SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001, or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 0-16125 FASTENAL COMPANY (Exact name of registrant as specified in its charter) Minnesota 41-0948415 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2001 Theurer Boulevard Winona, Minnesota 55987-1500 (Address of principal executive offices) (Zip Code) (507) 454-5374 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Class Outstanding at April 15, 2001 Common Stock, $.01 par value 37,938,688
FASTENAL COMPANY INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> Part I Financial Information: Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 1 Consolidated Statements of Earnings for the three months ended March 31, 2001 and 2000 2 Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 3 Notes to Consolidated Financial Statements 4 Management's discussion and analysis of financial condition and results of operations 5-7 Quantitative and qualitative disclosures about market risk 8 Part II Other Information: Exhibits and reports on Form 8-K 8 </TABLE>
-1- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FASTENAL COMPANY AND SUBSIDIARIES Consolidated Balance Sheets (Amounts in thousands except share information) (Unaudited) <TABLE> <CAPTION> March 31, December 31, Assets 2001 2000 - -------------------------------------------------------------------------------------------------------- <S> <C> <C> Current assets: Cash and cash equivalents $ 35,746 19,710 Marketable securities 3,027 4,028 Trade accounts receivable, net of allowance for doubtful accounts of $2,238 and $2,238, respectively 113,501 106,120 Inventories 145,669 143,068 Deferred income tax asset 4,060 4,060 Other current assets 9,385 7,469 - -------------------------------------------------------------------------------------------------------- Total current assets 311,388 284,455 Marketable securities 8,032 8,969 Property and equipment, less accumulated depreciation 110,304 105,807 Other assets, less accumulated amortization 3,211 3,233 - -------------------------------------------------------------------------------------------------------- Total assets $ 432,935 402,464 ======================================================================================================== Liabilities and Stockholders' Equity - -------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 21,181 19,898 Accrued expenses 14,391 13,502 Income taxes payable 14,806 3,179 - -------------------------------------------------------------------------------------------------------- Total current liabilities 50,378 36,579 - -------------------------------------------------------------------------------------------------------- Deferred income tax liability 6,627 6,627 - -------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock 0 0 Common stock, 50,000,000 shares authorized 37,938,688 shares issued and outstanding 379 379 Additional paid-in capital 4,424 4,424 Retained earnings 372,572 355,248 Accumulated other comprehensive loss (1,445) (793) - -------------------------------------------------------------------------------------------------------- Total stockholders' equity 375,930 359,258 - -------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 432,935 402,464 ======================================================================================================== </TABLE> The accompanying notes are an integral part of the consolidated financial statements.
-2- FASTENAL COMPANY AND SUBSIDIARIES Consolidated Statements of Earnings (Amounts in thousands except earnings per share) (Unaudited) <TABLE> <CAPTION> Three months ended March 31, ----------------------------- 2001 2000 - ------------------------------------------------------------------------------------ <S> <C> <C> Net sales $ 201,016 176,268 Cost of sales 96,411 84,081 - ------------------------------------------------------------------------------------ Gross profit 104,605 92,187 Operating and administrative expenses 71,559 60,152 - ------------------------------------------------------------------------------------ Operating income 33,046 32,035 Other income (expense): Interest income 651 639 Loss on disposal of property and equipment (85) (78) - ------------------------------------------------------------------------------------ Total other income 566 561 - ------------------------------------------------------------------------------------ Earnings before income taxes 33,612 32,596 Income tax expense 12,873 12,550 - ------------------------------------------------------------------------------------ Net earnings $ 20,739 20,046 - ------------------------------------------------------------------------------------ Basic and diluted earnings per share $ .55 .53 - ------------------------------------------------------------------------------------ Weighted average shares outstanding 37,939 37,939 - ------------------------------------------------------------------------------------ </TABLE> The accompanying notes are an integral part of the consolidated financial statements.
