<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998, 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
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(Exact name of registrant as specified in its charter)
Minnesota 41-0948415
- ------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Theurer Boulevard
Winona, Minnesota 55987
- ---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(507) 454-5374
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Class Outstanding at April 15, 1998
- ----------------------------- --------------------------------
Common Stock, $.01 par value 37,938,688
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FASTENAL COMPANY
INDEX
Page No.
--------
Part I Financial Information:
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 1
Consolidated Statements of Earnings for the three months
ended March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Management's discussion and analysis of financial condition
and results of operations 5-7
Quantitative and qualitative disclosures about market risk 7
Part II Other Information
Item 6 Exhibits and reports on Form 8-K 7
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- 1 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 418,000 386,000
Trade accounts receivable, net of
allowance for doubtful accounts
of $710,000 and $660,000, respectively 67,171,000 57,542,000
Inventories 82,129,000 79,415,000
Deferred income tax asset 1,591,000 1,591,000
Other current assets 6,293,000 5,237,000
- -----------------------------------------------------------------------------------------
Total current assets 157,602,000 144,171,000
Marketable securities 265,000 265,000
Property and equipment, less accumulated depreciation 59,205,000 57,084,000
Other assets, less accumulated amortization 3,606,000 3,617,000
- -----------------------------------------------------------------------------------------
Total assets $ 220,678,000 205,137,000
=========================================================================================
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 13,326,000 12,950,000
Notes payable 11,362,000 16,303,000
Accrued expenses 9,219,000 7,314,000
Income taxes payable 7,612,000 1,049,000
- -----------------------------------------------------------------------------------------
Total current liabilities 41,519,000 37,616,000
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Deferred income tax liability 1,649,000 1,649,000
- -----------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock of $.01 par value per share.
Authorized 5,000,000 shares; none issued 0 0
Common stock of $.01 par value per share.
Authorized 50,000,000 shares; issued and
outstanding 37,938,688 shares 379,000 379,000
Additional paid-in capital 4,424,000 4,424,000
Retained earnings 173,048,000 161,421,000
Translation loss (341,000) (352,000)
- -----------------------------------------------------------------------------------------
Total stockholders' equity 177,510,000 165,872,000
- -----------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 220,678,000 205,137,000
=========================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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-2-
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
Three months ended
March 31,
----------------------------------
1998 1997
- --------------------------------------------------------------------------------
Net sales $116,707,000 87,095,000
Cost of sales 55,112,000 41,259,000
- --------------------------------------------------------------------------------
Gross profit 61,595,000 45,836,000
Operating and administrative
expenses 41,221,000 31,179,000
- --------------------------------------------------------------------------------
Operating income 20,374,000 14,657,000
Other income (expense):
Interest income 3,000 15,000
Interest expense (299,000) (229,000)
Gain on disposal of property
and equipment 72,000 232,000
- --------------------------------------------------------------------------------
Total other income (expense) (224,000) 18,000
- --------------------------------------------------------------------------------
Earnings before
income taxes 20,150,000 14,675,000
Income tax expense 7,764,000 5,910,000
- --------------------------------------------------------------------------------
Net earnings $ 12,386,000 8,765,000
- --------------------------------------------------------------------------------
Basic and diluted earnings per share $ .33 .23
- --------------------------------------------------------------------------------
Weighted average shares
outstanding 37,938,688 37,938,688
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
-3-
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,386,000 8,765,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property and equipment 2,305,000 2,075,000
Gain on disposal of property and equipment (72,000) (232,000)
Amortization of goodwill and non-compete 55,000 55,000
Changes in operating assets and liabilities:
Trade accounts receivable (9,629,000) (10,678,000)
Inventories (2,714,000) (3,480,000)
Other current assets (1,056,000) (515,000)
Accounts payable 376,000 2,982,000
Accrued expenses 1,905,000 1,216,000
Income taxes payable 6,563,000 4,970,000
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,119,000 5,158,000
- ---------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions of property and equipment, net (6,481,000) (9,815,000)
Proceeds from sale of property and equipment 2,127,000 971,000
Translation adjustment 11,000 (28,000)
Increase in other assets (44,000) (67,000)
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,387,000) (8,939,000)
- ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in notes payable (4,941,000) 4,364,000
Payment of dividends (759,000) (759,000)
- ---------------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (5,700,000) 3,605,000
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 32,000 (176,000)
Cash and cash equivalents at beginning of period 386,000 426,000
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 418,000 250,000
- ---------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during each period for:
Income taxes $ 1,201,000 940,000
- ---------------------------------------------------------------------------------------------------
Interest $ 290,000 229,000
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</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
-4-
FASTENAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 and 1997
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Fastenal
Company and subsidiaries (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information. They
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, there has been
no material change in the information disclosed in the notes to consolidated
financial statements included in the Company's consolidated financial statements
as of and for the year ended December 31, 1997. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. The Company's net earnings
approximate comprehensive income.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying consolidated
financial statements.
