<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996, or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________________ to ______________________
Commission file number 0-16125
FASTENAL COMPANY
______________________________________________________
(Exact name of registrant as specified in its charter)
Minnesota 41-0948415
_______________________________ ________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Theurer Boulevard
Winona, Minnesota 55987-1500
- ------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(507) 454-5374
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of March 3, 1997 was $1,000,669,151. For purposes of determining
this number, all officers and directors of the registrant as of March 3, 1997
are considered to be affiliates of the registrant. This number is provided only
for the purposes of this report on Form 10-K and does not represent an admission
by either the registrant or any such person as to the status of such person.
As of March 3, 1997, the registrant had 37,938,688 shares of Common Stock issued
and outstanding.
<PAGE>
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1996 are incorporated by reference in Part II. Portions of
the registrant's Proxy Statement for the annual meeting of shareholders to be
held April 22, 1997 are incorporated by reference in Part III.
FORWARD LOOKING STATEMENTS
This Form 10-K, including the sections in Part I hereof captioned "Item 1.
Business - Development of the Business", "Item 1. Business - Products" and "Item
1. Business - Manufacturing Operations", and the section in Part II hereof
captioned "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations", contains or incorporates by reference statements
that are not historical in nature and that are intended to be, and are hereby
identified as, "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995, including statements regarding expected results
of operations, new store and distribution center openings, markets for new
stores, introduction of existing and new product lines, technology conversions
and capital expenditures. A discussion of certain risks and uncertainties that
could cause actual results to differ materially from those predicted in such
forward-looking statements is included in the registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1996 at the end of the
section thereof captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations", which section has been incorporated in
this Form 10-K by reference. The registrant assumes no obligation to update
either such forward-looking statements or the discussion of such risks and
uncertainties.
PART I
ITEM 1. BUSINESS
Fastenal Company ("Fastenal Company" and, together with its wholly owned
subsidiary, Fastenal Canada Company, collectively, "the Company") began as a
partnership in 1967, and was incorporated under the laws of Minnesota in 1968.
As of December 31, 1996, the Company has 484 store sites located in 48 states
and Canada and 1,989 people employed at these sites. Eight of these sites are
satellite stores of an existing site. The Company has six product lines. The
traditional Fastenal(R) product line/1/ consists of approximately 49,000
different types of threaded fasteners and other industrial and construction
supplies. The FastTool(R) product line/1/, which was introduced in 1993,
consists of approximately 14,000 different types of tools and safety supplies.
The SharpCut(R), PowerFlow(TM), EquipRite(TM) and CleanChoice(TM) product
lines/1/ were introduced into select store sites beginning in 1996. The
SharpCut(R) product line consists of approximately 8,000 different types of
metal cutting tool blades, the PowerFlow(TM) product line consists of
approximately 7,000 different types of fluid transfer components and accessories
for hydraulic and pneumatic power, the EquipRite(TM) product line consists of
approximately 2,000 different types of material handling and storage products,
and the CleanChoice(TM) product line consists of approximately 2,000 different
types of industrial, janitorial and paper products. The Company maintains eight
distribution centers from which the Company distributes products to its store
sites, and operates a facility in Memphis, Tennessee to receive and package
goods coming from suppliers outside of the United States.
________________
/1/Fastenal(R), FastTool(R), SharpCut(R), PowerFlow(TM), EquipRite(TM) and
CleanChoice(TM) are trademarks and/or service marks of the Company.
<PAGE>
3
As was previously indicated in Fastenal Company's Form 10-K for the fiscal year
ended December 31, 1995, through 1995 the Company counted as a new store the
addition of two employees at a site dedicated to the sale of a new product line.
By way of example, each FastTool(R) store was located in a store site housing an
existing Fastenal(R) store, but was counted as a separate store because of the
addition of two people at the site to sell the FastTool(R) product line. During
1996, the Company began adding product lines to some existing sites with only
one additional employee or, in some cases, no additional employees. Therefore,
beginning in 1996, the Company's reports relating to growth ceased counting new
stores in the manner described above and started including data about total
store sites, average sales at these sites and total employment at these sites.
As of January 1, 1996, the Company had 375 store sites and 1,310 people employed
at these sites, as compared to the 484 store sites and 1,989 site employees on
December 31, 1996.
DEVELOPMENT OF THE BUSINESS
Fastenal Company began in 1967 with a marketing strategy of supplying threaded
fasteners to customers in small- to medium-sized cities. The Company believes
its success can be attributed to its ability to offer such customers a full line
of products at convenient locations, and to the high quality of the Company's
employees.
The Company opened its first store site in Winona, Minnesota, a city with a
population of approximately 25,000. The following table shows the growth in the
number of Company store sites during the last ten years, and the related
increases in the Company's consolidated net sales during that period:
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of
store sites
at year end 58 75 98 126 158 200 253 315 375 484
Net sales (in
thousands) $ 20,295 30,441 41,190 52,290 62,305 81,263 110,307 161,886 222,555 287,691
</TABLE>
As of December 31, 1996, the Company operated 484 store sites located in
Minnesota (12 sites), Wisconsin (24 sites), Iowa (13 sites), Illinois (19
sites), Indiana (17 sites), Ohio (30 sites), Michigan (22 sites), Kentucky (8
sites), Pennsylvania (22 sites), New York (14 sites), Nebraska (4 sites),
Missouri (10 sites), Kansas (7 sites), South Dakota (4 sites), West Virginia (7
sites), Arkansas (7 sites), Maryland (5 sites), North Dakota (4 sites), North
Carolina (17 sites), Oklahoma (7 sites), Tennessee (13 sites), Texas (37 sites),
South Carolina (7 sites), Colorado (8 sites), Virginia (11 sites), Louisiana (7
sites), Georgia (16 sites), Alabama (11 sites), Utah (5 sites), Washington (12
sites), Oregon (7 sites), Mississippi (6 sites), California (15 sites), Idaho (5
sites), Massachusetts (8 sites), Florida (11 sites), Connecticut (7 sites),
Arizona (3 sites), Montana (4 sites), Nevada (2 sites), New Hampshire (5 sites),
New Mexico (3 sites), Maine (4 sites), Delaware (2 sites), Vermont (1 site), New
Jersey (3 sites), Rhode Island (1 site), Wyoming (1 site) and Canada (16 sites).
The 484 sites listed above include 8 satellite store sites, with one satellite
in each of the following states: Arizona, Indiana, Michigan, Minnesota,
Pennsylvania and Wisconsin, and two satellites in Ohio. The Company has closed
only three store sites in its history.
The Company selects new locations for its stores based on their proximity to the
Company's distribution network, population statistics, and employment data for
manufacturing and construction. The Company currently intends to continue
opening new store sites at or above the rate experienced over the last several
years, subject to market and general economic conditions.
<PAGE>
4
In 1995 the Company opened nine experimental multi-product line 'combination'
stores in communities which were smaller (populations of approximately 8,000 to
25,000) than those in which traditional stores selling one product line were
located. These stores, each of which started operations with two full-time
employees, combined the Fastenal(R) and FastTool(R) product lines in a single
store. The Company opened 71 of these combination stores in 1996, most of which
were located in smaller communities.
Beginning in 1997, the Company plans to stock all new stores with an inventory
drawn from all six product lines. This includes sites in smaller communities as
well as larger communities. Subsequent to a site's opening, the site personnel
will then customize the inventory offering to that site's customer base. In
addition, the Company plans to introduce selected product from all of the
Company's product lines into existing stores. Therefore, beginning in 1997 the
Company will no longer make a distinction between a traditional Fastenal(R)
store and a 'combination' store. The Company believes that approximately 500
additional markets in the United States and Canada (most of them located in
smaller communities) have sufficient potential to justify this type of multi-
product line store.
In 1996, the Company opened eight experimental stores that are satellites of
existing stores. These satellites are located in communities as small as 2,000
population and are usually located within a 30 mile radius of the mother store.
In most cases, the Company was already doing business in this community from the
mother store, but the addition of a physical presence in the community provided
sales increases from that community. The Company plans to open additional
satellite stores in 1997. Although the Company cannot be sure of the success of
these stores, the Company believes that their success could lead to
approximately 500 satellite store sites in the United States and Canada.
In 1996 the Company sold products into Mexico from its existing Brownsville, El
Paso and McAllen, Texas stores. The Company opened six store sites in Canada in
1995 and seven in 1996, and plans to open additional Canadian store sites in
1997.
No assurance can be given that any of the expansion plans described above will
be achieved, or that new stores, once opened, will be profitable.
