<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999, 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 55987-1500
- ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(507) 454-5374
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of March 1, 2000 was $1,307,989,774. For purposes of determining
this number, all executive officers and directors of the registrant as of March
1, 2000 are considered to be affiliates of the registrant. This number is
provided only for the purposes of this report on Form 10-K and does not
represent an admission by either the registrant or any such person as to the
status of such person.
As of March 1, 2000, the registrant had 37,938,688 shares of Common Stock issued
and outstanding.
<PAGE>
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1999 are incorporated by reference in Part II. Portions of
the registrant's Proxy Statement for the annual meeting of shareholders to be
held April 18, 2000 are incorporated by reference in Part III.
FORWARD LOOKING STATEMENTS
This Form 10-K, including the sections in Part I hereof captioned "Item 1.
Business - Development of the Business", "Item 1. Business - Products", "Item 1.
Business - Manufacturing Operations", and "Item 2. Properties", and the sections
in Part II hereof captioned "Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters" and "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations", contains or incorporates by
reference statements that are not historical in nature and that are intended to
be, and are hereby identified as, "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995, including statements regarding
new store and distribution center openings, markets for new stores, hiring of
sales personnel, introduction of new product lines, foreign operations,
technology conversions, growth in value added services, leasing of new stores,
capital expenditures and dividends. A discussion of certain risks and
uncertainties that could cause actual results to differ materially from those
predicted in such forward-looking statements is included in the registrant's
Annual Report to Shareholders for the fiscal year ended December 31, 1999 in the
section thereof captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations", which section has been incorporated in
this Form 10-K by reference. The registrant assumes no obligation to update
either such forward-looking statements or the discussion of such risks and
uncertainties.
PART I
ITEM 1. BUSINESS
Fastenal Company ("Fastenal Company" and, together with its wholly owned
subsidiaries, Fastenal Company Services, Fastenal Company Purchasing, Fastenal
Company Leasing, Fastenal Canada Company, Fastenal Mexico, S. de R.L. de C.V.,
and Fastenal Mexico Services, S. de R.L. de C.V., collectively, "the Company")
began as a partnership in 1967, and was incorporated under the laws of Minnesota
in 1968. As of December 31, 1999, the Company had 809 store sites located in 48
states, Puerto Rico, and Canada and 3,670 people employed at these sites.
Fifty-nine of these sites were satellite stores of an existing site.
The Company sells industrial and construction supplies. These industrial and
construction supplies are grouped into nine product lines described further
below.
The Company operated eleven distribution centers as of December 31, 1999 from
which the Company distributes products to its store sites, and operates a
facility in Memphis, Tennessee to receive and package goods coming from
suppliers outside of the United States.
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3
Development of the Business
Fastenal Company began in 1967 with a marketing strategy of supplying threaded
fasteners to customers in small to medium-sized cities. The Company believes its
success can be attributed to its ability to offer such customers a full line of
products at convenient locations, and to the high quality of the Company's
employees.
The Company opened its first store site in Winona, Minnesota, a city with a
population of approximately 25,000. The following table shows the number of
Company store sites during each of the last ten years and the related
consolidated net sales for each year during that period:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of
store sites
at year end 809 766 644 484 375 315 253 200 158 126
Net sales (in
thousands) $ 609,186 503,100 397,992 287,691 222,555 161,886 110,307 81,263 62,305 52,290
</TABLE>
As of December 31, 1999, the Company operated 809 store sites located in:
<TABLE>
<CAPTION>
<S> <C> <S> <C> <S> <C> <S> <C>
Alabama 15 Iowa 18 Nebraska 7 Rhode Island 3
Arizona 4 Kansas 14 Nevada 4 South Carolina 11
Arkansas 13 Kentucky 12 New Hampshire 8 South Dakota 6
California 33 Louisiana 12 New Jersey 7 Tennessee 18
Colorado 10 Maine 6 New Mexico 5 Texas 54
Connecticut 9 Maryland 9 New York 21 Utah 8
Delaware 3 Massachusetts 10 North Carolina 26 Vermont 3
Florida 21 Michigan 37 North Dakota 7 Virginia 20
Georgia 23 Minnesota 25 Ohio 43 Washington 19
Idaho 7 Mississippi 10 Oklahoma 13 West Virginia 10
Illinois 34 Missouri 14 Oregon 14 Wisconsin 36
Indiana 32 Montana 7 Pennsylvania 34 Wyoming 3
Puerto Rico 4 Canada 47
</TABLE>
The Company has closed only four store sites in its history.
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4
The Company selects new locations for its stores based on their proximity to the
Company's distribution network, population statistics, and employment data for
manufacturing and construction. The Company intends to continue opening new
store sites and currently expects the rate of new store openings to be
approximately 10 to 15% per year.
The Company stocks all new stores with an inventory drawn from all of its
product lines. Subsequent to a site's opening, the site personnel customize the
inventory offering to that site's customer base. The Company has two types of
stores: (1) the stand-alone store and (2) the satellite store. The stand-alone
store is typically located in cities with a population in excess of 8,000. The
Company believes approximately 1,000 markets in the United States and Canada
(including those in which existing stand-alone stores are already located) has
sufficient potential to justify this type of store. Many of the future potential
markets for stand-alone stores are located in smaller communities. The second
type, the satellite store, operates as a satellite of a stand-alone store. The
satellite store is usually located within 30 miles of the stand-alone (mother)
store and is typically managed by personnel at the mother store. The Company has
satellite stores located in communities with a population as small as 2,000. In
most cases, the Company was already doing business in this community from the
mother store, but the addition of a physical presence in the community provided
sales increases from that community. Of the 44 stores opened during 1999, 10
opened as satellite stores. Although the Company cannot be sure of the success
of these stores, the Company believes that their success could lead to
approximately 500 satellite store sites in the United States and Canada. Some of
these satellite stores are expected to eventually become stand-alone stores.
The Company opened 20 store sites in Canada in 1997, nine in 1998, and five in
1999, and plans to open additional store sites in Canada in the future. The
Company opened one store site in Puerto Rico in 1997, three in 1998, and none in
1999, and plans to open additional store sites in Puerto Rico in the future. The
stores in Canada and Puerto Rico contributed less than 5% of the Company's
consolidated net sales in 1999. In 1999 the Company sold products into Mexico
from its existing stores along the border between the United States and Mexico.
The Company also established a Mexican subsidiary in 1998. This subsidiary is
expected to employ sales personnel to sell directly into Mexico in the future.
No assurance can be given that any of the expansion plans described above will
be achieved, or that new stores, once opened, will be profitable.
It has been the Company's experience that near-term profitability has been
adversely affected by the opening of new store sites, due to the related
start-up costs and the time necessary to generate a customer base. A new store
generates its sales from direct sales calls, a slow process involving repeated
contacts. As a result of this process, sales volume builds slowly and it
typically requires nine to 12 months for a new store to achieve its first
profitable month. The one store opened in the first quarter of 1999 was
profitable in the fourth quarter of 1999.
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5
For 1999, annual sales volumes of store sites operating at least five years
ranged between approximately $198,000 and $4,670,000, with 75% of these store
sites having annual sales volumes within the range of approximately $453,000 to
$1,951,000. The data in the following table shows the growth in the average
sales of the Company's store sites from 1998 to 1999 based on each site's age.
The store sites opened in 1999 contributed approximately $1.9 million (or
approximately 0.3%) of the Company's consolidated net sales in 1999, with the
remainder coming from store sites opened prior to 1999.
<TABLE>
<CAPTION>
Number of store
Age of store site as of Year sites in group as of Average Average Percent
December 31, 1999 Opened December 31, 1999 sales 1998 sales 1999 change
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0-1 year old 1999 44 $ -- $ 44,000(1) -- %
1-2 years old 1998(2) 121 144,000(1) 393,000 --
2-3 years old 1997 160 348,000 470,000 35.1
3-4 years old 1996 109 500,000 595,000 19.0
4-5 years old 1995 60 566,000 666,000 17.7
5-6 years old 1994 62 596,000 678,000 13.8
6-7 years old 1993 53 755,000 836,000 10.7
7-8 years old 1992 42 887,000 1,007,000 13.5
8-9 years old 1991 32 1,036,000 1,102,000 6.4
9-10 years old 1990 28 1,218,000 1,361,000 11.7
10-11 years old 1989 23 1,278,000 1,454,000 13.8
11-14 years old 1986-1988 40 1,529,000 1,749,000 14.4
14+ years old 1967-1985 35 1,981,000 2,116,000 6.8
</TABLE>
(1) Average sales include sales of store sites open for less than the full
fiscal year.