-3- FASTENAL COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited) <TABLE> <CAPTION> Three months ended March 31, ------------------------ 2001 2000 - ------------------------------------------------------------------------------------------------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 20,739 20,046 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property and equipment 3,275 2,717 Loss on disposal of property and equipment 85 78 Bad debt expense 1,285 1,067 Deferred income taxes 0 2,000 Amortization of goodwill and non-compete 55 55 Changes in operating assets and liabilities: Trade accounts receivable (8,666) (13,968) Inventories (2,601) (4,194) Other current assets (1,916) 33 Accounts payable 1,283 4,292 Accrued expenses 889 2,332 Income taxes payable 11,627 8,801 - ------------------------------------------------------------------------------------------------- Net cash provided by operating activities 26,055 23,259 - ------------------------------------------------------------------------------------------------- Cash flows from investing activities: Additions of property and equipment, net (8,604) (10,447) Proceeds from sale of property and equipment 747 2,644 Translation adjustment (652) (77) Net decrease in marketable securities 1,938 69 Increase in other assets (33) (28) - ------------------------------------------------------------------------------------------------- Net cash used in investing activities (6,604) (7,839) - ------------------------------------------------------------------------------------------------- Cash flows from financing activities: Payment of dividends (3,415) (3,035) - ------------------------------------------------------------------------------------------------- Net cash used in financing activities (3,415) (3,035) - ------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 16,036 12,385 Cash and cash equivalents at beginning of period 19,710 27,849 - ------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 35,746 40,234 - ------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during each period for: Income taxes $ 1,246 1,749 - ------------------------------------------------------------------------------------------------- Interest $ 0 0 - ------------------------------------------------------------------------------------------------- </TABLE> The accompanying notes are an integral part of the consolidated financial statements.
-4- FASTENAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 and 2000 (Unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements of Fastenal Company and subsidiaries (collectively referred to as the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, there has been no material change in the information disclosed in the notes to consolidated financial statements included in the Company's consolidated financial statements as of and for the year ended December 31, 2000. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. (2) Derivative Instruments and Hedging Activities During the first quarter of 2001 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". The adoption of SFAS 133 did not impact the Company's financial condition or results of operations.
-5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial position and operating results during the periods included in the accompanying consolidated financial statements. (Dollar amounts are in thousands.) Three months ended March 31, 2001 vs. 2000 - ------------------------------------------ Net sales for the three months ended March 31, 2001 were $201,016, an increase of 14.0% over net sales of $176,268 for the comparable period in 2000. The increase came primarily from higher unit sales. Higher unit sales resulted primarily from increases in sales at existing store sites. The increases in sales at existing store sites are due primarily to increases in market share and the introduction of new product lines. Sites opened in 1999 or earlier had average sales increases of 9.5%. The remainder of the 14.0% sales growth came from store sites opened in 2000 and during the first three months of 2001. The mix of sales during the first three months of 2001 and 2000, from the original Fastenal(R) product line (which consists primarily of threaded fasteners) and from the newer product lines, was as follows: Product line 2001 2000 --------------------------------------------------------------------------- Fastener product line 61.5% 67.0% --------------------------------------------------------------------------- Newer product lines 38.5% 33.0% --------------------------------------------------------------------------- The newer product lines consist of and were introduced as follows: Product line Introduced --------------------------------------------------------------- Tools 1993 --------------------------------------------------------------- Cutting tools 1996 --------------------------------------------------------------- Hydraulics & pneumatics 1996 --------------------------------------------------------------- Material handling 1996 --------------------------------------------------------------- Janitorial supplies 1996 --------------------------------------------------------------- Electrical supplies 1997 --------------------------------------------------------------- Welding supplies 1997 --------------------------------------------------------------- Safety supplies 1999 --------------------------------------------------------------- Net earnings for the three months ended March 31, 2001 were $20,739, an increase of 3.5% over net earnings of $20,046 for the comparable period in 2000. Operating income grew 3.2% from 2000 to 2001, a rate of growth lower than the net sales rate of growth. The lower rate of growth in operating income occurred primarily because (1) gross margins decreased from 52.3% to 52.0% and (2) operating expenses increased at a 19.0% rate, a rate greater than the net sales growth rate. The factors behind these two changes are discussed below. The Company branch (store site) personnel totaled 4,444 on March 31, 2001, an increase of 2.0% over the 4,356 on December 31, 2000.
