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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 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
--- ---
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, 2000
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Common Stock, $.01 par value 37,938,688
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FASTENAL COMPANY
INDEX
Page No.
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Part I Financial Information:
Consolidated Balance Sheets as of June 30, 2000 and December
31, 1999
1
Consolidated Statements of Earnings for the six months and the
three months ended June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows for the six months ended
June 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:
Submission of matters to a vote of security holders 9-10
Exhibits and reports on Form 8-K 10
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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>
June 30, December 31,
Assets 2000 1999
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,574 27,849
Trade accounts receivable, net of allowance for doubtful
accounts of $1,988 and $1,400, respectively 105,609 84,563
Inventories 126,128 106,597
Deferred income tax asset 2,886 2,886
Other current assets 8,380 5,510
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Total current assets 271,577 227,405
Marketable securities 143 215
Property and equipment, less accumulated depreciation 96,519 87,630
Other assets, less accumulated amortization 3,313 3,371
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Total assets $ 371,552 318,621
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Liabilities and Stockholders' Equity
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Current liabilities:
Accounts payable $ 29,866 19,325
Accrued expenses 14,288 11,785
Income taxes payable 2,678 2,551
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Total current liabilities 46,832 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 315,539 277,553
Accumulated other comprehensive loss (622) (396)
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Total stockholders' equity 319,720 281,960
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Total liabilities and stockholders' equity $ 371,552 318,621
===============================================================================================
</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>
Six months ended Three months ended
June 30, June 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net sales $ 364,857 294,525 188,589 153,891
Cost of sales 175,008 139,702 90,927 72,857
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Gross profit 189,849 154,823 97,662 81,034
Operating and administrative
expenses 124,101 102,231 63,949 53,563
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Operating income 65,748 52,592 33,713 27,471
Other income (expense):
Interest income 1,129 110 490 110
Interest expense 0 (57) 0 0
(Loss) gain on disposal of
property and equipment (119) 193 (41) 179
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Total other income 1,010 246 449 289
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Earnings before
income taxes 66,758 52,838 34,162 27,760
Income tax expense 25,737 20,361 13,187 10,698
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Net earnings $ 41,021 32,477 20,975 17,062
===========================================================================================
Basic and diluted earnings per share $ 1.08 .86 .55 .45
===========================================================================================
Weighted average shares
outstanding 37,939 37,939 37,939 37,939
===========================================================================================
</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>
Six months ended
June 30,
-------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 41,021 32,477
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property and equipment 5,523 6,258
Loss (gain) on disposal of property and equipment 119 (193)
Deferred income taxes 2,000 0
Amortization of goodwill and non-compete 110 110
Changes in operating assets and liabilities:
Trade accounts receivable (21,046) (17,758)
Inventories (19,531) (5,855)
Other current assets (2,870) 625
Accounts payable 10,541 4,510
Accrued expenses 2,503 2,860
Income taxes payable 127 3,421
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Net cash provided by operating activities 18,497 26,455
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Cash flows from investing activities:
Additions of property and equipment, net (19,731) (10,918)
Proceeds from sale of property and equipment 5,200 4,240
Translation adjustment (226) 254
Decrease in marketable securities 72 50
Increase in other assets (52) (46)
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Net cash used in investing activities (14,737) (6,420)
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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 increase in cash and cash equivalents 725 14,463
Cash and cash equivalents at beginning of period 27,849 2,086
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Cash and cash equivalents at end of period $ 28,574 16,549
===========================================================================================
Supplemental disclosure of cash flow information:
Cash paid during each period for:
Income taxes $ 23,610 16,307
===========================================================================================
Interest $ 0 87
===========================================================================================
</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
June 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.)
Six months ended June 30, 2000 vs. 1999
---------------------------------------
Net sales for the six months ended June 30, 2000 were $364,857, an increase of
23.9% over net sales of $294,525 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 20.3%. The remainder of
the 23.9% sales growth came from store sites opened in 1999 and during the first
six months of 2000.