(2) During 1999 one store site in this group closed. The 1998 average reflects
122 stores sites and the 1999 average reflects 121.5 store sites
As of December 31, 1999, the Company operated distribution centers in or near
Winona, Minnesota; Indianapolis, Indiana; Dallas, Texas; Atlanta, Georgia;
Scranton, Pennsylvania; Fresno, California; Lakewood, Washington; Akron, Ohio;
Salt Lake City, Utah; Winston-Salem, North Carolina; and Kansas City, Missouri.
Distribution centers are located so as to permit twice-a-week to five
times-a-week deliveries to Company stores using Company trucks and overnight
delivery by surface common carrier. As the number of stores increases, the
Company intends to add new distribution centers.
The Company also operates a packaging facility in Memphis, Tennessee. This
facility receives freight containers from foreign suppliers and repackages the
items in standard packages using high-speed equipment.
The Company operates a central UNIX/terminal-based computer system allowing
automatic data exchange between the stores and the distribution centers during
regular business hours. The use of client/server technology allows the Company's
network of UNIX-based machines to serve networked personal computers and
workstations. The Company converted a portion of this central processing system
in 1999 to a new computer software and operating system and plans to convert
additional modules during 2000.
During 1999, the Company had two point-of-sale systems at the store level. The
first was a UNIX/terminal based computer system (legacy point-of-sale system)
and the second a Microsoft Windows NT system (NT Point-of-sale system). The
development of the NT Point-of-sale system began in 1996. During 1997 and 1998
the Company tested its NT Point-of-sale system in a limited number of store
locations. At the end of 1998, approximately 120 stores were using the NT
Point-of-sale system. The Company converted all remaining stores from the legacy
point-of-sale system to the NT Point-of-sale system during 1999.
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6
Trademarks
The Company conducts its business in the United States and Canada under various
trademarks and service marks, including Fastenal(R), FastTool(R), SharpCut(R),
EquipRite(R), CleanChoice(R), PowerPhase(TM) and FastArc(TM). Although the
Company does not believe its operations are substantially dependent upon any of
its trademarks or service marks, the Company considers its "Fastenal" name and
other trademarks and service marks to be valuable to its business.
Products
The Company's original product offering in 1967 was fasteners and other
industrial and construction supplies, many of which are sold under the
Fastenal(R) product name. Today, this product line consists of approximately
66,000 different stock items. This product line may be divided into two broad
categories: threaded fasteners, such as bolts, nuts, screws, studs, and related
washers; and other industrial and construction supplies, such as paints, various
pins and machinery keys, concrete anchors, batteries, sealants, metal framing
systems, wire rope, stainless strut, private label stud anchors, rivets, and
related accessories.
Threaded fasteners are used in most manufactured products and building projects,
and in the maintenance and repair of machines and structures. Although some
aspects of the threaded fastener market are common to all cities, the Company
feels that each city's market is to some extent unique. Therefore, the Company
opens each store with minimal base stocks of inventory and then tailors the
growing inventory to the local market demand as it develops. Threaded fasteners
accounted for approximately 51%, 55%, and 61% of the Company's consolidated net
sales in 1999, 1998 and 1997, respectively.
Concrete anchors make up the largest portion of the other supply items included
in the Fastenal(R) product line. Most concrete anchors use threaded fasteners as
part of the completed anchor assembly.
During the 1990's, the Company added eight additional product lines. These
product lines are sold through the same distribution channel as the original
Fastenal(R) product line and include the following:
Approximate
Year number of Private label
Product line: introduced stock items product name
- --------------------------- ------------ ------------- ---------------
Tools 1993 40,000 FastTool(R)
Cutting Tools 1996 18,000 SharpCut(R)
Hydraulics and Pneumatics 1996 18,000
Material Handling 1996 7,000 EquipRite(R)
Janitorial Supplies 1996 4,000 CleanChoice(R)
Electrical Supplies 1997 5,000 PowerPhase(TM)
Welding Supplies(1) 1997 3,000 FastArc(TM)
Safety supplies 1999 1,000
(1) Excluding gas and welding machines.
The Company plans to add other industrial product lines in the future.
<PAGE>
7
Inventory Control
The Company controls inventory by using computer systems to determine desired
stock levels. The data used for this purpose is derived from reports showing
sales activity by stock item for the previous three years. Computers then
convert this data to typical store maximum-minimum inventory levels for each
stock item. Stores can deviate from preset inventory levels as deemed
appropriate by their district managers. Inventories in distribution centers are
established from computerized sales data for the stores served by the respective
centers.
Manufacturing and Support Services Operations
In 1999 approximately 94.8% of the Company's consolidated net sales were
attributable to products manufactured by other companies to industry standards.
The remaining amount of approximately 5.2% of the Company's consolidated net
sales for 1999 related to products manufactured, modified or repaired by either
the Company's Manufacturing Division or its Support Services. The manufactured
products consist primarily of non-standard sizes of threaded fasteners made to
customers' specifications. The services provided by the Support Services group
include, but are not limited to, items such as tool repair, band saw blade
welding and light manufacturing. The Company engages in these activities
primarily as a service to its customers and does not expect any significant
growth in the foreseeable future in the proportion of the Company's consolidated
net sales attributable to these value added services.
Sources of Supply
The Company uses a large number of suppliers for the approximately 162,000
standard stock items it distributes. Most items distributed by the Company can
be purchased from several sources, although preferred sourcing is used for some
stock items to facilitate quality control. No single supplier accounted for more
than 5.0% of the Company's purchases in 1999.
<PAGE>
8
Customers and Marketing
The Company believes its success can be attributed to its ability to offer
customers in small to medium-sized cities a full line of products at convenient
locations, and to the high quality of the Company's employees. Most of the
Company's customers are in the construction and manufacturing markets. The
construction market includes general, electrical, plumbing, sheet metal, and
road contractors. The manufacturing market includes both original equipment
manufacturers and maintenance and repair operations. Other users of the
Company's products include farmers, truckers, railroads, mining companies,
municipalities, schools, and certain retail trades. As of December 31, 1999, the
Company's total number of active customer accounts (defined as accounts having
purchase activity within the last 90 days) was approximately 108,000.
During each of the three years ended December 31, 1999, no one customer
accounted for a significant portion of the Company's sales. The Company believes
that the large number of its customers together with the varied markets that
they represent provide some protection to the Company from economic downturns in
a particular market.
A significant portion of the Company's sales is generated through direct calls
on customers by store personnel. Because of the nature of the Company's
business, the Company does not use the more expensive forms of mass media
advertising such as television, radio, and newspapers. Forms of advertising used
by the Company include signs and catalogs.
Competition
The Company's business is highly competitive. Competitors include both large
distributors located primarily in large cities and smaller distributors located
in many of the same cities in which the Company has stores. The Company believes
that the principal competitive factors affecting the markets for the Company's
products are customer service and convenience.
Some competitors use vans to sell their products in communities away from their
main warehouses, while others rely on mail order or telemarketing sales. The
Company, however, believes that the convenience provided to customers by
actually operating a number of stores in smaller markets, each offering a full
line of products, is a competitive selling advantage and that the large number
of stores in a given area, taken together with the Company's ability to provide
frequent deliveries to such stores from centrally located distribution centers,
makes possible the prompt and efficient distribution of products. Having trained
personnel at each store also enhances the Company's ability to compete (see
"Employees" below).
Employees
As of December 31, 1999, the Company employed a total of 5,493 full and
part-time employees, 3,670 being store managers and store employees, and the
balance being employed in the Company's distribution centers, packaging
facility, manufacturing operations, service operations and home office.
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9
The Company believes that the quality of its employees is critical to its
ability to compete successfully in the markets it currently serves and to its
ability to open new stores in new markets. The Company fosters the growth and
education of skilled employees throughout the organization by operating training
programs and by decentralizing decision making. Wherever possible, promotions
are from within the Company. For example, most new store managers are promoted
from an assistant manager's position at another store and district managers (who
supervise a number of stores) are usually former store managers.
The Company's sales personnel participate in incentive bonus arrangements that
place emphasis on achieving increased sales on a store and regional basis, while
still attaining targeted levels of gross profit. As a result, a significant
portion of the Company's total employment cost varies with sales volume. The
Company also pays incentive bonuses to other personnel for achieving
pre-determined cost containment goals.
None of the Company's employees is subject to a collective bargaining agreement
and the Company has experienced no work stoppages. The Company believes its
employee relations are excellent.
ITEM 2. PROPERTIES
The Company owns six facilities in Winona, Minnesota. These facilities are as
follows:
Approximate
Purpose Square Feet
- --------------------------------------------------------------------------
Distribution center and home office 213,000
Manufacturing facility 50,000 (1)
Winona store and regional training center 13,000
Winona support services 55,000 (2)
Rack and shelving storage 42,000
Multi-building complex which houses certain operations of
its Manufacturing Division and its Support Services group 30,000
The Company also owns the following facilities, excluding store locations,
outside of Winona, Minnesota:
Approximate
Purpose Location Square Feet
- --------------------------------------------------------------------------
Distribution center Indianapolis, Indiana 76,000 (3)
Distribution center Atlanta, Georgia 54,000
Distribution center Dallas, Texas 95,000
Distribution center Scranton, Pennsylvania 80,000
Distribution center Akron, Ohio 102,000
(1) The Winona, Minnesota manufacturing facility is currently being expanded to
approximately 100,000 square feet.
