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9706257 | 2017 Annual Report | 2.18 KV | Printed in the USA
2017 ANNUAL REPORT
FASTENAL
GLANCE
AT A
I N-MARKE
RIES W I T H
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LOCATIONS 7
ONSITE
143 MILLION
MILES DELIVERED 834
MILLION POUNDS
DELIVERED
VENDING MACHINES INSTALLED
655,261
50,000+
NO. OF FASTENAL SCHOOL OF
BUSINESS COURSE COMPLETIONS
127,000+
EMPLOYEE SAFETY
COACHING, TRAINING, &
INSPECTION EVENTS
$1.1 BILLION
INVENTORY VALUE
20,565
EMPLOYEES
ACTIVE
BIN STOCKS
NO. OF ORDERS PROCESSED
37,641,814
TABLE OF CONTENTS
Letter to Shareholders
1-3
4-5
10-Year Selected Financial
Data & Financial Highlights
6
Stock and Financial Data
7
8
Stock Performance Highlights
A Deeper Level of Value
INSIDE
BACK
COVER
Directors
Executive Officers
Corporate Information
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2,383
BRANCHES
13.2%
DAILY SALES
GROWTH TO
CUSTOMERS
WITH VENDING
WILLARD D. OBERTON
Chairman of the Board, Retired President
and Chief Executive Officer,
Fastenal Company
MICHAEL J. ANCIUS
Vice President and Chief Financial Officer,
A.L.M. Holding Company
(construction and energy company)
MICHAEL J. DOLAN
Self-Employed Business Consultant,
Retired Executive Vice President and
Chief Operating Officer,
The Smead Manufacturing Company
STEPHEN L. EASTMAN
President of the Parts, Garments,
and Accessories Division of
Polaris Industries Inc.
(recreational vehicle manufacturer)
DANIEL L. FLORNESS
RITA J. HEISE
Self-Employed Business Consultant,
Retired Corporate Vice President and
Chief Information Officer of
Cargill, Incorporated
DARREN R. JACKSON
Retired Chief Executive Officer,
Advance Auto Parts, Inc.
DANIEL L. JOHNSON
President and Chief Executive Officer of
M.A. Mortenson Company (family owned
construction company)
SCOTT A. SATTERLEE
Retired President of North America
Surface Transportation Division, C.H.
Robinson Worldwide, Inc.
REYNE K. WISECUP
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DANIEL L. FLORNESS
President and Chief Executive Officer
CHARLES S. MILLER
Executive Vice President - Sales
WILLIAM J. DRAZKOWSKI
Executive Vice President -
National Accounts Sales
TERRY M. OWEN
Senior Executive Vice President -
Sales Operations
LELAND J. HEIN
Senior Executive Vice President - Sales
JAMES C. JANSEN
Executive Vice President - Manufacturing
HOLDEN LEWIS
Executive Vice President and
Chief Financial Officer
GARY A. POLIPNICK
Executive Vice President -
FAST Solutions®
JOHN L. SODERBERG
Executive Vice President -
Information Technology
JEFFERY M. WATTS
Executive Vice President -
International Sales
SHERYL A. LISOWSKI
Controller, Chief Accounting Officer,
and Treasurer
REYNE K. WISECUP
Senior Executive Vice President -
Human Resources
NICHOLAS J. LUNDQUIST
Senior Executive Vice President -
Operations
ANNUAL
MEETING
The annual meeting of shareholders
will be held at 10:00 a.m., central
time, April 24, 2018, at our home
office located at 2001 Theurer
Boulevard, Winona, Minnesota.
HOME
OFFICE
Fastenal Company
2001 Theurer Boulevard
Winona, Minnesota 55987-0978
Phone: (507) 454-5374
Fax: (507) 453-8049
LEGAL
COUNSEL
Faegre Baker Daniels LLP
Minneapolis, Minnesota
INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
Minneapolis, Minnesota
FORM
10-K
A copy of our 2017 Annual
Report on Form 10-K filed with
the Securities and Exchange
Commission is available without
charge to shareholders upon written
request to internal audit at the
address of our home office listed on
this page.
Copies of our latest press releases,
unaudited supplemental company
information, and monthly sales
information are available at:
http://investor.fastenal.com.
TRANSFER
AGENT
Equiniti Trust Company
Mendota Heights, Minnesota
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2017 ANNUAL REPORT
2017 ANNUAL REPORT
1
LETTER TO
SHAREHOLDERS
A Good Year for the Blue Team
Our 50th year was a good year for Fastenal, a year for our
customers and employees to experience improving success, a
year for our suppliers to participate in this success, and a year for
our shareholders to enjoy a return on their investment.
It was also a year to remind us about the nature of Fastenal.
We believe in people. We believe we can accomplish anything
if everyone in the organization pursues a common goal. And we
believe we can accomplish our goals faster if we unleash the vast
human potential within the organization.
We have a common goal; it’s Growth Through Customer Service.
We also have a means to unleash our potential; it’s called
challenging each other, providing great training, and operating
with a decentralized decision-making mindset.
What a difference a couple of years can make.
At the end of 2015, our customers were experiencing a weak
economy and we were struggling for growth. We closed out the
year with a daily sales contraction of about 2% during the fourth
quarter. In 2016, we worked extremely hard, but it often felt like
we were running in place.
We found our footing as we stepped into 2017. We also started to
‘Think Big,’ and we rekindled our belief in our ability to grow faster.
For the year, we grew our sales around 11% and grew our pre-tax
earnings around 11% – a return to double digits on both fronts. We
are proud of this accomplishment.
Here is a quick recap of 2017. In the first quarter we grew both
sales and pre-tax earnings around 6%, a welcome improvement.
Our momentum continued in the second quarter as we grew our
sales around 11% and our pre-tax earnings around 13%. We were
excited to create some leverage in the business. (For this purpose,
we define leverage as pre-tax earnings growing faster than sales.)
In the third quarter we grew both our sales and pre-tax earnings
around 12%. That was less satisfying than the second quarter. We
understand our growth drivers, and we understand that our primary
growth drivers carry a lower gross profit margin contribution. This
challenges our gross profit margins as our sales mix changes.
Our complementary challenge is simply to manage our operating
expenses as this sales mix change progresses.
These aren’t new comments, but they’re worth repeating. Our lack
of leverage in the third quarter did raise some concerns for us. We
believe we should be able to leverage 12% revenue growth. That
said, there are a couple of items worth noting about the quarter.
First, there was one less business day (63 days in 2017 versus
64 days in 2016). One less day means about $18 million less in
sales; however, certain expenses are linked to the month, not the
day, and they don’t drop when we lose a business day. Examples
include base payroll dollars, benefits, vehicle payments, insurance,
and occupancy. This hurts our gross profit percentage as freight
utilization suffers. It also hurts our operating expense percentage
as facility and people utilization suffers.
The second item centers on people costs and on our aggressive
ramp-up related to our Onsite rollout. Late in 2016, we modified
our branch manager compensation formula. This change, when
combined with an added element to reward for Onsite revenue
growth, added to our expense growth. We have also been
aggressively adding resources to vet and implement new Onsite
locations. We view this as a great long-term investment, but it did
create some added expenses in the near term. These two items
will also impact subsequent quarters.
This brings us to the fourth quarter, when we grew our sales about
15%. Given the relatively strong gross profit margin performance
in the fourth quarter of 2016, we did not expect to leverage our
pre-tax earnings; however, we did expect pre-tax earnings to grow
within two or three percentage points of sales growth. We fell just
shy of this and grew our pre-tax earnings about 11%. We moved a
bit too slowly on challenging our gross profit margins. As president
and CEO, that’s on me. With that said, I’m glad we continued to
invest in our future. This will serve us well in 2018.
You might have noticed the discussion above was focused on
sales growth and pre-tax earnings growth. The recent income
tax changes in the United States had a meaningful impact on our
fourth quarter net earnings – our tax expense dropped and our
net earnings grew faster. By focusing our discussion on pre-tax
results, we were able to provide you with a more ‘straightforward’
discussion. (We like straightforward.)
You may be wondering why a tax law signed in 2017 and effective
in 2018 would impact our net earnings in the fourth quarter of
2017. This relates to the tax liabilities we had previously recorded
on our financial statements for deferred taxes. To make a long
story short, these liabilities (which will come due in future years)
were recorded using the old income tax rates but will be paid using
the new income tax rates. The accounting rules stipulate that we
recognize this impact in the quarter the tax law is signed, hence
our recognition in the fourth quarter of 2017.
We also expect that the recent income tax changes will continue to
have a meaningful impact on our results. This impact is magnified
by the global mix of our business, which remains ‘U.S.-centric’
despite our continued international expansion. From an historical
perspective, we didn’t start to expand our global footprint until we
entered Canada in the mid-1990s. Because of this, our business
in the United States enjoyed a 30-year ‘head start’ and continues
to generate over 85% of our sales and profits. As a result, our
2017 ANNUAL REPORT 2
income tax expense is primarily driven by U.S. income tax rates,
which historically have been high relative to the rest of the world.
To put this in perspective, the average effective income tax rate of
the companies included in the S&P 500 has been around 27% in
recent years. By contrast, our rate has been closer to 37%.
Our customers have historically been limited by four things – the
vibrancy and size of their economy, the ability to fund growth, the
ability to develop their talent, and the ability to develop ideas to
serve their market. These four limitations impact Fastenal too. With a
stronger economy and lower tax burden, our task in 2018 will center
on the last two items – developing talent and generating ideas.
Year 51 is here for Fastenal. Let’s continue
to build our traditions, starting with a simple
approach - Think Big!
Fastenal began in November 1967, and as was mentioned
earlier, we celebrated 50 years in business during 2017. A lesser
known milestone also occurred: We celebrated 30 years as a
public company (since August 1987). Many have benefitted from
our decision to go public, including our employees, who have an
opportunity to take ownership in the company they’re working so
hard to grow.
Milestones are too often about celebrating the past. Our 2017
milestones gave us an opportunity to reflect on the enduring strength
of our culture and core beliefs. We believe in people, we believe in
decentralized decision-making, we promote from within, we provide
great business solutions for customers, and we believe in the future.
Speaking of the future, we believe we have the ability to grow
for years to come. We think this statement is important. We also
believe this can be profitable growth. Here are some thoughts on
our business.
First, we foster strong customer relationships by providing products
and services through multiple channels. These channels include
our traditional branch network, our Onsite network, our vending
network, our FMI (Fastenal Managed Inventory, or bin stock)
network, and our distribution network outside of North America.
Most of our customers buy from us through multiple channels. In
fact, if you add up customers with multiple-channel purchases,
it’s approximately 90% of our revenues. We have to perform at
a high level every day, but because our customer relationships
are so durable, the economy and our ability to expand business
relationships really drive our results. The 10% of our revenue that
is single-channel primarily includes smaller customers and ‘cash
customers’ (non-account retail sales). These customers tend to
buy from us through the traditional branch network. Fortunately,
our growth with these last two groups of customers continues to
experience growth as well.
Second, we believe we have a durable and vibrant business
model. Our durability derives from our frugality. This allows us to
be profitable where others aren’t and to try things others can’t.
We’re vibrant in that we learn from each other, and can identify
and replicate best practices quickly across the company.
Third, the market is really big. After 50 years in business, we believe
our market share is just a small sliver of the potential opportunity.
Some insight into several of our channels:
Let’s talk industrial vending. It helps us grow faster, it’s
profitable, and we continue to improve (although we still have a
lot of opportunity for improvement). We ended 2017 with about
86,000 vending devices deployed. Roughly 71,000 of these
devices primarily vend Fastenal-supplied products, and the
remaining 15,000 devices are primarily used to check out and
return customer-owned assets (tools, scanners, gauges, etc.)
We believe we are 12 to 18 months from having 100,000 total
devices deployed.*
Let’s talk Onsite. An Onsite business is a discrete business unit
serving a large customer location. We often describe it as a
‘branch’ within a customer’s facility, but it can also be a customer-
dedicated location within a lower-cost facility near the customer,
or a customer-dedicated location within an overflow space in the
back of an existing branch. Our Onsite model has become a bigger
growth driver in recent years. At the end of 2014, we had roughly
200 Onsite locations. Today, we have over 600, and we believe we
are 12 to 18 months from having 1,000 Onsite businesses.*
On November 6, 2017, 65 long-tenured Fastenal employees
traveled to Times Square to ring the Nasdaq opening bell. The event
was a celebration of two major milestones for our company in 2017:
50 years in business and 30 years on the Nasdaq Stock Market.
2017 ANNUAL REPORT We often speak about national accounts and government accounts.
These aren’t channels; they’re customer types. What makes
them different is we utilize a non-branch sales force to cultivate
and grow these relationships (although local branch and Onsite
personnel provide most of the delivery and stocking services). We
have a great sales team, and they are operating at a very high
level. These two customer groups represent just over 50% of our
revenue and contribute nearly 70% of our growth.
Our 50-year-old business evolves.
We have some core beliefs, and these beliefs typically manifest
in our strategy. We believe our marketplace can be under-served
by traditional distribution; therefore, we live by a Growth Through
Customer Service motto. We believe proximity to our customer is
a key ingredient to service; therefore, we operate a very frugal
business ethic to stretch our ability to operate smaller distribution
locations close to our customer. Finally, we know the needs of
our customers, the nature of our competitive landscape, and the
location of our marketplace change every day; therefore, we need
to evolve and understand our marketplace to provide success for
our customers, our employees, our suppliers, and our shareholders.
Here are two perspectives – one on our evolution over the last 15
years focused on time, the other on marketplace differences.
Time – In the five-year period from 2003 to 2007 we opened
around 1,000 branch locations and we closed/consolidated seven.
The number of Onsite businesses increased from around 75 to
130, and the number of deployed vending devices went from very
few to still very few.
In the five-year period from 2008 to 2012 we opened around
550 branch locations and we closed/consolidated around 65. The
number of Onsite businesses increased from around 130 to 160,
and the number of deployed vending devices went from very few
to around 21,000.
In the five-year period from 2013 to 2017 we opened approximately
175 branch locations; however, we closed/consolidated around
450. The number of Onsite businesses increased from around 160
to over 600, and the number of deployed vending devices went
from around 21,000 to around 86,000. This evolution positions us
to provide a greater service from an ever closer proximity.
Markets – We operate in individual marketplaces (cities) ranging
from large to small. We think of it as three distinct markets.
Large markets: In the United States, there are approximately
100 Major MSAs (defined as Metropolitan Statistical Areas with
a population over 500,000 people). The Large MSA markets
represent just over half of our revenues, just over half of our branch
locations, and just over half of our Onsite locations.
3
population under 500,000 people). Our home office is located in one
of these Small MSAs, an area that includes La Crosse, Wisconsin
and Winona, Minnesota. The Small MSA markets represent just
over 15% of our revenues, around 15% of our branch locations,
and just over 15% of our Onsite locations.
Markets ignored by others: For lack of a better term, we refer to
the rest as our ‘Non-MSA’ markets (primarily smaller towns and
rural areas). The Non-MSA markets represent about a third of our
revenues, about a third of our branch locations, and about a third
of our Onsite locations.
I personally find this information really exciting because our
business model is successful in various channels (branch, Onsite,
vending, FMI, etc.), in various economies (United States, Canada,
Mexico, and overseas), and in a range of market sizes, from major
cities to small towns. It all adds up to a lot of great opportunities
for members of the Blue Team to be successful serving customers.
Finally, some thoughts on our obligations:
After two years in this role, I try to be honest about the quality
and type of leadership I provide. The Blue Team deserves great
leadership every day. If you flip to the inside back cover of this
report, you will see a group of talented, dedicated, and diverse
leaders. If you look deeper into the organization, you will see an
incredible depth of talent and potential – we are fortunate.
When thinking about my obligation to our team, several thoughts
come to mind: (1) to communicate, (2) to listen, and (3) to challenge
the team to Think Big!
When thinking about the obligations of every Fastenal employee to
each other, again several thoughts come to mind: (1) be willing to
learn and change, (2) be willing to help each other succeed, and
(3) be willing to challenge each other to Think Big!
And finally, a few overriding obligations for everyone at Fastenal:
(1) Create opportunities for your customers and for your employees
every day. (2) Think Big! This means - have a plan, stretch yourself,
and vet your business plan with those around you (your team, your
peers, your mentor or leader). (3) Make wise decisions.
Thank you for your belief in Fastenal, and thank you for being a
shareholder. We will endeavor to make wise decisions every day
as we embark on our next 50 years of Growth Through Customer
Service.
Sincerely,
Smaller Markets: In the United States, we track approximately
170 Small MSAs (defined as Metropolitan Statistical Areas with a
DANIEL L. FLORNESS
President and Chief Executive Officer
* We don’t have a crystal ball. This is neither a prediction nor a target; it’s our stated belief in the future.
2017 ANNUAL REPORT 4
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(Amounts in Millions Except Per Share Information)
Operating Results
Net sales
Gross profit
% of net sales
Earnings before income taxes
% of net sales
Net earnings
% of net sales
Basic net earnings per share
Basic weighted average shares outstanding
Diluted net earnings per share
Diluted weighted average shares outstanding(1)
Cash Flow Summary
Net cash provided by operating activities (2)
% of net earnings
Less capital expenditures, net
Acquisitions and other
Free cash flow
% of net earnings
Dividends and Common
Stock Purchase Summary
Dividends paid
% of net earnings
Dividends paid per share
Purchases of common stock
% of net earnings
Common stock shares purchased
Average price paid per share
Financial Position at Year End
Operational working capital
(accounts receivable, net and inventories)
Net working capital
(current assets less current liabilities)
Fixed capital
(property and equipment, net)
Total assets
Total debt
(current portion of debt and long-term debt)
Total stockholders' equity
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2017
4,390.5
2,163.6
49.3%
873.1
19.9%
578.6
13.2%
2.01
288.2
2.01
288.3
2017
585.2
101.1%
(112.5)
(66.8)
405.9
70.2%
2017
369.1
63.8%
1.28
82.6
14.3%
1.9
43.43
2017
Percent
Change
10.8%
10.1%
10.6%
15.8%
16.1%
-0.3%
16.2%
-0.3%
Percent
Change
12.6%
-38.5%
1,209.8%
22.3%
Percent
Change
6.5%
6.7%
38.8%
18.8%
16.9%
Percent
Change
2016
$3,962.0
1,964.8
49.6%
789.7
19.9%
499.4
12.6%
1.73
288.9
1.73
289.2
2016
$519.9
104.1%
(183.0)
(5.1)
331.8
66.4%
2016
$346.6
69.4%
1.20
59.5
11.9%
1.6
$37.15
2016
2015
$3,869.2
1,948.9
50.4%
826.1
21.3%
516.4
13.3%
1.77
291.5
1.77
292.0
2015
$550.3
106.6%
(145.3)
(35.3)
369.7
71.6%
2015
$327.1
63.3%
1.12
292.9
56.7%
7.1
$41.26
2015
1,700.7
13.9%
$1,492.7
$1,381.6
$1,331.3
$1,198.4
$1,087.5
$984.7
$827.5
$722.6
$809.2
1,584.8
9.7%
1,445.1
1,291.6
1,207.9
1,168.6
1,082.5
1,048.3
923.5
862.9
827.4
893.6
-0.7%
2,910.5
415.0
2,096.9
9.1%
6.4%
8.5%
899.7
2,668.9
390.0
1,933.1
818.9
2,532.5
365.0
1,801.3
516.4
1,815.8
-
435.6
1,684.9
-
363.4
1,468.3
-
335.0
1,327.4
-
324.2
1,304.1
-
1,915.2
1,772.7
1,560.4
1,459.0
1,282.5
1,190.8
1,142.3
2013
$3,326.1
1,719.4
2012
$3,133.6
1,614.5
2011
$2,766.9
1,434.2
2010
$2,269.5
1,174.8
51.5%
674.2
21.5%
420.5
13.4%
1.42
296.1
1.42
297.2
2012
$406.4
96.6%
(133.9)
(0.1)
272.4
64.8%
2012
$367.3
87.3%
1.24
-
-
-
-
51.8%
575.1
20.8%
357.9
12.9%
1.21
295.1
1.21
295.9
2011
$268.5
75.0%
(116.5)
0.2
152.2
42.5%
2011
$191.7
53.6%
0.65
-
-
-
-
51.8%
430.6
19.0%
265.4
11.7%
0.90
294.9
0.90
294.9
2010
$240.4
90.6%
(69.1)
(10.3)
161.0
60.7%
2010
$182.8
68.9%
0.62
-
-
-
-
2012
2011
2010
2009
$1,930.3
983.4
50.9%
297.5
15.4%
184.4
9.6%
0.62
296.7
0.62
296.7
2009
$306.1
166.0%
(47.7)
(5.1)
253.3
137.4%
2009
$106.9
58.0%
0.36
41.1
22.3%
2.2
$18.69
2009
2008
$2,340.4
1,236.1
52.8%
451.2
19.3%
279.7
12.0%
0.94
297.7
0.94
297.7
2008
$259.9
92.9%
(86.9)
(0.1)
172.9
61.8%
2008
$117.5
42.0%
0.395
26.0
9.3%
1.2
$22.00
2008
2014
$3,733.5
1,897.4
50.8%
787.4
21.1%
494.2
13.2%
1.67
296.5
1.66
297.3
2014
$501.5
101.5%
(183.7)
(5.6)
312.2
63.2%
2014
$296.6
60.0%
1.00
52.9
10.7%
1.2
$44.12
2014
763.9
2,359.1
90.0
51.7%
713.5
21.5%
448.6
13.5%
1.51
296.8
1.51
297.7
2013
$418.9
93.4%
(201.6)
(0.1)
217.2
48.4%
2013
$237.5
52.9%
0.80
9.1
2.0%
0.2
$45.40
2013
654.9
2,075.8
-
All information contained in this Annual Report reflects the 2-for-1 stock split in 2011.
(1) Reflects impact of stock options issued by the company that were in-the-money and outstanding during the period.
(2) Reflects the impact of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting, adopted January 1, 2017.
2017 ANNUAL REPORT
Operating Results
Net sales
Gross profit
% of net sales
% of net sales
Net earnings
% of net sales
Earnings before income taxes
Basic net earnings per share
Basic weighted average shares outstanding
Diluted net earnings per share
Diluted weighted average shares outstanding(1)
Cash Flow Summary
Net cash provided by operating activities (2)
% of net earnings
Less capital expenditures, net
Acquisitions and other
Free cash flow
% of net earnings
Dividends and Common
Stock Purchase Summary
Dividends paid
% of net earnings
Dividends paid per share
Purchases of common stock
% of net earnings
Common stock shares purchased
Average price paid per share
Financial Position at Year End
Operational working capital
(accounts receivable, net and inventories)
Net working capital
(current assets less current liabilities)
Fixed capital
(property and equipment, net)
Total assets
Total debt
(current portion of debt and long-term debt)
Total stockholders' equity
2017
4,390.5
2,163.6
49.3%
873.1
19.9%
578.6
13.2%
2.01
288.2
2.01
288.3
2017
585.2
101.1%
(112.5)
(66.8)
405.9
70.2%
2017
369.1
63.8%
1.28
82.6
14.3%
1.9
43.43
2017
Percent
Change
10.8%
10.1%
10.6%
15.8%
16.1%
-0.3%
16.2%
-0.3%
Percent
Change
12.6%
-38.5%
1,209.8%
22.3%
Percent
Change
6.5%
6.7%
38.8%
18.8%
16.9%
Percent
Change
893.6
-0.7%
2,910.5
415.0
2,096.9
9.1%
6.4%
8.5%
2016
$3,962.0
1,964.8
49.6%
789.7
19.9%
499.4
12.6%
1.73
288.9
1.73
289.2
2016
$519.9
104.1%
(183.0)
(5.1)
331.8
66.4%
2016
$346.6
69.4%
1.20
59.5
11.9%
1.6
$37.15
2016
899.7
2,668.9
390.0
1,933.1
2015
$3,869.2
1,948.9
50.4%
826.1
21.3%
516.4
13.3%
1.77
291.5
1.77
292.0
2015
$550.3
106.6%
(145.3)
(35.3)
369.7
71.6%
2015
$327.1
63.3%
1.12
292.9
56.7%
7.1
$41.26
2015
818.9
2,532.5
365.0
1,801.3
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
All information contained in this Annual Report reflects the 2-for-1 stock split in 2011.
(1) Reflects impact of stock options issued by the company that were in-the-money and outstanding during the period.
(2) Reflects the impact of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting, adopted January 1, 2017.
FINANCIAL HIGHLIGHTS
5
2014
$3,733.5
1,897.4
50.8%
787.4
21.1%
494.2
13.2%
1.67
296.5
1.66
297.3
2014
$501.5
101.5%
(183.7)
(5.6)
312.2
63.2%
2014
$296.6
60.0%
1.00
52.9
10.7%
1.2
$44.12
2014
2013
$3,326.1
1,719.4
2012
$3,133.6
1,614.5
2011
$2,766.9
1,434.2
2010
$2,269.5
1,174.8
51.7%
713.5
21.5%
448.6
13.5%
1.51
296.8
1.51
297.7
2013
$418.9
93.4%
(201.6)
(0.1)
217.2
48.4%
2013
$237.5
52.9%
0.80
9.1
2.0%
0.2
$45.40
2013
51.5%
674.2
21.5%
420.5
13.4%
1.42
296.1
1.42
297.2
2012
$406.4
96.6%
(133.9)
(0.1)
272.4
64.8%
2012
$367.3
87.3%
1.24
-
-
-
-
51.8%
575.1
20.8%
357.9
12.9%
1.21
295.1
1.21
295.9
2011
$268.5
75.0%
(116.5)
0.2
152.2
42.5%
2011
$191.7
53.6%
0.65
-
-
-
-
51.8%
430.6
19.0%
265.4
11.7%
0.90
294.9
0.90
294.9
2010
$240.4
90.6%
(69.1)
(10.3)
161.0
60.7%
2010
$182.8
68.9%
0.62
-
-
-
-
2012
2011
2010
2009
$1,930.3
983.4
50.9%
297.5
15.4%
184.4
9.6%
0.62
296.7
0.62
296.7
2009
$306.1
166.0%
(47.7)
(5.1)
253.3
137.4%
2009
$106.9
58.0%
0.36
41.1
22.3%
2.2
$18.69
2009
2008
$2,340.4
1,236.1
52.8%
451.2
19.3%
279.7
12.0%
0.94
297.7
0.94
297.7
2008
$259.9
92.9%
(86.9)
(0.1)
172.9
61.8%
2008
$117.5
42.0%
0.395
26.0
9.3%
1.2
$22.00
2008
1,700.7
13.9%
$1,492.7
$1,381.6
$1,331.3
$1,198.4
$1,087.5
$984.7
$827.5
$722.6
$809.2
1,584.8
9.7%
1,445.1
1,291.6
1,207.9
1,168.6
1,082.5
1,048.3
923.5
862.9
827.4
763.9
2,359.1
90.0
654.9
2,075.8
-
516.4
1,815.8
-
435.6
1,684.9
-
363.4
1,468.3
-
335.0
1,327.4
-
324.2
1,304.1
-
1,915.2
1,772.7
1,560.4
1,459.0
1,282.5
1,190.8
1,142.3
2017 ANNUAL REPORT 6
STOCK
AND
FINANCIAL
DATA
(Dollar Amounts in Millions
Except Share and
Per Share Information)
Common Stock Data
Our 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 our shares on The Nasdaq
Stock Market for the last two years(1).
