) on page 9, and Consolidated Financial Statements, Notes to Consolidated Financial Statements, and Independent Auditors' Report on pages 10-20. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference is the information appearing under the headings "Election of Directors--Nominees and Required Vote", pages 4-5, and "Section 16(a) Beneficial Ownership Reporting Requirements", page 9, in Fastenal Company's Proxy Statement dated March 18, 1997. See also Part I hereof under the heading "Item X. Executive Officers of the Registrant". ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference is the information appearing under the headings "Election of Directors--Board and Committee Meetings", page 5, "Election of Directors--Executive Compensation--Summary of Compensation", page 5, and "Election of Directors--Executive Compensation--Compensation Committee Interlocks and Insider Participation", page 6, in Fastenal Company's Proxy Statement dated March 18, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference is the information appearing under the heading "Security Ownership of Principal Shareholders and Management", pages 2-3, in Fastenal Company's Proxy Statement dated March 18, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a) 1. Financial Statements: Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Earnings for the years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements Independent Auditors' Report (Incorporated by reference to pages 10-20 of Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996) 2. Financial Statement Schedules: Schedule VIII--Valuation and Qualifying Accounts 3. Exhibits: 3.1 Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q for the quarter ended September 30, 1993) 3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-14923) 13 Annual Report to Shareholders for the fiscal year ended December 31, 1996 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission) 21 List of Subsidiaries (incorporated by reference to Exhibit 21 to Fastenal Company's Form 10-K for the fiscal year ended December 31, 1994) 27 Financial Data Schedule Copies of Exhibits will be furnished upon request and payment of the Company's reasonable expenses in furnishing the Exhibits. b) Reports on Form 8-K No report on Form 8-K was filed by Fastenal Company during the fourth quarter of the fiscal year ended December 31, 1996. 14 [LETTERHEAD OF KPMG PEAT MARWICK LLP] INDEPENDENT AUDITORS' REPORT ON SCHEDULE The Board of Directors and Stockholders Fastenal Company: Under date of February 1, 1997, we reported on the consolidated balance sheets of Fastenal Company and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the 1996 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 1996. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Minneapolis, Minnesota February 1, 1997 15 FASTENAL COMPANY Schedule VIII--Valuation and Qualifying Accounts Years ended December 31, 1996, 1995, and 1994
"Additions" "Additions" Balance at charged to charged Balance beginning costs and to other "Less" at end Description of year expenses accounts deductions of year - --------------------------------------------------------------------------------------------------- Year ended December 31, 1996 allowance for doubtful accounts $460,000 $917,000 $ 0 $837,000 $540,000 Year ended December 31, 1995 allowance for doubtful accounts 300,000 519,513 0 359,513 460,000 Year ended December 31, 1994 allowance for doubtful accounts 225,000 452,977 0 377,977 300,000
16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 17, 1997 FASTENAL COMPANY By /s/ Robert A. Kierlin --------------------------------- Robert A. Kierlin, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 17, 1997 By /s/ Robert A. Kierlin --------------------------------- Robert A. Kierlin, President (Principal Executive Officer) and Director Date: March 17, 1997 By /s/ Stephen M. Slaggie ---------------------------------- Stephen M. Slaggie, Director Date: March 17, 1997 By /s/ Daniel L. Florness ---------------------------------- Daniel L. Florness, Treasurer (Principal Financial Officer and Principal Accounting Officer) Date: March 17, 1997 By /s/ Michael M. Gostomski ---------------------------------- Michael M. Gostomski, Director Date: March 17, 1997 By /s/ Henry K. McConnon ---------------------------------- Henry K. McConnon, Director Date: March 17, 1997 By /s/John D. Remick ---------------------------------- John D. Remick, Director INDEX TO EXHIBITS 3.1 Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q for the quarter ended September 30, 1993). 3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-14923). 13 Annual Report to Shareholders for the fiscal year ended December 31, 1996 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission).....Electronically Filed 21 List of Subsidiaries (incorporated by reference to Exhibit 21 to Fastenal Company's Form 10-K for the fiscal year ended December 31, 1994). 27 Financial Data Schedule...............................Electronically Filed EX-13 2 ANNUAL REPORT TO SHAREHOLDERS 1 9 9 6 ANNUAL REPORT [Drawing of the original (1967) Fastenal storefront in Winona, Minnesota with a picture of the current corporate offices (1996) and warehouse in Winona, Minnesota inset in the upper right corner.] FASTENAL COMPANY - ------------------30 years of growth through customer service------------------- Profile of Fastenal Company Fastenal Company was founded in 1967. As of December 31, 1996, the Company operated 484 store sites located in 48 states and Canada and employed 1,989 people at these sites. The Company sells industrial and construction supplies in six product lines. The traditional Fastenal(R) product line consists of approximately 49,000 different types of threaded fasteners and other industrial and construction supplies; the FastTool(R) product line consists of approximately 14,000 different types of tools and safety supplies; the SharpCut(R) product line consists of approximately 8,000 different types of metal cutting tool blades; the PowerFlow(TM) product line consists of approximately 7,000 different types of fluid transfer components and accessories for hydraulic and pneumatic power; the EquipRite(TM) product line consists of approximately 2,000 different types of material handling and storage products; and the CleanChoice(TM) product line consists of approximately 2,000 different types of industrial, janitorial and paper products. The SharpCut(R), PowerFlow(TM), EquipRite(TM) and CleanChoice(TM) product lines were introduced in 1996. As of December 31, 1996, the Company also operated eight distribution centers located in Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington and California, and a packaging facility in Tennessee. Approximately 95.9% of the Company's 1996 sales were attributable to products manufactured by others, and approximately 4.1% related to custom-threaded fasteners manufactured or modified by the Company. Since December 31, 1996, the Company has opened additional store sites in the United States and Canada. [Picture of the exterior sign from the 1987 Fastenal store site in Winona, Minnesota which now houses the conveyor, sortation and fabrication department. Picture of the current corporate offices (1996) and warehouse in Winona, Minnesota] * * * * * This Annual Report, including the sections captioned "President's Letter to Shareholders", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Stock and Financial Data", contains statements that are not historical in nature and that are intended to be, and are hereby identified as, "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), including statements regarding expected results of operations, new store openings, capital expenditures 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 at the end of 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. FASTENAL(R), FASTTOOL(R), SHARPCUT(R), POWERFLOW(TM), EQUIPRITE(TM) and CLEANCHOICE(TM) are trademarks and/or service marks of the Company. Fastenal Company & Subsidiary