The sales growth in the first six 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 $1,200 pretax (or
$.02 per share after tax) of additional vehicle and freight costs. As we move
into the second half of 2000, we will continue our planned investment in
additional people and selling locations. The Company's goal of adding
approximately 25% more sales personnel and approximately 100 stores for the year
remains unchanged. The Company will continue to modify these plans throughout
the year based on current results and the strength of the industrial
marketplace.
As we discussed last quarter, 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 six months ended June 30, 2000, 34 new sites were opened; one site
opened as a satellite store and the 33 remaining sites opened as Fastenal(R)
stores. During the first half 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 six 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:
2000 1999
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Fastenal product line 65.8% 68.8%
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Newer product lines 34.2% 31.2%
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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 six months ended June 30, 2000 were $41,021, an increase of
26.3% over net earnings of $32,477 for the comparable period in 1999. Operating
income grew 25.0% 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 21.4% 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 half of 2000 as compared to 52.6% in the first half 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 26.3% rate, a rate greater
than the operating income growth rate, primarily because the elimination of
outstanding debt early in 1999 and the build-up of cash which has been occurring
since then has caused the Company to have a growing amount of net interest
income. The Company site personnel totaled 4,239 on June 30, 2000, an increase
of 15.5% over the 3,670 on December 31, 1999.
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ITEM 2. (continued)
Three months ended June 30, 2000 vs. 1999
-----------------------------------------
Net sales for the three months ended June 30, 2000 were $188,589, an increase of
22.5% over net sales of $153,891 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 18.6%. The remainder of
the 22.5% sales growth came from store sites opened in 1999 and during the first
six months of 2000.
During the three months ended June 30, 2000, 22 new sites were opened; all sites
opened as Fastenal(R) stores.
The mix of sales during the second 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 64.6% 68.5%
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Newer product lines 35.4% 31.5%
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Net earnings for the three months ended June 30, 2000 were $20,975, an increase
of 22.9% over net earnings of $17,062 for the comparable period in 1999.
Operating income grew 22.7% 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 19.4%
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 51.8% in the second quarter of 2000 as compared to 52.7% in the second
quarter 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 22.9% rate, a rate greater than the operating income growth rate, primarily
because the elimination of outstanding debt early in 1999 and the build-up of
cash which has been occurring since then has caused the Company to have a
growing amount of net interest income.
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ITEM 2. (continued)
Liquidity and Capital Resources
-------------------------------
The higher level of sales during the six-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 of software and hardware for the Company's
information processing systems, (4) the addition of certain pickup trucks and
(5) the addition of manufacturing and warehouse equipment. Cash requirements for
these asset changes were satisfied from net earnings 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 June 30, 2000, the Company had no material
outstanding commitments for capital expenditures.
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"
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 $10 million line of credit of which $0 was
outstanding at June 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 June 30, 2000.
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 18, 2000, 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 seven directors, to serve until the next regular
meeting of shareholders or until their successors have been duly
elected and qualified.
The existing directors, Robert A. Kierlin, Stephen M. Slaggie, Michael M.
Gostomski, John D. Remick, Henry K. McConnon, Robert A. Hanson, and Willard D.
Oberton, were nominated. There were no other nominations. The seven 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 32,025,355 450,472
Stephen M. Slaggie 32,025,228 450,599
Michael M. Gostomski 32,025,228 450,599
John D. Remick 32,025,178 450,649
Henry K. McConnon 32,025,228 450,599
Robert A. Hanson 32,017,605 458,222
Willard D. Oberton 32,024,978 450,849
There were no abstentions or broker non-votes.
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ITEM 4. (continued)
Matter 2. To ratify the appointment of KPMG LLP as independent auditors for the
fiscal year ending December 31, 2000.
Voting to ratify the appointment were 33,364,520 shares. Voting against the
ratification were 27,550 shares. There were no broker non-votes. Abstentions
totaled 83,749 shares.
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 June 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
------------------------------
(Robert A. Kierlin, President)
(Duly Authorized Officer)
Date July 21, 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