2017
High
Low 2016
High
Low
First quarter
$52.22
$46.17 First quarter
$49.87
$36.53
Second quarter
Third quarter
Fourth quarter
51.76
45.73
55.14
42.10 Second quarter
39.97 Third quarter
44.51 Fourth quarter
48.93
45.36
49.17
42.70
39.92
38.16
(1) The closing sale price was obtained from Shareholder.com, a division of Nasdaq OMX.
As of January 19, 2018, there were approximately 1,100 record holders of our common stock, which includes nominees or broker
dealers holding stock on behalf of an estimated 220,000 beneficial owners.
In 2017 and 2016, we paid dividends per share totaling $1.28 and $1.20, respectively. On January 16, 2018, we announced a
quarterly dividend of $0.37 per share to be paid on February 27, 2018 to shareholders of record at the close of business on January
31, 2018. Our board of directors intends to continue paying quarterly dividends, 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.
We purchased 1,900,000 shares of our common stock in 2017 at an average price of $43.43 per share. In 2016, we purchased
1,600,000 shares of our common stock at an average price of $37.15 per share.
)
D
E
T
I
D
U
A
N
U
(
A
T
A
D
L
A
C
N
A
N
I
F
I
Y
L
R
E
T
R
A
U
Q
D
E
T
C
E
L
E
S
2017
Net
Sales
Gross
Profit
Pre-tax
Earnings
Net
Earnings
First quarter
$
1,047.7
Second quarter
Third quarter
Fourth quarter
1,121.5
1,132.8
1,088.5
518.0
558.5
555.9
531.2
Total
$
4,390.5
2,163.6
210.9
235.4
226.0
200.8
873.1
134.2
148.9
143.1
152.4 (2)
578.6 (3)
2016
Net
Sales
Gross
Profit
Pre-tax
Earnings
Net
Earnings
First quarter
$
986.7
Second quarter
Third quarter
Fourth quarter
1,014.3
1,013.1
947.9
491.5
501.6
499.8
471.9
Total
$
3,962.0
1,964.8
199.9
207.8
201.2
180.8
789.7
126.2
131.5
126.9
114.8
499.4
Basic
Net Earnings
per Share (1)
Diluted
Net Earnings
per Share (1)
0.46
0.52
0.50
0.53 (2)
2.01 (3)
0.46
0.52
0.50
0.53 (2)
2.01 (3)
Basic
Net Earnings
per Share (1)
Diluted
Net Earnings
per Share (1)
0.44
0.46
0.44
0.40
1.73
0.44
0.45
0.44
0.40
1.73
(1) Amounts may not foot due to rounding difference.
(2) Absent the impact of the Tax Act, our net earnings for the fourth quarter of 2017 would have been approximately $128.1, and our basic and diluted net earnings
per share would have each been $0.45.
(3) Absent the impact of the Tax Act, our net earnings for 2017 would have been approximately $554.2, and our basic and diluted net earnings per share would
have each been $1.92.
2017 ANNUAL REPORT
7
STOCK PERFORMANCE
HIGHLIGHTS(1), (2)
Invested $9,000 on
August 20, 1987
Value on
December 31, 2017:
$5,250,240
Stock Split
$5,500,000
$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
E
C
N
A
M
R
O
F
R
E
P
K
C
O
T
S
L
A
C
R
O
T
S
H
I
I
7
8
9
1
9
8
9
1
1
9
9
1
3
9
9
1
5
9
9
1
7
9
9
1
9
9
9
1
1
0
0
2
3
0
0
2
5
0
0
2
7
0
0
2
9
0
0
2
1
1
0
2
3
1
0
2
5
1
0
2
7
1
0
2
INITIAL PUBLIC OFFERING (IPO)
On August 20, 1987 (date of our initial public offering), 1,000 shares
of our stock sold for $9,000. Approximately 30 years later, on
December 31, 2017, those 1,000 shares, having split seven times,
were 96,000 shares worth $5,250,240, for a gain of approximately
23.7% compounded annually. (In addition, the holder of these shares
would have received $907,104 in dividends since August 20, 1987,
for a total gain of approximately 24.3% compounded annually.)
TEN YEARS
On December 31, 2007, 1,000 shares of our stock sold for $40,420.
Ten years later, on December 31, 2017, those 1,000 shares,
having split once, were 2,000 shares worth $109,380, for a gain
of approximately 10.5% compounded annually. (In addition, the
holder of these shares would have received $17,330 in dividends
since December 2007, for a total gain of approximately 12.1%
compounded annually.)
FIVE YEARS
On December 31, 2012, 1,000 shares of our stock sold for $46,650.
Five years later, on December 31, 2017, those 1,000 shares were
worth $54,690 for a gain of approximately approximately 3.2%
compounded annually. (In addition, the holder of these shares would
have received $5,400 in dividends since December 2012, for a total
gain of approximately 5.2% compounded annually.)
(1) The share data represents past performance, which is no guarantee of future results.
(2) Unless otherwise noted, the amounts on this page are presented in whole numbers
versus millions as is prevalent in the remainder of this document.
S We have paid dividends in every year since 1991.
R
E
D
L
O
H
E
R
A
H
S
O
T
S
N
R
U
T
E
R
Since going public in 1987, we have maintained a consistent
focus on avoiding, if feasible, the potentially dilutive impact of our
activities on our shareholders. To this end, we have grown our
organization principally with internal cash flow, have supported
the Fastenal Company and Subsidiaries 401(k) and Employee
Stock Ownership Plan with stock purchased in the open market,
and, since creating a stock option program in 2003, have
periodically purchased common stock in the open market to,
among other things, offset the potential impact of our stock option
grants. We have purchased approximately 21.9 million shares
since 2003, and, have granted our employees options to purchase
approximately 13.4 million shares. (Note: These amounts have
been adjusted to reflect the impact of stock splits.) This philosophy
has allowed us to balance internal investment with cash returns to
shareholders. For example, in the last five years we have enjoyed
total sales of $19,281 million, and total pre-tax profit of $3,990
million. During this same time period, we spent approximately
$4,157 million to compensate a group of great employees,
we supported our customers’ needs by adding approximately
$613 million in operational working capital (accounts receivable
plus inventory) and by spending approximately $826 million
in net capital expenditures, and we returned $2,074 million to
our shareholders. The latter was principally through dividends
(approximately $1,577 million), with the remainder through
share purchases. A final point worth noting, we also incurred
approximately $1,453 million in income taxes, or approximately
36.4% of the pre-tax profit noted above.
2017 ANNUAL REPORT
8
A DEEPER LEVEL OF
VALUE
At Fastenal, we do much more than sell and ship products. We align with
our customers to help them unlock productivity and profits throughout their
operations, an undertaking that requires local experts, close collaboration,
and a spectrum of resources to tackle challenges and drive results.
Each customer solution is unique, often shaped by a site evaluation (process
mapping exercise) within the facility to gain a deep understanding of the
operation and uncover sources of waste – a stepping stone to a more efficient
‘future state.’ Below is a depiction of what our service footprint can look like
within a strategic account site.
LOCAL BRANCH
LOCAL PRESENCE
Whether they’re working out of a local
branch or within an Onsite location, a
dedicated Fastenal team executes a
plan for business improvement, utilizing
our solutions, experts and resources to
drive out waste and costs.
Customer-specific inventory is stocked
within the local branch or Onsite.
Through our CSP program, each local
branch also carries more than 9,000
high-demand items to anticipate the
most common unplanned needs.
SPECIALISTS
Fastenal’s regional specialists provide
high-level expertise in areas ranging
to
from safety and metalworking
engineering and lean supply chain.
MANUFACTURING &
SERVICES
We can engineer and manufacture
custom parts
to solve customer
problems. We also customize, modify
and maintain various product offerings
to drive quality and efficiency.
QUALITY
We develop custom quality control
programs
strategic
customers, and we can even take on
certain QC functions within the plant.
support
to
DISTRIBUTION & LOGISTICS
Delivering a seamless flow of supplies through
smart inventory planning, local and regional
stocking of customer-specific inventory, and
utilization of our transportation fleet.
MEETING
ROOM
PURCHASING
DOCUMENTED VALUE
Our progress toward the customer’s
reported and
is
business goals
discussed during quarterly business
reviews.
INTEGRATION
In addition to managing our own
products within
facility, we
can handle sourcing, purchasing,
and material management for the
customer’s entire supply base.
the
DIGITAL SOLUTIONS
We offer a suite of solutions to streamline
processes, reduce administrative costs,
and provide unprecedented visibility
inventory and
the customer’s
into
overall business with Fastenal.
FASTENAL MANAGED
INVENTORY
The Fastenal service team continually
optimizes the flow of inventory to the
production line and various point-of-
use locations.
critical
supplies
VENDING
easily
Making
accessible and fully traceable near the
point of use. The results: less waiting,
better productivity, and a meaningful
reduction in consumption.
RECEIVING
ONSITE
I
E
N
G
N
E
E
R
N
G
I
MAINTENANCE
PRODUCTION LINES
QUALITY
2017 ANNUAL REPORT UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________________
FORM 10-K
(Mark One)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
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
(State or other jurisdiction of
incorporation or organization)
2001 Theurer Boulevard
Winona, Minnesota
(Address of principal executive offices)
41-0948415
(I.R.S. Employer
Identification No.)
55987-0978
(Zip Code)
(507) 454-5374
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.01 per share
Name of Each Exchange on Which Registered
The Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
____________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act
Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See definition of "large accelerated filer", "accelerated filer", "smaller
reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
(Do not check if a smaller reporting company)
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2017, the last business day
of the registrant's most recently completed second fiscal quarter, was $12,488,792,738, based on the closing sale price of the
Common Stock on that date. For purposes of determining this number, all executive officers and directors of the registrant as of
June 30, 2017 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 January 19, 2018, the registrant had 287,603,912 shares of Common Stock issued and outstanding.
FASTENAL COMPANY
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Properties
Legal Proceedings
Item 4. Mine Safety Disclosures
PART I
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
PART IV
Page
3
11
16
17
18
18
19
20
21
34
35
56
56
57
58
60
60
60
60
61
62
64
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the annual meeting of shareholders to be held Tuesday, April 24, 2018 ('Proxy Statement')
are incorporated by reference in Part III. Portions of our 2017 Annual Report to Shareholders are incorporated by reference in
Part II.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K, or in other reports of the company and other written and oral statements made
from time to time by the company, do not relate strictly to historical or current facts. As such, they are considered 'forward-
looking statements' that provide current expectations or forecasts of future events. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be
identified by the use of terminology such as anticipate, believe, should, estimate, expect, intend, may, will, plan, goal, project,
hope, trend, target, opportunity, and similar words or expressions, or by references to typical outcomes. Any statement that is
not a purely historical fact, including estimates, projections, trends, and the outcome of events that have not yet occurred, is a
forward-looking statement. Our forward-looking statements generally relate to our expectations regarding the business
environment in which we operate, our projections of future performance, our perceived marketplace opportunities, our
strategies, goals, mission and vision, and our expectations related to the impact of tax reform. You should understand that
forward-looking statements involve a variety of risks and uncertainties, known and unknown, and may be affected by
inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.
Factors that could cause our actual results to differ from those discussed in the forward-looking statements include, but are not
limited to, economic downturns, weakness in the manufacturing or commercial construction industries, competitive pressure on
selling prices, changes in our current mix of products, customers, or geographic locations, changes in our average branch size,
changes in our purchasing patterns, changes in customer needs, changes in fuel or commodity prices, inclement weather,
changes in foreign currency exchange rates, difficulty in adapting our business model to different foreign business
environments, failure to accurately predict the market potential of our business strategies, the introduction or expansion of new
business strategies, weak acceptance or adoption of our vending or Onsite business models, increased competition in industrial
vending or Onsite, difficulty in maintaining installation quality as our industrial vending business expands, the leasing to
customers of a significant number of additional industrial vending devices, the failure to meet our goals and expectations
regarding branch openings, branch closings, or expansion of our industrial vending or Onsite operations, changes in the
implementation objectives of our business strategies, difficulty in hiring, relocating, training, or retaining qualified personnel,
difficulty in controlling operating expenses, difficulty in collecting receivables or accurately predicting future inventory needs,
dramatic changes in sales trends, changes in supplier production lead times, changes in our cash position or our need to make
capital expenditures, credit market volatility, changes in tax law or the impact of any such changes on future tax rates, changes
in the availability or price of commercial real estate, changes in the nature, price, or availability of distribution, supply chain, or
other technology (including software licensed from third parties) and services related to that technology, cyber-security
incidents, potential liability and reputational damage that can arise if our products are defective, and other risks and
uncertainties detailed in this Form 10-K under the heading 'Item 1A. Risk Factors'. Each forward-looking statement speaks only
as of the date on which such statement is made, and we undertake no obligation to update any such statement to reflect events
or circumstances arising after such date.
1
PRESENTATION OF DOLLAR AMOUNTS
All dollar amounts in this Form 10-K are presented in millions, except for share and per share amounts or where otherwise
noted. Throughout this document, percentage and dollar change calculations, which are based on non-rounded dollar values,
may not be able to be recalculated using the dollar values in this document due to the rounding of those dollar values.
All information contained in this Form 10-K reflects the two-for-one stock split in 2011.
STOCK SPLIT
2
PART I
ITEM 1.
BUSINESS
Note – Information in this section is as of year end unless otherwise noted. The year end is December 31, 2017 unless
additional years are included or noted.
Overview
Fastenal Company (together with our subsidiaries, hereinafter referred to as 'Fastenal' or the company or by terms such as we,
our, or us) began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968. We opened our first
branch in 1967 in Winona, Minnesota, a city with a population today of approximately 27,000. We began with a marketing
strategy of supplying threaded fasteners to customers in small, medium-sized, and, in subsequent years, large cities. Over time,
that mandate has expanded to a broader range of industrial and construction supplies that we break into twelve product lines
(described later in this document). The large majority of our transactions are business-to-business, though we also have some
walk-in retail business. At the end of 2017, we had 2,988 in-market locations (defined in the table below) in 24 countries
supported by 14 distribution centers in North America (11 in the United States, two in Canada, and one in Mexico), and we
employed 20,565 people. We believe our success can be attributed to the high quality of our employees and their convenient
proximity to our customers, and our ability to offer customers a full range of products and services to reduce their total cost of
procurement.
The following table shows our consolidated net sales for each fiscal year as well as the number of public branches, Onsite
locations, and total in-market locations at the end of each of the last ten years:
Net sales
Public branches
Onsite locations(1)
Total in-market
locations(2)
2017
$ 4,390.5
2016
2015
2014
2013
2012
2011
2010
2009
2008
3,962.0
3,869.2
3,733.5
3,326.1
3,133.6
2,766.9
2,269.5
1,930.3
2,340.4
2,383
2,503
2,622
2,637
2,687
2,652
2,585
2,490
2,369
2,311
605
401
264
214
2,988
2,904
2,886
2,851
2,687
2,652
2,585
2,490
2,369
2,311
(1) Onsite location information prior to 2014 is intentionally omitted. While such locations have existed since 1992, we did not
specifically track their number until we identified our Onsite program as a growth driver in 2014.
(2) 'In-market locations' is defined as the sum of the total number of public branches and the total number of Onsite locations.
One of Fastenal's guiding principles since inception is that we can improve our service by getting closer to the customer.
Through much of our history, this was achieved by opening branches, and today we believe there are few companies that offer
our North American branch coverage. In our view, this has proved to be an efficient means of providing customers with a broad
range of products and services on a timely basis. These branches have represented, and continue to represent, the foundation of
our service approach. However, we are constantly evaluating the efficacy of our branch network, and in recent years, we have
developed additional models that get us still closer to the customer, including vending, bin stocks, and Onsite locations.
We currently have several versions of selling locations: (1) a 'traditional (or public) branch' services a wide variety of customers
and stocks a wide selection of products we offer, (2) an 'overseas branch' focuses on manufacturing customers and our fastener
product line and is the format we typically deploy outside the United States and Canada, (3) a 'strategic account branch' is a
unique location that sells to multiple large accounts in a market, (4) a 'strategic account site' is similar to a strategic account
branch, but typically operates out of an existing branch rather than from a unique location, and (5) an 'Onsite location' (defined
as dedicated sales and service provided from within, or in close proximity to the customer's facility).
Traditional, overseas, and strategic account branches sell to multiple customers, and together comprise our total branch count.
Our strategic account sites are considered an extension of the branch from which it operates, and are not included separately in
our total branch counts. Onsite locations, which serve a single customer, are similarly not included in our total branch counts.
However, outside of the fact that they serve a single customer, we believe the function and operation of an Onsite location is
similar to that of a branch. This model is also beginning to represent a meaningful portion of the company's total revenue, and
we expect that share to grow materially over time. As a result, we have begun to refer to our network in terms of in-market
locations, which includes our total branches and Onsite locations, and we began to refer to strategic account sites as non-in-
market locations.
Branch locations are selected primarily based on their proximity to our distribution network, population statistics, and
employment data for manufacturing and non-residential construction companies. We stock all new branches with inventory
drawn from all of our product lines, and over time, where appropriate, our district and branch personnel may tailor the
inventory offering to the needs of the local customer base. Since Fastenal's founding and through 2013, branch openings were a
primary growth driver for the company, and we experienced net openings each year over that time span. We have long
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maintained that marketplace demographics could support a North American network of 3,500 traditional branches. However,
since establishing this figure, new growth drivers and business models (Onsite, vending, e-commerce) have emerged and
diminished the direct role of traditional branch openings in our growth. It is now unlikely that we will operate the total
traditional branch locations we previously believed would be the potential of North America. We will continue to open
traditional branches as the company sees fit. However, in each year since 2013, the company has experienced a net decline in
its total branch count including net declines of 15 branches in 2015, 119 branches in 2016, and 120 branches in 2017.
There is one branch subset, overseas, that we anticipate expanding in the future. Selling locations outside of the United States
and Canada contributed approximately 7% of our consolidated net sales in 2017, with approximately 4% and 3% of this
amount attributable to our Mexican and 'rest-of-world' operations, respectively.
The following table provides a summary of the traditional, overseas, and strategic account branch locations we operated at the
end of each year, as well as the openings, closings, and conversions during each year:
North America
Outside North America
United
States
Canada Mexico
Puerto Rico
and
Dominican
Republic
Subtotal
Central
& South
America
(1)
Asia
(2)
Southeast
Asia
(3)
Europe
(4)
Africa
(5)
Total
Total as of
December 31, 2015
Opened branches
Closed branches
Converted branches(6)
Total as of
December 31, 2016
2,320
200
27
(140)
(13)
3
(3)
(2)
2,194
198
Opened branches
Closed branches
Converted branches(6)
5
(118)
(5)
3
(6)
—
47
5
—
—
52
2
(1)
—
8
2,575
35
—
— (143)
(15)
—
8
2,452
—
10
— (125)
(5)
—
9
—
(1)
—
8
1
(2)
(1)
10
—
—
—
10
—
(2)
(1)
7
—
—
—
7
—
—
—
20
4
—
—
24
7
(1)
(1)
1
2,622
40
1
— (144)
(15)
—
2
2,503
—
18
— (130)
(8)
—
2,076
Total as of
December 31, 2017
(1) Panama, Brazil, Colombia, and Chile
(2) China
(3) Singapore, Malaysia, and Thailand
(4) The Netherlands, Hungary, United Kingdom, Germany, Czech Republic, Italy, Romania, Poland, Sweden, Ireland, and
2,332
195
29
53
7
6
8
7
2
2,383
Switzerland
(5) South Africa
(6) Converted locations are sites converted from traditional branches to Onsite locations or non-in-market locations, net of sites
converted from non-in-market locations or Onsite locations to traditional branches.
Onsite locations may influence the trend in total branch count over time. In this model, the company services a customer from
a location that is physically within the customer's facility (or, in some cases, at a strategically placed off-site location), with
inventory that is specific to the customer's needs. The model is best suited to larger companies, though we believe we can
provide a higher degree of service at a lower level of revenue than most of our competitors. In most cases, we are shifting
revenue with the customer from an existing branch. It has been our experience, however, that while gross profit margins at
Onsite locations tend to be lower than at branches, we gain significant revenue with the customer and our cost to serve is
materially lower. The Onsite concept is not new, in that we entered into the first such arrangement in 1992. However, the
company identified it as a growth driver in 2014 and made substantial investments toward accelerating its traction in the
marketplace beginning in 2015. As a result, we have identified over 15,000 customer locations with potential to implement the
Onsite service model. These customers include those where we have a national account relationship today, as well as new
customers we know of due to our local market presence. We expect revenues from Onsite arrangements to increase
meaningfully over time. We experienced net increases of 50, 137, and 204 Onsite locations in 2015, 2016, and 2017,
respectively. We currently have over 600 Onsite locations and we believe we will have 1,000 Onsite locations in the next 12 to
18 months.
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The following table provides a summary of the new Onsite customer locations signed and the total Onsite locations we
operated at the end of each year, as well as the Onsite openings and closings during each year:
Total as of December 31, 2015
Opened Onsite locations
Closed Onsite locations
Total as of December 31, 2016
Opened Onsite locations
Closed Onsite locations
Total as of December 31, 2017
New Onsite
Customer
Locations
Signed
Total Active
Onsite
Locations
80
176
270
264
161
(24)
401
218
(14)
605
In 1997, we developed a national accounts program aimed at making our products and services more competitive with
customers that operate multiple facilities. These customers tend to have more complex supply chains and structures for
managing the MRO and OEM products we provide while at the same time, by virtue of their size and opportunity, have more
negotiating power. We believe our local presence as part of a national, and increasingly international, footprint, our ability to
provide a consistent level of high-touch service and broad product availability, and our ancillary capabilities around
manufacturing, quality control, and product knowledge, are attractive to these larger customers. We believe our advantage with
these customers has only been strengthened as we have added other channels, such as industrial vending, Onsite, and Fastenal
Managed Inventory ('FMI®'), and resources to serve these customers' unique demands. As a result, in 2017, national accounts
represented 48.7% of our net sales, compared to 47.4% and 46.4% in 2016 and 2015, respectively. We believe we will continue
to perform well with these customers.
We introduced industrial vending in 2008. Vending provides our customers the benefits of reduced consumption, reduced
purchase orders, reduced product handling, and 24-hour product availability, and we believe our company has a market
advantage by virtue of our extensive in-market network. For these reasons, the initiative began to gain significant traction in
2011 and we finished 2017 with over 86,000 devices in the field (71,000 generating product revenue and 15,000 in a locker
lease program). Our discussion generally focuses on the 71,000 product revenue devices. We believe vending has proven its
effectiveness in strengthening our relationships with customers and helped to streamline the supply chain where it has been
utilized. We also believe there remains considerable room to grow our current installed base before it begins to approach the
number of units we believe the market can support. We estimate the market could support as many as 1.7 million industrial
vending devices, and as a result we anticipate continued growth in installed devices over time. We believe we will have
100,000 total devices deployed in the next 12 to 18 months.
Our expanded industrial vending portfolio consists of 23 different vending devices, with the FAST 5000 device, our helix-based
machine, representing approximately 40% of the installed product revenue devices. We have learned much about these devices
over the last several years and currently the target monthly revenue ranges from under $1,000 per device to in excess of $3,000
per device. The following two tables provide two views of our data: (1) actual device count regardless of the type of device and
(2) 'machine equivalent' count based on the weighted target monthly revenue of each device (compared to the FAST 5000
device, which has a $2,000 monthly revenue target). For example, the 12-door locker, with target monthly revenue of $750,
would be counted as '0.375 machine equivalent' (0.375 = $750/$2,000).
The industrial vending (product revenue devices) information related to contracts signed during each period was as follows:
Device count signed during the period
'Machine equivalent' count signed during the period
Q1
5,437
4,647
3,962
4,476
3,696
2,916
Q2
4,881
4,869
5,144
4,032
3,941
3,931
Q3
4,771
4,783
4,689
4,010
3,520
3,769
Q4
4,266
3,760
4,016
3,640
2,951
3,319
Annual
19,355
18,059
17,811
16,158
14,108
13,935
2017
2016
2015
2017
2016
2015
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The industrial vending (product revenue devices) information related to installed devices at the end of each period was as
follows:
Device count installed at the end of the period
'Machine equivalent' count installed at the end of the
period
Q1
64,430
56,889
48,545
49,921
43,329
35,997
Q2
66,577
58,346
50,620
51,950
44,707
37,714
Q3
69,058
60,400
53,547
54,215
46,399
40,067
Q4
71,421
62,822
55,510
56,436
48,399
41,905
2017
2016
2015
2017
2016
2015
In addition to industrial vending noted above, which primarily relates to our non-fastener business, we also provide Fastenal
Managed Inventory ('FMI') programs, (also known as 'keep fill' or bin stock programs in the industry) to numerous
customers. This business relates to both our maintenance customers (MRO fasteners and non-fasteners) and original equipment
manufacturers (OEM fasteners). FMI is like our industrial vending business in that it involves moving product closer to the
point of customer use within their facilities. However, the device is typically an open bin which is clustered with other bins in a
racking system, each of which holds OEM fasteners, MRO fasteners, and/or non-fastener products that are consumed in the
customers' operations. These bins utilize a variety of technologies. For instance, some bins are set up with the latest scanning
technologies to determine when product is at a minimum desired level and requires refill, while others utilize scales to measure
the volume of a bin's content by its weight, and our fully integrated distribution network allows us to manage the supply chain
for all sizes of customers. FMI programs foster a strong relationship with customers, as we are often their preferred supplier,
and a higher frequency of business transactions.
We believe our current growth drivers – Onsite locations, national accounts, industrial vending, and FMI – represent alternative
means to address the requirements of certain customer groups. They get us closer to the customer and to where the product is
actually consumed. This is consistent with our strategy and offers significant value by providing differentiated and 'sticky'
service. Combined with ongoing strategic investments in end market initiatives (such as our Customer Service Project ('CSP')
initiatives which expand inventory placement at our branches to enhance same-day capabilities) as well as selling (in-market
and otherwise) and non-selling (engineering, product specialists, manufacturing, etc.) employees, we offer a range of
capabilities that is difficult for large and small competitors to replicate.
We remain committed to a large, robust service network, including traditional branches; it remains the indispensable foundation
of our business. In any given year, it is difficult to predict whether our total branch count will rise or fall. However, with the
growth we anticipate in Onsite locations, we believe our total in-market locations will increase over time.
It has been our experience that our profitability is affected by the average revenue produced by each branch. While certain costs
related to growth at a branch are at least partly variable, such as employee-related expenses, others, like rent and utility
expenses, tend to be fixed. As a result, it has been shown that as a branch increases its sales base over time it typically will
achieve a higher operating profit margin. This ability to increase our average revenue per branch is influenced by: (1) general
growth based on end market expansion and/or market share gains, (2) the age of the branch base (new branches tend to be less
profitable due to start-up costs and the time necessary to generate a customer base; however, when these new branches mature
and increase their sales base, their profitability similarly increases), and (3) rationalization actions – in the past several years the
company has seen a net decline in its branch base. There are many reasons why local or regional management might decide to
close a branch. Key customers may have migrated to a different part of the market or transitioned to our Onsite model, plants
may have closed, or our own supply chain capabilities in a market may have evolved to allow us to service some areas with
fewer traditional branches. In the short term, the Onsite program can hurt the profitability of our existing branch network as it
can pull established revenue away from an existing branch.
