<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997, 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
___________________________________________ ---------------
(Address of principal executive offices) (Zip Code)
(507) 454-5374
________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at October 15, 1997
_________________________________ _________________________________
Common Stock, $.01 par value 37,938,688
<PAGE>
FASTENAL COMPANY
INDEX
Page No.
--------
Part I Financial Information:
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 1
Consolidated Statements of Earnings for the nine months
and three months ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Management's discussion and analysis of financial condition
and results of operations 5-6
Part II Other Information
Item 6 Exhibits and reports on Form 8-K 7
<PAGE>
- 1 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
Assets 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 303,000 426,000
Trade accounts receivable, net of allowance for doubtful
accounts of $630,000 and $540,000 as of September
30, 1997 and December 31, 1996, respectively 61,278,000 41,553,000
Inventories 68,018,000 56,526,000
Deferred income tax asset 1,219,000 1,219,000
Other current assets 5,411,000 3,731,000
- -------------------------------------------------------------------------------------------------------
Total current assets 136,229,000 103,455,000
Marketable securities 515,000 515,000
Property and equipment, less accumulated depreciation 54,849,000 43,930,000
Other assets, less accumulated amortization 3,636,000 3,645,000
- -------------------------------------------------------------------------------------------------------
Total assets $195,229,000 151,545,000
=======================================================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 17,468,000 10,010,000
Notes payable 10,438,000 8,622,000
Accrued expenses 8,120,000 5,611,000
Income taxes payable 2,902,000 795,000
- -------------------------------------------------------------------------------------------------------
Total current liabilities 38,928,000 25,038,000
- -------------------------------------------------------------------------------------------------------
Deferred income tax liability 540,000 540,000
- -------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock of $.01 par value per share.
Authorized 5,000,000 shares; none issued 0 0
Common stock of $.01 par value per share. Authorized
50,000,000 shares; issued and outstanding 37,938,688
shares 379,000 379,000
Additional paid-in capital 4,424,000 4,424,000
Retained earnings 151,165,000 121,346,000
Translation loss (207,000) (182,000)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 155,761,000 125,967,000
- -------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $195,229,000 151,545,000
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
- 2 -
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
-------------------------- -----------------------
1997 1996 1997 1996
- ------------------------------------------------------------ -----------------------
<S> <C> <C> <C> <C>
Net sales $290,878,000 210,123,000 105,551,000 76,212,000
Cost of sales 138,225,000 97,975,000 49,899,000 35,525,000
- ------------------------------------------------------------ -----------------------
Gross profit 152,653,000 112,148,000 55,652,000 40,687,000
Operating and administrative
expenses 102,021,000 72,003,000 37,067,000 26,295,000
- ------------------------------------------------------------ -----------------------
Operating income 50,632,000 40,145,000 18,585,000 14,392,000
Other income (expense):
Interest income 40,000 107,000 10,000 14,000
Interest expense (699,000) (42,000) (199,000) (35,000)
Gain on disposal of property
and equipment 676,000 923,000 41,000 151,000
- ------------------------------------------------------------ -----------------------
Total other income 17,000 988,000 (148,000) 130,000
- ------------------------------------------------------------ -----------------------
Earnings before
income taxes 50,649,000 41,133,000 18,437,000 14,522,000
Income tax expense 20,071,000 16,563,000 7,103,000 5,830,000
- ------------------------------------------------------------ -----------------------
Net earnings $ 30,578,000 24,570,000 11,334,000 8,692,000
============================================================ =======================
Earnings per share $ .81 .65 .30 .23
============================================================ =======================
Weighted average shares
outstanding 37,938,688 37,938,688 37,938,688 37,938,688
============================================================ =======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
- 3 -
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------
1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 30,578,000 24,570,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property and equipment 6,625,000 5,705,000
Gain on disposal of property and equipment (676,000) (923,000)
Amortization of goodwill and non-compete 165,000 78,000
Amortization of premium on marketable securities 0 5,000
Changes in operating assets and liabilities:
Trade accounts receivable (19,725,000) (10,981,000)
Inventories (11,492,000) (11,513,000)
Other current assets (1,680,000) (1,266,000)
Accounts payable 7,458,000 2,346,000
Accrued expenses 2,509,000 1,358,000
Income taxes payable 2,107,000 (1,327,000)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,869,000 8,052,000
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sale of marketable securities 0 92,000
Additions of property and equipment, net (21,438,000) (20,654,000)
Proceeds from sale of property and equipment 4,570,000 2,480,000
Translation adjustment (25,000) (111,000)
Increase in other assets (156,000) (3,539,000)
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (17,049,000) (21,732,000)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in notes payable 1,816,000 8,766,000
Payment of dividends (759,000) (759,000)
- -----------------------------------------------------------------------------------------------
Net cash provided by
financing activities 1,057,000 8,007,000
- -----------------------------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (123,000) (5,673,000)
Cash and cash equivalents at beginning of period 426,000 6,583,000
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 303,000 910,000
===============================================================================================
Supplemental disclosure of cash flow information:
Cash paid during each period for:
Income taxes $ 17,964,000 17,890,000
===============================================================================================
Interest $ 699,000 42,000
===============================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
-4-
FASTENAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Fastenal
Company and subsidiaries (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information.
