SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 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 July 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 June 30, 2001 and December 31, 2000 1 Consolidated Statements of Earnings for the six months and three months ended June 30, 2001 and 2000 2 Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 3 Notes to Consolidated Financial Statements 4 Management's discussion and analysis of financial condition and results of operations 5-8 Quantitative and qualitative disclosures about market risk 9 Part II Other Information: Submission of matters to a vote of security holders 9-10 Exhibits and reports on Form 8-K 10 </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> June 30, December 31, Assets 2001 2000 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Current assets: Cash and cash equivalents $ 46,713 19,710 Marketable securities 2,017 4,028 Trade accounts receivable, net of allowance for doubtful accounts of $2,502 and $2,238, respectively 112,918 106,120 Inventories 144,056 143,068 Deferred income tax asset 4,060 4,060 Other current assets 10,053 7,469 - ------------------------------------------------------------------------------------------------------------------------- Total current assets 319,817 284,455 Marketable securities 7,120 8,969 Property and equipment, less accumulated depreciation 114,553 105,807 Other assets, less accumulated amortization 3,180 3,233 - ------------------------------------------------------------------------------------------------------------------------- Total assets $ 444,670 402,464 ========================================================================================================================= Liabilities and Stockholders' Equity - ------------------------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 24,387 19,898 Accrued expenses 15,847 13,502 Income taxes payable 2,294 3,179 - ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 42,528 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 391,590 355,248 Accumulated other comprehensive loss (878) (793) - ------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 395,515 359,258 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 444,670 402,464 - ------------------------------------------------------------------------------------------------------------------------- </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> Six months ended Three months ended June 30, June 30, -------------------------------- ------------------------------- 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------- ------------------------------- <S> <C> <C> <C> <C> Net sales $ 405,923 364,857 204,907 188,589 Cost of sales 196,012 175,008 99,601 90,927 - ------------------------------------------------------------------------------------------- ------------------------------- Gross profit 209,911 189,849 105,306 97,662 Operating and administrative expenses 146,415 124,101 74,856 63,949 - ------------------------------------------------------------------------------------------- ------------------------------- Operating income 63,496 65,748 30,450 33,713 Other income (expense): Interest income 1,157 1,129 506 490 Loss on disposal of property and equipment (217) (119) (132) (41) - ------------------------------------------------------------------------------------------- ------------------------------- Total other income 940 1,010 374 449 - ------------------------------------------------------------------------------------------- ------------------------------- Earnings before income taxes 64,436 66,758 30,824 34,162 Income tax expense 24,679 25,737 11,806 13,187 - ------------------------------------------------------------------------------------------- ------------------------------- Net earnings $ 39,757 41,021 19,018 20,975 =========================================================================================== =============================== Basic and diluted earnings per share $ 1.05 1.08 .50 .55 =========================================================================================== =============================== Weighted average shares outstanding 37,939 37,939 37,939 37,939 =========================================================================================== =============================== </TABLE> The accompanying notes are an integral part of the consolidated financial statements.
-3- FASTENAL COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited) <TABLE> <CAPTION> Six months ended June 30, ----------------------------------- 2001 2000 - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> Cash flows from operating activities: Net earnings $ 39,757 41,021 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property and equipment 7,092 5,523 Loss on disposal of property and equipment 217 119 Bad debt expense 2,534 2,173 Deferred income taxes 0 2,000 Amortization of goodwill and non-compete 110 110 Changes in operating assets and liabilities: Trade accounts receivable (9,332) (23,219) Inventories (988) (19,531) Other current assets (2,584) (2,870) Accounts payable 4,489 10,541 Accrued expenses 2,345 2,503 Income taxes payable (885) 127 - ------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 42,755 18,497 - ------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Additions of property and equipment, net (18,114) (19,731) Proceeds from sale of property and equipment 2,059 5,200 Translation adjustment (63) (196) Net decrease in marketable securities 3,860 72 Increase in other assets (57) (52) - ------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (12,315) (14,707) - ------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Payment of dividends (3,415) (3,035) - ------------------------------------------------------------------------------------------------------------------------ Net cash used in financing activities (3,415) (3,035) - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash (22) (30) - ------------------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 27,003 725 Cash and cash equivalents at beginning of period 19,710 27,849 - ------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 46,713 28,574 - ------------------------------------------------------------------------------------------------------------------------ Supplemental disclosure of cash flow information: Cash paid during each period for: Income taxes $ 25,564 23,610 - ------------------------------------------------------------------------------------------------------------------------ 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 June 30, 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. (3) Comprehensive Income Comprehensive income and the components of other comprehensive income (loss) were as follows: Six months ended Three months ended (Amounts in thousands) June 30, June 30, ---------------- ------------------ 2001 2000 2001 2000 - --------------------------------------------------------- ------------------ Net earnings $ 39,757 41,021 19,018 20,975 Translation adjustment (85) (226) 567 (149) - --------------------------------------------------------- ------------------ Total comprehensive income $ 39,672 40,795 19,585 20,826 - --------------------------------------------------------- ------------------ (4) Reclassifications Marketable securities included in cash and cash equivalents at December 31, 2000 have been reclassified to conform to the June 30, 2001 presentation.