We operate 11 regional distribution centers in the United States – Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia,
Washington, California, Utah, North Carolina, and Kansas – and three outside the United States – Ontario, Canada; Alberta,
Canada; and Nuevo Leon, Mexico. These 14 distribution centers give us approximately 3.5 million square feet of distribution
capacity. These distribution centers are located so as to permit deliveries of two to five times per week to our in-market
locations using our trucks and overnight delivery by surface common carrier, with approximately 83% of our North American
in-market locations receiving service four to five times per week. We would expect to add new distribution centers over time as
our scale and the number of our in-market locations increases. The distribution center in Indiana also serves as a 'master' hub,
with those in California, North Carolina, and Kansas serving as 'secondary' hubs to support the needs of the in-market locations
in their geographic regions as well as provide a broader selection of products for the in-market locations serviced by the other
distribution centers.
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We currently operate our Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, California, North Carolina, and Ontario,
Canada distribution centers with automated storage and retrieval systems (ASRS). These nine distribution centers operate with
greater speed and efficiency, and currently handle approximately 85% of our picking activity. The Indiana facility also contains
our centralized replenishment facility for a portion of our industrial vending business. This operation is also highly automated.
Construction of an ASRS began in 2017 at our Kansas distribution center, and we expect this project to be completed in the first
quarter of 2018. Construction of a new distribution center in Washington, which will include ASRS technology, is scheduled to
begin in 2018.
Our information systems department develops, implements, and maintains the computer based technology used to support
business functions within Fastenal. Corporate, e-business, distribution center, and vending systems are primarily supported
from central locations, while each selling location uses a locally installed Point-Of-Sale (POS) system. The systems consist of
both customized, purchased, and licensed software. A dedicated Wide Area Network (WAN) is used to provide connectivity
between systems and authorized users.
Trademarks and Service Marks
We conduct business under various trademarks and service marks, and we utilize a variety of designs and tag lines in
connection with each of these marks, including Growth Through Customer Service®. Although we do not believe our
operations are substantially dependent upon any of our trademarks or service marks, we consider the 'Fastenal' name and our
other trademarks and service marks to be valuable to our business.
Products
Fastenal was founded as a distributor of fasteners and related industrial and construction supplies. This includes threaded
fasteners, which represent approximately 85% of total fastener sales and includes bolts, nuts, screws, studs, and related
washers, as well as miscellaneous supplies and hardware, such as pins, machinery keys, concrete anchors, metal framing
systems, wire rope, strut, rivets, and related accessories. Our fastener product line, which is primarily sold under the Fastenal
product name, represented 35.6%, 36.6%, and 38.3% of our consolidated net sales in 2017, 2016, and 2015, respectively. Of
this, threaded fasteners represented approximately 30%, 33%, and 34% of our consolidated net sales in 2017, 2016, and 2015,
respectively.
Fastener distribution is complex. In most cases the product has low per unit value but high per unit weight. This presents
challenges in moving product from suppliers, most of whom are outside of North America, to our distribution centers, as well
as from our distribution centers to our branch, Onsite, and customer locations. At the same time, fasteners are ubiquitous in
manufactured products, construction projects, and maintenance and repair while at the same time exhibiting great geometric
variability based on use and application. In many cases, a fastener is a critical part in machine uptime and/or effective use.
These features have greatly influenced our logistical development, training and educational programs, support capabilities, and
inventory decisions, which we believe would be difficult for competitors to replicate.
In 1993, we began to aggressively add additional product lines, and these represented 64.4%, 63.4%, and 61.7% of our
consolidated sales in 2017, 2016, and 2015, respectively. These products, which we refer to as non-fastener product lines, tend
to move through the same distribution channel, get used by the same customers, and utilize the same logistical capabilities as
the original fastener product line. This logic is as true today as it was when we first began to diversify our product offering.
However, over time, the supply chain for these product lines has evolved in ways independent of the fastener line. For instance,
non-fastener product lines benefit from our development of industrial vending.
The most significant category of non-fastener products is our safety supplies product line, which accounted for 15.2%, 14.9%,
and 13.9% of our consolidated sales in 2017, 2016, and 2015, respectively. This product line has enjoyed dramatic sales growth
in the last ten years (roughly doubling as a percentage of sales over that ten year time frame). This is directly related to our
success in industrial vending. Our tools product line now accounts for more than 10% of consolidated net sales, representing
10.1%, 9.9%, and 9.5% in 2017, 2016, and 2015, respectively. Also, in the last several years we added 'private label' brands
(often referred to as 'Fastenal brands') to our offering, and these represented approximately 12% of our consolidated net sales in
2017, 2016, and 2015.
We plan to continue to add other product lines in the future.
Detailed information about our sales by product line is provided in Note 12 of the Notes to Consolidated Financial Statements
included later in this Form 10-K. Each product line may contain multiple product categories.
Inventory Control
Our inventory stocking levels are determined using our computer systems, by our sales personnel at in-market locations, by our
district and regional leadership, and by our product managers. The data used for this determination is derived from sales
activity from all of our selling locations, from individual selling locations, and from different geographic areas. It is also
derived from supplier information and from customer demographic information. The computer system monitors the inventory
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level for all stock items and triggers replenishment, or prompts a buyer to purchase, as necessary, based on an established
minimum-maximum level. All branches stock a base inventory and may expand beyond preset inventory levels as deemed
appropriate by the district and branch personnel. Non-branch selling locations (primarily Onsites) stock inventory based on
customer-specific arrangements. Inventories in distribution centers are established from computerized data for the selling
locations served by the respective distribution center. Inventory quantities are continuously re-balanced utilizing an automated
transfer mechanism we call 'inventory re-distribution'.
Inventory held at our selling locations, close to customers and available on a same-day basis, accounted for approximately
65%, 64%, and 61% of our total inventory at the end of 2017, 2016, and 2015, respectively. Inventory held at our distribution
centers and manufacturing locations accounted for approximately 35%, 36%, and 39% of our total inventory at the end of 2017,
2016, and 2015, respectively. The distribution center and manufacturing location inventory, when combined with our trucking
network, allows for incredibly fast, next-day service at a very competitive cost.
Manufacturing and Support Services Operations
In 2017, approximately 96% of our consolidated net sales were attributable to products manufactured by other companies to
industry standards or to customer specific requirements. The remaining 4% related to products manufactured, modified or
repaired by our manufacturing businesses or our support services. The manufactured products consist primarily of non-standard
sizes of threaded fasteners made to customers' specifications or standard sizes manufactured under our Holo-Krome® and
Cardinal Fasteners® product lines. The services provided by the support services group include, but are not limited to, the repair
of tools and hoists, the fabrication of chain sling and hose, band saw blade welding, and other light manufacturing and
fabrication. We may add additional services in the future. However, we engage in these activities primarily as a service to our
customers and expect them to continue to contribute in the range of 4% to 6% of our consolidated net sales in the future.
Sources of Supply
We use a large number of suppliers for the standard stock items we distribute. Most items distributed by our network 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% of our inventory purchases in 2017.
Beyond inventory, we have some concentration of purchasing activity. For example, we utilize a limited number of suppliers
for distribution equipment, two main suppliers for our vehicle fleet, and primarily one supplier for our industrial vending
equipment. However, we believe there are viable alternatives to each of these, if necessary.
Geographic Information
Information regarding our revenues and long-lived assets by geographic location is set forth in Note 8 of the Notes to
Consolidated Financial Statements included later in this Form 10-K. Our ability to procure products overseas at competitive
prices, as well as net sales at our foreign locations, could be impacted by foreign currency fluctuations, changes in trade
relations, or fluctuations in the relative strength of foreign economies.
Customers and Marketing
We believe our success can be attributed to our ability to offer customers a full line of quality products, our convenient
locations and diverse methods of providing those products, and the superior service orientation and expertise of our employees.
Most of our customers are in the manufacturing and non-residential construction markets. The manufacturing market includes
both original equipment manufacturers (OEM) and maintenance, repair, and operations (MRO). The non-residential
construction market includes general, electrical, plumbing, sheet metal, and road contractors. Other users of our products
include farmers, truckers, railroads, oil exploration, production, and refinement companies, mining companies, federal, state,
and local governmental entities, schools, and certain retail trades. During the fourth quarter of 2017, our total number of active
customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 400,000, while our
total 'core accounts' (defined as the average number of accounts each month with purchase activity of at least $250 per month)
was approximately 111,000. In 2017, no one customer accounted for more than 5% of our sales.
Based on our customer profile being oriented toward manufacturing and non-residential construction, our business has
historically been cyclical. However, we believe our model has certain protections that moderate the volatility of our results
around cyclical changes. First, we have a large number of customers that serve a wide range of segments within the broader
manufacturing and non-residential construction market, although slumps in one industry served by us can rapidly spread to
other, interrelated industries, locally or globally. However, we still believe this customer and market segment diversity provides
some insulation from economic changes that are not across multiple industries and geographic regions. In addition, a
meaningful part of our revenue is derived from products that are incorporated into final products. However, we also have a
significant portion of revenue that is derived from products used to maintain sites, and while this revenue tends to be directly
influenced by cyclical changes, its rate of change tends to be less dramatic.
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Direct marketing continues to be the backbone of our business through our local in-market selling personnel, as well as our
non-branch selling personnel. We support our branches with multi-channel marketing including email and online marketing,
print and radio advertising, catalogs, promotional flyers, events, and branch signage. In recent years, our national advertising
has been focused on a NASCAR® sponsorship through our partnership with Roush Fenway Racing® as the primary sponsor of
Ricky Stenhouse Jr.'s No. 17 car in the Monster Energy® NASCAR® Cup Series.
Seasonality
Seasonality has some impact on our sales. The first and fourth quarters are typically our lowest volume periods, given their
overlap with winter months in North America during which our sales to customers in the non-residential construction market
typically slow due to inclement weather. The fourth quarter also tends to be more greatly affected by the Thanksgiving
(October in Canada and November in the United States), Christmas, and New Year holiday periods, due to plant shut downs. In
contrast, the second and third quarters typically have higher revenues due to stronger non-residential construction activity and
relatively fewer holidays (although Good Friday will sometimes fall in the second quarter and the 4th of July will always fall in
the second quarter).
Competition
Our business is highly competitive, and includes large competitors located primarily in large cities and smaller distributors
located in many of the same smaller markets in which we have branches. We believe the principal competitive factors affecting
the markets for our products, in no particular order, are customer service, price, convenience, product availability, and cost
saving solutions.
Market strategies in industrial distribution are varied. Where products are concerned, while many larger distributors have
trended toward a broad-line offering over time, they are often still closely associated with a specific product that can influence
their ability to capture market share. This association with a specific product line is often even more pronounced among smaller
competitors, though many smaller competitors do deploy a broad-line model. Means of serving the customer are even more
diverse. For instance, many competitors maintain a local, branch-based presence in their markets, while others use vans to sell
products in markets away from their main warehouses, while still others rely on catalogs or telemarketing sales. Recent years
have seen the emergence of digital solutions, such as websites, and while this channel has been embraced by many traditional
distributors it also has introduced non-traditional, e-commerce-based competitors into the marketplace. The diversity of product
and service models supported in the marketplace is a reflection of the equally diverse product and service needs of the customer
base. The large majority of our customers utilize multiple channels, from a single distributor where they are offered or from a
range of distributors, to procure the products they need in their operations.
We believe that better service, and a competitive selling advantage, can be provided by maintaining a physical presence closer
to the customer's location(s). As a result, we maintain branches in small, medium, and large markets, each offering a wide
variety of products. The convenience of a large number of branches in a given area, combined with our ability to provide
frequent deliveries to such branches from centrally located distribution centers, facilitates the prompt and efficient distribution
of products. We also believe our industrial vending and bin stock solutions, supported from an in-market (branch or Onsite)
location, provides a unique way to provide our customers convenient access to products and cost saving solutions using a
business model not easily replicated by our competitors. Having trained personnel at each in-market location also enhances our
ability to compete (see 'Employees' below).
Our Onsite service model provides us with a strategic advantage with our larger customers. Building on our core business
strategy of the local branch, the Onsite model provides value to our customers through customized service while giving us a
competitive advantage through stronger relationships with those customers, all with a relatively low investment given the
existing branch and distribution structure.
9
Employees
At the end of 2017, we employed 20,565 full and part-time employees. Of these, approximately 74% held an in-market or non-
branch selling role. We characterize these personnel as follows:
In-market locations
Non-branch selling
Selling subtotal
Distribution
Manufacturing
Administrative
Non-selling subtotal
Total
2017
2016
13,424
1,711
15,135
3,575
652
1,203
5,430
20,565
12,966
1,575
14,541
3,403
594
1,086
5,083
19,624
We believe the quality of our employees is critical to our ability to compete successfully in the markets we currently serve and
to our ability to develop new markets and customer relationships. We foster the growth and education of skilled employees
throughout the organization by operating training programs and by decentralizing decision-making. Wherever possible, our
goal is to 'promote from within'. For example, most new branch and Onsite managers are promoted from an outside sales
position and district managers (who supervise a number of in-market locations) are usually former branch managers.
The Fastenal School of Business (our internal corporate university program, known as FSB) develops and delivers a
comprehensive array of industry and company-specific education and training programs that are offered to our employees. FSB
provides core curricula focused on key competencies determined to be critical to the success of our employees' performance. In
addition, we provide specialized educational tracks within various institutes of learning. These institutes of learning are
advanced levels that provide specific concentrations of education and development and have been designed to focus on critical
aspects of our business, such as leadership, effective branch best practices, sales and marketing, product education, and
distribution.
Our selling personnel are compensated with a base salary and an incentive bonus arrangement that places emphasis on
achieving increased sales on a branch, Onsite, district, regional, and national account basis, while still attaining targeted levels
of, among other things, gross profit and trade accounts receivable collections. As a result, a significant portion of our total
employment cost varies with sales volume. We also pay incentive bonuses to our leadership personnel based on one or more of
the following factors: sales growth, earnings growth (before and after taxes), profitability, and return on assets, and to our other
personnel for achieving predetermined departmental, project, and cost containment goals.
Our employees are not subject to any collective bargaining agreements and we have experienced no work stoppages. We
believe our employee relations are good.
Available Information
Our Internet address for corporate and investor information is www.fastenal.com. The information contained on our website or
connected to our website is not incorporated by reference into this annual report on Form 10-K and should not be considered
part of this report.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available free of charge on or
through our website at www.fastenal.com as soon as reasonably practicable after such reports have been filed with or furnished
to the SEC.
10
ITEM 1A. RISK FACTORS
In addition to the other information in this Form 10-K, the following factors should be considered in evaluating our business.
Our operating results depend upon many factors and are subject to various risks and uncertainties. The most significant risks
and uncertainties known to us which may cause our operating results to vary from anticipated results or which may negatively
affect our operating results and profitability are as follows:
Company Risks
Products that we sell may expose us to potential material liability for property damage, environmental damage, personal
injury, or death linked to the use of those products by our customers. Some of our customers operate in challenging industries
where there is a material risk of catastrophic events. We are actively seeking to expand our sales to certain categories of
customers, some of whose businesses may entail heightened levels of such risk. If any of these events are linked to the use by
our customers of any of our products, claims could be brought against us by those customers, by governmental authorities, and
by third parties who are injured or damaged as a result of such events. In addition, our reputation could be adversely affected by
negative publicity surrounding such events regardless of whether or not claims against us are successful. While we maintain
insurance coverage to mitigate a portion of this risk and may have recourse against our suppliers for losses arising out of
defects in products procured from them, we could experience significant losses as a result of claims made against us to the
extent adequate insurance is not in place, the products are manufactured by us or legal recourse against our suppliers is
otherwise not available, or our insurers or suppliers are unwilling or unable to satisfy their obligations to us.
We may be unable to meet our goals regarding the growth drivers of our business. Our sales growth is dependent primarily
on our ability to attract new customers and increase our activity with existing customers. Historically, the most effective way to
attract new customers has been opening new branches. In recent years, however, we have devoted increased resources to other
growth drivers, including our industrial vending business, our Onsite business, and our national accounts team. While we have
taken steps to build momentum in the growth drivers of our business, we cannot assure you those steps will lead to additional
sales growth. Failure to achieve any of our goals regarding industrial vending, Onsite locations, national accounts signings, or
other growth drivers could negatively impact our long-term sales growth. Further, failure to identify appropriate customer sites
for our Onsite businesses or failure to find suitable locations for our Onsite businesses once appropriate customer sites are
identified may adversely impact our goals regarding the number of new Onsite locations we are able to open.
Changes in customer or product mix, downward pressure on sales prices, and changes in volume of orders could cause our
gross profit percentage to fluctuate or decline in the future. Changes in our customer or product mix could cause our gross
profit percentage to fluctuate or decline. For example, the portion of our sales attributable to fasteners has been decreasing in
recent years. That has adversely affected our gross profit percentage as our non-fastener products generally carry lower gross
profit margins than our fastener products. Similarly, in recent years, revenues from national accounts customers, which
typically have lower gross profit margins by virtue of their scale and available business, have tended to grow faster than
revenues from smaller customers. This factor has become more significant as revenues from Onsite locations has grown in the
mix. If our customer or product mix continues to change, our gross profit percentage may decline further. Downward pressure
on sales prices and changes in the volume of our orders could also cause our gross profit percentage to fluctuate or decline. We
can experience downward pressure on sales prices as a result of deflation, pressure from customers to reduce costs, or increased
competition. Reductions in our volume of purchases can adversely impact gross profit by reducing supplier volume allowances.
Customer and product mix have contributed to the decline in our gross profit percentage over time, including in 2017 and 2016,
and will likely continue to affect our gross profit percentage in 2018 and beyond. However, whether this adverse mix impact
will result in a decline of our gross profit percentage in any given year will depend on the extent to which they are, or are not,
offset by positive impacts to gross profit margin during such year.
Our operating and administrative expenses could grow more rapidly than net sales which could result in failure to achieve
our goals related to leveraging revenue growth into higher net earnings. Over time, we have generally experienced an
increase in our operating and administrative expenses, including costs related to payroll, occupancy, freight, and information
technology, among others, as our net sales have grown. However, historically, a portion of these expenses has not increased at
the same rates as net sales, allowing us to leverage our growth and sustain or expand our operating profit margins. There are
various scenarios where we may not be able to continue to achieve this leverage as we have been able to do in the past. For
instance, it is typical that when demand declines, most commonly from cyclical factors (though it could be due to customer
losses or some other company-specific event), our operating and administrative expenses do not fall as quickly as net sales. It is
also possible that in the future we will elect to make investments in operating and administrative expenses that would result in
costs growing faster than net sales. In addition, market variables, such as labor rates, energy costs, and legal costs, could move
in such a way as to cause us to not be able to manage our operating and administrative expenses in a way that would enable us
to leverage our revenue growth into higher net earnings. Should any of these scenarios, or a combination of them, occur in the
future, it is possible that our operating and pre-tax profit margins could decline even if we are able to grow revenue.
11
Our competitive advantage in our industrial vending business could be eliminated and the loss of key suppliers of equipment
and services for that business could be disruptive and could result in failure to deploy devices. We believe we have a
competitive advantage in industrial vending due to our vending hardware and software, our local branch presence (allowing us
to service devices more rapidly), our 'vendible' product depth, and in North America, our distribution strength. These
advantages have developed over time; however, other competitors could respond to our expanding industrial vending business
with highly competitive platforms of their own. Such competition could negatively impact our ability to expand our industrial
vending business or negatively impact the economics of that business. In addition, we currently rely on a limited number of
suppliers for the vending devices used in, and certain software and services needed to operate, our industrial vending business.
While these devices, software, and services can be obtained from other sources, loss of our current suppliers could be
disruptive and could result in us failing to meet our goals related to the number of devices we are able to deploy in the next
twelve to eighteen months.
The ability to identify new products and product lines, and integrate them into our selling locations and distribution
network, may impact our ability to compete and our sales and profit margins. Our success depends in part on our ability to
develop product expertise at the selling location level and identify future products and product lines that complement existing
products and product lines and that respond to our customers' needs. We may not be able to compete effectively unless our
product selection keeps up with trends in the markets in which we compete or trends in new products. In addition, our ability to
integrate new products and product lines into our branches and distribution network could impact sales and profit margins.
Our ability to successfully attract and retain qualified personnel to staff our selling locations could impact labor costs, sales
at existing selling locations, and the successful execution of our growth drivers. Our success depends in part on our ability to
attract, motivate, and retain a sufficient number of qualified employees, including inside and outside branch associates, Onsite
managers, and national account sales representatives, who understand and appreciate our culture and are able to adequately
represent this culture to our customers. Qualified individuals of the requisite caliber and number needed to fill these positions
may be in short supply in some areas, and the turnover rate in the industry is high. If we are unable to hire and retain personnel
capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and
product knowledge, our sales could be materially adversely affected. Additionally, competition for qualified employees could
require us to pay higher wages to attract a sufficient number of employees. An inability to recruit and retain a sufficient number
of qualified individuals in the future may also delay the planned openings of new branches and planned expansion of our other
selling channels.
Our inability to attract or transition key executive officers may divert the attention of other members of our senior
leadership and adversely impact our existing operations. Our success depends on the efforts and abilities of our key executive
officers and senior leadership. In the event of voluntary or involuntary vacancies in our executive team in the future, the extent
to which there is disruption in the oversight and/or leadership of our business will depend on our ability to either transition
internal, talented individuals or recruit suitable replacements to serve in these roles. In addition, difficulties in smoothly
implementing any transition to new members of our executive team, or recruiting suitable replacements, could divert the
attention of other members of our senior leadership team from our existing operations.
We may not be able to compete effectively against traditional or non-traditional competitors, which could cause us to lose
market share or erode our operating income. The industrial, construction, and maintenance supply industry, although slowly
consolidating, still remains a large, fragmented, and highly competitive industry. Our current or future competitors may include
companies with similar or greater market presence, name recognition, and financial, marketing, technological, and other
resources, and we believe they will continue to challenge us with their product selection, financial resources, technological
advancements, and services. Increased competition from brick and mortar retailers in markets in which we have in-market
locations or from on-line retailers (particularly those major internet providers who can offer a wide range of products and rapid
delivery), and the adoption by competitors of aggressive pricing strategies and sales methods, could cause us to lose market
share or reduce our prices or increase our spending, thus eroding our operating income.
Interruptions in the proper functioning of information systems could disrupt operations and cause unanticipated increases
in costs and/or decreases in revenues. The proper functioning of our information systems is critical to the successful operation
of our business. Although our information systems are protected with robust backup systems, including physical and software
safeguards and remote processing capabilities, information systems are still vulnerable to natural disasters, power losses,
unauthorized access, telecommunication failures, and other problems. In addition, certain software used by us is licensed from,
and certain services related to our information systems are provided by, third parties who could choose to discontinue their
relationship with us. If critical information systems fail or these systems or related software or services are otherwise
unavailable, our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and
maintain the security of company and customer data could be adversely affected.
In the event of a cyber security incident, we could experience certain operational interruptions, incur substantial additional
costs, become subject to legal or regulatory proceedings, or suffer damage to our reputation in the marketplace. The nature
of our business requires us to receive, retain, and transmit certain personally identifying information that our customers provide
12
to purchase products or services, register on our websites, or otherwise communicate and interact with us. While we have taken
and continue to undertake significant steps to protect our customer and confidential information, a compromise of our data
security systems or those of businesses we interact with could result in information related to our customers or business being
obtained by unauthorized persons. We develop and update processes and maintain systems in an effort to try to prevent this
from occurring, but the development and maintenance of these processes and systems are costly and require ongoing
monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated.
Consequently, despite our efforts, the possibility of cyber security incidents cannot be eliminated entirely. While we also seek
to obtain assurances that third parties we interact with will protect confidential information, there is a risk the confidentiality of
data held or accessed by third parties may be compromised. If a compromise of our data security were to occur, it could
interrupt our operations, subject us to additional legal, regulatory, and operating costs, and damage our reputation in the
marketplace.
If we experience a loss related to our information systems or are unable to maintain or upgrade our information systems, or
convert to alternate systems, in a timely and efficient manner, our operations may be disrupted or become less efficient. We
depend on information systems for many aspects of our business and we could be adversely affected if we experience a
disruption or data loss relating to our information systems and are unable to recover in a timely manner. We could also be
adversely impacted if we are unable to improve, upgrade, maintain, and expand our information systems. Difficulties resulting
from the transition of our industrial vending hosting services could also be disruptive to the success of our efforts to grow our
industrial vending presence. The success of our growth drivers is dependent in varying degrees on the timely delivery and the
functionality of information technology systems to support them. Extended delays or unexpected expenses in securing,
developing, and otherwise implementing technology solutions to support our growth drivers could delay the achievement of our
goals regarding these growth drivers.
Our business is subject to a wide array of laws and regulations in every jurisdiction where we operate. Compliance with
these laws and regulations increases the cost of doing business and failure to comply could result in the imposition of fines
or penalties and the termination of contracts. We are subject to a variety of laws and regulations including without limitation;
import and export requirements, anti-bribery and corruption laws, tax laws (including U.S. taxes on foreign subsidiaries),
product compliance laws, environmental laws, foreign exchange controls and cash repatriation restrictions, advertising
regulations, data privacy and cyber security requirements, regulations on suppliers regarding the sources of supplies or
products, labor and employment laws, and anti-competition regulations. In particular, our future effective tax rates could be
affected by legislative tax reform, changes in statutory rates, or changes in tax laws or the interpretation thereof. In addition,
notwithstanding the reduction in the corporate income tax rate included in the recently enacted comprehensive tax legislation
commonly referred to as the Tax Cuts and Jobs Act (the 'Tax Act'), the overall impact of the Tax Act on our future financial
results is subject to uncertainties and our financial results could be adversely impacted by certain other aspects of the Tax Act,
including one-time taxes on accumulated offshore earnings, requiring a current inclusion in U.S. federal income of certain
earnings of controlled foreign corporations, allowing a domestic corporation an immediate deduction in U.S. taxable income
for a portion of its foreign-derived intangible income, and the base erosion anti-abuse tax. These factors could result in our
2018 provisional income tax expense booking rate to differ from our expectations. In addition, as a supplier to federal, state,
and local government agencies, we must comply with certain laws and regulations relating specifically to the formation,
administration, and performance of our governmental contracts. We are also subject to governmental audits and inquiries in the
normal course of business. Ongoing audit activity and changes to the legal and regulatory environments could increase the cost
of doing business, and such costs may increase in the future as a result of changes in these laws and regulations or in their
interpretation. While we have implemented policies and procedures designed to facilitate compliance with these laws and
regulations, there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations, or
our policies. Any such violations could result in the imposition of fines and penalties, damage to our reputation, and, in the case
of laws and regulations relating specifically to governmental contracts, the loss of those contracts.
We may not be successful in integrating acquisitions and achieving intended benefits and synergies. We have completed
several acquisitions of businesses in recent years. We expect to continue to pursue strategic acquisitions that we believe will
either expand or complement our business in new or existing markets or further enhance the value and offerings we are able to
provide to our existing or future potential customers. Acquisitions involve numerous risks and challenges, including, among
others, a risk of potential loss of key employees of an acquired business, inability to achieve identified operating and financial
synergies anticipated to result from an acquisition, diversion of our capital and our management's attention from other business
issues, and risks related to the integration of the acquired business including unanticipated changes in our business, our
industry, or general economic conditions that affect the assumptions underlying the acquisition. Any one or more of these
factors could cause us to not realize the benefits anticipated to result from the acquisitions.
13
Industry and General Economic Risks
A downturn in the economy or in the principal markets served by us and other factors may affect customer spending, which
could harm our operating results. In general, our sales represent spending on discretionary items or consumption needs by our
customers. This spending is affected by many factors, including, among others:
•
•
•
•
•
•
•
•
•
•
•
•
general business conditions,
business conditions in our principal markets,
interest rates,
inflation,
liquidity in credit markets,
taxation,
government regulations,
energy and fuel prices and electrical power rates,
unemployment trends,
terrorist attacks and acts of war,
weather conditions, and
other matters that influence customer confidence and spending.