It has been the Company's experience that near-term profitability has been
adversely affected by the opening of new store sites, due to the related start-
up costs and the time necessary to generate a customer base. A new store
generates its sales from direct sales calls, a slow process involving repeated
contacts. As a result of this process, sales volume builds slowly and it
typically requires nine to 12 months for a new store to achieve its first
profitable month. Of the 17 stores opened in the first quarter of 1996, six were
profitable in the fourth quarter of 1996.
<PAGE>
5
For 1996, annual sales volumes of store sites operating at least five years
ranged between approximately $406,000 and $4,260,000, with 75% of these store
sites having annual sales volumes within the range of approximately $612,000 to
$1,658,000. The data in the following table shows the growth in the average
sales of the Company's store sites from 1995 to 1996 based on each site's age.
The store sites opened in 1996 contributed approximately $9.5 million (or
approximately 3.3%) of the Company's consolidated sales in 1996, with the
remainder coming from existing store sites.
<TABLE>
<CAPTION>
Number of store
Age of store site as of sites in group as of Average Average Percent
December 31, 1996 December 31, 1996 sales 1995 sales 1996 change
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-1 year old 109 $ -- 88,000 (1) --
1-2 years old 60 93,000 (1) 299,000 --
2-3 years old 62 273,000 405,000 48.4
3-4 years old 53 398,000 509,000 27.9
4-5 years old 42 558,000 724,000 29.7
5-6 years old 32 691,000 821,000 18.8
6-7 years old 28 824,000 959,000 16.4
7-8 years old 23 820,000 947,000 15.5
8-9 years old 17 980,000 992,000 1.2
9-10 years old 13 1,110,000 1,346,000 21.3
10-13 years old 22 1,115,000 1,215,000 9.0
13+ years old 23 1,559,000 1,811,000 16.2
</TABLE>
(1) Average sales includes sales of store sites open for less than the full
fiscal year.
As of December 31, 1996, the Company maintained distribution centers in or near
Winona, Minnesota; Indianapolis, Indiana; Dallas, Texas; Atlanta, Georgia;
Scranton, Pennsylvania; Fresno, California; Kent, Washington; and Akron, Ohio.
Distribution centers are located so as to permit twice-a-week to four times-a-
week delivery to Company stores using Company trucks and overnight delivery by
surface common carrier. As the number of stores increases, the Company intends
to add new distribution centers. In conjunction with an expansion, the Company
moved its Kent, Washington facility to Lakewood, Washington in January 1997.
The Company plans to open a distribution center in Salt Lake City, Utah in April
1997 and two to four other distribution centers later in 1997.
In December 1994 the Company opened a packaging facility in Memphis, Tennessee.
This facility receives freight containers from foreign suppliers and repackages
the items in standard packages using high speed equipment. This packaging
facility serves six of the Company's distribution centers.
The Company operates a UNIX/terminal-based computer system allowing automatic
data exchange between the stores and the distribution centers during regular
business hours. The use of client/server technology allows the Company's network
of UNIX-based machines to serve networked personal computers and workstations.
During 1997 the Company plans to convert to a Microsoft Windows NT,
client/server, graphical user environment in its store locations.
<PAGE>
6
PRODUCTS
Traditional Fastenal(R) Product Line
The Company's Fastenal(R) product line consists of approximately 49,000
different items, which may be divided into two broad categories: threaded
fasteners, such as bolts, nuts, screws, studs, and related washers; and other
industrial and construction supplies, such as paints, various pins and machinery
keys, concrete anchors, batteries, sealants, metal framing systems, wire rope,
and related accessories.
Threaded fasteners are used in most manufactured products and building projects,
and in the maintenance and repair of machines and structures. Although some
aspects of the threaded fastener market are common to all cities, the Company
feels that each city's market is to some extent unique. Therefore, the Company
opens each store with minimal base stocks of inventory, and then tailors the
growing inventory to the local market demand as it develops. Threaded fasteners
accounted for approximately 68%, 65% and 64% of the Company's consolidated sales
in 1994, 1995 and 1996, respectively.
Concrete anchors make up the largest portion of the other supply items included
in the Fastenal(R) product line. Most concrete anchors use threaded fasteners
as part of the completed anchor assembly. Recently, the Company has added
stainless strut, private label stud anchors and rivets to its Fastenal(R)
product line.
FastTool(R) Product Line
In 1993 the Company began selling a new FastTool(R) product line, which consists
of power and hand tools and safety supplies, targeted to the same customer base
as the traditional Fastenal(R) product line. The inventory of tools and safety
supplies is comprised of approximately 14,000 different items. The Company
uses its current distribution system for the FastTool(R) product line.
SharpCut(R) Product Line
Late in 1995 the Company developed a new SharpCut(R) product line which was
introduced into select stores beginning in 1996. This product line consists of
metal cutting tool blades and a resharpening service. The inventory related to
the SharpCut(R) product line is comprised of approximately 8,000 different
items. The Company uses its current distribution system for the SharpCut(R)
product line.
PowerFlow(TM) Product Line
In 1996 the Company began selling a new PowerFlow(TM) product line. This product
line consists of fluid transfer components and accessories for hydraulic and
pneumatic power and a hose crimping service. The inventory related to the
PowerFlow(TM) product line is comprised of approximately 7,000 different items.
The Company uses its current distribution system for the PowerFlow(TM) product
line.
EquipRite(TM) Product Line
In 1996 the Company began selling a new EquipRite(TM) product line. This product
line consists of material handling and related storage products and a storeroom
layout design service. The inventory related to the EquipRite(TM) product line
is comprised of approximately 2,000 different items. The Company uses its
current distribution system for the EquipRite(TM) product line.
<PAGE>
7
CleanChoice(TM) Product Line
In 1996 the Company began selling a new CleanChoice(TM) product line. This
product line consists of industrial, janitorial and paper products. The
inventory related to the CleanChoice(TM) product line is comprised of
approximately 2,000 different items. The Company uses its current distribution
system for the CleanChoice(TM) product line.
Additional Product Lines
The Company plans to add other industrial product lines in the future.
INVENTORY CONTROL
The Company controls inventory by using computer systems to preset desired stock
levels. The data used for this purpose is derived from reports showing sales
activity by item for the previous three years. Computers then convert this data
to typical store maximum-minimum inventory levels for each item. Stores can
deviate from preset inventory levels as deemed appropriate by their district
managers. Inventories in distribution centers are established from computerized
sales data for the stores served by the respective centers.
MANUFACTURING OPERATIONS
In 1996 approximately 95.9% of the Company's consolidated sales were
attributable to products manufactured by other companies to industry standards.
The remaining amount of approximately 4.1% of the Company's consolidated sales
for 1996 related to products manufactured by, or modified in, the Company's
machining shop. These manufactured products consist primarily of non-standard
sizes of threaded fasteners made to customers' specifications. The Company
engages in manufacturing activity primarily as a service to its customers and
does not expect any significant growth in the foreseeable future in the
proportion of the Company's consolidated sales attributable to manufacturing.
SOURCES OF SUPPLY
The Company uses a large number of suppliers for the approximately 82,000
standard items it distributes. Most items distributed by the Company can be
purchased from several sources, although preferred sourcing is used for some
items to facilitate quality control. No single supplier accounted for more than
5.0% of the Company's purchases in 1996.
CUSTOMERS AND MARKETING
The Company believes its success can be attributed to its ability to offer
customers in small- to medium-sized cities a full line of products at convenient
locations, and to the high quality of the Company's employees. Most of the
Company's customers are in the construction and manufacturing markets. The
construction market includes general, electrical, plumbing, sheet metal, and
road contractors. The manufacturing market includes both original equipment
manufacturers and maintenance and repair operations. Other users of the
Company's products include farmers, truckers, railroads, mining companies,
municipalities, schools, and certain retail trades. As of December 31, 1996, the
Company's total number of active customer accounts (defined as accounts having
purchase activity within the last 90 days) was approximately 57,000.
During each of the three years ended December 31, 1996, no one customer
accounted for a significant portion of the Company's sales. The Company believes
that the large number of its customers together with the varied markets that
they represent provide some protection to the Company from economic downturns in
a particular market.
<PAGE>
8
A significant portion of the Company's sales are generated through direct calls
on customers by store personnel. Because of the nature of the Company's
business, the Company does not use the more expensive forms of mass media
advertising such as television, radio, and newspapers. Forms of advertising used
by the Company include signs and catalogs.
COMPETITION
The Company's business is highly competitive. Competitors include both large
distributors located primarily in large cities and smaller distributors located
in many of the same cities in which the Company has stores. The Company believes
that the principal competitive factors affecting the markets for the Company's
products are customer service and convenience.
