-----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, ByI4NZ/qtnEsNcWtpX2dxhdvW1WWKybctKtLaBKa2/xAY6psO1Q9fw6F4YNCjzVu jWElbCZskrvhNHt8k26W+g== 0000950131-00-001703.txt : 20000314 0000950131-00-001703.hdr.sgml : 20000314 ACCESSION NUMBER: 0000950131-00-001703 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000313 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: SEC FILE NUMBER: 000-16125 FILM NUMBER: 567124 BUSINESS ADDRESS: STREET 1: 2001 THEURER BLVD CITY: WINONA STATE: MN ZIP: 55987 BUSINESS PHONE: 5074545374 10-K405 1 FORM 10-K405 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, 1999, 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 1, 2000 was $1,307,989,774. For purposes of determining this number, all executive officers and directors of the registrant as of March 1, 2000 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 1, 2000, 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, 1999 are incorporated by reference in Part II. Portions of the registrant's Proxy Statement for the annual meeting of shareholders to be held April 18, 2000 are incorporated by reference in Part III. FORWARD LOOKING STATEMENTS This Form 10-K, including the sections in Part I hereof captioned "Item 1. Business - Development of the Business", "Item 1. Business - Products", "Item 1. Business - Manufacturing Operations", and "Item 2. Properties", and the sections in Part II hereof captioned "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations", contains or incorporates by reference statements that are not historical in nature and that are intended to be, and are hereby identified as, "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding new store and distribution center openings, markets for new stores, hiring of sales personnel, introduction of new product lines, foreign operations, technology conversions, growth in value added services, leasing of new stores, 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 in the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1999 in the section thereof captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations", which section has been incorporated in this Form 10-K by reference. The registrant assumes no obligation to update either such forward-looking statements or the discussion of such risks and uncertainties. PART I ITEM 1. BUSINESS Fastenal Company ("Fastenal Company" and, together with its wholly owned subsidiaries, Fastenal Company Services, Fastenal Company Purchasing, Fastenal Company Leasing, Fastenal Canada Company, Fastenal Mexico, S. de R.L. de C.V., and Fastenal Mexico Services, S. de R.L. de C.V., collectively, "the Company") began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968. As of December 31, 1999, the Company had 809 store sites located in 48 states, Puerto Rico, and Canada and 3,670 people employed at these sites. Fifty-nine of these sites were satellite stores of an existing site. The Company sells industrial and construction supplies. These industrial and construction supplies are grouped into nine product lines described further below. The Company operated eleven distribution centers as of December 31, 1999 from which the Company distributes products to its store sites, and operates a facility in Memphis, Tennessee to receive and package goods coming from suppliers outside of the United States. 3 Development of the Business Fastenal Company began in 1967 with a marketing strategy of supplying threaded fasteners to customers in small to medium-sized cities. The Company believes its success can be attributed to its ability to offer such customers a full line of products at convenient locations, and to the high quality of the Company's employees. The Company opened its first store site in Winona, Minnesota, a city with a population of approximately 25,000. The following table shows the number of Company store sites during each of the last ten years and the related consolidated net sales for each year during that period:
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------ Number of store sites at year end 809 766 644 484 375 315 253 200 158 126 Net sales (in thousands) $ 609,186 503,100 397,992 287,691 222,555 161,886 110,307 81,263 62,305 52,290
As of December 31, 1999, the Company operated 809 store sites located in:
Alabama 15 Iowa 18 Nebraska 7 Rhode Island 3 Arizona 4 Kansas 14 Nevada 4 South Carolina 11 Arkansas 13 Kentucky 12 New Hampshire 8 South Dakota 6 California 33 Louisiana 12 New Jersey 7 Tennessee 18 Colorado 10 Maine 6 New Mexico 5 Texas 54 Connecticut 9 Maryland 9 New York 21 Utah 8 Delaware 3 Massachusetts 10 North Carolina 26 Vermont 3 Florida 21 Michigan 37 North Dakota 7 Virginia 20 Georgia 23 Minnesota 25 Ohio 43 Washington 19 Idaho 7 Mississippi 10 Oklahoma 13 West Virginia 10 Illinois 34 Missouri 14 Oregon 14 Wisconsin 36 Indiana 32 Montana 7 Pennsylvania 34 Wyoming 3 Puerto Rico 4 Canada 47
The Company has closed only four store sites in its history. 4 The Company selects new locations for its stores based on their proximity to the Company's distribution network, population statistics, and employment data for manufacturing and construction. The Company intends to continue opening new store sites and currently expects the rate of new store openings to be approximately 10 to 15% per year. The Company stocks all new stores with an inventory drawn from all of its product lines. Subsequent to a site's opening, the site personnel customize the inventory offering to that site's customer base. The Company has two types of stores: (1) the stand-alone store and (2) the satellite store. The stand-alone store is typically located in cities with a population in excess of 8,000. The Company believes approximately 1,000 markets in the United States and Canada (including those in which existing stand-alone stores are already located) has sufficient potential to justify this type of store. Many of the future potential markets for stand-alone stores are located in smaller communities. The second type, the satellite store, operates as a satellite of a stand-alone store. The satellite store is usually located within 30 miles of the stand-alone (mother) store and is typically managed by personnel at the mother store. The Company has satellite stores located in communities with a population as small as 2,000. In most cases, the Company was already doing business in this community from the mother store, but the addition of a physical presence in the community provided sales increases from that community. Of the 44 stores opened during 1999, 10 opened as satellite stores. Although the Company cannot be sure of the success of these stores, the Company believes that their success could lead to approximately 500 satellite store sites in the United States and Canada. Some of these satellite stores are expected to eventually become stand-alone stores. The Company opened 20 store sites in Canada in 1997, nine in 1998, and five in 1999, and plans to open additional store sites in Canada in the future. The Company opened one store site in Puerto Rico in 1997, three in 1998, and none in 1999, and plans to open additional store sites in Puerto Rico in the future. The stores in Canada and Puerto Rico contributed less than 5% of the Company's consolidated net sales in 1999. In 1999 the Company sold products into Mexico from its existing stores along the border between the United States and Mexico. The Company also established a Mexican subsidiary in 1998. This subsidiary is expected to employ sales personnel to sell directly into Mexico in the future. 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. The one store opened in the first quarter of 1999 was profitable in the fourth quarter of 1999. 5 For 1999, annual sales volumes of store sites operating at least five years ranged between approximately $198,000 and $4,670,000, with 75% of these store sites having annual sales volumes within the range of approximately $453,000 to $1,951,000. The data in the following table shows the growth in the average sales of the Company's store sites from 1998 to 1999 based on each site's age. The store sites opened in 1999 contributed approximately $1.9 million (or approximately 0.3%) of the Company's consolidated net sales in 1999, with the remainder coming from store sites opened prior to 1999.