A downturn in either the national or local economy where we operate, or in the principal markets served by us, or changes in
any of the other factors described above, could negatively impact sales at our in-market locations, sales through our other
selling channels, and the level of profitability of those in-market locations and other selling channels.
This risk was demonstrated in 2015 and 2016. We have significant exposure to companies involved in the manufacture of
capital goods and heavy equipment. In 2015, our business was impacted by lower commodity prices, including oil, lower
corporate capital spending, and a strong U.S. dollar. These variables resulted in some of our customers exhibiting a reduced
level of business activity and confidence. When this happens, these customers tend to cut back on spending which yields a
slowdown in our business with these customers. These same dynamics carried into 2016. In 2017, these conditions mostly
reversed. Certain commodity prices recovered and corporate investment improved, leading to better capital spending trends
among our customers. This improvement in customer spending helped to improve our net sales and sales growth.
Products manufactured in foreign countries may cease to be available, which could adversely affect our inventory levels and
operating results. We obtain certain of our products, and our suppliers obtain certain of their products, from China, Taiwan,
South Korea, Mexico, and other foreign countries. Our suppliers could discontinue selling products manufactured in foreign
countries at any time for reasons that may or may not be in our control or our suppliers' control, including foreign government
regulations, domestic government regulations, political unrest, war, disruption or delays in shipments, changes in local
economic conditions, or trade issues. Additionally, the shipment of goods from foreign countries could be delayed by container
shipping companies encountering financial or other difficulties. Our operating results and inventory levels could suffer if we
are unable to promptly replace a supplier or shipper who is unwilling or unable to satisfy our requirements with another
supplier or shipper providing equally appealing products and services.
New trade policies could make sourcing product from overseas more difficult and/or more costly. We source a significant
amount of the products we sell from outside of the United States, primarily Asia. This sourcing is both direct (through our
wholly-owned, Asia-based subsidiary, FASTCO Trading Co., Ltd.) and indirect (from suppliers that themselves procure product
from international sources). Considerable political uncertainty in the United States may result in changes to trade policies that
may affect our sourcing operations. Should this occur, it may be difficult in light of the significant structural investments made
over time and the absence of significant domestic fastener production for us to adjust our capabilities to any new policies in the
short term, which could increase the difficulty and/or cost of sourcing products. Such changes could adversely affect our ability
to secure sufficient product to service our customers and/or adversely affect our cost of operating in a way that hurts our
financial results.
Changes in energy costs and the cost of raw materials used in our products could impact our net sales, cost of sales, gross
profit percentage, distribution expenses, and occupancy expenses, which may result in lower operating income. Costs of raw
materials used in our products (e.g., steel) and energy costs have fluctuated during the last several years. Increases in these
costs result in increased production costs for our suppliers. These suppliers typically look to pass their increased costs along to
us through price increases. The fuel costs of our distribution and branch operations have fluctuated as well. While we typically
try to pass increased supplier prices and fuel costs through to our customers or to modify our activities to mitigate the impact,
we may not be successful, particularly if supplier prices or fuel costs rise rapidly. Failure to fully pass any such increased prices
and costs through to our customers or to modify our activities to mitigate the impact would have an adverse effect on our
operating income. While increases in the cost of fuel or raw materials could be damaging to us, decreases in those costs,
particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit
14
to deteriorate, or by negatively impacting customers in certain industries, which could cause our sales to those customers to
decline.
New trade policies could have an adverse impact on industries we sell into, negatively affecting our net sales and profits.
Considerable political uncertainty in the United States may result in changes to trade policies that could create disruption in
geographic demand trends. To the extent that the United States government enacts tariffs or taxes that penalize imports to
benefit domestic manufacturing, we may improve our domestic sales which may have an overall positive impact on us given
that 88% of our total revenue is derived from the United States. However, any such action may adversely impact our foreign
sales, which may, in turn, adversely impact our ability to expand our overseas branches in the future. In addition, should a
foreign government engage in its own trade protection, independent of or in response to another nation's action, it could have a
negative direct or, more likely, indirect effect on our net sales and profits by reducing demand for exports by United States
companies. It is difficult to know in advance what the net effect of such actions will be on companies such as ours, but it is
possible that such changes could adversely affect our financial results.
The industrial, construction, and maintenance supply industry is consolidating, which could cause it to become more
competitive and could negatively impact our market share, gross profit, and operating income. The industrial, construction,
and maintenance supply industry in North America is consolidating. This consolidation is being driven by customer needs and
supplier capabilities, which could cause the industry to become more competitive as greater economies of scale are achieved by
suppliers, or as competitors with new business models are willing and able to operate with lower gross profit on select
products. Customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply
at multiple locations. We believe these customer needs could result in fewer suppliers as the remaining suppliers become larger
and capable of being a consistent source of supply.
There can be no assurance we will be able in the future to take advantage effectively of the trend toward consolidation. The
trend in our industry toward consolidation could make it more difficult for us to maintain our current gross profit and operating
income. Furthermore, as our industrial customers face increased foreign competition, and potentially lose business to foreign
competitors or shift their operations overseas in an effort to reduce expenses, we may face increased difficulty in growing and
maintaining our market share.
Inclement weather and other disruptions to the transportation network could adversely impact our distribution system and
demand for our products. Our ability to provide efficient distribution of core business products to our branch network is an
integral component of our overall business strategy. Disruptions at distribution centers or shipping ports may affect our ability
to both maintain core products in inventory and deliver products to our customers on a timely basis, which may in turn
adversely affect our results of operations. In addition, severe weather conditions could adversely affect demand for our products
in particularly hard hit regions. In August and September 2017, we experienced temporary disruptions in our distribution
network in our Gulf Coast, Florida, Georgia, and Puerto Rico regions due to hurricanes Harvey, Irma, and Maria. These storms
adversely impacted our product demand and revenues, as well as our gross and operating profit percentages, due to an increase
in demand for storm-related products which have a lower gross profit margin, and inefficiencies in delivery services in the
immediate aftermath of the storms.
Our current estimates of total market potential as well as the market potential of our business strategies could be incorrect.
We believe we have a significant opportunity for growth based on our belief that North American market demand for the
products we sell is estimated to exceed $140 billion. This figure is not derived from an independent organization or data source
that aggregates and publishes widely agreed-upon demand and market share statistics. Instead, we have identified this figure
based on our own experience in the marketplace for our products and by evaluating estimates from other sources. If we have
overestimated the size of our market, and in doing so, underestimated our current share of it, the size of our opportunity for
growth may not be as significant as we currently believe. Similarly, we have provided estimates of the opportunities we have
with some of our specific growth strategies, such as industrial vending and Onsite locations. We believe the potential market
opportunity for industrial vending is approximately 1.7 million devices and we have identified over 15,000 customer locations
with the potential to implement our Onsite service model. Similar to the case for total market size, we use our own experience
and data to arrive at the size of these potential opportunities and not independent sources. These estimates are based on our
business model today, and the introduction or expansion of other business strategies, such as on-line retailing, could cause them
to change. In addition, the market potential of a particular business strategy may vary from expectations due to a change in the
marketplace (such as changes in customer concentration or needs), a change in the nature of that business strategy, or weaker
than anticipated acceptance by customers of that business strategy. We cannot guarantee that our market potential estimates are
accurate or that we will ultimately decide to expand our industrial vending or Onsite service models to reach the full market
opportunity.
We are exposed to foreign currency exchange rate risk, and changes in foreign exchange rates could increase our costs to
procure products and impact our foreign sales. Because the functional currency related to most of our foreign operations is
the applicable local currency, we are exposed to foreign currency exchange rate risk arising from transactions in the normal
course of business. Fluctuations in the relative strength of foreign economies and their related currencies could adversely
15
impact our ability to procure products overseas at competitive prices and our foreign sales. Historically, our primary exchange
rate exposure has been with the Canadian dollar.
Tight credit markets could impact our ability to obtain financing on reasonable terms or increase the cost of existing or
future financing and interest rate fluctuations could adversely impact our results. As of December 31, 2017, we had $415.0
of outstanding debt obligations, including loans outstanding under our revolving credit facility (the 'Credit Facility') of $280.0
and senior unsecured promissory notes issued under our master note agreement (the 'Master Note Agreement') in the aggregate
principal amount of $135.0. Loans under the Credit Facility bear interest at a rate per annum based on the London Interbank
Offered Rate ('LIBOR') and mature on March 10, 2020. The notes issued under our Master Note Agreement consist of three
series. The first is in an aggregate principal amount of $40.0, bears interest at a fixed rate of 2.00% per annum, and is due and
payable on July 20, 2021. The second is in an aggregate principal amount of $35.0, bears interest at a fixed rate of 2.45% per
annum, and is due and payable on July 20, 2022. The third is in an aggregate principal amount of $60.0, bears interest at a fixed
rate of 3.22% per annum, and is due and payable on March 1, 2024. Our aggregate borrowing capacity under the Credit Facility
is $700.0. Our aggregate borrowing capacity under the Master Note Agreement is $200.0; however, none of the institutional
investors party to that agreement are committed to purchase notes thereunder.
During periods of volatility and disruption in the United States credit markets, financing may become more costly and more
difficult to obtain. Although the credit market turmoil of 2008 and 2009 did not have a significant adverse impact on our
liquidity or borrowing costs given our low level of indebtedness at that time, the availability of funds tightened and credit
spreads on corporate debt increased. Our indebtedness has increased since 2009 and we have the capacity under our Credit
Facility and Master Note Agreement to increase borrowings in the future. If credit market volatility were to return or if interest
rates rise, the cost of servicing our existing debt could increase due to the LIBOR-based interest rate provided for under our
Credit Facility. In addition, borrowing additional amounts to finance stock purchases, dividends, capital expenditures, and other
liquidity needs or to refinance our existing indebtedness could be difficult and the cost of doing so could be high.
For more information relating to borrowing and interest rates, see the following sections below: Liquidity and Capital
Resources – Debt under the heading 'Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations', 'Item 7A. Quantitative and Qualitative Disclosures about Market Risks', and Note 10 of the Notes to Consolidated
Financial Statements.
Investment Risk
There can be no assurance that our stock price will continue to reflect the current multiple of earnings over time. Stock
prices, including ours, are commonly thought to be a function of earnings multiplied by a multiple. Historically, investors have
given our earnings a higher multiple, or premium, than is typical of the broader industrial sector of which we are typically
associated. We believe we have earned this premium by virtue of a long history of superior growth, profitability, and returns.
However, to the extent that we fail to successfully execute our growth strategies and/or poorly navigate the risks that surround
our business, including those described throughout this section, or to the extent our industry (industrial distribution, or
industrial stocks in general) loses favor in the marketplace, there can be no assurance that investors will continue to afford a
premium multiple to our earnings which could adversely affect our stock price.
We cannot provide any guaranty of future dividend payments or that we will continue to purchase shares of our common
stock pursuant to our share purchase program. Although our board of directors has historically authorized the payment of
quarterly cash dividends on our common stock and indicated an intention to do so in the future, there are no assurances that we
will continue to pay dividends in the future or continue to increase dividends at historic rates. In addition, although our board of
directors has authorized share purchase programs and we purchased shares in 2017, 2016, and prior years through these
programs, we may discontinue doing so at any time. Any decision to continue to pay quarterly dividends on our common stock,
to increase those dividends, or to purchase our common stock in the future will be based upon our financial condition and
results of operations, the price of our common stock, credit conditions, and such other factors as are deemed relevant by our
board of directors.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2.
PROPERTIES
Note – Information in this section is as of December 31, 2017, unless otherwise noted.
We own the following facilities in Winona, Minnesota:
Purpose
Distribution center and home office
Manufacturing facility
Computer support center
Winona branch
Winona product support facility
Rack and shelving storage
Multi-building complex which houses certain operations of the distribution group,
the support services group, and the home office support group
Supplemental warehouse, office, and potential branch space
(1) Total number of tote locations for small parts storage included in facilities with an ASRS.
We own the following facilities, excluding selling locations, outside of Winona, Minnesota:
Tote Locations
(ASRS)(1)
Approximate
Square Feet
246,000
259,000
100,000
13,000
15,000
55,000
42,000
30,000
100,000
Purpose
Distribution center
Manufacturing facility
Distribution center
Distribution center
Distribution center
Distribution center
Distribution center
Distribution center
Distribution center
Distribution center and manufacturing facility
Manufacturing facility
Local re-distribution center and manufacturing facility
Manufacturing facility
Location
Indianapolis, Indiana
Indianapolis, Indiana
Atlanta, Georgia
Denton, Texas
Scranton, Pennsylvania
Akron, Ohio
Kansas City, Kansas
Kitchener, Ontario, Canada
High Point, North Carolina
Modesto, California
Rockford, Illinois
Johor, Malaysia
Wallingford, Connecticut
Tote Locations
(ASRS)(1)
561,000 (2)
Approximate
Square Feet
1,039,000
77,000
41,000 (3)
104,000
103,000
— (4)
128,000
132,000
69,000
220,000
198,000
176,000
189,000
182,000
300,000
142,000
301,000
328,000
100,000
27,000
187,000
(1) Total number of tote locations for small parts storage included in facilities with an ASRS.
(2) This property contains an ASRS with capacity of 52,000 pallet locations, in addition to the 561,000 tote locations for small
parts noted above; 105,000 of these small part tote locations are located in the industrial vending automated replenishment
facility, which is also located on this property.
(3) This facility contains an ASRS with capacity of 14,000 pallet locations, in addition to the 41,000 tote locations for small
parts noted above.
(4) Construction of an ASRS began in 2017 at our Kansas distribution center, and we expect this project to be completed in the
first quarter of 2018. This facility will contain approximately 170,000 tote locations.
In addition, we own 179 buildings that house our in-market locations in various cities throughout North America.
17
All other buildings we occupy are leased. Leased branches range from approximately 3,000 to 10,000 square feet, with lease
terms of up to 60 months (most initial lease terms are for 36 to 48 months). In addition to our leased branch locations, we also
lease the following facilities:
Purpose
Distribution center
Distribution center
Distribution center and packaging facility
Distribution center
Location
Seattle, Washington (1)
Salt Lake City, Utah
Salt Lake City, Utah
Approximate
Square Feet
Lease Expiration
Date
100,000
April 2022
74,000
26,000
July 2019
July 2019
Apodaca, Nuevo Leon, Mexico
46,000 March 2020
Distribution center and manufacturing facility Edmonton, Alberta, Canada
Manufacturing facility
Houston, Texas
45,000
21,000
July 2020
July 2019
Remaining
Lease
Renewal
Options
None
One
One
Three
None
None
Local re-distribution center and
manufacturing facility
Modrice, Czech Republic
15,000
April 2022
None
(1) We currently own land in the Seattle, Washington area for the construction of a new distribution center, which is scheduled to
begin in 2018, and when completed, will replace the current leased facility.
We currently own land for future distribution center expansion and development. If economic conditions are suitable in the
future, we will consider purchasing branch locations to house our older branches. It is anticipated the majority of new branch
locations will continue to be leased. It is our policy to negotiate relatively short lease terms to facilitate relocation of particular
branch operations, when desirable. Our experience has been that there is sufficient space suitable for our needs and available
for leasing.
ITEM 3.
LEGAL PROCEEDINGS
A description of our legal proceedings, if any, is contained in Note 11 of the Notes to Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
18
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock Data
Dollar amounts in this section are stated in whole numbers.
Our shares are traded on The Nasdaq Stock Market under the symbol 'FAST'. As of January 19, 2018, there were approximately
1,100 record holders of our common stock, which includes nominees or broker dealers holding stock on behalf of an estimated
220,000 beneficial owners.
The following table sets forth, by quarter, the high and low closing sale price(1) of our shares on The Nasdaq Stock Market for
2017 and 2016.
2017
First quarter
Second quarter
Third quarter
Fourth quarter
High
52.22
$
$
51.76
45.73
55.14
Low
2016
46.17 First quarter
42.10 Second quarter
39.97 Third quarter
44.51 Fourth quarter
High
Low
$
49.87
$
36.53
48.93
45.36
49.17
42.70
39.92
38.16
(1) The closing sale price was obtained from Shareholder.com, a division of Nasdaq OMX.
The following table sets forth our dividend payout (on a per share basis) in each of the last two years:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
2017
2016
$
$
0.32
0.32
0.32
0.32
1.28
$
$
0.30
0.30
0.30
0.30
1.20
On January 16, 2018, we announced a quarterly dividend of $0.37 per share to be paid on February 27, 2018 to shareholders of
record at the close of business on January 31, 2018. Our board of directors intends to continue paying quarterly dividends,
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.
Issuer Purchases of Equity Securities
The table below sets forth information regarding purchases of our common stock during each of the last three months of 2017:
Period
October 1-31, 2017
November 1-30, 2017
December 1-31, 2017
Total
(a)
(b)
(c)
(d)
Total Number of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased Under
the Plans or Programs (1)
0
0
0
0
$0.00
$0.00
$0.00
$0.00
0
0
0
0
4,400,000
4,400,000
4,400,000
4,400,000
(1) On July 11, 2017, our board of directors established a new authorization for us to repurchase up to 5,000,000 shares of our
common stock. As of December 31, 2017, we had remaining authority to repurchase 4,400,000 shares under this
authorization.
Purchases of shares of our common stock throughout 2017 are described later in this Form 10-K under the heading 'Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations'.
19
Fastenal Company Common Stock Comparative Performance Graph
Set forth below is a graph comparing, for the five years ended December 31, 2017, the yearly cumulative total shareholder
return on our common stock with the yearly cumulative total shareholder return of the S&P 500 Index and the Dow Jones US
Industrial Suppliers Index.
The comparison of total shareholder returns in the performance graph assumes that $100 was invested on December 31, 2012
in Fastenal Company, the S&P 500 Index, and the Dow Jones US Industrial Suppliers Index, and that dividends were reinvested
when and as paid.
Comparison of Five-Year Cumulative Total Return Among Fastenal Company, the S&P 500 Index, and the Dow Jones
US Industrial Suppliers Index
Fastenal Company
S&P 500 Index
Dow Jones US Industrial Suppliers Index
2012
$ 100.00
100.00
100.00
2013
103.56
132.39
115.76
2014
106.00
150.51
115.70
2015
93.47
152.59
94.31
2016
110.78
170.84
115.86
2017
132.57
208.14
120.80
Note - The graph and index table above were obtained from Zachs SEC Compliance Services Group.
ITEM 6.
SELECTED FINANCIAL DATA
Incorporated herein by reference is Ten-Year Selected Financial Data on pages 4 and 5 of Fastenal's 2017 Annual Report to
Shareholders of which this Form 10-K forms a part, a portion of which is filed as Exhibit 13 to this annual report on
Form 10-K.
20
ITEM 7. 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 our financial position
and operating results during the periods included in the accompanying consolidated financial statements.
Business and Operational Overview
Fastenal is a North American leader in the wholesale distribution of industrial and construction supplies. We distribute these
supplies through a network of approximately 3,000 in-market locations. Most of our customers are in the manufacturing and
non-residential construction markets. The manufacturing market includes both original equipment manufacturers (OEM) and
maintenance, repair, and operations (MRO). The non-residential construction market includes general, electrical, plumbing,
sheet metal, and road contractors. Other users of our product include farmers, truckers, railroads, oil exploration, production
and refinement companies, mining companies, federal, state, and local governmental entities, schools, and certain retail trades.
Geographically, our branches and customers are primarily located in North America.
It is helpful to appreciate several aspects of our marketplace: (1) It's big, the North American marketplace for industrial
supplies is estimated to be in excess of $140 billion per year (and we have expanded beyond North America) and no company
has a significant portion of this market. (2) Many of the products we sell are individually inexpensive, but the cost and time to
manage, procure, and transport these products can be quite meaningful. (3) Purchasing professionals often expend
disproportionate effort managing the high SKU count of low-volume, low value MRO supplies which is better allocated to their
higher volume, higher value OEM supplies. (4) Many customers prefer to reduce their number of suppliers to simplify their
business, while also utilizing various technologies and models (including our local branches when they need something quickly
or unexpectedly) to improve availability and reduce waste. (5) We believe the markets are efficient. To us, this means we can
grow our market share if we provide the greatest value to our customer.
Our approach to addressing these aspects of our marketplace is captured in our motto Growth through Customer Service. The
concept of growth is simple: find more customers every day and increase our activity with them. However, execution is hard
work. First, we recruit service-minded individuals to support our customers and their business. Second, we operate in a
decentralized fashion to help identify the greatest value for our customers. Third, we have a great team behind our customer-
facing resources to operate efficiently and to help identify new business solutions. Fourth, we strive to generate strong profits,
which produce the cash flow necessary to fund our growth and to support the needs of our customers. Lastly, we identify
drivers that allow us to get closer to our customers and gain market share.
We believe our ability to grow is amplified if we can serve our customers at the closest economic point of contact. At one point,
the closest economic point of contact was the local branch. Today, in some cases, we have moved the branch inside the
customer's facility. We also are frequently positioned right at the point of consumption within customers' facilities through our
industrial vending or FMI capabilities. Therefore, our focus centers on understanding our customers' day, their opportunities,
and their obstacles. By doing these things every day, Fastenal remains a growth-centric organization.
Executive Overview
Net sales increased $428.5, or 10.8%, in 2017 relative to 2016. Our gross profit as a percentage of net sales declined to 49.3%
in 2017 from 49.6% in 2016. Our operating income as a percentage of net sales in 2017 was comparable to 2016 at 20.1% in
both years.
We recorded a provisional income tax expense of $294.5 in 2017, or 33.7% of earnings before income taxes. This amount
reflects an estimated reduction in our deferred income tax liabilities of $30.8 as a result of the income tax rate decrease
included in the Tax Act, offset by an estimated increase in income tax payable in the amount of $6.5 as a result of the transition
tax on cash and cash equivalent balances related to accumulated earnings associated with our international operations, also
included in the Tax Act. Absent the impact of the Tax Act, our income tax expense for 2017 would have been approximately
$318.8, or 36.5% of earnings before income taxes. Income tax expense was $290.3 in 2016, or 36.8% of earnings before
income taxes.
Our net earnings in 2017 were $578.6, an increase of 15.8% when compared to 2016. Our diluted net earnings per share were
$2.01 in 2017 compared to $1.73 in 2016. If we excluded the discrete items that benefited our income tax rate in the fourth
quarter of 2017 (primarily related to the impact of the Tax Act), our net earnings in the period would have been approximately
$554.2, an increase of 11.0% when compared to 2016, and our diluted net earnings per share would have been $1.92.
We continued to focus on our growth drivers in 2017. We signed 168 new national account contracts (defined as new customer
accounts with a multi-site contract). Additionally, we signed 270 new Onsite customer locations (defined as dedicated sales and
service provided from within, or in close proximity to, the customer's facility) and 19,355 new industrial vending devices.
21
The table below summarizes our in-market location employee count and our total employee count at the end of the periods
presented, and changes in that count from the end of the prior periods to the end of the most recent period. The final four items
below summarize our cumulative investments in branch locations, Onsite locations, total in-market locations, and industrial
vending devices.
End of period total in-market locations (1) - employee count
End of period total employee count
Number of public branch locations
Number of active Onsite locations
Number of in-market locations (1)
Industrial vending devices (installed count) (2)
Ratio of industrial vending devices to in-market locations
Q4
2017
Q4
2016
Twelve-month
% Change
13,424
20,565
2,383
605
2,988
71,421
24:1
12,966
19,624
2,503
401
2,904
62,822
22:1
3.5%
4.8%
-4.8%
50.9%
2.9%
13.7%
(1) 'In-market locations' is defined as the sum of the total number of public branch locations and the total number of active
Onsite locations.
(2) This number represents devices which principally dispense product and produce product revenues, and excludes
approximately 15,000 devices which are principally used for the check-in/check-out of equipment.
During the last twelve months, we increased our headcount by 458 people in our in-market locations and 941 people in total.
Our total headcount at the end of 2017 includes 127 people related to our Mansco acquisition. The remaining increase is mostly
a function of additions we have made to support customer growth in the field as well as investments in our growth drivers.
We opened 18 branches and closed 130 branches in 2017. Additionally, eight branches were converted from public branches to
non-public locations. Our branch network forms the foundation of our business strategy, and we will continue to open or close
branches as is deemed necessary to sustain and improve our network and support our growth drivers.
Results of Operations
The following sets forth consolidated statements of earnings information (as a percentage of net sales) for the periods ended
December 31:
Net sales
Gross profit
Operating and administrative expenses
Gain on sale of property and equipment
Operating income
Net interest expense
Earnings before income taxes
Note – Amounts may not foot due to rounding difference.
2017
100.0%
49.3%
29.2%
0.0%
20.1%
-0.2%
19.9%
2016
100.0%
49.6%
29.5%
0.0%
20.1%
-0.2%
19.9%
2015
100.0%
50.4%
29.0%
0.0%
21.4%
-0.1%
21.3%
22
Net Sales
Note – Daily sales are defined as the total net sales for the period divided by the number of business days (in the United States)
in the period.
The table below sets forth net sales and daily sales for the periods ended December 31, and changes in such sales from the prior
period to the more recent period:
Net sales
Percentage change
Business days
Daily sales
Percentage change
Daily sales impact of acquisitions
Impact of currency fluctuations
2017
4,390.5
2016
3,962.0
2015
3,869.2
10.8%
254
17.3
11.3%
1.0%
0.1%
2.4%
255
15.5
2.0%
0.6%
-0.4%
3.6%
254
15.2
3.2%
0.2%
-1.2%
The increases in net sales in the periods noted above for 2017, 2016, and 2015 were driven primarily by higher unit sales. Price
was not a material factor in the periods presented.
The higher unit sales in 2017 resulted primarily from two sources. The first is improvement in underlying market demand. We
believe the improvement in general business activity is reflected in a number of metrics. For instance, the Purchasing Managers
Index, published by the Institute for Supply Chain Management, averaged 57.0, 55.8, 58.6, and 58.9 in the first, second, third,
and fourth quarters of 2017, respectively, well above 49.8, 51.8, 51.2, and 53.3 in the first, second, third, and fourth quarters of
2016, respectively. Readings above 50 are indicative of growing demand, and we believe this favorably influenced our unit
sales. Daily sales of fasteners, our most cyclical product line, grew 8.4% in 2017. We also experienced growth in sales to 79 of
our top 100 customers in 2017, which compares to growth in sales to 50 of our top 100 customers in 2016. As business
conditions strengthen, they tend to lift our net sales growth rates as well.
The second source is success within our growth initiatives. We signed 19,355 industrial vending devices during 2017, an
increase of 7.2% over 2016. In addition to an increase in our installed base, we were also more efficient with the existing base,
resulting in a modest increase in average sales per device, and we decreased our device removals by 3.8%. Combined sales
through our vending devices accelerated throughout 2017, finishing with growth in the high teens. We signed 270 new Onsite
locations in 2017 and had 605 active sites on December 31, 2017, an increase of 50.9% over December 31, 2016. We signed
168 new national account contracts in 2017. The contribution of these new contracts and strong penetration of existing national
account customers resulted in daily sales from our national account customers growing 14.5% in 2017 compared to 2016.
In 2016, we saw relative weakness from non-residential construction and heavy manufacturing customers and in demand for
our fastener products, speaking to the sustained softness in heavy and general industrial markets. Business with our largest
customers was also relatively weak, with sales to our top 100 customers rising modestly in the first half of 2016 and falling
modestly in the second half of 2016. While these trends were representative of conditions in the United States and Canada, total
sales outside of these geographic areas were relatively strong and improved over the course of 2016.