Some competitors use vans to sell their products in communities away from their
main warehouses, while others rely on mail order or telemarketing sales. The
Company, however, believes that the convenience provided to customers by
actually operating a number of stores in smaller markets, each offering a full
line of products, is a competitive selling advantage and that the large number
of stores in a given area, taken together with the Company's ability to provide
frequent deliveries to such stores from centrally located distribution centers,
makes possible the prompt and efficient distribution of products. Having trained
personnel at each store also enhances the Company's ability to compete (see
"Employees" below).
EMPLOYEES
As of December 31, 1996, the Company employed a total of 3,073 full- and part-
time employees, 1,989 being store managers and store employees, and the balance
being employed in the Company's distribution centers, packaging facility,
manufacturing operations, and home office.
The Company believes that the quality of its employees is critical to its
ability to compete successfully in the markets it currently serves and to its
ability to open new stores in new markets. The Company fosters the growth and
education of skilled employees throughout the organization by operating training
programs and by decentralizing decision making. Wherever possible, promotions
are from within the Company. For example, most new store managers are promoted
from an assistant manager's position at another store and district managers (who
supervise a number of stores) are usually former store managers.
The Company's sales personnel participate in incentive bonus arrangements that
place emphasis on achieving increased sales on a store and regional basis, while
still attaining targeted levels of gross profit. As a result, a significant
portion of the Company's total employment cost varies with sales volume. The
Company also pays incentive bonuses to other personnel for achieving pre-
determined cost containment goals.
None of the Company's employees is subject to a collective bargaining agreement
and the Company has experienced no work stoppages. The Company believes its
employee relations are excellent.
<PAGE>
9
ITEM 2. PROPERTIES
The Company owns six facilities in Winona, Minnesota: a 173,000 square foot
distribution center and home office building, a 50,000 square foot manufacturing
facility, a 13,000 square foot building that houses the Company's Winona store,
a 23,000 square foot building that houses the conveyor, sortation and packaging
equipment fabrication department, a 55,000 square foot building that houses rack
and shelving storage and a 35,000 square foot building, acquired in a 1996
acquisition, that currently houses the printing facility as well as serving as a
warehouse for the CleanChoice(TM) product line. The Company also owns a 60,000
square foot distribution center in Indianapolis, Indiana, a 54,000 square foot
distribution center in Atlanta, Georgia, a 50,000 square foot distribution
center in Dallas, Texas, a 50,000 square foot distribution center near Scranton,
Pennsylvania and a 102,000 square foot distribution center in Akron, Ohio. The
buildings that house the Company's stores in Waterloo and Mason City, Iowa; St.
Joseph, Missouri; Wichita Falls and Texarkana, Texas; Topeka, Kansas; and
Kokomo, Indiana are also owned by the Company.
All other buildings occupied by the Company are leased. Leased stores range from
approximately 1,200 to 8,000 square feet, with lease terms of up to 48 months.
The Company's leased distribution center in Lakewood, Washington is
approximately 40,000 square feet. The term of the lease of the Washington
facility expires in February 2000, provided that the lease may be renewed at the
Company's option for two additional one-year periods. The Company's leased
distribution center in Fresno, California is approximately 11,200 square feet.
The term of the lease of the California facility expires in February 1998,
provided that the lease may be renewed at the Company's option for two
additional one-year periods. The Company's leased packaging facility in Memphis,
Tennessee is approximately 37,500 square feet. The term of the lease of the
Memphis facility expires in November 1997.
If economic conditions are suitable, the Company will, in the future, consider
purchasing store sites to house its older stores. All sites for new stores will
continue to be leased. It is the Company's policy to negotiate relatively short
lease terms to facilitate relocation of particular store operations if deemed
desirable by management. It has been the Company's experience that space
suitable for its needs and available for leasing is more than sufficient.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
<PAGE>
10
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Fastenal Company are:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------
<S> <C> <C>
Robert A. Kierlin 57 Chairman of the Board, President, Chief
Executive Officer and Director
Willard D. Oberton 38 Vice President and Chief Operating Officer
Stephen M. Slaggie 57 Secretary and Director
Daniel L. Florness 33 Treasurer, Chief Financial Officer and
Chief Accounting Officer
</TABLE>
Mr. Kierlin has been the Chairman of the Board, President and Chief Executive
Officer of Fastenal Company and has served as a director since Fastenal
Company's incorporation in 1968.
Mr. Oberton has been the Vice President and Chief Operating Officer of Fastenal
Company since March 1997. From June 1986 through March 1997, Mr. Oberton held
the position of general operations manager of Fastenal Company.
Mr. Slaggie has been the Secretary of Fastenal Company and has served as a
director since 1970. He became a full-time employee of Fastenal Company in
December 1987, at which time he assumed the additional duties of Shareholder
Relations Director and Insurance Risk Manager. From 1970 through June 1996, Mr.
Slaggie also served as the Treasurer of Fastenal Company.
Mr. Florness has been the Treasurer, Chief Financial Officer and Chief
Accounting Officer of Fastenal Company since June 1996. From January 1987
through May 1996, Mr. Florness was employed by KPMG Peat Marwick LLP, a public
accounting firm. Mr. Florness served in the capacity of senior manager at the
time of his departure from that firm.
None of the above executive officers is related to any other such executive
officer or to any other director of Fastenal Company.
<PAGE>
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated herein by reference is Fastenal Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1996, Common Stock Data on
page 9.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference is Fastenal Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1996, page 2.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated herein by reference is Fastenal Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1996, pages 5-8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference is Fastenal Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1996, Selected Quarterly
Financial Data (Unaudited) on page 9, and Consolidated Financial Statements,
Notes to Consolidated Financial Statements, and Independent Auditors' Report on
pages 10-20.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information appearing under the headings
"Election of Directors--Nominees and Required Vote", pages 4-5, and "Section
16(a) Beneficial Ownership Reporting Requirements", page 9, in Fastenal
Company's Proxy Statement dated March 18, 1997. See also Part I hereof under the
heading "Item X. Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information appearing under the headings
"Election of Directors--Board and Committee Meetings", page 5, "Election of
Directors--Executive Compensation--Summary of Compensation", page 5, and
"Election of Directors--Executive Compensation--Compensation Committee
Interlocks and Insider Participation", page 6, in Fastenal Company's Proxy
Statement dated March 18, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information appearing under the heading
"Security Ownership of Principal Shareholders and Management", pages 2-3, in
Fastenal Company's Proxy Statement dated March 18, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a) 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Earnings for the years ended December 31,
1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
(Incorporated by reference to pages 10-20 of Fastenal Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1996)
2. Financial Statement Schedules:
Schedule VIII--Valuation and Qualifying Accounts
3. Exhibits:
3.1 Restated Articles of Incorporation of Fastenal Company, as
amended (incorporated by reference to Exhibit 3.1 to Fastenal
Company's Form 10-Q for the quarter ended September 30, 1993)
3.2 Restated By-Laws of Fastenal Company (incorporated by reference
to Exhibit 3.2 to Registration Statement No. 33-14923)
13 Annual Report to Shareholders for the fiscal year ended December
31, 1996 (only those portions specifically incorporated by
reference herein shall be deemed filed with the Commission)
21 List of Subsidiaries (incorporated by reference to Exhibit 21 to
Fastenal Company's Form 10-K for the fiscal year ended December
31, 1994)
27 Financial Data Schedule
Copies of Exhibits will be furnished upon request and payment of the
Company's reasonable expenses in furnishing the Exhibits.
b) Reports on Form 8-K
No report on Form 8-K was filed by Fastenal Company during the fourth quarter of
the fiscal year ended December 31, 1996.
<PAGE>
14
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
Fastenal Company:
Under date of February 1, 1997, we reported on the consolidated balance sheets
of Fastenal Company and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996, as
contained in the 1996 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1996. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 1, 1997
<PAGE>
15
FASTENAL COMPANY
Schedule VIII--Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
"Additions" "Additions"
Balance at charged to charged Balance
beginning costs and to other "Less" at end
Description of year expenses accounts deductions of year
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1996 allowance for
doubtful accounts $460,000 $917,000 $ 0 $837,000 $540,000
Year ended December 31,
1995 allowance for
doubtful accounts 300,000 519,513 0 359,513 460,000
Year ended December 31,
1994 allowance for
doubtful accounts 225,000 452,977 0 377,977 300,000
</TABLE>
<PAGE>
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 17, 1997
FASTENAL COMPANY
By /s/ Robert A. Kierlin
---------------------------------
Robert A. Kierlin, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 17, 1997 By /s/ Robert A. Kierlin
---------------------------------
Robert A. Kierlin, President
(Principal Executive Officer) and
Director
Date: March 17, 1997 By /s/ Stephen M. Slaggie
----------------------------------
Stephen M. Slaggie, Director
Date: March 17, 1997 By /s/ Daniel L. Florness
----------------------------------
Daniel L. Florness, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Date: March 17, 1997 By /s/ Michael M. Gostomski
----------------------------------
Michael M. Gostomski, Director
Date: March 17, 1997 By /s/ Henry K. McConnon
----------------------------------
Henry K. McConnon, Director
Date: March 17, 1997 By /s/John D. Remick
----------------------------------
John D. Remick, Director
<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).