(2) This facility was purchased in November 1999 and is currently being
renovated for future use.
(3) A new distribution center in Indianapolis, Indiana was purchased in November
1999. The new distribution center has approximately 414,000 square feet and
is currently being renovated for future use. The existing facility will
either be sold or leased once the distribution center operations have moved
to the new location.
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10
In addition, the buildings that house the Company's stores in Mason City, Iowa;
St. Joseph, Missouri; Wichita Falls and Texarkana, Texas; Salina, Topeka, and
Wichita, Kansas; Vicksburg, Mississippi; Kokomo, Indiana, Appleton, Wisconsin;
Muskegon, Michigan; and Rochester, Minnesota. are owned by the Company. As of
December 1999, the Company was in the process of building a store location in
Elmira, New York.
All other buildings occupied by the Company are leased. Leased stores range from
approximately 1,200 to 8,000 square feet, with lease terms of up to 48 months.
The Company also leases the following distribution centers and packaging
facility:
<TABLE>
<CAPTION>
Approximate Lease Expiration Lease Renewal Options
Purpose Location Square Feet Date
- --------------------- ------------------------------- ------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
Distribution center Lakewood, Washington 40,000 February 2002 None
Distribution center Fresno, California 52,500 February 2002 Three one-year
periods(1)
Distribution center Salt Lake City, Utah 12,100 November 2002 None
Distribution center Winston-Salem, North Carolina 58,400 October 2000 Two one-year periods(1)
Packaging facility Memphis, Tennessee 115,000 December 2000 One two-year period(1)
Distribution center Kansas City, Missouri 40,000 April 2001 One two-year period(1)
</TABLE>
(1) The lease renewals can be exercised at the Company's option.
If economic conditions are suitable, the Company will, in the future, consider
purchasing store sites to house its older stores. It is anticipated that all
sites for new stores will continue to be leased. It is the Company's policy to
negotiate relatively short lease terms to facilitate relocation of particular
store operations if deemed desirable by management. It has been the Company's
experience that space suitable for its needs and available for leasing is more
than sufficient.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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11
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Fastenal Company are:
Name Age Position
--------------------------------------------------------------------------
Robert A. Kierlin 60 Chairman of the Board, President, Chief
Executive Officer and Director
Willard D. Oberton 41 Vice President, Chief Operating Officer
and Director
Stephen M. Slaggie 60 Secretary and Director
Daniel L. Florness 36 Treasurer, Chief Financial Officer and
Chief Accounting Officer
Mr. Kierlin has been the Chairman of the Board, President and Chief Executive
Officer of Fastenal Company and has served as a director of Fastenal Company
since Fastenal Company's incorporation in 1968.
Mr. Oberton has been the Vice President and Chief Operating Officer of Fastenal
Company since March 1997 and has served as a director of Fastenal Company since
June 1999. From June 1986 through March 1997, Mr. Oberton held the position of
general operations manager of Fastenal Company.
Mr. Slaggie has been the Secretary of Fastenal Company and has served as a
director of Fastenal Company since 1970. He became a full-time employee of
Fastenal Company in December 1987, at which time he assumed the additional
duties of Shareholder Relations Director and Insurance Risk Manager. From 1970
through June 1996, Mr. Slaggie also served as the Treasurer of Fastenal Company.
Mr. Florness has been the Treasurer, Chief Financial Officer and Chief
Accounting Officer of Fastenal Company since June 1996. From January 1987
through May 1996, Mr. Florness was employed by KPMG LLP, a public accounting
firm. Mr. Florness served in the capacity of senior manager from July 1992
through May 1996 with that firm.
The executive officers are elected by the Board of Directors, generally for a
term of one year, and serve until their successors are elected and qualified.
None of the above executive officers is related to any other such executive
officer or to any other director of Fastenal Company.
<PAGE>
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Incorporated herein by reference is Fastenal Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, Common Stock Data on
page 9.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference is Fastenal Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, Six-Year Selected
Financial Data on page 4.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated herein by reference is Fastenal Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, Management's
Discussion & Analysis of Financial Condition & Results of Operations on pages
5-8.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Incorporated herein by reference is Fastenal Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, Market Risk Management
on page 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference is Fastenal Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, Selected Quarterly
Financial Data (Unaudited) on page 9, and Consolidated Financial Statements,
Notes to Consolidated Financial Statements, and Independent Auditors' Report on
pages 10-20.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information appearing under the headings
"Election of Directors--Nominees and Required Vote", pages 4 and 5, and "Section
16(a) Beneficial Ownership Reporting Requirements", page 11, in Fastenal
Company's Proxy Statement dated March 14, 2000. See also Part I hereof under the
heading "Item X. Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information appearing under the headings
"Election of Directors--Board and Committee Meetings", page 5, "Executive
Compensation--Summary of Compensation", page 6, and "Executive
Compensation--Compensation Committee Interlocks and Insider Participation", page
7, in Fastenal Company's Proxy Statement dated March 14, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information appearing under the heading
"Security Ownership of Principal Shareholders and Management", pages 2 and 3, in
Fastenal Company's Proxy Statement dated March 14, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
a) 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Earnings for the years ended December
31, 1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the years ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
(Incorporated by reference to pages 10-20 of Fastenal Company's
Annual Report to Shareholders for the fiscal year ended December
31, 1999)
2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
3. Exhibits:
3.1 Restated Articles of Incorporation of Fastenal Company, as
amended (incorporated by reference to Exhibit 3.1 to
Fastenal Company's Form 10-Q for the quarter ended September
30, 1993)
3.2 Restated By-Laws of Fastenal Company (incorporated by
reference to Exhibit 3.2 to Registration Statement No.
33-14923)
10.1 Description of bonus arrangement for Vice President
(incorporated by reference to Exhibit 10 to Fastenal
Company's Form 10-K for the year ended December 31, 1997)
10.2 Description of bonus arrangement for Treasurer (incorporated
by reference to Exhibit 10.2 to Fastenal Company's Form 10-K
for the year ended December 31, 1998)
13 Annual Report to Shareholders for the fiscal year ended
December 31, 1999 (only those portions specifically
incorporated by reference herein shall be deemed filed with
the Commission)
21 List of Subsidiaries
23 Consent of KPMG LLP
27 Financial Data Schedule
Copies of Exhibits will be furnished upon request and payment of
the Company's reasonable expenses in furnishing the Exhibits.
b) Reports on Form 8-K
Fastenal Company filed no report on Form 8-K during the fourth quarter of
the fiscal year ended December 31, 1999.
<PAGE>
15
Independent Auditors' Report on Schedule
The Board of Directors and Stockholders
Fastenal Company:
Under date of January 19, 2000, except as to Note 4, which is as of January 25,
2000, we reported on the consolidated balance sheets of Fastenal Company and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of earnings, stockholders' equity and comprehensive income, and cash
flows for each of the years in the three-year period ended December 31, 1999, as
contained in the 1999 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1999. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
January 19, 2000, except as to
Note 4, which is as of January 25, 2000
<PAGE>
16
FASTENAL COMPANY
Schedule II--Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
"Additions" "Additions"
Balance at charged to charged Balance
beginning costs and to other "Less" at end
Description of year expenses accounts deductions of year
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999 allowance for
doubtful accounts $ 740,000 $3,566,000 $ 0 $2,906,000 $1,400,000
Year ended December 31,
1998 allowance for
doubtful accounts $ 660,000 $3,493,000 $ 0 $3,413,000 $ 740,000
Year ended December 31,
1997 allowance for
doubtful accounts $ 540,000 $1,614,000 $ 0 $1,494,000 $ 660,000
</TABLE>
<PAGE>
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 13, 2000
FASTENAL COMPANY
By /s/ Robert A. Kierlin
--------------------------------
Robert A. Kierlin, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 13, 2000 By /s/ Robert A. Kierlin
-------------------------------------
Robert A. Kierlin, President
(Principal Executive Officer) and
Director
Date: March 13, 2000 By /s/ Daniel L. Florness
-------------------------------------
Daniel L. Florness, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Date: March 13, 2000 By /s/ Stephen M. Slaggie
-------------------------------------
Stephen M. Slaggie, Director
Date: March 13, 2000 By /s/ Michael M. Gostomski
-------------------------------------
Michael M. Gostomski, Director
Date: March 13, 2000 By /s/ Henry K. McConnon
-------------------------------------
Henry K. McConnon, Director
Date: March 13, 2000 By /s/ John D. Remick
-------------------------------------
John D. Remick, Director
Date: March 13, 2000 By /s/ Robert A. Hansen
-------------------------------------
Robert A. Hansen, Director
Date: March 13, 2000 By /s/ Willard D. Oberton
-------------------------------------
Willard D. Oberton, Director
<PAGE>
INDEX TO EXHIBITS
3.1 Restated Articles of Incorporation of Fastenal
Company, as amended (incorporated by reference to
Exhibit 3.1 to Fastenal Company's Form 10-Q for the
quarter ended September 30, 1993).