During 2015, our business weakened compared to 2014. This initially involved customers tied to the oil and gas sector, but
expanded during the course of the year to include customers across additional industries and in geographic areas not typically
associated with the oil and gas sector. November and especially December experienced a greater frequency and duration of
customer plant shutdowns than is typical of these holiday-affected periods.
Net sales in 2016 and 2015 were also impacted by slight inflationary price changes in our non-fastener products and some price
deflation in our fastener products, with the net impact being a slight drag on growth.
Sales by Product Line
The approximate mix of sales from the fastener product line and from the other product lines was as follows:
Fastener product line
Other product lines
2017
35.6%
64.4%
2016
36.6%
63.4%
2015
38.3%
61.7%
The decrease in our fastener sales as a percentage of total sales arises from two factors. First, we believe non-fastener products
represent a larger market opportunity than fasteners, and that we are relatively under-represented in this market. Over time, this
23
has led to faster growth in the non-fastener product lines, a trend amplified by the growth of our industrial vending program
through which we sell primarily non-fastener products. We believe this factor impacted each year shown and will continue to
promote a lower mix of fasteners in our total sales over time. Second, a weak industrial production environment, has a
disproportionately negative effect on fastener sales relative to non-fastener sales (which relates more to plant operations than
production). This weakness is more of a cyclical factor than a structural one, and as such was relevant in 2015 and 2016, but
not in 2017 when a better economic environment at least partially mitigated the first factor discussed.
Annual Sales Changes, Sequential Trends, and End Market Performance
This section focuses on three distinct views of our business – annual sales changes by month, sequential trends, and end market
performance. The first discussion regarding sales changes by month provides a good mechanical view of our business. The
second discussion provides a framework for understanding the sequential trends (that is, comparing a month to the immediately
preceding month, and also looking at the cumulative change from an earlier benchmark month) in our business. Finally, we
believe the third discussion regarding end market performance provides insight into activities with our various types of
customers.
Annual Sales Changes, by Month
During the months noted below, all of our selling locations, when combined, had daily sales growth rates of (compared to the
same month in the preceding year):
2017
2016
2015
Jan.
3.8%
3.3%
12.0%
Sequential Trends
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
6.1%
2.6%
8.6%
8.4%
0.0%
5.6%
8.9%
3.8%
6.1%
9.7% 13.0% 12.9% 12.8% 15.3% 13.8% 15.4% 14.7%
0.3%
1.1%
3.2%
3.9%
1.6% -0.3% -0.8% -1.1% -3.8%
5.3%
0.0%
3.7%
2.1%
3.2%
1.2%
2.8%
We find it helpful to think about the monthly sequential changes in our business using the analogy of climbing a
stairway – This stairway has several predictable landings where there is a pause in the sequential gain (i.e. April, July, and
October to December), but generally speaking, climbs from January to October. The October landing then establishes the
benchmark for the start of the next year.
History has identified these landings in our business cycle. They generally relate to months where certain holidays impair
business days and/or seasons impact certain end markets, particularly non-residential construction. The first landing centers on
Easter and the Good Friday holiday that precedes it, which alternates between March and April (Good Friday occurred in April
2017, in March 2016, in April 2015, and in 2018, will fall in March), the second landing centers on July 4th, and the third
landing centers on the approach of winter with its seasonal impact on primarily our non-residential construction business and
with the Christmas/New Year holidays. The holidays we noted impact the trends because they either move from month-to-
month or because they move around during the week (the July 4th and Christmas/New Year holiday impacts are examples of
the latter).
The table below shows the pattern to the sequential change in our daily sales. The line labeled 'Benchmark' is an historical
average of our sequential daily sales change for the trailing five year average (2012-2016). We believe this time frame serves to
show the historical pattern and could serve as a benchmark for current performance. The '2017', '2016', and '2015' lines
represent our actual sequential daily sales changes. The '17Delta', '16Delta', and '15Delta' lines indicate the difference between
the 'Benchmark' and the actual results in the respective year.
24
It is important to note that these benchmarks are historical averages. In a year where demand is strong, our daily sales growth
rates will tend to have more months that exceed the benchmark than fall below it. In a year where demand is weak, we will tend
to have more months that fall short of the benchmark than exceed it. In both cases, there is a random element that makes it
difficult to know how any single month will perform.
Benchmark
2017
17Delta
2016
16Delta
2015
15Delta
July
Feb.
Apr.
June
May
Mar.
Aug.
Jan.(1)
-1.1% 0.9% 4.5% -1.0% 1.9% 1.8% -3.7% 3.8% 1.8% -2.4%
0.2% 1.5% 3.6% 2.2% 1.4% 2.8% -2.4% 2.2% 3.8% -2.1%
1.3% 0.6% -0.9% 3.1% -0.5% 1.0% 1.3% -1.6% 2.0% 0.3%
0.4% -0.8% 1.5% 1.7% 0.6% -0.2% -2.3% 2.4% 1.5% -0.9%
1.5% -1.7% -3.0% 2.7% -1.3% -1.9% 1.4% -1.4% -0.2% 1.5%
-3.6% -0.1% 4.2% -2.1% 3.4% 0.9% -4.3% 4.1% -0.9% -2.0%
-2.5% -1.0% -0.4% -1.1% 1.4% -0.9% -0.6% 0.3% -2.7% 0.4%
Sept.
Oct.
Cumulative
Change from
Jan. to Oct.
7.6%
13.5%
5.9%
3.6%
-4.0%
2.9%
-4.7%
(1) The January figures represent the percentage change from the previous October, whereas the remaining figures represent the
percentage change from the previous month.
Note – Amounts may not foot due to rounding difference.
A graph of the sequential daily sales change patterns discussed above, starting with a base of '100' in the previous October and
ending with the next October, would be as follows:
25
End Market Performance
The sequential trends noted above were directly linked to fluctuations in our end markets. To place this in perspective – we
estimate approximately 65% of our business has historically been with customers engaged in some type of manufacturing, a
significant subset of which finds its way into the heavy equipment market. The daily sales growth rates to these manufacturing
customers, when compared to the same period in the prior year, were as follows(1):
2017
2016
2015
Q1
6.2%
1.3%
8.2%
Q2
11.5%
1.4%
4.6%
Q3
15.3%
1.1%
1.6%
Q4
16.6%
2.8%
-2.5%
Annual
12.3%
1.6%
2.9%
(1) In July 2017, we reclassified certain end market designations. The daily sales growth rates in the above table for all periods
through the second quarter of 2017 differ from prior disclosures.
Our manufacturing business consists of two subsets: the industrial production business (this is business where we supply
products that become part of the finished goods produced by our customers and is sometimes referred to as OEM - original
equipment manufacturing) and the maintenance portion (this is business where we supply products that maintain the facility or
the equipment of our customers engaged in manufacturing and is sometimes referred to as MRO - maintenance, repair, and
operations). The industrial business is more fastener centered, while the maintenance portion is represented by all product
categories.
The best way to understand the change in our industrial production business is to examine the results in our fastener product
line (35% to 40% of our business) which is heavily influenced by changes in our business with heavy equipment
manufacturers. From a company perspective, daily sales growth rates of fasteners, when compared to the same period in the
prior year, were as follows (note: this information includes all end markets):
2017
2016
2015
Q1
0.8%
-1.7%
5.5%
Q2
7.9%
-2.4%
0.0%
Q3
12.1%
-2.9%
-4.4%
Q4
13.4%
-2.4%
-6.2%
Annual
8.4%
-2.3%
-1.4%
The daily sales growth rates of fasteners noted in the table above for the second, third, and fourth quarters of 2017, include 3.6,
3.8, and 3.9 percentage points, respectively, attributable to Mansco (acquired on March 31, 2017).
By contrast, the best way to understand the change in the maintenance portion of the manufacturing business is to examine the
results in our non-fastener product lines. From a company perspective, daily sales growth rates of non-fasteners, when
compared to the same period in the prior year, were as follows (note: this information includes all end markets):
2017
2016
2015
Q1
9.4%
4.7%
11.7%
Q2
12.2%
4.7%
9.0%
Q3
14.6%
4.9%
5.9%
Q4
16.1%
5.9%
1.2%
Annual
13.1%
5.0%
6.8%
The non-fastener business demonstrated greater relative resilience over the last several years, when compared to our fastener
business and to the distribution industry in general, due to our industrial vending program. However, this business was not
immune to the impact of a weak industrial environment.
Our non-residential construction and reseller customers have historically represented 20% to 25% of our business. The daily
sales growth rates to these customers, when compared to the same period in the prior year, were as follows(1):
2017
2016
2015
Q1
6.9%
1.6%
10.1%
Q2
Q3
8.8%
0.5%
5.6%
9.4%
2.8%
0.1%
Q4
11.6%
2.6%
-2.6%
Annual
9.1%
1.8%
3.1%
(1) In July 2017, we reclassified certain end market designations. The daily sales growth rates in the above table for all periods
through the second quarter of 2017 differ from prior disclosures.
Our non-residential construction and reseller business is heavily influenced by the industrial economy, particularly the energy
sector. The volatility and weakness of energy prices weakened this business, particularly beginning in the second quarter of
26
2015 and throughout 2016. In 2017, improvements in energy sector metrics, including oil prices, as well as an improving
outlook for industrial capital spending contributed to an improvement in growth for these end markets.
Gross Profit
The gross profit percentage during each period was as follows:
2017
2016
2015
Q2
Q3
Q1
49.4% 49.8% 49.1% 48.8% 49.3%
49.8 % 49.5 % 49.3 % 49.8 % 49.6 %
50.8 % 50.3 % 50.5 % 49.9 % 50.4 %
Annual
Q4
Our gross profit, as a percentage of net sales, was 49.3% in 2017 and 49.6% in 2016. The gross profit percentage for 2017
declined by 30 basis points due to two elements of mix. The first was a change in product and customer mix. Fasteners are our
largest product line and our highest gross profit margin product line due to the high transaction cost surrounding the sourcing
and supply of the product for customers. As a result, the decline in our fastener product line to 35.6% of sales in 2017 from
36.6% of sales in 2016 contributed to the decline in our gross profit margin. This effect was exacerbated by relative growth in
the period from sales of our OEM fasteners, which tend to have a lower gross profit margin than our MRO fasteners. Larger
customers (for which national accounts are a good proxy), whose more focused buying patterns allow us to offer them better
pricing, also influence the gross profit margin. Sales to our national account customers increased to 48.7% in 2017 from 47.4%
of sales in 2016, which contributed to the decline in our gross profit margin. The combination of relatively slower growth in
our fastener product line and relatively faster growth in sales to our largest customers explains the decline in our overall gross
profit margin in 2017. The second element of mix was driven by the acquisition of Mansco. Mansco's customer mix is more
heavily oriented toward larger customers and its product mix tends to carry a lower gross profit product mix than the company's
other products.
During 2016 and 2015, our gross profit, as a percentage of net sales, decreased when compared to the prior year. In each year,
the decrease was primarily caused by changes in product and customer mix.
Operating and Administrative Expenses
Our operating and administrative expenses (including a gain on the sale of property and equipment), as a percentage of net
sales, improved to 29.2% in 2017 from 29.5% in 2016. The primary contributor to this improvement was relatively modest
growth in occupancy-related expenses. Though our employee-related and selling transportation expenses grew more quickly
than our occupancy expenses, they also contributed to this leverage in 2017.
The growth in employee-related, occupancy-related, and selling transportation expenses (the three largest components of our
operating and administrative expenses) compared to the same periods in the preceding year, is outlined in the table below.
Employee-related expenses
Occupancy-related expenses
Selling transportation expenses
Approximate Percentage
of Total Operating and
Administrative Expenses
65% to 70%
15% to 20%
5%
Twelve-month Period
2016
2015
2017
10.2%
2.7%
1.3% 10.1%
8.1%
0.7%
7.4%
2.9% -13.1%
Employee-related expenses include: (1) payroll (which includes cash compensation, stock option expense, and profit sharing),
(2) health care, (3) personnel development, and (4) social taxes. Our employee-related expenses increased in 2017. This was
related to: (1) an increase in full-time equivalent ('FTE') headcount related to efforts to support growth in our business, (2)
higher performance bonuses and commissions due to growth in net sales and net earnings, as well as regulatory driven
incremental compensation, (3) an increase in our profit sharing contribution and option awards, (4) increased health care costs,
and (5) the inclusion of Mansco personnel. The increase in 2016, when compared to 2015, was caused by increases in average
annual FTE headcount and an increase in health care costs, which were partially offset by a contraction in our performance
bonuses and commissions and in our profit sharing contribution, primarily due to lower sales growth, gross profit, and
operating income (both on a dollar basis and on a relative basis). The slight increase in 2015, when compared to 2014, was
caused by increases in full-time equivalent headcount and growth in our profit sharing contribution, primarily due to our
expanding growth in operating income. Offsetting factors included lower performance bonuses and commissions due to the
decrease in our gross profit percentage, and a focused reduction in overtime hours paid.
27
The table below summarizes the percentage change in our FTE headcount at the end of the periods presented compared to the
end of the prior period:
In-market locations
Total selling (includes in-market locations)
Distribution
Manufacturing
Administrative
Total
Twelve-month Period
2017
2016
2015
7.0% -5.6%
7.3% -4.9%
8.4% -0.7%
8.4% -9.1%
10.7%
0.3%
7.7% -4.1%
15.7%
15.8%
5.5%
3.3%
8.3%
13.3%
Occupancy-related expenses include: (1) building rent and depreciation, (2) building utility costs, (3) equipment related to our
branches and distribution locations, and (4) industrial vending equipment (we consider the vending equipment, excluding
leased locker equipment, to be a logical extension of our branch operation and classify the depreciation and repair costs as
occupancy expense). The slight increase in occupancy-related expenses in 2017, when compared to 2016, was mainly driven by
increases in costs related to industrial vending equipment, FMI bins, and automation equipment at our distribution centers. The
most significant components of our occupancy-related expenses, facility costs and utility expenses, were mostly flat in 2017,
when compared to 2016 due to a reduction in our number of public branches. The increase in 2016, when compared to 2015,
was mainly driven by an increase in the amount of industrial vending equipment and an increase in occupancy expense related
to rent. The largest impact came from the industrial vending equipment. The increase in 2015, when compared to 2014, was
driven by an increase in the amount of industrial vending equipment and an increased investment in our distribution
infrastructure over the previous several years, primarily related to automation.
Our selling transportation expenses consist primarily of expenses for our branch fleet of vehicles, including branch fuel
expense, as most of the distribution fleet costs are included in cost of sales. Selling transportation expenses increased in 2017
when compared to 2016. We increased the size of our field-based vehicle fleet for sales personnel which resulted in higher
expenses. However, the larger impact was an increase in fuel expense due to higher fuel prices and consumption during the
period. This was partially offset by gains on sales of leased vehicles. Selling transportation expenses increased in 2016, when
compared to 2015. This was driven by an increase in the number of vehicles for sales personnel, and was partially offset by a
decrease in fuel expense. The contraction in selling transportation expenses in 2015, when compared to 2014, was driven by the
decline in fuel costs.
The last several years have seen some variation in the cost of diesel fuel and gasoline. During the first, second, third, and fourth
quarters of 2017, our total vehicle fuel costs were approximately $8.9, $9.0, $8.5, and $9.7, respectively. During the first,
second, third, and fourth quarters of 2016, our total vehicle fuel costs were approximately $6.4, $8.2, $8.3, and $8.0,
respectively. The fluctuations were a result of: (1) variations in fuel costs, (2) the service levels provided to our in-market
locations from our distribution centers, (3) the number of vehicles at our branch locations, (4) the number of other sales
centered vehicles as a result of the expansion of our sales force, and (5) changes in driving conditions. These fuel costs include
the fuel utilized in our distribution vehicles (semi-tractors, straight trucks, and sprinter trucks) which is recorded in cost of sales
and the fuel utilized in our branch delivery and other sales centered vehicles which is included in operating and administrative
expenses (the split in the last several years has been approximately 50/50 between distribution and branch and other sales
centered use).
In 2017, aside from these larger impacts, our operating and administrative expenses were also affected by increases in spending
on information technology, incremental operating expenses, including amortization, related to our acquisition of Mansco, and
the absence of supplier marketing incentives that existed in the first nine months of 2016 as part of our CSP 16 initiative.
Net Interest Expense
Our net interest expense was $8.7 in 2017 compared to $6.1 in 2016, and $2.7 in 2015. The increase in 2017, when compared
to 2016, was mainly caused by higher average interest rates and a slightly higher average debt balance during the period. The
increase in 2016, when compared to 2015, was driven by higher average interest rates and increased borrowings.
Income Taxes
We recorded a provisional income tax expense of $294.5 in 2017, or 33.7% of earnings before income taxes. This amount
reflects an estimated reduction in our deferred income tax liabilities of $30.8 as a result of the income tax rate decrease
included in the Tax Act, partially offset by an estimated increase in income tax payable in the amount of $6.5 as a result of the
transition tax on cash and cash equivalent balances related to accumulated earnings associated with our international
28
operations, also included in the Tax Act. Absent the impact of the Tax Act, our income tax expense for 2017 would have been
approximately $318.8, or 36.5% of earnings before income taxes. The decrease in our income tax rate from 2016 to 2017 was
also related to changes in our reserve for uncertain tax positions and the adoption of the Financial Accounting Standards Board
('FASB') Accounting Standard Update ('ASU') 2016-09, Improvements to Employee Share-Based Payment Accounting, in the
first quarter of 2017. This standard addresses accounting for excess tax benefits from stock-based compensation that were
previously recorded in additional paid-in capital on the balance sheet and are now recognized in income tax expense on the
consolidated statement of earnings for the year ended December 31, 2017. A more detailed description of the adoption of ASU
2016-09 is included in Note 1 of the Notes to Consolidated Financial Statements.
Income taxes, as a percentage of earnings before income taxes, were approximately 36.8% and 37.5% for 2016 and 2015,
respectively. The decrease in our income tax rate from 2015 to 2016 was caused by a slight change in jurisdictional income and
changes in the reserve for uncertain tax positions. As our international business and profits grew the past several years, the
lower income tax rates in those jurisdictions, relative to the United States, lowered our effective tax rate.
We are evaluating the impacts of the Tax Act on our 2018 provisional income tax expense booking rate. We currently estimate
this rate will be in the range of 24% to 26% of earnings before income taxes.
Net Earnings
Net earnings, net earnings per share (EPS), percentage change in net earnings, and the percentage change in EPS, were as
follows:
Dollar Amounts
Net earnings
Basic EPS
Diluted EPS
Percentage Change
Net earnings
Basic EPS
Diluted EPS
2017 (1)
578.6
$
2.01
2.01
2016
2015
499.4
1.73
1.73
516.4
1.77
1.77
2017 (1)
2016
2015
15.8%
16.1%
16.2%
-3.3%
-2.3%
-2.3%
4.5%
6.0%
6.6%
(1) Absent the impact of the Tax Act, our net earnings for 2017 would have been $554.2, an increase of 11.0% when compared
to 2016, and our basic and diluted earnings per share would have each been $1.92, an increase of 11.2% and 11.3%,
respectively.
During 2017, net earnings increased, primarily due to stronger sales and operating profits combined with a reduction in income
tax expense. The slightly higher increase in basic and diluted earnings per share was primarily due to the purchase of our shares
of common stock in 2017. During 2016, net earnings decreased, despite our nominal sales growth, primarily due to the
reduction in the gross profit percent realized and an increase in operating and administrative expenses. The contraction of basic
and diluted earnings per share was smaller due primarily to the purchase of our shares of common stock in 2015 and early
2016. During 2015, the net earnings increase was greater than that of sales primarily due to the effective management of
operating expenses.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities in dollars and as a percentage of net earnings were as follows:
Net cash provided
% of net earnings
2017
2016
2015
$
585.2
101.1%
519.9
104.1%
550.3
106.6%
In 2017, the increase in net cash provided by operating activities was primarily due to our net earnings growth. The decline in
our operating cash flow as a percentage of net earnings largely reflects working capital trends, and specifically accounts
receivable as further described below. In 2016, the slight contraction in the net cash provided by operating activities was driven
by our current initiative to add additional products into branch inventory under our CSP 16 format, and an increase in net
accounts receivable growth. This decrease was partially offset by a reduction in net cash paid for income taxes. In 2015, the
increase in net cash provided by operating activities was driven by growth in net earnings, and a decrease in the cash required
29
to fund our net working capital, which includes accounts receivable and inventory changes. This was partially offset by an
increase in cash paid for income taxes.
Operational Working Capital
Operational working capital, which we define as accounts receivable, net and inventories, is highlighted below. The annual
dollar change and the annual percentage change were as follows:
Dollar change
Accounts receivable, net
Inventories
Operational working capital
Annual percentage change
Accounts receivable, net
Inventories
Operational working capital
2017
108.1
99.9
208.1
$
$
2016
31.3
79.7
111.1
2017
2016
21.6%
10.1%
13.9%
6.7%
8.7%
8.0%
Note – Amounts may not foot due to rounding difference.
In 2017, the annual growth in net accounts receivable reflects accelerating growth in sales throughout the course of the year
combined with relatively stronger growth of our national accounts and international business. Growth in accounts receivable
continued in the fourth quarter of 2017, with the timing of the Christmas and New Year holidays affecting the timing of these
customers' payments. Currency fluctuations also impacted accounts receivable in 2017. In 2016, the annual growth in net
accounts receivables outpaced the growth in sales. This was not the case through the third quarter, and was mostly a function of
conditions in the fourth quarter of 2016. In the fourth quarter of 2015, we collected receivables from our seasonally stronger
third quarter, but because demand fell off surprisingly sharply in November and December, our fourth quarter receivables were
unseasonably low. In the fourth quarter of 2016, by contrast, we collected receivables from our seasonally stronger third
quarter, but because demand was more closely in line with seasonal norms, our receivables in the period were similarly more
normal. Over a longer period of time, if we continue to see relatively strong growth in our international business and of our
large customer accounts it could continue to create difficulty in managing the growth of accounts receivables relative to the
growth in net sales.
Our growth in inventory balances over time does not have as direct a relationship to our monthly sales patterns as does our
growth in accounts receivable. This is impacted by other aspects of our business. For example, the dramatic economic
slowdown in late 2008 and early 2009 caused our inventory to spike. This occurred because the lead time for inventory
procurement is typically longer than the visibility we have into future monthly sales patterns. Over the last decade, we
increased our relative inventory levels due to the following: (1) new branch openings, (2) expanded stocking breadth at
distribution centers (for example, our master stocking hub in Indianapolis expanded its product breadth over six fold from 2005
to 2011), (3) expanded direct sourcing, (4) expanded Fastenal brands, (5) expanded industrial vending solutions, (6) national
accounts and Onsite growth, (7) international growth, and (8) expanded stocking breadth at individual branches related to our
CSP initiatives. All of these items impacted both 2017 and 2016, though new branch openings have taken on a significantly
diminished role. However, in 2017, the most significant contributor to the increase in inventories was improving business
activity and the growth of our Onsite business. In 2016, the most significant contributors to the increase in inventories were the
impact of infusing incremental inventory into our network beginning at the end of 2015 as part of our CSP 16 initiative, the
relative growth of international sales, the growth of our Onsite business, and opportunist product purchases at year-end. Absent
the opportunistic product purchases at year-end, growth in inventories would have moderated substantially from earlier in the
year, reflecting the stabilizing of CSP 16 inventories.
The approximate percentage mix of inventory stocked at our selling locations versus our distribution center and manufacturing
locations was as follows at year end:
Selling locations
Distribution center and manufacturing locations
Total
2017
2016
2015
65%
35%
100%
64%
36%
100%
61%
39%
100%
30
Net Cash Used in Investing Activities
Net cash used in investing activities in dollars and as a percentage of net earnings were as follows:
Net cash used
% of net earnings
2017
2016
2015
$
179.3
31.0%
188.1
37.7%
180.6
35.0%
The changes in net cash used in investing activities were primarily related to changes in our net capital expenditures as
discussed below and cash paid for acquisitions in 2017 and 2015.
Net capital expenditures (purchases of property and equipment, less proceeds from the sale of property and equipment) in
dollars and as a percentage of net earnings were as follows:
Net capital expenditures
% of net earnings
2017
2016
2015
$
112.5
19.4%
183.0
36.6%
145.3
28.1%
Note – A reconciliation of net capital expenditures is outlined in the table below.
Our net capital expenditures decreased in 2017, when compared to 2016, primarily due to lower spending in 2017 related to:
(1) the absence of spending on vending equipment that occurred in 2016 related to the leased locker rollout, (2) the absence of
spending on shelving and signage that occurred in 2016 for the CSP 16 initiative, and (3) timing associated with the addition of
pickup trucks. Our net capital expenditures increased in 2016, when compared to 2015, which was primarily due to the
purchase of industrial vending devices related to the leased locker program we signed in February 2016 and spending on
automation in certain distribution centers. Our net capital expenditures decreased in 2015, when compared to 2014, which was
largely related to the completion of distribution center automation projects in process during 2014.
Property and equipment expenditures in 2017, 2016, and 2015 consisted of: (1) the purchase of software and hardware for our
information processing systems, (2) the addition of fleet vehicles, (3) the purchase of signage, shelving, and other fixed assets
related to branch openings and our CSP 16 initiative, (4) the addition of manufacturing and warehouse equipment, (5) the
expansion or improvement of certain owned or leased branch properties, (6) purchases related to industrial vending, and
(7) costs related to enhancements to distribution centers including automation systems equipment. Disposals of property and
equipment consisted of the planned disposition of certain pick-up trucks, distribution vehicles and trailers in the normal course
of business, and the disposition of real estate relating to several branch locations and a distribution center (2015).
Set forth below is an estimate of our 2018 net capital expenditures and a recap of our 2017, 2016, and 2015 net capital
expenditures.
2018
(Estimate)
2017
(Actual)
2016
(Actual)
2015
(Actual)
Manufacturing, warehouse and packaging equipment,
industrial vending equipment, and facilities
Shelving and related supplies for branch openings and for
product expansion at existing branches
Data processing software and equipment
Real estate and improvements to branch locations
Vehicles
Purchases of property and equipment
Proceeds from sale of property and equipment
Net Capital Expenditures
$
$
87.0
16.0
28.0
14.0
12.0
157.0
(8.0)
149.0
66.2
8.3
23.2
6.2
16.0
119.9
(7.4)
112.5
131.8
112.5
14.1
18.0
5.5
20.1
189.5
(6.5)
183.0
8.9
19.7
4.2
9.9
155.2
(9.9)
145.3
We anticipate funding our capital expenditure needs with cash generated from operations, from available cash and cash
equivalents, and from our borrowing capacity.