Number of store Age of store site as of Year sites in group as of Average Average Percent December 31, 1999 Opened December 31, 1999 sales 1998 sales 1999 change - ------------------------------------------------------------------------------------------------- 0-1 year old 1999 44 $ -- $ 44,000(1) -- % 1-2 years old 1998(2) 121 144,000(1) 393,000 -- 2-3 years old 1997 160 348,000 470,000 35.1 3-4 years old 1996 109 500,000 595,000 19.0 4-5 years old 1995 60 566,000 666,000 17.7 5-6 years old 1994 62 596,000 678,000 13.8 6-7 years old 1993 53 755,000 836,000 10.7 7-8 years old 1992 42 887,000 1,007,000 13.5 8-9 years old 1991 32 1,036,000 1,102,000 6.4 9-10 years old 1990 28 1,218,000 1,361,000 11.7 10-11 years old 1989 23 1,278,000 1,454,000 13.8 11-14 years old 1986-1988 40 1,529,000 1,749,000 14.4 14+ years old 1967-1985 35 1,981,000 2,116,000 6.8
(1) Average sales include sales of store sites open for less than the full fiscal year. (2) During 1999 one store site in this group closed. The 1998 average reflects 122 stores sites and the 1999 average reflects 121.5 store sites As of December 31, 1999, the Company operated distribution centers in or near Winona, Minnesota; Indianapolis, Indiana; Dallas, Texas; Atlanta, Georgia; Scranton, Pennsylvania; Fresno, California; Lakewood, Washington; Akron, Ohio; Salt Lake City, Utah; Winston-Salem, North Carolina; and Kansas City, Missouri. Distribution centers are located so as to permit twice-a-week to five times-a-week deliveries to Company stores using Company trucks and overnight delivery by surface common carrier. As the number of stores increases, the Company intends to add new distribution centers. The Company also operates a packaging facility in Memphis, Tennessee. This facility receives freight containers from foreign suppliers and repackages the items in standard packages using high-speed equipment. The Company operates a central UNIX/terminal-based computer system allowing automatic data exchange between the stores and the distribution centers 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. The Company converted a portion of this central processing system in 1999 to a new computer software and operating system and plans to convert additional modules during 2000. During 1999, the Company had two point-of-sale systems at the store level. The first was a UNIX/terminal based computer system (legacy point-of-sale system) and the second a Microsoft Windows NT system (NT Point-of-sale system). The development of the NT Point-of-sale system began in 1996. During 1997 and 1998 the Company tested its NT Point-of-sale system in a limited number of store locations. At the end of 1998, approximately 120 stores were using the NT Point-of-sale system. The Company converted all remaining stores from the legacy point-of-sale system to the NT Point-of-sale system during 1999. 6 Trademarks The Company conducts its business in the United States and Canada under various trademarks and service marks, including Fastenal(R), FastTool(R), SharpCut(R), EquipRite(R), CleanChoice(R), PowerPhase(TM) and FastArc(TM). Although the Company does not believe its operations are substantially dependent upon any of its trademarks or service marks, the Company considers its "Fastenal" name and other trademarks and service marks to be valuable to its business. Products The Company's original product offering in 1967 was fasteners and other industrial and construction supplies, many of which are sold under the Fastenal(R) product name. Today, this product line consists of approximately 66,000 different stock items. This product line may be divided into two broad categories: threaded fasteners, such as bolts, nuts, screws, studs, and related washers; and other industrial and construction supplies, such as paints, various pins and machinery keys, concrete anchors, batteries, sealants, metal framing systems, wire rope, stainless strut, private label stud anchors, rivets, and related accessories. Threaded fasteners are used in most manufactured products and building projects, and in the maintenance and repair of machines and structures. Although some aspects of the threaded fastener market are common to all cities, the Company feels that each city's market is to some extent unique. Therefore, the Company opens each store with minimal base stocks of inventory and then tailors the growing inventory to the local market demand as it develops. Threaded fasteners accounted for approximately 51%, 55%, and 61% of the Company's consolidated net sales in 1999, 1998 and 1997, respectively. Concrete anchors make up the largest portion of the other supply items included in the Fastenal(R) product line. Most concrete anchors use threaded fasteners as part of the completed anchor assembly. During the 1990's, the Company added eight additional product lines. These product lines are sold through the same distribution channel as the original Fastenal(R) product line and include the following: Approximate Year number of Private label Product line: introduced stock items product name - --------------------------- ------------ ------------- --------------- Tools 1993 40,000 FastTool(R) Cutting Tools 1996 18,000 SharpCut(R) Hydraulics and Pneumatics 1996 18,000 Material Handling 1996 7,000 EquipRite(R) Janitorial Supplies 1996 4,000 CleanChoice(R) Electrical Supplies 1997 5,000 PowerPhase(TM) Welding Supplies(1) 1997 3,000 FastArc(TM) Safety supplies 1999 1,000 (1) Excluding gas and welding machines. The Company plans to add other industrial product lines in the future. 7 Inventory Control The Company controls inventory by using computer systems to determine desired stock levels. The data used for this purpose is derived from reports showing sales activity by stock item for the previous three years. Computers then convert this data to typical store maximum-minimum inventory levels for each stock item. Stores can deviate from preset inventory levels as deemed appropriate by their district managers. Inventories in distribution centers are established from computerized sales data for the stores served by the respective centers. Manufacturing and Support Services Operations In 1999 approximately 94.8% of the Company's consolidated net sales were attributable to products manufactured by other companies to industry standards. The remaining amount of approximately 5.2% of the Company's consolidated net sales for 1999 related to products manufactured, modified or repaired by either the Company's Manufacturing Division or its Support Services. The manufactured products consist primarily of non-standard sizes of threaded fasteners made to customers' specifications. The services provided by the Support Services group include, but are not limited to, items such as tool repair, band saw blade welding and light manufacturing. The Company engages in these activities primarily as a service to its customers and does not expect any significant growth in the foreseeable future in the proportion of the Company's consolidated net sales attributable to these value added services. Sources of Supply The Company uses a large number of suppliers for the approximately 162,000 standard stock items it distributes. Most items distributed by the Company can be purchased from several sources, although preferred sourcing is used for some stock items to facilitate quality control. No single supplier accounted for more than 5.0% of the Company's purchases in 1999. 8 Customers and Marketing The Company believes its success can be attributed to its ability to offer customers in small to medium-sized cities a full line of products at convenient locations, and to the high quality of the Company's employees. Most of the Company's customers are in the construction and manufacturing markets. The construction market includes general, electrical, plumbing, sheet metal, and road contractors. The manufacturing market includes both original equipment manufacturers and maintenance and repair operations. Other users of the Company's products include farmers, truckers, railroads, mining companies, municipalities, schools, and certain retail trades. As of December 31, 1999, the Company's total number of active customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 108,000. During each of the three years ended December 31, 1999, no one customer accounted for a significant portion of the Company's sales. The Company believes that the large number of its customers together with the varied markets that they represent provide some protection to the Company from economic downturns in a particular market. A significant portion of the Company's sales is generated through direct calls on customers by store personnel. Because of the nature of the Company's business, the Company does not use the more expensive forms of mass media advertising such as television, radio, and newspapers. Forms of advertising used by the Company include signs 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, 1999, the Company employed a total of 5,493 full and part-time employees, 3,670 being store managers and store employees, and the balance being employed in the Company's distribution centers, packaging facility, manufacturing operations, service operations and home office. 