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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000, 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Theurer Boulevard
Winona, Minnesota 55987-1500
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(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 ___
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at October 15, 2000
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Common Stock, $.01 par value 37,938,688
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FASTENAL COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I Financial Information:
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 1
Consolidated Statements of Earnings for the nine months and the
three months ended September 30, 2000 and 1999 2
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 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 9
Part II Other Information:
Exhibits and reports on Form 8-K 9
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except share information)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 2000 1999
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,918 27,849
Trade accounts receivable, net of allowance for doubtful
accounts of $2,238 and $1,400, respectively 111,612 84,563
Inventories 134,380 106,597
Deferred income tax asset 2,886 2,886
Other current assets 10,593 5,510
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Total current assets 283,389 227,405
Marketable securities 0 215
Property and equipment, less accumulated depreciation 101,815 87,630
Other assets, less accumulated amortization 3,266 3,371
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Total assets $ 388,470 318,621
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Liabilities and Stockholders' Equity
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Current liabilities:
Accounts payable $ 25,305 19,325
Accrued expenses 13,746 11,785
Income taxes payable 3,244 2,551
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Total current liabilities 42,295 33,661
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Deferred income tax liability 5,000 3,000
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Stockholders' equity:
Preferred stock 0 0
Common stock, 50,000,000 shares authorized
37,938,688 shares issued and outstanding 379 379
Additional paid-in capital 4,424 4,424
Retained earnings 336,341 277,553
Accumulated other comprehensive gain (loss) 31 (396)
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Total stockholders' equity 341,175 281,960
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Total liabilities and stockholders' equity $ 388,470 318,621
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Amounts in thousands except earnings per share.)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net sales $ 557,779 453,884 192,922 159,359
Cost of sales 267,470 215,814 92,462 76,112
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Gross profit 290,309 238,070 100,460 83,247
Operating and administrative
expenses 190,984 157,970 66,883 55,739
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Operating income 99,325 80,100 33,577 27,508
Other income (expense):
Interest income 1,464 309 335 199
Interest expense 0 (57) 0 0
(Loss) gain on disposal of
property and equipment (151) 294 (32) 101
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Total other income 1,313 546 303 300
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Earnings before
income taxes 100,638 80,646 33,880 27,808
Income tax expense 38,815 31,079 13,078 10,717
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Net earnings $ 61,823 49,567 20,802 17,091
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Basic and diluted earnings per share $ 1.63 1.31 0.55 0.45
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Weighted average shares
outstanding 37,939 37,939 37,939 37,939
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 61,823 49,567
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property and equipment 8,495 9,112
Loss (gain) on disposal of property and equipment 151 (294)
Deferred income taxes 2,000 0
Amortization of goodwill and non-compete 165 165
Changes in operating assets and liabilities:
Trade accounts receivable (27,049) (22,253)
Inventories (27,783) (5,610)
Other current assets (5,083) 819
Accounts payable 5,980 2,541
Accrued expenses 1,961 3,696
Income taxes payable 693 3,065
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Net cash provided by operating activities 21,353 40,808
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Cash flows from investing activities:
Additions of property and equipment, net (28,796) (23,219)
Proceeds from sale of property and equipment 5,965 9,880
Translation adjustment 427 290
Decrease in marketable securities 215 50
Increase in other assets (60) (61)
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Net cash used in investing activities (22,249) (13,060)
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Cash flows from financing activities:
Net decrease in notes payable 0 (4,055)
Payment of dividends (3,035) (1,517)
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Net cash used in financing activities (3,035) (5,572)
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Net (decrease) increase in cash and cash equivalents (3,931) 22,176
Cash and cash equivalents at beginning of period 27,849 2,086
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Cash and cash equivalents at end of period $ 23,918 24,262
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Supplemental disclosure of cash flow information:
Cash paid during each period for:
Income taxes $ 59,130 27,381
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Interest $ 0 87
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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FASTENAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(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,
1999. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
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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. (Dollar amounts are in thousands.)
Nine months ended September 30, 2000 vs. 1999
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Net sales for the nine months ended September 30, 2000 were $557,779, an
increase of 22.9% over net sales of $453,884 for the comparable period in 1999.