31
Net Cash Used in Financing Activities
Net cash used in financing activities in dollars and as a percentage of net earnings were as follows:
Net cash used
% of net earnings
2017
2016
2015
$
407.2
70.4%
346.8
69.4%
340.9
66.0%
The fluctuations in net cash used in financing activities are due to changes in the level of our dividend payments and in the
level of common stock purchases. These amounts were partially offset by the exercise of stock options and net proceeds from
debt obligations. These items in dollars and as a percentage of earnings were as follows:
Dividends paid
% of net earnings
Common stock purchases
% of net earnings
Total returned to shareholders
% of net earnings
Proceeds from the exercise of stock options
% of net earnings
Cash borrowings, net
% of net earnings
Net cash used
% of net earnings
Stock Purchases
2017
2016
2015
$
369.1
63.8%
82.6
14.3%
451.7
78.1%
(9.5)
-1.6%
(35.0)
-6.0%
407.2
70.4%
$
$
$
$
346.6
69.4%
59.5
11.9%
406.1
81.3%
(29.3)
-5.9%
(30.0)
-6.0%
346.8
69.4%
327.1
63.3%
292.9
56.7%
620.0
120.1%
(19.1)
-3.7%
(260.0)
-50.4%
340.9
66.0%
In 2017, we purchased 1,900,000 shares of our common stock at an average price of approximately $43.43 per share, in 2016,
we purchased 1,600,000 shares at an average price of approximately $37.15 per share, and in 2015, we purchased 7,100,000
shares at an average price of approximately $41.26 per share.
Dividends
We declared a quarterly dividend of $0.37 per share on January 16, 2018. We paid aggregate annual dividends per share of
$1.28, $1.20, and $1.12 in 2017, 2016, and 2015, respectively.
Debt
In order to fund the considerable cash needed to purchase industrial vending devices under our leased locker program, to
expand our industrial vending business, to increase the use of automation in our distribution centers, to purchase our common
stock and pay dividends, and to fund the acquisition of Mansco on March 31, 2017, we have borrowed under our Credit
Facility and our Master Note Agreement in recent periods.
Our borrowings under the Credit Facility peaked during each quarter of 2017 and 2016 as follows:
Peak borrowings
First quarter
Second quarter
Third quarter
Fourth quarter
2017
2016
$
325.0
365.0
365.0
325.0
440.0
485.0
460.0
405.0
As of December 31, 2017, we had loans outstanding under the Credit Facility of $280.0 and contingent obligations from letters
of credit outstanding under the Credit Facility in an aggregate face amount of $36.3. As of December 31, 2017, we also had
32
loans outstanding under the Master Note Agreement of $135.0. Descriptions of our Credit Facility and Master Note Agreement
are contained in Note 10 of the Notes to Consolidated Financial Statements.
Unremitted Foreign Earnings
Approximately $92.0 of cash and cash equivalents are held by non-U.S. subsidiaries. These funds may create foreign currency
translation gains or losses depending on the functional currency of the entity holding the cash. We have considered the financial
requirements of each foreign subsidiary and our parent company and will continue to reinvest these funds to support our
expansion activities outside the U.S. even after taking into consideration the deemed repatriation and transition tax under the
Tax Act. The income tax impact of repatriating cash associated with investments in foreign subsidiaries is discussed in Note 7
of the Notes to Consolidated Financial Statements.
Effects of Inflation
Throughout 2017, we experienced increasing product cost inflation, particularly in our fastener products. We were able to take
actions during the period, including pricing adjustments, to mostly offset this inflation. In the aggregate, the overall impact of
inflation and pricing on sales and profits was not material in 2017. During the first half of 2016, we experienced some deflation
in our fastener products, which was largely offset by some inflation in the latter half of the year, and minimal price movements
in our non-fastener products. In 2015, we experienced some deflation in our fastener products and minimal price movements in
our non-fastener products, with the net impact being a slight drag on growth.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with U.S. GAAP, we must make decisions that impact the
reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. Such decisions include the selection
of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching
such decisions, we apply judgments based on our understanding and analysis of relevant circumstances, historical experience,
and actuarial valuations. Actual amounts could differ from those estimated at the time the consolidated financial statements are
prepared.
Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements. Some of those
significant accounting policies require us to make difficult, subjective, or complex judgments, or estimates. An accounting
estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters
that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been
used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the
presentation of our financial condition, changes in financial condition, or results of operations. Our critical accounting estimates
include the following:
Allowance for doubtful accounts – This reserve is for accounts receivable balances that are potentially uncollectible. The
reserve is based on an analysis of customer accounts and our historical experience with accounts receivable write-offs. Our
methodology for estimating this reserve includes ongoing reviews of the aging of accounts receivable, the financial condition of
a customer or industry, and general economic conditions. If business or economic conditions change, our estimates and
assumptions may be adjusted as deemed appropriate. Historically, actual required reserves have not varied materially from
estimated amounts.
Inventory obsolescence reserves – These reserves are based on an analysis of inventory trends including reviews of inventory
levels, sales information, and the on-hand quantities relative to the sales history for the product. Our methodology for
estimating these reserves is continually evaluated for factors that could require changes to the reserves including significant
changes in product demand, market conditions, condition of the inventory, or liquidation value. If business or economic
conditions change, our estimates and assumptions may be adjusted as deemed appropriate. Historically, actual required reserves
have not varied materially from estimated amounts.
General insurance reserves – These reserves are for general claims related to workers' compensation, property and casualty
losses, and other general liability self-insured losses. The reserves are based on an analysis of reported claims and claims
incurred but not yet reported related to our historical claim trends. We perform ongoing reviews of our insured and uninsured
risks and use this information to establish appropriate reserve levels. We analyze historical trends, claims experience, and loss
development patterns to ensure the appropriate loss development factors are applied to the incurred costs associated with the
claims made. Historically, actual required reserves have not varied materially from estimated amounts.
New Accounting Pronouncements
A description of new accounting pronouncements is contained in Note 1 of the Notes to Consolidated Financial Statements.
33
Geographic Information
Information regarding our revenues and long-lived assets by geographic area is contained in Note 8 of the Notes to
Consolidated Financial Statements. Risks related to our foreign operations are described earlier in this Form 10-K under the
heading 'Forward-Looking Statements' and 'Item 1A. Risk Factors'.
Certain Contractual Obligations
As of December 31, 2017, we had outstanding long-term debt and facilities, equipment, and vehicles leased under operating
leases. Our future obligations to pay principal of and interest on such long-term debt and to make minimum lease payments
under such operating leases are as follows:
Principal of long-term debt
Interest on long-term debt(1)
Operating leases
Total
Total
2018
2019 and 2020
2021 and 2022
After 2022
$
$
415.0
35.5
324.7
775.2
3.0
11.3
133.8
148.1
277.0
16.4
152.5
445.9
75.0
5.6
36.4
117.0
60.0
2.2
2.0
64.2
(1) Interest on the long-term debt outstanding under our Credit Facility was calculated using the interest rates and balances at
December 31, 2017.
Purchase orders and contracts for the purchase of inventory and other goods and services are not included in the table above.
Our purchase orders are based on current distribution needs and are fulfilled by our suppliers within short time horizons. We do
not have significant agreements for the purchase of inventory or other goods or services specifying minimum order quantities.
Liabilities for uncertain tax positions have been excluded from the table above due to the uncertainty surrounding the ultimate
settlement and timing of these liabilities. A discussion of income taxes is contained in Note 7 of the Notes to Consolidated
Financial Statements.
Non-GAAP Financial Measures
On December 22, 2017, the Tax Act was signed into law. The financial information included in this Form 10-K reflects the
estimated impact of the enactment of the Tax Act. Our income tax expense, net earnings, our basic and diluted net earnings per
share, and our income tax as a percentage of earnings before income tax, excluding the impact of the Tax Act, are non-GAAP
financial measures. Management believes reporting these measures will help investors understand the effect of tax reform on
comparable reported results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to certain market risks from changes in foreign currency exchange rates, commodity steel pricing, commodity
energy prices, and interest rates. Changes in these factors cause fluctuations in our earnings and cash flows. We evaluate and
manage exposure to these market risks as follows:
Foreign currency exchange rates – Foreign currency fluctuations can affect our net investments and earnings denominated in
foreign currencies. Historically, our primary exchange rate exposure has been with the Canadian dollar against the United
States dollar. Our estimated net earnings exposure for foreign currency exchange rates was not material at year end.
Commodity steel pricing – We buy and sell various types of steel products; these products consist primarily of different types
of threaded fasteners. During 2017, we experienced some inflation in overall steel pricing. During the first half of 2016, we
experienced some deflation in steel pricing. This deflation was largely offset by some inflation in the latter half of the year. In
2015, we noted some overall deflation in steel pricing. We are exposed to the impacts of commodity steel pricing and our
related ability to pass through the impacts to our end customers.
Commodity energy prices – We have market risk for changes in prices of gasoline, diesel fuel, natural gas, and electricity;
however, this risk is mitigated in part by our ability to pass freight costs to our customers, the efficiency of our trucking
distribution network, and the ability, over time, to manage our occupancy costs related to the heating and cooling of our
facilities through better efficiency.
Interest rates - Loans under our Credit Facility bear interest at floating rates tied to LIBOR. As a result, changes in LIBOR can
affect our operating results and liquidity to the extent we do not have effective interest rate swap arrangements in place. We
have not historically used interest rate swap arrangements to hedge the variable interest rates under our Credit Facility. A one
percentage point increase in LIBOR in 2017 would have resulted in approximately $2.8 of additional interest expense. A
description of our Credit Facility is contained in Note 10 of the Notes to Consolidated Financial Statements.
34
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and board of directors of
Fastenal Company:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Fastenal Company and subsidiaries (the 'Company') as of
December 31, 2017 and 2016, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and
cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and financial
statement schedule listed in the table of contents at Item 15 (collectively, the 'consolidated financial statements'). We also have
audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Fastenal Company acquired certain assets and assumed certain liabilities of Manufacturers Supply Company (‘Mansco’) on March
31, 2017, and management excluded from their assessment of the effectiveness of internal control over financial reporting as of
December 31, 2017, Mansco's internal control over financial reporting associated with assets of approximately one percent of
Fastenal Company's total assets and revenues of approximately one percent of Fastenal Company's total revenues included in the
consolidated financial statements of Fastenal Company and subsidiaries as of and for the year ended December 31, 2017. Our
audit of internal control over financial reporting of Fastenal Company also excluded an evaluation of the internal control over
financial reporting of Mansco.
Basis for Opinion
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) ('PCAOB') and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
35
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
We have served as the Company’s auditor since 1987.
Minneapolis, Minnesota
February 5, 2018
36
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions except share information)
Assets
Current assets:
Cash and cash equivalents
Trade accounts receivable, net of allowance for doubtful accounts of $11.9 and $11.2,
respectively
Inventories
Prepaid income taxes
Other current assets
Total current assets
Property and equipment, net
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of debt
Accounts payable
Accrued expenses
Income taxes payable
Total current liabilities
Long-term debt
Deferred income tax liabilities
Commitments and contingencies (Notes 5, 9, 10, and 11)
Stockholders’ equity:
Preferred stock: $0.01 par value, 5,000,000 shares authorized, no shares issued or
outstanding
Common stock: $0.01 par value, 400,000,000 shares authorized, 287,591,536 and
289,161,924 shares issued and outstanding, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
December 31
2017
2016
$
116.9
607.8
1,092.9
—
118.1
1,935.7
893.6
81.2
112.7
499.7
993.0
12.9
102.5
1,720.8
899.7
48.4
$
2,910.5
2,668.9
$
3.0
147.5
194.0
6.5
351.0
412.0
50.6
—
2.9
8.5
2,110.6
(25.1)
2,096.9
10.5
108.8
156.4
—
275.7
379.5
80.6
—
2.9
37.4
1,940.1
(47.3)
1,933.1
Total liabilities and stockholders’ equity
$
2,910.5
2,668.9
See accompanying Notes to Consolidated Financial Statements.
37
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Amounts in millions except earnings per share)
For the year ended December 31
Net sales
Cost of sales
Gross profit
Operating and administrative expenses
Gain on sale of property and equipment
Operating income
Interest income
Interest expense
Earnings before income taxes
Income tax expense
Net earnings
Basic net earnings per share
Diluted net earnings per share
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
2017
2016
2015
$
4,390.5
3,962.0
3,869.2
2,226.9
2,163.6
1,282.8
(1.0)
881.8
0.4
(9.1)
873.1
294.5
578.6
2.01
2.01
288.2
288.3
$
$
$
1,997.2
1,964.8
1,169.5
(0.5)
795.8
0.4
(6.5)
789.7
290.3
499.4
1.73
1.73
288.9
289.2
1,920.3
1,948.9
1,121.5
(1.4)
828.8
0.4
(3.1)
826.1
309.7
516.4
1.77
1.77
291.5
292.0
See accompanying Notes to Consolidated Financial Statements.
38
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Amounts in millions)
For the year ended December 31
Net earnings
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (net of tax of $0.0 in 2017, 2016,
and 2015)
Comprehensive income
$
$
2017
2016
2015
578.6
499.4
516.4
22.2
600.8
(0.9)
498.5
(38.6)
477.8
See accompanying Notes to Consolidated Financial Statements.
39
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Amounts in millions)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Balance as of December 31, 2014
295.9
$
Dividends paid in cash
Purchases of common stock
Stock options exercised
Stock-based compensation
Excess tax benefits from stock-based
compensation
Net earnings
Other comprehensive income (loss)
—
(7.1)
0.8
—
—
—
—
Balance as of December 31, 2015
289.6
$
Dividends paid in cash
Purchases of common stock
Stock options exercised
Stock-based compensation
Excess tax benefits from stock-based
compensation
Net earnings
Other comprehensive income (loss)
Balance as of December 31, 2016
Dividends paid in cash
Purchases of common stock
Stock options exercised
Stock-based compensation
Net earnings
—
(1.6)
1.2
—
—
—
—
$
289.2
—
(1.9)
0.3
—
—
Other comprehensive income (loss)
Balance as of December 31, 2017
—
287.6
$
3.0
—
(0.1)
—
—
—
—
—
2.9
—
—
—
—
—
—
—
2.9
—
—
—
—
—
—
2.9
33.7
—
(60.0)
19.1
5.8
3.4
—
—
2.0
—
(3.9)
29.3
4.1
5.9
—
—
37.4
—
(43.6)
9.5
5.2
—
—
8.5
Retained
Earnings
1,886.4
(327.1)
(232.8)
—
—
—
516.4
—
1,842.9
(346.6)
(55.6)
—
—
—
499.4
—
1,940.1
(369.1)
(39.0)
—
—
578.6
—
2,110.6
See accompanying Notes to Consolidated Financial Statements.
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
(7.8)
—
—
—
—
—
—
(38.6)
(46.4)
—
—
—
—
—
—
(0.9)
(47.3)
—
—
—
—
—
22.2
(25.1)
1,915.3
(327.1)
(292.9)
19.1
5.8
3.4
516.4
(38.6)
1,801.4
(346.6)
(59.5)
29.3
4.1
5.9
499.4
(0.9)
1,933.1
(369.1)
(82.6)
9.5
5.2
578.6
22.2
2,096.9
40
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in millions)
For the year ended December 31
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by
operating activities, net of acquisitions:
Depreciation of property and equipment
Gain on sale of property and equipment
Bad debt expense
Deferred income taxes
Stock-based compensation
Amortization of intangible assets
Changes in operating assets and liabilities, net of acquisitions:
Trade accounts receivable
Inventories
Other current assets
Accounts payable
Accrued expenses
Income taxes
Other
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sale of property and equipment
Cash paid for acquisitions
Other
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from debt obligations
Payments against debt obligations
Proceeds from exercise of stock options
Purchases of common stock
Payments of dividends
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Net cash paid for income taxes
2017
2016
2015
$
578.6
499.4
516.4
123.6
(1.0)
8.2
(30.0)
5.2
3.8
(103.7)
(76.3)
(15.6)
36.3
37.6
19.4
(0.9)
585.2
(119.9)
7.4
(58.7)
(8.1)
(179.3)
1,015.0
(980.0)
9.5
(82.6)
(369.1)
(407.2)
5.5
4.2
112.7
116.9
8.7
304.1
$
$
$
103.5
(0.5)
8.6
25.6
4.1
0.5
(40.5)
(80.9)
29.1
(17.2)
(28.6)
15.5
1.3
519.9
(189.5)
6.5
—
(5.1)
(188.1)
950.0
(920.0)
29.3
(59.5)
(346.6)
(346.8)
(1.3)
(16.3)
129.0
112.7
6.2
248.3
86.1
(1.4)
8.8
8.3
5.8
0.5
(20.6)
(47.8)
(15.8)
20.6
11.1
(26.6)
4.9
550.3
(155.2)
9.9
(23.5)
(11.8)
(180.6)
1,215.0
(955.0)
19.1
(292.9)
(327.1)
(340.9)
(14.2)
14.6
114.4
129.0
3.1
327.0
See accompanying Notes to Consolidated Financial Statements.
41
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Business Overview and Summary of Significant Accounting Policies
Business Overview
Fastenal is a leader in the wholesale distribution of industrial and construction supplies operating a branch-based business (with
an increasing number of Onsite locations). Collectively we refer to our branches and Onsite locations as in-market locations.
We have approximately 3,000 in-market locations located primarily in North America.
Principles of Consolidation
The consolidated financial statements include the accounts of Fastenal Company and its subsidiaries (collectively referred to as
'Fastenal' or by terms such as 'we', 'our', or 'us'). All material intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition and Accounts Receivable
Net sales include products, services, shipping and handling charges, and lease fees billed, net of any related sales incentives,
and net of an estimate for product returns. We recognize revenue when persuasive evidence of an arrangement exists, title and
risk of ownership have passed, the sales price is fixed or determinable, and collectibility is reasonably assured. These criteria
are met at the time the product is shipped to or picked up by the customer. We recognize services at the time the service is
completed and the product is provided to the customer. We recognize revenue for shipping and handling charges at the time the
products are shipped to or picked up by the customer. We recognize revenue for lease fees on a straight-line basis over the
corresponding lease term. We estimate product returns based on historical return rates. Accounts receivable are stated at their
estimated net realizable value. The allowance for doubtful accounts is based on an analysis of customer accounts and our
historical experience with accounts receivable write-offs. Sales taxes (and value added taxes in foreign jurisdictions) collected
from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net
sales.
Foreign Currency Translation and Transactions
The functional currency of our foreign operations is typically the applicable local currency. The functional currency is
translated into United States dollars for balance sheet accounts, except retained earnings, using current exchange rates as of the
balance sheet date, for retained earnings at historical exchange rates, and for revenue and expense accounts using a weighted
average exchange rate during the period. The translation adjustments are deferred as a separate component of stockholders'
equity captioned accumulated other comprehensive income (loss). Gains or losses resulting from transactions denominated in
foreign currencies are included in cost of sales or operating and administrative expenses.
Cash and Cash Equivalents
We consider all investments purchased with original maturities of three months or less to be cash equivalents.
Inventories
Inventories, consisting of finished goods merchandise held for resale, are stated at the lower of cost (first in, first out method) or
market.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and equipment is provided for using the straight-line
method over the anticipated economic useful lives of the related property. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash
flows expected to be generated by the asset or asset group to its carrying value. If the carrying value of the long-lived asset or
asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent the carrying value
exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models,
quoted market values, and third-party independent appraisals, as considered necessary. There were no impairments recorded
during any of the three years reported in these consolidated financial statements.
42
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Leases
We lease space under operating leases for certain distribution centers, branches, and manufacturing locations. These leases do
not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Any
such terms are recognized as rent expense over the term of the lease. Further, the leases do not contain contingent rent
provisions. Leasehold improvements on operating leases are amortized over their estimated service lives on a straight-line
basis, or the remaining lease term, whichever is shorter. We lease certain semi-tractors, pick-ups, and equipment under
operating leases.
Other Long-Lived Assets
Other assets consist of prepaid deposits, goodwill, and other definite-lived intangible assets. Goodwill represents the excess of
the purchase price over the fair value of net assets acquired. Goodwill is reviewed for impairment annually. The identifiable
intangible assets are amortized on a straight-line basis over their estimated life.
Accounting Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles
(GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and
expenses, and the disclosure of contingent liabilities. Actual results could differ from those estimates.
Insurance Reserves
We are self-insured for certain losses relating to workers' compensation, automobile, health, and general liability costs. Specific
stop-loss coverage is provided for catastrophic claims in order to limit exposure to significant claims. Self-insurance liabilities
are based on our estimate of reported claims and claims incurred but not yet reported.
Product Warranties
We offer a basic limited warranty for certain of our products. The specific terms and conditions of those warranties vary
depending upon the product sold. We typically recoup these costs through product warranties we hold with the original
equipment manufacturers. Our warranty expense has historically been minimal.
Stock-Based Compensation
We estimate the value of stock option grants using a Black-Scholes valuation model. Stock-based compensation expense is
recognized on a straight-line basis over the vesting period. Our stock-based compensation expense is recorded in operating and
administrative expenses.
Income Taxes
We account 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.
We recognize the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in
recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties
related to unrecognized tax benefits in income tax expense.
Earnings Per Share
Basic net earnings per share is calculated using net earnings available to common stockholders divided by the weighted average
number of shares of common stock outstanding during the year. Diluted net earnings per share is similar to basic net earnings
per share except that the weighted average number of shares of common stock outstanding includes the incremental shares
assumed to be issued upon the exercise of stock options considered to be 'in-the-money' (i.e. when the market price of our stock
is greater than the exercise price of our outstanding stock options).
43
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Segment Reporting
We have determined that for our North American operations we meet the aggregation criteria outlined in the accounting
standards as our various operations have similar (1) economic characteristics, (2) products and services, (3) customers,
(4) distribution channels, and (5) regulatory environments. Considering the insignificance of our operations outside of North
America, we report as a single business segment.
Recently Adopted Accounting Pronouncements
Effective January 1, 2017, we adopted the FASB ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.
The standard simplifies several aspects of the accounting for employee share-based payment transactions, including accounting
for income taxes, forfeitures, and statutory withholding requirements, as well as classification in the Consolidated Statements of
Cash Flows. As a result of the adoption, on a prospective basis, for the year ended December 31, 2017, we recognized $1.8 of
excess tax benefits from stock-based compensation as a discrete item in our income tax expense. Historically, these amounts
were recorded as additional paid-in capital. Upon adoption, we elected to apply the change retrospectively to our Consolidated
Statements of Cash Flows for the years ended December 31, 2016 and December 31, 2015, which resulted in a reclassification
of excess tax benefits from stock-based compensation of $5.9 and $3.4, respectively, offsetting cash flows used in financing
activities to cash flows provided by operating activities. We elected not to change our policy on accounting for forfeitures and
will continue to estimate a requisite forfeiture rate. Additional amendments to the accounting for income taxes and minimum
statutory withholding requirements had no impact on our results of operations.
On December 22, 2017, the Securities and Exchange Commission ('SEC') staff issued Staff Accounting Bulletin No. 118 ('SAB
118') to address the application of U.S. GAAP related to the enactment of the comprehensive tax legislation, commonly referred
to as the Tax Cut and Jobs Act (the 'Tax Act'). This guidance was adopted in the fourth quarter of 2017. Additional information
regarding our adoption of this guidance is contained in Note 7.
Recently Issued Accounting Pronouncements
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective
Date, which deferred the effective date of ASU 2014-09 for all entities by one year. This update is effective for public business
entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting
periods. Earlier application was permitted only as of annual reporting periods beginning after December 15, 2016, including
interim reporting periods within that reporting period. ASU 2014-09 was to become effective for us beginning January 2017;
however, ASU 2015-14 deferred our effective date until January 2018, which is when we plan to adopt this standard. The ASU
permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or
retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the
modified retrospective method). The ASU also requires expanded disclosures relating to the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative
disclosures are required for customer contracts, significant judgments and changes in judgments, and assets recognized from the
costs to obtain or fulfill a contract. We have completed the process of evaluating the effect of the adoption and determined there
were no changes required to our reported revenues as a result of the adoption. The majority of our revenue arrangements
generally consist of a single performance obligation to transfer promised goods or services. Based on our evaluation process
and review of our contracts with customers, the timing and amount of revenue recognized based on ASU 2015-14 is consistent
with our revenue recognition policy under previous guidance. We adopted the new standard effective January 1, 2018, using the
modified retrospective approach, and will expand our consolidated financial statement disclosures in order to comply with the
ASU. We have determined the adoption of ASU 2015-14 will not have a material impact on our results of operations, cash
flows, or financial position.
In February 2016, the FASB issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities
by lessees for those leases classified as operating leases under previous guidance. The update is effective for annual reporting
periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption
permitted. The guidance will be applied on a modified retrospective basis with the earliest period presented. Based on the
effective date, this guidance will apply beginning January 2019, which is when we plan to adopt this ASU. While we are still in
the process of evaluating the effect of adoption on our consolidated financial statements and are currently assessing our leases,
we expect the adoption will lead to a material increase in the assets and liabilities recorded on our Consolidated Balance Sheets.
As part of our assessment, we will need to determine the impact of lease extension provisions provided in our facility and
vehicle leases which will impact the amount of the right of use asset and lease liability recorded under the ASU.
44
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Note 2. Acquisition
On March 31, 2017, we acquired certain assets and assumed certain liabilities of Manufacturers Supply Company (‘Mansco’).
Mansco, based in Hudsonville, Michigan, is a distributor of industrial and fastener supplies with a particularly strong market
position with commercial furniture original equipment manufacturers. As such, this acquisition gives us a presence in a market
where we have not meaningfully participated in the past, and provides Mansco with additional tools with which to service its
customer base and reduce costs through economies of scale.
The total purchase price for this acquisition, based on the acquisition date fair value, consisted of $57.9 paid in cash at closing,
$0.8 paid in cash after closing pursuant to a post-closing purchase price adjustment, and a contingent consideration arrangement
which requires us to pay the former owner up to a maximum of $2.5 (undiscounted) in cash after closing based on sales growth
of the acquired business. We funded the purchase price for the acquisition with the proceeds from the issuance of a new series
of senior unsecured promissory notes under our master note agreement in the aggregate principal amount of $60.0.
The fair value of the assets acquired and liabilities assumed as of the acquisition date is summarized below.
Current assets
Property and equipment
Identifiable intangible assets
Current liabilities
Total identifiable net assets
Goodwill
Total fair value of assets acquired and liabilities assumed
$
$
21.7
0.9
20.1
(1.8)
40.9
18.4
59.3
The identifiable intangible assets consist mainly of the value of the customer relationships that were acquired and the goodwill
consists largely of the synergies and economies of scale expected from combining the Mansco operations with our existing
operations. The identifiable intangible assets and goodwill are deductible for income tax purposes.
The amount of net sales and net earnings of the acquired business included in our Consolidated Statement of Earnings for the year
ended December 31, 2017, and the pro forma net sales and net earnings of the combined entity had the acquisition occurred on
January 1, 2016, are:
Net sales
Net earnings
Note 3. Long-Lived Assets
Property and equipment
Property and equipment at year end consisted of the following:
Land
Buildings and improvements
Automated distribution and warehouse equipment
Shelving, industrial vending, and equipment
Transportation equipment
Construction in progress
Less accumulated depreciation
Property and equipment, net
45
2017
2016
$
$
53.5
5.5
49.6
4.9
2017
2016
Depreciable Life
in Years
— $
15 to 40
5 to 30
3 to 10
3 to 5
—
38.2
308.2
220.0
812.9
76.3
149.3
1,604.9
(711.3)
893.6
$
37.3
297.1
216.3
723.9
71.7
152.5
1,498.8
(599.1)
899.7
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Note 4. Accrued Expenses
Accrued expenses at year end consisted of the following:
Payroll and related taxes
Bonuses and commissions
Profit sharing contribution
Insurance reserves
Promotions
Indirect taxes
Other
Accrued expenses
Note 5. Stockholders' Equity
Dividends
2017
2016
$
26.0
19.8
10.6
39.0
31.3
51.1
16.2
23.2
14.2
8.7
34.6
24.9
43.4
7.4
$
194.0
156.4
On January 16, 2018, our board of directors declared a quarterly dividend of $0.37 per share of common stock to be paid in
cash on February 27, 2018 to shareholders of record at the close of business on January 31, 2018. We paid aggregate annual
dividends per share of $1.28, $1.20, and $1.12 in 2017, 2016, and 2015, respectively.