9 The Company believes that the quality of its employees is critical to its ability to compete successfully in the markets it currently serves and to its ability to open new stores in new markets. The Company fosters the growth and education of skilled employees throughout the organization by operating training programs and by decentralizing decision making. Wherever possible, promotions are from within the Company. For example, most new store managers are promoted from an assistant manager's position at another store and district managers (who supervise a number of stores) are usually former store managers. The Company's sales personnel participate in incentive bonus arrangements that place emphasis on achieving increased sales on a store and regional basis, while still attaining targeted levels of gross profit. As a result, a significant portion of the Company's total employment cost varies with sales volume. The Company also pays incentive bonuses to other personnel for achieving pre-determined cost containment goals. None of the Company's employees is subject to a collective bargaining agreement and the Company has experienced no work stoppages. The Company believes its employee relations are excellent. ITEM 2. PROPERTIES The Company owns six facilities in Winona, Minnesota. These facilities are as follows: Approximate Purpose Square Feet - -------------------------------------------------------------------------- Distribution center and home office 213,000 Manufacturing facility 50,000 (1) Winona store and regional training center 13,000 Winona support services 55,000 (2) Rack and shelving storage 42,000 Multi-building complex which houses certain operations of its Manufacturing Division and its Support Services group 30,000 The Company also owns the following facilities, excluding store locations, outside of Winona, Minnesota: Approximate Purpose Location Square Feet - -------------------------------------------------------------------------- Distribution center Indianapolis, Indiana 76,000 (3) Distribution center Atlanta, Georgia 54,000 Distribution center Dallas, Texas 95,000 Distribution center Scranton, Pennsylvania 80,000 Distribution center Akron, Ohio 102,000 (1) The Winona, Minnesota manufacturing facility is currently being expanded to approximately 100,000 square feet. (2) This facility was purchased in November 1999 and is currently being renovated for future use. (3) A new distribution center in Indianapolis, Indiana was purchased in November 1999. The new distribution center has approximately 414,000 square feet and is currently being renovated for future use. The existing facility will either be sold or leased once the distribution center operations have moved to the new location. 10 In addition, the buildings that house the Company's stores in Mason City, Iowa; St. Joseph, Missouri; Wichita Falls and Texarkana, Texas; Salina, Topeka, and Wichita, Kansas; Vicksburg, Mississippi; Kokomo, Indiana, Appleton, Wisconsin; Muskegon, Michigan; and Rochester, Minnesota. are owned by the Company. As of December 1999, the Company was in the process of building a store location in Elmira, New York. All other buildings occupied by the Company are leased. Leased stores range from approximately 1,200 to 8,000 square feet, with lease terms of up to 48 months. The Company also leases the following distribution centers and packaging facility:
Approximate Lease Expiration Lease Renewal Options Purpose Location Square Feet Date - --------------------- ------------------------------- ------------- ------------------ ----------------------- Distribution center Lakewood, Washington 40,000 February 2002 None Distribution center Fresno, California 52,500 February 2002 Three one-year periods(1) Distribution center Salt Lake City, Utah 12,100 November 2002 None Distribution center Winston-Salem, North Carolina 58,400 October 2000 Two one-year periods(1) Packaging facility Memphis, Tennessee 115,000 December 2000 One two-year period(1) Distribution center Kansas City, Missouri 40,000 April 2001 One two-year period(1)
(1) The lease renewals can be exercised at the Company's option. If economic conditions are suitable, the Company will, in the future, consider purchasing store sites to house its older stores. It is anticipated that all sites for new stores will continue to be leased. It is the Company's policy to negotiate relatively short lease terms to facilitate relocation of particular store operations if deemed desirable by management. It has been the Company's experience that space suitable for its needs and available for leasing is more than sufficient. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 11 ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Fastenal Company are: Name Age Position -------------------------------------------------------------------------- Robert A. Kierlin 60 Chairman of the Board, President, Chief Executive Officer and Director Willard D. Oberton 41 Vice President, Chief Operating Officer and Director Stephen M. Slaggie 60 Secretary and Director Daniel L. Florness 36 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 of Fastenal Company since Fastenal Company's incorporation in 1968. Mr. Oberton has been the Vice President and Chief Operating Officer of Fastenal Company since March 1997 and has served as a director of Fastenal Company since June 1999. 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 of Fastenal Company since 1970. He became a full-time employee of Fastenal Company in December 1987, at which time he assumed the additional duties of Shareholder Relations Director and Insurance Risk Manager. From 1970 through June 1996, Mr. Slaggie also served as the Treasurer of Fastenal Company. Mr. Florness has been the Treasurer, Chief Financial Officer and Chief Accounting Officer of Fastenal Company since June 1996. From January 1987 through May 1996, Mr. Florness was employed by KPMG LLP, a public accounting firm. Mr. Florness served in the capacity of senior manager from July 1992 through May 1996 with that firm. The executive officers are elected by the Board of Directors, generally for a term of one year, and serve until their successors are elected and qualified. None of the above executive officers is related to any other such executive officer or to any other director of Fastenal Company. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1999, 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, 1999, Six-Year Selected Financial Data on page 4. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1999, Management's Discussion & Analysis of Financial Condition & Results of Operations on pages 5-8. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1999, Market Risk Management on page 7. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated herein by reference is Fastenal Company's Annual Report to Shareholders for the fiscal year ended December 31, 1999, 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. 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference is the information appearing under the headings "Election of Directors--Nominees and Required Vote", pages 4 and 5, and "Section 16(a) Beneficial Ownership Reporting Requirements", page 11, in Fastenal Company's Proxy Statement dated March 14, 2000. 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, "Executive Compensation--Summary of Compensation", page 6, and "Executive Compensation--Compensation Committee Interlocks and Insider Participation", page 7, in Fastenal Company's Proxy Statement dated March 14, 2000. 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 and 3, in Fastenal Company's Proxy Statement dated March 14, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a) 1. Financial Statements: Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Earnings for the years ended December 31, 1999, 1998, and 1997 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 1999, 1998, and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997 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, 1999) 2. Financial Statement Schedules: Schedule II--Valuation and Qualifying Accounts 3. Exhibits: 3.1 Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q for the quarter ended September 30, 1993) 3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-14923) 10.1 Description of bonus arrangement for Vice President (incorporated by reference to Exhibit 10 to Fastenal Company's Form 10-K for the year ended December 31, 1997) 10.2 Description of bonus arrangement for Treasurer (incorporated by reference to Exhibit 10.2 to Fastenal Company's Form 10-K for the year ended December 31, 1998) 13 Annual Report to Shareholders for the fiscal year ended December 31, 1999 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission) 21 List of Subsidiaries 23 Consent of KPMG LLP 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 Fastenal Company filed no report on Form 8-K during the fourth quarter of the fiscal year ended December 31, 1999. 15 Independent Auditors' Report on Schedule The Board of Directors and Stockholders Fastenal Company: Under date of January 19, 2000, except as to Note 4, which is as of January 25, 2000, we reported on the consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999, as contained in the 1999 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 1999. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota January 19, 2000, except as to Note 4, which is as of January 25, 2000 16 FASTENAL COMPANY Schedule II--Valuation and Qualifying Accounts Years ended December 31, 1999, 1998, and 1997
"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, 1999 allowance for doubtful accounts $ 740,000 $3,566,000 $ 0 $2,906,000 $1,400,000 Year ended December 31, 1998 allowance for doubtful accounts $ 660,000 $3,493,000 $ 0 $3,413,000 $ 740,000 Year ended December 31, 1997 allowance for doubtful accounts $ 540,000 $1,614,000 $ 0 $1,494,000 $ 660,000
17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 13, 2000 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 13, 2000 By /s/ Robert A. Kierlin ------------------------------------- Robert A. Kierlin, President (Principal Executive Officer) and Director Date: March 13, 2000 By /s/ Daniel L. Florness ------------------------------------- Daniel L. Florness, Treasurer (Principal Financial Officer and Principal Accounting Officer) Date: March 13, 2000 By /s/ Stephen M. Slaggie ------------------------------------- Stephen M. Slaggie, Director Date: March 13, 2000 By /s/ Michael M. Gostomski ------------------------------------- Michael M. Gostomski, Director Date: March 13, 2000 By /s/ Henry K. McConnon ------------------------------------- Henry K. McConnon, Director Date: March 13, 2000 By /s/ John D. Remick ------------------------------------- John D. Remick, Director Date: March 13, 2000 By /s/ Robert A. Hansen ------------------------------------- Robert A. Hansen, Director Date: March 13, 2000 By /s/ Willard D. Oberton ------------------------------------- Willard D. Oberton, Director INDEX TO EXHIBITS 3.1 Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q for the quarter ended September 30, 1993). 3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-14923). 