TABLE OF CONTENTS PAGE Six-Year Selected Financial Data...............................................2 President's Letter to Shareholders...........................................3-4 Management's Discussion and Analysis of Financial Condition and Results of Operations...........................5-8 Stock and Financial Data.......................................................9 Consolidated Balance Sheets...................................................10 Consolidated Statements of Earnings...........................................11 Consolidated Statements of Stockholders' Equity...............................12 Consolidated Statements of Cash Flows.........................................13 Notes to Consolidated Financial Statements.................................14-19 Independent Auditors' Report..................................................20 Officers and Directors/Corporate Information...................Inside Back Cover
[Pictures of the Company's Winona location as of 1967, 1976, 1982, 1987 and 1996.] Fastenal Company has undergone many changes during 30 years of business. The first Fastenal store opened in 1967 in Winona, MN (above left). The new corporate headquarters facility was completed in 1996 (lower right). 1 1996 Annual Report Fastenal Company & Subsidiary SIX-YEAR SELECTED FINANCIAL DATA
OPERATING RESULTS PERCENT YEARS ENDED DEC. 31 1996 CHANGE 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------- Net sales $287,691,000 +29.3 222,555,000 161,886,000 110,307,000 81,263,000 62,305,000 Gross profit 152,880,000 +28.5 118,944,000 85,927,000 58,552,000 43,683,000 32,927,000 Earnings before income taxes 54,432,000 +17.8 46,206,000 31,391,000 20,075,000 14,735,000 10,748,000 Net earnings 32,539,000 +18.7 27,411,000 18,666,000 11,910,000 8,833,000 6,606,000 Earnings per share 0.86 +19.4 .72 .49 .31 .23 .17 Dividends per share 0.02 .02 .02 .015 .015 .0125 Weighted average shares outstanding 37,938,688 37,938,688 37,938,688 37,938,688 37,938,688 37,938,688 FINANCIAL POSITION DECEMBER 31 - ---------------------------------------------------------------------------------------------------------------------- Net working capital $78,417,000 +18.6 66,100,000 45,341,000 33,319,000 22,569,000 19,554,000 Total assets 151,545,000 +38.6 109,320,000 81,795,000 57,463,000 43,937,000 34,103,000 Total stockholders' equity 125,967,000 +33.5 94,323,000 67,649,000 49,809,000 38,468,000 30,204,000
All information contained in this Annual Report reflects the 2-for-1 stock splits effected in the form of a 100% stock dividend in 1992 and 1995. 2 1996 Annual Report President's Letter to Shareholders Fastenal had a building year in 1996. Usually when you read of a "building year" you expect to see another attempt to explain poor results. In Fastenal's case, a "building year" means an investment of resources and a time to put in place the infrastructure for more future growth. In 1996 we committed a large amount of our resources to achieve future success. Our 1996 financial results reflect only how our plan for the future impacted the initial year of the plan; we believe future years will show the benefits. Our 1996 net sales of $287,691,000 represented a 29.3% increase over the 1995 level. Our 1996 net earnings of $32,539,000 represented an 18.7% increase over the 1995 level. Earnings per share increased from $.72 in 1995 to $.86 in 1996. Fastenal took two major steps in 1996 to promote future growth. The first of these was to increase the rate at which we grow our number of people. In the past we planned our growth by each year opening 30% of the previous year's average number of stores. We would then add people as necessary to staff these stores. In 1996 we changed the strategy to focus on people rather than stores. We challenged our people to recruit for a 40% increase in store personnel rather than a 30% increase. The extra personnel were being hired to facilitate the development of product expertise at our existing stores necessary to integrate our new product lines into these stores and to provide for staff in new sites. As the year progressed, it became apparent that we were doing even better than the 40% goal, and we finished the year with a 52% increase in store personnel. We also beefed up our support personnel 47% during 1996, with some of the most significant increases in the training, marketing support and information systems design segments. Because employment costs make up more than two thirds of our expenses, when the rate of hiring exceeds the growth in sales, our earnings growth rate will suffer, as it did in 1996. [Picture of the exterior of the LaCrosse, Wisconsin branch (1996) is on the upper left of the page.] The second major effort in 1996 to foster growth was the expansion of our product line. During the year we went from two major product categories to six. To our existing lines of fasteners and tools we added product groupings of metal cutting tools, hydraulic hoses and pipe, materials handling and storage equipment, and janitorial supplies. Our added marketing support people serve as product managers, buyers, trainers and media design specialists for these additional products. [Picture of the interior of the LaCrosse, Wisconsin branch (1996) is on the lower right of the page.] The additions of so many new people and new products gave us good reason to change our methods of training. 1996 saw the start of some new electronic methods of training. During the year we began video conferencing between our distribution centers. Six centers were using video conferencing by the end of 1996, and the remaining two will be equipped in 1997. During the year we equipped each distribution center with a training area, staffed with from one to three training specialists. These regional training specialists track the development progress of each person within the center's geographic area. With the help of an educational software development company, we produced three CD- ROMs in 1996 that provide multimedia training materials for use on a personal computer or on a network at regional training sites. We expect to produce more CD-ROMs in 1997 to encompass our product lines. We are investigating the 3 1996 Annual Report 6 ...President's Letter continued licensing of the software to other firms that perform maintenance training. As technology progresses, we expect to have our electronic training tools available to all employees through the Internet. 