They do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, there has
been no material change in the information disclosed in the notes to
consolidated financial statements included in the Company's consolidated
financial statements as of and for the year ended December 31, 1996. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
<PAGE>
- 5 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements.
First nine months of 1997 vs. 1996
- ----------------------------------
Net sales for the nine months ended September 30, 1997 increased 38.4% to
$290,878,000 versus the $210,123,000 recorded during the comparable 1996 period.
The increase came primarily from higher unit sales as prices were relatively
stable over the period. Higher unit sales came from increases in sales at
existing store sites and from the addition of new store sites. The increases in
sales at existing store sites are due primarily to strength in the manufacturing
segment of the economy and, to a lesser extent, the introduction of new product
lines at the existing sites. Sites opened in 1995 or earlier had average sales
increases of 23.0%. The remainder of the 38.4% sales growth came from store
sites opened in 1996 and during the first nine months of 1997. One hundred
fifty-three new store sites were added from October 1996 through September 1997.
During the first nine months of 1997, 121 new sites were opened; 94 opened as
Fastenal(R) stores and 27 opened as satellite stores. The total sites at the end
of the third quarter were 605, which consisted of 574 Fastenal(R) stores and 31
satellite stores.
During the nine months ended September 30, 1997, 12.8% of net sales came from
sales of the Company's FastTool(R) product line, 4.0% of net sales came from
sales of the Company's SharpCut(R) product line, 2.3% of net sales came from
sales of the Company's PowerFlow(R) product line, 2.1% of net sales came from
sales of the Company's EquipRite(TM) product line and 1.0% of net sales came
from sales of the Company's CleanChoice(TM) product line. Less than 1% of net
sales came from sales of either the PowerPhase(TM) or the FastArc(TM) product
line. The PowerPhase(TM) product line, introduced in 1997, consists of
electrical supplies. The FastArc(TM) product line, also introduced in 1997,
consists of welding supplies.
Net earnings for the first nine months grew from $24,570,000 in 1996 to
$30,578,000 in 1997, an increase of 24.5%. Net earnings increased at a slower
rate than net sales primarily because of a decrease in the overall gross margin
from 53.4% in the first nine months of 1996 to 52.5% in the first nine months of
1997 and because operating and administrative expenses increased at a 41.7% rate
between the comparable periods, a rate higher than the rate of increase in net
sales. The largest increase in operating and administrative expense came from
employment costs in the store sites which increased by 50.6% over the comparable
period. The Company increased its site personnel from 1,989 on December 31,
1996 to 2,683 on September 30, 1997, an increase of 34.9%. The increase in
employment costs was caused primarily by the opening of new store sites and the
product line expansion at existing store sites.
<PAGE>
- 6 -
ITEM 2. (continued)
Third quarter of 1997 vs. 1996
- ------------------------------
Net sales for the three months ended September 30, 1997 increased 38.5% to
$105,551,000 versus the $76,212,000 recorded during the comparable 1996 period.