Stock Options
Effective January 2, 2018, the compensation committee of our board of directors granted to our employees options to purchase
a total of 520,601 shares of our common stock at an exercise strike price of $55.00 per share. The closing stock price on the
effective date of the grant was $54.54 per share. On the same date, certain of our non-employee directors elected to forgo all or
a portion of the 2018 annual cash retainer in exchange for options to acquire a total of 21,185 shares of our common stock at an
exercise price of $55.00 per share. These options are subject to shareholder approval of the non-employee director stock option
plan at our annual meeting of shareholders to be held in April 2018.
The following tables summarize the details of options granted under our stock option plan that were still outstanding as of
December 31, 2017, and the assumptions used to value those grants. All such grants were effective at the close of business on
the date of grant.
Date of Grant
January 3, 2017
April 19, 2016
April 21, 2015
April 22, 2014
April 16, 2013
April 17, 2012
April 19, 2011
April 20, 2010
April 21, 2009
Total
Options
Granted
Option Exercise
(Strike) Price
Closing Stock
Price on Date
of Grant
December 31, 2017
Options
Outstanding
Options
Exercisable
47.00
46.00
42.00
56.00
54.00
54.00
35.00
30.00
27.00
$
$
$
$
$
$
$
$
$
46.95
45.74
41.26
50.53
49.25
49.01
31.78
27.13
17.61
713,097
738,611
674,499
567,500
101,750
952,001
60,350
79,550
61,550
3,948,908
—
—
142,072
158,750
55,250
772,977
35,350
54,550
61,550
1,280,499
764,789
845,440
893,220
955,000
205,000
1,235,000
410,000
530,000
790,000
6,628,449
$
$
$
$
$
$
$
$
$
46
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Risk-free
Interest Rate
Expected Life
of Option in
Years
Expected
Dividend
Yield
Expected
Stock
Volatility
Estimated Fair
Value of Stock
Option
1.9%
1.3%
1.3%
1.8%
0.7%
0.9%
2.1%
2.6%
1.9%
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
2.6%
2.6%
2.7%
2.0%
1.6%
1.4%
1.6%
1.5%
1.0%
24.49% $
26.34% $
26.84% $
28.55% $
37.42% $
39.25% $
39.33% $
39.10% $
38.80% $
8.40
8.18
7.35
9.57
12.66
13.69
11.20
8.14
3.64
Date of Grant
January 3, 2017
April 19, 2016
April 21, 2015
April 22, 2014
April 16, 2013
April 17, 2012
April 19, 2011
April 20, 2010
April 21, 2009
All of the options in the tables above vest and become exercisable over a period of up to eight years. Generally, each option
will terminate approximately nine years after the grant date.
The fair value of each share-based option is estimated on the date of grant using a Black-Scholes valuation method that uses the
assumptions listed above. The risk-free interest rate is based on the U.S. Treasury rate over the expected life of the option at the
time of grant. The expected life is the average length of time over which we expect the employee groups will exercise their
options, which is based on historical experience with similar grants. The dividend yield is estimated over the expected life of
the option based on our current dividend payout, historical dividends paid, and expected future cash dividends. Expected stock
volatilities are based on the movement of our stock price over the most recent historical period equivalent to the expected life
of the option.
A summary of activities under our stock option plan consisted of the following:
Outstanding as of January 1, 2017
Granted
Exercised
Cancelled/forfeited
Outstanding as of December 31, 2017
Exercisable as of December 31, 2017
Outstanding as of January 1, 2016
Granted
Exercised
Cancelled/forfeited
Outstanding as of December 31, 2016
Exercisable as of December 31, 2016
(1) Weighted average exercise price.
(2) Weighted average remaining contractual life in years.
Options
Outstanding
Exercise
Price(1)
Remaining
Life(2)
3,757,947
$
764,789
$
(329,612) $
(244,216) $
$
3,948,908
1,280,499
$
46.81
47.00
28.59
48.22
48.28
50.07
5.85
9.00
5.89
3.78
Options
Outstanding
Exercise
Price(1)
Remaining
Life(2)
$
4,530,982
845,440
$
(1,180,242) $
(438,233) $
$
3,757,947
1,200,250
$
41.49
46.00
24.80
49.49
46.81
45.93
4.89
8.41
5.85
3.74
The total intrinsic value of stock options exercised during the years ended December 31, 2017, 2016, and 2015 was $6.9, $23.2,
and $14.2, respectively. The intrinsic value represents the difference between the exercise price and fair value of the underlying
shares at the date of exercise.
At December 31, 2017, there was $14.6 of total unrecognized stock-based compensation expense related to outstanding
unvested stock options granted under the plan. This expense is expected to be recognized over a weighted average period of
4.16 years. Any future change in estimated forfeitures will impact this amount. The total grant date fair value of stock options
vested under our stock option plan during 2017, 2016, and 2015 was $4.2, $7.1, and $5.1, respectively.
47
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Total stock-based compensation expense related to our stock option plan was $5.2, $4.1, and $5.8 for 2017, 2016, and 2015,
respectively.
Earnings Per Share
The following tables present a reconciliation of the denominators used in the computation of basic and diluted earnings per
share and a summary of the options to purchase shares of common stock which were excluded from the diluted earnings
calculation because they were anti-dilutive:
Reconciliation
Basic weighted average shares outstanding
Weighted shares assumed upon exercise of stock options
Diluted weighted average shares outstanding
Summary of Anti-dilutive Options Excluded
Options to purchase shares of common stock
Weighted average exercise prices of options
2017
288,208,435
134,298
288,342,733
2016
288,949,525
207,998
289,157,523
2015
291,453,107
592,335
292,045,442
2017
3,524,401
49.85
$
2016
3,095,343
50.09
2015
2,611,367
51.89
Any dilutive impact summarized above related to periods when the average market price of our stock exceeded the exercise
price of the potentially dilutive stock options then outstanding.
Note 6. Retirement Savings Plan
The Fastenal Company and Subsidiaries 401(k) and Employee Stock Ownership Plan covers all of our employees in the United
States. Our employees in Canada may participate in a Registered Retirement Savings Plan. The general purpose of both of these
plans is to provide additional financial security during retirement by providing employees with an incentive to make regular
savings contributions. In addition to the participation of our employees, we make annual profit sharing contributions based on
an established formula. The expense recorded under this profit sharing formula was approximately $10.6, $8.7, and $13.7 for
2017, 2016, and 2015, respectively.
48
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Note 7. Income Taxes
Earnings before income taxes were derived from the following sources:
Domestic
Foreign
Earnings before income taxes
Components of income tax expense (benefit) were as follows:
2017:
Federal
State
Foreign
Income tax expense
2016:
Federal
State
Foreign
Income tax expense
2015:
Federal
State
Foreign
Income tax expense
2017
2016
2015
809.4
63.7
873.1
739.4
50.3
789.7
786.0
40.1
826.1
Current
Deferred
Total
270.6
33.2
20.5
324.3
(33.1)
3.3
—
(29.8)
237.5
36.5
20.5
294.5
Current
Deferred
Total
223.9
28.2
12.6
264.7
23.2
1.2
1.2
25.6
247.1
29.4
13.8
290.3
Current
Deferred
Total
256.7
31.3
13.7
301.7
7.4
0.2
0.4
8.0
264.1
31.5
14.1
309.7
$
$
$
$
$
$
$
$
Income tax expense in the accompanying consolidated financial statements differed from the expected expense as follows:
Federal income tax expense at the 'expected' rate of 35%
Increase (decrease) attributed to:
State income taxes, net of federal benefit
Transition tax
Effect of 2018 deferred rate change
Other, net
Total income tax expense
Effective income tax rate
2017
$
305.6
2016
276.4
2015
289.1
21.5
6.5
(30.8)
(8.3)
$
294.5
20.0
—
—
(6.1)
290.3
21.6
—
—
(1.0)
309.7
33.7%
36.8%
37.5%
49
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
The tax effects of temporary differences that give rise to deferred income tax assets and liabilities at year end consisted of the
following:
Deferred income tax assets (liabilities):
Inventory costing and valuation methods
Allowance for doubtful accounts
Insurance reserves
Promotions payable
Stock-based compensation
Federal and state benefit of uncertain tax positions
Foreign net operating loss and credit carryforwards
Foreign valuation allowances
Other, net
Total deferred income tax assets
Property and equipment
Total deferred income tax liabilities
Deferred income tax liabilities
2017
2016
$
$
3.6
3.0
8.4
1.3
5.2
0.9
4.2
(2.8)
0.8
24.6
(75.2)
(75.2)
(50.6)
4.8
4.3
11.5
1.7
6.8
1.9
5.1
(4.0)
2.1
34.2
(114.8)
(114.8)
(80.6)
A reconciliation of the beginning and ending amount of total gross unrecognized tax benefits was as follows:
Balance at beginning of year:
Increase related to prior year tax positions
Decrease related to prior year tax positions
Increase related to current year tax positions
Decrease related to statute of limitation lapses
Settlements
Balance at end of year:
2017
2016
$
$
5.4
0.4
(0.5)
0.7
(1.1)
(0.5)
4.4
5.4
0.2
—
0.8
(1.0)
—
5.4
Included in the liability for gross unrecognized tax benefits is an immaterial amount for interest and penalties, both of which we
classify as a component of income tax expense. The amount of gross unrecognized tax benefits that would favorably impact the
effective tax rate, if recognized, is not material. We do not anticipate significant changes in total unrecognized tax benefits
during the next twelve months.
Fastenal files income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions.
With limited exceptions, we are no longer subject to income tax examinations by taxing authorities for taxable years before
2015 in the case of United States federal examinations, and 2013 in the case of foreign, state, and local examinations.
On December 22, 2017, the Tax Act was signed into law. The Tax Act makes broad and complex changes to the U.S. tax code
that affected our income tax rate in 2017. The Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21% and
requires companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries that is payable
over eight years. The Tax Act also establishes new tax laws that will affect 2018.
ASC 740 requires a company to record the effects of a tax law change in the period of enactment, however, shortly after the
enactment of the Tax Act, the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does
not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the
change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information
necessary to finalize its accounting, but cannot extend beyond one year.
We have made a reasonable estimate of the impact of the Tax Act and recorded discrete items in our 2017 income tax expense
of $24.4 which reflects an estimated reduction in our deferred income tax liabilities of $30.8 as a result of the maximum federal
rate decrease to 21% from 35% which was partially offset by an estimated increase in income tax payable in the amount of $6.5
as a result of the transition tax on cash and cash equivalent balances related to accumulated earnings associated with our
international operations. We are continuing to gather additional information related to estimates surrounding the remeasurement
50
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
of deferred taxes and to unrepatriated earnings from foreign subsidiaries to more precisely compute the remeasurement of
deferred taxes and the impact of the transition tax.
In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate
earnings only when the tax impact is zero or very minimal and that position has not changed following incurring the transition
tax under the Tax Act. No deferred taxes have been provided for withholding taxes or other taxes that would result upon
repatriation of our foreign investments to the United States. It is not practicable to estimate the amount of deferred income tax
liabilities related to investments in these foreign subsidiaries.
Note 8. Geographic Information
Our revenues and long-lived assets related to the following geographic areas:
Revenues
United States
Canada
Other foreign countries
Total revenues
Long-Lived Assets
United States
Canada
Other foreign countries
Total long-lived assets
2017
3,842.9
257.6
290.0
4,390.5
2016
2015
3,493.5
228.7
239.8
3,962.0
3,441.1
223.3
204.8
3,869.2
2017
2016
2015
919.5
35.9
19.4
974.8
899.1
33.2
15.8
948.1
821.1
32.3
14.3
867.7
$
$
$
$
The accounting policies of the operations in the various geographic areas are the same as those described in the summary of
significant accounting policies. Long-lived assets consist of net property and equipment, deposits, goodwill, and other net
intangibles. Revenues are attributed to countries based on the location of the branch from which the sale occurred. In each of
the years presented in the table above, no single customer represented 5% or more of our consolidated net sales.
Note 9. Operating Leases
We lease space under non-cancelable operating leases for several distribution centers, several manufacturing locations, and
certain branch locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement
incentives, or other build-out clauses. Any such terms are recognized as rent expense over the term of the lease. Further, the
leases do not contain contingent rent provisions. The net book value of leasehold improvements at December 31, 2017 was
$2.5. We lease certain semi-tractors and pick-ups under operating leases. Future minimum lease payments for all operating
leases are as follows:
2018
2019
2020
2021
2022
2023 and thereafter
Total minimum lease payments
Leased
Facilities and
Equipment
Leased
Vehicles
$
96.8
70.9
47.5
25.2
9.3
2.0
$
251.7
37.0
23.7
10.4
1.9
—
—
73.0
Total
133.8
94.6
57.9
27.1
9.3
2.0
324.7
51
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Rent expense under all operating leases was as follows:
2017
2016
2015
Leased
Facilities and
Equipment
Leased
Vehicles
$
$
$
109.5
110.1
105.9
45.8
42.7
38.2
Total
155.3
152.8
144.1
Certain operating leases for pick-up trucks contain residual value guarantee provisions which would generally become due at
the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value.
The aggregate residual value guarantee related to these leases was approximately $75.5. We believe the likelihood of funding
the guarantee obligation under any provision of the operating lease agreements is remote other than where we have established
an accrual for estimated losses, which was immaterial at December 31, 2017. To the extent our fleet contains vehicles we
estimate will settle at a gain, such gains on these vehicles will be recognized when we sell the vehicle.
Note 10. Debt Commitments
Credit Facility, Notes Payable, and Commitments
Debt obligations and letters of credit outstanding at year end consisted of the following:
2017
2016
Outstanding loans under unsecured revolving credit facility
$
280.0
2.00% Senior unsecured promissory note payable
2.45% Senior unsecured promissory note payable
3.22% Senior unsecured promissory note payable
Note payable under asset purchase agreement
Total debt
Less: Current portion of debt
Long-term debt
Outstanding letters of credit under unsecured revolving credit facility - contingent obligation
Unsecured Revolving Credit Facility
40.0
35.0
60.0
—
415.0
(3.0)
412.0
36.3
$
$
305.0
40.0
35.0
—
10.0
390.0
(10.5)
379.5
36.3
We have a $700.0 committed unsecured revolving credit facility ('Credit Facility'). The Credit Facility includes a committed
letter of credit subfacility of $55.0. The commitments under the Credit Facility will expire (and any borrowings outstanding
under the Credit Facility will become due and payable) on March 10, 2020. In the next twelve months, we have the ability and
intent to repay a portion of the outstanding loans using cash; therefore, we have classified this portion as a current liability. The
Credit Facility contains certain financial and other covenants, and our right to borrow under the Credit Facility is conditioned
upon, among other things, our compliance with these covenants. We are currently in compliance with these covenants.
Borrowings under the Credit Facility generally bear interest at a rate per annum equal to the London Interbank Offered Rate
('LIBOR') for interest periods of various lengths selected by us, plus 0.95%. Based on the interest periods we have chosen, our
weighted per annum interest rate at December 31, 2017 was approximately 2.5%. We pay a commitment fee for the unused
portion of the Credit Facility. This fee is either 0.10% or 0.125% per annum based on our usage of the Credit Facility.
Senior Unsecured Promissory Notes Payable
On July 20, 2016 (the 'Effective Date'), we entered into a master note agreement (the 'Master Note Agreement') with certain
institutional lenders, pursuant to which, during the period commencing on the Effective Date and ending three years thereafter,
we may issue at our discretion in private placements, and the institutional lenders may purchase at their discretion, senior
unsecured promissory notes of the company (the 'Notes') in the aggregate principal amount outstanding from time to time of up
to $200.0. The Notes will bear interest at either a fixed rate, or a floating rate based on LIBOR for an interest period of one,
three, or six months. The Notes will mature no later than 12 years after the date of issuance thereof, in the case of fixed rate
Notes, or 10 years after the date of issuance thereof, in the case of floating rate Notes. All of the Notes will be prepayable at our
option in whole or in part. The Master Note Agreement contains certain financial and other covenants. We are currently in
compliance with these covenants.
52
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Three series of Notes are currently outstanding under the Master Note Agreement. The first series of Notes ('Series A'), was
issued on the Effective Date, is in an aggregate principal amount of $40.0, is due and payable in full on July 20, 2021, and
bears interest at a fixed rate of 2.00% per annum. The second series of Notes ('Series B'), was issued on the Effective Date, is in
an aggregate principal amount of $35.0, is due and payable in full on July 20, 2022, and bears interest at a fixed rate of 2.45%
per annum. The third series of Notes ('Series C'), was issued on March 1, 2017, is in an aggregate principal amount of $60.0, is
due and payable in full on March 1, 2024, and bears interest at a fixed rate of 3.22% per annum. There is no amortization of
these Notes prior to their maturity dates. Interest on such Notes is payable quarterly in arrears on January 20, April 20, July 20,
and October 20 of each year. The carrying value of the Notes approximates fair value. The fair value was based on available
external pricing data and current market rates for similar debt instruments, among other factors, which are classified as a level 2
measurement within the fair value hierarchy.
Note Payable Under Asset Purchase Agreement
On December 7, 2015, we signed an agreement to purchase, effective January 2, 2017 ('Asset Purchase Effective Date'), certain
assets related to the collection and management of certain portions of our business and financial data from Apex Industrial
Technologies, LLC ('Apex'), a provider of automated point-of-use dispensing and supply chain technologies. The agreement
included a transition arrangement which required us to assume responsibility for certain software that was licensed by Apex.
The total consideration for the assets was $27.0, of which $12.0 was paid in cash in December 2015 in advance of the Asset
Purchase Effective Date. The remaining $15.0 was payable in installments pursuant to an unsecured note. The first $5.0
installment was paid in December 2016, the second $5.0 was paid in June 2017, and the final installment of $5.0 was paid in
December 2017. Interest on the unpaid principal balance of the note was due and payable on the last day of each calendar
quarter at an annual rate of 0.56%. In 2015, the $15.0 note represented a non-cash investing and financing activity in our
Consolidated Statements of Cash Flows, while the payments made in 2017, 2016, and 2015 are included in our Consolidated
Statements of Cash Flows as net cash used in investing activities in 'Other'.
Note 11. Legal Contingencies
We are involved in certain legal actions. The outcomes of these legal actions are not within our complete control and may not
be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, that could require
significant expenditures or result in lost revenues. We record a liability for these legal actions when a loss is known or
considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a
range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss
is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is
disclosed. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. As of
December 31, 2017, there were no litigation matters that we consider to be probable or reasonably possible to have a material
adverse outcome.
53
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Note 12. Sales by Product Line
The percentages of our sales by product line were as follows:
Type
Fasteners(1)
Tools
Cutting tools
Hydraulics & pneumatics
Material handling
Janitorial supplies
Electrical supplies
Welding supplies
Safety supplies(2)
Metals
Direct ship(3)
Office supplies
Other
Introduced
1967
1993
1996
1996
1996
1996
1997
1997
1999
2001
2004
2010
2017
35.6%
10.1%
5.8%
6.8%
6.3%
7.6%
4.9%
4.6%
2016
36.6%
9.9%
5.7%
6.9%
6.4%
7.6%
4.8%
4.6%
2015
38.3%
9.5%
5.6%
7.2%
6.5%
7.5%
4.7%
4.7%
15.2%
14.9%
13.9%
0.5%
0.5%
0.1%
2.0%
0.5%
0.5%
0.1%
1.5%
0.5%
0.4%
0.1%
1.1%
100.0%
100.0%
100.0%
(1) Fastener product line represents fasteners and miscellaneous supplies.
(2) The safety supplies product line has expanded, as a percentage of sales, in the last several years due to our industrial vending
program.
(3) Direct ship represents a cross section of products from the remaining product lines. The items included here represent certain
items with historically low gross profit margins which are shipped directly from our distribution channel to our customers,
bypassing our branch network.
Note 13. Subsequent Events
We evaluated all subsequent event activity and concluded that no subsequent events have occurred that would require
recognition in the consolidated financial statements or disclosure in the Notes to Consolidated Financial Statements, with the
exception of the dividend declaration and stock option activities disclosed in Note 5.
54
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Note 14. Selected Quarterly Financial Data (Unaudited)
(Amounts in millions except per share information)
2017:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
2016:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
$ 4,390.5
2,163.6
Net Sales
$ 1,047.7
1,121.5
1,132.8
1,088.5
Net Sales
$
986.7
1,014.3
1,013.1
947.9
518.0
558.5
555.9
531.2
491.5
501.6
499.8
471.9
$ 3,962.0
1,964.8
Gross
Profit
Pre-tax
Earnings
Net
Earnings
Basic Net
Earnings per
Share
(1) Diluted Net
Earnings per
Share
(1)
210.9
235.4
226.0
200.8
873.1
134.2
148.9
143.1
152.4 (2)
578.6 (3)
0.46
0.52
0.50
0.53 (2)
2.01 (3)
0.46
0.52
0.50
0.53 (2)
2.01 (3)
Gross
Profit
Pre-tax
Earnings
Net
Earnings
Basic Net
Earnings per
Share
(1) Diluted Net
Earnings per
Share
(1)
199.9
207.8
201.2
180.8
789.7
126.2
131.5
126.9
114.8
499.4
0.44
0.46
0.44
0.40
1.73
0.44
0.45
0.44
0.40
1.73
(1) Amounts may not foot due to rounding difference.
(2) Absent the impact of the Tax Act, our net earnings for the fourth quarter of 2017 would have been approximately $128.1, and
our basic and diluted net earnings per share would have each been $0.45.
(3) Absent the impact of the Tax Act, our net earnings for 2017 would have been approximately $554.2, and our basic and
diluted net earnings per share would have each been $1.92.
***End of Notes to Consolidated Financial Statements***
55
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation
of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the 'Securities Exchange Act')). Based on this evaluation,
the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective
to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated
and communicated to our management, including the principal executive officer and principal financial officer, to allow for
timely decisions regarding required disclosure. We have excluded Mansco from our assessment of the effectiveness of our
internal control over financial reporting as of December 31, 2017, which represented 0.8% of total assets and 0.9% of net sales
included in our consolidated financial statements as of and for the year ended December 31, 2017.
56
Attestation Report of Independent Registered Public Accounting Firm
The attestation report required under this item is contained earlier in this Form 10-K under the heading 'Item 8, Financial
Statements and Supplementary Data'.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. The company's internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted accounting principles. The company's internal
control over financial reporting includes those policies and procedures that:
(i)
(ii)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company;
provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision of our principal executive officer and our principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As discussed in Note 2
of the Notes to Consolidated Financial Statements, on March 31, 2017, we acquired certain assets and assumed certain
liabilities of Manufacturers Supply Company (‘Mansco’). We have excluded Mansco from our assessment of the effectiveness
of our internal control over financial reporting as of December 31, 2017, which represented 0.8% of total assets and 0.9% of net
sales included in our consolidated financial statements as of and for the year ended December 31, 2017.
Based on our assessment and those criteria, management believes that the company maintained effective internal control over
financial reporting as of December 31, 2017. There was no change in the company's internal control over financial reporting
during the company's most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the company's internal control over financial reporting.
/s/ Daniel L. Florness
Daniel L. Florness
President and Chief Executive Officer
/s/ Holden Lewis
Holden Lewis
Executive Vice President and Chief Financial Officer
Winona, Minnesota
February 5, 2018
ITEM 9B. OTHER INFORMATION
None.
57
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Incorporated herein by reference is the information appearing under the headings 'Proposal #1—Election of Directors',
'Corporate Governance and Director Compensation—Board Leadership Structure and Committee Membership', 'Corporate
Governance and Director Compensation—Audit Committee', and 'Corporate Governance and Director Compensation—Section
16(a) Beneficial Ownership Reporting Compliance' in the Proxy Statement.
There have been no material changes to the procedures by which security holders may recommend nominees to the board of
directors since our last report.
In January 2004, our board of directors adopted a supplement to our existing standards of conduct designed to qualify the
standards of conduct as a code of ethics within the meaning of Item 406(b) of Regulation S-K promulgated by the SEC ('Code
of Ethics'). The standards of conduct, as supplemented, apply to all of our directors, officers, and employees, including without
limitation our chief executive officer, chief financial officer, principal accounting officer, and controller (if any), and persons
performing similar functions ('Senior Financial Officers'). Those portions of the standards of conduct, as supplemented, that
constitute a required element of a Code of Ethics are available without charge by submitting a request to us pursuant to the
directions detailed under 'Does Fastenal have a Code of Conduct?' on the 'Investor FAQs' page of the 'Investor Relations'
section of our website at www.fastenal.com. In the event we amend or waive any portion of the standards of conduct, as
supplemented, that constitutes a required element of a Code of Ethics and such amendment or waiver applies to any of our
Senior Financial Officers, we intend to post on our website, within four business days after the date of such amendment or
waiver, a brief description of such amendment or waiver, the name of each Senior Financial Officer to whom the amendment or
waiver applies, and the date of the amendment or waiver.
The executive officers of Fastenal Company are:
Name
Daniel L. Florness
William J. Drazkowski
Leland J. Hein
James C. Jansen
Holden Lewis
Sheryl A. Lisowski
Nicholas J. Lundquist
Charles S. Miller
Terry M. Owen
Gary A. Polipnick
John L. Soderberg
Jeffery M. Watts
Reyne K. Wisecup
Employee of
Fastenal
Since
1996
1995
1985
1992
2016
1994
1979
1999
1999
1983
1993
1996
1988
Age
54
46
57
47
48
50
60
43
49
55
46
46
54
Position
President, Chief Executive Officer, and Director
Executive Vice President – National Accounts Sales
Senior Executive Vice President – Sales
Executive Vice President – Manufacturing
Executive Vice President and Chief Financial Officer
Controller, Chief Accounting Officer, and Treasurer
Senior Executive Vice President – Operations
Executive Vice President – Sales
Senior Executive Vice President – Sales Operations
Executive Vice President – FAST Solutions®
Executive Vice President – Information Technology
Executive Vice President – International Sales
Senior Executive Vice President – Human Resources and Director
Mr. Florness has been our president and chief executive officer since January 2016. From December 2002 to December 2015,
Mr. Florness was an executive vice president and our chief financial officer. From June 1996 to November 2002, Mr. Florness
was our chief financial officer. During his time as chief financial officer, Mr. Florness' responsibilities expanded beyond
finance, including leadership of a portion of our manufacturing division, our product development and procurement, and the
company's national accounts business. Mr. Florness has served as one our directors since January 2016.
Mr. Drazkowski has been our executive vice president – national accounts sales since December 2016. From October 2014 to
December 2016, Mr. Drazkowski was our vice president – national accounts sales. From September 2013 to September 2014,
he served as regional vice president of our Minnesota based region, and from November 2007 to August 2013, he served as one
of our district managers. Prior to November 2007, Mr. Drazkowski served in various sales leadership roles at our company.
Mr. Hein has been our senior executive vice president – sales since January 2016. Mr. Hein's responsibilities include sales and
operational oversight of our Western United States business, which spans from Ohio to the West Coast. From July 2015 to
December 2015, Mr. Hein was our chief operating officer. Mr. Hein was our president and chief executive officer from January
2015 to July 2015, and our president from July 2012 to December 2014. From November 2007 to July 2012, Mr. Hein was one
of our executive vice presidents – sales. Prior to November 2007, Mr. Hein served in various sales leadership roles at our
company.