1996 saw the continuation of site openings along with a new approach to openings in smaller communities. Among the 109 new sites opened in 1996 were 8 sites that are satellites of existing stores. These satellites are in communities as small as 2,000 population and are usually within a 30 mile radius of the mother store. In most cases we were already doing business in the satellite community via sales calls from the mother store, but the addition of a physical presence in the community provides for significant sales increases from that community. We learned in 1996 that, in general, sites that open with multiple product lines do better than sites with only fasteners. Therefore, in 1997 our new sites will start with an inventory drawn from all six product lines. Although the initial inventories will be light, the people running the site will be able to add inventory per customer request. We know that the people in the stores are best able to decide how we can best service the customer. During 1996 we put substantial resources into the design of a new information system for everybody in the Company. We began the redesign of our point-of-sale system for the branch stores. By the end of 1997 we expect to have a whole new information system in place in our stores to allow our personnel to access more information and to have multimedia training capability on-line at each site. Our design staff has worked with representatives from our stores to ensure the system will meet our needs. [Picture of a Fastenal semi parked in front of the Dallas hub in 1996.] We finished 1996 with 16 Fastenal sites in Canada. As a group, these 16 stores have regularly exceeded their sales targets. We will open additional sites in Canada in 1997. During the year we opened a new distribution center in Akron, Ohio. We also completed the addition to our distribution center and offices in Winona. At the end of 1996 we purchased a large amount of used automated equipment for warehouse operation, some of which we will install in our distribution centers in 1997 and the remainder we hope to sell to other parties. In summary, we have done much in 1996 to get ready for a successful future. I hope you share our belief in the wisdom of the decisions we made. As usual, we have a number of anecdotes about service that our people have given during the year. A customer in Ohio needed 75 large non-standard bolts within 26 hours. While they were being fabricated in Chicago, our people drove during the night to get the special parts and returned within 25 hours. Another customer on a Friday needed a stocked trailer on a job site the following Monday. Our people located a 45-foot trailer and installed racks and bins with the accompanying inventory over the weekend. And to close the year out, on December 31, our people in a Colorado store left at 3:30 a.m. to pick up a piece of equipment in Wyoming that a customer needed for a job. Thanks to all of our people and to you for believing in Fastenal. /s/ Robert A. Kierlin 4 1996 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Net sales for 1996 exceeded net sales for 1995 by 29.3%. This compares with a 37.5% net sales growth rate experienced from 1994 to 1995. The increase in net sales in 1996 and 1995 came primarily from new site openings and unit sales growth in existing sites and, to a lesser extent, the introduction of new products and services, rather than from price increases. FastTool(R), a product line introduced in 1993, contributed less than 12% of total net sales in 1996 and less than 3% of total net sales in 1995. SharpCut(R), a product line developed late in 1995 and introduced early in 1996, contributed less than 3% of total net sales in 1996. PowerFlow(TM), a product line introduced in 1996, contributed approximately 1% of total net sales. EquipRite(TM) and CleanChoice(TM), two product lines introduced in 1996, each contributed less than 1% of total net sales in 1996. The lesser total growth rate in 1996 than in 1995 resulted primarily from two regions that underperformed in 1996; this affected unit sales growth in existing sites. The Company has taken actions to correct the problems causing the underperformance related to these two regions. Sites opened in 1996 contributed approximately $9,544,000 (or 3.0%) to 1996 net sales. Sites opened in 1995 contributed approximately $5,551,000 (or 2.5%) to 1995 net sales and approximately $17,915,000 (or 6.2%) to 1996 net sales. The rate of growth in sales of sites generally levels off after sites have been open for five years, and the sales of older sites typically vary more with the economy than the sales of younger sites. Threaded fasteners accounted for approximately 68%, 65% and 64% of the Company's consolidated sales in 1994, 1995 and 1996, respectively. Gross profit as a percent of net sales was 53.1% in 1996, 53.4% in 1995 and 53.1% in 1994. The decrease from 1995 to 1996 resulted primarily from the mix of products being sold. The increase from 1994 to 1995 resulted primarily from lower costs on standard imported products handled through our import and packaging center in Memphis, Tennessee. This facility became operational during the fourth quarter of 1994. Operating and administrative expenses were 34.6% of net sales in 1996 after having been 33.0% of net sales in 1995 and 34.0% of net sales in 1994. The 1996 increase in operating and administrative costs was primarily due to an increase in payroll and related costs and an increase in occupancy costs, the rate of increase of both of which exceeded the growth rate of net sales. Payroll costs increased due to a 1996 increase of 52.0% and 47.0% in sales and support personnel, respectively. This increase was due to a 29.5% increase in the number of sites in 1996 and an introduction of the four new product lines into certain existing sites in 1996. Occupancy costs increased due to the aforementioned increase in the number of sites and due to the relocation of existing sites to larger sites to accommodate their growth in activity and the introduction of new product lines. Distribution costs benefited from productivity gains in both 1995 and 1996. [Picture of fasteners tinted at a 10% gray behind the text] 5 1996 Annual Report CONTINUED -- Management's Discussion and Analysis of Financial Condition and Results of Operations Interest income minus interest expense decreased 68.1% between 1995 and 1996 and 52.5% between 1994 and 1995 primarily because of less investable cash and the use of short-term borrowings in both 1996 and 1995. The gains on the disposal of property and equipment in 1996, 1995 and 1994 came primarily from the disposal of used vehicles owned by the Company. The 1996 gain was higher than the 1995 gain due to the increase in the number of pickup trucks sold. The 1995 gain was higher than the 1994 gain because the 1995 gain included the sale of depreciated semi-tractors along