3.2 Restated By-Laws of Fastenal Company (incorporated by
reference to Exhibit 3.2 to Registration Statement
No. 33-14923).
10.1 Description of bonus arrangement for Vice President
(incorporated by reference to Exhibit 10 to Fastenal
Company's Form 10-K for the year ended December 31,
1997)
10.2 Description of bonus arrangement for Treasurer
(incorporated by reference to Exhibit 10.2 to
Fastenal Company's Form 10-K for the year ended
December 31, 1998)
13 Annual Report to Shareholders for the fiscal year
ended December 31, 1999 (only those portions
specifically incorporated by reference herein shall
be deemed filed with the Commission)...............Electronically Filed
21 List of Subsidiaries ..............................Electronically Filed
23 Consent of KPMG LLP ...............................Electronically Filed
27 Financial Data Schedule............................Electronically Filed
<PAGE>
EXHIBIT 13
Profile of Fastenal Company
============================================================================
Fastenal Company was founded in 1967. As of December 31, 1999, the
Company operated 809 store sites located in 48 states, Puerto Rico and Canada
and employed 3,670 people at these sites. In addition, there were 1,823 people
employed in various support positions. The Company sells approximately 162,000
different types of industrial and construction supplies in nine product
categories. These include approximately 66,000 different types of threaded
fasteners and supplies; approximately 40,000 different types of tools;
approximately 18,000 different types of metal cutting tool blades; approximately
18,000 different types of fluid transfer components and accessories for
hydraulic and pneumatic power; approximately 7,000 different types of material
handling and storage products; approximately 4,000 different types of janitorial
and paper products; approximately 5,000 different types of electrical supplies;
approximately 3,000 different types of welding supplies (excluding gas and
welding machines) and approximately 1,000 different types of safety supplies. As
of December 31, 1999, the Company also operated eleven distribution centers
located in Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington,
California, Utah, North Carolina and Missouri, and a packaging facility in
Tennessee. Approximately 94.8% of the Company's 1999 sales were attributable to
products manufactured by others, and approximately 5.2% related to items
manufactured, modified or repaired by either the Company's Manufacturing
Division or its Support Services. Since December 31, 1999, the Company has
opened additional store sites.
[PHOTO OF FASTENAL EMPLOYEES]
[PHOTO OF FASTENAL EMPLOYEE AT WORKSTATION]
- --------------------------------------------------------------------------------
This Annual Report, including the sections captioned "President's Letter to
Shareholders," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Stock and Financial Data," contains statements that
are not historical in nature and that are intended to be, and are hereby
identify as, "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), including statements regarding
increase in fastener prices due to improvements in the Asian economies, foreign
operations, technology conversions, new product introduction and development,
capital expenditures and dividends. A discussion of certain risks and
uncertainties that could cause actual results to differ materially from those
predicted in such forward-looking statements is included in the section of this
Annual Report captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company assumes no obligation to
update either such forward-looking statements or the discussion of such risks
and uncertainties.
- --------------------------------------------------------------------------------
<PAGE>
Fastenal Company & Subsidiaries
================================================================================
Table of Contents
Page 2 - 3
President's Letter to Shareholders
Page 4
Six-Year Selected Financial Data
Page 5 - 8
Management's Discussion & Analysis of Financial Condition & Results of
Operations
Page 9
Stock and Financial Data
Page 10
Consolidated Balance Sheets
Page 11
Consolidated Statements of Earnings
Page 12
Consolidated Statements of Stockholders' Equity & Comprehensive Income
Page 13
Consolidated Statements of Cash Flows
Page 14 - 19
Notes to Consolidated Financial Statements
Page 20
Independent Auditors' Report
Inside Back Cover
Officers & Directors Corporate Information
[PHOTO OF FASTENAL EMPLOYEE AT WORKSTATION]
- --------------------------------------------------------------------------- 1
1999 Annual Report
<PAGE>
President's Letter to Shareholders
================================================================================
The year 1999 can be characterized for Fastenal as a year of treading water.
Although our 21.1% net sales growth was better than what most companies do, it
was less than our historical rate of sales growth. Permit me to offer some
explanations rather than excuses for our less-than-stellar performance, and then
I will tell you about some exciting programs we believe will restore better
performance.
To some extent, our 1999 results had their beginnings in the Asian currency
crises of late 1997. Throughout 1998 and most of 1999 we saw slowness in most
segments of North American manufacturing (except for vehicles) as export markets
withered and production of common items moved to low-cost countries.
In late 1997 and in 1998, Asian producers of standard fasteners lowered
their prices because of currency devaluations and poor local demand. As
lower prices worked their way through North American markets, we saw average
selling prices on common fasteners drop about 9% over an 18 month period. By mid
1999, prices for common fasteners had ended their fall; but throughout 1999
our fastener selling prices were lower than they were in the comparable period
of 1998. As the Asian economies improve in the year 2000, we expect higher
prices for fasteners and the end of deflationary effects.
In 1999 Fastenal continued the trend toward achieving more growth from our newer
product lines. In 1997 the fastener product category made up 76.9% of our net
sales, in 1998 the fastener category contribution was lowered to 71.5% of net
sales, and in 1999 the contribution was lowered further to 68.3%. We expect this
trend to continue because of the emphasis we are placing on growing our
established stores through new product development.
Our growth comes from our people. If we add and develop more people, we sow the
seeds of our future. In 1999 we added 645 people to our branch stores, an
increase of 21.3% for the full year. We also added 299 people in manufacturing
and support positions, an increase of 19.6% for the full year.
Fastenal opened 44 more stores in 1999, bringing our total to 809. In addition,
we began an aggressive program of opening in-plant stores for large customers.
These are supply depots in customer locations. We staff and stock these
locations but do not count them as stores because they are not open to the
general public. We began 1999 with eight such locations and ended the year with
21 in-plant stores.
Because we shifted emphasis from new store openings to growth of our existing
stores, we reduced some of our expected costs of new-store development in 1999.
Primarily for this reason, our net earnings grew at a faster rate than our
net sales in 1999. Higher transportation fuel costs in 1999 offset some of the
expense savings from fewer store openings in the year.
The growth of our customer service business is both a positive part of our 1999
results and a good omen for the future. In 1999 we recorded over $4 million in
sales from the repair of power tools, up from $2.7 million in 1998. In 1999 we
registered over
2 -----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
President's Letter to Shareholders
================================================================================
$1 million in sales of custom-welded band saw blades, a service we began during
1999. Hydraulic hose fabrication added another $400,000 to our 1999 sales.
Our specials manufacturing facility continues to grow. The people involved in
that part of our business contributed $26 million to our 1999 net sales. By the
time you read this, we will have moved into a 50,000 square foot addition to
our manufacturing facility in Winona.
Our electronic commerce initiatives continue apace. In mid year 1999 customers
became able to place orders from our web page. Each month thereafter has seen
growth in our web-based sales. Orders received off of the web in the month of
December were approximately $100,000. In addition we recorded $1.8 million
of sales in December from Electronic Data Interchange. Please look at our web
page at www.fastenal.com. We have received many compliments on its design and
ease of use.
The year 1999 was a milestone for our Information Systems people. In December we
completed the final store conversion to our NT point-of-sale system. This was an
$8.0 million, multi-year project that gives our stores better information and
more timely data. Although the project was complex and time consuming, the costs
came within the budget. We are also over the midpoint on the installation of our
Enterprise Resource Planning system. This also is a multi-year project that will
allow us to improve our inventory planning and financial modeling. When this
second major IS project is behind us, we will be positioned with excellent
information tools for the growth of our company.
In 1999 we purchased a 414,000 square foot building in Indianapolis, Indiana. We
needed a larger facility for our Indianapolis distribution center. Although the
acquired building is more than double the size we needed, the purchase was
completed for $5.7 million, including interior racks and furnishings, a price we
considered favorable. We are investigating the use of the extra space to provide
logistics services to other firms.
From the present perspective, 2000 should be a better year than 1999 for
Fastenal. The unknown quantity will be the overall economic conditions in the
United States and Canada. All of us at Fastenal will give our best to continue
to grow our company through customer service.
Thank you for believing in us.
/s/ Robert A. Kierlin
President and Chief Executive Officer
January 19, 2000.