The increase came primarily from higher unit sales. Higher unit sales resulted
primarily from increases in sales at existing store sites. The increases in
sales at existing store sites are due primarily to increases in market share
and, to a lesser extent, the introduction of new product lines at the existing
sites. Sites opened in 1998 or earlier had average sales increases of 18.7%. The
remainder of the 22.9% sales growth came from store sites opened in 1999 and
during the first nine months of 2000.
The sales growth in the first nine months of 2000 allowed additional leverage on
the infrastructure of the organization. This leverage was tempered somewhat by
the impact of rising fuel costs. The impact was approximately $1,800 pretax (or
$.03 per share after tax) of additional vehicle and freight costs. As we move
into the final quarter of 2000, we will continue our planned investment in
additional people and selling locations. Consistent with our discussion in prior
quarters, the number of store openings is modified throughout the year based on
current results and the strength of the industrial marketplace.
As we discussed the last two quarters, in March we moved into our new
distribution center in Indianapolis, Indiana. While the 400,000 square foot
facility is larger than our current distribution needs, the property was
purchased at a very competitive price and the extra space will allow us to
explore the possibility of providing logistics services to other firms. Our
Manufacturing Division began utilizing its expanded Winona plant during the
first quarter of 2000. The expanded plant now consists of over 100,000 square
feet and will allow the growing business to continue to provide high quality
service to our customers.
During the nine months ended September 30, 2000, 54 new sites were opened; one
site opened as a satellite store and the 53 remaining sites opened as
Fastenal(R) stores. During the first quarter of 2000 the Company converted two
customer sites, which had originally been reported as a store, to in-plant
status. The Company began, in 1999, to designate selling locations not selling
to the general public as in-plant stores. The customer sites mentioned above
were converted to have a consistent classification of all selling locations
within the Company.
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ITEM 2. (continued)
The mix of sales during the first nine months of 2000 and 1999, from the
original Fastenal(R) product line (which consists primarily of threaded
fasteners) and from the newer product lines, was as follows:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Fastenal product line 64.9% 68.5%
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Newer product lines 35.1% 31.5%
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</TABLE>
The newer product lines consist of and were introduced as follows:
Product line Introduced
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Tools 1993
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Cutting tools 1996
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Hydraulics & pneumatics 1996
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Material handling 1996
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Janitorial supplies 1996
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Electrical supplies 1997
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Welding supplies 1997
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Safety supplies 1999
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Net earnings for the nine months ended September 30, 2000 were $61,823, an
increase of 24.7% over net earnings of $49,567 for the comparable period in
1999. Operating income grew 24.0% from 1999 to 2000, a rate of growth higher
than the net sales rate of growth. The higher rate of growth in operating income
occurred primarily because operating and administrative expenses increased at a
20.9% rate, a rate less than the net sales growth rate. The benefit of this
leverage was partially offset by the decrease in the Company's gross profit
percent, which was 52.0% in the first nine months of 2000 as compared to 52.5%
in the first nine months of 1999. This decrease in the gross margin percent is
primarily attributed to (1) the impact of higher fuel costs on our in-bound
freight, (2) the success the Company has experienced in growing its larger
account business over the last several years, which carries slightly lower gross
margins, and (3) the impact of the change in the mix of products sold. Net
earnings increased at a 24.7% rate, a rate greater than the operating income
growth rate, primarily because the elimination of outstanding debt early in 1999
and the subsequent build-up of cash has caused the Company to have a growing
amount of net interest income. The Company site personnel totaled 4,284 on
September 30, 2000, an increase of 16.7% over the 3,670 on December 31, 1999.
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ITEM 2. (continued)
Three months ended September 30, 2000 vs. 1999
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Net sales for the three months ended September 30, 2000 were $192,922, an
increase of 21.1% over net sales of $159,359 for the comparable period in 1999.
The increase came primarily from higher unit sales. Higher unit sales resulted
primarily from increases in sales at existing store sites. The increases in
sales at existing store sites are due primarily to increases in market share
and, to a lesser extent, the introduction of new product lines at the existing
sites. Sites opened in 1998 or earlier had average sales increases of 15.7%. The
remainder of the 21.1% sales growth came from store sites opened in 1999 and
during the first nine months of 2000.
After a slow start at the beginning of July, the third quarter of 2000 finished
with a solid August and September. Daily average sales growth rates, in 2000
versus 1999, were: July..21.1%, August..23.3% and September..24.5%. The slower
start in July was primarily due to the July 4th holiday falling on a Tuesday.