First Three Months of 1998 vs. 1997
- -----------------------------------
Net sales for the three months ended March 31, 1998 increased 34.0% to
$116,707,000 versus the $87,095,000 recorded during the comparable 1997 period.
The increase came primarily from higher unit sales, rather than from price
increases. Higher unit sales came from increases in sales at existing store
sites and from the addition of new store sites. The increases in sales at
existing store sites are due primarily to strength in the manufacturing segment
of the economy and, to a lesser extent, the introduction of new product lines at
the existing sites. Sites opened in 1996 or earlier had average sales increases
of 20.0%. The remainder of the 34.0% sales growth came from store sites opened
in 1997 and during the first three months of 1998. One hundred sixty-two new
store sites were added from April 1997 through March 1998.
During the first three months of 1998, 46 new sites were opened; 38 opened
as Fastenal(R) stores and 8 opened as satellite stores. The total sites at the
end of the first quarter were 690, which consisted of 636 Fastenal(R) stores and
54 satellite stores.
The following table indicates product lines added to the original
Fastenal(R) product line, the year of introduction, and the approximate
percentage of total net sales related to each product line during the three
months ended March 31, 1998 and 1997:
NAME INTRODUCED 1998 1997
- -------------- ---------- ------ ------
FastTool(R) 1993 10.9% 12.4%(1)
SharpCut(R) 1996 4.8% 3.7%
PowerFlow(TM) 1996 3.3% 2.1%
EquipRite(R) 1996 4.9% 1.9%(1)
CleanChoice(R) 1996 1.3% 1.0%
PowerPhase(TM) 1997 * --
FastArc(TM) 1997 * --
- ---------------
* Less than 1% of net sales
(1) Some FastTool(R) products were shifted to the EquipRite(R) line in the
second quarter of 1997. Restated comparable numbers were not readily
available.
<PAGE>
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ITEM 2. (continued)
Net earnings for the first three months grew from $8,765,000 in 1997 to
$12,386,000 in 1998, an increase of 41.3%. Net earnings increased at a higher
rate than net sales primarily because of an increase in the overall gross margin
from 52.6% in the first three months of 1997 to 52.8% in the first three months
of 1998 and because operating and administrative expenses increased at a 32.2%
rate between the comparable periods, a rate lower than the rate of increase in
net sales. Payroll costs, the largest component of operating and administrative
expenses, increased 30.4% over the comparable period. The Company increased its
site personnel from 2,676 on December 31, 1997 to 2,742 on March 31, 1998, an
increase of 2.5%. Lower fuel costs and mild temperatures also reduced operating
and administrative expenses. With the exception of the impact of a planned
increase in the hiring rate for branch store personnel in the second quarter of
1998 and higher commissions paid on the net sales growth, the Company expects to
hold the operating and administrative expenses in the second quarter close to
the levels of the first three months of 1998.
The financial results for the first three months of 1998 reflect impacts
from the weather in North America and from the turmoil in the Asian economies.
Adverse weather diminished net sales on the East and West coasts in the
months of January and February. A major winter storm in the second week of March
impacted net sales in the midsection of the continent.