[PHOTO OF FASTENAL COMPANY CATALOG]
- ----------------------------------------------------------------------------- 3
1999 Annual Report
<PAGE>
Six-Year Selected Financial Data
================================================================================
Amounts in thousands except per share information
<TABLE>
<CAPTION>
Operating Results Percent
Years Ended Dec. 31 1999 Change 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 609,186 +21.1% $503,100 397,992 287,691 222,555 161,886
Gross profit 319,266 +20.8% 264,280 208,929 152,880 118,944 85,927
Earnings before
income taxes 106,479 +23.6% 86,123 67,336 54,432 46,206 31,391
Net earnings 65,455 +23.6% 52,953 40,834 32,539 27,411 18,666
Basic and diluted
earnings per share 1.73 +23.6% 1.40 1.08 .86 .72 .49
Dividends per share .04 +100% .02 .02 .02 .02 .02
Weighted average
shares outstanding 37,939 - 37,939 37,939 37,939 37,939 37,939
Financial Position
December 31
- ----------------------------------------------------------------------------------------------------------------------------
Net working capital $ 193,744 +36.0% $142,459 106,555 78,417 66,100 45,341
Total assets 318,621 +26.8% 251,234 205,137 151,545 109,320 81,795
Total stockholders' equity 281,960 +29.5% 217,646 165,872 125,967 94,323 67,649
</TABLE>
All information contained in this Annual Report reflects the 2-for-1 stock
split effected in the form of a 100% stock dividend in 1995.
[PHOTO OF FASTENAL PRODUCTION AREA]
4 -----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
Management's Discussion & Analysis of Financial Condition & Results of
Operations
===============================================================================
Results of Operations
Net sales for 1999 exceeded net sales for 1998 by 21.1%. This compares with a
26.4% net sales growth rate experienced from 1997 to 1998. The increase in net
sales in 1999 came primarily from new site openings, unit sales growth in
existing sites and growth in the newer product lines. This growth was tempered
by a deflationary impact to pricing. The increase in net sales in 1998 came
primarily from new site openings, unit sales growth in existing sites, and
growth in the newer product lines. The growth in 1998 was also tempered by a
slight deflationary impact to pricing. The following table indicates product
lines added to the original fastener product line, the year of introduction, and
the approximate percentage of total net sales related to each product line:
Percentage of Net Sales
Name Introduced 1999 1998
- ---------------------------------------------------------------
Tools 1993 12.5%/1/ 12.2%
- ---------------------------------------------------------------
Cutting Tools 1996 5.0% 4.9%
- ---------------------------------------------------------------
Hydraulics
& Pneumatics 1996 4.0% 3.5%
- ---------------------------------------------------------------
Material Handling 1996 5.8%/1/ 5.2%
- ---------------------------------------------------------------
Janitorial Supplies 1996 1.7%/1/ 1.5%
- ---------------------------------------------------------------
Electrical Supplies 1997 1.1%/1/ *
- ---------------------------------------------------------------
Welding Supplies 1997 * *
- ---------------------------------------------------------------
Safety Supplies 1999 1.0%/1/ *
- ---------------------------------------------------------------
* Less than 1% of net sales.
/1/ During the second quarter of 1999, a safety supplies product line was
added. This product line consists of product formerly in the Tools product line,
and to a lesser extent the Material Handling, Janitorial Supplies and Electrical
Supplies product lines. Proforma percentages are not available.
Threaded fasteners accounted for approximately 51%, 55% and 61% of the Company's
consolidated sales in 1999, 1998 and 1997, respectively. Sites opened in 1999
contributed approximately $1,900,000 (or 0.3%) to 1999 net sales. Sites opened
in 1998 contributed approximately $47,800,000 (or 7.8%) to 1999 net sales and
approximately $17,572,000 (or 3.5%) to 1998 net sales. The rate of growth in
sales of sites generally levels off after sites have been open for five years,
and the sales of older sites typically vary more with the economy than the sales
of younger sites.
Gross profit as a percent of net sales was 52.4% in 1999, 52.5% in 1998 and
52.5% in 1997. The decrease from 1998 to 1999 resulted primarily from the mix of
products being sold.
Operating and administrative expenses were 35.1% of net sales in 1999 after
having been 35.2% of net sales in 1998 and 35.6% of net sales in 1997. The
fluctuations in operating and administrative costs were primarily due to changes
in payroll and related costs and changes in occupancy costs. In both 1999 and
1998, payroll and related costs increased at a rate which was less than the rate
of increase in net sales. The increases in payroll and related costs were due to
the following increases in employees:
1999 1998
- -------------------------------------------------------------
Sales Personnel 21.3% 13.0%
- -------------------------------------------------------------
Support Personnel 19.6% 8.9%
In 1999, the rate of increase in occupancy costs was less than the rate of
increase in net sales. In 1998 the rate of increase in occupancy costs exceeded
the rate of increase in net sales. Occupancy costs increased in both years due
to a 5.6% and an 18.9% increase in the number of sites in 1999 and 1998,
respectively, and due to the relocation of existing stores to larger sites to
accommodate their growth in activity and the introduction of new product lines.
This reduction in the number and rate of new store openings was due to a shift
of emphasis from new store openings to growth of existing stores. Distribution
costs benefited from productivity gains in both 1999 and 1998.
Net interest income/expense in 1999 improved $1,626,000 over 1998. Net interest
expense in 1998 increased $136,000 or 14.8% over 1997. Changes were due to the
fluctuations in the weighted average amount of outstanding Company borrowings
and investments. The gains on disposal of property and equipment in 1999, 1998
and 1997 came primarily from the disposal of used vehicles.
Net earnings grew 23.6% from 1998 to 1999 and 29.7% from 1997 to 1998. The
growth in net earnings in both years resulted primarily from
- ----------------------------------------------------------------------------- 5
1999 Annual Report
<PAGE>
Management's Discussion & Analysis of Financial Condition & Results of
Operations
===============================================================================
increased net sales. In 1999 and 1998 the net earnings growth rate was higher
than that of net sales because of the earlier mentioned impact of payroll and
related costs and occupancy costs.
The Asian economic turmoil impacted the Company in several ways during 1999 and
1998. The Company experienced lower prices on low-carbon and stainless steel
fasteners imported from the Far East when compared to 1997. To the extent the
Company was able to retain the cost advantage, gross margins improved. However,
these lower costs also affected net sales because some of the lower costs were
passed on to customers in the competitive marketplace. In 1999 and 1998 the
Company also experienced lower net sales of products to customers who export to
the Far East when compared to sales levels to these customers in 1997. In
addition to the impacts of the Far East situation, 1999 showed a continuation of
the slowdown in the manufacturing activity of customers we sell to in the U.S.
and Canada.
Effects on Inflation
Price deflation related to certain products negatively impacted 1999 and 1998.
Inflation had little effect on the Company's operations in 1997.
Liquidity and Capital Resources
Net cash provided by operating activities was:
1999 $55,989,000
- ------------------------
1998 $43,316,000
- ------------------------
1997 $14,657,000
- ------------------------
The increases were primarily from the growth in net earnings,depreciation and
accounts payable exceeding the growth in accounts receivable and inventory.
Net cash used in investing activities was:
1999 $24,654,000
- ------------------------
1998 $28,609,000
- ------------------------
1997 $21,619,000
- ------------------------
The 1999 decrease in net cash used in investing activities resulted primarily
from an increase in proceeds from the disposal of vehicles and the increase in
the leasing of branch vehicles and distribution semi-tractors. This decrease was
partially offset by the purchase of a new distribution center in Indiana,
additions to several other distribution centers, and the addition to the
Minnesota manufacturing facility. The 1998 increase came primarily from the
Minnesota distribution center expansion, the purchase of software, and the
addition of and expansion to several other distribution centers. Additions to
computer equipment are expected to be the largest part of cash used by investing
activities in 2000.
The Company had no long-term debt at December 31, 1999, 1998, or 1997. See note
8 of the Notes to Consolidated Financial Statements for a description of the
Company's current line of credit.
The Company paid an annual dividend of $.04 per share in 1999 and $.02 per share
in 1998 and 1997.
As of December 31, 1999, the Company had no material outstanding commitments
for capital expenditures.
The Company expects to make approximately $30,500,000 in total capital
expenditures in 2000, consisting of approximately $12,000,000 for manufacturing,
warehouse and packaging equipment and facilities, approximately $12,000,000 for
data processing equipment, and approximately $6,500,000 for vehicles. The
capital expenditures for vehicles, which represented a substantial portion of
the total amount in prior years, decreased in 1999, and this decrease is
expected to recur in 2000 as certain vehicles added or to be added in 1999 and
in 2000 are or are expected to be leased under an operating lease.
Management anticipates funding its current expansion plans with cash generated
from operations, from available cash and cash equivalents, from the sale of
marketable securities and, to a lesser degree, from its borrowing capacity. In
addition to opening new sites in the United States, the Company plans to
continue opening additional sites in Canada and Puerto Rico and to continue
expanding operations in Mexico.
