<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 June 30, 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
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0948415
------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Theurer Boulevard
Winona, Minnesota 55987
- ---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(507) 454-5374
----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Class Outstanding at July 15, 1998
---------------------------- ----------------------------
Common Stock, $.01 par value 37,938,688
<PAGE>
FASTENAL COMPANY
INDEX
Page No.
--------
Part I Financial Information:
Consolidated Balance Sheets as of June 30, 1998 and December
31, 1997 1
Consolidated Statements of Earnings for the six months and three
months ended June 30, 1998 and 1997 2
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Management's discussion and analysis of financial condition
and results of operations 5-8
Quantitative and qualitative disclosures about market risk 8
Part II Other Information
Item 4 Submission of matters to a vote of security holders 8-9
Item 6 Exhibits and reports on Form 8-K 9
<PAGE>
- 1 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 801,000 386,000
Trade accounts receivable, net of allowance for doubtful
accounts of $710,000 and $660,000, respectively 71,852,000 57,542,000
Inventories 88,097,000 79,415,000
Deferred income tax asset 1,591,000 1,591,000
Other current assets 6,574,000 5,237,000
- -----------------------------------------------------------------------------------------------------
Total current assets 168,915,000 144,171,000
Marketable securities 265,000 265,000
Property and equipment, less accumulated depreciation 65,962,000 57,084,000
Other assets, less accumulated amortization 3,570,000 3,617,000
- -----------------------------------------------------------------------------------------------------
Total assets $ 238,712,000 205,137,000
=====================================================================================================
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 14,963,000 12,950,000
Notes payable 19,644,000 16,303,000
Accrued expenses 9,025,000 7,314,000
Income taxes payable 2,061,000 1,049,000
- -----------------------------------------------------------------------------------------------------
Total current liabilities 45,693,000 37,616,000
- -----------------------------------------------------------------------------------------------------
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 187,064,000 161,421,000
Translation loss (497,000) (352,000)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 191,370,000 165,872,000
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 238,712,000 205,137,000
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
- 2 -
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
---------------------------- -------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales $ 243,134,000 185,327,000 126,427,000 98,232,000
Cost of sales 114,601,000 88,326,000 59,489,000 47,067,000
- ------------------------------------------------------------------------------------- -------------------------
Gross profit 128,533,000 97,001,000 66,938,000 51,165,000
Operating and administrative
expenses 85,022,000 64,954,000 43,801,000 33,775,000
- ------------------------------------------------------------------------------------- -------------------------
Operating income 43,511,000 32,047,000 23,137,000 17,390,000
Other income (expense):
Interest income 4,000 30,000 1,000 15,000
Interest expense (597,000) (500,000) (298,000) (271,000)
Gain (loss) on disposal of property
and equipment 32,000 635,000 (40,000) 403,000
- ------------------------------------------------------------------------------------- -------------------------
Total other income (expense) (561,000) 165,000 (337,000) 147,000
- ------------------------------------------------------------------------------------- -------------------------
Earnings before
income taxes 42,950,000 32,212,000 22,800,000 17,537,000
Income tax expense 16,548,000 12,968,000 8,784,000 7,058,000
- ------------------------------------------------------------------------------------- -------------------------
Net earnings $ 26,402,000 19,244,000 14,016,000 10,479,000
===================================================================================== =========================
Basic and diluted earnings per share $ .70 .51 .37 .28
===================================================================================== =========================
Weighted average shares
outstanding 37,938,688 37,938,688 37,938,688 37,938,688
===================================================================================== =========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
- 3 -
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------------
1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 26,402,000 19,244,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property and equipment 4,867,000 4,219,000
Gain on disposal of property and equipment (32,000) (635,000)
Amortization of goodwill and non-compete 110,000 110,000
Changes in operating assets and liabilities:
Trade accounts receivable (14,310,000) (15,851,000)
Inventories (8,682,000) (3,570,000)
Other current assets (1,337,000) (1,761,000)
Accounts payable 2,013,000 3,291,000
Accrued expenses 1,711,000 1,899,000
Income taxes payable 1,012,000 1,728,000
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 11,754,000 8,674,000
- ------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions of property and equipment, net (18,558,000) (14,702,000)
Proceeds from sale of property and equipment 4,845,000 3,009,000
Translation adjustment (145,000) (23,000)
Increase in other assets (63,000) (104,000)
- ------------------------------------------------------------------------------------
Net cash used in investing activities (13,921,000) (11,820,000)
- ------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in notes payable 3,341,000 3,763,000
Payment of dividends (759,000) (759,000)
- ------------------------------------------------------------------------------------
Net cash provided by
financing activities 2,582,000 3,004,000
- ------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 415,000 (142,000)
Cash and cash equivalents at beginning of period 386,000 426,000
- ------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 801,000 284,000
====================================================================================
Supplemental disclosure of cash flow information:
Cash paid during each period for:
Income taxes $ 15,536,000 11,240,000
====================================================================================
Interest $ 543,000 500,000
====================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
- 4 -
FASTENAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of
Fastenal Company and subsidiaries (collectively referred to as 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 of
normal recurring accruals) considered necessary for a fair presentation have
been included.