As discussed earlier, the increase came primarily from higher unit sales as
prices were relatively stable over the period. Higher unit sales came from
increases in sales at existing store sites and from the addition of new store
sites. The increases in sales at existing store sites are due primarily to
strength in the manufacturing segment of the economy and, to a lesser extent,
the introduction of new product lines at the existing sites. Many of the
Company's customers are in the auto, machinery and processing sections of the
manufacturing economy, all of which are experiencing relatively high sales
rates. Sites opened in 1995 or earlier had average sales increases of 20.9%.
The remainder of the 38.5% sales growth came from store sites opened in 1996 and
during the first nine months of 1997.
During the three months ended September 30, 1997, 29 new sites were opened; 28
opened as Fastenal(R) stores and 1 opened as a satellite store.
During the three months ended September 30, 1997, 13.0% of net sales came
from sales of the Company's FastTool(R) product line, 4.2% of net sales came
from sales of the Company's SharpCut(R) product line, 2.5% of net sales came
from sales of the Company's PowerFlow(R) product line, 2.1% of net sales came
from sales of the Company's EquipRite(TM) product line and 1.1% of net sales
came from sales of the Company's CleanChoice(TM) product line. Less than 1% of
net sales came from sales of either the PowerPhase(TM) or the FastArc(TM)
product line.
Net earnings for the three months ended September 30 grew from $8,692,000 in
1996 to $11,334,000 in 1997, an increase of 30.4%. Net earnings increased at a
slower rate than net sales primarily because of a decrease in the overall gross
margin from 53.4% in the third quarter of 1996 to 52.7% in the third quarter of
1997 and because operating and administrative expenses increased at a 41.0% rate
between the comparable periods, a rate higher than the rate of increase in net
sales. The largest increase in operating and administrative expense came from
employment costs in the store sites which increased by 49.6% over the comparable
period. The Company increased its site personnel from 2,409 on June 30, 1997 to
2,683 on September 30, 1997, an increase of 11.4%. The increase in employment
costs was caused primarily by the opening of new store sites and the previously
discussed product line expansion at existing store sites.
Liquidity and Capital Resources
- -------------------------------
The higher level of sales during the nine month period resulted in the growth
of trade accounts receivable and inventory. Property and equipment increased
because of the purchase of pickup trucks and semi-tractors and trailers, and, to
a lesser extent, additions for manufacturing, warehouse and data processing
equipment. Cash requirements for these asset changes were satisfied from net
earnings and short term borrowings.
As of September 30, 1997, the Company had no material outstanding commitments
for capital expenditures.
<PAGE>
- 7 -
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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)
27 Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed by Fastenal Company during the
quarter ended September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
FASTENAL COMPANY
/s/ Robert A. Kierlin
-------------------------------
(Robert A. Kierlin, President)
(Duly Authorized Officer)
Date October 30, 1997 /s/ Daniel L. Florness
----------------- ------------------------------
(Daniel L. Florness, Treasurer)
(Principal Financial Officer)
<PAGE>
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).
27 Financial Data Schedule.......................Electronically Filed
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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 nine months ended, September 30,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 303,000
<SECURITIES> 0<F1>
<RECEIVABLES> 61,908,000
<ALLOWANCES> 630,000
<INVENTORY> 68,018,000
<CURRENT-ASSETS> 136,229,000
<PP&E> 80,574,000
<DEPRECIATION> 25,725,000
<TOTAL-ASSETS> 195,229,000
<CURRENT-LIABILITIES> 38,928,000
<BONDS> 0
0
0
<COMMON> 379,000
<OTHER-SE> 155,382,000
<TOTAL-LIABILITY-AND-EQUITY> 195,229,000
<SALES> 290,878,000
<TOTAL-REVENUES> 290,878,000
<CGS> 138,225,000
<TOTAL-COSTS> 138,225,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,083,000
<INTEREST-EXPENSE> 699,000
<INCOME-PRETAX> 50,649,000
<INCOME-TAX> 20,071,000
<INCOME-CONTINUING> 30,578,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,578,000
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
<FN>
<F1>Marketable securities in the amount of $515,000 have been classified as
non-current assets on the Consolidated Balance Sheet of Fastenal Company and
Subsidiaries as of September 30, 1997.
</FN>
</TABLE>