10.1 Description of bonus arrangement for Vice President (incorporated by reference to Exhibit 10 to Fastenal Company's Form 10-K for the year ended December 31, 1997) 10.2 Description of bonus arrangement for Treasurer (incorporated by reference to Exhibit 10.2 to Fastenal Company's Form 10-K for the year ended December 31, 1998) 13 Annual Report to Shareholders for the fiscal year ended December 31, 1999 (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission)...............Electronically Filed 21 List of Subsidiaries ..............................Electronically Filed 23 Consent of KPMG LLP ...............................Electronically Filed 27 Financial Data Schedule............................Electronically Filed EX-13 2 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 Profile of Fastenal Company ============================================================================ Fastenal Company was founded in 1967. As of December 31, 1999, the Company operated 809 store sites located in 48 states, Puerto Rico and Canada and employed 3,670 people at these sites. In addition, there were 1,823 people employed in various support positions. The Company sells approximately 162,000 different types of industrial and construction supplies in nine product categories. These include approximately 66,000 different types of threaded fasteners and supplies; approximately 40,000 different types of tools; approximately 18,000 different types of metal cutting tool blades; approximately 18,000 different types of fluid transfer components and accessories for hydraulic and pneumatic power; approximately 7,000 different types of material handling and storage products; approximately 4,000 different types of janitorial and paper products; approximately 5,000 different types of electrical supplies; approximately 3,000 different types of welding supplies (excluding gas and welding machines) and approximately 1,000 different types of safety supplies. As of December 31, 1999, the Company also operated eleven distribution centers located in Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington, California, Utah, North Carolina and Missouri, and a packaging facility in Tennessee. Approximately 94.8% of the Company's 1999 sales were attributable to products manufactured by others, and approximately 5.2% related to items manufactured, modified or repaired by either the Company's Manufacturing Division or its Support Services. Since December 31, 1999, the Company has opened additional store sites. [PHOTO OF FASTENAL EMPLOYEES] [PHOTO OF FASTENAL EMPLOYEE AT WORKSTATION] - -------------------------------------------------------------------------------- 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 identify as, "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), including statements regarding increase in fastener prices due to improvements in the Asian economies, foreign operations, technology conversions, new product introduction and development, 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 in the section of this Annual Report captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company assumes no obligation to update either such forward-looking statements or the discussion of such risks and uncertainties. - -------------------------------------------------------------------------------- Fastenal Company & Subsidiaries ================================================================================ Table of Contents Page 2 - 3 President's Letter to Shareholders Page 4 Six-Year Selected Financial Data Page 5 - 8 Management's Discussion & Analysis of Financial Condition & Results of Operations Page 9 Stock and Financial Data Page 10 Consolidated Balance Sheets Page 11 Consolidated Statements of Earnings Page 12 Consolidated Statements of Stockholders' Equity & Comprehensive Income Page 13 Consolidated Statements of Cash Flows Page 14 - 19 Notes to Consolidated Financial Statements Page 20 Independent Auditors' Report Inside Back Cover Officers & Directors Corporate Information [PHOTO OF FASTENAL EMPLOYEE AT WORKSTATION] - --------------------------------------------------------------------------- 1 1999 Annual Report President's Letter to Shareholders ================================================================================ The year 1999 can be characterized for Fastenal as a year of treading water. Although our 21.1% net sales growth was better than what most companies do, it was less than our historical rate of sales growth. Permit me to offer some explanations rather than excuses for our less-than-stellar performance, and then I will tell you about some exciting programs we believe will restore better performance. To some extent, our 1999 results had their beginnings in the Asian currency crises of late 1997. Throughout 1998 and most of 1999 we saw slowness in most segments of North American manufacturing (except for vehicles) as export markets withered and production of common items moved to low-cost countries. In late 1997 and in 1998, Asian producers of standard fasteners lowered their prices because of currency devaluations and poor local demand. As lower prices worked their way through North American markets, we saw average selling prices on common fasteners drop about 9% over an 18 month period. By mid 1999, prices for common fasteners had ended their fall; but throughout 1999 our fastener selling prices were lower than they were in the comparable period of 1998. As the Asian economies improve in the year 2000, we expect higher prices for fasteners and the end of deflationary effects. In 1999 Fastenal continued the trend toward achieving more growth from our newer product lines. In 1997 the fastener product category made up 76.9% of our net sales, in 1998 the fastener category contribution was lowered to 71.5% of net sales, and in 1999 the contribution was lowered further to 68.3%. We expect this trend to continue because of the emphasis we are placing on growing our established stores through new product development. Our growth comes from our people. If we add and develop more people, we sow the seeds of our future. In 1999 we added 645 people to our branch stores, an increase of 21.3% for the full year. We also added 299 people in manufacturing and support positions, an increase of 19.6% for the full year. Fastenal opened 44 more stores in 1999, bringing our total to 809. In addition, we began an aggressive program of opening in-plant stores for large customers. These are supply depots in customer locations. We staff and stock these locations but do not count them as stores because they are not open to the general public. We began 1999 with eight such locations and ended the year with 21 in-plant stores. Because we shifted emphasis from new store openings to growth of our existing stores, we reduced some of our expected costs of new-store development in 1999. Primarily for this reason, our net earnings grew at a faster rate than our net sales in 1999. Higher transportation fuel costs in 1999 offset some of the expense savings from fewer store openings in the year. The growth of our customer service business is both a positive part of our 1999 results and a good omen for the future. In 1999 we recorded over $4 million in sales from the repair of power tools, up from $2.7 million in 1998. In 1999 we registered over 2 ----------------------------------------------------------------------------- 1999 Annual Report President's Letter to Shareholders ================================================================================ $1 million in sales of custom-welded band saw blades, a service we began during 1999. Hydraulic hose fabrication added another $400,000 to our 1999 sales. Our specials manufacturing facility continues to grow. The people involved in that part of our business contributed $26 million to our 1999 net sales. By the time you read this, we will have moved into a 50,000 square foot addition to our manufacturing facility in Winona. Our electronic commerce initiatives continue apace. In mid year 1999 customers became able to place orders from our web page. Each month thereafter has seen growth in our web-based sales. Orders received off of the web in the month of December were approximately $100,000. In addition we recorded $1.8 million of sales in December from Electronic Data Interchange. Please look at our web page at www.fastenal.com. We have received many compliments on its design and ease of use. The year 1999 was a milestone for our Information Systems people. In December we completed the final store conversion to our NT point-of-sale system. This was an $8.0 million, multi-year project that gives our stores better information and more timely data. Although the project was complex and time consuming, the costs came within the budget. We are also over the midpoint on the installation of our Enterprise Resource Planning system. This also is a multi-year project that will allow us to improve our inventory planning and financial modeling. When this second major IS project is behind us, we will be positioned with excellent information tools for the growth of our company. In 1999 we purchased a 414,000 square foot building in Indianapolis, Indiana. We needed a larger facility for our Indianapolis distribution center. Although the acquired building is more than double the size we needed, the purchase was completed for $5.7 million, including interior racks and furnishings, a price we considered favorable. We are investigating the use of the extra space to provide logistics services to other firms. From the present perspective, 2000 should be a better year than 1999 for Fastenal. The unknown quantity will be the overall economic conditions in the United States and Canada. All of us at Fastenal will give our best to continue to grow our company through customer service. Thank you for believing in us. /s/ Robert A. Kierlin President and Chief Executive Officer January 19, 2000. [PHOTO OF FASTENAL COMPANY CATALOG] - ----------------------------------------------------------------------------- 3 1999 Annual Report Six-Year Selected Financial Data ================================================================================ Amounts in thousands except per share information
Operating Results Percent Years Ended Dec. 31 1999 Change 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Net sales $ 609,186 +21.1% $503,100 397,992 287,691 222,555 161,886 Gross profit 319,266 +20.8% 264,280 208,929 152,880 118,944 85,927 Earnings before income taxes 106,479 +23.6% 86,123 67,336 54,432 46,206 31,391 Net earnings 65,455 +23.6% 52,953 40,834 32,539 27,411 18,666 Basic and diluted earnings per share 1.73 +23.6% 1.40 1.08 .86 .72 .49 Dividends per share .04 +100% .02 .02 .02 .02 .02 Weighted average shares outstanding 37,939 - 37,939 37,939 37,939 37,939 37,939 Financial Position December 31 - ---------------------------------------------------------------------------------------------------------------------------- Net working capital $ 193,744 +36.0% $142,459 106,555 78,417 66,100 45,341 Total assets 318,621 +26.8% 251,234 205,137 151,545 109,320 81,795 Total stockholders' equity 281,960 +29.5% 217,646 165,872 125,967 94,323 67,649