with pickup trucks while the 1994 gain was limited to pickup trucks. Net earnings grew 18.7% from 1995 to 1996, and 46.8% from 1994 to 1995. The growth in net earnings in all years resulted primarily from increased net sales. In 1996 the net earnings growth rate was lower than that of net sales, which grew at approximately the same rate as that of new site openings, because of the earlier mentioned increases in operating and administrative expenses. In 1995, the net earnings growth rate was higher than that of net sales because net sales grew at a rate faster than that of new site openings. The net sales growth rate was greater than that of new site openings because of a positive growth of the economy in 1995. EFFECTS OF INFLATION Inflation had little effect on the Company's operations in 1994, 1995 and 1996. The only pressure toward higher prices from the Company's suppliers occurred in the fourth quarter of 1994. Many of the price increases announced in that period were to take place in January of 1995; but a slowing economy in the first half of 1995 kept many of these increases from being implemented. LIQUIDITY AND CAPITAL RESOURCES Working capital increased from $45,341,000 at December 31, 1994 to $66,100,000 at December 31, 1995, and to $78,417,000 at December 31, 1996. These increases came primarily from higher trade accounts receivable and inventory levels without comparable increases in current liabilities. Net cash provided by operating activities increased from $11,284,000 in 1994 to $14,945,000 in 1995, and decreased to $12,478,000 in 1996. The 1995 increase came primarily because the growth in net earnings and depreciation charges for such year exceeded the growth in accounts receivable and inventories. The 1996 decrease came primarily because the growth in inventories exceeded the growth in net earnings and depreciation charges for such year. Net cash used by investing activities increased from $9,369,000 in 1994 to $10,736,000 in 1995, and to $26,498,000 in 1996. The 1995 increase in net cash used by investing activities resulted primarily from an increase in purchases of property and equipment. This increase was partially offset with higher sales of marketable securities. The 1996 increase in net cash used by investing activities resulted primarily from a further increase in purchases of property and equipment and by an increase in other assets. The increase in other assets was primarily due to the acquisition of a business in 1996. Additions to vehicles and computer equipment are expected to be the largest part of cash used by investing activities in 1997. [Picture of fasteners tinted at a 10% gray behind the text] 6 1996 Annual Report CONTINUED -- Management's Discussion and Analysis of Financial Condition and Results of Operations The Company had no long-term debt at December 31, 1994, 1995 or 1996. See note 9 of the Notes to Consolidated Financial Statements for a description of the Company's current line of credit arrangement. The Company paid an annual dividend of $.02 per share in 1994, 1995 and 1996. Management anticipates funding its current expansion plans with cash generated from operations, from its borrowing capacity and, to a lesser degree, from available cash, cash equivalents and marketable securities. The Company began a FastTool(R) product line in 1993. This product line consists of tools and safety supplies which can be sold to the same customer base as the traditional Fastenal(R) product line. The Company developed a SharpCut(R) product line late in 1995 which was introduced in 1996. This product line consists of metal cutting tool blades and a resharpening service. The Company introduced its PowerFlow(TM) product line in 1996. This product line consists of fluid transfer components and accessories for hydraulic and pneumatic power and a hose-crimping service. The Company introduced its EquipRite(TM) product line in 1996. This product line consists of material handling and related storage products and a storeroom layout design service. The Company introduced its CleanChoice(TM) product line in 1996. This product line consists of industrial, janitorial and paper products. At December 31, 1996, the Company had no material outstanding commitments for capital expenditures. The Company expects to make approximately $23,000,000 in additional capital expenditures in 1997, consisting of approximately $11,000,000 for pickup trucks, approximately $2,000,000 for semi-tractors and trailers, approximately $2,500,000 for manufacturing, warehouse and packaging equipment, and approximately $7,500,000 for data processing equipment. In addition to opening new sites in the United States, in 1997 the Company plans to open additional sites in Canada and to continue selling its products in Mexico from some of its existing sites in Texas. No assurance can be given that any of the Company's expansion plans will be achieved or that new sites, once opened, will be profitable. [Picture of fasteners tinted at a 10% gray behind the text] 7 1996 Annual Report CONTINUED -- Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 1996, 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) a downturn in the economy could impact sales at existing stores, (ii) a change, from that projected, in the number of smaller communities able to support future store sites could impact the rate of new store openings, (iii) the ability of the Company to develop product expertise at the store level, to identify future product lines that complement existing product lines, to transport and store certain hazardous products and to otherwise integrate new product lines into the Company's existing stores and distribution network could impact sales and margins, (iv) the ability of the Company to successfully attract and retain qualified personnel to staff the Company's smaller community stores could impact sales at existing stores and the rate of new store openings, (v) changes in governmental regulations related to product quality or product source traceability could impact the cost to the Company of regulatory compliance, (vi) inclement weather could impact the Company's distribution network, (vii) foreign currency fluctuations or changes in trade relations could impact the ability of the Company to procure products overseas at competitive prices and the Company's foreign sales, (viii) disruptions caused by the implementation of the Company's new management information systems infrastructure could impact sales, and (ix) changes in the rate of new store openings could impact expenditures for vehicles, computers and other capital equipment. [Picture of fasteners tinted at a 10% gray behind the text] 8 1996 Annual Report Stock and Financial Data COMMON STOCK DATA The Company's shares are traded on The Nasdaq Stock Market under the symbol "FAST". The following table sets forth the high and low closing sale price on The Nasdaq Stock Market for 1996 and 1995. The Common Stock trading prices below have been retroactively adjusted for the 2-for-1 stock split declared on January 31, 1995. See note 6 of the Notes to Consolidated Financial Statements.