13 Annual Report to Shareholders for the fiscal
year ended December 31, 1996 (only those
portions specifically incorporated by reference
herein shall be deemed filed with the Commission).....Electronically Filed
21 List of Subsidiaries (incorporated by reference
to Exhibit 21 to Fastenal Company's Form 10-K
for the fiscal year ended December 31, 1994).
27 Financial Data Schedule...............................Electronically Filed
<PAGE>
1 9 9 6
ANNUAL REPORT
[Drawing of the original (1967) Fastenal storefront in Winona, Minnesota with a
picture of the current corporate offices (1996) and warehouse in Winona,
Minnesota inset in the upper right corner.]
FASTENAL COMPANY
- ------------------30 years of growth through customer service-------------------
<PAGE>
Profile of Fastenal Company
Fastenal Company was founded in 1967. As of December 31, 1996, the Company
operated 484 store sites located in 48 states and Canada and employed 1,989
people at these sites. The Company sells industrial and construction supplies in
six product lines. The traditional Fastenal(R) product line consists of
approximately 49,000 different types of threaded fasteners and other industrial
and construction supplies; the FastTool(R) product line consists of
approximately 14,000 different types of tools and safety supplies; the
SharpCut(R) product line consists of approximately 8,000 different types of
metal cutting tool blades; the PowerFlow(TM) product line consists of
approximately 7,000 different types of fluid transfer components and accessories
for hydraulic and pneumatic power; the EquipRite(TM) product line consists of
approximately 2,000 different types of material handling and storage products;
and the CleanChoice(TM) product line consists of approximately 2,000 different
types of industrial, janitorial and paper products. The SharpCut(R),
PowerFlow(TM), EquipRite(TM) and CleanChoice(TM) product lines were introduced
in 1996. As of December 31, 1996, the Company also operated eight distribution
centers located in Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia,
Washington and California, and a packaging facility in Tennessee. Approximately
95.9% of the Company's 1996 sales were attributable to products manufactured by
others, and approximately 4.1% related to custom-threaded fasteners manufactured
or modified by the Company. Since December 31, 1996, the Company has opened
additional store sites in the United States and Canada.
[Picture of the exterior sign from the 1987 Fastenal store site in Winona,
Minnesota which now houses the conveyor, sortation and fabrication department.
Picture of the current corporate offices (1996) and warehouse in Winona,
Minnesota]
* * * * *
This Annual Report, including the sections captioned "President's Letter to
Shareholders", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Stock and Financial Data", contains statements that
are not historical in nature and that are intended to be, and are hereby
identified as, "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), including statements regarding
expected results of operations, new store openings, capital expenditures and
dividends. A discussion of certain risks and uncertainties that could cause
actual results to differ materially from those predicted in such forward-looking
statements is included at the end of the section of this Annual Report captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The Company assumes no obligation to update either such forward-
looking statements or the discussion of such risks and uncertainties.
FASTENAL(R), FASTTOOL(R), SHARPCUT(R), POWERFLOW(TM), EQUIPRITE(TM) and
CLEANCHOICE(TM)
are trademarks and/or service marks of the Company.
<PAGE>
Fastenal Company & Subsidiary
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
Six-Year Selected Financial Data...............................................2
President's Letter to Shareholders...........................................3-4
Management's Discussion and Analysis
of Financial Condition and Results of Operations...........................5-8
Stock and Financial Data.......................................................9
Consolidated Balance Sheets...................................................10
Consolidated Statements of Earnings...........................................11
Consolidated Statements of Stockholders' Equity...............................12
Consolidated Statements of Cash Flows.........................................13
Notes to Consolidated Financial Statements.................................14-19
Independent Auditors' Report..................................................20
Officers and Directors/Corporate Information...................Inside Back Cover
</TABLE>
[Pictures of the Company's Winona location
as of 1967, 1976, 1982, 1987 and 1996.]
Fastenal Company has undergone many changes during 30 years of business. The
first Fastenal store opened in 1967 in Winona, MN (above left). The new
corporate headquarters facility was completed in 1996 (lower right).
1
1996 Annual Report
<PAGE>
Fastenal Company & Subsidiary
SIX-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
OPERATING RESULTS PERCENT
YEARS ENDED DEC. 31 1996 CHANGE 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $287,691,000 +29.3 222,555,000 161,886,000 110,307,000 81,263,000 62,305,000
Gross profit 152,880,000 +28.5 118,944,000 85,927,000 58,552,000 43,683,000 32,927,000
Earnings before
income taxes 54,432,000 +17.8 46,206,000 31,391,000 20,075,000 14,735,000 10,748,000
Net earnings 32,539,000 +18.7 27,411,000 18,666,000 11,910,000 8,833,000 6,606,000
Earnings per share 0.86 +19.4 .72 .49 .31 .23 .17
Dividends per share 0.02 .02 .02 .015 .015 .0125
Weighted average
shares outstanding 37,938,688 37,938,688 37,938,688 37,938,688 37,938,688 37,938,688
FINANCIAL POSITION
DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------
Net working capital $78,417,000 +18.6 66,100,000 45,341,000 33,319,000 22,569,000 19,554,000
Total assets 151,545,000 +38.6 109,320,000 81,795,000 57,463,000 43,937,000 34,103,000
Total stockholders' equity 125,967,000 +33.5 94,323,000 67,649,000 49,809,000 38,468,000 30,204,000
</TABLE>
All information contained in this Annual Report
reflects the 2-for-1 stock splits effected in the form
of a 100% stock dividend in 1992 and 1995.
2
1996 Annual Report
<PAGE>
President's Letter to Shareholders
Fastenal had a building year in 1996. Usually when you read of a "building year"
you expect to see another attempt to explain poor results. In Fastenal's case, a
"building year" means an investment of resources and a time to put in place the
infrastructure for more future growth. In 1996 we committed a large amount of
our resources to achieve future success. Our 1996 financial results reflect only
how our plan for the future impacted the initial year of the plan; we believe
future years will show the benefits. Our 1996 net sales of $287,691,000
represented a 29.3% increase over the 1995 level. Our 1996 net earnings of
$32,539,000 represented an 18.7% increase over the 1995 level. Earnings per
share increased from $.72 in 1995 to $.86 in 1996.
Fastenal took two major steps in 1996 to promote future growth. The first of
these was to increase the rate at which we grow our number of people. In the
past we planned our growth by each year opening 30% of the previous year's
average number of stores. We would then add people as necessary to staff these
stores. In 1996 we changed the strategy to focus on people rather than stores.
We challenged our people to recruit for a 40% increase in store personnel rather
than a 30% increase. The extra personnel were being hired to facilitate the
development of product expertise at our existing stores necessary to integrate
our new product lines into these stores and to provide for staff in new sites.
As the year progressed, it became apparent that we were doing even better than
the 40% goal, and we finished the year with a 52% increase in store personnel.
We also beefed up our support personnel 47% during 1996, with some of the most
significant increases in the training, marketing support and information systems
design segments. Because employment costs make up more than two thirds of our
expenses, when the rate of hiring exceeds the growth in sales, our earnings
growth rate will suffer, as it did in 1996.
[Picture of the exterior of the LaCrosse, Wisconsin branch (1996) is on the
upper left of the page.]
The second major effort in 1996 to foster growth was the expansion of our
product line. During the year we went from two major product categories to six.
To our existing lines of fasteners and tools we added product groupings of metal
cutting tools, hydraulic hoses and pipe, materials handling and storage
equipment, and janitorial supplies. Our added marketing support people serve as
product managers, buyers, trainers and media design specialists for these
additional products.
[Picture of the interior of the LaCrosse, Wisconsin branch (1996) is on the
lower right of the page.]