All information contained in this Annual Report reflects the 2-for-1 stock split effected in the form of a 100% stock dividend in 1995. [PHOTO OF FASTENAL PRODUCTION AREA] 4 ----------------------------------------------------------------------------- 1999 Annual Report Management's Discussion & Analysis of Financial Condition & Results of Operations =============================================================================== Results of Operations Net sales for 1999 exceeded net sales for 1998 by 21.1%. This compares with a 26.4% net sales growth rate experienced from 1997 to 1998. The increase in net sales in 1999 came primarily from new site openings, unit sales growth in existing sites and growth in the newer product lines. This growth was tempered by a deflationary impact to pricing. The increase in net sales in 1998 came primarily from new site openings, unit sales growth in existing sites, and growth in the newer product lines. The growth in 1998 was also tempered by a slight deflationary impact to pricing. The following table indicates product lines added to the original fastener product line, the year of introduction, and the approximate percentage of total net sales related to each product line: Percentage of Net Sales Name Introduced 1999 1998 - --------------------------------------------------------------- Tools 1993 12.5%/1/ 12.2% - --------------------------------------------------------------- Cutting Tools 1996 5.0% 4.9% - --------------------------------------------------------------- Hydraulics & Pneumatics 1996 4.0% 3.5% - --------------------------------------------------------------- Material Handling 1996 5.8%/1/ 5.2% - --------------------------------------------------------------- Janitorial Supplies 1996 1.7%/1/ 1.5% - --------------------------------------------------------------- Electrical Supplies 1997 1.1%/1/ * - --------------------------------------------------------------- Welding Supplies 1997 * * - --------------------------------------------------------------- Safety Supplies 1999 1.0%/1/ * - --------------------------------------------------------------- * Less than 1% of net sales. /1/ During the second quarter of 1999, a safety supplies product line was added. This product line consists of product formerly in the Tools product line, and to a lesser extent the Material Handling, Janitorial Supplies and Electrical Supplies product lines. Proforma percentages are not available. Threaded fasteners accounted for approximately 51%, 55% and 61% of the Company's consolidated sales in 1999, 1998 and 1997, respectively. Sites opened in 1999 contributed approximately $1,900,000 (or 0.3%) to 1999 net sales. Sites opened in 1998 contributed approximately $47,800,000 (or 7.8%) to 1999 net sales and approximately $17,572,000 (or 3.5%) to 1998 net sales. The rate of growth in sales of sites generally levels off after sites have been open for five years, and the sales of older sites typically vary more with the economy than the sales of younger sites. Gross profit as a percent of net sales was 52.4% in 1999, 52.5% in 1998 and 52.5% in 1997. The decrease from 1998 to 1999 resulted primarily from the mix of products being sold. Operating and administrative expenses were 35.1% of net sales in 1999 after having been 35.2% of net sales in 1998 and 35.6% of net sales in 1997. The fluctuations in operating and administrative costs were primarily due to changes in payroll and related costs and changes in occupancy costs. In both 1999 and 1998, payroll and related costs increased at a rate which was less than the rate of increase in net sales. The increases in payroll and related costs were due to the following increases in employees: 1999 1998 - ------------------------------------------------------------- Sales Personnel 21.3% 13.0% - ------------------------------------------------------------- Support Personnel 19.6% 8.9% In 1999, the rate of increase in occupancy costs was less than the rate of increase in net sales. In 1998 the rate of increase in occupancy costs exceeded the rate of increase in net sales. Occupancy costs increased in both years due to a 5.6% and an 18.9% increase in the number of sites in 1999 and 1998, respectively, and due to the relocation of existing stores to larger sites to accommodate their growth in activity and the introduction of new product lines. This reduction in the number and rate of new store openings was due to a shift of emphasis from new store openings to growth of existing stores. Distribution costs benefited from productivity gains in both 1999 and 1998. Net interest income/expense in 1999 improved $1,626,000 over 1998. Net interest expense in 1998 increased $136,000 or 14.8% over 1997. Changes were due to the fluctuations in the weighted average amount of outstanding Company borrowings and investments. The gains on disposal of property and equipment in 1999, 1998 and 1997 came primarily from the disposal of used vehicles. Net earnings grew 23.6% from 1998 to 1999 and 29.7% from 1997 to 1998. The growth in net earnings in both years resulted primarily from - ----------------------------------------------------------------------------- 5 1999 Annual Report Management's Discussion & Analysis of Financial Condition & Results of Operations =============================================================================== increased net sales. In 1999 and 1998 the net earnings growth rate was higher than that of net sales because of the earlier mentioned impact of payroll and related costs and occupancy costs. The Asian economic turmoil impacted the Company in several ways during 1999 and 1998. The Company experienced lower prices on low-carbon and stainless steel fasteners imported from the Far East when compared to 1997. To the extent the Company was able to retain the cost advantage, gross margins improved. However, these lower costs also affected net sales because some of the lower costs were passed on to customers in the competitive marketplace. In 1999 and 1998 the Company also experienced lower net sales of products to customers who export to the Far East when compared to sales levels to these customers in 1997. In addition to the impacts of the Far East situation, 1999 showed a continuation of the slowdown in the manufacturing activity of customers we sell to in the U.S. and Canada. Effects on Inflation Price deflation related to certain products negatively impacted 1999 and 1998. Inflation had little effect on the Company's operations in 1997. Liquidity and Capital Resources Net cash provided by operating activities was: 1999 $55,989,000 - ------------------------ 1998 $43,316,000 - ------------------------ 1997 $14,657,000 - ------------------------ The increases were primarily from the growth in net earnings,depreciation and accounts payable exceeding the growth in accounts receivable and inventory. Net cash used in investing activities was: 1999 $24,654,000 - ------------------------ 1998 $28,609,000 - ------------------------ 1997 $21,619,000 - ------------------------ The 1999 decrease in net cash used in investing activities resulted primarily from an increase in proceeds from the disposal of vehicles and the increase in the leasing of branch vehicles and distribution semi-tractors. This decrease was partially offset by the purchase of a new distribution center in Indiana, additions to several other distribution centers, and the addition to the Minnesota manufacturing facility. The 1998 increase came primarily from the Minnesota distribution center expansion, the purchase of software, and the addition of and expansion to several other distribution centers. Additions to computer equipment are expected to be the largest part of cash used by investing activities in 2000. The Company had no long-term debt at December 31, 1999, 1998, or 1997. See note 8 of the Notes to Consolidated Financial Statements for a description of the Company's current line of credit. The Company paid an annual dividend of $.04 per share in 1999 and $.02 per share in 1998 and 1997. As of December 31, 1999, the Company had no material outstanding commitments for capital expenditures. The Company expects to make approximately $30,500,000 in total capital expenditures in 2000, consisting of approximately $12,000,000 for manufacturing, warehouse and packaging equipment and facilities, approximately $12,000,000 for data processing equipment, and approximately $6,500,000 for vehicles. The capital expenditures for vehicles, which represented a substantial portion of the total amount in prior years, decreased in 1999, and this decrease is expected to recur in 2000 as certain vehicles added or to be added in 1999 and in 2000 are or are expected to be leased under an operating lease. Management anticipates funding its current expansion plans with cash generated from operations, from available cash and cash equivalents, from the sale of marketable securities and, to a lesser degree, from its borrowing capacity. In addition to opening new sites in the United States, the Company plans to continue opening additional sites in Canada and Puerto Rico and to continue expanding operations in Mexico. 