1996: HIGH LOW - ---------------------------------------------- First quarter $ 42-1/2 28-3/4 Second quarter 47 34-1/4 Third quarter 50 35 Fourth quarter 49-3/4 42-3/8
1995: HIGH LOW - ---------------------------------------------- First quarter $ 25-5/8 19-7/8 Second quarter 30-1/2 23 Third quarter 38 27 Fourth quarter 43 33-1/2
As of February 17, 1997, there were approximately 2,200 record holders of the Company's Common Stock. A $.02 annual dividend per share was paid during both 1995 and 1996. On February 1, 1997, the Company announced a $.02 annual dividend per share to be paid on March 14, 1997 to shareholders of record at the close of business on February 28, 1997. The Company expects that it will continue to pay comparable cash dividends in the foreseeable future, provided that any future determination as to payment of dividends will depend upon the financial condition and results of operations of the Company and such other factors as are deemed relevant by the board of directors. The dividend amounts above and the Selected Quarterly Financial Data below have been retroactively adjusted for the 2-for-1 stock split declared on January 31, 1995. See note 6 of the Notes to Consolidated Financial Statements. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1996: NET SALES GROSS PROFIT NET EARNINGS EARNINGS PER SHARE - --------------------------------------------------------------------------------------- First Quarter $ 63,061,000 33,425,000 7,433,000 .20 Second Quarter 70,850,000 38,036,000 8,445,000 .22 Third Quarter 76,212,000 40,687,000 8,692,000 .23 Fourth Quarter 77,568,000 40,732,000 7,969,000 .21 - --------------------------------------------------------------------------------------- $287,691,000 152,880,000 32,539,000 .86 - ---------------------------------------------------------------------------------------
1995: NET SALES GROSS PROFIT NET EARNINGS EARNINGS PER SHARE - --------------------------------------------------------------------------------------- First Quarter $ 51,091,000 27,055,000 6,084,000 .16 Second Quarter 55,475,000 29,429,000 6,720,000 .18 Third Quarter 57,993,000 31,021,000 7,386,000 .19 Fourth Quarter 57,996,000 31,439,000 7,221,000 .19 - --------------------------------------------------------------------------------------- $222,555,000 118,944,000 27,411,000 .72 - ---------------------------------------------------------------------------------------
9 1996 Annual Report - -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY Consolidated Balance Sheets December 31, 1996 and 1995------------------------------------------------------
ASSETS 1996 1995 - ---------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 426,000 6,583,000 Trade accounts receivable, net of allowance for doubtful accounts of $540,000 and $460,000 as of December 31, 1996 and 1995, respectively 41,553,000 31,866,000 Inventories 56,526,000 40,178,000 Deferred income tax asset 1,219,000 947,000 Other current assets 3,731,000 1,523,000 -------------------------- Total current assets 103,455,000 81,097,000 Marketable securities 515,000 784,000 Property and equipment, less accumulated depreciation 43,930,000 27,090,000 Other assets, net 3,645,000 349,000 -------------------------- Total assets $151,545,000 109,320,000 -------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 10,010,000 7,882,000 Note payable 8,622,000 -- Accrued expenses 5,611,000 4,974,000 Income tax payable 795,000 2,141,000 -------------------------- Total current liabilities 25,038,000 14,997,000 -------------------------- Deferred income tax liability 540,000 -- -------------------------- Stockholders' equity: Preferred stock of $.01 par value per share. Authorized 5,000,000 shares; none issued -- -- Common stock of $.01 par value per share. Authorized 50,000,000 shares; issued and outstanding 37,938,688 shares 379,000 379,000 Additional paid-in capital 4,424,000 4,424,000 Retained earnings 121,346,000 89,566,000 Translation adjustment (182,000) (52,000) Unrealized holding gains on marketable securities -- 6,000 -------------------------- Total stockholders' equity 125,967,000 94,323,000 -------------------------- Total liabilities and stockholders' equity $151,545,000 109,320,000 --------------------------
The accompanying notes are an integral part of the financial statements. 10 1996 Annual Report - -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY Consolidated Statements of Earnings Years ended December 31, 1996, 1995 and 1994------------------------------------
1996 1995 1994 - --------------------------------------------------------------------------------------- Net sales $287,691,000 222,555,000 161,886,000 Cost of sales 134,811,000 103,611,000 75,959,000 ---------------------------------------- Gross profit 152,880,000 118,944,000 85,927,000 Operating and administrative expenses 99,473,000 73,448,000 54,963,000 ---------------------------------------- Operating income 53,407,000 45,496,000 30,964,000 --------------------------------------- Other income (expense): Interest income 118,000 181,000 238,000 Interest expense (82,000) (68,000) -- Gain on disposal of property and equipment 989,000 597,000 189,000 ---------------------------------------- Total other income 1,025,000 710,000 427,000 ---------------------------------------- Earnings before income taxes 54,432,000 46,206,000 31,391,000 Income tax expense 21,893,000 18,795,000 12,725,000 ---------------------------------------- Net earnings $ 32,539,000 27,411,000 18,666,000 ---------------------------------------- Earnings per share $ .86 .72 .49 ---------------------------------------- Weighted average shares outstanding 37,938,688 37,938,688 37,938,688 ----------------------------------------
The accompanying notes are an integral part of the financial statements. 11 1996 Annual Report - -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY Consolidated Statements of Stockholders' Equity Years ended December 31, 1996, 1995 and 1994------------------------------------