6 -----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
Management's Discussion & Analysis of Financial Condition & Results of
Operations
================================================================================
Year 2000 Discussion
We have devoted significant resources throughout the Company to minimize the
risk of potential disruption from Year 2000 issues. Our approach centered on the
four distinct components of our information system and on other impacts such as
from third parties.
The four components, which include the (1) point-of-sale (POS) system, (2)
enterprise-wide information system, (3) warehouse management system, and (4)
other systems/equipment, were all assessed, inventoried and tested for Year 2000
issues during 1998 and 1999. Systems that were Year 2000 deficient were
modified, upgraded or replaced and tested for compliance. In addition to this,
the Company prepared a detailed contingency plan which focused on: (1) defining
key communication paths within the organization, (2) establishing levels of
responsibility and authority in the Company's distributed workforce if a Year
2000 issue made normal operations difficult, and (3) working throughout the
entire Company to establish manual procedures to accomplish critical business
processes.
The Company did not track internal costs, which consisted primarily of payroll
and related expenses, related to the Year 2000 issue. The Company did, however,
identify two large projects in its previous Year 2000 discussions. The first
project was a four-year project to develop, test, and implement a new POS system
for the branch sites. This project, which was completed in December 1999, cost
approximately $8.0 million. The second project, which should be completed early
in 2001, involves the replacement of the Company's enterprise-wide information
system. This project is expected to cost approximately $10.0 million, of which
the Company has approximately $2.6 million left to spend. The Company believes
the cost of these projects were not, for the most part, directly related to Year
2000 issues; but rather, were new systems needed in the normal course due to the
rapid growth the Company had experienced over the last several years.
As we have identified in the past, the Company is dependent on third parties
that provide goods or services. The failure of one or more of these third
parties to address any lingering Year 2000 issues could have a material adverse
effect on the Company's business, financial condition, or operating results. To
date, the Company has experienced no significant systems or other Year 2000
problems in connection with the transition to the Year 2000. The Company will
continue to monitor for any Year 2000 issues.
Market Risk Management
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 December 31, 1999. The line bears interest at .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
December 31, 1999.
Certain Risks and Uncertainties
Certain statements in this Annual Report,in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999, in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made by or with approval of the Company's
executive officers constitute or will constitute "forward-looking statements"
under the Reform Act. The following factors are among those that could cause the
- ----------------------------------------------------------------------------- 7
1999 Annual Report
<PAGE>
Management's Discussion & Analysis of Financial Condition & Results of
Operations
================================================================================
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 rate of new 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, (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 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, changes in trade relations, or fluctuations in the
relative strength of foreign economies could impact the ability of the Company
to procure products overseas at competitive prices and the Company's 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.
New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133. SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which establishes new standards
for recognizing all derivatives as either assets or liabilities, and measuring
those instruments at fair value. SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities- Deferral of the Effective Date of FASB
statement No. 133, is an amendment of SFAS No. 133. SFAS No. 137 deferred the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000.
The Company is currently in the process of evaluating the impact of this
statement.
[PHOTO OF FASTENAL SORTATION EQUIPMENT]
[PHOTO OF FASTENAL PRODUCT]
8 -----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
Stock & Financial Data
================================================================================
Common Stock Data
The Company's shares are traded on The Nasdaq Stock Market under the symbol
"FAST". The following table sets forth, by quarter, the high and low closing
sale price of the Company's shares on The Nasdaq Stock Market for 1999 and 1998.
1999: High Low
First quarter $ 45-3/8 33-5/8
- ----------------------------------------------------
Second quarter 54-1/2 34
- ----------------------------------------------------
Third quarter 60-9/16 45-13/16
- ----------------------------------------------------
Fourth quarter 49-15/16 34
1998: High Low
First quarter $ 48-3/4 34-1/4
- ----------------------------------------------------
Second quarter 56-7/8 39-5/8
- ----------------------------------------------------
Third quarter 51-1/4 24-1/16
- ----------------------------------------------------
Fourth quarter 46-7/16 20-1/2
As of February 16, 2000, there were approximately 2,400 recordholders of the
Company's Common Stock. A $.04 annual dividend per share was paid in 1999 and a
$.02 annual dividend per share was paid in 1998. On January 25, 2000, the
Company announced an $.08 annual dividend per share to be paid on March 10, 2000
to shareholders of record at the close of business on February 25, 2000. The
Company expects that it will continue to pay comparable cash dividends in the
foreseeable future, provided that any future determination as to payment of
dividends will depend upon the financial condition and results of operations of
the Company and such other factors as are deemed relevant by the board of
directors.
Selected Quarterly Financial Data (Unaudited) (Amounts in thousands except per
share data)
<TABLE>
<CAPTION>
Net sales Gross profit Net earnings Earnings per share
<S> <C> <C> <C> <C>
1999:
First quarter $140,634 73,789 15,415 .41
- --------------------------------------------------------------------------------------------
Second quarter 153,891 81,034 17,062 .45
- --------------------------------------------------------------------------------------------
Third quarter 159,359 83,247 17,091 .45
- --------------------------------------------------------------------------------------------
Fourth quarter 155,302 81,196 15,887 .42
- --------------------------------------------------------------------------------------------
Total $609,186 319,266 65,455 1.73
1998: Net sales Gross profit Net earnings Earnings per share
First quarter $116,707 61,595 12,386 .33
- --------------------------------------------------------------------------------------------
Second quarter 126,427 66,938 14,016 .37
- --------------------------------------------------------------------------------------------
Third quarter 131,349 69,515 14,033 .37
- --------------------------------------------------------------------------------------------
Fourth quarter 128,617 66,232 12,518 .33
- --------------------------------------------------------------------------------------------
Total $503,100 264,280 52,953 1.40
</TABLE>
- ----------------------------------------------------------------------------- 9
1999 Annual Report
<PAGE>
Consolidated Balance Sheets
===============================================================================
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 27,849,000 2,086,000
Trade accounts receivable, net of allowance for doubtful
accounts of $1,400,000 and $740,000 respectively 84,563,000 68,498,000
Inventories 106,597,000 93,734,000
Deferred income tax asset 2,886,000 2,312,000
Other current assets 5,510,000 6,637,000
------------------------------
Total current assets 227,405,000 173,267,000
Marketable securities 215,000 265,000
Property and equipment, less accumulated depreciation 87,630,000 74,212,000
Other assets, net 3,371,000 3,490,000
------------------------------
Total assets $ 318,621,000 251,234,000
------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 19,325,000 17,411,000
Notes payable 0 4,055,000
Accrued expenses 11,785,000 8,999,000
Income tax payable 2,551,000 343,000
------------------------------
Total current liabilities 33,661,000 30,808,000
------------------------------
Deferred income tax liability 3,000,000 2,780,000
------------------------------
Stockholders' equity:
Preferred stock - -
Common stock, 50,000,000 shares authorized
37,938,688 shares issued 379,000 379,000
Additional paid-in capital 4,424,000 4,424,000
Retained earnings 277,553,000 213,615,000
Accumulated other comprehensive loss (396,000) (772,000)
------------------------------
Total stockholders' equity 281,960,000 217,646,000
Commitments (notes 7 and 8)
------------------------------
Total liabilities and stockholders' equity $ 318,621,000 251,234,000
------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 ----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
Consolidated Statements of Earnings
===============================================================================
Years ended December 31,
1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net sales $ 609,186,000 503,100,000 397,992,000
Cost of sales 289,920,000 238,820,000 189,063,000
-----------------------------------------------------
Gross profit 319,266,000 264,280,000 208,929,000
Operating and administrative expenses 213,580,000 177,180,000 141,725,000
-----------------------------------------------------
Operating income 105,686,000 87,100,000 67,204,000
Other income (expense):
Interest income 634,000 4,000 40,000
Interest expense (57,000) (1,053,000) (917,000)
Gain on disposal of property and equipment 216,000 72,000 1,009,000
-----------------------------------------------------
Total other income (expense) 793,000 (977,000) 132,000
-----------------------------------------------------
Earnings before income taxes 106,479,000 86,123,000 67,336,000
Income tax expense 41,024,000 33,170,000 26,502,000
Net earnings $ 65,455,000 52,953,000 40,834,000
-----------------------------------------------------
Basic and diluted earnings per share $ 1.73 1.40 1.08
-----------------------------------------------------
Weighted average shares outstanding 37,938,688 37,938,688 37,938,688
-----------------------------------------------------
</TABLE>
[PHOTO OF FASTENAL TRUCK AND DOCK]
The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------- 11
1999 Annual Report
<PAGE>