The additions of so many new people and new products gave us good reason to
change our methods of training. 1996 saw the start of some new electronic
methods of training. During the year we began video conferencing between our
distribution centers. Six centers were using video conferencing by the end of
1996, and the remaining two will be equipped in 1997. During the year we
equipped each distribution center with a training area, staffed with from one to
three training specialists. These regional training specialists track the
development progress of each person within the center's geographic area. With
the help of an educational software development company, we produced three CD-
ROMs in 1996 that provide multimedia training materials for use on a personal
computer or on a network at regional training sites. We expect to produce more
CD-ROMs in 1997 to encompass our product lines. We are investigating the
3
1996 Annual Report
<PAGE>
6
...President's Letter continued
licensing of the software to other firms that perform maintenance training. As
technology progresses, we expect to have our electronic training tools available
to all employees through the Internet. 1996 saw the continuation of site
openings along with a new approach to openings in smaller communities. Among the
109 new sites opened in 1996 were 8 sites that are satellites of existing
stores. These satellites are in communities as small as 2,000 population and are
usually within a 30 mile radius of the mother store. In most cases we were
already doing business in the satellite community via sales calls from the
mother store, but the addition of a physical presence in the community provides
for significant sales increases from that community.
We learned in 1996 that, in general, sites that open with multiple product lines
do better than sites with only fasteners. Therefore, in 1997 our new sites will
start with an inventory drawn from all six product lines. Although the initial
inventories will be light, the people running the site will be able to add
inventory per customer request. We know that the people in the stores are best
able to decide how we can best service the customer.
During 1996 we put substantial resources into the design of a new information
system for everybody in the Company. We began the redesign of our point-of-sale
system for the branch stores. By the end of 1997 we expect to have a whole new
information system in place in our stores to allow our personnel to access more
information and to have multimedia training capability on-line at each site. Our
design staff has worked with representatives from our stores to ensure the
system will meet our needs.
[Picture of a Fastenal semi parked in front of the Dallas hub in 1996.]
We finished 1996 with 16 Fastenal sites in Canada. As a group, these 16 stores
have regularly exceeded their sales targets. We will open additional sites in
Canada in 1997.
During the year we opened a new distribution center in Akron, Ohio. We also
completed the addition to our distribution center and offices in Winona. At the
end of 1996 we purchased a large amount of used automated equipment for
warehouse operation, some of which we will install in our distribution centers
in 1997 and the remainder we hope to sell to other parties.
In summary, we have done much in 1996 to get ready for a successful future. I
hope you share our belief in the wisdom of the decisions we made.
As usual, we have a number of anecdotes about service that our people have given
during the year. A customer in Ohio needed 75 large non-standard bolts within 26
hours. While they were being fabricated in Chicago, our people drove during the
night to get the special parts and returned within 25 hours. Another customer on
a Friday needed a stocked trailer on a job site the following Monday. Our people
located a 45-foot trailer and installed racks and bins with the accompanying
inventory over the weekend. And to close the year out, on December 31, our
people in a Colorado store left at 3:30 a.m. to pick up a piece of equipment in
Wyoming that a customer needed for a job.
Thanks to all of our people and to you for believing in Fastenal.
/s/ Robert A. Kierlin
4
1996 Annual Report
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Net sales for 1996 exceeded net sales for 1995 by 29.3%. This compares with a
37.5% net sales growth rate experienced from 1994 to 1995. The increase in net
sales in 1996 and 1995 came primarily from new site openings and unit sales
growth in existing sites and, to a lesser extent, the introduction of new
products and services, rather than from price increases. FastTool(R), a product
line introduced in 1993, contributed less than 12% of total net sales in 1996
and less than 3% of total net sales in 1995. SharpCut(R), a product line
developed late in 1995 and introduced early in 1996, contributed less than 3% of
total net sales in 1996. PowerFlow(TM), a product line introduced in 1996,
contributed approximately 1% of total net sales. EquipRite(TM) and
CleanChoice(TM), two product lines introduced in 1996, each contributed less
than 1% of total net sales in 1996. The lesser total growth rate in 1996 than in
1995 resulted primarily from two regions that underperformed in 1996; this
affected unit sales growth in existing sites. The Company has taken actions to
correct the problems causing the underperformance related to these two regions.
Sites opened in 1996 contributed approximately $9,544,000 (or 3.0%) to 1996 net
sales. Sites opened in 1995 contributed approximately $5,551,000 (or 2.5%) to
1995 net sales and approximately $17,915,000 (or 6.2%) to 1996 net sales. The
rate of growth in sales of sites generally levels off after sites have been open
for five years, and the sales of older sites typically vary more with the
economy than the sales of younger sites. Threaded fasteners accounted for
approximately 68%, 65% and 64% of the Company's consolidated sales in 1994, 1995
and 1996, respectively.
Gross profit as a percent of net sales was 53.1% in 1996, 53.4% in 1995 and
53.1% in 1994. The decrease from 1995 to 1996 resulted primarily from the mix of
products being sold. The increase from 1994 to 1995 resulted primarily from
lower costs on standard imported products handled through our import and
packaging center in Memphis, Tennessee. This facility became operational during
the fourth quarter of 1994.
Operating and administrative expenses were 34.6% of net sales in 1996 after
having been 33.0% of net sales in 1995 and 34.0% of net sales in 1994. The 1996
increase in operating and administrative costs was primarily due to an increase
in payroll and related costs and an increase in occupancy costs, the rate of
increase of both of which exceeded the growth rate of net sales. Payroll costs
increased due to a 1996 increase of 52.0% and 47.0% in sales and support
personnel, respectively. This increase was due to a 29.5% increase in the number
of sites in 1996 and an introduction of the four new product lines into certain
existing sites in 1996. Occupancy costs increased due to the aforementioned
increase in the number of sites and due to the relocation of existing sites to
larger sites to accommodate their growth in activity and the introduction of new
product lines. Distribution costs benefited from productivity gains in both 1995
and 1996.
[Picture of fasteners tinted at a 10% gray behind the text]
5
1996 Annual Report
<PAGE>
CONTINUED -- Management's Discussion and
Analysis of Financial Condition and Results of Operations
Interest income minus interest expense decreased 68.1% between 1995 and 1996 and
52.5% between 1994 and 1995 primarily because of less investable cash and the
use of short-term borrowings in both 1996 and 1995. The gains on the disposal of
property and equipment in 1996, 1995 and 1994 came primarily from the disposal
of used vehicles owned by the Company. The 1996 gain was higher than the 1995
gain due to the increase in the number of pickup trucks sold. The 1995 gain was
higher than the 1994 gain because the 1995 gain included the sale of depreciated
semi-tractors along with pickup trucks while the 1994 gain was limited to pickup
trucks.
Net earnings grew 18.7% from 1995 to 1996, and 46.8% from 1994 to 1995. The
growth in net earnings in all years resulted primarily from increased net sales.
In 1996 the net earnings growth rate was lower than that of net sales, which
grew at approximately the same rate as that of new site openings, because of the
earlier mentioned increases in operating and administrative expenses. In 1995,
the net earnings growth rate was higher than that of net sales because net sales
grew at a rate faster than that of new site openings. The net sales growth rate
was greater than that of new site openings because of a positive growth of the
economy in 1995.
EFFECTS OF INFLATION
Inflation had little effect on the Company's operations in 1994, 1995 and 1996.
The only pressure toward higher prices from the Company's suppliers occurred in
the fourth quarter of 1994. Many of the price increases announced in that period
were to take place in January of 1995; but a slowing economy in the first half
of 1995 kept many of these increases from being implemented.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $45,341,000 at December 31, 1994 to $66,100,000
at December 31, 1995, and to $78,417,000 at December 31, 1996. These increases
came primarily from higher trade accounts receivable and inventory levels
without comparable increases in current liabilities.
Net cash provided by operating activities increased from $11,284,000 in 1994 to
$14,945,000 in 1995, and decreased to $12,478,000 in 1996. The 1995 increase
came primarily because the growth in net earnings and depreciation charges for
such year exceeded the growth in accounts receivable and inventories. The 1996
decrease came primarily because the growth in inventories exceeded the growth in
net earnings and depreciation charges for such year.
Net cash used by investing activities increased from $9,369,000 in 1994 to
$10,736,000 in 1995, and to $26,498,000 in 1996. The 1995 increase in net cash
used by investing activities resulted primarily from an increase in purchases of
property and equipment. This increase was partially offset with higher sales of
marketable securities. The 1996 increase in net cash used by investing
activities resulted primarily from a further increase in purchases of property
and equipment and by an increase in other assets. The increase in other assets
was primarily due to the acquisition of a business in 1996. Additions to
vehicles and computer equipment are expected to be the largest part of cash used
by investing activities in 1997.