<PAGE>
- 5 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying consolidated
financial statements.
First six months of 1998 vs. 1997
- ---------------------------------
Net sales for the six months ended June 30, 1998 increased 31.2% to
$243,134,000 versus the $185,327,000 recorded during the comparable 1997 period.
The increase came primarily from higher unit sales as unit prices experienced
some deflation in certain products. 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 17.1%. The remainder of the 31.2% sales growth came
from store sites opened in 1997 and during the first six months of 1998. One
hundred fifty-one new store sites were added from July 1997 through June 1998.
During the first six months of 1998, 83 new sites were opened; 72
opened as Fastenal(R)stores and 11 opened as satellite stores. The total sites
at the end of the second quarter were 727, which consisted of 670 Fastenal(R)
stores and 57 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 six months
ended June 30, 1998 and 1997:
NAME INTRODUCED 1998 1997
---------------- ------------ -------- -----------
FastTool(R) 1993 11.6% 12.6%(1)
---------------- ------------ -------- -----------
SharpCut(R) 1996 4.9% 3.9%
---------------- ------------ -------- -----------
PowerFlow(R) 1996 3.4% 2.2%
---------------- ------------ -------- -----------
EquipRite(R) 1996 5.0% 2.1%(1)
---------------- ------------ -------- -----------
CleanChoice(R) 1996 1.4% 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 are not readily available.
<PAGE>
- 6 -
ITEM 2. (CONTINUED)
Net earnings for the first six months grew from $19,244,000 in 1997 to
$26,402,000 in 1998, an increase of 37.2%. Net earnings increased at a higher
rate than net sales primarily because of an increase in the overall gross margin
from 52.3% in the first six months of 1997 to 52.9% in the first six months of
1998 and because operating and administrative expenses increased at a 30.9% 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 29.6% over the comparable period. The Company increased its
site personnel from 2,676 on December 31, 1997 to 2,980 on June 30, 1998, an
increase of 11.4%.
The Asian economic turmoil impacted the Company in several ways during
the first six months of 1998. The Company experienced lower prices on low-carbon
and stainless steel fasteners imported from the Far East when compared to the
same period a year ago. To the extent the Company was able to retain the cost
advantage, gross margins improved. However, some of these lower costs also
affected net sales because some of the lower costs were passed on to customers
in the competitive marketplace. The Company also experienced lower net sales of
products to customers who export to the Far East.
The Company has adjusted its estimated 1998 store openings from 180 to
170, the 170 represents a 30.1% increase over the average number of stores in
1997. The Company will continue to modify the planned openings throughout the
year based on current results.
Second Quarter of 1998 vs. 1997
- -------------------------------
Net sales for the three months ended June 30, 1998 increased 28.7% to
$126,427,000 versus the $98,232,000 recorded during the comparable 1997 period.
The increase came primarily from higher unit sales as unit prices experienced
some deflation in certain products. 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 14.5%. The remainder of the 28.7% sales growth came
from store sites opened in 1997 and during the first six months of 1998.
During the three months ended June 30, 1998, 37 new sites were opened;
34 opened as Fastenal(R) stores and 3 opened as satellite stores.