Consolidated Statements of Stockholders'
Equity & Comprehensive Income
================================================================================
Years ended December 31,
1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common stock paid-in Retained comprehensive stockholders'
--------------------------
Shares Amount capital earnings income (loss) equity
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of
December 31, 1996 37,938,688 $ 379,000 4,424,000 121,346,000 (182,000) 125,967,000
Dividends paid in cash - - - (759,000) - (759,000)
Net earnings for the year - - - 40,834,000 - 40,834,000
Translation adjustment - - - - (170,000) (170,000)
-------------
Total comprehensive income 40,664,000
- -------------------------------------------------------------------------------------------------------------------------
Balances as of
December 31, 1997 37,938,688 $ 379,000 4,424,000 161,421,000 (352,000) 165,872,000
Dividends paid in cash - - - (759,000) - (759,000)
Net earnings for the year - - - 52,953,000 - 52,953,000
Translation adjustment - - - - (420,000) (420,000)
-------------
Total comprehensive income 52,533,000
- -------------------------------------------------------------------------------------------------------------------------
Balances as of
December 31, 1998 37,938,688 $ 379,000 4,424,000 213,615,000 (772,000) 217,646,000
Dividends paid in cash - - - (1,517,000) - (1,517,000)
Net earnings for the year - - - 65,455,000 - 65,455,000
Translation adjustment - - - - 376,000 376,000
-------------
Total comprehensive income 65,831,000
- -------------------------------------------------------------------------------------------------------------------------
Balances as of
December 31, 1999 37,938,688 $ 379,000 4,424,000 277,553,000 (396,000) 281,960,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 -----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
Consolidated Statements of Cash Flows
================================================================================
Years ended December 31,
1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 65,455,000 52,953,000 40,834,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation of property and equipment 11,777,000 11,040,000 9,362,000
Gain on disposal of property and equipment (216,000) (72,000) (1,009,000)
Deferred income taxes (354,000) 410,000 737,000
Amortization of goodwill and non-compete agreement 220,000 220,000 220,000
Changes in operating assets and liabilities:
Trade accounts receivable (16,065,000) (10,956,000) (15,989,000)
Inventories (12,863,000) (14,319,000) (22,889,000)
Other current assets 1,127,000 (1,400,000) (1,506,000)
Accounts payable 1,914,000 4,461,000 2,940,000
Accrued expenses 2,786,000 1,685,000 1,703,000
Income taxes payable 2,208,000 (706,000) 254,000
------------------------------------------------
Net cash provided by operating activities 55,989,000 43,316,000 14,657,000
------------------------------------------------
Cash flows from investing activities:
Sales of marketable securities 50,000 - 250,000
Additions of property and equipment (39,176,000) (37,232,000) (28,658,000)
Proceeds from sale of property and equipment 14,197,000 9,136,000 7,151,000
Translation adjustment 376,000 (420,000) (170,000)
Increase in other assets (101,000) (93,000) (192,000)
------------------------------------------------
Net cash used in investing activities (24,654,000) (28,609,000) (21,619,000)
------------------------------------------------
Cash flows from financing activities:
Net (decrease) increase in line of credit (4,055,000) (12,030,000) 7,463,000
(Payment) proceeds of note payable 0 (218,000) 218,000
Payment of dividends (1,517,000) (759,000) (759,000)
------------------------------------------------
Net cash (used in) provided by financing activities (5,572,000) (13,007,000) 6,922,000
------------------------------------------------
Net increase (decrease) in cash and cash equivalents 25,763,000 1,700,000 (40,000)
Cash and cash equivalents at beginning of year 2,086,000 386,000 426,000
------------------------------------------------
Cash and cash equivalents at end of year $ 27,849,000 2,086,000 386,000
================================================
Supplemental disclosure of cash flow information:
Cash paid during each year for:
Income taxes $ 38,183,000 34,100,000 25,511,000
Interest $ 87,000 1,073,000 867,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------- 13
1999 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
================================================================================
Years ended December 31,
1999, 1998 and 1997
1 Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Fastenal
Company and its wholly-owned subsidiaries, Fastenal Company Services,
Fastenal Company Purchasing, Fastenal Company Leasing, Fastenal Canada
Company, Fastenal Mexico, S. de R.L. de C.V. and Fastenal Mexico Services,
S. de R.L. de C.V. (collectively referred to as the Company). All material
intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition
The Company recognizes sales and the related cost of sales on the accrual
basis of accounting at the time products are shipped to or picked up by
customers.
Financial Instruments
All financial instruments are carried at amounts that approximate estimated
fair value.
Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the
Company considers all highly-liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Inventories
Inventories, consisting of merchandise held for resale, are stated at the
lower of cost (first in, first out method) or market.
Marketable Securities
Marketable securities as of December 31, 1999 and 1998 consist of debt
securities. The Company classifies its debt securities as available-for-
sale. Available-for-sale securities are recorded at fair value based on
current market value. Unrealized holding gains and losses on available-for-
sale securities are excluded from earnings, but are included in
comprehensive income, and are reported as a separate component of
stockholders' equity until realized, provided that a decline in the market
value of any available-for-sale security below cost that is deemed other
than temporary is charged to earnings resulting in the establishment of a
new cost basis for the security.
The amortized cost approximated the fair value of available-for-sale debt
securities as of December 31, 1999 and 1998.
14 -----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
================================================================================
Years ended December 31,
1999, 1998 and 1997
1 Summary of Significant Accounting Policies continued
Property and Equipment
Property and equipment are stated at cost. Depreciation on buildings and
equipment is provided for financial statement reporting purposes by the
straight line method and over the lives mandated by Internal Revenue
Service Regulations. These lives approximate the anticipated economic
useful lives of the related property.
Other Assets
Other assets consists of prepaid security deposits, goodwill and a non-
compete agreement. Goodwill represents the excess of the purchase price
over the fair value of net assets acquired and is amortized on a straight-
line basis over 15 years. The non-compete agreement is amortized on a
straight-line basis over 15 years. Goodwill and other long-term asset
balances are reviewed periodically to determine that the unamortized
balances are recoverable. In evaluating the recoverability of these assets,
the following factors, among others, are considered: a significant change
in the factors used to determine the amortization period, an adverse change
in legal factors or in the business climate, a transition to a new
product or services strategy, a significant change in the customer base,
and/or a realization of failed marketing efforts. If the unamortized
balance is believed to be unrecoverable, the Company recognizes an
impairment charge necessary to reduce the unamortized balance to the amount
of undiscounted cash flows expected to be generated over the remaining
life. If the acquired entity has been integrated into other operations and
cash flows cannot be separately measured, the Company recognizes an
impairment charge necessary to reduce the unamortized balance to its
estimated fair value. The amount of impairment is charged to earnings as a
part of operating and administrative expenses in the current period.
Long-Lived Assets
The Company's long-lived assets are accounted for under the provisions
of Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets to Be Disposed Of. There were no
SFAS 121 charges in 1999, 1998 or 1997.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Stock-Based Compensation
The Company has not granted any stock options or paid any other types of
stock-based compensation.
- ----------------------------------------------------------------------------- 15
1999 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
================================================================================
Years ended December 31,
1999, 1998 and 1997
1 Summary of Significant Accounting Policies continued
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Earning Per Share
Earnings per share is computed by dividing net earnings by the weighted
average number of common shares outstanding.
2 Property and Equipment
Property and equipment as of December 31 consists of the following:
<TABLE>
<CAPTION>
Depreciable
life in years 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land - $ 4,442,000 2,524,000
Buildings and improvements 31 to 39 29,255,000 18,955,000
Equipment and shelving 3 to 10 63,999,000 46,721,000
Transportation equipment 3 to 5 21,352,000 33,569,000
Construction in progress - 12,365,000 9,245,000
--------------------------
131,413,000 111,014,000
Less accumulated depreciation (43,783,000) (36,802,000)
--------------------------
Net property and equipment $ 87,630,000 74,212,000
==========================
</TABLE>
16 -----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
================================================================================
Years ended December 31,
1999, 1998 and 1997
3 Accrued Expenses
Accrued expenses as of December 31 consist of the following:
1999 1998
------------------------------------------------------------------------
Payroll and related taxes $ 5,927,000 4,359,000
Bonuses and commissions 3,393,000 2,286,000
Insurance 1,072,000 1,257,000
Sales and real estate taxes 866,000 801,000
Other 527,000 296,000
--------------------------
$ 11,785,000 8,999,000
==========================
4 Stockholders' Equity
Preferred stock has a par value of $.01 per share. There were 5,000,000
shares authorized and no shares issued as of December 31, 1999 and 1998.
Common Stock has a par value of $.01 per share. There were 50,000,000
shares authorized and 37,938,688 shares issued and outstanding as of
December 31, 1999 and 1998.
Dividends
On January 25, 2000, the Company's board of directors declared a dividend
of $.08 per share of Common Stock to be paid in cash on March 10, 2000 to
shareholders of record at the close of business on February 25, 2000.