UNREALIZED HOLDING GAINS ADDITIONAL (LOSSES) ON TOTAL COMMON STOCK PAID-IN RETAINED TRANSLATION MARKETABLE STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SECURITIES EQUITY - -------------------------------------------------------------------------------------------------------------------------- Balances as of December 31, 1993 37,938,688 $379,000 4,424,000 45,006,000 -- -- 49,809,000 Dividends paid in cash -- -- -- ( 758,000) -- -- (758,000) Net earnings for the year -- -- -- 18,666,000 -- -- 18,666,000 Translation adjustment -- -- -- -- (11,000) -- (11,000) Unrealized holding losses on marketable securities -- -- -- -- -- (57,000) (57,000) - -------------------------------------------------------------------------------------------------------------------------- Balances as of December 31, 1994 37,938,688 $379,000 4,424,000 62,914,000 (11,000) (57,000) 67,649,000 Dividends paid in cash -- -- -- (759,000) -- -- (759,000) Net earnings for the year -- -- -- 27,411,000 -- -- 27,411,000 Translation adjustment -- -- -- -- (41,000) -- (41,000) Unrealized holding gains on marketable securities -- -- -- -- -- 63,000 63,000 - -------------------------------------------------------------------------------------------------------------------------- Balances as of December 31, 1995 37,938,688 $379,000 4,424,000 89,566,000 (52,000) 6,000 94,323,000 Dividends paid in cash -- -- -- (759,000) -- -- (759,000) Net earnings for the year -- -- -- 32,539,000 -- -- 32,539,000 Translation adjustment -- -- -- -- (130,000) -- (130,000) Unrealized holding losses on marketable securities -- -- -- -- -- (6,000) (6,000) - -------------------------------------------------------------------------------------------------------------------------- Balances as of December 31, 1996 37,938,688 $379,000 4,424,000 121,346,000 (182,000) -- 125,967,000 ==========================================================================================================================
The accompanying notes are an integral part of the financial statements. 12 1996 Annual Report - ----------------------------------------------- FASTENAL COMPANY AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 -----------------------------------
1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 32,539,000 27,411,000 18,666,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property and equipment 7,349,000 5,404,000 3,619,000 Gain on disposal of property and equipment (989,000) (597,000) (189,000) Deferred income taxes 268,000 (218,000) (298,000) Amortization of goodwill and non-compete agreement 129,000 -- -- Amortization of premium on marketable securities 6,000 36,000 53,000 Changes in operating assets and liabilities: Trade accounts receivable (9,687,000) (8,260,000) (7,883,000) Inventories (16,348,000) (9,267,000) (8,677,000) Other current assets (2,208,000) (415,000) (499,000) Accounts payable 2,128,000 68,000 3,450,000 Accrued expenses 637,000 828,000 1,541,000 Income taxes payable (1,346,000) (45,000) 1,501,000 -------------------------------------------- Net cash provided by operating activities 12,478,000 14,945,000 11,284,000 -------------------------------------------- Cash flows from investing activities: Purchases of marketable securities -- -- (2,266,000) Sales of marketable securities 257,000 4,269,000 585,000 Additions of property and equipment, net (26,243,000) (16,664,000) (8,129,000) Proceeds from sale of property and equipment 3,043,000 1,755,000 450,000 Translation adjustment (130,000) (41,000) (11,000) Decrease (increase) in other assets (3,425,000) (55,000) 2,000 -------------------------------------------- Net cash used by investing activities (26,498,000) (10,736,000) (9,369,000) -------------------------------------------- Cash flows from financing activities: Net increase in note payable 8,622,000 -- -- Payment of dividends (759,000) (759,000) (758,000) -------------------------------------------- Net cash provided by (used in) financing activities 7,863,000 (759,000) (758,000) -------------------------------------------- Net increase (decrease) in cash and cash equivalents (6,157,000) 3,450,000 1,157,000 Cash and cash equivalents at beginning of year 6,583,000 3,133,000 1,976,000 -------------------------------------------- Cash and cash equivalents at end of year $ 426,000 6,583,000 3,133,000 -------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during each period for: Income taxes $ 22,971,000 19,057,000 11,522,000 Interest $ 82,000 68,000 -- Supplemental disclosures on non-cash investing activities: Unrealized holding gains (losses) on marketable securities $ (6,000) 63,000 (57,000)
The accompanying notes are an integral part of the financial statements. 13 1996 Annual Report - ------------------------------------------------ FASTENAL COMPANY AND SUBSIDIARY Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994 ----------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Fastenal Company and its wholly-owned subsidiary, Fastenal Canada Company (collectively referred to as the Company). All material intercompany balances and transactions have been eliminated in consolidation. REVENUE RECOGNITION The Company recognizes sales and the related cost of sales on the accrual basis of accounting at the time products are shipped to or picked up by customers. CASH EQUIVALENTS For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly-liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories, consisting of merchandise held for resale, are stated at the lower of cost (first in, first out method) or market. MARKETABLE SECURITIES Marketable securities as of December 31, 1996 and 1995 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 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. (continued) 14 1996 Annual Report - ------------------------------------------------ FASTENAL COMPANY AND SUBSIDIARY Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994------------------------------------ (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Except as provided below, depreciation on buildings and equipment is provided for financial statement reporting purposes by the methods and over the lives mandated by Internal Revenue Service Regulations (IRS Regulations). These lives approximate the anticipated economic useful lives of the related property. Depreciation in 1996 on transportation equipment is provided by the straight-line method over lives mandated by IRS Regulations which represents a change from 1995 when the accelerated method was used. The 1996 change reflected a change in the estimate of the salvage value of the transportation equipment. This change was made to lessen the effect of increasing gains from the planned disposal of transportation equipment. The impact of the change was immaterial in 1996 and is expected to be immaterial in 1997. OTHER ASSETS Other assets consists of prepaid security deposits, goodwill and a non- compete agreement. Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized on a straight- line basis over 15 years. The non-compete agreement is amortized on a straight-line basis over 15 years. Goodwill and other long-term asset balances are reviewed periodically to determine that the unamortized balances are recoverable. In evaluating the recoverability of these assets, the following factors, among others, are considered: a significant change in the factors used to determine the amortization period, an adverse change in legal factors or in the business climate, a transition to a new product or services strategy, a significant change in the customer base, and/or a realization of failed marketing efforts. If the unamortized balance is believed to be unrecoverable, the Company recognizes an impairment charge necessary to reduce the unamortized balance to the amount of cash flows expected to be generated over the remaining life. If the acquired entity has been integrated into other operations and cash flows cannot be separately measured, the Company recognizes an impairment charge necessary to reduce the unamortized balance to its estimated fair value. The amount of impairment is charged to earnings as a part of operating and administrative expenses in the current period. LONG-LIVED ASSETS The Company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of, in 1996. Adoption of this statement did not have a material impact on the Company's financial position or results of operations. (continued) 15 1996 Annual Report - ------------------------------------------------ FASTENAL COMPANY AND SUBSIDIARY Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994------------------------------------ (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. STOCK-BASED COMPENSATION The Company does not have any stock options or any other types of stock- based compensation. INCOME TAXES The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. EARNINGS PER SHARE Earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding. (2) MARKETABLE SECURITIES The amortized cost, unrealized holding gains (losses), and fair value of available-for-sale debt securities by major security type as of December 31 were as follows:
AMORTIZED UNREALIZED HOLDING FAIR COST GAINS (LOSSES) VALUE ----------------------------------------------- 1996 $515,000 -- 515,000 1995 $778,000 6,000 784,000
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of the fair value of all financial instruments to which the Company is a party. All financial instruments are carried at amounts that approximate estimated fair value. (continued) 16 1996 Annual Report - ------------------------------------------------ FASTENAL COMPANY AND SUBSIDIARY Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994------------------------------------ (4) PROPERTY AND EQUIPMENT Property and equipment as of December 31 consists of the following:
DEPRECIABLE LIFE IN YEARS 1996 1995 - -------------------------------------------------------------------- Land -- $ 1,934,000 1,444,000 Buildings and improvements 15 to 39 17,370,000 10,482,000 Equipment and shelving 3 to 10 25,765,000 19,063,000 Transportation equipment 3 to 5 17,464,000 10,078,000 Construction in progress -- 2,078,000 1,314,000 ----------------------- 64,611,000 42,381,000 Less accumulated depreciation 20,681,000 15,291,000 ----------------------- Net property and equipment $43,930,000 27,090,000 -----------------------
(5) ACCRUED EXPENSES Accrued expenses as of December 31 consist of the following:
1996 1995 - -------------------------------------------------------- Payroll and related taxes $2,766,000 1,846,000 Bonuses 1,108,000 1,584,000 Commissions 867,000 688,000 Sales and real estate taxes 570,000 466,000 Other 300,000 390,000 --------------------- $5,611,000 4,974,000 ---------------------
(6) STOCKHOLDERS' EQUITY STOCK SPLITS Dollar, share and per share amounts herein and in the accompanying consolidated financial statements have been adjusted retroactively, where appropriate, to reflect the 2-for-1 Common Stock split effected in the form of a 100% stock dividend in 1995. DIVIDENDS On February 1, 1997, the Company's board of directors declared a dividend of $.02 per share of Common Stock to be paid in cash on March 14, 1997 to shareholders of record at the close of business on February 28, 1997. (continued) 17 1996 Annual Report - -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994------------------------------------ (7) INCOME TAXES Components of income tax expense are as follows:
CURRENT DEFERRED TOTAL 1996: - ------------------------------------------------------------------ Federal $17,324,000 216,000 17,540,000 State 4,301,000 52,000 4,353,000 ------------------------------------- $21,625,000 268,000 21,893,000 ------------------------------------- 1995: CURRENT DEFERRED TOTAL - ------------------------------------------------------------------ Federal $15,192,000 (175,000) 15,017,000 State 3,821,000 (43,000) 3,778,000 ------------------------------------- $19,013,000 (218,000) 18,795,000 ------------------------------------- 1994: CURRENT DEFERRED TOTAL - ------------------------------------------------------------------ Federal $10,434,000 (239,000) 10,195,000 State 2,589,000 (59,000) 2,530,000 ------------------------------------- $13,023,000 (298,000) 12,725,000 --------------------------------------