The one business day on Monday, July 3rd had sales about half of a normal day.
The 24.5% daily growth rate in September represented the second highest daily
rate gain since August 1998.
The sales growth allowed additional leverage on the infrastructure of the
organization during the quarter. Consistent with the first half of 2000, the
leverage was tempered somewhat by the impact of rising fuel costs. The impact
was approximately $600 pretax (or $.01 per share after tax) of additional
vehicle and freight costs.
During the three months ended September 30, 2000, 20 new sites were opened; all
sites opened as Fastenal(R) stores.
The mix of sales during the third quarter of 2000 and 1999, from the original
Fastenal(R) product line (which consists primarily of threaded fasteners) and
from the newer product lines, was as follows:
2000 1999
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Fastenal product line 63.1% 68.0%
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Newer product lines 36.9% 32.0%
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Net earnings for the three months ended September 30, 2000 were $20,802, an
increase of 21.7% over net earnings of $17,091 for the comparable period in
1999. Operating income grew 22.1% from 1999 to 2000, a rate of growth higher
than the net sales rate of growth. The higher rate of growth in operating income
occurred primarily because operating and administrative expenses increased at a
20.0% rate, a rate less than the net sales growth rate. The benefit of this
leverage was partially offset by the decrease in the Company's gross profit
percent, which was 52.1% in the third quarter of 2000 as compared to 52.2% in
the third quarter of 1999. Net earnings increased at a 21.7% rate, a rate less
than the operating income growth rate, primarily because other income remained
unchanged from the comparable period in 1999.
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ITEM 2. (continued)
Liquidity and Capital Resources
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The higher level of sales during the nine-month period resulted in the growth of
trade accounts receivable and inventories. Property and equipment increased
because of: (1) the retrofitting of the Company's new distribution center in
Indianapolis, which was originally purchased in October 1999, (2) the completion
of the 50,000 square foot addition to the Company's manufacturing facility in
Winona, Minnesota, (3) the purchase or construction of certain store locations,
(4) the purchase of land for future distribution sites, (5) the purchase of
software and hardware for the Company's information processing systems, (6) the
addition of certain pickup trucks and (7) the addition of manufacturing and
warehouse equipment. Cash requirements for these asset changes were satisfied
from net earnings, cash on hand and the proceeds of asset disposals. Disposals
of property and equipment related to the planned disposition of certain pickup
trucks and semi-tractors and trailers in the normal course of business. As of
September 30, 2000, the Company had no material outstanding commitments for
capital expenditures.
Certain Risks and Uncertainties
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This discussion contains statements that are not historical in nature and that
are intended to be, and are hereby identified as, "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995, including statements
regarding planned store openings and additions of new employees. 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) an
upturn or downturn in the economy could impact sales at existing stores and the
rates of new store openings and additions of new employees, (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 additions of new
employees, (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, (ix) unforeseen disruptions associated with
"Year 2000 Computer Problems" could impact sales and the Company's ability to
order and pay for product and (x) changes in the rate of new store openings
could impact expenditures for computers and other capital equipment.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks from changes in interest rates
and foreign currency exchange rates. Changes in these factors cause fluctuations
in the Company's earnings and cash flows. The Company evaluates and manages
exposure to these market risks as follows:
Interest Rates - The Company has a $15 million line of credit of which $0 was
outstanding at September 30, 2000. The line bears interest at 0.9% over the
LIBOR rate.
Foreign Currency Exchange Rates - Foreign currency fluctuations can affect the
Company's net investments and earnings denominated in foreign currencies. The
Company's primary exchange rate exposure is with the Canadian dollar against the
U.S. dollar. The Company's estimated net earnings exposure for foreign currency
exchange rates was not material at September 30, 2000.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Restated Articles of Incorporation of Fastenal Company, as
amended (incorporated by reference to Exhibit 3.1 to Fastenal
Company's Form 10-Q for the quarter ended September 30, 1993)
3.2 Restated By-Laws of Fastenal Company (incorporated by reference
to Exhibit 3.2 to Registration Statement No. 33-14923)
27 Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed by Fastenal Company during the quarter
ended September 30, 2000.
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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
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(Robert A. Kierlin, President)
(Duly Authorized Officer)
Date October 20, 2000 /s/ Daniel L. Florness
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(Daniel L. Florness, Treasurer)
(Principal Financial Officer)
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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