<PAGE>
- 7 -
ITEM 2. (CONTINUED)
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 June 30, 1998 and 1997:
NAME INTRODUCED 1998 1997
------------------- ------------ -------- -----------
FastTool(R) 1993 12.2% 12.8%(1)
------------------- ------------ -------- -----------
SharpCut(R) 1996 4.9% 4.1%
------------------- ------------ -------- -----------
PowerFlow(R) 1996 3.4% 2.3%
------------------- ------------ -------- -----------
EquipRite(R) 1996 5.1% 2.2%(1)
------------------- ------------ -------- -----------
CleanChoice(R) 1996 1.4% 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 are not readily available.
Net earnings for the three months ended June 30 grew from $10,479,000
in 1997 to $14,016,000 in 1998, an increase of 33.8%. Net earnings increased at
a higher rate than net sales primarily because of an increase in the overall
gross margin from 52.1% in 1997 to 52.9% in 1998. Operating and administrative
expenses increased at a 29.7% rate between the comparable periods, a rate higher
than the rate of increase in net sales. Payroll costs, the largest component of
operating and administrative expenses, increased 28.4% over the comparable
period. The Company increased its site personnel from 2,742 on March 31, 1998 to
2,980 on June 30, 1998, an increase of 8.7%.
As discussed earlier, the financial results reflect impacts from the
turmoil in the Asian economies.
Liquidity and Capital Resources
- -------------------------------
The higher level of sales during the six 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 and short-term borrowings.
As of June 30, 1998, the Company had no material outstanding
commitments for capital expenditures.
<PAGE>
- 8 -
ITEM 2. (CONTINUED)
Certain Risks and Uncertainties
- -------------------------------
This discussion contains statements that are not historical in nature
and that are intended to be, and hereby are identified as, "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995,
including statements regarding planned store openings. 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 the Company to modify its
plans for store openings, (ii) a change, from that projected, in the number of
smaller communities able to support future store sites could impact the rate of
new store openings, and (iii) the ability of the Company to successfully attract
and retain qualified personnel to staff the Company's smaller community stores
could impact the rate of new store openings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on April 21, 1998,
two matters were put to a vote of the shareholders. Proxies were solicited from
shareholders unable to attend the meeting. Proxy votes are included in the
results that follow.
Matter 1. To elect a Board of five directors, to serve until the next regular
meeting of shareholders or until their successors have been duly
elected and qualified.
The previous directors, Robert A. Kierlin, Stephen M. Slaggie, Michael
M. Gostomski, John D. Remick, and Henry K. McConnon were nominated. There were
no other nominations. The five nominees each received and had withheld the
number of votes set forth opposite their names below:
Total Number of Total Number of
Name of Director Votes Cast For Votes Withheld
---------------- -------------- --------------
Robert A. Kierlin 33,727,972 92,523
Stephen M. Slaggie 33,728,262 92,233
Michael M. Gostomski 33,727,028 92,467
John D. Remick 33,726,317 94,542
Henry K. McConnon 33,724,728 95,767
There were no abstentions or broker non-votes.
<PAGE>
- 9 -
ITEM 4. (CONTINUED)
Matter 2. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending December 31, 1998.
Voting to ratify the appointment were 33,308,686 shares. Voting against the
ratification were 14,954 shares. There were no broker non-votes. Abstentions
totaled 322,536 shares.
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 June 30, 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 July 20, 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 SIX MONTHS ENDED, JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 801,000
<SECURITIES> 0<F1>
<RECEIVABLES> 72,562,000
<ALLOWANCES> 710,000
<INVENTORY> 88,097,000
<CURRENT-ASSETS> 168,915,000
<PP&E> 97,776,000
<DEPRECIATION> 31,814,000
<TOTAL-ASSETS> 238,712,000
<CURRENT-LIABILITIES> 45,693,000
<BONDS> 0
0
0
<COMMON> 379,000
<OTHER-SE> 190,991,000
<TOTAL-LIABILITY-AND-EQUITY> 238,712,000
<SALES> 243,134,000
<TOTAL-REVENUES> 243,134,000
<CGS> 114,601,000
<TOTAL-COSTS> 114,601,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,674,000
<INTEREST-EXPENSE> 597,000
<INCOME-PRETAX> 42,950,000
<INCOME-TAX> 16,548,000
<INCOME-CONTINUING> 26,402,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,402,000
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
<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 June 30, 1998.
</FN>
</TABLE>