Income tax expense in the accompanying consolidated financial statements differs from the "expected" tax expense as follows:
1996 1995 1994 - ----------------------------------------------------------------- Federal income tax expense at the "expected" rate of 35% $19,051,000 16,172,000 10,987,000 Increase (reduction) attributed to: State income taxes, net of federal benefit 2,829,000 2,371,000 1,644,000 Tax exempt interest (16,000) (46,000) (68,000) Other, net 29,000 298,000 162,000 ------------------------------------- Total income tax expense $21,893,000 18,795,000 12,725,000 -------------------------------------
The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31 are as follows:
1996 1995 - ------------------------------------------------------------------------ Deferred taxes: Inventory costing and valuation methods $1,007,000 705,000 Allowance for doubtful accounts receivable 218,000 185,000 Health claims payable 21,000 63,000 Tax depreciation in excess of book depreciation (540,000) -- Other, net (27,000) (6,000) ----------------------- Net deferred tax assets $ 679,000 947,000 -----------------------
(continued) 18 1996 Annual Report - -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994------------------------------------ (7) INCOME TAXES (continued) No valuation allowance for deferred tax assets was necessary as of December 31, 1996 and 1995. The character of the federal tax assets is such that they can be realized through carry-back to prior tax periods or offset against future taxable income. (8) OPERATING LEASES The Company leases space under non-cancelable operating leases for its California and Washington distribution centers, its Tennessee packaging center, and for certain store sites with initial terms of one to 48 months. Minimum annual rentals, exlusive of taxes insurance, etc. for the leased facilities, are as follows:
YEAR ENDING DISTRIBUTION CENTERS, DECEMBER 31 PACKAGING CENTER AND STORE SITES --------------------------------------------------------------------------- 1997 $5,836,000 1998 4,335,000 1999 1,777,000 2000 and thereafter --
Rent expense under all operating leases was as follows:
YEAR ENDED DISTRIBUTION CENTERS, DECEMBER 31 PACKAGING CENTER AND STORE SITES --------------------------------------------------------------------------- 1996 $5,865,000 1995 4,003,000 1994 2,865,000
(9) LINE OF CREDIT AND COMMITMENTS The Company has a line of credit arrangement with a bank which expires June 30, 1997. The line allows for borrowings of up to $15,000,000 at 1.2% over the LIBOR rate. On December 31, 1996 there was $8,622,000 outstanding on the line and the interest rate was 6.8%. The Company currently has letters of credit issued on its behalf to suppliers for large overseas purchases. As of December 31, 1996 and 1995, the total undrawn balance of outstanding letters of credit was $101,000 and $32,000, respectively. 19 1996 Annual Report Independent Auditors' Report THE BOARD OF DIRECTORS AND STOCKHOLDERS FASTENAL COMPANY: We have audited the accompanying consolidated balance sheets of Fastenal Company and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fastenal Company and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota February 1, 1997 20 1996 Annual Report OFFICERS Robert A. Kierlin Chairman of the Board, President and Chief Executive Officer Willard D. Oberton Vice President and Chief Operating Officer Stephen M. Slaggie Secretary Daniel L. Florness Treasurer, Chief Financial Officer and Chief Accounting Officer DIRECTORS Michael M. Gostomski President, Winona Heating & Ventilating Co. (sheet metal and roofing contractor) Robert A. Kierlin Henry K. McConnon President, Wise Eyes, Inc. (eyeglass retailer and wholesaler) John D. Remick President, Rochester Athletic Club, Inc. (health club) Stephen M. Slaggie CORPORATE INFORMATION ANNUAL MEETING The annual meeting of shareholders will be held at 10:00 a.m., Tuesday, April 22, 1997, at Corporate Headquarters, 2001 Theurer Boulevard, Winona, Minnesota CORPORATE HEADQUARTERS Fastenal Company 2001 Theurer Boulevard Winona, Minnesota 55987-1500 Phone: (507) 454-5374 Fax: (507) 453-8049 TRANSFER AGENT Norwest Bank Minnesota, N.A. Minneapolis, Minnesota FORM 10-K A COPY OF THE COMPANY'S 1996 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. LEGAL COUNSEL Faegre & Benson LLP Minneapolis, Minnesota Streater, Murphy, Gernander, Forsythe & Telstad, PA Winona, Minnesota AUDITORS KPMG Peat Marwick LLP Minneapolis, Minnesota FASTENAL COMPANY [FASTENAL LOGO] [SHARPCUT LOGO] [FASTOOL LOGO] [POWERFLOW LOGO] [EQUIPRITE LOGO] [CLEANCHOICE LOGO] Our Approach At Fastenal Company, we operate in an uncomplicated, straightforward way that makes it easy for our customers to gain confidence and satisfaction based on our performance. This concept, present when we opened our first Fastenal store in 1967, will remain unchanged. [DRAWING OF THE ORIGINAL FASTENAL STORE FRONT IN 1967 TINTED AT 5% BLUE.] [CROPPED VIEW OF THE CURRENT CORPORATE HEADQUARTERS IN WINONA, MINNESOTA (1996)] Corporate Headquarters: 2001 Theurer Boulevard . Winona, Minnesota 55987-1500 Phone: 507-454-5374 . Fax: 507-453-8049 For more information, e-mail us at: fastinfo@fastenal.com EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet and Consolidated Statement of Earnings of Fastenal Company and Subsidiary as of, and for the year ended, December 31, 1996 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 426,000 0 42,093,000 540,000 56,526,000 103,455,000 64,611,000 20,681,000 151,545,000 25,038,000 0 379,000 0 0 125,588,000 151,545,000 287,691,000 287,691,000 134,811,000 134,811,000 0 917,000 82,000 54,432,000 21,893,000 32,539,000 0 0 0 32,539,000 .86 .86 Marketable securities in the amount of $515,000 have been classified as non-current assets on the Consolidated Balance Sheet of Fastenal Company and Subsidiary as of December 31, 1996.
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