The Asian economic turmoil created three effects, one favorable and two
adverse. The favorable effect came from 20% lower prices compared to the same
period a year ago on low-carbon and stainless steel fasteners imported from the
Far East. To the extent the Company was able to retain the cost advantage, gross
margins improved. However, some of these lower costs also affected our net sales
because some of the lower costs were passed on to customers in the competitive
marketplace. The second negative effect was the lower net sales of our products
to customers who export to the Far East.
The Company has lowered the planned store openings for 1998 from 200 units
to 180. The Company will continue to modify the planned openings throughout the
year based on current results.
Liquidity and Capital Resources
- -------------------------------
The higher level of sales during the three month period resulted in the
growth of trade accounts receivable and inventory. Property and equipment
increased because of an addition to the Winona, Minnesota warehouse and the
purchase of pickup trucks and, to a lesser extent, additions for manufacturing,
warehouse and data processing equipment. Disposals of property and equipment
related to the planned disposition of certain pickup trucks and semi-tractors
and trailers in the normal course. Cash requirements for these asset changes
were satisfied from net earnings.
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Liquidity and Capital Resources (continued)
- -------------------------------------------
As of March 31, 1998, the Company had a remaining commitment of
approximately $1.2 million related to the expansion of the Winona, Minnesota
warehouse. No other material outstanding commitments for capital expenditures
exist. Management anticipates funding the Company's commitments for capital
expenditures with cash generated from operations, from its borrowing capacity
and, to a lesser degree, from available cash, cash equivalents, and marketable
securities.
Certain Risks and Uncertainties
- -------------------------------
This discussion 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 planned hiring and store
openings, and anticipated future operating and administrative expenses. 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 causing
expenses to grow as a percentage of net sales, (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 successfully attract and retain qualified personnel to staff the
Company's smaller community stores could impact the hiring and the rate of new
store openings, (iv) changes in government regulations related to product
quality or product source traceability could impact the cost to the Company of
regulatory compliance, and (v) inclement weather could impact the Company's
distribution network.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Restated Articles of Incorporation of Fastenal Company, as amended
(incorporated by reference to Exhibit 3.1 to Fastenal Company's Form
10-Q for the quarter ended September 30, 1993)
3.2 Restated By-Laws of Fastenal Company (incorporated by reference to
Exhibit 3.2 to Registration Statement No. 33-14923)
27 Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed by Fastenal Company during the quarter
ended March 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FASTENAL COMPANY
/S/ ROBERT A. KIERLIN
-----------------------------
(Robert A. Kierlin, President)
(Duly Authorized Officer)
Date APRIL 17, 1998 /S/ DANIEL L. FLORNESS
------------------ -----------------------------
(Daniel L. Florness, Treasurer)
(Principal Financial Officer)
<PAGE>
INDEX TO EXHIBITS
3.1 Restated Articles of Incorporation of Fastenal Company, as amended
(incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q
for the quarter ended September 30, 1993).
3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit
3.2 to Registration Statement No. 33-14923).
27 Financial Data Schedule................................Electronically Filed
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Statement of Earnings of Fastenal
Company and Subsidiaries as of, and for the three months ended, March 31, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 418,000
<SECURITIES> 0<F1>
<RECEIVABLES> 67,881,000
<ALLOWANCES> 710,000
<INVENTORY> 82,129,000
<CURRENT-ASSETS> 157,602,000
<PP&E> 89,070,000
<DEPRECIATION> 29,865,000
<TOTAL-ASSETS> 220,678,000
<CURRENT-LIABILITIES> 41,519,000
<BONDS> 0
0
0
<COMMON> 379,000
<OTHER-SE> 177,131,000
<TOTAL-LIABILITY-AND-EQUITY> 220,678,000
<SALES> 116,707,000
<TOTAL-REVENUES> 116,707,000
<CGS> 55,112,000
<TOTAL-COSTS> 55,112,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 491,000
<INTEREST-EXPENSE> 299,000
<INCOME-PRETAX> 20,150,000
<INCOME-TAX> 7,764,000
<INCOME-CONTINUING> 12,386,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,386,000
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<FN>
<F1>Marketable securities in the amount of 265,000 have been classified as
non-current assets on the Consolidated Balance Sheet of Fastenal Company and
Subsidiaries as of March 31, 1998.
</FN>
</TABLE>