-6- ITEM 2. (continued) The quarter began with a 20.3% growth in daily sales in January. A noticeable recovery from the 17.8% growth in daily sales experienced in December 2000. The growth in daily sales dropped to 16.4% in February and to 11.7% in March. This decline in the daily sales growth rates continues a trend, which began in November 2000. This trend mirrors the overall weakening of the industrial economy we service in North America. The increased pressures of the competitive marketplace in a slowing economy and, to a lesser extent, change in product mix impacted our gross margin during the quarter. The gross margin was 52.0% in the first quarter of 2001 and 52.3% in the comparable period in 2000. The Company experienced negative leverage during the quarter. This was due to (1) the aforementioned decrease in gross margin, (2) the additional expenses of planned store site openings, and (3) the added impact of increases in utility costs when compared to the same quarter in 2000. The Company opened 22, 20, 36, and 50 new store sites during the most recent four quarters respectively, for a total of 128 (or 15.6%). While the new stores continue to build the infrastructure for future growth, the added expenses related to payroll, occupancy, and transportation costs impact the Company's ability to leverage earnings in a slowing industrial economy. As we move into the second quarter of 2001 we will continue to open stores. The time line for slowing down the planned openings is such that openings can be altered in a short time span, usually less than 60 to 90 days. The Company is committed to continued earnings growth. As the second quarter unfolds the Company will continue to reevaluate the level of planned openings. Liquidity and Capital Resources - ------------------------------- The higher level of sales during the three-month period resulted in the growth of trade accounts receivable and inventories. Property and equipment increased because of: (1) the construction of a new distribution center in Kansas City which we expect to occupy in late third or early fourth quarter of 2001, (2) the expansion of our distribution center in Scranton, PA, (3) the purchase of software and hardware for the Company's information processing systems, (4) the addition of certain pickup trucks and (5) the addition of manufacturing and warehouse equipment. Disposals of property and equipment related to the planned disposition of certain pickup trucks and semi-tractors and trailers in the normal course. Cash requirements for these asset changes were satisfied from net earnings, cash on hand, and the proceeds of asset disposals. As of March 31, 2001, the Company had no material outstanding commitments for capital expenditures. Management anticipates funding it current expansion plans with cash generated from operations, from available cash and cash equivalents, and, to a lesser degree, from its borrowing capacity.
-7- ITEM 2. (continued) Certain Risks and Uncertainties - ------------------------------- This discussion contains statements that are not historical in nature and that are intended to be, and are hereby identified as, "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, including statements regarding planned store openings, the timeline for altering planned openings, and the expected time of occupancy of the Kansas City distribution center. The following factors are among those that could impact the Company's plans and performance, and cause the Company's actual results to differ materially from those predicted in such forward-looking statements: (i) an upturn or downturn in the economy could impact sales at existing stores and the rates of new store openings and additions of new employees, (ii) an upturn or downturn in the economy, or a change in product mix, could impact gross margins, (iii) a change, from that projected, in the number of smaller communities able to support future store sites could impact the rate of new store openings and additions of new employees, (iv) 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, (v) increases or decreases in fuel and utility costs could impact distribution and occupancy expenses of the Company, (vi) the ability of the Company to successfully attract and retain qualified personnel to staff the Company's smaller community stores could impact sales at existing stores and the rate of new store openings, (vii) changes in governmental regulations related to product quality or product source traceability could impact the cost to the Company of regulatory compliance, (viii) inclement weather could impact the Company's distribution network, (ix) foreign currency fluctuations or changes in trade relations could impact the ability of the Company to procure products overseas at competitive prices and the Company's foreign sales, (x) disruptions caused by the implementation of the Company's new management information systems infrastructure could impact sales, and (xi) changes in the rate of new store openings could impact expenditures for computers and other capital equipment.
-8- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks from changes in interest rates and foreign currency exchange rates. Changes in these factors cause fluctuations in the Company's earnings and cash flows. The Company evaluates and manages exposure to these market risks as follows: Interest Rates - The Company has a $10 million line of credit of which $0 was outstanding at March 31, 2001. The line bears interest at 0.9% over the LIBOR rate. Foreign Currency Exchange Rates - Foreign currency fluctuations can affect the Company's net investments and earnings denominated in foreign currencies. The Company's primary exchange rate exposure is with the Canadian dollar against the U.S. dollar. The Company's estimated net earnings exposure for foreign currency exchange rates was not material at March 31, 2001. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.1 Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q for the quarter ended September 30, 1993) 3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-14923) (b) Reports on Form 8-K: No report on Form 8-K was filed by Fastenal Company during the quarter ended March 31, 2001.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FASTENAL COMPANY /s/ Robert A. Kierlin ------------------------------- (Robert A. Kierlin, President) (Duly Authorized Officer) Date April 16, 2001 /s/ Daniel L. Florness ------------------ ------------------------------- (Daniel L. Florness, Treasurer) (Principal Financial Officer)
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).