6 ----------------------------------------------------------------------------- 1999 Annual Report Management's Discussion & Analysis of Financial Condition & Results of Operations ================================================================================ Year 2000 Discussion We have devoted significant resources throughout the Company to minimize the risk of potential disruption from Year 2000 issues. Our approach centered on the four distinct components of our information system and on other impacts such as from third parties. The four components, which include the (1) point-of-sale (POS) system, (2) enterprise-wide information system, (3) warehouse management system, and (4) other systems/equipment, were all assessed, inventoried and tested for Year 2000 issues during 1998 and 1999. Systems that were Year 2000 deficient were modified, upgraded or replaced and tested for compliance. In addition to this, the Company prepared a detailed contingency plan which focused on: (1) defining key communication paths within the organization, (2) establishing levels of responsibility and authority in the Company's distributed workforce if a Year 2000 issue made normal operations difficult, and (3) working throughout the entire Company to establish manual procedures to accomplish critical business processes. The Company did not track internal costs, which consisted primarily of payroll and related expenses, related to the Year 2000 issue. The Company did, however, identify two large projects in its previous Year 2000 discussions. The first project was a four-year project to develop, test, and implement a new POS system for the branch sites. This project, which was completed in December 1999, cost approximately $8.0 million. The second project, which should be completed early in 2001, involves the replacement of the Company's enterprise-wide information system. This project is expected to cost approximately $10.0 million, of which the Company has approximately $2.6 million left to spend. The Company believes the cost of these projects were not, for the most part, directly related to Year 2000 issues; but rather, were new systems needed in the normal course due to the rapid growth the Company had experienced over the last several years. As we have identified in the past, the Company is dependent on third parties that provide goods or services. The failure of one or more of these third parties to address any lingering Year 2000 issues could have a material adverse effect on the Company's business, financial condition, or operating results. To date, the Company has experienced no significant systems or other Year 2000 problems in connection with the transition to the Year 2000. The Company will continue to monitor for any Year 2000 issues. Market Risk Management The Company is exposed to certain market risks from changes in interest rates and foreign currency exchange rates. Changes in these factors cause fluctuations in the Company's earnings and cash flows. The Company evaluates and manages exposure to these market risks as follows: Interest Rates - The Company has a $10 million line of credit of which $0 -------------- was outstanding at December 31, 1999. The line bears interest at .9% over the LIBOR rate. Foreign Currency Exchange Rates- Foreign currency fluctuations can affect ------------------------------- the Company's net investments and earnings denominated in foreign currencies. The Company's primary exchange rate exposure is with the Canadian dollar against the U.S. dollar. The Company's estimated net earnings exposure for foreign currency exchange rates was not material at December 31, 1999. 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, 1999, 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 - ----------------------------------------------------------------------------- 7 1999 Annual Report Management's Discussion & Analysis of Financial Condition & Results of Operations ================================================================================ Company's actual results to differ materially from those predicted in such forward-looking statements: (i) an upturn or downturn in the economy could impact sales at existing stores and the rate of new store openings, (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 stores could impact sales at existing stores and the rate of new store openings, (v) changes in governmental regulations related to product quality or product source traceability could impact the cost to the Company of regulatory compliance, (vi) inclement weather could impact the Company's distribution network, (vii) foreign currency fluctuations, changes in trade relations, or fluctuations in the relative strength of foreign economies could impact the ability of the Company to procure products overseas at competitive prices and the Company's sales, (viii) disruptions caused by the implementation of the Company's new management information systems infrastructure could impact sales, (ix) unforeseen disruptions associated with "Year 2000 Computer Problems" could impact sales and the Company's ability to order and pay for product, and (x) changes in the rate of new store openings could impact expenditures for computers and other capital equipment. New Accounting Pronouncements During 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes new standards for recognizing all derivatives as either assets or liabilities, and measuring those instruments at fair value. SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities- Deferral of the Effective Date of FASB statement No. 133, is an amendment of SFAS No. 133. SFAS No. 137 deferred the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company is currently in the process of evaluating the impact of this statement. [PHOTO OF FASTENAL SORTATION EQUIPMENT] [PHOTO OF FASTENAL PRODUCT] 8 ----------------------------------------------------------------------------- 1999 Annual Report Stock & Financial Data ================================================================================ Common Stock Data The Company's shares are traded on The Nasdaq Stock Market under the symbol "FAST". The following table sets forth, by quarter, the high and low closing sale price of the Company's shares on The Nasdaq Stock Market for 1999 and 1998. 1999: High Low First quarter $ 45-3/8 33-5/8 - ---------------------------------------------------- Second quarter 54-1/2 34 - ---------------------------------------------------- Third quarter 60-9/16 45-13/16 - ---------------------------------------------------- Fourth quarter 49-15/16 34 1998: High Low First quarter $ 48-3/4 34-1/4 - ---------------------------------------------------- Second quarter 56-7/8 39-5/8 - ---------------------------------------------------- Third quarter 51-1/4 24-1/16 - ---------------------------------------------------- Fourth quarter 46-7/16 20-1/2 As of February 16, 2000, there were approximately 2,400 recordholders of the Company's Common Stock. A $.04 annual dividend per share was paid in 1999 and a $.02 annual dividend per share was paid in 1998. On January 25, 2000, the Company announced an $.08 annual dividend per share to be paid on March 10, 2000 to shareholders of record at the close of business on February 25, 2000. The Company expects that it will continue to pay comparable cash dividends in the foreseeable future, provided that any future determination as to payment of dividends will depend upon the financial condition and results of operations of the Company and such other factors as are deemed relevant by the board of directors. Selected Quarterly Financial Data (Unaudited) (Amounts in thousands except per share data)
Net sales Gross profit Net earnings Earnings per share 1999: First quarter $140,634 73,789 15,415 .41 - -------------------------------------------------------------------------------------------- Second quarter 153,891 81,034 17,062 .45 - -------------------------------------------------------------------------------------------- Third quarter 159,359 83,247 17,091 .45 - -------------------------------------------------------------------------------------------- Fourth quarter 155,302 81,196 15,887 .42 - -------------------------------------------------------------------------------------------- Total $609,186 319,266 65,455 1.73 1998: Net sales Gross profit Net earnings Earnings per share First quarter $116,707 61,595 12,386 .33 - -------------------------------------------------------------------------------------------- Second quarter 126,427 66,938 14,016 .37 - -------------------------------------------------------------------------------------------- Third quarter 131,349 69,515 14,033 .37 - -------------------------------------------------------------------------------------------- Fourth quarter 128,617 66,232 12,518 .33 - -------------------------------------------------------------------------------------------- Total $503,100 264,280 52,953 1.40
- ----------------------------------------------------------------------------- 9 1999 Annual Report Consolidated Balance Sheets =============================================================================== December 31, 1999 and 1998
1999 1998 Assets Current assets: Cash and cash equivalents $ 27,849,000 2,086,000 Trade accounts receivable, net of allowance for doubtful accounts of $1,400,000 and $740,000 respectively 84,563,000 68,498,000 Inventories 106,597,000 93,734,000 Deferred income tax asset 2,886,000 2,312,000 Other current assets 5,510,000 6,637,000 ------------------------------ Total current assets 227,405,000 173,267,000 Marketable securities 215,000 265,000 Property and equipment, less accumulated depreciation 87,630,000 74,212,000 Other assets, net 3,371,000 3,490,000 ------------------------------ Total assets $ 318,621,000 251,234,000 ------------------------------ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 19,325,000 17,411,000 Notes payable 0 4,055,000 Accrued expenses 11,785,000 8,999,000 Income tax payable 2,551,000 343,000 ------------------------------ Total current liabilities 33,661,000 30,808,000 ------------------------------ Deferred income tax liability 3,000,000 2,780,000 ------------------------------ Stockholders' equity: Preferred stock - - Common stock, 50,000,000 shares authorized 37,938,688 shares issued 379,000 379,000 Additional paid-in capital 4,424,000 4,424,000 Retained earnings 277,553,000 213,615,000 Accumulated other comprehensive loss (396,000) (772,000) ------------------------------ Total stockholders' equity 281,960,000 217,646,000 Commitments (notes 7 and 8) ------------------------------ Total liabilities and stockholders' equity $ 318,621,000 251,234,000 ------------------------------
The accompanying notes are an integral part of the financial statements. 10 ---------------------------------------------------------------------------- 1999 Annual Report Consolidated Statements of Earnings =============================================================================== Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 Net sales $ 609,186,000 503,100,000 397,992,000 Cost of sales 289,920,000 238,820,000 189,063,000 ----------------------------------------------------- Gross profit 319,266,000 264,280,000 208,929,000 Operating and administrative expenses 213,580,000 177,180,000 141,725,000 ----------------------------------------------------- Operating income 105,686,000 87,100,000 67,204,000 Other income (expense): Interest income 634,000 4,000 40,000 Interest expense (57,000) (1,053,000) (917,000) Gain on disposal of property and equipment 216,000 72,000 1,009,000 ----------------------------------------------------- Total other income (expense) 793,000 (977,000) 132,000 ----------------------------------------------------- Earnings before income taxes 106,479,000 86,123,000 67,336,000 Income tax expense 41,024,000 33,170,000 26,502,000 Net earnings $ 65,455,000 52,953,000 40,834,000 ----------------------------------------------------- Basic and diluted earnings per share $ 1.73 1.40 1.08 ----------------------------------------------------- Weighted average shares outstanding 37,938,688 37,938,688 37,938,688 -----------------------------------------------------