-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.) Six months ended June 30, 2001 vs. 2000 - --------------------------------------- Net sales for the six months ended June 30, 2001 were $405,923, an increase of 11.3% over net sales of $364,857 for the comparable period in 2000. The increase came primarily from higher unit sales rather than increases in prices. 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 5.7%. The remainder of the 11.3% sales growth came from store sites opened in 2000 and during the first six months of 2001. The mix of sales during the first six 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 60.6% 65.8% -------------------------------------------------------- Newer product lines 39.4% 34.2% -------------------------------------------------------- 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 six months ended June 30, 2001 were $39,757, a decrease of 3.1% from net earnings of $41,021 for the comparable period in 2000. Operating income decreased 3.4% from 2000 to 2001. The decrease in operating income occurred primarily because (1) gross margins decreased from 52.0% to 51.7% and (2) operating expenses increased at an 18.0% rate, a rate greater than the net sales growth rate. The factors behind these two changes are included in the 2001 discussion below. The Company branch (store site) personnel totaled 4,433 on June 30, 2001, an increase of 1.8% over the 4,356 on December 31, 2000.
-6- ITEM 2. (continued) Three months ended June 30, 2001 vs. 2000 - ----------------------------------------- Net sales for the three months ended June 30, 2001 were $204,907, an increase of 8.7% over net sales of $188,589 for the comparable period in 2000. The increase came primarily from higher unit sales rather than increases in prices. 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 2.2%. The remainder of the 8.7% sales growth came from store sites opened in 2000 and during the first six months of 2001. The mix of sales during the second quarter 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 59.8% 64.6% ------------------------------------------------------- Newer product lines 40.2% 35.4% ------------------------------------------------------- Net earnings for the three months ended June 30, 2001 were $19,018, a decrease of 9.3% from net earnings of $20,975 for the comparable period in 2000. Operating income decreased 9.7% from 2000 to 2001. The decrease in operating income occurred primarily because (1) gross margins decreased from 51.8% to 51.4% and (2) operating expenses increased at a 17.1% rate, a rate greater than the net sales growth rate. The factors behind these two changes are included in the 2001 discussion below. The Company branch (store site) personnel totaled 4,433 on June 30, 2001, a decrease of 0.2% from the 4,444 on March 31, 2001. 2001 Discussion - --------------- Note - Daily sales are defined as the sales for the month divided by the number of business days in the month. The first six months of 2001 each had daily sales growth rates of 20.3%, 16.4%, 11.7%, 9.1%, 9.5%, and 7.7%, when compared to the same month in 2000. The January 2001 growth of 20.3% represented a noticeable recovery from the 17.8% growth in daily sales experienced in December 2000. However, the general decline in the daily sales growth rates continues a trend, which began in November 2000. This trend reflects the overall weakening of the industrial economy we service in North America.