[Picture of fasteners tinted at a 10% gray behind the text]
6
1996 Annual Report
<PAGE>
CONTINUED -- Management's Discussion and
Analysis of Financial Condition and Results of Operations
The Company had no long-term debt at December 31, 1994, 1995 or 1996. See note 9
of the Notes to Consolidated Financial Statements for a description of the
Company's current line of credit arrangement.
The Company paid an annual dividend of $.02 per share in 1994, 1995 and 1996.
Management anticipates funding its current expansion plans with cash generated
from operations, from its borrowing capacity and, to a lesser degree, from
available cash, cash equivalents and marketable securities. The Company began a
FastTool(R) product line in 1993. This product line consists of tools and safety
supplies which can be sold to the same customer base as the traditional
Fastenal(R) product line. The Company developed a SharpCut(R) product line late
in 1995 which was introduced in 1996. This product line consists of metal
cutting tool blades and a resharpening service. The Company introduced its
PowerFlow(TM) product line in 1996. This product line consists of fluid transfer
components and accessories for hydraulic and pneumatic power and a hose-crimping
service. The Company introduced its EquipRite(TM) product line in 1996. This
product line consists of material handling and related storage products and a
storeroom layout design service. The Company introduced its CleanChoice(TM)
product line in 1996. This product line consists of industrial, janitorial and
paper products.
At December 31, 1996, the Company had no material outstanding commitments for
capital expenditures. The Company expects to make approximately $23,000,000 in
additional capital expenditures in 1997, consisting of approximately $11,000,000
for pickup trucks, approximately $2,000,000 for semi-tractors and trailers,
approximately $2,500,000 for manufacturing, warehouse and packaging equipment,
and approximately $7,500,000 for data processing equipment.
In addition to opening new sites in the United States, in 1997 the Company plans
to open additional sites in Canada and to continue selling its products in
Mexico from some of its existing sites in Texas. No assurance can be given that
any of the Company's expansion plans will be achieved or that new sites, once
opened, will be profitable.
[Picture of fasteners tinted at a 10% gray behind the text]
7
1996 Annual Report
<PAGE>
CONTINUED -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
CERTAIN RISKS AND UNCERTAINTIES
Certain statements in this Annual Report, in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made by or with approval of the Company's
executive officers constitute or will constitute "forward-looking statements"
under the Reform Act. The following factors are among those that could cause the
Company's actual results to differ materially from those predicted in such
forward-looking statements: (i) a downturn in the economy could impact sales at
existing stores, (ii) a change, from that projected, in the number of smaller
communities able to support future store sites could impact the rate of new
store openings, (iii) the ability of the Company to develop product expertise at
the store level, to identify future product lines that complement existing
product lines, to transport and store certain hazardous products and to
otherwise integrate new product lines into the Company's existing stores and
distribution network could impact sales and margins, (iv) the ability of the
Company to successfully attract and retain qualified personnel to staff the
Company's smaller community stores could impact sales at existing stores and the
rate of new store openings, (v) changes in governmental regulations related to
product quality or product source traceability could impact the cost to the
Company of regulatory compliance, (vi) inclement weather could impact the
Company's distribution network, (vii) foreign currency fluctuations or changes
in trade relations could impact the ability of the Company to procure products
overseas at competitive prices and the Company's foreign sales, (viii)
disruptions caused by the implementation of the Company's new management
information systems infrastructure could impact sales, and (ix) changes in the
rate of new store openings could impact expenditures for vehicles, computers and
other capital equipment.
[Picture of fasteners tinted at a 10% gray behind the text]
8
1996 Annual Report
<PAGE>
Stock and Financial Data
COMMON STOCK DATA
The Company's shares are traded on The Nasdaq Stock Market under the symbol
"FAST". The following table sets forth the high and low closing sale price on
The Nasdaq Stock Market for 1996 and 1995. The Common Stock trading prices below
have been retroactively adjusted for the 2-for-1 stock split declared on January
31, 1995. See note 6 of the Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
1996: HIGH LOW
- ----------------------------------------------
<S> <C> <C>
First quarter $ 42-1/2 28-3/4
Second quarter 47 34-1/4
Third quarter 50 35
Fourth quarter 49-3/4 42-3/8
</TABLE>
<TABLE>
<CAPTION>
1995: HIGH LOW
- ----------------------------------------------
<S> <C> <C>
First quarter $ 25-5/8 19-7/8
Second quarter 30-1/2 23
Third quarter 38 27
Fourth quarter 43 33-1/2
</TABLE>
As of February 17, 1997, there were approximately 2,200 record holders of the
Company's Common Stock.
A $.02 annual dividend per share was paid during both 1995 and 1996. On February
1, 1997, the Company announced a $.02 annual dividend per share to be paid on
March 14, 1997 to shareholders of record at the close of business on February
28, 1997. The Company expects that it will continue to pay comparable cash
dividends in the foreseeable future, provided that any future determination as
to payment of dividends will depend upon the financial condition and results of
operations of the Company and such other factors as are deemed relevant by the
board of directors. The dividend amounts above and the Selected Quarterly
Financial Data below have been retroactively adjusted for the 2-for-1 stock
split declared on January 31, 1995. See note 6 of the Notes to Consolidated
Financial Statements.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996: NET SALES GROSS PROFIT NET EARNINGS EARNINGS PER SHARE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $ 63,061,000 33,425,000 7,433,000 .20
Second Quarter 70,850,000 38,036,000 8,445,000 .22
Third Quarter 76,212,000 40,687,000 8,692,000 .23
Fourth Quarter 77,568,000 40,732,000 7,969,000 .21
- ---------------------------------------------------------------------------------------
$287,691,000 152,880,000 32,539,000 .86
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995: NET SALES GROSS PROFIT NET EARNINGS EARNINGS PER SHARE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $ 51,091,000 27,055,000 6,084,000 .16
Second Quarter 55,475,000 29,429,000 6,720,000 .18
Third Quarter 57,993,000 31,021,000 7,386,000 .19
Fourth Quarter 57,996,000 31,439,000 7,221,000 .19
- ---------------------------------------------------------------------------------------
$222,555,000 118,944,000 27,411,000 .72
- ---------------------------------------------------------------------------------------
</TABLE>
9
1996 Annual Report
<PAGE>
- -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 426,000 6,583,000
Trade accounts receivable, net of allowance for
doubtful accounts of $540,000 and $460,000
as of December 31, 1996 and 1995, respectively 41,553,000 31,866,000
Inventories 56,526,000 40,178,000
Deferred income tax asset 1,219,000 947,000
Other current assets 3,731,000 1,523,000
--------------------------
Total current assets 103,455,000 81,097,000
Marketable securities 515,000 784,000
Property and equipment, less accumulated depreciation 43,930,000 27,090,000
Other assets, net 3,645,000 349,000
--------------------------
Total assets $151,545,000 109,320,000
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 10,010,000 7,882,000
Note payable 8,622,000 --
Accrued expenses 5,611,000 4,974,000
Income tax payable 795,000 2,141,000
--------------------------
Total current liabilities 25,038,000 14,997,000
--------------------------
Deferred income tax liability 540,000 --
--------------------------
Stockholders' equity:
Preferred stock of $.01 par value per share.
Authorized 5,000,000 shares; none issued -- --
Common stock of $.01 par value per share.