[PHOTO OF FASTENAL TRUCK AND DOCK] The accompanying notes are an integral part of the financial statements. - ---------------------------------------------------------------------------- 11 1999 Annual Report Consolidated Statements of Stockholders' Equity & Comprehensive Income ================================================================================ Years ended December 31, 1999, 1998 and 1997
Accumulated Additional other Total Common stock paid-in Retained comprehensive stockholders' -------------------------- Shares Amount capital earnings income (loss) equity - ------------------------------------------------------------------------------------------------------------------------- Balances as of December 31, 1996 37,938,688 $ 379,000 4,424,000 121,346,000 (182,000) 125,967,000 Dividends paid in cash - - - (759,000) - (759,000) Net earnings for the year - - - 40,834,000 - 40,834,000 Translation adjustment - - - - (170,000) (170,000) ------------- Total comprehensive income 40,664,000 - ------------------------------------------------------------------------------------------------------------------------- Balances as of December 31, 1997 37,938,688 $ 379,000 4,424,000 161,421,000 (352,000) 165,872,000 Dividends paid in cash - - - (759,000) - (759,000) Net earnings for the year - - - 52,953,000 - 52,953,000 Translation adjustment - - - - (420,000) (420,000) ------------- Total comprehensive income 52,533,000 - ------------------------------------------------------------------------------------------------------------------------- Balances as of December 31, 1998 37,938,688 $ 379,000 4,424,000 213,615,000 (772,000) 217,646,000 Dividends paid in cash - - - (1,517,000) - (1,517,000) Net earnings for the year - - - 65,455,000 - 65,455,000 Translation adjustment - - - - 376,000 376,000 ------------- Total comprehensive income 65,831,000 - ------------------------------------------------------------------------------------------------------------------------- Balances as of December 31, 1999 37,938,688 $ 379,000 4,424,000 277,553,000 (396,000) 281,960,000 - -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 12 ----------------------------------------------------------------------------- 1999 Annual Report Consolidated Statements of Cash Flows ================================================================================ Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 65,455,000 52,953,000 40,834,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property and equipment 11,777,000 11,040,000 9,362,000 Gain on disposal of property and equipment (216,000) (72,000) (1,009,000) Deferred income taxes (354,000) 410,000 737,000 Amortization of goodwill and non-compete agreement 220,000 220,000 220,000 Changes in operating assets and liabilities: Trade accounts receivable (16,065,000) (10,956,000) (15,989,000) Inventories (12,863,000) (14,319,000) (22,889,000) Other current assets 1,127,000 (1,400,000) (1,506,000) Accounts payable 1,914,000 4,461,000 2,940,000 Accrued expenses 2,786,000 1,685,000 1,703,000 Income taxes payable 2,208,000 (706,000) 254,000 ------------------------------------------------ Net cash provided by operating activities 55,989,000 43,316,000 14,657,000 ------------------------------------------------ Cash flows from investing activities: Sales of marketable securities 50,000 - 250,000 Additions of property and equipment (39,176,000) (37,232,000) (28,658,000) Proceeds from sale of property and equipment 14,197,000 9,136,000 7,151,000 Translation adjustment 376,000 (420,000) (170,000) Increase in other assets (101,000) (93,000) (192,000) ------------------------------------------------ Net cash used in investing activities (24,654,000) (28,609,000) (21,619,000) ------------------------------------------------ Cash flows from financing activities: Net (decrease) increase in line of credit (4,055,000) (12,030,000) 7,463,000 (Payment) proceeds of note payable 0 (218,000) 218,000 Payment of dividends (1,517,000) (759,000) (759,000) ------------------------------------------------ Net cash (used in) provided by financing activities (5,572,000) (13,007,000) 6,922,000 ------------------------------------------------ Net increase (decrease) in cash and cash equivalents 25,763,000 1,700,000 (40,000) Cash and cash equivalents at beginning of year 2,086,000 386,000 426,000 ------------------------------------------------ Cash and cash equivalents at end of year $ 27,849,000 2,086,000 386,000 ================================================ Supplemental disclosure of cash flow information: Cash paid during each year for: Income taxes $ 38,183,000 34,100,000 25,511,000 Interest $ 87,000 1,073,000 867,000
The accompanying notes are an integral part of the financial statements. - ----------------------------------------------------------------------------- 13 1999 Annual Report Notes to Consolidated Financial Statements ================================================================================ Years ended December 31, 1999, 1998 and 1997 1 Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Fastenal Company and its wholly-owned subsidiaries, Fastenal Company Services, Fastenal Company Purchasing, Fastenal Company Leasing, Fastenal Canada Company, Fastenal Mexico, S. de R.L. de C.V. and Fastenal Mexico Services, S. de R.L. de C.V. (collectively referred to as the Company). All material intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition The Company recognizes sales and the related cost of sales on the accrual basis of accounting at the time products are shipped to or picked up by customers. Financial Instruments All financial instruments are carried at amounts that approximate estimated fair value. Cash Equivalents For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly-liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Inventories Inventories, consisting of merchandise held for resale, are stated at the lower of cost (first in, first out method) or market. Marketable Securities Marketable securities as of December 31, 1999 and 1998 consist of debt securities. The Company classifies its debt securities as available-for- sale. Available-for-sale securities are recorded at fair value based on current market value. Unrealized holding gains and losses on available-for- sale securities are excluded from earnings, but are included in comprehensive income, and are reported as a separate component of stockholders' equity until realized, provided that a decline in the market value of any available-for-sale security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. The amortized cost approximated the fair value of available-for-sale debt securities as of December 31, 1999 and 1998. 14 ----------------------------------------------------------------------------- 1999 Annual Report Notes to Consolidated Financial Statements ================================================================================ Years ended December 31, 1999, 1998 and 1997 1 Summary of Significant Accounting Policies continued Property and Equipment Property and equipment are stated at cost. Depreciation on buildings and equipment is provided for financial statement reporting purposes by the straight line method and over the lives mandated by Internal Revenue Service Regulations. These lives approximate the anticipated economic useful lives of the related property. Other Assets Other assets consists of prepaid security deposits, goodwill and a non- compete agreement. Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized on a straight- line basis over 15 years. The non-compete agreement is amortized on a straight-line basis over 15 years. Goodwill and other long-term asset balances are reviewed periodically to determine that the unamortized balances are recoverable. In evaluating the recoverability of these assets, the following factors, among others, are considered: a significant change in the factors used to determine the amortization period, an adverse change in legal factors or in the business climate, a transition to a new product or services strategy, a significant change in the customer base, and/or a realization of failed marketing efforts. If the unamortized balance is believed to be unrecoverable, the Company recognizes an impairment charge necessary to reduce the unamortized balance to the amount of undiscounted cash flows expected to be generated over the remaining life. If the acquired entity has been integrated into other operations and cash flows cannot be separately measured, the Company recognizes an impairment charge necessary to reduce the unamortized balance to its estimated fair value. The amount of impairment is charged to earnings as a part of operating and administrative expenses in the current period. Long-Lived Assets The Company's long-lived assets are accounted for under the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of. There were no SFAS 121 charges in 1999, 1998 or 1997. 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 has not granted any stock options or paid any other types of stock-based compensation. - ----------------------------------------------------------------------------- 15 1999 Annual Report Notes to Consolidated Financial Statements ================================================================================ Years ended December 31, 1999, 1998 and 1997 1 Summary of Significant Accounting Policies continued Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earning Per Share Earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding. 2 Property and Equipment Property and equipment as of December 31 consists of the following:
Depreciable life in years 1999 1998 --------------------------------------------------------------------------------------- Land - $ 4,442,000 2,524,000 Buildings and improvements 31 to 39 29,255,000 18,955,000 Equipment and shelving 3 to 10 63,999,000 46,721,000 Transportation equipment 3 to 5 21,352,000 33,569,000 Construction in progress - 12,365,000 9,245,000 -------------------------- 131,413,000 111,014,000 Less accumulated depreciation (43,783,000) (36,802,000) -------------------------- Net property and equipment $ 87,630,000 74,212,000 ==========================