-7- ITEM 2. (continued) The Company experienced negative earnings leverage (growth in earnings versus growth in sales) during the six-month and three-month periods ended June 30, 2001. This was due to (1) the decrease in gross margin, caused primarily by changes in product mix, (2) the additional expenses of store site openings (see comments below), (3) the added impact of increases in utility, motor fuel, and health care costs when compared to the same period in 2000, and (4) the increase in depreciation expense associated with addition of property and equipment, most notably software and hardware for the Company's management information system. The Company opened 20, 36, 50, and 44 new store sites during the third and fourth quarters of 2000 and the first and second quarters of 2001, respectively, for a total of 150 (or 17.8%) over June 30, 2000. 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. At the end of 2000, we indicated that we expected the rate of new store openings to be approximately 10% to 15% per year (meaning that we expected to open from 90 to 135 new stores in 2001). Our current plans anticipate opening approximately 30 to 35 additional stores in 2001, which would bring our total openings for the year to the range of approximately 125 to 130. We expect the majority of these additional openings will occur in the third quarter. Planned openings can be altered in a short time span, usually less than 60 to 90 days. As the third quarter unfolds the Company will continue to reevaluate the level of planned openings. Liquidity and Capital Resources - ------------------------------- The higher level of sales during the six-month period resulted in the growth of trade accounts receivable. 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. In addition to the property and equipment expansion just noted, the Company is actively increasing the number of owned locations. The number of store locations owned, versus leased, on June 30, 2001 was 40, an increase of 29.0% over the 31 locations owned on December 31, 2001. The Company expects to add to this number in the future to lower its occupancy costs. Disposals of property and equipment related to the planned disposition of certain pickup trucks and semi-tractors and trailers in the normal course.
-8- ITEM 2. (continued) Liquidity and Capital Resources (continued) - ------------------------------- Cash requirements for these asset changes were satisfied from net earnings, cash on hand, and the proceeds of asset disposals. As of June 30, 2001, the Company had no material outstanding commitments for capital expenditures. Management anticipates funding its current expansion plans with cash generated from operations, from available cash and cash equivalents, and, to a lesser degree, from its borrowing capacity. 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, the expected time of occupancy of the Kansas City distribution center, and expected increases in the number of owned stores. 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, (xi) changes in the rate of new store openings could impact expenditures for computers and other capital equipment, and (xii) changes in the availability of suitable land and buildings could impact expenditures for additional owned locations which house our store sites.
-9- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks from changes in interest rates and foreign currency exchange rates. Changes in these factors cause fluctuations in the Company's earnings and cash flows. The Company evaluates and manages exposure to these market risks as follows: Interest Rates - The Company has a $10 million line of credit of which $0 was outstanding at June 30, 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 June 30, 2001. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's annual meeting of shareholders held on April 17, 2001, two matters were put to a vote of the shareholders. Proxies were solicited from shareholders unable to attend the meeting. Proxy votes are included in the results that follow. Matter 1. To elect a Board of nine directors, to serve until the next regular - --------- meeting of shareholders or until their successors have been duly elected and qualified. The existing directors, Robert A. Kierlin, Stephen M. Slaggie, Michael M. Gostomski, John D. Remick, Henry K. McConnon, Robert A. Hansen, Willard D. Oberton, Reyne K. Wisecup, and Michael J. Dolan, were nominated. There were no other nominations. The nine nominees each received and had withheld the number of votes set forth opposite their names below: <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------- Total Number of Total Number of Name of Director Votes Cast For Votes Withheld --------------- ------------- -------------- - ---------------------------------------------------------------------------------------- <S> <C> <C> Robert A. Kierlin 31,267,461 319,787 - ---------------------------------------------------------------------------------------- Stephen M. Slaggie 31,267,830 319,418 - ---------------------------------------------------------------------------------------- Michael M. Gostomski 31,586,773 475 - ---------------------------------------------------------------------------------------- John D. Remick 31,586,773 475 - ---------------------------------------------------------------------------------------- Henry K. McConnon 31,586,423 825 - ---------------------------------------------------------------------------------------- Robert A. Hansen 31,575,641 11,607 - ---------------------------------------------------------------------------------------- Willard D. Oberton 31,268,971 318,277 - ---------------------------------------------------------------------------------------- Reyne K. Wisecup 31,259,977 327,271 - ---------------------------------------------------------------------------------------- Michael J. Dolan 31,583,018 4,230 - ---------------------------------------------------------------------------------------- </TABLE> There were no abstentions or broker non-votes.
-10- ITEM 4. (continued) Matter 2. To ratify the appointment of KPMG LLP as independent auditors for the - --------- fiscal year ending December 31, 2001. Voting to ratify the appointment were 31,880,043 shares. Voting against the ratification were 30,942 shares. There were no broker non-votes. Abstentions totaled 69,805 shares. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.1 Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q for the quarter ended September 30, 1993) 3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-14923) (b) Reports on Form 8-K: No report on Form 8-K was filed by Fastenal Company during the quarter ended June 30, 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 August 2, 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).