Authorized 50,000,000 shares; issued and
outstanding 37,938,688 shares 379,000 379,000
Additional paid-in capital 4,424,000 4,424,000
Retained earnings 121,346,000 89,566,000
Translation adjustment (182,000) (52,000)
Unrealized holding gains on marketable securities -- 6,000
--------------------------
Total stockholders' equity 125,967,000 94,323,000
--------------------------
Total liabilities and stockholders' equity $151,545,000 109,320,000
--------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
1996 Annual Report
<PAGE>
- -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended December 31, 1996, 1995 and 1994------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $287,691,000 222,555,000 161,886,000
Cost of sales 134,811,000 103,611,000 75,959,000
----------------------------------------
Gross profit 152,880,000 118,944,000 85,927,000
Operating and administrative expenses 99,473,000 73,448,000 54,963,000
----------------------------------------
Operating income 53,407,000 45,496,000 30,964,000
---------------------------------------
Other income (expense):
Interest income 118,000 181,000 238,000
Interest expense (82,000) (68,000) --
Gain on disposal of property and equipment 989,000 597,000 189,000
----------------------------------------
Total other income 1,025,000 710,000 427,000
----------------------------------------
Earnings before income taxes 54,432,000 46,206,000 31,391,000
Income tax expense 21,893,000 18,795,000 12,725,000
----------------------------------------
Net earnings $ 32,539,000 27,411,000 18,666,000
----------------------------------------
Earnings per share $ .86 .72 .49
----------------------------------------
Weighted average shares outstanding 37,938,688 37,938,688 37,938,688
----------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
1996 Annual Report
<PAGE>
- -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
HOLDING GAINS
ADDITIONAL (LOSSES) ON TOTAL
COMMON STOCK PAID-IN RETAINED TRANSLATION MARKETABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SECURITIES EQUITY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31, 1993 37,938,688 $379,000 4,424,000 45,006,000 -- -- 49,809,000
Dividends paid in cash -- -- -- ( 758,000) -- -- (758,000)
Net earnings for the year -- -- -- 18,666,000 -- -- 18,666,000
Translation adjustment -- -- -- -- (11,000) -- (11,000)
Unrealized
holding losses on
marketable securities -- -- -- -- -- (57,000) (57,000)
- --------------------------------------------------------------------------------------------------------------------------
Balances as of
December 31, 1994 37,938,688 $379,000 4,424,000 62,914,000 (11,000) (57,000) 67,649,000
Dividends paid in cash -- -- -- (759,000) -- -- (759,000)
Net earnings for the year -- -- -- 27,411,000 -- -- 27,411,000
Translation adjustment -- -- -- -- (41,000) -- (41,000)
Unrealized
holding gains on
marketable securities -- -- -- -- -- 63,000 63,000
- --------------------------------------------------------------------------------------------------------------------------
Balances as of
December 31, 1995 37,938,688 $379,000 4,424,000 89,566,000 (52,000) 6,000 94,323,000
Dividends paid in cash -- -- -- (759,000) -- -- (759,000)
Net earnings for the year -- -- -- 32,539,000 -- -- 32,539,000
Translation adjustment -- -- -- -- (130,000) -- (130,000)
Unrealized
holding losses on
marketable securities -- -- -- -- -- (6,000) (6,000)
- --------------------------------------------------------------------------------------------------------------------------
Balances as of
December 31, 1996 37,938,688 $379,000 4,424,000 121,346,000 (182,000) -- 125,967,000
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
1996 Annual Report
<PAGE>
- ----------------------------------------------- FASTENAL COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994 -----------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 32,539,000 27,411,000 18,666,000
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation of property and equipment 7,349,000 5,404,000 3,619,000
Gain on disposal of property and equipment (989,000) (597,000) (189,000)
Deferred income taxes 268,000 (218,000) (298,000)
Amortization of goodwill and non-compete agreement 129,000 -- --
Amortization of premium on marketable securities 6,000 36,000 53,000
Changes in operating assets and liabilities:
Trade accounts receivable (9,687,000) (8,260,000) (7,883,000)
Inventories (16,348,000) (9,267,000) (8,677,000)
Other current assets (2,208,000) (415,000) (499,000)
Accounts payable 2,128,000 68,000 3,450,000
Accrued expenses 637,000 828,000 1,541,000
Income taxes payable (1,346,000) (45,000) 1,501,000
--------------------------------------------
Net cash provided by operating activities 12,478,000 14,945,000 11,284,000
--------------------------------------------
Cash flows from investing activities:
Purchases of marketable securities -- -- (2,266,000)
Sales of marketable securities 257,000 4,269,000 585,000
Additions of property and equipment, net (26,243,000) (16,664,000) (8,129,000)
Proceeds from sale of property and equipment 3,043,000 1,755,000 450,000
Translation adjustment (130,000) (41,000) (11,000)
Decrease (increase) in other assets (3,425,000) (55,000) 2,000
--------------------------------------------
Net cash used by investing activities (26,498,000) (10,736,000) (9,369,000)
--------------------------------------------
Cash flows from financing activities:
Net increase in note payable 8,622,000 -- --
Payment of dividends (759,000) (759,000) (758,000)
--------------------------------------------
Net cash provided by (used in) financing activities 7,863,000 (759,000) (758,000)
--------------------------------------------
Net increase (decrease) in cash and cash equivalents (6,157,000) 3,450,000 1,157,000
Cash and cash equivalents at beginning of year 6,583,000 3,133,000 1,976,000
--------------------------------------------
Cash and cash equivalents at end of year $ 426,000 6,583,000 3,133,000
--------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during each period for:
Income taxes $ 22,971,000 19,057,000 11,522,000
Interest $ 82,000 68,000 --
Supplemental disclosures on non-cash investing activities:
Unrealized holding gains (losses) on marketable securities $ (6,000) 63,000 (57,000)
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
1996 Annual Report
<PAGE>
- ------------------------------------------------ FASTENAL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994 -----------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Fastenal
Company and its wholly-owned subsidiary, Fastenal Canada Company
(collectively referred to as the Company). All material intercompany
balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes sales and the related cost of sales on the accrual
basis of accounting at the time products are shipped to or picked up by
customers.
CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly-liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories, consisting of merchandise held for resale, are stated at the
lower of cost (first in, first out method) or market.
MARKETABLE SECURITIES
Marketable securities as of December 31, 1996 and 1995 consist of debt
securities. The Company classifies its debt securities as available-for-
sale. Available-for-sale securities are recorded at fair value based on
current market value. Unrealized holding gains and losses on available-
for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized, provided that a
decline in the market value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in
the establishment of a new cost basis for the security.
(continued)
14
1996 Annual Report
<PAGE>
- ------------------------------------------------ FASTENAL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Except as provided below,
depreciation on buildings and equipment is provided for financial
statement reporting purposes by the methods and over the lives mandated by
Internal Revenue Service Regulations (IRS Regulations). These lives
approximate the anticipated economic useful lives of the related property.
Depreciation in 1996 on transportation equipment is provided by the
straight-line method over lives mandated by IRS Regulations which
represents a change from 1995 when the accelerated method was used. The
1996 change reflected a change in the estimate of the salvage value of the
transportation equipment. This change was made to lessen the effect of
increasing gains from the planned disposal of transportation equipment.
The impact of the change was immaterial in 1996 and is expected to be
immaterial in 1997.
OTHER ASSETS
Other assets consists of prepaid security deposits, goodwill and a non-
compete agreement. Goodwill represents the excess of the purchase price
over the fair value of net assets acquired and is amortized on a straight-
line basis over 15 years. The non-compete agreement is amortized on a
straight-line basis over 15 years. Goodwill and other long-term asset
balances are reviewed periodically to determine that the unamortized
balances are recoverable. In evaluating the recoverability of these
assets, the following factors, among others, are considered: a significant
change in the factors used to determine the amortization period, an
adverse change in legal factors or in the business climate, a transition
to a new product or services strategy, a significant change in the
customer base, and/or a realization of failed marketing efforts. If the
unamortized balance is believed to be unrecoverable, the Company
recognizes an impairment charge necessary to reduce the unamortized
balance to the amount of cash flows expected to be generated over the
remaining life. If the acquired entity has been integrated into other
operations and cash flows cannot be separately measured, the Company
recognizes an impairment charge necessary to reduce the unamortized
balance to its estimated fair value. The amount of impairment is charged
to earnings as a part of operating and administrative expenses in the
current period.
LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets to Be Disposed Of, in
1996. Adoption of this statement did not have a material impact on the
Company's financial position or results of operations.
(continued)
15
1996 Annual Report
<PAGE>
- ------------------------------------------------ FASTENAL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
STOCK-BASED COMPENSATION
The Company does not have any stock options or any other types of stock-
based compensation.
INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
EARNINGS PER SHARE
Earnings per share is computed by dividing net earnings by the weighted
average number of common shares outstanding.
(2) MARKETABLE SECURITIES
The amortized cost, unrealized holding gains (losses), and fair value of
available-for-sale debt securities by major security type as of December 31
were as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
-----------------------------------------------
<S> <C> <C> <C>
1996 $515,000 -- 515,000
1995 $778,000 6,000 784,000
</TABLE>
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of the fair value of all
financial instruments to which the Company is a party. All financial
instruments are carried at amounts that approximate estimated fair value.
(continued)
16
1996 Annual Report
<PAGE>
- ------------------------------------------------ FASTENAL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994------------------------------------
(4) PROPERTY AND EQUIPMENT
Property and equipment as of December 31 consists of the following:
<TABLE>
<CAPTION>
DEPRECIABLE
LIFE IN YEARS 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Land -- $ 1,934,000 1,444,000
Buildings and improvements 15 to 39 17,370,000 10,482,000
Equipment and shelving 3 to 10 25,765,000 19,063,000
Transportation equipment 3 to 5 17,464,000 10,078,000
Construction in progress -- 2,078,000 1,314,000
-----------------------
64,611,000 42,381,000
Less accumulated depreciation 20,681,000 15,291,000
-----------------------
Net property and equipment $43,930,000 27,090,000
-----------------------
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses as of December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------
<S> <C> <C>
Payroll and related taxes $2,766,000 1,846,000
Bonuses 1,108,000 1,584,000
Commissions 867,000 688,000
Sales and real estate taxes 570,000 466,000
Other 300,000 390,000
---------------------
$5,611,000 4,974,000
---------------------
</TABLE>
(6) STOCKHOLDERS' EQUITY
STOCK SPLITS
Dollar, share and per share amounts herein and in the accompanying
consolidated financial statements have been adjusted retroactively, where
appropriate, to reflect the 2-for-1 Common Stock split effected in the
form of a 100% stock dividend in 1995.