58
Mr. Jansen has been our executive vice president – manufacturing since January 2016. Mr. Jansen's responsibilities include
oversight of our industrial services, quality assurance, aerospace, and manufacturing operations. From December 2010 to
December 2015, Mr. Jansen was our executive vice president - operations. From November 2007 to December 2010,
Mr. Jansen was our executive vice president – internal operations. From May 2005 to November 2007, Mr. Jansen served as
our leader of systems development (this role encompassed both information systems and distribution systems development).
From April 2000 to April 2005, Mr. Jansen served as sales leader of our Texas based region.
Mr. Lewis has been our executive vice president and chief financial officer since August 2016. From April 2016 to July 2016,
Mr. Lewis was a senior vice president/equity research-industrial technology with FBR Capital Markets & Co. (a full-service
investment bank). From September 2014 to January 2016, Mr. Lewis was a managing director/equity research-industrial
technology with Oppenheimer & Co Inc. (a full-service investment bank). From August 2002 to August 2014, Mr. Lewis was a
managing director/equity research-industrial manufacturing & distribution with BB&T Capital Markets, a division of BB&T
Securities LLC (a full-service investment bank). Prior to August 2002, Mr. Lewis held similar roles with various other
organizations since 1994. In each of Mr. Lewis' positions prior to joining Fastenal, he was responsible for studying the strategic
and financial direction of companies for the purpose of making investment recommendations to institutional clients.
Ms. Lisowski has been our controller, chief accounting officer, and treasurer since August 2016. Ms. Lisowski was our
controller and chief accounting officer from October 2013 to August 2016, and also served as our interim chief financial officer
from January 2016 to August 2016. From March 2007 to October 2013, Ms. Lisowski served as our controller – accounting
operations. Ms. Lisowski joined Fastenal in 1994 and, prior to March 2007, served in various roles of increasing responsibility
within our finance and accounting team.
Mr. Lundquist has been our senior executive vice president – operations since December 2016. Mr. Lundquist's responsibilities
include distribution development, product development, supplier development, and supply chain. From July 2012 to December
2016, Mr. Lundquist was our executive vice president – operations. From November 2007 to July 2012, he was one of our
executive vice presidents – sales, and from December 2002 to November 2007, he was our executive vice president and chief
operating officer.
Mr. Miller has been our executive vice president – sales since November 2015. Mr. Miller's responsibilities include sales and
operational oversight of our business which spans the East Coast of, and Southern and Southwestern areas of, the United States.
From January 2009 to October 2015, Mr. Miller served as regional vice president of our southeast central region based
primarily in Tennessee and Kentucky. Prior to January 2009, Mr. Miller served in various sales leadership roles at our company.
Mr. Owen has been our senior executive vice president – sales operations since January 2016. Mr. Owen's responsibilities
include oversight of our information technology, sales operations and support, international sales, national accounts, FAST
Solutions®, and manufacturing operations. From July 2015 to December 2015, Mr. Owen was one of our executive vice
president – sales. From May 2014 to June 2015, Mr. Owen served as our executive vice president – e-business, and from
December 2007 to May 2014, Mr. Owen was regional vice president of our Texas based and Mexico regions. Prior to
December 2007, Mr. Owen served in various distribution center leadership roles at our company.
Mr. Polipnick has been our executive vice president – FAST Solutions® since January 2016. Mr. Polipnick's responsibilities
include our FAST Solutions® programs and branch inventory modeling and merchandising programs. From July 2015 to
December 2015, Mr. Polipnick was our executive vice president – e-business. From July 2012 to June 2015, Mr. Polipnick
served as one of our executive vice president – sales. From November 2007 to July 2012, Mr. Polipnick was regional vice
president of our Winona based region. Prior to November 2007, Mr. Polipnick served in various sales leadership roles at our
company. After 34 years with Fastenal, Mr. Polipnick has indicated his intention to retire effective March 31, 2018.
Mr. Soderberg has been our executive vice president – information technology since May 2016. From May 2014 to May 2016,
Mr. Soderberg served as our executive vice president – sales operations and support. From April 2010 to May 2014, Mr.
Soderberg was one of our vice presidents – sales. From April 2005 to April 2010, Mr. Soderberg served as regional vice
president of our Seattle, Washington based region. Prior to April 2005, Mr. Soderberg served in various sales leadership roles in
the mid-Atlantic area of our company.
Mr. Watts has been our executive vice president – international sales since December 2016. From March 2015 to December
2016, Mr. Watts was our vice president – international sales. From June 2005 to February 2015, he served as regional vice
president of our Canadian region. Prior to June 2005, Mr. Watts served in various sales leadership roles at our company.
Ms. Wisecup has been our senior executive vice president – human resources since December 2016. From November 2007 to
December 2016, Ms. Wisecup was our executive vice president – human resources. Prior to November 2007, she served in
various support roles, including director of employee development. Ms. Wisecup has also served as one of our directors since
2000.
The executive officers are elected by our board of directors for a term of one year and serve until their successors are elected
and qualified. None of our executive officers is related to any other such executive officer or to any of our directors.
59
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information appearing under the headings 'Corporate Governance and Director
Compensation—Compensation Committee Interlocks and Insider Participation', 'Executive Compensation', and 'Corporate
Governance and Director Compensation—Compensation of our Directors' in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Incorporated herein by reference is the information appearing under the heading 'Security Ownership of Principal Shareholders
and Management' in the Proxy Statement.
Equity Compensation Plan Information
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights
Weighted-
Average Exercise
Price of Outstanding
Options, Warrants,
and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(a)
(b)
(c)
3,948,908
$
21,185
3,970,093
48.28
55.00
5,169,233
2,478,815
7,648,048
Plan Category
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders (2)
Total
(1)
(2)
Reflects securities to be issued under our Fastenal Company Stock Option Plan.
Reflects stock option awards issued and issuable in the future under the Fastenal Company Non-Employee Director
Stock Option Plan, which was approved by our board of directors on October 10, 2017 but has not yet been approved
by our shareholders. Our shareholders are being asked to approve this plan at our April 2018 annual meeting, and the
exercisability and continued existence of the plan and all option awards currently outstanding thereunder is expressly
conditioned on shareholder approval of that plan at the annual meeting. A description of the material terms of the plan
and a summary of option awards currently outstanding thereunder will be provided in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated herein by reference is the information appearing under the headings 'Corporate Governance and Director
Compensation—Director Independence and Other Board Matters', 'Corporate Governance and Director Compensation—
Related Person Transaction Approval Policy', and 'Corporate Governance and Director Compensation—Transactions with
Related Persons' in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated herein by reference is the information appearing under the heading 'Audit and Related Matters—Audit and
Related Fees' and 'Audit and Related Matters—Pre-Approval of Services' in the Proxy Statement.
60
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a) 1. Financial Statements:
PART IV
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Earnings for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules:
Schedule II—Valuation and Qualifying Accounts
3. Exhibits:
INDEX TO EXHIBITS
Exhibit
Number Description of Document
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 March 31, 2012 (file no. 000-016125))
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
13
21
23
31
32
Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Fastenal Company's
Form 8-K dated as of October 15, 2010 (file no. 000-16125))
Form of Senior Notes due July 20, 2021 (incorporated by reference to Exhibit 4.1 to Fastenal Company’s
Form of Senior Notes due July 20, 2022 (incorporated by reference to Exhibit 4.2 to Fastenal Company’s
Form of Senior Notes due March 1, 2024 (incorporated by reference to Exhibit 4.1 to Fastenal Company's
Form 10-Q for the quarter ended March 31, 2017 (file no. 000-016125))
Bonus Program for Executive Officers*
Fastenal Company Stock Option Plan as amended and restated effective as of December 12, 2014
(incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated December 17, 2014)*
Fastenal Company Incentive Plan (incorporated by reference to Appendix A to Fastenal Company's Proxy
Statement dated February 23, 2012)*
Credit Agreement dated as of May 1, 2015 among Fastenal Company, the Lenders from time to time party
thereto, and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and
Issuing Lender (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated May 5,
2015), as amended by the First Amendment to Credit Agreement dated as of November 23, 2015
(incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated November 25, 2015), and
as amended by the Second Amendment to Credit Agreement dated as of March 10, 2017 (incorporated by
reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated March 14, 2017)
Second Amendment to Credit Agreement dated as of March 10, 2017 by and among Fastenal Company, the
lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by
reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated as of March 14, 2017 (file no.
000-016125))
Master Note Agreement dated as of July 20, 2016 by and among (i) Fastenal Company, (ii) Metropolitan
Life Insurance Company, NYL Investors LLC and PGIM, Inc. (formerly known as Prudential Investment
Management, Inc.), as investor group representatives (each, an 'Investor Group Representative'), and
(iii) Metropolitan Life Insurance Company (in its capacity as a purchaser of notes under such Master Note
Agreement) and/or affiliates of any Investor Group Representative who become purchasers of notes under
dated as of July 20, 2016)
Portions of 2017 Annual Report to Shareholders not included in this Form 10-K (only those sections
specifically incorporated by reference in this Form 10-K shall be deemed filed with the SEC)
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Certifications under Section 302 of the Sarbanes-Oxley Act of 2002
Certification under Section 906 of the Sarbanes-Oxley Act of 2002
61
Exhibit
Number Description of Document
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.DEF XBRL Taxonomy Definition Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to
Item 15(b).
ITEM 16. FORM 10-K SUMMARY
Not applicable.
62
FASTENAL COMPANY
Schedule II—Valuation and Qualifying Accounts
Years ended December 31, 2017, 2016, and 2015
(Amounts in millions)
Balance at
Beginning
of Year
"Additions"
Charged to
Costs and
Expenses
"Other"
Additions
(Deductions)
"Less"
Deductions
Balance
at End
of Year
$
$
$
$
$
11.2
34.6
11.7
31.8
12.6
8.2
68.2 (1)
8.5
62.3 (1)
8.8
54.3 (1)
—
—
—
—
—
7.5
63.8 (2)
9.0
59.5 (2)
9.7
53.6 (2)
11.9
39.0
11.2
34.6
11.7
31.8
Description
Year ended December 31, 2017
Allowance for doubtful accounts
Insurance reserves
Year ended December 31, 2016
Allowance for doubtful accounts
Insurance reserves
Year ended December 31, 2015
Allowance for doubtful accounts
Insurance reserves
(1) Includes costs and expenses incurred for premiums and claims related to health and general insurance.
(2) Includes costs and expenses paid for premiums and claims related to health and general insurance.
31.1
—
$
See accompanying Report of Independent Registered Public Accounting Firm incorporated herein by reference.
63
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.
SIGNATURES
Date: February 5, 2018
FASTENAL COMPANY
By
/s/ Daniel L. Florness
Daniel L. Florness, President and Chief Executive Officer
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 date indicated.
Date: February 5, 2018
/s/ Daniel L. Florness
Daniel L. Florness, President and Chief Executive Officer
(Principal Executive Officer), and Director
/s/ Holden Lewis
Holden Lewis, Executive Vice President and Chief
Financial Officer (Principal Financial Officer)
/s/ Sheryl A. Lisowski
Sheryl A. Lisowski, Controller, Chief Accounting Officer,
and Treasurer (Principal Accounting Officer)
/s/ Willard D. Oberton
Willard D. Oberton, Director (Chairman)
/s/ Michael J. Ancius
Michael J. Ancius, Director
/s/ Michael J. Dolan
Michael J. Dolan, Director
/s/ Stephen L. Eastman
Stephen L. Eastman, Director
/s/ Rita J. Heise
Rita J. Heise, Director
/s/ Darren R. Jackson
Darren R. Jackson, Director
/s/ Daniel L. Johnson
Daniel L. Johnson, Director
/s/ Scott A. Satterlee
Scott A. Satterlee, Director
/s/ Reyne K. Wisecup
Reyne K. Wisecup, Director
64
Exhibit 10.1
Fastenal Company
Bonus Program for Executive Officers
Quarterly Incentives
Our executive officers are eligible for cash incentives through individual bonus arrangements based on improvements in the overall
financial performance of the company and/or their respective areas of responsibility. The bonus arrangements provide our executive
officers with the opportunity to earn a cash bonus for each quarter during a year when we increase our earnings above a predetermined
minimum target.
The cash bonuses for all of our named executive officers (as disclosed in our proxy statement) other than our chief financial officer
are based on growth in pre-tax earnings of the company and/or the officer's area of responsibility. The compensation committee
selected pre-tax earnings as the appropriate metric for calculating cash bonuses for those officers because of the committee's belief
that the focus of the named executive officers should be on profitability, which is the primary driver of shareholder value. The
cash bonuses for our chief financial officer are based on growth in company-wide net earnings because his responsibilities allow
him to affect our entire financial position including our tax position.
The compensation committee believes that no named executive officer should earn a cash bonus for a quarter unless financial
performance has improved and therefore sets minimum targets for each quarter that are equal to the earnings achieved for the
same quarter in the prior year. The compensation committee requires growth in earnings before any bonuses can be earned due to
its belief that growth is achievable with superior effort and will generate the cash necessary to expand the company's operations
in accordance with our business plans and increase shareholder value.
The payout percentage used to calculate the amount of each named executive officer's quarterly cash bonus reflects the officer's
track record in his current position (i.e., newly promoted executives historically have had to prove themselves in their new positions
before earning higher payout percentages) and relative ability to impact profitability.
We do not believe it is necessary for payouts under our executive cash incentive program to be capped, as cash bonus payments
to our named executive officers are tied directly to our financial performance so that they increase only if and to the extent the
company's profitability grows. We do not base the cash incentives paid to our executive officers on multiple metrics since we
believe the current design of our executive bonus arrangements, along with our other controls, adequately mitigates risk and since
the use of multiple metrics would not be in furtherance of our goal of keeping our compensation programs simple, understandable,
and transparent, and would risk keeping our executives focused on things other than profitability, thereby depriving them of the
clear feedback and motivation necessary to improve our bottom line.
2017 Incentive Program
The bonus arrangements for our named executive officers for 2017 were approved by our compensation committee at its last
meeting in 2016. Consistent with prior years, the bonuses for 2017 were based on growth in pre-tax earnings or net earnings of
the company and/or the officer's area of responsibility. The bonuses for each quarter were determined by applying a payout
percentage to the amount by which pre-tax earnings or net earnings exceeded 100% of pre-tax earnings or net earnings for the
same quarter in 2016. The compensation committee determined that the bonus formulas for each of the named executive officers
for 2017 would remain unchanged from 2016. The committee maintained bonus arrangements consistent with 2016 because the
committee believes those arrangements are reasonable and reflective of our business model and culture.
The 2017 cash incentive program described above applied to all of our named executive officers. The specific bonus opportunities
for our named executive officers are summarized in the table below. Each named executive officer's cash bonus for each quarter
during 2017 was determined by applying the payout percentage listed opposite his name below to the amount by which pre-tax
earnings or net earnings of the company and/or the officer's area of responsibility for that quarter exceeded 100% of such earnings
in the same quarter of 2016 (the 'minimum target').
Name
Mr. Florness
Mr. Lewis
Mr. Owen
Mr. Watts (1)
Mr. Miller (2)
Earnings Type
Company-wide pre-tax earnings
Company-wide net earnings
Company-wide pre-tax earnings
Pre-tax earnings
Pre-tax earnings
Payout Percentage
1.25%
0.90%
0.80%
2.40% / 0.35%
1.00% / 0.10%
(1) The bonuses for Mr. Watts were based on growth in U.S. dollar equivalent pre-tax earnings for the geographic areas under his
leadership (which are all areas outside of the United States), with the payout percentage applied to that growth of 2.40%, as
well as growth in company pre-tax earnings, with the payout percentage applied to that growth of 0.35%.
(2) The bonuses for Mr. Miller were based on growth in pre-tax earnings for the geographic area under his leadership (which is the
East coast of, and Southern and Southwestern areas of, the United States), with the payout percentage applied to that growth of
1.00%, as well as growth in company pre-tax earnings, with the payout percentage applied to that growth of 0.10%.
The following table sets out, for each quarter in 2017, our actual and minimum target pre-tax earnings and net earnings on a
company-wide basis for that quarter. (As indicated above, the 'minimum target' amount in 2017 was 100% of such earnings in the
same quarter of 2016.)
Exhibit 10.1 (Continued)
2017
First quarter
Second quarter
Third quarter
Fourth quarter (1)
Actual
Pre-tax Earnings
($)
210,893,000
235,366,000
225,992,000
200,830,000
Minimum Target
Pre-tax Earnings
($)
199,851,000
207,817,000
201,239,000
180,822,000
Actual
Net Earnings
($)
134,159,000
148,917,000
143,103,000
152,422,000
Minimum Target
Net Earnings
($)
126,227,000
131,521,000
126,925,000
114,805,000
(1)The fourth quarter 2017 bonus for Mr. Lewis was modified to give effect to the unanticipated positive impact of the Tax Act,
on net earnings, the basis of his bonus for the quarter. Mr. Lewis' bonus was calculated on proforma net earnings of $128 million
(without giving effect to approximately $24.4 million of discrete tax items due to the Tax Act) for the fourth quarter of 2017.
During 2017, the approximate percentage of the actual and minimum target pre-tax earnings of the company attributable to our
operations in the geographic area under Mr. Miller's leadership was 40%, and outside the United States (under Mr. Watts' leadership)
was 13%.
2018 Incentive Program
The bonus arrangements for our named executive officers for 2018 were approved by our compensation committee at its last
meeting in 2017. Consistent with prior years, the bonuses for 2018 will be based on growth in pre-tax earnings or net earnings of
the company and/or the officer's area of responsibility. The bonuses for each quarter will be determined by applying a payout
percentage to the amount by which pre-tax earnings or net earnings exceeded 100% of pre-tax earnings or net earnings for the
same quarter in 2017. The compensation committee determined that the bonus formulas for each of the named executive officers
for 2018 will remain unchanged from 2017, including the use of proforma net earnings amounts in the case of Mr. Lewis' bonus
to remove the effect of discrete items due to the Tax Act. The committee maintained bonus arrangements consistent with 2017
because the committee believes those arrangements are reasonable and reflective of our business model and culture.
Subsidiaries of Fastenal Company
Geographic
Location
North America
United States
Canada
Mexico
Subsidiary Name
Fastenal International Holdings Company
Fastenal Company Purchasing
Fastenal Company Leasing
Fastenal IP Company
Fastenal Air Fleet, LLC
River Surplus and Supply, LLC
Fastenal Mexico, LLC
Fastenal Canada, Ltd.
Fastenal Mexico Services S. de R.L. de C.V.
Fastenal Mexico S. de R.L. de C.V.
Central & South America
Panama
Brazil
Colombia
Chile
Asia
China
India
Fastenal Panama S.A.
Fastenal Latin America, S.A.
Fastenal Brasil Importação, Exportação e Distribuição Ltda.
Fastenal Brasil Participacoes Ltda.
Fastenal Colombia S.A.S.
Fastenal Chile SpA
Fastenal Asia Pacific Limited
FASTCO (Shanghai) Trading Co., Ltd.
Fastenal (Shanghai) International Trading Co. Ltd.
Fastenal (Tianjin) International Trading Co. Ltd.
Fastenal (Shenzhen) International Trading Co. Ltd.
Fastenal India Sourcing, IT and Procurement Private Ltd.
Fastenal India Wholesale Private Ltd.
Southeast Asia
Singapore
Malaysia
Thailand
Europe
The Netherlands Fastenal Europe, B.V.
Fastenal Singapore PTE Ltd.
Fastenal Malaysia SDN BHD
Fastenal (Thailand) Ltd.
Fastenal Europe GmbH
Fastenal Netherlands Holdings, B.V.
Hungary
Fastenal Europe, Kft.
United Kingdom Fastenal Europe, Ltd.
Germany
Czech Republic Fastenal Europe, s.r.o.
Fastenal Europe S.r.l.
Italy
Fastenal Europe RO S.r.l.
Romania
Fastenal Europe AB
Sweden
Fastenal Europe Sp. z o.o.
Poland
Fastenal AT GmbH
Austria
Fastenal Europe Sàrl
Switzerland
Ireland
Fastenal Europe IE Limited
Africa
South Africa
Fastenal South Africa Trading and Distribution (PTY) LTD
Exhibit 21
Doing
Business as
Year
Incorporated
Jurisdiction of
Incorporation
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same
1994
1997
1997
2005
2006
2014
2016
2008
1999
1999
2009
2011
2011
2011
2012
2013
2003
2003
2012
2012
2012
2013
2013
2001
2009
2012
2003
2015
2009
2010
2011
2011
2011
2012
2013
2013
2016
2017
2017
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Canada
Mexico
Mexico
Panama
Panama
Brazil
Brazil
Colombia
Chile
Hong Kong, China
Shanghai, China
Shanghai, China
Tianjin, China
Shenzhen, China
India
India
Singapore
Malaysia
Thailand
The Netherlands
The Netherlands
Hungary
United Kingdom
Germany
Czech Republic
Italy
Romania
Sweden
Poland
Austria
Switzerland
Ireland
2013
South Africa
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Fastenal Company:
We consent to the incorporation by reference in the registration statements (No. 333-52765, No. 333-134211, No. 333-162619,
and No. 333-176401) on Form S-8 of Fastenal Company of our report dated February 5, 2018, with respect to the consolidated
balance sheets of Fastenal Company and subsidiaries as of December 31, 2017 and 2016, and the related consolidated
statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2017, and the related notes and financial statement schedule (collectively, the 'consolidated
financial statements'), and the effectiveness of internal control over financial reporting as of December 31, 2017, which report
appears in the December 31, 2017 annual report on Form 10-K, of Fastenal Company.
Our report dated February 5, 2018 on the effectiveness of internal control over financial reporting as of December 31, 2017,
contains an explanatory paragraph that states management excluded from their assessment of the effectiveness of internal
control over financial reporting, as of December 31, 2017, the March 31, 2017 acquisition of Manufacturers Supply Company's
(Mansco's) internal control over financial reporting associated with total assets of approximately one percent of Fastenal
Company's total assets and revenues of approximately one percent of Fastenal Company's total revenues included in the
consolidated financial statements of Fastenal Company and subsidiaries as of and for the year ended December 31, 2017. Our
audit of the effectiveness of internal control over financial reporting of Fastenal Company also excluded an evaluation of the
internal control over financial reporting of Mansco.
/s/ KPMG LLP
Minneapolis, Minnesota
February 5, 2018
Exhibit 31
CERTIFICATIONS
I, Daniel L. Florness, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Fastenal Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 5, 2018
/s/ Daniel L. Florness
Daniel L. Florness
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31 (Continued)
CERTIFICATIONS
I, Holden Lewis, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Fastenal Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 5, 2018
/s/ Holden Lewis
Holden Lewis
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that this periodic report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information
contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of
Fastenal Company.
A signed original of this written statement required by Section 906 has been provided to Fastenal Company and will be retained
by Fastenal Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32
Date
February 5, 2018
/s/ Daniel L. Florness
Daniel L. Florness
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Holden Lewis
Holden Lewis
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
FASTENAL
AT A
GLANCE
605
I N-MARKE
RIES W I T H
T
N
U
O
C
24
T L
O
C
A
T
I
O
N
S
+
0
0
0
,
1
ONSITE
LOCATIONS 7
143 MILLION
MILES DELIVERED 834
MILLION POUNDS
DELIVERED
VENDING MACHINES INSTALLED
655,261
50,000+
NO. OF FASTENAL SCHOOL OF
BUSINESS COURSE COMPLETIONS
127,000+
EMPLOYEE SAFETY
COACHING, TRAINING, &
INSPECTION EVENTS
$1.1 BILLION
INVENTORY VALUE
20,565
EMPLOYEES
ACTIVE
BIN STOCKS
NO. OF ORDERS PROCESSED
37,641,814
TABLE OF CONTENTS
1-3
4-5
Letter to Shareholders
10-Year Selected Financial
Data & Financial Highlights
6
Stock and Financial Data
7
8
Stock Performance Highlights
A Deeper Level of Value
INSIDE
BACK
COVER
Directors
Executive Officers
Corporate Information
S
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R
D
I
S
R
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C
I
F
F
O
E
V
I
T
U
C
E
X
E
2,383
BRANCHES
13.2%
DAILY SALES
GROWTH TO
CUSTOMERS
WITH VENDING
N
O
I
L
L
I
M
S
G
N
I
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6
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5
$
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4
$
S
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WILLARD D. OBERTON
Chairman of the Board, Retired President
and Chief Executive Officer,
Fastenal Company
MICHAEL J. ANCIUS
Vice President and Chief Financial Officer,
A.L.M. Holding Company
(construction and energy company)
MICHAEL J. DOLAN
Self-Employed Business Consultant,
Retired Executive Vice President and
Chief Operating Officer,
The Smead Manufacturing Company
STEPHEN L. EASTMAN
President of the Parts, Garments,
and Accessories Division of
Polaris Industries Inc.
(recreational vehicle manufacturer)
DANIEL L. FLORNESS
RITA J. HEISE
Self-Employed Business Consultant,
Retired Corporate Vice President and
Chief Information Officer of
Cargill, Incorporated
DARREN R. JACKSON
Retired Chief Executive Officer,
Advance Auto Parts, Inc.
DANIEL L. JOHNSON
President and Chief Executive Officer of
M.A. Mortenson Company (family owned
construction company)
SCOTT A. SATTERLEE
Retired President of North America
Surface Transportation Division, C.H.
Robinson Worldwide, Inc.
REYNE K. WISECUP
N
O
I
T
A
M
R
O
F
N
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T
A
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O
P
R
O
C
DANIEL L. FLORNESS
President and Chief Executive Officer
CHARLES S. MILLER
Executive Vice President - Sales
WILLIAM J. DRAZKOWSKI
Executive Vice President -
National Accounts Sales
TERRY M. OWEN
Senior Executive Vice President -
Sales Operations
LELAND J. HEIN
Senior Executive Vice President - Sales
JAMES C. JANSEN
Executive Vice President - Manufacturing
HOLDEN LEWIS
Executive Vice President and
Chief Financial Officer
GARY A. POLIPNICK
Executive Vice President -
FAST Solutions®
JOHN L. SODERBERG
Executive Vice President -
Information Technology
JEFFERY M. WATTS
Executive Vice President -
International Sales
SHERYL A. LISOWSKI
Controller, Chief Accounting Officer,
and Treasurer
REYNE K. WISECUP
Senior Executive Vice President -
Human Resources
NICHOLAS J. LUNDQUIST
Senior Executive Vice President -
Operations
ANNUAL
MEETING
The annual meeting of shareholders
will be held at 10:00 a.m., central
time, April 24, 2018, at our home
office located at 2001 Theurer
Boulevard, Winona, Minnesota.
HOME
OFFICE
Fastenal Company
2001 Theurer Boulevard
Winona, Minnesota 55987-0978
Phone: (507) 454-5374
Fax: (507) 453-8049
LEGAL
COUNSEL
Faegre Baker Daniels LLP
Minneapolis, Minnesota
INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
Minneapolis, Minnesota
FORM
10-K
A copy of our 2017 Annual
Report on Form 10-K filed with
the Securities and Exchange
Commission is available without
charge to shareholders upon written
request to internal audit at the
address of our home office listed on
this page.
Copies of our latest press releases,
unaudited supplemental company
information, and monthly sales
information are available at:
http://investor.fastenal.com.
TRANSFER
AGENT
Equiniti Trust Company
Mendota Heights, Minnesota
2017 ANNUAL REPORT
2017 ANNUAL REPORT
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9706257 | 2017 Annual Report | 2.18 KV | Printed in the USA
2017 ANNUAL REPORT