5 Retirement Plan
In 1998 the Company established the Fastenal Company and Subsidiaries
401(k) Plan. This plan covers all employees of the Company in the United
States. The Company made no contributions to the plan in 1999 or 1998.
[PHOTO OF FASTENAL PRODUCTION AREA - BAND SAW BLADES]
- ----------------------------------------------------------------------------- 17
1999 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
================================================================================
Years ended December 31,
1999, 1998 and 1997
6 Income Taxes
Components of income tax expense are as follows:
1999: Current Deferred Total
------------------------------------------------------------------
Federal $ 35,618,000 (305,000) 35,313,000
State 5,760,000 (49,000) 5,711,000
-----------------------------------------------
$ 41,378,000 (354,000) 41,024,000
===============================================
1998: Current Deferred Total
------------------------------------------------------------------
Federal $ 28,199,000 353,000 28,552,000
State 4,561,000 57,000 4,618,000
-----------------------------------------------
$ 32,760,000 410,000 33,170,000
===============================================
1997: Current Deferred Total
------------------------------------------------------------------
Federal $ 21,385,000 599,000 21,984,000
State 4,380,000 138,000 4,518,000
-----------------------------------------------
$ 25,765,000 737,000 26,502,000
===============================================
Income tax expense in the accompanying consolidated financial statements
differs from the "expected" tax expense as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense at
the "expected" rate of 35% $ 37,268,000 30,143,000 23,568,000
Increase (reduction) attributed to:
State income taxes, net of federal benefit 3,712,000 3,002,000 2,937,000
Tax exempt interest - - (16,000)
Other, net 44,000 25,000 13,000
-------------------------------------------
Total income tax expense $ 41,024,000 33,170,000 26,502,000
===========================================
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C>
Deferred taxes:
Inventory costing and valuation methods $ 1,940,000 1,571,000
Allowance for doubtful accounts receivable 539,000 285,000
Insurance claims payable 434,000 484,000
Fixed assets (3,000,000) (2,780,000)
Other net (27,000) (28,000)
----------------------------
Net deferred tax asset (liability) $ (114,000) (468,000)
============================
</TABLE>
No valuation allowance for deferred tax assets was necessary as of December
31, 1999 and 1998. The character of the deferred tax assets is such that
they can be realized through carry-back to prior tax periods or offset
against future taxable income.
18 ----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
================================================================================
Years ended December 31,
1999, 1998 and 1997
7 Operating Leases
The Company leases space under non-cancelable operating leases for its
California, Missouri, North Carolina, Utah and Washington distribution
centers, its Tennessee packaging center, and certain store sites with
initial terms of one to 48 months.
The Company leases certain semi-tractors and pick-ups under operating
leases. The semi-tractor leases typically have a 36 month term. The pick-up
leases typically have a 72 month term and include an early buy out clause
the Company intends to exercise, thereby giving the leases an effective
term of 12-15 months.
Future minimum annual rentals for the leased facilities and the vehicles
are as follows:
<TABLE>
<CAPTION>
Distribution centers, Semi-tractors
packaging center and store sites and pick-ups Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 10,828,000 5,162,000 15,990,000
2001 5,306,000 1,043,000 6,349,000
2002 2,270,000 623,000 2,893,000
2003 394,000 0 394,000
2004 and thereafter 22,000 0 22,000
</TABLE>
Rent expense under all operating leases was as follows:
<TABLE>
<CAPTION>
Distribution centers, Semi-tractors
packaging center and store sites and pick-ups Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ 14,867,000 4,282,000 19,149,000
1998 13,040,000 0 13,040,000
1997 9,460,000 0 9,460,000
</TABLE>
8 Lines of Credit and Commitments
The Company has a line of credit arrangement with a bank which expires June
30, 2000. The line allows for borrowings of up to $10,000,000 at .9% over
the LIBOR rate. On December 31, 1999 there was $0 outstanding on the line.
The Company currently has a letter of credit issued on its behalf to its
insurance carrier. As of December 31, 1999, the total undrawn balance of
this letter of credit was $2,600,000.
- ----------------------------------------------------------------------------- 19
1999 Annual Report
<PAGE>
Independent Auditors' Report
===============================================================================
The Board of Directors and Stockholders
Fastenal Company:
We have audited the accompanying consolidated balance sheets of Fastenal Company
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of earnings, stockholders' equity and comprehensive income, and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fastenal Company and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Minneapolis, Minnesota
January 19, 2000, except as to
Note 4, which is as of January 25, 2000
[PHOTO OF FASTENAL TRUCK AND DOCK]
20 ----------------------------------------------------------------------------
1999 Annual Report
<PAGE>
Officers
================================================================================
Robert A. Kierlin
Chairman of the Board,
Chief Executive Officer and President
Willard D. Oberton
Chief Operating Officer
and Vice-President
Stephen M. Slaggie
Secretary
Daniel L. Florness
Chief Financial Officer
and Treasurer
Directors
================================================================================
Michael M. Gostomski
President and Chief Executive Officer
Winona Heating & Ventilating Co.
(sheet metal and roofing contractor)
Robert A. Hansen
Associate Professor of Marketing, Carlson
School of Management, University of Minnesota
Robert A. Kierlin
Henry K. McConnon
President
Wise Eyes, Inc.
(eyeglass retailer and wholesaler)
Willard D. Oberton
John D. Remick
President and Chief Executive Officer
Rochester Athletic Club, Inc.
(health club)
Stephen M. Slaggie
Corporate Information
================================================================================
Annual Meeting
The annual meeting of shareholders will be held at 10:00 a.m., Tuesday, April
18, 2000, at Corporate Headquarters, 2001 Theurer Boulevard, Winona, Minnesota
Corporate Headquarters
Fastenal Company
2001 Theurer Boulevard
Winona, Minnesota 55987-1500
Phone: (507) 454-5374
Fax: (507) 453-8049
Legal Counsel
Faegre & Benson LLP
Minneapolis, Minnesota
Streater & Murphy, PA
Winona, Minnesota
Form 10-K
A copy of the Company's 1999 Annual Report on Form 10-K to the Securities and
Exchange Commission is available without charge to shareholders upon written
request to the Secretary of the Company at the address listed on this page
for the Company's corporate headquarters.
Copies of our latest press release and unaudited supplemental Company
information are available at the Fastenal Company World Wide Web site at
www.fastenal.com
Auditors
KPMG LLP
Minneapolis, Minnesota
Transfer Agent
Norwest Bank Minnesota, N.A.
Minneapolis, Minnesota
<PAGE>
Exhibit 21
Subsidiaries of Fastenal Company.
Jurisdiction of
Subsidiary name Doing business as incorporation
- --------------- ----------------- -------------
Fastenal Canada Company Same Minnesota
Fastenal Company Services Same Minnesota
Fastenal Company Purchasing Same Minnesota
Fastenal Company Leasing Same Minnesota
Fastenal Mexico Services S. de
R.L. de C.V. Same Mexico
Fastenal Mexico S. de R.L. de
C.V. Same Mexico
<PAGE>
Exhibit 23
Independent Auditors' Consent
The Board of Directors and Stockholders
Fastenal Company:
We consent to the incorporation by reference in the Registration Statement No.
333-52765 on Form S-8 of Fastenal Company of our reports dated January 19, 2000,
except as to Note 4, which is as of January 25, 2000, relating to the
consolidated balance sheets of Fastenal Company and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of earnings,
stockholders' equity and comprehensive income, and cash flows and the related
consolidated financial statement schedule for each of the years in the
three-year period ended December 31, 1999, which is incorporated by reference in
the Annual Report on Form 10-K of Fastenal Company for the year ended December
31, 1999.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
March 10, 2000
<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 YEAR ENDED, DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 27,849,000
<SECURITIES> 0<F1>
<RECEIVABLES> 85,963,000
<ALLOWANCES> 1,400,000
<INVENTORY> 106,597,000
<CURRENT-ASSETS> 227,405,000
<PP&E> 131,413,000
<DEPRECIATION> 43,783,000
<TOTAL-ASSETS> 318,621,000
<CURRENT-LIABILITIES> 33,661,000
<BONDS> 0
0
0
<COMMON> 379,000
<OTHER-SE> 281,581,000
<TOTAL-LIABILITY-AND-EQUITY> 318,621,000
<SALES> 609,186,000
<TOTAL-REVENUES> 609,186,000
<CGS> 289,920,000
<TOTAL-COSTS> 289,920,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,566,000
<INTEREST-EXPENSE> 57,000
<INCOME-PRETAX> 106,479,000
<INCOME-TAX> 41,024,000
<INCOME-CONTINUING> 65,455,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,455,000
<EPS-BASIC> 1.73
<EPS-DILUTED> 1.73
<FN>
<F1>Marketable securities in the amount fo $215,000 have been classified as
non-current assets on the Consolidated Balance Sheet of Fastenal Company and
subsidiaries as of December 31, 1999.
</FN>
</TABLE>