DIVIDENDS
On February 1, 1997, the Company's board of directors declared a dividend
of $.02 per share of Common Stock to be paid in cash on March 14, 1997 to
shareholders of record at the close of business on February 28, 1997.
(continued)
17
1996 Annual Report
<PAGE>
- -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994------------------------------------
(7) INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
1996:
- ------------------------------------------------------------------
Federal $17,324,000 216,000 17,540,000
State 4,301,000 52,000 4,353,000
-------------------------------------
$21,625,000 268,000 21,893,000
-------------------------------------
1995: CURRENT DEFERRED TOTAL
- ------------------------------------------------------------------
Federal $15,192,000 (175,000) 15,017,000
State 3,821,000 (43,000) 3,778,000
-------------------------------------
$19,013,000 (218,000) 18,795,000
-------------------------------------
1994: CURRENT DEFERRED TOTAL
- ------------------------------------------------------------------
Federal $10,434,000 (239,000) 10,195,000
State 2,589,000 (59,000) 2,530,000
-------------------------------------
$13,023,000 (298,000) 12,725,000
--------------------------------------
</TABLE>
Income tax expense in the accompanying consolidated financial statements differs
from the "expected" tax expense as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense
at the "expected" rate of
35% $19,051,000 16,172,000 10,987,000
Increase (reduction)
attributed to:
State income taxes, net of
federal benefit 2,829,000 2,371,000 1,644,000
Tax exempt interest (16,000) (46,000) (68,000)
Other, net 29,000 298,000 162,000
-------------------------------------
Total income tax expense $21,893,000 18,795,000 12,725,000
-------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Deferred taxes:
Inventory costing and valuation methods $1,007,000 705,000
Allowance for doubtful accounts receivable 218,000 185,000
Health claims payable 21,000 63,000
Tax depreciation in excess of book depreciation (540,000) --
Other, net (27,000) (6,000)
-----------------------
Net deferred tax assets $ 679,000 947,000
-----------------------
</TABLE>
(continued)
18
1996 Annual Report
<PAGE>
- -------------------------------------------------FASTENAL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994------------------------------------
(7) INCOME TAXES (continued)
No valuation allowance for deferred tax assets was necessary as of December
31, 1996 and 1995. The character of the federal tax assets is such that
they can be realized through carry-back to prior tax periods or offset
against future taxable income.
(8) OPERATING LEASES
The Company leases space under non-cancelable operating leases for its
California and Washington distribution centers, its Tennessee packaging
center, and for certain store sites with initial terms of one to 48 months.
Minimum annual rentals, exlusive of taxes insurance, etc. for the leased
facilities, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DISTRIBUTION CENTERS,
DECEMBER 31 PACKAGING CENTER AND STORE SITES
---------------------------------------------------------------------------
<S> <C>
1997 $5,836,000
1998 4,335,000
1999 1,777,000
2000 and thereafter --
</TABLE>
Rent expense under all operating leases was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DISTRIBUTION CENTERS,
DECEMBER 31 PACKAGING CENTER AND STORE SITES
---------------------------------------------------------------------------
<S> <C>
1996 $5,865,000
1995 4,003,000
1994 2,865,000
</TABLE>
(9) LINE OF CREDIT AND COMMITMENTS
The Company has a line of credit arrangement with a bank which expires June
30, 1997. The line allows for borrowings of up to $15,000,000 at 1.2% over
the LIBOR rate. On December 31, 1996 there was $8,622,000 outstanding on the
line and the interest rate was 6.8%.
The Company currently has letters of credit issued on its behalf to
suppliers for large overseas purchases. As of December 31, 1996 and 1995,
the total undrawn balance of outstanding letters of credit was $101,000 and
$32,000, respectively.
19
1996 Annual Report
<PAGE>
Independent Auditors' Report
THE BOARD OF DIRECTORS AND STOCKHOLDERS
FASTENAL COMPANY:
We have audited the accompanying consolidated balance sheets of Fastenal Company
and subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fastenal Company and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 1, 1997
20
1996 Annual Report
<PAGE>
OFFICERS
Robert A. Kierlin
Chairman of the Board,
President and Chief Executive Officer
Willard D. Oberton
Vice President and
Chief Operating Officer
Stephen M. Slaggie
Secretary
Daniel L. Florness
Treasurer, Chief Financial Officer
and Chief Accounting Officer
DIRECTORS
Michael M. Gostomski
President,
Winona Heating & Ventilating Co.
(sheet metal and roofing contractor)
Robert A. Kierlin
Henry K. McConnon
President,
Wise Eyes, Inc.
(eyeglass retailer and wholesaler)
John D. Remick
President,
Rochester Athletic Club, Inc.
(health club)
Stephen M. Slaggie
CORPORATE INFORMATION
ANNUAL MEETING
The annual meeting of shareholders
will be held at 10:00 a.m.,
Tuesday, April 22, 1997,
at Corporate Headquarters,
2001 Theurer Boulevard,
Winona, Minnesota
CORPORATE HEADQUARTERS
Fastenal Company
2001 Theurer Boulevard
Winona, Minnesota 55987-1500
Phone: (507) 454-5374
Fax: (507) 453-8049
TRANSFER AGENT
Norwest Bank Minnesota, N.A.
Minneapolis, Minnesota
FORM 10-K
A COPY OF THE COMPANY'S 1996 ANNUAL REPORT
ON FORM 10-K TO THE SECURITIES AND EXCHANGE
COMMISSION IS AVAILABLE WITHOUT CHARGE TO
SHAREHOLDERS UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY AT THE ADDRESS LISTED
ON THIS PAGE FOR THE COMPANY'S CORPORATE
HEADQUARTERS.
LEGAL COUNSEL
Faegre & Benson LLP
Minneapolis, Minnesota
Streater, Murphy, Gernander, Forsythe & Telstad, PA
Winona, Minnesota
AUDITORS
KPMG Peat Marwick LLP
Minneapolis, Minnesota
<PAGE>
FASTENAL COMPANY
[FASTENAL LOGO] [SHARPCUT LOGO] [FASTOOL LOGO]
[POWERFLOW LOGO] [EQUIPRITE LOGO] [CLEANCHOICE LOGO]
Our Approach
At Fastenal Company, we operate in an uncomplicated, straightforward way
that makes it easy for our customers to gain confidence and satisfaction
based on our performance. This concept, present when we opened our first
Fastenal store in 1967, will remain unchanged.
[DRAWING OF THE ORIGINAL FASTENAL STORE FRONT IN 1967 TINTED AT 5% BLUE.]
[CROPPED VIEW OF THE CURRENT CORPORATE HEADQUARTERS IN
WINONA, MINNESOTA (1996)]
Corporate Headquarters:
2001 Theurer Boulevard . Winona, Minnesota 55987-1500
Phone: 507-454-5374 . Fax: 507-453-8049
For more information, e-mail us at: [email protected]
<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 Subsidiary as of, and for the year ended, December 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 426,000
<SECURITIES> 0<F1>
<RECEIVABLES> 42,093,000
<ALLOWANCES> 540,000
<INVENTORY> 56,526,000
<CURRENT-ASSETS> 103,455,000
<PP&E> 64,611,000
<DEPRECIATION> 20,681,000
<TOTAL-ASSETS> 151,545,000
<CURRENT-LIABILITIES> 25,038,000
<BONDS> 0
<COMMON> 379,000
0
0
<OTHER-SE> 125,588,000
<TOTAL-LIABILITY-AND-EQUITY> 151,545,000
<SALES> 287,691,000
<TOTAL-REVENUES> 287,691,000
<CGS> 134,811,000
<TOTAL-COSTS> 134,811,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 917,000
<INTEREST-EXPENSE> 82,000
<INCOME-PRETAX> 54,432,000
<INCOME-TAX> 21,893,000
<INCOME-CONTINUING> 32,539,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,539,000
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
<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 Subsidiary as of December 31, 1996.
</FN>
</TABLE>