16 ----------------------------------------------------------------------------- 1999 Annual Report Notes to Consolidated Financial Statements ================================================================================ Years ended December 31, 1999, 1998 and 1997 3 Accrued Expenses Accrued expenses as of December 31 consist of the following: 1999 1998 ------------------------------------------------------------------------ Payroll and related taxes $ 5,927,000 4,359,000 Bonuses and commissions 3,393,000 2,286,000 Insurance 1,072,000 1,257,000 Sales and real estate taxes 866,000 801,000 Other 527,000 296,000 -------------------------- $ 11,785,000 8,999,000 ========================== 4 Stockholders' Equity Preferred stock has a par value of $.01 per share. There were 5,000,000 shares authorized and no shares issued as of December 31, 1999 and 1998. Common Stock has a par value of $.01 per share. There were 50,000,000 shares authorized and 37,938,688 shares issued and outstanding as of December 31, 1999 and 1998. Dividends On January 25, 2000, the Company's board of directors declared a dividend of $.08 per share of Common Stock to be paid in cash on March 10, 2000 to shareholders of record at the close of business on February 25, 2000. 5 Retirement Plan In 1998 the Company established the Fastenal Company and Subsidiaries 401(k) Plan. This plan covers all employees of the Company in the United States. The Company made no contributions to the plan in 1999 or 1998. [PHOTO OF FASTENAL PRODUCTION AREA - BAND SAW BLADES] - ----------------------------------------------------------------------------- 17 1999 Annual Report Notes to Consolidated Financial Statements ================================================================================ Years ended December 31, 1999, 1998 and 1997 6 Income Taxes Components of income tax expense are as follows: 1999: Current Deferred Total ------------------------------------------------------------------ Federal $ 35,618,000 (305,000) 35,313,000 State 5,760,000 (49,000) 5,711,000 ----------------------------------------------- $ 41,378,000 (354,000) 41,024,000 =============================================== 1998: Current Deferred Total ------------------------------------------------------------------ Federal $ 28,199,000 353,000 28,552,000 State 4,561,000 57,000 4,618,000 ----------------------------------------------- $ 32,760,000 410,000 33,170,000 =============================================== 1997: Current Deferred Total ------------------------------------------------------------------ Federal $ 21,385,000 599,000 21,984,000 State 4,380,000 138,000 4,518,000 ----------------------------------------------- $ 25,765,000 737,000 26,502,000 =============================================== Income tax expense in the accompanying consolidated financial statements differs from the "expected" tax expense as follows:
1999 1998 1997 -------------------------------------------------------------------------------------------------- Federal income tax expense at the "expected" rate of 35% $ 37,268,000 30,143,000 23,568,000 Increase (reduction) attributed to: State income taxes, net of federal benefit 3,712,000 3,002,000 2,937,000 Tax exempt interest - - (16,000) Other, net 44,000 25,000 13,000 ------------------------------------------- Total income tax expense $ 41,024,000 33,170,000 26,502,000 ===========================================
The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31 are as follows:
1999 1998 ----------------------------------------------------------------------------------- Deferred taxes: Inventory costing and valuation methods $ 1,940,000 1,571,000 Allowance for doubtful accounts receivable 539,000 285,000 Insurance claims payable 434,000 484,000 Fixed assets (3,000,000) (2,780,000) Other net (27,000) (28,000) ---------------------------- Net deferred tax asset (liability) $ (114,000) (468,000) ============================
No valuation allowance for deferred tax assets was necessary as of December 31, 1999 and 1998. The character of the deferred tax assets is such that they can be realized through carry-back to prior tax periods or offset against future taxable income. 18 ---------------------------------------------------------------------------- 1999 Annual Report Notes to Consolidated Financial Statements ================================================================================ Years ended December 31, 1999, 1998 and 1997 7 Operating Leases The Company leases space under non-cancelable operating leases for its California, Missouri, North Carolina, Utah and Washington distribution centers, its Tennessee packaging center, and certain store sites with initial terms of one to 48 months. The Company leases certain semi-tractors and pick-ups under operating leases. The semi-tractor leases typically have a 36 month term. The pick-up leases typically have a 72 month term and include an early buy out clause the Company intends to exercise, thereby giving the leases an effective term of 12-15 months. Future minimum annual rentals for the leased facilities and the vehicles are as follows:
Distribution centers, Semi-tractors packaging center and store sites and pick-ups Total ----------------------------------------------------------------------------------- 2000 $ 10,828,000 5,162,000 15,990,000 2001 5,306,000 1,043,000 6,349,000 2002 2,270,000 623,000 2,893,000 2003 394,000 0 394,000 2004 and thereafter 22,000 0 22,000
Rent expense under all operating leases was as follows:
Distribution centers, Semi-tractors packaging center and store sites and pick-ups Total ----------------------------------------------------------------------------------- 1999 $ 14,867,000 4,282,000 19,149,000 1998 13,040,000 0 13,040,000 1997 9,460,000 0 9,460,000
8 Lines of Credit and Commitments The Company has a line of credit arrangement with a bank which expires June 30, 2000. The line allows for borrowings of up to $10,000,000 at .9% over the LIBOR rate. On December 31, 1999 there was $0 outstanding on the line. The Company currently has a letter of credit issued on its behalf to its insurance carrier. As of December 31, 1999, the total undrawn balance of this letter of credit was $2,600,000. - ----------------------------------------------------------------------------- 19 1999 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 subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999. 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 subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Minneapolis, Minnesota January 19, 2000, except as to Note 4, which is as of January 25, 2000 [PHOTO OF FASTENAL TRUCK AND DOCK] 20 ---------------------------------------------------------------------------- 1999 Annual Report Officers ================================================================================ Robert A. Kierlin Chairman of the Board, Chief Executive Officer and President Willard D. Oberton Chief Operating Officer and Vice-President Stephen M. Slaggie Secretary Daniel L. Florness Chief Financial Officer and Treasurer Directors ================================================================================ Michael M. Gostomski President and Chief Executive Officer Winona Heating & Ventilating Co. (sheet metal and roofing contractor) Robert A. Hansen Associate Professor of Marketing, Carlson School of Management, University of Minnesota Robert A. Kierlin Henry K. McConnon President Wise Eyes, Inc. (eyeglass retailer and wholesaler) Willard D. Oberton John D. Remick President and Chief Executive Officer Rochester Athletic Club, Inc. (health club) Stephen M. Slaggie Corporate Information ================================================================================ Annual Meeting The annual meeting of shareholders will be held at 10:00 a.m., Tuesday, April 18, 2000, at Corporate Headquarters, 2001 Theurer Boulevard, Winona, Minnesota Corporate Headquarters Fastenal Company 2001 Theurer Boulevard Winona, Minnesota 55987-1500 Phone: (507) 454-5374 Fax: (507) 453-8049 Legal Counsel Faegre & Benson LLP Minneapolis, Minnesota Streater & Murphy, PA Winona, Minnesota Form 10-K A copy of the Company's 1999 Annual Report on Form 10-K to the Securities and Exchange Commission is available without charge to shareholders upon written request to the Secretary of the Company at the address listed on this page for the Company's corporate headquarters. Copies of our latest press release and unaudited supplemental Company information are available at the Fastenal Company World Wide Web site at www.fastenal.com Auditors KPMG LLP Minneapolis, Minnesota Transfer Agent Norwest Bank Minnesota, N.A. Minneapolis, Minnesota EX-21 3 SUBSIDIARIES OF FASTENAL COMPANY Exhibit 21 Subsidiaries of Fastenal Company. Jurisdiction of Subsidiary name Doing business as incorporation - --------------- ----------------- ------------- Fastenal Canada Company Same Minnesota Fastenal Company Services Same Minnesota Fastenal Company Purchasing Same Minnesota Fastenal Company Leasing Same Minnesota Fastenal Mexico Services S. de R.L. de C.V. Same Mexico Fastenal Mexico S. de R.L. de C.V. Same Mexico EX-23 4 INDEPENDENT AUDITORS CONSENT Exhibit 23 Independent Auditors' Consent The Board of Directors and Stockholders Fastenal Company: We consent to the incorporation by reference in the Registration Statement No. 333-52765 on Form S-8 of Fastenal Company of our reports dated January 19, 2000, except as to Note 4, which is as of January 25, 2000, relating to the consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows and the related consolidated financial statement schedule for each of the years in the three-year period ended December 31, 1999, which is incorporated by reference in the Annual Report on Form 10-K of Fastenal Company for the year ended December 31, 1999. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota March 10, 2000 EX-27 5 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 SUBSIDIARIES AS OF, AND FOR THE YEAR ENDED, DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 27,849,000 0 85,963,000 1,400,000 106,597,000 227,405,000 131,413,000 43,783,000 318,621,000 33,661,000 0 0 0 379,000 281,581,000 318,621,000 609,186,000 609,186,000 289,920,000 289,920,000 0 3,566,000 57,000 106,479,000 41,024,000 65,455,000 0 0 0 65,455,000 1.73 1.73 Marketable securities in the amount fo $215,000 have been classified as non-current assets on the Consolidated Balance Sheet of Fastenal Company and subsidiaries as of December 31, 1999.
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